Goldman Sachs: HIBOR’s rapid rise may not push Hong Kong banks’ profit preference for Bank of China Hong Kong


Goldman Sachs said in a research note that the bank’s U.S. economists now expect the FEDERAL Reserve to raise interest rates at every meeting this year, meaning there will be seven rate hikes this year.The forecast of 10 rate hikes through 2024 remains unchanged, but the action is expected to be concentrated in the early part of the cycle, which ends in the third quarter of 2023.The bank believes the more rapid pace of rate hikes compared to the 2015-2019 cycle means that the underlying upward trajectory of The Hong Kong Interbank offered rate (HIBOR) is more similar to that from 2004 to 2007.The fed’s faster pace of rate hikes, coupled with significantly less foreign exchange liquidity in the banking system than before the 2015 rate hike cycle, means the lag time for HIBOR rate hikes to the US has shrunk to two quarters from three quarters in the past, the bank said.This has led to increases of 20, 95 and 76 points, respectively, in HIBOR forecasts from 2022 to 2024.The bank sees monthly HIBOR rising from about 12 at the end of the second quarter this year to about 87 at the end of the second quarter, 237 at the end of next year and 262 at the end of the second quarter.A more rapid HIBOR climb does not necessarily mean higher profits for rate-sensitive Hong Kong banks, the report said.The bank’s interest rate on the net interest margin of the impact of analysis points to a faster rate increase net interest margin hit value.This happened as higher interest rates encouraged more demand and savings deposits (CASAs) to convert to time deposits, and demand and savings deposit pricing began to move in line with HIBOR.These trends have pushed up the value of deposits and thus suppressed the value of banks’ net interest margins.Lower deposit valuations are the main factor supporting the improvement in net interest margins during the 2015-2019 rate hike cycle.What’s more, faster rate hikes have a drag on balance sheet growth and non-interest income, as well as increasing banks’ credit costs.The report’s eps estimates for Boc Hong Kong (2388.HK) and Hang Seng Bank (0011.HK) for 2022 to 2024 remain broadly unchanged, with boc preferred over Hang Seng.Boc has a target price of HK $38.5 with a “buy” rating and a conviction buy list.Hang Seng is “neutral” with a target price of HK $178.

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