Hong Kong banks Report Interpretation

Overview

This monthly review assesses Hong Kong banks’ August operating backdrop, including credit growth, funding conditions and asset quality. JPMorgan remains constructive on the sector after better-than-expected first-half results and ranks Standard Chartered ahead of HSBC and BOCHK among large-cap banks.

Core views

Hong Kong bank shares broadly tracked the Hang Seng Index and Hang Seng Financials in August after strong outperformance in July, even though 1H26 results were generally better than expected and operating trends improved further during the month. JPMorgan retains its positive sector view for the coming 12–18 months, arguing that operational tailwinds should outweigh headwinds and that total shareholder return remains reasonably attractive. Its large-cap preference is Standard Chartered (STAN), followed by HSBC and BOCHK. Credit growth continued to improve. Industry loan growth reached 7.7% year on year in July, up from 6.2% in June and extending an upward trend that began in May 2025; loans used outside Hong Kong grew 11.1% year on year and were the principal driver. Mortgage growth also recovered alongside the property market, rising 4.0% year on year from 3.7% in June. BOCHK led completed mortgages in 8M26 with 17,740 units and a 31.7% share, ahead of HSBC’s 13,491 units and 24.1%; HSBC led the off-plan market with 1,019 units and a 25.2% share. The industry loan-to-deposit ratio declined 26 basis points month on month to 52.6% as deposits grew strongly, while the CASA ratio edged up to 43.8% from 43.4%. Funding conditions remained manageable despite rising deposit costs. The 1-month and 3-month SOFR-HIBOR gaps were broadly stable at 99 basis points and 82 basis points, respectively. Aggregate balances plus Exchange Fund Bills and Notes remained around HK$1.4 trillion and the HKD/USD rate was broadly unchanged at 7.84 at August-end. The composite interest rate increased for a fourth consecutive month to 1.42% in July from 1.37% in June, but higher HIBOR kept implied deposit spreads broadly stable, rising 1 basis point month on month. Deposit competition remained rational, although banks increasingly used deposit campaigns, including longer 12-month terms, to lock in funding costs ahead of a potential mid-September Federal Reserve rate increase. Asset quality indicators remained stable. Three-month and six-month mortgage delinquency ratios held at 0.11% and 0.08%, respectively, in July and had declined since February as property markets stabilized. Hong Kong unemployment remained at 3.7% for a fifth month, while bankruptcy petitions rose 1.3% month on month to 835 in July but completed bankruptcy cases fell 31.9% to 616. JPMorgan says better-than-expected 1H26 results confirmed its expectation of resilient pre-provision operating-profit momentum and stabilizing asset quality as earnings tailwinds over the next 6–12 months. It nevertheless notes that share buyback scale at HSBC and Standard Chartered was slightly below expectations and that BOCHK’s special dividend was also slightly below expectations. Standard Chartered is preferred because JPMorgan expects superior ROTE expansion versus HSBC over 2025–28, alongside slightly better TSR and materially lower commercial-real-estate tail risk than BOCHK.

Analysis framework

JPMorgan combines sector operating indicators—loan and mortgage growth, deposit mix, interbank-rate spreads, funding costs and delinquency data—with first-half earnings outcomes, valuation metrics and relative share-price performance. It then compares bank-specific mortgage positions, projected ROTE trends, TSR and CRE risk to establish its large-cap preference order.

Methodology notes

• Industry AnalysisSupply-demand framework

  Banking-sector operating analysis using loan demand, deposit growth, funding costs and credit quality.

  The report assesses whether improving credit demand and stable funding and asset-quality conditions can support sector earnings.

• Valuation methodsPB valuation

  Cross-bank valuation comparison using price-to-book ratios alongside P/E, ROE and dividend yield.

  The valuation table provides a comparative view of the banks’ expected 2026–27 valuation, profitability and income metrics.

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.

  Strengths

  Expected superior ROTE expansion versus HSBC during 2025–28; slightly better TSR.

  Weaknesses

  Share-buyback scale was slightly below expectations in 1H26.

  Comparison

  Ranked ahead of HSBC and BOCHK.

• HSBC Holdings plc (0005.HK)

  Covered large-cap bank ranked behind Standard Chartered but ahead of BOCHK.

  Strengths

  Led off-plan mortgages in 8M26 with a 25.2% share.

  Weaknesses

  1H26 share-buyback scale was slightly below expectations.

  Comparison

  Ranked below Standard Chartered in JPMorgan’s large-cap preference order.

• Bank of China (BOCHK) (2388.HK)

  Covered large-cap bank ranked third in JPMorgan’s preference order.

  Strengths

  Led completed mortgages in 8M26 with a 31.7% share.

  Weaknesses

  Special dividend was slightly below expectations.

  Comparison

  Ranked below Standard Chartered and HSBC.

  Risks

  JPMorgan sees higher CRE tail risk relative to Standard Chartered.

• Dah Sing Financial (0440.HK)

  Covered Hong Kong bank included in the valuation summary.

• Dah Sing Banking Group (2356.HK)

  Covered Hong Kong bank included in the valuation summary.

Key data

• Industry loan growth7.7% YoY in July 2026Up from 6.2% in June; loans used outside Hong Kong grew 11.1% YoY.
• Mortgage lending growth4.0% YoY in July 2026Up from 3.7% in June.
• BOCHK completed-mortgage share31.7% in 8M2617,740 units; HSBC ranked second with 24.1%.
• Industry loan-to-deposit ratio52.6% in July 2026Down 26bps month on month, mainly because of strong deposit growth.
• CASA ratio43.8% in July 2026Up from 43.4% in June.
• 1M / 3M SOFR-HIBOR gap99bps / 82bpsBroadly stable in August.
• Composite interest rate1.42% in July 2026Up from 1.37% in June, the fourth consecutive monthly increase.
• Mortgage delinquency ratios0.11% over three months / 0.08% over six monthsUnchanged from June and declining since February.

Impact & implications

JPMorgan considers accelerating lending, recovering mortgages, stable deposit spreads and stable credit quality supportive of bank earnings. It expects these conditions to underpin resilient pre-provision profit momentum, with Standard Chartered its preferred large-cap exposure because of projected ROTE expansion, TSR and lower CRE tail risk versus BOCHK.

Risks

• Commercial-real-estate tail risk is materially higher for BOCHK than for Standard Chartered, according to JPMorgan.
• A potential Federal Reserve rate increase could affect Hong Kong funding conditions, although the report notes that banks are seeking to lock in funding costs.