Hang Seng Bank : Press Release

6 August 2018

HANG SENG BANK LIMITED

2018 INTERIM RESULTS - HIGHLIGHTS

• Attributable profit up 29% to HK$12,647m (HK$9,838m for the first half of 2017).

• Profit before tax up 28% to HK$14,864m (HK$11,646m for the first half of 2017).

• Operating profit up 25% to HK$14,662m (HK$11,732m for the first half of 2017).

• Operating profit excluding change in expected credit losses and other credit impairment charges up 20% to HK$14,900m. (Operating profit excluding loan impairment charges and other credit risk provisions of HK$12,402m for the first half of 2017.)

• Return on average ordinary shareholders' equity of17.4% (14.6% for the first half of 2017).

• Earnings per share up 29% to HK$6.62 per share (HK$5.15 per share for the first half of 2017).

• Second interim dividend of HK$1.30 per share; total dividends of HK$2.60 per share for the first half of 2018 (HK$2.40 per share for the first half of 2017).

• Common equity tier 1 ('CET1')capital ratio of 16.2%, tier 1 ('T1') capital ratio of17.4% and total capital ratio of 19.6% at 30 June 2018. (CET1 capital ratio of 16.5%, T1 capital ratio of 17.7% and total capital ratio of 20.1% at 31 December 2017.)

• Cost efficiency ratio of 27.7% (29.8% for the first half of 2017).

Within this document, the Hong Kong Special Administrative Region of the People's Republic of China has been referred to as 'Hong Kong'. The abbreviations 'HK$m' and 'HK$bn'represent millions and billions of Hong Kong dollars respectively.

ContentsThe financial information in this press release is based on the unaudited condensed consolidatedfinancial statements of Hang Seng Bank Limited ('the Bank') and its subsidiaries ('the Group')for the six months ended 30 June 2018.

• 1 Highlights of Results

• 2 Contents

• 4Chairman's Comment

• 5Chief Executive's Review

• 8 Results Summary

• 13 Segmental Analysis

• 18 Condensed Consolidated Income Statement

• 19 Condensed Consolidated Statement of Comprehensive Income

• 20 Condensed Consolidated Balance Sheet

• 21 Condensed Consolidated Statement of Changes in Equity

• 24 Financial Review

  • 24 Net interest income

  • 25 Net fee income

  • 26 Net income from financial instruments measured at fair value

  • 26 Other operating income

  • 27 Analysis of income from wealth management business

  • 28 Change in expected credit losses and other credit impairment charges/Loan impairment charges and other credit risk provisions

  • 28 Operating expenses

  • 29 Tax expense

  • 29 Earnings per share-basic and diluted

  • 29 Dividends per share

  • 30 Segmental analysis

  • 32 Trading assets

  • 32 Financial assets designated and otherwise mandatorily measured at fair value/Financial assets designed at fair value

  • 32 Loans and advances to customers

  • 33 Reconciliation of gross exposure and allowances/provision for loans and advances to banks and customers including loan commitments and financial guarantees

  • 34 Loan impairment allowances against loans and advances to customers

  • 35 Overdue loans and advances to customers

  • 35 Rescheduled loans and advances to customers

  • 36 Gross loans and advances to customers by industry sector

  • 38 Financial investments

  • 38 Intangible assets

  • 39 Other assets

  • 39 Current, savings and other deposit accounts

  • 39 Certificates of deposit and other debt securities in issue

Contents(continued)

• 40 Trading liabilities

• 40 Financial liabilities designated at fair value

• 40 Other liabilities

• 41Shareholders' equity

• 41 Capital management

• 44 Liquidity information

• 45 Contingent liabilities, commitments and derivatives

46

Additional Information

• 46 Statutory financial statements and accounting policies

• 48 Comparative figures

• 48 Ultimate holding company

• 48 Register of shareholders

• 48 Corporate governance principles and practices

• 49 Board of Directors

• 49 Press release and Interim Report

• 49 Other financial information

Chairman's Comment

Comment by Raymond Ch'ien, Chairman

The world economy maintained a moderate pace of growth in the first half of 2018, prompting central banks in key economies to continue raising interest rates and tighten monetary policies. However, such developments were relatively modest in nature, given ongoing uncertainty over international trade and longer-term global economic and financial trends.

Hang Seng deployed more resources in enhancing efficiency, understanding customers better and improving infrastructure for responding quickly to changing market conditions and new business opportunities. These actions built on our well-established competitive strengths, while also marking us out as a forward-thinking bank with a clear vision for long-term sustainable growth.

Attributable profit grew by 29% to HK$12,647m. Earnings per share also rose by 29% to HK$6.62 per share. Compared with the second half of 2017, attributable profit increased by 24% and earnings per share were up 29%.

Return on average ordinary shareholders'equity was 17.4%, compared with 14.6% and 13.9% in the first and second halves of last year.

The Directors have declared a second interim dividend of HK$1.30 per share. This brings the total distribution for the first half of 2018 to HK$2.60 per share, compared with HK$2.40 per share in the first half of 2017.

Economic Environment

Hong Kong's economic growth hit its fastest pace since 2011 in the first quarter, with GDP rising by 4.7% year-on-year after increasing by 3.8% last year. While higher US interest rates are putting upward pressure on their counterparts in Hong Kong, domestic demand has remainedstrong and the labour market is in robust health. We expect Hong Kong's full-year growth for 2018 to reach 3.7%.

In mainland China, GDP growth averaged 6.8% in the first half. Trade posted double-digit growth, but ongoing economic deleveraging resulted in a further slowdown in investment growth. Despite concerns over the future of international trade policies, we expect the mainland economy to remain on a stable trajectory and achieve full-year growth of 6.6% for 2018.

Looking ahead, while we remain cautiously optimistic, continuing credit tightening in the US and the deteriorating world trade outlook are increasing the long-tail risk on the downside. Nevertheless, our core banking services strength provides a firm foundation for capitalising on new opportunities created by dynamic growth in the Guangdong-Hong Kong-Macao Greater Bay Area and the changing face of financial service delivery.

We will continue to invest in strengthening customer relationships. Leveraging technology, our diverse portfolio of products and services, and the professionalism of our people, we will take further advantage of our leading market position and respected brand to deliver service excellence and create value for shareholders.

Chief Executive's Review

Review by Louisa Cheang, Vice-Chairman and Chief Executive

Hang Seng achieved strong results in the first half of 2018. Building on the good business momentum we established last year, we saw further success with our customer-centric strategy for progressive growth.

We grew profit before tax by 28%, with solid increases in net interest income and non-interest income. All business lines recorded growth in revenue and profitability.

Initiatives to enhance service convenience, access and choice deepened existing relationships and provided us with new business opportunities in key segments. We achieved balanced growth in lending and deposits, and improvement in the net interest margin.

Enhanced data analytics and more effective customer engagement across our diversified distribution channels improved our understanding of the preferences of our clients. Supported by our all-weather portfolio of wealth and health products, this strengthened our ability to deliver tailored financial management solutions and respond swiftly to changing customer needs, resulting in double-digit growth in wealth management income.

With increasingly mobile lifestyles shaping service expectations, particularly among the younger segment, we added value with investments in technology and operational infrastructure that give customers greater flexibility over when and where they manage their finances.

Our new AI chatbots offer retail and commercial customers around-the-clock assistance with a range of service enquiries and information. We expanded the use of biometric authentication and launched a mobile security key to ensure customers enjoy easy and secure access to our digital services.

Our strong cross-border and cross-business connectivity continued to play a key role in capturing new business in Hong Kong and mainland China. Hang Seng China recorded satisfactory growth in profitability despite the high cost of renminbi funding in the first half of the year.

We continued with actions to strengthen staff engagement, enhance their well-being and establish working environments and practices that encourage innovation, collaboration and creativity.

Financial Performance

Attributable profit and earnings per share both increased by 29% to HK$12,647m and HK$6.62 per share respectively. Profit before tax was up 28% at HK$14,864m. Compared with the second half of 2017, attributable profit and profit before tax both rose by 24%, and earnings per share were up 29%.

Operating profit increased by 25% to HK$14,662m. Operating profit excluding change in expected credit losses and other credit impairment charges was up 20% at HK$14,900m. Compared with the second half of 2017, operating profit increased by 24% and operating profit excluding change in expected credit losses grew by 22%.

Net operating income increased by 20% to HK$20,411m. Compared with the second half of 2017, net operating income was up 18%.