Expectations high as results season begins for banks

Banks start to reveal their earnings figures for 2012 from today, with analysts expecting to see them unveil growth of at least 8 to 10 per cent

PUBLISHED : Tuesday, 26 February, 2013, 12:00am
UPDATED : Tuesday, 26 February, 2013, 5:13am

Hong Kong banks are expected to report growth of at least 8 to 10 per cent in their core earnings for 2012.

Analysts said this growth was partly because of increasing income from trading and fee-based services as market sentiment improved in the second half of the year.

Bank of East Asia (BEA), the largest independent local bank in Hong Kong, is scheduled to announce its full-year results today, kicking off the reporting season for listed banks.

Steven Chan, an analyst at Citic Securities, said most Hong Kong banks hoped to post high growth in core earnings thanks to lower funding costs last year.

Lower credit costs could be a potential source of positive earnings surprises, as asset quality remains good both in Hong Kong and on the mainland despite slower economic growth, a research report by Barclays said.

It estimated that average earnings for Hong Kong banks last year grew 8 per cent.

The competition for deposits, once a tough game among major players in Hong Kong, became less intense in the second half of the year, analysts said.

As a result, they said, net interest margin will widen slightly. Net interest margin is the difference between loan income and the cost of funds relative to interest-earning assets.

BEA, which achieved record earnings for 2011 and the first half of last year, is expected to set another record for 2012; however, earnings in the second half may be lower than in the first half.

Estimates by investment banks including CLSA, Barclays, Citi and BNP Paribas for BEA's net profit last year range from HK$4.74 billion to HK$5.21 billion, up 17 to 19 per cent from a year earlier.

Barclays also expects BEA to post slower mainland-related loan growth and a better capital position after a HK$3.3 billion private placement to its shareholder, the Japanese bank Sumitomo Mitsui, in December.

BEA's bigger competitor, HSBC, is scheduled to post its results on March 4. After 46 sales of assets and closures of businesses globally since 2011, HSBC is now a more streamlined business, and the challenge for HSBC's chief executive, Stuart Gulliver, is to restructure the bank to allow it to raise its return on equity to 12 to 15 per cent and core capital ratio to 9.5 to 10.5 per cent and lower its cost-to-income ratio to 48 to 52 per cent by the end of this year.

In a Bloomberg survey, the mean estimate by 43 brokers of HSBC's earnings was US$0.88 per share, with mean pretax profit estimated at US$23.2 billion.

HSBC's subsidiary Hang Seng Bank will post its results on the same day.

Standard Chartered will post its results on March 5. The bank reported in December that profit excluding one-off items last year was expected to grow at a rate in the high single digits from 2011.

Profit before tax was expected to grow at a rate in the mid-single digits, taking into account US$667 million the bank had to pay in the United States to settle money laundering charges.

Deutsche Bank analysts said in a research report they expected this year to be a year of capital return, with most Hong Kong banks raising dividend payouts.



February 26: Bank of East Asia

March 4: HSBC, Hang Seng Bank

March 5: Standard Chartered

March 7: Chong Hing Bank, Wing Hang Bank

Mid-March: Dah Sing Bank, Dah Sing Financial

Late March: Bank of China