HANG SENG BANK(HK:00011)2023-03-10 08:31Financial Performance - Hang Seng Bank reported a net operating income of HKD 33,972 million for 2022, an increase from HKD 33,182 million in 2021, representing a growth of 2.4%[5] - The bank's operating profit decreased to HKD 11,557 million in 2022, down 29% from HKD 16,231 million in 2021[5] - Profit attributable to shareholders fell to HKD 10,165 million, a decline of 27% compared to HKD 13,960 million in the previous year[5] - The average return on ordinary shareholders' equity was 5.5% in 2022, down from 7.7% in 2021[5] - Total assets increased by 4% to HKD 1,893,805 million as of December 31, 2022, compared to HKD 1,820,185 million in 2021[5] - The bank's cost-to-income ratio increased to 43.5% in 2022, compared to 42.6% in 2021, reflecting rising operational costs[5] - The bank's tier 1 capital ratio was 15.2% in 2022, down from 15.9% in 2021, indicating a slight decrease in capital adequacy[5] - Shareholder profit decreased by 27% year-on-year, reflecting the challenging operating environment due to the pandemic and geopolitical tensions[18] - Total operating income, excluding expected credit loss changes, increased by 2% to HKD 33.972 billion, with a 27% increase in the second half compared to the first half of the previous year[25] Liquidity and Capital Management - The bank's liquidity coverage ratio improved to 281.3% in 2022, up from 192.7% in 2021, indicating stronger liquidity management[5] - Customer deposits increased by HKD 50 billion, or 4%, to HKD 1,389 billion, driven by growth in time deposits despite a decrease in current and savings accounts[29] - The loan-to-deposit ratio decreased from 74.5% at the end of 2021 to 67.1% at the end of 2022[75] - As of December 31, 2022, shareholders' equity stood at HKD 184 billion, remaining roughly stable compared to the end of 2021[77] Credit Risk and Provisions - The company reported a significant increase in expected credit loss provisions, rising by 172% year-on-year, primarily related to risks in the mainland commercial real estate sector[18] - Expected credit loss provisions increased by HKD 4.819 billion year-on-year to HKD 7.626 billion, with the ratio of total impaired loans to total customer loans at 2.56%[26] - Total impaired loans increased by HKD 13.8 billion to HKD 24.2 billion, with the impaired loan ratio to total customer loans rising to 2.56% from 1.04% in 2021[52] - The expected credit loss ratio to total customer loans increased to 1.42% from 0.69% in 2021[52] - The expected credit loss provision for personal loans was 0.06%, while for corporate and commercial loans it was 0.12%[132] Business Segments and Growth - The bank's asset management business grew by 75% year-on-year, bolstered by the appointment as the new manager of the largest ETF in Hong Kong[31] - The number of target customers in wealth management and personal banking increased by 16% year-on-year, with customer loans rising by 2% and customer deposits growing by 6%[20] - Net premium income increased by 44% year-on-year, with digital policy sales rising by 135% and active users of the Hang Seng Olive health management app growing by 29%[21] - The commercial banking business reported a net operating income of HKD 9.625 billion, an increase of 8% year-on-year, while operating profit before tax decreased by 81% to HKD 775 million[34] Digital Transformation and Innovation - Digital transformation remains a key strategy, with over 460 digital innovation services launched in 2022, including mobile ticketing and green receipt services[32] - The company is actively participating in digital currency initiatives and has launched various fintech services, including mobile ticketing and US stock-linked investment services[19] - Monthly active users of mobile wealth management services increased by 11% year-on-year, demonstrating enhanced customer engagement[32] Risk Management - The company emphasizes a robust risk management culture, with all employees responsible for risk management and the board holding ultimate accountability[78] - The risk management framework includes a three-line defense model to support risk management efforts across the organization[81] - The company actively manages climate-related risks and integrates them into internal and client risk management considerations[78] - The risk management committee oversees the stress testing program, with results reported to the Risk Management Meeting and the Board[92] Economic Outlook and Challenges - The company acknowledges significant uncertainty in economic forecasts, particularly due to ongoing geopolitical risks such as the Russia-Ukraine conflict and U.S.-China tensions[143] - The expected credit loss estimation involves significant judgment and estimation, utilizing various economic forecasts and external predictions[142] - The company anticipates that fiscal support related to COVID-19 will diminish as economic activity restrictions are lifted, impacting future fiscal expenditures[144] - The ongoing geopolitical risks include the escalation of the Russia-Ukraine war and long-term tensions between the US and China, which may impact market sentiment and global economic activity[149] Sustainability and ESG Initiatives - The company aims to achieve net-zero carbon emissions in its operations by 2030 and supports the group’s goal of net-zero emissions in its financing portfolio by 2050[15] - The company has established a dedicated task force to oversee climate-related risk management and is actively communicating with stakeholders regarding these risks[106] - The company is committed to enhancing its climate risk management capabilities across four key areas: regulatory compliance, risk management, stress testing, and information disclosure[106]