2/4: HK&S Bk Corp FY03 PT 1
HSBC Holdings PLC
01 March 2004
THE HONGKONG AND SHANGHAI BANKING CORPORATION LIMITED
2003 CONSOLIDATED RESULTS - HIGHLIGHTS
•Operating profit before provisions up 4.2 per cent to HK$37,341 million
(HK$35,821 million in 2002).
•Pre-tax profit up 3.4 per cent to HK$34,797 million (HK$33,661 million in
2002).
•Attributable profit up 2.5 per cent to HK$25,797 million (HK$25,167
million in 2002).
•Return on average shareholders' funds of 27.4 per cent (29.2 per cent in
2002).
•Assets up 15.0 per cent to HK$2,148.7 billion (HK$1,868.7 billion at the
end of 2002).
•Total capital ratio of 12.1 per cent; tier 1 capital ratio of 10.3 per
cent (12.7 per cent and 9.8 per cent at 31 December 2002).
•Cost:income ratio of 39.1 per cent (38.6 per cent for 2002).
Results
Comment by David Eldon, Chairman
Pre-tax profit for 2003 was 3.4 per cent higher at HK$34,797 million, a
creditable achievement in a difficult year. A strong treasury performance by our
Corporate, Investment Banking and Markets business, a 22.6 per cent increase in
other operating income in Personal Financial Services, and continuing
development of our insurance businesses in the region, helped offset the impact
of low interest rates on the deposit spread.
A major factor in achieving these results has been the restructuring of our
businesses over the past five years as the group has increasingly focused on the
provision of Personal Financial Services to its wide and varied customer base.
In support of this there has been a significant increase in customer-facing
staff with, in 2003 alone, an additional 360 such jobs created in Hong Kong.
This sharpening of our customer focus has enabled us to develop products best
suited to our customer base and the rapidly changing market, such as capital
guaranteed and structured products.
This restructuring has enabled the group to grow other operating income over the
past five years by 53.5 per cent, with strong growth in income from trade
finance, insurance, and unit trust sales.
There has also been a significant increase in the cards business with
receivables doubling over the same period. The growth in income arising from
these initiatives, coupled with strict cost control, has offset the effect of
falling net interest margins on the residential mortgage book, and on deposit
spreads. Highlights for the year include:
•Wealth management and insurance income grew by 37.4 per cent and 59.6 per
cent in 2003, respectively.
•The group increased sales of new life business by 59.2 per cent in Hong Kong,
growing its market share from 13.9 per cent to 18.6 per cent.
•With 3.1 million credit cards in circulation in Hong Kong, the group
maintained its position as the number one card issuer in the territory.
•Credit cards in circulation in Asia-Pacific ex-Hong Kong grew by 22.7 per
cent over 2002 to 2.9 million.
•There was robust growth in sales to personal customers of unit trusts and
of capital guaranteed funds in Hong Kong, which increased by 32.4 per cent
to HK$51.1 billion.
•Fee income from the retail securities and stockbroking businesses
increased by 61.8 per cent.
•Other operating income in Commercial Banking was HK$506 million or 12.7
per cent higher than the previous year, at HK$4,490 million.
•The contribution from the group's regional treasury activities was 15.4
per cent higher than 2002.
•In 2003, HSBC was the leading name in syndication and other debt issuance
in Hong Kong and many other major markets throughout Asia.
2004 has started with encouraging signs of optimism and increased economic
activity in Hong Kong, marked by reducing unemployment and rising property
prices, particularly in the luxury market. The economy of mainland China
continues to perform impressively. However, the international outlook is
affected by continuing currency volatilities, while the market for banking
services in Hong Kong remains highly competitive. Our established policies of a
clear focus on servicing the needs of our customers, strong capital and prudent
management will enable us to meet whatever challenges and opportunities the year
may bring.
Results by Customer Group
Corporate,
Investment
Personal Banking
Financial Commercial and Private
Figures in HK$m Services Banking Markets Banking Other Total
Year ended 31Dec03
Net interest income 21,106 6,225 12,377 25 (995) 38,738
Dealing profits 492 446 3,299 4 (217) 4,024
Other operating income^ 10,263 4,490 4,787 105 (1,042) 18,603
Operating income 31,861 11,161 20,463 134 (2,254) 61,365
Operating expenses^ (14,254) (4,437) (6,328) (110) 1,105 (24,024)
Operating profit
before provisions 17,607 6,724 14,135 24 (1,149) 37,341
Provisions for bad
and doubtful debts (3,680) 512 (207) - (11) (3,386)
Provision for
contingent
liabilities and
commitments (1) (3) (10) - (62) (76)
Operating profit 13,926 7,233 13,918 24 (1,222) 33,879
Profit on tangible
fixed assets and
long-term
investments 13 36 98 - 866 1,013
Deficit arising
on property
revaluation - - - - (234) (234)
Share of profit less
losses of associated
companies 37 - 6 - 96 139
Profit on ordinary
activities before
tax 13,976 7,269 14,022 24 (494) 34,797
Share of pre-tax
profit 40.2% 20.9% 40.3% - (1.4)% 100.0%
Corporate,
Investment
Personal Banking
Financial Commercial and Private
Figures in HK$m Services Banking Markets Banking Other Total
Year ended 31Dec02
Net interest
income 21,603 6,610 12,435 23 (1,026) 39,645
Dealing profits 471 379 1,665 3 (37) 2,481
Other operating
income^ 8,368 3,984 4,611 138 (911) 16,190
Operating income 30,442 10,973 18,711 164 (1,974) 58,316
Operating expenses^ (13,464) (4,275) (5,875) (150) 1,269 (22,495)
Operating profit
before provisions 16,978 6,698 12,836 14 (705) 35,821
Provisions for bad
and doubtful debts (3,435) 733 464 - (13) (2,251)
Provision for
contingent
liabilities
and commitment (3) 5 107 - (109) -
Operating profit 13,540 7,436 13,407 14 (827) 33,570
Profit on tangible
fixed assets
and long-term
investments 19 47 7 - 304 377
Deficit arising
on property
revaluation - - - - (371) (371)
Share of profits
less losses of
associated companies 23 - - - 62 85
Profit on ordinary
activities before
tax 13,582 7,483 13,414 14 (832) 33,661
Share of pre-tax
profit 40.3% 22.2% 39.9% - (2.4)% 100.0%
^Other operating income and operating expenses in 'Other' include an adjustment
of HK$4,092 million to eliminate intra-group items (2002: HK$3,921 million).
Personal Financial Services reported profit before tax of HK$13,976 million,
HK$394 million higher than 2002, which amounted to 40.2 per cent of the group's
total pre-tax profits. At constant exchange rates, pre-tax profit increased by
HK$375 million, or 2.8 per cent, reflecting strong growth in income from wealth
management and the insurance business, notwithstanding the continued pressure on
net interest income as a consequence of muted credit demand for mortgage lending
in Hong Kong and the impact of lower interest rates.
Net interest income fell by HK$497 million or 2.3 per cent. In Hong Kong, net
interest income was HK$1,274 million, or 6.9 per cent, lower than 2002 primarily
due to reduced spreads on deposits taken in the low interest rate environment.
Mortgage yields in Hong Kong remained under pressure, with average yields on
mortgages, excluding Government Home Ownership Scheme ('GHOS') and staff loans,
reducing from 150 basis points below the bank's best lending rate ('BLR') in
2002 to 175 basis points below BLR in 2003, although there was some benefit from
a lower cost of funds. In the rest of the Asia-Pacific region net interest
income increased by HK$777 million to HK$3,945 million, notably in New Zealand
following the acquisition of the retail deposit and loan business of AMP Bank
Limited, and in Singapore, Australia, Korea and India driven mainly by increased
mortgages. Mortgage lending in the rest of the Asia-Pacific region grew by
HK$23.1 billion, or 50.1 per cent, at constant exchange rates. In Indonesia
growth of the credit card business led to higher net interest income.
Other operating income increased by HK$1,895 million, or 22.6 per cent, compared
with 2002. Income from wealth management initiatives, which includes income from
fees and commissions on sales of unit trusts, funds under management and
securities transactions executed for personal customers, grew by 37.4 per cent
to HK$3.5 billion. This was achieved by robust growth in sales of unit trusts
and of capital guaranteed funds in Hong Kong which increased by HK$12.5 billion,
or 32.4 per cent, to HK$51.1 billion. The number of funds under the Hang Seng
Investment Series launched by Hang Seng Bank rose from 60 to 90 in 2003. HSBC
has continued to expand its wealth management initiatives and a number of
structured deposit products were launched to provide tailored solutions to
retail customers in the low interest rate environment prevailing across much of
the region. Fee income from the retail securities and stockbroking businesses
increased compared with 2002, reflecting an increased market share in Hong Kong
equities for the group in 2003, and higher securities turnover in the stock
market in Hong Kong in the second half of 2003.
Fee income from credit cards was in line with 2002, notwithstanding fierce
market competition, as the group maintained its position as the number one card
issuer in Hong Kong with 3.1 million cards in circulation at the end of 2003, an
increase of 8.7 per cent over 2002. In the rest of the Asia-Pacific region cards
in issue were 545,000 higher at 2.9 million. The group's market share of credit
card receivables in Hong Kong increased by 4.7 per cent during the last 12
months.
During the year, the group continued to place significant emphasis upon the
growth and development of its insurance business around the region. The group
increased sales of regular premium individual life insurance by 59.2 per cent,
growing its market share from 13.9 per cent to 18.6 per cent. Income from the
insurance business, including the Mandatory Provident Fund business, grew by
59.6 per cent, or HK$1,044 million, reflecting strong growth in the level of new
individual life business written. The acquisition of Keppel Insurance, which was
renamed HSBC Insurance (Singapore), contributed HK$106 million of insurance
income in Personal Financial Services in 2003.
Operating expenses rose by HK$790 million, or 5.9 per cent, to HK$14,254
million. At constant exchange rates, operating expenses increased by HK$544
million, or 4.0 per cent, over 2002. Headcount increased in the rest of the
Asia-Pacific region primarily to support business expansion and branch openings,
and also reflecting the acquisition of HSBC Insurance (Singapore) during 2003.
Six new branches were opened during 2003 in the rest of the Asia-Pacific region
outside Hong Kong.
Advertising and marketing expenses were higher in 2003 mainly in Hang Seng Bank
and the bank in Hong Kong. Operating expenses in 2003 included provisions for
restructuring costs amounting to HK$266 million.
The charge for provisions for bad and doubtful debts increased by HK$245 million
to HK$3,680 million in 2003 mainly due to a small charge for general provisions
compared with a net release in 2002. The charge for specific provisions for bad
and doubtful debts increased by HK$48 million over 2002, driven by growth in
advances and higher provisions against mortgage lending. Provisions against
unsecured lending, including credit cards in Hong Kong, reduced in line with
lower personal bankruptcy filings and improved economic conditions. Delinquency
rates for both mortgages and credit cards in the bank in Hong Kong and Hang Seng
Bank improved in 2003. In the rest of the Asia-Pacific region, provisions for
bad and doubtful debts against personal lending increased in Singapore, India,
Korea and Australia in line with growth in advances. The charge for specific
provisions for bad and doubtful debts as a percentage of gross advances declined
from 1.06 per cent in 2002 to 0.98 per cent in 2003.
Commercial Banking reported profit before tax of HK$7,269 million, a fall of 2.9
per cent compared with 2002.
Net interest income declined by 5.8 per cent largely due to lower recoveries of
suspended interest in the bank in Hong Kong, and the effect of lower spreads on
deposits. The loan book grew by HK$22.7 billion, or 17.3 per cent, at constant
exchange rates during the year despite the impact of SARS and the war in Iraq,
although spreads narrowed reflecting limited local investment and market
pressure as banks competed for quality business. The business benefited from the
record trade flows between mainland China and the rest of the world, especially
the US. This was particularly evidenced in the manufacturing and transportation
sectors that benefited from the low-cost manufacturing base in mainland China
and strong consumer demand in the US. This demand translated into strong demand
for factory and machinery loans, and loans for logistics infrastructure and
transportation equipment, providing working capital and trade finance
opportunities for the bank. The acquisition in July 2002 of a trade finance
portfolio from State Street Bank helped to drive growth in net interest income
in Australia.
Other operating income at HK$4,490 million was HK$506 million, or 12.7 per cent,
higher than 2002 with increased income from cash management and trade services
in the bank in Hong Kong, and increased fee income in Australia resulting from
business growth. The group maintained its position as the leading trade services
bank in Hong Kong in 2003 and achieved strong growth in market share.
Additionally, the group's Business Internet Banking service had the largest
online business banking market share in Hong Kong with over 31,000 registered
users. In addition, Hang Seng Bank had some 13,000 business e-Banking customers
at the end of 2003. Income from insurance business increased by 47.2 per cent
reflecting higher general insurance income in Hong Kong and the acquisition of
HSBC Insurance (Singapore).
Operating expenses rose by HK$162 million or 3.8 per cent. Operating expenses in
2003 include restructuring costs of HK$117 million, principally in India and
Singapore, and HK$23 million following the acquisition of HSBC Insurance
(Singapore).
The net release of provisions for bad and doubtful debts in 2003 was HK$221
million lower than 2002 mainly due to a small charge for general provisions
compared with a net release in 2002. This was partly offset by higher net
releases of specific provisions in Hang Seng Bank and the bank in Bahrain and
Indonesia. The bank in Hong Kong continued to record a net release of provisions
although to a lesser extent than in 2002.
Corporate, Investment Banking and Markets reported profit before tax of
HK$14,022 million, 4.5 per cent higher than 2002. A strong treasury performance
was partly offset by a net charge for bad and doubtful debts, compared with a
net recovery in 2002.
Net interest income at HK$12,377 million was in line with 2002 despite high
levels of liquidity and subdued loan demand, especially in Hong Kong, that
continued to put pressure on spreads. This result was achieved by a strong
treasury performance through a combination of well considered position-taking
and close management of short-term inventory in government bills and interbank
loans to enhance earnings and yields. While net interest income from the
payments, cash management and custody businesses was subdued due to the low
interest rate environment, volumes and fees remained healthy.
Dealing profits at HK$3,299 million were HK$1,634 million higher than 2002.
Profits from interest rate derivatives trading rose sharply on the back of the
increased activity by both corporate and retail clients. In addition, successful
positioning, particularly in the first half of the year, contributed to the
increase.
Income from debt securities trading increased strongly with net interest income
remaining stable while dealing losses declined by more than HK$600 million.
There was no repeat of losses caused by credit spread widening as a result of
various corporate scandals in 2002. The first half performance was particularly
impressive with income exceeding that for the whole of the previous year, with
the bank well positioned to take advantage of movements in interest rate.
Foreign exchange profits rose compared with 2002, with a significant increase in
corporate sales during the year. Trading profits were generated as the bank
benefited from US dollar volatility, and the general weakening of the US dollar
during the year. This was, however, partly offset by the impact of the
strengthening of the Hong Kong dollar against the US dollar in late September.
Operating expenses increased by HK$453 million, or 7.7 per cent, to HK$6,328
million. Higher staff costs were mainly attributable to higher
performance-related staff costs in the bank in Hong Kong in line with the strong
treasury performance in 2003, and HK$159 million of provisions made in respect
of restructuring costs.
The charge for bad and doubtful debts of HK$207 million compared with a net
release of provisions of HK$464 million in 2002. This was primarily due to
provisioning on two corporate accounts in Hong Kong.
Other includes income and expenses relating to staff housing loans, certain
property activities, and investment and other activities that are not allocated
to other customer groups. 2003 benefited from higher gains on long-term
investments, and a lower deficit arising on the revaluation of property as
compared with 2002, although these were partly offset by revaluation losses as a
result of the strengthening of the Hong Kong dollar against the US dollar in
late September.
Consolidated Profit and Loss Account
Year ended Year ended
31Dec03 31Dec02
Figures in HK$m restated^
Interest income 55,770 59,194
Interest expense (17,032) (19,549)
Net interest income 38,738 39,645
Other operating income 22,627 18,671
Operating income 61,365 58,316
Operating expenses (24,024) (22,495)
Operating profit before provisions 37,341 35,821
Provisions for bad and doubtful debts (3,386) (2,251)
Provisions for contingent liabilities
and commitments (76) -
Operating profit 33,879 33,570
Profit on tangible fixed assets and
long-term investments 1,013 377
Deficit arising on property revaluation (234) (371)
Share of profits less losses of
associated companies 139 85
Profit on ordinary activities before tax 34,797 33,661
Tax on profit on ordinary activities (5,387) (4,734)
Profit on ordinary activities after tax 29,410 28,927
Minority interests (3,613) (3,760)
Profit attributable to shareholders 25,797 25,167
Retained profits brought forward 28,579 20,556
Change of accounting policy in respect of
deferred tax 1,191 1,826
Transfer to revaluation reserves (818) (250)
As restated 28,952 22,132
Exchange and other adjustments 1,089 637
Transfer of depreciation to premises
revaluation reserve 240 277
Transfer to premises revaluation reserves (273) (568)
Realisation on disposal of premises and
investment properties 233 109
Ordinary dividends paid in respect of
the current year (8,650) (14,000)
Ordinary dividends proposed (8,450) (3,500)
Preference dividends payable (1,174) (1,302)
(18,274) (18,802)
Retained profits carried forward 37,764 28,952
^Certain figures for 2002 have been restated to reflect the adoption of Hong
Kong Statement of Standard Accounting Practice 12 (revised) on 'Income taxes'
(SSAP 12), details of which are set out in note 27.
Extract from the Consolidated Balance Sheet
At 31Dec03 At 31Dec02
Figures in HK$m restated^
Assets
Cash and short-term funds 359,137 322,305
Placings with banks maturing after one month 113,322 90,886
Certificates of deposit 56,893 53,290
Hong Kong SAR Government certificates
of indebtedness 85,294 73,654
Securities held for dealing purposes 82,239 87,468
Long-term investments 399,642 350,166
Advances to customers 815,004 721,775
Amounts due from fellow subsidiary
companies 57,389 22,087
Investments in associated companies 1,564 1,499
Tangible fixed assets 34,875 37,988
Other assets 143,382 107,582
2,148,741 1,868,700
Liabilities
Hong Kong SAR currency notes in circulation 85,294 73,654
Current, savings and other deposit accounts 1,669,704 1,473,539
Deposits by banks 68,111 45,545
Amounts due to fellow subsidiary companies 11,328 11,052
Amounts due to ultimate holding company 375 441
Other liabilities 175,071 137,983
2,009,883 1,742,214
Capital resources
Loan capital from ultimate holding company - 2,924
Other loan capital 12,855 15,368
Minority interests 15,991 17,060
Share capital 51,603 44,940
Reserves 49,959 42,694
Proposed dividends 8,450 3,500
Shareholders' funds 110,012 91,134
138,858 126,486
2,148,741 1,868,700
^Certain figures for 2002 have been restated to reflect the adoption of SSAP 12,
details of which are set out in note 27.
Consolidated Statement of Changes in Equity
Year ended Year ended
31Dec03 31Dec02
Figures in HK$m restated^
Shareholders' funds at beginning of the year 92,444 83,705
Change of accounting policy in respect of
deferred tax (1,310) (994)
As restated 91,134 82,711
Profit for the year attributable to
shareholders 25,797 25,167
Unrealised deficit on revaluation of premises (1,145) (1,166)
Unrealised deficit on revaluation of
investment properties (252) (183)
Long-term equity investments
revaluation reserve
- Surplus/(deficit) on revaluation 410 (613)
- Realisation on disposal (505) (264)
New non-cumulative irredeemable
preference shares issued 6,808 -
Dividends (13,324) (15,302)
Exchange and other movements 1,089 784
Shareholders' funds at end of the year 110,012 91,134
^Certain figures for 2002 have been restated to reflect the adoption of SSAP 12,
details of which are set out in note 27.
Consolidated Cash Flow Statement
Figures in HK$m 2003 2002
Operating activities
Cash generated from operations 76,379 38,255
Interest received from long-term investments 12,496 11,826
Dividends received from long-term investments 216 209
Dividends received from associated companies 58 108
Interest paid on loan capital (835) (918)
Dividends paid to minority interests (4,634) (3,549)
Ordinary dividends paid (12,150) (14,000)
Preference dividends paid (1,140) (1,438)
Taxation paid (3,619) (3,018)
Net cash inflow from operating activities 66,771 27,475
Investing activities
Purchase of long-term investments (323,578) (311,021)
Proceeds from sale or redemption of
long-term investments 299,295 229,460
Purchase of tangible fixed assets (1,220) (1,294)
Proceeds from sale of tangible fixed assets 443 216
Net cash outflow in respect of acquisition
of and increased shareholding in
subsidiary companies (795) (176)
Purchase of business (7,787) (60)
Purchase of interest in associated company (122) -
Proceeds from sale of interest in
associated company 2 1
Net cash outflow from investing activities (33,762) (82,874)
Net cash inflow/(outflow) before financing 33,009 (55,399)
Financing
Issue of non-cumulative irredeemable preference
share capital 6,808 -
Repayment of loan capital (5,925) -
Issue of loan capital - 308
Net cash inflow from financing 883 308
Increase/(decrease) in cash and cash equivalents 33,892 (55,091)
Additional Information
1. Net interest income
Year ended Year ended
Figures in HK$m 31Dec03 31Dec02
Net interest income 38,738 39,645
Average interest-earning assets 1,726,614 1,561,932
Net interest spread 2.14% 2.42%
Net interest margin 2.24% 2.54%
Net interest income of HK$38,738 million was HK$907 million, or 2.3 per cent,
lower than 2002.
Net interest income from the Personal Financial Services business fell by HK$497
million, or 2.3 per cent, primarily due to reduced spreads on deposits taken in
the low interest rate environment in Hong Kong. This was partly offset by strong
growth in net interest income in New Zealand following the acquisition of the
retail deposit and loan business of AMP Bank Limited, and in Singapore,
Australia, Korea and India driven mainly by increased mortgages. In Indonesia
growth of the credit card business led to higher net interest income. Net
interest income from the Commercial Banking business was HK$385 million, or 5.8
per cent, lower than last year mainly due to reduced recoveries of suspended
interest in the bank in Hong Kong and the effect of lower spreads on deposits.
Net interest income from Corporate, Investment Banking and Markets held up well
relative to last year despite reduced corporate lending spreads, which remained
under pressure, and subdued loan demand in Hong Kong. This was achieved through
a combination of well-considered position taking and close management of
short-term funds in government bills and interbank loans.
Average interest-earning assets increased by HK$164.7 billion, or 10.5 per cent,
to HK$1,726.6 billion. Average debt securities for the group increased by
HK$85.1 billion, or 16.5 per cent, compared with 2002, reflecting the deployment
of increased customer deposits which grew by HK$142.9 billion, or 10.2 per cent,
over the year. In Hang Seng Bank, holdings of debt securities increased by
HK$45.0 billion reflecting the deployment of funds from interbank placings into
higher yielding debt securities in the lower interest rate environment. In
addition, there were increases in debt securities in Australia, Hong Kong,
Japan, Taiwan, Korea and India. Average advances to customers grew by HK$70.3
billion, or 10.1 per cent with increases in the bank in Hong Kong mainly in the
stock borrowing business, and in Australia, New Zealand, Singapore, Korea and
Japan. Average intragroup balances were HK$28.0 billion higher than 2002
principally due to an increase in lending to other Group entities by the bank in
Hong Kong. Partly offsetting these was a reduction in average loans to banks in
Hang Seng Bank reflecting the redeployment of funds from lower yielding
interbank placements to debt securities, although there was an increase in the
bank in Hong Kong as a result of an increased commercial surplus.
The group's net interest margin of 2.24 per cent for 2003 was 30 basis points
lower than 2002. Spread narrowed by 28 basis points compared with 2002 and the
contribution from net free funds was two basis points lower.
For the banking operations in Hong Kong (excluding Hang Seng Bank), net interest
margin reduced by 34 basis points to 2.13 per cent for 2003. Spread narrowed by
33 basis points mainly due to lower spreads on deposits, which accounted for a
reduction of 20 basis points, and spread from treasury narrowed accounting for a
further four basis points. Higher suspended interest, net of recoveries, caused
a reduction of two basis points in spread, while lower mortgage yields reduced
spread by three basis points. Average yield on the residential mortgage
portfolio, excluding GHOS and staff loans, in the bank in Hong Kong reduced to
174 basis points below BLR in 2003 compared with 151 basis points below BLR in
2002. Cash incentive payments on new mortgage loans of HK$115 million were
written off against interest income in 2003 compared with HK$208 million in
2002. The contribution from net free funds fell by one basis point compared with
the same period last year.
In Hang Seng Bank, net interest margin narrowed by 18 basis points to 2.28 per
cent with a reduction of 15 basis points in spread due to a reduction of six
basis points as a result of lower average mortgage portfolio yields, and a
decline in spreads on time deposits and interbank placings which together
accounted for a fall of 14 basis points compared with 2002. This was partly
offset by the favourable impact of an increase in lower cost savings and current
accounts which accounted for an improvement of five basis points. Average yield
on the residential mortgage portfolio, excluding GHOS loans and staff loans, in
Hang Seng Bank was 177 basis points below BLR in 2003 compared with 149 basis
points below BLR in the same period last year. Cash incentive payments on new
mortgage loans of HK$130 million have been written off against interest income
in 2003 compared with HK$105 million in 2002. The contribution from net free
funds was three basis points lower than 2002.
In the rest of the Asia-Pacific region, net interest margin at 2.02 per cent for
2003 was 18 basis points lower than 2002. Spread reduced by 13 basis points to
1.87 per cent for 2003 with reductions in several countries, including Taiwan
due to narrower spreads on deposits and lower yields on mortgage loans as a
result of market competition, and Singapore and the Philippines mainly due to
the maturity of high yielding treasury assets. These were partly offset by
higher spreads in Indonesia, mainly from treasury and credit cards and lower
suspended interest, and in India from treasury and strong growth in retail
assets. The contribution from net free funds was five basis points lower.
2. Other operating income
Figures in HK$m 2003 2002
Dividend income
- Listed investments 152 180
- Unlisted investments 100 34
252 214
Fees and commissions
- Account services 1,162 1,206
- Credit facilities 1,295 1,403
- Import/export 2,373 2,226
- Remittances 957 915
- Securities/stockbroking 2,086 1,551
- Cards 3,090 3,137
- Insurance 172 165
- Unit trusts/funds under management 2,814 2,339
- Other 2,306 1,930
Fees and commissions receivable 16,255 14,872
Fees and commissions payable (2,617) (2,402)
13,638 12,470
Dealing profits 4,024 2,481
Rental income from investment properties 220 239
Other insurance income 3,275 2,110
Other 1,218 1,157
22,627 18,671
Analysis of income from dealing in financial instruments
2003 2002
Dividend Dividend
and net and net
Dealing interest Dealing interest
Figures in HK$m profits income Total profits income Total
Foreign exchange 3,096 174 3,270 2,942 130 3,072
Interest rate
derivatives 1,248 (282) 966 553 (67) 486
Debt securities (404) 1,526 1,122 (1,007) 1,469 462
Equities and other
trading 84 (2) 82 (7) 1 (6)
4,024 1,416 5,440 2,481 1,533 4,014
Other operating income was HK$3,956 million, or 21.2 per cent, higher than 2002.
At constant exchange rates, other operating income increased by HK$3,651
million, or 19.6 per cent, compared with 2002. A strong treasury performance by
the Corporate, Investment Banking and Markets business led to an increase of
HK$1,543 million in dealing profits. Income from wealth management initiatives
together with insurance income from the Personal Financial Services business
grew by HK$1,995 million, or 46.4 per cent. This reflected strong growth in
sales of unit trusts and of capital guaranteed funds in Hong Kong, fee income
from the securities and stockbroking business in the second half of 2003 and in
the level of new individual life business written. The acquisition of HSBC
Insurance (Singapore) in 2003 also contributed to increased income.
3. Operating expenses
Figures in HK$m 2003 2002
Staff costs
- Salaries and other costs 12,605 11,694
- Retirement benefit costs 979 846
13,584 12,540
Premises and equipment
- Depreciation 2,032 2,058
- Rental expenses 1,129 1,070
- Other premises and equipment expenses 1,616 1,600
4,777 4,728
Other 5,663 5,227
24,024 22,495
Staff numbers by region^
At 31Dec03 At 31Dec02
Hong Kong 22,720 22,949
Rest of Asia-Pacific 18,679 17,720
Americas/Europe 16 18
Total 41,415 40,687
^Full-time equivalent
Operating expenses increased by HK$1,529 million, or 6.8 per cent, compared with
2002. At constant exchange rates, operating expenses rose by HK$1,067 million,
or 4.7 per cent, with increased operating expenses due to branch openings and
business expansion. Six new branches were opened during the year in the rest of
the Asia-Pacific region, outside Hong Kong. The acquisitions of HSBC Insurance
(Singapore) and of HSBC Institutional Fund Service Korea in 2003, and the
transfer of the securities branch in Korea from another part of the HSBC Group
in late 2002, added HK$153 million in operating expenses. 2003 included
restructuring costs of HK$563 million, principally in India, Singapore and Hong
Kong, and higher performance-related staff costs mainly in the bank in Hong Kong
in line with the strong treasury performance. During 2003, the group continued
to migrate certain support related functions to its service centres in Guangzhou
and Shanghai. The recurrent annual cost saving for the on-going initiatives are
estimated to be in excess of HK$350 million. Other operating expenses were
higher than 2002 mainly due to increased marketing expenses for the Personal
Financial Service business, in line with increased credit card spending by
customers.
4. Provisions for bad and doubtful debts
Figures in HK$m 2003 2002
Net charge/(release) for bad and doubtful debts
Advances to customers
- Specific provisions
New provisions 7,001 6,081
Releases (2,771) (2,734)
Recoveries (684) (377)
3,546 2,970
- General provisions (160) (719)
Net charge to profit and loss account 3,386 2,251
The net charge for bad and doubtful debts increased by HK$1,135 million. The net
charge for specific provisions increased by HK$576 million, principally due to
provisioning on two corporate accounts in Hong Kong. These were partly offset by
corporate recoveries in New Zealand and Bahrain. The net charge for specific
provisions in Personal Financial Services was broadly in line with 2002, with
higher provisions against mortgage lending largely offset by a reduced charge
for unsecured lending including credit cards in Hong Kong. The net release of
general provisions was HK$559 million lower than 2002.
5. Profit on tangible fixed assets and long-term investments
Figures in HK$m 2003 2002
Loss on disposal of tangible fixed assets (84) (37)
Profit on disposal of long-term investments 860 494
Provision for impairment of long-term investments 237 (80)
1,013 377
The loss on disposal of tangible fixed assets in 2003 mainly related to a loss
incurred on disposal of a property in Singapore as the group in Singapore
consolidated its activities and disposed of surplus properties.
The higher profit on disposal of long-term investments compared with 2002 was
mainly due to profits on disposal of equity investments.
2003 profit benefited from a partial write-back of provisions against an equity
investment.
6. Taxation
The charge for taxation in the consolidated profit and loss account
comprises:
2003 2002
Figures in HK$m restated
Hong Kong profits tax 3,603 3,110
Overseas taxation 1,802 1,105
Deferred taxation (30) 485
5,375 4,700
Share of associated companies' taxation 12 34
5,387 4,734
The effective rate of tax for 2003 was 15.5 per cent compared with 14.1 per cent
in 2002 largely due to additional tax provisions raised in the bank in Hong Kong
and Hang Seng Bank following an increase in the Hong Kong profits tax rate.
7. Dividends
2003 2002
HK$ HK$m HK$ HK$m
per share per share
Equity
Ordinary dividends
- Paid 1.33 8,650 2.15 14,000
- Proposed 1.30 8,450 0.54 3,500
2.63 17,100 2.69 17,500
Non-equity
Preference dividends payable
- Cumulative redeemable
preference shares 198 99 230 115
- Non-cumulative
irredeemable preference shares 0.24 1,075 0.32 1,187
18,274 18,802
8. Advances to customers
Figures in HK$m At 31Dec03 At 31Dec02
Gross advances to customers 829,415 738,988
Suspended interest (1,141) (1,475)
828,274 737,513
Specific provisions (9,132) (11,500)
General provisions (4,138) (4,238)
Total provisions (13,270) (15,738)
Net advances to customers 815,004 721,775
Provisions as a percentage of gross advances
to customers^
Specific provisions 1.10% 1.56%
General provisions 0.50% 0.57%
Total provisions 1.60% 2.13%
^Gross advances to customers are stated after deduction of interest in suspense.
9. Provisions for bad and doubtful debts against advances to customers
Suspended
Figures in HK$m Specific General Total interest
At 1Jan03 11,500 4,238 15,738 2,494
Amounts written off (6,867) - (6,867) (947)
Recoveries of advances written
off in previous years 684 - 684 -
Net charge/(release) to profit
and loss account (Note 4) 3,546 (160) 3,386 -
Interest suspended during the
year - - - 1,043
Suspended interest recovered - - - (640)
Exchange and other adjustments 269 60 329 57
At 31Dec03 9,132 4,138 13,270 2,007
Suspended interest above comprises both suspended interest netted against
'Advances to customers' and suspended interest netted against accrued interest
receivable in 'Other assets'.
10. Non-performing advances to customers and provisions
The geographical information shown below, and in notes 11, 12, 13 and 15, has
been classified by location of the principal operations of the subsidiary
company or, in the case of the bank, by location of the branch responsible for
advancing the funds.
Rest of Americas/
Figures in HK$m Hong Kong Asia-Pacific Europe Total
Year ended 31Dec03
Bad and doubtful debt
charge/(release) 3,098 321 (33) 3,386
At 31Dec03
Advances to customers on which interest is being placed in suspense or on which
interest accrual has ceased are as follows:
Gross advances on which interest
- has been placed in suspense 11,675 5,306 - 16,981
- accrual has ceased 1,301 971 5 2,277
Gross non-performing advances^ 12,976 6,277 5 19,258
Specific provisions (4,885) (4,242) (5) (9,132)
8,091 2,035 - 10,126
Specific provisions as a percentage
of gross non-performing advances 37.6% 67.6% 100.0% 47.4%
Gross non-performing advances as a
percentage of gross advances to
customers^^ 2.3% 2.4% 41.7% 2.3%
Rest of Americas/
Figures in HK$m Hong Kong Asia-Pacific Europe Total
Year ended 31Dec02
Bad and doubtful debt charge 1,921 330 - 2,251
At 31Dec02
Advances to customers on which interest is being placed in suspense or on which
interest accrual has ceased are as follows:
Gross advances on which interest
- has been placed in suspense 11,381 7,321 - 18,702
- accrual has ceased 2,062 1,940 4 4,006
Gross non-performing advances^ 13,443 9,261 4 22,708
Specific provisions (5,367) (6,129) (4) (11,500)
8,076 3,132 - 11,208
Specific provisions as a percentage
of gross non-performing advances 39.9% 66.2% 100.0% 50.6%
Gross non-performing advances as a
percentage of gross advances to
customers^^ 2.5% 4.7% 0.6% 3.1%
Non-performing advances fell by HK$3,450 million, or 15.2 per cent, to HK$19,258
million at 31 December 2003. In Hong Kong, there was a reduction in Hang Seng
Bank due to a combination of upgrades and recoveries. In the rest of the
Asia-Pacific region, non-performing advances fell by HK$2,984 million with
reductions in a number of countries, notably in New Zealand due to a repayment
of a corporate loan, and in Indonesia and Singapore due to a combination of
upgrades, write-offs and recoveries relating to commercial banking customers.
^Gross non-performing advances to customers are stated after deduction of
interest in suspense.
^^Expressed as a percentage of gross advances to customers after deduction of
interest in suspense.
This information is provided by RNS
The company news service from the London Stock Exchange
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