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operating fundamentals for HK banks will continue to face headwinds in the
near term, but we believe such negatives are priced into the share price. We
are now seeing some positive trends in the sector, which if sustainable, can
provide a bit of optimism for the sector.
■
Potential easing of funding cost. We have seen some initial signs that the
intense deposit competition, which resulted in rising funding cost pressure
for HK banks, has decreased. We expect funding cost to ease in the near
term, given (1) strong deposit inflow in 4Q after banks’ window dressing for
the year-end, (2) pick-up in offshore RMB-related activities with a surge in
offshore RMB lending and (3) slower but more selective loan growth.
■
Mortgage spread now attractive. We see the return of pricing power for
banks, with mortgage spread looking extremely attractive, particularly for bigger
banks. We estimate that mortgage spread is now above ~2% for them and only
70 bp off its 2005 peak. Assuming stable funding cost, we may soon see
mortgage rates peaking in the near term. We believe better mortgage pricing
should also partially offset the expected fall in property transactions.
■
Larger banks to benefit. We believe the potential easing of funding cost and
better mortgage spreads are incrementally more positive to larger HK banks—
BoCHK and HSB. Our preference stemmed from rich deposit franchises that
continue to benefit from more stable funding cost. Moreover, being large
mortgage lenders, they also benefit from better RwA returns, with the adoption
of the FIRB approach (smaller banks are still standardised). BoCHK is our top
pick, as it has sector-best Tier 1 and will also benefit from a substantial pickup
in the offshore RMB business, where the bank is a key beneficiary in the sector
2012-01-18_瑞士信贷_HongKongBanksSector.pdf
(272.18 KB)
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