What You Must Know About Hang Seng Bank Before Investing

Hang Seng Bank (HKG:0011) is one of Hong Kong’s largest listed companies that was founded back in 1993. In fact, the Hong Kong stock index is named after itself; the Hang Seng Index. The name of the bank carries significance as it means “ever-growing” and that’s exactly what they bank is trying to do.

Hang Seng is part of the HSBC group with the latter owning approximately 62% of the former. HSBC is one of the world’s largest banking and financial services organisation. Currently, Hang Seng has a market capitalisation of HK$335.15B.

With that, here are 7 things you need to know about Hang Seng.

Stock Information





The Business

Hang Seng’s headquarters was established in 2007 in Shanghai. Within China it has operations in 20 cities. Over in Hongkong, Hang Seng has 260 branches which serve some 3 million residents. The bank also has a presence in Singapore and Macau and a representative office in Taipei.

The banks major business activities comprise retail banking and wealth management together with private banking. On the commercial front, the bank provides commercial banking and global banking. Apart from banking, Hang Seng has an investment and insurance arm both in China and Hong Kong.

Source: Hang Seng half year presentation slides

From the diagram above during the first half of 2017, Hang Seng’s retail and wealth management business performed well. Net interest income was up 10% while non-interest income was up 74%. Net interest income was up on the back of higher loans from mortgages and unsecured credit card lending. The increase in non-interest income is further broken down in the diagram below.

Source: Hang Seng half year presentation slides

From the diagram above, both investment and insurance income grew significantly. This was attributed to the increase in better customer engagement by the quick response to investment and insurance needs of customers. Both these segments saw strong growth as more individuals in China move into the middle-class category and demand better banking and wealth protection services.

Moving onto the commercial banking segment. From the diagrams attached below, it can be seen that the growth in this segment was strong as well. Net interest income grew 9% on the back of higher loans to small & medium enterprises and strengthened transactional banking and cross border infrastructure that drove deposits and loan growth.

While non-interest income grew 36%on the back of increased investment and insurance income. The breakdown can be seen in the second diagram attached below. The increase insurance and export banking services were seen following a partnership with Sinosure thus allowing Hang Seng to provide a wider range of services. Other areas of strong growth were seen in foreign exchange transactions and credit related services.

Source: Hang Seng half year presentation slides

Source: Hang Seng half year presentation slides

Lastly, the Global banking and markets segment also saw decent growth. Most of the growth in the segment came from non-interest income. This was mostly related to vanilla foreign exchange, credit related and insurance growth.

Source: Hang Seng half year presentation slides

Overall for the first half of 2017, Hang Seng reported net operating income of HK$17.6 billion which was 16% higher compared to the same period in the previous year. Profit attributable to shareholders rose 23% to HK$9.8 billion compares to first half 2016.

Key Opportunities

Digital Transformation

The bank is working on a digital platform to cater better to the new generation of banking clients, mostly the millennials. Most of the younger generation working adults don’t like to visit bank branch but rather do all their banking online. On this front, the bank made some progress, in the first half it saw a 8% increase in personal e-banking customers.

Similarly, on the commercial front, the bank is making investments on its digital platform which would provide customers with greater convenience in financial management.

These digital investments are very important for the bank to stay relevant and continue to appeal to a new breed of customers.

Growing affluence

The diagrams above serve as confirmation of the bank’s wealth business. All segments saw strong growth in wealth management. These are mostly due to many individuals moving up the financial ranks in China as the economy grows. As individuals get wealthier they demand better services and products and that’s one area Hang Seng bank is addressing.

One other important figure is that in the first half of the year Hang Seng bank saw a 25% increase in its Prestige Signature Customer base. These accounts are meant to serve individuals who do not yet qualify for private banking but are still considered as high net worth individuals.

Key Risks

Loss of credit card fee income

One of the major threats for Hang Seng Bank is the potential loss of credit card fee income. While this doesn’t make up a significant part of its revenue or profits it provides customers with a complete package especially for premier clients due to discounts and privileges. However, due to the rise of digital payment systems such a Wechat Pay and Alipay, Hang Seng might see some pressure on its credit card income in the future if it doesn’t come up with creative ways to retain its customers.

Increase in credit card receivables

In the first half of 2017, the bank reported that its loans increased on the back of an increase in unsecured credit card receivables. This is one area investors should watch, as if credit card receivables are on a constant increase it can signify risks for the bank as these loans are unsecured.  This is important as a risking receivables figure can indicate that the population is spending beyond their means and this can become problematic if there is a downturn in the economy.


Hang Seng currently trades at a Price to book (P/B) ratio of 2.4 and spots a 3.6% dividend yield for its investors. It’s price to earnings (P/E) ratio stands at 21.2 compared to its five-year average of 12.3 It’s P/B ratio is slightly higher compared to its five-year average of 2.2 while its dividend yield is a tad lower from an average of 4.1%.

Investor Relations

Investor Relation Material:

Top Shareholders (31st December 2016)

  • HSBC Group 62.14%


Income Statement

Balance Sheet

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The information provided is for general information purposes only and is not intended to be any investment or financial advice. All views and opinions articulated in the article were expressed in Ketz’s personal capacity. It does not in any way represent those of his employer and other related entities. Ketz does not own any companies mentioned.

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