The Motley Fool

Better Buy: BOC Hong Kong vs. Hang Seng Bank

Bank of China (Hong Kong) (SEHK: 2388), or BOCHK for short, and Hang Seng Bank (SEHK: 11) are two of the top players that dominate Hong Kong’s banking industry. BOCHK, one of the three note-issuing institutions in Hong Kong, is also the only Renminbi-clearing bank.

While Hang Seng Bank is not authorised to issue currency, it has had the backing of HSBC Holdings (SEHK: 5), one of the largest banking groups in the world, since the 1960s. So, which one is the better investment right now?

Net interest margin

Fiscal Year

BOCHK Hang Seng


1.67% 1.90%


1.46% 1.83%
2016 1.33%


2017 1.57%


2018 1.62%


Source: BOCHK and Hang Seng Bank financial reports

Banks make profits by transforming low-cost funds into higher-yielding loan assets. The net interest margin considers the interest earned on a bank’s asset and the cost of funds necessary to maintain the bank’s assets and reveals the bank’s profitability in its core operations.

Perhaps due to the series of US Federal Reserve interest rate hikes, Hang Seng Bank’s net interest margin (NIM) has gradually increased since 2015 – with an overall gain of 0.28%.

As for BOCHK, a decline in its NIM persisted over the period with an overall decrease of 0.05%, despite a minor trend reversal in 2017. A higher interest margin for Hang Seng Bank indicates a stronger capability to obtain lower-cost funds and to better price its loans.

Winner: Hang Seng Bank

Loan-to-assets ratio

Fiscal Year

BOCHK Hang Seng


36.7% 52.1%


35.3% 51.6%
2016 39.9%


2017 42.5%


2018 43.3%


Source: BOCHK and Hang Seng Bank financial reports

The loan-to-assets ratio reveals how a bank breaks up its operating assets. Loans are recognised as interest-generating assets since lending activities generate net interest income. Other operating assets that do not involve lending generate income in the form of commission and administrative charges.

While the higher loan-to-assets ratio of Hang Seng Bank suggests a stronger reliance on interest income from loan creation, BOCHK records a more significant increase in the ratio over the period.

This could relate to the growing expectation of Fed rate hikes that might have encouraged retail and commercial banking clients to obtain low-cost funds preemptively before the actual rate hikes. BOCHK benefits from such a trend and records significant growth in loan assets on its balance sheet.

It might also relate to the bank’s effort in increasing its presence in the local lending market by offering loan products with favourable terms, resulting in a seemingly unattractive net interest margin compared to Hang Seng Bank.

Winner: Tie

Return on assets

Fiscal Year


Hang Seng


1.16% 1.59%
5-year average 1.41%



Return on assets (ROA) indicates a bank’s profitability by comparing all forms of income generated, be it interest earned on loans or administrative charges from service provision, to the bank’s overall assets.

In this regard, Hang Seng Bank beats BOCHK with a higher five-year average figure and a short-term, faster-growing trend.

It should be noted that the ROAs of banks are generally low but banks’ core activity to transform short-term liabilities into long-term loan assets creates significant leverage that magnifies the returns into significant earnings for shareholders.

Winner: Hang Seng Bank

Foolish takeaway

Overall, from the above, it’s relatively straightforward, in my view, that Hang Seng Bank seems to be the more attractive investment right now.

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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 Oscar Yu does not own shares in any companies mentioned.