‘Lower-for-longer’ interest rates could weigh on HSBC and other Hong Kong lenders’ third quarter results, analysts say

Name: Coronavirus: How close is Hong Kong to a fourth wave of Covid-19?
Uploaded: 2020-10-26T00:30:14.000Z
Duration: 4 min 35 s
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HSBC, Standard Chartered may benefit from a better trading environment in the third quarter, like US rivals

Net interest margins are likely to have contracted further at the city’s biggest lenders in the third quarter, analysts say

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HSBC and the city’s other big lenders are expected to report their third quarter results this week. Photo: Bloomberg

Chad Bray

Published: 8:30am, 26 Oct 2020Updated: 8:30am, 26 Oct 2020

Investors will be watching to see how “lower-for-longer” interest rates are weighing on the bottom lines of Hong Kong’s banks as the city’s biggest lenders prepare to report their third-quarter results beginning this week, according to analysts.

HSBC will be the first of Hong Kong’s three currency-issuing lenders to update investors on its performance on Tuesday, and will be followed by Standard Chartered on Thursday. Bank of China (Hong Kong) is expected to report its results for the three months ended in September after the market close on Friday.

The first half of the year was dominated by concerns over billions of dollars in loan-loss provisions banks set aside in anticipation of a potential surge in defaults as the coronavirus pandemic weighed on the city’s economy, as well as global trade.

Payment holidays and government support programmes helped homeowners and businesses navigate the pandemic-sparked downturn and economic conditions are improving in the Asia-Pacific region, allowing the city’s banks to potentially move their provisioning back to a more normalised run rate, according to analysts.

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“The fairly material wrinkle remains net interest income,” Fahed Kunwar, an analyst at Redburn in London, said. “Both [HSBC and Standard Chartered] are geared to US rates. [The Hong Kong interbank offered rate] Hibor has been flat. US rates have come down. The question is have we digested the full impact of the rate reduction in the outlook for revenues for these two businesses.”