Hong Kong banks' 2012 income growth pegged at 8%

Thanks to lower credit costs.

According to Barclays, banks in Hong Kong benefited from lower funding costs and benign asset quality conditions in FY12 (reporting season starts on 26 Feb with BEA). 

Looking into FY13, the firm believes abundant liquidity conditions exacerbated by loose monetary conditions and weaker loan demand (6% growth in FY13E) will result in only 5% sector underlying earnings growth.

Here's more from Barclays:

BOCHK (OW), our top pick among local peers, is most geared to any potential offshore RMB developments and best capitalized. We least prefer Hang Seng Bank (UW), which we believe will de-rate over the medium term.

Hong Kong banks' margins likely expanded slightly y/y in FY12 due to looser liquidity conditions in 2012 (vs liquidity squeeze in 2011).

System loans and deposits both rose ~9%-10% in 2012, although deposit growth was largely skewed towards 4Q12 after further quantitative easing in the US resulting in capital inflows into Hong Kong.

Low credit costs could be a potential source for positive earnings surprise as asset quality conditions remain benign both in Hong Kong and in China despite slower economic growth. Overall, we forecast 2012 earnings to grow by 8% y/y on average.