Chong Hing Bank : 2021 Interim Results

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(Incorporated in Hong Kong with limited liability)

(Stock Code: 01111)

2021 INTERIM RESULTS

RESULTS FOR THE SIX MONTHS ENDED 30 JUNE 2021

HIGHLIGHTS

• Operating profit before impairment allowances amounted to HK$1,283 million, representing an improvement of 9.92% from the corresponding period in 2020.
• Operating profit after impairment allowances increased by 19.92% from the corresponding period in 2020 to HK$1,042 million.
• Profit attributable to equity owners amounted to HK$951 million, representing an increase of 33.05% from the corresponding period in 2020.
• Return on shareholders' equity of 6.93% (5.85% in 2020) and earnings per share of HK$0.82 (HK$0.64 in 2020).
• Total capital ratio of 16.58%, Tier 1 capital ratio of 14.19% and Common Equity Tier 1 capital ratio of 11.22% as of 30 June 2021 (Total capital ratio of 16.79%, Tier 1 capital ratio of 14.36% and Common Equity Tier 1 capital ratio of 11.27% as of 31 December 2020).
• The Bank's core business lines, financial position and asset quality are strong, non-performing loan ratio remains low. Capital adequacy ratio and liquidity maintenance ratio are above the relevant statutory requirements.
• An interim cash dividend of HK$0.11 per share is declared for the six months ended 30 June 2021 (2020 interim cash dividend: HK$0.11 per share).

The board of directors (the "Board") of Chong Hing Bank Limited (the "Bank") is pleased to announce the unaudited consolidated results of the Bank and its subsidiaries (the "Group") for the six months ended 30 June 2021, together with the comparative figures for the corresponding period last year. The financial information in this announcement is extracted from the interim financial information for the six months ended 30 June 2021. The interim financial information has been reviewed by the Bank's Audit Committee.

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CONTENTS

1. Highlights
2. Contents
3. Chairman's Statement

5 Chief Executive's Statement

1. Condensed Consolidated Income Statement
2. Condensed Consolidated Statement of Comprehensive Income
3. Condensed Consolidated Statement of Financial Position
4. Condensed Consolidated Statement of Changes in Equity
5. Condensed Consolidated Statement of Cash Flows

23 Financial Review

23 General information

23 Statutory financial statements and accounting policies

24 Segment information

30 Fair value measurement of financial instruments

33 Offsetting financial assets and financial liabilities

33 Net interest income

34 Net fee and commission income

34 Net income from trading and investments

35 Other operating income

36 Operating expenses

36 Net impairment losses on financial assets

37 Taxation

37 Earnings per share - basic and diluted

37 Dividends

38 Cash and short-term funds

38 Derivative financial instruments

39 Investments in securities

39 Transfer of financial assets

40 Advances and other accounts

42 Investment properties

43 Property and equipment

44 Intangible assets

44 Financial assets sold under repurchase agreements

44 Deposits from customers

44 Other accounts and accruals

1. Certificates of deposit

1. Loan capital
2. Deferred taxation
3. Additional equity instruments
4. Maturity profiles

1. Related party transactions
2. Estimates
3. Non-adjustingevents after the reporting period
   53 Other Financial Information
   53 Compliance with Corporate Governance Code
   53 Compliance with Model Code
   53 Interim Dividend
   54 Closure of Register of Members
   54 Purchase, Sale or Redemption of the Bank's Listed Securities 54 Publication of 2021 Interim Results and Interim Report
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CHAIRMAN'S STATEMENT

In the first half of 2021, the global economy was still affected by the COVID-19 pandemic, and the pace of recovery varied among economies. Many industries, including banking, still face myriad challenges. Chong Hing Bank Limited (the "Bank" or "Chong Hing Bank") has managed to rise to the tough challenges by continuing to strengthen its comprehensive risk prevention and controls, as well as by reinforcing its foundation for sustaining steady development. During the ongoing pandemic, the Bank also accelerated its business transformation initiatives and maintained its provision of quality products and services to customers.

In the "Top 1000 World Banks" list released by the British magazine "The Banker" in 2021, Chong Hing Bank's ranking rose to 376th, placing it among the top 400 for the third consecutive year and demonstrating further improvement in its all-round strength.

The continued uncertainties brought by the pandemic to the local economy created a major challenge to the banking industry in Hong Kong, with Hong Kong dollar interest rates hovering at historic lows and net interest margins under pressure. On the other hand, by benefiting from the quick economic recovery in China, the Mainland business of the Bank expanded rapidly. Meanwhile, the Bank grasped market opportunities in the face of adversity and achieved satisfactory growth in net fees, commissions and other operating income. Operating profit before impairment allowances amounted to HK$1,283 million, an increase of 9.92% compared to the same period last year. Profit attributable to equity owners amounted to HK$951 million, an increase of 33.05% compared to the same period last year. Earnings per share were HK$0.82. Facing the uncertain economic outlook, the Board of Directors of the Bank (the "Board") has recommended payment of an interim cash dividend of HK$0.11 per share for the six months ended 30 June 2021. The dividend payout for the period as a percentage of the profit attributable to equity owners, less the distribution paid on additional equity instruments, will be 13.30% (2020: 17.47%).

The major financial ratios for the first half of 2021 are as follows:

• Return on shareholders' equity: 6.93%
• Average liquidity maintenance ratio: 45.72%
• Total capital ratio as of 30 June 2021: 16.58%
• Tier 1 capital ratio as of 30 June 2021: 14.19%
• Loan to deposit ratio as of 30 June 2021: 73.37%

Since the beginning of this year, the global economy has gained significant momentum due to the strong fiscal and monetary policy measures adopted by major economies as well as the large-scale rollout of the COVID-19 vaccination programmes. However, the recurrence of the pandemic, coupled with geopolitical uncertainties and strains in Sino-US relations, have held the global economy back from returning to an upward trajectory. Mainland China's Gross Domestic Product (GDP) in the first half of the year increased by 12.7% year-on-year, indicating the positive results of the nationwide pandemic prevention and control measures as well as the country's economic and social development, with the overall economic development showing a stable and improving trend. For its part, Hong Kong's economy has gradually recovered since the first quarter of this year, and its well-established financial system has demonstrated a high degree of stability during this difficult period. With the pandemic under control, the development momentum is expected to continue to improve.

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The Outline of China's "14th Five-Year-Plan" was officially approved in March this year. It explicitly supports Hong Kong in enhancing its status as an international financial centre and deepening the interconnection and interoperability between the financial markets of the Mainland and Hong Kong, with a view to building the Guangdong, Hong Kong and Macao Greater Bay Area (the "Greater Bay Area") in a high-quality manner. The forthcoming introduction of the "Cross-boundary Wealth Management Connect" will also strengthen Hong Kong's role as an important bridge for capital flows to and from the Mainland. In view of the fact that cross-border finance is one of the key strategies for the development of the Greater Bay Area, Chong Hing Bank is actively seizing this opportunity to capitalise on its strengths of internal and external integration with businesses straddling Guangdong and Hong Kong, focusing on its vision of becoming "an integrated commercial bank with cross-border expertise". The Bank will expand its network step by step in major core cities in the Greater Bay Area, strengthen its comprehensive service capability in cross-border finance, and strive to establish a distinctive and differentiated competitive edge. During the reporting period, Yue Xiu Enterprises (Holdings) Limited (the "Offeror") and the Bank jointly announced the proposal for the privatisation of the Bank by the Offeror by way of a scheme of arrangement under Section 673 of the Companies Ordinance (Chapter 622 of the Laws of Hong Kong) and for the withdrawal of listing of the shares of the Bank on The Stock Exchange of Hong Kong Limited (the "Proposal"). It is expected that the Proposal would allow the Bank to expand and enhance its businesses more efficiently without diluting the independent shareholders' interests.

The pandemic accelerated changes in the public's consumption patterns and made financial technology an inevitable focus of the banking industry in a situation that has become the new normal. Chong Hing Bank has actively invested resources in digital transformation, and a major achievement in the first half of the year was the successful launch of the new core banking system. This will significantly strengthen business processing capabilities, increase the "financial scene" application, enhance the digital financial service experience required by customers on a daily basis, and thereby stay fully in line with the general trend of financial technology development.

Looking ahead to the second half of the year, widespread vaccination has brought hope in the global fight against the pandemic. But the uncertainty of the international environment and the difference in the pace of economic recovery among countries have added unpredictability to the path of global recovery. Chong Hing Bank will actively respond to the changes and challenges arising in the post-pandemic era in a prudent and pragmatic manner, deepen its forward-looking risk management, optimise business structure, and strengthen digital banking platforms to enhance its integrated financial services capabilities. At the same time, the Bank will grasp every critical opportunity for advancement, focusing on developing its Mainland business and expanding its institutional presence in the Mainland. By fusing into the country's overall development, the Bank will strive to become an integrated commercial bank with cross-border operations, rooted in Guangzhou and Hong Kong, covering the Greater Bay Area and facing towards the whole country.

The first half of 2021 was full of challenges. I would like to thank all our directors for their wise leadership, as well as our customers and business partners for their trust in the Bank, with special thanks to our management team and the entire staff for their tireless efforts and perseverance. These have enabled Chong Hing Bank to adjust its development strategies and drive changes effectively and quickly. In this new era and landscape, Chong Hing Bank will cherish new hopes and seize every opportunity that arises to move forward on the new journey towards quality development in a steadfast manner.

ZHANG Zhaoxing

Chairman

Hong Kong, 13 August 2021

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CHIEF EXECUTIVE'S STATEMENT

ECONOMIC ENVIRONMENT

The global economy started to recover in early 2021, and since many countries expect the threat of the pandemic to diminish gradually, a number of international institutions have raised their global economic growth forecasts. The US economy continues to rebound, with the government proposing a US$6 trillion budget in May to boost the economy, following the US$1.9 trillion fiscal measures introduced in March. The nation's Gross Domestic Product (GDP) increased at an annual rate of 6.5% in the second quarter. The US Federal Reserve emphasised that the economic outlook remains uncertain and continued to maintain the interest rates and the scale of quantitative easing unchanged in the first half of the year. In the Eurozone, although the pandemic is gradually easing, the European Central Bank maintains its ultra- loose monetary policy and remains cautious about the bloc's macroeconomic outlook. Looking ahead to the second half of the year, developments in the pandemic and in Sino-US political and economic relations will continue to affect global economic prospects.

In China, the pandemic continues to be under control and the economy has maintained a stable recovery, with GDP growing by 12.7% year-on-year in the first half of the year. In face of the complex and volatile domestic and international environment, the Mainland will maintain the continuity, stability and sustainability of its macro policies to drive the economy to operate within a reasonable range. The exchange rate of the Renminbi against the US dollar rose slightly by 1.2% in the first half of the year, remaining generally stable. The economy of Chong Hing Bank's major business areas in the Mainland continues to improve steadily as they have effectively coordinated the prevention and control of the pandemic while at the same time provided solid support for the overall economic and social development. In Guangzhou, the high-tech manufacturing sector grew significantly, and output of electronic products continued to rise, resulting in a 13.7% year-on-year increase in GDP in the first half of the year. In Shenzhen, industrial production grew steadily and the recovery of the consumer market continued, resulting in a 9.7% year-on-year increase in GDP in the first half of the year. In Shanghai, an accelerated recovery was seen in the demand for production, with the service sector rebounding steadily, and employment and prices remaining stable. Shanghai's GDP rose by 12.7% year-on-year in the first half of the year.

Hong Kong's GDP grew by 7.8% year-on-year in the first half of the year as the global economic momentum further strengthened and trade activity picked up significantly. In its foreign trade, benefiting from a strong rebound in global demand, goods exports rose by 20.3% year-on-year in the second quarter; travel services exports remained sluggish, with the improvement in exports of transport and business services resulting in services exports rising by 2.6% year-on-year in the second quarter. In terms of internal demand, private consumption expenditure in the second quarter grew by 6.5% year-on-year due to the easing of the local pandemic situation. With the recovering external environment bringing an improvement to the business atmosphere, gross domestic fixed capital formation increased by 23.7% year-on-year in the second quarter. The unemployment rate fell back to 5.5% in June as the labour market improved along with the recovery of the economy. The local pandemic has stabilised, leading to a robust property market, with the private residential price index rising five months in a row, and overall property registrations in the first half rising by about 53.7% year-on-year, an 8.5-year high. In the Hong Kong stock market, the Hang Seng Index has fallen since February this year. After once rising above 31,000 points, it closed at 28,827 points on the last trading day of the first half of the year, a cumulative gain of 5.8% in six months.

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