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 March, 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- ..............)
THE HONGKONG AND SHANGHAI BANKING CORPORATION LIMITED
2006 CONSOLIDATED RESULTS - HIGHLIGHTS
- Net operating income before loan impairment charges and other credit risk
provisions up 19.6 per cent to HK$92,325 million (HK$77,222 million in
2005).
- Pre-tax profit up 15.0 per cent to HK$52,016 million (HK$45,249 million in
2005).
- Attributable profit up 14.7 per cent to HK$37,709 million (HK$32,873
million in 2005).
- Return on average shareholders' equity of 31.1 per cent (37.4 per cent in
2005).
- Assets up 17.9 per cent to HK$3,151 billion (HK$2,673 billion at the end of
2005); risk-weighted assets up 10.5 per cent to HK$1,368 billion (HK$1,238
billion at 31 December 2005).
- Total capital ratio of 13.5 per cent; tier 1 capital ratio of 12.3 per cent
(12.4 per cent and 11.7 per cent at 31 December 2005).
- Cost efficiency ratio of 41.4 per cent (41.2 per cent for 2005).
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 2006, The Hongkong and Shanghai Banking Corporation achieved a robust pre-tax
profit of HK$52,016 million, up 15.0 per cent over 2005. Buoyant economic
conditions, expansion of customer group businesses and widening net interest
margins in the region supported this strong result. In Hong Kong, pre-tax profit
grew 10.9 per cent to HK$37,978 million. For the rest of Asia-Pacific, pre-tax
profit was up 27.6 per cent to HK$13,992 million - a significant increase as we
continued to reap the benefits of our investments in businesses in countries
with strong economic growth.
Around the region, there were several outstanding achievements in 2006. In
India, our pre-tax profit grew 86.0 per cent to HK$2,336 million. Meanwhile,
HSBC's mainland China network, excluding associates, recorded a 34.6 per cent
rise in profit to HK$998 million. With more than 50 outlets (including Hang Seng
Bank), our mainland China network also remains the largest of any foreign bank.
We launched direct banking in Taiwan in September 2006 and in Korea in February
of this year. Our consumer finance businesses in Australia and India, launched
in 2005, began to pick up momentum and we launched a new consumer finance
operation in Indonesia in 2006. In addition, in February 2007 we announced an
agreement to increase our stake in Vietnam Technological and Commercial
Joint-Stock Bank (Techcombank) from 10 per cent to 20 per cent once regulations
permit. In 2006, we launched a new Takaful (Islamic insurance) joint venture
company in partnership with Jerneh Asia Berhad and The Employees Provident Fund
of Malaysia. While we continue to focus on growing our businesses in the region
organically, we remain open to expanding the scope and breadth of our reach
through strategic acquisitions if the right opportunities arise.
Our net operating income before loan impairment charges was HK$92,325 million,
up 19.6 per cent. Balance sheet growth, wider deposit spreads, growth in demand
for wealth management products in rising equity markets, and successful Global
Markets trading activities in the region all contributed to this growth.
The net charge for loan impairment and other credit risk provisions rose by
HK$2,745 million to HK$4,809 million, reflecting significantly higher provisions
linked to personal lending outside Hong Kong, particularly in Taiwan and
Indonesia, and higher charges resulting from volume growth in credit cards in
Hong Kong.
Personal Financial Services reported a pre-tax profit of HK$21,889 million,
which was up 1.2 per cent compared to 2005 due to the impact of the
aforementioned provisions including Taiwan and Indonesia. Net operating income
before loan impairment charges rose strongly by 15.9 per cent to HK$46,073
million as our operations in the region continued to expand.
In Hong Kong there were also several notable successes. In 2006, HSBC was the
leading bank in new residential mortgage lending, credit card issuance and
receivables, unit trust sales, and the origination and distribution of
structured products. In new residential mortgage lending we captured a 17.6 per
cent market share, largely due to a simplified pricing campaign launched in the
first quarter of 2006. Including Hang Seng Bank, the HSBC Group's market share
reached 33.3 per cent. HSBC, again including Hang Seng Bank, now has 4.6 million
cards in issue in the territory, up 16.7 per cent from 2005. Average receivables
in these portfolios also grew strongly, up 15.0 per cent to HK$26,655 million.
Group fee income from cards rose by HK$671 million, up 29.1 per cent. Group unit
trust sales grew by 60.9 per cent to HK$59,000 million. Insurance revenues grew
by 13.0 per cent to HK$4,719 million.
In the rest of the region, competitive pricing and increased marketing activity
boosted income from mortgages in Singapore and Taiwan. Similarly, increased
marketing led to a rise in income from interest earned on credit cards in the
Philippines, Indonesia and India. Our cards in issue in the region continued to
grow strongly. In India we added 800,000 cards to reach two million in issue.
Cards in issue increased elsewhere as well: up 34.6 per cent in the Philippines
to 816,000; up 20.0 per cent in Singapore to 531,000; up 42.2 per cent in Sri
Lanka to 265,000; and up 28.0 per cent in Australia to 189,000. In 2006, HSBC
was the second largest credit card issuer in the Philippines in terms of
billings and receivables.
Our Commercial Banking business had an outstanding year, reporting pre-tax
profit of HK$14,945 million, up 34.3 per cent. This result was driven by balance
sheet growth and widening deposit spreads. Commercial Banking continued to grow
deposits, which rose 17.2 per cent to HK$439 billion, and lending balances, also
up 17.2 per cent to HK$276 billion. We also continued to expand our presence in
the SME sector and to increase cross-border referrals to capture opportunities
arising from the growing cross-border flows in trade, services and investment.
Our Commercial Banking business continues to position itself to provide support
for and to benefit from the growing regional trade and payment flows, in
particular those associated with China's economic expansion and development.
Income from insurance and investment sales rose significantly in Hong Kong, up
59.2 per cent to HK$1,523 million.
Corporate, Investment Banking and Markets reported a pre-tax profit of HK$15,243
million, up 15.0 per cent and driven by robust performances in Global
Transaction Banking and strong trading profits in Global Markets. These trading
results were largely on the back of customer flows, with particular success
outside Hong Kong. Declining balance sheet management revenues continued to drag
on earnings as the cost of funding fixed rate asset positions, put on in earlier
periods, rose significantly. These positions had largely run off by the end of
the first half of 2006. Net interest income in Global Transaction Banking
increased by 62.7 per cent from business growth and improved deposits spreads
most notably in India, Hong Kong, Singapore, Taiwan, mainland China and Korea.
Overall, net fee income was boosted by the rising volumes in regional equity
markets in the year, increasing by 28.7 per cent to HK$6,937 million. In
particular, fee income from securities services increased 42.0 per cent from
rising equity market volumes, notably in India, mainland China and Singapore,
and fee income from asset management business rose 48.1 per cent. Net trading
income rose 20.3 per cent to HK$8,682 million as currency volatility provided
good trading opportunities and customer volumes increased in India, mainland
China and Singapore.
Looking forward, we will continue to invest in growth markets across the
Asia-Pacific region, which remains an important growth engine for the HSBC
Group. We intend to further strengthen our distribution capability. Our
extensive and unique footprint in the region already provides us with a
competitive advantage and the use of channels such as direct banking further
extends our reach to both existing and new customers. We will continue to
enhance and grow our product and service capabilities to ensure we provide
comprehensive services for our target customer segments across the region. We
will also continue to watch for opportunities presented by possible strategic
and selective acquisitions. In Hong Kong, which continues to be a major gateway
to mainland China, our operations remain the regional hub and fulcrum point of
HSBC in Asia. Our strategy in the territory is straightforward: we intend to
maintain our leading position as we further grow both our market share and our
share of our customers' business. We will also actively and prudently manage our
costs. In mainland China, we will continue our successful two-pronged strategy
of growing organically and developing our strategic partnerships.
The general outlook for Asia's burgeoning economies remains positive against a
backdrop of supportive global economic growth, demand for goods and services
from OECD countries and growth in intra-regional trade, including 'South South'
economic flows. HSBC, for its part, has made significant progress in recent
years investing in its Asian emerging market operations. As a result, we are
well positioned to pursue the expanding opportunities in financial services as
these economies grow and develop.
Results by Customer Group
Corporate,
Investment
Personal Banking Intra-
Financial Commercial and Private segment
Figures in HK$m Services Banking Markets Banking Other elimination Total
Year ended 31Dec06
Net interest income/(expense) 30,090 14,006 9,104 45 (4,201) 2,055 51,099
Net fee income/(expense) 10,512 5,018 6,937 101 (164) - 22,404
Net trading income 889 796 8,682 14 825 (2,288) 8,918
Net income/(loss) from financial
instruments designated at
fair value 3,364 (384) 74 (1) (616) 233 2,670
Gains less losses from
financial investments 108 - 226 - 1,132 - 1,466
Dividend income 9 10 55 - 675 - 749
Net earned insurance premiums 20,741 972 133 - - - 21,846
Other operating income 2,262 348 430 14 7,005 (4,406) 5,653
Total operating income 67,975 20,766 25,641 173 4,656 (4,406) 114,805
Net insurance claims
incurred and movement in
policyholders' liabilities (21,902) (478) (100) - - - (22,480)
Net operating income before
loan impairment charges and
other credit risk provisions 46,073 20,288 25,541 173 4,656 (4,406) 92,325
Loan impairment charges and
other credit risk provisions (4,528) (446) 250 - (85) - (4,809)
Net operating income 41,545 19,842 25,791 173 4,571 (4,406) 87,516
Operating expenses (19,913) (6,531) (11,219) (167) (4,815) 4,406 (38,239)
Operating profit/(loss) 21,632 13,311 14,572 6 (244) - 49,277
Share of profit in associates
and joint venture 257 1,634 671 - 177 - 2,739
Profit/(loss) before tax 21,889 14,945 15,243 6 (67) - 52,016
Share of profit/(loss) before tax 42.1% 28.7% 29.3% - (0.1%) - 100.0%
Advances to customers 446,990 276,172 301,069 3,312 16,239 - 1,043,782
Customer accounts 1,121,286 438,943 417,335 7,253 4,650 - 1,989,467
Year ended 31Dec05
Net interest income/(expense) 26,801 11,089 8,725 63 (3,800) 613 43,491
Net fee income 8,050 4,524 5,388 55 80 - 18,097
Net trading income/(loss) 683 638 7,215 10 (582) (784) 7,180
Net income/(loss) from financial
instruments designated at
fair value 666 (648) 122 - 73 171 384
Gains less losses from
financial investments - 23 19 - 714 - 756
Dividend income 5 14 167 - 182 - 368
Net earned insurance premiums 18,437 756 147 - - - 19,340
Other operating income 1,984 295 572 13 6,338 (4,305) 4,897
Total operating income 56,626 16,691 22,355 141 3,005 (4,305) 94,513
Net insurance claims
incurred and movement in
policyholders' liabilities (16,889) (330) (72) - - - (17,291)
Net operating income before
loan impairment charges and
other credit risk provisions 39,737 16,361 22,283 141 3,005 (4,305) 77,222
Loan impairment charges and
other credit risk provisions (1,344) (896) 165 - 11 - (2,064)
Net operating income 38,393 15,465 22,448 141 3,016 (4,305) 75,158
Operating expenses (16,932) (5,424) (9,642) (113) (4,008) 4,305 (31,814)
Operating profit/(loss) 21,461 10,041 12,806 28 (992) - 43,344
Share of profit in associates
and joint venture 179 1,090 446 - 190 - 1,905
Profit/(loss) before tax 21,640 11,131 13,252 28 (802) - 45,249
Share of profit/(loss) before tax 47.8% 24.6% 29.3% - (1.7%) - 100.0%
Advances to customers 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$21,889 million, an
increase of 1.2 per cent over 2005 as strong growth in operating income of 15.9
per cent was offset by higher credit card impairment allowances in Taiwan and
Indonesia, and investment expenditure in the rest of Asia-Pacific.
Overall, net interest income increased by HK$3,289 million, or 12.3 per cent,
compared with 2005. In Hong Kong, net interest income rose by HK$2,029 million,
or 10.0 per cent, as effective management of deposit pricing amid the continued
trend of rising interest rates resulted in a further widening of liability
spreads. Average customer account balances rose by 7.1 per cent, reflecting
successful promotional campaigns and customer preference for maintaining
liquidity in order to take advantage of short-term investment opportunities. The
local mortgage market remained highly competitive as sales volumes in the
housing market slowed and margins were impacted by a higher cost of funds and
competitor price promotions. However, HSBC regained leadership in market share
of new business, 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 grew,
but net interest income fell as the benefit of higher receivables was more than
offset by a rise in funding costs.
In the rest of Asia-Pacific, net interest income rose by HK$1,260 million, or
19.6 per cent, reflecting strong balance sheet growth across the region. The
deposit base expanded in a number of countries, particularly Singapore,
Indonesia and mainland China, reflecting evolution of the focused strategy on
HSBC Premier customers, and deposit spreads improved on the back of higher
interest rates. Income from mortgages increased as lending grew, notably in
Singapore and Taiwan, led by competitive pricing and increased marketing
activity. 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. Credit card interest income fell
significantly in Taiwan as lending was reduced following the introduction of a
government debt renegotiation scheme with zero or low rates for delinquent
borrowers. 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$10,512 million was 30.6 per cent higher than in 2005,
driven by buoyant regional and global stock markets and greater demand for
wealth management products. In Hong Kong, fee income was up by HK$1,828 million,
or 31.7 per cent. Fee income from stockbroking and custody services rose by 80.3
per cent, reflecting higher stock market transaction volumes. 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 27.7 per cent on the back of strong
demand for investment products in Korea, Taiwan, India and Singapore, with
revenue from wealth management sales in the region increasing by HK$355 million,
or 33.8 per cent.
Fee income from credit cards was HK$671 million, or 29.1 per cent, higher than
in 2005 as the group strengthened its position as the largest card issuer in
Hong Kong, with over 4.6 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 21.3 per cent in the number of cards to a total
of 5.7 million issued, and a 19.3 per cent increase in cardholder spending.
Insurance income rose by 13.0 per cent, with continued focus on the development
of the group's retirement planning proposition and was supported by increased
levels of marketing activity and distribution channel development. Sales of
other life assurance products also grew and revenue from general insurance,
particularly medical, travel and home insurance, increased.
Gains from financial investments principally comprise profit realised from the
partial disposal of shares held in MasterCard Inc.
Other operating income increased by HK$278 million, attributable to gains on the
sale of the Australian stockbroking, margin lending and broker-originated
mortgage businesses, and the share of profit attributable to Personal Financial
Services from the transfer of the credit card merchant acquiring business to a
joint venture company set up with Global Payments Inc. These gains were
partially offset by lower IT cost recoveries in Hong Kong from other regional
group entities resulting from a change in the charging methodology across
customer groups.
The charge for loan impairment increased by HK$3,184 million to HK$4,528
million, largely attributable to higher credit card delinquency levels in Taiwan
and Indonesia. Delinquency rates and write-offs rose in Taiwan largely as a
result of government measures to control 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 credit card
receivables in Hong Kong and in personal instalment loans in other parts of the
region also contributed to the increased charge, whereas the prior period
benefited from non-recurring releases of provisions against mortgage lending and
restructured facilities in Hong Kong.
Operating expenses were HK$2,981 million, or 17.6 per cent, higher than in 2005,
principally driven by continued investment to develop and expand the business in
the rest of the Asia-Pacific region. In Hong Kong, operating expenses rose by
10.6 per cent, largely in relation to major credit card marketing campaigns and
headcount growth in customer-facing roles. Staff recruitment increased to
support the introduction in September 2006 of the five-day working week and
extended opening hours, and payroll costs further rose due to higher
performance-related bonuses and annual salary increments. Technology costs were
also higher, reflecting investment in customer portfolio management systems and
the enhancement of distribution channel capabilities. In the rest of
Asia-Pacific, costs increased by HK$1,936 million, or 27.4 per cent, notably in
India and Korea, as the group continued to pursue organic growth in the region.
Headcount rose by 29.1 per cent as sales and support functions were expanded,
and premises costs rose as new branches were opened in mainland China and a
number of other countries. 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, particularly in India,
Australia and Indonesia, and in relation to the launch of HSBC Direct in Taiwan
and Korea in September 2006 and February 2007 respectively.
Income from associates of HK$257 million includes improved results from Bank of
Communications and Industrial Bank.
Commercial Banking reported profit before tax of HK$14,945 million, an increase
of 34.3 per cent over 2005, driven by improved deposit spreads and balance sheet
growth.
Net interest income increased by HK$2,917 million, or 26.3 per cent, compared
with 2005. This reflected growth in average deposits and advances as well as
improvements in deposit spreads following further rises in interest rates across
the region this year. In Hong Kong, net interest income rose by HK$1,916
million, or 22.5 per cent, due to growth in liability balances, reflecting the
active promotion of the 'BusinessVantage' account in Hong Kong and the widening
of deposit spreads. 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 and higher funding costs. Emphasis on
the small business segment was strengthened with the opening of dedicated small
business banking centres, more relationship managers and sales staff, and the
launch of a streamlined lending process. Cross-border relationships continued to
be an area of emphasis, and the regional alignment proposition was enhanced to
capture business flows between Hong Kong, mainland China, Taiwan and Vietnam,
which led to a significant increase in inter-office referrals.
In the rest of Asia-Pacific, net interest income grew by 39.0 per cent.
Liability spreads improved across the region and the deposit base expanded in
various countries, particularly in Taiwan, Singapore and India, following
successful marketing campaigns and sales incentives. Account balances in India
increased also due to the receipt of IPO funds. In addition, the offshore
business in Mauritius performed well. Term lending and trade finance increased,
notably in mainland China, India, Korea and Australia as a result of promotional
activities, enhanced packaged lending propositions, together with expansion of
the branch network and internet banking. Asset spreads also improved.
Net fee income rose by HK$494 million, or 10.9 per cent, largely attributable to
higher fees from account services and remittances, particularly in Hong Kong as
a result of enhancements to the product range and increased cross-border
remittances. Credit card merchant acquiring fees dropped by 11.5 per cent as the
majority of the business was transferred in July 2006 into a joint venture
company set up with Global Payments Inc. Fees from trade services were higher
with increases in mainland China, India, Bangladesh and Indonesia partially
offset by lower revenues in Hong Kong due to intense market competition. Buoyant
local equity markets and the launch of new investment products contributed to
increased wealth management sales in Hong Kong. Income from sales of foreign
exchange and interest rate derivative products increased by 24.8 per cent,
benefiting from an increase in hedging transactions and cross-border payments.
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 71.2 per cent. Fees from the Mandatory Provident
Fund business in Hong Kong also grew strongly.
Other operating income increased by HK$53 million, due to the share of profit
attributable to Commercial Banking from the transfer of the credit card merchant
acquiring business to a joint venture company set up with Global Payments Inc.
The charge for loan impairment was HK$450 million lower than in 2005, reflecting
a decrease in new specific provisions in Hong Kong, although releases in Hong
Kong, mainland China, India and Singapore were lower. Credit quality generally
remained stable.
Operating expenses increased by 20.4 per cent over 2005. The number of sales and
back-office staff rose in support of SME initiatives, insurance business
expansion, product development and increased branch presence, and expenditure
rose on marketing campaigns to win new business and raise market penetration.
Ongoing investment in the development and promotion of internet banking and
other lower-cost delivery channels resulted in 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 20 per cent and the proportion of online
transactions grew by 42.2 per cent. Staff costs and marketing expenditure rose
in Korea and mainland China in order to further develop the group's commercial
banking business in these countries.
Income from associates was HK$544 million higher than in the prior year and
includes improved results from Bank of Communications and Industrial Bank.
Corporate, Investment Banking and Markets reported profit before tax of
HK$15,243 million, 15.0 per cent higher than 2005, attributable to an excellent
performance in Global Transaction Banking and strong trading profits in Global
Markets.
Net interest income increased by HK$379 million, or 4.3 per cent, compared with
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, although these asset positions had, however, largely run off by
the end of the first half of 2006. In addition, flat yield curves made it
difficult to generate income through position-taking. Net interest income in
Global Transaction Banking increased by 62.7 per cent, notably in India, Hong
Kong, Singapore, Taiwan, mainland China and Korea as a result of business growth
and interest rate rises in the region. Deposit balances grew by 22.3 per cent as
the payments and cash management business successfully completed the
implementation of a record number of domestic and cross-border cash management
mandates. The securities services business performed well, particularly in
India, Taiwan and Korea. Trade finance revenues grew, notably in Japan and
Korea. Net interest income from corporate lending fell by 4.7 per cent 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$1,549 million, or 28.7 per cent. In Global
Transaction Banking, fees rose by HK$1,294 million, or 34.2 per cent. The
securities services business continued to broaden capabilities across the
region, and was strengthened by the acquisition of the sub-custody business in
Australia and New Zealand from Westpac. Volumes benefited from buoyant local
stock markets, particularly in Hong Kong, Korea and India. Fee income from the
asset management business increased by 48.1 per cent, reflecting higher fund
advisory and distribution fees and growth in funds under management. Investment
banking revenues were higher as the division arranged a number of structured
finance transactions in Hong Kong, but underwriting income declined although
several mandates for mid-tier IPOs were won.
Net trading income rose by 20.3 per cent to HK$8,682 million. Foreign exchange
and interest rate derivatives revenues were higher as currency volatility
provided good trading opportunities, particularly in regional currencies, and
customer volumes increased reflecting HSBC's focus on capturing emerging market
flows from heightened client interest in emerging markets, particularly in India
and mainland China. Strong results were achieved from equities and equity
derivatives trading, reflecting business expansion in these areas and buoyant
regional stock markets. Private equity investments also performed strongly.
Tighter credit spreads in the corporate bond market created fewer trading
opportunities compared to previous years, and there was a reduced contribution
from the structured interest rate derivatives business as investors focused on
shorter-dated interest rate products and other asset classes.
Gains on the disposal of financial investments were HK$207 million higher than
in 2005 and largely comprised profits made on the sale of Philippine government
securities in 2006, together with the non-recurrence of losses on disposals of
securities sold in 2005, following strategic decisions to reduce interest rate
risk in certain portfolios.
There was a net release of loan impairment provisions of HK$250 million,
compared with a release of HK$165 million in 2005, as the corporate credit
environment throughout the region remained benign.
Operating expenses increased by 16.4 per cent compared with 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 to the group of HSBC Securities Japan from
another HSBC Group company in the second quarter of 2005 also contributed to the
increase in expenses as a full period of costs was reflected this year.
Income from associates of HK$671 million includes improved results from Bank of
Communications and Industrial Bank.
Other includes income and expenses relating to certain funding, investment,
property and other activities that are not allocated to other customer groups.
Gains from financial investments largely comprise profit on the disposal of part
of the group's stake in UTI Bank, and other operating income includes profits
made on property sales. These gains were partially offset by lower revaluation
gains on investment property.
Consolidated Income Statement
Year ended Year ended
Figures in HK$m 31Dec06 31Dec05
Interest income 115,928 80,199
Interest expense (64,829) (36,708)
Net interest income 51,099 43,491
Fee income 26,554 21,671
Fee expense (4,150) (3,574)
Net fee income 22,404 18,097
Net trading income 8,918 7,180
Net income from financial instruments designated
at fair value 2,670 384
Gains less losses from financial investments 1,466 756
Dividend income 749 368
Net earned insurance premiums 21,846 19,340
Other operating income 5,653 4,897
Total operating income 114,805 94,513
Net insurance claims incurred and movement in
policyholders' liabilities (22,480) (17,291)
Net operating income before loan impairment charges and
other credit risk provisions 92,325 77,222
Loan impairment charges and other credit risk provisions (4,809) (2,064)
Net operating income 87,516 75,158
Employee compensation and benefits (21,042) (17,736)
General and administrative expenses (14,949) (12,095)
Depreciation of property, plant and equipment (1,905) (1,825)
Amortisation of intangible assets (343) (158)
Total operating expenses (38,239) (31,814)
Operating profit 49,277 43,344
Share of profit in associates and joint venture 2,739 1,905
Profit before tax 52,016 45,249
Tax expense (9,411) (8,051)
Profit for the year 42,605 37,198
Profit attributable to shareholders 37,709 32,873
Profit attributable to minority interests 4,896 4,325
Extract from the Consolidated Balance Sheet
Figures in HK$m At 31Dec06 At 31Dec05
ASSETS
Cash and short-term funds 518,022 502,730
Items in the course of collection from other banks 46,519 17,782
Placings with banks maturing after one month 104,037 69,554
Certificates of deposit 73,200 53,831
Hong Kong SAR Government certificates of indebtedness 102,374 97,344
Trading assets 338,792 215,681
Financial assets designated at fair value 50,514 37,073
Derivatives 99,167 72,039
Advances to customers 1,043,782 999,326
Financial investments 484,841 394,497
Amounts due from group companies 161,118 101,173
Investments in associates and joint venture 25,534 23,061
Goodwill and intangible assets 10,428 7,252
Property, plant and equipment 29,159 29,805
Deferred tax assets 1,245 1,272
Retirement benefit assets 2,191 1,788
Other assets 59,917 48,324
Total assets 3,150,840 2,672,532
LIABILITIES
Hong Kong SAR currency notes in circulation 102,374 97,344
Items in the course of transmission to other banks 57,226 20,927
Deposits by banks 108,125 83,802
Customer accounts 1,989,467 1,735,110
Trading liabilities 272,545 250,198
Financial liabilities designated at fair value 36,554 33,291
Derivatives 98,659 72,009
Debt securities in issue 69,195 61,468
Retirement benefit liabilities 465 394
Amounts due to group companies 31,356 24,777
Other liabilities 56,478 46,628
Liabilities under insurance contracts issued 61,350 41,845
Current tax liabilities 4,500 2,044
Deferred tax liabilities 4,284 3,729
Subordinated liabilities 16,353 12,561
Preference shares 76,464 71,980
Total liabilities 2,985,395 2,558,107
EQUITY
Share capital 22,494 22,494
Other reserves 35,514 6,037
Retained profits 80,942 64,303
Proposed fourth interim dividend 6,500 4,500
Total shareholders' equity 145,450 97,334
Minority interests 19,995 17,091
165,445 114,425
Total equity and liabilities 3,150,840 2,672,532
Consolidated Statement of Recognised Income and Expense
Year ended Year ended
Figures in HK$m 31Dec06 31Dec05
Available-for-sale investments:
- fair value changes taken to equity 25,115 (1,885)
- fair value changes transferred to the income statement
on disposal or impairment (1,464) (787)
- fair value changes transferred to the income statement
on hedged items due to hedged risk (105) 1,077
Cash flow hedges:
- fair value changes taken to equity (165) (2,743)
- fair value changes transferred to the income statement 2,277 538
Property revaluation:
- fair value changes taken to equity 1,977 2,448
Share of changes in equity of associates and joint venture (186) 1,098
Exchange differences 2,779 (782)
Actuarial gains on post-employment benefits 93 144
30,321 (892)
Net deferred tax on items taken directly to equity (738) 253
Total income and expense taken to equity during the year 29,583 (639)
Profit for the year 42,605 37,198
Total recognised income and expense for the year 72,188 36,559
Total recognised income and expense for the year
attributable to:
- shareholders 66,448 32,594
- minority interests 5,740 3,965
72,188 36,559
Consolidated Cash Flow Statement
Year ended Year ended
Figures in HK$m 31Dec06 31Dec05
Operating activities
Cash generated from operations 88,942 31,009
Interest received on financial investments 17,527 14,759
Dividends received on financial investments 711 339
Dividends received from associates 766 108
Taxation paid (6,159) (7,313)
Net cash inflow from operating activities 101,787 38,902
Investing activities
Purchase of financial investments (402,459) (335,668)
Proceeds from sale or redemption of financial
investments 361,794 366,294
Purchase of property, plant and equipment (2,085) (1,749)
Proceeds from sale of property, plant and equipment 2,697 1,153
Purchase of other intangible assets (1,142) (670)
Proceeds from sale of assets held for sale 1,479 -
Net cash outflow in respect of the acquisition of and
increased shareholding in subsidiary companies (22) (1,644)
Net cash inflow in respect of the sale of subsidiary
companies 409 151
Net cash outflow in respect of the purchase of
interests in business portfolios (775) -
Net cash outflow in respect of the purchase of
interests in associates and joint venture (462) (3,358)
Proceeds from the sale of interests in business portfolios 16,501 -
Proceeds from the sale of interests in associates - 10
Net cash (outflow)/inflow from investing activities (24,065) 24,519
Net cash inflow before financing 77,722 63,421
Financing
Issue of preference share capital 4,277 16,567
Change in minority interest stake 976 362
Repayment of subordinated liabilities (1,018) -
Issue of subordinated liabilities 4,661 2,500
Ordinary dividends paid (18,757) (20,600)
Dividends paid to minority interests (3,841) (3,983)
Interest paid on preference shares (3,935) (1,574)
Interest paid on subordinated liabilities (946) (555)
Net cash outflow from financing (18,583) (7,283)
Increase in cash and cash equivalents 59,139 56,138
Additional Information
1. Net interest income
Year ended Year ended
Figures in HK$m 31Dec06 31Dec05
Net interest income 51,099 43,491
Average interest-earning assets 2,212,521 2,031,314
Net interest spread 1.92% 1.89%
Net interest margin 2.31% 2.14%
Net interest income of HK$51,099 million was HK$7,608 million, or 17.5 per cent,
higher than in 2005. The contribution from balance sheet growth and improved
deposit spreads throughout the region was partially offset by significantly
lower balance sheet management income.
Net interest income in Personal Financial Services rose by HK$3,289 million, or
12.3 per cent, partly due to improved liability spreads earned in the higher
interest rate environment, coupled with strong growth in the deposit base.
Lending growth also contributed to the increase in interest income, particularly
personal loans in India and Korea, credit cards in the Philippines, India and
Indonesia, and mortgages in Singapore, Taiwan and at Hang Seng Bank. In
addition, strong returns were also generated on investments held by the group's
insurance companies, benefiting from higher yields and growth in portfolio size.
Net interest income in Commercial Banking was HK$2,917 million, or 26.3 per
cent, ahead of the prior period due to balance sheet growth, notably in Hong
Kong, India, Singapore and mainland China, 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. Global Markets saw a decline in balance
sheet management revenues, which were impacted by higher funding costs and flat
yield curves.
Average interest-earning assets rose by HK$181.2 billion, or 8.9 per cent, to
HK$2,212.5 billion. Average advances to customers grew by HK$82.4 billion, or
8.5 per cent, with strong increases in corporate loans in Hong Kong, India,
mainland China and Australia, and rises in mortgage lending in Hong Kong,
Singapore, Korea, Taiwan and India. Average credit card balances rose in all
areas, notably Hong Kong, the Philippines, Indonesia and India, and personal
instalment loans grew, most significantly in Korea. Average placements with
banks were HK$56.2 billion higher, and holdings of financial investments rose by
HK$43.4 billion, reflecting the deployment of the commercial surplus.
The group's net interest margin of 2.31 per cent for 2006 was 17 basis points
higher than in 2005. The reduction in balance sheet management income negatively
affected margin by 11 basis points when compared to 2005. However, net interest
spread improved by three basis points overall, attributable to tactical deposit
pricing. The contribution from net free funds increased by 14 basis points
reflecting higher interest rates and an increase in free funds from retained
earnings and trading book structured deposits, although other net trading
liabilities decreased.
For the bank in Hong Kong, net interest margin increased by nine basis points to
2.26 per cent for 2006. Spread rose by three basis points, benefiting from
higher interest rates. Spreads on Hong Kong dollar and foreign currency current
and savings accounts improved as the value of funds rose, whilst increases in
interest rates paid to customers were contained. This was partly offset by 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 affected by a higher cost of funds, and competitive pressures on
pricing affected corporate lending margins. The contribution from net free funds
increased by six basis points due to the increase in market interest rates.
At Hang Seng Bank, net interest margin improved by 23 basis points as the
increase in contribution from net free funds outweighed the fall in spread. Net
interest spread declined by 11 basis points as returns on treasury balance sheet
management portfolios were affected by rising funding costs and flat yield
curves, and spreads narrowed on mortgages and corporate loans due to competitive
pressures on pricing. These outweighed the favourable impact of the growth in
advances and a wider spread between the bank's best lending rate ('BLR') and
HIBOR. The contribution from net free funds increased by 34 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 2.16 per cent was 16 basis
points higher than in 2005. Spread increased by nine basis points to 1.94 per
cent. All major sites faced an increase in funding costs due to higher interest
rates across the region, but spreads rose in several countries, notably in India
due to an increase in higher-yielding personal loans and credit cards and a rise
in low cost current account balances from custody and clearing customers.
Margins also rose in mainland China from higher spreads on corporate lending as
deposit rate rises lagged lending rate increases, in Singapore due to rises in
mortgage lending rates, and in Australia from higher yields on corporate bonds.
These increases were partially offset by lower spreads on credit card advances
in Taiwan and competitive pressures on mortgage lending rates in Korea. The
contribution from net free funds rose by seven basis points, benefiting from
higher market interest rates.
2. Net fee income
Figures in HK$m 2006 2005
Account services 1,501 1,314
Credit facilities 1,245 1,159
Import/export 2,956 2,777
Remittances 1,437 1,248
Securities/stockbroking 5,267 3,402
Cards 4,335 4,231
Insurance 315 280
Unit trusts 2,326 1,627
Funds under management 2,974 2,233
Other 4,198 3,400
Fee income 26,554 21,671
Fee expense (4,150) (3,574)
22,404 18,097
Net fee income was HK$4,307 million, or 23.8 per cent, higher than in 2005.
Securities broking and custody fees rose by 54.8 per cent, reflecting higher
stock market turnover in Hong Kong and the region, with increases from both
personal and corporate customers. The buoyant equity markets also stimulated
customer demand for unit trusts and structured products. Funds under management
and related fees increased, in part due to institutional business transferred
from another HSBC Group entity in the second quarter of 2005. Fee income also
includes significant fund advisory and performance fees, reflecting the success
of certain emerging markets funds. Trade finance income and remittance and other
account fees grew, reflecting the group's strong transactional capabilities.
Hong Kong Mandatory Provident Fund management fees increased by 34 per cent due
to new business and improved investment performance. Gross fee income from
credit cards was impacted by a loss of revenues in Taiwan as credit card
activity fell in the wake of the country's curbs on consumer credit growth, and
due to the transfer of the majority of the merchant acquiring business to a
joint venture company set up with Global Payments Inc. However, there was strong
growth elsewhere in the region due to an increase in the number of cards in
circulation and higher cardholder spending. 'Other' fees include an increase in
sales credits received from fellow HSBC group companies in respect of treasury
business.
Fee expense rose due to increased brokerage fees paid by Global Markets on
account of higher trading activity, and higher investment management advisory
fees paid to another HSBC Group company.
3. Net trading income
Figures in HK$m 2006 2005
Dealing profits 10,001 8,560
Gain/(loss) from hedging activities 16 (1)
Net interest expense (1,307) (1,484)
Dividend income from trading securities 208 105
8,918 7,180
Trading income rose by 24.2 per cent to HK$8,918 million. Foreign exchange
profits benefited from an increase in trading activity against a backdrop of
increasing demand for local currency assets as foreign investors sought to
participate in local stock markets, coupled with favourable positioning as the
US dollar weakened. Revenues grew strongly in the equities and equity
derivatives business, reflecting business expansion and buoyant stock markets.
Strong gains were also made on the revaluation of private equity investments.
However, the contribution from structured derivatives trading declined, and the
rising interest rate environment negatively impacted corporate bond trading
revenues. Net interest expense decreased due to higher interest income from
increased holdings of trading assets, but was largely offset by a rise in
interest expense from the increase in structured deposit products issued to
retail customers.
4. Gains less losses from financial investments
Figures in HK$m 2006 2005
Profit on disposal of available-for-sale securities 1,466 762
Other - (6)
1,466 756
The profit on the disposal of available-for-sale securities largely comprises
the gain on the disposal 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 and other operational investments.
5. Other operating income
Figures in HK$m 2006 2005
Rental income from investment properties 196 215
Movement in present value of in-force insurance business 1,124 1,185
Gains on investment properties 475 1,167
Profit on disposal of property, plant and equipment, and
assets held for sale 981 111
Profit on disposal of subsidiaries, associates and
business portfolios 904 53
Surplus arising on property revaluation 70 370
Other 1,903 1,796
5,653 4,897
Other operating income for 2006 included gains on the disposal of the
stockbroking, margin lending and broker originated mortgage businesses in
Australia, a gain on the transfer of the credit card merchant acquiring business
to a joint venture company set up with Global Payments Inc., and profits on the
sale of property in Hong Kong and Japan.
Gains on investment properties comprise unrealised revaluation gains, together
with realised profits on disposals. Gains were lower than in 2005 as valuations
were affected by a slowdown in property price rises in Hong Kong.
The surplus arising on property revaluation represents reversals of prior year
revaluation deficits that had arisen when the value of certain premises fell
below depreciated historical cost. This was lower than in 2005 as the number of
properties with revaluation deficits decreased.
'Other' largely comprises recoveries from fellow HSBC group companies of IT and
other operating costs incurred on their behalf.
6. Insurance income
Included in the consolidated income statement are the following revenues earned
by the group's insurance businesses:
Figures in HK$m 2006 2005
Net interest income 2,328 1,715
Net fee income 636 484
Net income from financial instruments designated at
fair value 2,980 16
Gains less losses from financial investments 29 53
Dividend income 1 2
Net earned insurance premiums 21,846 19,340
Movement in present value of in-force business 1,124 1,185
Other operating income 72 90
29,016 22,885
Net insurance claims incurred and movement in
policyholders' liabilities (22,480) (17,291)
Net operating income 6,536 5,594
Premium income rose by HK$2,506 million, or 13.0 per cent, over 2005, primarily
attributable to growth in the life assurance business in Hong Kong. The product
range was expanded with the launch of new retirement and other investment-linked
products. Investment income was higher, reflecting the growing portfolio size,
higher interest yields and improved equity returns. Fee income rose due to the
increased portfolio size and improved investment performance of the Hong Kong
Mandatory Provident Fund business. The movement in the present value of in-force
business fell, despite a rise in premium income, due to a change in product mix
which comprised an increase in shorter-term policies. Claims and movement in
policyholders' liabilities comprise returns owed to investment policyholders as
well as general insurance claims. The increase is largely in line with the rise
in premium income and investment income.
7. Loan impairment charges and other credit risk provisions
Figures in HK$m 2006 2005
Net charge for impairment of customer advances
- Individually assessed impairment allowances:
New allowances 1,314 2,129
Releases (869) (1,755)
Recoveries (212) (267)
233 107
- Net charge for collectively assessed
impairment allowances 4,468 1,961
4,701 2,068
Net charge/(release) of other credit risk provisions 108 (4)
Net charge for loan impairment and other credit risk
provisions 4,809 2,064
The net charge for loan impairment and other credit risk provisions was HK$2,745
million higher than in 2005. The environment for corporate credit remained
stable in contrast to more difficult credit conditions for personal lending in
some parts of the region.
The charge for new individually assessed allowances was lower, attributable to a
decrease in charges against corporate lending, as the prior period included a
significant one-time charge. Releases and recoveries were also lower, largely
relating to corporates in Hong Kong and the region, and against mortgage lending
in Hong Kong.
The net charge for collectively assessed allowances rose significantly, due to
higher charges against credit card lending, most notably in Taiwan and
Indonesia. Delinquency rates and write-offs rose in Taiwan largely as a result
of government measures to curb excessive consumer credit growth. These included
increasing the minimum monthly repayment amount, while at the same time
introducing a debt renegotiation scheme which offers extended repayment periods
at substantially reduced rates. Indonesia was also affected by higher minimum
repayment rules, coupled with rises in inflation largely as a result of the
reduction of government fuel price subsidies. Elsewhere, volume growth in credit
cards and other personal lending, coupled with the non-recurrence of releases in
2005, also contributed to the increase.
Other credit risk provisions include an impairment charge against an
available-for-sale equity investment in Taiwan.
8. Employee compensation and benefits
Figures in HK$m 2006 2005
Wages, salaries and other costs 14,302 12,311
Performance-related pay 5,501 4,117
Social security costs 283 238
Retirement benefit costs 956 1,070
21,042 17,736
Staff numbers by region^
At 31Dec06 At 31Dec05
Hong Kong 26,496 24,842
Rest of Asia-Pacific 27,518 25,956
Americas/Europe 17 18
Total 54,031 50,816
^ Full-time equivalent
Staff costs increased by HK$3,306 million, or 18.6 per cent, compared with 2005.
Salaries rose by 16.2 per cent, reflecting increased headcount and annual salary
increments. Staff numbers rose in Hong Kong in support of the implementation of
the five-day working week and extended weekend opening hours. In the rest of
Asia-Pacific region, headcount grew in support of new branch openings,
establishment of the consumer finance business, and expansion of the sales force
and call centres. Ownership of the group service centre in Guangdong was
transferred to another HSBC Group entity with a resultant decrease in headcount
of around 3,500 in the rest of Asia-Pacific region. Performance-related pay in
Hong Kong and the rest of Asia-Pacific increased in line with improved operating
revenues, higher dealing income and the increase in headcount.
9. General and administrative expenses
Figures in HK$m 2006 2005
Premises and equipment
- Rental expenses 1,557 1,243
- Amortisation of prepaid operating lease payments 58 56
- Other premises and equipment 2,463 2,089
4,078 3,388
Marketing and advertising expenses 3,587 2,840
Other administrative expenses 7,268 5,554
Litigation and other provisions 16 313
14,949 12,095
The increase in general and administrative expenses of HK$2,854 million, or 23.6
per cent, reflected additional costs incurred in business expansion throughout
the region. Premises costs rose due to new branch openings, expansion of office
space and rent increases. Advertising and marketing expenditure was higher,
notably in Hong Kong, India, Korea and mainland China, and comprised specific
product campaigns, particularly in Personal Financial Services, and other drives
to increase brand awareness. Technology costs also increased as the group
continued to invest in enhanced channel capabilities and improved portfolio
management systems.
10. Share of profit in associates and joint venture
Share of profit in associates and joint venture principally included the group's
share of post-tax profits from Bank of Communications and Industrial Bank, and
amortisation of intangible assets arising on acquisition.
11. Tax expense
The tax expense in the consolidated income statement comprises:
Figures in HK$m 2006 2005
Current income tax
- Hong Kong profits tax 5,506 4,974
- Overseas taxation 3,955 2,598
Deferred taxation (50) 479
9,411 8,051
The effective rate of tax for 2006 was 18.1 per cent compared with 17.8 per cent
in 2005. The increase was attributable to a higher proportion of the group's
taxable profits being generated in higher tax rate jurisdictions, particularly
India, Japan and Australia.
12. Dividends
2006 2005
HK$ HK$m HK$ HK$m
per share per share
Dividends paid on ordinary share capital
- in respect of the previous financial year,
approved and paid during the year 0.50 4,500 0.53 4,800
- in respect of the current financial year 1.58 14,257 1.76 15,800
2.08 18,757 2.29 20,600
The Directors have declared a fourth interim dividend in respect of the
financial year ending 31 December 2006 of HK$6,500 million (HK$0.72 per ordinary
share).
13. Advances to customers
Figures in HK$m At 31Dec06 At 31Dec05
Gross advances to customers 1,050,625 1,005,902
Impairment allowances
- Individually assessed (2,118) (2,976)
- Collectively assessed (4,725) (3,600)
(6,843) (6,576)
1,043,782 999,326
Allowances as a percentage of gross advances
to customers:
Individually assessed 0.20% 0.29%
Collectively assessed 0.45% 0.36%
Total allowances 0.65% 0.65%
14. Impairment allowances against advances to customers
Individually Collectively
assessed assessed
Figures in HK$m allowances allowances Total
At 1Jan06 2,976 3,600 6,576
Amounts written off (1,196) (3,830) (5,026)
Recoveries of advances written off in previous years 212 498 710
Net charge to income statement (Note 7) 233 4,468 4,701
Unwinding of discount of loan impairment (85) (111) (196)
Exchange and other adjustments (22) 100 78
At 31Dec06 2,118 4,725 6,843
15. Impaired advances to customers and allowances
The geographical information shown below, and in notes 16, 17, 18 and 20, has
been classified by location of the principal operations of the subsidiary
company or, in the case of the bank, by location of the branch responsible for
advancing the funds.
Rest of Americas/
Figures in HK$m Hong Kong Asia-Pacific Europe Total
Year ended 31Dec06
Impairment allowance charge 1,228 3,473 - 4,701
At 31Dec06
Advances to customers which are considered to be impaired are as follows:
Gross impaired advances 3,530 5,071 - 8,601
Individually assessed allowances (1,016) (1,102) - (2,118)
2,514 3,969 - 6,483
Individually assessed allowances
as a percentage of gross
impaired advances 28.8% 21.7% - 24.6%
Gross impaired advances as a
percentage of gross advances to
customers 0.6% 1.2% - 0.8%
Year ended 31Dec05
Impairment allowance charge/(release) 1,156 924 (12) 2,068
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 (1,345) (1,631) - (2,976)
2,575 1,448 - 4,023
Individually assessed allowances
as a percentage of gross
impaired advances 34.3% 53.0% - 42.5%
Gross impaired advances as a
percentage of gross advances to
customers 0.6% 0.8% - 0.7%
Impaired advances to customers are those advances where objective evidence
exists that full repayment of principal or interest is considered unlikely.
The individually assessed allowances are made after taking into account the
value of collateral in respect of such advances.
16. Overdue advances to customers
Rest of
Figures in HK$m Hong Kong Asia-Pacific Total
At 31Dec06
Gross advances to customers which have
been overdue with respect to either
principal or interest for periods of:
- three to six months 938 1,287 2,225
- six months to one year 384 595 979
- over one year 1,238 859 2,097
2,560 2,741 5,301
Overdue advances to customers as a
percentage of gross advances to
customers:
- three to six months 0.1% 0.3% 0.2%
- six months to one year 0.1% 0.1% 0.1%
- over one year 0.2% 0.2% 0.2%
0.4% 0.6% 0.5%
At 31Dec05
Gross advances to customers which have
been overdue with respect to either
principal or interest for periods of:
- three to six months 1,073 891 1,964
- six months to one year 272 430 702
- over one year 1,053 1,071 2,124
2,398 2,392 4,790
Overdue advances to customers as a
percentage of gross advances to
customers:
- three to six months 0.2% 0.2% 0.2%
- six months to one year - 0.1% 0.1%
- over one year 0.2% 0.3% 0.2%
0.4% 0.6% 0.5%
17. Rescheduled advances to customers
Rest of
Figures in HK$m Hong Kong Asia-Pacific Total
At 31Dec06
Rescheduled advances to customers 1,730 2,307 4,037
Rescheduled advances to customers as a
percentage of gross advances to
customers 0.3% 0.6% 0.4%
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 to customers 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 more than three months and which are included in
'Overdue advances to customers' (Note 16).
The increase in rescheduled advances since the end of 2005 was largely
attributable to the credit card and personal loan balances under the
government's debt negotiation scheme in Taiwan.
18. 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 subsidiary companies, to manage associated risks.
Rest of Americas/
Figures in HK$m Hong Kong Asia-Pacific Europe Total
At 31Dec06
Residential mortgages 191,522 112,900 5 304,427
Hong Kong SAR Government's Home
Ownership Scheme, Private Sector
Participation Scheme and Tenants
Purchase Scheme mortgages 31,708 - - 31,708
Credit card advances 31,315 19,999 - 51,314
Other personal 30,778 35,908 1 66,687
Total personal 285,323 168,807 6 454,136
Commercial, industrial and
international trade 130,994 133,560 - 264,554
Commercial real estate 94,706 36,052 - 130,758
Other property-related lending 53,832 15,627 - 69,459
Government 4,283 6,727 - 11,010
Other commercial 43,186 38,781 - 81,967
Total corporate and commercial 327,001 230,747 - 557,748
Non-bank financial institutions 18,138 16,471 - 34,609
Settlement accounts 3,774 358 - 4,132
Total financial 21,912 16,829 - 38,741
Gross advances to customers 634,236 416,383 6 1,050,625
Impairment allowances (2,838) (4,005) - (6,843)
Net advances to customers 631,398 412,378 6 1,043,782
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$44.5 billion, or 4.4 per cent, since
the end of 2005.
Net advances in Hong Kong rose by HK$10.3 billion, or 1.7 per cent. Mortgage
lending increased by 5.1 per cent due to successful campaigns by the bank in
Hong Kong and Hang Seng Bank. This excludes the impact of the fall in lending
under the Government Home Ownership Scheme which remained suspended throughout
2006. Credit card and other personal lending rose following extensive marketing
activity. Corporate and commercial loan balances decreased, primarily due to the
repayment of advances by large corporate customers towards the year end,
although advances to smaller businesses in the property and manufacturing
sectors grew, boosted by increased demand from manufacturers with operations in
mainland China, and trade finance balances increased at Hang Seng Bank.
In the rest of Asia-Pacific, net advances increased by HK$34.1 billion, or 9.0
per cent. The broker-originated mortgage portfolio in Australia was sold in
December 2006 and part of the mortgage book in New Zealand was reclassified as
held for sale and included within 'Other assets'. Excluding these portfolios,
gross advances grew by HK$51.1 billion, or 14.0 per cent, reflecting successful
business expansion across the region. Mortgage lending increased by 12.0 per
cent, principally in Australia (non-broker business), India and Taiwan. Credit
card receivables grew by 20.9 per cent, largely in India, Australia, the
Philippines and Thailand, and the consumer finance business expanded following
its successful launch in India, Indonesia and Australia. Lending to commercial
and corporate customers rose by 12.9 per cent, notably in mainland China, India,
Mauritius and Australia, as the group focused on capturing cross-border business
and the provision of trade finance.
19. Analysis of advances to customers by geographic areas according to the
location of counterparties, after risk transfer
Rest of Americas/
Figures in HK$m Hong Kong Asia-Pacific Europe Others Total
At 31Dec06
Gross advances to customers 581,443 396,781 66,971 5,430 1,050,625
Overdue advances to customers 2,320 2,668 309 4 5,301
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
20. 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 31Dec06 At 31Dec05
Gross advances to customers for use in Hong Kong
Industrial, commercial and financial
Property development 46,352 41,141
Property investment 99,580 104,214
Financial concerns 10,136 12,667
Stockbrokers 964 1,094
Wholesale and retail trade 36,101 34,256
Manufacturing 17,331 17,847
Transport and transport equipment 27,408 31,202
Others 43,612 44,697
281,484 287,118
Individuals
Advances for the purchase of flats under the
Hong Kong SAR Government's Home
Ownership Scheme, Private Sector
Participation Scheme and Tenants
Purchase Scheme 31,708 36,291
Advances for the purchase of other
residential properties 171,014 165,148
Credit card advances 31,315 29,882
Others 26,966 23,826
261,003 255,147
Gross advances to customers for use in Hong Kong 542,487 542,265
Trade finance 56,121 49,902
Gross advances to customers for use outside
Hong Kong made by branches of the bank
and subsidiary companies in Hong Kong 35,628 31,989
Gross advances to customers made by
branches of the bank and subsidiary
companies in Hong Kong 634,236 624,156
Gross advances to customers made by
branches of the bank and subsidiary
companies outside Hong Kong:
- Rest of Asia-Pacific 416,383 381,741
- Americas/Europe 6 5
Gross advances to customers 1,050,625 1,005,902
21. 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 31Dec06
Americas
United States 62,558 78,354 72,669 213,581
Other 38,585 6,568 47,393 92,546
101,143 84,922 120,062 306,127
Europe
United Kingdom 138,625 17 24,324 162,966
Other 405,950 5,010 18,981 429,941
544,575 5,027 43,305 592,907
Asia-Pacific excluding Hong Kong 213,292 93,968 116,242 423,502
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
22. Customer accounts
Figures in HK$m At 31Dec06 At 31Dec05
Current accounts 292,450 245,094
Savings accounts 785,659 682,412
Other deposit accounts 911,358 807,604
1,989,467 1,735,110
Customer accounts increased by HK$254.4 billion, or 14.7 per cent since the end
of 2005. This excludes structured deposits, which rose by HK$26.0 billion, as
these are included with 'Trading liabilities'.
In Hong Kong, customer accounts rose by HK$160.6 billion, or 12.6 per cent,
largely in savings account balances, attributable to successful deposit
campaigns and effective pricing which made savings products more attractive to
customers. Deposits from personal customers increased by HK$100.7 billion, or
12.2 per cent, as a result. In Commercial Banking and Corporate, Investment
Banking and Markets, customer account balances grew by HK$59.9 billion, or 13.0
per cent, supported by targeted campaigns and a new, dedicated service team to
capture the SME customer base, and there was continued growth in the payments
and cash management business.
In the rest of Asia-Pacific, customer accounts increased by HK$94.0 billion, or
20.6 per cent, as the group actively sought to grow the deposit base throughout
the region. Deposits from personal customers grew by HK$37.7 billion, or 23.0
per cent, notably in Singapore, Australia and China. Customer account balances
held by corporate customers rose by HK$56.3 billion, or 19.8 per cent, largely
in India, mainland China, Taiwan and Singapore.
The group's advances-to-deposits ratio fell to 52.5 per cent at 31 December 2006
from 57.6 per cent at 31 December 2005.
23. Reserves
Figures in HK$m At 31Dec06 At 31Dec05
Other reserves
- Property revaluation reserve 4,798 4,082
- Available-for-sale investment reserve 25,812 2,899
- Cash flow hedge reserve (166) (1,767)
- Foreign exchange reserve 2,805 53
- Other 2,265 770
35,514 6,037
Retained profits 80,942 64,303
Total reserves 116,456 70,340
The property revaluation reserve includes an amount of HK$62 million in relation
to properties classified as assets held for sale at 31 December 2006 (31
December 2005: nil). Assets held for sale are included in 'Other assets' in the
consolidated balance sheet.
24. Contingent liabilities, commitments and derivatives
Credit Risk-
Contract equivalent weighted
Figures in HK$m amount amount amount
At 31Dec06
Contingent liabilities
- Guarantees 100,964 73,862 60,534
- Other 35 35 35
100,999 73,897 60,569
Commitments
- Documentary credits and short-term
trade-related transactions 56,732 21,632 11,680
- Undrawn note issuing and revolving
underwriting facilities 1,166 583 -
- Undrawn formal standby facilities, credit lines
and other commitments:
- one year and over 94,241 47,120 43,635
- under one year 887,680 - -
1,039,819 69,335 55,315
Derivatives
Exchange rate contracts
- Spot and forward foreign exchange 3,267,333 52,122 13,334
- Swap and other exchange rate contracts 1,262,208 56,377 16,868
4,529,541 108,499 30,202
Interest rate contracts
- Interest rate swaps 6,919,779 69,936 17,832
- Other interest rate contracts 918,146 5,641 1,808
7,837,925 75,577 19,640
Forward asset purchases and forward forward
deposits placed 2,588 2,588 2,463
Other derivative contracts 554,801 27,935 9,041
557,389 30,523 11,504
Impact of counterparty netting agreements on
derivatives exposure - (67,516) (14,352)
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
- Swap and 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.
Contingent liabilities and commitments are credit-related instruments. The
contract amounts represent the amounts at risk should the contracts be fully
drawn upon and the customers 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, 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$m At 31Dec06 At 31Dec05
Exchange rate contracts 42,862 31,074
Interest rate contracts 46,809 38,319
Other derivative contracts 9,496 2,646
99,167 72,039
Less: netting adjustments (40,339) (32,038)
58,828 40,001
The fair value of derivative assets represents the mark-to-market amounts of all
derivative contracts with a positive value. These assets arise from contracts
with third parties and fellow subsidiaries and are included in the balance sheet
as 'Derivatives'.
Fair value is a close approximation of the credit risk for these contracts at
the balance sheet date. The actual credit risk is measured internally as the sum
of positive mark-to-market values and an estimate for the future fluctuation
risk, using a future risk factor.
The netting adjustments represent amounts where the group has in place legally
enforceable rights of offset with individual counterparties to offset the gross
amount of positive mark-to-market assets with any negative mark-to-market
liabilities with the same customer. These offsets are recognised by the HKMA in
the calculation of risk assets for the capital adequacy ratio.
25. Foreign exchange exposure
Foreign exchange exposures may be divided broadly into two categories:
structural and non-structural. Structural exposures are normally long-term in
nature and include those arising from investments in overseas subsidiaries,
branches, associates and strategic investments as well as capital instruments
denominated in currencies other than Hong Kong dollars. Non-structural exposures
arise primarily from trading positions and balance sheet management activities.
Non-structural exposures can arise and change rapidly. Foreign currency
exposures are managed in accordance with the group's risk management policies
and procedures.
The group had the following structural foreign currency exposures which exceeded
10 per cent of the total net structural exposure in all foreign currencies:
Figures in HK$m Net structural position
At 31Dec06
Chinese renminbi 54,960
United States dollars 15,886
At 31Dec05
Chinese renminbi 32,510
Indian rupees 7,979
United States dollars 11,780
The increase in the Chinese renminbi structural position during 2006 was largely
attributable to the rise in the market value of the group's shareholding in Ping
An Insurance. 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 non-structural positions in all foreign
currencies:
United States Singapore Brunei
Figures in HK$m dollars dollars dollars
At 31Dec06
Spot assets 1,205,314 118,964 27,665
Spot liabilities (1,222,334) (140,566) (107)
Forward purchases 2,222,005 168,534 24,949
Forward sales (2,210,290) (141,505) (57,857)
Net options position (132) - -
(5,437) 5,427 (5,350)
At 31Dec05
Spot assets 1,229,340 107,578 5,523
Spot liabilities (1,188,737) (90,549) (18,062)
Forward purchases 1,507,086 157,007 43
Forward sales (1,558,902) (161,647) -
Net options position 3,361 - -
(7,852) 12,389 (12,496)
26. Segmental analysis
The allocation of earnings reflects the benefits of shareholders' funds to the
extent that these are actually allocated to businesses in the segment by way of
intra-group capital and funding structures. Interest is charged based on market
rates. Common costs are included in segments on the basis of the actual
recharges made. Geographical information has been classified by the location of
the principal operations of the subsidiary company or, in the case of the bank,
by the location of the branch responsible for reporting the results or advancing
the funds. Due to the nature of the group structure, the analysis of profits
shown below includes intra-group items between geographical regions with the
elimination shown in a separate column.
Consolidated income statement
Intra-
Rest of Americas/ segment
Figures in HK$m Hong Kong Asia-Pacific Europe elimination Total
Year ended 31Dec06
Interest income 82,301 40,151 884 (7,408) 115,928
Interest expense (46,490) (24,960) (804) 7,425 (64,829)
Net interest income 35,811 15,191 80 17 51,099
Fee income 17,347 9,925 - (718) 26,554
Fee expense (3,030) (1,826) (12) 718 (4,150)
Net trading income/(loss) 3,077 5,871 (13) (17) 8,918
Net income from financial instruments
designated at fair value 2,048 622 - - 2,670
Gains less losses from financial
investments 1,245 221 - - 1,466
Dividend income 525 224 - - 749
Net earned insurance premiums 20,495 1,351 - - 21,846
Other operating income 6,171 2,073 22 (2,613) 5,653
Total operating income 83,689 33,652 77 (2,613) 114,805
Net insurance claims incurred and
movement in policyholders'
liabilities (20,991) (1,489) - - (22,480)
Net operating income before loan
impairment charges and other
credit risk provisions 62,698 32,163 77 (2,613) 92,325
Loan impairment charges and
other credit risk provisions (1,336) (3,473) - - (4,809)
Net operating income 61,362 28,690 77 (2,613) 87,516
Operating expenses (23,534) (17,287) (31) 2,613 (38,239)
Operating profit 37,828 11,403 46 - 49,277
Share of profit in associates and
joint venture 150 2,589 - - 2,739
Profit before tax 37,978 13,992 46 - 52,016
Tax expense (6,079) (3,317) (15) - (9,411)
Profit for the year 31,899 10,675 31 - 42,605
Profit attributable to shareholders 27,206 10,472 31 - 37,709
Profit attributable to minority
interests 4,693 203 - - 4,896
Year ended 31Dec05
Interest income 55,139 29,613 529 (5,082) 80,199
Interest expense (24,149) (17,336) (305) 5,082 (36,708)
Net interest income 30,990 12,277 224 - 43,491
Fee income 14,237 7,921 2 (489) 21,671
Fee expense (2,252) (1,803) (8) 489 (3,574)
Net trading income/(loss) 3,152 4,198 (170) - 7,180
Net income/(loss) from financial
instruments designated at
fair value (69) 453 - - 384
Gains less losses from financial
investments 714 42 - - 756
Dividend income 350 18 - - 368
Net earned insurance premiums 18,140 1,200 - - 19,340
Other operating income 6,480 1,131 22 (2,736) 4,897
Total operating income 71,742 25,437 70 (2,736) 94,513
Net insurance claims incurred and
movement in policyholders'
liabilities (16,002) (1,289) - - (17,291)
Net operating income before loan
impairment charges and other
credit risk provisions 55,740 24,148 70 (2,736) 77,222
Loan impairment charges and
other credit risk provisions (1,161) (915) 12 - (2,064)
Net operating income 54,579 23,233 82 (2,736) 75,158
Operating expenses (20,514) (13,998) (38) 2,736 (31,814)
Operating profit 34,065 9,235 44 - 43,344
Share of profit in associates and
joint venture 178 1,727 - - 1,905
Profit before tax 34,243 10,962 44 - 45,249
Tax expense (5,411) (2,634) (6) - (8,051)
Profit for the year 28,832 8,328 38 - 37,198
Profit attributable to shareholders 24,644 8,191 38 - 32,873
Profit attributable to minority
interests 4,188 137 - - 4,325
27. Capital adequacy
The table below sets out an analysis of regulatory capital and capital adequacy
ratios for the group:
Figures in HK$m At 31Dec06 At 31Dec05
Composition of capital
Tier 1:
Total shareholders' equity 145,450 97,334
Less: proposed dividend (6,500) (4,500)
property revaluation reserves^ (7,892) (7,892)
available-for-sale investment reserve^^ (26,028) (3,051)
classified as regulatory reserve^^^ (1,689) (1,319)
goodwill (4,182) (3,784)
others (138) 1,769
Irredeemable non-cumulative preference shares 51,735 51,587
Minority interests^^^^ 17,483 14,808
Total qualifying tier 1 capital 168,239 144,952
Tier 2:
Property revaluation reserves (@70%) 5,524 5,524
Available-for-sale investment reserve (@70%) 18,220 2,136
Collective impairment provision and regulatory reserve 6,610 5,112
Perpetual subordinated debt 9,370 9,359
Term subordinated debt 9,849 6,117
Term preference shares 8,165 3,877
Irredeemable cumulative preference shares 16,563 16,516
Total qualifying tier 2 capital 74,301 48,641
Deductions (58,559) (39,528)
Total capital 183,981 154,065
Risk-weighted assets 1,367,607 1,238,164
^ Includes the revaluation surplus on investment properties, which is now
reported as part of retained profits.
^^ Includes adjustments made in accordance with guidelines issued by HKMA.
^^^ The regulatory reserve is maintained for the purpose of 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 31Dec06 At 31Dec05
Total capital 13.5% 12.4%
Tier 1 capital 12.3% 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 13.0% 12.0%
Tier 1 capital 11.8% 11.2%
With effect from 1 January 2007, the group has adopted the 'standardised
approach' of capital calculation under the HKMA 'Banking (Capital) Rules'.
The increase in the group's total capital ratio at 31 December 2006 reflects
additional capital raised in anticipation of different capital requirements
under the new rules.
28. Liquidity ratio
The Hong Kong Banking Ordinance requires banks operating in Hong Kong to
maintain a minimum liquidity ratio of 25 per cent, calculated in accordance with
the provisions of the Fourth Schedule of the Banking Ordinance. 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.
2006 2005
The average liquidity ratio for the
year was as follows:
Hong Kong branches of the bank 49.3% 48.2%
29. Property revaluation
The group's premises and investment properties were revalued as at 30 September
2006 and updated for any material changes as at 31 December 2006. The basis of
valuation was open market value or depreciated replacement cost.
Premises and investment properties in the Hong Kong SAR, the Macau SAR and
mainland China, which represent 95 per cent by value of the group's properties
subject to valuation, were valued by DTZ Debenham Tie Leung Limited. The
valuations were carried out by qualified valuers who are members of the Hong
Kong Institute of Surveyors. Properties in 11 other countries, which represent
five per cent by value of the group's properties, were valued by different
independent professionally qualified valuers.
The September property revaluation, together with the revaluation of Hong Kong
properties undertaken in June 2006, has resulted in an increase in the group's
revaluation reserves of HK$1,356 million, net of deferred taxation of HK$383
million, and a credit to the income statement of HK$389 million. Of the HK$389
million credit to the income statement, HK$319 million represents the surplus on
the revaluation of investment properties and HK$70 million relates to the
reversal of previous revaluation deficits that had arisen when the value of
certain premises fell below depreciated historical cost.
30. 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 2005, as disclosed in the Annual Report and Accounts for 2005.
31. 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
financial statements for the year ended 31 December 2006, which were approved by
the Board of Directors on 5 March 2007 and will be delivered to the Registrar of
Companies and the HKMA. The Auditors expressed an unqualified opinion on those
financial statements in their report dated 5 March 2007. The Annual Report and
Accounts for the year ended 31 December 2006, which include the financial
statements, 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 on or after 3 April 2007.
32. Ultimate holding company
The Hongkong and Shanghai Banking Corporation Limited is an indirectly held,
wholly-owned subsidiary of HSBC Holdings plc.
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: 05 March 2007