Guess which banks are best geared to rising US interest rates

Interbank rates have remained low since 2008.

According to Barclays, banks benefit most when short-term interest rates and benchmark rates rise. The majority of loans are typically priced on either Prime or Hibor (with the exception of some fixed rate products like credit cards). 

Prime and interbank rates have remained low since 2008 and our economics team does not expect any change until 2015.

Here's more from Barclays:

Based on our sensitivity analysis, Hang Seng Bank and HSBC are most positively geared to rising interest rates.

As Hibor and Libor rise on expectations for interest rates to rise, there is an initial positive impact on margins and pretax profit. 

Hang Seng Bank and HSBC are most positively geared to rising US interest rates as they have a high proportion of current and savings deposits and a low loan-to-deposit ratio. 

Standard Chartered also benefits but we estimate that 50% of its interest-earning assets are not geared to US rates. BOCHK has higher proportion of RMB surplus liquidity and assets which is not sensitive to US rates.

Note that based on HSBC’s disclosure on the sensitivity to its net interest income from an incremental 25bp parallel rise in the yield curve at the beginning of each quarter from 1 January 2013, net interest income will rise by US$1,391mn (all yield curves), and US$441mn for the US-geared geographies.

This is equivalent to an additional 0.7% FY13E pretax profit for US-geared geographies and 2.1% for the entire group for every 25bp parallel shift in the yield curve on our estimates.

Our forecast for 1.4% PTP benefit for 25bp rise in Prime and Hibor as shown in Figure 19, is based on our analysis of HSBC’s interest earning assets and liabilities, consistent with the local Hong Kong banks.