The Hongkong and Shanghai Banking Corporation Limited 2015 consolidated results – highlights
- Profit before tax up 5% to HK$117,279m (HK$111,189m in 2014)
- Attributable profit up 4% to HK$89,533m (HK$86,428m in 2014)
- Return on average ordinary shareholders’ equity of 15.9% (16.9% in 2014)
- Total assets up 1% to HK$6,954bn (HK$6,877bn at 31 December 2014)
- Common equity tier 1 ratio of 15.6%, total capital ratio of 18.6% (14.4% and 15.7% in 2014)
- Cost efficiency ratio of 42.0% (42.1% in 2014)
Reported results in 2015 included a gain of HK$10,636m on the partial disposal of our shareholding in Industrial Bank Co., Limited (‘Industrial Bank’). Excluding this:
- Return on average ordinary shareholders’ equity of 14.7%
- Cost efficiency ratio of 44.5%
Comment by Stuart Gulliver, Chairman
Asia’s economic growth moderated during 2015 despite lower oil prices and monetary easing, as investment and demand slowed across the region and export volumes weakened. Mainland China's economy cooled, mainly as a result of falling exports and slowing investment growth. These factors contributed to increasing deflationary pressures, although domestic consumption growth remained robust. Hong Kong’s economy was resilient during 2015, boosted by low unemployment and real wage growth, although retail sales were affected by declines in inbound tourism, trade and logistics, and these trends are likely to persist in the current year. In ASEAN, growth has slowed as lower commodity prices have impacted exports, despite weaker exchange rates. India, however, has seen sustained economic growth, led by increased industrial production and the benefits of cheaper oil.
Against this mixed backdrop, The Hongkong and Shanghai Banking Corporation Limited recorded profit before tax in 2015 of HK$117,279m, which included a gain on partial disposal of Hang Seng Bank Limited’s (‘Hang Seng’) shareholding in Industrial Bank of HK$10,636m. Excluding this gain and the adverse foreign exchange impact, revenue was 3% higher than 2014 although profit before tax was 2% lower than 2014 driven by higher operating expenses and loan impairment charges. Operating expenses rose as staff costs increased due to inflation, and as we continued to invest in growth, regulatory programmes and compliance whilst achieving sustainable cost savings. The cost efficiency ratio for the year was 42.0%. Loan impairment charges of HK$5bn were 3% higher than the prior year, but remained low in relation to both average loans and total income. Loan impairment charges were lower in Hong Kong and mainland China but increased in the Rest of Asia-Pacific, principally in Indonesia in Commercial Banking (‘CMB’).
Loans and advances to customers were broadly unchanged, excluding the impact of foreign exchange movements. We continued to grow residential mortgages and other personal advances in Retail Banking and Wealth Management (‘RBWM’) and commercial loans in CMB, although lending balances reduced in Global Banking and Markets (‘GB&M’) mainly as a result of repayments. Customer deposits increased by 4%, with inflows mainly in Hong Kong, both in RBWM and in CMB. At the end of December 2015, the loans to deposits ratio stood at 59.5%. The net interest margin decreased as spreads on both customer deposits and loans narrowed, and the yields on financial investments reduced. Our capital position remained strong, with a common equity tier 1 ratio of 15.6% at the end of December 2015, up from 14.4% at the end of the prior year.
Our strategy remains unchanged and focused on capturing the long-term opportunities in Asia’s development as the world’s leading economic region. Mainland China continues to be an engine of growth and a priority market for us. Building on our leading market position in Hong Kong, we are investing in expanding our business in the Pearl River Delta (‘PRD’). We have commenced the establishment of a full scale RBWM presence, together with a significant broadening of our CMB client base in the PRD. As Asia’s leading international bank, we are uniquely placed to benefit from the future growth in both Greater China and also in the ASEAN region, as trade and investment flows continue to increase, and from the wealth creation of the emerging middle class. The internationalisation of the renminbi is driving strong increases in financing, payments, custodian services and securities denominated in the currency, and we plan to build sustainably on our market shares in these areas. We also see significant opportunities in China’s Belt and Road initiative over the coming years.
During 2015, we received a number of awards, including ‘Best Bank’, ‘Best Bond House’ and ‘Best M&A House’ by FinanceAsia; and ‘Bank of the Year’ by IFR Asia. We continued to be the leading international bank for renminbi services, and were named ‘Best Overall Offshore RMB Products and Services Provider’ by Asiamoney for the fourth successive year.
In RBWM, we maintained our leading market share in mortgages in Hong Kong and grew mortgage lending balances, with average LTV ratios of 43% on new drawdowns and an estimated 29% on the portfolio as a whole. After strong revenue in insurance and wealth management in the first half of the year, the second half was more subdued as investor appetite reduced and market volumes fell. Nevertheless, the provision of wealth products remains a growth priority. During the year, a number of new mutual funds were successfully launched. In Hong Kong, we strengthened our Mandatory Provident Fund offering and introduced the HSBC Retirement Monitor to help individuals to plan for their retirement. We continued to invest in digital and automated platforms and were one of the first banks to offer e-Cheque services in Hong Kong during the year. In addition, we continued to invest in our branch network in mainland China, with HSBC and Hang Seng Bank combined now having a total of 254 outlets, of which 72 are in the PRD.
In CMB, we continued to expand the balance sheet and to identify opportunities to collaborate with GB&M in support of clients through a wide range of capital markets and advisory services. We also focused on growing with our customers and providing an increased share of their banking requirements. Exploring and developing renminbi internationalisation opportunities remained a priority, and we became one of the first foreign banks to set up a Free Trade Unit in the Shanghai Free Trade Zone (‘SFTZ’). We launched a number of innovative renminbi solutions in the areas of trade finance and Payments and Cash Management, including opening new outlets in mainland China.
In GB&M, we continued to support our clients through our broad and integrated range of products and maintained our leading positions in offshore renminbi bond issuance in Hong Kong, and in Hong Kong dollar bond issuance. We also continued to lead the market in onshore custodianship in the renminbi Qualified Foreign Institutional Investment Scheme. We secured a number of market first mandates, including the first two-way renminbi cross-border sweeping deal in Germany, as well as underwriting the first renminbi bond issued in Thailand. Approval was gained to be the first foreign bank to issue Panda bonds in mainland China’s interbank bond market, through a RMB1bn transaction. We held top position for merger and acquisition deals in Hong Kong by deal value for the year. Following the launch of the Hong Kong-Shanghai Stock Connect scheme in late 2014, we established a strong market share in equity trading through the scheme. In November 2015, we announced the establishment of a securities joint venture with Shenzhen Qianhai Financial Holdings, based in the Qianhai Special Economic Zone, and subject to approvals, the joint venture will be operational during the second half of this year, allowing us to engage in the full spectrum of the securities business in mainland China.
Lower global demand and reduced growth are continuing to result in sustained policy easing measures in a number of economies and expectations of further tightening in the US are moderating. In mainland China, we expect policy easing measures to stabilise GDP growth during 2016 and into 2017 at around 6.7%. Mainland China’s slower growth is contributing in the short-term to a bumpier financial environment, but mainland China will still be the largest contributor to global growth as it transitions to higher added value manufacturing and services and to a more consumption driven economy. We will continue to serve our retail and commercial customers’ needs as they grow and invest across the region, and particularly in the economic areas of Greater China and ASEAN. The celebration during 2015 of our 150th anniversary gave us the opportunity to recognise our staff and to contribute to our communities through our 150th anniversary charitable donations. We look forward to continuing to play a sustainable and useful role in the economies and communities in which we serve.
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