Why loss of market share for Hang Seng could be a permanent dilemma

Blame it on competition.

According to CLSA, Hang Seng’s commanding presence in retail banking in the 1990s made it the key target for rivals encroaching on its “home turf” of retail an SME banking. 

CLSA identifies a material loss of market share for Hang Seng in critical lines like mortgages, deposits and consumer credit.

Here's more from CLSA:

Given the intensification of competition, we think these losses are permanent, as is the bulk of the compression in its profitability over the past two decades.

The rapidly rising contribution of equity-accounted earnings from Hang Seng’s stake in Industrial Bank has obscured the bottom-line impact of its relative decline in market position.

With a move to investment accounting (and thus loss of associate income from Industrial Bank), we expect the compression in Hang Seng’s underlying return profile to become more obvious to investors, forcing a reappraisal of its rich multiples.