FORM 6

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 2010

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- ..............).

 

 

 
 
1 March 2010
 
 
 
 
THE HONGKONG AND SHANGHAI BANKING CORPORATION LIMITED
2009 CONSOLIDATED RESULTS - HIGHLIGHTS
 
 
·   
Net operating income before loan impairment charges and other credit risk provisions down 4.8 per cent to HK$118,250 million (HK$124,264 million in 2008).
 
·   
Pre-tax profit down 7.6 per cent to HK$62,563 million (HK$67,690 million in 2008).
 
·   
Attributable profit down 8.9 per cent to HK$45,808 million (HK$50,306 million in 2008).
 
·   
Return on average shareholders' equity of 21.2 per cent (24.3 per cent in 2008).
 
·   
Assets up 1.9 per cent to HK$4,342 billion (HK$4,260 billion at the end of 2008).
 
·   
Capital adequacy ratio of 16.1 per cent; core capital ratio of 12.2 per cent. (Capital adequacy ratio of 13.4 per cent; core capital ratio of 10.3 per cent at 31 December 2008).
 
·   
Cost efficiency ratio of 44.1 per cent (42.1 per cent for 2008).
 
 
Within this document, the Hong Kong Special Administrative Region of the People's Republic of China has been referred to as 'Hong Kong'.
 
Results
 
Comment by Michael Geoghegan, Chairman
 
2009 was an extremely challenging year for the world economy. Asia was not immune from the effects of global recession, and it was a year of two distinct halves. Many economies were hit hard by falling trade and investment flows in the first part of the year. During the second half, conditions began to improve. Supported by effective stimulus and healthy employment levels, exports and domestic demand both saw a rebound.
 
Conditions for the banking sector also remained challenging. As a deposit-rich bank, we felt the considerable impact of low interest rates on our liability spreads. Demand for loans, trade finance and investment products was lower across Asia, but picked up again during the second half as economic conditions improved. Against continued uncertainty in the global banking landscape, Asia's banks continued to benefit from sound regulation. Many remained relatively healthy throughout the financial crisis and as a result competition from local and regional banks remains intense while several international banks are targeting emerging markets as a prime source of their recovery.
 
The Hongkong and Shanghai Banking Corporation Limited showed considerable resilience against these economic and competitive pressures. Our broad-based business model helped to limit the impact of the downturn and our pre-tax profit was HK$62,563 million, down 7.6 per cent on 2008. Excluding our Malaysian business, which was transferred into the group at the beginning of the year, pre-tax profit was down by 10.7 per cent.
 
We grew deposits, excluding our acquisitions in the year, by 9.9 per cent, showing the confidence savers have in our financial strength and brand. We limited lending growth during the early part of the year in line with our cautious approach to managing risk, but the second half provided opportunities for selective growth. We increased lending in mortgages and cards overall. We successfully expanded our presence as a leading bancassurer, with total insurance premiums increasing by 16.8 per cent. Global Banking and Markets continued to perform strongly. Customer numbers increased overall, positioning us well for future revenue growth.
 
We managed costs tightly and operating expenses fell compared with 2008. We continued to actively manage our risks, and loan impairment charges fell by 6.4 per cent across the region, underscoring the success of our approach. In India where loan impairment charges increased significantly, we took remedial action.
 
We continued to expand and integrate our operations across the region. In Vietnam, we became the first locally-incorporated bank, and in January this year we increased our shareholding in Bao Viet Holdings. In Taiwan, we made strong progress in integrating the operations of The Chinese Bank. In Indonesia, we completed our acquisition of Bank Ekonomi, which has nearly doubled our presence in the world's fifth most populous country to more than 200 branches in 27 cities. In India, we continued to integrate our retail brokerage unit IL&FS Investsmart, which we successfully rebranded as HSBC InvestDirect.
 
In mainland China, where we are the leading international bank, we expanded our network, reaching 98 HSBC-branded outlets in 22 cities by year-end. We were the first international bank to issue an offshore renminbi bond, and the first to settle cross-border renminbi trade transactions. Developing our relationships with strategic partners remains a principal pillar of our growth strategy and the market value of our strategic investments increased by US$11.3 billion in the year to US$25.4 billion. We expect to open our new mainland China headquarters in Shanghai during the first half of this year.
 
In Personal Financial Services, we reinforced our leading position in the Hong Kong mortgage and deposit markets. We grew customer numbers, particularly in HSBC Premier where they increased by 28.6 per cent. We continued to build our presence across the region, including in mainland China, and we expanded our product offering in wealth management to complement our strong positions in cards and loans. Pre-tax profit was 20.2 per cent lower, mainly because of deposit spread compression in the low interest rate environment. Loan impairments increased but the book remained healthy overall, with the exception of India and Indonesia where we experienced problems in the unsecured portfolios.
 
In Commercial Banking, we continued to focus on meeting the financial needs of SMEs and international business customers in the region, in line with our strategy. Customer confidence began to improve as the year progressed. Commercial Banking remained solidly profitable across the region despite the challenging economic conditions, and pre-tax profit was down 20.6 per cent overall. We increased our lending commitment to smaller businesses, growing our SME loan fund in Hong Kong to HK$20 billion and launching a new SME fund in Malaysia. We continued to see deposit inflows and gains in customer numbers across the region. Despite the impact of higher corporate failures in India credit quality remained stable overall, and loan impairment charges reduced by 4.9 per cent, led by improvements in Hong Kong.
 
Global Banking and Markets achieved another strong performance thanks to its clear strategy and well-balanced business model.  Pre-tax profits were down 3.7 per cent on the previous year. In Global Banking, performance was ahead of expectations across our main financing and investment banking activities. In Global Markets, our core businesses continued to perform strongly and we captured market opportunities, particularly in Rates and Credit. While we expect Balance Sheet Management revenues to reduce in 2010, our customer-focused business model means we are well positioned to maintain and build revenues in the region. We won a number of key industry awards including
Asiamoney
'
s
Best Domestic Debt House, and we led the 2009 Asia Debt Capital Markets league tables for market share in local currency bonds and Asia-Pacific ex-Japan bonds.
 
Thanks to the strength of the HSBC brand and our effective bancassurance model, our insurance business performed strongly during 2009, gaining share across the region. In Hong Kong, more than one in three people hold life insurance or a pension with HSBC. In India, our joint venture with Canara and Oriental Bank of Commerce generated market-leading premium growth for a start-up. In South Korea, we became the leading bancassurer.
 
2009 brought to a close one of the most momentous decades of growth and change that we have experienced in our 145 years of doing business in Asia. During these ten years, our number of outlets almost doubled to nearly 1,000, our total assets rose from HK$1,638 billion to HK$4,342 billion, and our pre-tax profit more than doubled.
 
It is an exciting time to be in Asia. This is why
I moved my principal office to Hong Kong in February this year, to manage the HSBC Group from the heart of the world's fastest-growing region. This move reflects our deep roots here, and also underscores our commitment to Asia's future.
 
On 1 February this year, I succeeded Vincent Cheng as Chairman of The Hongkong and Shanghai Banking Corporation Limited upon his retirement. In a career spanning 32 years, Vincent has made a huge and extremely valuable contribution to HSBC, including leading a significant expansion of our network in mainland China. I am delighted that we will continue to draw on Vincent's vast knowledge and experience as he continues to serve the Group as a Director on the Board of HSBC Holdings plc, and also as Chairman of HSBC Bank (China) Company Limited and HSBC Bank (Taiwan) Limited.
 
I would also like to congratulate Sandy Flockhart who, starting 1 February, is the Global Head of Personal and Commercial Banking. Sandy will also be in charge of the Group's operations and head office functions, as well as spearheading our continued expansion into Latin America and Africa. As CEO of The Hongkong and Shanghai Banking Corporation Limited for the past three years, Sandy has led the Group to new heights in Asia. He will continue this involvement through his new role as well as a Director of this Board and HSBC Holdings plc. Peter Wong will take up the role of Chief Executive after an excellent tenure as Executive Director Hong Kong and Greater China.
 
Looking ahead, Asia is playing an important role in leading the world out of recession, and will play an equally significant role in driving growth in the generation ahead. Within three years, the Asia-Pacific region is expected to overtake Europe and North America as home to the largest number of high net worth individuals in the world, with a combined wealth of US$13.5 trillion.  Meanwhile, the fast-growing corporate sector will demand access to broader and more sophisticated financial services and capital markets.
 
There are potential risks on the horizon, not least those of asset bubbles, higher inflation and the impact of withdrawing stimulus measures. The debate on regulatory change is also intensifying, but we
are confident that we are well placed to meet the challenges, thanks to a number of core strengths. These include our prudent and transparent structure based largely upon separately capitalised local subsidiaries, our capital and liquidity strength, and our well-balanced and diversified business model.
 
Our unrivalled network and reach, our customer focus and our deep relationships across the region position us strongly and competitively for future growth in Asia. We will continue to grow organically in our target segments and markets, and we will review carefully the opportunities for acquisition and strategic partnerships that emerge.
 
Finally, I would like to say thank you to all of my colleagues. Throughout the 2009 roadshow and since returning to the region, I have been greatly impressed by your professionalism, your commitment and your vision of the future. I look forward to working with you all during 2010.

 
Geographical Regions






 




Intra-


 


Hong
Rest of
segment


 
Figures in HK$m

Kong
Asia-Pacific
elimination

Total
 
 










 
Year ended 31 December 2009









 










 
Net interest income

30,935

27,484

13

58,432

 










 
Net fee income

19,119

11,159

-

30,278

 










 
Net trading income

8,427

12,112

(13
)
20,526

 










 
Net income from financial instruments









 
  designated at fair value

6,391

868

-

7,259

 










 
Gains less losses from financial investments

117

(248
)
-

(131
)
 










 
Dividend income

245

119

-

364

 










 
Net earned insurance premiums

28,566

2,829

-

31,395

 










 
Other operating income

9,791

1,746

(4,279
)
7,258

 










 

Total operating income

103,591

56,069

(4,279
)
155,381

 










 
Net insurance claims incurred and movements in









 
  policyholders' liabilities

(34,070
)
(3,061
)
-

(37,131
)
 










 

Net operating income before loan impairment









 
  charges and other credit risk provisions

69,521

53,008

(4,279
)
118,250

 










 
Loan impairment charges and other credit









 
  risk provisions

(3,875
)
(7,360
)
-

(11,235
)
 










 

Net operating income

65,646

45,648

(4,279
)
107,015

 










 
Operating expenses

(28,918
)
(27,554
)
4,279

(52,193
)
 










 

Operating profit

36,728

18,094

-

54,822

 










 
Share of profit in associates and joint ventures

59

7,682

-

7,741

 










 
Profit before tax

36,787

25,776

-

62,563

 










 
Share of profit before tax

58.8
%
41.2
%
-

100
%
 










 
Advances to customers

744,577

606,067

-

1,350,644

 










 
Customer accounts

1,984,872

959,667

-

2,944,539


 
Geographical Regions






 




Intra-


 


Hong
Rest of
segment


 
Figures in HK$m

Kong
Asia-Pacific
elimination

Total
 
 










 
Year ended 31 December 2008









 










 
Net interest income

42,679

26,374

(8
)
69,045

 










 
Net fee income

18,458

12,309

-

30,767

 










 
Net trading income

7,201

14,154

8

21,363

 










 
Net loss from financial instruments









 
  designated at fair value

(9,607
)
(1,375
)
-

(10,982
)
 










 
Gains less losses from financial investments

(2,848
)
(128
)
-

(2,976
)
 










 
Dividend income

363

489

-

852

 










 
Net earned insurance premiums

25,351

1,535

-

26,886

 










 
Other operating income

6,525

1,222

(3,671
)
4,076

 










 

Total operating income

88,122

54,580

(3,671
)
139,031

 










 
Net insurance claims incurred and movements in









 
  policyholders' liabilities

(14,981
)
214

-

(14,767
)
 










 

Net operating income before loan impairment









 
  charges and other credit risk provisions

73,141

54,794

(3,671
)
124,264

 










 
Loan impairment charges and other credit









 
  risk provisions

(5,837
)
(6,163
)
-

(12,000
)
 










 

Net operating income

67,304

48,631

(3,671
)
112,264

 










 
Operating expenses

(28,811
)
(27,123
)
3,671

(52,263
)
 










 

Operating profit

38,493

21,508

-

60,001

 










 
Share of profit in associates and joint ventures

120

7,569

-

7,689

 










 
Profit before tax

38,613

29,077

-

67,690

 










 
Share of profit before tax

57.0
%
43.0
%
-

100
%
 










 
Advances to customers

747,742

538,403

-

1,286,145

 










 
Customer accounts

1,791,056

785,028

-

2,576,084

 











Results by Geographic Customer Group
 
 
 
Hong Kong


Global






 

Personal

Banking



Intra-


 

Financial
Commercial
and

Private

segment


 
Figures in HK$m
Services
Banking
Markets

Banking
Other
elimination

Total
 
 















 
Year ended 31 December 2009














 















 
Net interest income/(expense)
20,039

7,274

8,912

-

(4,367
)
(923
)
30,935

 















 
Net fee income
10,933

4,106

3,760

-

320

-

19,119

 















 
Net trading income
1,091

718

6,226

-

(529
)
921

8,427

 















 
Net income/(loss) from financial














 
  instruments designated at














 
  fair value
5,650

(359
)
1,072

-

26

2

6,391

 















 
Gains less losses from














 
  financial investments
623

136

(661
)
-

19

-

117

 















 
Dividend income
5

11

71

-

158

-

245

 















 
Net earned insurance premiums
24,512

3,926

128

-

-

-

28,566

 















 
Other operating income
2,680

498

439

-

8,042

(1,868
)
9,791

 















 

Total operating income
65,533

16,310

19,947

-

3,669

(1,868
)
103,591

 















 
Net insurance claims














 
  incurred and movement in














 
  policyholders' liabilities
(30,840
)
(3,142
)
(88
)
-

-

-

(34,070
)
 















 

Net operating income before














 
  loan impairment charges and














 
  other credit risk provisions
34,693

13,168

19,859

-

3,669

(1,868
)
69,521

 















 
Loan impairment charges and














 
  other credit risk provisions
(1,575
)
(1,301
)
(1,004
)
-

5

-

(3,875
)
 















 

Net operating income
33,118

11,867

18,855

-

3,674

(1,868
)
65,646

 















 
Operating expenses
(12,138
)
(4,469
)
(7,361
)
-

(6,818
)
1,868

(28,918
)
 















 

Operating profit/(loss)
20,980

7,398

11,494

-

(3,144
)
-

36,728

 















 
Share of profit in associates














 
  and joint ventures
40

10

11

-

(2
)
-

59

 















 
Profit/(loss) before tax
21,020

7,408

11,505

-

(3,146
)
-

36,787

 















 
Share of profit/(loss) before tax
33.6
%
11.8
%
18.4
%
-

(5.0)
%
-

58.8
%
 















 
Advances to customers
340,177

218,808

170,527

-

15,065

-

744,577

 















 
Customer accounts
1,290,680

481,904

206,657

-

5,631

-

1,984,872

 
 
Hong Kong


Global






 

Personal

Banking



Intra-


 

Financial
Commercial
and

Private

segment


 
Figures in HK$m
Services
Banking
Markets

Banking
Other
elimination

Total
 
 















 
Year ended 31 December 2008














 















 
Net interest income/(expense)
26,326

11,664

11,853

2

(6,657
)
(509
)
42,679

 















 
Net fee income
11,225

4,271

2,837

-

125

-

18,458

 















 
Net trading income
1,193

620

4,868

-

87

433

7,201

 















 
Net (loss)/income from financial














 
  instruments designated at














 
  fair value
(10,051
)
(79
)
300

-

147

76

(9,607
)
 















 
Gains less losses from














 
  financial investments
1,220

250

(605
)
-

(3,713
)
-

(2,848
)
 















 
Dividend income
27

17

169

-

150

-

363

 















 
Net earned insurance premiums
23,719

1,456

159

-

17

-

25,351

 















 
Other operating income
1,030

297

348

-

7,095

(2,245
)
6,525

 















 

Total operating income
54,689

18,496

19,929

2

(2,749
)
(2,245
)
88,122

 















 
Net insurance claims














 
  incurred and movement in














 
  policyholders' liabilities
(13,792
)
(1,070
)
(107
)
-

(12
)
-

(14,981
)
 















 

Net operating income before














 
  loan impairment charges and














 
  other credit risk provisions
40,897

17,426

19,822

2

(2,761
)
(2,245
)
73,141

 















 
Loan impairment charges and














 
  other credit risk provisions
(1,044
)
(2,605
)
(2,198
)
-

10

-

(5,837
)
 















 

Net operating income
39,853

14,821

17,624

2

(2,751
)
(2,245
)
67,304

 















 
Operating expenses
(13,131
)
(4,578
)
(7,062
)
-

(6,285
)
2,245

(28,811
)
 















 

Operating profit/(loss)
26,722

10,243

10,562

2

(9,036
)
-

38,493

 















 
Share of profit in associates














 
  and joint ventures
34

5

6

-

75

-

120

 















 
Profit/(loss) before tax
26,756

10,248

10,568

2

(8,961
)
-

38,613

 















 
Share of profit/(loss) before tax
39.5
%
15.1
%
15.6
%
-

(13.2)
%
-

57.0
%
 















 
Advances to customers
321,220

235,065

177,543

-

13,914

-

747,742

 















 
Customer accounts
1,123,789

425,237

239,212

-

2,818

-

1,791,056

 

 
 
Rest of Asia-Pacific


Global






 

Personal

Banking



Intra-


 

Financial
Commercial
and

Private

segment


 
Figures in HK$m
Services
Banking
Markets

Banking
Other
elimination

Total
 
 















 
Year ended 31 December 2009














 















 
Net interest income/(expense)
11,568

6,248

10,213

121

171

(837
)
27,484

 















 
Net fee income
4,296

2,569

4,388

51

(145
)
-

11,159

 















 
Net trading income
613

1,040

9,412

98

112

837

12,112

 















 
Net income/(loss) from














 
  financial instruments














 
  designated at fair value
851

8

(13
)
-

22



868

 















 
Gains less losses from














 
  financial investments
41

18

(111
)
-

(196
)
-

(248
)
 















 
Dividend income
1

-

1

-

117

-

119

 















 
Net earned insurance premiums
2,613

216

-

-

-

-

2,829

 















 
Other operating income
519

514

254

16

682

(239
)
1,746

 















 

Total operating income
20,502

10,613

24,144

286

763

(239
)
56,069

 















 
Net insurance claims














 
  incurred and movement in














 
  policyholders' liabilities
(2,947
)
(114
)
-

-

-

-

(3,061
)
 















 

Net operating income before














 
  loan impairment charges and














 
  other credit risk provisions
17,555

10,499

24,144

286

763

(239
)
53,008

 















 
Loan impairment charges and














 
  other credit risk provisions
(5,028
)
(2,150
)
(173
)
-

(9
)
-

(7,360
)
 















 

Net operating income
12,527

8,349

23,971

286

754

(239
)
45,648

 















 
Operating expenses
(14,260
)
(4,934
)
(7,334
)
(358
)
(907
)
239

(27,554
)
 















 

Operating profit/(loss)
(1,733
)
3,415

16,637

(72
)
(153
)
-

18,094

 















 
Share of profit in associates














 
  and joint ventures
1,106

4,393

2,181

-

2

-

7,682

 















 
Profit/(loss) before tax
(627
)
7,808

18,818

(72
)
(151
)
-

25,776

 















 
Share of profit/(loss) before tax
(1.0
)%
12.5
%
30.1
%
(0.1
)%
(0.3
)%
-

41.2
%
 















 
Advances to customers
235,994

175,335

187,365

5,892

1,481

-

606,067

 















 
Customer accounts
369,347

234,637

340,796

13,824

1,063

-

959,667



 
 
Rest of Asia-Pacific


Global






 

Personal

Banking



Intra-


 

Financial
Commercial
and

Private

segment


 
Figures in HK$m
Services
Banking
Markets

Banking
Other
elimination

Total
 
 















 
Year ended 31 December 2008














 















 
Net interest income/(expense)
11,376

6,294

11,222

41

1,160

(3,719
)
26,374

 















 
Net fee income
4,092

2,519

5,482

83

133

-

12,309

 















 
Net trading income
377

783

9,499

165

(389
)
3,719

14,154

 















 
Net (loss)/income from financial














 
  instruments designated at














 
  fair value
(1,343
)
2

(34
)
-

-

-

(1,375
)
 















 
Gains less losses from














 
  financial investments
8

-

34

-

(170
)

-
(128
)
 















 
Dividend income
-

-

4

-

485

-

489

 















 
Net earned insurance premiums
1,342

193

-

-

-

-

1,535

 















 
Other operating income
376

544

234

22

296

(250
)
1,222

 















 

Total operating income
16,228

10,335

26,441

311

1,515

(250
)
54,580

 















 
Net insurance claims














 
  incurred and movement in














 
  policyholders' liabilities
322

(108
)
-

-

-

-

214

 















 

Net operating income before














 
  loan impairment charges and














 
  other credit risk provisions
16,550

10,227

26,441

311

1,515

(250
)
54,794

 















 
Loan impairment charges and














 
  other credit risk provisions
(4,581
)
(1,025
)
(556
)
-

(1
)

-
(6,163
)
 















 

Net operating income
11,969

9,202

25,885

311

1,514

(250
)
48,631

 















 
Operating expenses
(14,111
)
(4,653
)
(7,175
)
(326
)
(1,108
)
250

(27,123
)
 















 

Operating profit/(loss)
(2,142
)
4,549

18,710

(15
)
406

-

21,508

 















 
Share of profit in associates














 
  and joint ventures
934

4,362

2,207

-

66

-

7,569

 















 
Profit/(loss) before tax
(1,208
)
8,911

20,917

(15
)
472

-

29,077

 















 
Share of profit/(loss) before tax
(1.8)
%
13.2
%
30.9
%
-

0.7
%
-

43.0
%
 















 
Advances to customers
182,233

145,837

203,108

6,009

1,216

-

538,403

 















 
Customer accounts
281,106

169,808

316,716

13,925

3,473

-

785,028

 
Hong Kong
reported profit before tax of HK$36,787 million, a decrease of 4.7 per cent over 2008 primarily due to the fall in net interest income which was partly offset by increased trading income and lower loan impairment charges.
 
Net interest income decreased by HK$11,744 million, or 27.5 per cent, compared with 2008 as falling interest rates in the second half of 2008 impacted all business lines throughout 2009. In Personal Financial Services and Commercial Banking the relatively lower funding cost of the asset book and the increase in customer deposits of 14.4 per cent was more than offset by the year-on-year narrowing of interest rate spreads which impacted the overall margin.
 
In Personal Financial Services the mortgage book continued to perform strongly, with HSBC maintaining the number one position in Hong Kong for new business in 2009. The average loan-to-value ratio was 58.3 per cent in respect of new business. In Commercial Banking customer loans and advances fell by 6.9 per cent as market demand reduced and trade fell. However, there was an increase in trade volumes and lending activities in the second half of the year. Despite the challenging environment, HSBC continued to support local businesses. The group provided access to funds and launched a HK$4 billion SME fund in December 2008. This was increased a number of times during 2009 and now stands at HK$20 billion. The take-up of the fund was 100 per cent at 31 December, benefiting some 8,600 customers. HSBC also launched Green Financing, the first product in Hong Kong to specifically target the financing of capital investments which have a positive environmental impact, offering an interest rebate and principal repayment flexibility. 
 
Global Banking and Markets net interest income decreased as falling interest rates impacted the Payments and Cash Management business. This was partly offset by improved spread in the Credit and Lending businesses.
 
Net fee income increased by HK$661 million, or 3.6 per cent, over 2008 as the improvement in the equity markets in the second half of 2009 was reflected in increased demand for services and confidence in wealth management products strengthened. Income from retail brokerage was significantly higher than 2008 with increased IPO activity in the second half of 2009 reflecting improved sentiment and a market rally. In addition, income in the primary debt markets was very strong and HSBC was ranked number one in Asia's local currency markets and in total issuance in Asia-Pacific excluding Japan. A decline in trade-related fee income reflected lower volumes in response to the challenging global environment. However, there was a recovery in trade activity in the second half of the year.
 
Net trading income increased by HK$1,226 million, or 17.0 per cent compared to 2008 as a result of increased volatility and risk adversity in the first half of 2009. This led to better margins on market-making activities across all asset classes primarily Rates and Credit. In addition, the non-recurrence of the write-down of a monoline exposure in 2008 contributed to the year-on-year improvement. However, in 2009 there was a reduction in foreign exchange trading contribution compared to a record high in 2008 and a change in the fair value movement in own credit spread. 
 
Gains less losses from financial investments increased by HK$2,965 million mainly due to the non-recurrence of impairments against available-for-sale equity investments in 2008 following declines in market valuations. 
 
Income from insurance business
(included within 'Net interest income', 'Net fee income', 'Net income from financial instruments designated at fair value', 'Net earned insurance premiums', the change in present value of in-force business within 'Other operating income', and after deducting 'Net insurance claims incurred and movement in policyholders' liabilities')
increased by 98.1 per cent compared with 2008. The increase was largely driven by strong new business growth and positive investment returns. Active management of the investment portfolio, shifted the mix from equities into bonds (excluding unit-linked) and resulted in higher net interest income and more stable returns in 2009.
The positive movement in fair value which was primarily driven by equity market-related gains in unit-linked insurance products was largely offset by a corresponding increase in
'Net insurance claims incurred and movement in policyholders' liabilities'
to reflect the extent to which unit-linked policyholders participate in the investment performance experienced on the linked investment portfolio
.
 
Insurance premiums increased by 12.7 per cent due to strong sales of regular premium insurance products, notably annuity based retirement products and unit-linked products, together with the launch of a high net worth life insurance product. In Hong Kong, the group (including Hang Seng Bank) became market leaders with a 30.8 per cent market share at the end of the third quarter of 2009 (up from 23.8 per cent in 2008) in individual life new business (regular premiums).
 
Loan impairment charges and other credit risk provisions decreased by HK$1,962 million during the year as a result of an improved credit environment following a significant downturn in the second half of 2008. The levels of corporate default experienced in 2008 were not repeated in 2009, contributing to improvement in loan impairment charges and credit risk provisions in both Global Banking and Markets and Commercial Banking. There was also a reduction of impairment charges against available-for-sale debt securities. In Personal Financial Services, loan impairment charges increased by HK$531 million, due to an increase in the collective impairment charges on the credit card portfolio. The mortgage book is well secured with a loan to value ratio of 38.4 per cent which has resulted in very low impairment charges.
 
Operating expenses were HK$107 million, or 0.4 per cent higher than 2008 as a result of a marginal increase in staff costs within Global Banking and Markets due to an increase in performance-related pay reflecting improved performance. In Personal Financial Services and Commercial Banking, staff costs were lower as a result of a reduction in staff numbers and reduced performance-related pay. Non-staff costs fell as marketing expenditure was reduced, although this started to rise in the second half of the year. The group's move towards increased online transactions also contributed to sales generation at a lower cost which is reflected in the reduced expenses.
 
During the year the group won a number of awards. Personal Financial Services awards included 21 from the various card schemes including the most prestigious Bank of the Year Awards from both Visa and MasterCard. In respect of Commercial Banking, HSBC's position as a leading commercial bank has been recognised by various awards, including The Best Trade Finance Bank from
FinanceAsia
for 12 consecutive years, Best Bank for Cash Management in Asia from
Global Finance
for seven consecutive years, and the SME's Best Partner Award from the Hong Kong Chamber of Small and Medium Business Ltd for four consecutive years. The group's direct channel market leading capability contributed to being awarded Best Corporate Internet bank for Asia-Pacific from
Global Finance
in 2009.
 
Rest of Asia-Pacific
reported profit before tax of HK$25,776 million which was 11.4 per cent lower than 2008. This was primarily as a result of a fall in net fee income and net trading income and an increase in loan impairment charges.
 
Net interest income increased by HK$1,110 million, or 4.2 per cent. Excluding HSBC Bank Malaysia which was transferred into the group in January, and PT Bank Ekonomi Raharja Tbk ('Bank Ekonomi') which was acquired in May, net interest income fell by HK$2,161 million, or 8.2 per cent.
 
Most countries within Asia-Pacific saw a fall in net interest income compared to last year but this was offset by increases in Australia and South Korea as a result of improvements in local market positions. There were significant decreases in India, Taiwan, mainland China and Singapore as the low interest rate environment affected all customer groups.
 
Despite the challenging economic environment, HSBC continued to expand in the region positioning itself for a change in the external market conditions. In mainland China, 19 HSBC outlets, eight Rural bank outlets and four Hang Seng outlets were opened during the year, resulting in 98 HSBC branded outlets, 11 Rural bank outlets and 38 Hang Seng Bank outlets. In Indonesia, the acquisition of Bank Ekonomi increased our branch presence to over 200 outlets in 27 cities.
 
Customer deposits remained strong. Personal Financial Services was successful in attracting deposits and the acquisition of Premier customers within the region was notable, with a 35 per cent increase in customer numbers to over 580,000 in total. In Commercial Banking, customer deposit balances grew following the acquisitions of Bank Ekonomi in Indonesia and the transfer of HSBC Bank Malaysia Berhad into the group in the first half of the year.
 
Net fee income was HK$1,150 million, or 9.3 per cent, lower than 2008 reflecting a reduction in fees earned by Securities Services and Asset Management, a result of a drop in assets under custody and administration, notably in Singapore. However, this was partly offset by increases within Personal Financial Services and Commercial Banking. In Personal Financial Services, the increased sales focus on wealth management products and improved sentiment in equity markets in the second half of the year contributed to the 5.0 per cent rise in fee income.  Commercial Banking net fee income was comparable to last year due to an increase in trade services in Malaysia (due to the transfer in of HSBC Bank Malaysia Berhad), Singapore and Bangladesh; cash management in Vietnam and Indonesia; and returning confidence in wealth management products towards the end of the year. In addition, Commercial Banking took various steps to capture cross-border business and continued to benefit from HSBC's international business reach and Amanah branches in Asia. Significant referral growth was seen in Greater China where cross border referral numbers doubled compared to the previous year.
 
Net trading income decreased by HK$2,042 million, or 14.4 per cent, as a result of a fall in net interest income on trading activities. In addition, income trends within the region diverged. In mainland China, trading income fell as expectation of an improvement in the economy impacted long-term bond yields. However, in South Korea trading income increased as opportunities arose from market-making and client hedging activities. Foreign exchange and Rates revenues declined across most of the region, reflecting low market volatility, though Credit trading performance was strong, particularly in mainland China, Japan and Singapore.
 
Net insurance income increased by 54.7 per cent primarily as a result of increased insurance premiums. Sales growth was particularly strong in Singapore following the launch of new products, including a high net worth life insurance product and a single premium guaranteed saver product.
 
Loan impairment charges increased by HK$1,197 million, or 19.4 per cent, compared to 2008 as the credit conditions continued to deteriorate in parts of the region, notably in India.
 
In Personal Financial Services, loan impairment charges rose by 9.8 per cent to HK$5,028 million primarily in India and Indonesia where the unsecured portfolios continued to incur high delinquencies. However, through a number of risk management initiatives, the loan impairment charges related to the unsecured portfolios in India reduced in the second half of the year. With the exception of India and Indonesia, loan impairment charges in the region remained relatively low indicating that the early credit risk measures taken in 2008 were effective.
 
In Commercial Banking the increase in loan impairment charges of HK$1,125 million reflected a rise in corporate default as the economic downturn took effect. While significant deterioration was experienced in India in the first half of the year, the charge in the second half of the year was much lower. Overall credit quality in the region is relatively stable as a result of governments' economic stimulus packages feeding through into the real economy, together with liquidity improvements and actions taken by customers to adapt to the difficult circumstances.
 
Operating expenses have increased slightly by HK$431 million. The increase includes additional costs as a result of including HSBC Bank Malaysia and Bank Ekonomi for the first time. However, cautious cost management has resulted in lower administrative costs and marketing expenditure. These were broadly offset by investment to support the ongoing development of infrastructure in the region including branch expansion in mainland China, Vietnam and Malaysia, the integration of Bank Ekonomi and a full year's cost associated with The Chinese Bank in Taiwan and HSBC InvestDirect in India.
 
In an effort to improve operational efficiencies and reduce costs, the number of transactions completed through direct channels, including internet banking, telephone services and self-service machines is now more than 55 per cent.
 
Profit from associates and joint ventures includes results from Bank of Communications and Industrial Bank.
 
Consolidated Income Statement
 
 
 
 
 
Year ended
Year ended
 
 
 
31 December
31 December
 
Figures in HK$m
 
2009
2008
 
 
 
 
 
 
 
 
 
 
Interest income
 
 
 
82,550
 
 
125,864
 
Interest expense
 
 
 
(24,118
)
 
(56,819
)
Net interest income
 
 
 
58,432
 
 
69,045
 
Fee income
 
 
 
35,583
 
 
37,751
 
Fee expense
 
 
 
(5,305
)
 
(6,984
)
Net fee income
 
 
 
30,278
 
 
30,767
 
Net trading income
 
 
 
20,526
 
 
21,363
 
Net income/ (loss) from financial instruments
 
 
 
 
 
 
 
 
  designated at fair value
 
 
 
7,259
 
 
(10,982
)
Gains less losses from financial investments
 
 
 
(131
)
 
(2,976
)
Dividend income
 
 
 
364
 
 
852
 
Net earned insurance premiums
 
 
 
31,395
 
 
26,886
 
Other operating income
 
 
 
7,258
 
 
4,076
 
Total operating income
 
 
 
155,381
 
 
139,031
 
Net insurance claims incurred and
 
 
 
 
 
 
 
 
  movement in policyholders' liabilities
 
 
 
(37,131
)
 
(14,767
)
Net operating income before loan
 
 
 
 
 
 
 
 
  impairment charges and other credit
 
 
 
 
 
 
 
 
  risk provisions
 
 
 
118,250
 
 
124,264
 
Loan impairment charges and other
 
 
 
 
 
 
 
 
  credit risk provisions
 
 
 
(11,235
)
 
(12,000
)
Net operating income
 
 
 
107,015
 
 
112,264
 
Employee compensation and benefits
 
 
 
(28,585
)
 
(28,132
)
General and administrative expenses
 
 
 
(19,527
)
 
(20,690
)
Depreciation of property, plant and
 
 
 
 
 
 
 
 
  equipment
 
 
 
(2,904
)
 
(2,609
)
Amortisation of intangible assets
 
 
 
(1,177
)
 
(832
)
Total operating expenses
 
 
 
(52,193
)
 
(52,263
)
Operating profit
 
 
 
54,822
 
 
60,001
 
Share of profit in associates and
 
 
 
 
 
 
 
 
  joint ventures
 
 
 
7,741
 
 
7,689
 
Profit before tax
 
 
 
62,563
 
 
67,690
 
Tax expense
 
 
 
(11,919
)
 
(12,710
)
Profit for the year
 
 
 
50,644
 
 
54,980
 
 
 
 
 
 
 
 
 
 
Profit attributable to shareholders
 
 
 
45,808
 
 
50,306
 
Profit attributable to minority interests
 
 
 
4,836
 
 
4,674
 
 
 
 
 
 
 
 
 
 
Consolidated Statement of Comprehensive Income
 
 
 
 
 
Year ended
Year ended
 
 
 
31 December
31 December
 
Figures in HK$m
 
2009
2008
 
 
 
 
 
 
 
 
 
 
Profit for the year
 
 
 
50,644
 
 
54,980
 
 
 
 
 
 
 
 
 
 
Available-for-sale investments:
 
 
 
 
 
 
 
 
- fair value changes taken to equity
 
 
 
31,250
 
 
(46,506
)
- fair value changes transferred to the income statement
 
 
 
 
 
 
 
 
  on disposal
 
 
 
(1,174
)
 
(1,709
)
- fair value changes transferred to the income statement
 
 
 
 
 
 
 
 
  on impairment
 
 
 
472
 
 
2,682
 
- fair value changes transferred to the income statement
 
 
 
 
 
 
 
 
  on hedged items due to hedged risk
 
 
 
483
 
 
(1,973
)
- income taxes
 
 
 
(1,241
)
 
587
 
 
 
 
 
 
 
 
 
 
Cash flow hedges:
 
 
 
 
 
 
 
 
- fair value changes taken to equity
 
 
 
1,650
 
 
4,182
 
- fair value changes transferred to the income statement
 
 
 
(3,026
)
 
(2,652
)
- income taxes
 
 
 
204
 
 
(210
)
 
 
 
 
 
 
 
 
 
Property revaluation:
 
 
 
 
 
 
 
 
- fair value changes taken to equity
 
 
 
808
 
 
1,946
 
- income taxes
 
 
 
(59
)
 
(214
)
 
 
 
 
 
 
 
 
 
Share of changes in equity of associates and joint ventures
 
 
212
 
 
97
 
Exchange differences
 
 
 
5,344
 
 
(6,996
)
Actuarial losses on post-employment benefits
 
 
 
 
 
 
 
 
- before income taxes
 
 
 
3,606
 
 
(6,194
)
- income taxes
 
 
 
(559
)
 
953
 
 
 
 
 
37,970
 
 
(56,007
)
 
 
 
 
 
 
 
 
 
Total comprehensive income for the year, net of tax
 
 
 
88,614
 
 
(1,027
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

Total comprehensive income for the year
 
 
 
 
 
 
 
 
  attributable to:
 
 
 
 
 
 
 
 
- shareholders
 
 
 
81,588
 
 
(1,968
)
- minority interests
 
 
 
7,026
 
 
941
 
 
 
 
 
88,614
 
 
(1,027
)
Consolidated Statement of Financial Position
 
 
 
 
At 31 December
At 31 December
 
Figures in HK$m
 
2009
2008
 
 
 
 
 
 
 
 
 
 

ASSETS
 
 
 
 
 
 
 
 
Cash and short-term funds
 
 
 
892,175
 
 
597,572
 
Items in the course of collection from other
 
 
 
 
 
 
 
 
  banks
 
 
 
15,528
 
 
13,949
 
Placings with banks maturing after one month
 
 
 
107,070
 
 
55,569
 
Certificates of deposit
 
 
 
37,388
 
 
57,078
 
Hong Kong SAR Government certificates
 
 
 
 
 
 
 
 
  of indebtedness
 
 
 
135,414
 
 
119,024
 
Trading assets
 
 
 
322,731
 
 
493,670
 
Financial assets designated at fair value
 
 
 
48,087
 
 
40,553
 
Derivatives
 
 
 
235,171
 
 
453,923
 
Advances to customers
 
 
 
1,350,644
 
 
1,286,145
 
Financial investments
 
 
 
882,689
 
 
586,161
 
Amounts due from Group companies
 
 
 
134,511
 
 
378,662
 
Investments in associates and joint ventures
 
 
 
53,683
 
 
48,270
 
Goodwill and intangible assets
 
 
 
25,069
 
 
16,181
 
Property, plant and equipment
 
 
 
36,327
 
 
35,885
 
Deferred tax assets
 
 
 
2,668
 
 
1,699
 
Retirement benefit assets
 
 
 
292
 
 
84
 
Other assets
 
 
 
62,256
 
 
75,931
 

Total assets
 
 
 
4,341,703
 
 
4,260,356
 
 
 
 
 
 
 
 
 
 

LIABILITIES
 
 
 
 
 
 
 
 

Hong Kong SAR currency notes in circulation
 
 
 
135,414
 
 
119,024
 
Items in the course of transmission to other
 
 
 
 
 
 
 
 
  banks
 
 
 
22,960
 
 
31,334
 
Deposits by banks
 
 
 
111,206
 
 
196,674
 
Customer accounts
 
 
 
2,944,539
 
 
2,576,084
 
Trading liabilities
 
 
 
154,366
 
 
210,587
 
Financial liabilities designated at fair value
 
 
 
36,709
 
 
39,926
 
Derivatives
 
 
 
232,846
 
 
466,204
 
Debt securities in issue
 
 
 
43,396
 
 
48,800
 
Retirement benefit liabilities
 
 
 
3,922
 
 
7,486
 
Amounts due to Group companies
 
 
 
50,842
 
 
51,244
 
Other liabilities and provisions
 
 
 
55,982
 
 
63,319
 
Liabilities under insurance contracts issued
 
 
 
144,928
 
 
113,431
 
Current tax liabilities
 
 
 
4,119
 
 
3,270
 
Deferred tax liabilities
 
 
 
7,358
 
 
4,433
 
Subordinated liabilities
 
 
 
21,181
 
 
19,184
 
Preference shares
 
 
 
101,208
 
 
92,870
 

Total liabilities
 
 
 
4,070,976
 
 
4,043,870
 
 
 
 
 
 
 
 
 
 
 
 
At 31 December
At 31 December
 
Figures in HK$m
 
2009
2008
 
 
 
 
 
 
 
 
 
 
EQUITY
 
 
 
 
 
 
 
 
Share capital
 
 
 
22,494
 
 
22,494
 
Other reserves
 
 
 
75,213
 
 
36,863
 
Retained profits
 
 
 
139,231
 
 
123,085
 
Proposed fourth interim dividend
 
 
 
8,850
 
 
11,170
 
Total shareholders’ equity
 
 
 
245,788
 
 
193,612
 
Minority interests
 
 
 
24,939
 
 
22,874
 
 
 
 
 
270,727
 
 
216,486
 
Total equity and liabilities
 
 
 
4,341,703
 
 
4,260,356
 
 
Consolidated Statement of Changes in Equity
 
 
 
 
At 31 December
At 31 December
 
Figures in HK$m
 
 
2009
 
 
2008
 
 
 
 
 
 
 
 
 
Share capital
 
 
 
 
 
 
 
At beginning and end of year
 
 
22,494
 
 
22,494
 
 
 
 
 
 
 
 
 
Retained profits
 
 
 
 
 
 
 
At beginning of year
 
 
123,085
 
 
107,908
 
Dividends to shareholders
 
 
(26,520
)
 
(31,170
)
Other movements
 
 
257
 
 
17
 
Transfers
 
 
(8,539
)
 
(302
)
Total comprehensive income for the year
 
 
50,948
 
 
46,632
 
 
 
 
139,231
 
 
123,085
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Other reserves
 
 
 
 
 
 
 
Property revaluation reserve
 
 
 
 
 
 
 
 At beginning of year
 
 
8,578
 
 
6,995
 
 Other movements
 
 
(16
)
 
-­
 
 Transfers
 
 
(542
)
 
(430
)
Total comprehensive income for the year
 
 
573
 
 
2,013
 
 
 
 
8,593
 
 
8,578
 
 
 
 
 
 
 
 
 
Available-for-sale investment reserve
 
 
 
 
 
 
 
 At beginning of year
 
 
15,103
 
 
58,757
 
 Other movements
 
 
(11
)
 
29
 
 Transfers
 
 
73
 
 
(158
)
Total comprehensive income/(expense) for the
   year
 
 
28,220
 
 
(43,525
)
 
 
 
43,385
 
 
15,103
 
 
 
 
 
 
 
 
 
Cash flow hedging reserve
 
 
 
 
 
 
 
 At beginning of year
 
 
1,833
 
 
677
 
 Other movements
 
 
-­
 
 
-­
 
 Transfers
 
 
7
 
 
(10
)
Total comprehensive (expense)/income for the
   year
 
 
(992
)
 
1,166
 
 
 
 
848
 
 
1,833
 
 
 
 
 
 
 
 
 
Foreign exchange reserve
 
 
 
 
 
 
 
 At beginning of year
 
 
1,666
 
 
8,887
 
 Transfers
 
 
2,673
 
 
1,279
 
Total comprehensive income/(expense) for the
   year
 
 
2,659
 
 
(8,500
)
 
 
 
6,998
 
 
1,666
 
 
 
 
 
 
 
 
 
At 31 December
At 31 December
 
Figures in HK$m
 
 
2009
 
 
2008
 
 
 
 
 
 
 
 
 
Other reserves
 
 
 
 
 
 
 
 At beginning of year
 
 
9,683
 
 
8,636
 
Movement in respect of share-based payment
 arrangements
 
 
586
 
 
629
 
 Transfers
 
 
6,328
 
 
(379
)
  Other movements
 
 
(1,388
)
 
551
 
Total comprehensive income for the year
 
 
180
 
 
246
 
 
 
 
15,389
 
 
9,683
 
 
 
 
 
 
 
 
 
Total shareholders equity
 
 
 
 
 
 
 
At beginning of year
 
 
182,442
 
 
214,354
 
Dividends to shareholders
 
 
(26,520
)
 
(31,170
)
Movement in respect of share-based payment
 arrangements
 
 
586
 
 
629
 
Other movements
 
 
(1,158
)
 
597
 
Total comprehensive income/(expense) for the 
 year
 
 
81,588
 
 
(1,968
)
 
 
 
236,938
 
 
182,442
 
 
 
 
 
 
 
 
 
Minority interests
 
 
 
 
 
 
 
At beginning of year
 
 
22,874
 
 
25,080
 
Dividends to shareholders
 
 
(4,830
)
 
(4,664
)
Movement in respect of share-based payment
 arrangements
 
 
37
 
 
40
 
Other movements
 
 
(168
)
 
1,477
 
Total comprehensive income for the year
 
 
7,026
 
 
941
 
 
 
 
24,939
 
 
22,874
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total equity
 
 
 
 
 
 
 
At beginning of year
 
 
205,316
 
 
239,434
 
Dividends to shareholders
 
 
(31,350
)
 
(35,834
)
Movement in respect of share-based payment
 arrangements
 
 
623
 
 
669
 
Other movements
 
 
(1,326
)
 
2,074
 
Total comprehensive income/(expense) for the
 year
 
 
88,614
 
 
(1,027
)
 
 
 
261,877
 
 
205,316
 
 
 
 
 
 
 
 
 
Consolidated Cash Flow Statement
 
 
 
 
 
Year ended
 
Year ended
 
 
 
 
 31December
 
 31December
 
Figures in HK$m
 
 
2009
 
2008
 
 
 
 
 
 
 
 

Operating activities
 
 
 
 
 
 

Cash generated from/(used in) operations
 
 
123,789 
 
(75,489)
 
Interest received on financial investments
 
 
15,420 
 
17,548 
 
Dividends received on financial investments
 
 
306 
 
697 
 
Dividends received from associates
 
 
2,565 
 
3,005 
 
Taxation paid
 
 
(10,239)
 
(14,586)
 
 
 
 
 
 
 
 
Net cash (outflow)/ inflow from operating activities
 
 
131,841 
 
(68,825)
 
 
 
 
 
 
 
 
Investing activities
 
 
 
 
 
 
Purchase of financial investments
 
 
(533,217)
 
(632,954)
 
Proceeds from sale or redemption of financial
 
 
 
 
 
 
  investments
 
 
423,421 
 
570,372 
 
Purchase of property, plant and equipment
 
 
(1,984)
 
(3,269)
 
Proceeds from sale of property, plant and equipment and assets held for sale
 
 
1,848 
 
218 
 
Purchase of other intangible assets
 
 
(1,271)
 
(1,757)
 
Net cash inflow/(outflow) in respect of the acquisition
 
 
 
 
 
 
  of and increased shareholding in subsidiary companies
 
 
15,271 
 
(1,240)
 
Net cash inflow in respect of the purchase of
 
 
 
 
 
 
  interests in business portfolios
 
 
- 
 
13,992 
 
Net cash outflow in respect of the purchase of
 
 
 
 
 
 
  interests in associates and joint ventures
 
 
(43)
 
(2,643)
 
Net cash inflow/(outflow) from the sale of interests in business portfolios
 
 
251 
 
(33)
 
Proceeds from the sale of interests in associates
 
 
20 
 
- 
 
Net cash outflow from investing activities
 
 
(95,704)
 
(57,314)
 
 
 
 
 
 
 
 
Net cash inflow/(outflow) before financing
 
 
36,137 
 
(126,139)
 
 
 
 
 
 
 
 
Financing
 
 
 
 
 
 
Issue of preference share capital
 
 
8,282 
 
3,113 
 
Change in minority interests
 
 
(160)
 
1,893 
 
Repayment of subordinated liabilities
 
 
(659)
 
- 
 
Issue of subordinated liabilities
 
 
- 
  
296 
 
Ordinary dividends paid
 
 
(28,840)
 
(26,500)
 
Dividends paid to minority interests
 
 
(4,830)
 
(4,664)
 
Interest paid on preference shares
 
 
(4,034
 
(5,752)
 
Interest paid on subordinated liabilities
 
 
(741)
 
(1,039)
 
Net cash outflow from financing
 
 
(30,982)
 
(32,653)
 
 
 
 
 
 
 
 
Increase/(decrease) in cash and cash equivalents
 
 
5,155 
 
(158,792)
 
 
Additional Information
 
1. Net interest income
 
 
 
 
Year ended
 
Year ended
 
 
 
 
31 December
 
31 December
 
Figures in HK$m
 
 
 
2009
 
 
2008
 
 
 
 
 
 
 
 
 
 
Net interest income
 
 
 
58,432
 
 
69,045
 
Average interest-earning assets
 
 
 
3,047,570
 
 
2,926,332
 
Net interest spread
 
 
 
1.86
%
 
2.21
%
Net interest margin
 
 
 
1.92
%
 
2.36
%
 
 
Net interest income
declined by HK$10,613 million or 15.4 per cent compared to 2008 primarily as a result of a decline in interest rates.  Net interest income was affected by the continuous compression of deposit spreads, repricing of assets at lower rates and a change in asset mix with deployment of funds to high quality but lower yielding assets.
 
Average interest-earning assets
increased by HK$121,238 million or 4.1 per cent compared to 2008. Excluding HSBC Bank Malaysia Berhad which was transferred into the group at the start of 2009 and the acquisition of Bank Ekonomi in the first half of 2009, interest earning assets increased by HK$2,546 million. Financial investments increased as the commercial surplus was redeployed from interbank placements to lower risk treasury bills, government bonds and debt securities.
 
Net interest margin
decreased to 1.92 per cent, a reduction of 44 basis points when compared to 2008. The decline in interest margin is in line with the overall fall in interest rates, which resulted in the repricing of assets off lower yield curves. Net interest spread declined by 35 basis points to 1.86 per cent, while the contribution of net free funds decreased by nine basis points to six basis points.
 
In
Hong Kong
, the bank recorded a drop in net interest margin of 75 basis points to 1.52 per cent.  Net interest spread decreased by 77 basis points to 1.53 per cent on the back of declining HIBOR and LIBOR resulting in a further compression of deposit spreads. The adverse impact was moderated by a growth in customer accounts, an increase in residential mortgages on the back of a strong property market and improved lending spreads from lower cost of funds and repricing of portfolios.
 
At
Hang Seng Bank
, the net interest margin declined by 48 basis points to 2.11 per cent while the net interest spread declined by 28 basis points to 2.06 per cent. Net interest spread declined due to narrowing deposit spreads and the repricing of assets as interest rates fell. While average interest-earning assets increased, funds were deployed to high quality but low yield liquid assets to reduce risk. The benefit of net free funds decreased by 20 basis points to 0.05 per cent as a consequence of a low interest rate environment
.
 
In the
Rest of Asia-Pacific
, net interest margin was 2.19 per cent, 10 basis points higher than 2008.  Net interest spread widened by 21 basis points to 1.99 per cent. Excluding HSBC Bank Malaysia Berhad and Bank Ekonomi, net interest margin increased by three basis points. In Australia, net interest margin increased benefiting from a rising interest rate environment, repricing initiatives and growth in banking book assets, in particular residential mortgages. South Korea also reported a higher margin primarily due to lower cost of funds.
 
2. Net fee income
 
Figures in HK$m
 
 
 
2009
 
 
2008
 
 
 
 
 
 
 
 
 
 
Account services
 
 
 
2,181
 
 
2,027
 
Credit facilities
 
 
 
2,025
 
 
1,767
 
Trade finance
 
 
 
3,744
 
 
3,970
 
Remittances
 
 
 
2,059
 
 
1,900
 
Securities/stockbroking
 
 
 
8,628
 
 
9,734
 
Cards
 
 
 
5,673
 
 
5,308
 
Insurance
 
 
 
478
 
 
617
 
Unit trusts
 
 
 
1,719
 
 
2,374
 
Funds under management
 
 
 
3,327
 
 
3,969
 
Other
 
 
 
5,749
 
 
6,085
 
 
 
 
 
 
 
 
 
 
Fee income
 
 
 
35,583
 
 
37,751
 
 
 
 
 
 
 
 
 
 
Fee expense
 
 
 
(5,305
)
 
(6,984
)
 
 
 
 
 
 
 
 
 
 
 
 
 
30,278
 
 
30,767
 
 
 
 
 
 
 
 
 
 
 
Net fee income
was HK$489 million or 1.6 per cent lower than in 2008.
 
Unit trusts income declined 27.6 per cent, as cautious investment sentiment in 2009 led to lower demand for wealth management products. Falling sales in new unit trusts and investment funds, particularly in Hong Kong, resulted in a drop in subscription fees and commissions, although this moderated in the second half of the year.
 
Income from funds under management decreased 16.2 per cent as a result of lower sales in new funds and declining returns amidst market volatility during 2009, notably in Hong Kong. As a result, a reduction in the value of assets under management held by the group led to lower fees received.
 
Similarly, securities and stockbroking income fell as lower income was generated from securities services due to unfavourable conditions in 2009, particularly in Hong Kong, Japan, South Korea and Taiwan. However, the stockbroking business reported higher commissions from increased trading in Hong Kong, along with increased IPO opportunities in the second half of 2009.
3. Net trading income
 
Figures in HK$m
 
 
 
2009
 
 
2008
 
 
 
 
 
 
 
 
 
 
Dealing profits
 
 
 
16,275
 
 
13,462
 
 
 
 
 
 
 
 
 
 
Net loss from hedging activities
 
 
 
(23
)
 
(73
)
 
 
 
 
 
 
 
 
 
Net interest income on trading assets and liabilities
 
 
 
3,853
 
 
7,215
 
 
 
 
 
 
 
 
 
 
Dividend income from trading securities
 
 
 
421
 
 
759
 
 
 
 
 
 
 
 
 
 
 
 
 
 
20,526
 
 
21,363
 
 
 
 
 
 
 
 
 
 
Net trading income
decreased HK$837 million or 3.9 per cent in 2009.
 
Interest on trading assets and liabilities declined 46.6 per cent from reduced holdings of trading debt securities, notably in Hong Kong and Australia. The reduction also reflected the low interest rate environment experienced throughout 2009.
 
Dealing profits increased 20.9 per cent, partially due to the non-recurrance of a write-down recognised last year and a revaluation gain on certain held-for-trading equity investments in 2009. Excluding these, improved market positions and trading opportunities led to higher trading revenues in Hong Kong especially on bonds, partially offset by lower foreign exchange trading income. In the Rest of Asia-Pacific, lower profits in India mainly reflected fewer trading opportunities as market volatility subsided in the latter part of 2009, coupled with a decline in client trading volume. Mainland China was affected by rising bond yields as the market anticipated a fast economic recovery and future inflation which led to higher revaluation losses on renminbi trading bonds.
 
4. Gains less losses from financial investments
 
Figures in HK$m
 
 
 
2009
 
 
2008
 
 
 
 
 
 
 
 
 
 
Gains on disposal of available-for-sale securities 
 
 
1,191
 
 
1,807
 
Impairment of available-for-sale equity investments
 
 
(1,322
)
 
(4,783
)
 
 
 
 
(131
)
 
(2,976
)
 
 
 
 
 
 
 
 
 
 
Impairment of available-for-sale equity investments decreased HK$3,461 million in 2009, which was attributable to the non-recurrence of the write-downs of strategic investments in 2008 and improving market conditions more generally.
 
During the year, the group realised gains on the disposal of certain investments including Visa shares.  However, this was less than the gain recognised in 2008, which included income on the sale of MasterCard shares.
 
 
5. Other operating income
 
Figures in HK$m
 
 
 
2009
 
 
2008
 
 
 
 
 
 
 
 
 
 
Rental income from investment properties
 
 
 
169
 
 
153
 
Movement in present value of in-force
 
 
 
 
 
 
 
 
   insurance business
 
 
 
2,888
 
 
823
 
Gains on investment properties
 
 
 
262
 
 
11
 
Profit/(loss) on disposal of property, plant
 
 
 
 
 
 
 
 
  and equipment, and assets held for sale
 
 
 
696
 
 
(63
)
Loss on disposal of subsidiaries,
 
 
 
 
 
 
 
 
  associates and business portfolios
 
 
 
(6
)
 
(96
)
(Deficit)/surplus arising on property revaluation
 
 
 
(143
)
 
60
 
Other
 
 
 
3,392
 
 
3,188
 
 
 
 
 
7,258
 
 
4,076
 
 
 
 
 
 
 
 
 
 
 
The movement in the present value of in-force insurance business increased substantially in 2009, primarily due to a growth in new business, including the launch of a new high net worth product and higher projected fee income on unit-linked funds.
 
'Other' mainly consisted of recoveries of IT and other operating costs that were incurred on behalf of fellow HSBC Group companies.  It also included gains on acquired loans from The Chinese Bank and Bank Ekonomi.
 
The profit on disposal of property, plant and equipment mainly represented a gain realised from the sale of property in Hong Kong in late 2009.
 
6. Insurance income 
Included in the consolidated income statement are the following revenues earned by the insurance business:
 
Figures in HK$m
 
2009
 
2008
 
 
 
 
 
 
 
Net interest income
 
4,691  
 
3,369  
 
Net fee income
 
768  
 
1,159 
 
Net trading loss
 
(8)
 
(126)
 
Net income/(loss) from financial instruments
 
 
 
 
 
  designated at fair value
 
6,150  
 
(11,471)
 
Gains less losses from financial investments
 
(7)
 
(1,468)
 
Dividend income
 
29 
 
1 
 
Net earned insurance premiums
 
31,395 
 
26,886 
 
Movement in present value of in-force business
 
2,888  
 
823 
 
Other operating income
 
29  
 
307 
 
 
 
45,935  
 
19,480 
 
Net insurance claims incurred and movement
 
 
 
 
 
  in policyholders' liabilities
 
(37,131)
 
(14,767)
 
 
 
 
 
 
 
Net operating income
 
8,804  
 
4,713 
 
 
 
 
 
 
 
 
Net interest income increased 39.2 per cent as a result of a change in the portfolio mix towards bond investments and a growth in funds under management. Net fee income declined 33.7 per cent due to increased fee expenses through higher commissions paid in respect of higher sales in life and non-life insurance products during the year, together with higher investment management fees as fund sizes increased.
 
Gains less losses from financial investments in the insurance business included a non-recurring significant write-down of a strategic investment in 2008. Changes in the fair value of assets supporting linked insurance contracts are reported in 'Net income from financial instruments designated at fair value', but with offsetting movements in the value of those contracts in 'Net insurance claims incurred and movement in policyholders' liabilities'.
 
Net earned insurance premiums rose 16.8 per cent, reflecting growing demand for deferred annuity and unit-linked products, combined with the launch of new high net worth products in 2009. Non-life premiums also increased through improved sales on medical, accident and health, and general liability products. 
 
Movement in present value of in-force business increased as a result of higher new business production and growth in projected fee income on unit-linked funds.


 
7. Loan impairment charges and other credit risk provisions
 
Figures in HK$m
 
 
 
2009
 
 
2008
 
 
 
 
 
 
 
 
 
 
Net charge for impairment of customer advances
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
- Individually assessed impairment allowances:
 
 
 
 
 
 
 
  New allowances
 
 
 
5,504
 
 
4,243
 
  Releases
 
 
 
(1,135
)
 
(523
)
  Recoveries
 
 
 
(188
)
 
(169
)
 
 
 
 
4,181
 
 
3,551
 
- Net charge for collectively assessed
 
 
 
 
 
 
 
  impairment allowances
 
 
 
6,498
 
 
6,542
 
 
 
 
 
10,679
 
 
10,093
 
 
 
 
 
 
 
 
 
 
Net charge for other credit risk provisions
 
 
556
 
 
1,907
 
 
 
 
 
 
 
 
 
 
Net charge for loan impairment and
 
 
 
 
 
 
 
 
  other credit risk provisions
 
 
 
11,235
 
 
12,000
 
 
 
 
 
 
 
 
 
 
 
The net charge for loan impairment and other credit risk provisions decreased by HK$765 million, or
6.4 per cent comparing to 2008.
Included in the net charge for other credit risk provisions was an impairment charge of HK$365 million against available-for-sale debt securities in 2009 (2008: HK$2,006 million). There were no impairment losses or provisions against held-to-maturity investments.
 
The charge for individually assessed allowances increased HK$630 million, with higher impairment charges from the Private Equity business, India and Bahrain, where corporate customers were adversely affected by deteriorating economic conditions. Hong Kong reported lower impairment charges and higher releases in 2009, mainly driven by a gradual improvement in the credit environment.
 
The net charge for collectively assessed impairment allowances declined marginally (HK$44 million), through lower provision charges against commercial customers and higher allowance releases, offset by rising impairment against credit cards and other unsecured personal lending. In Hong Kong, lower provisions were a result of a gradual improvement in local credit conditions, supported by ongoing recovery efforts throughout the year. Conversely, India experienced increases in loss rates in both personal and commercial portfolios, with some improvements in the latter part of 2009.


 
8. Employee compensation and benefits
 
Figures in HK$m
 
 
 
2009
 
 
2008
 
 
 
 
 
 
 
 
 
 
Wages, salaries and other costs
 
 
 
20,367
 
 
20,117
 
Performance-related pay
 
 
 
6,147
 
 
6,126
 
Social security costs
 
 
 
698
 
 
549
 
Retirement benefit costs
 
 
 
1,373
 
 
1,340
 
 
 
 
 
28,585
 
 
28,132
 
 
 
 
 
 
 
 
 
 
Staff numbers by region
W
 
 
 
 
 
 
At 31 December
At 31 December
 
 
 
 
 
2009
 
 
2008
 
 
 
 
 
 
 
 
 
 
Hong Kong
 
 
 
26,192
 
 
27,755
 
Rest of Asia-Pacific
 
 
 
42,582
 
 
37,816
 
Total
 
 
 
68,774
 
 
65,571
 
 
 
 
 
 
 
 
 
 
W
Full-time equivalent
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Employee compensation and benefits are slightly increased as compared with 2008, up HK$453 million, or 1.6 per cent.
 
Wages, salaries and other costs increased HK$250 million due to higher staff numbers acquired through acquisition and organic investment across the region. 2009 included the first full year for IL&FS Investsmart (now HSBC InvestDirect India) which was acquired in late 2008, HSBC Malaysia Berhad which transferred into the group at the start of 2009 and Bank Ekonomi which was acquired in the first half of 2009. In addition, mainland China continued to hire new staff to support ongoing branch expansion. However, staff numbers in a number of countries and territories reduced in 2009.
 
Performance-related pay rose marginally by HK$21 million, reflecting a favourable business performance by Global Banking and Markets especially in Hong Kong, partially offset by lower performance-related pay in Personal Finance Services and Commercial Banking in 2009.


 
9. General and administrative expenses
 
Figures in HK$m
 
 
 
2009
 
 
2008
 
 
 
 
 
 
 
 
 
 
Premises and equipment
 
 
 
 
 
 
 
 
- Rental expenses
 
 
 
2,747
 
 
2,432
 
- Amortisation of prepaid operating lease
 
 
 
 
 
 
 
 
    payments
 
 
 
58
 
 
59
 
- Other premises and equipment
 
 
 
3,192
 
 
3,068
 
 
 
 
 
5,997
 
 
5,559
 
 
 
 
 
 
 
 
 
 
Marketing and advertising expenses
 
 
 
3,168
 
 
3,579
 
 
 
 
 
 
 
 
 
 
Other administrative expenses
 
 
 
10,368
 
 
11,128
 
 
 
 
 
 
 
 
 
 
Litigation and other provisions
 
 
 
(6
)
 
424
 
 
 
 
 
 
 
 
 
 
 
 
 
 
19,527
 
 
20,690
 
 
 
 
 
 
 
 
 
 
 
General and administrative expenses decreased year on year by HK$1,163 million, or 5.6 per cent.
 
Charges in respect of premises and equipment rose by HK$438 million, particularly in Hong Kong due to tenancy agreements being renewed at higher rates, more refurbishment projects and higher technology costs. Costs in mainland China also increased to support an expanding branch network.
 
Other administrative expenses declined HK$760 million, reflecting ongoing controls on overhead costs across the region, notably in Hong Kong and India. Marketing and advertising expenses decreased by HK$411 million primarily as a result of fewer promotional campaigns in 2009, although marketing activities increased in late 2009 as market sentiment improved. Litigation expenses reduced by HK$430 million due to lower charges in Australia and Singapore, together with a provision release in Hong Kong during 2009.
 
 
10. Share of profit in associates
and joint ventures
 
Share of profit in associates and joint ventures principally included the group's share of post-tax profits from Bank of Communications and Industrial Bank, less the amortisation of intangible assets arising on acquisition.
 
 
11. Tax expense
 
The tax expense in the consolidated income statement comprises:
 
Figures in HK$m
 
 
 
2009
 
 
2008
 
 
 
 
 
 
 
 
 
 
Current income tax
 
 
 
 
 
 
 
 
- Hong Kong profits tax
 
 
 
5,839
 
 
6,244
 
- Overseas taxation
 
 
 
6,175
 
 
6,194
 
Deferred taxation
 
 
 
(95
)
 
272
 
 
 
 
 
11,919
 
 
12,710
 
 
 
 
 
 
 
 
 
 
 
The effective rate of tax for 2009 was 19.1 per cent compared with 18.8 per cent in 2008.
 
12. Dividends
 
 
 
 
 
2009
 
2008
 
 
 
 
 
 
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
 
 
 
1.24
 
11,170
 
0.72
 
6,500
- In respect of the current financial year
 
 
 
1.95
 
17,670
 
2.22
 
20,000
 
 
 
 
3.19
 
28,840
 
2.94
 
26,500
 
 
 
 
 
 
 
 
 
 
 
 
The Directors have declared a fourth interim dividend in respect of the financial year ended 31 December 2009 of HK$8,850 million (HK$0.98 per ordinary share).
 
 
13. Advances to customers
 
 
 
At 31 December
At 31 December
 
Figures in HK$m
 
 
 
2009
 
 
2008
 
 
 
 
 
 
 
 
 
 
Gross advances to customers
 
 
 
1,364,924
 
 
1,297,103
 
 
 
 
 
 
 
 
 
 
Impairment allowances
 
 
 
 
 
 
 
 
- Individually assessed
 
 
 
(8,088
)
 
(5,033
)
- Collectively assessed
 
 
 
(6,192
)
 
(5,925
)
 
 
 
 
(14,280
)
 
(10,958
)
Net loans and advances to customers
 
 
 
1,350,644
 
 
1,286,145
 
 
 
 
 
 
 
 
 
 
Allowances as a percentage of gross advances
 
 
 
 
 
 
 
 
  to customers:
 
 
 
 
 
 
 
 
- Individually assessed
 
 
 
0.59
%
 
0.39
%
- Collectively assessed
 
 
 
0.46
%
 
0.46
%
Total allowances
 
 
 
1.05
%
 
0.85
%
 
 
 
 
 
 
 
 
 
 
14. Impairment allowances against advances to customers
 
 
 
 
 
 
 
 
 
 
 
 
 
Individually
 
Collectively
 
 
 
 
 
 
assessed
 
assessed
 
 
 
Figures in HK$m
 
 
allowances
 
allowances
 
Total
 
 
 
 
 
 
 
 
 
 
At 1 January 2009
 
 
5,033
 
5,925
 
10,958
 
Amounts written off
 
 
(1,610
)
(7,761
)
(9,371
)
Recoveries of advances written off in
 
 
 
 
 
 
 
 
  previous years
 
 
188
 
1,102
 
1,290
 
Net charge to income statement (Note 7)
 
 
4,181
 
6,498
 
10,679
 
Unwinding of discount on loan impairment
 
 
(82
)
(215
)
(297
)
Exchange and other adjustments
 
 
378
 
643
 
1,021
 
 
 
 
 
 
 
 
 
 
At 31 December 2009
 
 
8,088
 
6,192
 
14,280
 
 
 
 
 
 
 
 
 
 
15. Impaired advances to customers and allowances
 
The geographical information shown below, and in notes 16, 17 and 18, 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 
 
 
 

Figures in HK$m
Hong Kong
 
Asia-Pacific
 
Total
 

 
 
 
 
 
 
 

Year ended 31 December 2009
 
 
 
 
 
 
 
 
 
 
 
 
 
Impairment allowance charge
3,487
 
7,192
 
10,679
 
 
 
 
 
 
 
 
 
At 31 December 2009
 
 
 
Advances to customers that are considered to be impaired are as follows:
 
 
 
 
 
 
 
 
Gross impaired advances
6,358
 
9,838
 
16,196
 
 
 
 
 
 
 
 
Individually assessed allowances
(3,724
)
(4,364
)
(8,088
)
 
2,634
 
5,474
 
8,108
 
 
 
 
 
 
 
 
Individually assessed allowances as a
 
 
 
 
 
 
  percentage of gross impaired advances
58.6
%
44.4
%
49.9
%
 
 
 
 
 
 
 
Gross impaired advances as a percentage
 
 
 
 
 
 
  of gross advances to customers
0.8
%
1.6
%
1.2
%
 
 
 
 
 
 
 
 

 
 
 
Rest of
 
 
 

Figures in HK$m
Hong Kong
 
Asia-Pacific
 
Total
 

 
 
 
 
 
 
 

Year ended 31 December 2008
 
 
 
 
 
 
 
 
 
 
 
 
 
Impairment allowance charge
4,210
 
5,883
 
10,093
 
 
 
 
 
 
 
 
 
At 31 December 2008
 
 
 
Advances to customers that are considered to be impaired are as follows:
 
 
 
 
 
 
 
 
Gross impaired advances
6,601
 
6,479
 
13,080
 
 
 
 
 
 
 
 
Individually assessed allowances
(3,108
)
(1,925
)
(5,033
)
 
3,493
 
4,554
 
8,047
 
 
 
 
 
 
 
 
Individually assessed allowances as a
 
 
 
 
 
 
  percentage of gross impaired advances
47.1
%
29.7
%
38.5
%
 
 
 
 
 
 
 
Gross impaired advances as a percentage
 
 
 
 
 
 
  of gross advances to customers
0.9
%
1.2
%
1.0
%
 
 
 
 
 
 
 
 
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 31 December 2009
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Gross advances to customers that have
 
 
 
 
 
 
 
 
  been overdue with respect to either
 
 
 
 
 
 
 
 
  principal or interest for periods of:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
- more than three months but not more than six months
 
 
583
 
2,728
 
3,311
 
                       
 
 
 
 
 
 
 
 
- more than six months but not more than one year
 
 
1,206
 
1,888
 
3,094
 
                       
 
 
 
 
 
 
 
 
- more than one year
 
 
1,963
 
2,865
 
4,828
 
 
 
 
3,752
 
7,481
 
11,233
 
 
 
 
 
 
 
 
 
 
Overdue advances to customers as a
 
 
 
 
 
 
 
 
  percentage of gross advances to
 
 
 
 
 
 
 
 
  customers:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
- more than three months but not more than six months
 
 
0.1
%
0.4
%
0.2
%
           
 
 
 
 
 
 
 
 
- more than six months but not more than one year
 
 
0.1
%
0.3
%
0.2
%
           
 
 
 
 
 
 
 
 
- more than one year
 
 
0.3
%
0.5
%
0.4
%
 
 
 
0.5
%
1.2
%
0.8
%
 
 
 
 
 
 
 
 
 
 
 

 
 
 
 
Rest of
 
 
 
Figures in HK$m
 
Hong Kong
Asia-Pacific
 
Total
 
 
 
 
 
 
 
 
 
 
At 31 December 2008
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Gross advances to customers that have
 
 
 
 
 
 
 
 
  been overdue with respect to either
 
 
 
 
 
 
 
 
  principal or interest for periods of:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
- more than three months but not more than six months
 
 
1,059
 
2,559
 
3,618
 
                       
 
 
 
 
 
 
 
 
- more than six months but not more than one year
 
 
603
 
859
 
1,462
 
                       
 
 
 
 
 
 
 
 
- more than one year
 
 
881
 
1,613
 
2,494
 
 
 
 
2,543
 
5,031
 
7,574
 
 
 
 
 
 
 
 
 
 
Overdue advances to customers as a
 
 
 
 
 
 
 
 
  percentage of gross advances to
 
 
 
 
 
 
 
 
  customers:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
- more than three months but not more than six months
 
 
0.1
%
0.5
%
0.3
%
           
 
 
 
 
 
 
 
 
- more than six months but not more than one year
 
 
0.1
%
0.2
%
0.1
%
           
 
 
 
 
 
 
 
 
- more than one year
 
 
0.1
%
0.3
%
0.2
%
 
 
 
0.3
%
1.0
%
0.6
%
 
 
 
 
 
 
 
 
 
 

As at 31 December 2009 and 31 December 2008, there were no advances to banks and other financial institutions that were overdue for more than three months.

 
 
17.
Rescheduled advances to customers
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Rest of
 
 
 
Figures in HK$m
 
 
Hong Kong
Asia-Pacific
 
Total
 
 
 
 
 
 
 
 
 
 

At 31 December 2009
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Rescheduled advances to customers

 
 
2,379
 
2,671
 
5,050
 
 
 
 
 
 
 
 
 
 
Rescheduled advances to customers as a
 
 
 
 
 
 
 
 
  percentage of gross advances to
 
 
 
 
 
 
 
 
  customers
 
 
0.3
 
0.4
 
0.4
%
 
 
 
 
 
 
 
 
 

At 31 December 2008
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Rescheduled advances to customers
 
 
1,688
 
1,472
 
3,160
 
 
 
 
 
 
 
 
 
 
Rescheduled advances to customers as a
 
 
 
 
 
 
 
 
  percentage of gross advances to
 
 
 
 
 
 
 
 
  customers
 
 
0.2
%
0.3
%
0.2
%
 
 
As at 31 December 2009 and 31 December 2008, there were no rescheduled advances to banks and other financial institutions.
 
Rescheduled advances to customers are those advances that have been restructured or renegotiated because of deterioration in the financial position of the borrower or 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).
 
 
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
 
 
 
Figures in HK$m
Hong Kong
 
Asia-Pacific
 
Total
 
 
 
 
 
 
 
 
At 31 December 2009
 
 
 
 
 
 
 
 
 
 
 
 
 
Residential mortgages
244,328
 
169,016
 
413,344
 
 
 
 
 
 
 
 
Hong Kong SAR Government’s Home
 
 
 
 
 
 
 Ownership Scheme, Private Sector
 
 
 
 
 
 
 Participation Scheme and Tenants
 
 
 
 
 
 
 Purchase Scheme mortgages
26,801
 
-­
 
26,801
 
 
 
 
 
 
 
 
Credit card advances
35,545
 
31,654
 
67,199
 
 
 
 
 
 
 
 
Other personal
41,384
 
35,550
 
76,934
 
Total personal
348,058
 
236,220
 
584,278
 
 
 
 
 
 
 
 
Commercial, industrial and
 
 
 
 
 
 
 international trade
137,461
 
219,631
 
357,092
 
 
 
 
 
 
 
 
Commercial real estate
105,404
 
50,131
 
155,535
 
 
 
 
 
 
 
 
Other property-related lending
78,028
 
30,030
 
108,058
 
 
 
 
 
 
 
 
Government
3,416
 
4,615
 
8,031
 
 
 
 
 
 
 
 
Other commercial
56,821
 
55,312
 
112,133
 
Total corporate and commercial
381,130
 
359,719
 
740,849
 
 
 
 
 
 
 
 
Non-bank financial institutions
19,088
 
17,976
 
37,064
 
 
 
 
 
 
 
 
Settlement accounts
2,437
 
296
 
2,733
 
Total financial
21,525
 
18,272
 
39,797
 
 
 
 
 
 
 
 
Gross advances to customers
750,713
 
614,211
 
1,364,924
 
 
 
 
 
 
 
 
Impairment allowances
(6,136
)
(8,144
)
(14,280
)
 
 
 
 
 
 
 
Net advances to customers
744,577
 
606,067
 
1,350,644
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Rest of
 
 
 
 
Figures in HK$m
Hong Kong
Asia-Pacific
 
Total
 
 
 
 
 
 
 
 
 
 
At 31 December 2008
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Residential mortgages
223,066
 
118,737
 
341,803
 
 
 
 
 
 
 
 
 
 
Hong Kong SAR Government’s Home
 
 
 
 
 
 
 
 Ownership Scheme, Private Sector
 
 
 
 
 
 
 
 Participation Scheme and Tenants
 
 
 
 
 
 
 
 Purchase Scheme mortgages
30,086
 
-­
 
30,086
 
 
 
 
 
 
 
 
 
 
Credit card advances
36,255
 
25,120
 
61,375
 
 
 
 
 
 
 
 
 
 
Other personal
41,267
 
37,255
 
78,522
 
 
Total personal
330,674
 
181,112
 
511,786
 
 
 
 
 
 
 
 
 
 
Commercial, industrial and
 
 
 
 
 
 
 
 international trade
156,438
 
203,259
 
359,697
 
 
 
 
 
 
 
 
 
 
Commercial real estate
109,266
 
50,787
 
160,053
 
 
 
 
 
 
 
 
 
 
Other property-related lending
78,757
 
21,653
 
100,410
 
 
 
 
 
 
 
 
 
 
Government
7,367
 
4,386
 
11,753
 
 
 
 
 
 
 
 
 
 
Other commercial
50,540
 
52,607
 
103,147
 
 
Total corporate and commercial
402,368
 
332,692
 
735,060
 
 
 
 
 
 
 
 
 
 
Non-bank financial institutions
18,617
 
29,870
 
48,487
 
 
 
 
 
 
 
 
 
 
Settlement accounts
1,651
 
119
 
1,770
 
 
Total financial
20,268
 
29,989
 
50,257
 
 
 
 
 
 
 
 
 
 
Gross advances to customers
753,310
 
543,793
 
1,297,103
 
 
 
 
 
 
 
 
 
 
Impairment allowances
(5,568
)
(5,390
)
(10,958
)
 
 
 
 
 
 
 
 
 
Net advances to customers
747,742
 
538,403
 
1,286,145
 
 
 
 
 
 
 
 
 
 
Net advances in Hong Kong decreased by HK$3.2 billion, or 0.4 per cent, since the end of 2008. The decline was largely attributable to a drop in corporate and commercial lending (down HK$21.2 billion), with decreases noted in commercial, industrial and international trade and commercial real estate sectors. The decrease was partly offset by an increase in advances to personal customers, which increased by HK$17.4 billion, or 5.3 per cent, largely attributable to an increase in residential mortgages as the property market became more active in 2009.
 
In the Rest of Asia-Pacific, net advances to customers increased by HK$67.7 billion, or 12.6 per cent, mainly due to the inclusion of HSBC Bank Malaysia Berhad and the acquisition of Bank Ekonomi in Indonesia. Excluding these new subsidiaries, net advances to customers dropped by HK$4.4 billion, or 0.8 per cent. Decreases were noted in corporate and commercial lending (down HK$9.3 billion), financials (down HK$12.2 billion), and other personal lending (down HK$8.9 billion), partly offset by an increase in residential mortgages (up HK$27.5 billion), notably in Australia (with strong underlying growth, coupled with appreciation in underlying currency) and Singapore.
19
.
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.
 
 
 
 
 
 
 
 
At 31 December
At 31 December
 
Figures in HK$m
 
2009
 
2008
 
 
 
 
 
 
 
Gross advances to customers for use in
 
 
 
 
 
Hong Kong
 
 
 
 
 
 
 
 
 
 
 
Industrial, commercial and financial
 
 
 
 
 
Property development
 
50,034
 
55,646
 
Property investment
 
144,396
 
139,174
 
Financial concerns
 
9,442
 
9,417
 
Stockbrokers
 
1,155
 
744
 
Wholesale and retail trade
 
46,145
 
51,580
 
Manufacturing
 
27,318
 
31,811
 
Transport and transport equipment
 
21,543
 
29,026
 
Recreational activities
 
330
 
55
 
Information technology
 
5,336
 
4,189
 
Others
 
49,963
 
49,562
 
 
 
355,662
 
371,204
 
 
 
 
 
 
 
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
 
26,801
 
30,086
 
Advances for the purchase of other
 
 
 
 
 
  residential properties
 
217,626
 
198,982
 
Credit card advances
 
35,545
 
36,255
 
Others
 
32,641
 
34,232
 
 
 
312,613
 
299,555
 
19
.
Analysis of advances to customers by industry sector based on categories and definitions used by the Hong Kong Monetary Authority ('HKMA')
(continued)
 
 
 
 
 
 
 
 
At 31 December
At 31 December
 
Figures in HK$m
 
2009
 
2008
 
 
 
 
 
 
 
Gross advances to customers for use in
 
 
 
 
 
Hong Kong
 
668,275
 
670,759
 
Trade finance
 
54,015
 
64,758
 
 
 
 
 
 
 
Gross advances to customers for use outside Hong
 
 
 
 
 
  Kong made by branches of the Bank and subsidiary
 
 
 
 
 
  companies in Hong Kong
 
28,423
 
17,793
 
 
 
 
 
 
 
Gross advances to customers made by branches of
 
 
 
 
 
  the Bank and subsidiary companies in Hong Kong
 
750,713
 
753,310
 
 
 
 
 
 
 
Gross advances to customers made by branches of
 
 
 
 
 
  the Bank and subsidiary companies outside Hong Kong
 
614,211
 
543,793
 
 
 
 
 
 
 
Gross advances to customers
 
1,364,924
 
1,297,103
 
 
 
 
 
 
 
 
20. 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 31 December 2009
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Americas
 
 
 
 
 
 
 
 
United States
124,438
 
89,352
 
48,777
 
262,567
 
Other
20,249
 
10,595
 
45,805
 
76,649
 
 
144,687
 
99,947
 
94,582
 
339,216
 
 
 
 
 
 
 
 
 
 
Europe
 
 
 
 
 
 
 
 
United Kingdom
228,935
 
854
 
13,247
 
243,036
 
Other
182,577
 
50,833
 
19,040
 
252,450
 
 
411,512
 
51,687
 
32,287
 
495,486
 
 
 
 
 
 
 
 
 
 
Asia-Pacific excluding Hong Kong
197,633
 
92,634
 
178,339
 
468,606
 
 
 
 
 
 
 
 
 
 
At 31 December 2008
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Americas
 
 
 
 
 
 
 
 
United States
96,870
 
122,594
 
48,225
 
267,689
 
Other
24,459
 
4,171
 
82,817
 
111,447
 
 
121,329
 
126,765
 
131,042
 
379,136
 
 
 
 
 
 
 
 
 
 
Europe
 
 
 
 
 
 
 
 
United Kingdom
349,284
 
575
 
28,651
 
378,510
 
Other
221,598
 
8,571
 
62,754
 
292,923
 
 
570,882
 
9,146
 
91,405
 
671,433
 
 
 
 
 
 
 
 
 
 
Asia-Pacific excluding Hong Kong
158,481
 
168,458
 
167,597
 
494,536
 
 
21. Customer accounts
 
 
 
At 31 December
At 31 December
Figures in HK$m
 
 
2009
 
2008
 
 
 
 
 
 
 
 
Current accounts
 
 
536,350
 
408,891
 
Savings accounts
 
 
1,591,351
 
1,172,406
 
Other deposit accounts
 
 
816,838
 
994,787
 
 
 
 
2,944,539
 
2,576,084
 
 
 
 
 
 
 
 
 
Customer accounts increased by HK$368.5 billion (14.3 per cent) compared with the end of 2008.
 
In Hong Kong, customer accounts increased by HK$193.8 billion, or 10.8 per cent, through growth in current accounts, partially offset by lower savings and deposit accounts. Despite the low interest rate environment, customer accounts continued to grow, reflecting a preference for holding liquid deposits for future investment opportunities.
 
In the Rest of Asia-Pacific, customer accounts were HK$177.1 billion (22.6 per cent) higher, with increased balances in all customer groups. Excluding HSBC Bank Malaysia Berhad and Bank Ekonomi, customer accounts increased 7.8 per cent. In India, the increase was attributable to rising current account balances from foreign institutional investors and higher foreign currency deposits. Meanwhile, ongoing branch expansion in mainland China contributed to growing deposits.
 
The group's advances-to-deposits ratio decreased to 45.9 per cent at 31 December 2009, from 49.9 per cent at 31 December 2008.
 
22. Business combinations
 
HSBC made the following acquisitions of subsidiaries or business operations in 2009, which were accounted for using the purchase method:
 
On 2 January 2009, HSBC Bank Malaysia Berhad was transferred to The Hongkong and Shanghai Banking Corporation Limited from another Group entity. The transfer was made at net asset value with no resulting goodwill. HSBC Bank Malaysia Berhad contributed HK$1,601 million to the net profit of the group during 2009.
 
On 22 May 2009, the group completed the acquisition of 88.9 per cent of PT Bank Ekonomi Raharja Tbk ('Bank Ekonomi') in Indonesia for a cash consideration of US$608 million, paid in US dollars and directly attributable cost of US$4 million. Goodwill was measured at HK$3,671 million.
 
Following acquisition of the initial stake, the group was required under Indonesian law to make a mandatory tender offer for a further holding of up to 10.1 per cent. The group completed the mandatory tender offer on 23 July 2009 resulting in an additional 10.1 per cent being acquired for a cash consideration of approximately US$71.6 million taking the group's shareholding in Bank Ekonomi to 99.0 per cent. Goodwill was increased by HK$468 million. As a result of the outcome of the mandatory tender offer, the cash consideration for the acquisition of the 88.9 per cent was subsequently adjusted to US$602 million in accordance with the mandatory tender offer agreement.
 
At the date of acquisition, the group recognised the following assets and liabilities: Cash and short-term funds and placings with banks HK$4,865 million; Advances to customers HK$5,913 million; Amounts due from HSBC Group companies HK$1,786 million; Financial investments HK$1,129 million; Other assets HK$521 million; Customer deposits HK$13,214 million; Other liabilities HK$297 million; and Intangible assets of HK$451 million. As Bank Ekonomi did not prepare financial statements under HKFRSs, it is impracticable to determine what the carrying amounts of the assets and liabilities would have been under HKFRSs immediately prior to the acquisition. Since the date of acquisition, Bank Ekonomi has contributed HK$265 million to the net profit of the group.
 
23. Disclosure for selected exposures
 
a          Holdings of asset-backed securities
 
The group has holdings of asset-backed securities (ABSs), including those represented by mortgage-backed securities (MBSs) and by collateralised debt obligations (CDOs). The table below shows the group's exposure to ABSs issued by entities that are not consolidated by any HSBC Group entities. The carrying amounts of these exposures are measured at fair value.
Figures in HK$m
Gross principal
W

CDS gross protection
WW

Net principal exposure
WWW

Carrying amount
WWWW
At 31 December 2009







Sub-prime residential mortgage
-
  related assets:    







MBSs and MBS CDOs







- high grade (AA or AAA rated)
54

- 

54

45
- rated C to A
562

- 

562

74

616

- 

616

119
US government
-
sponsored
  enterprises' mortgage
-
  related assets:







MBSs







- high grade (AA or AAA rated)
4,071

- 

4,071

4,071








Other residential mortgage-related
  assets :







MBSs







- high grade (AA or AAA rated)
3,366

- 

3,366

3,142
- rated C to A
1

- 

1

1
- not publicly rated
8

- 

8

8

3,375

- 

3,375

3,151
Commercial property
   mortgage
-
related assets:







MBSs







- high grade (AA or AAA rated)
705

- 

705

636
- rated C to A
785

 - 

785

140

1,490

- 

1,490

776
Leveraged finance-related assets:







ABSs and ABS CDOs







-
high grade (AA or AAA rated)
145

-  

145

127








Student loan-related assets:







ABSs and ABS CDOs







- high grade (AA or AAA rated)
1,515

- 

1,515

1,508








Other assets:







ABSs and ABS CDOs







- high grade (AA or AAA rated)
955

- 

955

935
- rated C to A
249

(190)
59

18

1,204

(190)
1,014

953

12,416

(190)
12,226

10,705

Figures in HK$m
Gross principal
W

CDS gross protection
WW

Net principal exposure
WWW

Carrying amount
WWWW
At 31 December 2008







Sub-prime residential mortgage
-
 
related assets:







MBSs and MBS CDOs







- high grade (AA or AAA rated)
1,192

- 

1,192

411
- rated C to A
2,439

- 

2,439

36

3,631

- 

3,631

447








US government
-
sponsored
  enterprises' mortgage
-
  related assets:







MBSs







- high grade (AA or AAA rated)
6,092

- 

6,092

6,116








Other residential mortgage-related
  assets:







MBSs







- high grade (AA or AAA rated)
4,770

- 

4,770

4,266
- not publicly rated
13

- 

13

-

4,783

- 

4,783

4,266
Commercial property
  mortgage
-
related assets:







MBSs







- high grade (AA or AAA rated)
603

- 

603

595
- rated C to A
25

- 

25

25
- not publicly rated
3

- 

3

-

631

- 

631

620
Leveraged finance-related assets:







ABSs and ABS CDOs







- high grade (AA or AAA rated)
152

- 

152

91








Student loan-related assets:







ABSs and ABS CDOs







- high grade (AA or AAA rated)
2,037

- 

2,037

1,934
- not publicly rated
7

- 

7

-

2,044

- 

2,044

1,934








Other assets:







ABS and ABS CDOs







- high grade (AA or AAA rated)
1,168

- 

1,168

1,116
- rated C to A
1,360

(1,352)
8

1
- not publicly rated
280

(232)
48

-

2,808

(1,584)
1,224

1,117









20,141

(1,584)
18,557

14,591
 
The table below shows the geographical distribution of the group's exposures to ABSs shown above.
 
 
At 31 December 2009
Figures in HK$m
Gross principal
W

CDS gross protection
WW

Net principal exposure
WWW

Carrying amount
WWWW
US
7,249
 
-
 
7,249
 
5,982
UK
1,105
 
-
 
1,105
 
918
Rest of the world
4,062
 
(190)
 
3,872
 
3,805
 
12,416
 
(190)
 
12,226
 
10,705
 
 
At 31 December 2008
Figures in HK$m
Gross principal
W

CDS gross protection
WW

Net principal exposure
WWW

Carrying amount
WWWW
US
11,962
 
-
 
11,962
 
8,539
UK
1,463
 
-
 
1,463
 
1,022
Rest of the world
6,716
 
(1,584)
5,132
 
5,030
 
20,141
 
(1,584)
 
18,557
 
14,591
 
 
W
            
The gross principal is the redemption amount on maturity or, in the case of an amortising instrument, the sum of the future redemption amounts 
                through the residual life of the security.
WW
         
A CDS is a credit default swap. CDS protection principal is the gross principal of the underlying instrument that is protected by CDSs.
WWW
 
 
      
Net principal exposure is the gross principal amount of assets that are not protected by CDSs. It includes assets that benefit from monoline  
                 protection, except where this protection is purchased with a CDS.
WWWW
   
Carrying amount of the net principal exposure.
 
 
b          Exposure to derivative transactions entered into with monoline insurers
 
The group's principal exposure to monoline insurers is through a number of derivative transactions, primarily CDSs.
 
The table below sets out the fair value of the monoline derivative contracts at 31 December 2009, and hence the amount at risk, based on 31 December 2009 security prices, if the protection purchased were to be wholly ineffective because, for example, the monoline insurer was unable to meet its obligations. The 'credit risk adjustment' column indicates the valuation adjustment taken against the mark-to-market exposures, and reflects the estimated deterioration in creditworthiness of a monoline insurer during 2008. This adjustment was charged to the income statement in 2008.
 
Figures in HK$m
 
Notional
amount
 
 
Net exposure before credit risk adjustment
W
 
 
Credit risk adjustment
WW

Net exposure after credit risk adjustment
At 31 December 2009
 
 
 
 
 
 
 
 
Derivative transactions
  with monoline insurers
 
 
 
 
 
 
 
 
- Investment grade
 
190
 
-
 
-
 
-
 
 
 
 
 
 
 
 
 
At 31 December 2008
 
 
 
 
 
 
 
 
Derivative transactions
  with monoline insurers
 
 
 
 
 
 
 
 
- Investment grade
 
1,352
 
31
 
(3
)
28
 
W
          
Net exposure after legal netting and any other relevant credit mitigation prior to deduction of credit risk adjustment.
WW
 
       
Fair value adjustment recorded against over-the-counter derivative counterparty exposures to reflect the creditworthiness of the counterparty.
 
c          Special purpose entities (SPEs) consolidated by fellow HSBC Group companies.
 
The group holds commercial paper and medium-term notes issued by SPEs that have been established and are consolidated by other entities within the HSBC Group. The table below shows the group's holdings of such instruments. The carrying amounts of these instruments are measured at fair value.
 
 
 
At 31 December 2009
At 31 December 2008
Figures in HK$m
Gross principal
 
Carrying amount
 
 
Gross principal
 
Carrying amount
Medium-term notes
 
 
 
 
 
 
 
- AAA rated
-
 
-
 
16,085
 
15,423
 
 
 
 
 
 
 
 
Commercial paper
 
 
 
 
 
 
 
- A1 / A1+ rated
-
 
-
 
57,137
 
57,129
 
 
 
 
 
 
 
 
 
-
 
-
 
73,222
 
72,552
 
d          Leveraged finance transactions
 
Leveraged finance commitments held by the group were HK$712 million at 31 December 2009 (2008: HK$287 million), of which HK$545 million (2008: HK$190 million) was funded.
 
 
e          Other involvement with SPEs
 
The group enters into certain transactions with customers in the ordinary course of business that involve the establishment of SPEs. The purposes for which the SPEs are established include facilitating the raising of funding for customers' business activities or to effect a lease. The use of SPEs is not a significant part of the group's activities and the group is not reliant on SPEs for any material part of its business operations or profitability.
 
 
24. Contingent liabilities, commitments and derivatives
 
a          Off-balance sheet contingent liabilities and commitments
 

At 31 December
At 31 December

 
Figures in HK$m

2009

2008

 






 
Contingent liabilities and financial guarantee contracts





 
- Guarantees and irrevocable letters of credit pledged as collateral security

142,469

143,797

- Other contingent liabilities

191

165



142,660

143,962







 
Commitments





 
- Documentary credits and short-term trade-related transactions

32,079

30,874

 
- Forward asset purchases and forward forward deposits placed

1,308

1,369

 
- Undrawn formal standby facilities, credit lines and other commitments to lend

1,102,088

1,118,360

 


1,135,475

1,150,603

 
 
 
The above table discloses the nominal principal amounts of third-party off-balance sheet transactions, the amounts relating to other contingent liabilities and the nominal principal amounts relating to financial guarantee contracts. Contingent liabilities and commitments are mainly credit-related instruments that include non-financial guarantees and commitments to extend credit. Contractual amounts represent the amounts at risk should contracts be fully drawn upon and clients default. Since a significant portion of guarantees and commitments are expected to expire without being drawn upon, the total of the contractual amounts is not representative of future liquidity requirements.
 
b          Guarantees (including financial guarantee contracts)
 
The group provides guarantees and similar undertakings on behalf of both third-party customers and other entities within the group. These guarantees are generally provided in the normal course of the banking business. The principal types of guarantees provided, and the maximum potential amount of future payments that the group could be required to make at 31 December 2009, were as follows:
 
 
 
At 31 December 2009
 
At 31 December 2008
Figures in HK$m
 
Guarantees in favour of third parties
 
Guarantees by the group in favour of other HSBC group entities
 
Guarantees in favour of third parties
 
Guarantees by the group in favour of other HSBC group entities
 
 
 
 
 
 
 
 
 
Guarantee type
 
 
 
 
 
 
 
 
Financial guarantee contracts
W
 
20,561
 
1,213
 
21,093
 
1,952
Standby letters of credit that are       financial guarantee contracts
WW
 
15,670
 
44
 
21,424
 
28
Other direct credit substitutes
WWW
 
27,260
 
8
 
26,565
 
20
Performance bonds
WWWW
 
41,105
 
4,384
 
40,440
 
3,585
Bid bonds
WWWW
 
1,454
 
233
 
1,207
 
157
Standby letters of credit related to particular transactions
WWWW
 
3,699
 
7
 
2,481
 
37
Other transaction-related guarantees
WWWW
 
25,521
 
4,055
 
23,438
 
3,494
 
 
135,270
 
9,944
 
136,648
 
9,273
W
  
    
Financial guarantees are contracts that require the issuer to make specified payments to reimburse the holder for a loss incurred because a specified debtor fails to make payment when due in accordance with the original or modified terms of a debt instrument. The amounts in the above table are nominal principal amounts.
WW
   
Standby letters of credit that are financial guarantee contracts are irrevocable obligations on the part of the group to pay third parties when customers fail to make payments when due.
WWW
 
Other direct credit substitutes include re-insurance letters of credit and trade-related letters of credit issued without provision for the issuing entity to retain title to the underlying shipment.
W
WWW
 
Performance bonds, bid bonds, standby letters of credit and other transaction-related guarantees are undertakings by which the obligation on 
               the group to make payment depends on the outcome of a future event.
 
The amounts disclosed in the above table reflect the group's maximum exposure under a large number of individual guarantee undertakings. The risks and exposures from guarantees are captured and managed in accordance with HSBC's overall credit risk management policies and procedures. Approximately half of the above guarantees have a term of less than one year. Guarantees with terms of more than one year are subject to HSBC's annual credit review process.
c
         
Contingencies
 
The group is named in and defending legal actions in a number of jurisdictions, including Hong Kong, arising out of its normal business operations. None of the actions is regarded as material litigation, and none is expected to result in a significant adverse effect on the financial position of the group, either collectively or individually. Management believes that adequate provisions have been made in respect of such litigation.
  
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 that exceeded 10 per cent of the total net structural exposure in all foreign currencies:
 
Figures in HK$m
Net structural position
 
 
 
 
At 31 December 2009
 
 
 
 
 
Chinese renminbi
108,347
 
Indian rupee
25,073
 
Korean won
11,146
 
 
 
 
At 31 December 2008
 
 
 
 
 
Chinese renminbi
83,819
 
Indian rupee
21,339
 
Korean won
9,802
 
 
The group had the following non-structural foreign currency positions that exceeded 10 per cent of the group's net non-structural positions in all foreign currencies:
 

 
United States
 
Singapore
 
Brunei
 
Chinese
 
Figures in HK$m
dollars
 
dollars
 
dollars
 
renminbi
 

 
 
 
 
 
 
 
 
 

At 31 December 2009
 
 
 
 
 
 
 
 
Spot assets
3,053,837
 
247,020
 
84,729
 
109,807
 
Spot liabilities
(3,010,444
)
(311,720
)
(27,308
)
(92,862
)
Forward purchases
2,560,540
 
189,887
 
170
 
342,940
 
Forward sales
(2,632,313
)
(120,564
)
(62,207
)
(361,662
)
Net options positions
13,870
 
-
 
-
 
-
 
 
(14,510
)
4,623
 
(4,616
)
(1,777
)

 
 
 
 
 
 
 
 
 

At 31 December 2008
 
 
 
 
 
 
 
 
Spot assets
2,947,677
 
113,295
 
73,565
 
97,229
 
Spot liabilities
(2,922,971
)
(168,458
)
(26,390
)
(77,588
)
Forward purchases
3,127,618
 
292,172
 
131
 
406,545
 
Forward sales
(3,160,163
)
(234,203
)
(50,115
)
(428,163
)
Net options positions
19,173
 
(12
)
-
 
-
 
 
11,334
 
2,794
 
(2,809
)
(1,977
)

 
 
 
 
 
 
 
 
 
 
26. Capital adequacy
 
The following table shows the capital adequacy ratio and the components of the capital base contained in the 'Capital Adequacy Ratio' return required to be submitted to the Hong Kong Monetary Authority ('HKMA') by The Hongkong and Shanghai Banking Corporation Limited on a consolidated basis that is specified by the HKMA under the requirement of section 98(2) of the Banking Ordinance.
 
Effective 1 January 2008, the group adopted the foundation internal ratings-based approach and internal ratings-based (securitisation) approach to determine credit risk. It also used the standardised (operational risk) approach and standardised (market risk) approach to calculate its operational risk and market risk respectively. An internal models approach was adopted for calculating general market risk, while a separate model is used for calculating the market risk relating to equity options.
 
From 1 January 2009, the group migrated to the advanced internal ratings-based approach to calculate its credit risk for the majority of its non-securitisation exposures. As a result of the change in approach used to determine credit risk for the non-securitisation exposures, the numbers for 2008 are not strictly comparable. From 30 March 2009, the group adopted an internal models approach to calculate its market risk in respect of specific risk for the interest rate risk category. Apart from these, there are no change in the approaches used to calculate credit risk for securitisation exposures, operational risk and market risk for other risk categories.
 
There is no relevant capital shortfall in any of the group's subsidiaries that is not included in its consolidation group for regulatory purposes.
 
 
Figures in HK$m
2009
 
 
2008
 
 
 
 
 
 
 
Composition of capital
 
 
 
 
 
Core capital:
 
 
 
 
 
Paid-up ordinary share capital
21,040
 
 
21,040
 
Paid-up irredeemable non-cumulative preference shares
51,590
 
 
51,561
 
Published reserves
113,618
 
 
84,262
 
Profit and loss account
16,852
 
 
19,953
 
Minority interests
W
18,902
 
 
16,087
 
Less: Deduction from core capital
(19,682
)
 
(14,457
)
Less: 50% of total amount of deductible items (@50%)
WW
(35,099
)
 
(32,212
)
Total core capital
167,221
 
 
146,234
 
 
 
 
 
 
 
Supplementary capital:
 
 
 
 
 
Property revaluation reserves
WWW
6,742
 
 
6,655
 
Available-for-sale investments revaluation reserves
WWWW
3,961
 
 
2,881
 
Unrealised fair value gains from financial instruments
  designated at fair value through profit or loss
34
 
 
1
 
Regulatory reserve
WWWWW
937
 
 
723
 
Collective provisions
WWWWW
858
 
 
908
 
Surplus provisions
WWWWWW
2,686
 
 
2,904
 
Perpetual subordinated debt
9,393
 
 
9,410
 
Paid-up irredeemable cumulative preference shares
16,517
 
 
16,508
 
Term subordinated debt
14,406
 
 
11,786
 
Paid-up term preference shares
32,956
 
 
24,800
 
Less: 50% of total amount of deductible items (@50%)
WW
(35,099
)
 
(32,212
)
Total supplementary capital
53,391
 
 
44,364
 
Capital base
220,612
 
 
190,598
 
 
 
 
 
 
 
Total deductible items
WW
70,198
 
 
64,424
 
 
W
After deduction of minority interests in unconsolidated subsidiary companies.
WW
Total deductible items are deducted from institution's core capital and supplementary capital.
WWW
Includes the revaluation surplus on investment properties that is reported as part of retained profits.
WWWW
Includes adjustments made in accordance with guidelines issued by the HKMA.
WWWWW
Total regulatory reserve and collective provisions are apportioned between the standardised approach and internal ratings
-
based approach in accordance with guidelines issued by the HKMA. Those apportioned to the standardised approach are included in the supplementary capital. Those apportioned to the internal ratings
-
based approach are excluded from the supplementary capital.
WWWWWW
Surplus provisions represent the excess of the total eligible provisions over the total expected loss amount. Surplus provisions are applicable to non
-
securitisation exposures calculated by using the internal ratings
-
based approach.
 
The capital ratios on a consolidated basis calculated in accordance with the rules are as follows:
 
 
2009
 
2008
 
 
 
 
 
 
Capital adequacy ratio
16.1
%
13.4
%
 
 
 
 
 
Core capital ratio
12.2
%
10.3
%
 
 
 
 
 
 
27. 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 that are Authorised Institutions under the Banking Ordinance in Hong Kong.
 
 
 
 
2009
 
2008
 
 
 
 
 
 
 
 
The average liquidity ratio for the
 
 
 
 
 
 
  year was as follows:
 
 
 
 
 
 
 
 
 
 
 
 
 
Hong Kong branches of the bank
 
 
50.4
%
51.2
%
 
 
28. Property revaluation
 
The group's premises and investment properties were revalued as at 30 November 2009 and updated for any material changes as at 31 December 2009. 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 94 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 12 other countries and territories, which represent six per cent by value of the group's properties, were valued by different independent professionally qualified valuers.
 
The November property revaluation, together with the revaluation of Hong Kong properties undertaken in June 2009, resulted in an increase in the group's revaluation reserves of HK$470 million, net of deferred taxation of HK$73 million and minority interests of HK$265 million, and a credit to the income statement of HK$119 million. Of the HK$119 million credit to the income statement, HK$262 million represents the surplus on the revaluation of investment properties and HK$143 million relates to revaluation deficits that had arisen when the value of certain premises fell below depreciated historical cost or surrender value, or when newly acquired premises had existing revaluation losses.
 
 
29. 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 2008, as disclosed in the Annual Report and Accounts for 2008 with the exception set out below.
 
Amendments to HKFRS 7 'Financial Instruments: Disclosures - Improving Disclosures about Financial Instruments.' The amendments introduce a three level fair value hierarchy, which reflects the availability of observable market inputs when estimating fair values and clarifies the quantitative disclosures about the liquidity risk associated with financial instruments. The adoption of the amendment has no effect on the results reported in the consolidated financial statements.
 
HKFRS 8 'Operating Segments' ('HKFRS 8'), which replaced HKAS 14 'Operating Segments'. HKFRS 8 requires an entity to disclose information about its segments which enables users to evaluate the nature and financial effects of its business activities and the economic environments in which it operates. The group's operating segments are organised into two geographical regions, Hong Kong and Rest of Asia-Pacific. Due to the nature of the group its chief operating decision-maker regularly reviews operating activity on a number of bases, including by geography, by customer group and by retail and global businesses. The group's HKFRS 8 operating segments were determined to be geographical segments because the chief operating decision-maker uses information on geographical segments in order to make decisions about allocating resources and assessing performance. The group's chief operating decision-maker was determined to be the Executive Committee.
                      
HKFRS 8 requires segment financial information to be reported using the same measures reported to the chief operating decision-maker for the purpose of making decisions about allocating resources to the operating segments and assessing their performance. Information provided to the chief operating decision-maker of the group to make decisions about allocating resources and assessing performance of operating segments is measured in accordance with HKFRSs.
                      
HKAS 1 (Revised 2007) 'Presentation of Financial Statements'. The revised standard aims to improve users' ability to analyse and compare information given in financial statements. The adoption of the revised standard has no effect on the results reported in the consolidated financial statements. It does, however, result in certain presentational changes in the consolidated financial statements, including:
-
the presentation of all items of income and expenditure in two financial statements, the   Consolidated income statement' and the 'Consolidated statement of comprehensive income';
-
the presentation of the 'Consolidated statement of changes in equity' as a financial statement, which replaces the 'Reserves' note on the financial statements.
 
In addition, the group also adopted a number of HKFRSs or amendments to HKFRSs which had an insignificant effect on the consolidated financial statements.

30. Events after the balance sheet date
 
On 19 January 2010, the group, through its subsidiary, HSBC Insurance (Asia-Pacific) Holdings Limited, increased its shareholding in Bao Viet Holdings to 18 per cent from 10 per cent through the purchase of additional shares for a cash consideration of VND1.88 trillion (or approximately US$101.8 million). Bao Viet Holdings will be accounted for as an associate with effect from 19 January 2010.
 
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 2009, which were approved by the Board of Directors on 1 March 2010 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 1 March 2010. The Annual Report and Accounts for the year ended 31 December 2009, which include the financial statements, can be obtained on request from Group Communications (Asia), The Hongkong and Shanghai Banking Corporation Limited, 1 Queen's Road Central, Hong Kong, and will be made available on our website:
www.hsbc.com.hk
. A further press release will be issued to announce the availability of this information.
 
32. Ultimate holding company
 
The Hongkong and Shanghai Banking Corporation Limited is an indirectly held, wholly-owned subsidiary of HSBC Holdings plc.
 
 
Media enquiries to:
      David Hall                     Telephone no: + 852 2822 1133                                              
                                          Gareth Hewett              Telephone no: + 852 2822 4929                                         
                                          Richard Beck               Telephone no: + 44 20 7991 0633                                          
                                          Patrick McGuinness    Telephone no: + 44 20 7991 0111
 
 
 

 

 

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: 01 March 2010