Standard Chartered, HSBC expected to report weaker results as choppy markets, China’s economic slowdown weigh on outlook
- Standard Chartered is due to kick off Hong Kong bank earnings season when it reports on Friday
- The lenders could face weaker results after market uncertainty hit global deal making, according to analysts.
Even with an improving macroeconomic outlook and better net interest margins, loan growth has been flattish in Hong Kong and fee income could be sluggish in the quarter for banks in Hong Kong.
“Despite a 20 per cent rebound from the trough on the Hang Seng Index, retail investor sentiment remains weak, impacting investment distribution income,” Citigroup analyst Yafei Tian said in a research note.
“Hence we forecast fee income to be broadly flattish quarter on quarter, with soft wealth offset by some improvements in credit card fees.”
HSBC, the largest of the city’s three currency-issuing banks, is expected to report a 21 per cent drop in pre-tax profit to US$3.98 billion in the second quarter from a year earlier, based on consensus analyst forecasts compiled by the bank.
Both lenders are based in London but generate much of their revenue in Asia and count Hong Kong as their single-largest market.
“The impaired loan ratios for Hong Kong banks’ mainland loans will likely further rise this year in light of China’s economic slowdown, after increasing more abruptly than overall loan exposures over the six months to March 2022,” said Helen Zhang, a Moody’s analyst.
China’s economic growth slowed to 0.4 per cent in the second quarter, in part as a result of a two-month lockdown in Shanghai to combat the spread of Covid-19.
The nation’s property developers are facing further financial pressure as homeowners at more than 300 projects across the mainland are refusing to pay their mortgages in protest over construction delays.
The debt woes of Evergrande and several other developers have unnerved foreign investors in the past year, particularly given the large role housing plays in the Chinese economy.
HSBC and Standard Chartered, both of which have made big bets on future growth in China, each took US$160 million credit impairments for potential soured loans in their Chinese commercial real estate books in the first quarter amid the worsening outlook for China’s economy. They have previously stressed the quality of their mainland property portfolios.
“Unlike onshore loans, offshore loans are often uncollateralised, which could require a higher coverage ratio,” she said.
At the same time, uncertainty over the global economy and the pace of interest rate increases cut into deal making activity and fuelled wild swings in financial markets, which could weigh on the results at HSBC and Standard Chartered.