“Standard Chartered aims to deliver a 5 to 7 per cent revenue CAGR [compound annual growth rate] in the medium term on the back of strong loan growth, new structural hedge programme, treasury optimisation and the emergence of [its virtual bank] Mox,” Citi analyst Andrew Coombs said in a research note. “We forecast revenues to grow by a larger 9 per cent year-on-year in financial year 2022, due to higher net interest income on the assumption of four rate hikes by the Fed in 2022 (note Citi economists are even more hawkish, assuming five hikes).”

02:18

Hong Kong's Covid-19 isolation beds 90% full as city records more than 2,000 new cases

Hong Kong's Covid-19 isolation beds 90% full as city records more than 2,000 new cases

HSBC and Standard Chartered are both based in London, but generate much of their revenue in Asia.

Investors are optimistic about what higher interest rates will mean for the bottom line of Standard Chartered and HSBC, who have placed more reliance on fee-generating products in recent years as interest rates lingered at historical lows during the pandemic.

Earlier this month, the Bank of England raised interest rates for the second time since December as inflation topped 5.4 per cent, its highest level in nearly 30 years. The Fed also signalled in January that it would raise rates in March, with many analysts predicting at least four increases over the course of the year.

Rising rates could be a welcome relief for HSBC and other lenders with big operations in the city as the fifth wave of Covid-19 cases surges through the city.

Hong Kong’s economy, which had posted further signs of recovery last year after contracting in 2019 and in 2020, is again being challenged as the government implements further restrictions to try to control a recent surge in Covid-19 cases in the city.

Last week, Fitch Ratings cut its 2022 growth forecast for the city’s gross domestic product to 1.5 per cent from 3 per cent. The city’s economy grew at 4.8 per cent in the fourth quarter and 6.4 per cent for the full year.

“As a small and open economy, the rapid reduction in mobility driven by strict social distancing measures can be a big problem for Hong Kong, especially for consumption related sectors,” said Natixis CIB’s Asia-Pacific chief economist Alicia Garcia Herrero. “The Hong Kong government should consider expanding its fiscal stimulus in the upcoming budget for compensating residents and the affected industries. This cannot fully compensate the loss of business hours in bricks-and-mortar stores, but it can at least somewhat ease the pressure.”

“The net effect of higher interest rates for banks in Hong Kong will be positive for earnings, as they should support a reversal of net interest margin compression in 2021, in our view,” Fitch analysts Franco Lam and Savio Fan said in a research note. “Higher interbank rates – which move in tandem with US rates – are generally earnings positive for Hong Kong banks, especially the larger banks, as their asset repricing tends to outpace their liability repricing.”

HSBC, the biggest of the city’s currency-issuing lenders, is expected to see its full-year pre-tax profit more than double to US$19.1 billion, according to a consensus estimate of analysts compiled by the bank. That compared with a pre-tax profit of US$8.3 billion a year earlier.

“We expect HSBC to reiterate its target of mid-single digit volume growth, however given uncertainty on the rate trajectory, we do not expect HSBC to necessarily provide explicit 2022 revenue guidance,” said Citi’s analyst Coombs. “Where we may get more explicit guidance is on 2022 costs – where we expect the company to reiterate the previous guidance of [about] US$32 billion (excluding US$0.3 billion bank levy) and loan losses – where we expect the company to guide to a ‘low’ cost of risk”.

The British government charges an annual levy on the UK balance sheets of banks and building societies.