Hong Kong banks Report Interpretation

Overview

This sector earnings review finds that Hong Kong banks’ 1H26 results were broadly ahead of expectations. JPMorgan attributes the outcome chiefly to stronger pre-provision operating profit, particularly non-interest income, while viewing the easing asset-quality overhang and a higher normalized rate environment as supportive for the next 6–12 months.

Core views

JPMorgan reports that 1H26 earnings across its Hong Kong bank coverage grew 33% year on year on average, a marked improvement from 4% growth in FY25. The average was skewed by roughly 50% earnings rebounds at HBAP and HSB, driven by much lower credit costs and better non-operating items. Elsewhere, earnings growth was generally in the high single digits to low teens, supported by resilient or better-than-expected pre-provision operating profit (PPOP). HBAP and Standard Chartered Hong Kong maintained superior returns on equity, helped by materially lower credit costs. Net interest margins contracted sequentially at most banks in 1H26, which JPMorgan regards as unsurprising given lower HIBOR during the period. The forward outlook is less clear: asset yields should remain resilient, but deposit competition and a steepening yield curve could make funding-cost management harder. Even so, the institution expects balance-sheet expansion to support at least single-digit net-interest-income growth over the next 12–18 months. Loan growth improved, with sector growth reaching 6.2% year on year in 2Q26 from 4.7% in 1Q26, largely driven by trade finance and lending outside Hong Kong. Most covered banks still grew more slowly than the industry in 1H26, partly because they continued to de-risk commercial-real-estate exposure. JPMorgan expects this drag to diminish over time, but notes that banks remain cautious on FY26 loan-growth prospects because the Mainland China economic outlook has not materially improved and geopolitical uncertainty remains high. Sector loan growth nevertheless rose further to 7.7% year on year in July. Non-interest income was the key support for PPOP. Most banks reported better-than-expected non-interest income and a larger contribution to operating revenue. Wealth-management fees and investment/trading activity were resilient, with double-digit wealth-management growth across banks. BOCHK was the exception in reported revenue: under IFRS 17, solid BOC Life policy sales increased contractual service margin, which is released into revenue in later years rather than immediately recorded as fee income or insurance profit. Banks also indicated no clear adverse effect so far from the new ODI rules and did not expect cross-border-flow demand to be materially deterred by greater regulatory scrutiny or taxation. Credit costs remained divergent but were broadly consistent with management guidance. They were benign or lower year on year at large banks but still elevated at mid- and small-cap banks. JPMorgan highlights that management did not signal renewed concern or adverse developments in Hong Kong or China commercial real estate, while loan exposure continued to decline in 1H26. Falling collateral values in individual delinquent cases mean local Hong Kong banks’ credit costs could remain above trend in FY26 and FY27; however, the year-on-year movement is more likely to become an earnings tailwind than a headwind. The institution remains positive on the sector after Hong Kong banks outperformed the Hang Seng Index by 40% year to date. It sees more tailwinds than headwinds in the coming 6–12 months from a higher normalized rate environment, a decent wealth-management outlook and a receding asset-quality overhang. Its large-cap preference is Standard Chartered, then HSBC, then BOCHK. JPMorgan favors Standard Chartered over HSBC because it expects ROTE expansion of about 430 basis points from 2025 to 2028 for Standard Chartered, versus about 140 basis points for HSBC. Both should benefit from a hawkish Federal Reserve, but HSBC has increased hedges that reduce net-interest-income sensitivity to rate moves, while Standard Chartered continues to benefit from a widening US–China interest-rate spread through RMB-related business. Relative to BOCHK, JPMorgan considers HSBC and Standard Chartered to have lower China/Hong Kong CRE tail risks and slightly better TSR on the latest 1H26 measures.

Analysis framework

JPMorgan reviews first-half earnings through profit growth, PPOP and return metrics, then separates net-interest-margin, loan-growth, non-interest-income and credit-cost drivers. It compares bank operating and risk metrics, including NIM, fee income, PPOP, credit costs, CET1 and CRE exposure, before ranking large-cap banks by expected profitability, rate sensitivity, wealth-management momentum and CRE risk.

Methodology notes

• Corporate Fundamentals and FinanceDuPont analysis

  DuPont analysis of revenue, costs, provisions, returns on assets, leverage and return on equity.

  The report uses this breakdown to show how non-interest income, operating costs and credit provisions shaped PPOP, ROAA and ROAE across Hong Kong banks in 1H26.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• Standard Chartered Plc (HK) (2888.HK)

  JPMorgan’s preferred large-cap Hong Kong bank and an Overweight-rated name.

  Strengths

  Expected ROTE expansion of about 430bps from 2025 to 2028 and benefit from a widening US–China interest-rate spread via RMB-related business.

  Weaknesses

  TSR measures in 1H26 were slightly below expectations.

  Comparison

  Preferred over HSBC because HSBC’s expected ROTE expansion is about 140bps; viewed as having lower China/Hong Kong CRE tail risk than BOCHK.

  Risks

  Funding-cost management could become more difficult amid deposit competition and a steepening yield curve.

• HSBC Holdings plc (0005.HK)

  An Overweight-rated large-cap bank, ranked second behind Standard Chartered.

  Strengths

  Strong wealth-management momentum in 3Q and revenue tailwinds from a hawkish Federal Reserve.

  Weaknesses

  Higher hedging reduces NII sensitivity to rate changes, limiting NII upside even if the yield curve rises.

  Comparison

  Ranked below Standard Chartered because its expected 2025–2028 ROTE expansion is ~140bps versus ~430bps for Standard Chartered; viewed as lower CRE-tail-risk than BOCHK.

  Risks

  A limited NII response to higher rates because of increased hedging.

• Bank of China (BOCHK) (2388.HK)

  An Overweight-rated large-cap bank, ranked third among JPMorgan’s preferred large-cap names.

  Strengths

  The report notes decent BOC Life policy sales, reflected in contractual service margin growth under IFRS 17.

  Weaknesses

  Reported non-interest-income performance was affected by IFRS 17 timing, and its TSR measure was slightly below expectations.

  Comparison

  Ranked below Standard Chartered and HSBC, which JPMorgan considers to have lower China/Hong Kong CRE tail risks and slightly better TSR on the latest 1H26 measures.

  Risks

  Greater relative exposure to China/Hong Kong CRE tail risks.

Key data

• Average covered-bank profit growth33% YoY in 1H26Compared with 4% YoY growth in FY25.
• Sector loan growth6.2% YoY in 2Q26Up from 4.7% YoY in 1Q26; reached 7.7% YoY in July.
• Expected net-interest-income growthAt least single digitJPMorgan expectation for the coming 12–18 months, supported by balance-sheet expansion.
• Standard Chartered expected ROTE expansion~430bps from 2025 to 2028Versus HSBC at ~140bps.
• Hong Kong bank performance versus HSI40% outperformance YTDAttributed to resilient operating performance.

Impact & implications

JPMorgan’s positive sector view rests on operating resilience rather than margin expansion alone: non-interest income, wealth-management activity, improving loan growth and a less severe asset-quality overhang are expected to offset funding-cost challenges. It sees Standard Chartered as the strongest large-cap expression of these themes, followed by HSBC and BOCHK.

Risks

• Deposit competition and a steepening yield curve could make funding-cost management more challenging.
• Weakness in the Mainland China economic outlook and high geopolitical uncertainty could constrain loan-growth appetite.
• Credit costs at local Hong Kong banks could remain above trend in FY26 and FY27 as collateral values in individual delinquent cases continue to decline.

What to watch

• Whether asset yields remain resilient and whether deposit competition further pressures funding costs.
• The pace and composition of loan growth, especially trade finance and lending outside Hong Kong.
• Wealth-management fees, investment/trading income and the effect of ODI-rule scrutiny on cross-border flows.
• Credit-cost normalization, CRE exposure reduction and any renewed deterioration in Hong Kong or China CRE.