Hong Kong company reporting season

Hang Seng Bank’s 1st-half profit tumbles 60pc

Bank expects operating conditions to remain ‘challenging’

PUBLISHED : Wednesday, 03 August, 2016, 1:03pm
UPDATED : Wednesday, 03 August, 2016, 10:48pm

Hang Seng Bank reported a 60 per cent slump in first-half net profit, as rising bad loans and lower fee income weighed on a balance sheet that was helped in the previous year by a one-time gain.

The lender, a unit of HSBC, said net income was HK$8 billion for the first six months, or HK$4.19 per share, down from last year’s HK$20 billion profit, according to a stock exchange statement.

The Hong Kong lender had reported a one-time gain of HK$10.64 billion, from disposing of most of its stake in China’s Industrial Bank. Excluding the one-time gain, Hang Seng’s first-half profit fell 15 per cent from last year.

“Profitability and income were down against the high baseline created by the buoyant investment sector and exceptional market conditions in the first half of 2015,” Hang Seng’s vice-chairman and chief executive Rose Lee Wai-mun said in a statement.

Hang Seng’s first-half operating profit dropped 12 per cent to HK$9.52 billion compared with last year, as a slump in the equity markets hurt its wealth management business, causing fee income to decline 27 per cent per cent to HK$2.85 billion.

Income from interests rose 5 per cent to HK$11 billion, driven by growth of consumer loans and financial investments. Net interest margin fell 1 basis point to 1.85 per cent in the first half.

“Operating conditions will remain challenging with the uncertain global environment and economic adjustment on the Mainland,” Lee said.

The lender will pay a second interim dividend of HK$1.1, bringing the total first-half dividend in line with last year’s HK$2.2.

The biggest risk faced by the bank is a sharp increase in the proportion of bad loans in Hong Kong and mainland China, Morgan Stanley’s equity analyst Anil Agarwal wrote in a research report before results were announced.

“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,” Agarwal said.

Bad-debt provisions in the first six months soared 21 per cent to HK$721 million, which Lee said reflected “the more challenging credit environment in mainland China.”

At the end of June, the bank’s total capital ratio was 21.2 per cent, down from 22.1 per cent at the end of last year.

Hang Seng Bank’s shares fell 1.7 per cent to HK$136 at today’s midday trading pause, before the results announcement. The bank’s shares have dropped 4.15 per cent year to date, performing better than HSBC’s 17.9 per cent decline. Bank of East Asia, Hong Kong’s only family-owned lender, rose 11.3 per cent in the same period while Bank of China (Hong Kong) rose 9.1 per cent.