HSBC Research published a report stating that major banks in mainland China have recently lowered deposit interest rates, which is surprising. Although the interest rate for demand deposits is already at a low level, there is still room for further reduction, while the interest rate for fixed-term deposits of 2-5 years has been reduced more than the reduction in LPR. As a result, it is expected that the transfer of deposit costs brought about by the reduction in LPR may increase from the originally expected 25% to nearly 50% to 100%.

The bank assumed that if the transfer rate is 50%, it will have a impact of about 1 to 2 basis points on the bank's net interest margin (NIM), or a profit reduction of 1% to 2.3%. If the transfer rate is 100%, the bank’s NIM may expand by about 1 to 4 basis points because the deposit balance is greater than the loan balance, driving profit growth of about 1% to 5%.

HSBC Research believes that under the People's Bank of China's operations, the pressure on NIMs of Chinese banks may be lower than expected by the market. The research team is bullish on Bank of China (00939.HK), Industrial and Commercial Bank of China (01398.HK), China Construction Bank (03988.HK) and China Merchants Bank (03968.HK) in the sector, and gives them a target price of 7.3, 5.5, 4.2, and 46.5 respectively, all with a 'buy' rating.

In addition, the bank is also bullish on Hong Kong Exchanges and Clearing Limited (00388.HK), which may benefit from the potential recovery of the IPO market. The target price is maintained at 312 yuan and a 'buy' rating is also given.