China reopening to lift Hong Kong banks’ earnings: Fitch

Fitch Ratings expect higher net interest income and NIM.

Hong Kong banks should grab the opportunity from China’s re-opening to deliver better earnings with higher average net interest margins (NIM) and to recover fee incomes for the full fiscal year (FY2023), Fitch Ratings said.

Banks are expected to enjoy higher net interest income and moderate NIM increases in 2023 compared from the previous year. But net margins are unlikely to widen from the fourth quarter of 2022’s (Q42022) level due to increasing funding costs.

Whilst asset quality pressures from mainland China’s commercial real estate (CRE) sector will linger in the first half of 2023, this should gradually improve alongside the recovering economy.

Banks' net interest income rose significantly in the second half of 2022 when interest rates spiked.

Funding costs also increased via the migration into term deposits.

The resumption of tourist arrivals and cross-border business travellers in Hong Kong is also expected to boost overall economic activity and demand for financial growth.

Banks’ expected credit loss will also fall in 2023, Fitch said.

The city’s local developments, including the return of positive economic growth and property sector stabilisation, will support its improving asset quality trend.

“We expect subsiding asset quality pressures for most Hong Kong banks, although external shocks or global demand weakness remain risks to the sector’s asset quality,” Fitch Ratings said.