HK Stock Market Move | Afternoon plunge in domestic bank stocks leads to widening losses. Auditing agency calls out several banks by name. Institutions point out concerns over profit ceiling due to pressure from size expansion.

Domestic banking stocks saw their afternoon losses widen. As of the time of writing, Bank Of China (03988) fell by 5.5%, trading at 4.98 Hong Kong dollars; Agricultural Bank Of China (01288) fell by 3.23%, trading at 5.4 Hong Kong dollars; Industrial and Commercial Bank of China (01398) fell by 2.51%, trading at 6.6 Hong Kong dollars; China Construction Bank Corporation (00939) fell by 2.47%, trading at 8.28 Hong Kong dollars. On the news front, on June 23, the Audit Office reported to the Standing Committee of the National People's Congress on the audit of the central budget execution and other fiscal revenues and expenditures in 2025, with about 7 financial institutions being named. Among them, Agricultural Bank Of China had lax pre-lending review, illegally granting loans totaling 11.066 billion yuan to non-high-standard agricultural land projects, with some funds being misappropriated for purchasing wealth management products and debt repayment; Bank Of China used the policy of exempting income tax for public funds to evade taxes amounting to 2.367 billion yuan. Dongxing pointed out that since 2026, the banking index has cumulatively fallen by 2.4%, underperforming the Shanghai Composite Index by 8.8 percentage points, ranking lower in terms of growth in the industry index. From an absolute return perspective, the main concern is the pressure on profit ceiling brought about by the weak financing demand of real entities and the growth of banking scale. From a relative return perspective, it is mainly affected by market risk preferences. In April-May this year, the sector showed a defensive attribute, mainly reflecting increased market volatility and convergence of risk preferences, leading to the defensive nature of the banking sector.