Hang Seng Bank pt 1/6

HSBC Holdings PLC
30 July 2007

                              HANG SENG BANK LIMITED
                       2007 INTERIM RESULTS - HIGHLIGHTS

   • Operating profit up 22.4 per cent to HK$7,773 million (HK$6,353 million
     for the first half of 2006).

   • Operating profit excluding loan impairment charges and other credit risk
     provisions up 26.1 per cent to HK$8,053 million (HK$6,387 million for the
     first half of 2006).

   • Pre-tax profit up 36.0 per cent to HK$10,218 million (HK$7,513 million
     for the first half of 2006).

   • Attributable profit up 43.2 per cent to HK$8,867 million (HK$6,190
     million for the first half of 2006).

   • Return on average shareholders' funds of 36.6 per cent (29.0 per cent
     for the first half of 2006).

   • Assets up 10.8 per cent to HK$741.3 billion (HK$669.1 billion at 31
     December 2006).

   • Earnings per share up 43.2 per cent to HK$4.64 (HK$3.24 per share for
     the first half of 2006).

   • Second interim dividend of HK$1.10 per share; total dividends of HK$2.20
     per share for the first half of 2007 (HK$2.20 per share for the first half
     of 2006).

   • Total capital ratio of 12.3 per cent (13.6 per cent at 31 December 2006);
     tier 1 capital ratio of 8.9 per cent (10.7 per cent at 31 December 2006).

   • Cost efficiency ratio of 26.6 per cent (26.8 per cent for the first half
     of 2006).

Within this document, the Hong Kong Special Administrative Region of the
People's Republic of China has been referred to as 'Hong Kong'.

Comment by Raymond Or, Chief Executive

Hang Seng Bank's record results for the first half of 2007 reflect excellent
progress with our long-term growth strategy, supported by buoyant economic
conditions.

Attributable profit increased by 43.2 per cent compared with the first half of
2006 to reach HK$8,867 million. Earnings per share were up 43.2 per cent at
HK$4.64.

Operating profit excluding loan impairment charges and other credit risk
provisions rose by 26.1 per cent to HK$8,053 million. We increased our range of
product offerings and further enhanced our service delivery channels, driving
strong growth in our personal wealth management and Commercial Banking
businesses. Operating profit was up HK$1,420 million at HK$7,773 million.

Pre-tax profit rose by 36.0 per cent, in part reflecting an unrealised gain of
HK$1,465 million on dilution of our investment in our strategic mainland China
partner, Industrial Bank Co., Ltd ('Industrial Bank') following its listing in
February this year.

Increases in average customer deposits and average customer advances helped
underpin a 20.8 per cent rise in net interest income to HK$6,696 million. Net
interest margin was up 10 basis points at 2.11 per cent, supported by
improvements in deposit spreads and contribution from net free funds.

Operating expenses rose by 24.6 per cent to HK$2,914 million, due largely to
investments in our mainland business - including the establishment of our
wholly-owned subsidiary bank Hang Seng Bank (China) Limited - as well as
increases in performance-related pay and marketing costs. However, net operating
income before loan impairment charges grew by 25.7 per cent. With this positive
differential of 1.1 percentage points, our cost efficiency ratio compared with
the first half of 2006 was 0.2 percentage points lower at 26.6 per cent.

Personal Financial Services achieved a 35.9 per cent increase in operating
profit excluding loan impairment charges to HK$5,380 million. Wealth management
business reached new heights - income grew by 58.2 per cent to HK$3,429 million,
with securities turnover and sales of investment funds and structured products
breaking all previous highs.

Further development of our retirement planning proposition drove a 37.1 per cent
growth in life insurance income for the first half of 2007 and made us Hong
Kong's number one provider in terms of annualised new premiums for regular-pay
(non-linked) insurance during the first quarter of the year.

Commercial Banking's operating profit excluding loan impairment charges rose by
15.3 per cent to HK$1,076 million. Continued service enhancements strengthened
our position as the preferred bank for small and medium-sized enterprises. We
capitalised on upbeat business sentiment to expand our lending portfolio. 
Year-on-year, average customer deposits and average customer advances including
trade finance grew by 19.5 per cent and 22.7 per cent respectively. Net interest
income rose by 21.6 per cent.

We implemented new measures to diversify and grow non-interest income. Closer
collaboration between commercial relationship managers and treasury and
investment service teams saw an encouraging increase in corporate wealth
management business. Successful promotion of our comprehensive banking solution
for retailers helped us grow our market share in this key segment and supported
strong growth in card merchant-acquiring business. Along with growth in trade
services and remittances, these developments yielded a 20.8 per cent increase in
net fee income.

Corporate Banking recorded a 16.0 per cent increase in operating profit
excluding loan impairment charges to reach HK$298 million, underpinned by a 23.9
per cent rise in customer deposits and the 8.4 per cent increase in outstanding
loan balances.

With strong liquidity in Hong Kong continuing to put pressure on corporate loan
margins, we intensified income diversification efforts. Net fee income was up
35.0 per cent, reflecting encouraging growth in trade services and credit
facilities fees.

The improved interest rate environment in the first half of 2007 saw Treasury's
operating profit increase by 2.7 per cent to HK$456 million. Net operating
income rose by 5.1 per cent, with the improvement in yields on balance sheet
management portfolios. To further grow customer-driven business, we stepped up
cross-customer group cooperation and put additional resources into structured
product development. Such actions have placed Treasury in a better position to
deliver profit growth.

Our mainland subsidiary bank commenced operation in late May, marking the start
of a new era of business growth. A 21.3 per cent increase in loans and a 42.7
per cent rise in deposits helped total operating income grow by 86.0 per cent.
Including our share of profit from Industrial Bank, the pre-tax profit of our
mainland business contributed 5.9 per cent to total pre-tax profit, compared
with 4.3 per cent a year earlier.

Economic growth in Hong Kong will maintain good momentum during the second half
of the year. The economy will continue to benefit from the improving labour
market, a favourable interest rate environment and strong growth on the
Mainland.

Potential challenges include rising inflation risks created by the weakening US
dollar and appreciating renminbi, which may put upward pressure on costs. The
prospects of further macro-economic policy tightening on the Mainland may also
add volatility to the performance of its economy and financial markets.

We will build on the significant progress made in the first half of 2007 by
further developing our core business drivers. In Hong Kong, we will leverage our
brand, leading market position and wide product range to further grow our wealth
management and Commercial Banking businesses. With continuing strong economic
growth on the Mainland, we will take full advantage of the new business
opportunities provided by the establishment of our subsidiary bank and its
expanding network of outlets.

Results summary

Hang Seng Bank Limited ('the bank') and its subsidiaries and associates ('the
group') reported an unaudited profit attributable to shareholders of HK$8,867
million for the first half of 2007, a rise of 43.2 per cent over the first half
of 2006. Earnings per share were HK$4.64, up 43.2 per cent from the first half
of 2006.

Operating profit excluding loan impairment charges and other credit risk
provisions rose by HK$1,666 million, or 26.1 per cent, to HK$8,053 million,
underpinned by strong growth in wealth management and Commercial Banking
businesses, contributing to rises of 20.8 per cent in net interest income and
34.1 per cent in non-interest income as highlighted below.

- Net interest income rose by HK$1,155 million, or 20.8 per cent, with a 15.1
per cent increase in average interest-earning assets. Average customer deposits
and average customer advances grew by 10.0 per cent and 9.7 per cent
respectively over the same time last year. Net interest margin rose by 10 basis
points to 2.11 per cent, with improvements in deposit spreads, Treasury's
balance sheet management portfolio yields and contribution from net free funds.

- Net fees and commissions increased by HK$1,080 million, or 60.6 per cent,
highlighting strong growth in income from stockbroking and related services
(+85.4 per cent), retail investment funds (+50.4 per cent), sales of third-party
structured products (+678.1 per cent), mainly equity-linked instruments, and
private banking investment services (+108.1 per cent) in the buoyant investment
market. Income from card services, remittances and account services rose by 19.9
per cent, 21.3 per cent and 19.0 per cent respectively.

- Income from insurance business, including net earned insurance premiums, net
interest income, net fee income and net income from financial instruments
designated at fair value, the change in present value of in-force business and
after deducting net insurance claims incurred and movement in policyholders'
liabilities, increased by 27.2 per cent. Life insurance income was up 37.1 per
cent, driven by strong growth in new annualised premiums and investment returns
on insurance funds.

- Trading income fell by HK$75 million, or 11.4 per cent. Securities trading and
spreads earned on option-linked and other structured products provided to
customers recorded satisfactory growth. Foreign exchange income was, however,
affected by the exchange loss on forward contracts used in 'funding swap'
activities in the balance sheet management portfolios.

- Net operating income before loan impairment charges and other credit risk
provisions rose by HK$2,242 million, or 25.7 per cent, to HK$10,967 million.

- Operating expenses increased by HK$576 million, or 24.6 per cent, compared
with the first half of 2006. The cost efficiency ratio was lower by 0.2
percentage points at 26.6 per cent. The bank's mainland operations accounted for
HK$121 million, or 21.0 per cent, of the increase in operating expenses, mainly
attributable to the establishment of wholly-owned subsidiary bank Hang Seng Bank
(China) Limited and the expansion of its branch network. Excluding mainland
operations, operating expenses were up 20.3 per cent, or HK$455 million,
attributable mainly to performance-based staff remuneration and marketing costs.

Operating profit was up HK$1,420 million, or 22.4 per cent, at HK$7,773 million,
after accounting for loan impairment charges and other credit provisions of
HK$280 million, compared with HK$34 million in the first half of 2006, which
benefited from a substantial recovery from a commercial banking account.

Profit before tax was up HK$2,705 million, or 36.0 per cent, to HK$10,218
million after taking into account:

   • a decrease of HK$300 million in profit on disposal of fixed assets and
     financial investments;
   • a gain on dilution of investment in an associate of HK$1,465 million on
     the listing of Industrial Bank;
   • a decrease of HK$52 million in net surplus on property revaluation; and
   • an increase of HK$172 million in share of profits from associates,
     mainly contributed by Industrial Bank.

Balance sheet and key ratios

Total assets grew by HK$72.3 billion, or 10.8 per cent, during the first half of
2007 to HK$741.3 billion. Customer advances rose by HK$31.6 billion, or 11.3 per
cent, including HK$26.9 billion in financing customers for subscription of
shares in initial public offerings ('IPOs'). Encouraging growth was recorded in
lending on the Mainland, trade finance, card advances and personal loans.
Customer deposits rose by 3.4 per cent, mainly in current and savings accounts.
At 30 June 2007, the advances-to-deposits ratio was 55.7 per cent, compared with
51.7 per cent and 52.8 per cent at the end of December 2006 and June 2006
respectively.

Shareholders' funds (excluding proposed dividends) increased by HK$5,580
million, or 12.9 per cent, to HK$48,928 million, mainly reflecting the HK$3,662
million increase in retained profits and the HK$1,465 million gain on the
dilution of investment in an associate.

The return on average total assets was 2.5 per cent, compared with 2.1 per cent
for the first half year of 2006. The return on average shareholders' funds was
36.6 per cent (29.0 per cent in the first half of 2006).

At 30 June 2007, the total capital ratio was 12.3 per cent and the tier 1 ratio
was 8.9 per cent, calculated in accordance with the Banking (Capital) Rules
issued by the Hong Kong Monetary Authority ('HKMA') for implementation of the
Basel II capital accord. The total capital ratio and tier 1 ratio at 31 December
2006 under the Basel I capital regime were 13.6 per cent and 10.7 per cent
respectively.

The bank maintained a strong liquidity position. The average liquidity ratio for
the first half of 2007 was 52.9 per cent (calculated in accordance with the
Fourth Schedule of the Hong Kong Banking Ordinance), compared with an average
liquidity ratio of 50.9 per cent for the same period in 2006.

Dividends

The Directors have declared a second interim dividend of HK$1.10 per share,
which will be payable on 30 August 2007 to shareholders on the register of
shareholders as of 21 August 2007. Together with the first interim dividends,
the total distribution for the first half of 2007 will amount to HK$2.20 per
share, the same as in the first half of 2006.

Customer group performance

                         Personal                                                            Inter-
                        Financial   Commercial    Corporate                                  segment
Figures in HK$m          Services      Banking      Banking      Treasury         Other  elimination         Total

Half-year ended 30Jun07

Net interest income         4,142        1,119          339           407           689            -         6,696
Net fee income/(expense)    2,307          476           54           (11)           36            -         2,862
Trading income                358           74            4           163           (15)           -           584
Net income/(expense) from
  financial instruments
  designated at fair value    689            -            -            (3)            -            -           686
Dividend income                 6            -            -             -            20            -            26
Net earned insurance
  premiums                  4,741           79            1             -             -            -         4,821
Other operating income        300           25            -             -            72            -           397
Inter-segment income            -            -            -             -           187         (187)            -
Total operating income     12,543        1,773          398           556           989         (187)       16,072
Net insurance claims 
  incurred and movement 
  in policyholders'
  liabilities              (5,061)         (44)           -             -             -            -        (5,105)
Net operating income 
  before loan impairment
  charges and other
  credit risk provisions    7,482        1,729          398           556           989         (187)       10,967
Loan impairment
  charges and other
  credit risk provisions     (122)         (45)        (113)            -             -            -          (280)
Net operating income        7,360        1,684          285           556           989         (187)       10,687
Total operating expenses^  (1,939)        (636)         (97)          (96)         (146)           -        (2,914)
Inter-segment expenses       (163)         (17)          (3)           (4)            -          187             -
Operating profit            5,258        1,031          185           456           843            -         7,773
Profit on disposal of
  fixed assets and 
  financial investments         -            -            7             -           267            -           274
Gain on dilution of
  investment in associate       -            -            -             -         1,465            -         1,465
Net surplus on property
  revaluation                   -            -            -             -           266            -           266
Share of profits from
  associates                   20          254            -           115            51            -           440
Profit before tax           5,278        1,285          192           571         2,892            -        10,218
Share of profit before tax   51.7%        12.6%         1.8%          5.6%         28.3%           -         100.0%

Operating profit
  excluding inter-segment
  transactions              5,421        1,048          188           460           656            -         7,773

Operating profit
  excluding loan
  impairment charges and
  other credit risk
  provisions                5,380        1,076          298           456           843            -         8,053

^Depreciation/amortisation
  included in total 
  operating expenses          (56)          (8)          (2)           (1)         (113)           -          (180)

At 30Jun07

Total assets              191,312       74,766       82,688       353,011        39,545            -       741,322
Total liabilities         432,416       93,988       51,983        70,109        39,878            -       688,374
Investments in associates     155        1,951            -           880         2,293            -         5,279
Capital expenditure
  incurred during the
  period                      135           43            8             3            29            -           218



                         Personal                                                             Inter-
                        Financial   Commercial    Corporate                                  segment
Figures in HK$m          Services      Banking      Banking      Treasury         Other  elimination         Total

Half-year ended 30Jun06
  (restated)

Net interest income         3,549          920          293           216           563            -         5,541
Net fee income/(expense)    1,334          394           40           (13)           27            -         1,782
Trading income                252           70            4           333             -            -           659
Net income/(expense)from 
  financial instruments
  designated at fair value     44            -            -            (7)            -            -            37
Dividend income                 3            -            -             -            28            -            31
Net earned insurance
  premiums                  3,872           81            1             -             -            -         3,954
Other operating income        273           15            -             -           104            -           392
Inter-segment income            -            -            -             -           191         (191)            -
Total operating income      9,327        1,480          338           529           913         (191)       12,396
Net insurance claims
  incurred and movement
  in policyholder
  liabilities              (3,641)         (30)           -             -             -            -        (3,671)
Net operating income 
  before loan impairment
  (charges)/releases and
  other credit risk
  provisions                5,686        1,450          338           529           913         (191)        8,725
Loan impairment(charges)/
  releases and
  other credit risk
  provisions                  (74)          26           14             -             -            -           (34)
Net operating income        5,612        1,476          352           529           913         (191)        8,691
Total operating expenses^  (1,561)        (498)         (78)          (81)         (120)           -        (2,338)
Inter-segment expenses       (165)         (19)          (3)           (4)            -          191             -
Operating profit            3,886          959          271           444           793            -         6,353
Profit on disposal of
  fixed assets
  and financial
  investments                   -            -            -             -           574            -           574
Net surplus on property
  revaluation                   -            -            -             -           318            -           318
Share of profits from
  associates                   11          137            -            62            58            -           268
Profit before tax           3,897        1,096          271           506         1,743            -         7,513
Share of profit before tax   51.9%        14.6%         3.6%          6.7%         23.2%           -         100.0%

Operating profit
  excluding inter-segment 
  transactions              4,051          978          274           448           602            -         6,353

Operating profit
  excluding loan impairment
  (charges)/releases and 
  other credit risk
  provisions                3,960          933          257           444           793            -         6,387

^Depreciation/amortisation
  included in total 
  operating expenses          (51)          (4)          (2)           (1)          (96)           -          (154)


At 30Jun 06

Total assets              160,551       59,758       72,230       305,126        30,624            -       628,289
Total liabilities         399,620       71,670       39,398        48,950        23,653            -       583,291
Investments in associates     131        1,649            -           745           742            -         3,267
Capital expenditure
  incurred during the 
  period                       69           10            3             3            57            -           142



                         Personal                                                            Inter-
                        Financial   Commercial    Corporate                                  segment
Figures in HK$m          Services      Banking      Banking      Treasury         Other  elimination         Total

Half-year ended 31Dec06

Net interest income         3,879        1,116          330           265           563            -         6,153
Net fee income/(expense)    1,242          415           46           (11)           23            -         1,715
Trading income                265           80            3           295            28            -           671
Net income/(expense) from
  financial instruments
  designated at fair value    866            -            -            (4)            -            -           862
Dividend income                 5            5            -             -             6            -            16
Net earned insurance
  premiums                  3,799           93            -             -             -            -         3,892
Other operating income        269           11            -            (4)          177            -           453
Inter-segment income            -            -            -             -           187         (187)            -
Total operating income     10,325        1,720          379           541           984         (187)       13,762
Net insurance claims
  incurred and movement
  in policyholders'
  liabilities              (4,373)         (33)           -             -             -            -        (4,406)
Net operating income before
  loan impairment charges 
  and other credit risk
  provisions                5,952        1,687          379           541           984         (187)        9,356
Loan impairment charges
  and other credit risk
  provisions                  (91)        (127)           -             -           (12)           -          (230)
Net operating income        5,861        1,560          379           541           972         (187)        9,126
Total operating expenses^  (1,911)        (600)         (90)          (94)         (208)           -        (2,903)
Inter-segment expenses       (161)         (19)          (3)           (4)            -          187             -
Operating profit            3,789          941          286           443           764            -         6,223
Profit on disposal of
  fixed assets and 
  financial investments        26            -            -             -           243            -           269
Net surplus on property
  revaluation                   -            -            -             -             3            -             3
Share of profits from
  associates                   18          225            -           102            42            -           387
Profit before tax           3,833        1,166          286           545         1,052            -         6,882
Share of profit before tax   55.7%        16.9%         4.2%          7.9%         15.3%           -         100.0%

Operating profit 
  excluding inter-segment 
  transactions              3,950          960          289           447           577            -         6,223

Operating profit 
  excluding loan 
  impairment charges and 
  other credit risk 
  provisions                3,880        1,068          286           443           776            -         6,453

^Depreciation/amortisation
  included in total
  operating expenses          (55)          (7)          (2)           (1)         (114)           -          (179)


At 31Dec06

Total assets              167,241       69,633       76,619       326,181        29,390            -       669,064
Total liabilities         429,667       82,340       41,959        38,609        27,791            -       620,366
Investments in associates     141        1,775            -           801           771            -         3,488
Capital expenditure
  incurred during the
  period                       90           34            8             5           100            -           237

Personal Financial Services ('PFS') reported a growth of 35.4 per cent in profit
before tax to HK$5,278 million and contributed 51.7 per cent to the group's
total profit before tax. Operating profit excluding loan impairment charges rose
by 35.9 per cent, reflecting strong growth in wealth management, private
banking, card and personal lending businesses.

Non-interest income grew by 56.3 per cent, driven primarily by the continued
success of PFS's wealth management business, which reported the following record
achievements:

   • Investment funds: record sales with a significant 88.6 per cent growth
     over the first half of 2006;
   • Stock trading: record turnover with growth of 78.4 per cent and increase
     in customer base (17.2 per cent growth year-on-year);
   • Equity-linked structured instruments: record turnover with growth of
     234.4 per cent; and
   • Life insurance: number one ranking in terms of new regular-pay
     (non-linked) life insurance premiums for the first quarter of 2007. This
     achievement was attributable to the offering of a diverse range of
     retirement solutions - from wealth accumulation to health protection - to
     meet customers' needs of all life stages.

Private banking sustained its outstanding performance trends with total
operating income up by 60.7 per cent. Profit before tax rose by 62.4 per cent to
HK$459 million.

Net interest income rose by 16.7 per cent, contributed mainly by the 7.8 per
cent growth in average customer deposits and the widening of deposit spreads.
Higher growth was recorded in savings accounts, reflecting a customer preference
for maintaining liquidity for investment activities.

The impressive year-on-year growth in card advances and personal lending of 29.3
per cent and 48.8 per cent respectively offset the contraction in the Government
Home Mortgage Scheme mortgage portfolio. Amid intense market competition,
residential mortgages fell slightly by 0.8 per cent with continued pressure on
loan margins. The bank maintained its position as one of the market leaders by
promoting one-stop e-mortgage services as a key area of differentiation.

A series of promotional activities and strong consumer market sentiment helped 
card business grow steadily in the first half of 2007. Cards in issue reached
1.44 million, up from 1.40 million at the end of 2006. Card spending increased
by 22.3 per cent.

Commercial Banking ('CMB') achieved an increase of 15.3 per cent in operating
profit excluding loan impairment charges, driven by strong growth in both net
interest income and net fee income. Profit before tax rose by 17.2 per cent to
HK$1,285 million, contributing 12.6 per cent of the group's total.

Net interest income recorded good growth of 21.6 per cent. Average customer
advances rose by 22.7 per cent over the first half of 2006 as a result of
balanced growth in trade and factoring, advances to the manufacturing and
wholesale and retail sectors, and IPO-related financing.

Corporate wealth management income contributed 9.0 per cent of CMB's total
operating income in the first half of 2007, up from 7.9 per cent in 2006. In
particular, investment and treasury income achieved robust growth of 73.2 per
cent.

CMB continued its strategy of providing customer-centric solutions to retailers.
Net fee income from card merchant-acquiring business achieved strong growth of
40.9 per cent. To enhance our competitive position, Octopus merchant services
were launched in June 2007 to help SME retailers improve their cash management.

In addition to corporate wealth management and card merchant-acquiring business,
CMB also achieved satisfactory growth in trade and remittances services income.
Net fees and commissions grew by 20.8 per cent.

Average customer deposits increased by 19.5 per cent, driven primarily by
customer segmentation initiatives that improved the management of non-borrowing
SME customers.

CMB business continued to grow rapidly on the Mainland, with intensified
collaboration between the Hong Kong and mainland teams. Net interest income on
the Mainland grew by 144.9 per cent in the first half of 2007. In early July,
the bank became the first foreign bank to provide renminbi services to corporate
customers in Dongguan, further strengthening its competitive position in the
Pearl River Delta region.

Business e-Banking enjoyed strong growth. At 30 June 2007, over 44,000 customers
had registered for Business e-Banking services, a year-on-year increase of 34.5
per cent. The number of online business banking transactions grew by 46.2 per
cent.

Corporate Banking ('CIB') achieved an increase of 16.0 per cent in operating
profit excluding loan impairment charges, underpinned by satisfactory growth of
15.7 per cent in net interest income and 35.0 per cent in net fee income.
Average customer deposits rose by 28.9 per cent and deposit spreads widened.
Average customer advances increased by 2.3 per cent, mainly in lending to
property investment, securities and information technology companies.

Profit before tax fell by HK$79 million to HK$192 million, affected by an
increase in loan impairment charges.

Strong liquidity in Hong Kong continued to exert pressure on corporate loan
margins. CIB remained focused on better yield transactions and continued to
target business sectors such as investment holding companies and securities
firms. CIB was active in financing mainland projects of Hong Kong-based
corporates and continued to expand its mainland customer base.

Encouraging progress with income diversification saw solid growth in trade
services, while credit facilities fees increased on the back of an active
refinancing market. Overall, net fee income increased by 35.0 per cent.

Treasury ('TRY') reported a 2.7 per cent growth in operating profit excluding
loan impairment charges. Profit before tax, taking into account the increase in
share of profits from associates, rose by 12.8 per cent to HK$571 million and
contributed 5.6 per cent to the group's total profit before tax.

Balance sheet management portfolios reversed their downward trend and recorded
growth of HK$191 million, or 88.4 per cent, in net interest income. Excluding
the HK$149 million favourable impact of 'funding swap' activities^ (described
below), net interest income rose by HK$42 million, or 23.6 per cent. With the
growth in portfolios and gradual re-pricing of lower yield investments, Treasury
is now better positioned to capture yield enhancement opportunities and deliver
profit growth.

Trading income fell by HK$170 million, or 51.1 per cent, due mainly to the fall
of HK$218 million in foreign exchange profit. Apart from lower foreign exchange
trading profit, the bulk of the decline came from the 'funding swap' activities^
in the balance sheet management portfolios which were reported as a loss of
HK$187 million in the first half of 2007 (loss of HK$38 million in the first
half of 2006). Securities and other derivatives trading, including the provision
of structured products to personal and corporate customers, recorded
satisfactory growth.

^Treasury from time to time employs foreign exchange swaps for its funding
activities, which in essence involve swapping a currency ('original currency')
into another currency ('swap currency') at the spot exchange rate for short-term
placement and simultaneously entering into a forward exchange contract to
convert the funds back to the original currency on maturity of the placement. In
accordance with HKAS39, the exchange difference of the spot and forward
contracts is required to be recognised as foreign exchange gain/loss, while the
corresponding interest differential between the original and swap funding is
reflected in net interest income.

Mainland business

The opening of the bank's mainland subsidiary, Hang Seng Bank (China) Limited
('HACN') on 28 May 2007 marked a new era in the bank's mainland business.
Headquartered in Shanghai, HACN has a network of 17 branches and sub-branches
with three new sub-branches (two in Shanghai and one in Guangzhou) opened since
the beginning of the year. The bank has a branch in Shenzhen for foreign
currency wholesale business and a representative office in Xiamen.

Benefiting from continuing strong economic growth on the Mainland, customer
advances and deposits recorded impressive growth of 21.3 per cent and 42.7 per
cent respectively over the end of 2006. Year-on-year, advances and deposits were
up 50.4 per cent and 93.9 per cent respectively. Total operating income rose by
86.0 per cent to HK$225 million. Profit before tax was down HK$40 million,
affected by the cost of establishing HACN, an increase in loan impairment
charges and the exchange loss of capital funds maintained in US dollars upon
revaluation against the renminbi.

By customer group, mainland PFS continued to focus on the Prestige Banking
segment and the provision of wealth management services. CMB and CIB teams
further stepped up their efforts to join-up with the bank's Hong Kong teams to
serve customers' business needs on the Mainland and in Hong Kong. TRY continued
to manage the funding positions of the branches and develop structured
investment products to meet customers' needs.

Including the bank's share of profit from Industrial Bank (but excluding the
gain on dilution of investment), mainland business contributed 5.9 per cent of
total profit before tax, compared with 4.3 per cent in the first half of 2006.




















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