Commercial real estate woes persist for Bank of East Asia

NIM will weigh on profitability but its non-interest income will cushion impact.

The Bank of East Asia (BEA) will continue to be weighed down with ongoing strains in the commercial real estate (CRE) sector, but sustained diversification will help it counteract the pressure, said S&P Global Ratings.

S&P anticipates a modest decline in BEA’s profitability over the coming two years due to narrowing net interest margins (NIMs) amidst low interest rates in Hong Kong and China.

On the other hand, the bank is seeing positive momentum in its wealth management and treasury divisions. These are expected to further support growth in non-interest income and cushion the narrower NIM’s impact.

Hong Kong’s CRE market will continue to pose challenges for BEA, however, due to the market’s high vacancy rates, excessive new supply, and weak demand.

Overall vacancy rate for Hong Kong offices reached a record high of 17.4% as of end-June 2025, from 16.9% at end-2024.

BEA’s impaired loan ratio for its Hong Kong CRE portfolio also climbed to about 7.5% from our estimate of about 6% at end-2024.

“We believe BEA's credit loss ratio will remain high over the next two years, mainly due to its Hong Kong CRE exposure. This is despite a modest decline in the ratio in the first half of 2025,” S&P said.

However S&P does not anticipate BEA to experience a sharp deterioration in credit losses.

“This is because about 83% of BEA's Hong Kong CRE loans are collateralized, with an average loan-to-value ratio of 55% at end-June 2025. This provides a buffer against steep declines in property prices,” S&P said.

Additionally, BEA has significantly downgraded problematic Chinese developers in recent years, it added.

BEA is expected to continue reducing its high-risk portfolios, as a continued decline in its CRE exposure indicates.

Its CRE loans measured by loans to property development and investments fell by 7.6% year-to-date in the first half of 2025. They made up 20.6% of its total loan, down from 22.6% at end-2024.

“Concurrently, BEA continues to diversify away from CRE to other sectors such as telecommunications, aviation, trading and distribution, and financial services,” S&P said, noting that residential mortgage exposure was flat at about 21% of the bank's loans at end-June 2025, with limited credit impaired loans.