The Motley Fool

1 Way Hang Seng Bank Makes Money

Hang Seng Bank (SEHK:0011) is one of Hong Kong’s largest listed companies that was founded back in 1993. The name of the bank carries significance as it means “ever-growing” in Chinese and that’s exactly what the bank is trying to do.

Hang Seng is part of the HSBC Group with the latter owning approximately 62% of the former. HSBC Holdings plc (SEHK: 5) is one of the world’s largest banking and financial services organisations. Currently, Hang Seng has a market capitalization of HK$316 billion (US$40 billion).

The business

Within its home base of Hong Kong, Hang Seng has 260 branches that serve some 3 million residents. Over in China, it has operations in 20 cities. The bank also has a presence in Singapore and Macau and a representative office in Taipei.

Let’s take a quick look at Hang Seng’s biggest business segment – retail banking and wealth management.

Retail banking and wealth management is the largest revenue and profit contributor for Hang Seng Bank, contributing about 53% of its profit. From the diagram below, the first half of 2019, Hang Seng’s retail and wealth management business performed exceptionally.

Net interest income was up 10% year on year, while non-interest income was up 75%. Net interest income was up on the back of higher loans which increased by 6%. The increase in non-interest income which came in 14% higher year-on-year is further broken down in the diagram below.

Source: Hang Seng Bank half-year presentation slides

The non-interest income sub-segment within Hang Seng bank makes its money from fees it charges customers for a myriad of services. Some examples of the services include – securities broking, retail investment funds, card services, remittance, and a few others.

As readers can see from the below, both wealth management and insurance income grew significantly. Taking a closer look, within the non-interest income segment, the bank saw a steep decline in investment services income due to volatile markets. However, insurance income surged 51% on the back of better investment returns and new product launches.

Source: Hang Seng Bank half-year presentation slides

Foolish summary

All in all, Hang Seng bank’s retail and wealth management segments, which are the largest revenue and profit contributors for the bank, seem to be chugging along well. This is despite the numerous reasons investors can find to worry about a tough economy ahead.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Hong Kong contributor Saket Jhajharia does not own shares in Hang Seng Bank or HSBC Holdings plc.