BOCHK posts higher profit as lower credit costs offset margin pressure

Bank of China (Hong Kong) recorded a 7.1% year-on-year rise in first-half net profit, driven by decreased impairment charges and an improved net interest margin, which helped counteract persistent downward pressure on lending margins due to declining Hong Kong interbank rates. For the six months ending June 30, shareholder profit reached HK$23.74 billion (US$3 billion), or HK$2.2453 per share, surpassing analysts' projected HK$22.94 billion.

The bank's net interest margin, inclusive of foreign exchange swap contract income, was 1.57%, compared to 1.54% the previous year. Credit costs had eased during the period, bolstering the lender's bottom line following higher impairment charges in recent years. Notably, impairment allowances were HK$2.38 billion, a 26.9% decrease from approximately HK$3.26 billion the prior year, with the impaired loan rate at 0.89% versus 1.02% at the end of June 2025.

Hong Kong banks are adjusting to a new monetary policy landscape shifting away from the previously high-rate environment that previously boosted margins. As per a KPMG analysis of Hong Kong's banking sector published in June, lenders have streamlined cost-to-income ratios and increased reliance on fee-based services to mitigate margin pressures, even as credit quality across the sector remained stable.

However, industry-wide net fee and commission income declined by 5.8% to HK$5.98 billion, primarily due to a 40.5% drop in insurance and trust custody services commission income and a 22% fall in trust and custody services. The decline in credit card commission income, which dropped 12.2% amid a retail spending recovery, was partially offset by a 55.1% increase in wealth management activity and a 78.2% jump in funds distribution and management commission income.

The bank's insurance business witnessed stronger sales, with standard new premiums rising by 27.9% year-on-year to HK$18.96 billion, while contractual service margin increased by 23.6%. The board declared an interim dividend of HK$0.8188 per share, up from HK$0.58 in the first half of 2025, and approved a three-year shareholder return program for 2026-2028, projecting additional shareholder returns of at least HK$10.5 billion over the period.

The announcement came after BOCHK completed its five-year strategic plan, with return on average shareholders' equity reaching 13.18% in the first half of 2026, compared to 12.86% a year earlier. BOCHK's shares closed up 2.27% at HK$50.97 on Friday, prior to the release, while the benchmark Hang Seng Index remained unchanged.