SHANGHAI (BLOOMBERG) – Months of protests,
A stress test performed by the US bank projected that local lenders, including Hang Seng Bank and Bank of East Asia, could see earnings slump 24 per cent to 45 per cent next year and 39 per cent to 67 per cent in 2021. That would lead to significant deterioration in return on equity and core capital buffers, analysts led by Mr Jemmy Huang told clients in a note on Monday (Oct 28).
They downgraded Hang Seng Bank to underweight from neutral and said they are taking a “cautious” view of lenders in the city.
“The social unrest in Hong Kong has
While the Hong Kong government has laid out policy support, including boosting loans to small businesses and cutting banks’ capital buffers to mitigate an economic downturn, “history suggests a sustainable rally would not come through until the underlying issues are resolved”, Mr Huang said. Hong Kong banks probably won’t outperform the benchmark Hang Seng Index in the next six to 12 months, he predicted.
Hong Kong may report
Declines in residential prices, retail and office rents threaten higher credit costs on mortgages and property loans while potential capital outflow and the monetary authority’s intervention will hurt banks’ net interest margin. Overseas loans, trade finance, and lending to wholesale and retail sectors also could be impacted, JPMorgan said.
Hang Seng Bank, controlled by HSBC Holdings, is likely to be hit the most among peers due to its higher leverage and concentration of Hong Kong-dollar denominated portfolio, the JPMorgan analysts said. Shares of Hang Seng Bank have lost 6 per cent this year while Bank of East Asia tumbled 23 per cent.
BOC Hong Kong Holdings may fare better given its sufficient capital position to sustain dividend yields even under stress tests, according to the note.