Hang Seng Bank Interims Pt.2

HSBC Holdings PLC
6 August 2001


PART 2

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                  At                  At
                          30Jun01             30Jun00             31Dec00

Gross advances to
customers for
 use in Hong Kong

Industrial,
commercial and
 financial sectors
Property                   19,199              18,910              19,079
development
Property investment        28,538              27,422              29,579
Financial concerns          1,693               4,025               2,979
Stockbrokers                  133                 153                  97
Wholesale and               4,084               4,301               4,066
retail trade
Manufacturing               1,789               1,983               1,825
Transport and               8,205               8,640               8,471
transport equipment
Other                      18,741              16,937              19,073
                           82,382              82,371              85,169

Individuals
Advances for the
purchase of flats
under the
 Government Home
Ownership Scheme,
 Private Sector
Participation
Scheme and
 Tenants Purchase          39,333              34,852              35,971
Scheme
Advances for the
purchase of other
 residential               76,678              76,379              78,005
properties
Credit card                 4,986               4,086               4,745
advances
Other                       5,945               5,312               4,875
                          126,942             120,629             123,596
Total gross
advances for use in
Hong
 Kong                     209,324             203,000             208,765
Trade finance              10,455               9,794               9,013
Gross advances for
use outside Hong
 Kong                       3,962               3,396               4,195
Gross advances to         223,741             216,190             221,973
customers


Lending to the industrial, commercial and financial sectors declined by
HK$2,787 million, or 3.3 per cent, during the first half of 2001, reflecting
weak demand in the corporate loan market. The fall was mainly in lending to
property investment companies and financial concerns which include the
financial vehicles of large corporate groups and public sector entities
engaged in financing activities.

Advances to individuals rose by HK$3,346 million, or 2.7 per cent. Residential
mortgages fell by 1.7 per cent, due to intense competition and lack of
activity in the secondary property market. Government Home Ownership Scheme
mortgages, however, continued to grow and rose by 9.3 per cent. Credit card
advances also showed satisfactory growth as a result of the expansion in the
card base. Other lending to individuals, mainly tax and personal loans,
increased by 21.9 per cent, in line with the bank's strategy to diversify its
loan portfolio.

Trade finance advances recorded an encouraging growth of 16.0 per cent despite
dampened export trade due to the slowdown of the US market. This was the
result of the bank's efforts to broaden its commercial banking and small and
medium sized enterprises customer base.

Long-term investments
                                         Carrying Value
Figures in HK$m            At 30Jun01        At 30Jun00        At 31Dec00
                              

Held-to-maturity debt
securities
Issued by public bodies
- Central governments           3,806             2,091             3,459
and central banks
- Other public sector           6,053             4,293             7,381
entities
                                9,859             6,384            10,840
Issued by other bodies
- Banks and other              14,960            13,063            15,480
financial institutions
- Corporate entities           12,217             5,064             8,517
                               27,177            18,127            23,997
                               37,036            24,511            34,837

Equity investments
Issued by corporate             3,927             3,844             4,433
entities
                               40,963            28,355            39,270

Held-to-maturity debt
securities
- Listed in Hong Kong             371               441               419
- Listed outside Hong           7,560             1,596             4,881
Kong
                                7,931             2,037             5,300
- Unlisted                     29,105            22,474            29,537
                               37,036            24,511            34,837

Equity investments
- Listed in Hong Kong           3,269             3,608             4,139
- Listed outside Hong              92                84               114
Kong
                                3,361             3,692             4,253
- Unlisted                        566               152               180
                                3,927             3,844             4,433

                               40,963            28,355            39,270


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.

Long-term investments rose by HK$1,693 million, or 4.3 per cent, compared with
the end of 2000. The portfolio of held-to-maturity debt securities increased
by HK$2,199 million, or 6.3 per cent, with an increase in securities issued by
governments and corporations partly offset by reduced holdings of issues of
other public sector entities and banks and other financial institutions.
Equity investments were HK$506 million, or 11.4 per cent lower, due to
disposals and a fall in fair value due to the decline in the stock market.

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

                                            Fair Value

Figures in HK$m             At30Jun01         At30Jun01        At 31Dec00

Held-to-maturity debt
securities
Issued by public bodies
- Central governments and       3,825             2,080             3,471
central banks
- Other public sector           6,216             4,292             7,537
entities
                               10,041             6,372            11,008
Issued by other bodies                                          
- Banks and other              14,974            13,060            15,510
financial institutions
- Corporate entities           12,338             5,045             8,595
                               27,312            18,105            24,105
                               37,353            24,477            35,113

Held-to-maturity debt
securities
- Listed in Hong Kong             373               445               425
- Listed outside Hong           7,570             1,593             4,940
Kong
                                7,943             2,038             5,365
- Unlisted                     29,410            22,439            29,748
                               37,353            24,477            35,113



Other assets

Figures in HK$m            At 30Jun01        At 30Jun00       At 31 Dec00

Unrealised gains on off-
balance sheet interest
rate,
 exchange rate and
 other derivative
contracts
 which are marked to              862               978             1,800
market
Deferred taxation                  13                __                13
Items in the course of
collection from
 other banks                    4,722             3,304             4,472
Prepayments and accrued         2,991             2,868             3,849
income
Other accounts                  2,870               848             1,193
                               11,458             7,998            11,327



Current, savings and other deposit accounts

Figures in HK$m            At 30Jun01        At 30Jun00        At 31Dec00

Customer accounts
Repayable on demand           176,953           152,141           175,336
With agreed maturity
dates or periods
 of notice, by remaining
maturity:
- Three months or less
but not
 repayable on demand          210,806           219,509           224,985
- One year or less but         12,606            20,514            14,458
over three months
- Five years or less but           98               313                96
over one year
                              400,463           392,477           414,875

Certificates of deposit
in issue
Remaining maturity:
- Three months or less
but not
repayable on demand             4,272             5,172             5,358
- One year or less but
over
 three months                   1,797             7,849             2,771
- Five years or less but        8,587             5,678             6,276
over one year
- Over five years                 365               365               325
                               15,021            19,064            14,730
                              415,484           411,541           429,605


Current, savings and other deposit accounts declined by HK$14.1 billion, or
3.3 per cent, to HK$415.5 billion, compared with HK$429.6 billion at 31
December 2000. The decline in Hong Kong dollar deposits was mainly in time
deposits and certificates of deposit issued, although savings deposits
continued to grow, reflecting customers' preference for liquidity in a low
interest rate environment. United States dollar and other foreign currency
deposits also decreased.

Shareholders' funds
Figures in HK$m            At 30Jun01        At 30Jun00        At 31Dec00

Share capital                   9,559             9,559             9,559
Retained profits               20,162            19,154            18,732
Premises and investment
properties
 revaluation reserves           8,672             8,173             8,742
Long-term equity
investment
 revaluation reserve            2,676             2,893             3,452
Capital redemption                 99                99                99
reserve
Reserves                       31,609            30,319            31,025
                               41,168            39,878            40,584
Proposed dividends              4,015             3,824             5,353
Shareholders' funds            45,183            43,702            45,937

Return on average                24.4 %            24.2 %            21.6 %
shareholders' funds


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

Shareholders' funds (excluding proposed dividends) grew by HK$584 million to
HK$41,168 million at 30 June 2001, mainly reflecting an increase of HK$1,430
million in retained profits and a decrease of HK$776 million in the long-term
equity investment revaluation reserve, due to realisation on disposals and the
fall in fair value of long-term equities. Following the adoption of the
revised HKSSAP 9, dividends proposed after the balance sheet date are recorded
as a separate component of shareholders' funds. Shareholders' funds and return
on average shareholders' funds at 30 June 2000 and 31 December 2000 have been
restated to reflect the change in accounting policy.

The return on average shareholders' funds was 24.4 per cent, compared with
24.2 per cent for the first half of 2000.

Capital resources management

Analysis of capital base and risk-weighted assets

Figures in HK$m            At 30Jun01        At 30Jun00        At 31Dec00

Capital base
Tier 1 capital
- Share capital                 9,559             9,559             9,559
- Retained profits             19,821            18,819            18,455
- Capital redemption               99                99                99
reserve
- Total                        29,479            28,477            28,113

Tier 2 capital
- Premises and investment
properties
 revaluation reserves           5,860             5,748             5,860
- Long-term equity
investment
revaluation reserve             1,605             1,737             2,043
- General provisions            1,437             1,463             1,437
- Total                         8,902             8,948             9,340

Unconsolidated
investments and
 other deductions              (1,365)           (1,240)           (1,346)
Total capital base after       37,016            36,185            36,107
deductions

Risk-weighted assets
On-balance sheet              219,577           210,144           220,037
Off-balance sheet              14,743            11,612            13,982
Total risk-weighted           234,320           221,756           234,019
assets
Total risk-weighted
assets adjusted for
 market risk                  234,834           222,041           235,453

Capital adequacy ratios
After adjusting for
market risk
- Tier 1^                        12.6 %            12.8 %            11.9 %
- Total ^                        15.8 %            16.3 %            15.3 %

Before adjusting for
market risk
- Tier 1                         12.6 %            12.8 %            12.0 %
- Total                          15.8 %            16.3 %            15.4 %


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

The total capital ratio increased by 0.5 percentage points to 15.8 per cent at
30 June 2001 from 15.3 per cent at 31 December 2000. The tier 1 capital ratio
rose to 12.6 per cent from 11.9 per cent at 31 December 2000. This was due to
a growth of 2.5 per cent in the capital base while risk-weighted assets, after
adjusting for market risk, declined by 0.3 per cent.


Liquidity ratio

The average liquidity ratio for the period, calculated in accordance with the
Fourth Schedule of the Banking Ordinance, is as follows:
              Half-year ended       Half-year ended       Half-year ended
                      30Jun01               30Jun00               31Dec00

The bank and
its major
 banking                 46.0 %                41.4 %                45.1 %
subsidiaries


Reconciliation of cash flow statement

(a) Reconciliation of operating profit to net cash flow from operating
activities
                                           Half-year            Half-year
                                               ended                ended
Figures in HK$m                              30Jun01              30Jun00

Operating profit                               5,946                5,881
Provisions for bad and doubtful debts             21                   83
Depreciation                                     189                  191
Amortisation of long-term investments           (249)                (188)
Advances written off net of                     (484)                (269)
recoveries
Income receivable on long-term                (1,196)                (752)
investments
Net cash inflow from trading                   4,227                4,946
activities
Change in cash and short-term funds            5,129               (2,635)
Change in placings with banks
repayable after three
 months                                        7,207               (4,942)
Change in certificates of deposit             (1,765)               9,709
Change in securities held for dealing          1,662                 (387)
purposes
Change in advances to customers               (1,768)             (13,946)
Change in amounts due from immediate
holding
 company and fellow subsidiary                  (580)                (180)
companies
Change in other assets                          (185)               1,165
Change in customer accounts                  (14,412)              28,439
Change in certificates of deposit in             291                7,391
issue
Change in deposits from banks                    248                 (326)
Change in amounts due to immediate
holding
 company and fellow subsidiary                  (901)                (959)
companies
Change in other liabilities                   (3,100)                 197
Elimination of exchange differences
and
 other non-cash items                          2,877                1,449
Net cash (outflow)/inflow from
operating
 activities                                   (1,070)              29,921

(b) Analysis of the changes in cash and cash equivalents during the period
                                    Half-year ended       Half-year ended
Figures in HK$m                             30Jun01               30Jun00

Balance at beginning of period              157,511               150,579
Net cash (outflow)/inflow before
the effect of
 foreign exchange movements                  (7,285)               23,406
Effect of foreign exchange                   (2,793)                 (766)
movements
Balance at end of period                    147,433               173,219

(c) Analysis of the balances of cash and cash equivalents
Figures in HK$m                          At 30Jun01            At 30Jun00

Cash in hand and balances with banks and
 other financial institutions                 3,978                 3,311
Money at call and placings with banks
 maturing within one month                  105,155               108,756
Treasury bills                                1,767                 3,975
Placings with banks repayable between one
to
 three months                                35,226                43,453
Certificates of deposit                       1,307                13,724
                                            147,433               173,219


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

At 30 June 2001

Contingent liabilities:
Guarantees                                 9,124        9,033       3,906

Commitments:
Documentary credits and short-term
 trade-related transactions                6,176        1,240       1,234
Undrawn formal standby facilities,
credit lines
 and other commitments to lend:
- Under one year                           62,777          __          __
- One year and over                        18,296       9,148       8,899
                                           87,249      10,388      10,133

Exchange rate contracts:
Spot and forward foreign exchange         143,256       2,103         481
Other exchange rate contracts               5,556          85          17
                                          148,812       2,188         498

Interest rate contracts:
Interest rate swaps                        47,556         820         206
Other interest rate contracts               7,755          __          __
                                           55,311         820         206


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

At 30 June 2000

Contingent liabilities:
Guarantees                                  2,807       2,738       1,716

Commitments:
Documentary credits and short-term
 trade-related transactions                 6,055       1,213       1,210
Undrawn formal standby facilities,
credit lines
 and other commitments to lend:
- Under one year                           57,574          __          __
- One year and over                        17,175       8,588       8,200
                                           80,804       9,801       9,410

Exchange rate contracts:
Spot and forward foreign exchange         154,224       1,896         416
Other exchange rate contracts               2,405          99          32
                                          156,629       1,995         448

Interest rate contracts:
Interest rate swaps                        24,632         150          37
Other interest rate contracts              21,887          __          __
                                           46,519         150          37

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

At 31 December 2000

Contingent liabilities:
Guarantees                                  3,829       3,763       2,963

Commitments:
Documentary credits and short-term
 trade-related transactions                 5,801       1,168       1,160
Undrawn formal standby facilities,
credit lines
 and other commitments to lend:
- Under one year                           59,665          __          __
- One year and over                        18,438       9,219       8,975
                                           83,904      10,387      10,135

Exchange rate contracts:
Spot and forward foreign exchange         169,896       2,886         647
Other exchange rate contracts               6,504         174          37
                                          176,400       3,060         684

Interest rate contracts:
Interest rate swaps                        46,951         842         201
Other interest rate contracts               6,229          __          __
                                           53,180         842         201



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 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.

Off-balance sheet financial instruments arise from futures, forward, swap and
option transactions undertaken 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 and do not represent amounts at risk.
The credit equivalent amount of these instruments is measured as the sum of
positive mark-to-market values and the potential future credit exposure in
accordance with the Third Schedule of the Banking Ordinance.

                               At 30Jun01        At 30Jun00        At 31Dec00
    Figures in HK$m


Replacement cost
Exchange rate contracts               936               868             1,491
Interest rate contracts               670                76               722
                                    1,606               944             2,213


The replacement cost of contracts represents the mark-to-market assets on all
contracts (including non-trading contracts) with a positive value and which
have not been subject to any bilateral netting arrangement.

Segmental analysis

Segmental information is presented in respect of business and geographical
segments. Business segment information, which is more relevant to Hang Seng in
making operating and financial decisions, is chosen as the primary reporting
format.

For the purpose of segmental analysis, the allocation of revenue reflects the
benefits of capital and other funding resources allocated to the business or
geographical segments by way of internal capital allocation and funds transfer
mechanisms. Cost allocation is based on the direct cost incurred by the
respective segments and apportionment of management overheads.

(a) By business segment

Hang Seng comprises five major business segments. Personal Financial Services
provides banking services (including deposits, credit cards, mortgages and
other retail lending) and wealth management products (including insurance and
investment) to personal (including private banking) customers. Corporate and
Institutional Banking handles the relationships with large corporate and
institutional customers. Commercial Banking manages middle market and smaller
corporate relationships and provides trade-related financial services.
Treasury engages in interbank and capital market activities and proprietary
trading and manages the funding and liquidity positions of the bank and other
market risk positions arising from banking activities. Other mainly represents
shareholders' funds and investments in premises, investment properties and
long-term equities.

              Personal   Corporate &
             Financial Institutional  Commercial
Figures in    Services       Banking     Banking    Treasury   Other       Total
HK$m

Half-year
 ended 30
 June 2001
Income and
 expenses
Total
operating
 income          4,289           528       1,058         888   1,070      7,833
Operating
 expenses^      (1,347)          (53)       (421)        (63)     18     (1,866)
Operating
profit
 before          2,942           475         637         825   1,088      5,967
provisions
Provisions
for bad
 and              (184)          104          45          __      14        (21)
doubtful
debts
Operating
 profit          2,758           579         682         825   1,102      5,946
Profit on
tangible
 fixed
assets and
 long-term
 investments         3            __           3          43     163        212
Share of
profits of
 associated
 companies          __            __          __          __      25         25
Profit on
ordinary
 activities      2,761           579         685         868   1,290      6,183
before tax

^Including         (65)           (1)        (17)         (1)   (105)      (189)
depreciation


At 30 June
2001

Total assets   138,166        65,055      23,035     233,546  22,815    482,617
Total          310,111        19,024      79,867      12,148  16,284    437,434
liabilities



              Personal   Corporate &
             Financial Institutional  Commercial
Figures in    Services       Banking     Banking    Treasury   Other      Total
HK$m

Half-year
ended
 30 June
2000

Income and
expenses

Total
operating
 income          4,448           533         917        680   1,125       7,703
Operating
 expenses^      (1,237)          (49)       (420)       (61)     28      (1,739)
Operating
profit
 before          3,211           484         497        619   1,153       5,964
provisions
Provisions
for bad
 and              (185)          (26)         65         __      63         (83)
doubtful
debts
Operating        3,026           458         562        619   1,216       5,881
profit
Profit on
tangible
 fixed
assets and
 long-term
 investments        65            __          78          1      52         196
Share of
profits of
 associated
 companies           3            __          __         __      24          27
Profit on                      
ordinary
 activities      3,094           458         640        620   1,292       6,104
before tax

^Including         (65)           (1)        (19)        (1)   (105)       (191)
depreciation


At 30 June
2000

Total assets   131,628        64,292      20,062    239,999  21,011     476,992
Total          293,910        21,425      81,572     15,886  20,497     433,290
liabilities


Personal Financial Services reported a fall of 10.8 per cent in profit before
tax compared with the same period last year. This was mainly due to the
decline in mortgage yields which outweighed the income growth in other wealth
management businesses. Corporate and Institutional Banking achieved a growth
of 26.4 per cent in profit before tax, mainly benefiting from a substantial
recovery of bad and doubtful debts. Commercial Banking showed an increase of
7.0 per cent in profit before tax, with steady growth in trade finance and
commercial lending and an enlarged customer base. Treasury recorded a growth
of 40.0 per cent in profit before tax, reflecting successful positioning of
portfolios to benefit from the downward trend in interest rates. Other showed
a marginal decrease of 0.2 per cent in profit before tax, with a lower
contribution from shareholders' funds offset by the increase in profit on
disposal of long-term equities.

(b) By geographical segment

The geographical segments in this analysis are classified by the location of
the principal operations of the subsidiary companies or, in the case of the
bank itself, by the location of the branches responsible for reporting the
results or advancing the funds.


Figures in HK$m               Hong Kong    Americas       Other       Total

Half-year ended
30 June 2001

Income and expenses

Total operating income            7,274         524          35       7,833
Profit on ordinary
activities
 before tax                       5,572         509         102       6,183

Total assets at 30 June         385,709      90,495       6,413     482,617
2001


Half-year ended
 30 June 2000

Income and expenses

Total operating income            7,337         351          15       7,703
Profit on ordinary                5,765         338           1       6,104
activities before tax

Total assets at 30 June         417,652      53,563       5,777     476,992
2000



Additional information

1. Accounting policies

This news release has been prepared on a basis consistent with the accounting
policies adopted in the 2000 financial statements except for the recognition
and the presentation of proposed dividends which have been amended in
accordance with Hong Kong Statement of Standard Accounting Practice 9 (HKSSAP
9) on 'Events after the balance sheet date'.

Dividends proposed or declared after the balance sheet date were previously
recognised as a liability at the balance sheet date. Following the
implementation of HKSSAP 9, dividends proposed after the balance sheet date
are not recognised as a liability at the balance sheet date but are disclosed
as a separate component of shareholders' funds.

The effect of the above change in accounting policy was to increase
shareholders' funds by HK$4,015 million at 30 June 2001, HK$3,824 million at
30 June 2000 and HK$5,353 million at 31 December 2000 and to decrease
liabilities by the same amount. The return on average shareholders' funds for
the half-year periods ended 30 June 2000 and 31 December 2000 have been
restated to reflect the change.

2. Comparative figures

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


3. Market risk

Market risk is the risk that the movements in interest rates, foreign exchange
rates or equity and commodity prices will result in profits or losses to Hang
Seng. Market risk arises on financial instruments which are valued at current
market prices (mark-to-market basis) and those valued at cost plus any accrued
interest (accruals basis). Hang Seng's market risk arises from
customer-related business and from position taking.

Market risk is managed within risk limits approved by the Board of Directors.
Risk limits are set by product and risk type with market liquidity being a
principal factor in determining the level of limits set. Limits are set using
a combination of risk measurement techniques, including position limits,
sensitivity limits, as well as value at risk (VAR) limits at a portfolio
level.

Hang Seng adopts the risk management policies and risk measurement techniques
developed by the HSBC Group. The daily risk monitoring process measures actual
risk exposures against approved limits and triggers specific action to ensure
the overall market risk is managed within an acceptable level.

VAR is a technique which estimates the potential losses that could occur on
risk positions taken due to movements in market rates and prices over a
specified time horizon and to a given level of confidence. The model used by
Hang Seng calculates VAR on a variance/co-variance basis, using historical
movements in market rates and prices, a 99 per cent confidence level and a
10-day holding period, and generally takes account of correlations between
different markets and rates. The movement in market prices is calculated by
reference to market data for the last two years. Aggregation of VAR from
different risk types is based upon the assumption of independence between risk
types.

Hang Seng has obtained approval from the Hong Kong Monetary Authority (HKMA)
for the use of its VAR model to calculate market risk for capital adequacy
reporting. The HKMA is also satisfied with Hang Seng's market risk management
process.

The VAR for all interest rate risk and foreign exchange risk positions at 30
June 2001 was HK$152 million, compared with HK$213 million at 31 December
2000. The average VAR for the first half of 2001 was HK$202 million (HK$170
million for the first half of 2000). On an individual portfolio basis, the
values at risk at 30 June 2001 relating to the trading portfolio and accrual
portfolio were HK$6 million (HK$7 million at 31 December 2000) and HK$151
million (HK$212 million at 31 December 2000) respectively.

The average daily revenue earned from market risk-related treasury activities
for the first half of 2001, including accrual book net interest income and
funding related to dealing positions, was HK$6 million (HK$6 million for the
first half of 2000). No loss was recorded out of 121 trading days for the
first half of 2001. The highest daily revenue was HK$22 million.

Hang Seng's foreign exchange exposures mainly comprise foreign exchange
dealing by Treasury and currency exposures originated by its banking business.
The latter are transferred to Treasury where they are centrally managed within
foreign exchange position limits approved by the Board of Directors.

The VAR relating to foreign exchange positions was HK$5 million at 30 June
2001 (HK$6 million at 31 December 2000) and the average amount for the first
half of 2001 was HK$4 million (HK$12 million for the first half of 2000). The
average one-day foreign exchange profit for the first half of 2001 was HK$1
million (HK$2 million for the first half of 2000).

Interest rate risk arises in both the treasury dealing portfolio and accrual
book, which are managed by Treasury under limits approved by the Board of
Directors. The VAR relating to interest rate exposures was HK$152 million at
30 June 2001 (HK$213 million at 31 December 2000) and the average amount for
the first half of 2001 was HK$202 million (HK$169 million for the first half
of 2000). The average daily revenue earned from treasury-related interest rate
activities for the first half of 2001 was HK$5 million (HK$4 million for the
first half of 2000).

4. Foreign currency position

Foreign currency exposures arising from dealing, non-dealing and structural
positions, where an individual currency constitutes 10 per cent or more of the
total net position in all foreign currencies, are shown separately as follows:

                                                       Other         Total 
                                                     foreign       foreign
Figures in HK$m                             US$   currencies    currencies

At 30 June 2001

Spot assets                             235,047       54,638       289,685
Spot liabilities                       (207,328)     (52,183)     (259,511)
Forward purchases                        64,170       17,136        81,306
Forward sales                           (83,184)     (19,531)     (102,715)
Net options positions                        __           __            __
Net long non-structural                   8,705           60         8,765
position
Net structural position                     508           51           559


At 30 June 2000

Spot assets                             206,609       52,890       259,499
Spot liabilities                       (164,762)     (52,441)     (217,203)
Forward purchases                        59,470       29,407        88,877
Forward sales                           (95,033)     (29,784)     (124,817)
Net options positions                        __           __            __
Net long non-structural                   6,284           72         6,356
position
Net structural position                     413          132           545


At 31 December 2000

Spot assets                             209,969       88,563       298,532
Spot liabilities                       (187,255)     (74,755)     (262,010)
Forward purchases                        79,272       21,146       100,418
Forward sales                           (95,630)     (34,920)     (130,550)
Net options positions                         2           (2)          __
Net long non-structural                   6,358           32         6,390
position
Net structural position                     508          127           635


5. Material related-party transactions

(a) Immediate holding company and fellow subsidiary companies

During the first half of 2001, Hang Seng entered into transactions with its
immediate holding company and fellow subsidiary companies in the ordinary
course of its interbank activities including the acceptance and placement of
interbank deposits, correspondent banking transactions and off-balance sheet
transactions. The activities were priced at the relevant market rates at the
time of the transactions. Hang Seng used the IT services of, and shared an
automated teller machine network with, its immediate holding company on a cost
recovery basis. Hang Seng also maintained a staff retirement benefit scheme
for which a fellow subsidiary company acts as insurer and administrator.

The aggregate amount of income and expenses arising from these transactions
during the period, and the balances of amounts due to and from relevant
related parties and the total contract sum of off-balance sheet transactions
at the end of the period are as follows:


Income and
expenses for
the period
              Half-year ended       Half-year ended       Half-year ended
Figures in            30Jun01               30Jun00               31Dec00
HK$m

Interest                  265                   334                   368
income
Interest                   33                    41                    40
expense
Operating                 231                   233                   304
expenses


Balances at the period-end
Figures in HK$m               At 30Jun01         At 30Jun00         At 31Dec00

Total amount due from              7,641             10,129             10,383
Total amount due to                1,098              1,822              1,999
Total contract sum of
 off-balance sheet                26,766             24,131             41,510
transactions



(b) Associated companies

Hang Seng maintains an interest-free shareholders' loan to an associated
company. The balance at 30 June 2001 was HK$208 million (HK$208 million at 30
June 2000 and 31 December 2000). Hang Seng acts as agent for the marketing of
life insurance products (including mandatory provident fund products) for an
associated company. Total agency commissions received during the first half of
2001 amounted to HK$144 million (HK$66 million and HK$105 million for the
first half and second half of 2000 respectively).

(c) Ultimate holding company

During the first half of 2001, no transaction was conducted with the bank's
ultimate holding company (unchanged from 2000).

(d) Key management personnel

During the first half of 2001, no material transaction was conducted with key
management personnel of Hang Seng and its holding companies and parties
related to them (unchanged from 2000).

6. Statutory accounts

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

The statutory accounts for the year ended 31 December 2000 have been 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 26 February 2001. The Annual Report and Accounts for the year
ended 31 December 2000, which includes the statutory accounts, can be obtained
on request from the Company Secretary Department, Level 10, 83 Des Voeux Road
Central, Hong Kong; or from Hang Seng Bank's website www.hangseng.com.

7. Ultimate holding company

Hang Seng Bank is an indirectly-held, 62.14 per cent-owned subsidiary of HSBC
Holdings plc.

8. Statement of compliance

This news release has been prepared in accordance with Hong Kong Statement of
Standard Accounting Practice 25 'Interim Financial Reporting'. It also
complies with the 'Recommendations on Interim Financial Disclosure by
Authorised Institutions Incorporated in Hong Kong' issued by the Hong Kong
Monetary Authority in June 2001.

9. Register of shareholders

The Register of Shareholders of Hang Seng Bank will be closed on Monday, 27
August 2001 and Tuesday, 28 August 2001, during which no transfer of shares
can be registered. In order to qualify for the first interim dividend, all
transfers, accompanied by the relevant share certificates, must be lodged with
the bank's Registrars, Central Registration Hong Kong Limited, Shops
1712-1716, 17th Floor, Hopewell Centre, 183 Queen's Road East, Wanchai, Hong
Kong, for registration not later than 4:00 pm on Friday, 24 August 2001. The
first interim dividend will be payable on Tuesday, 4 September 2001 to
shareholders on the Register of Shareholders of the bank on Tuesday, 28 August
2001.

10. News release


Copies of the interim results announcement may be obtained from the Company
Secretary Department, Level 10, 83 Des Voeux Road Central, Hong Kong; or from
Hang Seng's website http://www.hangseng.com.