Hang Seng Bank Limited (11) Earnings Call Transcript & Summary

[Foreign Language] [Interpreted] The first half of 2025 was demanding with ongoing uncertainties, including trade tariffs, sustained high interest rates and prolonged downturn in the commercial property market. These have all adversely affected the broader economy. As Hong Kong's largest domestic bank, we have maintained our priority to support our small- and medium-sized enterprises and real estate customers throughout these challenging times. Inevitably, we have adopted a prudent and proactive approach to manage risks. We have increased provisions and expected credit losses reached HKD 4.9 billion. This has impacted our profit before tax, which declined by 28% year-on-year to HKD 8.1 billion. Nonperforming loans reached 6.69%, primarily due to ongoing pressure in the property sector. Our capital base remains strong. Common equity Tier 1 ratio stands at 21.3%, underpinned by our solid business fundamentals and profit-generating capabilities. This means we are able to support our customers and deliver sustainable shareholder returns. We have also made meaningful progress in diversifying our revenue streams and growing our target customer base. Net operating income before ECL increased by 3% year-on-year. Fee and other income increased by 34% year-on-year and now contributes 31.6% of total income. This compensates -- more than compensates for the 7% year-on-year drop in net interest income. Retail banking and wealth business has been the key growth driver for a solid -- with a solid 43% year-on-year increase in wealth income. Insurance manufacturing and asset management income also grew by 18% year-on-year. Of particular note, Hang Seng Insurance became the second largest life insurer by new business premiums, with the same having grown by 57% year-on-year in the first quarter of this year. We have continued to expand our affluent customer base with a number of customers increasing by 10% annually over the past 3 years. New accounts opening of Prestige Family Plus increased by 51% year-on-year. There has also been notable progress in our cross-boundary business, both the total number of new mainland customers and those holding a prestige account with wealth management relationships grew by 20% year-on-year. In our commercial business, dedicated resources have been introduced to focus on banking customers from non-CRE sectors. We optimized the window during the tariff negotiation period with trade finance balances growing by 16% since the end of 2024. SME digital lending increased by 49% when compared with last year-end. To support customers in their green transition, close to 70% of the HKD 80 billion Sustainability Power Up fund has been allocated, including our first Hong Kong green loan, which helps reduce noise pollution at construction sites. Hang Seng Index -- Hang Seng Investment expanded its exchange-traded fund portfolio, having introduced Hong Kong's first passive equity ETF with monthly dividend payouts and first U.S. equity income-themed active ETF. Hang Seng Indexes launched 3 new indexes, 2 for Greater Bay Area and 1 for ASEAN. We also joined the Hong Kong government's business delegation to the Middle East in May. A new heads of terms agreement was signed with Qatar Financial Centre. These initiatives further strengthen financial connections between Hong Kong, Mainland China, ASEAN and the Middle East. Our strong capital position enables us to maintain a consistent dividend policy. I am pleased to announce that the directors have declared a second interim dividend of HKD 1.30 per share. This brings the total distribution of the first half of 2025 to HKD 2.60 per share, 8% higher than the same period last year. Also, we intend to initiate a share buyback of up to HKD 3 billion. Looking forward, we see early signs of recovery in the capital markets and a gradual improvement in the residential property sector. Whilst there are challenges, we are optimistic about Hong Kong's long-term growth prospects. I would like to take this opportunity to thank our colleagues for their hard work, creativity and dedication. Their efforts continue to make a meaningful difference to our customers and the communities we serve. And now, over to you, Say Pin.

Thank you, Diana. [Foreign Language]

I'm Selina from South China Morning Post. I have 2 questions, a follow-up from the previous reporter. First of all is, what's Hang Seng's attitude towards developers that are facing risks of defaulting on their loans? And also, there are media speculation that some major banks, including Hang Seng will establish a bad loan bank to encounter the current situation. So what's Hang Seng's take on that? And also, can you further comment on your expectation and outlook as and when will the commercial real estate property market recover?

[Interpreted] Thank you, Selina. There were 3 questions. First things first, our view on developers and clients with risk of defaults. Actually, with all our clients over the past decades, we have been supporting our clients and good and bad times, we have been there to support them in their financial needs. That approach and the purpose have not changed, yes. So I think I just want to get that very, very ingrained in your minds here that the approach has not changed. At times of uncertainties or adversities, what we will try to establish with our clients would be through communications, develop and come up with options, explore options of what might be best solutions for them. This might include restructuring of their financing. Perhaps clients would like to dispose their assets or they would be in a position to offer additional collateral. in very many ways, there are different options of trying to reshape the clients' ability and financial position. And that is our default position. It's only when you alluded to whether we would be calling loans and whatnot. It's only when clients actually have explored all options and that they feel they have exhausted all options, then it's a process the bank would have to trigger, yes? So that's your first question. Bad loans bank is an emphatic no. It's not in our plan to establish a bad loans bank. So very clear. Your third question, I kind of lost that, the expectation on recovery of commercial real estate. Well, I've said earlier that there are different factors leading to the current set of circumstances and pressure. I don't think any of the factors would necessarily go away in the near term. So I think pressure will remain for the next half of the year. But at the same time, I think there are energy and policies coming out to support the market. So in a time where businesses and the market are both transforming, we will be there to support our customers throughout as best as we can. Thank you, Selina. [Foreign Language] [Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]