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<Research>G Sachs Cuts TPs on HK Banks; CRE Hikes NPL Ratio
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Goldman Sachs released a report stating that Hong Kong banks' non-performing loans (NPLs) drifted higher due to their exposure to commercial real estate (CRE) in mainland China and Hong Kong. HANG SENG BANK (00011.HK)'s NPL ratio hit a 30-year high in 1H24. The broker updated its in-depth analysis of Hong Kong CRE and found that the implied NPL ratio generally elevated, accounting for 14% of Hong Kong's total CRE debt. Among which, the NPL ratio of small and medium-sized enterprises (SMEs) was 55%. Moreover, under the worst case of 25%/ 50% falls in EBIT from FY2023 levels, implied NPL ratios could rise further to 22%/ 39%, surpassing the Asian financial crisis peak of 17%. The broker’s expected credit losses (ECL) on Hong Kong CRE loans was a rise to 3.5% in FY2024-25, and 9% in a bear case, implying an 8%/ 25% base/ bear downside risk to unrevised EPS, with smaller local HK banks most impacted and STANCHART (02888.HK) least affected. At the same time, the broker noted the low collateralization ratio of BOC HONG KONG (02388.HK). After taking into account the expected losses, the broker lowered its average EPS forecast for Hong Kong banking stocks for FY2024 and FY2025 by 5%-8%, while the relevant forecast for FY2026 remained relatively unchanged. The broker lowered the target prices for Hong Kong banking stocks by an average of 3%. The latest ratings and target prices of the sector are listed in a separate table. AAStocks Financial News |
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