2/5: HK&S BK CORP 2002 (1/2)

HSBC Holdings PLC 03 March 2003 THE HONGKONG AND SHANGHAI BANKING CORPORATION LIMITED 2002 CONSOLIDATED RESULTS - HIGHLIGHTS * Operating profit before provisions up 0.7 per cent to HK$35,821 million (HK$35,585 million in 2001). * Pre-tax profit down 2.8 per cent to HK$33,661 million (HK$34,635 million in 2001). * Attributable profit down 1.5 per cent to HK$25,855 million (HK$26,237 million in 2001). * Return on average shareholders' funds of 30.0 per cent (30.1 per cent in 2001). * Assets up 7.2 per cent to HK$1,867.7 billion (HK$1,742.7 billion at the end of 2001). * Total capital ratio of 12.7 per cent; tier 1 capital ratio of 9.8 per cent (13.0 per cent and 9.5 per cent at 31 December 2001). * Cost:income ratio of 38.6 per cent (38.2 per cent for 2001). Comment by David Eldon, Chairman We have reported an operating profit before provisions for the year of HK$35.8 billion, slightly ahead of 2001. At HK$25.9 billion, attributable profit was 1.5 per cent lower, due to lower levels of investment gains. These results were achieved in a difficult year marked by continuing deflation in Hong Kong and an uncertain recovery across Asia. Highlights of 2002 include: * Net interest margin was 2.54 per cent, only three basis points lower than in 2001, despite the loss of HK$3.6 billion in net interest income due to lower interest rates and reduced spreads on residential mortgages in Hong Kong. * Advances to customers grew by 7 per cent. Our market share of loans for use in Hong Kong grew by 1.4 percentage points. * Pre-tax profit from Personal Financial Services increased by HK$809 million, or 6 per cent, to HK$13.6 billion, and contributed 40 per cent of profit before tax compared to 37 per cent in 2001. * Wealth Management income amounted to HK$4.6 billion, an increase of 28 per cent. This included the successful sale of over HK$33.6 billion of funds launched by the group in 2002, an increase of 33 per cent. Income from the sale of insurance products grew by HK$508 million, or 31 per cent. * Despite a near doubling in provisions, the contribution from credit cards continued to grow. Fee income from cards grew by 15 per cent to HK$3.1 billion. * Corporate, Investment Banking and Markets operating profit before provisions rose by 2 per cent to HK$12.8 billion, with growth in treasury offsetting the impact of narrower spreads on corporate lending and deposits. * Profit before tax from Commercial Banking was HK$7.5 billion, up 19 per cent, with net releases of debt provisions more than offsetting a 5 per cent decline in operating profit before provisions. * The cost:income ratio increased marginally to 38.6 per cent from 38.2 per cent in 2001. Staff numbers rose by 579 to 40,687 due to business development and acquisitions. A further 1,312 staff were employed in the Group's service centres in mainland China, with net savings elsewhere. The outlook for 2003 is characterised by the prospect of continuing deflation in Hong Kong, lack of demand for loans and pressure on margins. Across Asia, the uncertainties of the international situation will continue to constrain growth. Yet despite these challenges, we will continue to focus on our customers, matching products and services to the demands of a changing market. Results by Line of Business Corporate, Investment Personal Banking Financial Commercial and Private Figures in HK$m Services Banking Markets Banking Other Total Year ended 31Dec02 Operating profit before provisions 16,978 6,698 12,836 14 (705 ) 35,821 Provisions (3,438 ) 738 571 - (122 ) (2,251 ) Operating profit 13,540 7,436 13,407 14 (827 ) 33,570 Other 42 47 7 - (5 ) 91 Profit on ordinary activities before tax 13,582 7,483 13,414 14 (832 ) 33,661 Year ended 31Dec01 Operating profit before provisions 15,121 7,054 12,601 171 638 35,585 Provisions (2,381 ) (806 ) 892 - (40 ) (2,335 ) Operating profit 12,740 6,248 13,493 171 598 33,250 Other 33 48 381 - 923 1,385 Profit on ordinary activities before tax 12,773 6,296 13,874 171 1,521 34,635 In Personal Financial Services, pre-tax profit increased by HK$809 million, or 6.3 per cent, to HK$13,582 million, and contributed 40.3 per cent of the group profit before tax, compared with 36.9 per cent in 2001. Net interest income was higher than in 2001, reflecting growth in both lending and deposits in Hong Kong and across the region. Income from wealth management initiatives continued to grow, particularly from sales of unit trusts and insurance products in Hong Kong. Fee income from cards also increased. Operating expenses remained at the same level as 2001. Increased provisions in 2002 principally related to credit cards, particularly in Hong Kong, reflecting the rise in personal bankruptcies, although mortgage provisions were lower. The contribution from credit cards increased in 2002 despite the higher bad debt charge. In Commercial Banking, profit before tax grew by HK$1,187 million, or 18.9 per cent, to HK$7,483 million. Net interest income was lower as a result of reduced spreads. There was a net release of provisions for bad and doubtful debts, compared with a net charge in 2001, mainly reflecting net releases in the bank in Indonesia, Singapore and Taiwan. Corporate, Investment Banking and Markets benefited from a substantial increase in net interest income from the group's treasury operations although dealing profits were lower. The contribution from the group's regional treasury activities was 6.5 per cent higher than in 2001. Spreads on corporate lending and deposits were lower in 2002. There was a net release of provisions for bad and doubtful debts although this was lower than in 2001 which benefited from the write-back of provisions against the Olympia and York exposure. As a result, the profit before tax of Corporate, Investment Banking and Markets declined by HK$460 million, or 3.3 per cent, to HK$13,414 million. The reduction in the pre-tax profit of Private Banking reflects the transfer of a business to another part of the HSBC Group during 2001. Other includes the funding costs for staff housing loans and fixed assets. A deficit of HK$371 million arising on property revaluation was charged to profit and loss in 2002 compared with a deficit of HK$36 million in 2001. 2001 included the gain on disposal of the investment in Modern Terminals. Consolidated Profit and Loss Account Year ended Year ended Figures in HK$m 31Dec02 31Dec01 Interest income 59,194 83,586 Interest expense (19,549 ) (44,312 ) Net interest income 39,645 39,274 Other operating income 18,671 18,351 Operating income 58,316 57,625 Operating expenses (22,495 ) (22,040 ) Operating profit before provisions 35,821 35,585 Provisions for bad and doubtful debts (2,251 ) (2,257 ) Provisions for contingent liabilities and commitments - (78 ) Operating profit 33,570 33,250 Profit on tangible fixed assets and long-term investments 377 1,289 Deficit arising on property revaluation (371 ) (36 ) Share of profits less losses of associated companies 85 132 Profit on ordinary activities before tax 33,661 34,635 Tax on profit on ordinary activities (4,024 ) (4,479 ) Profit on ordinary activities after tax 29,637 30,156 Minority interests (3,782 ) (3,919 ) Profit attributable to shareholders 25,855 26,237 Retained profits brought forward 19,980 44,818 Change of accounting policy in respect of defined benefit retirement schemes 576 - As restated 20,556 44,818 Exchange and other adjustments 517 (206 ) Transfer of depreciation to premises revaluation reserve 344 357 Realisation on disposal of premises and investment properties 109 62 Ordinary dividends paid in respect of the current year (14,000 ) (22,263 ) Special interim dividend paid out of the bank's retained earnings - (28,689 ) Ordinary dividends proposed (3,500 ) - Preference dividends payable (1,302 ) (336 ) (18,802 ) (51,288 ) Retained profits carried forward 28,579 19,980 Extract from the Consolidated Balance Sheet Figures in HK$m 31Dec02 31Dec01 Assets Cash and short-term funds 322,305 344,637 Placings with banks maturing after one month 90,886 115,702 Certificates of deposit 53,290 34,468 Hong Kong SAR Government certificates of indebtedness 73,654 67,344 Securities held for dealing purposes 87,468 74,384 Long-term investments 350,166 266,946 Advances to customers 721,775 674,557 Amounts due from fellow subsidiary companies 22,087 22,095 Investments in associated companies 1,499 1,566 Tangible fixed assets 37,988 40,967 Other assets 106,606 100,075 1,867,724 1,742,741 Liabilities Hong Kong SAR currency notes in circulation 73,654 67,344 Current, savings and other deposit accounts 1,473,539 1,378,119 Deposits by banks 45,545 47,717 Amounts due to fellow subsidiary companies 11,052 11,417 Amounts due to ultimate holding company 441 480 Other liabilities 135,516 118,847 1,739,747 1,623,924 Capital resources Loan capital from ultimate holding company 2,924 2,924 Other loan capital 15,368 14,828 Minority interests 17,241 17,936 Share capital 44,940 44,937 Reserves 44,004 38,192 Proposed dividends 3,500 - Shareholders' funds 92,444 83,129 127,977 118,817 1,867,724 1,742,741 Consolidated Statement of Changes in Equity Year ended Year ended Figures in HK$m 31Dec02 31Dec01 Shareholders' funds at beginning of the year 83,129 90,812 Change of accounting policy in respect of defined benefit retirement schemes 576 - As restated 83,705 90,812 Profit for the year attributable to shareholders 25,855 26,237 Unrealised deficit on revaluation of premises (1,422 ) (2,035 ) Unrealised deficit on revaluation of investment properties (183 ) (178 ) Long-term equity investments revaluation reserve - Deficit on revaluation (643 ) (644 ) - Realisation on disposal (264 ) (1,025 ) New non-cumulative irredeemable preference shares issued - 28,679 Dividends (15,302 ) (58,288 ) Exchange and other movements 698 (429 ) Shareholders' funds at end of the year 92,444 83,129 Consolidated Cash Flow Statement Figures in HK$m 2002 2001 Operating activities Cash generated from operations 38,255 52,194 Interest received on long-term investments 11,826 13,052 Dividends received on long-term investments 209 226 Dividends received from associated companies 108 67 Interest paid on loan capital (918 ) (1,069 ) Dividends paid to minority interests (3,549 ) (3,548 ) Ordinary dividends paid (14,000 ) (56,389 ) Preference dividends paid (1,438 ) (277 ) Taxation paid (3,018 ) (3,035 ) Net cash inflow from operating activities 27,475 1,221 Investing activities Purchase of long-term investments (311,021 ) (328,106 ) Proceeds from sale or redemption of long-term investments 229,460 243,596 Purchase of tangible fixed assets (1,294 ) (1,641 ) Proceeds from sale of tangible fixed assets 216 196 Net cash outflow in respect of acquisition of and increased shareholding in subsidiary companies (176 ) (158 ) Net cash outflow in respect of sale of subsidiary companies - (23,541 ) Purchase of business (60 ) (7 ) Purchase of interest in associated company - (18 ) Proceeds from sale of interest in associated company 1 164 Net cash outflow from investing activities (82,874 ) (109,515 ) Net cash outflow before financing (55,399 ) (108,294 ) Financing Issue of non-cumulative irredeemable preference share capital - 28,679 Issue of loan capital 308 676 Net cash inflow from financing 308 29,355 Decrease in cash and cash equivalents (55,091 ) (78,939 ) Additional Information 1. Net interest income Year-ended Year-ended Figures in HK$m 31Dec02 31Dec01 Net interest income 39,645 39,274 Average interest-earning assets 1,561,932 1,530,941 Net interest spread 2.42 % 2.28 % Net interest margin 2.54 % 2.57 % Net interest income increased by HK$371 million, or 0.9 per cent, compared with 2001, to HK$39,645 million primarily generated by a strong performance from treasury and growth in personal lending. These were substantially offset by a HK$2,490 million lower contribution from net free funds, reflecting lower interest rates, and reduced spreads on home mortgage loans in Hong Kong that led to a HK$1,106 million reduction in net interest income. Despite the continued pressure on mortgage pricing, net interest income from Personal Financial Services grew by HK$833 million, or 4.0 per cent, over 2001. Net interest income from Corporate, Investment Banking and Markets increased by HK$978 million, or 8.5 per cent, mainly in the bank in Hong Kong. This was driven by pre-emptive positioning of the accrual books that continued to benefit from the low interest rate environment, partly offset by lower spreads on corporate lending and deposits. Lower spreads also led to reduced net interest income in Commercial Banking. Average interest-earning assets increased by HK$31.0 billion, or 2.0 per cent, compared with 2001. Average advances to customers for the group as a whole grew by HK$38.7 billion, or 5.9 per cent, compared with last year. In the bank in Hong Kong, average customer advances grew by 6.1 per cent during 2002 with increases in mortgage loans and credit card advances. Average term lending to corporate and commercial customers was also higher in the bank in Hong Kong despite subdued loan demand in these sectors. In Hang Seng Bank, average advances to customers rose by 1.0 per cent. Average advances to customers in the rest of the Asia-Pacific region grew by HK$21.2 billion, or 14.1 per cent, with strong growth in HSBC Bank Australia as a result of the acquisition of the former NRMA Building Society at the end of 2001 and the unwinding of mortgage securitisations in the building society during 2002. Advances in the bank in Taiwan, Japan, India and New Zealand grew strongly. There was a reduction in average loans to banks of HK$78.7 billion and an increase in average holdings of debt securities of HK$80.6 billion, principally in the bank in Hong Kong and Hang Seng Bank, reflecting the switching of funds to higher yielding assets. The group's net interest margin of 2.54 per cent for 2002 was three basis points lower than in 2001. Spread widened by 14 basis points compared with 2001, but the contribution from net free funds was 17 basis points lower. For the bank in Hong Kong, net interest margin narrowed by one basis point compared with 2001 to 2.47 per cent. Spread widened by 13 basis points. The strong treasury performance in 2002 accounted for an improvement of 13 basis points in spread, and higher releases of suspended interest accounted for an improvement of 10 basis points. The increased proportion of higher yielding credit card advances, together with the migration of funds from time deposits to lower cost savings and current accounts, improved spread by eight basis points. These positive factors were partly offset by narrower spreads on foreign currency savings deposits and on Hong Kong dollar deposits, which reduced spread by 14 basis points. Loan refinancing at lower rates and keen market competition led to a further decline in spreads on mortgages which accounted for a reduction of five basis points in spread. The contribution from net free funds reduced by 14 basis points to nine basis points compared with 2001 reflecting substantially lower interest rates in 2002. In Hang Seng Bank, net interest margin reduced by 10 basis points to 2.46 per cent compared with 2001. Spread improved by eight basis points mainly attributable to higher spreads on debt securities and growth in lower cost savings accounts which improved spread by 11 and five basis points respectively, together with a wider spread on time deposits which accounted for a four basis point improvement. These were partly offset by a 12 basis points reduction due to lower spreads on mortgages, including loans made under the Government Home Ownership Scheme. The fall in average interest rates resulted in a reduction of 18 basis points to 10 basis points in the contribution from net free funds. Continued price competition in the residential loan market resulted in a further reduction in the average yield on the residential mortgage portfolio, excluding Government Home Ownership Scheme loans and staff loans, in the bank in Hong Kong to 151 basis points below the bank's best lending rate ('BLR') in 2002. This was before accounting for the effect of cash incentive payments and compared with 86 basis points in 2001. Similarly, the average yield on the residential mortgage portfolio in Hang Seng Bank was 149 basis points below BLR in 2002 compared with 84 basis points below BLR in 2001. In the rest of the Asia-Pacific region, net interest income increased by HK$828 million, or 11.4 per cent, to HK$8,069 million, and contributed 20.4 per cent of the group net interest income, compared with 18.4 per cent in 2001. Net interest margin narrowed by three basis points compared with 2001 to 2.20 per cent. Spread rose by 18 basis points with wider spreads in several countries, including the Philippines and Singapore mainly due to a strong treasury performance. Growth in net interest income was also generated by an increased proportion of higher yielding personal lending in Taiwan. In New Zealand, spread widened mainly attributable to lower cost of funds and a release of suspended interest in respect of a large corporate customer in 2002. The contribution to the group margin from net free funds fell by 17 basis points compared with 2001 to 12 basis points reflecting substantially lower prevailing average interest rates during 2002. 2. Other operating income Figures in HK$m 2002 2001 Dividend income - Listed investments 180 194 - Unlisted investments 34 31 214 225 Fees and commissions - Account services 1,206 1,214 - Credit facilities 1,403 1,534 - Import/export 2,226 2,193 - Remittances 915 856 - Securities/stockbroking 1,551 1,530 - Cards 3,137 2,723 - Other 4,434 3,584 Fees and commissions receivable 14,872 13,634 Fees and commissions payable (2,402 ) (2,170 ) 12,470 11,464 Dealing profits 2,481 3,449 Rental income from investment properties 239 261 Other 3,267 2,952 18,671 18,351 Analysis of income from dealing in financial instruments 2002 2001 Dividend Dividend and net and net Dealing interest Dealing interest Figures in HK$m profits income Total profits income Total Foreign exchange 2,942 130 3,072 2,875 37 2,912 Interest rate derivatives 553 (67 ) 486 713 51 764 Debt securities (1,007 ) 1,469 462 (78 ) 882 804 Equities and other trading (7 ) 1 (6 ) (61 ) 3 (58 ) 2,481 1,533 4,014 3,449 973 4,422 Other operating income, excluding dealing profits, increased by HK$1,288 million, or 8.6 per cent, compared with 2001. Wealth management continued to be the principal driver of growth. Net fee income in Personal Financial Services grew by 15.1 per cent and now accounts for 41.7 per cent of total net fees, against 39.4 per cent in 2001. Income from wealth management initiatives, including total operating income from the insurance business, and commission on sales of unit trust products and on securities transactions executed for personal customers, amounted to some HK$4.6 billion, up 28 per cent on 2001. There was strong growth in revenues earned from sales of unit trusts in both the bank in Hong Kong and in Hang Seng Bank. These included the successful sale of over HK$33.6 billion of funds launched by the group in 2002, representing an increase of 32.7 per cent over 2001, and including over HK$22.1 billion in sales of the group's capital guaranteed funds. Total income from sales of unit trusts and from funds under management for personal customers amounted to HK$1,857 million in 2002 compared with HK$1,315 million in 2001, an increase of 41.2 per cent. Income from the insurance business grew by HK$508 million, or 31.4 per cent, compared with last year, with continued strong growth in individual life insurance premiums and revenues from the Mandatory Provident Fund business. Income from retail securities transactions, however, was lower in 2002. Fee income from cards grew by HK$414 million, or 15.2 per cent, over 2001 reflecting increases in the bank in Taiwan, Hong Kong, Indonesia, India and Thailand partly offset by a reduction in Hang Seng Bank. The group now has 5.2 million cards in issue following an increase of over 89,000 during the past 12 months. Fee income from Corporate, Investment Banking and Markets increased by HK$240 million, or 6.1 per cent compared with 2001 mainly due to higher income from structured finance and corporate finance in the bank in Hong Kong. Income recorded under dealing profits was lower than in 2001, although this was partly offset by increased net interest income on trading instruments, as debt securities used for interest rate trading purposes generated strong net interest income while corresponding derivative positions produced dealing losses in the current low interest rate environment. A further contributor to the dealing losses on debt securities trading was the widening of credit spreads largely as a result of a series of corporate scandals in the US. Foreign exchange dealing profits remained robust during a period of depressed economic activity and thinner trade flows. This was achieved primarily on the back of a strong and growing customer franchise, and the successful marketing of higher-margin derivative products such as currency options, and structures with embedded options. In addition, the group continues to migrate an increasing proportion of client business to electronic dealing channels, improving transaction ease and speed, while simultaneously reducing costs. 3. Operating expenses Figures in HK$m 2002 2001 Staff costs - Salaries and other costs 11,694 11,338 - Retirement benefit costs 846 1,359 12,540 12,697 Premises and equipment - Depreciation 2,058 2,028 - Rental expenses 1,070 1,080 - Other premises and equipment expenses 1,600 1,506 4,728 4,614 Other 5,227 4,729 22,495 22,040 Staff numbers by region^ At 31Dec02 At 31Dec01 Hong Kong 22,949 23,861 Rest of Asia-Pacific 17,720 16,234 Americas/Europe 18 13 Total 40,687 40,108 ^ Full-time equivalent Operating expenses were HK$455 million, or 2.1 per cent, higher than 2001. Of the increase, HK$212 million was attributable to the acquisition of the former NRMA Building Society made at the end of 2001. The underlying increase in operating expenses, using constant exchange rates, was 0.9 per cent. Staff costs decreased by HK$157 million, or 1.2 per cent, compared with 2001. In Hong Kong, pension costs were reduced due to lower actuarial charges for local staff defined benefit retirement schemes and as a result of the non-recurrence of a top-up provision to maintain the fully funded position of the local staff retirement benefit scheme in 2001 in Hang Seng Bank. Staff costs in Singapore were lower than in 2001 which included a provision for a voluntary separation scheme. These reductions were partly offset by increases in staff costs as a result of growth in headcount to support business expansion and the full year effect of the acquisition of the former NRMA Building Society made at the end of 2001. Progress continues to be made with the transfer of a wide range of back office functions from operations in Hong Kong to the Group service centres in Guangzhou and Shanghai. These centres now handle processing work such as cross-border and real time gross settlement payments, new account and credit card account opening and customer data maintenance. The total number of staff in the group increased to 40,687 at 31 December 2002 compared with 40,108 at 31 December 2001, with increases in the Group service centres in Guangzhou and in Shanghai, and in the bank in China and a number of other countries due to business expansion. Headcount in Hong Kong reduced by 912 since the end of 2001. There was also a reduction in Singapore due to outsourcing and the implementation of a voluntary separation scheme. In the Asia-Pacific region outside Hong Kong, eight new branches have been opened during 2002. At the end of 2002 there were 2,310 staff employed in the two mainland China service centres compared with 998 at 31 December 2001. Operating expenses, other than staff costs, were up 6.6 per cent in 2002 with increased premises and equipment expenses as a result of branch openings and business acquisitions during 2001 and 2002. The increase was also due to higher IT costs, higher spend on HSBC Group marketing initiatives and increased professional fees relating to structured finance transactions. 4. Provisions for bad and doubtful debts Figures in HK$m 2002 2001 Net charge/(release) for bad and doubtful debts Advances to customers - Specific provisions new provisions 6,081 6,399 releases (2,734 ) (3,064 ) recoveries (377 ) (995 ) 2,970 2,340 - General provisions (719 ) (85 ) 2,251 2,255 Placings with banks maturing after one month - Net specific provisions - 2 Net charge to profit and loss account 2,251 2,257 The net charge for specific provisions in 2002 reflects higher provisions against personal lending, principally on credit cards with the rise in personal bankruptcies in Hong Kong, partly offset by net releases and recoveries from the commercial and corporate loan books. Provisions relating to credit cards amounted to HK$2,290 million, compared with HK$1,219 million in 2001, and accounted for 77 per cent of the total net specific charge for 2002. Provisions against the Hong Kong mortgage portfolio were lower than in 2001, with a steadily declining level of delinquencies. Elsewhere in the region, provisions for personal lending increased, particularly in the bank in India, Taiwan and Indonesia, reflecting growth in the portfolios and some increase in delinquency rates. The charge for new specific provisions against commercial lending in 2002 fell by 53 per cent compared with 2001 mainly due to a significantly reduced charge in the bank in Indonesia, Singapore, Hong Kong, Taiwan, and Hang Seng Bank. The charge for new specific provisions against lending to corporate customers decreased by 21 per cent with lower charges in the bank in India, Singapore, Hong Kong, the Philippines and Hang Seng Bank partly offset by additional provisions booked in New Zealand and Thailand. Releases and recoveries were lower compared with 2001 which included the release of long-standing provisions against Olympia and York. There were net recoveries of specific provisions against both commercial and corporate customers in 2002. There was a net release of HK$719 million of general provisions in 2002. This release reflected a reduction in estimated latent loan losses, which had occurred at the balance sheet date but which had not yet been reflected through the establishment of specific provisions. The estimate of these latent losses reflects the group's historical experience of the rate at which such losses occur and are identified, the structure of the credit portfolio and the economic and credit conditions prevailing at the balance sheet date. 5. Profit on tangible fixed assets and long-term investments Figures in HK$m 2002 2001 Loss on disposal of tangible fixed assets (37 ) (18 ) Profit on disposal of long-term investments 494 1,441 Provision for impairment of long-term investments (80 ) (134 ) 377 1,289 The net profit on disposal of long-term investments was HK$947 million lower than 2001 which included gains on disposal of investments in Modern Terminals and Central Registration. 6. Taxation The charge for taxation in the consolidated profit and loss account comprises: Figures in HK$m 2002 2001 Hong Kong profits tax 3,110 3,473 Overseas taxation 1,105 1,055 Deferred taxation (225 ) (59 ) 3,990 4,469 Share of associated companies' taxation 34 10 4,024 4,479 The effective rate of tax for 2002 was 12.0 per cent compared to 12.9 per cent in 2001. In 2002, there were releases of general provisions while 2001 benefited from higher tax-free gains on disposals of investments. 7. Dividends 2002 2001 HK$ HK$m HK$ HK$m per share per share Equity Ordinary dividends - Paid 2.15 14,000 7.84 50,952 - Proposed 0.54 3,500 - - 2.69 17,500 7.84 50,952 Non-equity Preference dividends payable -Cumulative redeemable preference shares 230 115 472 236 - Non-cumulative irredeemable preference shares 0.32 1,187 0.03 100 18,802 51,288 8. Advances to customers Figures in HK$m At 31Dec02 At 31Dec01 Gross advances to customers 738,988 697,702 Suspended interest (1,475 ) (2,625 ) 737,513 695,077 Specific provisions (11,500 ) (15,581 ) General provisions (4,238 ) (4,939 ) Total provisions (15,738 ) (20,520 ) Net advances to customers 721,775 674,557 Provisions as a percentage of gross advances to customers^ Specific provisions 1.56 % 2.24 % General provisions 0.57 % 0.71 % Total provisions 2.13 % 2.95 % ^ 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$m Specific General Total interest At 1 January 2002 15,581 4,939 20,520 4,050 Amounts written off (7,490 ) - (7,490 ) (1,838 ) Recoveries of advances written off in previous years 377 - 377 - Net charge to profit and loss account (Note 4) 2,970 (719 ) 2,251 - Interest suspended during the year - - - 1,312 Suspended interest recovered - - - (1,041 ) Exchange and other adjustments 62 18 80 11 At 31 December 2002 11,500 4,238 15,738 2,494 Suspended interest above comprises both suspended interest netted against ' Advances to customers' and suspended interest netted against accrued interest receivable in 'Other assets'. 10. Non-performing advances to customers and provisions The geographical information shown below, and in notes 11, 12, 13 and 15, has been classified by location of the principal operations of the subsidiary company or, in the case of the bank, by location of the branch responsible for advancing the funds. Rest of Americas/ Figures in HK$m Hong Kong Asia-Pacific Europe Total Year ended 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$6,391 million, or 22.0 per cent, to HK$22,708 million at 31 December 2002. In Hong Kong, non-performing advances fell by HK$2,373 million principally in the bank in Hong Kong due to a combination of write-offs, repayments and upgrades. In the rest of the Asia-Pacific region, non-performing advances fell by HK$4,018 million mainly in the bank in Indonesia due to the write-off of a number of accounts relating to commercial banking customers, in Singapore due to a combination of upgrades, write-offs and recoveries, and in China largely due to an upgrade of a customer account. Rest of Americas/ Figures in HK$m Hong Kong Asia-Pacific Europe Total Year ended 31Dec01 Bad and doubtful debt charge/(release) 1,531 772 (48 ) 2,255 At 31Dec01 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 14,002 11,952 - 25,954 - accrual has ceased 1,814 1,327 4 3,145 Gross non-performing advances^ 15,816 13,279 4 29,099 Specific provisions (6,678 ) (8,899 ) (4 ) (15,581 ) 9,138 4,380 - 13,518 Specific provisions as a percentage of gross non-performing advances 42.2 % 67.0 % 100.0 % 53.5 % Gross non-performing advances as a percentage of gross advances to customers^^ 3.0 % 7.8 % 36.4 % 4.2 % Non-performing advances to customers are those advances where full repayment of principal or interest is considered unlikely. Non-performing advances may include advances that are not yet more than three months overdue but are considered doubtful. Advances are classified as non-performing as soon as it becomes apparent that full recovery of the advance is unlikely. Except in certain limited circumstances, all advances on which principal or interest is more than three months overdue are classified as non-performing. The specific provisions are made after taking into account the value of collateral in respect of such advances. ^ 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. 11. Overdue advances to customers Rest of Americas/ Figures in HK$m Hong Kong Asia-Pacific Europe Total At 31Dec02 Gross advances to customers which have been overdue with respect to either principal or interest for periods of ^ - six months or less but over three months 1,896 680 - 2,576 - one year or less but over six months 1,847 1,018 - 2,865 - over one year 5,376 4,011 - 9,387 9,119 5,709 - 14,828 Overdue advances to customers as a percentage of gross advances to customers^^ - six months or less but over three months 0.4 % 0.4 % - 0.3 % - one year or less but over six months 0.3 % 0.5 % - 0.4 % - over one year 1.0 % 2.0 % - 1.3 % 1.7 % 2.9 % - 2.0 % Overdue advances to customers (as above) 9,119 5,709 - 14,828 Less: overdue advances on which interest is still being accrued (1,509 ) (220 ) - (1,729 ) Add: advances overdue for periods of three months or less, or which are not yet overdue, and on which interest has been placed in suspense: - included in rescheduled advances 4,533 1,121 4 5,658 - other 1,300 2,651 - 3,951 Gross non-performing advances (Note 10) 13,443 9,261 4 22,708 Rest of Americas/ Figures in HK$m Hong Kong Asia Pacific Europe Total At 31Dec01 Gross advances to customers which have been overdue with respect to either principal or interest for periods of^ - six months or less but over three months 2,286 798 - 3,084 - one year or less but over six months 2,064 1,636 - 3,700 - over one year 7,352 6,040 - 13,392 11,702 8,474 - 20,176 Overdue advances to customers as a percentage of gross advances to customers^^ - six months or less but over three months 0.4 % 0.5 % - 0.5 % - one year or less but over six months 0.4 % 1.0 % - 0.5 % - over one year 1.4 % 3.5 % - 1.9 % 2.2 % 5.0 % - 2.9 % Overdue advances to customers (as above) 11,702 8,474 - 20,176 Less: overdue advances on which interest is still being accrued (766 ) (238 ) - (1,004 ) Add: advances overdue for periods of three months or less, or which are not yet overdue, and on which interest has been placed in suspense: - included in rescheduled advances 2,024 1,381 4 3,409 - other 2,856 3,662 - 6,518 Gross non-performing advances (Note 10) 15,816 13,279 4 29,099 ^ Gross overdue 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. 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