INDEX
Margins Outlook p10
Growth Outlook p18
Risk Analysis p29
Valuation     32
Bear Views & Blue Skies p38
COMPANY SECTION  44
Bank of China HK  p49
Bank of East Asia  p65
Hang Seng Bank  p78
AT A GLANCE
Sector Overview We believe that the worst seems to be over in terms of earnings momentum. Further growth impetus is expected to arise from improving loan demand coupled with gradually improving margins.
Key Players There are two global plays (HSBC and Standard Chartered) and eight other listed local banks. Among the local banks, HSB can be characterized by conservative management with stable earnings. BOC HK, as a sole RMB clearing bank, poised to benefit from China related growth. It also has the largest market share in mortgage market. BEA is touted as an M&A target, and also plans for A-share listing of its China subsidiary Maturity HK banking sector is a mature market, and the overall earnings stability is the best in the region. As a result, payout ratios of HK banks are relatively higher than other peers in the region. Growth As a mature market, the growth potential is rather limited. Accordingly, many banks are looking for growth drivers from outside Hong Kong, especially from China. M&A Activity There are M&A interests for small and medium sized Hong Kong banks to utilize it as a platform to capture increasing China related business. Its low Herfindahl-Herschman Index means more M&As ahead. Competitiveness Given that the market is saturated, the competition is severe. The recent expansion of mainland banks into Hong Kong makes the situation worse.