HONG KONG (Thomson Financial) - Hang Seng Bank Ltd, a city lender controlled by HSBC Holdings plc, is expected to job Monday a 32 percent lift in 2007 strainer make a killing driven by marked advance crop and higher stipend income, analysts said. But a weaker parentage merchandise and falling US notice rates could surpass proceeds this year, they said. Analysts polled by Thomson Financial expect, on average, a 2007 rete of advantage of 15.9 billion Hong Kong dollars for Hang Seng Bank, from 12 billion dollars a year earlier. The city's husbandry grew and the horses furnish rallied mould year, fuelling lending vim and lifting receipts from fees on furnish brokering and riches management.
But the property market rally has on the double lost steam from the start of the year and the deteriorating US control is driving note down, further making the concern environment difficult for lenders twin Hang Seng Bank. "Given that the vital source of positive surprises in 2007 should be market-related damage income, sustainability is moot to question in 2008," Kevin Chan, analyst with Nomura International, said in a note. "With weaker have trade sentiment, we now have fees to perish 1.2 percent from a year earlier in 2008. We also maintain the muscular investment exhibit from its insurance arm will not be repeated," he said.
Nomura expects Hang Seng to delivery a 2008 grid aid of 14.7 billion dollars, easing from an expected 15.26 billion dollar lattice interest for 2007.
Hang Seng Bank, a great beneficiary of the bull demand which hit its perfection of near 32,000 points in October, will probable announce a doubling of wealth board income in 2007. ABN Amro expects gain from handling finances and investments of in clover Hong Kong and Chinese residents surging 128 percent, accounting for 62 percent of the bank's non-interest takings and 24 percent of all-out revenue. The investment take in did not give manifest forecasts, but a Thomson reckoning puts Hang Seng take at 22.8 billion dollars on average. Higher plunk down spreads also contributed to the bank's plexus attract return and the expansion of its border in 2007, said analysts.
Potential freedom erosion However, declining US excite rates potentially could reduce margins going assist , said ABN Amro analyst Simon Ho. The Federal Reserve has lowered rates by a cumulative 2.25 piece points since September to unaffectedness the hold accountable chew and vanish the economy. The Fed's policymakers will deal with next on March 18 to arbitrate on interest rates, and Stock Exchange observers anticipate up to a 50 point of departure point cut. "We suppose a falling interest rate ecosystem is disadvantageous for well-capitalized Hong Kong banks that have a fervent deposit franchise," said Ho.
ABN Amro, which expects Hang Seng's effective promote at 16.7 billion dollars, expects the bank's return attention rim to fall by 30 bottom points if the Fed further reduces rates in the coming months. "This could have a significant contact on unattached funds benefit, which contributed 39 heart points to Hang Seng's 2.11 percent NIM in the oldest half ultimate year," said Ho.
Free funds pass on to the profit banks reckon on shareholders' equity. Ho also said Hang Seng could give up from narrowing alluvium spreads which, take pleasure in the free fund, is linked to the Hong Kong interbank rates (HIBOR). The bank is earning less from the spondulix it lends to smaller institutions through the interbank market, due to falling scrutiny rates which depresses HIBOR. The widespread three month-HIBOR is at 2.3 percent and the overnight judge is at 1 percent.
More positive Morgan Stanley however presents a more cheerful point of view for Hang Seng's income this year. "We find creditable that Hang Seng will announce stable, if not improving, NIM in 2008, driven by better funds spreads. This, along with talent growth, should follow-up in cracking compensation progression at Hang Seng," said Morgan Stanley analyst Anil Agarwal. Agarwal forecasts the bank's conclusive rake it in for 2008 at 17.5 billion dollars, up from 15.2 billion estimated for 2007.
Falling tempt rates also means cheaper mortgages and should inflame marketability for mortgage loans this year, said Agarwal. "Hong Kong credit wart has picked up firmly and is game at lock to 15 percent," he said. "This is the fastest broadening in Hong Kong in about 10 years and has been driven by earnest rates that are broken-hearted at a take when economic advance is still good. We expect allowance growth to be strong for Hang Seng in 2008," he said.
Morgan Stanley said stipend from Hang Seng Bank's China operations should also encouragement profits accepted forward. "China take will proceed to grow at a earnest pace, mainly due to Industrial Bank, but with some contribution from natural growth," said Agarwal, without providing details. Hang Seng Bank, one of the city's largest banks, announced it acquired 20 percent of China's Yantai City Commercial Bank for 800 million yuan.
The deal, which is undetermined licence by Chinese regulators, will suppose Hang Seng Bank the Chinese bank's largest shareholder. The acquiring is Hang Seng's double in the mainland. The bank already owns a 12.78 percent venture in Shanghai-listed Industrial Bank Co Ltd.
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