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In line FY10 results but worsening trends
While HK banks FY10 results to date have been
broadly in line with our expectations (with an equal
number of misses and beats) on core PPOP, some of
the key trends have been rather weak with (1) lower
NIMs: avg. NIMs were down 4bp hoh, but if we
exclude (HSB and HSBC HK) that saw margin
expansion due to higher balance sheet leverage (i.e.
higher L/D ratio) the decline was 8bp, and (2) higher
costs: 2H10 cost growth tracked 10% hoh, 13% yoy,
lower than revenue growth (8% hoh, 8% yoy).
Loan growth to continue but pace to
moderate and effect to dilute
China-related borrowing demand remains strong but
sector, HK$ L/D ratios have risen from 52%, 71% at
YE09 to 63%, 79% by end-Jan. 2011, reflecting 29%,
8% sector loan, deposit growth in 2010, putting
pressure on banks’ funding costs and leaving less
scope for the leveraging up to repeat in 2011. We
forecast 18% average loan growth for the local banks
in our coverage universe but with flattish L/D ratios
and reset/lower but stable NIMs from 2H10 levels to
translate into avg. NII (68% of rev.) growth of 10%.
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