Citibank: The Fed's gradual interest rate hike is slightly positive for the Bank of Hong Kong's profits, and the preferred stock is BOCHK (02388)

The Zhitong Finance App learned that Citi released a research report saying that the Federal Reserve raised interest rates by 25 basis points yesterday, raising the federal funds rate target range to 3.75 percent to 4 percent. The median bitmap shows that there is still one 25 basis point rate hike this year; the forward curve is expected to raise interest rates 3 more times before the end of 2027, and the terminal interest rate is expected to reach 4.5% to 4.75%. The bank believes that the gradual interest rate hike by the Federal Reserve is slightly positive for the Bank of Hong Kong's profits, and BOCHK Hong Kong (02388) is the bank's first choice for Hong Kong bank stocks.

The bank said that it is affected by the maximum preferential mortgage interest rate and the high sensitivity of deposit interest rates to changes in market interest rates, but believes that in a high interest rate environment, the sensitivity of net interest spreads is now significantly reduced. However, if the US interest rate hike exceeds expectations and approaches 5%, it may be unfavorable to the Bank of Hong Kong, China, due to weakening credit demand and rising asset quality risks, which may offset potential interest spread gains.

The bank pointed out that HIBOR tends to lag behind the Federal Reserve interest rate, and the Hong Kong dollar exchange rate is close to the weak side's exchange guarantee. Despite the Federal Reserve's interest rate hike, large banks have large savings account balances. Coupled with the popularity of fixed-rate mortgages in Hong Kong, China, the incentives for banks to raise their best interest rates are low. Recently, in anticipation of the Federal Reserve's interest rate hike, deposit competition also seems to have intensified. More banks are offering interest rates of 3% or more for 6 to 12 month Hong Kong dollar time deposits, so even if net interest spreads can benefit from interest rate increases, the expansion rate may be relatively moderate.

The bank's static analysis estimates that for every 25 basis points of increase in the US and Hong Kong interest rates, BOCHK (02388) and Bank of East Asia (00023) each benefited about 3.5% of profits, but the actual sensitivity was lower if the effects of time deposit migration during the interest rate hike period were taken into account; HSBC Holdings (00005) and Standard Chartered Group (02888) had lower profit sensitivity of 25 basis points per increase due to existing hedging.