
Resilience amid macroeconomic volatility; asset quality risks remain contained. Ongoing Middle East tensions are likely to keep policymakers cautious on inflation, delaying rate cut expectations. While the base case remains for modestly lower benchmark rates into FY26F, we continue to expect only a marginal decline in net interest income (NII), supported by active balance sheet management and deposits growth. Overall, earnings should still see slight decline with strong growth in non-interest income (non-NII) buffering weaker NII. While US macro uncertainties are building, the economy has remained relatively resilient. For SG/HK/CH banks, exposure to US, China, and Hong Kong CRE remains a key watchpoint, though overall risks appear manageable for now. Provisioning levels remain prudent with buffers built up over the Covid-19 pandemic providing downside protection. We also expect a gradual stabilisation in Hong Kong CRE, led by early signs of recovery in the residential segment.
US banks reported strong 1Q26 results; non-NII momentum remains solid across Asia. Heightened market volatility should continue to underpin trading and markets income globally. US banks reported strong 1Q26 results, driven by NII growth and robust non-NII, including markets, trading, investment banking revenue amongst others. In Asia, structural growth in wealth management (WM) alongside resilient investment banking activity is expected to sustain solid non-NII expansion. Net new money trends remain healthy, supported by regional inflows and a growing affluent customer base. Fee income diversification should continue to offset any cyclical softness in capital markets activity.
Remain highly selective in banking stocks; shareholder returns remain attractive. We believe US banks are poised for high single-digit y/y earnings growth as investment banking fees and trading income continue to boost non-NII. China banks’ margins have begun to stablilise, which will support slight growth for earnings. Singapore banks may continue to see NII pressures on lower benchmark rates which will weigh slightly on overall earnings while Hong Kong banks are at a more resilient position on a y/y basis as HIBOR is back to a normalised level vs its extreme low level in 2Q25-3Q25. Dividend yields across Singapore, Hong Kong, and China banks continue to be in the spotlight amid a lower yielding environment, offering attractive dividend yields between 4–6%. Capital positions of large banks globally remain strong, supporting continued capital returns through dividends and share buybacks. Managements have reiterated commitment to sustainable payout ratios while retaining flexibility for growth. This should continue to underpin investor interest in the sector.

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