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 July, 2007
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).
Yes....... No X
(If "Yes" is marked, indicate below the file number assigned to the registrant
in connection with Rule 12g3-2(b): 82- ..............)
HANG SENG BANK LIMITED
2007 INTERIM RESULTS - HIGHLIGHTS
- Operating profit up 22.4 per cent to HK$7,773 million (HK$6,353 million for
the first half of 2006).
- Operating profit excluding loan impairment charges and other credit risk
provisions up 26.1 per cent to HK$8,053 million (HK$6,387 million for the
first half of 2006).
- Pre-tax profit up 36.0 per cent to HK$10,218 million (HK$7,513 million
for the first half of 2006).
- Attributable profit up 43.2 per cent to HK$8,867 million (HK$6,190
million for the first half of 2006).
- Return on average shareholders' funds of 36.6 per cent (29.0 per cent
for the first half of 2006).
- Assets up 10.8 per cent to HK$741.3 billion (HK$669.1 billion at 31
December 2006).
- Earnings per share up 43.2 per cent to HK$4.64 (HK$3.24 per share for
the first half of 2006).
- Second interim dividend of HK$1.10 per share; total dividends of HK$2.20
per share for the first half of 2007 (HK$2.20 per share for the first half
of 2006).
- Total capital ratio of 12.3 per cent (13.6 per cent at 31 December 2006);
tier 1 capital ratio of 8.9 per cent (10.7 per cent at 31 December 2006).
- Cost efficiency ratio of 26.6 per cent (26.8 per cent for the first half
of 2006).
Within this document, the Hong Kong Special Administrative Region of the
People's Republic of China has been referred to as 'Hong Kong'.
Comment by Raymond Or, Chief Executive
Hang Seng Bank's record results for the first half of 2007 reflect excellent
progress with our long-term growth strategy, supported by buoyant economic
conditions.
Attributable profit increased by 43.2 per cent compared with the first half of
2006 to reach HK$8,867 million. Earnings per share were up 43.2 per cent at
HK$4.64.
Operating profit excluding loan impairment charges and other credit risk
provisions rose by 26.1 per cent to HK$8,053 million. We increased our range of
product offerings and further enhanced our service delivery channels, driving
strong growth in our personal wealth management and Commercial Banking
businesses. Operating profit was up HK$1,420 million at HK$7,773 million.
Pre-tax profit rose by 36.0 per cent, in part reflecting an unrealised gain of
HK$1,465 million on dilution of our investment in our strategic mainland China
partner, Industrial Bank Co., Ltd ('Industrial Bank') following its listing in
February this year.
Increases in average customer deposits and average customer advances helped
underpin a 20.8 per cent rise in net interest income to HK$6,696 million. Net
interest margin was up 10 basis points at 2.11 per cent, supported by
improvements in deposit spreads and contribution from net free funds.
Operating expenses rose by 24.6 per cent to HK$2,914 million, due largely to
investments in our mainland business - including the establishment of our
wholly-owned subsidiary bank Hang Seng Bank (China) Limited - as well as
increases in performance-related pay and marketing costs. However, net operating
income before loan impairment charges grew by 25.7 per cent. With this positive
differential of 1.1 percentage points, our cost efficiency ratio compared with
the first half of 2006 was 0.2 percentage points lower at 26.6 per cent.
Personal Financial Services achieved a 35.9 per cent increase in operating
profit excluding loan impairment charges to HK$5,380 million. Wealth management
business reached new heights - income grew by 58.2 per cent to HK$3,429 million,
with securities turnover and sales of investment funds and structured products
breaking all previous highs.
Further development of our retirement planning proposition drove a 37.1 per cent
growth in life insurance income for the first half of 2007 and made us Hong
Kong's number one provider in terms of annualised new premiums for regular-pay
(non-linked) insurance during the first quarter of the year.
Commercial Banking's operating profit excluding loan impairment charges rose by
15.3 per cent to HK$1,076 million. Continued service enhancements strengthened
our position as the preferred bank for small and medium-sized enterprises. We
capitalised on upbeat business sentiment to expand our lending portfolio.
Year-on-year, average customer deposits and average customer advances including
trade finance grew by 19.5 per cent and 22.7 per cent respectively. Net interest
income rose by 21.6 per cent.
We implemented new measures to diversify and grow non-interest income. Closer
collaboration between commercial relationship managers and treasury and
investment service teams saw an encouraging increase in corporate wealth
management business. Successful promotion of our comprehensive banking solution
for retailers helped us grow our market share in this key segment and supported
strong growth in card merchant-acquiring business. Along with growth in trade
services and remittances, these developments yielded a 20.8 per cent increase in
net fee income.
Corporate Banking recorded a 16.0 per cent increase in operating profit
excluding loan impairment charges to reach HK$298 million, underpinned by a 23.9
per cent rise in customer deposits and the 8.4 per cent increase in outstanding
loan balances.
With strong liquidity in Hong Kong continuing to put pressure on corporate loan
margins, we intensified income diversification efforts. Net fee income was up
35.0 per cent, reflecting encouraging growth in trade services and credit
facilities fees.
The improved interest rate environment in the first half of 2007 saw Treasury's
operating profit increase by 2.7 per cent to HK$456 million. Net operating
income rose by 5.1 per cent, with the improvement in yields on balance sheet
management portfolios. To further grow customer-driven business, we stepped up
cross-customer group cooperation and put additional resources into structured
product development. Such actions have placed Treasury in a better position to
deliver profit growth.
Our mainland subsidiary bank commenced operation in late May, marking the start
of a new era of business growth. A 21.3 per cent increase in loans and a 42.7
per cent rise in deposits helped total operating income grow by 86.0 per cent.
Including our share of profit from Industrial Bank, the pre-tax profit of our
mainland business contributed 5.9 per cent to total pre-tax profit, compared
with 4.3 per cent a year earlier.
Economic growth in Hong Kong will maintain good momentum during the second half
of the year. The economy will continue to benefit from the improving labour
market, a favourable interest rate environment and strong growth on the
Mainland.
Potential challenges include rising inflation risks created by the weakening US
dollar and appreciating renminbi, which may put upward pressure on costs. The
prospects of further macro-economic policy tightening on the Mainland may also
add volatility to the performance of its economy and financial markets.
We will build on the significant progress made in the first half of 2007 by
further developing our core business drivers. In Hong Kong, we will leverage our
brand, leading market position and wide product range to further grow our wealth
management and Commercial Banking businesses. With continuing strong economic
growth on the Mainland, we will take full advantage of the new business
opportunities provided by the establishment of our subsidiary bank and its
expanding network of outlets.
Results summary
Hang Seng Bank Limited ('the bank') and its subsidiaries and associates ('the
group') reported an unaudited profit attributable to shareholders of HK$8,867
million for the first half of 2007, a rise of 43.2 per cent over the first half
of 2006. Earnings per share were HK$4.64, up 43.2 per cent from the first half
of 2006.
Operating profit excluding loan impairment charges and other credit risk
provisions rose by HK$1,666 million, or 26.1 per cent, to HK$8,053 million,
underpinned by strong growth in wealth management and Commercial Banking
businesses, contributing to rises of 20.8 per cent in net interest income and
34.1 per cent in non-interest income as highlighted below.
- Net interest income rose by HK$1,155 million, or 20.8 per cent, with a 15.1
per cent increase in average interest-earning assets. Average customer deposits
and average customer advances grew by 10.0 per cent and 9.7 per cent
respectively over the same time last year. Net interest margin rose by 10 basis
points to 2.11 per cent, with improvements in deposit spreads, Treasury's
balance sheet management portfolio yields and contribution from net free funds.
- Net fees and commissions increased by HK$1,080 million, or 60.6 per cent,
highlighting strong growth in income from stockbroking and related services
(+85.4 per cent), retail investment funds (+50.4 per cent), sales of third-party
structured products (+678.1 per cent), mainly equity-linked instruments, and
private banking investment services (+108.1 per cent) in the buoyant investment
market. Income from card services, remittances and account services rose by 19.9
per cent, 21.3 per cent and 19.0 per cent respectively.
- Income from insurance business, including net earned insurance premiums, net
interest income, net fee income and net income from financial instruments
designated at fair value, the change in present value of in-force business and
after deducting net insurance claims incurred and movement in policyholders'
liabilities, increased by 27.2 per cent. Life insurance income was up 37.1 per
cent, driven by strong growth in new annualised premiums and investment returns
on insurance funds.
- Trading income fell by HK$75 million, or 11.4 per cent. Securities trading and
spreads earned on option-linked and other structured products provided to
customers recorded satisfactory growth. Foreign exchange income was, however,
affected by the exchange loss on forward contracts used in 'funding swap'
activities in the balance sheet management portfolios.
- Net operating income before loan impairment charges and other credit risk
provisions rose by HK$2,242 million, or 25.7 per cent, to HK$10,967 million.
- Operating expenses increased by HK$576 million, or 24.6 per cent, compared
with the first half of 2006. The cost efficiency ratio was lower by 0.2
percentage points at 26.6 per cent. The bank's mainland operations accounted for
HK$121 million, or 21.0 per cent, of the increase in operating expenses, mainly
attributable to the establishment of wholly-owned subsidiary bank Hang Seng Bank
(China) Limited and the expansion of its branch network. Excluding mainland
operations, operating expenses were up 20.3 per cent, or HK$455 million,
attributable mainly to performance-based staff remuneration and marketing costs.
Operating profit was up HK$1,420 million, or 22.4 per cent, at HK$7,773 million,
after accounting for loan impairment charges and other credit provisions of
HK$280 million, compared with HK$34 million in the first half of 2006, which
benefited from a substantial recovery from a commercial banking account.
Profit before tax was up HK$2,705 million, or 36.0 per cent, to HK$10,218
million after taking into account:
- a decrease of HK$300 million in profit on disposal of fixed assets and
financial investments;
- a gain on dilution of investment in an associate of HK$1,465 million on
the listing of Industrial Bank;
- a decrease of HK$52 million in net surplus on property revaluation; and
- an increase of HK$172 million in share of profits from associates,
mainly contributed by Industrial Bank.
Balance sheet and key ratios
Total assets grew by HK$72.3 billion, or 10.8 per cent, during the first half of
2007 to HK$741.3 billion. Customer advances rose by HK$31.6 billion, or 11.3 per
cent, including HK$26.9 billion in financing customers for subscription of
shares in initial public offerings ('IPOs'). Encouraging growth was recorded in
lending on the Mainland, trade finance, card advances and personal loans.
Customer deposits rose by 3.4 per cent, mainly in current and savings accounts.
At 30 June 2007, the advances-to-deposits ratio was 55.7 per cent, compared with
51.7 per cent and 52.8 per cent at the end of December 2006 and June 2006
respectively.
Shareholders' funds (excluding proposed dividends) increased by HK$5,580
million, or 12.9 per cent, to HK$48,928 million, mainly reflecting the HK$3,662
million increase in retained profits and the HK$1,465 million gain on the
dilution of investment in an associate.
The return on average total assets was 2.5 per cent, compared with 2.1 per cent
for the first half year of 2006. The return on average shareholders' funds was
36.6 per cent (29.0 per cent in the first half of 2006).
At 30 June 2007, the total capital ratio was 12.3 per cent and the tier 1 ratio
was 8.9 per cent, calculated in accordance with the Banking (Capital) Rules
issued by the Hong Kong Monetary Authority ('HKMA') for implementation of the
Basel II capital accord. The total capital ratio and tier 1 ratio at 31 December
2006 under the Basel I capital regime were 13.6 per cent and 10.7 per cent
respectively.
The bank maintained a strong liquidity position. The average liquidity ratio for
the first half of 2007 was 52.9 per cent (calculated in accordance with the
Fourth Schedule of the Hong Kong Banking Ordinance), compared with an average
liquidity ratio of 50.9 per cent for the same period in 2006.
Dividends
The Directors have declared a second interim dividend of HK$1.10 per share,
which will be payable on 30 August 2007 to shareholders on the register of
shareholders as of 21 August 2007. Together with the first interim dividends,
the total distribution for the first half of 2007 will amount to HK$2.20 per
share, the same as in the first half of 2006.
Customer group performance
Personal Inter-
Financial Commercial Corporate segment
Figures in HK$m Services Banking Banking Treasury Other elimination Total
Half-year ended 30Jun07
Net interest income 4,142 1,119 339 407 689 - 6,696
Net fee income/(expense) 2,307 476 54 (11) 36 - 2,862
Trading income 358 74 4 163 (15) - 584
Net income/(expense) from
financial instruments
designated at fair value 689 - - (3) - - 686
Dividend income 6 - - - 20 - 26
Net earned insurance
premiums 4,741 79 1 - - - 4,821
Other operating income 300 25 - - 72 - 397
Inter-segment income - - - - 187 (187) -
Total operating income 12,543 1,773 398 556 989 (187) 16,072
Net insurance claims
incurred and movement
in policyholders'
liabilities (5,061) (44) - - - - (5,105)
Net operating income
before loan impairment
charges and other
credit risk provisions 7,482 1,729 398 556 989 (187) 10,967
Loan impairment
charges and other
credit risk provisions (122) (45) (113) - - - (280)
Net operating income 7,360 1,684 285 556 989 (187) 10,687
Total operating expenses^ (1,939) (636) (97) (96) (146) - (2,914)
Inter-segment expenses (163) (17) (3) (4) - 187 -
Operating profit 5,258 1,031 185 456 843 - 7,773
Profit on disposal of
fixed assets and
financial investments - - 7 - 267 - 274
Gain on dilution of
investment in associate - - - - 1,465 - 1,465
Net surplus on property
revaluation - - - - 266 - 266
Share of profits from
associates 20 254 - 115 51 - 440
Profit before tax 5,278 1,285 192 571 2,892 - 10,218
Share of profit before tax 51.7% 12.6% 1.8% 5.6% 28.3% - 100.0%
Operating profit
excluding inter-segment
transactions 5,421 1,048 188 460 656 - 7,773
Operating profit
excluding loan
impairment charges and
other credit risk
provisions 5,380 1,076 298 456 843 - 8,053
^Depreciation/amortisation
included in total
operating expenses (56) (8) (2) (1) (113) - (180)
At 30Jun07
Total assets 191,312 74,766 82,688 353,011 39,545 - 741,322
Total liabilities 432,416 93,988 51,983 70,109 39,878 - 688,374
Investments in associates 155 1,951 - 880 2,293 - 5,279
Capital expenditure
incurred during the
period 135 43 8 3 29 - 218
Personal Inter-
Financial Commercial Corporate segment
Figures in HK$m Services Banking Banking Treasury Other elimination Total
Half-year ended 30Jun06
(restated)
Net interest income 3,549 920 293 216 563 - 5,541
Net fee income/(expense) 1,334 394 40 (13) 27 - 1,782
Trading income 252 70 4 333 - - 659
Net income/(expense)from
financial instruments
designated at fair value 44 - - (7) - - 37
Dividend income 3 - - - 28 - 31
Net earned insurance
premiums 3,872 81 1 - - - 3,954
Other operating income 273 15 - - 104 - 392
Inter-segment income - - - - 191 (191) -
Total operating income 9,327 1,480 338 529 913 (191) 12,396
Net insurance claims
incurred and movement
in policyholder
liabilities (3,641) (30) - - - - (3,671)
Net operating income
before loan impairment
(charges)/releases and
other credit risk
provisions 5,686 1,450 338 529 913 (191) 8,725
Loan impairment(charges)/
releases and
other credit risk
provisions (74) 26 14 - - - (34)
Net operating income 5,612 1,476 352 529 913 (191) 8,691
Total operating expenses^ (1,561) (498) (78) (81) (120) - (2,338)
Inter-segment expenses (165) (19) (3) (4) - 191 -
Operating profit 3,886 959 271 444 793 - 6,353
Profit on disposal of
fixed assets
and financial
investments - - - - 574 - 574
Net surplus on property
revaluation - - - - 318 - 318
Share of profits from
associates 11 137 - 62 58 - 268
Profit before tax 3,897 1,096 271 506 1,743 - 7,513
Share of profit before tax 51.9% 14.6% 3.6% 6.7% 23.2% - 100.0%
Operating profit
excluding inter-segment
transactions 4,051 978 274 448 602 - 6,353
Operating profit
excluding loan impairment
(charges)/releases and
other credit risk
provisions 3,960 933 257 444 793 - 6,387
^Depreciation/amortisation
included in total
operating expenses (51) (4) (2) (1) (96) - (154)
At 30Jun 06
Total assets 160,551 59,758 72,230 305,126 30,624 - 628,289
Total liabilities 399,620 71,670 39,398 48,950 23,653 - 583,291
Investments in associates 131 1,649 - 745 742 - 3,267
Capital expenditure
incurred during the
period 69 10 3 3 57 - 142
Personal Inter-
Financial Commercial Corporate segment
Figures in HK$m Services Banking Banking Treasury Other elimination Total
Half-year ended 31Dec06
Net interest income 3,879 1,116 330 265 563 - 6,153
Net fee income/(expense) 1,242 415 46 (11) 23 - 1,715
Trading income 265 80 3 295 28 - 671
Net income/(expense) from
financial instruments
designated at fair value 866 - - (4) - - 862
Dividend income 5 5 - - 6 - 16
Net earned insurance
premiums 3,799 93 - - - - 3,892
Other operating income 269 11 - (4) 177 - 453
Inter-segment income - - - - 187 (187) -
Total operating income 10,325 1,720 379 541 984 (187) 13,762
Net insurance claims
incurred and movement
in policyholders'
liabilities (4,373) (33) - - - - (4,406)
Net operating income before
loan impairment charges
and other credit risk
provisions 5,952 1,687 379 541 984 (187) 9,356
Loan impairment charges
and other credit risk
provisions (91) (127) - - (12) - (230)
Net operating income 5,861 1,560 379 541 972 (187) 9,126
Total operating expenses^ (1,911) (600) (90) (94) (208) - (2,903)
Inter-segment expenses (161) (19) (3) (4) - 187 -
Operating profit 3,789 941 286 443 764 - 6,223
Profit on disposal of
fixed assets and
financial investments 26 - - - 243 - 269
Net surplus on property
revaluation - - - - 3 - 3
Share of profits from
associates 18 225 - 102 42 - 387
Profit before tax 3,833 1,166 286 545 1,052 - 6,882
Share of profit before tax 55.7% 16.9% 4.2% 7.9% 15.3% - 100.0%
Operating profit
excluding inter-segment
transactions 3,950 960 289 447 577 - 6,223
Operating profit
excluding loan
impairment charges and
other credit risk
provisions 3,880 1,068 286 443 776 - 6,453
^Depreciation/amortisation
included in total
operating expenses (55) (7) (2) (1) (114) - (179)
At 31Dec06
Total assets 167,241 69,633 76,619 326,181 29,390 - 669,064
Total liabilities 429,667 82,340 41,959 38,609 27,791 - 620,366
Investments in associates 141 1,775 - 801 771 - 3,488
Capital expenditure
incurred during the
period 90 34 8 5 100 - 237
Personal Financial Services ('PFS') reported a growth of 35.4 per cent in profit
before tax to HK$5,278 million and contributed 51.7 per cent to the group's
total profit before tax. Operating profit excluding loan impairment charges rose
by 35.9 per cent, reflecting strong growth in wealth management, private
banking, card and personal lending businesses.
Non-interest income grew by 56.3 per cent, driven primarily by the continued
success of PFS's wealth management business, which reported the following record
achievements:
- Investment funds: record sales with a significant 88.6 per cent growth
over the first half of 2006;
- Stock trading: record turnover with growth of 78.4 per cent and increase
in customer base (17.2 per cent growth year-on-year);
- Equity-linked structured instruments: record turnover with growth of
234.4 per cent; and
- Life insurance: number one ranking in terms of new regular-pay
(non-linked) life insurance premiums for the first quarter of 2007. This
achievement was attributable to the offering of a diverse range of
retirement solutions - from wealth accumulation to health protection - to
meet customers' needs of all life stages.
Private banking sustained its outstanding performance trends with total
operating income up by 60.7 per cent. Profit before tax rose by 62.4 per cent to
HK$459 million.
Net interest income rose by 16.7 per cent, contributed mainly by the 7.8 per
cent growth in average customer deposits and the widening of deposit spreads.
Higher growth was recorded in savings accounts, reflecting a customer preference
for maintaining liquidity for investment activities.
The impressive year-on-year growth in card advances and personal lending of 29.3
per cent and 48.8 per cent respectively offset the contraction in the Government
Home Mortgage Scheme mortgage portfolio. Amid intense market competition,
residential mortgages fell slightly by 0.8 per cent with continued pressure on
loan margins. The bank maintained its position as one of the market leaders by
promoting one-stop e-mortgage services as a key area of differentiation.
A series of promotional activities and strong consumer market sentiment helped
card business grow steadily in the first half of 2007. Cards in issue reached
1.44 million, up from 1.40 million at the end of 2006. Card spending increased
by 22.3 per cent.
Commercial Banking ('CMB') achieved an increase of 15.3 per cent in operating
profit excluding loan impairment charges, driven by strong growth in both net
interest income and net fee income. Profit before tax rose by 17.2 per cent to
HK$1,285 million, contributing 12.6 per cent of the group's total.
Net interest income recorded good growth of 21.6 per cent. Average customer
advances rose by 22.7 per cent over the first half of 2006 as a result of
balanced growth in trade and factoring, advances to the manufacturing and
wholesale and retail sectors, and IPO-related financing.
Corporate wealth management income contributed 9.0 per cent of CMB's total
operating income in the first half of 2007, up from 7.9 per cent in 2006. In
particular, investment and treasury income achieved robust growth of 73.2 per
cent.
CMB continued its strategy of providing customer-centric solutions to retailers.
Net fee income from card merchant-acquiring business achieved strong growth of
40.9 per cent. To enhance our competitive position, Octopus merchant services
were launched in June 2007 to help SME retailers improve their cash management.
In addition to corporate wealth management and card merchant-acquiring business,
CMB also achieved satisfactory growth in trade and remittances services income.
Net fees and commissions grew by 20.8 per cent.
Average customer deposits increased by 19.5 per cent, driven primarily by
customer segmentation initiatives that improved the management of non-borrowing
SME customers.
CMB business continued to grow rapidly on the Mainland, with intensified
collaboration between the Hong Kong and mainland teams. Net interest income on
the Mainland grew by 144.9 per cent in the first half of 2007. In early July,
the bank became the first foreign bank to provide renminbi services to corporate
customers in Dongguan, further strengthening its competitive position in the
Pearl River Delta region.
Business e-Banking enjoyed strong growth. At 30 June 2007, over 44,000 customers
had registered for Business e-Banking services, a year-on-year increase of 34.5
per cent. The number of online business banking transactions grew by 46.2 per
cent.
Corporate Banking ('CIB') achieved an increase of 16.0 per cent in operating
profit excluding loan impairment charges, underpinned by satisfactory growth of
15.7 per cent in net interest income and 35.0 per cent in net fee income.
Average customer deposits rose by 28.9 per cent and deposit spreads widened.
Average customer advances increased by 2.3 per cent, mainly in lending to
property investment, securities and information technology companies.
Profit before tax fell by HK$79 million to HK$192 million, affected by an
increase in loan impairment charges.
Strong liquidity in Hong Kong continued to exert pressure on corporate loan
margins. CIB remained focused on better yield transactions and continued to
target business sectors such as investment holding companies and securities
firms. CIB was active in financing mainland projects of Hong Kong-based
corporates and continued to expand its mainland customer base.
Encouraging progress with income diversification saw solid growth in trade
services, while credit facilities fees increased on the back of an active
refinancing market. Overall, net fee income increased by 35.0 per cent.
Treasury ('TRY') reported a 2.7 per cent growth in operating profit excluding
loan impairment charges. Profit before tax, taking into account the increase in
share of profits from associates, rose by 12.8 per cent to HK$571 million and
contributed 5.6 per cent to the group's total profit before tax.
Balance sheet management portfolios reversed their downward trend and recorded
growth of HK$191 million, or 88.4 per cent, in net interest income. Excluding
the HK$149 million favourable impact of 'funding swap' activities^ (described
below), net interest income rose by HK$42 million, or 23.6 per cent. With the
growth in portfolios and gradual re-pricing of lower yield investments, Treasury
is now better positioned to capture yield enhancement opportunities and deliver
profit growth.
Trading income fell by HK$170 million, or 51.1 per cent, due mainly to the fall
of HK$218 million in foreign exchange profit. Apart from lower foreign exchange
trading profit, the bulk of the decline came from the 'funding swap' activities^
in the balance sheet management portfolios which were reported as a loss of
HK$187 million in the first half of 2007 (loss of HK$38 million in the first
half of 2006). Securities and other derivatives trading, including the provision
of structured products to personal and corporate customers, recorded
satisfactory growth.
^Treasury 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 HKAS39, the exchange difference of the spot and forward
contracts is required to be recognised as foreign exchange gain/loss, while the
corresponding interest differential between the original and swap funding is
reflected in net interest income.
Mainland business
The opening of the bank's mainland subsidiary, Hang Seng Bank (China) Limited
('HACN') on 28 May 2007 marked a new era in the bank's mainland business.
Headquartered in Shanghai, HACN has a network of 17 branches and sub-branches
with three new sub-branches (two in Shanghai and one in Guangzhou) opened since
the beginning of the year. The bank has a branch in Shenzhen for foreign
currency wholesale business and a representative office in Xiamen.
Benefiting from continuing strong economic growth on the Mainland, customer
advances and deposits recorded impressive growth of 21.3 per cent and 42.7 per
cent respectively over the end of 2006. Year-on-year, advances and deposits were
up 50.4 per cent and 93.9 per cent respectively. Total operating income rose by
86.0 per cent to HK$225 million. Profit before tax was down HK$40 million,
affected by the cost of establishing HACN, an increase in loan impairment
charges and the exchange loss of capital funds maintained in US dollars upon
revaluation against the renminbi.
By customer group, mainland PFS continued to focus on the Prestige Banking
segment and the provision of wealth management services. CMB and CIB teams
further stepped up their efforts to join-up with the bank's Hong Kong teams to
serve customers' business needs on the Mainland and in Hong Kong. TRY continued
to manage the funding positions of the branches and develop structured
investment products to meet customers' needs.
Including the bank's share of profit from Industrial Bank (but excluding the
gain on dilution of investment), mainland business contributed 5.9 per cent of
total profit before tax, compared with 4.3 per cent in the first half of 2006.
Contents
The financial information in this news release is based on the unaudited
consolidated financial statements of Hang Seng Bank Limited ('the bank') and its
subsidiaries and associates ('the group') for the six months ended 30 June 2007.
...Highlights of Results
...Comment by Chief Executive
...Results Summary
...Customer Group Performance
...Mainland Business
...Contents
...Consolidated Income Statement
...Consolidated Balance Sheet
...Consolidated Statement of Recognised Income and Expense
...Consolidated Cash Flow Statement
...Financial Review
.....Net interest income
.....Net fee income
.....Trading income
.....Other operating income
.....Analysis of income from wealth management business
.....Loan impairment charges and other credit risk provisions
.....Operating expenses
.....Profit on disposal of fixed assets and financial investments
.....Tax expenses
.....Earnings per share
.....Dividends per share
.....Segmental analysis
.....Cash and balances with banks and other financial institutions
.....Placings with and advances to banks and other financial institutions
.....Advances to customers
.....Loan impairment allowances against advances to customers
.....Impaired advances and allowances
.....Overdue advances
.....Segmental analysis of advances to customers by geographical area
.....Rescheduled advances
.....Gross advances to customers by industry sector
.....Financial investments
.....Investments in associates
.....Current, savings and other deposit accounts
.....Certificates of deposit and other debt securities in issue
.....Subordinated liabilities
.....Shareholders' funds
.....Capital resources management
.....Liquidity ratio
.....Reconciliation of cash flow statement
.....Contingent liabilities, commitments and derivatives
.....Accounting policies
.....Statement of compliance
.....Statutory accounts
.....Comparative figures
.....Acquisition
.....Property revaluation
.....Foreign currency positions
.....Ultimate holding company
.....Register of shareholders
.....Proposed timetable for 2007 quarterly dividends
.....Code on corporate governance practices
.....Board of directors
.....News release
Consolidated Income Statement (unaudited)
Half-year ended Half-year ended Half-year ended
30Jun07 30Jun06 31Dec06
Figures in HK$m (restated)
Interest income 16,318 13,654 15,608
Interest expense (9,622) (8,113) (9,455)
Net interest income 6,696 5,541 6,153
Fee income 3,163 2,035 2,039
Fee expense (301) (253) (324)
Net fee income 2,862 1,782 1,715
Trading income 584 659 671
Net income from financial instruments
designated at fair value 686 37 862
Dividend income 26 31 16
Net earned insurance premiums 4,821 3,954 3,892
Other operating income 397 392 453
Total operating income 16,072 12,396 13,762
Net insurance claims
incurred and movement
in policyholders' liabilities (5,105) (3,671) (4,406)
Net operating income
before loan impairment charges
and other credit risk provisions 10,967 8,725 9,356
Loan impairment charges and other
credit risk provisions (280) (34) (230)
Net operating income 10,687 8,691 9,126
Employee compensation and benefits (1,598) (1,277) (1,417)
General and administrative expenses (1,136) (907) (1,307)
Depreciation of premises, plant
and equipment (169) (150) (173)
Amortisation of intangible assets (11) (4) (6)
Total operating expenses (2,914) (2,338) (2,903)
Operating profit 7,773 6,353 6,223
Profit on disposal of fixed assets
and financial investments 274 574 269
Gain on dilution of investment in
associate 1,465 _ _
Net surplus on property revaluation 266 318 3
Share of profits from associates 440 268 387
Profit before tax 10,218 7,513 6,882
Tax expenses (1,150) (1,202) (847)
Profit for the period 9,068 6,311 6,035
Profit attributable to shareholders 8,867 6,190 5,848
Profit attributable to minority
interests 201 121 187
9,068 6,311 6,035
Dividends 4,206 4,206 5,736
Earnings per share (in HK$) 4.64 3.24 3.06
The HSBC Group reports interest income and interest expense arising from
financial assets and financial liabilities held for trading as 'Net trading
income' and arising from financial instruments designated at fair value through
profit and loss as 'Net income from financial instruments designated at fair
value' (other than for debt securities in issue and subordinated liabilities,
together with derivatives managed in conjunction with them).
The table below presents the interest income and interest expense of Hang Seng,
as included within the HSBC Group accounts:
Half-year ended Half-year ended Half-year ended
Figures in HK$m 30Jun07 30Jun06 31Dec06
Interest income 15,941 13,334 15,305
Interest expense (8,354) (6,959) (8,041)
Net interest income 7,587 6,375 7,264
Net interest income and expense
reported as 'Net trading income' (938) (879) (1,160)
Net interest income and expense
reported as 'Net income from
financial instruments designated
at fair value' 47 45 49
Consolidated Balance Sheet (unaudited)
At 30Jun07 At 30Jun06 At 31Dec06
Figures in HK$m
Assets
Cash and balances with banks and
other financial institutions 12,921 13,763 9,390
Placings with and advances to
banks and other financial
institutions 94,485 82,563 99,705
Trading assets 9,848 14,543 12,467
Financial assets designated
at fair value 9,827 6,429 8,280
Derivative financial instruments 2,348 2,161 1,887
Advances to customers 310,972 266,505 279,353
Financial investments 251,191 211,955 227,710
Investments in associates 5,279 3,267 3,488
Investment properties 2,457 3,161 2,732
Premises, plant and equipment 6,342 6,553 6,516
Interest in leasehold land held
for own use under operating lease 572 587 580
Intangible assets 2,347 1,857 2,070
Other assets 32,733 14,945 14,886
741,322 628,289 669,064
Liabilities
Current, savings and other
deposit accounts 512,450 448,097 482,821
Deposits from banks 57,834 22,131 17,950
Trading liabilities 44,294 61,630 60,093
Financial liabilities designated at
fair value 1,473 1,494 1,562
Derivative financial instruments 2,118 2,256 1,531
Certificates of deposit and other
debt securities in issue 7,282 8,312 7,595
Other liabilities 22,123 10,821 16,123
Liabilities to customers under
insurance contracts 27,942 18,877 22,975
Deferred tax and current tax
liabilities 3,485 2,668 2,716
Subordinated liabilities 9,373 7,005 7,000
688,374 583,291 620,366
Capital resources
Minority interests 1,917 1,280 1,717
Share capital 9,559 9,559 9,559
Retained profits 32,706 28,627 29,044
Other reserves 6,663 3,429 4,745
Proposed dividends 2,103 2,103 3,633
Shareholders' funds 51,031 43,718 46,981
52,948 44,998 48,698
741,322 628,289 669,064
Consolidated Statement of Recognised Income and Expense (unaudited)
Half-year ended Half-year ended Half-year ended
30Jun07 30Jun06 31Dec06
Figures in HK$m
Unrealised surplus on revaluation
of premises, net of tax 218 469 50
Tax on realisation of revaluation
surplus on disposal of premises 10 97 9
Available-for-sale investments reserve,
net of tax:
- fair value changes taken to equity 271 (80) 1,312
- fair value changes transferred to
income statement:
-- on impairment _ _ 12
-- on hedged items 73 255 (234)
-- on disposal (247) (121) (204)
Cash flow hedges reserve, net of tax:
- fair value changes taken to equity (127) (116) (63)
- fair value changes transferred to
income statement 141 67 375
Actuarial gains on defined benefit plans,
net of tax 369 2 216
Exchange differences on translation of
financial statements of overseas
branches, subsidiaries and associates 180 60 124
Net income recognised directly in equity 888 633 1,597
Profit for the period 9,068 6,311 6,035
Total recognised income and expense
for the period 9,956 6,944 7,632
Attributable to shareholders 9,755 6,823 7,445
Attributable to minority interests 201 121 187
9,956 6,944 7,632
Consolidated Cash Flow Statement (unaudited)
Half-year ended Half-year ended
30Jun07 30Jun06
Figures in HK$m
Net cash inflow from operating activities 12,376 38,080
Cash flows from investing activities
Dividends received from associates 195 20
Purchase of available-for-sale investments (47,529) (60,007)
Purchase of held-to-maturity debt securities (420) (216)
Proceeds from sale or redemption of
available-for-sale investments 33,895 34,844
Proceeds from redemption of
held-to-maturity debt securities 33 28
Purchase of fixed assets and
intangible assets (218) (143)
Proceeds from sale of fixed assets
and asset held for sale 212 2,599
Interest received from
available-for-sale investments 4,691 2,408
Dividends received from
available-for-sale investments 10 31
Net cash outflow from investing activities (9,131) (20,436)
Cash flows from financing activities
Dividends paid (5,736) (5,736)
Interest paid for subordinated
liabilities (212) (108)
Proceeds from subordinated liabilities 2,342 3,495
Net cash outflow from financing activities (3,606) (2,349)
(Decrease)/increase in cash and
cash equivalents (361) 15,295
Cash and cash equivalents at 1 January 90,275 65,513
Effect of foreign exchange rate changes 1,197 54
Cash and cash equivalents at 30 June 91,111 80,862
Financial Review
Net interest income
Half-year ended Half-year ended Half-year ended
30Jun07 30Jun06 31Dec06
Figures in HK$m (restated)
Net interest income/(expense) arising from:
- financial assets and liabilities that are
not at fair value through profit and loss 7,609 6,399 7,290
- trading assets and liabilities (938) (879) (1,160)
- financial instruments designated at fair value 25 21 23
6,696 5,541 6,153
Average interest-earning assets 639,539 555,773 601,031
Net interest spread 1.72% 1.67% 1.66%
Net interest margin 2.11% 2.01% 2.03%
Net interest income rose by HK$1,155 million, or 20.8 per cent, to HK$6,696
million with a 15.1 per cent increase in average interest-earning assets.
Deposit products contributed HK$514 million to the increase in net interest
income. This was attributable to the increase of 10.0 per cent in average
customer deposits, mainly in lower cost savings balances and wider deposit
spreads.
Average customer advances rose by 9.7 per cent, driven by encouraging growth in
higher yielding card advances, personal loans, trade finance and mainland loans.
The pricing of residential mortgages and corporate lending, however, was still
under pressure due to intense market competition. Overall, the total loan
portfolio contributed HK$153 million to the growth in net interest income.
Net interest income of Treasury's balance sheet management portfolios improved
by HK$191 million as the holding of lower yield securities gradually matured.
The debt securities portfolio of life insurance funds grew by 45.0 per cent,
adding HK$138 million to net interest income.
Benefiting from the rise in both interest rates and funds balance, net free
funds (including non-interest-bearing account balances and net shareholders'
funds) contributed HK$159 million to the increase in net interest income.
Net interest margin rose by 10 basis points to 2.11 per cent. Net interest
spread increased by five basis points to 1.72 per cent, contributed by wider
deposit spreads and the gradual improvement of Treasury's balance sheet
management portfolio yields. The contribution from net free funds also rose by
five basis points to 0.39 per cent.
Compared with the second half of 2006, net interest income rose by HK$543
million, or 8.8 per cent, with a growth of 6.4 per cent in average
interest-earning assets. Net interest margin improved by eight basis points,
attributable mainly to wider deposit spreads and contribution from net free
funds.
The HSBC Group reports interest income and interest expense arising from
financial assets and financial liabilities held for trading as 'Net trading
income' and arising from financial instruments designated at fair value through
profit and loss as 'Net income from financial instruments designated at fair
value' (other than for debt securities in issue and subordinated liabilities,
together with derivatives managed in conjunction with them).
The table below presents the net interest income of Hang Seng, as included
within the HSBC Group accounts:
Half-year ended Half-year ended Half-year ended
30Jun07 30Jun06 31Dec06
Figures in HK$m
Net interest income 7,587 6,375 7,264
Average interest-earning
assets 620,830 541,337 586,347
Net interest spread 1.87% 1.82% 1.84%
Net interest margin 2.46% 2.37% 2.46%
Net fee income
Half-year ended Half-year ended Half-year ended
30Jun07 30Jun06 31Dec06
Figures in HK$m (restated)
- Stockbroking and related services 738 398 407
- Retail investment funds 728 484 312
- Structured investment products 249 32 62
- Insurance 56 59 49
- Account services 144 121 153
- Private banking 333 160 171
- Remittances 91 75 86
- Cards 483 403 457
- Credit facilities 56 52 59
- Trade services 189 176 204
- Other 96 75 79
Fee income 3,163 2,035 2,039
Fee expense (301) (253) (324)
2,862 1,782 1,715
Net fee income reached HK$2,862 million, representing an increase of 60.6 per
cent over the first half of 2006 and 66.9 per cent compared with the second half
of 2006.
Investment services expanded significantly, capturing the opportunities provided
by the buoyant stock market and favourable investment environment. Stockbroking
and related services income rose by 85.4 per cent to HK$738 million, driven by a
78.4 per cent growth in turnover. Investment funds income (including sales
commission and fund management fees) rose by 50.4 per cent to HK$728 million.
Sales turnover of investment funds reached a half-year record of HK$32.4
billion, rising 88.6 per cent over the same period last year. Income from sales
of third-party structured products (mainly equity-linked instruments) rose by
HK$217 million to HK$249 million. Private banking investment services income
rose by 108.1 per cent.
Card services income rose by 19.9 per cent, supported by a rise of 22.3 per cent
in cardholder spending. Deposit services and payment and cash management
business also showed good progress, reporting growth in account services fees
and remittances of 19.0 per cent and 21.3 per cent respectively.
Trading income
Half-year ended Half-year ended Half-year ended
30Jun07 30Jun06 31Dec06
Figures in HK$m (restated)
Trading profits:
- foreign exchange 394 610 568
- securities, derivatives and
other trading activities 190 49 103
584 659 671
Trading income fell by HK$75 million, or 11.4 per cent, compared with the first
half of 2006. The fall in foreign exchange income of HK$216 million was mainly
attributable to two reasons not related to normal foreign exchange trading.
First, an exchange loss of HK$187 million was incurred in the first half of 2007
(HK$38 million in the first half of 2006) on forward contracts used in 'funding
swap' activities^ in the balance sheet management portfolios. Second, capital
funds of HACN maintained in US dollars pending approval to convert into renminbi
were recorded at historical rate. The subsequent revaluation loss of such US
dollar funds against the renminbi, amounting to HK$47 million in the first half
of 2007, was recognised as a foreign exchange loss.
Income from securities, derivatives and other trading rose significantly by
HK$141 million, or 287.8 per cent, attributable mainly to the 78.8 per cent
increase in the turnover of equity-linked structured products for commercial and
personal customers and an improvement in proprietary trading results.
Compared with the second half of 2006, trading income was down HK$87 million,
mainly attributable to the exchange loss on funding swap transactions.
^Treasury from time to time employs foreign exchange swaps for its funding
activities, which in essence involve swapping a currency ('original currency')
into another currency ('swap currency') at the spot exchange rate for short-term
placement and simultaneously entering into a forward exchange contract to
convert the funds back to the original currency on maturity of the placement. In
accordance with HKAS39, the exchange difference of the spot and forward
contracts is required to be recognised as foreign exchange gain/loss, while the
corresponding interest differential between the original and swap funding is
reflected in net interest income.
Other operating income
Half-year ended Half-year ended Half-year ended
30Jun07 30Jun06 31Dec06
Figures in HK$m
Rental income from investment
properties 72 104 82
Movement in present value of
in-force long-term insurance
business 207 185 178
Other 118 103 193
397 392 453
Analysis of income from wealth management business
Half-year ended Half-year ended Half-year ended
30Jun07 30Jun06 31Dec06
Figures in HK$m (restated)
Investment income:
- retail investment funds 728 484 312
- structured investment products^ 511 235 278
- private banking ^^ 337 165 175
- securities broking and related services 738 398 407
- margin trading and others 30 33 32
2,344 1,315 1,204
Insurance income:
- life insurance 943 688 788
- general insurance and others 142 165 121
1,085 853 909
Total 3,429 2,168 2,113
^ 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.
^^ Icome 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.
Wealth management income reached a record HK$3,429 million in the first half of
2007, an increase of 58.2 per cent over a year earlier. This was contributed by
a 78.3 per cent growth in investment services income and 37.1 per cent rise in
life insurance income.
Investment fund sales reached a half-year record of HK$32.4 billion and rose by
88.6 per cent over the same period last year. The achievement reflected the
success of the Hang Seng fund series in the launch of new funds (the Hang Seng
Consumer Sector FlexiPower Fund, the first consumer sector fund authorised in
Hong Kong focusing on the mainland and Hong Kong markets, and the Hang Seng
China B-Share Focus Fund, which is the first retail fund in Hong Kong to focus
on China B-shares) and the good performance of existing funds (particularly the
Hang Seng China Equity Fund and the Hang Seng High Yield Bond Fund). In
addition, a wide variety of third-party funds were selected to meet customers'
different investment objectives. Funds under management (excluding private
banking) rose by 8.8 per cent to HK$67.4 billion from the previous year-end.
Investment fund income (including sales commission and management fees) rose by
50.4 per cent to HK$728 million.
The bank adopted an open architecture model to source and package the most
competitive structured products (including both Hang Seng and third party
products) allowing customers to timely capture market opportunities. The success
of this approach brought a 28.3 per cent rise in turnover and 117.4 per cent
increase in income from structured investment products (mainly equity-linked
instruments).
Further investments were made in securities services to enhance the efficiency
and capacity of the e-Banking and phone banking trading platforms to capture
business opportunities provided by the buoyant stock market. Leveraging on its
extensive network, customer base and funding capabilities, the bank participated
actively in IPO activities by acting as a receiving bank and offered
preferential packages to customers for IPO subscription. Our promotional
campaigns were also successful in acquiring new securities accounts and boosting
trading volume, registering 17.2 per cent and 78.4 per cent year-on-year growth
respectively. Stockbroking and related service income rose by 85.4 per cent to
HK$738 million.
Private banking further strengthened its relationship management team and
investment service support. Customer base and assets under management rose by
8.5 per cent and 20.6 per cent respectively. Its investment services income rose
by an impressive 104.2 per cent.
Life insurance recorded encouraging income growth of 37.1 per cent to reach
HK$943 million (analysed in the table below). Hang Seng ranked first in the
market for new regular-pay (non-linked) life insurance premiums in the first
quarter of 2007. This unprecedented success is attributable to the offering of a
diverse range of retirement solutions and an efficient multi-channel
distribution network.
General insurance income fell by 13.9 per cent to HK$142 million in a
competitive market environment.
Half-year ended Half-year ended Half-year ended
30Jun07 30Jun06 31Dec06
Figures in HK$m
Life insurance:
- net interest income and fee income 429 294 371
- investment returns on life insurance
funds 689 44 866
- net earned insurance premiums 4,676 3,791 3,743
- claims, benefits and surrenders paid (618) (517) (497)
- movement in policyholders' liabilities^ (4,445) (3,113) (3,878)
- reinsurers' share of claims incurred and
movement in policyholders' liabilities 5 4 5
- movement in present value of in-force
long-term insurance business 207 185 178
943 688 788
General insurance and others 142 165 121
Total 1,085 853 909
^ Including premium and investment reserves
Loan impairment charges and other credit risk provisions
Half-year ended Half-year ended Half-year ended
30Jun07 30Jun06 31Dec06
Figures in HK$m
Loan impairment (charges)/releases:
- individually assessed (137) 29 (136)
- collectively assessed (143) (63) (82)
(280) (34) (218)
Of which:
- new and additional (349) (165) (258)
- releases 40 97 9
- recoveries 29 34 31
(280) (34) (218)
Other provisions - - (12)
Loan impairment charges and other
credit risk provisions (280) (34) (230)
Loan impairment charges and other credit risk provisions increased by HK$246
million, or 723.5 per cent, to HK$280 million. Individually assessed provisions
recorded a net charge of HK$137 million compared with a net release of HK$29
million for the same period last year, due mainly to higher new charges and
lower releases for corporate and commercial banking customers. Of the
collectively assessed charges, HK$101 million was made on card and personal loan
portfolios, a rise of 71.2 per cent over same period last year. A charge of
HK$42 million was made on advances not individually identified as impaired,
compared with a charge of HK$4 million made in the first half of 2006. This
reflects an update of the historical loss rates used for the first half of 2007.
Operating expenses
Half-year ended Half-year ended Half-year ended
30Jun07 30Jun06 31Dec06
Figures in HK$m
Employee compensation and benefits:
- salaries and other costs 1,171 1,090 1,098
- performance-related pay 405 128 254
- retirement benefit costs 22 59 65
1,598 1,277 1,417
General and administrative expenses:
- rental expenses 170 117 150
- other premises and equipment 363 350 479
- marketing and advertising expenses 225 142 305
- other operating expenses 378 298 373
1,136 907 1,307
Depreciation of business premises
and equipment 169 150 173
Amortisation of intangible assets 11 4 6
2,914 2,338 2,903
Cost efficiency ratio 26.6% 26.8% 31.0%
At 30Jun07 At 30Jun06 At 31Dec06
Staff numbers^ by region
Hong Kong 7,724 7,524 7,748
Mainland 843 471 661
Others 58 50 55
Total 8,625 8,045 8,464
^ Full-time equivalent
Operating expenses rose by HK$576 million, or 24.6 per cent, compared with the
first half of 2006. Mainland operations accounted for an increase of HK$121
million, attributable mainly to the establishment of HACN and the expansion of
branch network and headcount. Excluding mainland operations, operating expenses
rose by 20.3 per cent.
Employee compensation and benefits increased by HK$321 million, or 25.1 per
cent, over the same period last year. Of this amount, HK$277 million was in the
form of variable performance-related pay, including sales incentives and
bonuses, which made up 25.3 per cent of total staff costs in the first half of
2007 (10.0 per cent for the first half of 2006). Salaries and other costs
increased by 7.4 per cent, reflecting increased headcount and annual salary
increment.
General and administrative expenses were up HK$229 million, or 25.2 per cent. An
increase of HK$53 million in rental expenses was attributable to branches in
Hong Kong and on the Mainland as well as additional rental after the disposal of
the Hang Seng Building in May 2006 and the new 'Mega Site' back office centre.
Marketing and advertising expenses rose by HK$83 million with the increased
promotion of wealth management products and card services and brand building
both in Hong Kong and on the Mainland. The increase of HK$80 million under the
heading of 'Other operating expenses' included financial data fees to support
securities business growth, professional and other costs associated with the
establishment of HACN and charges by the HSBC Group processing centres due to an
increase in business volume.
The number of full-time equivalent staff increased by 580 year-on-year. New
staff in Hong Kong were hired to further expand private banking's financial
advisory team and strengthen the PFS and CMB relationship management and wealth
management teams. Mainland staff increased from 471 to 843, due to the
establishment of HACN and branch network expansion.
The cost efficiency ratio for the first half of 2007 was 26.6 per cent, compared
with 26.8 per cent for the same period last year.
Profit on disposal of fixed assets and financial investments
Half-year ended Half-year ended Half-year ended
30Jun07 30Jun06 31Dec06
Figures in HK$m
Profit on disposal of
available-for-sale securities 248 126 212
Profit less loss on disposal of
fixed assets 26 448 57
274 574 269
Profit on disposal of fixed assets and financial investments amounted to HK$274
million, a decrease of 52.3 per cent compared with the first half of 2006.
Profit on disposal of equity investments increased by 96.8 per cent to HK$248
million. Profit on disposal of properties fell to HK$26 million, compared with
HK$448 million in the same period last year, which recorded the disposal of the
Hang Seng Bank Building at 77 Des Voeux Road Central.
Tax expenses
Taxation in the consolidated income statement represents:
Half-year ended Half-year ended Half-year ended
30Jun07 30Jun06 31Dec06
Figures in HK$m
Current tax - provision for
Hong Kong profits tax
Tax for the period 1,077 1,367 821
Current tax - taxation outside
Hong Kong
Tax for the period 28 11 25
Deferred tax
Origination and reversal of
temporary differences 45 (176) 1
Total tax expenses 1,150 1,202 847
The current tax provision is based on the estimated assessable profit for the
first half of 2007, and is determined for the bank and its subsidiaries
operating in Hong Kong by using the Hong Kong profits tax rate of 17.5 per cent
(the same rate as in 2006). For subsidiaries and branches operating in other
jurisdictions, the appropriate tax rates prevailing in the relevant countries
are used.
Earnings per share
The calculation of earnings per share for the first half of 2007 is based on
earnings of HK$8,867 million (HK$6,190 million and HK$5,848 million for the
first and second halves of 2006 respectively) and on the weighted average number
of ordinary shares in issue of 1,911,842,736 shares (unchanged from the first
and second halves of 2006).
Dividends per share
Half-year ended Half-year ended Half-year ended
30Jun07 30Jun06 31Dec06
HK$ HK$m HK$ HK$m HK$ HK$m
per share 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
Fourth interim - - - - 1.90 3,633
2.20 4,206 2.20 4,206 3.00 5,736
Segmental analysis
Segmental information is presented in respect of business and geographical
segments. Business by customer group information, which is more relevant to the
group in making operating and financial decisions, is chosen as the primary
reporting format.
For the purpose of segmental analysis, the allocation of revenue reflects the
benefits of capital and other funding resources allocated to the customer groups
or geographical segments by way of internal capital allocation and funds
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 market rate for usage of premises are reflected as
inter-segment income for the 'Other' customer group and inter-segment expenses
for the respective customer groups.
(a) By customer group
The group's business comprises five customer groups. Personal Financial Services
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 and
proprietary trading. 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.
The table below sets out the profit before tax contributed by the customer
groups for the periods stated. More customer group analysis and discussions are
set out in the 'Customer Group Performance' section.
Personal
Financial Commercial Corporate
Figures in HK$m Services Banking Banking Treasury Other Total
Half-year ended 30Jun07
Profit before tax 5,278 1,285 192 571 2,892 10,218
Share of profit
before tax 51.7% 12.6% 1.8% 5.6% 28.3% 100.0%
Half-year ended 30Jun06
Profit before tax 3,897 1,096 271 506 1,743 7,513
Share of profit
before tax 51.9% 14.6% 3.6% 6.7% 23.2% 100.0%
Half-year ended 31Dec06
Profit before tax 3,833 1,166 286 545 1,052 6,882
Share of profit
before tax 55.7% 16.9% 4.2% 7.9% 15.3% 100.0%
(b) By geographical region
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.
Mainland
Figures in HK$m Hong Kong Americas and other Total
Half-year ended 30Jun07
Income and expense
Total operating income 15,001 794 277 16,072
Profit before tax 7,547 776 1,895 10,218
Capital expenditure incurred 181 - 37 218
At 30Jun07
Total assets 639,154 67,972 34,196 741,322
Total liabilities 668,243 3,886 16,245 688,374
Contingent liabilities and
commitments 176,613 - 13,218 189,831
Half-year ended 30Jun06
Income and expense
Total operating income 11,666 573 157 12,396
Profit before tax 6,668 558 287 7,513
Capital expenditure incurred 130 - 12 142
At 30Jun06
Total assets 539,776 63,216 25,297 628,289
Total liabilities 567,193 6,782 9,316 583,291
Contingent liabilities and
commitments 146,988 - 9,197 156,185
Half-year ended 31Dec06
Income and expense
Total operating income 12,783 722 257 13,762
Profit before tax 5,712 704 466 6,882
Capital expenditure incurred 205 - 32 237
At 31Dec06
Total assets 573,067 65,997 30,000 669,064
Total liabilities 603,636 4,180 12,550 620,366
Contingent liabilities and
commitments 165,541 - 8,701 174,242
Cash and balances with banks and other financial institutions
At 30Jun07 At 30Jun06 At 31Dec06
Figures in HK$m
Cash in hand 4,626 5,229 4,920
Balances with central banks 562 323 357
Balances with banks and
other financial institutions 7,733 8,211 4,113
12,921 13,763 9,390
Placings with and advances to banks and other financial institutions
At 30Jun07 At 30Jun06 At 31Dec06
Figures in HK$m
Placings with and advances to
banks and other financial
institutions maturing within
one month 73,931 61,425 75,722
Placings with and advances to
banks and other financial
institutions maturing after
one month 20,554 21,138 23,983
94,485 82,563 99,705
Advances to customers
At 30Jun07 At 30Jun06 At 31Dec06
Figures in HK$m
Gross advances to customers 311,952 267,393 280,277
Less:
Loan impairment allowances:
- individually assessed (408) (377) (406)
- collectively assessed (572) (511) (518)
310,972 266,505 279,353
Included in advances to
customers are:
- trade bills 3,491 3,577 3,907
- loan impairment allowances (17) (15) (16)
3,474 3,562 3,891
Loan impairment allowances against advances to customers
Individually Collectively
Figures in HK$m assessed assessed Total
At 1Jan07 406 518 924
Amounts written off (136) (108) (244)
Recoveries of advances
written off in previous years 10 19 29
New impairment allowances
charged to income statement 187 162 349
Impairment allowances
released to income statement (50) (19) (69)
Unwind of discount of loan
impairment allowances
recognised as 'interest income' (9) - (9)
At 30Jun07 408 572 980
Total loan impairment allowances as a percentage of gross advances to customers
are as follows:
At 30Jun07 At 30Jun06 At 31Dec06
% % %
Loan impairment allowances
- individually assessed 0.13 0.14 0.15
- collectively assessed 0.18 0.19 0.18
Total loan impairment allowances 0.31 0.33 0.33
Impaired advances and allowances
At 30Jun07 At 30Jun06 At 31Dec06
Figures in HK$m
Gross impaired advances 1,432 1,209 1,387
Individually assessed allowances (408) (377) (406)
Net impaired advances 1,024 832 981
Individually assessed allowances
as a percentage of gross impaired
advances 28.5% 31.2% 29.3%
Gross impaired advances as a percentage
of gross advances to customers 0.5% 0.4% 0.5%
Impaired advances are those advances where objective evidence exists that full
repayment of principal or interest is considered unlikely. Impairment allowances
are made to write down the carrying value of the advances to the discounted
value of future recoverable amounts, including the realisation of collateral.
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 30Jun07 At 30Jun06 At 31Dec06
HK$m % HK$m % HK$m %
Gross advances to customers
which have been overdue
with respect to either principal
or interest for periods of:
- six months or less but over three months 472 0.1 538 0.2 504 0.2
- one year or less but over six months 178 0.1 337 0.1 263 0.1
- over one year 173 0.1 149 0.1 173 -
823 0.3 1,024 0.4 940 0.3
Advances with a specific repayment date are classified as overdue when the
principal or interest is overdue and remains unpaid at period-end. Advances
repayable by regular instalments are treated as overdue when an instalment
payment is overdue and remains unpaid at period-end. Advances repayable on
demand are classified as overdue either when a demand for repayment has been
served on the borrower but repayment has not been made in accordance with the
demand notice, or when the advances have remained continuously outside the
approved limit advised to the borrower for more than the overdue period in
question.
Segmental analysis of advances to customers by geographical area
Advances to customers by geographical area are classified according to the
location of the counterparties after taking into account the transfer of risk.
In general, risk transfer applies when an advance is guaranteed by a party
located in an area which is different from that of the counterparty. At 30 June
2007, over 90 per cent of the group's advances to customers was classified under
Hong Kong (unchanged from the positions at 30 June 2006 and 31 December 2006).
Rescheduled advances
Rescheduled advances and their expression as a percentage of gross advances to
customers are as follows:
At 30Jun07 At 30Jun06 At 31Dec06
HK$m % HK$m % HK$m %
Rescheduled advances
to customers 343 0.1 349 0.1 357 0.1
Rescheduled advances are those that have been rescheduled or renegotiated for
reasons related to the borrower's financial difficulties. This will normally
involve the granting of 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 to customers.
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 HKMA is as follows:
At 30Jun07 At 30Jun06 At 31Dec06
Figures in HK$m
Gross advances to customers for
use in Hong Kong
Industrial, commercial and
financial sectors
Property development 17,855 15,728 18,051
Property investment 51,461 47,617 48,096
Financial concerns 1,917 2,108 2,103
Stockbrokers 7,976 288 234
Wholesale and retail trade 6,084 5,972 6,360
Manufacturing 8,098 6,894 7,670
Transport and transport equipment 9,431 11,578 11,145
Recreational activities 211 209 210
Information technology 911 666 478
Other 39,822 19,740 22,099
143,766 110,800 116,446
Individuals
Advances for the purchase of
flats under the Government
Home Ownership Scheme, Private
Sector Participation Scheme
and Tenants Purchase Scheme 19,126 21,377 20,078
Advances for the purchase of
other residential properties 82,983 82,778 83,616
Credit card advances 9,804 7,585 9,448
Other 8,970 8,058 8,813
120,883 119,798 121,955
Total gross advances for
use in Hong Kong 264,649 230,598 238,401
Trade finance 21,988 18,968 19,684
Gross advances for
use outside Hong Kong 25,315 17,827 22,192
Gross advances to customers 311,952 267,393 280,277
Gross advances at 30 June 2007 reached HK$312.0 billion, representing growth of
11.3 per cent over 31 December 2006 and 16.7 per cent year-on-year. The amount
included IPO-related financing of HK$26.9 billion recorded under 'Stockbrokers'
and 'Others' of lending to the industrial, commercial and financial sectors.
During the first half of 2007, the bank acted as receiving bank for eight IPOs
and provided over HK$209.3 billion in IPO-related financing to brokers and
corporate and private investors.
Excluding IPO-related financing, gross advances grew by 1.7 per cent and 6.6 per
cent over 31 December 2006 and 30 June 2006 respectively.
New financing for large CIB customers was active, reflected in good growth in
lending to the property investment, stockbrokers and information technology
sectors. However, large repayments of existing loans in the wholesale and retail
trade and the 'Other' sectors curtailed the growth of the overall CIB loan
portfolio.
Growth in CMB advances was mainly recorded in the manufacturing, wholesale and
retail trade sectors and in the 11.7 per cent increase in trade finance, these
being the target segments of CMB.
Residential mortgages fell marginally by 0.8 per cent amid severe market
competition. The bank did not compete on pricing but defended its market
position by providing preferential offers via its e-channel. Mortgages under the
Government Home Ownership Scheme ('GHOS') fell at a slower pace of 4.7 per cent
in the first half of 2007 (compared with a fall of 6.5 per cent during the
second half of 2006) as there were new loans drawdown following the Housing
Authority's re-launch of the sale of GHOS flats earlier this year.
Sustained strong consumer spending saw card advances rise 3.8 per cent compared
with the end of 2006 and 29.3 per cent year-on-year. Personal lending grew by
18.6 per cent compared with 31 December 2006 and 48.8 per cent year-on-year,
riding on the bank's successful promotion campaigns.
Loans for use outside Hong Kong increased by 14.1 per cent for the first six
months of 2007 to reach HK$25.3 billion. Year-on-year, a growth of 42.0 per cent
was recorded. This was attributable largely to the expansion of the mainland
loan portfolio - which grew by 21.3 per cent compared with the end of last year
and 50.4 per cent year-on-year - to reach HK$19.2 billion at 30 June 2007.
Strong growth was recorded in corporate lending, driven by renminbi loans. Trade
finance rose significantly by 42.2 per cent, leveraging on the bank's
experience, service quality and strong customer base in the Pearl River Delta
region.
Financial investments
At 30Jun07 At 30Jun06 At 31Dec06
Figures in HK$m
Available-for-sale at fair value:
- debt securities 230,075 197,934 209,463
- equity shares 2,802 1,656 2,110
Held-to-maturity debt securities
at amortised cost 18,314 12,365 16,137
251,191 211,955 227,710
Fair value of held-to-maturity
debt securities 17,556 11,853 16,551
Treasury bills 3,629 78 1,088
Certificates of deposit 25,635 25,572 25,020
Other debt securities 219,125 184,649 199,492
Debt securities 248,389 210,299 225,600
Equity shares 2,802 1,656 2,110
251,191 211,955 227,710
Available-for-sale investments include treasury bills, certificates of deposit,
other debt securities and equity shares intended to be held for an indefinite
period of time, but which may be sold in response to needs for liquidity or
changes in the market environment. Available-for-sale investments are carried at
fair value with the gains and losses from change 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.
Investments in associates
At 30Jun07 At 30Jun06 At 31Dec06
Figures in HK$m
Share of net assets 5,007 2,945 3,158
Goodwill 272 322 330
5,279 3,267 3,488
On 5 February 2007, Industrial Bank ('IB') issued 1,001 million new shares in an
IPO for a total consideration of RMB15,996 million. The bank did not subscribe
for any additional shares and, thus, its interest in the equity of IB decreased
from 15.98 per cent to 12.78 per cent. The dilution in investment resulted in a
gain of HK$1,465 million, as represented in the bank's increase in share of the
net assets of IB, which had risen as a result of the issue of the new shares.
The gain on dilution was recognised in the income statement in the first half of
2007.
The decrease of the bank's interest in the equity of IB does not affect the
bank's influence over this associate, as there has been no change in the
composition of major shareholders in IB or in the bank's representation in its
Board of Directors or Executive Committee. The bank will continue to have the
power to participate in the financial and operating policy decisions of IB, and
will continue to account for its results using the equity method.
Current, savings and other deposit accounts
At 30Jun07 At 30Jun06 At 31Dec06
Figures in HK$m
Current, savings and
other deposit accounts:
- as stated in consolidated
balance sheet 512,450 448,097 482,821
- structured deposits reported as
trading liabilities 27,571 33,414 35,066
540,021 481,511 517,887
By type:
- demand and current accounts 36,555 26,579 29,594
- savings accounts 227,101 195,488 223,255
- time and other deposits 276,365 259,444 265,038
540,021 481,511 517,887
Certificates of deposit and other debt securities in issue
At 30Jun07 At 30Jun06 At 31Dec06
Figures in HK$m
Certificates of deposit and
other debt securities in issue:
- as stated in consolidated balance sheet 7,282 8,312 7,595
- structured certificates of deposit
and other debt securities in issue
reported as trading liabilities 11,116 15,056 14,821
18,398 23,368 22,416
By type:
- certificates of deposit in issue 13,504 19,893 18,075
- other debt securities in issue 4,894 3,475 4,341
18,398 23,368 22,416
Customer deposits and certificates of deposit and other debt securities in issue
stood at HK$558.4 billion at 30 June 2007, a rise of 3.4 per cent over the end
of 2006 and 10.6 per cent year-on-year. Higher growth was recorded in savings
and current account balances, reflecting customer preference for liquidity in an
active investment market.
Subordinated liabilities
At 30Jun07 At 30Jun06 At 31Dec06
Figures in HK$m
Nominal value Description
Amount owed to third parties
HK$1,500 million Callable floating rate
subordinated notes
due June 2015 1,496 1,491 1,496
HK$1,000 million 4.125 per cent callable
fixed rate subordinated
notes due June 2015 969 950 987
US$450 million Callable floating rate
subordinated notes
due July 2016 3,503 3,495 3,483
US$300 million Callable floating rate
subordinated notes
due July 2017 2,342 - -
Amount owed to HSBC Group undertakings
US$260 million Callable floating rate
subordinated loan
debt due December 2015 2,032 2,019 2,021
10,342 7,955 7,987
Representing:
- measured at amortised cost 9,373 7,005 7,000
- designated at fair value 969 950 987
10,342 7,955 7,987
The bank contracted to issue floating-rate subordinated notes amounting to
US$300 million in July 2007, which will mature in July 2017 with a one-time call
option exercisable by the bank in July 2012. The notes will be issued at the
price of 99.868 per cent, bearing interest at the rate of three-month US dollar
LIBOR plus 0.25 per cent, payable quarterly from the issue date to the call
option date. Thereafter, if the notes are not redeemed on the call option date,
the interest rate will be reset to three-month US dollar LIBOR plus 0.75 per
cent payable quarterly. The notes qualify as tier 2 capital and will serve to
help the bank maintain a more balanced capital structure. The proceeds of the
notes will be used to support business growth and may be used to finance the
proposed acquisition of 50 per cent of the shares in Hang Seng Life Limited.
Shareholders' funds
At 30Jun07 At 30Jun06 At 31Dec06
Figures in HK$m
Share capital 9,559 9,559 9,559
Retained profits 32,706 28,627 29,044
Premises revaluation reserve 3,621 3,522 3,491
Cash flow hedges reserve (206) (532) (220)
Available-for-sale
investment reserve 1,020 37 923
Capital redemption reserve 99 99 99
Other reserves 2,129 303 452
Total reserves 39,369 32,056 33,789
48,928 41,615 43,348
Proposed dividends 2,103 2,103 3,633
Shareholders' funds 51,031 43,718 46,981
Return on average
shareholders' funds 36.6% 29.0% 25.8%
Shareholders' funds (excluding proposed dividends) increased by HK$5,580
million, or 12.9 per cent, to HK$48,928 million at 30 June 2007. Retained
profits rose by HK$3,662 million, reflecting the growth in attributable profit
during the period. Other reserves rose by HK$1,677 million, due mainly to the
gain on the dilution of investment in Industrial Bank.
The return on average shareholders' funds was 36.6 per cent, compared with 29.0
per cent for the first half of 2006 and 25.8 per cent for the second half of
2006. Excluding the gain on dilution, the return on average shareholders' funds
was 30.5 per cent.
In accordance with the HKMA guideline Impact of the New Hong Kong Accounting
Standards on Authorised Institutions' Capital Base and Regulatory Reporting, the
group has earmarked a 'regulatory reserve' of HK$572 million from retained
profits.
Save for the US$300 million subordinated notes contracted to issue in July 2007,
there was no purchase, sale or redemption of the group's listed securities by
the bank or any of its subsidiaries during the first half year of 2007.
Capital resources management
Analysis of capital base and risk-weighted assets
At 30Jun07 At 30Jun06 At 31Dec06
Figures in HK$m
Capital base
Tier 1 capital:
- Share capital 9,559 9,559 9,559
- Retained profits 27,546 25,101 25,823
- Classified as regulatory reserve (572) (511) (518)
- Less: goodwill (272) (322) (330)
- Less: 50 per cent of total unconsolidated
investments and other deductions (2,416) - -
- Total 33,845 33,827 34,534
Tier 2 capital:
- Fair value gains on the revaluation of
property 3,328 4,443 4,259
- Fair value gains on the revaluation
of available-for-sale investment and
equity 599 24 542
- Collective impairment allowances 572 511 518
- Regulatory reserve 572 511 518
- Term subordinated debt 10,343 7,955 7,988
- Less: 50 per cent of total unconsolidated
investments and other deductions (2,416) - -
- Total 12,998 13,444 13,825
Unconsolidated investments and other deductions - (3,779) (4,242)
Total capital base after deductions 46,843 43,492 44,117
Risk-weighted assets
- Credit risk 348,698 303,519 321,677
- Market risk 1,313 3,149 2,330
- Operational risk 30,377 - -
380,388 306,668 324,007
Capital adequacy ratios
- Tier 1 8.9% 11.0% 10.7%
- Total 12.3% 14.2% 13.6%
Capital ratios at 30 June 2007 were compiled in accordance with the Banking
(Capital) Rules ('the Capital Rules') issued by the HKMA under section 98A of
the Hong Kong Banking Ordinance for the implementation of the 'Basel II' capital
accord, which became effective on 1 January 2007. In accordance with the Capital
Rules, the bank has adopted the 'standardised approach' for the calculation of
the risk-weighted assets for credit risk and operational risk and the 'internal
models approach' for the calculation of market risk.
The basis of consolidation for 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 these unconsolidated regulated financial
entities are deducted from the capital base.
The capital ratios at 30 June and 31 December 2006 were compiled in accordance
with the then Third Schedule of the Hong Kong Banking Ordinance ('the Third
Schedule') under the 'Basel I' capital accord. As there are significant
differences between the Capital Rules and the Third Schedule on requirements in
the scope of consolidation and the calculation of capital base and risk weighted
assets, the capital ratios are not directly comparable.
In accordance with the HKMA guideline Impact of the New Hong Kong Accounting
Standards on Authorised Institutions' Capital Base and Regulatory Reporting, the
group has earmarked a 'regulatory reserve' of HK$572 million from retained
profits. This regulatory reserve is included as tier 2 capital together with the
group's collective impairment allowances.
Liquidity ratio
The average liquidity ratio for the periods indicated, calculated in accordance
with the Fourth Schedule of the Hong Kong Banking Ordinance, is as follows:
Half-year ended Half-year ended Half-year ended
30Jun07 30Jun06 31Dec06
The bank and its subsidiaries
designated by the HKMA 52.9% 50.9% 53.0%
Reconciliation of cash flow statement
(a) Reconciliation of operating profit to net cash flow from operating
activities
Half-year ended Half-year ended
30Jun07 30Jun06
Figures in HK$m
Operating profit 7,773 6,353
Net interest income (6,696) (5,541)
Dividend income (26) (31)
Loan impairment charges and other
credit risk provisions 280 34
Depreciation 169 150
Amortisation of intangible assets 11 4
Amortisation of available-for-sale
investments (392) (222)
Amortisation of held-to-maturity
debt securities (2) -
Advances written off net of recoveries (215) (166)
Interest received 12,029 10,530
Interest paid (9,372) (6,609)
Operating profit before changes in
working capital 3,559 4,502
Change in treasury bills and certificates of
deposit with original maturity more than
three months (3,108) 4,505
Change in placings with and advances to banks
maturing after one month 3,429 (6,190)
Change in trading assets 1,677 4,831
Change in financial assets designated at
fair value (472) 78
Change in derivative financial instruments 806 18
Change in advances to customers (31,685) (5,693)
Change in other assets 4,164 (3,105)
Change in current, savings and other
deposit accounts 29,125 17,102
Change in deposits from banks 40,154 10,080
Change in trading liabilities (15,799) 15,826
Change in certificates of deposit and
other debt securities in issue (313) (1,711)
Change in other liabilities (15,674) (600)
Change in liabilities to customers under
insurance contract 9 10
Change in financial liabilities
designated at fair value 486 (17)
Elimination of exchange differences
and other non-cash items (3,560) (1,149)
Cash generated from operating activities 12,798 38,487
Taxation paid (422) (407)
Net cash inflow from operating activities 12,376 38,080
(b) Analysis of the balances of cash and cash equivalents
At 30Jun07 At 30Jun06
Figures in HK$m
Cash and balances with banks and
other financial institutions 12,921 13,763
Placings with and advances to banks and other
financial institutions maturing within one month 71,487 59,056
Treasury bills 6,258 6,852
Certificates of deposit 445 1,191
91,111 80,862
Contingent liabilities, commitments and derivatives
Credit Risk-
Contract equivalent weighted
Figures in HK$m amount amount amount
At 30Jun07
Contingent liabilities:
Guarantees 4,541 4,506 3,772
Commitments:
Documentary credits and short-term
trade-related transactions 10,823 2,182 2,172
Undrawn formal standby facilities,
credit lines and other commitments
to lend:
- under one year 155,790 5,865 5,865
- one year and over 18,365 8,692 7,409
Other 312 45 45
185,290 16,784 15,491
Exchange rate contracts:
Spot and forward foreign exchange 485,189 4,601 1,180
Other exchange rate contracts 72,023 504 123
557,212 5,105 1,303
Interest rate contracts:
Interest rate swaps 176,491 1,524 347
Other interest rate contracts 1,065 1 -
177,556 1,525 347
Other derivative contracts 13,120 637 293
Credit Risk-
Contract equivalent weighted
Figures in HK$m amount amount amount
At 30Jun06
Contingent liabilities:
Guarantees 3,604 3,364 3,172
Commitments:
Documentary credits and short-term
trade-related transactions 8,820 1,770 1,755
Undrawn formal standby facilities,
credit lines and other commitments
to lend:
- under one year 124,080 - -
- one year and over 19,454 9,727 8,953
Other 227 227 227
152,581 11,724 10,935
Exchange rate contracts:
Spot and forward foreign exchange 253,985 2,404 526
Other exchange rate contracts 49,693 414 97
303,678 2,818 623
Interest rate contracts:
Interest rate swaps 155,362 1,627 340
Other interest rate contracts 4,220 10 2
159,582 1,637 342
Other derivative contracts 4,916 267 65
Credit Risk-
Contract equivalent weighted
Figures in HK$m amount amount amount
At 31Dec06
Contingent liabilities:
Guarantees 4,150 3,877 3,679
Commitments:
Documentary credits and short-term
trade-related transactions 8,717 1,745 1,738
Undrawn formal standby facilities,
credit lines and other commitments
to lend:
- under one year 142,463 - -
- one year and over 18,719 9,360 8,696
Other 193 193 193
170,092 11,298 10,627
Exchange rate contracts:
Spot and forward foreign exchange 267,822 2,715 591
Other exchange rate contracts 64,377 499 110
332,199 3,214 701
Interest rate contracts:
Interest rate swaps 162,969 1,376 295
Other interest rate contracts 2,350 2 -
165,319 1,378 295
Other derivative contracts 5,668 382 90
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 purposes of deriving the risk-weighted amounts. The credit
equivalent, risk-weighted amounts and the consolidation basis at 30 June 2007
were calculated in accordance with the Banking (Capital) Rules issued by the
HKMA, which became effective on 1 January 2007. The corresponding amounts at 30
June and 31 December 2006 were calculated in accordance with the then Third
Schedule of the Hong Kong Banking Ordinance.
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. These transactions are, therefore, subject to the same credit
origination, portfolio maintenance and collateral requirements as for customers
applying for loans. As the facilities may expire without being drawn upon, the
total of the contract amounts is not representative of future liquidity
requirements.
Derivative financial instruments are held for trading or designated as either
fair value hedge 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 30Jun07 At 30Jun06 At 31Dec06
Figures in HK$m Trading Hedging Trading Hedging Trading Hedging
Contract amounts:
Interest rate
contracts 110,819 66,737 107,608 51,974 105,001 60,318
Exchange rate
contracts 557,212 - 303,678 - 332,199 -
Other derivative
contracts 13,120 - 4,916 - 5,668 -
681,151 66,737 416,202 51,974 442,868 60,318
Derivative assets:
Interest rate
contracts 412 650 688 480 435 513
Exchange rate
contracts 1,214 - 983 - 866 -
Other derivative
contracts 72 - 10 - 73 -
1,698 650 1,681 480 1,374 513
Derivative liabilities:
Interest rate
contracts 580 185 999 507 573 217
Exchange rate
contracts 1,260 - 578 - 722 -
Other derivative
contracts 93 - 172 - 19 -
1,933 185 1,749 507 1,314 217
The above derivative assets and liabilities, being the positive or negative
marked-to-market value of the respective derivative contracts, represent gross
replacement costs, as none of these contracts are subject to any bilateral
netting arrangements.
Additional information
1. Accounting policies
The accounting policies applied in preparing this news release are the same as
those applied in preparing the financial statements for the year ended 31
December 2006, as disclosed in the Annual Report and Financial Statements for
2006.
2. Statement of compliance
This news release has been prepared in accordance with Hong Kong Accounting
Standard ('HKAS') 34 'Interim Financial Reporting'.
Disclosures required by the Banking (Disclosure) Rules issued by the HKMA are
contained in the bank's Interim Report which will be published on the websites
of The Stock Exchange of Hong Kong Limited and the bank on the date of the issue
of this news release.
3. Statutory accounts
The information in this news release is not audited and does not constitute
statutory accounts.
Certain financial information in this news release is extracted from the
statutory accounts for the year ended 31 December 2006, which have been
delivered to the Registrar of Companies and the HKMA. The auditors expressed an
unqualified opinion on those statutory accounts in their report dated 5 March
2007.
4. Comparative figures
Certain comparative figures have been reclassified to conform with the current
period's presentation.
5. Acquisition
On 22 June 2007, the bank announced that its wholly-owned subsidiary, Hang Seng
Insurance Company Limited ('HSIC'), had entered into a conditional agreement to
acquire 50 per cent of the issued share capital of Hang Seng Life Limited
('HSLL') from HSBC Insurance (Asia-Pacific) Holdings Limited, an indirect
wholly-owned subsidiary of HSBC Holdings plc, for a consideration of HK$2,400
million. The bank owns the remaining 50 per cent of the issued capital of HSLL
and is accounting for the results of HSLL as a subsidiary. Under the Listing
Rules, the acquisition constitutes a discloseable and connected transaction of
the bank and is subject to approval by the independent shareholders. An
Extraordinary General Meeting will be convened on 1 August 2007 for the purpose
of obtaining the necessary approval for the acquisition.
6. Property revaluation
A revaluation of Hang Seng's premises and investment properties in Hong Kong was
performed in June 2007 to reflect property market movements in the first half of
the year. The group's premises and investment properties were revalued by DTZ
Debenham Tie Leung Limited, an independent professional valuer, and 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
revaluation surplus for group premises amounted to HK$281 million, of which
HK$17 million was a reversal of revaluation deficits previously charged to the
income statement. The balance of HK$264 million was credited to the premises
revaluation reserve. Revaluation gains on investment properties of HK$154
million were recognised through the income statement. The related deferred tax
provisions for group premises and investment properties were HK$49 million and
HK$27 million respectively.
The revaluation exercise also covered investment properties reclassified as
properties held for sale. In accordance with HKFRS 5, the revaluation gain of
HK$95 million was recognised through the income statement.
7. Foreign currency positions
Foreign currency exposures include those arising from trading, non-trading and
structural positions. At 30 June 2007, the US dollar (US$) and renminbi (RMB)
were the currencies in which the group had a non-structural foreign currency
position that exceeded 10 per cent of the total net position in all foreign
currencies.
At 30Jun07 At 30Jun06 At 31Dec06
US$ RMB US$ RMB US$ RMB
Non-structural position
Spot assets 218,083 22,021 202,537 8,960 205,544 14,422
Spot liabilities (212,016) (22,935) (189,227) (8,582) (189,232) (12,670)
Forward purchases 241,832 4,049 124,061 570 128,102 353
Forward sales (238,922) (6,144) (129,724) (827) (141,544) (1,904)
Net option position^ 60 - 25 - 120 -
Net long /(short)
non-structural
position 9,037 (3,009) 7,672 121 2,990 201
^ Net option position is calculated on the basis of the delta-weighted positions
of all foreign exchange options contracts.
At 30 June 2007, the group's major structural foreign currency positions were US
dollar and renminbi.
At 30Jun07 At 30Jun06 At 31Dec06
% of % of % of
total net total net total net
structural structural structural
HK$m position HK$m position HK$m position
Structural positions
US dollar 287 2.9 1,133 33.0 1,430 26.8
Renminbi 9,469 95.9 2,194 63.9 3,760 70.5
8. Ultimate holding company
Hang Seng Bank is an indirectly held 62.14 per cent-owned subsidiary of HSBC
Holdings plc.
9. Register of shareholders
The register of shareholders of Hang Seng Bank will be closed on Tuesday, 21
August 2007, during which no transfer of shares can be registered. In order to
qualify for the second interim dividend, all transfers, accompanied by the
relevant share certificates, must be lodged with the bank's registrars,
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 Monday, 20 August 2007. The second interim dividend will
be payable on 30 August 2007 to shareholders on the register of shareholders of
the bank on 21 August 2007.
10. Proposed timetable for the remaining 2007 quarterly dividends
Third interim Fourth interim
dividend dividend
Announcement 5 November 2007 3 March 2008
Book close and record date 27 November 2007 18 March 2008
Payment date 11 December 2007 28 March 2008
11. Code on Corporate Governance Practices
The bank follows all the code provisions 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 period
of six months ended 30 June 2007.
The Audit Committee of the bank has reviewed the results for the six months
ended 30 June 2007.
12. Board of Directors
As at 30 July 2007, the Board of Directors of the bank comprises Mr Raymond C F
Or (Vice-Chairman and Chief Executive), Mr Edgar D Ancona^, Mr John C C Chan*,
Mr Patrick K W Chan, Dr Y T Cheng*, Dr Marvin K T Cheung*, Mr Jenkin Hui*, Mr
Peter T C Lee*, Dr Eric K C Li*, Dr Vincent H S Lo^, Mr Joseph C Y Poon, Dr
David W K Sin*, Mr Richard Y S Tang* and Mr Peter T S Wong^
* Independent non-executive Director
^ Non-executive Director
13. News release
Copies of this news release may be obtained from Legal and Company Secretarial
Services Department, Level 10, 83 Des Voeux Road Central, Hong Kong; or from
Hang Seng's website http://www.hangseng.com.
The 2007 Interim 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 The Stock Exchange of Hong Kong Limited and Hang Seng on the
date of the issue of this news release. Printed copies of the 2007 Interim
Report will be sent to shareholders in late August 2007.
Media enquiries to:
Walter Cheung Telephone: (852) 2198 4020
Cecilia Ko Telephone: (852) 2198 4227
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: 30 July 2007