Hang Seng Bank Ltd, the subsidiary of the HSBC Holdings Plc, said its mainland business will increase its profit share in the future as the bank will strengthen its mainland business networks to consolidate the synergies of its Hong Kong and mainland businesses.

"The strong connectivity between our Hong Kong and mainland operations has been instrumental in winning us more cross-border and yuan-related businesses and these important sectors will continue to grow and serve us well," Hang Seng Bank Chairman Raymond Chien said on Monday in a company statement.

According to the company's statement, mainland business contributed 23.1 percent to Hang Seng Bank's profit before tax in the first half of 2012, up 4.8 percentage points from the 18.3 percent registered a year earlier.

"As we expand our business networks on the mainland to bring more synergistic effects on our cross-border lending and deposit businesses, we are sure that the profit contribution made by the mainland business will certainly grow though we cannot give an exact forecast today," Hang Seng Bank's Vice Chairman and Chief Executive Rose Lee said.

The bank's mainland networks have already expanded to 43 mainland outlets across 15 cities. The bank is preparing to open new sub-branches in Zhuhai, Jiangmen and Tianjin in the second half of this year.

The bank also expanded into the mainland's wealth management business, as it has established a joint venture securities investment advisory company in partnership with Guangzhou Securities in Guangdong province after receiving approval in March this year.

"As the central government recently has relaxed its restrictions on the cross-border yuan business, we are bullish that more mainland enterprises will utilize Hong Kong as the ideal platform for their yuan lending activities," said Lee. "The bank will proactively engage in cross-border yuan deposit and lending businesses as well as other offshore yuan businesses, with the hope that our business growth will be in line with the general market."

However, the bank expressed slight concern that the recent interest rate and reserve requirement ratio slashes may cause the narrowing of net interest margins (NIM) on its mainland business. Therefore, the bank plans to diversify its loan growth portfolios to different enterprises and business sectors to minimize its risk exposure.

The bank, which also reported its 2012 interim results, said it had a 14 percent surge in net profits to HK$9.30 billion in the first half of 2012 compared to a year ago, better than the average HK$8.12 billion forecast to HK$8.44 billion.

The bank attributed its better-than-expected result to increases in revenue and profit across all business segments, and growth in both net interest and non-interest incomes.

Net interest income surged 8.5 percent to HK$8.28 billion. The NIM level also widened 0.1 percentage point to the 1.85 percent in the first half of this year. Cost efficiency ratio also improved, as the ratio decreased by 1.6 percentage point to 33 percent. Capital adequacy ratio was also slightly up to 13.9 percent.

"With economic uncertainty in many major industrialized nations creating substantial downside risk, our operating environment will remain challenging in the second half of 2012," Chairman Chien concluded in the company statement.

oswald@chinadailyhk.com

(HK Edition 07/31/2012 page2)