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Hang Seng Bank Ltd 00011

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Morningstar’s Analysis

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Economic Moat

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Capital Allocation

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Hang Seng Bank’s Second Half 2020 Result Below Expectation

Michael Wu, CAIA Senior Equity Analyst

Analyst Note

| Michael Wu, CAIA |

Hang Seng Bank’s second half and full year 2020 result was below our expectation. Profit before tax for the full year came in at HKD 19.4 billion, compared to our forecast of HKD 22.4 billion. While we expected net interest margin to compress in the second half, the decline was worse than expected. Net interest margin for the full year was 1.73%, implying a second half net interest margin of 1.5%. The decrease was in line with the decline in half-yearly average 1-month HIBOR, which declined to 0.30% in the second half from 1.42% in the first half. Positively, net fee income was steady against the first half with lower fees for insurance products offset by higher brokerage, given the strong trading turnover in the capital markets. Credit card fees also increased 9% half on half as economic activities picked up in the second half of 2020, prior to the fourth coronavirus wave in December. Full year expected credit loss was HKD 700 million lower than our forecast of HKD 2.7 billion, and also declined against the first half. The bank maintains a strong position with common equity Tier 1 at 16.8%. With the economic backdrop improving, second half dividend was higher at HKD 3.60 per share, taking full year dividend to HKD 5.50 per share, and ahead of our HKD 5.12 per share forecast.

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Company Profile

Business Description

Hang Seng Bank is a Hong Kong-based financial institution. Founded in 1933, the bank has a long history in Hong Kong and operates three main segments consisting retail banking and wealth management, commercial banking, and global banking and markets. The majority of the group's profit is generated in Hong Kong and mainland China. HSBC is a majority shareholder with a 65% stake in Hang Seng Bank. The former acquired a 50% stake in 1965, subsequently increasing its shareholding.

Contact
83 Des Voeux Road Central
Hong kong, Hong Kong
T +852 21981111
Sector Financial Services
Industry Banks - Regional
Most Recent Earnings
Fiscal Year End Dec 31, 2021
Stock Type
Employees 9,628

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