Morgan Stanley released a research report stating that Credit Suisse published a research report indicating that Bank of East Asia (00023) has marginal downside risks in net interest income, especially in its China business. Although non-performing loans are still relatively limited so far, Hong Kong's commercial real estate is increasingly under focus; and unfavorable macroeconomic conditions may delay the improvement of shareholder return on equity. The report gives Bank of East Asia a buy rating, but lowers the target price from HK$12 to HK$11.5.

The bank pointed out that Bank of East Asia's net interest margin may have peaked in the fourth quarter of last year and continued to slow down in the first and second quarters of this year. The bank can hedge against long-term or interest rates to maintain the level of net interest margin in the Hong Kong market, but the choice in the Chinese market is relatively limited. Due to the slowdown in loan growth and margin compression, net interest income is expected to decrease slightly by 2% this year.

The report stated that due to the weak interbank interest rate (HIBOR) and the deterioration of Hong Kong's macro economy, a cautious attitude towards local banks in Hong Kong has been taken. It was previously pointed out that Hang Seng Bank (00011) has declining net interest income and provisioning risks, and is more bullish on international banks and Singapore banks due to their more diversified risk exposure and stronger non-guaranteed business.