Principally engaged in the provision of banking and related financial services.
The Group's profit attributable to shareholders for the 6 months ended 30-06-2019 amounted to HKD 17.95 billion, an increase of 2.2% compared with previous corresponding period. Basic earnings per share was HKD 1.6319. An interim dividend of HKD 0.545 per share was declared. Net interest income amounted to HKD 19.90 billion, an increase of 7.4% over the same period last year, loan impairment charges and other credit risk provisions increased by HKD 449.0 million to HKD 793.0 million. Capital adequacy ratio was 23.0%. (Announcement Date: 30 Aug 2019)
Business Review - For the six months ended June 30, 2019
Hong Kong’s economic growth continued to slacken, with the economy expanded modestly by 0.5% year-on-year in the second quarter of 2019, slightly slower than the 0.6% growth in the first quarter. Total retail sales in Hong Kong declined 2.6% year-on-year in the first half of 2019. Nevertheless, positive factors including full employment, a more proactive fiscal policy by the HKSAR government and increasing policy support in other major economies, helped to overcome some of the uncertainties affecting Hong Kong.
The average 1-month HIBOR and 1-month LIBOR rose from 1.34% and 2.02% respectively in 2018 to 1.67% and 2.47% respectively in the first half of 2019. The USD yield curve was inverted at some points. The US Federal Reserve cut its federal funds target rate in late July, the first time in a decade.
In the first half of 2019, global financial markets were boosted by the dovish shift of the US Federal Reserve’s monetary policy stance. However, Hong Kong stock market experienced a correction from the beginning of May onwards, against a backdrop of renewed China- US trade frictions and an increasingly cautious global economic outlook. As at the end of June 2019, the Hang Seng Index was up 10.4% from the end of 2018. However, IPO activity in the first half of 2019 dropped notably compared to the same period of 2018 and the average daily trading volume of the stock market declined by 22.7% over the same period of last year.
Private residential property prices gradually stabilised in the first half of 2019, largely driven by the optimism regarding the more accommodative stance of the US Federal Reserve and the low interest rate environment in Hong Kong. Prices of private residential properties rose 9.5% in the first half of 2019, with transaction volumes also rising. The HKSAR government continued to implement demand management measures and the HKMA maintained prudent supervisory measures on mortgage loans, which helped banks to maintain a solid asset quality of their mortgage businesses.
In the first half of 2019, the Group’s profit attributable to equity holders and other equity instrument holders amounted to HK$17,949 million, an increase of HK$388 million or 2.2% year-on-year. Net operating income before impairment allowances was HK$29,169 million, up HK$1,555 million or 5.6% year-on-year. Net interest income rose, mainly as a result of rising market interest rates and the positive impact arising from the Group’s proactive management of its assets and liabilities. A higher net gain was also recorded from the disposal of certain debt securities. Net fee and commission income decreased year-on-year, which partially offset the above-mentioned income growth. Operating expenses increased year-onyear as a result of the Group’s ongoing investment in supporting its business expansion. Net charge of impairment allowances increased year-on-year while the net gain from fair-value adjustments on investment properties decreased on a year-on-year basis.
As compared with the second half of 2018, the Group’s net operating income before impairment allowances rose by HK$2,248 million or 8.4%. This was mainly attributable to an increase in net fee and commission income and a net gain from the disposal of certain debt securities. However, net interest income decreased, partially offsetting the above-mentioned income growth. Moreover, operating expenses and net charge of impairment allowances fell, while the Group recorded a net gain from fairvalue adjustments on investment properties. As a result, profit attributable to equity holders and other equity instrument holders increased by HK$3,440 million or 23.7% compared to the second half of last year.
Business Outlook - For the six months ended June 30, 2019
Offshore RMB business in Hong Kong maintained steady development, with a series of capital account liberalisation and RMB internationalisation measures being introduced and implemented in an orderly manner. The banking and insurance sectors were further opened up to foreign investors through the removal of shareholding limits from foreign investors and total asset requirements. There was also further expansion and improvement of the connections between Hong Kong and Chinese mainland stock markets, as well as gradual progress in the opening-up of the exchange-listed bond market and futures market. Meanwhile, MSCI carried out the phased expansion of the weighting of China’s A shares in the MSCI index, while Chinese onshore bonds were included in the Bloomberg Barclays Global Aggregate Index. These measures opened up new business opportunities for the financial industry in Hong Kong and further promoted the healthy development of offshore RMB markets.
In the first half of 2019, Hong Kong’s banking industry faced a number of challenges in its operating environment, including looming trade protectionism, changes in global monetary policies, the diverging performance of emerging market economies and rising geopolitical risks. During the period, the HKMA granted eight virtual banking licenses with a view to promote financial inclusion, product and business innovation and changes to the traditional operations of the banking industry. At the same time, the Mainland government further expanded the scope of its economic opening up and deepened its supply-side reform efforts. The development of the Guangdong-Hong Kong-Macao Greater Bay Area was further facilitated by the release of the Outline Development Plan for the Guangdong-Hong Kong-Macao Greater Bay Area and the expansion of coverage of more than 30 categories of public services in the Chinese mainland to holders of the Mainland Travel Permit for Hong Kong and Macao residents from October 2019. Together with the further development of two-way capital market connections between the Chinese mainland and Hong Kong, all of these factors fueled Hong Kong’s economic growth and led to enormous demand for financial services, thus instilling banks in Hong Kong with fresh impetus.
Source: BOC Hong Kong (02388) Interim Results Announcement