Hang Seng Bank (11) H1 2025 earnings summary

Executive summary

• Net operating income before ECL grew 3% year-on-year to HK$20,975m, driven by a 34% rise in fee and other income, especially from wealth management and investment services, despite a 7% decline in net interest income and a 28% drop in profit before tax to HK$8,097m due to higher credit impairment charges.

• Earnings per share dropped 34% to HK$3.34; return on average ordinary shareholders' equity was 7.9%.

• The bank remains well-capitalised with a CET1 ratio of 21.3% and declared a second interim dividend of HK$1.30 per share, totaling HK$2.60 for the half-year, up 8% year-on-year; plans for a share buy-back up to HK$3bn.

• Underlying business performance remained resilient, with notable progress in business diversification, strong cost control, and proactive risk management, particularly regarding commercial real estate exposures.

Financial highlights

• Net interest income fell 7% year-on-year to HK$14,339m, while fee and other income rose 34% year-on-year, now comprising 31.6% of total revenue.

• Net fee income rose 23% to HK$3,147m, led by a 60% increase in securities broking income.

• Net income from financial instruments at fair value surged 280% to HK$10,716m, with insurance business contributing HK$9,058m.

• Operating expenses rose 1% to HK$7,565m, with employee compensation and software amortization up 2% and 14%, respectively.

• Cost efficiency ratio improved to 36.1% from 36.8% a year ago.

Outlook and guidance

• Management expects continued pressure on credit costs in the second half, particularly in the commercial real estate sector, with ECL likely to remain at similar levels as the first half.

• Early signs of recovery are seen in capital markets and the residential property sector, but uncertainties remain due to macroeconomic factors, trade tariffs, and high interest rates.

• Net interest margin is expected to remain pressured, while wealth management and fee income growth momentum should continue.

• Focus continues on revenue diversification, digital transformation, and sustainable finance.

• Plans to complete the HK$3bn share buy-back within six months and maintain a target dividend payout ratio of 70% for 2025.