Hang Seng Bank - Pt1 Results

HSBC Hldgs PLC 26 February 2001 HSBC Hldgs PLC News Release 4 part (1)of(2) HANG SENG BANK LIMITED 2000 RESULTS - HIGHLIGHTS * Operating profit before provisions up 4.3 per cent to HK$11,540 million (HK$11,065 million in 1999). * Pre-tax profit up 19.3 per cent to HK$11,675 million (HK$9,784 million in 1999). * Attributable profit up 20.5 per cent to HK$10,014 million (HK$8,307 million in 1999). * Return on average shareholders' funds of 23.6 per cent (17.6 per cent in 1999). * Total assets up HK$58.7 billion to HK$500.8 billion (HK$442.1 billion at 31 December 1999). * Earnings per share up 20.5 per cent to HK$5.24 (HK$4.35 per share in 1999). * Dividends per share of HK$4.80 (HK$8.20 per share in 1999, including a special interim dividend of HK$4.10). * Total capital ratio of 15.3 per cent (17.3 per cent at 31 December 1999); tier 1 capital ratio of 11.9 per cent (13.3 per cent at 31 December 1999). * Cost:income ratio improved to 24.4 per cent (25.3 per cent in 1999). Hang Seng Bank attributable profit up 20.5 per cent to HK$10,014 million. Hang Seng Bank Limited (the bank) and its subsidiary companies (Hang Seng) reported a profit attributable to shareholders of HK$10,014 million for 2000, an increase of 20.5 per cent compared with 1999, and for the first time exceeding the HK$10 billion level. Earnings per share of HK$5.24 were 20.5 per cent higher than in 1999. Operating profit before provisions increased by 4.3 per cent to HK$11,540 million, mainly due to encouraging growth in other operating income, stable net interest income and lower operating expenses. Operating profit rose by 17.6 per cent to HK$11,344 million, benefiting from a substantial reduction in provisions for bad and doubtful debts. Profit before tax amounted to HK$11,675 million, 19.3 per cent higher than 1999, reflecting an increase in profit on the disposal of long-term investments and a surplus on property revaluation which was credited to the profit and loss account (representing reversal of revaluation deficits of the same properties previously charged to profit and loss). The cost:income ratio further improved by 0.9 percentage points to 24.4 per cent (25.3 per cent for 1999). Total assets grew by HK$58.7 billion, or 13.3 per cent, during the year to HK$500.8 billion at 31 December 2000. Advances to customers recorded encouraging growth of 10.3 per cent compared with last year, mainly in corporate lending and residential mortgages. Interbank assets and debt securities also increased. The increase in total assets was largely driven by the 14.3 per cent growth in customer deposits during the year. Shareholders' funds increased by HK$1,010 million, or 2.6 per cent, to HK$40,584 million at 31 December 2000, mainly from profit after appropriation for the year. The return on average total assets rose to 2.1 per cent (1.9 per cent for 1999) while the return on average shareholders' funds rose substantially to a record high of 23.6 per cent (17.6 per cent for 1999). The advances to deposits ratio was 50.6 per cent at 31 December 2000, compared with 52.5 per cent at 31 December 1999, reflecting higher growth in customer deposits than in advances to customers. Hang Seng continued to maintain a strong liquidity position, with the average liquidity ratio for 2000 rising to 43.3 per cent from 42.4 per cent for 1999 (calculated in accordance with the Fourth Schedule of the Banking Ordinance). The total capital ratio at 31 December 2000 was 15.3 per cent (17.3 per cent at 31 December 1999) and the tier 1 capital ratio was 11.9 per cent (13.3 per cent at 31 December 1999). Second interim dividend The Directors have declared a second interim dividend of HK$2.80 per share (HK$2.50 per share for 1999), which will be payable on Thursday, 22 March 2001 to shareholders on the Register of Shareholders on Thursday, 15 March 2001. Together with the first interim dividend of HK$2.00 per share already paid, the total distribution for 2000 will amount to HK$4.80 per share (HK$8.20 per share for 1999, including a special interim dividend of HK$4.10). The total dividend payment for the year represents 92 per cent of the attributable profit for 2000 (94 per cent in 1999, excluding the special interim dividend). This should not be taken as an indication of future dividend levels. Comment by David Eldon, Chairman 'In 2000, Hang Seng's attributable profit exceeded the HK$10 billion mark for the first time and the 20.5 per cent growth for the year was encouraging. The results reflect the achievements in our personal wealth management initiatives, a record low cost:income ratio and a substantial reduction in the provisions for bad and doubtful debts. Despite the economic recovery, financial market liquidity remained high, loan demand weak, competition intense and the interest margin continued to narrow. 'In 2001, the Hong Kong economy is expected to reflect the US economic slowdown. The banking environment will remain competitive. Loan demand is expected to be moderate. 'In this challenging environment, Hang Seng's market leadership in service and cost discipline has placed it in a favourable position to maximise shareholders' value. We shall build on our trusted brand, strong e-banking platform, superior services and strict cost discipline to sustain growth.' Contents The financial information in this news release is based on the audited consolidated accounts of Hang Seng Bank Limited and its subsidiary companies for the year ended 31 December 2000. Highlights of Results and Chairman's Comment Contents Consolidated Profit and Loss Account Consolidated Balance Sheet Consolidated Statement of Recognised Gains and Losses Reconciliation of Movements in Consolidated Shareholders' Funds Consolidated Cash Flow Statement 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 Segmental analysis of advances to customers by geographical area Gross advances to customers by industry sector Long-term investments Other assets Current, savings and other deposit accounts Shareholders' funds Capital resources management Liquidity ratio Reconciliation of cash flow statement Contingent liabilities, commitments and derivatives Segmental analysis by geographical region Additional Information Accounting policies Property revaluation Market risk Material related-party transactions Statutory accounts Ultimate holding company Statement of compliance Register of shareholders News release Consolidated Profit and Loss Account Year ended 31 December Figures in HK$m 2000 1999 Interest income 31,913 28,072 Interest expense (20,222) (16,405) Net interest income 11,691 11,667 Other operating income 3,574 3,141 Operating income 15,265 14,808 Operating expenses (3,725) (3,743) Operating profit before provisions 11,540 11,065 Provisions for bad and doubtful debts (196) (1,419) Operating profit 11,344 9,646 Profit on tangible fixed assets and long-term investments 248 105 Net surplus/(deficit) on property revaluation 28 (25) Share of profits of associated companies 55 58 Profit on ordinary activities before tax 11,675 9,784 Tax on profit on ordinary activities (1,661) (1,477) Profit attributable to shareholders 10,014 8,307 Retained profits at 1 January 17,729 25,005 Transfer of depreciation to premises revaluation reserve 99 80 Realisation on disposal of premises and investment properties 69 7 Exchange adjustments (2) 8 Dividends (9,177) (15,678) Retained profits at 31 December 18,732 17,729 Figures in HK$ Earnings per share 5.24 4.35 Dividends per share 4.80 8.20 Consolidated Balance Sheet Figures in HK$m At 31Dec00 At 31Dec99 Assets Cash and short-term funds 129,312 116,414 Placings with banks maturing after one month 58,405 55,260 Certificates of deposit 17,232 11,672 Securities held for dealing purposes 4,499 293 Advances to customers 217,518 197,281 Amounts due from immediate holding company and fellow subsidiary companies 10,383 12,154 Long-term investments 39,270 27,317 Investments in associated companies 789 683 Tangible fixed assets 12,049 11,806 Other assets 11,327 9,190 500,784 442,070 Liabilities Current, savings and other deposit accounts 429,605 375,711 Deposits from banks 3,802 6,889 Amounts due to immediate holding company and fellow subsidiary companies 1,999 2,781 Other liabilities 24,794 17,115 460,200 402,496 Capital resources Share capital 9,559 9,559 Reserves 31,025 30,015 Shareholders' funds 40,584 39,574 500,784 442,070 Consolidated statement of recognised gains and losses Year ended 31 December Figures in HK$m 2000 1999 Profit attributable to shareholders 10,014 8,307 Unrealised surplus on revaluation of premises 511 428 Unrealised surplus/(deficit) on revaluation of investment properties - Bank and subsidiary companies 73 (520) - Associated company 98 (12) Long-term equity investment revaluation reserve - Unrealised (deficit)/surplus on revaluation (259) 1,662 - Realisation on disposal (248) (126) Exchange adjustments (2) 8 Recognised gains for the year 10,187 9,747 Reconciliation of movements in consolidated shareholders' funds Figures in HK$m At 31Dec00 At 31Dec99 Shareholders' funds at 1 January 39,574 45,505 Recognised gains for the year 10,187 9,747 Dividends (9,177) (15,678) Shareholders' funds at 31 December 40,584 39,574 Consolidated Cash Flow Statement Year ended 31 December Figures in HK$m 2000 1999 Net cash inflow from operating activities 28,763 33,974 Returns on investments and servicing of finance Dividends received from an associated company 39 45 Dividends paid (8,604) (14,760) Income received on long-term investments 1,635 1,250 Net cash outflow from returns on investments and servicing of finance (6,930) (13,465) Taxation paid (758) (287) Investing activities Purchase of long-term investments (31,247) (34,927) Proceeds from sale or redemption of long-term investments 18,665 30,102 Purchase of tangible fixed assets (136) (325) Proceeds from sale of tangible fixed assets 115 53 Net cash outflow from investing activities (12,603) (5,097) Increase in cash and cash equivalents 8,472 15,125 Financial Review Net interest income Figures in HK$m 2000 1999 Net interest income 11,691 11,667 Average interest-earning assets 435,759 406,113 Net interest spread 2.19% 2.36% Net interest margin 2.68% 2.87% Net interest income was held broadly in line with last year, with a slight increase of HK$24 million, or 0.2 per cent. Average interest earning assets grew by HK$29.6 billion, or 7.3 per cent, to HK$435.8 billion. The net interest margin, however, fell by 19 basis points to 2.68 per cent due to the 17 basis points fall in net interest spread to 2.19 per cent and a 2 basis points reduction to 0.49 per cent in the contribution from net free funds. The reduction in net interest spread was attributable to the adverse effect of the continued fall in the mortgage portfolio yield and the fall in the average advances to deposits ratio from 54.3 per cent to 52.7 per cent. Together, these factors outweighed the benefits of the growth in lower cost savings deposits, improvements in the spread earned from time deposits and the widening of the BLR/HIBOR gap. The average portfolio yield of residential mortgages (excluding those under the Government Home Ownership Scheme and Staff Housing Loan Scheme) fell from 49 basis points above BLR in 1999 to 26 basis points below BLR in 2000 as a result of intense price competition. The contribution from net free funds declined due to the reduction in average balances following the payment of the special interim dividend of HK$7.8 billion in November 1999, and despite an improvement in average yield due to higher market interest rates. Other operating income Figures in HK$m 2000 1999 Dividend income - Listed investments 94 96 - Unlisted investments 4 17 98 113 Fees and commissions receivable 2,367 1,829 Fees and commissions payable (295) (278) 2,072 1,551 Dealing profits - Foreign exchange 534 569 - Securities and other trading activities (5) 15 529 584 Rental income from investment properties 247 240 Other 628 653 3,574 3,141 Other operating income increased by HK$433 million, or 13.8 per cent, compared with 1999. Net fees and commissions rose substantially by HK$521 million, or 33.6 per cent, reflecting the encouraging growth in income from wealth management initiatives including securities broking and related services, sale of retail investment funds and commissions from life insurance products. There were also increased contributions from credit facilities, card services and trade finance. Dealing profits decreased by HK$55 million, or 9.4 per cent, affected by lower foreign exchange income and a small loss in securities and other trading activities. Other operating income fell by HK$25 million, or 3.8 per cent, due to a decrease in general insurance underwriting profits. Operating expenses Figures in HK$m 2000 1999 Staff costs - Salaries and other costs 1,826 1,964 - Retirement benefit costs 222 231 2,048 2,195 Depreciation 388 378 Premises and equipment - Rental expenses 158 152 - Other 608 580 766 732 Other operating expenses 523 438 3,725 3,743 Cost:income ratio 24.4% 25.3% Staff numbers (full-time equivalent) 7,449 7,485 Operating expenses were reduced by HK$18 million, or 0.5 per cent, although there were significant new investments in IT and business development. Staff costs decreased by HK$147 million, or 6.7 per cent, mainly as a result of careful headcount control. Depreciation increased by HK$10 million, or 2.6 per cent, compared with 1999. Premises and equipment expenses increased by HK$34 million, or 4.6 per cent, mainly in IT costs, although repair and maintenance, rates and utilities expenses fell. Other operating expenses increased by HK$85 million, or 19.4 per cent, mainly attributable to increases in marketing expenditure. The cost:income ratio improved to 24.4 per cent (25.3 per cent for 1999), the lowest since this ratio was first published in 1989. Provisions for bad and doubtful debts Figures in HK$m 2000 1999 Net charge/(release) for bad and doubtful debts Advances to customers Specific provisions - New provisions 988 1,681 - Releases (747) (242) - Recoveries (42) (12) 199 1,427 General provisions (3) (8) Net charge to profit and loss account 196 1,419 The charge for bad and doubtful debts decreased significantly by HK$1,223 million, or 86.2 per cent, to HK$196 million compared with last year. The net charge for specific provisions fell by HK$1,228 million to HK$199 million, the combined effect of a substantial reduction in new and additional provisions made and increases in releases of provisions and recoveries from doubtful accounts. There was a net release of HK$3 million from general provisions, with provisions of HK$122 million made against loan growth for the year and a release of HK$125 million from the additional general provision of HK$250 million made in 1997. In view of the slowdown in the US economy and its possible implications for the Hong Kong economy, the balance of the additional provision of HK$125 million has been transferred to the general provisions for bad and doubtful debts. Profit on tangible fixed assets and long-term investments Figures in HK$m 2000 1999 Profit on disposal of long-term investments - Realisation of amounts previously recognised in revaluation reserves at 1 January 351 76 - (Loss)/profit arising in current year (101) 53 250 129 Net loss on disposal of tangible fixed assets (2) (6) Provision for impairment of long-term investments - (18) 248 105 Profit on disposal of tangible fixed assets and long-term investments rose by HK$143 million to HK$248 million compared with last year, mainly from the disposal of locally-listed equities. Taxation Taxation in the consolidated profit and loss account represents: Figures in HK$m 2000 1999 Provision for Hong Kong profits tax 1,697 1,481 Taxation outside Hong Kong 2 1 Deferred taxation (46) (11) 1,653 1,471 Share of associated companies' taxation 8 6 Total charge for taxation 1,661 1,477 Effective tax rate 14.2% 15.1% The provision for Hong Kong profits tax was made at 16.0 per cent (the same rate as for 1999) based on an estimate of the assessable profits for the year ended 31 December 2000. Similarly, taxation provisions for subsidiary companies and branches outside Hong Kong were made at the appropriate rates of taxation prevailing in the countries in which they operate. The effective tax rate fell from 15.1 per cent for 1999 to 14.2 per cent for 2000. The higher effective tax rate for 1999 was due to the bad debt provisions made by the mainland China branches which do not qualify for tax relief under local legislation. Earnings per share The calculation of earnings per share was based on earnings of HK$10,014 million (HK$8,307 million in 1999) and on the weighted average number of ordinary shares in issue of 1,911,842,736 shares (unchanged from 1999). Dividends per share 2000 1999 HK$ HK$m HK$ HK$m per per share share First interim 2.00 3,824 1.60 3,059 Special interim - - 4.10 7,839 Second interim 2.80 5,353 2.50 4,780 4.80 9,177 8.20 15,678 The calculation of dividends per share for 2000 is based on dividends paid and payable of HK$9,177 million (HK$15,678 million for 1999) and on 1,911,842,736 shares in issue (unchanged from 1999). Cash and short-term funds Figures in HK$m At 31Dec00 At 31Dec99 Cash in hand and balances with banks and other financial institutions 4,257 5,024 Money at call and placings with banks maturing within one month 110,372 105,835 Treasury bills 14,683 5,555 129,312 116,414 Cash and short-term funds rose by HK$12,898 million, or 11.1 per cent, with a notable increase in treasury bills, including Hong Kong Government Exchange Fund bills and other government bills. Placings with banks maturing after one month Figures in HK$m At 31Dec00 At 31Dec99 Remaining maturity: - Three months or less but over one month 35,756 32,516 - One year or less but over three months 22,649 22,667 - Five years or less but over one year - 77 58,405 55,260 Advances to customers Figures in HK$m At 31Dec00 At 31Dec99 Gross advances to customers 221,973 202,244 Specific provisions (3,017) (3,522) General provisions (1,438) (1,441) 217,518 197,281 Included in advances to customers are: - Trade bills 1,929 1,802 - Provisions for bad and doubtful debts (37) (70) 1,892 1,732 Advances to customers (after deduction of interest in suspense and provisions) showed encouraging growth of HK$20.2 billion, or 10.3 per cent, and reached HK$217.5 billion at 31 December 2000. This reflected the bank's efforts to expand the loan portfolios, both personal and corporate, in the face of strong competition and sluggish loan demand in Hong Kong during the year. Provisions against advances to customers Figures in HK$m At 31 December 2000 Specific General Total Suspended interest At 1 January 2000 3,522 1,441 4,963 733 Amounts written off (749) - (749) (230) Recoveries of advances written off in previous years 42 - 42 - Net charge/(release) to profit and loss account 199 (3) 196 - Interest suspended during the year - - - 386 Suspended interest recovered - - - (88) Exchange adjustments 3 - 3 - At 31 December 2000 3,017 1,438 4,455 801 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: At31Dec00 At 31Dec99 % % Specific provisions 1.36 1.74 General provisions 0.65 0.71 Total provisions 2.01 2.45 Total provisions as a percentage of gross advances to customers fell to 2.01 per cent at 31 December 2000, compared with 2.45 per cent at the end of 1999. Specific provisions as a percentage of gross advances decreased by 0.38 percentage points to 1.36 per cent, mainly reflecting the write-off of non-performing advances on final settlement and the upgrading of certain rescheduled advances and doubtful accounts to performing status. The reduction in general provisions from 0.71 per cent to 0.65 per cent was due to the release of HK$125 million from the additional general provision of HK$250 million made in 1997. Non-performing advances to customers and provisions Non-performing advances to customers on which interest has been placed in suspense or on which interest accrual has ceased are as follows: Figures in HK$m At 31Dec00 At 31Dec99 Gross non-performing advances on which interest - Has been placed in suspense 6,894 8,323 - Accrual has ceased 867 617 7,761 8,940 Suspended interest (327) (282) Gross non-performing advances^(page 18) 7,434 8,658 Specific provisions (3,017) (3,522) Net non-performing advances 4,417 5,136 Specific provisions as a percentage of gross non-performing advances^ 40.6% 40.7% Gross non-performing advances^ as a percentage of gross advances to customers 3.3% 4.3% ^ Stated after deduction of interest in suspense. Non-performing advances to customers are those advances where full repayment of principal or interest is considered unlikely and are so classified as soon as it becomes apparent that full recovery is unlikely. As such, non-performing advances may include advances that are not yet more than three months overdue but are considered doubtful. Except in certain limited circumstances, all advances on which principal or interest is more than three months overdue are classified as non-performing. Specific provisions made in respect of non-performing advances take into account the value of collateral held. Gross non-performing advances (after deduction of interest in suspense) fell by HK$1,224 million, or 14.1 per cent, compared with the end of 1999, with amounts having been written-off against specific provisions on final settlement and on the upgrading of certain rescheduled advances and doubtful accounts to performing status. The percentage of gross non-performing advances to total gross advances to customers was 3.3 per cent, a reduction of 1.0 percentage points compared with the end of 1999. Overdue advances to customers The amount of advances to customers which are overdue for more than three months and its expression as a percentage of gross advances to customers are as follows: At 31Dec00 At 31Dec99 HK$m % HK$m % Gross advances to customers^which have been overdue with respect to either principal or interest for periods of - Six months or less but over three months 854 0.4 785 0.4 - One year or less but over six months 762 0.3 1,611 0.8 - Over one year 3,687 1.7 4,340 2.1 5,303 2.4 6,736 3.3 Overdue advances to customers (as above) 5,303 2.4 6,736 3.3 Less: overdue advances on which interest is still being accrued (418) (0.2) (283) (0.1) Add: advances overdue for periods of three months or less, or which are not yet overdue, and on which interest has been placed in suspense - included in rescheduled advances 1,576 0.7 892 0.4 - other 973 0.4 1,313 0.7 Gross non-performing advances (page 17) 7,434 3.3 8,658 4.3 ^Stated after deduction of interest in suspense. Advances with a specific repayment date are classified as overdue when the principal or interest is overdue and remains unpaid at the year-end. Advances repayable by regular instalments are treated as overdue when an instalment payment is overdue and remains unpaid at the year-end. Advances repayable on demand are classified as overdue either when a demand for repayment has been served on the borrower but repayment has not been made in accordance with the instruction, or when the advances have remained continuously outside the approved limit advised to the borrower for more than the overdue period in question. MORE TO FOLLOW

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