Slight increase in NPLs pegged for most HK banks' China loans in 1H14

Due partly to slower economic growth.

Due to slower economic growth and external trade activities, most banks in Hong Kong should see a slight increase in NPLs for their China loans during 1H14.

According to a research note from Maybank Kim Eng, it thus expects credit costs of most banks in 1H14 to be higher than the average in 2013.

SCB continued to suffer from rising delinquency of its consumer finance.

Meanwhile, HSBC should benefit from asset quality improvement in Latin America and Europe during 1H14.

Here's more from Maybank Kim Eng:

According to Bloomberg consensus forecasts, the net profit of most Hong Kong-listed banks will grow 3-14% YoY in 1H14.

Key earnings drivers include solid loan growth, YoY widening

NIM and tight cost control.

We expect the HoH loan growth of most banks will be mid-to-high single digit during 1H14.

With the exception of HSBC, SCB and BEA, we expect banks to see a stable-to-slightly rising NIM in 1H14 compared with 2H13.

While BEA should suffer from rising funding costs in China, both HSBC and SCB continued to run down their high-yield consumer loans during 1H14.

Net fees growth of most banks should have moderated in 1H14 given weaker securities brokerage and fund distribution fees.

Both HSBC and SCB should also see a decline in “Rates and Forex” income during 1H14.

Hong Kong banks have maintained tight control on risk-weighted asset growth.

We expect most banks to maintain a stable-to-slightly rising CET1 CAR during 1H14.

We believe CET1 CAR of most banks should stay above 11% in Jun 2014.