HK/China Banks: Fed hike supports HK banks' NIM; asset quality risks look manageable

The Fed has raised its policy rate by 25bps, marking its first hike since July 2023. We view this as positive for HK banks, even without an increase in prime rates. HK banks typically raise savings deposit rates alongside prime rates, and the combined impact on NIM could therefore be muted to negative. Our analysis suggests that the net NIM impact of a 25bps rate hike, but excluding any prime rate hike, would be around 5bps for BOCHK and DSBG, ~2bps for BEA, and ~2bps each for HSBC and STAN. Higher rates could slow loan growth and raise asset quality concerns, particularly in HK CRE, but we believe the risks remain manageable so far. At the same time, a wider USD-RMB interest rate spread would be positive for RMBI development. On the other hand, HSBC has indicated in recent meetings that it has increased structural hedge, so its rate sensitivity could be lower than perceived. Share price reactions to rate hikes in previous cycles have been mixed, but as HK CRE is not as big a concern n