Lower interest spread of RMB assets takes its toll on BOCHK's net interest income

It will be difficult to revive the NIM pressure.

According to Maybank Kim Eng, net interest income dropped in 3Q15 vs. 2Q15 (-10bps HoH to 1.59% in 1H15), due to the narrowing of NIM, caused by lower interest spread of RMB assets.

The PBOC cut the benchmark rates by 75bps during Jun-Oct 2015 but BOCHK did not cut its offshore RMB deposit rates by same pace. We estimate its offshore RMB time deposits account for ~7% of its average interest earnings assets and the rate cuts should have shed its NIM by ~4bps in 3Q15.

"Given the low liquidity coverage ratio (LCR) of BOCHK (109.9% in Jun 2015), we see it difficult to revive the NIM pressure through lengthening in asset duration. Meanwhile, BOCHK did not grow its loan book in 3Q15 (+7.3% HoH in 1H15), probably due to its cautious attitude towards China SME loans. We cut our forecast loan growth and NIM from 9.4-10.3% and 1.59-1.61% to 8.7-9.4% and 1.53-1.55% for 2015-16."

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