hsba201202276k3.htm
FORM 6-K
 
SECURITIES AND EXCHANGE COMMISSION
 
Washington, D.C. 20549
 
 
 
Report of Foreign Private Issuer
 
Pursuant to Rule 13a - 16 or 15d - 16 of
 
the Securities Exchange Act of 1934
 
 
 
For the month of February
HSBC Holdings plc
 
42nd Floor, 8 Canada Square, London E14 5HQ, England
 
 
 
(Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F).
 
Form 20-F   X              Form 40-F ......
 
(Indicate by check mark whether the registrant by furnishing the information contained in this Form is also thereby furnishing the information to the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934).
 
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(If "Yes" is marked, indicate below the file number assigned to the registrant in connection with Rule 12g3-2(b): 82- ..............).
 
 
 
 


 
 
 

 
 
 
 
 
27 February 2012 
 
HANG SENG BANK LIMITED
2011 RESULTS - HIGHLIGHTS
 
·    Attributable profit up 12% to HK$16,680m (HK$14,917m in 2010).
 
·    Profit before tax up 11% to HK$19,213m (HK$17,345m in 2010).
 
·    Operating profit up 1% to HK$14,181m (HK$14,085m in 2010).
 
 
·    Operating profit excluding loan impairment charges up 1% to HK$14,621m (HK$14,475m in 2010).
 
·    Return on average shareholders' funds of 22.6% (22.8% in 2010).
 
·    Assets up 6% to HK$975.4bn (HK$916.9bn at 31 December 2010).
 
·    Earnings per share up 12% to HK$8.72 per share (HK$7.80 per share in 2010).
 
 
·    Fourth interim dividend of HK$1.90 per share; total dividends of HK$5.20 per share for 2011 (HK$5.20 per share in 2010).
 
 
·    Capital adequacy ratio of 14.3% (13.6% at 31 December 2010); core capital ratio of 11.6% (10.8% at 31 December 2010).
 
·    Cost efficiency ratio of 35.0% (33.7% in 2010).
    
 
Within this document, the Hong Kong Special Administrative Region of the People's Republic of China has been referred to as 'Hong Kong'.
 
The abbreviations 'HK$m' and 'HK$bn' represent millions and billions of Hong Kong dollars respectively.

 
Contents
 
The financial information in this news release is based on the audited consolidated financial statements of Hang Seng Bank Limited ('the bank') and its subsidiaries ('the group') for the year ended 31 December 2011.
 
1          Highlights of 2011 Results
2          Contents
4          Chairman's Comment
6          Chief Executive's Review
11        Results Summary
14        Customer Group Performance
19        Mainland Business
21        Consolidated Income Statement
22        Consolidated Statement of Comprehensive Income
23        Consolidated Balance Sheet
24        Consolidated Statement of Changes in Equity
26        Consolidated Cash Flow Statement
27        Financial Review
27        Net interest income
29        Net fee income
30        Trading income
31        Net (loss)/income from financial instruments designated at fair value
31        Other operating income
32        Analysis of income from wealth management business
34        Loan impairment charges
35        Operating expenses
36        Gains less losses from financial investments and fixed assets
37        Tax expense
38        Earnings per share
38        Dividends per share
38        Segmental analysis
40        Analysis of assets and liabilities by remaining maturity
42        Cash and balances with banks and other financial institutions
42        Placings with and advances to banks and other financial institutions
43        Trading assets
44        Financial assets designated at fair value
45        Advances to customers
45        Loan impairment allowances against advances to customers
46        Impaired advances and allowances
47        Overdue advances
48        Rescheduled advances
            48        Segmental analysis of advances to customers by geographical area
            49        Gross advances to customers by industry sector
51        Financial investments
 
53        Amounts due from/to immediate holding company and fellow subsidiary  
 
              companies
 
54        Interest in associates
54        Intangible assets
54        Other assets
55        Current, savings and other deposit accounts
55        Certificates of deposit and other debt securities in issue
            56        Trading liabilities
56        Other liabilities
57        Subordinated liabilities
58        Shareholders' funds
59        Capital resources management
61        Liquidity ratio
62        Reconciliation of cash flow statement
63        Contingent liabilities, commitments and derivatives
 
66        Statutory accounts and accounting policies
66        Comparative figures
66        Property revaluation
67        Foreign currency positions
67        Ultimate holding company
68        Register of shareholders
68        Proposed timetable for 2012 quarterly dividends
68        Code on corporate governance practices
68        Board of Directors
69        News release
 
 
Comment by Raymond Ch'ien, Chairman
 
In the challenging environment of 2011, we built on our trusted brand to enhance long-term growth and achieved a solid operating result.
 
We continued to develop areas of strength and deepened our penetration into segments that offer growth opportunities. Our core strategies of financial prudence and innovating to deliver more value served us in good stead.
 
In the volatile market conditions, we drew on our time-to-market wealth management capabilities to offer comprehensive products catering for the changing financial needs of our customers, targeting mainland China customers among other segments.
 
In our commercial and corporate banking businesses, our good industry knowledge, strong cross-border capabilities and total solutions helped enhance our status as a preferred partner for trade-related services and our franchise in corporate wealth management.
 
The Mainland will remain a major focus for our future expansion. Reflecting our efforts to take advantage of the opening up of the mainland financial sector, the gradual internationalisation of the renminbi and the closer economic integration of Hong Kong and the Mainland, we achieved encouraging growth in our cross-border services and renminbi-related businesses.
 
In an important milestone, Hang Seng Bank (China) Limited moved into new headquarters in Shanghai's Lujiazui financial district in May 2011. The move signifies our long-term commitment to developing our business on the Mainland.
 
Our strengths continued to win recognition. The bank was named the Best Domestic Bank in Hong Kong for the 12th consecutive year by The Asset and the Best Domestic Bank in Hong Kong by Asiamoney.
 
Financial Highlights
 
Profit attributable to shareholders rose by 12% to HK$16,680m and profit before tax was up 11% at HK$19,213m. Earnings per share were up 12% to HK$8.72 per share.
 
The return on average shareholders' funds was 22.6%, compared with 22.8% in 2010. The return on average total assets was 1.8%, compared with 1.7% a year earlier.
 
At 31 December 2011, our capital adequacy ratio was 14.3%, compared with 13.6% at the end of 2010. The core capital ratio was 11.6%, compared with 10.8% a year earlier. The rise in both capital and core capital ratios reflected the combined effect of the increase in profit after accounting for dividends in 2011 and the decrease in risk-weighted assets.
 
The Directors have declared a fourth interim dividend of HK$1.90 per share, payable on 29 March 2012. This brings the total distribution for 2011 to HK$5.20 per share, the same as for 2010.
 
Operating Environment
 
The operating environment in 2011 was affected by growing global economic uncertainties, including the deepening sovereign debt crisis in the eurozone, the continuing fragility of the US economic recovery, and the effects of the devastating earthquake and tsunami in Japan on global supply chains. As a result, the growth momentum in Hong Kong eased in the second half of the year as external demand slowed.
 
China headed towards a soft landing as economic growth moderated due to persistent monetary tightening by the government and weaker external demand. The economy was mainly supported by strong investment and consumption growth. The high inflationary pressure began to ease after peaking in July.
 
In 2012, the prevailing economic uncertainties in the eurozone and the US will continue to dominate globally. The downgrade of the credit ratings of the US and various eurozone countries by credit rating agencies over the past year indicates continued downside risks in the world economic outlook.
 
Given the above, Hong Kong's economic growth is likely to slow this year. Exports will be adversely affected by the difficult global environment, but domestic demand should remain resilient on the back of steady income growth and continued expansion of public sector construction works. Inflation is expected to come down due to the recent easing in global food and commodity prices, and the expected economic slowdown.
 
Economic growth on the Mainland is expected to slow further, although its economy remains among the fastest growing in the world. Since December 2011, China's central bank has cut the reserve requirement ratio for commercial lenders twice in a sign it is easing monetary policy to stimulate domestic demand. Although exports should continue to soften given weakening external demand, consumption growth is expected to remain resilient given the increasing personal wealth of the mainland population. Investment growth is also expected to remain steady as the government gradually eases monetary conditions. Inflation is likely to fall steadily.
 
In the banking sector, loan growth is expected to moderate while competition for deposits will remain keen. Banks will encounter more challenges, including evolving regulatory requirements.
 
Against this backdrop, we will continue our efforts to create sustainable value for our stakeholders.
 
 
Review by Margaret Leung, Vice-Chairman and Chief Executive
 
The global economic uncertainties in the second half of 2011 posed significant challenges to the banking sector.
 
Our strong financial fundamentals, relationship building strategies and capture of new business opportunities helped us achieve a solid operating result. Operating profit excluding loan impairment charges increased by 1% to HK$14,621m for the year and grew 1% in the second half of the year compared with the first half.
 
Amid intense market competition, our commercial and corporate banking businesses recorded strong growth. The further enhancement of our cross-border operations to support business customers reinforced our leading position in the provision of renminbi financial services. This was offset by lower revenues in Retail Banking and Wealth Management, particularly as income from our wealth management services declined given the weaker investor sentiment in the second half of 2011.
 
Our wholly owned subsidiary Hang Seng Bank (China) Limited ('Hang Seng China') delivered encouraging results as we tapped China's expanding economy and rising personal incomes.
 
At 35.0%, our cost efficiency ratio remained among the lowest in the industry. In order to improve operational efficiency and facilitate customer convenience, internet-based banking platforms were further strengthened. At the year-end, our Personal e-Banking and Business e-Banking customer bases were up 12% and 16% respectively, compared with a year earlier.
 
Financial Performance
 
Total assets rose by 6% to HK$975.4bn. Customer advances increased by 2%, with growth in commercial and corporate lending businesses, while we maintained sound loan quality. Customer deposits, including certificates of deposit and other debt securities in issue, rose by 5%, driven in part by strong growth in renminbi deposits.
 
Operating profit rose by 1% to HK$14,181m, while the increased contribution from our associates and higher gains on revaluing investment properties led to an increase in profit attributable to shareholders of 12% to HK$16,680m.
 
Net interest income rose by 10% to HK$15,736m. The net interest margin was maintained at 1.78%, the same level as in 2010. At 1.80% in the second half of the year, the net interest margin was up five basis points from the first half.
 
Affected by the unfavourable investment climate, non-interest income declined by 9%, compared with 2010. Net fee income decreased slightly by 1%, with income from the wealth management business dropping by 6%. Card services income grew by 15% as we increased our market share in terms of card base in this competitive business.
 
While continuing to exercise a high degree of prudence in managing costs, investment for future growth led to a 7% rise in operating expenses, in particular for business expansion on the Mainland.
 
Loan impairment charges registered an increase of HK$50m, or 13%, to HK$440m, mainly due to the increase in collectively assessed impairment charges.
 
Reflecting our good credit risk management, total loan impairment allowances as a percentage of gross advances to customers decreased to 0.35% at the end of 2011, compared with 0.39% a year earlier.
 
Gross impaired advances as a percentage of gross advances to customers fell to 0.33%, compared with 0.42% at the end of 2010.
 
Customer Groups
 
Retail Banking and Wealth Management reported a profit before tax of HK$6,623m, down 16% from 2010. Operating profit excluding loan impairment charges was HK$6,441m, a drop of 18% from a year earlier.
 
Net interest income recorded a decline of 4% as market competition levied pressure on deposit income.
 
With a quality credit card customer base, income from unsecured lending remained a key income driver and grew by 11%, compared with 2010. The card base increased by 10% to 2.23 million during the year. Card spending and receivables rose by 16% and 18% respectively.
 
Repricing of our mortgage portfolio affected our market share initially. However, our market share in Hong Kong in terms of new registrations rebounded to reach 19% in December 2011.
 
Life insurance annualised new premiums increased by 12% and total policies in force grew by 8%, compared with 2010. Despite the strong sales, income from insurance fell as market conditions led to lower investment returns on the life insurance fund portfolios.
 
The euro debt problem intensified in the second half of 2011. This severely affected investment appetite leading to lower distribution income from investment services, as reflected by slower fund sales and securities broking activities in the second half of the year. Income from investment services for the year fell by 11% year-on-year.
 
Commercial Banking achieved an increase of 34% in profit before tax to HK$5,031m. Operating profit excluding loan impairment charges was up 29% to HK$3,442m.
 
Net interest income increased by 26% while non-interest income grew by 13%. Customer deposits grew by 5% during the year.
 
Various initiatives to grow fee income achieved satisfactory results. Income from corporate wealth management rose by 15% and contributed to 13% of Commercial Banking's net operating income.
 
We continued to take advantage of the growth in renminbi trade settlement. Besides close collaboration between colleagues in Hong Kong and the Mainland, we also cooperate with strategic partners on the Mainland to enhance our cross-border services. This proved to be a valuable source of referral business. At the end of 2011, we had over 70,000 commercial renminbi accounts in Hong Kong and renminbi cross-border trade-related business routed through the bank had increased.
 
Our network of seven Business Banking Centres helped facilitate account acquisition and the Commercial Banking customer base increased by 13% during the year.
 
Corporate Banking achieved growth of 46% in profit before tax to HK$1,843m. Operating profit excluding loan impairment charges rose by 42% to HK$1,794m. The strong profit growth was mainly attributable to increases in net interest income and non-interest income, which rose by 39% and 14% respectively.
 
Against a backdrop of tightening market liquidity, we achieved selective growth of 10% in customer advances, partly by taking advantage of the increased cross-border loan demand. Through offering total cash management solutions to customers and capitalising on our efficient cross-border relationship management system, customer deposits grew by 29%.
 
Treasury recorded a 26% increase in profit before tax to HK$4,227m, while operating profit rose by 24% to HK$2,729m.
 
In spite of persistently low interest rates, net interest income rose by 50% to reach HK$2,108m. The increase was attributed to a larger commercial surplus for investment as the bank's balance sheet grew, more positioning taken in balance sheet management and the contribution from funding swap activities. It was also due to better margins for inter-bank lending in both Hong Kong and the Mainland.
 
Trading income fell by 14% to HK$1,001m, affected by the decline in income from funding swap activities.
 
Mainland business
 
Hang Seng China recorded encouraging growth in profit before tax to HK$482m as it increased its foothold on the Mainland.
 
With the opening of its third cross-city sub-branch in Huizhou, Hang Seng China operated a strategically located network of 39 outlets across 14 mainland cities at the year-end. Applications to establish a new branch in Xiamen, a sub-branch each in Beijing and Tianjin, and a cross-city sub-branch each in Guangdong's Shunde, Zhuhai and Jiangmen respectively have been approved.
 
Through focusing on the growing financial needs of target mainland customers with rapidly rising incomes, the mainland personal banking customer base increased by 21%. The enhancement of wealth management services facilitated a 26% rise in the number of Prestige Banking customers. As we capitalised on our good cross-border capabilities, the number of corporate and commercial banking customers also increased by 8%.
 
Driven by the expanded customer base and with continued emphasis on credit quality, advances to customers rose by 23%. Total deposits increased by 34%. Underpinned by strong growth in net interest income and other operating income, total operating income was 46% higher than in 2010.
 
The mainland business contributed 22% to the bank's total profit before tax, compared with 15% in 2010. This includes the share of profit from our mainland investments, where our share of profit from Industrial Bank increased by about 40% during the year.
 
Positioning for future growth
 
We are likely to see slower economic growth in both Hong Kong and the Mainland in 2012 amid lingering debt problems in Europe and a fragile global recovery.
 
In the banking sector, competition will remain strong, adding pressure to funding costs.
 
In this operating environment, we have charted a course for long-term growth. We will build on our market leadership, service excellence and time-to-market offerings to deepen relationships with our loyal customers and reach out to a new client base.
 
In our personal banking business, we will strengthen our wealth management and private banking services to satisfy customer needs at different life stages, targeting affluent and middle-class customers in particular. We will enhance our status as a preferred partner for trade-related services by building on our trade and corporate wealth management capabilities. Treasury will develop effective hedging solutions and new renminbi-related products.
 
The closer economic integration of Hong Kong and the Mainland, the opening-up of the mainland market and the further liberalisation of offshore renminbi financial services offer vast opportunities. We intend to reinforce our role as a key player and pioneer in the provision of renminbi services.
 
In February 2012, the bank launched the world's first renminbi-denominated gold exchange-traded fund ('ETF') and Hong Kong's first renminbi ETF ─ the Hang Seng RMB Gold ETF. We will continue to design more renminbi products to cater for the growing investor demand in this area.
 
Our wholly owned subsidiary Hang Seng Securities Limited partnered with Guangzhou Securities Company Limited to apply in 2011 to set up the first joint venture securities investment advisory company under CEPA VI in Guangdong province.
 
We will further expand our network on the Mainland. We intend to reach out to more affluent mainland customers who are seeking new investment opportunities at home and in Hong Kong. We will also target mainland business customers with high growth potential in key industries, in particular those supported under China's 12th Five-Year Plan. Our cross-border collaboration between our Hong Kong and mainland teams will be strengthened and our referral partner network will further help us grow our client base.
 
Deposit growth will provide a solid foundation for our business expansion. Leveraging our strong balance sheet and effective credit risk management system, we will prudently grow our quality loan portfolio, including renminbi lending, while maintaining a competitive pricing strategy. Diversification of income streams will remain important.
 
Even as we invest for future growth, cost efficiency will be improved through resource optimisation and technological advancement.
 
In the challenging operating environment, Hang Seng is committed to providing superior financial solutions to our customers as their preferred service provider. As a financially-strong, forward-looking bank, we are confident that our business strategies will drive steady growth in the long-term.
 
 
Results summary
 
Hang Seng Bank Limited ('the bank') and its subsidiaries ('the group') reported an audited profit attributable to shareholders of HK$16,680m for 2011, up 11.8% compared with 2010. Earnings per share were HK$8.72, up HK$0.92 from 2010. Profit attributable to shareholders for the second half of 2011 increased by HK$566m, or 7.0%, compared with the first half.
 
Operating profit excluding loan impairment charges grew by HK$146m, or 1.0%, to HK$14,621m. The bank continues to navigate a challenging environment and delivered a solid operating result. Net interest income grew by 10.0%, primarily due to average loan growth coupled with higher loan spreads and increased balance sheet management income. The increasingly uncertain and volatile market as a result of the evolving eurozone sovereign debt concerns and slow recovery of the US economy led to an unfavourable investment climate which did not favour the wealth management business. Non-interest income declined by 8.9% compared with last year. While the bank remains prudent in managing costs, investment for future growth, in particular business expansion in mainland China, led to a 7.4% rise in operating expenses compared with 2010. Riding on the bank's business momentum and leveraging its core strengths, the bank registered a 0.6% increase in operating profit excluding loan impairment charges in the second half of the year compared with the first half.
 
Net interest income rose by HK$1,436m, or 10.0%, to HK$15,736m. Net interest margin for 2011 was 1.78%, the same level as in 2010. Net interest spread narrowed by four basis points to 1.68%, while the contribution from net free funds increased by four basis points to 0.10%. The 10.4% encouraging growth in average interest-earning assets, improved loan spreads and increased income from balance sheet management were partly offset by increased deposit costs.
 
Net fee income was HK$4,836m, broadly at the same level as last year. The wealth management business remained well diversified but was affected by weaker investor sentiment. Against the backdrop of sluggish stock market turnover, income from stockbroking and related services decreased by 12.5%. Volatility in the stock market and an unfavourable investment climate also led to a decline in sales of retail investment funds. As a result, subscription fees and commissions fell, leading to a drop in income from retail investment funds of 12.9%. Private banking service income also fell by 19.4%. Credit card fees were 14.6% higher than in 2010 which was in line with the growth in credit card balances. The credit card business continued to grow and we increased our market share in terms of card base while increased receivables and spending resulted in rising merchant and interchange fee income. Credit facilities fees also recorded strong growth, mainly attributable to higher fees from the corporate lending business.
 
Trading income decreased by HK$263m, or 12.8%, to HK$1,796m. Foreign exchange income rose by HK$75m, or 4.2%, attributable to the bank's efforts to expand customer-driven business and higher customer demand for foreign exchange-linked structured treasury products. The increase in foreign exchange income was largely offset by decreased net interest income from funding swap activities. Income from securities, derivatives and other trading activities also recorded an unfavourable change of HK$338m, or 116.2%, mainly affected by the losses on equity options backing a life endowment product due to unfavourable movements in the underlying equity indices, which resulted in a corresponding decrease in 'Net insurance claims incurred and movement in policyholder liabilities'.
 
Income from the insurance business (included under 'net interest income', 'net fee income', 'trading income', 'net income from financial instruments designated at fair value', 'net earned insurance premiums', 'movement in present value of in-force long-term insurance business' within 'other operating income', and after deducting 'net insurance claims incurred and movement in policyholders' liabilities') fell by HK$242m, or 9.2%, to HK$2,382m. Hang Seng continued to enhance its leading position in life insurance by providing a diverse range of retirement savings and protection products. Net interest income and fee income from the life insurance business grew by 8.1%, due primarily to the increase in the size of the life insurance funds investment portfolio. The investment return on the life insurance funds investment portfolio was, however, affected by the unfavourable movements of the equities market during the second half of 2011. The movement in present value of in-force long-term insurance business ('PVIF') decreased by 47.2%, representing the net effect of the unfavourable experience variance of the investment return assumption, offset by a refinement of the calculation of the PVIF asset to bring greater comparability and consistency across the group's insurance operation and higher sales in 2011 compared with 2010.
 
Operating expensesrose by HK$543m, or 7.4%, to HK$7,898m. While the bank carefully managed its costs, investments were made on the Mainland and for business development in Hong Kong to support the long-term growth of core income streams. Operating expenses of our Hong Kong operations rose by 5.2%, mainly in relation to staff-related costs, marketing expenditure and processing charges following inflationary increases and business growth. Mainland-related operating expenses rose by 20.6%, attributable mainly to the ongoing business expansion of Hang Seng China. Despite the increase in costs, the cost efficiency ratio of the bank remains one of the lowest in the industry and the bank continues to focus on improving operational efficiency while maintaining growth momentum and market leadership.  
 
Loan impairment charges registered an increase of HK$50m, or 12.8%, to HK$440m. Individually assessed impairment charges dropped by HK$83m, or 44.6%, driven by higher releases and recoveries from corporate and commercial banking customers in 2011 although there was an increase in new impairment charges which included a specific impairment charge provided in 2011. Collectively assessed impairment charges rose by HK$133m, or 65.2%, to HK$337m, with higher charges on the expanding credit card and personal loans portfolios. Impairment allowances for loans not individually identified as impaired recorded a net charge compared with a net release in 2010, mainly due to loan growth during the year.  
 
Impairment loss on intangible assets of HK$78m related to certain IT projects.
 
Operating profit rose slightly by HK$96m, or 0.7%, to HK$14,181m.
 
Profit before tax increased by 10.8% to HK$19,213m after taking the following items into account:
 
 
·    a 55.4% (or HK$62m) fall in gains less losses from financial investments and fixed assets;
 
·    a 103.7% (or HK$505m) increase in net surplus on property revaluation; and
 
·    a 49.9% (or HK$1,329m) increase in share of profits from associates, mainly from Industrial Bank and a property investment company.
 
Consolidated balance sheet and key ratios
 
Total assets rose by HK$58.5bn, or 6.4%, to HK$975.4bn. Customer advances increased by HK$7.9bn, or 1.7%, with growth in the commercial and corporate lending businesses, largely in mainland China. The trade finance business declined as certain trade finance loans matured in the second half of the year. The bank was strongly positioned to capture cross-border opportunities and prudently grew its Mainland lending during the year while maintaining sound loan quality. Under the vigorous deposit acquisition strategy in both Hong Kong and the Mainland during the year, customer deposits, including certificates of deposit and other debt securities in issue, increased by HK$32.9bn, or 4.6%, to HK$743.2bn, driven in part by strong growth in renminbi deposits. At 31 December 2011, the advances-to-deposits ratio was 64.7%, compared with 66.5% at 31 December 2010. Financial investments and trading assets increased by 4.9% and 146.3% respectively, reflecting the deployment of the commercial surplus to high-quality treasury bills and debt securities.
 
At 31 December 2011, shareholders' funds (excluding proposed dividends) were HK$75,122m, an increase of HK$8,743m, or 13.2%. Retained profits rose by HK$5,674m, mainly reflecting the increase in profit after the appropriation of interim dividends. With the growth in the commercial property market through 2011, the premises revaluation reserve increased by HK$2,854m, or 30.3%. The available-for-sale investment reserve recorded a deficit of HK$561m, compared with a surplus of HK$202m at the end of 2010, as a result of the general widening of credit spreads. 
 
The return on average total assets was 1.8% (1.7% for 2010). The return on average shareholders' funds was 22.6% (22.8% for 2010).
 
At 31 December 2011, the capital adequacy ratio was 14.3%, up from 13.6% at the end of 2010. The core capital ratio was 11.6%, compared with 10.8% a year earlier. The rise in both capital and core capital ratios reflected the combined effect of the increase in profit after accounting for dividends in 2011 and the decrease in risk-weighted assets.
 
The bank maintained a strong liquidity position. The average liquidity ratio for 2011 was 33.6% (calculated in accordance with the Fourth Schedule of the Hong Kong Banking Ordinance), compared with 38.1% for 2010.
 
The cost efficiency ratio for 2011 was 35.0% compared with 33.7% in 2010.
 
Dividends
 
The Directors have declared a fourth interim dividend of HK$1.90 per share, which will be payable on 29 March 2012 to shareholders on the register of shareholders as of 14 March 2012. Together with the interim dividends for the first three quarters, the total distribution for 2011 will be HK$5.20 per share.
 


Customer group performance
 
 
 
Retail
                            
 
Banking
                
Total
  
Inter-
      
 
and Wealth 
Commercial
Corporate
          
reportable
segment
      
Figures in HK$m
Management
  
Banking
  
Banking
  
Treasury
  
Other
  
segments
elimination
  
Total
  
                                 
Year ended
                                
31 December 2011
                                
                                 
Net interest income
8,150
  
3,400
  
1,998
  
2,108
  
80
  
15,736
  
__
  
15,736
  
Net fee income/(expense)
3,298
  
1,210
  
219
  
(34
)
143
  
4,836
  
__
  
4,836
  
Trading income/(loss)
351
  
530
  
13
  
1,001
  
(99
)
1,796
  
__
  
1,796
  
Net loss from financial
                                
  instruments designated at fair
                                
  value
(158
)
(1
)
__
  
(1
)
__
  
(160
)
__
  
(160
)
Dividend income
__
  
7
  
__
  
__
  
10
  
17
  
__
  
17
  
Net earned insurance premiums
10,820
  
239
  
2
  
__
  
__
  
11,061
  
__
  
11,061
  
Other operating income/(loss)
719
  
18
  
(1
)
__
  
679
  
1,415
  
(494
)
921
  
Total operating income
23,180
  
5,403
  
2,231
  
3,074
  
813
  
34,701
  
(494
)
34,207
  
Net insurance claims
                                
  incurred and movement
                                
  in policyholders' liabilities
(11,487
)
(122
)
(1
)
__
  
__
  
(11,610
)
__
  
(11,610
)
Net operating income before
                                
  loan impairment charges
11,693
  
5,281
  
2,230
  
3,074
  
813
  
23,091
  
(494
)
22,597
  
Loan impairment (charges)/
                                
  releases
(254
)
(233
)
46
  
1
  
__
  
(440
)
__
  
(440
)
Net operating income
11,439
  
5,048
  
2,276
  
3,075
  
813
  
22,651
  
(494
)
22,157
  
Operating expenses W
(5,177
)
(1,836
)
(436
)
(346
)
(597
)
(8,392
)
494
  
(7,898
)
Impairment loss on intangible
                                
  assets
(75
)
(3
)
__
  
__
  
__
  
(78
)
    
(78
)
Operating profit
6,187
  
3,209
  
1,840
  
2,729
  
216
  
14,181
  
__
  
14,181
  
Gains less losses from financial
                                
  investments and fixed assets
20
  
11
  
3
  
12
  
4
  
50
  
__
  
50
  
Net surplus on property
                                
  revaluation
__
  
__
  
__
  
__
  
992
  
992
  
__
  
992
  
Share of profits from associates
416
  
1,811
  
__
  
1,486
  
277
  
3,990
  
__
  
3,990
  
Profit before tax
6,623
  
5,031
  
1,843
  
4,227
  
1,489
  
19,213
  
__
  
19,213
  
Share of profit before tax
34.5
%
26.2
%
9.6
%
22.0
%
7.7
%
100.0
%
__
  
100.0
%
                                 
                                 
Operating profit excluding loan
                                
  impairment charges
6,441
  
3,442
  
1,794
  
2,728
  
216
  
14,621
  
__
  
14,621
  
                                 
WDepreciation/amortisation
                                
   included in operating
                                
   expenses
(155
)
(31
)
(5
)
(5
)
(623
)
(819
)
__
  
(819
)
                                 
                                 
At 31 December 2011
                                
                                 
Total assets
274,294
  
185,350
  
143,734
  
329,295
  
42,772
  
975,445
  
__
  
975,445
  
Total liabilities
596,593
  
149,416
  
64,736
  
51,897
  
34,048
  
896,690
  
__
  
896,690
  
Interest in associates
2,115
  
8,185
  
__
  
6,441
  
2,666
  
19,407
  
__
  
19,407
  
Non-current assets incurred
                                
  during the year
160
  
49
  
5
  
4
  
204
  
422
  
__
  
422
  
                                   
 
 
 
 
Retail
                            
 
Banking
              
Total
Inter-
      
 
and Wealth 
Commercial
Corporate
          
reportable
segment
      
Figures in HK$m
Management
  
Banking
  
Banking
  
Treasury
  
Other
  
segments
elimination
  
Total
  
                                 
Year ended
                                
31 December 2010
                                
                                 
Net interest income
8,485
  
2,709
  
1,440
  
1,403
  
263
  
14,300
  
__
  
14,300
  
Net fee income/(expense)
3,423
  
1,209
  
188
  
(29
)
106
  
4,897
  
__
  
4,897
  
Trading income/(loss)
630
  
334
  
11
  
1,162
  
(78
)
2,059
  
__
  
2,059
  
Net income/(loss) from
                                
  financial instruments
                                
  designated at fair value
297
  
__
  
__
  
(1
)
(14
)
282
  
__
  
282
  
Dividend income
__
  
5
  
__
  
__
  
9
  
14
  
__
  
14
  
Net earned insurance premiums
11,059
  
246
  
2
  
__
  
__
  
11,307
  
__
  
11,307
  
Other operating income/(loss)
1,271
  
23
  
1
  
(1
)
712
  
2,006
  
(448
)
1,558
  
Total operating income
25,165
  
4,526
  
1,642
  
2,534
  
998
  
34,865
  
(448
)
34,417
  
Net insurance claims
                                
  incurred and movement
                                
  in policyholders' liabilities
(12,436
)
(152
)
1
  
__
  
__
  
(12,587
)
__
  
(12,587
)
Net operating income before
                                
  loan impairment charges
12,729
  
4,374
  
1,643
  
2,534
  
998
  
22,278
  
(448
)
21,830
  
Loan impairment charges
(209
)
(178
)
(3
)
__
  
__
  
(390
)
__
  
(390
)
Net operating income
12,520
  
4,196
  
1,640
  
2,534
  
998
  
21,888
  
(448
)
21,440
  
Total operating expenses W
(4,864
)
(1,703
)
(379
)
(327
)
(530
)
(7,803
)
448
  
(7,355
)
Operating profit
7,656
  
2,493
  
1,261
  
2,207
  
468
  
14,085
  
__
  
14,085
  
Gains less losses from financial
                                
  investments and fixed assets
__
  
__
  
5
  
95
  
12
  
112
  
__
  
112
  
Net surplus on property
                                
  revaluation
__
  
__
  
__
  
__
  
487
  
487
  
__
  
487
  
Share of profits from associates
216
  
1,255
  
__
  
1,059
  
131
  
2,661
  
__
  
2,661
  
Profit before tax
7,872
  
3,748
  
1,266
  
3,361
  
1,098
  
17,345
  
__
  
17,345
  
Share of profit before tax
45.4
%
21.6
%
7.3
%
19.4
%
6.3
%
100.0
%
__
  
100.0
%
                                 
                                 
Operating profit excluding loan
                                
  impairment charges
7,865
  
2,671
  
1,264
  
2,207
  
468
  
14,475
  
__
  
14,475
  
                                 
 WDepreciation/amortisation
                                
   included in total operating
                                
   expenses
(175
)
(34
)
(5
)
(4
)
(503
)
(721
)
__
  
(721
)
                                 
                                 
At 31 December 2010
                                
                                 
Total assets
264,827
  
180,013
  
130,148
  
304,898
  
37,025
  
916,911
  
__
  
916,911
  
Total liabilities
581,118
  
141,518
  
50,862
  
39,268
  
34,133
  
846,899
  
__
  
846,899
  
Interest in associates
1,384
  
6,197
  
__
  
5,626
  
2,459
  
15,666
  
__
  
15,666
  
Non-current assets incurred
                                
  during the year
128
  
39
  
5
  
4
  
739
  
915
  
__
  
915
  
                                   
 
 
Retail Banking and Wealth Management ('RBWM') reported a profit before tax of HK$6,623m in 2011, down 15.9% from 2010. Operating profit excluding loan impairment charges reached HK$6,441m, representing a drop of 18.1% compared with 2010.
 
Net interest income recorded a year-on-year decline. Intense market competition levied pressure on RBWM's deposit income, while unsecured lending and insurance were able to achieve moderate growth in their respective net interest income. Intense market competition and the resulting high cost of funds hit deposit income. To grow the bank's deposit base, increased interest rates were offered to customers. As a result, net interest income from deposits dropped by 15.8% compared with the same period in 2010.
 
The bank switched its focus from HIBOR-based lending to Prime-based loans in early 2011 in its mortgage business. The bank's mortgage market share dropped initially, but as many competitors followed suit and rationalised their mortgage pricing, our market share in terms of new registrations rebounded to reach 18.7% in December 2011. Net interest income from our Hong Kong mortgage business improved in the second half of the year over the first half.
 
With a quality credit card customer base, total operating income from unsecured lending remained a key income driver and grew by 10.9% year-on-year. The bank grew its market share in terms of card base and remained the second and third largest issuer of VISA and MasterCard cards respectively. As of 31 December 2011, total cards in issue reached 2.23 million and over 342,000 new cards were acquired during the year. The Hang Seng Hong Kong dollar China UnionPay ('CUP') credit card continued to generate strong interest, with the number of cards issued more than doubling since the end of 2010. Effective marketing efforts continued to boost card usage with card spending and card receivables growing by 16.1% and 17.6% year-on-year respectively. Personal loan balances were up by 15.2% year-on-year to HK$5.3bn.
 
Income from investments declined by 10.6% year-on-year as the investment business experienced volatile markets in 2011. Investment fund subscriptions deteriorated in the second half due to the economic uncertainties around the globe. As a result, the income from both retail investment funds and securities broking declined compared with the previous year.
 
The diversification strategy of offering new life insurance plans with improved protection propositions proved to be effective in driving sales momentum later in the year. Annualised new premiums grew by 12.1% compared with 2010 while total policies in force also grew steadily. However, net insurance premium income fell by 2.2% compared to 2010. Income from non-linked insurance business fell as unfavourable market conditions led to lower investment returns. Insurance income was also affected by the decline in the present value of in-force long-term insurance business, representing the net effect of the unfavourable experience variance of the investment return assumption, offset by a refinement of the calculation of the PVIF asset to bring greater comparability and consistency across the group's insurance operation and higher sales in 2011 compared with 2010.
 
Service quality was never compromised and Hang Seng Bank continued to receive recognition in the banking industry. The bank was named 'Best Local Private Bank in Hong Kong' in the Euromoney Private Banking Survey 2011 based on the assessment of business performance and peer nominations. Asiamoney also named Hang Seng Bank the 'Best Domestic Bank in Hong Kong' again in 2011.
 
Commercial Banking ('CMB') achieved a 34.2% increase in profit before tax to HK$5,031m, contributing to more than a quarter of the bank's total. Operating profit excluding loan impairment charges was up 28.9% to HK$3,442m. 
 
Against a backdrop of buoyant consumer demand, CMB achieved encouraging growth driven mainly by net interest income from advances and non-interest income. With a strong asset base and strategic re-pricing, net interest income from advances increased by 36.0%, whereas non-interest income grew by 13.0%. Amidst intense competition, healthy growth was achieved in customer deposits of 5.1% compared with 31 December 2010.
 
Various initiatives to grow fee income achieved satisfactory results, notably from loan-related fees and remittances. CMB also provided timely and competitive corporate wealth management products for its customers, focusing particularly on those in the top-end segment. A wide range of products including corporate investment, insurance and treasury products were marketed to customers through different platforms to capture the shift in investment sentiment as well as to meet customers' expectations on yield enhancement or hedging needs. Income from the corporate wealth management business increased by 14.9% and contributed to 13.3% of CMB's net operating income.
 
To assist commercial customers in growing their cross-border business and to establish a dynamic customer referral channel, CMB closely collaborated with Hang Seng China and strategic partners on the Mainland. This collaboration has enhanced the bank's cross-border service proposition and has proven to be a valuable source of referral business.
 
At 31 December 2011, the number of commercial renminbi accounts in Hong Kong exceeded 70,000 and the renminbi cross-border trade-related business routed through the bank had increased. As Hong Kong develops into an important renminbi offshore centre, the bank will capitalise on its growth capabilities by further enhancing renminbi services, especially through the provision of customised renminbi trade solutions and wealth management services as well as capturing the potential of renminbilending in Hong Kong.
 
Cash management capabilities were further enhanced to offer speedy China remittance services to customers. The Express China remittance service was enhanced to provide 'within 3 hours credit' for remittances to beneficiary accounts of Hang Seng China. Hang Seng was one of the pioneer banks to offer a renminbi bill payment service providing a one-stop solution to merchants for collecting renminbi payments from their customers via the bank's automated channels.
 
Seven Business Banking Centres located in areas of high commercial traffic are in operation, enhancing the network and providing high quality and convenient services to customers and referral partners. Those centres facilitated account acquisition and Commercial Banking customer numbers increased by 13.4% over 2010.
 
There were also continuous efforts to encourage customers to use online and automated banking channels. The activation of online investment accounts and e-Statement services were launched on the Business e-Banking platform in July 2011. An online renminbi exchange service was launched in August 2011. As a result, the number of customers using Business e-Banking services increased by 16.2% while the number of online business transactions grew by 13.8%.
 
With prudent risk management, a high quality asset portfolio was maintained and loan impairment allowances against CMB's total portfolio remained at a low level of 0.77%.
 
Corporate Banking ('CIB') achieved a 45.6% growth in profit before tax to HK$1,843m compared with 2010. Operating profit excluding loan impairment charges was HK$1,794m, up 41.9%. The strong profit growth was mainly attributable to a rise in net interest income and non-interest income which increased by 38.8% and 14.3% respectively.
 
CIB encountered a challenging operating environment in 2011. On the Mainland, market liquidity tightened significantly following a series of increases in interest rates and the required deposit reserve ratio. Strong loan demand prompted an increasing number of mainland enterprises to come to Hong Kong for bank financing. To meet the loan demand, competition for customer deposits intensified and hence raised funding costs.
 
Against a backdrop of tightening market liquidity, CIB leveraged its strong industry knowledge, effective risk management as well as dedicated business teams in Hong Kong and on the Mainland to achieve strong financial results through selective growth in customer advances, which increased by 10.2% compared with the end of 2010. By offering total cash management solutions to customers and capitalising on an efficient cross-border relationship management system, CIB's customer deposits grew by 29.0% amid intense competition.
 
The return on renminbi deposits and lending also showed positive growth as we took advantage of the increase in cross-border loan demand and the relaxation of foreign direct investment restrictions.
 
Leveraging its well-established business infrastructure, CIB also stepped up efforts to grow non-interest income, offering a wide spectrum of services encompassing treasury, hedging, trade services, cash management, wealth management and insurance.
 
Treasury ('TRY') recorded a 25.8% increase in profit before tax to HK$4,227m, while operating profit increased by 23.7% to HK$2,729m. The growth was mainly driven by increases in net interest income and TRY's share of profits from associates. 
 
In spite of persistently low interest rates, net interest income surged by 50.2% to reach HK$2,108m. The increase was attributed to a number of factors including more commercial surplus for investment as the bank's balance sheet grew, more positioning taken in balance sheet management and more opportunities and better margins for inter-bank lending in both Hong Kong and mainland China. Leveraging opportunities in foreign exchange markets for funding swap activities also contributed to the increase though this was partly offset by the loss on foreign exchange arising from funding swap activities grouped under trading income. 
 
Trading income fell by HK$161m, or 13.9%, to HK$1,001m. Foreign exchange trading income recorded encouraging growth, boosted in part by rising demand for renminbi-denominated products following further liberalisation of renminbi business in Hong Kong. However, overall trading income was impacted by the decline in income from funding swap activities.
 
Mainland business
With the opening of the third cross-city sub-branch in Huizhou under CEPA VI in August 2011, Hang Seng China currently operates a network of 11 branches and 28 sub-branches, covering 14 cities in mainland China. The bank maintains a wholesale branch in Shenzhen for foreign currency business. Applications to establish a new branch in Xiamen, a sub-branch each in Beijing and Tianjin, and a cross-city sub-branch each in Guangdong's Shunde, Zhuhai and Jiangmen respectively have been approved. The establishment of the new outlets will further strengthen Hang Seng's strategic presence in focused areas on the Mainland.
 
Since late 2010, inflationary pressure became the government's major concern and a series of tightening measures was adopted in the first half of 2011. This was followed by transitions in macro-economic policies from credit tightening to selective monetary easing after the consumer price index ('CPI') peaked and worries over international economic conditions that weakened domestic growth surfaced in the latter half of 2011. In the banking sector, competition for deposits remained intense among all banks and costs to attract and retain talent with local experience stayed high.
 
Against such a challenging and highly competitive environment, Hang Seng China continued to target corporate customers with renminbi cross-border trade-related business needs and align credit policies with China's 12th Five-Year Plan. On the retail front, Hang Seng China's leading position in the wealth management business was boosted with the launch of the VIP Prestige Centre in Shanghai to provide tailor-made services for high net worth individuals. 
 
Hang Seng China's strategy has been to grow in both scale and value and this has delivered encouraging results. In 2011, the total number of Corporate and Commercial Banking customers increased by 8.3% while the total number of Retail Banking and Wealth Management customers grew by 21.1% (the number of Prestige Banking customers increased by 25.6%) over December 2010.
 
Driven by the expanded customer base, gross advances to customers rose by 23.0% whereas total deposits increased by 34.1% over the end of 2010. Total operating income was 45.7% higher than 2010, underpinned by strong growth in net interest income and other operating income. Profit before tax recorded an increase of 821.8% compared with 2010.
 
 
 
2011 compared with 2010
  
   
As reported
    
Constant currencyW
  
             
Total operating income
  
45.7
%
  
38.8
%
Profit before tax
  
821.8
%
  
778.2
%
Gross advances to customers
  
23.0
%
  
17.6
%
Customer deposits
  
34.1
%
  
28.3
%
             
 
The partnership with Industrial Bank continued to support the bank's long-term growth on the Mainland. In March 2011, the bank signed a memorandum of understanding with Industrial Bank to further strengthen bilateral cooperation in various business areas. Moreover, more branch-level cooperation initiatives have been launched between Hang Seng and Industrial Bank.
 
In October 2011, Hang Seng Securities Limited ('Hang Seng Securities'), a wholly owned subsidiary of the bank, signed a memorandum of understanding with Guangzhou Securities Company Limited ('Guangzhou Securities') to take an important step in their application to set up Guangzhou GuangZheng Hang Seng Securities Investment Advisory Company Limited. This is the first ever application to set up a joint venture securities investment advisory company in Guangdong province under CEPA VI. Subject to regulatory approval for its establishment, the joint venture aims to become a showcase for cross-border securities investment advisory co-operation under CEPA by combining the strengths of both partners, paving the way for Hang Seng to expand its business on the Mainland.
 
 
WWhen reference is made to 'constant currency' in commentaries, comparative data reported in the functional currency of Hang Seng's operations on the Mainland have been translated at the appropriate exchange rates applied in the current year in respect of the income statement or balance sheet. Constant currency comparatives in respect of 2010 and 2009 used in the 2011 and 2010 commentaries respectively are computed by translating into HK Dollars:
- the income statement for 2010 and 2009 of renminbi at the average rates of exchange for
  2011 and 2010 respectively; and
- the balance sheet at 31 December 2010 and 2009 for renminbi at the prevailing rates of
  exchange on 31 December 2011 and 2010 respectively.
 
 
 
Consolidated Income Statement
 
 
 
                                    Year ended 31 December
  
Figures in HK$m
  
2011
    
2010
  
             
             
Interest income
  
19,845
    
16,507
  
Interest expense
  
(4,109
)
  
(2,207
)
Net interest income
  
15,736
    
14,300
  
Fee income
  
5,923
    
5,895
  
Fee expense
  
(1,087
)
  
(998
)
Net fee income
  
4,836
    
4,897
  
Trading income
  
1,796
    
2,059
  
Net (loss)/income from financial instruments
            
  designated at fair value
  
(160
)
  
282
  
Dividend income
  
17
    
14
  
Net earned insurance premiums
  
11,061
    
11,307
  
Other operating income
  
921
    
1,558
  
Total operating income
  
34,207
    
34,417
  
Net insurance claims incurred and
            
  movement in policyholders' liabilities
  
(11,610
)
  
(12,587
)
Net operating income before loan impairment
            
  charges
  
22,597
    
21,830
  
Loan impairment charges
  
(440
)
  
(390
)
Net operating income
  
22,157
    
21,440
  
Employee compensation and benefits
  
(3,888
)
  
(3,717
)
General and administrative expenses
  
(3,191
)
  
(2,917
)
Depreciation of premises, plant and equipment
  
(700
)
  
(619
)
Amortisation of intangible assets
  
(119
)
  
(102
)
Operating expenses
  
(7,898
)
  
(7,355
)
Impairment loss on intangible assets
  
(78
)
  
__
  
Operating profit
  
14,181
    
14,085
  
Gains less losses from financial investments and fixed assets
  
50
    
112
  
Net surplus on property revaluation
  
992
    
487
  
Share of profits from associates 
  
3,990
    
2,661
  
Profit before tax
  
19,213
    
17,345
  
Tax expense
  
(2,533
)
  
(2,428
)
Profit for the year
  
16,680
    
14,917
  
             
             
Profit attributable to shareholders
  
16,680
    
14,917
  
             
             
Earnings per share (in HK$)
  
8.72
    
7.80
  
             
Details of dividends payable to shareholders of the bank attributable to the profit for the year are set out
  
on page 38.
 
  
 
 
The HSBC Group reports interest income and interest expense arising from financial assets and financial liabilities held for trading as 'Net trading income' and arising from financial instruments designated at fair value through profit and loss as 'Net income from financial instruments designated at fair value' (other than for debt securities in issue and subordinated liabilities, together with derivatives managed in conjunction with them).
 
The table below presents the interest income and interest expense of Hang Seng, as included within the HSBC Group accounts:
 
 
Figures in HK$m
  
2011
    
2010
  
             
Interest income
  
19,535
    
16,228
  
Interest expense
  
(3,010
)
  
(1,772
)
Net interest income
  
16,525
    
14,456
  
Net interest income and expense reported as 'Net trading income'
  
(848
)
  
(238
)
Net interest income and expense reported as 'Net income from
            
   financial instruments designated at fair value'
  
59
    
82
  
 
 
Consolidated Statement of Comprehensive Income
 
       
                                                           Year ended 31 December
  
Figures in HK$m
      
2011
    
2010
  
                 
Profit for the year
      
                 16,680
    
14,917
  
                 
Other comprehensive income
                
Premises:
                
- unrealised surplus on revaluation of premises
      
3,729
    
2,102
  
- deferred taxes
      
(610
)
  
(343
)
Available-for-sale investment reserve:
                
- fair value changes taken to equity:
                
  -- on debt securities
      
255
    
774
  
  -- on equity shares
      
8
    
(5
)
- fair value changes transferred to income statement:
                
  -- on hedged items
      
(538
)
  
(272
)
  -- on disposal
      
(53
)
  
(105
)
- share of changes in equity of associates:
                
  -- fair value changes
      
(646
)
  
120
  
- deferred taxes
      
221
    
(53
)
Cash flow hedging reserve:
                
- fair value changes taken to equity
      
119
    
291
  
- fair value changes transferred to income statement
      
(197
)
  
(414
)
- deferred taxes
      
13
    
21
  
Defined benefit plans:
                
- actuarial (losses)/gains on defined benefit plans
      
(1,600
)
  
11
  
- deferred taxes
      
264
    
(2
)
Exchange differences on translation of:
                
- financial statements of overseas
                
  branches, subsidiaries and associates
      
971
    
687
  
Others
      
8
    
13
  
Other comprehensive income for the year, net of tax
      
1,944
    
2,825
  
Total comprehensive income for the year
      
18,624
    
17,742
  
                 
                 
Total comprehensive income for the year attributable
                
  to shareholders
      
18,624
    
17,742
  
                 
 
 
Consolidated Balance Sheet
 
 
 
At 31 December
  
At 31 December
  
Figures in HK$m
  
2011
    
2010
  
             
ASSETS
            
Cash and balances with banks and
            
  other financial institutions
  
39,533
    
44,411
  
Placings with and advances to banks and
            
  other financial institutions
  
107,742
    
110,564
  
Trading assets
  
64,171
    
26,055
  
Financial assets designated at fair value
  
8,096
    
7,114
  
Derivative financial instruments
  
4,710
    
5,593
  
Advances to customers
  
480,574
    
472,637
  
Financial investments
  
209,190
    
199,359
  
Interests in associates
  
19,407
    
15,666
  
Investment properties
  
4,314
    
3,251
  
Premises, plant and equipment
  
17,983
    
14,561
  
Intangible assets
  
5,962
    
5,394
  
Other assets
  
13,763
    
12,306
  
Total assets
  
975,445
    
916,911
  
             
LIABILITIES AND EQUITY
            
             
Liabilities
            
Current, savings and other deposit accounts
  
699,857
    
683,628
  
Deposits from banks
  
14,004
    
15,586
  
Trading liabilities
  
59,712
    
42,581
  
Financial liabilities designated at fair value
  
434
    
457
  
Derivative financial instruments
  
4,848
    
4,683
  
Certificates of deposit and other
            
  debt securities in issue
  
9,284
    
3,095
  
Other liabilities
  
20,138
    
17,018
  
Liabilities to customers under insurance contracts
  
72,225
    
64,425
  
Current tax liabilities
  
305
    
344
  
Deferred tax liabilities
  
4,037
    
3,234
  
Subordinated liabilities
  
11,846
    
11,848
  
Total liabilities
  
896,690
    
846,899
  
             
Equity
            
Share capital
  
9,559
    
9,559
  
Retained profits
  
48,640
    
42,966
  
Other reserves
  
16,923
    
13,854
  
Proposed dividends
  
3,633
    
3,633
  
Shareholders' funds
  
78,755
    
70,012
  
Total equity and liabilities
  
975,445
    
916,911
  
             
 
 
Consolidated Statement of Changes in Equity
 
 
       
                              Year ended 31 December
  
       
 2011
  
 2010  
 
Figures in HK$m
              
               
Share capital
              
  At beginning and end of year
      
9,559  
 
9,559  
 
               
Retained profits (including
  proposed dividends)
              
  At beginning of year
      
46,599  
 
41,385  
 
  Dividends to shareholders
              
  - dividends approved in respect of the 
    previous year
      
(3,633  
)
(3,633  
)
  - dividends declared in respect of the 
    current year
      
(6,309  
)
(6,309  
)
  Transfer
      
264  
 
218  
 
  Total comprehensive income
    for the year
      
15,352  
 
14,938  
 
       
52,273  
 
46,599  
 
               
Other reserves
              
Premises revaluation reserve
              
  At beginning of year
      
9,426  
 
7,885  
 
  Transfer
      
(268  
)
(218  
)
  Total comprehensive income
    for the year
      
3,122  
 
1,759  
 
       
12,280  
 
9,426  
 
               
Available-for-sale investment reserve
              
  At beginning of year
      
202  
 
(257  
)
  Transfer
      
(5  
)
__  
 
  Total comprehensive income
    for the year
      
(758  
)
459  
 
       
(561
)
202  
 
               
Cash flow hedging reserve
              
  At beginning of year
      
72  
 
174  
 
  Total comprehensive income
    for the year
      
(66  
)
(102  
)
       
6  
 
72  
 
               
Foreign exchange reserve
              
  At beginning of year
      
2,069  
 
1,382  
 
  Total comprehensive income
  for the year
      
974  
 
687  
 
       
3,043  
 
2,069  
 
               
Other reserve
              
 At beginning of year
      
2,085  
 
2,020  
 
Cost of share-based payment
  arrangements
      
61  
 
64  
 
  Transfer
      
9  
 
__  
 
  Total comprehensive income
  for the year
      
__  
 
 1
  
       
2,155  
 
2,085  
 
 
 
 
       
                                    Year ended 31 December
  
       
2011
  
2010  
 
Figures in HK$m
              
               
Total equity
              
  At beginning of year
      
70,012  
 
62,148  
 
  Dividends to shareholders
      
(9,942  
)
(9,942  
)
  Cost of share-based payment 
    arrangements
      
61  
 
64  
 
  Total comprehensive income
    for the year
      
18,624  
 
17,742  
 
       
78,755  
 
70,012  
 
 
 
Consolidated Cash Flow Statement
 
 
 
                                      Year ended 31 December
    
Figures in HK$m
  
2011
      
2010
      
                   
Net cash outflow from operating activities
  
(19,577
)
    
(30,098
)
    
                   
Cash flows from investing activities
                  
                   
Dividends received from associates
  
488
      
424
      
Purchase of an interest in an associate
  
__
      
(2,626
)
    
Purchase of available-for-sale investments
  
(44,199
)
    
(27,401
)
    
Purchase of held-to-maturity debt securities
  
(1,009
)
    
(1,113
)
    
Proceeds from sale or redemption of
                  
  available-for-sale investments
  
66,367
      
43,356
      
Proceeds from redemption of
                  
  held-to-maturity debt securities
  
530
      
260
      
Proceeds from sale of loan portfolio
  
5,643
      
__
      
Purchase of fixed assets and intangible assets
  
(422
)
    
(915
)
    
Proceeds from sale of fixed assets and assets held for sale
  
__
      
19
      
Interest received from available-for-sale investments
  
2,038
      
1,632
      
Dividends received from available-for-sale investments
  
14
      
12
      
Net cash inflow from investing activities
  
29,450
      
13,648
      
                   
Cash flows from financing activities
                  
                   
Dividends paid
  
(9,942
)
    
(9,942
)
    
Interest paid for subordinated liabilities
  
(197
)
    
(63
)
    
Issue of subordinated liabilities
  
3,496
      
6,025
      
Repayment of subordinated liabilities
  
(3,502
)
    
(4,516
)
    
Net cash outflow from financing activities
  
(10,145
)
    
(8,496
)
    
                   
Decrease in cash and cash equivalents
  
(272
)
    
(24,946
)
    
                   
Cash and cash equivalents at 1 January
  
118,560
      
136,759
      
Effect of foreign exchange rate changes
  
2,181
      
6,747
      
Cash and cash equivalents at 31 December
  
120,469
      
118,560
      
                   
                     
 
 
 
Financial Review
 
Net interest income
 
 
Figures in HK$m
  
2011
    
2010
  
             
Net interest income/(expense) arising from:
            
- financial assets and liabilities that are not at fair value
            
  through profit and loss
  
16,525
    
14,459
  
- trading assets and liabilities  
  
(848
)
  
(238
)
- financial instruments designated at fair value
  
59
    
79
  
   
15,736
    
14,300
  
             
Average interest-earning assets
  
886,156
    
802,464
  
             
Net interest spread
  
1.68
%
  
1.72
%
Net interest margin
  
1.78
%
  
1.78
%
 
Net interest income rose by HK$1,436m, or 10.0%, with a 10.4% increase in average interest-earning assets. The increase in net interest income was primarily due to the growth in average customer advances with strong loan growth from the latter part of 2010, improved balance sheet management income and loan spreads. This was partly offset by the narrowed deposit spreads under keen market competition on deposit acquisition and the persistently low interest rate environment.  
 
Net interest margin remained intact at 1.78% for 2011, and net interest spread fell by four basis points to 1.68%. The reduction in net interest spread was driven by the combination of the low interest rate environment and narrowing deposit spreads, resulting from keen market competition. There was an improvement in balance sheet management portfolio income as Treasury grasped opportunities in the interbank market and successfully enhanced the portfolio yield on new and existing assets with a larger commercial surplus for investment. The average volume growth in corporate and commercial lending and credit cards also helped to support net interest income revenue streams. The group also grew its life insurance funds investment portfolio and increased its interest income by 10.0% compared with last year. Despite the growth in renminbi business, the dilutive effect of the increase in lower yielding renminbi funds placed with the local clearing bank adversely affected the net interest spread. The contribution from net free funds grew by four basis points to 0.10%.
 
Net interest income in the second half of 2011 grew by HK$462m, or 6.0%, compared with the first half, due mainly to fewer days in the first half of the year and a 1.7% increase in average interest-earning assets. Net interest margin in the second half was 1.80%, up five basis points compared with the first half.
 
The HSBC Group reports interest income and interest expense arising from financial assets and financial liabilities held for trading as 'Net trading income'. Income arising from financial instruments designated at fair value through profit and loss is reported as 'Net income from financial instruments designated at fair value' (other than for debt securities in issue and subordinated liabilities, together with derivatives managed in conjunction with them).
 
The table below presents the net interest income of Hang Seng, as included within the HSBC Group accounts:
 
 
Figures in HK$m
  
2011
    
2010
  
             
Net interest income
  
16,525
    
14,456
  
Average interest-earning assets
  
840,064
    
756,110
  
             
Net interest spread
  
1.89
%
  
1.86
%
Net interest margin
  
1.97
%
  
1.91
%

 
Net fee income
 
 
Figures in HK$m
  
2011
      
2010
  
               
- Stockbroking and related services
  
1,285
      
1,468
  
- Retail investment funds
  
905
      
1,039
  
- Structured investment products
  
13
      
19
  
- Insurance agency
  
242
      
256
  
- Account services
  
371
      
349
  
- Private banking service fee
  
129
      
160
  
- Remittances
  
273
      
259
  
- Cards
  
1,676
      
1,462
  
- Credit facilities
  
253
      
195
  
- Trade services
  
461
      
452
  
- Other
  
315
      
236
  
Fee income
  
5,923
      
5,895
  
Fee expense
  
(1,087
)
    
(998
)
   
4,836
      
4,897
  
               
 
Net fee income decreased slightly by HK$61m, or 1.2%, to HK$4,836m compared with 2010.
 
With the weak investment sentiment in Hong Kong in the second half of the year, income from stockbroking and related services decreased by 12.5%, reflecting the decline in stock market trading turnover. Income from retail investment funds fell by 12.9%, as the demand for wealth management products decreased in the second half. The increasingly uncertain and volatile equities market and an unfavourable investment sentiment led to a decline in retail investment funds sales. As a result, subscription fees and commissions decreased. Insurance agency fee income and private banking service fee income fell by 5.5% and 19.4% respectively.
 
Card services income increased by 14.6%, which was in line with the growth in average credit card balances. The 9.8% growth in the card base resulted in rising merchant and interchange fee income. Credit facilities fee income rose by 29.7%, due mainly to higher fees from increased corporate lending.
 
On the back of increased trade activity and the expansion of renminbi cross-border trade settlement volumes, remittances and trade-related fee income grew by 5.4% and 2.0% respectively.    
 
Compared with the first half of 2011, net fee income in the second half fell by HK$236m, or 9.3%, mainly reflecting decreases in income from stockbroking and related services, the sales of retail investment funds and private banking services. Fee income from credit facilities and card services registered growth in the second half of the year.
 
 
Trading income
 
 
Figures in HK$m
  
2011
    
2010
  
             
Trading income:
            
- foreign exchange
  
1,843
    
1,768
  
- securities, derivatives and other trading activities
  
(47
)
  
291
  
   
1,796
    
2,059
  
 
Trading income fell by HK$263m, or 12.8%, to HK$1,796m. Foreign exchange income rose by HK$75m, or 4.2%, contributed by higher customer demand for foreign exchange-linked structured products and the bank's efforts to meet the growing demand for renminbi-denominated products. The bank was also successful in capturing higher customer driven activity and achieving wider spreads as volatility increased. This was offset partly by reduced net interest income from funding swapW activities and increased losses on the revaluation of certain US dollar capital funds - maintained in Hang Seng China and subject to regulatory controls - against the renminbi. Excluding the above offsetting items, foreign exchange trading income grew by HK$285m, or 17.8%.  
 
Income from securities, derivatives and other trading activities fell by HK$338m. This was primarily related to the losses on equity options backing a life endowment product due to unfavourable movements in the underlying equity indices, which resulted in a corresponding decrease in 'Net insurance claims incurred and movement in policyholder liabilities'.
 
 
 
 
 
 
WTreasury from time to time employs foreign exchange swaps for its funding activities, which in essence involve swapping a currency ('original currency') into another currency ('swap currency') at the spot exchange rate for short-term placement and simultaneously entering into a forward exchange contract to convert the funds back to the original currency on maturity of the placement. In accordance with HKAS 39, the exchange difference of the spot and forward contracts is required to be recognised as a foreign exchange gain/loss, while the corresponding interest differential between the original and swap funding is reflected in net interest income.
 
 
 
Net (loss)/income from financial instruments designated at fair value
 
 
Figures in HK$m
  
2011
    
2010
  
             
Net (loss)/income on assets designated at fair value
            
  which back insurance and investment contracts
  
(160
)
  
297
  
             
Net change in fair value of other financial instruments
            
  designated at fair value
  
__
    
(15
)
   
(160
)
  
282
  
 
Net income from financial instruments designated at fair value reported a revaluation loss of HK$160m, compared with a revaluation gain of HK$282m in 2010, reflecting the fair value changes of assets supporting the linked insurance contracts with offsetting movements in the value of those contracts reported under 'net insurance claims incurred and movement in policyholders' liabilities'.
 
 
Other operating income
 
 
Figures in HK$m
  
2011
    
2010
  
             
Rental income from investment properties
  
174
    
155
  
Movement in present value of in-force long-term 
            
  insurance business
  
595
    
1,126
  
Other
  
152
    
277
  
   
921
    
1,558
  
 
 
Other operating income fell by HK$637m, or 40.9%, to HK$921m compared with 2010. The movement in present value of in-force long-term insurance business ('PVIF') decreased by 47.2%, representing the net effect of the unfavourable experience variance of the investment return assumption, offset by a refinement of the calculation of the PVIF asset to bring greater comparability and consistency across the group's insurance operations and higher sales in 2011 compared with 2010.
 
 
Analysis of income from wealth management business
 
 
Figures in HK$m
  
2011
      
2010
  
               
Investment income:
              
- retail investment funds 
  
905
      
1,039
  
- structured investment productsW
  
661
      
448
  
- private banking service feeWW
  
172
      
196
  
- stockbroking and related services
  
1,285
      
1,468
  
- margin trading and others
  
134
      
129
  
   
3,157
      
3,280
  
Insurance income:
              
- life insurance
  
2,018
      
2,282
  
- general insurance and others
  
364
      
342
  
   
2,382
      
2,624
  
Total
  
5,539
      
5,904
  
 
W  Income from structured investment products includes income reported under net fee income on the sales of third-party structured investment products. It also includes profit generated from the selling of structured investment products in issue, reported under trading income.
 
WW  Income from private banking includes income reported under net fee income on investment services and profit generated from selling of structured investment products in issue, reported under trading income.
 
Eurozone sovereign debt concerns affected the stock market in general and weakened investment sentiment in the second half of 2011. Against this backdrop, wealth management business income decreased by 6.2% compared with 2010. Investment and insurance income fell by 3.8% and 9.2% respectively.  
 
The volatility in the stock market and unfavourable investment sentiment led to a 12.9% decline in income from sales of retail investment funds. Stockbroking and related services income fell by 12.5% as a result of lower stock market turnover recorded by the bank.
 
The bank continued to make good progress in distributing competitive structured products to customers, primarily related to renminbi-denominated products, and recorded a 47.5% growth in structured investment products income. Private banking service income fell by 12.2%, reflecting weaker investment sentiment.
 
Life insurance income decreased by HK$264m, or 11.6%, to HK$2,018m. Hang Seng continued to launch new products catering for customers' investment and protection needs. This included the launch of the 'RewardYou Life Insurance Plan' and '3-Year Target Life Insurance Plan' which were well received. Total policies in-force at 31 December 2011 rose by 8.5% year-on-year.
 
Net interest income and fee income from the life insurance funds investment portfolio rose by 8.1%, due mainly to growth in the size of the life insurance investment portfolio, which held bond investments as its major assets.
 
The investment return on life insurance investment funds reported a loss of HK$361m, compared with a gain of HK$287m in 2010, reflecting changes in the fair value of assets supporting insurance contracts and reported under 'trading income' and 'net income/(loss) from financial instruments designated at fair value', with offsetting movements in policyholders' liabilities. The movement in PVIF decreased by 47.2%, representing the net effect of the unfavourable experience variance of the investment return assumption, offset by a refinement of the calculation of the PVIF asset to bring greater comparability and consistency across the group's insurance operations and higher sales in 2011 compared with last year. 
 
General insurance income increased by 6.4% to HK$364m.
 
 
 
             
Figures in HK$m
  
2011
      
2010
    
                 
Life insurance:
                
- net interest income and fee income
  
2,576
      
2,382
    
- investment returns on life insurance
                
  funds
  
(361
)
    
287
    
- net earned insurance premiums
  
10,723
      
10,966
    
- net insurance claims incurred and movement
                
  in policyholders' liabilitiesW
  
(11,515
)
    
(12,479
)
  
- movement in present value of in-force
                
  long-term insurance business
  
595
      
1,126
    
   
2,018
      
2,282
    
General insurance and others
  
364
      
342
    
Total
  
2,382
      
2,624
    
 
W Including premium and investment reserves
 
 
Loan impairment charges
 
 
Figures in HK$m
  
2011
    
2010
  
             
Loan impairment charges:
            
- individually assessed
  
(103
)
  
(186
)
- collectively assessed
  
(337
)
  
(204
)
   
(440
)
  
(390
)
Of which:
            
- new and additional
  
(740
)
  
(609
)
- releases
  
222
    
157
  
- recoveries
  
78
    
62
  
   
(440
)
  
(390
)
 
Loan impairment charges increased by HK$50m, or 12.8%, to HK$440m compared with a year earlier. 
 
Individually assessed impairment charges fell by HK$83m, or 44.6%, mainly due to higher releases and recoveries from commercial and corporate banking customers which offset the increase in new impairment. The increase in new impairment charges was primarily due to a specific impairment charge provided in 2011.
 
Collectively assessed impairment charges rose by HK$133m, due largely to the rise in impairment allowances for loans not individually identified as impaired. Impairment allowances for credit card and personal loans portfolios were also higher as a result of portfolio growth.
 
 
Operating expenses
 
 
Figures in HK$m
  
2011
    
2010
  
           
Employee compensation and benefits:
            
- salaries and other costs
  
3,566
    
3,448
  
- retirement benefit costs
  
322
    
269
  
   
3,888
    
3,717
  
General and administrative expenses:
            
- rental expenses
  
497
    
464
  
- other premises and equipment
  
959
    
902
  
- marketing and advertising expenses
  
559
    
470
  
- other operating expenses
  
1,176
    
1,081
  
   
3,191
    
2,917
  
Depreciation of business premises
            
  and equipment
  
700
    
619
  
Amortisation of intangible assets
  
119
    
102
  
   
7,898
    
7,355
  
             
Cost efficiency ratio
  
35.0
%
  
33.7
%
             
Full time equivalent staff numbers by region
  
2011
    
2010
  
             
Hong Kong
  
7,993
    
7,960
  
Mainland
  
1,784
    
1,623
  
Others
  
57
    
59
  
Total
  
9,834
    
9,642
  
             
 
Operating expenses rose by HK$543m, or 7.4%, compared with 2010. While carefully managing costs, the bank continued to make investments in support of long-term business growth. Operating expenses of our Hong Kong operations rose by 5.2%.
 
Employee compensation and benefits increased by HK$171m, or 4.6%. Salaries and other related costs increased by 3.4%, reflecting the annual salary increment and higher average headcount. General and administrative expenses were up 9.4%, mainly due to the increase in processing charges and marketing expenditure as more branding and promotional activities were conducted during the year to support business growth. Rental expenses rose as a result of increased rents for branches in Hong Kong and new branches on the Mainland. Depreciation charges rose by 13.1%, mainly reflecting higher depreciation charges on business premises following upward property revaluation in Hong Kong.
 
At 31 December 2011, the group's staff numbers had increased by 192 compared with the end of 2010.
 
With the increase in operating expenses outpacing the growth in net operating income before impairment charges, the cost efficiency ratio rose by 1.3 percentage points, compared with 2010, to 35.0%. The bank continues to focus on improving operational efficiency while maintaining growth momentum and market leadership.
 
 
Gains less losses from financial investments and fixed assets
 
 
Figures in HK$m
  
2011
    
2010
  
             
Net gains from disposal of
            
  available-for-sale equity securities
  
42
    
10
  
Net gains from disposal of
            
  available-for-sale debt securities
  
11
    
95
  
             
Gains on disposal of assets held for sale
  
__
    
12
  
Losses on disposal of fixed assets
  
(3
)
  
(5
)
   
50
    
112
  
             
 
Gains less losses from financial investments and fixed assets fell by HK$62m, or 55.4%, compared with last year. Net gains from the disposal of available-for-sale equity securities rose by HK$32m while net gains from the disposal of available-for-sale debt securities fell by HK$84m compared with 2010.
 
 
Tax expense
 
Taxation in the consolidated income statement represents:
 
 
Figures in HK$m
  
2011
    
2010
  
           
Current tax - provision for Hong Kong profits tax
            
Tax for the year
  
1,942
    
1,967
  
Adjustment in respect of prior year
  
(14
)
  
(19
)
             
Current tax - taxation outside Hong Kong
            
Tax for the year
  
76
    
38
  
             
Deferred tax
            
Origination and reversal of temporary differences
  
529
    
442
  
             
Total tax expense
  
2,533
    
2,428
  
             
The current tax provision is based on the estimated assessable profit for 2011, and is determined for the bank and its subsidiaries operating in Hong Kong by using the Hong Kong profits tax rate of 16.5% (same as in 2010). For subsidiaries and branches operating in other jurisdictions, the appropriate tax rates prevailing in the relevant countries are used. Deferred tax is calculated at the tax rates that are expected to apply in the period when the liability is settled or the asset is realised.
 
 
Earnings per share
 
The calculation of earnings per share in 2011 is based on earnings of HK$16,680m (HK$14,917m in 2010) and on the weighted average number of ordinary shares in issue of 1,911,842,736 shares (unchanged from 2010).
 
 
Dividends per share
 
 
   
2011
    
2010
  
 
HK$
HK$m
  
HK$
HK$m
  
 
per share
    
per share
    
             
First interim
1.10
2,103
  
1.10
2,103
  
Second interim
1.10
2,103
  
1.10
2,103
  
Third interim
1.10
2,103
  
1.10
2,103
  
Fourth interim
1.90
3,633
  
1.90
3,633
  
 
5.20
9,942
  
5.20
9,942
  
 
 
Segmental analysis
 
The group's business comprises five customer groups. To be consistent with the way in which information is reported internally for the purposes of resource allocation and performance assessment, the group identified the following five reportable segments:
 
 
·    Retail Banking and Wealth Management provides banking (including deposits, credit cards, mortgages and other retail lending) and wealth management services (including private banking, investment and insurance) to personal customers
 
·    Commercial Banking manages middle market and smaller corporate relationships and specialises in trade-related financial services
 
·    Corporate Banking handles relationships with large corporate and institutional customers
 
·    Treasury engages in balance sheet management. Treasury also manages the funding and liquidity positions of the group and other market risk positions arising from banking activities
 
·    'Other' mainly represents management of shareholders' funds and investments in premises, investment properties and equity shares
 
(a) Segmental result
 
For the purpose of segmental analysis, the allocation of revenue reflects the benefits of capital and other funding resources allocated to the customer groups by way of internal capital allocation and fund transfer-pricing mechanisms. Cost allocation is based on the direct costs incurred by the respective customer groups and apportionment of management overheads. Rental charges at internal rates for usage of premises are reflected in other operating income for the 'Other' customer group and total operating expenses for the respective customer groups.
 
Profit before tax contributed by the customer groups in 2011 compared with 2010 is set out in the table below. More customer group analysis and discussion is set out in the 'Customer group performance' section on page 14.
 
 
 
Retail
                    
 
Banking
            
Total
  
 
and Wealth
Commercial
Corporate
        
reportable
  
Figures in HK$m
Management
  
Banking
  
Banking
  
Treasury
  
Other
segments
  
                         
Year ended 31 December 2011
                      
                             
 
 
Profit before tax
6,623
  
5,031
  
1,843
  
4,227
  
1,489
  
19,213
  
Share of profit before tax
34.5
%
26.2
%
9.6
%
22.0
%
7.7
%
100.0
%
 
 
Year ended 31 December 2010
                      
 
 
Profit before tax
7,872
  
3,748
  
1,266
  
3,361
  
1,098
  
17,345
  
Share of profit before tax
45.4
%
21.6
%
7.3
%
19.4
%
6.3
%
100.0
%
 
(b)        Geographic information
 
The geographical regions in this analysis are classified by the location of the principal operations of the subsidiary companies or, in the case of the bank itself, by the location of the branches responsible for reporting the results or advancing the funds.
 
 
Figures in HK$m
Hong Kong
Americas
  
Mainland and others
  
Total
  
                   
Year ended 31 December 2011
                  
                   
Income and expense
                  
Total operating income
  
31,106
  
1,339
  
1,762
  
34,207
  
Profit before tax
  
13,629
  
1,307
  
4,277
  
19,213
  
                   
At 31 December 2011
                  
                   
Total assets
  
789,988
  
58,506
  
126,951
  
975,445
  
Total liabilities
  
818,966
  
1,085
  
76,639
  
896,690
  
Interest in associates
  
1,198
  
__
  
18,209
  
19,407
  
Non-current assetsW
  
27,258
  
__
  
1,001
  
28,259
  
                   
Year ended 31 December 2010
              
                   
Income and expense
                  
Total operating income
  
32,124
  
1,047
  
1,246
  
34,417
  
Profit before tax
  
13,722
  
996
  
2,627
  
17,345
  
                   
At 31 December 2010
                  
                   
Total assets
  
752,206
  
68,216
  
96,489
  
916,911
  
Total liabilities
  
786,304
  
1,187
  
59,408
  
846,899
  
Interest in associates
  
989
  
__
  
14,677
  
15,666
  
Non-current assetsW
  
22,262
  
__
  
944
  
23,206
  
 
W Non-current assets consist of properties, plant and equipment, goodwill and other intangible assets.
 
 
Analysis of assets and liabilities by remaining maturity
 
The maturity analysis is based on the remaining contractual maturity at the balance sheet date, with the exception of the trading portfolio that may be sold before maturity and is accordingly recorded as 'Trading'.
 
 
       
One
                                
       
month
  
One
  
Three
  
One
                    
   
Repayable
  
or less
  
month
  
months
  
year
  
Over
      
No
        
   
on
  
but not on
  
to three
  
to
  
to five
  
five
      
contractual
        
Figures in HK$m
  
demand
  
demand
  
months
  
one year
  
 years
  
years
  
Trading
  
maturity
  
Total
    
                                         
Assets
                                        
Cash and balances with
                                        
  banks and other
                                        
  financial institutions
  
39,533
  
__
  
__
  
__
  
__
  
__
  
__
  
__
  
39,533
    
Placings with and
                                        
  advances to banks and
                                        
  other financial institutions
  
9,089
  
47,699
  
43,686
  
5,639
  
__
  
1,629
  
__
  
__
  
107,742
    
Trading assets
  
__
  
__
  
__
  
__
  
__
  
__
  
64,171
  
__
  
64,171
    
Financial assets designated
                                        
  at fair value
  
__
  
140
  
82
  
116
  
3,615
  
49
  
__
  
4,094
  
8,096
    
Derivative financial
                                        
  instruments
  
__
  
7
  
13
  
72
  
87
  
__
  
4,531
  
__
  
4,710
    
Advances to customers
  
11,131
  
39,239
  
43,024
  
89,609
  
164,318
  
133,253
  
__
  
__
  
480,574
    
Financial investments
  
__
  
11,608
  
20,731
  
70,955
  
69,246
  
35,516
  
__
  
1,134
  
209,190
    
Interest in associates
  
__
  
__
  
__
  
__
  
__
  
__
  
__
  
19,407
  
19,407
    
Investment properties
  
__
  
__
  
__
  
__
  
__
  
__
  
__
  
4,314
  
4,314
    
Premises, plant and
                                        
  equipment
  
__
  
__
  
__
  
__
  
__
  
__
  
__
  
17,983
  
17,983
    
Intangible assets
  
__
  
__
  
__
  
__
  
__
  
__
  
__
  
5,962
  
5,962
    
Other assets
  
5,185
  
3,231
  
3,234
  
1,616
  
124
  
19
  
__
  
354
  
13,763
    
At 31 December 2011
  
64,938
  
101,924
  
110,770
  
168,007
  
237,390
  
170,466
  
68,702
  
53,248
  
975,445
    
                                         
                                         
Liabilities
                                        
Current, savings and other
                                        
  deposit accounts
  
503,537
  
93,809
  
69,086
  
32,401
  
1,024
  
__
  
__
  
__
  
699,857
    
Deposits from banks
  
2,072
  
8,941
  
2,374
  
617
  
__
  
__
  
__
  
__
  
14,004
    
Trading liabilities
  
__
  
__
  
__
  
__
  
__
  
__
  
59,712
  
__
  
59,712
    
Financial liabilities
                                        
  designated at fair value
  
1
  
__
  
__
  
__
  
__
  
433
  
__
  
__
  
434
    
Derivative financial
                                        
  instruments
  
__
  
22
  
4
  
65
  
1,046
  
203
  
3,508
  
__
  
4,848
    
Certificates of deposit and
                                        
  other debt securities
                                        
  in issue
  
__
  
1,596
  
__
  
1,475
  
6,213
  
__
  
__
  
__
  
9,284
    
Other liabilities
  
6,629
  
4,205
  
3,343
  
1,817
  
64
  
19
  
__
  
4,061
  
20,138
    
Liabilities to customers
                                        
 under insurance contracts
  
__
  
__
  
__
  
__
  
__
  
__
  
__
  
72,225
  
72,225
    
Current tax liabilities
  
__
  
__
  
__
  
305
  
__
  
__
  
__
  
__
  
305
    
Deferred tax liabilities
  
__
  
__
  
__
  
__
  
__
  
__
  
__
  
4,037
  
4,037
    
Subordinated liabilities
  
__
  
__
  
__
  
2,328
  
__
  
9,518
  
__
  
__
  
11,846
    
At 31 December 2011
  
512,239
  
108,573
  
74,807
  
39,008
  
8,347
  
10,173
  
63,220
  
80,323
  
896,690
    
                                       
                                             
 
 
 
       
One
                                
       
month
  
One
  
Three
  
One
                    
   
Repayable
  
or less
  
month
  
months
  
year
  
Over
      
No
        
   
on
  
but not on
  
to three
  
to
  
to five
  
five
      
contractual
        
Figures in HK$m
  
demand
  
demand
  
months
  
one year
  
 years
  
years
  
Trading
  
maturity
  
Total
    
                                         
Assets
                                        
Cash and balances with
                                        
  banks and other
                                        
  financial institutions
  
44,411
  
__
  
__
  
__
  
__
  
__
  
__
  
__
  
44,411
    
Placings with and
                                        
  advances to banks and
                                        
  other financial institutions
  
4,730
  
51,706
  
48,475
  
5,185
  
__
  
468
  
__
  
__
  
110,564
    
Trading assets
  
__
  
__
  
__
  
__
  
__
  
__
  
26,055
  
__
  
26,055
    
Financial assets designated
                                        
  at fair value
  
__
  
50
  
7
  
384
  
3,951
  
48
  
__
  
2,674
  
7,114
    
Derivative financial
                                        
  instruments
  
__
  
20
  
74
  
113
  
288
  
16
  
5,082
  
__
  
5,593
    
Advances to customers
  
10,198
  
65,179
  
34,733
  
71,444
  
151,430
  
139,653
  
__
  
__
  
472,637
    
Financial investments
  
__
  
9,183
  
12,633
  
59,389
  
84,566
  
32,733
  
__
  
855
  
199,359
    
Interest in associates
  
__
  
__
  
__
  
__
  
__
  
__
  
__
  
15,666
  
15,666
    
Investment properties
  
__
  
__
  
__
  
__
  
__
  
__
  
__
  
3,251
  
3,251
    
Premises, plant and
                                        
  equipment
  
__
  
__
  
__
  
__
  
__
  
__
  
__
  
14,561
  
14,561
    
Intangible assets
  
__
  
__
  
__
  
__
  
__
  
__
  
__
  
5,394
  
5,394
    
Other assets
  
4,980
  
2,765
  
2,390
  
1,708
  
74
  
18
  
__
  
371
  
12,306
    
At 31 December 2010
  
64,319
  
128,903
  
98,312
  
138,223
  
240,309
  
172,936
  
31,137
  
42,772
  
916,911
    
                                         
                                         
Liabilities
                                        
Current, savings and other
                                        
  deposit accounts
  
536,363
  
78,218
  
37,862
  
29,611
  
1,574
  
__
  
__
  
__
  
683,628
    
Deposits from banks
  
6,387
  
7,688
  
1,394
  
__
  
117
  
__
  
__
  
__
  
15,586
    
Trading liabilities
  
__
  
__
  
__
  
__
  
__
  
__
  
42,581
  
__
  
42,581
    
Financial liabilities
                                        
  designated at fair value
  
2
  
__
  
__
  
__
  
__
  
455
  
__
  
__
  
457
    
Derivative financial
                                        
  instruments
  
__
  
__
  
__
  
99
  
819
  
56
  
3,709
  
__
  
4,683
    
Certificates of deposit and
                                        
  other debt securities
                                        
  in issue
  
__
  
96
  
447
  
112
  
2,440
  
__
  
__
  
__
  
3,095
    
Other liabilities
  
6,954
  
3,293
  
2,597
  
1,598
  
97
  
25
  
__
  
2,454
  
17,018
    
Liabilities to customers
                                        
 under insurance contracts
  
__
  
__
  
__
  
__
  
__
  
__
  
__
  
64,425
  
64,425
    
Current tax liabilities
  
__
  
__
  
__
  
344
  
__
  
__
  
__
  
__
  
344
    
Deferred tax liabilities
  
__
  
__
  
__
  
__
  
__
  
__
  
__
  
3,234
  
3,234
    
Subordinated liabilities
  
__
  
__
  
__
  
3,495
  
2,328
  
6,025
  
__
  
__
  
11,848
    
At 31 December 2010
  
549,706
  
89,295
  
42,300
  
35,259
  
7,375
  
6,561
  
46,290
  
70,113
  
846,899
    
                                       
                                             
 
 
Cash and balances with banks and other financial institutions
 
 
 
At 31 December
  
At 31 December
  
Figures in HK$m
  
2011
    
2010
  
             
Cash in hand
  
9,491
    
6,101
  
Balances with central banks
  
7,102
    
6,591
  
Balances with banks and other financial institutions
  
22,940
    
31,719
  
   
39,533
    
44,411
  
             
 
 
Placings with and advances to banks and other financial institutions
 
 
 
At 31 December
  
At 31 December
  
Figures in HK$m
  
2011
    
2010
  
             
Placings with and advances to banks and
            
  other financial institutions maturing within one month
  
56,787
    
56,437
  
Placings with and advances to banks and
            
  other financial institutions maturing after one month
            
  but less than one year
  
49,326
    
53,659
  
Placings with and advances to banks and
            
  other financial institutions maturing after one year
  
1,629
    
468
  
   
107,742
    
110,564
  
 
 
Trading assets
 
 
 
At 31 December
  
At 31 December
  
Figures in HK$m
  
2011
    
2010
  
             
Treasury bills
  
54,220
    
20,204
  
Certificates of deposit
  
432
    
18
  
Other debt securities
  
9,006
    
5,101
  
Debt securities
  
63,658
    
25,323
  
Equity shares
  
7
    
8
  
Total trading securities
  
63,665
    
25,331
  
OtherW
  
506
    
724
  
Total trading assets
  
64,171
    
26,055
  
             
Debt securities:
            
- listed in Hong Kong
  
4,550
    
3,876
  
- listed outside Hong Kong
  
717
    
170
  
   
5,267
    
4,046
  
- unlisted
  
58,391
    
21,277
  
   
63,658
    
25,323
  
Equity shares:
            
- listed in Hong Kong
  
7
    
8
  
             
Total trading securities
  
63,665
    
25,331
  
             
Debt securities:
            
Issued by public bodies:
            
- central governments and central banks
  
60,800
    
24,905
  
- other public sector entities
  
82
    
101
  
   
60,882
    
25,006
  
Issued by other bodies:
            
- banks
  
963
    
149
  
- corporate entities
  
1,813
    
168
  
   
2,776
    
317
  
   
63,658
    
25,323
  
Equity shares:
            
Issued by corporate entities
  
7
    
8
  
Total trading securities
  
63,665
    
25,331
  
 
W This represents amounts receivable from counterparties on trading transactions not yet settled.
 
 
Trading assets increased by HK$38.1bn, or 146.3%, compared with the end of 2010. In light of the evolving eurozone sovereign debt concerns and the turbulence in the financial market, the bank has further strengthened its prudent risk management strategy and preserved its liquidity by deploying its surplus funds to high quality debt securities. Those trading securities are mostly Hong Kong Exchange Fund bills with short tenors.
 
 
Financial assets designated at fair value
 
 
 
At 31 December
  
At 31 December
  
Figures in HK$m
  
2011
    
2010
  
             
Certificates of deposit
  
1
    
__
  
Other debt securities
  
3,998
    
4,440
  
Debt securities
  
3,999
    
4,440
  
Equity shares
  
473
    
583
  
Investment funds
  
3,624
    
2,091
  
   
8,096
    
7,114
  
             
Debt securities:
            
- listed in Hong Kong
  
15
    
11
  
- listed outside Hong Kong
  
182
    
184
  
   
197
    
195
  
- unlisted
  
3,802
    
4,245
  
   
3,999
    
4,440
  
Equity shares:
            
- listed in Hong Kong
  
473
    
583
  
             
Investment funds:
            
- listed in Hong Kong
  
23
    
23
  
- listed outside Hong Kong
  
150
    
65
  
   
173
    
88
  
- unlisted
  
3,451
    
2,003
  
   
3,624
    
2,091
  
             
   
8,096
    
7,114
  
             
Debt securities:
            
Issued by public bodies:
            
- central governments and central banks
  
140
    
148
  
- other public sector entities
  
53
    
105
  
   
193
    
253
  
Issued by other bodies:
            
- banks
  
3,725
    
4,113
  
- corporate entities
  
81
    
74
  
   
3,806
    
4,187
  
   
3,999
    
4,440
  
Equity shares:
            
Issued by banks
  
109
    
69
  
Issued by public sector entities
  
5
    
15
  
Issued by corporate entities
  
359
    
499
  
   
473
    
583
  
Investment funds:
            
Issued by banks
  
1,869
    
2,004
  
Issued by corporate entities
  
1,755
    
87
  
   
3,624
    
2,091
  
             
   
8,096
    
7,114
  
             
 
 
Advances to customers
 
 
 
At 31 December
  
At 31 December
  
Figures in HK$m
  
2011
    
2010
  
             
Gross advances to customers
  
482,241
    
474,473
  
Less:
            
Loan impairment allowances:
            
- individually assessed
  
(896
)
  
(1,118
)
- collectively assessed
  
(771
)
  
(718
)
   
480,574
    
472,637
  
             
 
 
 
Loan impairment allowances against advances to customers
 
 
                     
                     
   
Individually
  
Collectively
          
Figures in HK$m
  
assessed
  
assessed
    
Total
    
                     
At 1 January 2011
  
1,118
    
718
    
1,836
    
Amounts written off
  
(355
)
  
(330
)
  
(685
)
  
Recoveries of advances
                  
  written off in previous years
  
35
    
43
    
78
    
New impairment allowances
                    
  charged to income statement
  
359
    
381
    
740
    
Impairment allowances released
                    
  to income statement
  
(256
)
  
(44
)
  
(300
)
  
Unwinding of discount of loan
                    
  impairment allowances
                    
  recognised as 'interest income'
  
(10
)
  
(3
)
  
(13
)
  
Exchange
  
5
    
6
    
11
    
At 31 December 2011
  
896
    
771
    
1,667
    
                       
 
Total loan impairment allowances as a percentage of gross advances to customers are as follows:
 
 
 
At 31 December
  
At 31 December
  
   
2011
    
2010
  
   
%
    
%
  
             
Loan impairment allowances:
            
- individually assessed
  
0.19
    
0.24
  
- collectively assessed
  
0.16
    
0.15
  
Total loan impairment allowances
  
0.35
    
0.39
  
             
             
Total loan impairment allowances as a percentage of gross advances to customers were 0.35% at 31 December 2011 compared with 0.39% at the end of 2010. Individually assessed allowances as a percentage of gross advances fell by 5 basis points to 0.19%, reflecting improved credit quality and the bank's good credit risk management during the year. Collectively assessed allowances as a percentage of gross advances rose slightly by 1 basis point to 0.16%.
 
 
Impaired advances and allowances
 
 
 
At 31 December
  
At 31 December
  
Figures in HK$m
  
2011
    
2010
  
             
Gross impaired advances
  
1,584
    
1,990
  
Individually assessed allowances
  
(896
)
  
(1,118
)
   
688
    
872
  
             
Individually assessed allowances
            
  as a percentage of
            
  gross impaired advances
  
56.6
%
  
56.2
%
             
Gross impaired advances
            
  as a percentage of
            
  gross advances to customers
  
0.33
%
  
0.42
%
             
 
Impaired advances are those advances where objective evidence exists that full repayment of principal or interest is considered unlikely.
 
Gross impaired advances fell by HK$406m, or 20.4%, to HK$1,584m compared with the end of 2010, with the write-off of irrecoverable balances against impairment allowances and customer repayments offsetting the new credit downgrades of certain Commercial Banking customers. Gross impaired advances as a percentage of gross advances to customers fell to 0.33%, compared with 0.42% at the end of 2010.
 
 
 
At 31 December
  
At 31 December
  
Figures in HK$m
  
2011
    
2010
  
             
             
Gross individually assessed
            
  impaired advances
  
1,493
    
1,886
  
Individually assessed allowances
  
(896
)
  
(1,118
)
   
597
    
768
  
             
Gross individually assessed
            
  impaired advances
            
  as a percentage of
            
  gross advances to customers
  
0.31
%
  
0.40
%
             
Amount of collateral which
            
  has been taken into account
            
  in respect of individually assessed
            
  impaired advances to customers
  
423
    
682
  
             
             
 
Collateral includes any tangible security that carries a fair market value and is readily marketable. This includes (but is not limited to) cash and deposits, stocks and bonds, mortgages over properties and charges over other fixed assets such as plant and equipment. Where collateral values are greater than gross advances, only the amount of collateral up to the gross advance is included.
 
 
Overdue advances
 
Advances to customers that are more than three months overdue and their expression as a percentage of gross advances to customers are as follows:
 
 
 
At 31 December
  
At 31 December
  
     
2011
      
2010
  
 
HK$m
  
%
  
HK$m
  
%
  
                 
Gross advances to customers
                
  which have been overdue
                
  with respect to either principal
                
  or interest for periods of:
                
- more than three months but
                
  not more than six months
228
  
__
  
137
  
__
  
- more than six months but
                
  not more than one year
72
  
__
  
89
  
__
  
- more than one year
756
  
0.2
  
1,147
  
0.3
  
 
1,056
  
0.2
  
1,373
  
0.3
  
 
Advances with a specific repayment date are classified as overdue when the principal or interest is overdue and remains unpaid at year-end. Advances repayable by regular instalments are treated as overdue when an instalment payment is overdue and remains unpaid at year-end. Advances repayable on demand are classified as overdue either when a demand for repayment has been served on the borrower but repayment has not been made in accordance with the demand notice or when the advances have remained continuously outside the approved limit advised to the borrower for more than the overdue period in question.
 
Overdue advances decreased by HK$317m, or 23.1% to HK$1,056m compared with the end of 2010. Overdue advances as a percentage of gross advances to customers stood at 0.2%, down 0.1 percentage point compared with 2010.
 
 
Rescheduled advances
 
Rescheduled advances and their expression as a percentage of gross advances to customers are as follows:
 
 
 
At 31 December
  
At 31 December
  
     
2011
      
2010
  
 
HK$m
  
%
  
HK$m
  
%
  
                 
Rescheduled advances to customers
180
  
__
  
194
  
__
  
                 
 
Rescheduled advances are those advances that have been rescheduled or renegotiated for reasons related to the borrower's financial difficulties. This will normally involve granting concessionary terms and resetting the overdue account to non-overdue status. A rescheduled advance will continue to be disclosed as such unless the debt has been performing in accordance with the rescheduled terms for a period of six to 12 months. Rescheduled advances that have been overdue for more than three months under the rescheduled terms are reported as overdue advances (page 47).
 
At 31 December 2011, rescheduled advances improved by HK$14m, or 7.2%, to HK$180m, representing 0.04% of gross advances to customers. The improvement was due mainly to the upgrade of and repayments by customers.
 
 
Segmental analysis of advances to customers by geographical area
 
Advances to customers by geographical area are classified according to the location of the counterparties after taking into account the transfer of risk. In general, risk transfer applies when an advance is guaranteed by a party located in an area that is different from that of the counterparty.
 
Figures in HK$m
At 31 December 2011
 
Gross advances to customers
Individually
 impaired
advances to customers
Overdue
advances to customers
Individually assessed allowances
Collectively assessed allowances
                     
Hong Kong
  
404,889
  
1,315
  
929
  
779
  
603
Rest of Asia-Pacific
  
70,099
  
158
  
127
  
115
  
150
Others
  
7,253
  
20
  
-
  
2
  
18
   
482,241
  
1,493
  
1,056
  
896
  
771
 
 
 
Figures in HK$m
At 31 December 2010
 
Gross advances to customers
Individually
 impaired
advances to customers
Overdue
advances to customers
Individually assessed allowances
Collectively assessed allowances
                     
Hong Kong
  
392,836
  
1,452
  
1,112
  
838
  
545
Rest of Asia-Pacific
  
76,308
  
345
  
257
  
234
  
162
Others
  
5,329
  
89
  
4
  
46
  
11
   
474,473
  
1,886
  
1,373
  
1,118
  
718
 
 
Gross advances to customers by industry sector
 
The analysis of gross advances to customers by industry sector based on categories and definitions used by the Hong Kong Monetary Authority ('HKMA') is as follows:
 
 
 
At 31 December
  
At 31 December
    
Figures in HK$m
  
2011
    
2010
(restated)
  
             
Gross advances to customers for
            
  use in Hong Kong
            
             
Industrial, commercial and
            
  financial sectors
            
Property development
  
       27,090
    
       32,430
  
Property investment
  
      102,066
    
      100,023
  
Financial concerns
  
         2,648
    
         2,907
  
Stockbrokers
  
         1,227
    
            165
  
Wholesale and retail trade
  
       11,511
    
       11,339
  
Manufacturing
  
       16,274
    
       14,628
  
Transport and transport equipment
  
         6,309
    
         7,546
  
Recreational activities
  
              62
    
            532
  
Information technology
  
            899
    
         1,957
  
Other
  
       21,859
    
       20,177
  
   
      189,945
    
      191,704
  
Individuals
            
Advances for the purchase of flats under
            
  the Government Home Ownership
            
  Scheme, Private Sector Participation
            
  Scheme and Tenants Purchase Scheme
  
       14,405
    
       14,834
  
Advances for the purchase of other
            
  residential properties
  
      107,563
    
      112,394
  
Credit card advances
  
       18,547
    
       15,735
  
Other
  
       13,887
    
       13,776
  
   
      154,402
    
      156,739
  
Total gross advances for use in Hong Kong
  
      344,347
    
      348,443
  
Trade finance
  
49,552
    
       63,660
  
Gross advances for use outside Hong Kong
  
88,342
    
62,370
  
Gross advances to customers
  
482,241
    
       474,473
  
             
             
 
 
At 31 December 2011, gross advances to customers were up HK$7.8bn, or 1.6%, at HK$482.2bn compared with the end of 2010.
 
Loans for use in Hong Kong decreased by HK$4.1bn, or 1.2%. Lending to industrial, commercial and financial sectors declined marginally by 0.9%. New financing to corporate customers remained active, reflecting strong growth in property investment lending against the backdrop of the buoyant commercial property market during the year. Stronger partnerships with Commercial Banking customers helped grow lending to the manufacturing industry by 11.3%. Advances to the information technology sector fell by 54.1% mainly due to loan repayments.
 
Trade finance declined substantially as certain trade finance loans matured during the second half of the year.
 
Lending to individuals fell by HK$2.3bn, or 1.5%. Residential mortgage lending to individuals declined by 4.3%, as a result of the bank's focus towards Prime-based mortgage lending. The decrease was also affected by the intense market competition and new government measures to cool the residential property market. The uncertain economic conditions also led to a decline in residential property market activity towards the latter part of the year.
 
The credit card business registered strong growth, with card advances growing by 17.9%. This was supported by a rise of 9.8% in the number of cards in issue and a 16.5% increase in card spending, mainly due to successful card customer acquisition and card utilisation campaigns.
 
Loans for use outside Hong Kong increased strongly by HK$26.0bn, or 41.6%, compared with the end of 2010. This was due largely to the 23.0% expansion of mainland loan portfolios, which reached HK$44.7bn at 31 December 2011. Strong growth was recorded in corporate lending, driven mainly by renminbi loans. The group remained vigilant in assessing credit risk in increasing lending on the Mainland.
 
 
Financial investments
 
 
 
At 31 December
  
At 31 December
  
Figures in HK$m
  
2011
    
2010
  
             
Available-for-sale at fair value:
            
- debt securities
  
149,020
    
142,732
  
- equity shares
  
259
    
326
  
Held-to-maturity debt securities at amortised cost
  
59,911
    
56,301
  
   
209,190
    
199,359
  
             
Fair value of held-to-maturity debt securities
  
63,396
    
58,327
  
             
Treasury bills
  
43,296
    
18,010
  
Certificates of deposit
  
9,386
    
6,713
  
Other debt securities
  
156,249
    
174,310
  
Debt securities
  
208,931
    
199,033
  
Equity shares
  
259
    
326
  
   
209,190
    
199,359
  
Debt securities:
            
- listed in Hong Kong
  
21,141
    
9,783
  
- listed outside Hong Kong
  
40,027
    
67,139
  
   
61,168
    
76,922
  
- unlisted
  
147,763
    
122,111
  
   
208,931
    
199,033
  
Equity shares:
            
- listed in Hong Kong
  
48
    
47
  
- listed outside Hong Kong
  
18
    
64
  
   
66
    
111
  
- unlisted
  
193
    
215
  
   
259
    
326
  
   
209,190
    
199,359
  
             
Fair value of listed financial investments
  
61,902
    
77,403
  
             
Debt securities:
            
Issued by public bodies:
            
- central governments and central banks
  
78,659
    
39,007
  
- other public sector entities
  
26,021
    
23,041
  
   
104,680
    
62,048
  
Issued by other bodies:
            
- banks
  
85,251
    
119,300
  
- corporate entities
  
19,000
    
17,685
  
   
104,251
    
136,985
  
   
208,931
    
199,033
  
Equity shares:
            
Issued by corporate entities
  
259
    
326
  
   
209,190
    
199,359
  
 
 
Debt securities by rating agency designation
 
 
At 31 December
  
At 31 December
  
Figures in HK$m
  
2011
    
2010
  
             
AA- to AAA
  
165,370
    
138,970
  
A- to A+
  
35,167
    
54,927
  
B+ to BBB+
  
6,680
    
3,072
  
Unrated
  
1,714
    
2,064
  
   
208,931
    
199,033
  
 
Financial investments include treasury bills, certificates of deposit, other debt securities and equity shares intended to be held for an indefinite period of time.
 
Available-for-sale investments may be sold in response to needs for liquidity or changes in the market environment, and are carried at fair value with the gains and losses from changes in fair value recognised through equity reserves. Held-to-maturity debt securities are stated at amortised cost. Where debt securities have been purchased at a premium or discount, the carrying value of the security is adjusted to reflect the effective interest rate of the debt security taking into account such premium or discount.
 
Financial investments rose by HK$9,831m, or 4.9%, compared with the end of 2010. The increase in financial investments was primarily in government treasury bills, reflecting the deployment of funds from matured assets to high quality government debt securities. At 31 December 2011, about 99.0% of the group's holdings of debt securities were assigned with investment grade ratings by rating agencies. The unrated debt securities were issued by subsidiaries of investment-grade banks and were guaranteed by their corresponding holding companies. Those notes rank pari passu with all of the respective guarantor's other senior debt obligations. The group did not hold any investments in structured investment vehicles or any sub-prime related assets.
 
 
Amounts due from/to immediate holding company and fellow subsidiary companies
 
The amounts due from/to the bank's immediate holding company and fellow subsidiary companies included in the assets and liabilities balances of the consolidated balance sheet are as follows:
 
 
 
At 31 December
  
At 31 December
  
Figures in HK$m
  
2011
    
2010
  
             
Amounts due from:
            
Cash and balances with banks and
            
  other financial institutions
  
5,360
    
2,544
  
Placings with and advances to banks
            
  and other financial institutions
  
3,412
    
8,915
  
Financial assets designated at fair value
  
3,539
    
3,541
  
Derivative financial instruments
  
284
    
605
  
Financial investments
  
243
    
334
  
Other assets
  
53
    
64
  
   
12,891
    
16,003
  
             
Amounts due to:
            
Customer accounts
  
126
    
332
  
Deposits from banks
  
829
    
2,492
  
Derivative financial instruments
  
647
    
553
  
Subordinated liabilities
  
9,518
    
6,025
  
Other liabilities
  
435
    
393
  
   
11,555
    
9,795
  
             
 
 
 
 
Interest in associates
 
 
 
At 31 December
  
At 31 December
  
Figures in HK$m
  
2011
    
2010
  
             
Share of net assets
  
18,875
    
15,119
  
Intangibles
  
57
    
84
  
Goodwill
  
475
    
463
  
   
19,407
    
15,666
  
             
 
Interest in associates increased by HK$3,741m, or 23.9%, due mainly to the increase in the bank's share of net assets of Industrial Bank.
 
 
Intangible assets
 
 
 
At 31 December
  
At 31 December
  
Figures in HK$m
  
2011
    
2010
  
             
Present value of in-force long-term
            
  insurance business
  
5,188
    
4,593
  
Internally developed software
  
399
    
429
  
Acquired software
  
46
    
43
  
Goodwill
  
329
    
329
  
   
5,962
    
5,394
  
             
               
 
 
Other assets
 
 
 
At 31 December
  
At 31 December
  
Figures in HK$m
  
2011
    
2010
  
             
Items in the course of collection
            
  from other banks
  
4,513
    
4,673
  
Prepayments and accrued income
  
2,844
    
2,259
  
Assets held for sale
            
- Repossessed assets
  
3
    
12
  
- Other assets held for sale
  
35
    
206
  
Acceptances and endorsements
  
4,697
    
3,751
  
Retirement benefit assets
  
34
    
95
  
Other accounts
  
1,637
    
1,310
  
   
13,763
    
12,306
  
             
 
 
Current, savings and other deposit accounts
 
 
 
At 31 December
  
At 31 December
  
Figures in HK$m
  
2011
    
2010
  
             
Current, savings and other deposit accounts:
            
- as stated in consolidated balance sheet
  
699,857
    
683,628
  
- structured deposits reported as
            
  trading liabilities
  
30,923
    
20,852
  
   
730,780
    
704,480
  
By type:
            
- demand and current accounts
  
57,977
    
59,116
  
- savings accounts
  
431,863
    
466,158
  
- time and other deposits
  
240,940
    
179,206
  
   
730,780
    
704,480
  
             
 
 
Certificates of deposit and other debt securities in issue
 
 
 
At 31 December
  
At 31 December
  
Figures in HK$m
  
2011
    
2010
  
             
Certificates of deposit and 
            
  other debt securities in issue:
            
- as stated in consolidated balance sheet
  
9,284
    
3,095
  
- structured certificates of deposit
            
  and other debt securities in issue
            
  reported as trading liabilities
  
3,183
    
2,738
  
   
12,467
    
5,833
  
             
By type:
            
- certificates of deposit in issue
  
11,925
    
3,121
  
- other debt securities in issue
  
542
    
2,712
  
   
12,467
    
5,833
  
             
Customer deposits, including current, savings and other deposit accounts and certificates of deposit and other debt securities in issue, stood at HK$743.2bn at 31 December 2011, an increase of 4.6% over the end of 2010. In the low interest rate environment with keen market competition, most customers shifted deposits from savings accounts to time deposits. Certificates of deposit and structured deposit instruments with yield enhancement features also gained popularity. Hang Seng China achieved deposit growth of 34.1%, mainly in renminbi deposits.
 
 
Trading liabilities
 
 
 
At 31 December
  
At 31 December
  
Figures in HK$m
  
2011
    
2010
  
             
Structured certificates of deposit and
            
  other debt securities in issue
  
3,183
    
2,738
  
Structured deposits
  
30,923
    
20,852
  
Short positions in securities and others
  
25,606
    
18,991
  
   
59,712
    
42,581
  
             
Trading liabilities include customer deposits and certificates of deposit with embedded options or other derivatives, the market risk of which is managed in the trading book.
 
 
Other liabilities
 
 
 
At 31 December
  
At 31 December
  
Figures in HK$m
  
2011
    
2010
  
             
Items in the course of transmission
            
  to other banks
  
7,027
    
7,208
  
Accruals
  
2,956
    
2,385
  
Acceptances and endorsements
  
4,697
    
3,751
  
Retirement benefit liabilities
  
3,260
    
1,718
  
Other
  
2,198
    
1,956
  
   
20,138
    
17,018
  
             
 
 
Subordinated liabilities
 
 
   
At 31 December
  
At 31 December
  
Figures in HK$m
  
2011
    
2010
  
               
Nominal value
Description
            
               
Amount owed to third parties
            
               
US$450m
Callable floating rate
            
 
  subordinated notes
            
 
  due July 2016W
  
__
    
3,495
  
               
US$300m
Callable floating rate
            
 
  subordinated notes
            
 
  due July 2017
  
2,328
    
2,328
  
             
Amount owed to HSBC Group undertakings
            
               
US$775m
Floating rate
            
 
  subordinated loan debt
            
 
  due December 2020
  
6,022
    
6,025
  
               
US$450m
Floating rate
            
 
  subordinated loan debt
            
 
  due July 2021W
  
3,496
    
__
  
     
11,846
    
11,848
  
               
Representing:
              
- measured at amortised cost
  
11,846
    
11,848
  
     
11,846
    
11,848
  
 
W The bank exercised its option to redeem these subordinated notes at par of US$450m and replenished them with a new issue of US$450m subordinated loan debt in July 2011.   
 
 
The outstanding subordinated notes, which qualify as supplementary capital, help the bank maintain a balanced capital structure and support business growth.
 
 
Shareholders' funds
 
 
 
At 31 December
  
At 31 December
  
Figures in HK$m
  
2011
    
2010
  
             
Share capital
  
9,559
    
9,559
  
Retained profits
  
48,640
    
42,966
  
Premises revaluation reserve
  
12,280
    
9,426
  
Cash flow hedging reserve
  
6
    
72
  
Available-for-sale investment reserve
            
- on debt securities
  
(756
)
  
(25
)
- on equity securities
  
195
    
227
  
Capital redemption reserve
  
99
    
99
  
Other reserves
  
5,099
    
4,055
  
Total reserves
  
65,563
    
56,820
  
   
75,122
    
66,379
  
Proposed dividends
  
3,633
    
3,633
  
Shareholders' funds
  
78,755
    
70,012
  
             
Return on average shareholders' funds
  
22.6
%
  
22.8
%
             
 
Shareholders' funds (excluding proposed dividends) grew by HK$8,743m, or 13.2%, to HK$75,122m at 31 December 2011. Retained profits rose by HK$5,674m, mainly reflecting growth as a result of the 2011 profit after the appropriation of interim dividends. The premises revaluation reserve increased by HK$2,854m, or 30.3%, attributable to the buoyant commercial property market.
 
The available-for-sale investment reserve for debt securities recorded a deficit of HK$756m compared with a deficit of HK$25m at the end of 2010, reflecting the general widening of the credit spread. The group assessed that there were no impaired debt securities during the year, and accordingly, no impairment loss has been recognised.
 
The return on average shareholders' funds was 22.6%, compared with 22.8% for 2010.
 
Excluding the redemption of all the US$450m floating rate subordinated notes due 2016 at par on 6 July 2011, there was no purchase, sale or redemption by the bank, or any of its subsidiaries, of the bank's securities during 2011.
 
 
Capital resources management
 
Analysis of capital base and risk-weighted assets
 
 
 
At 31 December
  
At 31 December
  
Figures in HK$m
  
2011
        
2010
    
                     
Core capital:
                    
Paid-up ordinary share capital
  
9,559
          
9,559
    
                     
- Reserves per balance sheet
  
65,563
          
56,820
    
- Unconsolidated subsidiaries
  
(7,234
)
        
(6,268
)
  
- Cash flow hedging reserve
  
(6
)
        
(72
)
  
- Regulatory reserve
  
(4,226
)
        
(1,654
)
  
- Reserves arising from revaluation of property
                    
  and unrealised gains on available-for-sale
                    
  equities and debt securities
  
(15,860
)
        
(13,585
)
  
                     
Total reserves included in core capital
  
38,237
          
35,241
    
                     
- Goodwill and intangible assets
  
(977
)
        
(1,019
)
  
- 50% of unconsolidated investments
  
(11,304
)
        
(9,725
)
  
- 50% of securitisation positions and other deductions
  
(158
)
        
(158
)
  
Deductions
  
(12,439
)
        
(10,902
)
  
                     
Total core capital
  
35,357
          
33,898
    
                     
Supplementary capital:
                    
- Term subordinated debt 
  
11,846
          
11,848
    
- Property revaluation reserves 1
  
5,894
          
5,894
    
- Available-for-sale investments revaluation reserves 2
  
117
          
396
    
- Regulatory reserve 3
  
296
          
182
    
- Collective impairment allowances 3
  
54
          
77
    
- Excess impairment allowances over expected losses 4
  
1,522
          
306
    
Supplementary capital before deductions
  
19,729
          
18,703
    
                     
- 50% of unconsolidated investments
  
(11,304
)
        
(9,725
)
  
- 50% of securitisation positions and other deductions
  
(158
)
        
(158
)
  
Deductions
  
(11,462
)
        
(9,883
)
  
                     
Total supplementary capital
  
8,267
          
8,820
    
                     
Capital base
  
43,624
          
42,718
      
                       
Risk-weighted assets
                      
- Credit risk
  
266,567
          
274,969
      
- Market risk
  
2,054
          
1,615
      
- Operational risk
  
35,649
          
36,853
      
   
304,270
          
313,437
      
                     
Capital adequacy ratio
  
14.3
%
      
13.6
%
  
Core capital ratio
  
11.6
%
      
10.8
   %
  
 
 
Reserves and deductible items
 
 
 
At 31 December
  
At 31 December
  
Figures in HK$m
  
2011
        
2010
    
                     
Published reserves
  
31,640
          
31,741
    
Profit and loss account
  
6,597
          
3,500
    
                     
Total reserves included in core capital
  
38,237
          
35,241
    
                     
Total of items deductible 50% from core capital
                    
  and 50% from supplementary capital
  
22,924
          
19,766
    
                       
 
 
1 Includes the revaluation surplus on investment properties which is reported as part of retained profits and adjustments made in accordance with Banking (Capital) Rules.
 
2 Includes adjustments made in accordance with Banking (Capital) Rules.
 
3 Total regulatory reserve and collective impairment allowances are apportioned between the standardised approach and internal ratings-based approach in accordance with Banking (Capital) Rules. Those apportioned to the standardised approach are included in supplementary capital. Those apportioned to the internal ratings-based approach are excluded from supplementary capital.
 
4 Excess impairment allowances over expected losses are applicable to non-securitisation exposures calculated by using the internal ratings-based approach.
 
 
Capital ratios at 31 December 2011 were compiled in accordance with the Banking (Capital) Rules ('the Capital Rules') under section 98A of the Hong Kong Banking Ordinance for the implementation of Basel II, which came into effect on 1 January 2007. The bank used the advanced internal ratings-based approach to calculate its credit risk exposure which was approved by the HKMA on 1 January 2009. The standardised (operational risk) approach and internal models approach were used to calculate the bank's operational risk and market risk respectively.
 
At 31 December 2011, the capital adequacy ratio and core capital ratio were 14.3% and 11.6% respectively, compared with 13.6% and 10.8% at the year-end of 2010.  
 
Capital adequacy and core capital ratios rose slightly by 0.7 percentage point and 0.8 percentage point respectively, mainly due to the combined effect of the increase in profit after accounting for dividends during the year and the decrease in risk-weighted assets.
 
The basis of consolidation for the calculation of capital ratios under the Capital Rules follows the basis of consolidation for financial reporting with the exclusion of subsidiaries which are 'regulated financial entities' (e.g. insurance and securities companies) as defined by the Capital Rules. Accordingly, the investment costs of those unconsolidated regulated financial entities are deducted from the capital base.
 
To satisfy the provisions of the Hong Kong Banking Ordinance and regulatory requirements for prudent supervision purposes, the group has earmarked a regulatory reserve from retained profits. In accordance with updated guidance from the HKMA, the regulatory reserve has been increased to HK$4,226m (HK$1,654m at 31 December 2010).
 
 
Liquidity ratio
 
The average liquidity ratio for the year, calculated in accordance with the Fourth Schedule of the Hong Kong Banking Ordinance, is as follows:
 
 
   
2011
    
2010
  
             
The bank and its subsidiaries
            
  designated by the HKMA
  
33.6
%
  
38.1
%
             
 
 
Reconciliation of cash flow statement
 
 
(a)        Reconciliation of operating profit to net cash flow from operating activities
 
 
Figures in HK$m
  
2011
    
2010
  
             
Operating profit
  
14,181
    
14,085
  
Net interest income
  
(15,736
)
  
(14,300
)
Dividend income
  
(17
)
  
(14
)
Loan impairment charges
  
440
    
390
  
Impairment loss of intangible assets
  
78
    
__
  
Depreciation
  
700
    
619
  
Amortisation of intangible assets
  
119
    
102
  
Amortisation of available-for-sale investments
  
(24
)
  
80
  
Amortisation of held-to-maturity debt securities
  
5
    
5
  
Advances written off net of recoveries
  
(607
)
  
(510
)
Interest received
  
18,403
    
15,219
  
Interest paid
  
(4,439
)
  
(2,301
)
Operating profit before changes in working capital
  
13,103
    
13,375
  
Change in treasury bills and certificates of deposit
            
  with original maturity more than three months
  
(24,344
)
  
32,409
  
Change in placings with and advances to banks
            
  maturing after one month
  
4,801
    
(26,155
)
Change in trading assets
  
(34,947
) )
  
24,451
  
Change in financial assets designated at fair value
  
150
    
501
  
Change in derivative financial instruments
  
1,048
    
(111
)
Change in advances to customers
  
(13,419
)
  
(127,906
)
Change in other assets
  
(7,715
)
  
(15,680
)
Change in financial liabilities designated at fair value
  
__
    
(2
)
Change in current, savings and other deposit accounts
  
16,229
    
47,259
  
Change in deposits from banks
  
(1,582
)
  
10,716
  
Change in trading liabilities
  
17,131
    
4,190
  
Change in certificates of deposit and
            
  other debt securities in issue
  
6,189
    
1,269
  
Change in other liabilities
  
10,659
    
15,448
  
Elimination of exchange differences
            
  and other non-cash items
  
(4,836
)
  
(8,158
)
Cash used in operating activities
  
(17,533
)
  
(28,394
)
Taxation paid
  
(2,044
)
  
(1,704
)
Net cash outflow from operating activities
  
(19,577
)
  
(30,098
)
             
 
 
 
(b)        Analysis of the balances of cash and cash equivalents
 
 
 
At 31 December
  
At 31 December
  
Figures in HK$m
  
2011
    
2010
  
             
Cash and balances with banks and
            
  other financial institutions
  
39,533
    
44,411
  
Placings with and advances to banks and other
            
  financial institutions maturing within one month
  
54,049
    
53,457
  
Treasury bills
  
23,738
    
20,692
  
Certificates of deposit
  
3,149
    
__
  
   
120,469
    
118,560
  
 
 
Contingent liabilities, commitments and derivatives
 
 
       
Credit
  
Risk-
  
 
Contract
equivalent
weighted
  
Figures in HK$m
  
amount
  
amount
  
amount
  
               
At 31 December 2011
              
               
Direct credit substitutes
  
5,438
  
5,308
  
3,426
  
Transaction-related contingencies
  
1,220
  
138
  
72
  
Trade-related contingencies
  
9,807
  
979
  
532
  
Forward asset purchases
  
35
  
35
  
35
  
Undrawn formal standby facilities, credit lines
              
  and other commitments to lend:
              
- not unconditionally cancellableW
  
31,311
  
15,081
  
5,384
  
- unconditionally cancellable
  
232,469
  
76,890
  
23,420
  
   
280,280
  
98,431
  
32,869
  
               
Exchange rate contracts:
              
Spot and forward foreign exchange
  
493,588
  
2,441
  
1,169
  
Other exchange rate contracts
  
91,963
  
2,475
  
1,766
  
   
585,551
  
4,916
  
2,935
  
               
Interest rate contracts:
              
Interest rate swaps
  
342,801
  
2,624
  
950
  
Other interest rate contracts
  
__
  
__
  
__
  
   
342,801
  
2,624
  
950
  
               
Other derivative contracts
  
5,473
  
371
  
114
  
               
 
 
W The contract amount for undrawn formal standby facilities, credit lines and other commitments to lend with an original maturity of 'not more than one year' and 'more than one year' were HK$11,487m and HK$19,824m respectively.
 
 
 
       
Credit
  
Risk-
  
 
Contract
equivalent
weighted
  
Figures in HK$m
  
amount
  
amount
  
amount
  
               
At 31 December 2010
              
               
Direct credit substitutes
  
4,365
  
4,220
  
3,231
  
Transaction-related contingencies
  
455
  
337
  
168
  
Trade-related contingencies
  
10,593
  
3,516
  
2,008
  
Forward asset purchases
  
51
  
51
  
51
  
Undrawn formal standby facilities, credit lines
              
  and other commitments to lend:
              
- not unconditionally cancellable
  
38,273
  
17,788
  
7,479
  
- unconditionally cancellable
  
198,724
  
66,852
  
20,649
  
   
252,461
  
92,764
  
33,586
  
               
Exchange rate contracts:
              
Spot and forward foreign exchange
  
431,732
  
2,738
  
1,417
  
Other exchange rate contracts
  
59,222
  
1,258
  
712
  
   
490,954
  
3,996
  
2,129
  
               
Interest rate contracts:
              
Interest rate swaps
  
340,076
  
2,522
  
602
  
Other interest rate contracts
  
25
  
__
  
__
  
   
340,101
  
2,522
  
602
  
               
Other derivative contracts
  
7,729
  
505
  
137
  
               
The tables above give the nominal contract, credit equivalent and risk-weighted amounts of off-balance-sheet transactions. The credit equivalent amounts are calculated for the purpose of deriving the risk-weighted amounts. The nominal contract amounts, credit equivalent amounts, risk-weighted amounts and the consolidation basis for the periods indicated were calculated in accordance with the Banking (Capital) Rules issued by the HKMA.
 
For the above analysis, contingent liabilities and commitments are credit-related instruments that include acceptances and endorsements, letters of credit, guarantees and commitments to extend credit. The risk involved is essentially the same as the credit risk involved in extending loan facilities to customers. Those transactions are, therefore, subject to the same credit origination, portfolio management and collateral requirements as for customers applying for loans. As the facilities may expire without being drawn upon, the total of the contract amounts does not represent future liquidity requirements.
 
Derivative financial instruments are held for trading, or financial instruments designated at fair value, or designated as either fair value hedges or cash flow hedges. The following table shows the nominal contract amounts and marked-to-market value of assets and liabilities by class of derivatives.
 
 
 
At 31 December 2011
  
At 31 December 2010
  
Figures in HK$m
Trading
  
Designated at fair value
  
Hedging
  
Trading
  
Designated at fair value
  
Hedging
  
                         
Contract amounts:
                        
Interest rate contracts
275,776
  
140
  
75,431
  
236,030
  
140
  
105,511
  
Exchange rate contracts
706,521
  
__
  
__
  
601,220
  
769
  
__
  
Other derivative contracts
21,032
  
__
  
__
  
16,891
  
__
  
__
  
 
1,003,329
  
140
  
75,431
  
854,141
  
909
  
105,511
  
                         
Derivative assets:
                        
Interest rate contracts
2,043
  
__
  
179
  
1,748
  
__
  
511
  
Exchange rate contracts
2,246
  
__
  
__
  
2,721
  
__
  
__
  
Other derivative contracts
242
  
__
  
__
  
613
  
__
  
__
  
 
4,531
  
__
  
179
  
5,082
  
__
  
511
  
                         
Derivative liabilities:
                        
Interest rate contracts
1,590
  
3
  
1,340
  
1,557
  
9
  
974
  
Exchange rate contracts
1,582
  
__
  
__
  
2,031
  
3
  
__
  
Other derivative contracts
333
  
__
  
__
  
109
  
__
  
__
  
 
3,505
  
3
  
1,340
  
3,697
  
12
  
974
  
 
The above derivative assets and liabilities, being the positive or negative marked-to-market value of the respective derivative contracts, represent gross replacement costs.
 
 
Additional information
 
 
1. Statutory accounts and accounting policies
 
The information in this news release does not constitute statutory accounts.
 
Certain financial information in this news release is extracted from the statutory accounts for the year ended 31 December 2011 ('2011 accounts'), which will be delivered to the Registrar of Companies and the HKMA. The auditors expressed an unqualified opinion on those statutory accounts in their report dated 27 February 2012.
 
Disclosures required by the Banking (Disclosure) Rules issued by the HKMA are contained in the bank's Annual Report which will be published on the websites of Hong Kong Exchanges and Clearing Limited and the bank on the date of issue of this news release.
 
The 2011 accounts and this news release have been prepared on a basis consistent with the accounting policies adopted in 2010.
 
The group adopted a number of Hong Kong Financial Reporting Standards ('HKFRSs') or amendments to HKFRSs which had an insignificant or no effect on the consolidated financial statements. Those are described under note 5 of the 2011 Annual Report and Accounts.
 
 
 
 
2. Comparative figures
 
Certain comparative figures have been reclassified to conform with the current year's presentation.
 
 
3. Property revaluation
 
The group's premises and investment properties were revalued at 30 November 2011 and updated for any material changes at 31 December 2011 by DTZ Debenham Tie Leung Limited. The valuation was carried out by qualified persons who are members of the Hong Kong Institute of Surveyors. The basis of the valuation of premises was open market value for existing use and the basis of valuation for investment properties was open market value. The net revaluation surplus for group premises amounted to HK$3,731m, of which HK$3,729m was credited to premises revaluation reserve and HK$2m was credited to the income statement. Revaluation gains of HK$982m on investment properties were recognised through the income statement. The related deferred tax provisions for group premises and investment properties were HK$610m and HK$162m respectively.
 
The revaluation exercise also covered business premises/investment properties reclassified as properties held for sale. The revaluation gain of HK$8m was recognised through the income statement.
 
 
4. Foreign currency positions
 
Foreign currency exposures include those arising from trading, non-trading and structural positions. Net option position is calculated on the basis of delta-weighted positions of all foreign exchange options contracts. At 31 December 2011, the US dollar ('US$'), Chinese renminbi ('RMB') and Euro ('EUR') were the currencies in which the group had non-structural foreign currency positions that were not less than 10% of the total net position in all foreign currencies. The group also had a RMB structural foreign currency position, which was not less than 10% of the total net structural position in all foreign currencies.
 
Figures in HK$m
US$
  
RMB
  
JPY
  
EUR
  
CAD
  
GBP
  
CHF
  
AUD
  
NZD
  
GOL
  
Other foreign currencies
  
Total foreign currencies
  
                                                 
At 31 December 2011
                                                
                                                 
Non-structural position
                                                
Spot assets
149,152
  
123,061
  
32,344
  
9,119
  
13,405
  
12,922
  
117
  
46,562
  
7,576
  
4,341
  
941
  
399,540
  
Spot liabilities
(128,778 
)
(124,005
)
(1,930
)
(11,097
)
(16,447
)
(15,234
)
(601
)
(48,899
)
(10,897
)
(4,524
)
(1,397
)
(363,809
)
Forward purchases
265,328 
 
87,981
  
4,122
  
4,699
  
3,358
  
4,121
  
1,089
  
9,464
  
5,134
  
2,248
  
1,393
  
388,937
  
Forward sales
(284,172
)
(85,934
)
(34,510
)
(3,061
)
(313
)
(1,783
)
(635
)
(7,265
)
(1,829
)
(2,014
)
(956
)
(422,472
)
Net option position
147 
 
(124
)
2
  
(24
)
__
  
__
  
__
  
20
  
(18
)
__
  
__
  
3
  
Net long/(short)
                                                
  non-structural position
1,677 
 
979
  
28
  
(364
)
3
  
26
  
(30
)
(118
)
(34
)
51
  
(19
)
2,199
  
                                                 
Structural positions
206
  
24,850
  
__
  
__
  
__
  
__
  
__
  
__
  
__
  
__
  
305
  
25,361
  
                                                 
At 31 December 2010
                                                
                                                 
Non-structural position
                                                
Spot assets
246,638 
 
93,067
  
8,985
  
11,068
  
13,933
  
13,026
  
191
  
43,643
  
9,017
  
2,169
  
974
  
442,711
  
Spot liabilities
(155,377 
)
(88,666
)
(1,912
)
(12,393
)
(14,882
)
(15,470
)
(549
)
(41,953
)
(11,658
)
(3,404
)
(3,034
)
(349,298
)
Forward purchases
228,982 
 
72,661
  
8,932
  
3,735
  
2,431
  
7,130
  
1,347
  
8,340
  
3,909
  
2,919
  
3,423
  
343,809
  
Forward sales
(319,494
)
(77,799
)
(16,151
)
(2,497
)
(1,449
)
(4,810
)
(964
)
(9,885
)
(1,341
)
(1,559
)
(1,359
)
(437,308
)
Net option position
133 
 
(41
)
(5
)
(55
)
(7
)
__
  
__
  
(71
)
60
  
__
  
__
  
14
  
Net long/(short)
                                                
  non-structural position
882 
 
(778
)
(151
)
(142
)
26
  
(124
)
25
  
74
  
(13
)
125
  
4
  
(72
)
                                                 
Structural positions
206 
 
20,124
  
__
  
__
  
__
  
__
  
__
  
__
  
__
  
__
  
238
  
20,568
  
                                                 
 
 
5. Ultimate holding company
 
Hang Seng Bank is an indirectly held, 62.14%-owned, subsidiary of HSBC Holdings plc.
 
 
6. Register of shareholders
 
The register of shareholders of the bank will be closed on Wednesday, 14 March 2012, during which no transfer of shares can be registered. In order to qualify for the fourth interim dividend for 2011, all transfers, accompanied by the relevant share certificates, must be lodged with the bank's registrar, Computershare Hong Kong Investor Services Limited, Shops 1712-1716, 17th Floor, Hopewell Centre, 183 Queen's Road East, Wanchai, Hong Kong, for registration no later than 4:30 pm on Tuesday, 13 March 2012. The fourth interim dividend will be payable on Thursday, 29 March 2012 to shareholders whose names appear on the register of shareholders of the bank on Wednesday, 14 March 2012. Shares of the bank will be traded ex-dividend as from Monday, 12 March 2012.
 
 
7. Proposed timetable for 2012 quarterly dividends
 
 
 
First
Second
Third
Fourth
 
interim dividend
interim dividend
interim dividend
interim dividend
         
Announcement
30 April 2012
30 July 2012
9 October 2012
4 March 2013
Book close and
        
  record date
17 May 2012
15 August 2012
26 October 2012
20 March 2013
Payment date
31 May 2012
30 August 2012
13 November 2012
3 April 2013
 
 
8. Code on Corporate Governance Practices
 
The bank is committed to high standards of corporate governance. The bank has followed the module on 'Corporate Governance of Locally Incorporated Authorised Institutions' under the Supervisory Policy Manual issued by the HKMA and has fully complied all the code provisions and most of the recommended best practices set out in the Code on Corporate Governance Practices contained in Appendix 14 of the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited throughout the year ended 31 December 2011.
 
The Audit Committee of the bank has reviewed the results for the year ended 31 December 2011.
 
 
9. Board of Directors
 
At 27 February 2012, the Board of Directors of the bank comprises Dr Raymond K F Ch'ien* (Chairman), Mrs Margaret Leung (Vice-Chairman and Chief Executive), Dr John C C Chan*, Dr Marvin K T Cheung*, Ms L Y Chiang*, Mr Andrew H C Fung, Ms Anita Y M Fung#, Dr Fred Zuliu Hu*, Mr Jenkin Hui*, Ms Sarah C Legg#, Dr Eric K C Li*, Dr Vincent H S Lo#, Mrs Dorothy K Y P Sit#, Mr Richard Y S Tang*, Mr Peter T S Wong# and Mr Michael W K Wu*.
 
 
 
*   Independent Non-executive Directors
 
#   Non-executive Directors
 
 
10. News release
 
This news release is available on the bank's website www.hangseng.com.
 
The 2011 Annual Report and Financial Statements, which contains all disclosures required by the Banking (Disclosure) Rules issued by the HKMA, will be published on the websites of Hong Kong Exchanges and Clearing Limited and the bank on the date of issue of this news release. Printed copies of the 2011 Annual Report will be sent to shareholders in late-March 2012.
 
Media enquiries to:
Walter Cheung                                     Telephone: (852) 2198 4020
Ruby Chan                                           Telephone: (852) 2198 4236
 
 

 

 
 
 

 
 
 
SIGNATURE
 
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
 
HSBC Holdings plc
 
 
 
                                                       By:
 
                                                                                Name:   P A Stafford
 
                                                                                                Title: Assistant Group Secretary
                     
                      
                                                                                     Date: 27 February, 2012