Hang Seng Bank declares third interim DPS of HKD1.10

It's in line with first two DPS.

Hang Seng Bank (HSB) announced a third interim DPS of HKD1.10, which was noted as having remained stable.

According to a research note from Maybank Kim Eng, this is in line with the first two interim DPS, making the total HKD3.30 for the first nine months of 2014. HSB paid total DPS of HKD5.50 for 2013.

Meanwhile, the report noted that capital constraint is still a key concern over Hang Seng Bank.

Here's more from Maybank Kim Eng:

In our Hong Kong banks note “More capital replenishment ahead” dated 23 Sep 2014, we estimated the potential equity capital shortfall for HSB will be HKD19.3b as the Hong Kong Monetary Authority (HKMA) may impose a minimum CET1 CAR requirement of 13% by end-Dec 2018 (HSB’s fully-loaded CET1 CAR was 9.4% in Jun 2014).

To achieve this, HSB needs to lower its DPS to HKD3.50 during 2014-2018. However, with a stable third interim DPS, HSB may have to lower the final DPS to HKD0.20.

A need to cut loan growth. Still, it is doubtful whether its major shareholder HSBC would like HSB to cut the DPS. Rather, HSB may agree with the HKMA to slow down the growth of its risk-weighted assets (RWA) in the coming years to achieve the minimum CET1 CAR.

This will also benefit HSBC by lowering its consolidated RWA slightly. We thus lower our loan growth forecast from 10.3% to 2.1% in each of 2015 and 2016.

By doing so, we estimate HSB’s CET1 CAR will rise to 12.0% and 12.3% by end-Dec 2015 and end-Dec 2016, (previously: 11.4% and 11.2%). Fully-loaded CET1 CAR will also rise to 11.3% by end-Dec 2016.