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Banking & finance
BusinessBanking & Finance

Higher interest rates to drive profits as HSBC, Standard Chartered prepare to report second-quarter results

  • Concerns remain about recovery of Chinese economy; provisions for commercial real-estate loans expected to be lower, analysts say
  • US Federal Reserve expected to raise rates again this week after June pause

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Pedestrians walk in front of a HSBC advertisement in Kwun Tong on July 8. Photo: Xiaomei Chen
Chad Brayin London
Investors will be keeping a close eye on interest income gains as rates continue to tick higher and any strains from a sluggish Chinese economic recovery as Hong Kong’s biggest banks, including HSBC and Standard Chartered, unveil their second-quarter report cards beginning this week.
Standard Chartered will be the first of the city’s three currency-issuing banks to update investors on its first-quarter performance on Friday, followed by HSBC on August 1 and Bank of China (Hong Kong) later next month.
Hang Seng Bank, which is 62.14 per cent owned by HSBC, also will report its half-year results on August 1, with results from Bank of East Asia (BEA), Hong Kong’s largest independent and family-run lender, expected in late August.
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“We see upsides to consensus earnings on better net interest income given Hibor strength in May and June,” Citi analyst Michael Zhang said in a research note on Wednesday. “Domestic Hong Kong banks’ fee income year-on-year growth is likely to remain muted amid weak market sentiment. While more China commercial real estate-related provisions are likely, credit cost could improve.”

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The one-month Hong Kong interbank offered rate, known as Hibor, hit its highest level since 2007 during June. Hibor represents the cost for banks to borrow from each other in Hong Kong dollars and is used as a reference for many mortgages in the city.

Analysts also are expecting Hong Kong’s biggest lenders to further raise their prime rates as the US Federal Reserve is expected to resume its interest rate increases this week following a pause in June, which could hit Hong Kong homeowners with higher borrowing costs and delay a recovery in the city’s real estate market.
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Standard Chartered is expected to report a pre-tax profit of US$1.37 billion in the second quarter, a 4 per cent increase over its results in the prior-year period, according to consensus analyst forecasts compiled by the London-based banking group.

The lender reported a pre-tax profit of US$1.32 billion a year earlier, in a quarter that included credit impairments for potential soured loans in its Chinese commercial real estate portfolio and a sharp drop in its wealth management revenue amid uncertainty in the global economic outlook.

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