One of D-SIBs designated by HKMA
Stable adjusted NIM in the third quarter compared with 1H21
The rate hike cycle might impact BOCHK in LT
　　About the Bank
　　Bank of China （Hong Kong） （BOCHK） is one of the domestic systematically important banks （D-SIBs） designated by HKMA in HK. As of end-9M21, BOCHK had a 14.5% lending market share and a 15.4% deposits market share in HK banking sector. Regarding to sectors, BOCHK has over 20% lending market shares in stockbrokers, transport-related, IT and mortgage-related loans as of end- 1H21。
　　Performance summary for 3Q21
　　1） In the third quarter of 2021, net operating income before impairment allowances increased by 8.0% qoq. 2） NIM was relatively stable in the third quarter of 2021.
　　The adjusted NIM was 1.10% in 9M21, the same as 1H21, even HIBOR was still in a declining trend in the third quarter of 2021. Net interest income （NII） increased by 4.7% qoq （if funding income or cost of foreign currency swap contracts were included） with its loan-to-deposit ratio increased to ~69.6% at end-9M21 （end- 1H21: 65.1%）。 3） Net charge of impairment allowances decreased by 17.1% yoy in 9M21, due to a high base and improved parameter values of expected credit loss （ECL） model, and net charge of impairment allowances down 51.0% qoq in the third quarter. The annualised credit cost of advances to customers was down 0.03 ppts yoy to 0.13% in 9M21.
　　0.03 ppts yoy to 0.13% in 9M21.
　　Interest rate hike cycle might impact BOCHK in LT
　　Per CME FedWatch Tool （Fig. 5）， as of Jan. 28, 2022 （in Hong Kong time）， we see the U.S Fed will start raising rate in Mar. 2022 and a 33.2% probability to raise rate to 125-150 bps, or a 22.7% probability to 150-175 bps within 2022 （Currently: 0- 25 bps）。 The Fed rate hike and the consequential increase of HIBOR would have positive impacts on banks’ yield on interest-generating assets then on NIM and NII. Although the cost of interest-bearing liabilities will increase, the negative impacts may be offset due to the larger scale of interest-generating assets than interest-bearing liabilities （i.e. BOCHK and Hang Seng Bank （11 HK））。 Per BOCHK, since HIBOR lags Fed rate around 6-9 months, and peers’ competition in deposit market recently amid rate hike expectations, there are still some pressures on its NIM in 1H22, and the Co. expects the positive impacts on NIM will emerge more in 2023 and LT. Meanwhile, the Co. expects that HK’s housing market is likely to be steady due to short supply, and rate hike may have limited influence on mortgage market. BOCHK has a stable outlook for its loan quality and credit cost in 2022, given the bank already has relatively sufficient impairment allowances for its Southeast Asian region’s business, and most of corporate loans were granted to large companies with lower risks （less than 5% of loan balance to SMEs）。
　　Regarding to fee and commission income, per BOCHK’s IR, the credit card-related and capital market-related income growth may under pressure in ST given the recent recurred pandemic in HK and stock market’s fluctuations. But in LT, BOCHK’s IR indicated that the Bank may still has advantages in IPO receiving bank business and has positive expectations for the future development of Wealth Management Connect business.