Hang Seng Bank Ltd. (00011.HK) will hire more people to expand its cross-border business despite deteriorating credit quality in the mainland.
Loan impairment charges jumped 113.4 percent to HK$1.14 billion (US$150 million), among which individually assessed impairment charges — where exposure to loss is evaluated case by case — soared more than six times to HK$532 million, the bank said Monday in its financial results for 2014.
“The increase in bad-loan provisions is mainly because of the economic downtrend in the mainland, overcapacity and weak exports and domestic consumption … the problematic borrowers are mainly private firms in the mainland,” vice-chairman and chief executive Rose Lee Wai-mun said in a media briefing Tuesday.
Lee said the situation is set to continue as China presses ahead with its economic reforms.
But the Hong Kong-based bank will not reduce its exposure to the mainland. It will instead focus on cross-border clients that include Hong Kong investors in the mainland, red chips and companies with H shares.
“I will be more in need of the resources that arise from the demands of cross-border business, including IT systems, staff for product sales and design, like fund management and asset management … and front-line staff who have a good understanding of mainland clients and yuan development,” Lee said.
“We expect that our additional manpower in 2015 will not be less than last year,” she said. Hang Seng added 336 people last year.
“We won’t reduce our growth in the mainland. Instead, we will be more focused on clients that have [financial] demands in both Hong Kong and the mainland,” Lee said.
“Our business strategy is to develop our cross-border business, especially if the capital account continues to open up and the yuan continues to internationalize.”
Hang Seng’s loan exposure to the mainland accounts for 10 percent of its overall business. Loans it extended to mainland businesses grew 7 percent last year.
Overall asset quality remained under control, as the bank’s non-performing loan ratio was 0.32 percent for the period, compared with 0.22 percent the previous year, Lee said.
Hang Seng’s net profit disappointed the market, dropping 43 per cent year on year to HK$15.13 billion, owing to higher provisions for bad debts, as well as an impairment loss of HK$2.1 billion related to its investment in Fujian province-based Industrial Bank Co. Ltd.
An accounting gain of HK$9.5 billion was booked in 2013 on the reclassification of Industrial Bank from an associate to a financial investment. Excluding the impairment and reclassification, Hang Seng’s net profit rose 0.4 percent last year.
The bank completed the disposal of 5 percent of the ordinary shares of Industrial Bank earlier this month. The net gain of HK$2.8 billion, which will be booked in the first half of this year, boosts Hang Seng’s capital ratio to comply with requirements under the Basel III accord.
Lee said no decision has been made on whether the bank will sell its remaining 5.87 percent shareholding in Industrial Bank after the lock-up period of 90 days.
Net interest income grew 6.8 per cent to HK$19.87 billion for the year.
Net interest margin improved 1 basis point (0.01 percentage point) to 1.9 per cent but will come under increasing pressure this year, Lee said.
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