Since most time deposits have a term of 3 to 6 months, Citi expects bank financing costs to improve in the next quarter.
The Zhitong Finance App learned that Citibank released a research report stating that it gave BOCHK (02388) a “buy” rating and generally maintained the earnings forecast for FY2024, but raised the forecast for FY2025 by 2% to reflect rising forward exchange rates and higher-than-expected costs for the fourth quarter of FY2023. However, rising credit costs partially offset this impact, and the target price was lowered from HK$25.1 to HK$25.
The bank estimates that BOCHK's operating profit for the first quarter was 11.6 billion yuan, up 33% from quarter to quarter, up 5% year on year. As HIBOR falls 55 basis points quarterly in 1 month, net interest spreads are expected to decline quarterly, and the pressure is manageable. Looking ahead, deposit costs should continue to improve as major banks in Hong Kong continue to lower interest rates on time deposits. Since most time deposits have a term of 3 to 6 months, banks' financing costs are expected to improve in the next quarter.
Furthermore, Citi predicts that credit costs will improve on a quarterly basis, but remain at a high level of 25 basis points, compared to 27 basis points in FY2024. It also expects BOCHK's profit before provision (pPOP) for the 2024-2026 fiscal year to be 2 to 6%. The bank believes that as domestic peers increase return on capital, BOCHK needs more active plans to push for further revaluation.