Hang Seng Bank : 2022 Annual Results (21 February 2023)

21 February 2023

HANG SENG BANK LIMITED

2022 ANNUAL RESULTS - HIGHLIGHTS

• Net interest income up 22% to HK$28,981m (2021: HK$23,822m) with net interest
  margin widening by 28 basis points to 1.77% (2021: 1.49%). Net interest income was HK$16,625m for the second half of 2022 ('2H 2022'), up 35% when compared with HK$12,356m for the first half of 2022 ('1H 2022').
• Net operating income before change in expected credit losses and other credit impairment charges up 2% to HK$33,972m (2021: HK$33,182m), driven by 22% growth in net interest income, partly offset by the reduction in non-interest income due to unfavourable market impacts on life insurance business investment portfolio and lower investment distribution revenue from less favourable investment sentiment. Net operating income before change in expected credit losses and other credit impairment charges was HK$19,028m for 2H 2022, up 27% when compared with HK$14,944m for 1H 2022.
• Profit attributable to shareholders down 27% to HK$10,165m (2021: HK$13,960m) after accounting for the increase in expected credit losses to reflect the higher risk for borrowers of mainland China commercial real estate sector.
• Total assets up 4% to HK$1,894bn (2021: HK$1,820bn).
• Return on average ordinary shareholders' equity of 5.5% (7.7% in 2021).
• Earnings per share down 29% to HK$4.95 per share (HK$6.93 per share in 2021).
• Fourth interim dividend of HK$2.00 per share; total dividends of HK$4.10 per share for 2022 (HK$5.10 per share in 2021).
• Common equity tier 1 ('CET1') capital ratio of 15.2%, tier 1 ('T1') capital ratio of
  16.8% and total capital ratio of 18.1% at 31 December 2022 (CET1 capital ratio of 15.9%, T1 capital ratio of 17.5% and total capital ratio of 18.9% at 31 December 2021).
• Cost efficiency ratio of 43.5% (42.6% in 2021).

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.

The financial information in this press release is based on the audited consolidated financial statements of Hang Seng Bank Limited ('the Bank') and its subsidiaries ('the Group') for the year ended 31 December 2022.

1. Highlights of Results
2. Contents

4 Chairman's Comment

1. Chief Executive's Review

1. Results Summary

1. Segmental Analysis

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

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50 Additional Information

50 Statutory financial statements and accounting policies

50 Future accounting standard development

53 Ultimate holding company

53 Register of shareholders

53 Corporate governance principles and practices

54 Board of Directors

54 Press release and Annual Report

54 Other financial information

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Comment by Irene Lee, Chairman

Recent challenges have demonstrated the importance of creative thinking and working together to find effective solutions. It is likely that this trend will continue and we would like to be on the forefront of initiatives to build an inclusive community to maximise all the talents Hong Kong has to offer.

As a leading international finance and trade centre, our home is a key city in the Greater Bay Area which is already a major global nexus for technological advancement, new-economy business and wealth management services. Year-on-year GDP growth in the region has been about 7% over the past decade, even with the impact of the pandemic. GDP is forecast to reach US$2.8 trillion by 2027, up almost US$1 trillion from 2021.

As a bank with deep local roots and a long-term growth perspective, we are well positioned to capitalise on the opportunities the Greater Bay Area presents. We have already made significant progress. Our commitment to our brand is at the heart of all our decisions. This focus will not change.

Transformation

Our strategy last year included building a foundation that will enable us to be an industry innovator that moves beyond conventional ideas. The way we interact with customers and partners is evolving rapidly with new requirements and delivery channels becoming part of day- to-day life. At the same time, banking standards and integrity continue to be fundamental to our credibility. This means that a lot of work has been undertaken to ensure a robust infrastructure is in place to manage risks.

We are working with new-economystart-ups by supporting incubation, sharing business advice and collaborating with them to co-develop fintech services and products. We are also connecting with industry regulators and technology associations to expand the ecosystem and advance the government's Fintech 2025 strategy. For example, we are a leading advocate in the development of central bank digital currency, which will be essential to the Greater Bay Area's future growth as the mainland moves towards becoming one of the world's first cashless economies. Additionally, we are extending our servicing channels to the Metaverse and other virtual spaces to engage with customers and the community.

Our colleagues are at the heart of the Hang Seng brand. We encourage entrepreneurial mindsets and empower staff to work together with customers to develop solutions. The bank-wide Data Literacy Empowerment Programme is an important initiative to future-skill the Hang Seng team. I believe we are well positioned to respond quickly as challenges emerge.

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The focus on generational wealth has increased partly because of demographics and partly because of a rapidly expanding middle class amongst the Greater Bay Area's 86 million residents. Government authorities on both sides of the boundary are committed to expanding mutual access via various Connect Schemes.

Amongst many initiatives, our appointment as the new manager of The Tracker Fund of Hong Kong last year has reinforced our position as a local leader for wealth management and asset management services. We now manage two of the first four funds made available through the southbound link of the ETF Connect Scheme.

The Hang Seng Indexes Company is developing new indexes that facilitate investment strategies and product development around future mega-themes including technology, climate change and the Metaverse.

Sustainability

We believe that building a sustainable future requires a definition of 'wealth' that is not purely financial.

We are expanding services that will assist customers in their sustainability journey and we are actively participating in collective actions to address climate change. We aim to reduce carbon emissions from our own operations to net zero by 2030. We are also contributing to the HSBC Group's ambitions of becoming net zero in its supply chain by 2030 and aligning the financed emissions in its portfolio of customers to net zero by 2050.

We are proud to have had our actions acknowledged with a Services and Trading - Gold Award in the Hong Kong Awards for Environmental Excellence, which are sponsored by the Government-established Environment and Conservation Fund.

Board of Directors and Senior Management

John Chan and Vincent Lo stepped down as Independent Non-Executive Director and Non- Executive Director of the Bank respectively in 2022 after many years of distinguished service. I wish to reiterate the Board's heartfelt thanks to John and Vincent for their guidance and contributions to the Bank's long-term success. I also wish to express sincere gratitude to Chiang Lai Yuen, who stepped down as an Independent Non-Executive Director with effect from 1 January 2023, for her wise counsel and contributions during her tenure of office.

We welcomed Cordelia Chung, Patricia Lam, Lin Huey Ru and Wang Xiao Bin as new Independent Non-Executive Directors during 2022. Each is a distinguished leader with recognised expertise in their fields. We are delighted to be benefiting from the new insights and diverse perspectives they bring to the Board. Kenneth Ng was re-designated from a Non- Executive Director to an Independent Non-Executive Director.

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