Hong Kong banks face ‘very weak’ outlook as coronavirus bites, with HSBC strategy in spotlight, analysts say
- Investors will be looking for guidance on coronavirus effects as Hong Kong banks begin to report results from next week, analysts say
- Weakness in retail, hospitality, airline and tourism sectors likely to stoke unemployment, strain consumer lending asset quality
As Hong Kong’s biggest banks prepare to report their 2019 results beginning next week, investors will be closely watching to see how HSBC Holdings and its peers expect the coronavirus outbreak to hit their bottom lines this year.
The early signs are worrisome as the health crisis hurts local businesses and consumers in an economy already wrecked by months of anti-government protests last year. Banking sector revenue is expected to be “very weak” in the first half as the viral outbreak cools loan growth and cuts into fee income, according to Morgan Stanley.
The city’s biggest lenders, including currency-issuing banks Bank of China (Hong Kong), HSBC and Standard Chartered, have announced plans to allow mortgage holders and struggling small businesses to make interest-only payments on loans and several have said they would waive late fees on credit card payments by consumers facing financial difficulty.
“Various parts of economic activity have slowed down fairly sharply over the last few weeks, following a contraction in 2019,” Morgan Stanley analysts Anil Agarwal and Irene Zhou said in a February 11 research report. “Unless the economy recovers quickly, we expect to see fairly elevated credit costs in 2020.”
Investors is likely to dwell on this risk when banks present earnings, they said, especially whether the lenders build the current coronavirus-related slowdown into their cost assumptions.
HSBC will kick off reporting season for the city’s biggest banks on February 18, including a strategy update from interim chief executive Noel Quinn. Standard Chartered reports on February 27 and Bank of China (Hong Kong) is expected to follow next month.
HSBC’s strategic update could not have come at a more important stage for under Quinn, who is out to win the role on a permanent basis. His statement is expected to include job cuts in underperforming markets and a potential reinvestment of some of those cost savings in growth markets in Asia.