HK Mortgage Corporation Reports Significant Profit Decline Amid Property Price Drop in First Half of 2024.

HKMC's financial results highlights for first half of 2024

The Hong Kong Mortgage Corporation Limited (HKMC) today (October 7) announced the highlights of its unaudited consolidated financial results for the first six months of 2024 (1H 2024) noted below.

2024 half-year unaudited financial results highlights

The unaudited profit after tax of the HKMC for 1H 2024 was HK$9 million (1H 2023: HK$1,175 million (Note)). The decline in profitability was primarily due to the unfavourable impact of property price drop in 1H 2024 on the reverse mortgage business as compared to the favourable impact of property price rebound in 1H 2023.

After excluding the accounting results of the HKMC Annuity Limited (HKMCA), a wholly-owned subsidiary of the HKMC operating annuity business, the impact of property price changes on the reverse mortgage insurance business, and the effect of valuation and corresponding adjustments as required by Hong Kong Financial Reporting Standard 17 "Insurance Contracts" (HKFRS 17) at consolidation level in respect of the loan portfolios with insurance cover provided by the HKMC Insurance Limited (HKMCI), another wholly-owned subsidiary of the HKMC operating general insurance business, the adjusted profit after tax, annualised return on equity and cost-to-income ratio for 1H 2024 would be HK$468 million, 6.2 per cent and 22.4 per cent respectively (1H 2023: HK$365 million, 5.2 per cent and 26.6 per cent respectively).

Despite the reported accounting loss of the HKMCA, the embedded value of the annuity business as at June 30, 2024, was about HK$14.0 billion on the basis of the Insurance Ordinance, which comprised HK$11.3 billion of total equity and HK$2.7 billion of present value of future profits. This indicates a sound financial position of the HKMCA to develop its business in the long term.

The capital adequacy ratio of the HKMC remained solid at 20.7 per cent as at June 30, 2024, well above the minimum ratio of eight per cent stipulated by the Financial Secretary. The solvency ratios of the HKMCI and the HKMCA were about 22 times and 16 times respectively as at June 30, 2024, well above the respective 200per cent and 150per cent minimum regulatory requirements stipulated by the Insurance Authority.

Amid uncertain market conditions, the HKMC adopted prudent prefunding strategy and proactively communicated with local and international investment communities for debt issuance to support its sizable loan purchase and fulfil its refinancing needs. With strong financing capability and liquidity position, the HKMC's core operations remain resilient and stand ready to cope with any financial turbulence ahead in performing its strategic policy roles and attaining its social objectives.

2024 half-year business performance highlights

Asset purchase

• Acquired HK$2.1 billion of loan assets (1H 2023: HK$1.2 billion)

• Purchased HK$4.6 billion of loans (1H 2023: HK$15.6 billion) from the Special 100% Loan Guarantee under the SME Financing Guarantee Scheme (SFGS), and HK$32.0 million of loans (1H 2023: HK$15.8 million) from the Dedicated 100% Loan Guarantee Schemes (DLGS)

• Outstanding balance of loan portfolio was HK$107.1 billion as at June 30, 2024 (December 31, 2023: HK$109.5 billion)

Debt issuance

• Issued corporate debts totalling HK$57.1 billion for 1H 2024, of which HK$48.4 billion with tenor of one year or above (1H 2023: totalling HK$65.6 billion, of which HK$58.6 billion with a tenor of one year or above), being the most active issuer in the domestic market of Hong Kong dollar (HKD) corporate bonds

• Successfully completed the issuance of triple-tranche HKDbenchmark bonds of HK$12 billion comprising HK$8 billion 2-year, HK$3 billion 5-year and HK$1 billion 10-year bonds, being the largest-ever HKD senior unsecured public bond transaction and the largest 10-year HKD public bond issuance in the institutional market

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• Outstanding balance of debt securities issued was HK$144.6 billion as at June 30, 2024 (December 31, 2023: HK$161.7 billion)

• Credit ratings of AA+ from S&P Global Ratings and Aa3 from Moody's, same as those of the Hong Kong Special Administrative Region Government

Mortgage Insurance Programme (MIP)

• New MIP loans drawn down amounted to HK$28.3 billion (1H 2023: HK$51.4 billion)

• 52 per centof loans drawn down (in terms of loan amount) were secured on properties in the secondary market

SFGS

• In respect of the 80% Guarantee Product, as at the end of June 2024, more than 26 400 applications were approved with a total loan amount of approximately HK$114.4 billion since its launch in May 2012

• In respect of the 90% Guarantee Product, as at the end of June 2024, more than 12 600 applications were approved with a total loan amount of approximately HK$23.4 billion since its launch in December 2019

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• In respect of the Special 100% Loan Guarantee, as at the end of June 2024, more than 66 900 applications were approved with a total loan amount of approximately HK$143.2 billion since its launch in April 2020, of which HK$143.1 billion of loan assets were purchased by the HKMC

• As at the end of June 2024, the 80% and 90% Guarantee Products and the Special 100% Loan Guarantee had benefitted more than 63 000 local small and medium-sized enterprises and approximately 792 000 related employees since their inception. The application period for the 80% and 90% Guarantee Products has been extended for two years until end-March 2026 while the application period for the Special 100% Loan Guarantee expired at end-March 2024

DLGS

• The DLGS for Travel Sector and the DLGS for Cross-boundary Passenger Transport Trade were launched on April 29, 2023.As at the end of June 2024, 220 applications were approved with a total loan amount of approximately HK$218.2 million

• Promoting the use of battery electric taxis (e-Taxis) is one of the Government's measures to develop green transport, and the DLGS for e-Taxis was launched on September 4, 2023, to provide loans for eligible taxi owners to purchase e-Taxis to replace their liquefied petroleum gas, petrol or hybrid taxis. As at the end of June 2024, 16 applications were approved with a total loan amount of approximately HK$5.3 million

Reverse Mortgage Programme

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• 546 applications were approved (1H 2023: 277 applications), with an average property value of HK$4.9 million and an average monthly payout of HK$12,600

Annuity business

• Taking a total of 2 295 policies (1H 2023: 814 policies), with total premiums of HK$1.1 billion (1H 2023: HK$0.7 billion)

Further details of the HKMC's unaudited consolidated financial results and financial review for 1H 2024 are set out in the Annex.

Note: After adoption of HKFRS 17 with effect from January 1, 2023, accounting adjustments are required to be made at consolidation level in respect of the loan portfolios with insurance cover provided by the HKMCI. The Group has finalised the accounting adjustments when the 2023 audited financial statements were prepared. Accordingly, the comparative figures reported in this press release have been restated with the same accounting treatment applied consistently.

CFS to follow up certain batches of powdered infant and young children formula with possible presence of Cereulide produced by Bacillus cereus

The Centre for Food Safety (CFS) of the Food and Environmental Hygiene Department (FEHD) today (January 10) said that, it took initiative to meet with Nestlé Hong Kong again today, and confirmed the company's today announcement of an additional batch of powdered infant and young children formula suspected to have possibly used the raw material concerned. Nestlé Hong Kong has voluntarily stopped sales, removed from shelves the affected products and has initiated a precautionary recall. The CFS has collected samples of powdered infant and young children formula from the market for Bacillus cereus testing, the test results so far were satisfactory. The Environmental and Ecology Bureau is also closely monitoring the supply situation of other formula milk powder and maintaining communication with other major suppliers. It is noted that there is sufficient formula milk powder to meet the demand.

The spokesman said, the CFS has been actively following up on Nestlé company's voluntary and precautionary recalls of certain batches of its powdered infant and young children formula in certain areas in Europe due to possible presence of Cereulide produced by Bacillus cereus in the individual raw material. According to the latest information from Nestlé Hong Kong today, an additional batch of its powdered infant and young children formula imported into Hong Kong might have used the raw material concerned. The CFS had earlier enhanced surveillance in the market and collected a sample from the above batch for testing of Bacillus cereus. The test result of the sample was satisfactory. Nevertheless, as a precautionary measure, Nestlé Hong Kong has voluntarily stopped sales, removed from shelves the affected products and has initiated a precautionary recall.

Product details are as follows:

Product name (Net weight): NAN PRO 1 2 HMO (800g)

Batch number: 51670742F2

Best-before date: June 16, 2027

Place of Origin: Germany

"The CFS met Nestlé Hong Kong again today, urging them to properly handle the product recall issue and respond to public enquiries, in order to safeguard consumers' legitimate rights and interests. In addition, the CFS and Nestlé Hong Kong have jointly followed up, six suspected affected batches of infant and young children formula products that had not entered the market were marked and sealed. An additional 15 batches are currently en route to Hong Kong and will also be marked and sealed upon arrival. The CFS will continue to closely monitor the recall matters and remain fully committed to ensuring food safety, " the spokesman said.

Nestlé Hong Kong has initiated a recall of the affected batches of the products concerned. For enquiries about the recall, members of the public may contact the company through the following channels:

Consumer services hotline: 2599 8874 / 2797 6031/ 2179 8136 (Monday to Sunday, 9am to 9pm)

Email: consumerservices@hk.nestle.com

WhatsApp: 5283 4139 (NESTLÉ® NAN®) / 2599 8871 (Wyeth® Nutrition)

Online form: forms.office.com/e/BhqMhWfsUG?origin=lprLink

Consumers may choose to bring along the products (brand new or opened) for refund at place of purchase, or at exclusive service counters of Nestlé Nutrition Services from January 13 (Tuesday) onwards, to settle the recall and refund of the batches of the products concerned. Details of the exclusive service counters are as follows:

Kowloon Services Counter

Address: G/F, Park Hovan Commercial Building, 18 Hillwood Road, Tsim Sha Tsui, Kowloon (MTR Jordon Station Exit D)

Contact number: 3996 8196

Office hour: Monday to Saturday, 11am to 7.30pm; Sunday, 1pm to 5.30pm (except public holidays)

Hong Kong Services Counter

Address: 1/F, Ka Nin Wah Commercial Building, 423-425 Hennessy Road, Hong Kong (MTR Causeway Bay Station Exit B)

Contact number: 3996 8197

Office hour: Monday to Saturday, 11am to 7.30pm (except Sundays and public holidays)

The CFS, through its Food Incident Surveillance System, noted earlier that certain batches of Nestlé powdered infant formula were being voluntarily recalled in Europe due to possible contamination with Bacillus cereus. Upon learning of the incident, the CFS has immediately initiated follow up actions, published food incident posts to inform the public and the trade about the issue, and has been actively following up on the incident and enhanced surveillance.

Over the past three days (as of 4pm on January 9), the FEHD received a total of 18 food complaints and enquiries suspected to be related to the infant and young children formula products, including one anonymous complaint without contact information. The CFS and the Environmental Hygiene Branch have promptly followed up on all cases, including contacting the parties concerned to obtain details and collecting samples for testing. In addition, the CFS has referred the cases to the health department for follow-up. At present, no food poisoning cases related to the formula have been recorded.

Bacillus cereus is commonly found in the environment. Unhygienic conditions in food processing and storage may give rise to its growth. Cereulide is a heat-stable toxin produced in food by some strains of Bacillus cereus. Consuming food contaminated with excessive Bacillus cereus or its heat-stable toxins may cause gastrointestinal upset such as vomiting and diarrhoea.

The spokesman urged members of the public not to let infants and young children consume the affected batches of the products, and to seek medical treatment for infants or young children who felt unwell after taking the products concerned. The trade should also stop using or selling the affected batches of the products immediately.

"The CFS continues to closely monitor the developments of the situation, follow up and take appropriate action," the spokesman said.

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