Hong Kong banks begin their interim profit parade next week with results likely to show an average increase in earnings for the sector of about 32 per cent, predict analysts. The main reason for the strong showing, they say, will be further sharp falls in charges for bad loans as the sector finally shrugs off the impact of the Asian financial crisis. Another factor will be interest margins, which have been maintained - despite the mortgage price war - by high levels of liquidity and resulting low cost of funds. But the core business of banks - making new loans - is likely to show little growth on the previous half, and some banks could report shrinking loan books, they add. This means the results are not likely to prompt any further shifts in bank share prices, many of which have already made strong advances in anticipation of the earnings' data. First in line to unveil its halfway result will be Bank of East Asia (BEA), on Wednesday. 'We are looking for HK$940 million net earnings, against HK$677 million previously - an increase of 39 per cent,' said Salomon Smith Barney's Raymond Lee. The main contributor would be a 59 per cent decline in provisioning charges, to HK$270 million. 'Loan growth is likely to be flat, and we are expecting a sharp increase in operating expenses, which will be a function of Internet-banking related capital expenditures, as well as marketing expenses,' he said. At a per-share level, Lehman Brothers' analyst Grant Chan forecast a 59 per cent increase in BEA's halfway result to 78 HK cents a share from 49 HK cents in the first half last year. Mr Chan said BEA's loan-loss provisioning - and provisioning by the sector as a whole - would be sharply lower. However, contrary to widespread concerns about severe margin contraction, Mr Chan predicted the results were likely to show banks had managed to maintain their net interest margins. 'The severe contraction in lending rates, especially for mortgages, has been more than offset by lower funding costs. 'On average, net interest margins are expected to have widened, with Dah Sing showing the greatest increase, by 35 basis points.' Hong Kong Chinese Bank will follow BEA with a halfway report on Thursday. Mr Lee said it was likely to show a big jump in profit from HK$15 million to HK$263 million. 'But that figure will include HK$150 million in profits from the disposal of its life subsidiary during the period.' HSBC and subsidiary Hang Seng will unveil results on July 31, with Mr Lee expecting the former to report net earnings of US$3.11 billion (US$2.69 billion previously), and the latter HK$4.28 billion (HK$3.26 billion previously) - excluding extraordinaries. Mr Chan forecast an 18 per cent year-on-year increase in HSBC's earnings per share (EPS) from HK$2.60 to HK$3.06, while Hang Seng Bank's EPS was set to grow 10.3 per cent, from HK$2.23 to HK$2.46. Helping to boost bottom-line growth in earnings, said Mr Lee, would be the strong showing of the stock market in the first quarter. Banks with securities brokerage operations would benefit hugely from fee incomes generated by these activities and this could be an element of some surprise in the results, he said.