Loan growth boosts Hang Seng Bank's earnings
Gains in home and commercial lending, along with rising fee income, help the bank deliver 38 per cent increase in net profit
Hang Seng Bank yesterday reported its net profit last year rose 38 per cent to HK$26.68 billion, thanks to strong growth in lending and fee income as well as one-off accounting gains related to its mainland investment.
The bank reported HK$9.52 billion gains due to a change in accounting procedures for its investment in Industrial Bank, which came after a share placement by Industrial Bank in 2012 diluted its holdings in the mainland lender.
This aside, Hang Seng's net profit rose 19 per cent to HK$17.16 billion, spurred by growing residential mortgage and commercial lending, widening interest margin, and higher fee income from selling stocks and insurance products.
A fourth interim dividend of HK$2.20 per share will be paid, bringing the full-year dividend to HK$5.50 a share.
The bank, however, saw a 38.1 per cent drop in operating profit at its mainland operation. This resulted from a 5.7 per cent decline in interest income as it paid a high cost to compete for deposits last year.
The lender, a subsidiary of HSBC, continued to expand on the mainland by adding 2 billion yuan (HK$2.54 billion) in capital in October to its operations on the mainland, where it now has 50 outlets after expanding its network and headcount.
"We believe our investment on the mainland will bring in more cross-border business between Hong Hong and the mainland and to bring in more high net worth clients. This will benefit our long-term business growth," chief executive Rose Lee Wai-mun said at a briefing.
Growing bad debts and rising operating costs are Hang Seng's other challenges.
Bad debt provision rose 38.9 per cent to HK$536 million last year due to an increase in impairment charges for credit cards and personal loans.
In terms of the ratio of bad debts over total loans, it improved to 0.22 per cent from 0.25 per cent in 2012.
"I consider that the loan quality has improved," Lee said.
Operating expenses increased 7 per cent to HK$9.1 billion because of the cost to develop new business platforms and mainland operations.
Staff costs rose 4.1 per cent as a result of increased salaries and new staff.
The bank saw a 15.7 per cent rise in net fee income to HK$5.89 billion due to the strong growth in fund sales, general insurance products and stockbroking as investment sentiment improved.
Net interest income grew 9.8 per cent to HK$18.6 billion, boosted by the 4.9 per cent increase in residential mortgage loans and other trade-related lending.
It also enjoyed a wider net interest margin - the gap between the interest rate it charges borrowers and the rate it pays depositors - to 1.89 per cent from 1.85 per cent.
Deposits grew 6.2 per cent to HK$869.7 billion while loans climbed 9.3 per cent to HK$586.2 billion. The loan-deposit ratio stood at 67.4 per cent at the end of last year, compared with 65.5 per cent a year earlier.
Louis Tse Ming-kwong, a director at VC Brokerage, said Hang Seng Bank performed better than expected. "The outlook of Hang Seng would be positive as it has good wealth management and residential mortgage businesses," he said.