Hang Seng Bank growth drivers lagging: analyst

Lower NIM is forecast.

It is believed that it will be tough for Hang Seng Bank to pass on rising HKD funding costs to corporate customers amid increased competition from foreign banks on large-sized corporate lending businesses.

According to a research note from Maybank Kim Eng, it has lowered its NIM forecasts for Hang Seng Bank from 1.95-1.96 percent to 1.91 percent for 2014-15.

The report noted that similar to Hang Seng Bank's peers, Maybank Kim Eng believes that the banks securities brokerage and fund distribution fees will suffer from poor investment sentiment in Hong Kong stock market during 1H14.

In line with this, the report noted that it has lowered net fees forecast for Hang Seng Bank by 7.6 percent for 2014.

Here's more from Maybank Kim Eng:

Unlike BOCHK, we believe HSB’s corporate customers have not engaged in FOREX hedging following the recent RMB/USD depreciation.

With slower economic growth in China, we expect HSB’s China loans (10.4% of total loans) to see a rise in NPLs in 1H14. Meanwhile, HSB has not engaged in commodity finance and shadow bank finance in China. We raise our credit costs forecast slightly from 0.10% to 0.11% for 2014.

HSB was classified as a domestically-important bank in Hong Kong. It is unsure whether the HKMA will request for a minimum CET1 CAR of 13%. Besides, the HKMA has not set the minimum capital requirement under the recent stress test conducted by HSB.

As HSB’s fully-loaded CET1 CAR remained low at 11-12% in Dec 2013, we see chance for HSB to restrain its DPS growth in the coming years.