Non-interest income forecast for HSBC dipped 2.7% for 2014

Revenue's recovery story is moderate.

According to Maybank Kim Eng, management maintains a cautious outlook to the revenue from balance-sheet management (USD2.5b in 2014F vs. USD3.1b in 2013) and the NIM of trade finance. 

NIM forecast is lowered from 2.07% to 2.02% for 2014.

Here's more from Maybank Kim Eng:

We also lower our non-interest income forecast by 2.7% for 2014.

We expect HSBC’s total revenue will grow at a CAGR of 3.3% during 2013-16. Expect slower improvement in credit costs.

Although the NPL ratio remained high at 3.3% in Dec 2013, credit costs have returned to the level before 2003 (0.57% in 2013 vs 0.59% in 2002).

Meanwhile, HSBC reported a rise in NPLs in Europe and Latin America. We thus expect further improvement in credit costs will be minimal, and credit costs to stay around 0.5% during 2014-15.

Potential decline in dividend payout. The Prudential Regulation Authority (PRA) has indicated it will be implementing floors across a range of portfolios. This will lower the CRD IV CET1 CAR of HSBC to 10.6%.

Besides, the PRA has not finalized the counter-cyclical capital buffer for UK banks. 

This may increase the minimum CRD IV CET1 CAR to 12%. To increase the CRD IV CET1 CAR to 12%, we estimate HSBC will have to lower its dividend payout ratio to below 30% in the coming years.