BOC-HK's offshore RMB business gains revealed increased NIM

Strong NIM and loan growth also predicted.

It has been noted that partly due to the increase in offshore RMB lending quota to mainland corresponding banks (MCBs), Bank of China (Hong Kong)'s NIM widened 3bps HoH to 1.70% in 2H13.

According to a research note from Maybank Kim Eng, BOCHK continued to increase its RMB lending to MCBs and lengthen the duration of this lending in 1H14. In line with this, it raised BOCHK's NIM forecast from 1.68 percent to 1.72-1.73% for 2014-15.

The report also said that given the strong demand for cross-border trade finance and term loans, we also raise our loan growth forecasts from 8-9 percent p.a. to 10-11 percent p.a. during 2014-15.

Here's more from Maybank Kim Eng:

We believe BOCHK has suffered from a decline in securities brokerage fees and slower growth in distribution of equity funds and RMB-denominated life policies in 1H14. We lower our net fees forecast by 7% for 2014.

The recent depreciation of RMB/USD has prompted an increase in FOREX hedging business volume. We raise our FOREX income forecast by 12% for 2014. We expect net fees and FOREX income will contribute 25.4% of BOCHK’s total income in 2014.

With weakening economic growth in China, BOCHK has classified lending to industries with excess capacity and companies with deteriorating financial positions as NPLs. This should result in a rise in its collective loan impairment allowance ratio (0.4% in Dec 2013). We thus raise our credit cost forecast from 0.1% to 0.11% for 2014.