According to Citigroup's report, Hong Kong bank stocks rose 15% in the second quarter, outperforming the Hang Seng Index during the same period. This was mainly due to the market's easing of concerns about asset quality and individual banks improving their capital return. Recently, the market has once again focused on the performance of local commercial real estate and the headwinds of short-term net interest margins, causing bank stocks to pull back. The bank estimates that the net interest margin will remain resilient in the second half and that commercial real estate loan losses will remain manageable.

The bank prefers HSBC (00005.HK) among bank stocks, with a tangible return on equity of 14% to 15% excluding Canada and Argentina, and a current price-to-tangible book value of one times. In addition, it holds a positive 90-day view for Hang Seng (00011.HK) and is expected to announce a new buyback plan in the second half. The rating of BEA (00023.HK) has been downgraded to 'neutral' because the normalization of credit costs is progressing slowly, with limited room for short-term capital return.

Citigroup has adjusted its investment ratings and target prices for some bank stocks, as listed below:

Stock | Investment Rating | Target Price (HKD)

Bank of East Asia (02388.HK) | buy | HKD 28.2 → HKD 27.6

BEA (00023.HK) | buy → neutral | HKD 10.6 → HKD 9.5

Hang Seng Bank (00011.HK) | neutral | HKD 109 → HKD 106

HSBC (00005.HK) | buy | HKD 74

Standard Chartered Group (02888.HK) | neutral | HKD 72.1

(cy/u)

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