Hang Seng net rises to beat forecasts
Higher fee income and lower debt charges help double profit in the first half but bank expects tough times ahead amid slowdown on mainland
Hang Seng Bank yesterday reported better-than-expected results for the first half, with net profit doubling to HK$18.47 billion on the back of one-off accounting gains, higher fee income and lower bad debt charges.
The bank, however, saw a 35 per cent drop in operating profit on the mainland and had to pay more to get deposits in Hong Kong and the mainland.
Chief executive Rose Lee Wai-mun said the bank had to pay high interest rates to secure deposits during the mainland credit crunch in June. This led to a 22 per cent drop in net interest income in the mainland.
In addition, operating expenses rose 6 per cent there as the bank spent more on expansion.
"The economic slowdown on the mainland and rising funding costs in Hong Kong and the mainland mean tough times ahead in the second half," Lee said.
"But this won't affect our confidence to expand further. We believe in the growing opportunities from the internationalisation of the yuan.
"There is also rising demand in the investment and wealth management businesses."
Hang Seng, a subsidiary of HSBC, reported HK$9.5 billion in one-off gains from a change in accounting procedures to treat its investment in Industrial Bank. This came after a share placement last year diluted Hang Seng's holding in the mainland lender.
Stripping out the one-off gain, Hang Seng's net profit jumped 27 per cent in the six months ended June to HK$8.95 billion while operating profit rose 12 per cent to HK$8.93 billion.
Lee said Hang Seng would maintain its close co-operation with Industrial Bank.
Hang Seng's profit growth was driven by a 22 per cent rise in net fee income to HK$2.94 billion from sales of funds and general insurance products and stockbroking.
Bad debt provision fell 20.5 per cent to HK$198 million due to overall improvement of credit quality and a write-back of certain previous charges.
High funding costs dented the results and squeezed the bank's net interest margin - the gap between the interest it charges borrowers and the one it pays depositors - to 1.84 per cent from 1.85 per cent.
"When the stock markets are good, people prefer to put their money in stocks or funds instead of in banks. This is why we have to pay more for deposits. But then we also received higher commission income from stockbroking and fund sales," Lee said.
Deposits grew 1.6 per cent to HK$832.2 billion but loans climbed 8.1 per cent to HK$579.7 billion. The loan-deposit ratio stood at 69.7 per cent at the end of June, compared with 65.5 per cent at the end of last year.