New | Hang Seng Bank net profit tumbles 43 per cent, near bottom of market expectations

Hang Seng Bank on Monday reported net profit dropped 43 per cent year-on-year to HK$15.13 billion due to higher bad debts provision for mainland China lending as well as impairment loss and accounting treatment related to its investment in mainland lender Industrial Bank.

The fall is at the low end of market expectations that the lender’s profit will drop of 33 to 44 per cent.

"Slower economic growth, excess capacity in certain industries and the impact of continuing market reforms will create complex credit conditions on the mainland in the year ahead," said Rose Lee Wai-mun, the bank’s vice-chairman and chief executive.

Hang Seng’s bad-debt provisions last year rose 113.4 per cent to HK$1.14 billion, which Lee said is related to higher individually assessed impairment charges “due to the more challenging credit environment in mainland China.”

“We remain vigilant concerning asset quality and overall credit quality remains stable,” she said.

Hang Seng Bank earlier this month sold a 5 per cent stake in the Industrial Bank through a placing agreement with institutional investors to raise HK$15.79 billion and boost its regulatory capital. After that, Hang Seng still held a 5.87 per cent stake in Industrial Bank. The sale profit has not yet been booked.

The net profit drop was mainly due to a 2.1 billion impairment loss on its investment in Industrial Bank as well as a one-off HK$9.52 billion accounting gain in 2013 which was not repeated last year. The accounting change was a result of a share placement of Industrial Bank in 2012 which diluted Hang Seng’s holdings in the mainland lender. Excluding the impact of Industrial Bank, net profit rose 0.4 per cent annually to HK$17.23 billion.