HK Banks Monthly Sep-26: Slight share price outperformance amid materialization of Fed rate hikes

HK banks outperformed HSI/HSF by 7%/5% in September, likely reflecting the rising expectation of Fed rate hikes in the first half of the month, but such positive sentiment has partially faded in recent weeks amid rising concerns about the adverse impact of higher market yields. Operating trends showed mixed messages during the month, with continued improvement in loan growth momentum but concern about margin migration. 3Q26 operating performance in the coming weeks should be the key share price catalyst in the near term, and our preference order among large-cap banks is BOCHK>STAN>HSBC into 3Q26 results. Industry loan growth rose to 8.4% YoY in August from 7.7% in July, extending the upward trend since May 2025 and still largely driven by trade financing and loans for use outside HK. Mortgage lending growth was up 4.6% YoY in August vs. 4.0% in July. LDR declined 56bps MoM in August to 52.0%, with the CASA ratio dropping 10bps to 43.7%. September saw a tightened 1M SOFR-HIBOR gap of 94