Potential equity capital replenishment in 2015 pegged for Chong Hing Bank

Possibly due to CET1 CAR requirements.

Should assumptions be correct that Chong Hing Bank will revive its CET1 CAR to 11.5% by 2015, it is believed that the bank will need to replenish its equity capital by HKD700m.

According to a research note from Maybank Kim Eng, this is in line with its forecast that Chong Hing Bank's CET1 CAR will decline from 10.8 percent in Dec 2013 to 10.5 percent in Dec 2014, and with Maybank Kim Eng's belief that the HKMA will require a minimum CET1 CAR of 11% for Chong Hing Bank.

The report also noted that, assuming Chong Hing Bank will issue new shares at HKD13 per share and a return on new capital of 2 percent, Maybank Kim Eng estimates there will be EPS and ROE dilution of 9.5 percent and 50bps for 2015.

Here's more from Maybank Kim Eng:

Moderate loan growth, widening NIM and declining fees. Subject to high capital constraints, CHB will moderate its loan growth in 2014. We lower our loan growth forecast from 11.1% YoY to 9.3% YoY for 2014.

Meanwhile, CHB has actively shifted from low-yield large corporate loans to higher-yield cross-border trade finance. We raise our NIM forecast slightly from 1.35% to 1.36% for 2014.

Due to sharp decline in securities brokerage fees (accounting for 46.4% of total fees in 2013), we lower our net fees forecast for CHB by 15.5% for 2014.

Asset quality benign. CHB has kept a conservative loan approval process for granting new cross-border trade finance. As such, it saw limited rise in new NPLs during 1H14.

With gradual recovery in global external trade conditions, we expect CHB’s credit costs will remain low at 13bps in 2014 (8bps in 2013).