HONG KONG: Shrinking commissions, fees, wealth management income, deposit spreads and contraction of other income sources are choking earnings at Hang Seng Bank. The largest Hong Kong-based commercial lender by market value yesterday posted a 29 percent drop in its first-half net earnings, as weak market sentiment garrote the bank's wealth-management income.

Net earnings for the six months ended June 30 fell slightly below market expectation to HK$6.45 billion, compared to HK$9.06 billion a year earlier.

Brokerage houses had expected the bank's net profits for the first half to skid by 10.5 percent to 28.2 percent.

As the demand for investment-related products remained sluggish amid the poor market sentiment in the first half, net fees and commissions income of Hang Seng slumped 36.4 percent to HK$1.93 billion.

The bank's wealth management business income also dropped 28.8 percent to HK$2.50 billion from HK$3.52 billion in 2008.

The narrowing deposit spreads have caused Hang Seng's net interest income to fall 11.8 percent to HK$7.28 billion. The banks' net interest margin was also down 0.37 percentage points to 2.06 percent.

Vice-chairman and chief executive Margaret Leung said net interest margin will remain under pressure in the second half, while the bank will focus more on its non-interest income business."The interest rate in Hong Kong may stay at low levels in the next 12 to 18 months, therefore pressure on the net interest margin will still exist in the second half," Leung, the first woman to lead a major bank in Hong Kong, said in a press conference in Hong Kong yesterday.

Despite the sagging earnings, the bank will pay a second interim dividend of HK$1.10 per share to its shareholders, bringing the total distribution for the first half to HK$2.2 - the same as the previous year.

As for the loan income stream, Leung said the bank's corporate non-performing loan ratio will continue to improve in the second half, as factories now receive more new orders.

"They (The factories) are showing more interest in new loan and re-financing," she said, "We believe the market environment is stabilizing."

Hang Seng, which is 62 percent owned by HSBC, has opened 34 outlets in 11 different cities on the mainland. Despite the 201 percent surge in the country's new lending in the first half, its loan business on the mainland fell 12.9 percent.

(HK Edition 08/04/2009 page4)