Thursday, April 15, 2021
 
Columnist
Martin Hennecke
 
HANG SENG BANK
HKEx Stock Code : 00011 
 
Corporate Profile
The Group is engaged in the provision of banking and related financial services.

Business Review - For the year ended December 31, 2012

Hang Seng Bank Limited (.the Bank') and its subsidiaries (.the Group') reported a profit attributable to shareholders of HK$19,426m for 2012, up 15.0% compared with 2011. Earnings per share were up by 15.1% to HK$10.16. Profit attributable to shareholders for the second half of 2012 increased by HK$822m, or 8.8%, compared with the first half.

Operating profit excluding loan impairment charges grew by HK$1,371m, or 9.4%, to HK$15,992m. This was underpinned by asset and deposit growth, increases in both net interest income and non-interest income, partly offset by the rise in operating expenses.

Net interest income grew by HK$1,210m, or 7.7%, to HK$16,946m, with an increase of 3.5% in average interest-earning assets. The Bank's successful efforts to expand and diversify lending and attract new deposits drove an increase in both average loans and deposits. Liability spreads have improved reflecting the increased value of core funding while asset spreads have narrowed as a result of an increase in cost of funds. The increase in net interest income also benefited from the increased returns from the life insurance investment funds portfolio. However, there was a decline in balance sheet management income, as yield curves continued to flatten and interest rates remained low. The net interest margin improved by seven basis points to 1.85% compared with last year.

Net fee income grew by HK$250m, or 5.2%, to HK$5,086m. The Bank continued to offer a wide range of retail investment funds to meet different investor risk appetites and launched the first renminbi-denominated gold exchange-traded fund (.ETF'), the Hang Seng RMB Gold ETF that caters for the growing demand for renminbi wealth management products. Income from retail investment fund grew encouragingly by 24.9%. Insurance-related fee income rose by 51.7%, reflecting the increase in non-life insurance products distribution commission in the second half of the year following the disposal of the general insurance manufacturing business to a third party insurance services provider. The increase in non-life insurance products distribution commission will be offset by a corresponding decrease in non-life insurance underwriting profit. Growth in cardholder spending, receivables and the card base helped support an 11.3% rise in card services fees. Credit facilities fee income rose by 40.7%, due mainly to higher fees from increased corporate lending. Fees from remittances and trade services increased by 10.3% and 18.0% respectively, on the back of growing trade activities and the expansion of renminbi cross-border trade settlement volumes. However, income from stockbroking and related services decreased by 26.8%, reflecting the decline in stock market trading turnover.

Trading income reached HK$2,063m, a rise of HK$267m, or 14.9%, over last year. Foreign exchange income increased by HK$143m, or 7.8%, attributable partly to increased net interest income from funding swaps and continued strong customer activity, notably in renminbi foreign exchange-linked structured products. Income from securities, derivatives and other trading activities registered a gain of HK$77m compared with a loss of HK$47m last year, mainly contributed by the gains on equity options backing a life endowment product on the back of favourable movements in the underlying equity indices in the latter part of the year, which resulted in a corresponding increase in .Net insurance claims incurred and movement in policyholder liabilities'. This was partly offset by the losses on other derivatives trading which was affected by unfavourable interest rate movements and other securities trading.

Income from the insurance business (included under .net interest income', .net fee income', .trading income', .net income from financial instruments designated at fair value', .net earned insurance premiums', .movement in present value of in-force long-term insurance business' within .other operating income', .share of profits from associates', and after deducting .net insurance claims incurred and movement in policyholders' liabilities') rose significantly by HK$944m, or 39.6%, to HK$3,326m. Diversification of the product range with the launch of new plans that offer a diverse range of retirement savings and protection products proved effective in driving sales. Total policies in-force and total annualised life insurance new premiums rose by 8.6% and 13.1% respectively. Net interest income and fee income from the life insurance business grew by 10.4% benefiting from higher life insurance sales volume and the increase in the size of the life insurance funds investment portfolio. The investment return on the life insurance funds investment portfolio improved strongly, benefiting from the recovering equities market and the upward commercial property market during 2012. To the extent that this fair value gain was attributed to policyholders of unit-linked life insurance policies, there was a corresponding increase in .net insurance claims incurred and movement in policyholders' liabilities'.

Operating expenses rose by HK$491m, or 6.2%, to HK$8,389m. While carefully managing costs, the Bank continued to make investments for business development in Hong Kong and Mainland to support long-term business growth. The operating expenses of our Hong Kong operations rose by 4.7%, reflecting wage inflation, processing costs, rental and marketing expenditure. Mainland-related operating expenses rose by 15.3%, attributable mainly to the ongoing business expansion of Hang Seng China. Despite the increase in costs, the Bank's cost efficiency ratio remains one of the lowest in the industry. The Bank continues to focus on improving operational efficiency while maintaining growth momentum and market leadership.

Loan impairment charges decreased by HK$54m, or 12.3%, to HK$386m. Individually assessed impairment charges fell by HK$46m, or 44.7%, reflecting lower charges for corporate and commercial banking customers for Hong Kong operations in 2012. The charges for individually assessed impairments for Mainland customers were higher, due mainly to the downgrading of certain commercial banking customers. Collectively assessed impairment charges dropped by HK$8m, or 2.4%, to HK$329m. Impairment charges on the credit card and personal loans portfolios increased, which reflected growth in the portfolios. Impairment allowances for loans not individually identified as impaired recorded a net release compared with a net charge in 2011, mainly due to improved historical loss rates.

Operating profit rose by HK$1,425m, or 10.0%, to HK$15,606m.

Business Outlook - For the year ended December 31, 2012

Concerns over the continuing financial difficulties in the eurozone and the US fiscal cliff in the second half of 2012 put significant downward pressure on international economic activity.

Weak global export demand constrained Hong Kong's externally oriented economy, resulting in total GDP growth of just 1% for the first three quarters of the year V the lowest level since 2009. Buoyed by investment in large-scale public projects, the favourable employment market and vibrant property sector, robust consumer and investment spending cushioned the impact of subdued international trade, driving a solid rebound in economic expansion during the fourth quarter, resulting in overall growth of 1.4% in 2012.

GDP growth on the Mainland was 7.8% in 2012 V the slowest rate since 1999. External conditions remain a significant obstacle, but Central Government investment in infrastructure and other stimulus measures are driving domestic sector activity. Recent signs indicate that the economy may have bottomed out. GDP growth in the fourth quarter was 7.9% V up from 7.4% in the preceding quarter. We expect further recovery to 8% in 2013, given the moderating effects of global economic headwinds and government concerns over speculation in the property sector.

With the eurozone debt crisis still unresolved and the fragile state of economic recovery in the US, challenging operating conditions will persist in 2013. However, the Mainland is likely to maintain a steady pace of growth. Increasing economic integration in the Greater China region and Hong Kong's continuing development as a leading centre for offshore renminbi financial services will boost business expansion.

We will take full advantage of these opportunities by further leveraging our competitive strengths V including our well-respected brand, diverse range of service channels and excellent cross-border capabilities V to enhance our strong position in key areas of business and acquire new customers to support sustainable growth.

This year sees Hang Seng reach its 80th anniversary. As we celebrate this major milestone, we are more determined than ever to uphold our core principles and build on the good progress we have made in our dedicated efforts to provide increasing value for shareholders.

Source: Hang Seng Bank (00011) Annual Results Announcement
Chairman Raymond CH・IEN Kuo Fung Issued Capital (shares) 1,912M
Par Value HKD 5 Market Capitalisation (HKD) 234,010M
 
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