Hang Seng Bank is top Apac issuer despite profit drop

The tumble resulted from the Covid-19 pandemic, evolving US-China trade tensions, low interest rates and social unrest in Hong Kong, which led to the bank’s expected credit losses and other impairment charges of HK$1.76 billion, over three times H1 19’s number, and a net deficit on property revaluation compared with a net surplus last year.

Hang Seng Bank posted a net interest income of HK$14.79 billion and a net fee income of HK$3.18 billion, a decrease of 6.69% and 8.9% year-on-year (YoY) respectively, with lowered expenses of HK$6.29 billion, or one percent less than that in 1H19.

Its profit attributable to shareholders was down by 33.05% to HK$9.14 billion while earnings per share declined to HK$4.64 from HK$6.98.

Non-interest income was down seven percent, as wealth management income fell by 37.86% to HK$3.54 billion YoY due to ‘subdued levels of customer activity given the challenging external market conditions’ where ‘many customers delaying longer-term investment decisions’.

Structured products

Structured products made up 11.66%, or HK$218m, of wealth management income while securities brokering and related services remained the strongest with income of HK$960m.

Foreign exchange and derivatives activities saw a rise in the volatile foreign exchange markets and low interest rates environment, which contributed to a net trading income and net income from financial instruments designated at fair value through profit or loss of HK$1.24 billion, up 27% YoY.

When it came to liabilities, structured deposits were at HK$23.68 billion, down 3.36% YoY, while other structured debt securities in issue were at HK$5.05 billion, nearly double last year’s. 

At 30 June, the bank’s common equity tier 1 (CET1) capital ratio was 16.3% while its tier 1 capital ratio was 18%, compared with 16.9% and 18.7% respectively at 31 December 2019.

Hang Seng Bank is the leading issuer of structured products in the Asia Pacific region year to date with a 16.7% market share on the back of 1,737 products worth an estimated US$31.3 billion. It has more than doubled its issuance, sales and market share year on year (H1 19: 772 products /US$14.2 billion / 5.13% market share)

Hang Seng Bank distributed 1,746 live products (not flow) in Hong Kong, 1,460 of which struck between 1 January to 30 June, SRP data shows. They all have a tenor of less than a year and feature worst of options, reverse convertible and knock out as payoffs.

Single shares of Alibaba, China Life (H shares) and AIA are the most popular underlyings for this year’s issuance featuring across 229, 178 and 174 products, respectively. All products marketed by Hang Seng Bank year to date have reverse convertible payoff profile combined with knock out (1,251 products) and worst of (928 products) options.

By division

Wealth and personal banking posted a pre-tax profit of HK$5.47 billion, down 34.87% from H1 19, and represented a share of 51.5% this year.

Its non-interest income fell by 46% to HK$ 2.07billion YoY, ‘reflecting the volatility in global investment markets,’ and insurance income plunged by 60% due to ‘the significant drop in investment returns from the life insurance portfolio and a decline in new business’.

At the same time, commercial banking division recorded a pre-tax profit of HK$ 3.23billion, down 35% from 1H19, and represented a share of 30.4% this year.

Its net interest income dropped by 13% to HK$ 4.53billion, reflecting ‘the adverse impact of the historical low interest rate environment on deposit interest income’.

Global banking and markets was the only segment out of the three that recorded an increased pre-tax profit compared with 1H19 - HK$ 2.65billion, up 9.07% - which translated to a share of 24.9% this year. The division, whose services include structured products, derivatives and foreign exchange, filed a net interest income of HK$ 2.42billion, up 7.27% from a year earlier.

Click here to view the 2020 interim report.