HK Banks More tailwinds than headwinds

Research evidence excerpt

HK Banks More tailwinds than headwinds

n, while there has been continued improvement in mortgage Katherine Lei

and personal lending, supported by decent residential property markets, (852) 2800-8552

recovering private consumption and equity market rebounds. Local HK banks katherine.lei@jpmorgan.com

under our coverage in general are guiding for slower loan growth in 1H26 due J.P. Morgan Securities (Asia Pacific) Limited/ J.P.

Morgan Broking (Hong Kong) Limited

to continued de-risking of CRE exposure, which in aggregate still accounts for

more than 10% of total loans.

• Declining credit costs a reaffirmed trend, but more upside in FY27E/28E.

Most banks are guiding for declining new delinquent formation in CRE

portfolios in 1H26, in line with market data showing stabilizing rent and

vacancy rates for HK office space. Therefore, we forecast lower credit costs

YoY in FY26 as an earnings tailwind for HK banks, but declining collateral

values could still keep credit costs at elevated levels in FY26, while we see a

greater chance for more normalized credit costs in FY28 and onward.

• TSR enhancement measures an additional share price catalyst. Market

focus should be on the resumption of SBB at HSBC and details of the three-year

shareholder return program at BOCHK; the Street expects BOCHK to commit

to special DPS each year in FY26-28, which could increase total shareholder

return (TSR) by as much as 3ppt per year for FY26-28, based on our estimates.

On the other hand, our forecasts suggest that BEA is on track to meet its target

of 7% ROE and doubling DPS by FY28, and DSBG/DSF still deliver the most

attractive yields, even without an uplift on payout ratios.

• Upgrade BOCHK and BEA. 1H/2Q26 results are likely to be unexciting for