BOC Hong Kong’s Third Quarter Supported by Higher Net Interest Income

BOC Hong Kong posted a strong third quarter as it benefited from the rising rate environment. Operating profit before impairment allowances in the third quarter was strong at HKD 10.7 billion, increasing 27% against the same period last year. This was driven by a 38% increase in net interest income, partly offset by a 20% year-on-year decline in net fee income. While we had anticipated these trends, the magnitude was larger than our expectation. We expect BOC Hong Kong to continue to benefit from a higher interest rate environment, and have increased our net interest margin, or NIM, assumption to 1.34% and 1.65% in 2022 and 2023, respectively, before gradually declining from 2024 on the expectation of slower economic growth, which may lead to lower interest rates globally. Although we expect that to be offset by the lower net fee and commission income and loan growth assumptions, as we note that consumer sentiment and business activities could be dampened given macro uncertainties. As such, we retain our fair value estimate of HKD 37 for BOC Hong Kong.