3/4: Hang Seng 1H03 (2/3)

HSBC Holdings PLC
04 August 2003

Financial Review (continued)


Securities held for dealing purposes

Figures in HK$m                                     At 30Jun03            At 30Jun02                At 31Dec02


Debt securities by remaining maturity:
 - three months or less but not
 repayable on demand                                        40                   579                        97
 - one year or less
 but over three months                                      71                   214                        90
 - five years or less but over one year                    814                   416                       890
 - over five years                                         119                     -                       121
                                                         1,044                 1,209                     1,198
Equity shares                                                3                     -                         -
                                                         1,047                 1,209                     1,198



Advances to customers

Figures in HK$m                                     At 30Jun03            At 30Jun02                At 31Dec02


Gross advances to customers                            228,840               228,893                   227,475
Specific provisions                                     (1,568)               (1,710)                   (1,805)
General provisions                                      (1,101)               (1,437)                   (1,108)
                                                       226,171               225,746                   224,562

Remaining maturity:
 - repayable on demand                                  12,162                12,128                    11,983
 - three months or less but not
 repayable on demand                                    17,263                15,441                    18,128
 - one year or less
 but over three months                                  22,512                26,036                    21,243
 - five years or less but over one year                 85,981                83,242                    84,466
 - over five years                                      82,189                84,628                    84,273
 - overdue for more than one month                       3,062                 1,452                     1,301
 - non-performing advances                               5,671                 5,966                     6,081
Gross advances to customers                            228,840               228,893                   227,475
Provisions for bad and doubtful debts                   (2,669)               (3,147)                   (2,913)
                                                       226,171               225,746                   224,562


Included in advances to customers are:
 - trade bills                                           2,309                 2,222                     2,180
 - provisions for bad and doubtful debts                   (23)                  (66)                      (78)
                                                         2,286                 2,156                     2,102


Advances to customers (after deduction of interest in suspense and provisions)
recorded a modest growth of HK$1,609 million, or 0.7 per cent, to HK$226.2
billion at 30 June 2003, with loan demand remaining weak during the period.


Provisions against advances to customers

                                                                                                    Suspended
Figures in HK$m                                   Specific        General            Total           interest

At 1Jan03                                            1,805          1,108            2,913                404
Amounts written off                                   (721)             -             (721)              (93)
Recoveries of advances
 written off in previous years                          22              -               22                  -
Net charge/(release) to
 profit and loss account                               462             (6)             456                  -
Interest suspended during the period                     -              -                -                 77
Suspended interest recovered                             -              -                -                (29)
Exchange adjustment                                      -             (1)              (1)                 -
At 30Jun03                                           1,568          1,101            2,669                359


Suspended interest comprises both suspended interest netted against 'Advances to
customers' and suspended interest netted against accrued interest receivable in
'Prepayments and accrued income'.


Total provisions as a percentage of gross advances to customers are as follows:

                                                    At 30Jun03            At 30Jun02                At 31Dec02
                                                             %                     %                         %

Specific provisions                                       0.69                  0.75                      0.79
General provisions                                        0.48                  0.63                      0.49
Total provisions                                          1.17                  1.38                      1.28



Total provisions as a percentage of gross advances to customers fell to 1.17 per
cent at 30 June 2003, compared with 1.28 per cent at the end of 2002. Specific
provisions as a percentage of gross advances decreased by 10 basis points to
0.69 per cent. The reduction mainly reflected the writing-off of irrecoverable
balances and the repayment and upgrading of rescheduled advances and doubtful
accounts to performing status. General provisions stood at 0.48 per cent of
gross advances to customers, compared with 0.49 per cent at the end of 2002.


Non-performing advances to customers and provisions


Non-performing advances to customers on which interest has been placed in
suspense or on which interest has ceased to accrue are as follows:

Figures in HK$m                                     At 30Jun03            At 30Jun02                At 31Dec02

Gross non-performing advances on
 which interest:
 - has been placed in suspense                           5,567                 5,622                     5,767
 - accrual has ceased                                      182                   479                       429
                                                         5,749                 6,101                     6,196
Suspended interest                                         (78)                 (135)                     (115)
Gross non-performing advances  ^ 
 (page 24)                                               5,671                 5,966                     6,081
Specific provisions                                     (1,568)               (1,710)                   (1,805)
Net non-performing advances                              4,103                 4,256                     4,276

Specific provisions as a percentage of
 gross non-performing advances  ^                         27.6 %                28.7 %                    29.7 %

Gross non-performing advances  ^ 
 as a percentage of gross advances
 to customers                                              2.5 %                 2.6 %                     2.7 %


 ^  Stated after deduction of interest in suspense.


Non-performing advances to customers are those advances where full repayment of
principal or interest is considered unlikely and are so classified as soon as
such a situation becomes apparent. Non-performing advances may include advances
that are not yet overdue for more than three months but are considered doubtful.
Except in certain limited circumstances, all advances on which principal or
interest is overdue for more than three months are classified as non-performing.
Specific provisions are made after taking into account the value of collateral
held in respect of such advances.

Gross non-performing advances (after deduction of interest in suspense) fell by
HK$410 million, or 6.7 per cent, to HK$5,671 million, compared with the end of
2002. The ratio of gross non-performing advances to gross advances to customers
further improved to 2.5 per cent from 2.7 per cent at the end of 2002.

Overdue advances to customers


The amounts of advances to customers which are overdue for more than three
months and their expression as a percentage of gross advances to customers are
as follows:

                                                     At 30Jun03                 At 30Jun02                At 31Dec02

                                                HK$m          %           HK$m           %           HK$m          %

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                                  1,196        0.5            823         0.3            934        0.4
 - one year or less but over six months        1,098        0.5          1,321         0.6          1,097        0.5
 - over one year                               2,460        1.1          2,910         1.3          2,734        1.2
                                               4,754        2.1          5,054         2.2          4,765        2.1

Overdue advances to customers
 (as above)                                    4,754        2.1          5,054         2.2          4,765        2.1
Less: overdue advances on which
 interest is still being accrued              (1,305)      (0.6)          (691)       (0.3)        (1,131)      (0.5)
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            1,843        0.8            321         0.1          1,814        0.8
 - other                                         379        0.2          1,282         0.6            633        0.3
Gross non-performing advances
 (page 23)                                     5,671        2.5          5,966         2.6          6,081        2.7


 ^  Stated after deduction of interest in suspense.


Advances with a specific repayment date are classified as overdue when the
principal or interest is overdue and remains unpaid at the period-end. Advances
repayable by regular instalments are treated as overdue when an instalment
payment is overdue and remains unpaid at the period-end. Advances repayable on
demand are classified as overdue either when a demand for repayment has been
served on the borrower but repayment has not been made in accordance with the
demand notice, or when the advances have remained continuously outside the
approved limit advised to the borrower for more than the overdue period in
question.


Rescheduled advances to customers

The amount of rescheduled advances and its expression as a percentage of gross
advances to customers are as follows:

                                                      At 30Jun03               At 30Jun02               At 31Dec02
                                                 HK$m          %          HK$m          %         HK$m           %
Rescheduled advances to customers  ^            2,958        1.3           391        0.2        1,831         0.8


 ^  Stated after deduction of interest in suspense.


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

Rescheduled advances to customers are stated net of any advances that have
subsequently become overdue for over three months and are included in overdue
advances to customers (page 24).

Rescheduled advances to customers increased by HK$1,127 million, or 61.6 per
cent, to HK$2,958 million at 30 June 2003, representing 1.3 per cent of gross
advances to customers. The increase was due to the debt restructuring of certain
corporate customers.

Repossessed assets

In the recovery of non-performing advances, Hang Seng may take repossession of
the collateral assets through court proceedings or voluntary delivery of
possession by the borrowers. Specific provisions have been made in respect of
such non-performing advances taking into account the net realisable value of the
related collateral which is revalued periodically. Upon repossession of the
collateral assets, the advances are adjusted to the net realisable value of the
repossessed assets, usually resulting in a partial write-off of the advances
against specific provisions. Advances with repossessed collateral assets will
continue to be accounted for as 'Advances to customers' and classified as
non-performing.
                                                    At 30Jun03            At 30Jun02                At 31Dec02

Repossessed collateral assets                              603                   679                       638


Segmental analysis of advances to customers by geographical area

Advances to customers by geographical area are classified according to the
location of the counterparties after taking into account the transfer of risk.
In general, risk transfer applies when an advance is guaranteed by a party
located in an area which is different from that of the counterparty. At 30 June
2003, over 90 per cent of Hang Seng's advances to customers and the related
non-performing advances and overdue advances were classified under the area of
Hong Kong (unchanged from the position at 30 June 2002 and 31 December 2002).


Gross advances to customers by industry sector

The analysis of gross advances to customers (after deduction of interest in
suspense) by industry sector based on categories and definitions used by the
Hong Kong Monetary Authority is as follows:

Figures in HK$m                                     At 30Jun03           At 30Jun02                At 31Dec02

Gross advances to customers for
 use in Hong Kong

Industrial, commercial and
 financial sectors
Property development                                    17,910               19,775                    19,300
Property investment                                     33,268               29,952                    31,507
Financial concerns                                       3,681                2,121                     2,071
Stockbrokers                                               154                  199                       219
Wholesale and retail trade                               4,097                3,755                     3,941
Manufacturing                                            2,096                2,032                     2,037
Transport and transport equipment                        8,885                9,671                     9,238
Other                                                   20,158               19,129                    19,521
                                                        90,249               86,634                    87,834

Individuals
Advances for the purchase of flats
 under the Government Home
 Ownership Scheme, Private Sector
 Participation Scheme and Tenants
 Purchase Scheme                                        32,840               36,752                    35,050
Advances for the purchase of other
 residential properties                                 77,972               78,937                    78,518
Credit card advances                                     5,186                5,419                     5,578
Other                                                    6,283                6,944                     6,251
                                                       122,281              128,052                   125,397
Total gross advances for
 use in Hong Kong                                      212,530              214,686                   213,231
Trade finance                                           11,029               10,002                     9,751
Gross advances for use
 outside Hong Kong                                       5,281                4,205                     4,493
Gross advances to customers                            228,840              228,893                   227,475


Lending to the industrial, commercial and financial sectors grew by HK$2,415
million, or 2.7 per cent, since the end of 2002. The increase was mainly in
lending to financial concerns which included public sector entities engaged in
financing activities. Lending to the property sector also rose slightly.


Trade finance rose by HK$1,278 million, or 13.1 per cent, benefiting from the
improvement in external trade.


Advances to individuals decreased by HK$3,116 million, or 2.5 per cent. Lending
under the GHOS continued to decline following the suspension of the sale of new
flats under this scheme since the second half of 2002. Residential mortgages and
credit card advances also fell marginally, in part due to the outbreak of SARS
in the second quarter of 2003.

Long-term investments

                                                                       Carrying value
Figures in HK$m                                      At 30Jun03            At 30Jun02                At 31Dec02

Held-to-maturity debt securities
Issued by public bodies
 - central governments and central banks                 10,413                 6,940                    10,664
 - other public sector entities                          12,874                 8,375                     9,219
                                                         23,287                15,315                    19,883
Issued by other bodies
 - banks and other financial institutions                58,608                21,229                    40,011
 - corporate entities                                    15,368                15,428                    16,960
                                                         73,976                36,657                    56,971
                                                         97,263                51,972                    76,854
Equity investments
Issued by corporate entities                              1,814                 2,946                     2,315
                                                         99,077                54,918                    79,169

Held-to-maturity debt securities
 - listed in Hong Kong                                    2,436                 1,167                     2,340
 - listed outside Hong Kong                              22,513                15,368                    19,551
                                                         24,949                16,535                    21,891
 - unlisted                                              72,314                35,437                    54,963
                                                         97,263                51,972                    76,854

Equity investments
 - listed in Hong Kong                                    1,085                 2,189                     1,603
 - listed outside Hong Kong                                  64                    82                        70
                                                          1,149                 2,271                     1,673
 - unlisted                                                 665                   675                       642
                                                          1,814                 2,946                     2,315

                                                         99,077                54,918                    79,169



Held-to-maturity debt securities are stated at cost, adjusted for the
amortisation of premiums and accretion of discounts over the period from the
date of purchase to the date of redemption. Equity investments are stated at
fair value, less provision for impairment.

Investment in held-to-maturity debt securities rose by HK$20,409 million, or
26.6 per cent, to HK$97,263 million, with funds re-deployed from interbank
placings to enhance net interest yield. Over 95 per cent of the held-to-maturity
debt securities will mature within five years. The fair value of the
held-to-maturity debt securities amounted to HK$98.8 billion, with an unrealised
gain of HK$1.6 billion.


The following table shows the fair value of held-to-maturity debt securities:

                                                                          Fair value
Figures in HK$m                                       At 30Jun03             At 30Jun02                At 31Dec02

Held-to-maturity debt securities
Issued by public bodies
 - central governments and central banks                  10,673                  7,055                    10,924
 - other public sector entities                           13,465                  8,649                     9,645
                                                          24,138                 15,704                    20,569
Issued by other bodies
 - banks and other financial institutions                 59,018                 21,278                    40,213
 - corporate entities                                     15,682                 15,549                    17,241
                                                          74,700                 36,827                    57,454
                                                          98,838                 52,531                    78,023

Held-to-maturity debt securities
 - listed in Hong Kong                                     2,515                  1,182                     2,403
 - listed outside Hong Kong                               22,800                 15,494                    19,777
                                                          25,315                 16,676                    22,180
 - unlisted                                               73,523                 35,855                    55,843
                                                          98,838                 52,531                    78,023


Maturity analysis of held-to-maturity debt securities:

                                                                        Carrying value
Figures in HK$m                                       At 30Jun03             At 30Jun02                At 31Dec02

Remaining maturity:
 - three months or less but
 not repayable on demand                                   7,959                  7,532                    14,875
 - one year or less but over three months                 12,580                 10,667                     8,911
 - five years or less but over one year                   72,966                 31,481                    50,807
 - over five years                                         3,758                  2,292                     2,261
                                                          97,263                 51,972                    76,854


Other assets

                                                       At 30Jun03            At 30Jun02                At 31Dec02
Figures in HK$m                                                                restated  ^               restated  ^ 

Unrealised gains on off-balance sheet
 interest rate, exchange rate and
 other derivative contracts
 which are marked to market                                 1,117                   876                       981
Deferred taxation                                              55                   106                        73
Items in the course of collection from
 other banks                                                2,945                 3,756                     2,886
Prepayments and accrued income                              2,403                 2,040                     2,143
Long-term assurance assets
 attributable to policy holders                             3,763                     -                     2,897
Other accounts                                              3,232                 1,862                     3,340
                                                           13,515                 8,640                    12,320

Remaining maturity:
 - three months or less                                     6,551                 6,874                     6,929
 - one year or less
 but over three months                                      1,894                   621                       637
 - five years or less but over one year                       199                   947                       968
 - over five years                                          4,826                   162                     3,745
                                                           13,470                 8,604                    12,279
 - overdue  ^ ^ 
 -- six months or less
    but over three months                                       7                     5                         5
 -- one year or less but over six months                        9                     7                         9
 -- over one year                                              29                    24                        27
                                                               45                    36                        41
                                                           13,515                 8,640                    12,320


 ^  Certain figures for 2002 have been restated to reflect the adoption of Hong
Kong Statement of Standard Accounting Practice 12 (revised) (HKSSAP 12) on '
Income taxes', details of which are set out in Note 1 of the additional
information.


 ^ ^  Represented mainly by overdue interest receivable included under  
'Prepayments and accrued income'.


Current, savings and other deposit accounts

Figures in HK$m                                       At 30Jun03             At 30Jun02                At 31Dec02

Customer deposit accounts
 - current accounts                                       38,854                 32,548                    36,242
 - savings accounts                                      165,717                146,910                   154,476
 - time and other deposits                               204,445                211,020                   206,973
Certificates of deposit in issue                          10,014                 17,809                    15,916
Other debt securities in issue                                53                      8                        86
                                                         419,083                408,295                   413,693

Customer deposit accounts
Repayable on demand                                      232,393                223,161                   210,351
With agreed maturity dates
 or periods of notice,
 by remaining maturity:
 - three months or less but
 not repayable on demand                                 166,328                159,948                   180,380
 - one year or less but over three months                  9,029                  6,973                     6,701
 - five years or less
 but over one year                                         1,266                    396                       259
                                                         409,016                390,478                   397,691

Certificates of deposit in issue
Remaining maturity:
 - three months or less but
 not repayable on demand                                   2,121                  6,836                     2,887
 - one year or less but
 over three months                                         2,981                  8,827                     9,635
 - five years or less but over one year                    4,727                  1,781                     3,189
 - over five years                                           185                    365                       205
                                                          10,014                 17,809                    15,916

Other debt securities in issue
Remaining maturity:
 - three months or less but
 not repayable on demand                                       -                      8                        48
 - one year or less
 but over three months                                        53                      -                        38
                                                              53                      8                        86
                                                         419,083                408,295                   413,693


Current, savings and other deposit accounts increased by HK$5.4 billion, or 1.3
per cent, to HK$419.1 billion, compared with HK$413.7 billion at 31 December
2002. The growth was mainly in customer deposit accounts which grew by HK$11.3
billion, or 2.8 per cent. During the period, customers continued to shift from
time deposits to savings and current accounts, reflecting preference for
liquidity in the prevailing low interest rate environment.

Certificates of deposit and other debt securities in issue fell by HK$5.9
billion, or 37.1 per cent, to HK$10.1 billion following the maturity of part of
the certificates of deposit portfolio.


Deposits from banks

Figures in HK$m                                     At 30Jun03            At 30Jun02                At 31Dec02

Repayable on demand                                        854                 1,146                       555
With agreed maturity dates
 or periods of notice,
 by remaining maturity:
 - three months or less but
 not repayable on demand                                 1,439                 1,137                       515
 - one year or less
 but over three months                                      66                     4                         2
                                                         2,359                 2,287                     1,072



Other liabilities

                                                     At 30Jun03            At 30Jun02                At 31Dec02
Figures in HK$m                                                              restated  ^               restated  ^ 

Short positions in securities                             5,604                 5,267                     2,916
Unrealised losses on off-balance sheet
 interest rate, exchange rate and
 other derivative contracts which
 are marked to market                                     1,072                   726                       832
Current taxation                                            921                   998                       249
Deferred taxation                                           601                   605                       635
Items in the course of
 transmission to other banks                              4,030                 4,253                     4,629
Accruals and deferred income                              1,531                 1,303                     1,668
Provisions for other liabilities
 and charges                                                384                   329                       313
Long-term liabilities attributable to
 policy holders                                           3,763                     -                     2,897
Other                                                       944                 1,103                       606
                                                         18,850                14,584                    14,745


 ^  Certain figures for 2002 have been restated to reflect the adoption of Hong
Kong Statement of Standard Accounting Practice 12 (revised) (HKSSAP 12) on '
Income taxes', details of which are set out in Note 1 of the additional
information.

Other liabilities increased by HK$4,105 million, or 27.8 per cent, to HK$18,850
million, compared with HK$14,745 million at 31 December 2002, reflecting the
increase in short positions in securities, long-term liabilities attributable to
policy holders and provision for current taxation. These were partly offset by a
reduction in the items in the course of transmission to other banks.


Shareholders' funds

                                                     At 30Jun03            At 30Jun02                At 31Dec02
Figures in HK$m                                                              restated  ^               restated  ^ 

Share capital                                             9,559                 9,559                     9,559
Retained profits                                         20,504                21,005                    19,440
Premises and investment properties
 revaluation reserves                                     5,906                 7,319                     6,667
Long-term equity investment
 revaluation reserve                                        647                 1,619                     1,011
Capital redemption reserve                                   99                    99                        99
Total reserves                                           27,156                30,042                    27,217
                                                         36,715                39,601                    36,776
Proposed dividends                                        4,015                 4,015                     6,309
Shareholders' funds                                      40,730                43,616                    43,085

Return on average shareholders' funds                      24.4 %                24.1 %                    21.9 %


 ^  Certain figures for 2002 have been restated to reflect the adoption of Hong
Kong Statement of Standard Accounting Practice 12 (revised) (HKSSAP 12) on '
Income taxes', details of which are set out in Note 1 of the additional
information on page 50.


There was no purchase, sale or redemption of the bank's listed securities by the
bank or any of its subsidiaries during the first half of 2003.

Shareholders' funds (excluding proposed dividends) fell by HK$61 million, or 0.2
per cent, to HK$36,715 million at 30 June 2003. Retained profits rose by
HK$1,064 million. Premises and investment properties revaluation reserves fell
by HK$761 million as a result of the further decline in the property market and
the provision for deferred tax on property revaluation surplus following the
adoption of the HKSSAP 12. The disposal of long-term equities led to a reduction
of HK$364 million in the long-term equity investment revaluation reserve.

The return on average shareholders' funds was 24.4 per cent, compared with 24.1
per cent and 21.9 per cent for the first and second halves of 2002 respectively.

Capital resources management


Analysis of capital base and risk-weighted assets

Figures in HK$m                                     At 30Jun03            At 30Jun02                At 31Dec02

Capital base
Tier 1 capital
 - share capital                                         9,559                 9,559                     9,559
 - retained profits                                     19,919                20,533                    18,795
 - capital redemption reserve                               99                    99                        99
 - total                                                29,577                30,191                    28,453

Tier 2 capital
 - premises and investment properties
 revaluation reserves                                    4,160                 5,674                     5,153
 - long-term equity investment
 revaluation reserve                                       459                 1,056                       705
 - general provisions                                    1,101                 1,437                     1,108
 - total                                                 5,720                 8,167                     6,966

Unconsolidated investments and
 other deductions                                       (1,404)               (1,608)                   (1,376)
Total capital base after deductions                     33,893                36,750                    34,043

Risk-weighted assets
On-balance sheet                                       226,484               224,802                   222,758
Off-balance sheet                                       14,243                14,058                    16,262
Total risk-weighted assets                             240,727               238,860                   239,020
Total risk-weighted assets adjusted for
 market risk                                           241,300               239,200                   239,426

Capital adequacy ratios
After adjusting for market risk
 - tier 1  ^                                              12.3 %                12.6 %                    11.9 %
 - total  ^                                               14.0 %                15.4 %                    14.2 %

Before adjusting for market risk
 - tier 1                                                 12.3 %                12.6 %                    11.9 %
 - total                                                  14.1 %                15.4 %                    14.2 %


 ^  The capital ratios take into account market risks in accordance with the
relevant Hong Kong Monetary Authority guideline under the Supervisory Policy
Manual.


The total capital ratio fell by 20 basis points to 14.0 per cent at 30 June
2003, compared with 14.2 per cent at 31 December 2002. The capital base recorded
a reduction of 0.4 per cent while risk-weighted assets adjusted for market risk
rose by 0.8 per cent.

The tier 1 capital ratio rose by 40 basis points to 12.3 per cent as a result of
the 6.0 per cent growth in retained profits.


Liquidity ratio

The average liquidity ratio for the period, calculated in accordance with the
Fourth Schedule of the Hong Kong Banking Ordinance, is as follows:

                                         Half-year ended           Half-year ended             Half-year ended
                                                 30Jun03                   30Jun02                     31Dec02
The bank and its major
banking subsidiaries                                45.0 %                    43.4 %                      45.5 %



Reconciliation of cash flow statement

(a) Reconciliation of operating profit to net cash flow from operating
activities

                                                                   Half-year ended            Half-year ended
Figures in HK$m                                                            30Jun03                    30Jun02

Operating profit                                                             5,617                      5,568
Net interest income                                                         (5,220)                    (5,453)
Dividend income                                                                (37)                       (53)
Provisions for bad and doubtful debts                                          456                        281
Depreciation                                                                   171                        174
Amortisation of long-term investments                                           17                        (42)
Advances written off net of recoveries                                        (700)                      (624)
Interest received                                                            5,413                      6,736
Interest paid                                                               (1,462)                    (2,294)
Operating profit before changes in
 working capital                                                             4,255                      4,293
Change in cash and short-term funds                                            889                      1,499
Change in placings with banks
 repayable after one month                                                   3,181                       (976)
Change in certificates of deposit                                              676                     (3,374)
Change in securities held for dealing purposes                                 151                        958
Change in advances to customers                                             (1,365)                    (2,967)
Change in amounts due from
 immediate holding company and
 fellow subsidiary companies                                                  (357)                      (455)
Change in other assets                                                      (1,213)                       (57)
Change in customer deposit accounts                                         11,325                     (5,286)
Change in debt securities in issue                                          (5,935)                      (747)
Change in deposits from banks                                                1,287                       (335)
Change in amounts due to
 immediate holding company and
 fellow subsidiary companies                                                  (858)                       845
Change in other liabilities                                                  3,487                      1,759
Elimination of exchange differences
 and other non-cash items                                                   (5,399)                    (3,985)
Cash generated from operating activities                                    10,124                     (8,828)
Taxation paid                                                                  (11)                       (68)
Net cash inflow/(outflow)
 from operating activities                                                  10,113                     (8,896)


(b) Analysis of the balances of cash and cash equivalents

Figures in HK$m                                                           At 30Jun03                 At 30Jun02

Cash in hand and balances with banks and
 other financial institutions                                                  4,014                      4,244
Money at call and placings with banks
 maturing within one month                                                    61,574                     82,455
Treasury bills                                                                 1,363                      2,415
Certificates of deposit                                                          229                        398
                                                                              67,180                     89,512


Contingent liabilities, commitments and derivatives

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

At 30Jun03

Contingent liabilities:
Guarantees                                                      10,974               10,795               3,650

Commitments:
Documentary credits and short-term
 trade-related transactions                                      7,142                1,429               1,422

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

 - under one year                                               64,708                    -                   -
 - one year and over                                            19,539                9,770               8,444
Other                                                               38                   38                  38
                                                                91,427               11,237               9,904

Exchange rate contracts:
Spot and forward foreign exchange                               84,812                1,072                 264
Other exchange rate contracts                                   42,140                  379                  86
                                                               126,952                1,451                 350

Interest rate contracts:
Interest rate swaps                                             78,220                1,366                 336
Other interest rate contracts                                   13,281                    6                   3
                                                                91,501                1,372                 339

Other derivative contracts                                         108                    4                   1

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

At 30Jun02

Contingent liabilities:
Guarantees                                                    14,635               14,481                4,311

Commitments:
Documentary credits and short-term
 trade-related transactions                                    7,470                1,501                1,492
Undrawn formal standby facilities, credit
 lines and other commitments to lend:
 - under one year                                             65,755                    -                    -
 - one year and over                                          16,668                8,334                7,656
Other                                                             47                   47                   47
                                                              89,940                9,882                9,195

Exchange rate contracts:
Spot and forward foreign exchange                            106,446                1,016                  248
Other exchange rate contracts                                 11,855                  168                   42
                                                             118,301                1,184                  290

Interest rate contracts:
Interest rate swaps                                           52,200                1,077                  261
Other interest rate contracts                                 16,550                    -                    -
                                                              68,750                1,077                  261

Other derivative contracts                                        16                    -                    -


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

At 31Dec02

Contingent liabilities:
Guarantees                                                     13,864               13,717               4,321

Commitments:
Documentary credits and short-term
 trade-related transactions                                     6,982                1,400               1,394
Undrawn formal standby facilities, credit
 lines and other commitments to lend:
 - under one year                                              65,110                    -                   -
 - one year and over                                           21,565               10,783               9,840
Other                                                              41                   41                  41
                                                               93,698               12,224              11,275

Exchange rate contracts:
Spot and forward foreign exchange                              73,607                  894                 251
Other exchange rate contracts                                  24,104                  261                  55
                                                               97,711                1,155                 306

Interest rate contracts:
Interest rate swaps                                            64,443                1,454                 357
Other interest rate contracts                                   7,969                    8                   2
                                                               72,412                1,462                 359

Other derivative contracts                                        177                    6                   1



The tables above give the nominal contract, credit equivalent 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 Hong Kong 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, and from 0 per cent to 50
per cent for exchange rate, interest rate and other derivative contracts.


Contingent liabilities and commitments are credit-related instruments which
include acceptances, letters of credit, guarantees and commitments to extend
credit. The risk involved is essentially the same as the credit risk involved in
extending loan facilities to customers. These transactions are, therefore,
subject to the same credit origination, portfolio maintenance and collateral
requirements as for customers applying for loans. As the facilities may expire
without being drawn upon, the total of the contract amounts is not
representative of future liquidity requirements.


                      This information is provided by RNS
            The company news service from the London Stock Exchange