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Fitch: Pressures on HK Bank, Property Sector Linger as Monetary Easing Begins
Recommend 39 Positive 74 Negative 34 |
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The Hong Kong Monetary Authority (HKMA)'s recent 50 bps cut in the base rate to 5.25%, and expected further cuts reflecting projected monetary easing in the US, will help borrowers, property developers and landlords, but for many, the easing in funding conditions will provide only modest relief, according to rating agency Fitch. Following the US Fed's initial rate cut of 50 bps to 5%, Fitch expected the US policy rates to fall by another 150 bps by end-2025 and an additional 50 bps in 2026. Due to the peg between HKD and USD, Fitch forecasted Hong Kong's base rate to be cut by the same amounts. As a better guide to commercial borrowing costs, HIBOR should follow the base rate reduction, albeit not tracking it identically. This will improve the financing conditions for stronger entities in the local property sector. However, their financing access has generally been robust. For example, SWIREPROPERTIES (01972.HK) (A/Stable) raised RMB3.5 billion in September 2024 at a coupon rate of 3.1% (due in 2027) and 3.4% (due in 2029). Smaller Hong Kong developers outside Fitch's rated portfolio may not have the same level of funding access, and rate cuts may offer them relatively little overall relief in the next year or two as rental and property valuations remain under pressure. HANG SENG BANK (00011.HK)'s (AA-/Stable/a) impaired loan ratio reached 5.3% at end-1H24 due to its Hong Kong CRE exposure. HANG SENG BANK's standalone Viability Rating was downgraded to 'a' from 'a+', though its Issuer Default Rating was affirmed based on the strong parental support from The Hongkong and Shanghai Banking Corporation Limited (AA-/Stable/a+) and HSBC HOLDINGS (00005.HK) (A+/Stable/a+). Fitch expected bank profitability pressure stemming from lower net interest margins as rates fall to be mitigated by contained credit costs, locked-in interest income from longer-duration fixed-income portfolios, a gradual resumption of loan growth and solid non-interest income. AAStocks Financial News |
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