UBS: Hong Kong banking sector expected to return to positive revenue growth in 2026-2027

UBS Global Research noted that Hong Kong's banking sector earnings outlook continues to improve, driven by the restart of the Federal Reserve's rate hike cycle, a recovery in loan demand, and stabilizing asset quality. System loan year-on-year growth accelerated from 2.3% in 2025 to 8.4% in August 2026. Li Heqing, Greater China financials analyst at UBS Global Research, said that supported by an upward rate outlook, recovering loan demand, and declining credit costs, the bank expects Hong Kong's banking sector to return to positive revenue growth in 2026-2027. In addition, the gradual stabilization of Hong Kong's commercial real estate market, with improving rents for office space and core retail shops, helps ease pressure on banks' credit risk. As credit costs gradually normalize, combined with improving revenue growth, UBS expects Hong Kong's banking sector to regain positive revenue growth in 2026-2027, with room for further earnings upgrades. Li Heqing believes that Hong Kong's banking sector is benefiting from rate hikes and trade demand, with a solid earnings growth outlook. The market currently expects the Federal Reserve to raise rates by a cumulative 75 basis points by the end of 2027. The one-month Hong Kong Interbank Offered Rate rose from 2.53% in the first half of 2026 to 2.77% in the third quarter of 2026, and has remained at about 2.9% quarter-to-date in the fourth quarter. The bank expects net interest margins to widen further and net interest income to increase, noting that rising rates have not weakened loan demand. System loan year-on-year growth accelerated from 2.3% in 2025 to 8.4% in August 2026, mainly driven by trade-related activities, providing additional support for revenue growth. Li Heqing pointed out that the bank expects the earnings contribution from increased net interest income and loan growth to exceed any losses from mark-to-market valuation of trading securities. In addition, stabilizing fundamentals in Hong Kong's commercial real estate (reflected in improving rents for office space and core retail shops) will help drive the gradual normalization of credit costs, further supporting earnings upside. Therefore, the bank expects industry revenue to return to positive growth in 2026-27.