Hang Seng Bank Final Results - Part 1

HSBC Hldgs PLC
28 February 2000



PART 1

                   HANG SENG BANK LIMITED
                  1999 RESULTS - HIGHLIGHTS

* Operating profit before provisions up 4.1 per cent to
  HK$11,065 million (HK$10,632 million in 1998).

* Pre-tax profit up 22.7 per cent to HK$9,784 million (HK$7,976
  million in 1998).

* Attributable profit up 22.4 per cent to HK$8,307 million
  (HK$6,788 million in 1998).

* Return on average shareholders' funds of 17.6 per cent (13.5
  per cent in 1998).

* Total assets up HK$19.4 billion to HK$442.1 billion (HK$422.7
  billion at 31 December 1998).

* Earnings per share up 22.5 per cent to HK$4.35 (HK$3.55 per
  share in 1998).

* Dividends per share of HK$8.20, including a special interim
  dividend of HK$4.10 (HK$3.42 per share in 1998).

* Total capital ratio of 17.3 per cent (21.3 per cent at 31
  December 1998); tier 1 capital ratio of 13.3 per cent (17.5
  per cent at 31 December 1998).

* Cost:income ratio improved to 25.3 per cent (26.7 per cent in
  1998).

Hang Seng Bank reports profit attributable to shareholders of
HK$8,307 million for 1999, up 22.4 per cent on 1998

Hang Seng Bank Limited and its subsidiary companies (Hang
Seng) reported a profit attributable to shareholders of
HK$8,307 million for 1999, an increase of 22.4 per cent
compared with 1998. Earnings per share of HK$4.35 were 22.5
per cent higher than 1998.

Operating profit before provisions increased by 4.1 per cent
to HK$11,065 million, due to both an increase in operating
income and a reduction in operating expenses. Operating
profit rose by 18.3 per cent to HK$9,646 million, benefiting
from a substantial reduction in provisions for bad and
doubtful debts. Profit before tax amounted to HK$9,784
million, 22.7 per cent higher than 1998, and included an
increase in profit on disposal of long-term investments and a
reduction in the deficit on property revaluation charged to
profit and loss account. The cost:income ratio further
improved by 1.4 percentage points to 25.3 per cent (26.7 per
cent for 1998).

Total assets grew by HK$19.4 billion, or 4.6 per cent, during
the year to HK$442.1 billion at 31 December 1999. Holdings of
interbank assets and debt securities increased, largely
driven by the growth in customer deposits while advances to
customers fell slightly due to subdued corporate loan demand.

Shareholders' funds decreased by HK$5,931 million, or 13.0
per cent, to HK$39,574 million at 31 December 1999, the net
effect of the distribution of the special interim dividend
and an increase in the long-term equity investment
revaluation reserve.

The return on average total assets was 1.9 per cent (1.7 per
cent for 1998) while the return on average shareholders'
funds was 17.6 per cent (13.5 per cent for 1998).

The advances to deposits ratio was 52.5 per cent at 31
December 1999 compared with 56.2 per cent at the end of 1998,
reflecting the growth in customer deposits and a slight fall
in advances to customers. Hang Seng continued to maintain a
strong liquidity position, with the average liquidity ratio
for 1999 (calculated in accordance with the Fourth Schedule
of the Banking Ordinance) standing at 42.4 per cent (39.2 per
cent for 1998).

The total capital ratio at 31 December 1999 was 17.3 per cent
(21.3 per cent at 31 December 1998) and the tier 1 capital
ratio was 13.3 per cent (17.5 per cent at 31 December 1998).

Second interim dividend

In consideration of shareholders' interest, the Directors
have declared a second interim dividend (in lieu of a final
dividend) of HK$2.50 per share. This is payable on Thursday,
23 March 2000 to shareholders on the Register of Shareholders
on Thursday, 16 March 2000. Together with the first interim
and special interim dividends of HK$1.60 and HK$4.10 per
share respectively already paid, the total distribution for
1999 will amount to HK$8.20 per share (HK$3.42 per share for
1998).

Excluding the special interim dividend, which was paid out of
retained profits, the total dividend payment for the year
represents 94 per cent of the 1999 attributable profit (96
per cent for 1998). This should not be taken as an indication
of future dividend levels.

Comment by David Eldon, Chairman

'Hang Seng's 22.4 per cent increase in 1999 attributable
profit was encouraging given the challenging and competitive
market environment. The results benefited from the rise in
income and lower costs together with a substantial reduction
in provisions for bad and doubtful debts.

'Under our 'Managing for Value' strategy, we are in a strong
position to take advantage of opportunities arising from the
recovery of the economy.

'We shall further strengthen our ability to compete in the
cyber era by offering the best financial solutions through
innovative new banking channels. We are gearing up to be a
major e-player. A comprehensive range of secure and reliable
internet services will be introduced in 2000.

'In addition, we are expanding wealth management services,
including investment and insurance, and devoting considerable
resources to Mandatory Provident Fund services -  areas that
offer vast potential.'

Contents                                                                  

The financial information in this news release is based on
the unaudited consolidated accounts of Hang Seng Bank Limited
and its subsidiary companies for the year ended
31 December 1999.

    Highlights of Results
    Chairman's Comment
    Contents
    Consolidated Profit and Loss Account
    Financial Information Extracted from the Consolidated
    Balance Sheet
    Financial Review
         Net interest income
         Other operating income
         Operating expenses
         Provisions for bad and doubtful debts
         Profit on tangible fixed assets and long-term investments
         Taxation
         Earnings per share
         Dividends per share
         Cash and short-term funds
         Placings with banks maturing after one month
         Advances to customers
         Provisions against advances to customers
         Non-performing advances to customers and provisions
         Overdue advances to customers
         Rescheduled advances to customers
         Advances to customers by industry sectors
         Long-term investments
         Other assets
         Current, savings and other deposit accounts
         Shareholders' funds
         Contingent liabilities, commitments and derivatives
    Additional Information
         Accounting policies
         Capital ratios
         Property revaluation
         Year 2000 readiness
         Statutory accounts
         Ultimate holding company
         Register of shareholders
         News release

Consolidated Profit and Loss Account
                                                             
                                                Year ended 31 
                                                     December
Figures in HK$m                             1999         1998 
                                                              
Interest income                            28,072       32,280 
Interest expense                          (16,405)     (20,925)
Net interest income                        11,667       11,355 
Other operating income                      3,141        3,142 
Operating income                           14,808       14,497 
Operating expenses                         (3,743)      (3,865)
Operating profit before provisions         11,065       10,632 
Provisions for bad and doubtful debts      (1,419)      (2,476)
Operating profit                            9,646        8,156 
Profit on tangible fixed assets and                            
  long-term investments                       105           52 
Deficits on property revaluation              (25)        (305)
Share of profits of associated companies       58           73 
Profit on ordinary activities before tax    9,784        7,976 
Tax on profit on ordinary activities       (1,477)      (1,188)
Profit attributable to shareholders         8,307        6,788 
Retained profits at 1 January              25,005       24,634 
Repurchases of own shares                       -          (50)
Transfer of depreciation to premises                           
  revaluation reserve                          80          131 
Realisation on disposal of premises and                        
  investment properties                         7           44 
Exchange adjustments                            8           (2)
Dividends                                 (15,678)      (6,540)
Retained profits at 31 December            17,729       25,005 
                                                              
Figures in HK$                                                
                                                              
Earnings per share                           4.35         3.55 
Dividends per share                          8.20         3.42 
                                                              

Financial Information Extracted from the Consolidated Balance Sheet

Figures in HK$m                     At 31DEC99       At 31DEC98 
                                                                
Cash and short-term funds              116,414          108,156 
Placings with banks maturing after                              
  one month                             55,260           52,543 
Advances to customers                  197,281          198,277 
Long-term investments                   27,317           20,871 
Other assets                             9,190            7,289 
Total assets                           442,070          422,721 
                                                                
Current, savings and other deposit                              
  accounts                             375,711          352,288 
Shareholders' funds                     39,574           45,505 
                                                                

Financial Review
                                                             
Net interest income

Figures in HK$m                            1999         1998 
                                                             
Net interest income                      11,667       11,355 
Average interest-earning assets         406,113      383,926 
Net interest spread                        2.36%        2.22%
Net interest margin                        2.87%        2.96%

Net interest income increased by HK$312 million, or 2.7 per
cent, compared with 1998 with an increase in average interest-
earning assets of HK$22.2 billion (5.8 per cent) outweighing
the impact of a reduction of nine basis points in net
interest margin.

Spread widened by 14 basis points to 2.36 per cent despite
the adverse effect of a fall in the average ratio of advances
to deposits from 58.7 per cent in 1998 to 54.3 per cent, and
the intense price competition for residential mortgages. The
improvement in spread was due to increased spread on time
deposits, growth in lower cost savings accounts and the
widening of the gap between best lending rate and interbank
rates. The contribution from net free funds, however, fell by
23 basis points to 0.51 per cent, due to lower average
interest rates in 1999 and the payment of the special interim
dividend of HK$7.8 billion.

Other operating income

Figures in HK$m                           1999         1998 
                                                            
Dividend income                                             
- Listed investments                        96          107 
- Unlisted investments                      17            3 
                                           113          110 
Fees and commissions receivable          1,829        1,669 
Fees and commissions payable              (278)        (277)
                                         1,551        1,392 
Dealing profits                                             
- Foreign exchange                         569          598 
- Securities and other trading                              
  activities                                15           (1)
                                           584          597 
Rental income from investment              240          257 
properties
Other                                      653          786 
                                         3,141         3,142 

Other operating income for 1999, of HK$3,141 million,
remained at the same level as 1998. Net fees and commissions
increased by HK$159 million or 11.4 per cent. There was a
marked increase in income from wealth management initiatives,
which include the sale of retail funds and personal insurance
products, as well as from stockbroking, card services and
remittances. This was partly offset by a decrease in income
from credit facilities and account services. Dealing profits
decreased by HK$13 million, or 2.2 per cent, reflecting a
fall in foreign exchange income in the less volatile markets
in 1999, although securities and equities trading results
improved. The decline in the 'other' income category of
HK$133 million, or 16.9 per cent, was mainly attributable to
the non-recurring profit in 1998 on termination of interest
rate swaps and a decrease in insurance underwriting profit.

Operating expenses
                                                             
Figures in HK$m                            1999           1998 
                                                               
Staff costs                                                    
- Salaries and other costs                1,964          1,905 
- Retirement benefit costs                  231            441 
                                          2,195          2,346 
Depreciation                                378            406 
Premises and equipment                                         
- Rental expenses                           152            156 
- Other                                     580            531 
                                            732            687 
Other operating expenses                    438            426 
                                          3,743          3,865 
                                                                
Cost:income ratio                          25.3%          26.7%
Staff numbers (full-time equivalent)      7,485          7,795 

Operating expenses decreased by HK$122 million, or 3.2 per
cent, as a result of careful cost control. Staff costs fell
by HK$151 million, or 6.4 per cent, with a reduction in
headcount. Depreciation decreased by HK$28 million, or 6.9
per cent, resulting from the reduction in property values
booked at the end of 1998. Premises and equipment expenses
rose by HK$45 million, or 6.6 per cent, mainly due to an
increase in electronic data processing charges and repair and
maintenance expenses. Other operating expenses increased by
HK$12 million, or 2.8 per cent, mainly in the area of
marketing.

The cost:income ratio further improved by 1.4 percentage
points to 25.3 per cent (26.7 per cent for 1998), the lowest
since this ratio was first published 10 years ago.
                                                             
Provisions for bad and doubtful debts

Figures in HK$m                             1999         1998 
                                                              
Net charge/(release) for bad and                              
  doubtful debts                                              
Advances to customers                                         
Specific provisions                                           
- New provisions                           1,681        2,535 
- Releases                                  (242)         (19)
- Recoveries                                 (12)          (7)
                                           1,427        2,509
General provisions                            (8)         (33)
Net charge to profit and loss account      1,419        2,476 
                                                             

The charge for bad and doubtful debts fell substantially by
HK$1,057 million, or 42.7 per cent, mainly due to the
reduction in specific provisions, reflecting the slowdown in
the growth of non-performing advances. During the year,
specific provisions made for trade finance, corporate lending
and hire purchase loans decreased, but provisions made in
respect of mainland China related exposures and residential
mortgages increased. Delinquency levels for residential
mortgages remained at low levels. There was a release of
general provisions of HK$8 million for the year, compared
with HK$33 million for 1998.

Profit on tangible fixed assets and long-term investments

Figures in HK$m                             1999         1998 
                                                              
Profit on disposal of long-term                               
  investments                                129           65 
Loss on disposal of tangible fixed                            
  assets                                      (6)         (13)
Provision for impairment of long-term                         
  investments                                (18)          - 
                                             105           52 

Profit on disposal of long-term investments increased by
HK$64 million to HK$129 million, due to an increase in profit
on disposal of locally-listed equities and the sale of an
unlisted investment.

Taxation

Taxation in the consolidated profit and loss account
represents:

Figures in HK$m                               1999        1998 
                                                               
Provision for Hong Kong profits tax          1,481       1,217 
Taxation outside Hong Kong                       1           2 
Deferred taxation                              (11)        (41)
                                             1,471       1,178 
Share of associated companies'                                 
  taxation                                       6          10 
Total charge for taxation                    1,477       1,188 
                                                               
Effective tax rate                            15.1%       14.9%

The provision for Hong Kong profits tax was made at 16.0 per
cent (the same rate as for 1998) based on an estimate of the
assessable profits for the year ended 31 December 1999.
Similarly, taxation provisions for subsidiary companies and
branches outside Hong Kong are made at the appropriate rates
of taxation prevailing in the countries in which they
operate.

The effective tax rate for 1999 increased to 15.1 per cent
from 14.9 per cent for 1998, as certain provisions for bad
and doubtful debts in respect of advances made by mainland
China branches are not expected to be tax-deductible in the
current year.

Earnings per share

The calculation of earnings per share is based on earnings of
HK$8,307 million (HK$6,788 million in 1998) and on the
weighted average number of ordinary shares in issue of
1,911,842,736 shares (1,912,660,590 shares in 1998).

Dividends per share

                                        1999           1998
                                       HK$   HK$m      HK$  HK$m
                                       per             per      
                                     share           share
                                                                
First interim                         1.60  3,059    1.40 2,678
Special interim                       4.10  7,839       -     -
Second interim                        2.50  4,780       -     -
Final                                    -      -    2.02 3,862
                                      8.20 15,678    3.42 6,540
                                                            

The calculation of dividends per share for 1999 is based on
dividends paid and payable of HK$15,678 million and on
1,911,842,736 shares in issue. (Interim dividend of HK$2,678
million on 1,913,175,936 shares and final dividend of
HK$3,862 million on 1,911,842,736 shares in 1998.)

Cash and short-term funds
                                                             
Figures in HK$m                      At 31DEC99   At 31DEC98 
                                                             
Cash in hand and balances with                               
  banks and other financial                                  
  institutions                            5,024        3,282 
Money at call and placings with                              
  banks maturing within                                      
  one month                             105,835       88,224 
Treasury bills                            5,555       16,650 
                                        116,414      108,156 

Cash and short-term funds increased by HK$8.3 billion, or 7.6
per cent, the net effect of a reduction in treasury bills and
an increase in money at call and placings with banks maturing
within one month.

Placings with banks maturing after one month

Figures in HK$m                      At 31DEC99    At 31DEC98 
                                                            
Remaining maturity:                                         
- Three months or less but over                             
  one month                              32,516        30,416 
- One year or less but over three                            
  months                                 22,667        21,974 
- Five years or less but over one                           
  year                                       77           153 
                                         55,260        52,543 

Advances to customers
                                                             
Figures in HK$m                     At 31DEC99   At 31DEC98 
                                                            
Advances to customers                  202,244      202,813 
Specific provisions                     (3,522)      (3,087)
General provisions                      (1,441)      (1,449)
                                       197,281      198,277 

Advances to customers (after deduction of interest in
suspense and provisions) fell slightly by HK$996 million, or
0.5 per cent, compared with 31 December 1998. During the
first three quarters of 1999, advances to customers trended
downwards as demand was subdued but there was an encouraging
pick-up in the fourth quarter reflecting the recovery of the
local economy.

Provisions against advances to customers

Figures in HK$m                   At 31 December 1999          
                         Specific   General     Total   Suspended 
                                                         interest 
                                                                     
At 1 January 1999           3,087     1,449     4,536         509     
Amounts written off        (1,005)       -     (1,005)       (210)
Recoveries of advances                                                        
  written off in previous
  years                        12        -         12           -   
Net charge/(release) to                                           
  profit and                                                         
  loss account              1,427        (8)    1,419           -    
Interest suspended                                                   
  during the year               -         -         -         508     
Suspended interest                                                
  recovered                     -         -         -         (74)
Exchange adjustments            1         -         1           -     
At 31 December 1999         3,522     1,441     4,963         733 

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 31DEC99   At 31DEC98 
                                             %            % 
                                                            
Specific provisions                       1.74         1.52 
General provisions                        0.71         0.71 
Total provisions                          2.45         2.23 
                                                            

Total provisions as a percentage of gross advances to
customers increased by 0.22 percentage points to 2.45 per
cent compared with 2.23 per cent at 31 December 1998, due to
an increase in specific provisions of 0.22 percentage points
to 1.74 per cent. General provisions were maintained at 0.71
per cent, comprising normal provisions at the rate of 0.60
per cent and an additional provision of HK$250 million made
in 1997.



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