Hang Seng Bank cuts risky China lending after full year profits fall 41pc

Hang Seng Bank said it has reduced risky lending in mainland China after it reported a 41 per cent slump in profits last year due to rising bad loans and lower fee income, factors weighing on a balance sheet that was boosted the previous year by a one-time gain.

The lender, a unit of HSBC, said on Tuesday net profit last year was HK$16.21 billion (US$2.09 billion), down from earnings of HK$27.49 billion the previous year, which had been boosted by a one-off gain of HK$10.64 billion from the disposal of most of its 11 per cent stake in Shanghai-listed Industrial Bank in 2015.

Earnings per share last year were down 42 per cent to HK$8.3.

The results were slightly below the consensus forecast for a net profit decline of 40 per cent among analysts polled in a Thomson Reuters survey. Excluding the one-time gain, net profit fell 4 per cent from 2015.

“The uncertain global environment, economic deleveraging on the mainland and strong competition in the banking sector will continue to create challenging operating conditions,” said Rose Lee Wai-mun, Hang Seng’s vice-chairman and chief executive on Tuesday.

She blamed the profit decline on an increase in bad debt, valuation losses on its property holdings, and lower fee income from trading stocks and funds.

“Hang Seng Bank has cut down some high risk lending in China, mainly to the commodities and other sectors which have the oversupply problem, or the companies we do not really understand well,” she said. “We have shifted our focus to increase lending to companies we know well, which would improve credit quality this year.”