The Group is engaged in the provision of banking and related financial services.
The Group's profit attributable to shareholders for the 6 months ended 30-06-2019 amounted to HKD 13.66 billion, an increase of 8.0% compared with previous corresponding period. Basic earnings per share was HKD 6.9812. An interim dividend of HKD 1.4 per share was declared. Net interest income amounted to HKD 15.85 billion, an increase of 11.4% over the same period last year, loan impairment charges and other credit risk provisions increased by HKD 255.0 million to HKD 520.0 million. Capital adequacy ratio was 20.4%. (Announcement Date: 05 Aug 2019)
Business Review - For the six months ended June 30, 2019
Retail Banking and Wealth Management (‘RBWM’) recorded an 11% year-on-year increase in operating profit excluding change in expected credit losses and other credit impairment charges to HK$8,564m. Operating profit increased by 9% to HK$8,249m and profit before tax rose by 9% to HK$8,396m.
Net interest income increased by 10% to HK$8,644m. Despite keen market competition, enhanced analytics supported our efforts to target key customer segments, enabling us to grow new funds. Deposit balances rose by 2% in Hong Kong compared with 2018 year-end.
Non-interest income grew by 14% to HK$3,867m. Wealth management business revenue increased by 12%.
The Hong Kong property market recorded a higher transaction volume in the first half of 2019 against last year. We maintained our leadership position in the government-subsidised housing market by uplifting our distribution capability in strategic segments, supporting a 6% increase in mortgage balances in Hong Kong compared with 2018 year-end. Our new mortgage business continued to rank among the top three in Hong Kong.
Effective marketing campaigns and deep understanding of our client base enabled us to achieve 6% year-on-year growth in card receivables.
The global investment market continued to be volatile. Our investment services income declined against the high base established in the more favourable investment conditions of the first half of 2018. Securities turnover and revenue declined by 43% and 34% respectively. Investment services revenue excluding securities-related income dropped by 24% compared with last year. As customers grew more risk adverse in the uncertain market environment, we launched more fixedincome products to meet their changing needs.
Insurance income grew by 51%. Our prudent investment strategy resulted in better investment return from the life insurance investment portfolio. We enriched our holistic retirement planning and life protection solutions with the launch of new insurance products, including the PrimeLife Deferred Annuity Life Insurance Plan, which enables customers to benefit from the Hong Kong Government’s new tax concession measures. Our strong retirement planning and annuity propositions enabled us to increase our insurance distribution revenue.
Enhancements to our customer segmentation strategy and strengthened analytics, powered by machine learning, enabled us to deepen relationships with our clients and provides more timely needs-based financial products and services. In the Prestige Banking segment, we leveraged our high-value proposition and premium wealth management solutions to drive new business. We grew our Prestige Signature customer base by 14% year-on-year in Hong Kong. On the Mainland, we grew the number of Prestige customers by 5% year-on-year.
We are committed to investing in fintech and building a robust digital infrastructure to better engage our customers. We continued to uplift our mobile banking and e-Banking user experiences to provide our clients with smarter, easier and more relevant banking services. We upgraded the mobile banking user interface to allow greater personalisation. We expanded the capabilities and features of our AI chatbot, HARO, which now allows customers to conduct foreign exchange services and transfers and foreign exchange ATM location enquiries using the conversational interface. We continued to roll out new online products and services, including new insurance products, a credit card activation service and mobile e-statements. Year-on-year, the number of Personal e-Banking customers increased by 8% in Hong Kong and the number of active mobile users increased by 40%.
Commercial Banking (‘CMB’) achieved a 13% increase in operating profit excluding change in expected credit losses and other credit impairment charges to HK$5,120m. Operating profit and profit before tax rose by 12% to HK$4,964m.
Net interest income rose by 20% to HK$5,195m, reflecting good growth in loan and deposit balances, as well as the rise in market interest rates.
Non-interest income declined by 12% to HK$1,552m, due mainly to the downturn in investment sentiment and uncertainties arising from the US-China trade dispute. Amid the challenging external environment, we remained active in the syndicated loan market, resulting in a 22% increase in credit facilities fee income.
We launched further initiatives to improve customer experience in transactional banking. To support the launch of the Faster Payment System (‘FPS’), we enhanced our bill payment services to accept FPS QR codes. We extended One Collect, our integrated point-of-sale terminal, from offline merchants to online merchants and introduced support for payments by FPS. In addition, we significantly enhanced the speed and accuracy of trade transactions with the adoption of new optical character recognition technology and the automation of the vessel-checking process.
Riding on the Bank’s strategic alliance with Hong Kong Science and Technology Parks Corporation, we launched ‘Inno Booster’, a tailor-made banking and finance solution for eligible innovation and technology companies that allows them to enjoy pre-approved loans and other preferential banking service offers.
We continued to expand our digital capabilities to make services faster, easier and more convenient for customers. We upgraded the functionality of digital foreign exchange services to allow for orders to be executed automatically upon hitting the designated exchange rate. We took steps to cut waiting times with initiatives such as the launch of an online business loan application form. Our virtual customer service assistant, BERI, was enhanced to support more general enquiries.
To further improve the customer experience, we upgraded our Tsim Sha Tsui Business Banking Centre to provide a more spacious and comfortable service environment.
We continued to be proactive and vigilant in managing our credit risk and uphold good overall credit quality.
Our digital innovations have received positive recognition in the industry. We received rewards from The Assets for One Collect (‘Most Innovative Corporate Payment Project’) and our AI Chatbot (‘Most Innovative Emerging Digital Technologies Project’). We were also named ‘Best Payment Bank in Hong Kong’ and received the ‘Best Automated Advisory/ Chatbot Initiative, Application or Programme’ award at The Asian Banker Transaction Banking Awards.
Global Banking and Markets (‘GBM’) reported 9% decline in operating profit excluding change in expected credit losses and other credit impairment charges to HK$2,465m and an 11% decrease in both operating profit and profit before tax to HK$2,426m.
Global Banking (‘GB’) reported a 14% growth in operating profit excluding change in expected credit losses and other credit impairment charges to HK$1,160m. Operating profit and profit before tax were both up 9% at HK$1,123m.
Net interest income increased by 12% to HK$1,219m. In a challenging market environment, we achieved an enhanced lending portfolio mix and better deposit returns, reflecting the strong trust we have established with large corporate clients as well as improvements to our cash management capabilities.
Key drivers included successful steps to grow the deposit base, which was increased by 18% compared with 2018 year-end, and good growth in non-interest income, which rose by 17% compared with a year earlier. Compared with the second half of 2018, non-interest income grew by 34%.
Global Markets (‘GM’) reported a 23% decrease in operating profit excluding change in expected credit losses and other credit impairment charges to HK$1,305m. Operating profit and profit before tax both decreased by 24% to HK$1,303m.
Net interest income decreased by 5% to HK$1,037m. The adverse effects of the yield curve flattening and tightening credit spreads limited the revenue gained from deploying new and maturing balance sheet management portfolios. The balance sheet management team continued to manage interest rate risk effectively, taking steps to proactively defend the interest margin and achieve yield enhancement while upholding prudent risk management standards.
Non-interest income decreased by 33% to HK$565m. Uncertainty related to the US-China trade dispute and low foreign exchange volatility decreased customer demand for foreign exchange products. Together with the unfavourable flattening yield curve environment, this resulted in a decline in non-fund income from sales and trading activities. We continued with initiatives to deepen GM product penetration among Bank customers through close collaboration with the RBWM, CMB and GB teams.
Business Outlook - For the six months ended June 30, 2019
Signs of a global slowdown have begun to emerge and the world’s major central banks have adopted an increasingly dovish stance in the face of continuing uncertainties over international trade and other geopolitical factors.
With its highly open economy, Hong Kong is susceptible to these developments. After reaching a seven-year high of 4.6% in the first quarter of 2018, the city’s economic growth has since slowed to just 0.6% in the first and second quarters this year. With unemployment continuing to hold steady at a multi-year low, the tightness of the labour market will help to support the domestic economy, but downshifts in retail sales and trade growth signal that the economic environment will remain challenging. We forecast full-year GDP growth of between 1% and 1.5% for 2019, down from the 3% recorded for 2018.
Mainland China’s economic expansion averaged 6.3% in the first half of the year, compared with 6.6% for 2018. While trade and manufacturing activity have softened, reflecting the impact of developments in the external environment, retail sales growth has been relatively stable. As the Mainland’s economy shifts towards a greater reliance on services, private spending will continue to play an important role in driving broader growth. At the same time, the government is likely to maintain its programme of economic stimulus policies. We anticipate full-year GDP growth of between 6.2% and 6.4% for 2019, compared with 6.6% for 2018.
Source: Hang Seng Bank (00011) Interim Results Announcement