Hang Seng profit up 14pc as bad debts rise
Hang Seng Bank has reported better-than-expected growth in first-half net profit, but its bad-debt provision also rose substantially.
The Hong Kong-based subsidiary of HSBC yesterday posted a 14 per cent profit gain to HK$9.3 billion, driven by growth in traditional lending and trading, which was partly offset by a 5 per cent drop in fee income as investors pulled back investments amid volatility. But the bank still beat market expectations of 5 to 10 per cent growth.
Announcing the results for the first time, new vice-chairwoman and chief executive Rose Lee Wai-mun said the first-half result was satisfactory, but she warned of tougher times ahead. 'The second half is full of uncertainties that will be a challenge to the banking sector ... The euro-zone crisis won't be solved in the near term, while banks will have to offer higher interest rates to compete for deposits, particularly yuan deposits. We will continue to [be prudent].'
Lee said Hang Seng had very little European sovereign debt exposure and had stopped investing in Europe.
But a high bad-debt figure cast a cloud over the otherwise strong results. Bad debts rose 57.6 per cent to HK$249 million because of credit downgrades of some corporate clients. Bad-debt provision for individual firms rose even more sharply, by 661 per cent, to HK$128 million.
Lee, however, said: 'Bad-debt provisions rose because of a low base last year. Bad debts represent only 0.33 per cent of our total loans, which is at a very low and healthy level. China's economy may slow down a bit but there is no widespread credit-quality problem on the mainland.'
Ben Kwong Man-bun, chief operating officer of KGI Asia, said that Hang Seng Bank focused on Hong Kong and the mainland, it was less affected by the euro-zone crisis. 'However, the sharp growth in its bad-debt provision is alarming and shows its Hong Kong and mainland clients are suffering as a result of the economic slowdown in the US and Europe.'
Lee, a China adviser at HSBC, took over the helm from Margaret Leung Ko May-yee, who retired in May. She has vowed to expand Hang Seng's mainland business. The mainland represents 23 per cent of pre-tax profit, up from 18 per cent last year.
With earnings per share of HK$4.87, the bank announced a second interim dividend of HK$1.10 per share - bringing first-half dividends to HK$2.20 per share.
Total loans grew 5 per cent in the first half to HK$506.6 billion, driven by increased corporate lendings, residential mortgage and mainland loans, while deposits rose 4 per cent.
Hang Seng benefited from a wider net interest margin - the gap between its funding cost and the price it charges clients - which stood at 1.85 per cent in the first half, up 10 basis points from a year earlier. Lee admitted banks might need to pay more for deposits in the second half. Total net interest income rose 8.29 per cent to HK$8.29 billion and trading income rose 26 per cent to HK$1.17 billion.