Hang Seng Bank Loan Growth May Stabilize on Hong Kong Curbs
Hang Seng Bank Ltd. (11), the Hong Kong lender controlled by HSBC Holdings Plc (HSBA), says loan growth may stabilize this year as the city imposes restrictions on mortgage lending to cool housing prices.
The bank’s lending grew by 11 percent last year, faster than the industry average, helping push net income up 15 percent to HK$19.4 billion ($2.5 billion), above analyst estimates. Hang Seng forecasts “stable” loan growth in 2013, Chief Executive Officer Rose Lee told reporters in Hong Kong yesterday, declining to provide precise figures.
Since taking office in July, Hong Kong Chief Executive Leung Chun-ying has added property taxes, favored local permanent residents over foreigners, tightened mortgages and increased supply after home prices doubled in the past four years. While the measures are aimed at speculators, Hang Seng’s clients are mainly buying homes to occupy, Lee said.
“Banks in Hong Kong generally will have to think carefully about mortgage lending in 2013, as any new loans will be subject to a much higher risk weighting,” Jim Antos, an analyst at Mizuho Securities Asia Ltd., said in an e-mail. Hang Seng’s lending growth rate “could reach 12 percent in 2013, despite recent anti-property speculation measures.”
Hang Seng, Hong Kong’s second-largest lender by assets, joins smaller Bank of East Asia Ltd. in reporting higher profit even as lending growth in the industry slowed. Total loans at Hong Kong retail banks grew 9.6 percent last year, about half the rate of 2011, monetary authority data show, as the economy expanded 1.4 percent, the slowest pace in three years.
“The market has cooled down a lot right after the property curbs,” Nixon Chan, Hang Seng’s head of retail banking and wealth management, told reporters in Hong Kong yesterday. “Home buyers need some time to digest the new measures and re-think their home purchase decision.”
Hang Seng shares rose 1.9 percent to HK$128, the highest since Feb. 20, as of 9:33 a.m. in Hong Kong trading. The stock has climbed 7.5 percent this year, compared with a decline of less than 0.1 percent in the city’s benchmark Hang Seng Index.
It may be “tough” for Hang Seng and other Hong Kong lenders to maintain their 2012 growth rates, Ismael Pili, head of Asia bank research at Macquarie Capital Securities Ltd., said in an e-mail, “largely due to the more stringent property measures introduced as well as my expectations that competition may intensify going forward.”
The Hong Kong Monetary Authority on Feb. 22 told banks to increase the risk weighting for new mortgages to 15 percent. This will increase banks’ cost of funding and could cause mortgage prices to gradually increase, Antos said.
Hang Seng ranked third in the city’s home loan market in January with a 16 percent market share, according to Hong Kong- based mReferral Mortgage Brokerage Services. That compared with a 17 percent share at its parent HSBC and Bank of China (Hong Kong) Ltd.’s 19 percent.
Hang Seng Bank’s pretax profit from mainland China operations rose 30 percent to HK$5.42 billion last year, it said yesterday. The mainland business accounted for 25 percent of the bank’s pretax profit, up from 22 percent in 2011.
The bank doesn’t see a systemic bad loan situation in China, CEO Lee said. Instead there are individual cases of soured debt, and Hang Seng doesn’t forecast a great deterioration this year, she said.
Hang Seng’s net interest income, the difference between what it makes from lending and what it pays on deposits, rose 7.7 percent to HK$16.9 billion. Net fee income, derived largely from credit cards and selling mutual funds, increased 5.2 percent to HK$5.09 billion.
Net income of HK$19.4 billion beat the HK$17.9 billion average estimate of 18 analysts surveyed by Bloomberg.
The net interest margin, a measure of lending profitability, widened to 1.85 percent in 2012 from 1.78 percent a year earlier, Hang Seng Bank said in yesterday’s statement. That compares with Hong Kong retail banks’ average margin of 1.36 percent last year and 1.24 percent in 2011.
Room for improvement in Hang Seng’s margin in Hong Kong is limited after an increase in the lending rate in the second half of last year, Lee said yesterday. The bank’s loan margin on the mainland may narrow because of the country’s moves to gradually let lenders set their own interest rates, she said.
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