A 66 basis point drop in interbank lending rates is set to squeeze profits for Hong Kong’s top banks in the first quarter.
Hong Kong’s largest banks are expected to report a mixed first quarter for 2026, as a sharp drop in lending rates pressures interest income but is likely to be offset by a strong performance in wealth management, according to a new report from Morgan Stanley.
"A key feature of Hong Kong banks' 1Q26 results will be QoQ pressure on net interest income, as HIBOR fell 66 bps QoQ," Morgan Stanley said in the report. The broker noted, however, that this impact is "expected to be offset by strong wealth management and market income, as well as solid cost control."
The 66 basis point quarter-over-quarter decline in the Hong Kong Interbank Offered Rate (HIBOR) is the primary driver behind the expected squeeze on Net Interest Margins (NIM), a core measure of bank profitability. This pressure on traditional lending is forcing banks to rely more heavily on fee-generating businesses. Asset quality remains a key focus for the market, particularly exposure to the volatile commercial real estate sector.
Morgan Stanley maintained its 'Overweight' ratings on HSBC (00005.HK) and Standard Chartered (02888.HK), preferring the international banks. It held an 'Underweight' rating on BOC Hong Kong (02388.HK), citing the bank's exposure to local commercial real estate as a specific concern. The forecast comes as Hong Kong's broader market shows signs of weakness, with the Hang Seng Index recently falling 0.7%.
This article is for informational purposes only and does not constitute investment advice.
