Hang Seng Bank's loan volume barely hurt by intense deposit competition

1H13 profit hit HK$18.5m.

According to Barclays, Hang Seng Bank reported 1H13 net profit of HKD18,468m, including a one-off HK$9.5bn gain related to an accounting change for HSB's Industrial Bank stake.

Profit was +16/20% above our/Bloomberg estimates, due to some one-off/non-core items including: 1) $1bn gain on property revaluation and $200m gain on property held by insurance business (one-off HKFRS13 accounting adjustments); and 2) $622m movement in present value of in-force life insurance business through the P&L.

Here's more from Barclays:

Ex these items, underlying profit was HK$7.1bn, 3% above our HK$6.9bn estimate due to lower than expected credit cost. We expect Industrial Bank dividend income of HK$1.1bn to be booked in 2H13 (vs zero in 1H13) as IB's dividend ex date was past end-1H on 3 July 2013.

Higher cost of funds in China and Hong Kong, resulted in a 1bp h/h margin decline to 1.84%, despite slightly better loan pricing in Hong Kong. 8% loan growth h/h, was driven by trade finance (+32% h/h) and China (17% h/h).

Deposit growth lagged (+1.4% h/h) on pricing competition and was evidenced by a negative deposit mix shift (time deposits accounts for 33% of total). Loan to deposit ratio increased to 70% (2H12: 66%) and we see limited scope for LDR to rise further. Management is comfortable with a fully-loaded CET1 of 10.3%.