NIM continued declining while slowed down in 2H21
Asset quality maintained with lower credit cost
Would benefit from interest rate hikes
　　Highlights of 2021 results
　　1) BOCHK’s net operating income before impairment allowances was down 10.1% yoy and NP to equity holders decreased by 13.3% yoy to HKD22.97 bn in 2021. 2) NII continued to be under pressure amid low interest rate environment. NII was down 8.1% yoy together with NIM narrowed by 21bps yoy. However, the decline of NIM slowed down in 2H21 (2020/1H21/2021 NIM: 1.27%/1.08%/1.06%), and NII in 2H21 slightly decreased by 0.6% yoy. 3) Owing to the capital market fluctuation in 2H21, commission income from securities brokerage and funds- related weakened, partially offsetting the higher growth in 1H21. Net fee and commission income was down 3.6% yoy in 2H21 and increased by 9.5% yoy in 2021. 4) Loan quality maintained stable in 2021. Impaired loan ratio decreased by 2bps qoq to 0.27% at end-2021, the same as end-2020. Net impairment charge was down 20.8% yoy. The credit cost of customer loan was 0.12% in 2021, down 4bps/1bp compared with 2020 and 9M21, respectively.
　　Management discussion
　　On NII: Management indicated that the U.S. Fed rate hike will have positive impact on BOCHK’s NIM and NII. According to the Co.’s sensitivity test, if HKD yield curve had a 100 bps upward parallel shift, BOCHK’s NII will increase by HKD3.96 bn, representing 12.4% or 13.2% positive impact on its 2021 NII and profit before tax, respectively (Fig. 7). Management also pointed that there were time lags between HIBOR and U.S. Fed rate according to historical experiences. Meanwhile, HIBOR also depends on market liquidity, while HK interbank balance is relatively sufficient currently (Fig. 3). On loan quality: BOCHK had an HKD106.5 bn exposure to China Mainland real estate sector at end-2021, accounting for ~6.7% of total loan balance. Of which, 77% were credit to SOEs and 23% to POEs. No overdue loans came from this sector and the Co. had prepared sufficient provision for them.Management has confidence to keep stable credit cost and maintain its impaired loan ratio below sector average in 2022. On overall loan growth and HK mortgage market: Management guided that the loan growth would be a medium- to-high single-digit in 2022 and the actual performance in 1Q22 was in line with the Co.’s expectation. Regarding the HK property market, there are multiple factors that influence the market sentiment, such as the pandemic, interest rate, etc.However, the housing supply is still insufficient, and the Co. expects that the trading activities in HK property market will be stable in 2022. On Cost-to-income: BOCHK targets to control the cost-to-income ratio below 35% in LT.