Hong Kong company reporting season

Hang Seng Bank’s first half profit up 23pc on lower bad debt, improved market sentiment

PUBLISHED : Monday, 31 July, 2017, 12:29pm
UPDATED : Monday, 31 July, 2017, 11:12pm

Hang Seng Bank on Monday reported its first half net profit rose 23 per cent to HK$9.84 billion (US$1.26 billion) after lower bad debts and improved market sentiment boosted fee income on stockbroking and fund sales.

The profit is substantially higher than the HK$8 billion recorded in the first half of last year, but still below HK$20 billion in the first half of 2015 when the bank had a one-off gain of HK$10.64 billion from selling most of its stake in China’s Industrial Bank.

Hang Seng, which is a subsidiary of HSBC, reported its net profit for the first half year at HK$9.84 billion, or HK$5.15 per share, up 23 per cent year on year, which was also better than the estimate of a 22 per cent increase to HK$5.12 per share according to the consensus of analysts polled by Bloomberg.

The bank’s first half operating income from mainland China was down 10.5 per cent to HK$921 million but pretax profit was up 47.3 per cent to HK$81 million.

Louisa Cheang Wai Wan, newly appointed chief executive of Hang Seng Bank, said the decline in mainland income was a result of higher renminbi funding costs and government tightening of lending policy to reduce risk.

Looking ahead, Cheang said interest rate movements and stock performance would be key factors affecting Hang Seng’s business performance in the second half.

“I would like to see the core business grow further and more cross selling among different segments. I would also like to see the cross border business between the mainland and Hong Kong grow further,” said Cheang.

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The improved results were the result of a lower bad debt provisions in the first half year which dropped 7 per cent to HK$670 million, mainly from an improving credit environment on the mainland.

It was also driven by strong investment market sentiment that led to higher fee income from stockbroking and more fund sales.

Operating profit increased 23 per cent to HK$11.73 billion in the first half year, while its wealth management business fee income rose 39 per cent.

Net interest income increased 7 per cent to HK$11.81 billion, driven by growth of consumer lending and financial investments while net interest margin widened to 1.94 per cent from 1.85 per cent in the first half of 2016.

The lender will pay an interim dividend of HK$2.4 per share, higher than HK$2.2 paid in the first half of last year. Cheang declined to comment on whether Hang Seng will keep increasing dividend payments in future.

At the end of June, the bank’s total capital ratio was 20.2 per cent, up from 20.8 per cent at the end of last year.

The bank’s shares rose 1.25 per cent to a record HK$170 on Monday after the results announcement was released.

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“We remain overweight on Hang Seng Bank. We expect strong earnings progression and with the

bank increasing dividend, the probability of capital management has also increased,” said Morgan Stanley equity analyst Anil Agarwal in a research note before the announcement.

He said Hang Seng Bank would increase its dividend payment by at least HK$0.3 per share in 2017.

The downside risk, Agarwal said, would be a sharp increase in bad loans in Hong Kong and mainland China.

“Also, a very high interest rate increase would be likely to cause a sharp property price

correction in Hong Kong, thereby taking up risk weight densities,” he said.

Cheang succeeded Rose Lee Wai-mum who retired after serving at the lender for five years.

Before heading up Hang Seng, Cheang served as group general manager and group head of retail banking at HSBC Holdings since January 2014.