A stress test performed by the U.S. bank projected that local lenders including Hang Seng Bank and Bank of East Asia could see earnings slump 24 percent to 45 percent next year.
In the following year, the bank's earnings could drop 39 percent to 67 percent respectively, J.P. Morgan analysts led by Jemmy Huang told clients in a note on Monday. That would lead to a meaningful deterioration in return on equity and core capital buffers. The firm downgraded Hang Seng Bank to underweight from neutral and said they are taking a cautious view of lenders in the city.
Months of protests, a worsening economy amid the U.S.-China trade war, and a plunge in property prices could translate into severe pain for Hong Kong’s banks. The situation threatens to undermine the city’s status as a «safe haven» for customers’ savings, according to J.P. Morgan's analysts.
Most And Least Affected
This follows a similar call by Morgan Stanely analysts earlier this month, who cut the sector's outlook. They foresee that bank stocks will underperform as a slowing economy and falling rates hurt profitability.
Hang Seng Bank is likely to be hit the most among peers due to its higher leverage and concentration of Hong Kong-dollar denominated portfolio, the analysts said. BOC Hong Kong Holdings may fare better given its sufficient capital position to sustain dividend yields even under stress tests, according to the note.
