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

HSBC Holdings PLC
03 March 2003

12. Rescheduled advances to customers
                                                                        Rest of        Americas/
Figures in HK$m                                     Hong Kong      Asia-Pacific           Europe             Total

At 31Dec02

Rescheduled advances to customers ^                     6,496             1,373                4             7,873

Rescheduled advances to customers as a
 percentage of gross advances to
 customers ^^                                             1.2 %             0.7 %            0.6 %             1.1 %

At 31Dec01

Rescheduled advances to customers ^                     3,088             1,588                4             4,680

Rescheduled advances to customers as a
 percentage of gross advances to
 customers ^^                                             0.6 %             0.9 %           36.4 %             0.7 %

Rescheduled advances are those advances which have been restructured or
renegotiated because of a deterioration in the financial position of the
borrower, or because of the inability of the borrower to meet the original
repayment schedule.

Rescheduled advances to customers are stated net of any advances which have
subsequently become overdue for over three months and which are included in
overdue advances to customers (Note 11).

At 31 December 2002, rescheduled advances to customers in Hong Kong rose by
HK$3.4 billion compared with 31 December 2001 with an increase of HK$1.1 billion
in rescheduled residential mortgages principally in the bank in Hong Kong and
increased rescheduled advances to corporate customers in both the bank in Hong
Kong and Hang Seng Bank.

^ Rescheduled advances are stated after deduction of interest in suspense.

^ Expressed as a percentage of gross advances to customers after deduction of
interest in suspense.

13. Analysis of advances to customers based on categories used by the HSBC Group

The following analysis of advances to customers is based on categories used by
the HSBC Group, including The Hongkong and Shanghai Banking Corporation Limited
and its subsidiary companies, to manage associated risks.

                                                                        Rest of         Americas/
Figures in HK$m                                  Hong Kong         Asia-Pacific            Europe             Total

At 31Dec02

Residential mortgages                              185,439               46,017                 -           231,456

Hong Kong SAR Government's Home
 Ownership Scheme and Private Sector
 Participation Scheme and Tenants
 Purchase Scheme mortgages                          56,576                    -                 -            56,576

Other personal                                      41,448               21,643                11            63,102
Total personal                                     283,463               67,660                11           351,134

Commercial, industrial and
 international trade                                79,330               64,504               664           144,498

Commercial real estate                              65,009               18,290                 4            83,303

Other property-related lending                      37,468                6,074                 -            43,542

Government                                           5,610                3,963                 -             9,573

Other commercial                                    51,560               31,306                 -            82,866
Total corporate and commercial                     238,977              124,137               668           363,782

Non-bank financial institutions                     16,027                5,626                 -            21,653

Settlement accounts                                  1,838                  581                 -             2,419
Total financial                                     17,865                6,207                 -            24,072

Gross advances to customers                        540,305              198,004               679           738,988

Suspended interest                                    (904 )               (571 )               -            (1,475 )

Gross advances to customers
 net of suspended interest                         539,401              197,433               679           737,513

Provisions for bad and doubtful debts               (8,882 )             (6,852 )              (4 )         (15,738 )

Net advances to customers                          530,519              190,581               675           721,775


                                                                        Rest of         Americas/
Figures in HK$m                                  Hong Kong         Asia-Pacific            Europe             Total

At 31Dec01

Residential mortgages                              179,919               30,274                 -           210,193

Hong Kong SAR Government's Home
 Ownership Scheme and Private Sector
 Participation Scheme and Tenants
 Purchase Scheme mortgages                          63,335                    -                 -            63,335

Other personal                                      37,536               16,363                 7            53,906
Total personal                                     280,790               46,637                 7           327,434

Commercial, industrial and
 international trade                                75,314               59,517                 -           134,831

Commercial real estate                              66,051               16,830                 4            82,885

Other property-related lending                      36,725                6,993                 -            43,718

Government                                           4,233                4,269                 -             8,502

Other commercial                                    49,502               31,728                 -            81,230
Total corporate and commercial                     231,825              119,337                 4           351,166

Non-bank financial institutions                     12,051                4,954                 -            17,005

Settlement accounts                                  1,547                  550                 -             2,097
Total financial                                     13,598                5,504                 -            19,102

Gross advances to customers                        526,213              171,478                11           697,702

Suspended interest                                  (1,673 )               (952 )               -            (2,625 )

Gross advances to customers
 net of suspended interest                         524,540              170,526                11           695,077

Provisions for bad and doubtful debts              (10,946 )             (9,570 )              (4 )         (20,520 )

Net advances to customers                          513,594              160,956                 7           674,557

Advances to customers increased by HK$47.2 billion, or 7.0 per cent, since
December 2001.

Advances in Hong Kong grew by HK$16.9 billion, or 3.3 per cent, since the end of
2001 against a background of intense mortgage price competition and subdued loan
demand for corporate lending. In the bank in Hong Kong, advances to customers
grew by HK$14.7 billion, or 5.1 per cent during the year, with increases in
residential mortgages, lending relating to stock borrowing, trade finance and
credit card advances. There was a reduction in lending under the Government Home
Ownership Scheme ('GHOS') following the suspension in the second half of 2001 of
the sale of new homes under this scheme. Advances in Hang Seng Bank grew by 1.0
per cent since December 2001, with an increase in corporate and commercial
loans, mainly in lending to property investment companies and increased working
capital financing provided to large corporations in the public utility and civil
engineering sectors. In personal lending, increases in residential mortgages and
credit card advances were more than offset by a reduction in lending under GHOS.
The market share of loans for use in Hong Kong for the HSBC Group as a whole was
up by 1.4 per cent over the last 12 months including gains in trade finance,
residential mortgages, credit cards and other consumer lending, although the
market share of GHOS was lower.

In the rest of the Asia-Pacific region, advances to customers increased by
HK$29.6 billion, or 18.4 per cent, since the end of 2001. At constant exchange
rates the increase was HK$16.9 billion or 10.5 per cent. Excluding the effect of
the weaker Hong Kong dollar, there has been an increase of HK$15.2 billion, or
32.5 per cent, since December 2001 in personal lending as a result of the growth
in the personal financial services business in a number of countries. Over the
last 12 months, mortgage portfolios have grown by 39.9 per cent at constant
exchange rates with a marked increase in HSBC Bank Australia reflecting the
acquisition of the former NRMA Building Society in November 2001 and the
subsequent unwinding of mortgage securitisations in the building society.
Mortgage lending also increased in the bank in Taiwan, Singapore, New Zealand,
Korea and India. Card lending has increased by 13.9 per cent at constant
exchange rates since the end of 2001 with increases in the bank in Thailand,
Indonesia, Singapore, Taiwan and India. Lending to corporate customers rose
since the end of 2001 with increases in the bank in Japan, Korea and HSBC Bank
Australia partly offset by decreases in Singapore and New Zealand. Commercial
lending continued to decline reflecting subdued loan demand in view of the
uncertainties in the regional economies, with reductions mainly in the bank in
Taiwan.

Total personal lending represented 47.5 per cent of total gross advances to
customers at 31 December 2002 compared with 46.9 per cent at 31 December 2001.

14. Analysis of advances to customers by geographical area according to the
location of counterparties, after risk transfer
                                                                       Rest of       Americas/
Figures in HK$m                                   Hong Kong       Asia-Pacific          Europe       Others        Total

At 31Dec02

Gross advances to customers, net of
 suspended interest                                 497,925            178,002          58,405        3,181      737,513
Overdue advances to customers                         8,497              5,749             575            7       14,828
Non-performing advances to customers                 11,777              8,961           1,952           18       22,708

At 31Dec01

Gross advances to customers, net of
 suspended interest                                 488,222            157,329          46,752        2,774      695,077
Overdue advances to customers                        11,059              7,649           1,467            1       20,176
Non-performing advances to customers                 13,675             12,309           3,115            -       29,099

15. 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 and is shown net of suspended
interest.

Figures in HK$m                                                                   At 31Dec02             At 31Dec01


Gross advances to customers for use in Hong Kong

Industrial, commercial and financial
Property development                                                                  42,845                 43,770
Property investment                                                                   69,499                 67,588
Financial concerns                                                                     9,813                 10,485
Stockbrokers                                                                             693                    445
Wholesale and retail trade                                                            25,602                 22,231
Manufacturing                                                                          8,622                  9,182
Transport and transport equipment                                                     30,810                 29,950
Others                                                                                43,042                 37,542
                                                                                     230,926                221,193


Figures in HK$m                                                                   At 31Dec02             At 31Dec01
Individuals
Advances for the purchase of flats under the Hong Kong SAR
 Government's Home Ownership Scheme and Private Sector
 Participation and Tenants Purchase Scheme                                            56,576                 63,335
Advances for the purchase of other residential properties                            169,836                163,467
Credit card advances                                                                  19,696                 17,051
Others                                                                                20,700                 19,939
                                                                                     266,808                263,792

Gross advances to customers for use in Hong Kong                                     497,734                484,985

Trade finance                                                                         35,096                 30,910

Gross advances to customers for use outside
 Hong Kong made by branches of the bank
 and subsidiary companies in Hong Kong                                                 6,571                  8,645

Gross advances to customers made by branches of
 the bank and subsidiary companies in Hong Kong                                      539,401                524,540

Gross advances to customers made by branches of the
 bank and subsidiary companies outside Hong Kong
- Rest of Asia-Pacific                                                               197,433                170,526
- Americas/Europe                                                                        679                     11

Gross advances to customers net of suspended interest                                737,513                695,077

An explanation of the significant differences between the categories of advances
and their definitions used by the HSBC Group and those used by the HKMA is given
on pages 15-16 of the Annual Report and Accounts for 2001.

16. Cross-border exposure

The country risk exposures shown below are prepared in accordance with the Bank
of England Country Exposure Report (Form C1) and the HKMA Return of 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 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 31Dec02

Americas
United States                                       19,273             47,023             27,185             93,481
Other                                               32,788             18,052             16,975             67,815
                                                    52,061             65,075             44,160            161,296

Europe
United Kingdom                                      66,441                  -             24,222             90,663
Other                                              205,331              6,182             25,357            236,870
                                                   271,772              6,182             49,579            327,533

Asia-Pacific excluding Hong Kong                   106,014             44,570             52,811            203,395

At 31Dec01

Americas
United States                                       21,656             35,497             24,762             81,915
Other                                               37,105             12,202             20,416             69,723
                                                    58,761             47,699             45,178            151,638

Europe
Germany                                             83,839              1,408              1,918             87,165
Other                                              212,484              3,411             31,272            247,167
                                                   296,323              4,819             33,190            334,332

Asia-Pacific excluding Hong Kong                    87,673             45,633             55,276            188,582

17. Current, savings and other deposits

Figures in HK$m                                                                       At 31Dec02             At 31Dec01

Customer accounts
- Current accounts                                                                       150,749                122,638
- Savings accounts                                                                       528,231                469,554
- Other deposit accounts                                                                 710,563                727,776

                                                                                       1,389,543              1,319,968

Certificates of deposit in issue                                                          74,380                 54,329
Other debt securities in issue                                                             9,616                  3,822

                                                                                       1,473,539              1,378,119

In Hong Kong, customer accounts increased by HK$18.1 billion, or 1.7 per cent,
since the end of 2001 with the increase principally in the bank in Hong Kong.
The HSBC Group in Hong Kong increased by nearly 1 per cent its overall market
share of total Hong Kong dollar and foreign currency deposits this year. There
was some reduction in personal account balances as customers moved funds to
investment products marketed by both the bank and Hang Seng Bank. There was a
further movement of funds from time deposits to current and savings accounts in
both banks as customers preferred liquidity in an uncertain and low interest
rate environment.

In the rest of the Asia-Pacific region, customer accounts increased by HK$52.2
billion, or 22.8 per cent, since the end of 2001. At constant exchange rates the
increase was HK$35.0 billion or 15.3 per cent. Customer deposits from commercial
and corporate banking businesses increased by 24.4 per cent at constant exchange
rates, with increases in the bank in Japan, China, Korea, India, Singapore and
HSBC Bank Australia. Customer deposits from corporate customers grew strongly in
Taiwan. Deposits from personal customers grew by 6.5 per cent since the end of
2001 in the rest of the Asia-Pacific region with encouraging growth in a number
of countries.

The increase in certificates of deposit in issue compared with December 2001 was
mainly in the bank in Hong Kong and related to wealth management products
launched by the group.

The group's advances-to-deposits ratio improved slightly to 49.0 per cent at 31
December 2002 from 48.9 per cent at 31 December 2001.

18. Reserves
Figures in HK$m                                                                       At 31Dec02             At 31Dec01

Share premium account                                                                      3,895                  3,892
Revaluation reserves
- Premises revaluation reserve                                                             8,267                 10,011
- Investment properties revaluation reserve                                                1,973                  2,138
- Long-term equity investments revaluation
 reserve                                                                                   1,290                  2,171
                                                                                          11,530                 14,320
Retained profits                                                                          28,579                 19,980
                                                                                          44,004                 38,192



19. Contingent liabilities, commitments and derivatives
                                                                                          Credit               Risk-
                                                                   Contract           equivalent            weighted
Figures in HK$m                                                      amount               amount              amount

At 31Dec02
Contingent liabilities
- Acceptances and endorsements                                       16,829                3,773               3,522
- Guarantees                                                         96,698               84,467              35,279
- Other                                                                  29                   29                  29
                                                                    113,556               88,269              38,830
Commitments
- Documentary credits and short-term
 trade-related transactions                                          40,214               10,515               7,837
- Forward asset purchases and forward forward
 deposits placed                                                      9,683                9,683               1,939
- Undrawn formal standby facilities, credit lines
 and other commitments to lend:
- one year and over                                                  51,694               25,847              23,696
- under one year                                                    500,801                    -                   -
                                                                    602,392               46,045              33,472
Exchange rate contracts
- Spot and forward foreign exchange                               1,840,129               36,126               8,634
- Other exchange rate contracts                                     435,160               19,512               5,534
                                                                  2,275,289               55,638              14,168
Interest rate contracts
- Interest rate swaps                                             1,951,825               46,198              11,489
- Other interest rate contracts                                     809,638                3,313                 749
                                                                  2,761,463               49,511              12,238

Other derivative contracts                                            8,231                2,893               1,690

Impact of counterparty netting agreements on
 derivatives' exposure                                                    -              (45,483 )            (9,339 )


                                                                                          Credit               Risk-
                                                                   Contract           equivalent            weighted
Figures in HK$m                                                      amount               amount              amount

At 31Dec01

Contingent liabilities
- Acceptances and endorsements                                       11,148                2,254               2,161
- Guarantees                                                         72,842               62,022              33,004
- Other                                                                  28                   28                  28
                                                                     84,018               64,304              35,193
Commitments
- Documentary credits and short-term
 trade-related transactions                                          34,348                8,208               6,715
- Forward asset purchases and forward forward
 deposits placed                                                      1,441                1,441                 288
- Undrawn formal standby facilities, credit lines
 and other commitments to lend:
- one year and over                                                  49,587               24,793              21,054
- under one year                                                    461,405                    -                   -
                                                                    546,781               34,442              28,057
Exchange rate contracts
- Spot and forward foreign exchange                               1,899,434               37,157               8,812
- Other exchange rate contracts                                     310,080               19,853               5,670
                                                                  2,209,514               57,010              14,482
Interest rate contracts
- Interest rate swaps                                             1,323,477               26,532               6,303
- Other interest rate contracts                                     544,706                  886                 256
                                                                  1,868,183               27,418               6,559

Other derivative contracts                                            2,277                  804                 264

Impact of counterparty netting agreements on
 derivatives' exposure                                                    -              (27,915 )            (5,844 )

The tables above give the nominal contract amounts, credit equivalent amounts
and risk-weighted amounts of off-balance sheet transactions. The credit
equivalent amounts are calculated for the purposes of deriving the risk-weighted
amounts. These are assessed in accordance with the Third Schedule of the Banking
Ordinance on capital adequacy and depend on the status of the counterparty and
the maturity characteristics. The risk weights used range from 0 per cent to 100
per cent for contingent liabilities and commitments, from 0 per cent to 50 per
cent for exchange rate and interest rate contracts, and from 0 per cent to 100
per cent for other derivative contracts. The group has executed close-out
netting agreements with certain counterparties, which allow for positive and
negative mark-to-market values on different transactions to be offset and
settled by a single payment in the event of default by either party. These have
been taken into account in calculating total risk assets.

Contingent liabilities and commitments are credit-related instruments which
include acceptances, letters of credit, guarantees and commitments to extend
credit. The contract amounts represent the amounts at risk should the contract
be fully drawn upon and the client default. Since a significant portion of
guarantees and commitments is expected to expire without being drawn upon, the
total of the contract amounts is not representative of future liquidity
requirements.

Derivatives arise from futures, forward, swap and option transactions undertaken
by the group in the foreign exchange, interest rate and equity markets. The
contract amounts of these instruments indicate the volume of transactions
outstanding at the balance sheet date; they do not represent amounts at risk.

Replacement cost of contracts
Figures in HK$m                                                    At 31Dec02                  At 31Dec01

Exchange rate contracts                                                27,319                      26,969
Interest rate contracts                                                42,034                      24,027
Other derivative contracts                                                236                          21
                                                                       69,589                      51,017
Less: netting adjustments                                             (33,522 )                   (19,773 )
cash collateral received                                               (2,585 )                      (961 )

                                                                       33,482                      30,283

The replacement cost of contracts represents the mark-to-market assets on all
contracts with a positive value, i.e. an asset to the group. This comprises the
mark-to-market assets on contracts with third parties and fellow subsidiary
companies included in the balance sheet in 'Other assets', and on accrual
accounted contracts which are not marked-to-market in the balance sheet.

Replacement cost is a close approximation of the credit risk for these contracts
as at the balance sheet date. The actual credit risk is measured internally as
the sum of positive mark-to-market values and an estimate for the future
fluctuation risk, using a future risk factor.

The netting adjustments represent amounts where the group has in place legally
enforceable rights of offset with individual counterparties where there is a
right to offset the gross amount of positive mark-to-market assets with any
negative mark-to-market liabilities with the same customer. These offsets are
recognised by the Hong Kong Monetary Authority in the calculation of risk assets
for the capital adequacy ratio. Cash collateral received represents amounts
specifically held against identifiable transactions which meet the offset
criteria.

20. Foreign exchange exposure

The group had the following structural foreign currency exposures which exceeded
10 per cent of the net structural foreign currency exposure in all currencies:

Figures in HK$m                                                                    Net structural position

At 31Dec02

Singapore dollar                                                                                     3,491
United States dollar                                                                               (39,949 )

At 31Dec01

United States dollar                                                                               (39,680 )

The group's US dollar non-structural foreign currency position exceeded 10 per
cent of the group's net foreign currency non-structural positions in all
currencies and was made up as follows:
                                                                         US$ non-structural position

Figures in HK$m                                                            At 31Dec02            At 31Dec01

Spot assets                                                                   750,581               809,254
Spot liabilities                                                             (650,928 )            (701,270 )
Forward purchases                                                             962,706             1,115,011
Forward sales                                                                (957,646 )          (1,151,384 )
Net options position                                                              (35 )                 306
                                                                              104,678                71,917

21. Reconciliation of operating profit to cash generated from operations

Figures in HK$m                                                                       2002                     2001

Operating profit                                                                    33,570                   33,250
Net interest income                                                                (39,645 )                (39,274 )
Dividend income                                                                       (214 )                   (225 )
Depreciation and amortisation                                                        2,084                    2,032
Provisions for bad and doubtful debts                                                2,251                    2,257
Advances written off net of recoveries                                              (7,113 )                 (6,023 )
Other provisions for liabilities and charges                                           424                      156
Provisions utilised                                                                   (348 )                    (37 )
Interest received                                                                   47,879                   75,687
Interest paid                                                                      (19,311 )                (48,132 )

Net cash inflow from trading activities                                             19,577                   19,691

Change in treasury bills with original term to maturity
 of more than three months                                                         (26,570 )                 25,814
Change in placings with banks maturing after
 one month                                                                          24,816                   24,366
Change in certificates of deposit with original term to
 maturity of more than three months                                                (17,717 )                   (974 )
Change in securities held for dealing purposes                                     (13,084 )                (16,673 )
Change in advances to customers                                                    (42,428 )                (18,013 )
Change in amounts due from fellow subsidiary
 companies                                                                               8                    1,628
Change in other assets                                                             (15,145 )                 20,339
Change in current, savings and other deposit accounts                               95,420                  (17,583 )
Change in deposits by banks                                                         (2,172 )                  9,587
Change in amounts due to fellow subsidiary companies                                  (365 )                  4,126
Change in amounts due to ultimate holding company                                      (39 )                   (115 )
Change in other liabilities                                                         15,129                      731
Exchange adjustments                                                                   825                     (730 )

Cash generated from operations                                                      38,255                   52,194

22. Analysis of cash and cash equivalents
a. Changes in cash and cash equivalents during the year

Figures in HK$m                                                                       2002                     2001

Balance at beginning of the year                                                   314,206                  399,815
Net cash outflow before the effect of
 foreign exchange movements                                                        (55,091 )                (78,939 )
Effect of foreign exchange movements                                                 7,292                   (6,670 )
Balance at end of the year                                                         266,407                  314,206

b. Analysis of balances of cash and cash equivalents as classified in the consolidated balance sheet

Figures in HK$m                                                                       2002                     2001

Cash in hand and current balances with banks                                        29,257                   24,008
Placings with banks                                                                202,452                  236,379
Treasury bills                                                                      32,887                   53,112
Certificates of deposit                                                              1,811                      707
                                                                                   266,407                  314,206

c. Analysis of net outflow of cash and cash equivalents in respect of acquisition of and increased
shareholding in subsidiary companies

Figures in HK$m                                                                       2002                     2001

Cash consideration                                                                    (183 )                   (941 )
Cash and cash equivalents acquired                                                       7                      783
                                                                                      (176 )                   (158 )

d. Analysis of net outflow of cash and cash equivalents in respect of sale of subsidiary
companies

Figures in HK$m                                                                       2002                     2001

Sale proceeds                                                                            1                      105
Cash and cash equivalents transferred                                                   (1 )                (23,646 )

                                                                                         -                  (23,541 )

23. Segmental analysis

The allocation of earnings reflects the benefits of shareholders' funds to the
extent that these are actually allocated to businesses in the segment by way of
intra-group capital and funding structures. Common costs are included in
segments on the basis of the actual recharges made. Geographical information has
been classified by the location of the principal operations of the subsidiary
company or, in the case of the bank, by the location of the branch responsible
for reporting the results or advancing the funds. Due to the nature of the group
structure, the analysis of profits shown below includes intra-group items
between geographical regions.

Profit and loss account
                                                                       Rest of           Americas/
Figures in HK$m                                  Hong Kong        Asia-Pacific              Europe              Total

Year ended 31Dec02

Interest income                                     44,819              16,468                 521             61,808
Interest expense                                   (13,314 )            (8,399 )              (450 )          (22,163 )
Net interest income                                 31,505               8,069                  71             39,645
Dividend income                                        198                  13                   3                214
Fees and commissions receivable                     10,680               4,313                   7             15,000
Fees and commissions payable                        (1,433 )            (1,082 )               (15 )           (2,530 )
Dealing profits                                        675               1,807                  (1 )            2,481
Rental income from investment
 properties                                            238                   1                   -                239
Other                                                3,633                 393                   -              4,026
Operating income                                    45,496              13,514                  65             59,075
Operating expenses                                 (15,830 )            (7,393 )               (31 )          (23,254 )
Operating profit before provisions                  29,666               6,121                  34             35,821
Provisions for bad and doubtful debts               (1,921 )              (330 )                 -             (2,251 )
Provisions for contingent liabilities
 and commitments                                      (106 )               106                   -                  -
Operating profit                                    27,639               5,897                  34             33,570
Profit on tangible fixed assets
 and long-term investments                             375                   2                   -                377
Surplus/(deficit) on property
 revaluation                                          (385 )                14                   -               (371 )
Share of profits less losses of
 associated companies                                   85                   -                   -                 85
Profit on ordinary activities before tax            27,714               5,913                  34             33,661
Tax on profit on ordinary activities                (3,187 )              (829 )                (8 )           (4,024 )
Profit on ordinary activities after tax             24,527               5,084                  26             29,637
Minority interests                                  (3,779 )                (3 )                 -             (3,782 )
Profit attributable to shareholders                 20,748               5,081                  26             25,855


                                                                       Rest of           Americas/
Figures in HK$m                                  Hong Kong        Asia-Pacific              Europe              Total

Year ended 31Dec01

Interest income                                     68,564              18,653                 601             87,818
Interest expense                                   (36,616 )           (11,412 )              (516 )          (48,544 )
Net interest income                                 31,948               7,241                  85             39,274
Dividend income                                        200                  16                   9                225
Fees and commissions receivable                      9,939               3,753                  14             13,706
Fees and commissions payable                        (1,448 )              (786 )                (8 )           (2,242 )
Dealing profits                                      1,422               2,029                  (2 )            3,449
Rental income from investment
 properties                                            259                   2                   -                261
Other                                                3,164                 322                   1              3,487
Operating income                                    45,484              12,577                  99             58,160
Operating expenses                                 (15,924 )            (6,610 )               (41 )          (22,575 )
Operating profit before provisions                  29,560               5,967                  58             35,585
Provisions for bad and doubtful debts               (1,531 )              (774 )                48             (2,257 )
Provisions for contingent liabilities
 and commitments                                        49                (127 )                 -                (78 )
Operating profit                                    28,078               5,066                 106             33,250
Profit on tangible fixed assets and
 long-term investments                               1,270                   4                  15              1,289
Surplus/(deficit) on property
 revaluation                                             4                 (40 )                 -                (36 )
Share of profits less losses of
 associated companies                                  132                   -                   -                132
Profit on ordinary activities before tax            29,484               5,030                 121             34,635
Tax on profit on ordinary activities                (3,512 )              (953 )               (14 )           (4,479 )
Profit on ordinary activities after tax             25,972               4,077                 107             30,156
Minority interests                                  (3,923 )                 4                   -             (3,919 )
Profit attributable to shareholders                 22,049               4,081                 107             26,237

Interest income and interest expense include intra-group interest of HK$2,614
million (2001: HK$4,232 million). Fees and commissions receivable and fees and
commissions payable include intra-group fees of HK$128 million (2001: HK$72
million). Other operating income and operating expenses include intra-group
items of HK$759 million (2001: HK$535 million).

24. Capital adequacy

The table below sets out an analysis of regulatory capital and capital adequacy
ratios for the group.
Figures in HK$m                                                                     At 31Dec02             At 31Dec01

Composition of capital

Tier 1:
Shareholders' funds                                                                     92,444                 83,129
Less: proposed dividends                                                                (3,500 )                    -
property revaluation reserves                                                          (10,240 )              (12,149 )
long-term equity investments
revaluation reserve                                                                     (1,290 )               (2,171 )
term preference shares                                                                  (3,899 )               (3,896 )
goodwill                                                                                  (633 )                 (652 )
Minority interests ^                                                                    14,423                 15,495
Total qualifying tier 1 capital                                                         87,305                 79,756

Tier 2:
Property revaluation reserves (@70%) ^^                                                  7,168                  7,977
Long-term equity investments revaluation
 reserve (@70%)                                                                            904                  1,520
General provisions                                                                       4,238                  4,939
Perpetual subordinated debt                                                             12,282                 12,282
Term subordinated debt                                                                   2,632                  3,082
Term preference shares                                                                   3,899                  3,896
Total qualifying tier 2 capital                                                         31,123                 33,696

Investments in associated companies                                                     (1,499 )               (1,566 )
Investments in unconsolidated subsidiary
 companies                                                                              (2,766 )               (2,200 )
Investments in other banks                                                                (559 )                 (515 )
Total capital                                                                          113,604                109,171

Risk-weighted assets                                                                   895,496                836,946


^ After deduction of minority interests in unconsolidated subsidiary
companies.

^^ Balance at 31 December 2001 was capped at 31 December 1998 amount.

The group's capital adequacy ratios adjusted for market risks calculated in
accordance with the Hong Kong Monetary Authority Guideline on 'Maintenance of
Adequate Capital Against Market Risks' are as follows:

                                                                            At 31Dec02           At 31Dec01
Total capital                                                                    12.7 %                13.0 %

Tier 1 capital                                                                    9.8 %                 9.5 %

The group's capital adequacy ratios calculated in accordance with the provisions
of the Third Schedule of the Banking Ordinance which does not take into account
market risk are as follows:

Total capital                                                                    12.4 %                12.8 %

Tier 1 capital                                                                    9.5 %                 9.3 %

25. Liquidity ratio

The Banking Ordinance requires banks operating in Hong Kong to maintain a
minimum liquidity ratio, calculated in accordance with the provisions of the
Fourth Schedule of the Banking Ordinance, of 25 per cent. This requirement
applies separately to the Hong Kong branches of the bank and to those subsidiary
companies which are Authorised Institutions under the Banking Ordinance in Hong
Kong.
                                                                           2002                   2001
The average liquidity ratio for the
 period was as follows:

Hong Kong branches of the bank                                             51.1 %                 54.1 %

26. Property revaluation

The group's premises and investment properties were revalued as at 30 September
2002 and updated for any material changes at 31 December 2002. The basis of the
valuation for premises was open market value for existing use or, in the case of
one specialised building, depreciated replacement cost. The basis of the
valuation for investment properties was open market value. The bases of
valuation are unchanged from those used at 31 December 2001.

Premises and investment properties in the Hong Kong SAR, the Macau SAR and
mainland China, which represent 89.7 per cent by value of the group's properties
subject to valuation, were valued by Chesterton Petty Limited. The valuations
were carried out by independent qualified valuers who are members of the Hong
Kong Institute of Surveyors. Properties in five countries, which represent 9.3
per cent by value of the group's properties, were valued by different
independent professionally qualified valuers. Properties in six other countries,
with property portfolios previously valued at less than US$5 million,
representing one per cent by value were valued by management.

The property revaluation has resulted in a decrease in the group's revaluation
reserves of HK$1,605 million as at 31 December 2002 and a debit to the profit
and loss account of HK$371 million in respect of properties where the valuation
is below depreciated historical cost.

27. Accounting policies

The accounting policies adopted are consistent with those described in the
Annual Report and Accounts for 2001 except for the accounting and disclosure for
employee benefits which have been amended in accordance with Hong Kong Statement
of Standard Accounting Practice 34 ('HK SSAP 34') on Employee Benefits.

In prior years, contributions to defined benefit schemes were made in accordance
with the advice of qualified actuaries so as to recognise the cost of retirement
benefits on a systematic basis over the employees' service lives and were
charged to the profit and loss account for the year. Following the
implementation of HK SSAP 34, the retirement benefit cost of defined benefit
schemes charged to the current period profit and loss account is determined by
calculating the current service cost, interest cost and expected return on
scheme assets in accordance with a set of actuarial assumptions and taking into
account the amount of actuarial gains or losses required to be recognised. In
addition, in accordance with HK SSAP 34, transitional assets and liabilities in
respect of defined benefit schemes as of 1 January 2002, calculated by
estimating the amount of future benefit that the employees have earned in return
for their service in the prior periods, discounted to present value, and
deducting the fair value of the scheme assets, have been recognised through a
prior period adjustment.

The effect of the above change in accounting policy was to increase 'Retained
profits brought forward' by HK$576 million, being the net amount of transitional
assets and liabilities after deducting minority interest at 1 January 2002, and
to include defined benefit scheme assets of HK$851 million at 31 December 2002
in 'Other assets'.

28. Comparative figures

Certain comparative figures have been reclassified to conform with the current
year's presentation.

29. Statutory accounts

The information in this news release is not audited and does not constitute
statutory accounts.

Certain financial information in this news release is extracted from the
statutory accounts for the year ended 31 December 2002 which were approved by
the Board of Directors on 3 March 2003 and will be delivered to the Registrar of
Companies and the Hong Kong Monetary Authority. The Auditors expressed an
unqualified opinion on those statutory accounts in their report dated 3 March
2003. The Annual Report and Accounts for the year ended 31 December 2002, which
include the statutory accounts, can be obtained on request from Group Public
Affairs, The Hongkong and Shanghai Banking Corporation Limited, 1 Queen's Road
Central, Hong Kong, and may be viewed on our website: www.hsbc.com, on or after
31 March 2003.

30. Ultimate holding company

The Hongkong and Shanghai Banking Corporation Limited is an indirectly-held,
wholly-owned subsidiary of HSBC Holdings plc.


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            The company news service from the London Stock Exchange