Moody's Investors Service said Wednesday that Hong Kong's banking sector was headed for a dip in earnings and warned that the Hong Kong dollar was becoming increasingly vulnerable to exchange-rate speculation.

''The cycle of Hong Kong's banking has obviously peaked and has started its journey down," the credit rating agency said in a report.Banks here face "new challenges in a period of slowing economic growth, including tighter margins, more competition, slower loan growth, and potential asset quality erosion," the report said.

In addition, the banks have to contend with unique challenges, including uncertainties surrounding the 1997 handover of Hong Kong to China, highly

concentrated property lending exposures, the onset of interest-rate liberalization, and a relatively young regulatory supervision regime, it said.

Hong Kong banks enjoyed average earnings growth of around 30 percent a year early in this decade, underpinned by rapid economic expansion in Hong Kong and China and the ballooning of local stock and property prices, Moody's said.

But the fat years ended when interest rates began rising in early 1994. Dealing profits were cut by volatile markets and loan growth was slowed by cooling international investor interest in China following the Mexican peso crisis, it said.

Moody's said it expects "fewer - but bigger - banks" in Hong Kong, while ''small local banks will need to form alliances to compete," with Hongkong & Shanghai Banking Corp. and the Bank of China group remaining dominant for some time.

The Hong Kong dollar's link to the U.S. dollar, pegged at HK$7.8 to US$1 for the past 12 years, remained vulnerable to speculation as did any fixed or managed-rate regime, it added.