Hang Seng Bank Results (1/2)
HSBC Holdings PLC
05 August 2002
HANG SENG BANK LIMITED
2002 INTERIM RESULTS - HIGHLIGHTS
* Operating profit before provisions down 2.0 per cent to HK$5,849 million
(HK$5,967 million for the first half of 2001).
* Pre-tax profit down 3.3 per cent to HK$5,978 million (HK$6,183 million for the
first half of 2001).
* Attributable profit down 2.9 per cent to HK$5,220 million (HK$5,375 million
for the first half of 2001).
* Return on average shareholders' funds of 23.8 per cent (24.4 per cent for the
first half of 2001).
* Total assets down 0.9 per cent to HK$470.6 billion (HK$474.8 billion at 31
December 2001).
* Earnings per share down 2.8 per cent to HK$2.73 (HK$2.81 per share for the
first half of 2001).
* First interim dividend per share maintained at HK$2.10 (HK$2.10 per share for
the first half of 2001).
* Total capital ratio of 15.4 per cent (15.3 per cent at 31 December 2001); tier
1 capital ratio of 12.6 per cent (12.3 per cent at 31 December 2001).
* Cost:income ratio of 23.7 per cent (23.8 per cent for the first half of 2001).
Hang Seng Bank attributable profit down 2.9 per cent to HK$5,220 million
Hang Seng Bank Limited (the bank) and its subsidiary and associated companies
(Hang Seng) reported an unaudited profit attributable to shareholders of
HK$5,220 million for the first half of 2002, 2.9 per cent lower than the first
half of 2001 but an increase of 10.1 per cent compared with the second half of
2001.
Operating profit before provisions fell by HK$118 million, or 2.0 per cent, to
HK$5,849 million. A reduction of 7.6 per cent in net interest income, mainly
attributable to the decline in free funds' contribution, outweighed the combined
effect of a 14.6 per cent rise in other operating income and a 2.7 per cent
reduction in operating expenses. Operating profit decreased by 6.4 per cent to
HK$5,568 million, after taking into account the net charge for provisions for
bad and doubtful debts which rose by HK$260 million to HK$281 million due to the
exceptionally high releases and recoveries in the same period last year. Profit
before tax amounted to HK$5,978 million, which was HK$205 million, or 3.3 per
cent, lower than the first half of 2001, after accounting for an increase in
profits on disposal of debt securities and locally-listed equities, and the
inclusion of the bank's share of the value of the long-term assurance business
of Hang Seng Life Limited. Compared with the second half of 2001, operating
profit before provisions and profit before tax increased by 5.7 per cent and
12.1 per cent respectively.
Total assets were HK$4.2 billion, or 0.9 per cent, lower at HK$470.6 billion,
compared with HK$474.8 billion at 31 December 2001. The slight reduction in
balance sheet size reflected a decrease of 1.5 per cent in customer deposits.
There was a continued shift of time deposits to savings deposits under a
persistently low interest rate environment. Advances to customers grew by 1.5
per cent during the first half of 2002, mainly in residential mortgages,
corporate lending and trade advances, while mortgages under the Government Home
Ownership Scheme decreased. Investment in debt securities also rose, with funds
redeployed from lower yielding interbank placements.
Shareholders' funds (excluding proposed dividends) grew by HK$552 million, or
1.4 per cent, to HK$40,270 million at 30 June 2002. This was mainly attributable
to an increase of HK$1,274 million in retained profits and a reduction of HK$672
million in the long-term equity investment revaluation reserve due to the
realisation on disposal and the fall in fair value of long-term equities.
The return on average total assets was maintained at 2.2 per cent (2.2 per cent
for the first half of 2001). The return on average shareholders' funds was 23.8
per cent, compared with 24.4 per cent in the first half of 2001 and 21.4 per
cent in the second half of 2001.
The advances to deposits ratio rose to 55.3 per cent at 30 June 2002 from 53.7
per cent at 31 December 2001, a result of the growth in customer advances and
the reduction in customer deposits during the first half of 2002. Hang Seng
continued to maintain a strong liquidity position, with the average liquidity
ratio for the first half of 2002 (calculated in accordance with the Fourth
Schedule of the Banking Ordinance) at 43.4 per cent (46.0 per cent for the first
half of 2001).
The total capital ratio at 30 June 2002 was 15.4 per cent (15.3 per cent at 31
December 2001) and the tier 1 capital ratio was 12.6 per cent (12.3 per cent at
31 December 2001).
First interim dividend
The Directors have declared a first interim dividend of HK$2.10 per share
(HK$2.10 per share for the first half of 2001), which will be payable on
Wednesday, 4 September 2002 to shareholders on the Register of Shareholders on
Wednesday, 28 August 2002. The dividend as declared should not be taken as an
indication of the level of profit or dividend for the full year.
Comment by David Eldon, Chairman
"With the Hong Kong economy remaining sluggish and the banking environment
challenging in the first half of 2002, Hang Seng achieved an attributable profit
of HK$5,220 million, a fall of 2.9 per cent from the first half of 2001 but an
increase of 10.1 per cent compared with the second half of that year.
"A hoped for recovery in re-exports in the second half of 2002 should lead to a
modest rebound in the economy but the pace of recovery will probably be slow.
Domestic demand and investment are likely to remain subdued in view of the
record high unemployment and weak asset prices. The banking industry will
continue to be affected by intense competition, weak loan demand, surplus
liquidity and continuing pressure on margins.
"In this difficult operating environment, Hang Seng will focus on cost control
and credit risk management while continuing to build more profitable long-term
customer relationships and diversifying income sources to increase shareholder
value. We shall also expand further our operations in mainland China to pave the
way for future growth."
Contents
The financial information in this news release is based on the unaudited
consolidated accounts of Hang Seng Bank Limited and its subsidiary and
associated companies for the six months ended 30 June 2002.
Highlights of Results and Chairman's Comment
Contents
Consolidated Profit and Loss Account (Unaudited)
Consolidated Balance Sheet (Unaudited)
Consolidated Statement of Changes in Equity (Unaudited)
Economic Profit (Unaudited)
Consolidated Cash Flow Statement (Unaudited)
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
Certificates of deposit
Securities held for dealing purposes
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
Deposits from banks
Shareholders' funds
Capital resources management
Liquidity ratio
Reconciliation of cash flow statement
Contingent liabilities, commitments and derivatives
Segmental analysis
Cross border claims
Additional Information
Accounting policies
Comparative figures
Market risk
Foreign currency positions
Material related-party transactions
Statutory accounts
Ultimate holding company
Statement of compliance
Register of shareholders
News release
Consolidated Profit and Loss Account (Unaudited)
Half-year ended Half-year ended Half-year ended
Figures in HK$m 30Jun02 30Jun01 31Dec01
Interest income 7,617 14,430 10,079
Interest expense (2,164 ) (8,528 ) (4,321 )
Net interest income 5,453 5,902 5,758
Other operating income 2,212 1,931 2,016
Operating income 7,665 7,833 7,774
Operating expenses (1,816 ) (1,866 ) (2,238 )
Operating profit before provisions 5,849 5,967 5,536
Provisions for bad and doubtful debts (281 ) (21 ) (403 )
Operating profit 5,568 5,946 5,133
Profit on tangible fixed assets and
long-term investments 343 212 181
Net deficit on property revaluation __ __ (14 )
Share of profits of associated companies 67 25 31
Profit on ordinary activities before tax 5,978 6,183 5,331
Tax on profit on ordinary activities (758 ) (808 ) (592 )
Profit attributable to shareholders 5,220 5,375 4,739
Retained profits at beginning of period
- as previously reported 19,618 18,732 20,162
- arising on change in accounting
policies 17 __ __
- as restated 19,635 18,732 20,162
Transfer of depreciation to
premises revaluation reserve 48 50 50
Realisation on disposal of premises and
investment properties 2 20 22
Exchange adjustments 2 __ (2 )
Proposed dividends (4,015 ) (4,015 ) (5,353 )
Retained profits at end of period 20,892 20,162 19,618
Figures in HK$
Earnings per share 2.73 2.81 2.48
Dividends per share 2.10 2.10 2.80
Consolidated Balance Sheet (Unaudited)
Figures in HK$m At 30Jun02 At 30Jun01 At 31Dec01
Assets
Cash and short-term funds 88,438 118,172 111,099
Placings with banks maturing
after one month 42,192 49,665 43,666
Certificates of deposit 26,822 19,407 23,203
Securities held for dealing purposes 1,209 2,837 2,167
Advances to customers 225,746 219,750 222,436
Amounts due from immediate holding
company and fellow subsidiary companies 10,425 7,641 8,297
Long-term investments 54,918 40,963 43,262
Investments in associated companies 1,051 808 774
Tangible fixed assets 11,237 11,916 11,323
Other assets 8,568 11,458 8,560
470,606 482,617 474,787
Liabilities
Current, savings and other deposit accounts 408,295 415,484 414,328
Deposits from banks 2,287 4,050 2,622
Amounts due to immediate holding company
and fellow subsidiary companies 1,896 1,098 1,051
Other liabilities 13,843 16,802 11,715
426,321 437,434 429,716
Capital resources
Share capital 9,559 9,559 9,559
Reserves 30,711 31,609 30,159
Proposed dividends 4,015 4,015 5,353
Shareholders' funds 44,285 45,183 45,071
470,606 482,617 474,787
Consolidated Statement of Changes in Equity (Unaudited)
Figures in HK$m At 30Jun02 At 30Jun01 At 31Dec01
Shareholders' funds at beginning of period
- as previously reported 45,071 45,937 45,183
- change in accounting policies
-- net transitional liabilities on defined
benefit schemes (189 ) __ __
-- value on long-term assurance
business 206 __ __
17 __ __
- as restated 45,088 45,937 45,183
Unrealised deficit on revaluation
of premises __ __ (209 )
Unrealised deficit on revaluation of
investment properties
- bank and subsidiary companies __ __ (211 )
- associated company __ __ (61 )
Long-term equity investment revaluation
reserve
- unrealised deficit on revaluation (395 ) (612 ) (238 )
- realisation on disposal (277 ) (164 ) (115 )
Exchange adjustments 2 __ (2 )
Net losses recognised in the
shareholders' funds during the period (670 ) (776 ) (836 )
Profit attributable to shareholders
for the period 5,220 5,375 4,739
Dividends paid (5,353 ) (5,353 ) (4,015 )
Shareholders' funds at end of period 44,285 45,183 45,071
Economic profit (Unaudited)
Economic profit is calculated from profit after tax, adjusted for non-cash
items, and takes into account the cost of capital invested by Hang Seng's
shareholders. For consistency, the benchmark cost of capital of 15.0 per cent
was applied, which is above Hang Seng's true cost of capital under the current
low interest rate environment. The trend of economic profits in this analysis
shows that Hang Seng continues to create value for its shareholders.
Half-year ended Half-year ended Half-year ended
Figures in HK$m 30Jun02 30Jun01 31Dec01
Average invested capital 31,260 30,448 31,664
Return on invested capital ^ 5,265 5,423 4,799
Cost of capital (2,322 ) (2,270 ) (2,397 )
Economic profit 2,943 3,153 2,402
^ Return on invested capital represents profit after tax adjusted for non-cash
items.
Consolidated cash flow statement (Unaudited)
Half-year ended Half-year ended
Figures in HK$m 30Jun02 30Jun01
Net cash outflow from operating activities (1,406 ) (4,031 )
Cash flows from investing activities
Net cash outflow from investment in
an associated company (35 ) (25 )
Purchase of long-term investments (38,148 ) (18,991 )
Proceeds from sale or redemption of
long-term investments 27,324 17,101
Purchase of tangible fixed assets (92 ) (105 )
Proceeds from sale of tangible fixed assets 2 49
Dividends received from an associated company 21 27
Income received on long-term investments 983 1,250
Net cash outflow from investing activities (9,945 ) (694 )
Cash flows from financing activities
Dividends paid (5,353 ) (5,353 )
Net cash outflow from financing activities (5,353 ) (5,353 )
Decrease in cash and cash equivalents (16,704 ) (10,078 )
Cash and cash equivalents at beginning of period 141,103 157,511
Cash and cash equivalents at end of period 124,399 147,433
Financial Review
Net interest income
Half-year ended Half-year ended Half-year ended
Figures in HK$m 30Jun02 30Jun01 31Dec01
Net interest income 5,453 5,902 5,758
Average interest-earning assets 442,284 461,267 448,711
Net interest spread 2.38 % 2.21 % 2.35 %
Net interest margin 2.49 % 2.58 % 2.55 %
Net interest income decreased by HK$449 million, or 7.6 per cent, while average
interest-earning assets fell by HK$19.0 billion, or 4.1 per cent. Net interest
spread improved by 17 basis points to 2.38 per cent, but this was more than
offset by a reduction of 26 basis points in the contribution from net free funds
to 0.11 per cent, leading to a 9 basis point compression in net interest margin
to 2.49 per cent.
Net interest spread benefited by 21 basis points from improved spreads on
holdings of fixed rate securities in a lower interest rate environment and
gained 6 and 8 basis points respectively from the growth in lower cost savings
deposits and a wider spread earned on time deposits. These were partly offset by
a further decline in the average yield on the mortgage portfolio (including
those under Government Home Ownership Scheme) and a reduction in interest
recovered from non-performing advances which had an adverse impact of 16 and 2
basis points respectively on net interest spread. The contribution from net free
funds was affected by the sharp fall in market interest rates, resulting in a
reduction of HK$623 million in net interest income compared with the first half
of 2001.
Compared with the second half of 2001, net interest income fell by HK$305
million, or 5.3 per cent, with a 6 basis point fall in net interest margin to
2.49 per cent. Net interest spread widened by 3 basis points to 2.38 per cent,
benefiting from improved spreads on fixed rate securities, growth in lower cost
savings deposits and a wider spread earned attributable to time deposits. The
fall in market interest rates caused the contribution from net free funds to
decrease by 9 basis points to 0.11 per cent, which translated into a decline of
HK$208 million in net interest income.
As a result of the continued reduction in the pricing of new mortgages and the
re-pricing of existing loans, the average yield on the residential mortgage
portfolio, excluding Government Home Ownership Scheme mortgages and staff loans,
fell to 138 basis points below BLR for the first half of 2002, before accounting
for the effect of cash incentive payments. This compared with 65 basis points
and 103 basis points below BLR in the first and second halves of 2001
respectively.
Other operating income
Half-year ended Half-year ended Half-year ended
Figures in HK$m 30Jun02 30Jun01 31Dec01
Dividend income
- listed investments 44 51 35
- unlisted investments 9 6 1
53 57 36
Fees and commissions
- securities/stockbroking 130 126 94
- retail investment funds 472 152 218
- insurance 185 168 256
- account services 129 136 144
- remittance 62 61 62
- cards 292 312 321
- credit facilities 146 157 148
- import/export 99 106 108
- other 75 60 67
Fees and commissions receivable 1,590 1,278 1,418
Fees and commissions payable (156 ) (154 ) (134 )
1,434 1,124 1,284
Dealing profits
- foreign exchange 280 259 272
- securities and other trading
activities 10 __ (1 )
290 259 271
Insurance underwriting 125 129 97
Rental income from
investment properties 113 123 122
Other 197 239 206
2,212 1,931 2,016
Other operating income rose by HK$281 million, or 14.6 per cent, and contributed
28.9 per cent of total operating income, compared with 24.7 per cent for the
first half of 2001.
The strong growth of 27.6 per cent in net fees and commissions reflects Hang
Seng's successful delivery of wealth management services to target customer
segments. This included a 210.5 per cent increase in fees from the distribution
and management of retail investment funds to HK$472 million, growth of 59.6 per
cent in life insurance sales commissions to HK$142 million and an increase of
3.2 per cent in securities broking and related income to HK$130 million.
Dealing profits grew by HK$31 million, or 12.0 per cent, attributable to
improvements in foreign exchange income and securities trading. Insurance
underwriting profit was maintained under intense market competition while other
income fell by HK$42 million, or 17.6 per cent, mainly due to lower loan
redemption fees.
Operating expenses
Half-year ended Half-year ended Half-year ended
Figures in HK$m 30Jun02 30Jun01 31Dec01
Staff costs
- salaries and other costs 915 909 925
- retirement benefit costs 98 112 322
1,013 1,021 1,247
Depreciation 174 189 197
Premises and equipment
- rental expenses 84 80 84
- other 282 339 364
366 419 448
Other operating expenses 263 237 346
1,816 1,866 2,238
Cost:income ratio 23.7 % 23.8 % 28.8 %
Staff numbers (full-time equivalent) 7,321 7,425 7,488
Operating expenses fell by HK$50 million, or 2.7 per cent, to HK$1,816 million.
Staff costs decreased marginally by HK$8 million, or 0.8 per cent. Depreciation
charges dropped by HK$15 million, or 7.9 per cent, reflecting a lower level of
capital expenditure. Premises and equipment expenses decreased by HK$53 million,
or 12.6 per cent, attributable to the reduction in IT expenditure after the
initial spending in the previous year to support the development of e-banking
initiatives. Other operating expenses increased by HK$26 million, or 11.0 per
cent, mainly in marketing and advertising expenses to promote credit cards and
other personal banking products.
Provisions for bad and doubtful debts
Half-year ended Half-year ended Half-year ended
Figures in HK$m 30Jun02 30Jun01 31Dec01
Net charge/(release) for bad and
doubtful debts
Advances to customers
Specific provisions
- new provisions 528 576 559
- releases (222 ) (461 ) (136 )
- recoveries (25 ) (94 ) (20 )
281 21 403
General provisions __ __ __
Net charge to profit and
loss account 281 21 403
The net charge for bad and doubtful debts for the first half of 2002 amounted to
HK$281 million against the comparative figure of HK$21 million which benefited
significantly from the exceptionally high releases and recoveries during the
first half of 2001. New and additional specific provisions were reduced by HK$48
million, or 8.3 per cent, to HK$528 million, with a reduction in specific
charges for corporate accounts and residential mortgages offsetting the rise in
specific charges for card advances and personal loans. Releases and recoveries
reduced by HK$308 million, or 55.5 per cent, to HK$247 million, mainly in
corporate accounts and taxi loans.
Profit on tangible fixed assets and long-term investments
Half-year ended Half-year ended Half-year ended
Figures in HK$m 30Jun02 30Jun01 31Dec01
Profit on disposal of long-term
equity investments
- realisation of amounts previously
recognised in revaluation reserves
at beginning of period 316 181 184
- loss arising in current period (39 ) (17 ) (69 )
277 164 115
Profit less loss on disposal of
held-to-maturity debt securities 75 49 71
Profit less loss on disposal of
tangible fixed assets __ (1 ) 6
Provision for impairment of
long-term investments (9 ) __ (11 )
343 212 181
Profit on disposal of tangible fixed assets and long-term investments rose by
HK$131 million, or 61.8 per cent, to HK$343 million, with higher profits on the
disposal of debt securities from the accrual portfolio and locally-listed
equities.
Taxation
Taxation in the consolidated profit and loss account represents:
Half-year ended Half-year ended Half-year ended
Figures in HK$m 30Jun02 30Jun01 31Dec01
Provision for Hong Kong
profits tax 745 802 605
Taxation outside Hong Kong 2 4
3
Deferred taxation __ __ (21 )
748 804 588
Share of associated companies'
taxation 10 4 4
Total charge for taxation 758 808 592
Effective tax rate 12.7 % 13.1 % 11.1 %
The provision for Hong Kong profits tax was made at 16.0 per cent (the same rate
as for 2001) based on an estimate of the assessable profits for the half-year
ended 30 June 2002. Similarly, taxation provisions for subsidiary companies and
branches outside the Hong Kong SAR were made at the appropriate rates of
taxation prevailing in the countries in which they operate.
The effective tax rate was 12.7 per cent, compared with 13.1 per cent for the
first half of 2001, mainly due to the increase in non-taxable capital gains on
the disposal of locally-listed equities.
Earnings per share
The calculation of earnings per share for the first half of 2002 is based on
earnings of HK$5,220 million (HK$5,375 million in the first half of 2001) and on
the weighted average number of ordinary shares in issue of 1,911,842,736 shares
(unchanged from the first half of 2001).
Dividends per share
Half-year ended Half-year ended Half-year ended
30Jun02 30Jun01 31Dec01
HK$ HK$m HK$ HK$m HK$ HK$m
per share per share per share
First interim 2.10 4,015 2.10 4,015 __ __
Second interim __ __ __ __ 2.80 5,353
2.10 4,015 2.10 4,015 2.80 5,353
Cash and short-term funds
Figures in HK$m At 30Jun02 At 30Jun01 At 31Dec01
Cash in hand and balances with banks
and other financial institutions 3,873 3,916 3,729
Money at call and placings with banks
maturing within one month 79,846 104,457 101,293
Treasury bills 4,719 9,799 6,077
88,438 118,172 111,099
Remaining maturity of treasury bills:
- within three months 3,520 3,383 3,385
- one year or less but over three months 1,199 6,416 2,692
4,719 9,799 6,077
Placings with banks maturing after one month
Figures in HK$m At 30Jun02 At 30Jun01 At 31Dec01
Remaining maturity:
- three months or less but over one month 32,375 34,223 29,835
- one year or less but over three months 9,817 15,442 13,831
42,192 49,665 43,666
Certificates of deposit
Figures in HK$m At 30Jun02 At 30Jun01 At 31Dec01
Remaining maturity:
- three months or less but not repayable
on demand 3,242 2,223 2,395
- one year or less but over three months 5,542 7,497 6,096
- five years or less but over one year 17,937 9,687 14,705
- over five years 101 __ 7
26,822 19,407 23,203
Securities held for dealing purposes
Figures in HK$m At 30Jun02 At 30Jun01 At 31Dec01
Debt securities by remaining maturity:
- three months or less but not repayable
on demand 579 158 662
- one year or less but over three months 214 1,385 920
- five years or less but over one year 416 965 516
- over five years __ 208 69
1,209 2,716 2,167
Equity shares __ 121 __
1,209 2,837 2,167
Advances to customers
Figures in HK$m At 30Jun02 At 30Jun01 At 31Dec01
Gross advances to customers 228,893 223,741 225,926
Specific provisions (1,710 ) (2,554) (2,052 )
General provisions (1,437 ) (1,437) (1,438 )
225,746 219,750 222,436
Remaining maturity:
- repayable on demand 12,128 11,764 12,062
- three months or less but
not repayable on demand 15,441 17,170 13,213
- one year or less but over three months 26,036 23,847 24,815
- five years or less but over one year 83,242 75,878 82,065
- over five years 84,628 87,505 86,789
- overdue for more than one month 1,452 973 808
- non-performing advances 5,966 6,604 6,174
Gross advances to customers 228,893 223,741 225,926
Provisions for bad and doubtful debts (3,147 ) (3,991 ) (3,490 )
225,746 219,750 222,436
Included in advances to customers are:
- trade bills 2,222 2,085 1,882
- provisions for bad and doubtful debts (66 ) (44 ) (61 )
2,156 2,041 1,821
Advances to customers (after deduction of interest in suspense and provisions)
recorded modest growth of HK$3,310 million, or 1.5 per cent, to HK$225.7 billion
at 30 June 2002, as loan demand remained subdued under the uncertain economic
environment.
Provisions against advances to customers
Suspended
Figures in HK$m Specific General Total interest
At 1 January 2002 2,052 1,438 3,490 509
Amounts written off (649 ) __ (649 ) (117 )
Recoveries of advances
written off in previous years 25 __ 25 __
Net charge to profit and loss account 281 __ 281 __
Interest suspended during the period __ __ __ 74
Suspended interest recovered __ __ __ (52 )
Exchange adjustments 1 (1 ) __ __
At 30 June 2002 1,710 1,437 3,147 414
Suspended interest comprises both suspended interest netted against 'Advances to
customers' and suspended interest netted against accrued interest receivable in
'Prepayments and accrued income'.
Total provisions as a percentage of gross advances to customers are as follows:
At 30Jun02 At 30Jun01 At 31Dec01
% % %
Specific provisions 0.75 1.14 0.91
General provisions 0.63 0.64 0.64
Total provisions 1.38 1.78 1.55
Total provisions as a percentage of gross advances to customers fell to 1.38 per
cent at 30 June 2002, compared with 1.55 per cent at the end of 2001. Specific
provisions as a percentage of gross advances decreased by 0.16 percentage points
to 0.75 per cent. The reduction mainly reflected the writing-off of the
irrecoverable balances and the upgrading of rescheduled advances and doubtful
accounts to performing status. General provisions stood at 0.63 per cent of
gross advances to customers, compared with 0.64 per cent at the end of 2001.
Non-performing advances to customers and provisions
Non-performing advances to customers on which interest has been placed in
suspense or on which interest has ceased to accrue are as follows:
Figures in HK$m At 30Jun02 At 30Jun01 At 31Dec01
Gross non-performing advances on
which interest:
- has been placed in suspense 5,622 6,578 6,084
- accrual has ceased 479 342 251
6,101 6,920 6,335
Suspended interest (135 ) (316 ) (161 )
Gross non-performing advances ^
(page 22) 5,966 6,604 6,174
Specific provisions (1,710 ) (2,554 ) (2,052 )
Net non-performing advances 4,256 4,050 4,122
Specific provisions as a percentage of
gross non-performing advances ^ 28.7 % 38.7 % 33.2 %
Gross non-performing advances ^
as a percentage of gross advances
to customers 2.6 % 3.0 % 2.7 %
^ Stated after deduction of interest in suspense.
Non-performing advances to customers are those advances where full repayment of
principal or interest is considered unlikely and are so classified as soon as
such a situation becomes apparent. Non-performing advances may include advances
that are not yet overdue for more than three months but are considered doubtful.
Except in certain limited circumstances, all advances on which principal or
interest is overdue for more than three months are classified as non-performing.
Specific provisions are made after taking into account the value of collateral
held in respect of such advances.
Gross non-performing advances (after deduction of interest in suspense) fell by
HK$208 million, or 3.4 per cent, to HK$5,966 million, compared with the end of
2001. There was a slight improvement in the ratio of gross non-performing
advances to gross advances to customers to 2.6 per cent from 2.7 per cent at the
end of 2001.
Overdue advances to customers
The amounts of advances to customers which are overdue for more than three
months and their expression as a percentage of gross advances to customers are
as follows:
At 30Jun02 At 30Jun01 At 31Dec01
HK$m % HK$m % HK$m %
Gross advances to customers ^ which
have been overdue with respect to
either principal or interest
for periods of:
- six months or less but over
three months 823 0.3 861 0.4 1,338 0.6
- one year or less but over six months 1,321 0.6 1,455 0.6 894 0.4
- over one year 2,910 1.3 3,109 1.4 3,203 1.4
5,054 2.2 5,425 2.4 5,435 2.4
Overdue advances to customers
(as above) 5,054 2.2 5,425 2.4 5,435 2.4
Less: overdue advances on which
interest is still being accrued (691 ) (0.3 ) (655 ) (0.3 ) (622 ) (0.3 )
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 321 0.1 1,137 0.5 484 0.2
- other 1,282 0.6 697 0.4 877 0.4
Gross non-performing advances
(page 21) 5,966 2.6 6,604 3.0 6,174 2.7
^ Stated after deduction of interest in suspense.
Advances with a specific repayment date are classified as overdue when the
principal or interest is overdue and remains unpaid at the period-end. Advances
repayable by regular instalments are treated as overdue when an instalment
payment is overdue and remains unpaid at the period-end. Advances repayable on
demand are classified as overdue either when a demand for repayment has been
served on the borrower but repayment has not been made in accordance with the
demand notice, or when the advances have remained continuously outside the
approved limit advised to the borrower for more than the overdue period in
question.
Rescheduled advances to customers
The amount of rescheduled advances and its expression as a percentage of gross
advances to customers are as follows:
At 30Jun02 At 30Jun01 At 31Dec01
HK$m % HK$m % HK$m %
Rescheduled advances to customers ^ 391 0.2 2,336 1.0 512 0.2
^ Stated after deduction of interest in suspense.
Rescheduled advances are those advances which have been restructured or
renegotiated because of a deterioration in the financial position of the
borrower leading to an inability to meet the original repayment schedule.
Rescheduled advances to customers are stated net of any advances that have
subsequently become overdue for over three months and are included in overdue
advances to customers
Rescheduled advances to customers were reduced by HK$121 million, or 23.6 per
cent, to HK$391 million at 30 June 2002, representing 0.2 per cent of gross
advances to customers. The reduction was the result of the upgrading of certain
corporate accounts and taxi loans to normal status after resumption of normal
repayments for a prescribed period.
Segmental analysis of advances to customers by geographical area
Advances to customers by geographical area are classified according to the
location of the counterparties after taking into account the transfer of risk.
In general, risk transfer applies when an advance is guaranteed by a party in an
area which is different from that of the counterparty. At 30 June 2002, over 90
per cent of Hang Seng's advances to customers and the related non-performing
advances and overdue advances were classified under the area of Hong Kong
(unchanged from the positions at 30 June 2001 and 31 December 2001).
Gross advances to customers by industry sector
The analysis of gross advances to customers (after deduction of interest in
suspense) by industry sector based on categories and definitions used by the
Hong Kong Monetary Authority is as follows:
Figures in HK$m At 30Jun02 At 30Jun01 At 31Dec01
Gross advances to customers for
use in Hong Kong
Industrial, commercial and
financial sectors
Property development 19,775 19,199 20,237
Property investment 29,952 28,538 29,403
Financial concerns 2,121 1,693 1,991
Stockbrokers 199 133 115
Wholesale and retail trade 3,755 4,084 3,737
Manufacturing 2,032 1,789 1,683
Transport and transport equipment 9,671 8,205 9,687
Other 19,129 18,741 17,109
86,634 82,382 83,962
Individuals
Advances for the purchase of flats under
the Government Home Ownership
Scheme, Private Sector Participation
Scheme and Tenants Purchase Scheme 36,752 39,333 39,295
Advances for the purchase of other
residential properties 78,937 76,678 77,537
Credit card advances 5,419 4,986 5,262
Other 6,944 5,945 6,050
128,052 126,942 128,144
Total gross advances for
use in Hong Kong 214,686 209,324 212,106
Trade finance 10,002 10,455 9,434
Gross advances for
use outside Hong Kong 4,205 3,962 4,386
Gross advances to customers 228,893 223,741 225,926
Lending to the industrial, commercial and financial sectors grew by HK$2,672
million, or 3.2 per cent, since the end of 2001. The manufacturing sector
recorded lending growth of 20.7 per cent, reflecting the bank's efforts in
developing business with middle market and smaller enterprises. The lending
increase in the 'Other' sector of 11.8 per cent was mainly in working capital
financing for large corporations in public utility and property development
businesses.
Advances to individuals were maintained at the same level as at the end of 2001.
Government Home Ownership Scheme ('GHOS') mortgages decreased following the
suspension of GHOS flat sales during the period from September 2001 to June 2002
while residential mortgages continued to grow amidst intense market competition.
Credit card advances and other lending to individuals, mainly tax and personal
loans, grew by 3.0 per cent and 14.8 per cent respectively, in line with the
bank's strategy to diversify its loan portfolios.
Trade finance recorded growth of 6.0 per cent, as Hong Kong's re-export trade
began to pick up in the first half of 2002.
Long-term investments
Carrying value
Figures in HK$m At 30Jun02 At 30Jun01 At 31Dec01
Held-to-maturity debt securities
Issued by public bodies
- central governments and central banks 6,940 3,806 3,324
- other public sector entities 8,375 6,053 6,510
15,315 9,859 9,834
Issued by other bodies
- banks and other financial institutions 21,229 14,960 15,234
- corporate entities 15,428 12,217 14,537
36,657 27,177 29,771
51,972 37,036 39,605
Equity investments
Issued by corporate entities 2,946 3,927 3,657
54,918 40,963 43,262
Held-to-maturity debt securities
- listed in Hong Kong 1,167 371 311
- listed outside Hong Kong 15,368 7,560 9,762
16,535 7,931 10,073
- unlisted 35,437 29,105 29,532
51,972 37,036 39,605
Equity investments
- listed in Hong Kong 2,189 3,269 2,848
- listed outside Hong Kong 82 92 95
2,271 3,361 2,943
- unlisted 675 566 714
2,946 3,927 3,657
54,918 40,963 43,262
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 increased by HK$11,656 million, or 26.9 per cent, compared
with 31 December 2001. The portfolio of held-to-maturity debt securities rose by
HK$12,367 million, or 31.2 per cent, to HK$51,972 million with increases in
securities issued by public bodies, banks and financial institutions. The
portfolio's fair value was HK$52,531 million at 30 June 2002, with an unrealised
revaluation gain of HK$559 million.
The equity investment portfolio was HK$711 million, or 19.4 per cent, lower due
to disposals and the fall in fair value following stock market movements.
The following table shows the fair value of held-to-maturity debt securities:
Fair value
Figures in HK$m At 30Jun02 At 30Jun01 At 31Dec01
Held-to-maturity debt securities
Issued by public bodies
- central governments and central banks 7,055 3,825 3,401
- other public sector entities 8,649 6,216 6,741
15,704 10,041 10,142
Issued by other bodies
- banks and other financial institutions 21,278 14,974 15,265
- corporate entities 15,549 12,338 14,663
36,827 27,312 29,928
52,531 37,353 40,070
Held-to-maturity debt securities
- listed in Hong Kong 1,182 373 315
- listed outside Hong Kong 15,494 7,570 9,856
16,676 7,943 10,171
- unlisted 35,855 29,410 29,899
52,531 37,353 40,070
This information is provided by RNS
The company news service from the London Stock Exchange
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