Loan and deposit YTD growths higher than market’s in 1Q22
Fee income and impairment hampered by the recurred pandemic
Would benefit from interest rate hikes
　　1Q22 results summary
　　1) NII: If funding income/cost of foreign currency swap contracts are included, BOCHK’s adj. NIM rebounded 2bps qoq to 1.08% in 1Q22 (down 3bps yoy) and NII increased by 4.1% yoy to HKD 8,537 mn. 2) Hampered by the recurred COVID-19 pandemic in HK and weakened investment sentiment in 1Q22, commission income from securities brokerage, insurance, funds distribution, credit card business, bills, trust and custody and payment services decreased. Net fee and commission income was down 22.0% yoy to HKD2,917 mn in 1Q22. 3) Net trading income increased, mainly reflecting changes in the mark-to-market value of certain debt securities investments and interest rate instruments caused by market interest rate movements. All other net operating income increased by 87.0% yoy to HKD 2,770 mn and net operating income before impairment allowances was HKD 14,224 mn in 1Q22, up 6.0% yoy or 25.0% qoq. 4) Operating expenses rose 2.9% yoy to HKD 3,875 mn as staff, advertising and promoting costs increased. Growth of income was better than expenses, cost to income ratio was down 0.82 percentage point yoy to 27.24% in 1Q22. 5) NPL ratio unchanged from end-2021 and stood at 0.27% as of end-1Q22. However, together with the downgrade of internal ratings of some corporate customers, changes in assumption for ECL model to reflect the uncertainty of macroeconomic outlook due to the pandemic situation of HK in 1Q22 and relative higher loan growth in 1Q22, net charge of impairment allowances increased by 185.8% yoy or 70.3% qoq to HKD 923 mn. Annualized credit cost was up 15bps yoy to 0.23%. 6) Total loan balance was HKD 1,672 bn at end-1Q22, up 4.5% YTD and faster than market YTD growth of 1.2%. BOCHK’s management has guided that the loan growth would be a medium-to-high single-digit in 2022. 7) Together with CASA ratio up by 0.8 percentage point qoq to 66.1% as of end-1Q22, total deposits increased by 2.9% YTD to HKD 2,398 bn (HK deposit market 1Q22 YTD growth: 1.1%).
　　U.S. Fed target rate hikes might favour NII
　　U.S. Fed raised target rate by 50bps to 0.75%-1.00%, which was the biggest increase in the past two decades. HKMA announced that the Base Rate was adjusted upward to 1.25% with immediate effect. Per CME Fedwatch tool, the market expects U.S. Fed has a 45.7% probability to raise rate to 2.25%-2.50% within 2022 as of May 5, 2022. According to the historical experience, HIBOR might go up as the rate hikes and the spread between HIBOR and U.S.Fed target rate is likely to narrow in LT, which is favourable for BOCHK’s yield of interest-generating assets and NII.