Hang Seng Bank : 2021 Interim Results (2 August 2021)

2 August 2021

HANG SENG BANK LIMITED

2021 INTERIM RESULTS - HIGHLIGHTS

• Profit attributable to shareholders down 4% to HK$8,767m (HK$9,143m for the first half of 2020; up 16% compared with HK$7,544m for the second half of 2020).
• Profit before tax down 3% to HK$10,298m (HK$10,619m for the first half of 2020; up 17% compared with HK$8,795m for the second half of 2020).
• Operating profit down 8% to HK$10,223m (HK$11,134m for the first half of 2020; up 14% compared with HK$8,991m for the second half of 2020).
• Net operating income before change in expected credit losses and other credit impairment charges down by 10% to HK$17,326m (HK$19,187m for the first half of 2020; up 3% compared with HK$16,881m for the second half of 2020).
• Return on average ordinary shareholders' equity of 9.9% (10.7% for the first half of 2020; 8.5% for the second half of 2020).
• Earnings per share down 4% to HK$4.44 per share (HK$4.64 per share for the first half of 2020).
• Second interim dividend of HK$1.10 per share; total dividends of HK$2.20 per share for the first half of 2021 (HK$1.90 per share for the first half of 2020).
• Common equity tier 1 ('CET1') capital ratio of 15.8%, tier 1 ('T1') capital ratio of
  17.4% and total capital ratio of 18.9% at 30 June 2021 (CET1 capital ratio of 16.8%, T1 capital ratio of 18.5% and total capital ratio of 20.0% at 31 December 2020).
• Cost efficiency ratio of 39.0% (32.8% for the first half of 2020 and 40.9% for the second half of 2020).

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.

HANG SENG BANK LIMITED

Contents

The financial information in this press release is based on the unaudited Condensed Consolidated Financial Statements of Hang Seng Bank Limited ('the Bank') and its subsidiaries ('the Group') for the six months ended 30 June 2021.

1. Highlights of Results
2. Contents

4 Chairman's Comment

1. Acting Chief Executive's Review

1. Results Summary

1. Segmental Analysis

1. Condensed Consolidated Income Statement
2. Condensed Consolidated Statement of Comprehensive Income
3. Condensed Consolidated Balance Sheet
4. Condensed Consolidated Statement of Changes in Equity

1. Financial Review
   31 Net interest income
   32 Net fee income
   32 Net income/(loss) from financial instruments measured at fair value through profit or loss
   33 Other operating income
   33 Analysis of income from wealth management business
   34 Change in expected credit losses and other credit impairment charges
   34 Operating expenses
   35 Tax expense
   35 Earnings per share - basic and diluted
   35 Dividends/Distributions
   36 Segmental analysis
   38 Trading assets
   38 Financial assets designated and otherwise mandatorily measured at fair value through profit or loss
   38 Loans and advances to customers
   39 Reconciliation of changes in gross carrying/nominal amount and allowances for loans and advances to banks and customers, including loan commitments and financial guarantees
   40 Overdue loans and advances to customers
   40 Rescheduled loans and advances to customers
   41 Gross loans and advances to customers by industry sector
   42 Financial investments
   42 Intangible assets
   43 Other assets
   43 Current, savings and other deposit accounts
   43 Trading liabilities
   44 Financial liabilities designated at fair value
   44 Certificates of deposit and other debt securities in issue
   44 Other liabilities
   45 Shareholders' equity
   45 Capital management
   48 Liquidity information
   48 Contingent liabilities, contractual commitments and guarantees

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HANG SENG BANK LIMITED	Contents
	(continued)

49 Additional Information

49 Statutory financial statements and accounting policies

49 Future accounting standard development

50 Comparative figures

50 Ultimate holding company

50 Register of shareholders

50 Corporate governance principles and practices

51 Board of Directors

51 Press release and Interim Report

51 Other financial information

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HANG SENG BANK LIMITED

Chairman's Comment

Comment by Irene Lee, Chairman

The first six months of 2021 have been a period of transition. Supportive fiscal and monetary policies from governments and central banks and the wider implementation of effective measures to control the spread of Covid-19 have returned a degree of stability to international markets. Economies around the world, including those of Hong Kong and mainland China, are showing signs of recovery as more companies refocus energy directed at managing the acute effects of the pandemic back towards the pursuit of long-term business objectives. That said, the situation remains fragile. Economic recovery to this point has been uneven and incomplete, with sectors hardest hit by the pandemic continuing to be relatively weak.

In the Hang Seng context, our agile business structure facilitated an effective response to the upturn in market activity during the first half of 2021, resulting in good year-on-year growth in non-interest income. However, the continued decline in market interest rates remained a significant challenge. Further downward pressure on the net interest margin affected our ability to grow net interest income, despite increased balance sheet volumes.

The overall impact on the bottom line was a 4% decline in profit attributable to shareholders to HK$8,767m. Earnings per share were HK$4.44 per share. Return on average ordinary shareholders' equity was 9.9%. Return on average total assets was 1.0%.

As a business with a long-term vision and strategy for sustainable growth, progress and success is measured by more than financial figures.

Our previous investments in digital services and technology have played a major role in delivering successful banking solutions for customers, particularly amid the height of the pandemic. With more clients experiencing the convenience and speed of online and mobile banking, we continued to grow our digital capabilities during the first half to offer customers even greater flexibility and choice in how and when they manage their financial needs.

We established new and closer alliances with strategic partners who share our ambition to open up new opportunities for our customers and to facilitate the success of local start-ups and entrepreneurs. We rolled out innovative new wealth management products and services to help individuals and businesses plan more effectively for the future.

Our people have continued to excel in anticipating and meeting the banking needs of customers in an environment of rapidly evolving service expectations.

The Directors have declared a second interim dividend of HK$1.10 per share. This brings the total distribution for the first half of 2021 to HK$2.20 per share, compared with HK$1.90 per share for the first half of 2020.

Economic Outlook

The sustainability of global economic recovery is heavily dependent on a complex matrix of factors, not least the ability of the international community to contain the emergence and spread of new Covid-19 variants. Despite the expansion of vaccine programmes and ongoing economic policy support, many uncertainties are still in play and it will likely be some time before we see a sustained return to pre-pandemic levels of economic activity and market confidence.

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HANG SENG BANK LIMITED	Chairman's Comment
	(continued)
Comment by Irene Lee, Chairman (continued)
Economic Outlook (continued)

In Hong Kong, increased demand for exports from major trading partners and government policy measures are the major factors underpinning the recent recovery. GDP rose by 7.9% year-on-year in the first quarter of 2021, the first expansion after six consecutive quarters of contraction. Domestic consumption, however, is lagging behind, and key sectors of the economy such as consumption and tourism-related industries are still very much feeling the effects of the pandemic. This is reflected in the job shortfall in the labour market, which remains significant in comparison with the pre-recession level. Assuming the worst of the downside risks are avoided, Hong Kong's economy will likely experience continued growth in the upcoming quarters, but regaining its previous balance will take longer to achieve. We expect Hong Kong's economy to achieve GDP growth of about 7.3% in 2021.

Trade, production and investment continue to be the primary engines of the Mainland's economic recovery. The government is continuing with major initiatives to boost domestic consumption, which remains restrained, as part of its 'dual circulation strategy', but rebalancing the mix of economic drivers will take time. As such, the government is likely to maintain a proactive fiscal policy, with the People's Bank of China providing support by ensuring the availability of adequate credit and liquidity. We expect the Mainland economy to achieve high single-digit GDP growth for the year.

Hong Kong Roots, Greater Bay Area Expertise

As this is my first results announcement as Chairman of Hang Seng's Board of Directors, I wish to take this opportunity to express my deep gratitude to my predecessor, Raymond Ch'ien. His leadership and sage guidance over the years has significantly strengthened Hang Seng's position as a progressive, customer-centric bank that continually demonstrates market leadership across all areas of its business and as a responsible and compassionate corporate citizen.

I also wish to sincerely thank the members of the Board and the senior management team for their invaluable support, as well as staff across the Bank for being adaptable, determined and passionate in taking care of our customers' needs under challenging conditions. By working together as one team, I am confident we will build on Raymond's strong legacy to grow Hang Seng in ways that continue to give us a strong sense of purpose and pride.

The past 18 months have underscored the need to ensure our business continues to have the resilience and agility necessary to respond smoothly and successfully to unexpected changes in market conditions and to play an active part in contributing to solutions that support the well-being and prosperity of our community.

One important way in which we are achieving this is through our environmental, social and governance ('ESG') commitments. Guided by our ESG Steering Committee, we have established ambitious targets, which include becoming carbon neutral in our operations by 2030. We aim to lead the way in driving ESG performance in Hong Kong's banking industry as we contribute to a bright future for Hong Kong and the Greater Bay Area.

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