UBS Group expressed a more cautious view on Hang Seng Bank (00011.HK) due to the potential weakness in net interest income trend. Factors contributing to this situation include the 49 basis point drop in the interbank lending rate in Hong Kong since the beginning of the year, a 2% decrease in the loan volume in the banking system during the first four months, and a 1% drop in the percentage of deposits held in current and savings accounts to 40%.

It is expected that the bank will experience an 18 basis point narrowing of net interest margin in the first half of the year, as weakened loan demand causes a decline in asset yield, despite the easing of deposit competition and financing costs. The bank predicts that the peak of net interest margin may have occurred in the third quarter of last year, and the high base in the second half of last year may put pressure on this year's net interest income. The bank expects that Hang Seng's net interest margin will remain stable or slightly narrow in the year, with net interest income expected to drop by single to low-digit percentages. However, non-interest income is expected to improve due to credit card and wealth management fee income. Overall, it is forecasted that Hang Seng's half-year revenue will rise by 2.6% year-on-year, but for the full year it will fall by 3.2%.

The bank pointed out that Hang Seng will complete a HKD 3 billion buyback on September 9, and additional buybacks or special dividends may provide potential upside surprises. Hang Seng's strong capital provides further flexibility to return value to shareholders. The bank currently gives Hang Seng Bank a "neutral" rating with a target price of HKD 94.5.