UBS published a research report stating that HIBOR is expected to stabilize at 2% to 2.5% by the end of the third quarter. The bank reaffirms its cautious attitude toward Hong Kong commercial real estate risks, as a HIBOR rebound could exacerbate bad loan risks for banks' Hong Kong commercial real estate exposure, further increasing provisioning pressure.

In the medium term (3 to 6 months), BOC Hong Kong (02388) remains the bank's preferred choice among the local Hong Kong banks it covers, though the stock price may experience some decline in the short term. The bank maintains "Neutral" ratings on BOC Hong Kong and Bank of East Asia (00023), while rating Hang Seng Bank as "Sell."

The bank recently downgraded Hang Seng Bank's rating from "Neutral" to "Sell" due to rising credit costs and potential dividend cuts in 2025. The bank believes BOC Hong Kong also faces downside risks in the short term, as its stock price has risen 52% year-to-date, potentially leading to profit-taking by investors, and the upcoming first-half results announcement may result in upward revisions to credit cost guidance.

UBS notes that while a HIBOR rebound benefits banks' net interest margins and net interest income, it believes the market has already anticipated HIBOR stabilizing at 2% to 2.5% for the remainder of the year. For Hong Kong banks, the bank expects third-quarter net interest income compression pressure to be higher than in the second quarter, as the negative impact in Q2 lasted only about one month, and loan demand may weaken again as interest rates rise.

The bank suggests that after loan balance growth of 2% in May and June, whether this growth momentum can be sustained remains to be observed. For 2025 forecasts, the bank expects net interest income for BOC Hong Kong, Hang Seng Bank, and Bank of East Asia to decline by 7%, 9%, and 11% respectively.