Hong Kong commercial property's asset quality stays resilient, DBS says

Hong Kong commercial real estate's asset quality stayed resilient despite a sluggish market, said DBS Hong Kong.

The lender posted its non-performing loan ratio at 1.6 percent for the first half year, 0.41 percentage points higher than a year ago.

Chief executive Sebastian Paredes said that most of the non-performing loans are concentrated in small and medium-sized enterprises and property developers, though most of these exposures are collateral-backed.

The bank said the city's commercial real estate accounts for nearly 30 percent of its total loan book, while residential mortgage assets make up 6 percent.

He expected that the commercial real estate market would continue to face challenges in the future, saying that“I don't see an immediate solution to the vacancy rate issue.”

In addition, it posted a record high first-half net profit of HK$5.1 billion, a growth of 11 percent.

Total income rose 8 percent to HK$10.5 billion, powered by the 22 percent growth in non-interest income primarily led by wealth management and trading income.

Its net interest income remained flat at HK$5.9 billion, while its net interest margin declined five basis points to 1.75 percent due to the lower Hong Kong interbank offered rate.

Paredes said that pressure on the net interest margin of banks will continue in the future, expecting that the net interest margin will hover between 1.67 to 1.7 percent for the rest of the year, and 1.5 to 1.6 percent for next year.

The bank internally estimated that there would be two interest rate cuts in the US in September and December this year, as well as three rate cuts next year.

The lender's total allowances increased 18 percent to HK$636 million amid a weak economic environment and tariff uncertainty.

Loans dropped 5 percent in total to HK$372 billion, impacted by the continued rate differential with the mainland.

HELEN ZHONG