Results Summary

 

Hang Seng Bank Limited leveraged their core strengths to generate good growth momentum and achieve strong results for the first half of 2017. Profit attributable to shareholders and profit before tax were both up 23% at HK$9,838m and HK$11,646m respectively. Operating profit was HK$11,732m, up 23% compared with the first half of 2016. Operating profit excluding loan impairment charges and other credit risk provisions grew by HK$2,165m, or 21%, to HK$12,402m, with solid growth in both net interest income and non-interest income. We used our time-to-market advantage and extensive distribution network to capitalise on the improved investor sentiment, achieving strong growth of 39% in wealth management income.

 

Net interest income increased by HK$811m, or 7%, to HK$11,814m, reflecting the 3% rise in average interest-earning assets. Net interest margin improved by nine basis pointsto 1.94% when compared with the same period last year, with improved customer deposit spreads being partly offset by compressed customer loan spreads. Treasury grasped opportunities in the interbank market and successfully enhanced returns on new and existing assets, resulting in an increase in balance sheet management portfolio income.

 

Net fee income increased by HK$441m, or 15%, to HK$3,294m, with growth being recorded across most core business lines. Strong customer demand and favourable market sentiment drove the 32% rise in stockbroking and related services fee income and growth of 31% in retail investment funds fee income. Benefitting from higher distribution fees received from non-life insurance products as well as commission originating from life reinsurance business solutions, insurance-related fee income rose by 12%. Gross fee income from credit card business grew by 9%. Credit facilities fee income rose by 27%, due mainly to higher fees from increased corporate lending. Fees from account services and remittances recorded growth of 7% and 9% respectively, driven by increased business volume.

 

Net trading income grew by HK$933m, or 205%, to HK$1,388m. Foreign exchange income increased by HK$628m, or 116%, attributable mainly to the increase in customer activity and higher income from funding swaps. There was also a revaluation gain on cross-currency swaps supporting life insurance contracts compared with a revaluation loss for the same period last year.

 

Income from interest rate derivatives, debt securities, equities and other trading activities recorded a gain of HK$220m compared with a loss of HK$113m for the same period last year. Income from sales of the Bank’s equity-linked structured product registered higher income whereas the revaluation loss of equity-linked derivatives products in the life insurance business investment portfolio was lower as a result of the favourable fair value movement when compared with the same period last year. The favourable market interest rate movement also benefitted interest rate derivatives income.

 

Net income/(loss) from financial instruments designated at fair value recorded a gain of HK$988m compared with a loss of HK$30m for the same period in 2016, reflecting improved returns on financial assets supporting insurance contracts liabilities as a result of favourable equity market. To the extent that these investment returns were attributable to policyholders, there was an offsetting movement in net insurance claims and benefits paid and movement in liabilities to policyholders and in present value of in-force long-term insurance business (‘PVIF’)

 

Profit before tax increased by HK$2,147m, or 23%, to HK$11,646m after taking into account the following major items:

• a revaluation surplus of HK$50m compared with a revaluation deficit of HK$77m in the first half of 2016 in net surplus/(deficit) on property revaluation; and
• a loss of HK$136m compared with a profit of HK$60m in the first half of 2016 in share of profits/(losses) of associates, mainly from a revaluation deficit on a property investment company.

 

Against the second half of 2016, attributable profit grew by HK$1,631m, or 20%, driven by solid growth in both net interest income and non-interest income.

 

Net interest income grew by HK$563m, or 5%, mainly supported by the increase in average interest-earning assets and improvement in net interest margin despite there being more calendar days in the second half of 2016. Non-interest income increased by HK$1,712m, or 41%, driven mainly by an increase in wealth management income. There was an improvement in investment services income, with higher income from retail investment funds, securities brokerage and structured investment products. Insurance income also registered good growth, benefitting from a revaluation gain on cross-currency swaps supporting life insurance contract liabilities and higher investment returns as a result of the favourable movement of the equities market. Operating expenses were broadly in line with the second half of 2016, with increases in staff costs and depreciation largely offset by lower general and administrative expenses. Loan impairment charges increased by 13%, reflecting higher individually assessed impairment charges.