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Hong Kong company reporting season

Hong Kong’s Hang Seng Bank beats forecasts with 23 per cent profit rise, says to expand fintech 

Higher interest income and fee income from stockbroking and fund sales as well as lower bad debts contribute to the improved results

PUBLISHED : Tuesday, 20 February, 2018, 1:09pm
UPDATED : Tuesday, 20 February, 2018, 11:22pm

Hong Kong’s Hang Seng Bank, a subsidiary of HSBC, reported a 23 per cent rise in net profit for 2017, beating expectations, helped by higher interest income and fee income from stockbroking and fund sales as well as by lower bad debts.

Profit rose to HK$20.02 billion (US$2.6 billion), higher than a consensus forecast in a poll of analysts by Thomson Reuters of a 16.5 per cent rise to HK$18.88 billion.

The bank said there would be challenges ahead, but it would target fintech as a way to drive growth, after recently introducing a chatbot to answer customer queries.

“The global economy regained momentum during 2017 and this has continued into the new year. At the same time, the impact of ongoing economic adjustment in mainland China and potential future shifts in international trade policies may create new challenges for business,” Louisa Cheang Wai-wan, chief executive of Hang Seng Bank, said in a media briefing on Tuesday.

“As Hong Kong’s leading domestic bank, we will launch more fintech initiatives that align with our customer-centric business strategy to help drive in a new era of ‘smart banking’ in our city,” she said.

Earnings per share were up 24 per cent to HK$10.30. It will pay a final dividend of HK$3.10, bringing the full year dividend to HK$6.70, up from HK$6.10 in 2016. Cheang said the bank would continue to pay higher dividends if profitability growth continued. It has a dividend payout ratio at about 64 per cent.

In 2016 the bank had posted a net profit of HK$16.2 billion, while the year before profit was HK$27.5 billion, lifted by a one-off gain of HK$10.6 billion from the disposal of most of its 11 per cent stake in Shanghai-listed Industrial Bank.

The bank will also launch a second public fund in the coming months at its joint venture fund house in the commercial zone of Qianhai in southern China, Cheang added. 

The bank’s operating profit increased 24 per cent to HK$23.55 billion in 2017, with strong growth in lending and deposits and in fee income from its wealth management business. 

Net interest income rose 10 per cent to HK$24.58 billion, driven by growth of consumer lending and financial investments, while the bank’s net interest margin widened to 1.94 per cent in 2017 from 1.85 per cent in 2016. 

Non-interest income grew 29 per cent to HK$10.78 billion, thanks to a strong stock market that led to better sales of wealth management products and higher income from stockbroking. Hong Kong’s benchmark Hang Seng Index rose 36 per cent in 2017, the best result since 2009 and making it the world’s top-performing market last year.

The bank also reported bad debt provisions fell 21 per cent from a year ago to HK$1.04 billion, due mainly to an improving credit environment in mainland China.

 

The bank's shares declined 1.61 per cent to close at HK$189.20 on Tuesday. The results were released during the market’s mid-session break.

Before the earnings announcement, Goldman Sachs had upgraded Hang Seng Bank to ‘buy’ from ‘neutral’, saying the stock was “attractive for yield and growth-focused funds”. It set a new 12-month target price for the shares of HK$220, which it said offered a 24 per cent potential upside.

The bank’s shares could also be a defensive play for investors who are concerned that equity markets will stay volatile in the near term, according to JPMorgan analyst Jemmy Huang.

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