The three biggest structured products providers in Hong Kong, Hang Seng Bank, Bank of China and Bank of East Asia, reported increasing earnings for the full year of 2017 amid decreasing but stable issuance of structured products.
Bank of East Asia (BEA), the largest independent lender in Hong Kong, reported total net income of HK$11.8bn in 2017, up 6.6% from HK$11.1bn in 2016. Similarly, operating income increased by 8.4% to HK$15.95bn (US$2.03bn), while operating expenses went down 1.7% to HK$8.01bn. As a result, the bank's operating profit went up 21.2% year-on-year, from HK$6.5bn in 2016 to HK$7.9bn in 2017. On the other hand, BEA's total profit for the full year of 2017 was HK10.5bn, up 174.6% from HK33.8bn in 2016.
According to SRP data, in 2017, BEA issued a total of 481 structured products worth HK$728m in Hong Kong. Compared to the previous year, issuance increased by 261.7%, while sales volume decreased by 97%. In terms of payoff type, about 90% of all the bank's products in Hong Kong in 2017 were leverage long with stop loss. Most popular underlyings included Tencent Holdings (161 products), Ping An Insurance China (54 products) and Hong Kong Exchanges and Clearing (49 products). All of the bank's products for 2017 were short term and wrapped as warrants (24 products) or callable bull/bear contracts (457 products). Year-to-date, BEA issued 201 structured products worth HK$286m in Hong Kong.
The bank's wealth management division, which includes private banking and related assets in Hong Kong, reported 'another solid performance in 2017'. Net interest income recorded a high single-digit increase, while investment product revenue grew significantly due to the 'buoyant' global stock markets. Meanwhile, the bank's private banking has been working to optimise its client mix and allocate marketing resources to targeted segments so as to maximise returns.
Bank of China (Hong Kong) reported net operating income of HK$48.8bn in 2017, up 14.5% from HK42.6bn. Similarly, the bank's operating profit went up 14.9% year-on-year, from HK$29.5bn to HK$33.9bn, while the profit for the year rose 15.9%, from HK$25.2bn to HK$29.2bn. Total assets increased by 14.9%, from HK$2.35trn to HK$2.7trn.
In 2017, only in Hong Kong, Bank of China (Hong Kong) issued 492 products worth HK$2.4bn, according to SRP data. Compared to the previous year, issuance decreased by 8%, while sales went down by 97.7%. In terms of payoff type, 88% of the total products of the bank in Hong Kong were uncapped call (340 products) and 14% were digital (66 products). Most preferred underlying included Tencent Holdings (61 products), USD/HKD (48 products), Hong Kong Interest Rate (47 products) and Ping An Insurance China (22 products). Nearly 78% of the bank's structured products in 2017 were warrants (382 products), while the rest were structured deposits (110 products).
Bank of China's personal banking division, which houses the bank's structured products and wealth management business, achieved a profit before tax of HK$8.05bn in 2017, an increase of 7.6% year-on-year, mainly driven by an increase in net interest income and non-interest income. Net interest income increased by 14.3%. Net fee and commission income increased by 11.9% as the group achieved satisfactory performance in its securities brokerage and funds distribution business with encouraging year-on-year growth in commission income. Net trading gain rose by 31.1%, owing to growth in income from the bond business and equity-linked structured products. The bank's structured deposits amounted to HK$2.8bn, down 18.7% from HK$3.4bn in 2016. In 2017, the group launched a series of structured derivatives products and strengthened the price quotation function of its electronic trading platforms.
Hang Seng Bank, 62.14%-owned by HSBC, reported a 10% increase in net interest income year-on-year, from HK$22.3bn in 2016 to HK$24.6bn in 2017. Additionally, non-interest income went up 29% to HK$10.8bn in 2017. The bank's net operating income rose to HK$34.3bn, indicating an increase of 17%, while net operating expenses went up slightly by 5% to HK$10.8bn. Overall, Hang Seng Bank's net operating profit increased by 24% on an annual basis, from HK$19.1bn to HK$23.7bn.
The global banking and markets division, which houses Hang Seng Bank's corporate and institutional structured products businesses, reported year-on-year operating profit decrease of 1% to HK$4.7bn. Similarly, net interest income went down 1% to HK$3.95bn, while non-interest income rose 3% to HK$1.8bn. Overall, net operating income of the division was HK$5.7bn.
Global markets focused on growing non-fund revenue and on enhancing its suite of wealth management and hedging solutions by strengthening its product capabilities in foreign exchange, interest rates and equity. Vanilla foreign exchange income recorded strong growth of 27%. The buoyant investment conditions drove a significant increase in customer demand for equity-linked structured products, leading to a doubling of growth in related income compared with the previous year. Income from sales of the bank's equity-linked structured products recorded higher income (HK$543m in 2017, up from HK$454m in 2016), but the loss of equity-linked derivatives products in the life insurance business investment portfolio was higher as a result of the unfavourable fair value movement when compared with 2016.
No products of Hang Seng Bank were added to the SRP database in 2017.
Click the respective link to see the 2017 full-year results of Hang Seng Bank, Bank of East Asia and Bank of China.
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