Hang Seng profit up 14pc as bad debts rise

PUBLISHED : Tuesday, 31 July, 2012, 12:00am
UPDATED : Tuesday, 31 July, 2012, 12:00am
 

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.

Share

Send to a friend

To forward this article using your default email client (e.g. Outlook), click here.

Enter multiple addresses separated by commas(,)

CAPTCHA
This question is for testing whether or not you are a human visitor and to prevent automated spam submissions.
Image CAPTCHA
Enter the characters shown in the image.