Morgan Stanley expects that the performance and profitability trends of Hong Kong's banking industry will diverge in 2025, with a positive outlook for HSBC and Standard Chartered PLC

JP Morgan's research report indicates that Hong Kong bank stocks will begin to announce their fiscal year 2025 results starting from mid-February. It is expected that due to changes in net interest margins and fluctuations in credit costs, the profitability of various banks will show divergence, but significant changes in dividend policies are not anticipated. Standard Chartered (02888.HK) and Dah Sing Bank (02356.HK) are expected to perform the best, with profit forecast growth exceeding 30%, while Bank of East Asia (00023.HK) may perform the worst, with expected profit decline. Among them, Dah Sing Bank and Standard Chartered are expected to show more outstanding total shareholder returns in fiscal year 2025.

Looking ahead, JP Morgan expects that although bank management remains cautious about asset quality, they are not pessimistic, and their attitude towards revenue prospects will gradually become more positive. Among large banks in Hong Kong, JP Morgan still prefers Standard Chartered and HSBC (00005.HK) over Bank of China Hong Kong (02388.HK).

JP Morgan states that benefiting from better-than-expected Hong Kong interbank offered rates and fee income, most banks' revenue momentum should exceed expectations, with resilient pre-provision profits. It is expected that Dah Sing Bank and Bank of China Hong Kong will achieve better pre-provision profit growth in the second half of last year, with Dah Sing Bank expected to have the highest pre-provision profit growth in fiscal year 2025.

However, the bank indicates that the expected credit losses for Hong Kong banks remain high. Although bank management still believes that the asset quality risk related to overall commercial real estate in Hong Kong is controllable, they remain cautious about credit costs in the second half of last year. The bank expects that credit costs for Hong Kong banks will rise year-on-year last year and may increase semi-annually in the second half of 2025.

In addition, the bank believes that the capital position of Hong Kong banks continues to strengthen, but there is little change in management's guidance on dividend policies. Therefore, the bank expects that the growth in dividends per share will be slightly higher than the growth in earnings per share, with implied cash yields among the covered bank stocks ranging from 4.4% to 7.6%.

Overall, JP Morgan has raised its forecast for pre-provision profits of Hong Kong bank stocks in the second half of 2025; it has also raised its net interest margin forecast for the second half of 2025 by 6 to 35 basis points; it believes that Dah Sing Bank is the only bank expected to achieve year-on-year expansion of net interest margin in fiscal year 2025, benefiting from the continued improvement in its deposit structure.

JP Morgan's ratings and target prices for Hong Kong bank stocks:

Stock | Investment Rating | Target Price (HKD)

Bank of East Asia (00023.HK) | Underweight | 10.1

Dah Sing Financial (00440.HK) | Overweight | 43.7

Dah Sing Bank (02356.HK) | Overweight | 13.8

Bank of China Hong Kong (02388.HK) | Neutral | 43.3

HSBC Holdings (00005.HK) | Overweight | 165

Standard Chartered PLC (02888.HK) | Overweight | 265