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.