Bulletin: Bank of China (Hong Kong)'s Strong Profits To Cushion Property Strains

SINGAPORE (S&P Global Ratings) April 2, 2024--Bank of China (Hong Kong) Ltd. (BOCHK) can handle strain on its asset quality emanating from the property sector. The bank's strong profitability and capitalization can act as a cushion against such pressure, in our view. Profitability will likely remain resilient, supported by strong margins, with interest rates remaining elevated. We forecast BOCHK's return on average assets (ROAA) at 1.0%-1.1% over 2024-2025. BOCHK (A+/Stable/A-1) delivered an ROAA of 0.98% in 2023, up 12 basis points (bps) from the previous year. Net interest margin expansion of 27 bps contributed to the improved return. BOCHK faces lingering pressure from its property loan book amid continued stress in the mainland Chinese real estate sector. The bank's nonperforming

...April 1, 2024 SINGAPORE (S&P Global Ratings) April 2, 2024--Bank of China (Hong Kong) Ltd. (BOCHK) can handle strain on its asset quality emanating from the property sector. The bank's strong profitability and capitalization can act as a cushion against such pressure, in our view. Profitability will likely remain resilient, supported by strong margins, with interest rates remaining elevated. We forecast BOCHK's return on average assets (ROAA) at 1.0%-1.1% over 2024-2025. BOCHK (A+/Stable/A-1) delivered an ROAA of 0.98% in 2023, up 12 basis points (bps) from the previous year. Net interest margin expansion of 27 bps contributed to the improved return. BOCHK faces lingering pressure from its property loan book amid continued stress in the mainland Chinese real estate sector. The bank's nonperforming loan (NPL) ratio was 1.04% at end-2023, deteriorating from 0.53% at end-2022. That said, the bank's NPL ratio was well below the industry average of 1.56%. We project BOCHK's NPL ratio at about...

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