BOC Hong Kong's Third Quarter Broadly in Line

Bank of China Hong Kong’s brief third-quarter update is broadly in line with our expectations. Reported third-quarter net operating income before impairment allowances of HKD 12.6 billion represents an 8% improvement from the previous quarter. This was mainly driven by a 4.7% quarter-on-quarter increase in net interest income. Despite further decline in HIBOR with quarterly average one-month rate lowering to 7 basis points from 9 basis points in the previous quarter, net interest margins, or NIM, for BOC Hong Kong was largely stable at 1.10% in the third quarter, compared with 1.09% in the previous quarter. We maintain our full-year NIM assumption of 1.11% and we continue to assume steady increases in NIM from fiscal 2023 onward. Net fee and commission income also improved slightly quarter on quarter by 1.4%. In line with peers, there was an acceleration in operating expense increase, mainly due to higher compensation. We adjust our operating expense higher but our fair value estimate of HKD 36 is unchanged. Our full-year dividend forecast of HKD 1.26 per share is reaffirmed, implying a dividend yield of 5.1%.