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Hang Seng Bank (SEHK: 11) is one of Hong Kong’s largest listed companies that was founded back in 1933. The name of the bank carries significance as it means “ever-growing” 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 organizations. Currently, Hang Seng Bank has a market capitalisation of HK$325 billion (US$41.8 billion).
Within China, it has operations in 20 cities. Over in Hong Kong, Hang Seng has 260 branches that serve some 3 million residents. The bank also has a presence in Singapore and Macau and a representative office in Taipei.
In my previous article, I looked at one way that Hang Seng bank makes its money – Retail banking. This was also the biggest contributor to both revenue and profits. In this article, I’ll look at the other two segments within the bank that contribute both its to top and bottom lines.
Source: Hang Seng Bank half-year presentation slides
Interest and non-interest income
The second segment within Hang Seng bank is commercial banking. The commercial banking segment is the second-largest segment for the bank contributing approximately 32% to the group’s profits.
Income in this segment is generated by both interest and non-interest income. From the diagrams attached above, this segment performed well in the first six months of 2019 with profits increasing by 12% year-on-year.
Looking at the breakdown, net interest income grew 20% on the back of growth in both loans and deposits, as well as due to a rise in market interest rates.
The growth of the loan book coupled with an increase in interest rates means that the bank won on both fronts. This is because a bank’s net interest income can increase either due to loan book growth or an increase in net interest rates.
Non-interest income, on the other hand, declined 12% year-on-year, on the back of a lower investment income and uncertainty from the China-US trade dispute. While investment income came in lower, fee income from cards and credit facilities saw registered growth, helping to bolster some of the declines in the other segments.
To sum up, the second segment within Hang Seng bank is the commercial banking segment which is the second biggest revenue and profit contributor.
Like the bank’s retail banking segment, the commercial banking segments serve commercial clients instead of the “man on the street”. This segment has shown strong growth and there seems to be tailwind ahead for continued growth.
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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 any companies mentioned.