1
Hang Seng Bank 2013 Annual Results Announcement
Speech by Ms Rose Lee
Vice-Chairman and Chief Executive
24 February 2014
Good afternoon, ladies and gentlemen.
Before we proceed with the results announcement, may I draw your attention to the
statement on the screen. All figures are in Hong Kong dollars unless otherwise stated.
Business Overview
Hang Seng Bank made good progress with its customer-driven strategy to achieve solid
results in 2013.
International economic conditions improved, but market competition remained keen as
banks sought to capitalise on the upturn in investor sentiment and a more positive outlook
among businesses in the region.
Profit attributable to shareholders increased by 38% compared with 2012 to $26,678 million
and return on average shareholders’ funds was up 2.6 percentage points at 25.4%.
Reclassification of our holding in our mainland China banking associate, Industrial Bank,
generated a non-distributable accounting gain of $9.5 billion. Excluding the impact of this
reclassification, attributable profit rose by 19% and return on average shareholders’ funds
was up 0.5 percentage points at 17.6%.
We continued to invest in technology, service channels and our branch network to deepen
existing relationships and acquire new clients in target segments. Along with more effective
cross-selling and other revenue diversification initiatives, we achieved a 10% rise in net
interest income and a 27% increase in non-funds income. Our strong product development
capabilities facilitated a swift response to improvement in the investment environment,
driving a 15% rise in total wealth management income.
Our extensive Mainland network and market knowledge reinforced our position as a leading
provider of cross-border and offshore renminbi-related services. In November, we became
the first local financial institution in Hong Kong to launch a Renminbi Qualified Foreign
Institutional Investor (RQFII) exchange-traded fund (ETF).
2
Hang Seng China improved its service reach with two new sub-branch openings and the
commencement of operations at Qianhai Sub-branch. In July, we extended our business
scope as one of the first foreign banks permitted to distribute domestic investment funds.
Financial Performance
Attributable profit rose by 38% to $26,678 million. Earnings per share also increased by 38%
to $13.95 and profit before tax grew by 30% to $28,496 million. Excluding the Industrial Bank
reclassification, attributable profit and earnings per share were both up 19% at $17,161
million and $8.98 respectively, and profit before tax rose by 19% to $20,042 million.
The Directors have declared a fourth interim dividend of $2.20 per share. This brings the
total distribution for 2013 to $5.50 per share – up from $5.30 in 2012.
Operating profit excluding loan impairment charges increased by 19% to $18,946 million.
Operating profit rose by 19% to $18,410 million.
Net interest income grew by $1,658 million to $18,604 million, supported by the 8% increase
in average interest-earning assets and a four-basis-point improvement in net interest margin
to 1.89%. Effective balance sheet management and the acquisition of new customers drove
growth of 9% in lending and 6% in deposits.
We continued to pursue a balanced growth strategy. Non-interest income rose by $2,023
million to $9,458 million, representing 33.7% of total operating income, compared with 30.5%
in 2012.
Further steps to diversify revenue and strengthen customer relationships drove a broadbased 16% increase in net fee income to $5,887 million. We capitalised on improved
investor sentiment to achieve a 37% rise in retail investment funds income. Increased
business volumes underpinned a 16% rise in remittance fees and 8% growth in fee income
from trade-related services.
Trading income recorded a decline of 1% to $2,045 million. Increased foreign exchange
revenues were offset by the reduction in income from funding swap activities, resulting in a
drop in foreign exchange income.
3
The Industrial Bank reclassification underpinned the significant increase in dividend income
to $1,014 million, compared with $17 million in 2012.
Operating expenses rose by 7% to $9,103 million, reflecting investments in technology,
service enhancements and our Mainland business as well as increased marketing activities
and higher staff costs.
With the 15% growth in net operating income before loan impairment charges outpacing the
7% rise in operating expenses, our cost efficiency ratio improved to 32.4% – down 2.5
percentage points compared with 2012.
Loan impairment charges increased by $150 million to $536 million.
Return on average shareholders’ funds was 25.4%, up from 22.8% for 2012. Excluding the
Industrial Bank reclassification, return on average shareholders’ funds was 17.6%, up from
17.1% in the previous year.
Total assets increased by 6% to $1,144 billion. Return on average total assets was 2.4%.
Excluding the Industrial Bank reclassification, return on average total assets was 1.5% –
compared with 1.4% a year earlier.
On 31 December 2013, our total capital ratio under Basel III was 15.8% and our Common
Equity Tier 1 ratio was 13.8%.
Loans and Deposits
Gross loans and advances to customers increased by $50.1 billion to $587.7 billion
compared with the end of 2012. Our emphasis on quality lending and prudent credit risk
management underpinned the three-basis-point improvement in impaired loans and
advances as a percentage of total loans and advances to 0.22%.
Loans for use in Hong Kong grew by 6% to $399.4 billion.
Loans to business customers were up 7%, with increased lending across a broad spectrum
of industry sectors. Our continuing efforts to support the long-term development of local
businesses underpinned rises in lending to the wholesale and retail trade sector and the
manufacturing industry of 33% and 14% respectively.
4
Lending to individuals increased by 5%, with residential mortgage lending and credit card
loans and advances both registering solid growth of 5%.
Trade finance regained momentum to register growth of 10%.
Loans for use outside Hong Kong rose by 20%, reflecting increases in the Hong Kong and
the Mainland loan portfolios as we continued to prudently expand lending to target corporate
customers to support their business on the Mainland.
Customer deposits, including certificates of deposit and other debt securities in issue, were
up 6% compared with the end of 2012 at $869.7 billion.
Hong Kong and Other Businesses
Retail Banking and Wealth Management recorded a 14% increase in profit before tax to
$8,939 million. Excluding the effects of the gain arising from the disposal of our general
insurance manufacturing business in 2012, profit before tax was up 17%.
Operating profit excluding loan impairment charges grew by 16% to $8,967 million.
Operating profit was up 15% at $8,485 million.
Net interest income rose by 14% to $9,959 million, underpinned by solid growth in
unsecured lending and insurance business.
We leveraged our trusted reputation and wide range of service channels to further diversify
our revenue base. Non-interest income grew by 13% to $4,334 million, underpinned mainly
by the 16% rise in net fee income. Wealth management income rose by 18% to $6,242
million, driven in part by improvement in cross-referral structures.
The expansion and enhancement of our Prestige and Preferred Banking Centres and the
launch of our technology-driven ‘iPoint’ sales and service centres in Central and Causeway
Bay MTR Stations helped us better serve the specialised needs of key customer segments.
We enhanced customer convenience and choice through product and service innovations,
including the launch of the RQFII Hang Seng China A Industry Top Index ETF and a first-ofits-kind near-field communication contactless payment channel that uses smartphone
technology.
5
We capitalised on the upturn in investor outlook to achieve a 23% increase in investment
services income to $2,849 million, supported mainly by growth of 43% in turnover of retail
investment funds and the 22% rise in securities-related turnover.
Total operating income from insurance business was up 14% at $3,393 million, reflecting a
16% increase in annualised new life insurance premiums, a 4% rise in total life insurance
policies in-force and improved returns on the life insurance investment funds portfolio.
Total operating income from credit card business was up 6% at $2,748 million. Attractive
promotional offers and customer loyalty supported a 13% rise in card spending.
In challenging operating conditions, we maintained a strong market position in mortgage
business and grew lending by 4%.
Corporate and Commercial Banking recorded a 7% increase in profit before tax to $6,263
million. Excluding the effects of the gain arising from the disposal of our general insurance
manufacturing business in 2012, profit before tax was up 10%.
Operating profit excluding loan impairment charges grew by 12% to $6,303 million.
Operating profit was up 10% at $6,257 million.
Net interest income rose by 9% to $5,777 million. In highly competitive market conditions, we
achieved a 12% increase in customer deposits and grew customer advances by 11%.
Non-interest income grew by 12% to $2,356 million, reflecting a 15% rise in net fee income
and a 13% increase in income from foreign exchange and treasury transactions by
customers. New cross-selling initiatives and enhancements to our product and service suite
led to a rise in corporate wealth management income. Investment services income grew by
22%, underpinned by a 48% rise in revenue from investment fund sales.
Targeted marketing campaigns helped us capture more cross-border trade flows to achieve
a 28% rise in income from remittances.
We successfully attracted and grew quality SME customers. Mainland companies
represented 51% of newly acquired customers in 2013 – up from 41% in 2012. New
customers were the primary drivers of growth in SME customer deposits and the 21%
increase in non-interest income from SME business.
6
We continued to strengthen our service channels to enhance accessibility and convenience.
We opened two new Business Banking Centres in Sheung Shui and Kwun Tong, and
upgraded our Business Mobile Banking platform.
Treasury recorded a 3% increase in profit before tax to $2,441 million. Operating profit was
up 3% at $2,440 million.
Net interest income fell by 3% to $1,630 million, with market conditions limiting the
opportunities for yield enhancement and a reduction in the commercial surplus available for
deployment.
Non-interest income grew by 16% to $1,118 million, driven by a 14% increase in trading
income. Assisted by an improved cross-selling strategy, we capitalised on rising demand for
renminbi-denominated products. Increased investor activity supported a 24% rise in foreign
exchange trading income.
Mainland Business
The slowdown in economic growth, intensifying market competition and changes in the
regulatory environment created challenging operating conditions on the Mainland.
We enhanced Hang Seng China’s infrastructure by investing in new outlets, technology and
customer service capabilities, while further leveraging our cross-border capabilities and the
strengths of our Hong Kong operations to enrich our product and service offerings.
Hang Seng China maintained good growth momentum, recording a 19% increase in
advances to customers and a 17% rise in customer deposits. However, with interest rate
liberalisation and interbank market volatility exerting downward pressure on margins, net
interest income declined by 6%.
Non-interest income grew by 4%, driven by a 15% increase in trading income.
Total operating income fell by 4%. Operating profit was down 38%, due mainly to the fall in
net interest income and an 8% increase in operating expenses with further investments in
long-term business development. These investments have contributed to an increase in
cross-border business in Hong Kong, the effects of which are reflected in Hang Seng’s
overall performance.
7
We added new sub-branches in Fuzhou and Shantou and commenced operations at our
Qianhai Sub-branch to capitalise on business opportunities generated by favourable policy
initiatives. Last week, we opened our Chengdu Branch and Shanghai Free Trade Zone Subbranch, bringing Hang Seng China’s number of outlets to 50. We will continue to expand our
Mainland network coverage in strategic locations.
Managing for Sustainable Growth
In a rapidly changing economic and regulatory environment, our strategic priorities are
designed to uphold service excellence and drive the sustainable growth of our business. We
will maintain our customer-focused approach and capitalise on our competitive strengths to
reinforce our position as Hong Kong’s leading domestic bank and a major provider of crossborder services as economic integration in the Greater China region increases.
Backed by our deeply rooted knowledge of local markets, good cross-border connectivity
and trusted brand, we are well placed to benefit from ongoing financial liberalisation on the
Mainland and initiatives to internationalise the renminbi. We will strengthen our Mainland
operational infrastructure and service delivery channels and step up collaborative and crossreferral initiatives to capture increased cross-border capital and trade flows.
We will continue to enhance the end-to-end service experience for customers by making
further investments in analytics, our branch network and other service delivery channels as
well as in growing the skills and knowledge of staff.
Upholding high corporate governance and risk management standards remains central to
our corporate value and in shaping our business for sustainable growth.
We remain committed to our customers, business partners and our local communities and
will continue to actively support a diverse range of corporate social responsibility
programmes.
I wish to thank our staff for their invaluable contributions to our achievements in 2013. Their
dedication will ensure that we continue to deliver service excellence to our customers and
achieve optimal return for our shareholders.
Thank you.