Chance for LPR cut next week rises, ICBC and Bank of Communications favored among banking stocks – HSBC Global Research
MACRO POLICY & REGULATION VIEWS & ANALYSIS
Chance for LPR cut next week rises, ICBC and Bank of Communications favored among banking stocks – HSBC Global Research
MACRO POLICY & REGULATION VIEWS & ANALYSIS

Chance for LPR cut next week rises, ICBC and Bank of Communications favored among banking stocks – HSBC Global Research

 

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The People’s Bank of China (PBOC) on Tuesday cut the interest rate on one-year medium-term lending facility (MLF) by 15 bps and cut the 7-day reverse repo rate and standing lending facility (SLF) rate by 10 bps.

There is a growing possibility that the central bank will cut the loan prime rate(LPR), the benchmark lending rate, next Monday, which will have direct impact on the majority of corporate bonds and mortgage loans, said HSBC Global Research remarked in a note. 

However, there should be limited room for the demand deposits rate to be reduced, it said. A reduction of deposit rate will encourage capital to flow towards domestic or overseas non-deposit assets and is anticipated to damage the NIM of Chinese banks by 4-5 bps in 2023, while causing the full-year earnings of the banks to contract by 2.5-8.8%.

Among Chinese banks, HSBC favors ICBC and Bank of Communications, with the H-shares of the two banks rated at Buy. ICBC was favored for its stable dividends while Bank of Communications was favored for its potential to benefit from its orientation to the Yangtze River Delta area. BOC Hong Kong was preferred among Hong Kong banks, with its rating set at Buy.