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 2006
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- ..............)
THE HONGKONG AND SHANGHAI BANKING CORPORATION LIMITED
2006 INTERIM CONSOLIDATED RESULTS - HIGHLIGHTS
- Net operating income before loan impairment charges and other credit
risk provisions up 15.0 per cent to HK$44,353 million (HK$38,576 million in
the first half of 2005; up 14.8 per cent from HK$38,646 million in the
second half of last year).
- Pre-tax profit up 5.6 per cent to HK$25,516 million (HK$24,163 million
in the first half of 2005; up 21.0 per cent from HK$21,086 million in the
second half of last year).
- Attributable profit up 5.2 per cent to HK$18,471 million (HK$17,564
million in the first half of 2005; up 20.7 per cent from HK$15,309 million
in the second half of last year).
- Return on average shareholders' funds of 34.9 per cent (39.7 per cent
and 35.2 per cent in the first and second half of 2005 respectively).
- Assets up 8.4 per cent to HK$2,898 billion (HK$2,673 billion at the end
of 2005); risk-weighted assets up 5.4 per cent to HK$1,306 billion
(HK$1,238 billion at 31 December 2005).
- Total capital ratio of 13.1 per cent; tier 1 capital ratio of 12.1 per
cent (12.4 per cent and 11.7 per cent at 31 December 2005).
- Cost efficiency ratio of 39.4 per cent (38.4 per cent and 44.0 per cent
for the first and second half of 2005 respectively).
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 Vincent Cheng, Chairman
In the first half of 2006, The Hongkong and Shanghai Banking Corporation
reported solid results and continued to invest in the growth of its businesses
both in Hong Kong and the rest of the Asia-Pacific region. Supported by a strong
economy in Hong Kong, deepening links with mainland China, and generally
favourable conditions in other parts of Asia, the group increased marketing
activity and the recruitment of customer-facing staff to grow market share and
customer penetration in its major businesses. The exceptions to this generally
benign environment were deteriorating personal credit conditions in Taiwan and
Indonesia.
Net operating income before loan impairment charges was HK$44,353 million, an
increase of HK$5,777 million, or 15.0 per cent, compared with the first half of
2005, and HK$5,707 million, or 14.8 per cent, higher than the second half of
2005. Net interest income benefited from rising interest rates that led to wider
deposit spreads and an increase in demand for deposit and savings products in
both Hong Kong and the rest of Asia-Pacific.
Personal Financial Services' net operating income before loan impairment charges
rose 14.2 per cent to HK$21,967 million compared with the same period in 2005.
Net operating income before loan impairment charges in the second half of 2005
was 7.1 per cent higher. Mortgage market share increased significantly after an
effective marketing campaign that focused on simplified and transparent pricing
by the bank in Hong Kong. There was also increased mortgage lending in
Singapore, Taiwan, India and Korea.
Supported by increased investment in marketing, the number of cards in the
region exceeded 9 million. Buoyant stock markets and favourable economic
conditions in Hong Kong and many parts of the region drove demand for wealth
management products.
Commercial Banking's net operating income before loan impairment charges rose
22.3 per cent to HK$9,254 million compared with the first half of 2005, and by
HK$459 million, or 5.2 per cent, compared with the second half of 2005.
In Hong Kong, there was strong demand for credit in the property and Mainland
manufacturing sectors. Insurance revenues continued to grow following the
establishment of a dedicated commercial banking insurance division.
In the rest of Asia-Pacific, corporate lending and trade finance grew strongly
in India and asset spreads improved. Liability spreads improved across the
region.
Net operating income before loan impairment charges in Corporate, Investment
Banking and Markets increased by 5.0 per cent to HK$12,513 million compared with
the first half of 2005, and by 20.7 per cent, or HK$2,146 million, compared with
the second half. Net interest income fell by HK$1,017 million, compared with the
first half of 2005. In Global Markets, balance sheet management revenues
declined as the cost of funding fixed rate asset positions, entered into in
earlier periods, rose significantly. Flat yield curves made it difficult to
generate income through position-taking. This was partially offset by a strong
performance in Global Transactional Banking (trade services, payments and cash
management and securities services).
Fee income from asset management rose by 79.9 per cent, reflecting higher fund
advisory and distribution fees. Foreign exchange profits were higher as currency
volatility provided trading opportunities. Customer volumes increased in India,
Korea and Taiwan.
Our commercial and personal insurance businesses continued to make significant
progress across the region.
We continued to invest in our China businesses where there was strong growth in
both our branch operations and investments. Net operating income before loan
impairment charges in the first half of 2006 was 45.1 per cent higher than in
the first half of 2005, at HK$1,155 million. Income from our investments was
44.0 per cent higher, at HK$1,283 million.
The group's operating profit was HK$24,281 million, an increase of HK$1,038
million, or 4.5 per cent, compared with the first half of 2005, and an increase
of HK$4,180 million, or 20.8 per cent, compared with the second half.
In Hong Kong, a modest loan impairment charge for personal lending contrasted
with net releases in the first half of 2005 and was offset by a reduction in
charges in commercial lending.
In the rest of Asia-Pacific, loan impairment charges and other credit risk
provisions were impacted by the deteriorating personal credit environment in
Taiwan and Indonesia.
In both Hong Kong and the rest of Asia-Pacific, costs increased to continue
business expansion. The recruitment of customer-facing staff and investment in
IT resources rose in all three of our major businesses. Marketing costs were
higher in both Personal Financial Services and Commercial Banking.
We will continue to identify opportunities for growing our business in the
region. The regional economy is likely to benefit from robust external demand,
although the pace of growth will be somewhat slower than in the first half due
to the impact of higher interest rates and oil prices. Domestic demand in Asia
remains buoyant and could help mitigate any slowdown in external demand such as
a possible slowdown in the US economy.
Results by Customer Group
Corporate,
Investment
Personal Banking
Financial Commercial and Private
Figures in HK$m Services Banking Markets Banking Other Total
Half-year ended 30JUN06
Net interest income 14,403 6,458 4,017 39 (1,327) 23,590
Net fee income 5,177 2,445 3,511 33 (252) 10,914
Net trading income 459 386 4,587 6 (976) 4,462
Net income/(loss) from
financial instruments
designated at fair value 63 (319) 18 - 266 28
Gains less losses from
financial investments 84 (1) 195 - 872 1,150
Dividend income 3 2 23 - 563 591
Net earned insurance
premiums 10,413 437 62 - - 10,912
Other operating income 836 71 148 7 1,388 2,450
Total operating income 31,438 9,479 12,561 85 534 54,097
Net insurance claims
incurred and movement in
policyholder liabilities (9,471) (225) (48) - - (9,744)
Net operating income
before loan impairment
charges and other credit
risk provisions 21,967 9,254 12,513 85 534 44,353
Loan impairment charges
and other credit
risk provisions (2,480) (258) 155 - - (2,583)
Net operating income 19,487 8,996 12,668 85 534 41,770
Operating expenses (9,046) (3,011) (5,222) (81) (129) (17,489)
Operating profit 10,441 5,985 7,446 4 405 24,281
Share of profit in
associates 116 723 296 - 100 1,235
Profit before tax 10,557 6,708 7,742 4 505 25,516
Share of profit before tax 41.4% 26.3% 30.3% - 2.0% 100.0%
Advances to customers (net) 448,553 253,528 323,275 3,264 15,744 1,044,364
Customer accounts 1,042,668 375,923 388,996 7,139 3,542 1,818,268
Half-year ended 30JUN05
Net interest income 12,819 5,062 5,034 29 (1,534) 21,410
Net fee income 4,152 2,207 2,452 29 34 8,874
Net trading income 449 276 3,701 3 (233) 4,196
Net income/(loss) from
financial instruments
designated at fair value 163 (342) 152 - (29) (56)
Gains less losses from
financial investments 3 23 (35) - 356 347
Dividend income 3 2 106 - 138 249
Net earned insurance
premiums 6,546 356 73 - - 6,975
Other operating income 1,028 150 472 7 1,063 2,720
Total operating income 25,163 7,734 11,955 68 (205) 44,715
Net insurance claims
incurred and movement in
policyholder liabilities (5,932) (168) (39) - - (6,139)
Net operating income
before loan impairment charges
and other credit risk
provisions 19,231 7,566 11,916 68 (205) 38,576
Loan impairment charges
and other credit risk
provisions (60) (510) 54 - - (516)
Net operating income 19,171 7,056 11,970 68 (205) 38,060
Operating expenses (7,912) (2,560) (4,701) (52) 408 (14,817)
Operating profit 11,259 4,496 7,269 16 203 23,243
Share of profit in
associates 93 566 231 - 30 920
Profit before tax 11,352 5,062 7,500 16 233 24,163
Share of profit before tax 47.0% 21.0% 31.0% - 1.0% 100.0%
Advances to customers (net) 418,884 235,856 300,955 3,551 14,391 973,637
Customer accounts 992,860 336,228 334,524 6,234 1,587 1,671,433
Half-year ended 31DEC05
Net interest income 13,982 6,027 3,691 34 (1,653) 22,081
Net fee income 3,898 2,317 2,936 26 46 9,223
Trading income 234 362 3,514 7 (1,133) 2,984
Net income/(loss) from
financial instruments
designated at fair value 503 (306) (30) - 273 440
Gains less losses from
financial investments (3) - 54 - 358 409
Dividend income 2 12 61 - 44 119
Net earned insurance
premiums 11,891 400 74 - - 12,365
Other operating income 956 145 100 6 970 2,177
Total operating income 31,463 8,957 10,400 73 (1,095) 49,798
Net insurance claims
incurred and movement in
policyholder liabilities (10,957) (162) (33) - - (11,152)
Net operating income
before loan impairment
charges and other credit
risk provisions 20,506 8,795 10,367 73 (1,095) 38,646
Loan impairment charges
and other credit risk
provisions (1,284) (386) 111 - 11 (1,548)
Net operating income 19,222 8,409 10,478 73 (1,084) 37,098
Operating expenses (9,020) (2,864) (4,941) (61) (111) (16,997)
Operating profit 10,202 5,545 5,537 12 (1,195) 20,101
Share of profit in
associates 86 524 215 - 160 985
Profit before tax 10,288 6,069 5,752 12 (1,035) 21,086
Share of profit before tax 48.8% 28.8% 27.3% - (4.9%) 100.0%
Advances to customers (net) 436,676 235,675 309,092 3,230 14,653 999,326
Customer accounts 984,734 374,370 366,752 7,405 1,849 1,735,110
Personal Financial Services reported profit before tax of HK$10,557 million, a
decrease of 7.0 per cent over the first half of 2005 as strong growth in
operating income of 14.2 per cent was offset by higher credit card impairment
allowances in Taiwan and Indonesia, and investment expenditure in the rest of
Asia-Pacific.
Net interest income increased by HK$1,584 million, or 12.4 per cent, compared
with the first half of 2005. In Hong Kong, net interest income rose by HK$967
million, or 9.9 per cent, as effective management of deposit pricing amid the
continued trend of rising interest rates resulted in a further widening of
liability spreads. The local mortgage market remained highly competitive as
sales volumes in the housing market slowed, but a significant increase in market
share of new business was achieved, largely as a result of a simplified pricing
campaign launched by the bank in Hong Kong in the first quarter of 2006. Credit
card lending in Hong Kong grew, but net interest income fell as the benefit of
higher receivables was more than offset by a rise in funding costs. Average
customer deposit balances remained flat, reflecting a competitive market and
customer preference for investment in unit trusts and structured deposit
products.
In the rest of Asia-Pacific, net interest income rose by HK$617 million, or 20.2
per cent, reflecting strong balance sheet growth across the region. The deposit
base expanded in a number of countries, particularly Singapore, mainland China
and Indonesia, reflecting a more focused strategy on HSBC Premier customers, and
deposit spreads improved on the back of higher interest rates. Mortgage lending
increased in Korea, Singapore, Taiwan and India, led by competitive pricing and
increased marketing activity. These volume benefits were, however, partly offset
by lower spreads resulting from higher funding costs and reduced yields.
Interest earned on credit cards was higher in the Philippines, Indonesia and
India, reflecting growth in receivables, but spreads narrowed in the face of
increased funding costs. Income from personal instalment loans rose, notably in
India, Korea and Indonesia, following the successful launch of these products in
mid-2005.
Net fee income of HK$5,177 million was 24.7 per cent higher than the first half
of 2005, driven by increased stock market activity in Hong Kong and the region
and greater demand for wealth management products. While the investment
environment proved volatile, the group continued to develop and market a
diversified wealth management product set to suit a variety of customer
appetites in changing markets. In Hong Kong, fee income was up by HK$637
million, or 20.8 per cent. Fee income from stockbroking and custody services
rose by 88.7 per cent, as transaction volumes were higher reflecting buoyant
stock market conditions in the first quarter of 2006. Sales of unit trusts
increased significantly as investors switched to equity-related products,
encouraged by improved markets and the launch of new investment funds. In the
rest of Asia-Pacific, fee income rose by 35.7 per cent on the back of strong
demand for investment products in India, Singapore, Taiwan and Korea, with
revenue from wealth management sales in the region increasing by HK$193 million,
or 41.8 per cent.
Fee income from credit cards was HK$313 million, or 25.3 per cent, higher than
the first half of 2005 as the group strengthened its position as the largest
card issuer in Hong Kong, with 4.4 million cards in force. In the rest of
Asia-Pacific, particularly India and the Philippines, expansion of the cards
business continued. This was supported by extensive marketing campaigns and
sales efforts, resulting in a rise of 19.6 per cent in the number of cards to a
total of 5.0 million issued, as well as a 17.3 per cent increase in cardholder
spending.
Insurance income rose by 27.1 per cent, with continued focus on the development
of the group's retirement planning proposition and supported by increased levels
of marketing activity. Sales of other life assurance products also grew and
revenues from general insurance, particularly medical, travel and home insurance
increased.
Gains from financial investments principally comprise profit realised from the
partial disposal of an operational investment.
The charge for loan impairment increased by HK$2,420 million to HK$2,480
million, primarily attributable to higher credit card delinquency levels in
Taiwan and Indonesia. Delinquency rates and write-offs rose in Taiwan as a
result of government measures to control excessive consumer credit growth.
Indonesia has been affected by higher minimum repayment rules, coupled with a
hefty reduction in the government subsidy of fuel prices. Volume growth in
personal lending and credit card receivables also contributed to the increased
charge. The prior period benefited from non-recurring releases of provisions
against mortgage lending and restructured facilities in Hong Kong.
Operating expenses were HK$1,134 million, or 14.3 per cent, higher than in the
first half of 2005, principally driven by continued investment to develop and
expand the business in the rest of the Asia-Pacific region. Compared with the
second half of 2005, however, expenses were flat. In Hong Kong, operating
expenses rose by 7.5 per cent, largely in relation to a major credit card
marketing campaign and headcount growth in customer-facing roles. Technology
costs were also higher, reflecting investment in customer portfolio management
systems and the enhancement of channel capabilities. In the rest of
Asia-Pacific, costs increased by HK$779 million, or 24.4 per cent, notably in
India and Korea, as the group continued to pursue organic growth in the region.
Headcount rose by 30.7 per cent as sales and support functions were expanded,
and premises costs rose as new branches were opened in Korea, India, and
mainland China. Higher marketing costs were incurred to drive sales and promote
the HSBC brand, with specific campaigns targeted to increase customer numbers
and raise market share in credit cards, mortgages and personal loans, and to
attract new deposits. In addition, costs were incurred in the start-up of the
consumer finance business in the region.
Income from associates of HK$116 million includes improved results from Bank of
Communications and Industrial Bank.
Commercial Banking reported profit before tax of HK$6,708 million, an increase
of 32.5 per cent over the first half of 2005, driven by improved deposit spreads
and balance sheet growth. Operating profit, excluding loan impairment charges,
grew by 22.2 per cent in Hong Kong to HK$4,873 million, and in the rest of
Asia-Pacific by 34.4 per cent to HK$1,370 million.
Net interest income increased by HK$1,396 million, or 27.6 per cent, compared
with the first half of 2005. This reflected growth in average advances and
deposits as well as improvements in deposit spreads following further rises in
interest rates this year. In Hong Kong, net interest income rose by HK$941
million, or 24.2 per cent, as strong demand for credit continued in the property
sector and from manufacturers with operations on the Mainland, but lending
margins were compressed due to keen market competition. Liability balances
increased, reflecting the active promotion of the 'BusinessVantage' account in
Hong Kong and the widening of deposit spreads. Emphasis on the small and
medium-sized enterprises ('SME') segment was strengthened with the opening of
new dedicated SME centres, more relationship managers and the launch of a new
criteria-based lending programme. Cross-border relationships continue to be
developed. A new dedicated Taiwan team was set up to pursue business growth from
the Taiwanese segment in Hong Kong and mainland China, and the alignment of
resources to support customer needs in mainland China led to an increase in
inter-office referrals.
In the rest of Asia-Pacific, net interest income grew by 38.5 per cent. In
India, corporate lending and trade finance grew strongly and asset spreads
improved, and in Singapore continued effort was made to gain new customers and
deepen relationships with existing customers in the mid-market and SME segments.
Liability spreads improved across the region. The deposit base expanded in
various countries, particularly in India due to the receipt of IPO funds and in
Singapore which benefited from the introduction of new distribution channels and
marketing campaigns. In addition, the offshore business in Mauritius performed
well.
Net fee income rose by HK$238 million, or 10.8 per cent, largely attributable to
higher fees from account services and remittances, particularly in Hong Kong as
a result of the successful marketing of new payment services, and in India where
the SME business was repositioned to focus on the provision of transactional
banking services. Credit card fee income grew as the number of merchant
relationships increased. Income from sales of foreign exchange products
increased by 39.9 per cent, benefiting from an increase in cross-border
remittances. Fees from trade services were marginally higher as increases in
India, Bangladesh and Indonesia were offset by lower revenues in Hong Kong due
to intense market competition. Income from the sale of wealth management
products in Hong Kong fell in line with a shift in market demand away from
guaranteed funds to shorter-term deposit products.
Insurance revenues, particularly from life insurance products, continued to grow
following the establishment of a dedicated commercial banking insurance division
last year. Income increased by 56.1 per cent.
The charge for loan impairment was HK$252 million lower than the first half of
2005, reflecting a decrease in new specific provisions in Hong Kong, although
new charges in mainland China were higher. Credit quality generally remained
stable elsewhere in the region, despite the more volatile external environment
in which interest rates and commodity prices have continued to rise.
Operating expenses increased by 17.6 per cent over the first half of 2005, as
the number of sales and back-office staff increased in support of SME
initiatives, insurance business expansion and product development. Expenditure
increased on marketing campaigns to win new business and increase market
penetration. Ongoing investment in the development and promotion of internet
banking and other lower-cost delivery channels also incurred higher IT and
infrastructure costs. Business Internet Banking in Hong Kong continued to show
impressive growth and was enhanced to support sales of unit trusts and
structured deposits. User numbers increased by over 40 per cent and the
proportion of online transactions grew by 56 per cent. Staff costs and marketing
expenditure rose in Korea and mainland China in order to develop our commercial
banking business in these countries.
Income from associates of HK$723 million includes improved results from Bank of
Communications and Industrial Bank.
Corporate, Investment Banking and Markets reported profit before tax of HK$7,742
million, 3.2 per cent higher than the first half of 2005. An excellent
performance in Global Transaction Banking and strong trading profits were
largely offset by a decline in net interest income in Global Markets.
Net interest income fell by HK$1,017 million, or 20.2 per cent, compared with
the first half of 2005. In Global Markets, balance sheet management revenues
declined as the cost of funding fixed rate asset positions, put on in earlier
periods, rose significantly. In addition, flat yield curves made it difficult to
generate income through position-taking. These asset positions had, however,
largely run off by the period end. Net interest income in Global Transaction
Banking increased by 90.3 per cent, notably in Hong Kong and India, as deposit
spreads improved as a result of interest rate rises across the region, coupled
with business growth. Deposit balances grew by 27.9 per cent as the payments and
cash management business successfully completed the implementation of several
cross-border cash management solutions. The securities services business
performed well, particularly in India, Taiwan and Korea and settlement balances
increased due to higher stock market transaction volumes, which were in part
boosted by a rise in foreign investment. Trade finance revenues grew, notably in
Japan and Korea. Net interest income from corporate lending was flat as the
benefit of balance sheet growth in Hong Kong was offset by competitive pressures
on spreads. Strong growth in advances to corporates in mainland China was
achieved, reflecting investment made in expanding customer relationships and
inflow of business into the group's new branches on the Mainland.
Net fee income increased by HK$1,059 million, or 43.2 per cent. The securities
services business continued to broaden capabilities across the region. Volumes
benefited from buoyant local stock markets in the first quarter, particularly in
Hong Kong, India and Korea, resulting in a rise in fee income of 60.2 per cent.
Fee income from the asset management business increased by 79.9 per cent,
reflecting higher fund advisory and distribution fees and growth in funds under
management. The investment banking division arranged a number of structured
finance transactions in Hong Kong, but underwriting income was lower as adverse
market sentiment in Hong Kong in the second quarter of 2006 caused the
postponement of several local IPOs.
Net trading income rose by 23.9 per cent to HK$4,587 million. Foreign exchange
profits were higher as currency volatility provided good trading opportunities
and customer volumes increased in India, Korea and Taiwan, which also benefited
from inward foreign investment in the local stock markets. Expansion of the
product range in the equities and equity derivatives business, together with
more active stock markets, produced strong trading results. However, the stock
market decline late in the period did have some negative impact in reducing the
flow of deals. Good positioning for interest rate rises resulted in strong gains
in interest rate derivatives and government securities trading. Private equity
investments also performed strongly. However, corporate bond trading in Hong
Kong was adversely affected by lower turnover of fixed rate products in the
rising rate environment and price falls in emerging markets securities.
Gains on the disposal of financial investments largely comprised profits made on
the sale of Philippine government securities.
There was a net release of loan impairment provisions of HK$155 million,
compared with a release of HK$54 million in the first half of 2005, as the
corporate credit environment throughout the region remained benign.
Operating expenses increased by 11.1 per cent compared with the first half of
2005, reflecting headcount increases and IT investment to support business
expansion in all areas and higher performance-related remuneration in the
investment banking division and in Global Markets. The transfer of HSBC
Securities Japan to the group in the second quarter of 2005 also contributed to
the increase in expenses as a full period of costs was reflected this year. Cost
growth has slowed, however, as total expenses were 5.7 per cent up compared to
the second half of 2005.
Income from associates of HK$296 million includes improved results from Bank of
Communications and Industrial Bank.
Other includes income and expenses relating to certain funding, investment,
property and other activities that are not allocated to other customer groups,
together with the elimination of inter-segment transactions. Gains from
financial investments largely comprise profit on the disposal of part of the
group's stake in UTI Bank, and other operating income includes profits made on
property sales. These gains were partially offset by lower revaluation gains on
investment property.
Consolidated Income Statement
Half-year ended Half-year ended Half-year ended
Figures in HK$m 30JUN06 30JUN05 31DEC05
Interest income 53,745 35,859 44,340
Interest expense (30,155) (14,449) (22,259)
Net interest income 23,590 21,410 22,081
Fee income 13,185 10,579 11,092
Fee expense (2,271) (1,705) (1,869)
Net fee income 10,914 8,874 9,223
Net trading income 4,462 4,196 2,984
Net income/(loss) from financial
instruments designated at fair value 28 (56) 440
Gains less losses from financial
investments 1,150 347 409
Dividend income 591 249 119
Net earned insurance premiums 10,912 6,975 12,365
Other operating income 2,450 2,720 2,177
Total operating income 54,097 44,715 49,798
Net insurance claims incurred and
movement in policyholder liabilities (9,744) (6,139) (11,152)
Net operating income before loan
impairment charges and other credit
risk provisions 44,353 38,576 38,646
Loan impairment charges and other
credit risk provisions (2,583) (516) (1,548)
Net operating income 41,770 38,060 37,098
Employee compensation and benefits (10,109) (8,425) (9,311)
General and administrative expenses (6,317) (5,402) (6,693)
Depreciation of property, plant and
equipment (934) (927) (898)
Amortisation of intangible assets (129) (63) (95)
Total operating expenses (17,489) (14,817) (16,997)
Operating profit 24,281 23,243 20,101
Share of profit in associates 1,235 920 985
Profit before tax 25,516 24,163 21,086
Tax expense (4,569) (4,248) (3,803)
Profit for the period 20,947 19,915 17,283
Attributable to shareholders 18,471 17,564 15,309
Attributable to minority interests 2,476 2,351 1,974
Consolidated Balance Sheet
At 30JUN06 At 30JUN05 At 31DEC05
Figures in HK$m restated
ASSETS
Cash and short-term funds 563,169 493,159 502,730
Placings with banks maturing after
one month 113,890 94,560 69,554
Items in the course of collection
from other banks 34,247 37,980 17,782
Certificates of deposit 62,182 55,427 53,831
Hong Kong SAR Government
certificates of indebtedness 97,774 94,804 97,344
Trading assets 216,433 159,447 215,681
Financial assets designated at fair
value 38,379 35,647 37,073
Derivatives 93,118 77,137 72,039
Advances to customers 1,044,364 973,637 999,326
Financial investments 427,326 410,442 394,497
Amounts due from fellow
subsidiaries 84,472 67,243 101,173
Investments in associates 24,733 20,508 23,061
Goodwill and intangible assets 8,371 6,222 7,252
Property, plant and equipment 28,893 28,685 29,805
Deferred tax assets 1,426 1,238 1,272
Retirement benefit assets 1,641 1,229 1,788
Other assets 57,407 22,031 48,324
Total assets 2,897,825 2,579,396 2,672,532
LIABILITIES
Hong Kong SAR currency notes in
circulation 97,774 94,804 97,344
Deposits by banks 108,416 115,254 83,802
Customer accounts 1,818,268 1,671,433 1,735,110
Items in the course of transmission
to other banks 43,273 44,578 20,927
Trading liabilities 270,742 218,652 250,198
Financial liabilities designated at
fair value 33,975 31,567 33,291
Derivatives 95,505 75,929 72,009
Debt securities in issue 65,605 59,600 61,468
Retirement benefit liabilities 415 359 394
Amounts due to fellow subsidiaries 31,130 23,367 22,275
Amounts due to ultimate holding
company 2,649 748 2,502
Other liabilities 48,833 20,802 46,628
Liabilities under insurance
contracts issued 50,517 32,525 41,845
Current taxation 3,834 4,085 2,044
Deferred taxation 4,055 3,032 3,729
Subordinated liabilities 17,038 12,569 12,561
Preference shares 72,104 62,978 71,980
Total liabilities 2,764,133 2,472,282 2,558,107
EQUITY
Share capital 22,494 22,494 22,494
Other reserves 14,002 4,745 6,037
Retained profits 73,791 57,583 64,303
Proposed dividend 5,500 6,000 4,500
Shareholders' funds 115,787 90,822 97,334
Minority interests 17,905 16,292 17,091
133,692 107,114 114,425
Total equity and liabilities 2,897,825 2,579,396 2,672,532
Consolidated Statement of Changes in Equity
Half-year ended Half-year ended Half-year ended
30JUN06 30JUN05 31DEC05
Figures in HK$m restated
Called up share capital 22,494 22,494 22,494
Property revaluation reserves
Balance at the beginning of the period 4,082 3,065 3,847
Unrealised surplus on revaluation 1,253 1,360 693
Transfer of depreciation from retained
profits (100) (78) (95)
Transfer from/(to) retained profits - 164 (164)
Realisation on disposal of properties (447) (441) (82)
Deferred tax and other movements (106) (223) (117)
Share of associates' unrealised
surplus on revaluation 103 - -
Balance at the end of the period 4,785 3,847 4,082
Other reserves
Balance at the beginning of the period 1,955 4,297 898
Available-for-sale investments:
Fair value gains/(losses) taken to
equity 5,533 (836) (481)
Transfer to income statement on
disposal (1,081) (312) (275)
Transfer to income statement on change
in fair value of hedged items 574 310 673
Deferred tax and other movements 187 97 (91)
Share of associates'
available-for-sale reserves 106 (111) 668
Cash flow hedges:
Fair value gains/(losses) taken to
equity 58 (2,588) 66
Transfer to income statement 859 - 538
Deferred tax and other movements (143) 456 (114)
Exchange differences arising on
monetary items that form part
of a net investment in a
foreign operation 852 (540) ( 250)
Employees' options granted cost
free by ultimate holding company 334 125 182
Exchange and other movements (17) - 141
Balance at the end of the period 9,217 898 1,955
Retained profits
Balance at the beginning of the
period 64,303 50,445 57,583
Profit for the period attributable to
shareholders 18,471 17,564 15,309
Dividends (9,257) (10,600) (9,700)
Transfer of depreciation to property
revaluation reserve 100 78 95
Transfer to property revaluation
reserve - (164) 164
Realisation on disposal of properties 447 441 82
Actuarial (losses)/gains on defined
benefit plans (280) (168) 241
Deferred tax and other movements 7 (13) 529
Balance at the end of the period 73,791 57,583 64,303
Dividend declared but not yet
approved 5,500 6,000 4,500
Changes in equity attributable to
minority interests
Balance at the beginning of the
period 17,091 16,658 16,292
Profit attributable to minority
interests 2,476 2,351 1,974
Dividends (2,248) (2,374) (1,609)
Increase in stake and other movements 586 (343) 434
Balance at the end of the period 17,905 16,292 17,091
Consolidated Cash Flow Statement
Half-year ended Half-year ended
Figures in HK$m 30JUN06 30JUN05
Operating activities
Cash generated from operations 118,945 2,921
Interest received on financial investments 9,095 6,313
Dividends received on financial investments 206 228
Dividends received from associates 33 22
Taxation paid (2,019) (1,971)
Net cash inflow from operating activities 126,260 7,513
Investing activities
Purchase of financial investments (201,753) (140,786)
Proceeds from sale or redemption of financial
investments 174,201 153,904
Purchase of property, plant and equipment (568) (634)
Proceeds from sale of property, plant and
equipment 707 837
Purchase of other intangibles (532) -
Net cash outflow in respect of acquisition of
and increased shareholding in
subsidiary companies - (1,247)
Net cash inflow in respect of sale of
subsidiary companies - 323
Net cash outflow in respect of purchase of
interest in associates - (1,166)
Net cash (outflow)/inflow from investing
activities (27,945) 11,231
Net cash inflow before financing 98,315 18,744
Financing
Issue of cumulative irredeemable preference
shares - 7,376
Increase in non-equity minority interests 322 -
Issue of subordinated liabilities 4,485 2,392
Ordinary dividends paid (8,257) (9,400)
Dividends paid to minority interests (3,043) (3,160)
Interest paid on preference shares (1,856) -
Interest paid on loan capital (383) (213)
Net cash outflow from financing (8,732) (3,005)
Increase in cash and cash equivalents 89,583 15,739
1. Net interest income
Half-year ended Half-year ended Half-year ended
Figures in HK$m 30JUN06 30JUN05 31DEC05
Net interest income 23,590 21,410 22,081
Average interest-earning
assets 2,179,207 2,008,241 2,054,010
Net interest spread 1.76% 1.95% 1.83%
Net interest margin 2.18% 2.15% 2.13%
Net interest income of HK$23,590 million was HK$2,180 million, or 10.2 per cent,
higher than the first half of 2005. The contribution from balance sheet growth
and improved deposit spreads throughout the region was partially offset by
significantly lower balance sheet management income which was impacted by higher
funding costs and flat yield curves.
Net interest income in Personal Financial Services rose by HK$1,584 million, or
12.4 per cent, partly due to improved liability spreads earned in the higher
interest rate environment, coupled with strong growth in the deposit base
outside of Hong Kong. Lending growth also contributed to the increase in
interest income, particularly personal loans in India, Korea and Indonesia,
credit cards in the Philippines, Indonesia and India, and mortgages in Taiwan
and Singapore. Net interest income in Commercial Banking was HK$1,396 million,
or 27.6 per cent, ahead of the prior period due to balance sheet growth, notably
in Hong Kong, India and Singapore, and improved deposit spreads. In Corporate,
Investment Banking and Markets, net interest income from Global Transaction
Banking increased significantly, due to higher deposit balances and spreads,
notably in Hong Kong and India.
Average interest earning assets rose by HK$171.0 billion, or 8.5 per cent, to
HK$2,179.2 billion. Average advances to customers grew by HK$77.1 billion, or
8.1 per cent, with strong increases in corporate loans in Hong Kong, mainland
China, India and Singapore, and rises in mortgage lending in Korea, Singapore,
Taiwan and India. Average credit card balances rose in all areas, notably Hong
Kong and Indonesia, and personal instalment loans grew, most significantly in
Korea. Average placements with banks were HK$28.1 billion higher, and holdings
of available-for-sale securities rose by HK$18.9 billion, reflecting the
deployment of the commercial surplus. Lending to fellow HSBC subsidiaries
increased by HK$35.3 billion.
The group's net interest margin of 2.18 per cent for the first half of 2006 was
three basis points higher than the comparable period in 2005. Net interest
spread declined by 19 basis points, while the contribution from net free funds
increased by 22 basis points. The reduction in balance sheet management income
negatively affected net interest margin by 26 basis points when compared to the
first half of 2005.
For the bank in Hong Kong, net interest margin decreased by 16 basis points to
2.08 per cent for the first half of 2006. Spread fell by 29 basis points,
primarily due to the negative impact of lower balance sheet management income as
fixed rate asset positions faced an increase in funding costs. Spreads on
mortgages and credit cards were also impacted by a higher cost of funds, and
competitive pressures on pricing affected corporate lending margins. The average
yield on the residential mortgage portfolio, excluding Government Home Ownership
Scheme ('GHOS') and staff loans, dropped slightly to 234 basis points below Best
Lending Rate ('BLR') in the first half of 2006, compared with 233 basis points
below BLR in the same period last year. The contribution from net free funds
increased by 13 basis points due to the increase in market interest rates.
At Hang Seng Bank, net interest margin improved by 24 basis points as the
increase in contribution from net free funds outweighed the fall in spread. Net
interest spread declined by 17 basis points as returns on treasury products were
affected by rising funding costs and flat yield curves, and spreads narrowed on
non-BLR corporate and personal loans due to competitive pressures on pricing.
The average yield on the residential mortgage portfolio, excluding GHOS and
staff loans, was 228 basis points below BLR for the first half of 2006, compared
with 223 basis points for the same period last year. The contribution from net
free funds increased by 41 basis points, benefiting from the rise in market
interest rates and from higher balances of structured deposits which are
classified as trading liabilities, the related interest expense being included
within 'net trading income'.
In the rest of Asia-Pacific, net interest margin at 2.15 per cent was 15 basis
points higher than the first half of 2005. Spread decreased by 10 basis points
to 1.76 per cent. All major sites faced an increase in funding costs due to
higher interest rates across the region. This was coupled with competitive
pressures on mortgage lending rates in Korea, Taiwan and Australia, and lower
yields on credit card advances in Taiwan and Indonesia. Margins did rise,
however, in several other countries, notably in India due to an increase in
higher-yielding personal loans and credit cards, favourable pricing on
commercial banking loans, and a rise in low cost current account balances from
custody and clearing customers. In addition, margins were higher in mainland
China from higher spreads on corporate lending as deposit rate rises lagged
lending rate increases, and in Singapore due to rises in mortgage lending rates.
The contribution from net free funds rose by 25 basis points, benefiting from
higher market interest rates.
2. Net fee income
Half-year ended Half-year ended Half-year ended
Figures in HK$m 30JUN06 30JUN05 31DEC05
Account services 709 642 672
Credit facilities 640 584 575
Import/export 1,400 1,345 1,432
Remittances 684 591 657
Securities/stockbroking 2,572 1,595 1,807
Cards 2,348 2,027 2,204
Insurance 154 161 119
Unit trusts 1,227 959 668
Funds under management 1,658 1,017 1,216
Other 1,793 1,658 1,742
Fee income 13,185 10,579 11,092
Fee expense (2,271) (1,705) (1,869)
10,914 8,874 9,223
Net fee income was HK$2,040 million, or 23.0 per cent, higher than the first
half of 2005. Securities broking and custody fees rose by 61.3 per cent,
reflecting higher stock market turnover in Hong Kong and the region. The buoyant
stock markets which prevailed throughout most of the period also stimulated
customer demand for unit trusts. Funds under management increased, in part due
to institutional business transferred from another HSBC Group entity in the
second quarter of 2005. Related fee income also includes significant fund
advisory and performance fees, reflecting the success of certain emerging
markets funds. Credit card fees rose by 15.8 per cent due to the increase in the
number of cards in circulation and higher cardholder spending. Trade finance
income, although higher, was affected by tougher market competition, whilst
remittance and other account fees grew, reflecting the group's strong
transactional capabilities.
3. Net trading income
Half-year ended Half-year ended Half-year ended
Figures in HK$m 30JUN06 30JUN05 31DEC05
Dealing profits 4,947 4,721 3,839
Gain/(loss) from hedging
activities 8 (11) 10
Net interest expense (605) (568) (916)
Dividend income 112 54 51
4,462 4,196 2,984
Trading income rose by 6.3 per cent to HK$4,462 million. Foreign exchange
profits benefited from exchange rate volatility, coupled with higher customer
volumes as foreign investors sought to participate in local stock markets.
Revenues grew strongly in the equities and equity derivatives business due to an
expanded product range and more active stock markets in the first few months of
the year. Strong gains were also made on the revaluation of private equity
investments. Interest rate derivatives and government securities trading
achieved good results, profiting from correct positioning for interest rate
rises. The rising rate environment, however, negatively impacted corporate bond
trading, and the increase in structured deposit products resulted in higher
interest expense.
4. Gains less losses from financial investments
Half-year ended Half-year ended Half-year ended
Figures in HK$m 30JUN06 30JUN05 31DEC05
Profit on disposal of
available-for-sale securities 1,236 348 414
Impairment losses on
available-for-sale securities (86) (1) (5)
1,150 347 409
The profit on the disposal of available-for-sale securities largely comprises
the gain on the sale of part of the group's stake in UTI Bank, reducing the
group's interest to 4.99 per cent. Profits were also made on the sale of
Philippine government securities.
An impairment charge was taken against an available-for-sale equity investment
in Taiwan.
5. Other operating income
Half-year ended Half-year ended Half-year ended
Figures in HK$m 30JUN06 30JUN05 31DEC05
Rental income from investment
properties 109 104 111
Movement in present value of
in-force insurance business 632 490 695
Profit on disposal of property,
plant and equipment 448 19 85
Profit/(loss) on disposal of
subsidiaries and associates - 58 (5)
Surplus arising on property
revaluation 337 1,038 499
Other 924 1,011 792
2,450 2,720 2,177
Profit on the disposal of property, plant and equipment principally comprises
the gain made on the disposal of a commercial property in Hong Kong.
The surplus arising on property revaluation was lower due to a slowdown in
property price rises in Hong Kong.
6. Insurance income
Included in the consolidated income statement are the following revenues earned
by the group's insurance business:
Half-year ended Half-year ended Half-year ended
Figures in HK$m 30JUN06 30JUN05 31DEC05
Net interest income 1,074 771 944
Net fee income 299 222 262
Net income from financial
instruments designated at fair value (255) (57) 73
Gains less losses from financial
investments 29 29 24
Dividend income - 1 1
Net earned insurance premiums 10,912 6,975 12,365
Movement in present value of
in-force business 632 490 695
Other operating income 41 80 10
12,732 8,511 14,374
Net insurance claims incurred and
movement in policyholder liabilities (9,744) (6,139) (11,152)
Net operating income 2,988 2,372 3,222
Premium income rose by HK$3,937 million, or 56.4 per cent, over the first half
of 2005, primarily attributable to growth in the life assurance business in Hong
Kong. The product range was expanded with the launch of new retirement and other
investment-linked products. Investment income was higher, reflecting the growing
portfolio size and higher interest yields. The movement in the present value of
in-force business increased due to the rise in the number of life policies in
force. Claims and movement in policyholder liabilities comprise returns owed to
investment policyholders as well as general insurance claims. The increase is
largely in line with the rise in premium income.
7. Loan impairment charges and other credit risk provisions
Half-year ended Half-year ended Half-year ended
Figures in HK$m 30JUN06 30JUN05 31DEC05
Net charge for impairment of
customer advances
- Individually assessed impairment
allowances:
New allowances 815 1,222 905
Releases (553) (1,249) (506)
Recoveries (133) (161) (106)
129 (188) 293
- Net charge for collectively
assessed impairment allowances 2,434 706 1,255
- Country risk allowances (3) (8) 10
2,560 510 1,558
Net charge/(release) of other
credit risk provisions 23 6 (10)
Net charge for loan impairment and
other credit risk provisions 2,583 516 1,548
The net charge for loan impairment and other credit risk provisions was HK$2,067
million higher than in the first half of 2005. The environment for corporate
credit remained stable in contrast to more difficult credit conditions for
personal lending in some parts of the region.
The charge for new individually assessed allowances was lower, attributable to a
decrease in charges against corporate lending, as the prior period included a
significant one-time charge. Releases and recoveries were also lower, largely
relating to corporates in Hong Kong, mainland China and India, and against
mortgage lending in Hong Kong.
The net charge for collectively assessed allowances rose significantly, due to
higher provisions against credit card lending, most notably in Taiwan and
Indonesia. Delinquency rates and write-offs rose in Taiwan as a result of
government measures to curb excessive consumer credit growth. These included
increasing the minimum monthly repayment amount while at the same time
introducing a debt renegotiation scheme which offers extended repayment periods
at substantially reduced rates. Indonesia was also affected by higher minimum
repayment rules, coupled with rises in inflation largely as a result of the
reduction of government fuel price subsidies.
8. Employee compensation and benefits
Half-year ended Half-year ended Half-year ended
Figures in HK$m 30JUN06 30JUN05 31DEC05
Wages and salaries 6,852 5,949 6,362
Performance-related pay 2,655 1,933 2,184
Social security costs 143 109 129
Retirement benefit costs 459 434 636
10,109 8,425 9,311
Staff numbers by region^
At 30JUN06 At 30JUN05 At 31DEC05
Hong Kong 25,655 24,240 24,842
Rest of Asia-Pacific 29,052 22,942 25,956
Americas/Europe 17 16 18
Total 54,724 47,198 50,816
^ Full-time equivalent
Staff costs increased by HK$1,684 million, or 20.0 per cent, compared with the
first half of 2005. Salaries rose by 15.2 per cent in line with increases in
headcount throughout the region. Staff numbers rose in all customer groups,
notably in Personal Financial Services in Hong Kong, India, Indonesia and Korea,
in Commercial Banking in Hong Kong, mainland China, Indonesia and Korea, and in
Corporate, Investment Banking and Markets in Hong Kong, India, mainland China
and Korea due to expansion of the payments and cash management and securities
businesses. Headcount in the Group Service Centre in Guangdong rose by more than
1,300 in order to support the expansion in processing work. Performance-related
remuneration increased in line with improved operating revenues.
9. General and administrative expenses
Half-year ended Half-year ended Half-year ended
Figures in HK$m 30JUN06 30JUN05 31DEC05
Premises and equipment
- Rental expenses 756 627 672
- Other premises and equipment 1,124 855 1,234
1,880 1,482 1,906
Marketing and advertising expenses 1,395 1,039 1,801
Other administrative expenses 3,039 2,677 2,877
Litigation and other provisions 3 204 109
6,317 5,402 6,693
The increase in general and administrative expenses of HK$915 million, or 16.9
per cent, reflected additional costs incurred in business expansion throughout
the region. Premises and equipment costs rose, in part due to new branch
openings in several countries. Technology costs also increased, reflecting
ongoing investment in new systems and channel development. Marketing and
advertising expenditure was higher in Hong Kong, India, Korea and mainland
China, and comprised specific product campaigns and other drives to increase
brand awareness.
10. Share of profit in associates
Share of profit in associates in the first half of 2006 included the group's
share of post-tax profits from Bank of Communications and Industrial Bank, and
amortisation of intangible assets arising on acquisition, for the six months to
31 March 2006.
11. Taxation
The charge for taxation in the consolidated income statement comprises:
Half-year ended Half-year ended Half-year ended
Figures in HK$m 30JUN06 30JUN05 31DEC05
Current income tax
- Hong Kong profits tax 2,797 2,663 2,311
- Overseas taxation 1,709 1,300 1,298
Deferred taxation 63 285 194
4,569 4,248 3,803
The effective rate of tax for the first half of 2006 was 17.9 per cent, compared
with 17.6 per cent for the first half of 2005. The increase was attributable to
a higher proportion of the group's taxable profits being generated in higher tax
rate jurisdictions and a rise in interest payable on preference shares for which
no tax relief is available. It was partially offset by certain tax-free gains on
the disposal of financial investments.
12. Dividends
Half-year ended Half-year ended Half-year ended
30JUN06 30JUN005 31DEC05
HK$ HK$m HK$ HK$m HK$ HK$m
per per per
share share share
Dividends on ordinary
share capital
- Paid 0.42 3,757 0.51 4,600 0.58 5,200
- Proposed 0.61 5,500 0.67 6,000 0.50 4,500
1.03 9,257 1.18 10,600 1.08 9,700
13. Trading assets
Figures in HK$m At 30JUN06 At 30JUN05 At 31DEC05
Debt securities 109,842 117,682 108,687
Equity shares 16,133 5,860 22,677
Treasury bills 78,291 34,979 69,880
Other 12,167 926 14,437
216,433 159,447 215,681
14. Financial assets designated at fair value
Figures in HK$m At 30JUN06 At 30JUN05 At 31DEC05
Debt securities 15,289 15,884 15,070
Equity shares 21,304 15,524 18,320
Treasury bills - 34 94
Other 1,786 4,205 3,589
38,379 35,647 37,073
Financial assets designated at fair value largely comprise investments held by
the group's insurance companies.
15. Advances to customers
Figures in HK$m At 30JUN06 At 30JUN05 At 31DEC05
Gross advances to customers 1,051,435 980,912 1,005,902
Impairment allowances:
- Individually assessed (2,578) (4,114) (2,963)
- Collectively assessed (4,483) (3,158) (3,600)
- Country risk (10) (3) (13)
(7,071) (7,275) (6,576)
1,044,364 973,637 999,326
Allowances as a percentage of
gross advances to customers:
Individually assessed 0.25% 0.42% 0.29%
Collectively assessed 0.43% 0.32% 0.36%
Country risk - - -
Total allowances 0.68% 0.74% 0.65%
16. Impairment allowances against advances to customers
Individually Collectively Country
assessed assessed risk
Figures in HK$m allowances allowances allowances Total
At 1 January 2006 2,963 3,600 13 6,576
Amounts written off (618) (1,808) - (2,426)
Recoveries of advances written
off in previous years 133 219 - 352
Net charge/(release) to
income (Note 7) 129 2,434 (3) 2,560
Unwinding of discount of loan
impairment (41) (11) - (52)
Exchange and other adjustments 12 49 - 61
At 30JUN06 2,578 4,483 10 7,071
17. Impaired advances to customers and allowances
The geographical information shown below, and in notes 18, 19, 21 and 23, has
been classified by location of the principal operations of the subsidiary
company or, in the case of the bank, by location of the branch responsible for
advancing the funds.
Rest of Americas/
Figures in HK$m Hong Kong Asia-Pacific Europe Total
Half-year ended 30JUN06
Impairment charge 514 2,046 - 2,560
At 30JUN06
Advances to customers which are considered to be impaired are as follows:
Gross impaired advances 3,918 4,306 - 8,224
Individually assessed allowances (1,275) (1,303) - (2,578)
2,643 3,003 - 5,646
Individually assessed allowances
as a percentage of gross
impaired advances 32.5% 30.3% - 31.3%
Gross impaired advances as a
percentage of gross advances to
customers 0.6% 1.1% - 0.8%
Impaired advances to customers are those advances where objective evidence
exists that full repayment of principal or interest is considered unlikely.
Individually assessed allowances are made after taking into account the value of
collateral held in respect of such advances.
Half-year ended 30JUN05
Impairment charge/(release) 455 67 (12) 510
At 30JUN05
Advances to customers which are considered to be impaired are as follows:
Gross impaired advances 5,436 3,438 - 8,874
Individually assessed allowances (2,230) (1,884) - (4,114)
3,206 1,554 - 4,760
Individually assessed allowances
as a percentage of gross impaired
advances 41.0% 54.8% - 46.4%
Gross impaired advances as a
percentage of gross advances to
customers 0.9% 0.9% - 0.9%
Half-year ended 31DEC05
Impairment charge 701 857 - 1,558
At 31DEC05
Advances to customers which are considered to be impaired are as follows:
Gross impaired advances 3,920 3,079 - 6,999
Individually assessed allowances (1,335) (1,628) - (2,963)
2,585 1,451 - 4,036
Individually assessed allowances
as a percentage of gross
impaired advances 34.1% 52.9% - 42.3%
Gross impaired advances as a
percentage of gross advances to
customers 0.6% 0.8% - 0.7%
18. Overdue advances to customers
Rest of Americas/
Figures in HK$m Hong Kong Asia-Pacific Europe Total
At 30JUN06
Gross advances to customers which
have been overdue with respect to
either principal or interest for
periods of:
- three to six months 1,158 1,299 - 2,457
- six months to one year 750 403 - 1,153
- over one year 1,008 1,020 - 2,028
2,916 2,722 - 5,638
Overdue advances to customers as a
percentage of gross advances to
customers:
- three to six months 0.2% 0.3% - 0.2%
- six months to one year 0.1% 0.1% - 0.1%
- over one year 0.2% 0.3% - 0.2%
0.5% 0.7% - 0.5%
At 30JUN05
Gross advances to customers which
have been overdue with respect
to either principal or interest
for periods of:
- three to six months 814 886 - 1,700
- six months to one year 307 379 - 686
- over one year 1,546 1,272 - 2,818
2,667 2,537 - 5,204
Overdue advances to customers as a
percentage of gross advances to
customers:
- three to six months 0.1% 0.2% - 0.2%
- six months to one year 0.1% 0.1% - 0.1%
- over one year 0.2% 0.4% - 0.2%
0.4% 0.7% - 0.5%
At 31DEC05
Gross advances to customers which
have been overdue with respect to
either principal or interest for
periods of:
- three to six months 1,073 891 - 1,964
- six months to one year 272 430 - 702
- over one year 1,053 1,071 - 2,124
2,398 2,392 - 4,790
Overdue advances to customers as a
percentage of gross advances to
customers:
- three to six months 0.2% 0.2% - 0.2%
- six months to one year - 0.1% - 0.1%
- over one year 0.2% 0.3% - 0.2%
0.4% 0.6% - 0.5%
19. Rescheduled advances to customers
Rest of Americas/
Figures in HK$m Hong Kong Asia-Pacific Europe Total
At 30JUN06
Rescheduled advances to customers 2,016 1,862 - 3,878
Rescheduled advances to customers
as a percentage of gross advances
to customers 0.3% 0.5% - 0.4%
At 30JUN05
Rescheduled advances to customers 2,327 552 - 2,879
Rescheduled advances to customers
as a percentage of gross advances
to customers 0.4% 0.1% - 0.3%
At 31DEC05
Rescheduled advances to customers 1,941 623 - 2,564
Rescheduled advances to customers
as a percentage of gross advances
to customers 0.3% 0.2% - 0.3%
Rescheduled advances are those advances which have been restructured or
renegotiated because of a deterioration in the financial position of the
borrower, or because of the inability of the borrower to meet the original
repayment schedule.
Rescheduled advances to customers are stated net of any advances which have
subsequently become overdue for over three months and which are included in
overdue advances to customers (Note 18).
20. Repossessed assets
Figures in HK$m At 30JUN06 At 30JUN05 At 31DEC05
Repossessed assets 480 403 478
Repossessed assets are non-financial assets acquired in exchange for loans in
order to achieve an orderly realisation, and are included in 'Other assets' at
the lower of fair value (less costs to sell) and the carrying amount of the loan
(net of any impairment allowance).
21. Analysis of advances to customers based on categories used by the HSBC Group
The following analysis of advances to customers is based on categories used
by the HSBC Group, including The Hongkong and Shanghai Banking Corporation
Limited and its subsidiaries, for risk management purposes.
Rest of Americas/
Figures in HK$m Hong Kong Asia-Pacific Europe Total
At 30JUN06
Residential mortgages 188,585 122,572 4 311,161
Hong Kong SAR Government's
Home Ownership Scheme,
Private Sector Participation
Scheme and Tenants
Purchase Scheme mortgages 33,863 - - 33,863
Credit card advances 26,524 17,957 - 44,481
Other personal 29,138 32,388 1 61,527
Total personal 278,110 172,917 5 451,032
Commercial, industrial and
international trade 138,577 122,447 - 261,024
Commercial real estate 103,403 35,462 - 138,865
Other property-related
lending 47,777 13,746 - 61,523
Government 3,247 7,557 - 10,804
Other commercial 49,325 40,088 - 89,413
Total corporate and
commercial 342,329 219,300 - 561,629
Non-bank financial
institutions 19,363 11,263 - 30,626
Settlement accounts 6,197 1,951 - 8,148
Total financial 25,560 13,214 - 38,774
Gross advances to
customers 645,999 405,431 5 1,051,435
Impairment allowances (3,039) (4,032) - (7,071)
Net advances to customers 642,960 401,399 5 1,044,364
At 30JUN05
Residential mortgages 184,740 108,582 3 293,325
Hong Kong SAR Government's
Home Ownership Scheme,
Private Sector Participation
Scheme and Tenants
Purchase Scheme mortgages 39,131 - - 39,131
Credit card advances 22,205 14,467 - 36,672
Other personal 26,016 28,323 1 54,340
Total personal 272,092 151,372 4 423,468
Commercial, industrial and
international trade 126,034 112,301 - 238,335
Commercial real estate 80,473 29,560 - 110,033
Other property-related
lending 47,560 15,426 - 62,986
Government 3,349 9,309 - 12,658
Other commercial 57,113 36,308 - 93,421
Total corporate and
commercial 314,529 202,904 - 517,433
Non-bank financial
institutions 13,381 19,828 - 33,209
Settlement accounts 3,358 3,444 - 6,802
Total financial 16,739 23,272 - 40,011
Gross advances to
customers 603,360 377,548 4 980,912
Impairment allowances (3,871) (3,404) - (7,275)
Net advances to customers 599,489 374,144 4 973,637
At 31DEC05
Residential mortgages 182,257 117,211 4 299,472
Hong Kong SAR Government's
Home Ownership Scheme,
Private Sector Participation
Scheme and Tenants
Purchase Scheme mortgages 36,291 - - 36,291
Credit card advances 29,882 16,539 - 46,421
Other personal 27,480 31,316 1 58,797
Total personal 275,910 165,066 5 440,981
Commercial, industrial and
international trade 129,774 110,668 - 240,442
Commercial real estate 97,364 32,615 - 129,979
Other property-related
lending 47,661 17,340 - 65,001
Government 2,347 5,891 - 8,238
Other commercial 53,681 37,851 - 91,532
Total corporate and
commercial 330,827 204,365 - 535,192
Non-bank financial
institutions 15,246 11,987 - 27,233
Settlement accounts 2,173 323 - 2,496
Total financial 17,419 12,310 - 29,729
Gross advances to
customers 624,156 381,741 5 1,005,902
Impairment allowances (3,092) (3,484) - (6,576)
Net advances to customers 621,064 378,257 5 999,326
Net advances to customers increased by HK$45.0 billion, or 4.5 per cent, since
the end of 2005.
Net advances in Hong Kong grew by HK$21.9 billion, or 3.5 per cent, since the
end of 2005. Excluding the impact of lending under the Government Home Ownership
Scheme which remained suspended, mortgage lending rose by 3.5 per cent due to
the successful launch of HSBC's simplified pricing campaign. Credit card
advances dropped back from seasonally high balances at the end of December which
were inflated by personal tax payments. Corporate and commercial lending
increased, buoyed by demand for credit in the manufacturing and property
sectors, although lending to large corporations declined.
In the rest of Asia-Pacific, net advances rose by HK$23.1 billion, or 6.1 per
cent, since the end of 2005. Mortgage balances grew by 4.6 per cent with
increases in Taiwan, India and Australia. Credit card advances increased by 8.6
per cent, mainly in Australia, India, Thailand, the Philippines and Sri Lanka.
Lending to corporate and commercial customers rose by HK$14.9 billion, largely
in mainland China, Australia, Japan, India and Mauritius.
22. Analysis of advances to customers by geographical area according to the
location of counterparties, after risk transfer
Rest of Americas/
Figures in HK$m Hong Kong Asia-Pacific Europe Others Total
At 30JUN06
Gross advances to
customers 581,542 378,801 83,748 7,344 1,051,435
Overdue advances to
customers 2,782 2,551 305 - 5,638
At 30JUN05
Gross advances to
customers 550,724 357,221 63,356 9,611 980,912
Overdue advances to
customers 2,865 2,269 69 1 5,204
At 31DEC05
Gross advances to
customers 570,329 354,626 73,959 6,988 1,005,902
Overdue advances to
customers 2,337 2,222 223 8 4,790
23. Analysis of advances to customers by industry sector based on categories and
definitions used by the Hong Kong Monetary Authority ('HKMA')
The following analysis of advances to customers is based on the categories
contained in the 'Quarterly Analysis of Loans and Advances and Provisions'
return required to be submitted to the HKMA by branches of the bank and by
banking subsidiary companies in Hong Kong.
Figures in HK$m At 30JUN06 At 30JUN05 At 31DEC05
Gross advances to customers for use
in Hong Kong
Industrial, commercial and financial
Property development 43,643 37,417 41,141
Property investment 107,883 92,976 104,214
Financial concerns 10,410 13,704 12,667
Stockbrokers 776 983 1,094
Wholesale and retail trade 35,315 34,679 34,256
Manufacturing 18,283 18,588 17,847
Transport and transport equipment 29,878 33,145 31,202
Others 43,868 47,570 44,697
290,056 279,062 287,118
Individuals
Advances for the purchase of flats under the
Hong Kong SAR Government's Home Ownership
Scheme, Private Sector Participation and
Tenants Purchase Scheme 33,863 39,131 36,291
Advances for the purchase of other
residential properties 170,374 168,042 165,148
Credit card advances 26,524 22,205 29,882
Others 24,776 22,557 23,826
255,537 251,935 255,147
Gross advances to customers for use
in Hong Kong 545,593 530,997 542,265
Trade finance 55,639 54,439 49,902
Gross advances to customers for use
outside Hong Kong made by branches
of the bank and subsidiary companies
in Hong Kong 44,767 17,924 31,989
Gross advances to customers made by
branches of the bank and subsidiary
companies in Hong Kong 645,999 603,360 624,156
Gross advances to customers made by
branches of the bank and subsidiary
companies outside Hong Kong
- Rest of Asia-Pacific 405,431 377,548 381,741
- Americas/Europe 5 4 5
Gross advances to customers 1,051,435 980,912 1,005,902
24. Cross-border exposure
The country risk exposures in the tables below are prepared in accordance with
the HKMA Return of External Positions Part II: Cross-Border Claims (MA(BS)9)
guidelines.
Cross-border claims are on-balance sheet exposures to counterparties based on
the location of the counterparties after taking into account the transfer of
risk.
The tables show claims on individual countries and territories or areas, after
risk transfer, amounting to 10 per cent or more of the aggregate cross-border
claims.
Cross-border risk is controlled centrally through a well-developed system of
country limits and is frequently reviewed to avoid concentration of transfer,
economic or political risk.
Banks and
other Public
financial sector
Figures in HK$m institutions entities Other Total
At 30JUN06
Americas
United States 44,625 77,197 29,906 151,728
Other 41,320 7,775 49,033 98,128
85,945 84,972 78,939 249,856
Europe
United Kingdom 113,869 14 24,447 138,330
Other 369,449 5,267 32,383 407,099
483,318 5,281 56,830 545,429
Asia-Pacific excluding Hong Kong 175,332 12,084 102,108 289,524
At 30 June 2005
Americas
United States 51,906 75,139 28,191 155,236
Other 40,686 13,491 47,349 101,526
92,592 88,630 75,540 256,762
Europe
United Kingdom 91,103 27 26,182 117,312
Other 335,154 3,746 21,533 360,433
426,257 3,773 47,715 477,745
Asia-Pacific excluding Hong Kong 159,828 12,047 97,209 269,084
At 31DEC05
Americas
United States 38,673 72,477 34,515 145,665
Other 39,328 9,909 50,744 99,981
78,001 82,386 85,259 245,646
Europe
United Kingdom 111,377 14 22,232 133,623
Other 338,060 5,842 39,509 383,411
449,437 5,856 61,741 517,034
Asia-Pacific excluding Hong Kong 154,135 33,897 108,476 296,508
25. Financial investments
Figures in HK$m At 30JUN06 At 30JUN05 At 31DEC05
Debt securities
- available-for-sale 375,115 379,876 350,624
- held-to-maturity 30,873 23,671 28,102
405,988 403,547 378,726
Equity shares
- available-for-sale 21,338 6,895 15,771
427,326 410,442 394,497
26. Customer accounts
Figures in HK$m At 30JUN06 At 30JUN05 At 31DEC05
Current accounts and demand deposits 969,450 959,723 925,008
Savings accounts 703,023 563,002 664,478
Other deposit accounts 145,795 148,708 145,624
1,818,268 1,671,433 1,735,110
Customer accounts increased by HK$83.2 billion, or 4.8 per cent, since the end
of 2005.
In Hong Kong, customer accounts rose by HK$42.2 billion, or 3.3 per cent, in the
first half of 2006, largely from personal customers. In the rest of
Asia-Pacific, customer accounts grew by HK$41.2 billion, or 9.0 per cent.
Deposits from personal customers increased by 12.0 per cent, notably in
Singapore, Australia, mainland China, Taiwan and Indonesia. Deposits from
commercial and corporate customers rose by 7.6 per cent, with increases in
Taiwan, Singapore, mainland China and India, attributable to expansion of the
payment and cash management business and higher balances from securities custody
and clearing customers.
The group's advances-to-deposits ratio dropped slightly to 57.4 per cent at 30
June 2006 from 57.6 per cent at 31 December 2005.
27. Trading liabilities
Figures in HK$m At 30JUN06 At 30JUN05 At 31DEC05
Certificates of deposit in issue 76,450 83,048 83,937
Other debt securities in issue 23,184 22,976 20,361
Short positions in securities 65,500 52,402 55,025
Deposits by banks 10,100 5,044 13,488
Customer accounts 95,508 55,182 77,387
270,742 218,652 250,198
Trading liabilities include customer deposits and certificates of deposit with
embedded options or other derivatives, the market risk of which is managed in
the trading book.
The increase in customer accounts represents growth in structured deposit
products in Hong Kong.
28. Financial liabilities designated at fair value
Figures in HK$m At 30JUN06 At 30JUN05 At 31DEC05
Deposits by banks 371 - 360
Customer accounts 1,678 1,192 1,600
Subordinated liabilities 949 995 967
Liabilities to customers under
investment contracts 30,977 29,380 30,364
33,975 31,567 33,291
29. Debt securities in issue
Figures in HK$m At 30JUN06 At 30JUN05 At 31DEC05
Certificates of deposit 47,926 43,397 49,068
Other debt securities 17,679 16,203 12,400
65,605 59,600 61,468
30. Reserves
At 30JUN06 At 30JUN05 At 31DEC05
Figures in HK$m restated
Other reserves
- Property revaluation reserve 4,785 3,847 4,082
- Available-for-sale investments
reserve 8,218 2,399 2,899
- Cash flow hedge reserve (993) (2,248) (1,767)
- Foreign exchange reserve 905 303 53
- Other 1,087 444 770
14,002 4,745 6,037
Retained profits 73,791 57,583 64,303
Total reserves 87,793 62,328 70,340
The property revaluation reserve includes an amount of HK$149 million in
relation to properties classified as assets held for sale, included in 'Other
assets' in the consolidated balance sheet, at 30 June 2006 (30 June 2005 and 31
December 2005: nil).
31. Contingent liabilities, commitments and derivatives
Credit Risk-
Contract equivalent weighted
Figures in HK$m amount amount amount
At 30JUN06
Contingent liabilities
- Guarantees 90,745 66,286 54,298
- Other 32 32 32
90,777 66,318 54,330
Commitments
- Documentary credits and short-term
trade-related transactions 66,335 24,512 13,620
- Undrawn note issuing and revolving
underwriting facilities 427 214 -
- Undrawn formal standby facilities,
credit lines and other commitments:
- one year and over 89,723 44,861 39,771
- under one year 803,823 - -
960,308 69,587 53,391
Derivatives
Exchange rate contracts
- Spot and forward foreign exchange 3,246,950 43,787 11,447
- Other exchange rate contracts 1,111,295 51,188 15,497
4,358,245 94,975 26,944
Interest rate contracts
- Interest rate swaps 5,551,438 70,576 18,506
- Other interest rate contracts 995,880 5,938 1,799
6,547,318 76,514 20,305
Forward asset purchases and forward
forward deposits placed 4,971 4,971 1,682
Other derivative contracts 377,211 16,929 5,195
382,182 21,900 6,877
Impact of counterparty netting
agreements on derivatives exposure - (68,506) (14,666)
At 30JUN05
Contingent liabilities
- Acceptances and endorsements 22,273 4,875 4,762
- Guarantees 157,375 134,910 48,035
- Other 40 40 40
179,688 139,825 52,837
Commitments
- Documentary credits and short-term
trade-related transactions 58,058 19,828 11,658
- Undrawn note issuing and revolving
underwriting facilities 3,982 1,991 1,614
- Undrawn formal standby facilities,
credit lines and other commitments:
- one year and over 99,653 49,826 44,479
- under one year 715,575 - -
877,268 71,645 57,751
Derivatives
Exchange rate contracts
- Spot and forward foreign exchange 2,545,957 41,632 10,641
- Other exchange rate contracts 971,018 42,392 12,576
3,516,975 84,024 23,217
Interest rate contracts
- Interest rate swaps 4,367,557 53,818 13,740
- Other interest rate contracts 679,471 5,560 1,714
5,047,028 59,378 15,454
Forward asset purchases and forward
forward deposits placed 9,710 9,710 8,746
Other derivative contracts 163,291 8,805 3,116
173,001 18,515 11,862
Impact of counterparty netting
agreements on derivatives exposure - (58,343) (12,693)
At 31DEC05
Contingent liabilities
- Guarantees 83,114 60,166 48,893
- Other 37 37 37
83,151 60,203 48,930
Commitments
- Documentary credits and short-term
trade-related transactions 55,402 20,650 10,905
- Undrawn note issuing and revolving
underwriting facilities 3,249 1,625 975
- Undrawn formal standby facilities,
credit lines and other commitments:
- one year and over 97,207 48,604 41,115
- under one year 752,797 - -
908,655 70,879 52,995
Derivatives
Exchange rate contracts
- Spot and forward foreign exchange 2,536,795 36,655 9,753
- Other exchange rate contracts 884,046 41,124 12,481
3,420,841 77,779 22,234
Interest rate contracts
- Interest rate swaps 4,775,236 55,580 14,442
- Other interest rate contracts 815,110 4,159 1,340
5,590,346 59,739 15,782
Forward asset purchases and forward
forward deposits placed 1,849 1,849 775
Other derivative contracts 289,019 15,885 5,649
290,868 17,734 6,424
Impact of counterparty netting
agreements on derivatives exposure - (55,354) (11,915)
The tables above give the nominal contract amounts, credit equivalent amounts
and risk-weighted amounts of contingent liabilities, commitments and
derivatives. The credit equivalent amounts are calculated for the purposes of
deriving the risk-weighted amounts. These are assessed in accordance with the
Third Schedule of the Hong Kong Banking Ordinance on capital adequacy and depend
on the status of the counterparty and maturity characteristics. The risk-weights
used range from 0 per cent to 100 per cent for contingent liabilities and
commitments, and from 0 per cent to 50 per cent for derivatives.
Contingent liabilities and commitments are credit-related instruments. The
contract amounts represent the amounts at risk should the contract be fully
drawn upon and the client default. Since a significant portion of guarantees and
commitments is expected to expire without being drawn upon, the total of the
contract amounts is not representative of future liquidity requirements.
Derivatives arise from futures, forward, swap and option transactions undertaken
by the group in the foreign exchange, interest rate and equity, credit and
commodity markets. The contract amounts of these instruments indicate the volume
of transactions outstanding at the balance sheet date; they do not represent
amounts at risk.
Fair value of derivative assets
Figures in HK$m At 30JUN06 At 30JUN05 At 31DEC05
Exchange rate contracts 38,552 35,368 31,074
Interest rate contracts 51,004 39,518 38,319
Other derivative contracts 3,562 2,251 2,646
93,118 77,137 72,039
Less: netting adjustments (42,248) (34,831) (32,038)
50,870 42,306 40,001
The fair value of derivative assets represents the mark-to-market amounts of all
derivative contracts with a positive value. These assets arise from contracts
with third parties and fellow subsidiaries and are included in the balance sheet
as 'Derivatives'.
Fair value is a close approximation of the credit risk for these contracts at
the balance sheet date. The actual credit risk is measured internally as the sum
of positive mark-to-market values and an estimate for the future fluctuation
risk, using a future risk factor.
The netting adjustments represent amounts where the group has in place legally
enforceable rights of offset with individual counterparties to offset the gross
amount of positive mark-to-market assets with any negative mark-to-market
liabilities with the same customer. These offsets are recognised by the Hong
Kong Monetary Authority in the calculation of risk assets for the capital
adequacy ratio.
32. Foreign exchange exposure
Foreign exchange exposures may be divided broadly into two categories:
structural and non-structural. Structural exposures are normally long term in
nature and include those arising from investments in overseas subsidiaries,
branches, associates and strategic investments as well as capital instruments
denominated in currencies other than Hong Kong dollars. Non-structural exposures
arise primarily from trading positions and balance sheet management activities.
Non-structural exposures can arise and change rapidly. Foreign currency
exposures are managed in accordance with the group's risk management policies
and procedures.
The group had the following structural foreign currency exposures which exceeded
10 per cent of the net structural foreign currency exposure in all currencies:
Figures in HK$m Net structural position
At 30JUN06
Chinese renminbi 39,995
United States dollars 10,613
At 30JUN05
Chinese renminbi 21,128
Indian rupees 7,603
United States dollars 10,381
At 31DEC05
Chinese renminbi 32,510
Indian rupees 7,979
United States dollars 11,780
The increase in the Chinese renminbi structural position during the first half
of 2006 was principally attributable to the rise in the market value of the
group's shareholding in Ping An Insurance, while the Indian rupee exposure fell
to below 10 per cent of the group's total foreign currency structural exposure
following the disposal of shares in UTI Bank.
The group had the following non-structural foreign currency positions which
exceeded 10 per cent of the group's net foreign currency non-structural
positions in all currencies:
United States Singapore Brunei
Figures in HK$m dollars dollars dollars
At 30JUN06
Spot assets 1,144,826 105,727 6,359
Spot liabilities (1,119,320) (93,803) (14,929)
Forward purchases 1,953,665 176,817 24,193
Forward sales (1,972,119) (180,365) (24,055)
Net options position (1,170) - -
5,882 8,376 (8,432)
At 30JUN05^
Spot assets 85,892 5,470
Spot liabilities (77,505) (16,318)
Forward purchases 147,882 -
Forward sales (145,643) -
Net options position - -
10,626 (10,848)
At 31DEC05
Spot assets 1,229,340 107,578 5,523
Spot liabilities (1,188,737) (90,549) (18,062)
Forward purchases 1,507,086 157,007 43
Forward sales (1,558,902) (161,647) -
Net options position 3,361 - -
(7,852) 12,389 (12,496)
^ At 30 June 2005, the net US dollar non-structural position was less than 10
per cent of the group's total net position in all currencies, and is therefore
not required to be disclosed.
33. Segmental analysis
The allocation of earnings reflects the benefits of shareholders' funds to the
extent that these are actually allocated to businesses in the segment by way of
intra-group capital and funding structures. Common costs are included in
segments on the basis of the actual recharges made. Geographical information has
been classified by the location of the principal operations of the subsidiary
company or, in the case of the bank, by the location of the branch responsible
for reporting the results or advancing the funds. Due to the nature of the group
structure, the analysis of profits shown below includes intra-group items
between geographical regions.
Income statement
Rest of Americas/
Figures in HK$m Hong Kong Asia-Pacific Europe Total
Half-year ended 30JUN06
Interest income 38,238 18,852 402 57,492
Interest expense (22,167) (11,378) (357) (33,902)
Net interest income 16,071 7,474 45 23,590
Fee income 8,491 4,998 - 13,489
Fee expense (1,518) (1,051) (6) (2,575)
Net trading income 1,816 2,660 (14) 4,462
Net income from financial
instruments designated
at fair value 64 (36) - 28
Gains less losses from
financial investments 945 205 - 1,150
Dividend income 579 12 - 591
Net earned insurance premiums 10,218 694 - 10,912
Other operating income 3,183 511 12 3,706
Total operating income 39,849 15,467 37 55,353
Net insurance claims
incurred and movement in
policyholder liabilities (9,253) (491) - (9,744)
Net operating income before
loan impairment charges and
other credit risk provisions 30,596 14,976 37 45,609
Loan impairment charges and
other credit risk provisions (544) (2,039) - (2,583)
Net operating income 30,052 12,937 37 43,026
Operating expenses (10,762) (7,963) (20) (18,745)
Operating profit 19,290 4,974 17 24,281
Share of profit in associates 81 1,154 - 1,235
Profit before tax 19,371 6,128 17 25,516
Tax expense (2,968) (1,591) (10) (4,569)
Profit for the period 16,403 4,537 7 20,947
Attributable to shareholders 14,006 4,458 7 18,471
Attributable to minority
interests 2,397 79 - 2,476
Half-year ended 30JUN05
Interest income 23,529 14,225 275 38,029
Interest expense (8,122) (8,366) (131) (16,619)
Net interest income 15,407 5,859 144 21,410
Fee income 7,057 3,701 1 10,759
Fee expense (1,035) (845) (5) (1,885)
Net trading income 2,381 1,928 (113) 4,196
Net income from financial
instruments designated
at fair value (163) 107 - (56)
Gains less losses from
financial investments 359 (12) - 347
Dividend income 223 26 - 249
Net earned insurance
premiums 6,746 229 - 6,975
Other operating income 3,555 518 11 4,084
Total operating income 34,530 11,511 38 46,079
Net insurance claims
incurred and movement
in policyholder liabilities (5,851) (288) - (6,139)
Net operating income before
loan impairment charges and
other credit risk provisions 28,679 11,223 38 39,940
Loan impairment charges and
other credit risk provisions (459) (69) 12 (516)
Net operating income 28,220 11,154 50 39,424
Operating expenses (9,754) (6,406) (21) (16,181)
Operating profit 18,466 4,748 29 23,243
Share of profit in associates 28 892 - 920
Profit before tax 18,494 5,640 29 24,163
Tax expense (2,873) (1,372) (3) (4,248)
Profit for the period 15,621 4,268 26 19,915
Attributable to shareholders 13,342 4,196 26 17,564
Attributable to minority
interests 2,279 72 - 2,351
Half-year ended 31DEC05
Interest income 31,610 15,388 254 47,252
Interest expense (16,027) (8,970) (174) (25,171)
Net interest income 15,583 6,418 80 22,081
Fee income 7,180 4,220 1 11,401
Fee expense (1,217) (958) (3) (2,178)
Net trading income 771 2,270 (57) 2,984
Net income from financial
instruments designated
at fair value 94 346 - 440
Gains less losses from
financial investments 355 54 - 409
Dividend income 127 (8) - 119
Net earned insurance
premiums 11,394 971 - 12,365
Other operating income 2,925 613 11 3,549
Total operating income 37,212 13,926 32 51,170
Net insurance claims
incurred and movement in
policyholder liabilities (10,151) (1,001) - (11,152)
Net operating income before
loan impairment charges and
other credit risk provisions 27,061 12,925 32 40,018
Loan impairment charges and
other credit risk provisions (702) (846) - (1,548)
Net operating income 26,359 12,079 32 38,470
Operating expenses (10,760) (7,592) (17) (18,369)
Operating profit 15,599 4,487 15 20,101
Share of profit in associates 150 835 - 985
Profit before tax 15,749 5,322 15 21,086
Tax expense (2,538) (1,262) (3) (3,803)
Profit for the period 13,211 4,060 12 17,283
Attributable to shareholders 11,302 3,995 12 15,309
Attributable to minority
interests 1,909 65 - 1,974
Interest income and interest expense for the first half of 2006 include
intra-group interest of HK$3,747 million (first half of 2005: HK$2,170 million;
second half of 2005: HK$2,912 million). Fee income and fee expense for the first
half of 2006 include intra-group fees of HK$304 million (first half of 2005:
HK$180 million; second half of 2005: HK$309 million). Other operating income and
operating expenses for the first half of 2006 include intra-group items of
HK$1,256 million (first half of 2005: HK$1,364 million; second half of 2005:
HK$1,372 million).
34. Capital adequacy
The table below sets out an analysis of regulatory capital and capital adequacy
ratios for the group:
Figures in HK$m At 30JUN06 At 30JUN05 At 31DEC05
Composition of capital
Tier 1:
Shareholders' funds 115,787 93,216 97,334
Less: proposed dividend (5,500) (6,000) (4,500)
property revaluation reserves^ (8,027) (7,158) (7,892)
available-for-sale investments
reserve^^ (8,198) (2,395) (3,051)
classified as regulatory
reserve^^^ (1,362) (1,017) (1,319)
goodwill (3,865) (6,043) (3,784)
others 989 2,244 1,769
Irredeemable non-cumulative
preference shares 51,676 51,718 51,587
Minority interests^^^^ 16,172 14,666 14,808
Total qualifying tier 1 capital 157,672 139,231 144,952
Tier 2:
Property revaluation reserves
(@70%) 5,619 5,011 5,524
Available-for-sale investments
reserves (@70%) 5,739 1,677 2,136
Collective impairment provision
and regulatory reserve 6,038 4,351 5,112
Perpetual subordinated debt 9,352 9,404 9,359
Term subordinated debt 10,588 4,160 6,117
Term preference shares 3,884 3,887 3,877
Irredeemable cumulative
preference shares 16,544 7,373 16,516
Total qualifying tier 2 capital 57,764 35,863 48,641
Deductions (44,987) (25,640) (39,528)
Total capital 170,449 149,454 154,065
Risk-weighted assets 1,305,529 1,221,620 1,238,164
^ Includes the revaluation surplus on investment properties which is reported
as part of retained profits.
^^ Includes adjustments made in accordance with guidelines issued by the HKMA.
^^^ The regulatory reserve is maintained for satisfying the Banking Ordinance
for prudential supervision. Movements in this reserve are made in
consultation with the HKMA.
^^^^ After deduction of minority interests in unconsolidated subsidiary
companies.
The group's capital adequacy ratios adjusted for market risks calculated in
accordance with the HKMA Guideline on 'Maintenance of Adequate Capital Against
Market Risks' are as follows:
At 30JUN06 At 30JUN05 At 31DEC05
Total capital 13.1% 12.2% 12.4%
Tier 1 capital 12.1% 11.4% 11.7%
The group's capital adequacy ratios calculated in accordance with the provisions
of the Third Schedule of the Banking Ordinance, which does not take into account
market risks, are as follows:
Total capital 12.8% 12.1% 12.0%
Tier 1 capital 11.8% 11.2% 11.2%
35. Liquidity ratio
The Banking Ordinance requires banks operating in Hong Kong to maintain a
minimum liquidity ratio, calculated in accordance with the provisions of the
Fourth Schedule of the Banking Ordinance, of 25 per cent. This requirement
applies separately to the Hong Kong branches of the bank and to those subsidiary
companies which are Authorised Institutions under the Banking Ordinance in Hong
Kong.
Half-year ended Half-year ended Half-year ended
30JUN06 30JUN05 31DEC05
The average liquidity ratio
for the period was as
follows:
Hong Kong branches of the bank 49.1% 48.6% 47.8%
36. Property revaluation
The group's premises and investment properties were revalued at 30 June 2006 on
the basis of open market value.
Premises and investment properties in the Hong Kong SAR were valued by DTZ
Debenham Tie Leung at 30 June 2006. The valuations were carried out by
independent qualified valuers who are members of the Hong Kong Institute of
Surveyors. Management considered that there had either been no material changes
in the values of the properties located outside Hong Kong since 30 September
2005, when the properties were last revalued or reviewed, or that the values of
the properties were not material.
The property revaluation has resulted in an increase in the group's revaluation
reserves of HK$1,036 million, net of deferred taxation of HK$217 million, as at
30 June 2006. In addition, there was a credit to the income statement of
HK$337 million, of which HK$320 million represents the surplus on the
revaluation of investment properties and HK$17 million relates to the reversal
of previous revaluation deficits that had arisen when the value of certain
premises fell below depreciated historical cost.
37. Accounting policies
The accounting policies applied in preparing this news release are the same as
those applied in preparing the accounts for the year ended 31 December 2005, as
disclosed in the Annual Report and Accounts for 2005.
38. Restatement of comparative figures
Leasehold land
As disclosed on page 31 of the 2005 Annual Report and Accounts, in the second
half of 2005 the group revised its accounting policy for land held on leases
expiring after more than 500 years and which are not eligible to be treated as
finance leases. Such interests in land were reclassified from 'Property, plant
and equipment' to 'Other assets' and were remeasured on a historical cost basis.
In order to reflect this, certain comparative figures for the half-year ended 30
June 2005 have been restated as follows: total assets and equity as at 30 June
2005 have been reduced by HK$2,902 million and HK$2,394 million respectively,
and the deferred tax liability as at 30 June 2005 has been reduced by HK$508
million.
39. 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 2005 which have been delivered
to the Registrar of Companies and the Hong Kong Monetary Authority. The Auditors
expressed an unqualified opinion on those statutory accounts in their report
dated 6 March 2006. The Annual Report and Accounts for the year ended 31
December 2005, which include the statutory accounts, can be obtained on request
from Group Public Affairs, The Hongkong and Shanghai Banking Corporation
Limited, 1 Queen's Road Central, Hong Kong, and may be viewed on our website:
www.hsbc.com.hk.
40. Ultimate holding company
The Hongkong and Shanghai Banking Corporation Limited is an indirectly-held,
wholly-owned subsidiary of HSBC Holdings plc.
41. Statement of compliance
The information in this news release for the half-year ended 30 June 2006
complies with Hong Kong Accounting Standard 34 on Interim Financial Reporting
and the module on Interim Financial Disclosure by Locally Incorporated
Authorised Institutions under the Supervisory Policy Manual issued by the Hong
Kong Monetary Authority.
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: 31 July 2006