Goldman Sachs: lowers target price for local Hong Kong banks, maintains a "sell" rating for Hang Seng Bank (00011)

Goldman Sachs released a research report stating that, after factoring in the loss expectations for HANG SENG BANK, the average earnings per share forecast for local banks in Hong Kong for the fiscal years 2024 to 2025 will decrease by 5%-8%, while earnings per share for the 2026 fiscal year will remain relatively unchanged. They maintained a "buy" rating for STANCHART (02888), BOC HONG KONG (02388), and HSBC HOLDINGS (00005), and a "sell" rating for HANG SENG BANK (00011). The report pointed out that due to the risk exposure of commercial real estate in both Hong Kong and mainland China, the non-performing loans of local banks in Hong Kong have been increasing. HANG SENG BANK's non-performing loan ratio hit a new high in the first half of this year for the past 30 years. In terms of commercial real estate in Hong Kong, the implied non-performing loan ratio has been increasing, accounting for 14% of the total debt of commercial real estate in Hong Kong, with small and medium-sized enterprises accounting for 55%. Furthermore, if the bank assumes the worst-case scenario, whereby EBIT decreases by 25% or 50% from the 2023 fiscal year level, the implied non-performing loan ratio could further rise to 22% and 39%, exceeding the peak of the ASIA FINANCIAL storm. The bank further pointed out that, taking into account factors such as HSBC's experience during the ASIA FINANCIAL storm, the expected credit losses for commercial real estate loans in Hong Kong are expected to rise to 3.5% from the fiscal year 2024 to 2025. This means that, under baseline and bearish forecasts, the unrevised earnings per share could face downward risks of 8% and 25% respectively, with local small banks in Hong Kong being the most affected and Standard Chartered being the least affected.