The Motley Fool

3 Ways Hang Seng Bank Makes Its Money

Hang Seng Bank (SEHK: 11) 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” 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$301 billion (US$38.7 billion).

The business

Within China, Hang Seng Bank has operations in 20 cities. Over in Hong Kong, it 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 articles here and here, I looked at the two ways that Hang Seng bank makes its money – Retail Banking and Commercial Banking. These were the biggest contributors to both revenue and profits. In this article, I’ll look at the third and final segment within the bank that contributes to its top and bottom line.

The last segment of Hang Seng that contributes to its financials is the Global Banking and Markets segment. In the first six months of 2019, this segment posted a lacklustre performance with revenue increasing slightly and profits declining as seen from the image below.

However, let’s look at the individual sub-segments to understand the cause of the weakness.

Source: Hang Seng Bank half-year presentation slides

The Global Banking sub-segment reported a strong performance for the quarter with revenue and profits increasing by 14% and 9% respectively.

Both net interest and non-interest income showed strong growth. This is on the back of an enhanced lending portfolio mix and better deposit returns.

Source: Hang Seng Bank half-year presentation slides

The Global Markets sub-segment, on the other hand, reported poor results for the first half of 2019. Declines were seen across all segments on the back of a flattening yield curve and tightening credit spreads.

Also, uncertainties related to the US-China trade dispute resulted in declining foreign exchange demand from customers.

Source: Hang Seng Bank half-year presentation slides

Foolish summary

We have looked at the three major segments of how Hang Seng Bank derives its income – Retail Banking, Commercial Banking, and Global Banking and Markets.

While the bank provides very similar services within these segments, the segments are divided depending on the customers it serves.

This allows investors to better analyse how different segments of the economy are performing, giving them a deeper look at the state of the economy. It also provides investors with a closer look at the performance of the different segments within Hang Seng Bank.

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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.