ICBC Hong Kong's loan growth to boost earnings by 10%

Demand for project financing and mortgages will push loans up.

The Industrial & Commercial Bank of China Hong Kong faces the year ahead on steady financial footing as analysts remain bullish that new loans of about $157.35b (RMB1t) will drive its earnings up by 10% for 2018, according to a research report from UOB Kay Hian.

“We expect Industrial & Commercial Bank Of China (ICBC) to report loan growth of 7-8% and new loans of about Rmb1t for 2018, driven by project financing and residential mortgages,” said UOB Kay Hian, amidst a steady stream of various infrastructure projects in transportation, public utilities and environmental protection.

Hong Kong red-hot property market which features skyrocketing home prices is driving robust demand for residential mortgages which accounted for almost half (43%) of ICBC’s new loans in the first half of 2017.

UOB added that investments in debt securities is similarly expected to rise between 7-8% especially municipal bonds.

Here’s more from UOB Kay Hian:

Yields of new corporate loans increased 30-40bp yoy in 2H17.The re-pricing of new corporate loans would have a positive impact on NIM after a lag of two quarters in 1H18. ICBC currently prices new mortgages at 5-10% above benchmark interest rates, vs 5% below benchmark a year ago.

Deposits are expected to expand by a slower 6-7% in 2018 due to intense competition for deposits. ICBC intends to maintain lean costs of deposits (1H17: 1.43%) by ensuring that demand deposits account for more than 50% of new deposits.

ICBC has a solid reputation in running a conservative and astute wealth management business. It has the largest outstanding WMP balance of Rmb2.9t as of Sep 17. Unfortunately, fees from WMP would be under significant pressure due to unified regulations on WMP, which are currently under-going industry consultation. ICBC’s WMP are already individually managed and accounted. However, NAV-type WMP made up just 6.3% of total outstanding balance for WMP. ICBC has to educate its customers to increase the acceptance for NAV-type WMP.

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