Hang Seng Bank Results (2/2)
HSBC Holdings PLC
05 August 2002
Maturity analysis of held-to-maturity debt securities:
Carrying value
Figures in HK$m At 30Jun02 At 30Jun01 At 31Dec01
Remaining maturity:
- three months or less but
not repayable on demand 7,532 7,351 7,892
- one year or less but over three months 10,667 7,168 6,087
- five years or less but over one year 31,481 19,474 22,930
- over five years 2,292 3,043 2,696
51,972 37,036 39,605
Other assets
Figures in HK$m At 30Jun02 At 30Jun01 At 31Dec01
Unrealised gains on off-balance sheet
interest rate, exchange rate and
other derivative contracts
which are marked to market 876 862 570
Deferred taxation 34 13 34
Items in the course of collection from
other banks 3,756 4,722 2,881
Prepayments and accrued income 2,040 2,991 2,294
Other accounts 1,862 2,870 2,781
8,568 11,458 8,560
Remaining maturity:
- three months or less 6,874 8,820 6,467
- one year or less but over three months 621 2,446 1,048
- five years or less but over one year 947 50 913
- over five years 90 103 98
8,532 11,419 8,526
- overdue ^
-- six months or less but
over three months 5 5 5
-- one year or less but over six months 7 8 7
-- over one year 24 26 22
36 39 34
8,568 11,458 8,560
^ Represented mainly by overdue interest receivable included under
'Prepayments and accrued income'.
Current, savings and other deposit accounts
Figures in HK$m At 30Jun02 At 30Jun01 At 31Dec01
Customer deposit accounts
- current accounts 32,548 25,950 31,471
- savings accounts 146,910 128,745 141,608
- time and other deposits 211,020 245,768 222,685
Certificates of deposit in issue 17,809 15,021 18,564
Other debt securities in issue 8 __ __
408,295 415,484 414,328
Customer deposit accounts
Repayable on demand 223,161 176,953 186,557
With agreed maturity dates or
periods of notice, by remaining
maturity:
- three months or less but
not repayable on demand 159,948 210,806 198,405
- one year or less but over three months 6,973 12,606 10,664
- five years or less but
over one year 396 98 138
390,478 400,463 395,764
Certificates of deposit in issue
Remaining maturity:
- three months or less but
not repayable on demand 6,836 4,272 3,888
- one year or less but over three months 8,827 1,797 6,667
- five years or less but over one year 1,781 8,587 7,644
- over five years 365 365 365
17,809 15,021 18,564
Other debt securities in issue
Remaining maturity:
- three months or less but
not repayable on demand 8 __ __
8 __ __
408,295 415,484 414,328
Customer deposit accounts fell by HK$5,286 million, or 1.3 per cent, to HK$390.5
billion, compared with HK$395.8 billion at 31 December 2001. There was a shift
of funds from time deposits to savings and current accounts, reflecting
customers' preference for liquidity in the low interest rate environment.
Certificates of deposit in issue fell by HK$755 million, or 4.1 per cent, to
HK$17.8 billion.
Deposits from banks
Figures in HK$m At 30Jun02 At 30Jun01 At 31Dec01
Repayable on demand 1,146 2,924 2,406
With agreed maturity dates or
periods of notice, by remaining
maturity:
- three months or less but
not repayable on demand 1,137 1,096 198
- one year or less but over three months 4 30 18
2,287 4,050 2,622
Shareholders' funds
Figures in HK$m At 30Jun02 At 30Jun01 At 31Dec01
Share capital 9,559 9,559 9,559
Retained profits 20,892 20,162 19,618
Premises and investment properties
revaluation reserves 8,069 8,672 8,119
Long-term equity investment
revaluation reserve 1,651 2,676 2,323
Capital redemption reserve 99 99 99
Reserves 30,711 31,609 30,159
40,270 41,168 39,718
Proposed dividends 4,015 4,015 5,353
Shareholders' funds 44,285 45,183 45,071
Return on average shareholders' funds 23.8 % 24.4 % 21.4 %
There was no purchase, sale or redemption of the bank's listed securities by the
bank or any of its subsidiaries during the period.
Shareholders' funds (excluding proposed dividends) rose by HK$552 million, or
1.4 per cent, to HK$40,270 million at 30 June 2002, mainly reflecting an
increase of HK$1,274 million in retained profits and a reduction of HK$672
million in the long-term equity investment revaluation reserve due to the
disposal and decrease in fair value of equity investments.
The return on average shareholders' funds was 23.8 per cent, compared with 24.4
per cent and 21.4 per cent for the first and second halves of 2001 respectively.
Capital resources management
Analysis of capital base and risk-weighted assets
Figures in HK$m At 30Jun02 At 30Jun01 At 31Dec01
Capital base
Tier 1 capital
- share capital 9,559 9,559 9,559
- retained profits 20,533 19,821 19,342
- capital redemption reserve 99 99 99
- total 30,191 29,479 29,000
Tier 2 capital
- premises and investment properties
revaluation reserves 5,674 5,860 5,708
- long-term equity investment
revaluation reserve 1,056 1,605 1,418
- general provisions 1,437 1,437 1,437
- total 8,167 8,902 8,563
Unconsolidated investments and
other deductions (1,608 ) (1,365 ) (1,331 )
Total capital base after deductions 36,750 37,016 36,232
Risk-weighted assets
On-balance sheet 224,802 219,577 221,565
Off-balance sheet 14,058 14,743 14,726
Total risk-weighted assets 238,860 234,320 236,291
Total risk-weighted assets adjusted for
market risk 239,200 234,834 236,588
Capital adequacy ratios
After adjusting for market risk
- tier 1 ^ 12.6 % 12.6 % 12.3 %
- total ^ 15.4 % 15.8 % 15.3 %
Before adjusting for market risk
- tier 1 12.6 % 12.6 % 12.3 %
- total 15.4 % 15.8 % 15.3 %
^ The capital ratios take into account market risks in accordance with the
relevant Hong Kong Monetary Authority guideline under the Supervisory Policy
Manual.
The total capital ratio improved by 0.1 percentage point to 15.4 per cent at 30
June 2002, compared with 15.3 per cent at 31 December 2001. The capital base
recorded a growth of 1.4 per cent while risk-weighted assets adjusted for market
risk rose by 1.1 per cent.
The tier 1 capital ratio rose to 12.6 per cent as a result of the 6.2 per cent
growth in retained profits.
Liquidity ratio
The average liquidity ratio for the period, calculated in accordance with the
Fourth Schedule of the Hong Kong Banking Ordinance, is as follows:
Half-year ended Half-year ended Half-year ended
30Jun02 30Jun01 31Dec01
The bank and its major
banking subsidiaries 43.4 % 46.0 % 45.2 %
Reconciliation of cash flow statement
(a) Reconciliation of operating profit to net cash flow from operating
activities
Half-year ended Half-year ended
Figures in HK$m 30Jun02 30Jun01
Operating profit 5,568 5,946
Provisions for bad and doubtful debts 281 21
Depreciation 174 189
Amortisation of long-term investments (42 ) (249 )
Advances written off net of recoveries (624 ) (484 )
Income receivable on long-term investments (953 ) (1,196 )
Net cash inflow from trading activities 4,404 4,227
Change in cash and short-term funds 1,499 5,129
Change in placings with banks repayable
after three months 4,014 7,207
Change in certificates of deposit (3,374 ) (1,765 )
Change in securities held for dealing purposes 958 1,662
Change in advances to customers (2,967 ) (1,768 )
Change in amounts due from immediate holding
company and fellow subsidiary companies (455 ) (580 )
Change in other assets (38 ) (185 )
Change in customer deposit accounts (5,286 ) (14,412 )
Change in debt securities in issue (747 ) 291
Change in deposits from banks (335 ) 248
Change in amounts due to immediate holding
company and fellow subsidiary companies 845 (901 )
Change in other liabilities 1,629 (3,100 )
Taxation paid (68 ) (168 )
Elimination of exchange differences and
other non-cash items (1,485 ) 84
Net cash outflow from operating activities (1,406 ) (4,031 )
(b) Analysis of the balances of cash and cash equivalents
Figures in HK$m At 30Jun02 At 31Jun01
Cash in hand and balances with banks and
other financial institutions 4,244 3,978
Money at call and placings with banks
maturing within one month 82,455 105,155
Treasury bills 2,415 1,767
Placings with banks repayable between
one to three months 34,887 35,226
Certificates of deposit 398 1,307
124,399 147,433
Contingent liabilities, commitments and derivatives
Credit Risk-
Contract equivalent weighted
Figures in HK$m amount amount amount
At 30 June 2002
Contingent liabilities:
Guarantees 14,635 14,481 4,311
Commitments:
Documentary credits and short-term
trade-related transactions 7,470 1,501 1,492
Undrawn formal standby facilities, credit lines
and other commitments to lend:
- under one year 65,755 __ __
- one year and over 16,668 8,334 7,656
Other 47 47 47
89,940 9,882 9,195
Exchange rate contracts:
Spot and forward foreign exchange 106,446 1,016 248
Other exchange rate contracts 11,855 168 42
118,301 1,184 290
Interest rate contracts:
Interest rate swaps 52,200 1,077 261
Other interest rate contracts 16,550 __ __
68,750 1,077 261
Other derivative contracts 16 __ __
Credit Risk-
Contract equivalent weighted
Figures in HK$m amount amount amount
At 30 June 2001
Contingent liabilities:
Guarantees 9,124 9,033 3,906
Commitments:
Documentary credits and short-term
trade-related transactions 6,176 1,240 1,234
Undrawn formal standby facilities, credit lines
and other commitments to lend:
- under one year 62,777 __ __
- one year and over 18,296 9,148 8,899
87,249 10,388 10,133
Exchange rate contracts:
Spot and forward foreign exchange 143,256 2,103 481
Other exchange rate contracts 5,556 85 17
148,812 2,188 498
Interest rate contracts:
Interest rate swaps 47,556 820 206
Other interest rate contracts 7,755 __ __
55,311 820 206
Credit Risk-
Contract equivalent weighted
Figures in HK$m amount amount amount
At 31 December 2001
Contingent liabilities:
Guarantees 11,802 11,706 3,761
Commitments:
Documentary credits and short-term
trade-related transactions 5,768 1,154 1,151
Undrawn formal standby facilities, credit lines
and other commitments to lend:
- under one year 64,317 __ __
- one year and over 19,367 9,683 9,257
Other 47 47 47
89,499 10,884 10,455
Exchange rate contracts:
Spot and forward foreign exchange 98,143 1,066 249
Other exchange rate contracts 7,917 102 21
106,060 1,168 270
Interest rate contracts:
Interest rate swaps 44,446 1,035 240
Other interest rate contracts 6,842 __ __
51,288 1,035 240
The tables above give the nominal contract, credit equivalent and risk-weighted
amounts of off-balance sheet transactions. The credit equivalent amounts are
calculated for the purposes of deriving the risk-weighted amounts. These are
assessed in accordance with the Third Schedule of the Hong Kong Banking
Ordinance on capital adequacy and depend on the status of the counterparty and
the maturity characteristics. The risk weights used range from 0 per cent to 100
per cent for contingent liabilities and commitments, and from 0 per cent to 50
per cent for exchange rate, interest rate and other derivative contracts.
Contingent liabilities and commitments are credit-related instruments which
include acceptances, letters of credit, guarantees and commitments to extend
credit. The risk involved is essentially the same as the credit risk involved in
extending loan facilities to customers. These transactions are, therefore,
subject to the same credit origination, portfolio maintenance and collateral
requirements as for customers applying for loans. As the facilities may expire
without being drawn upon, the total of the contract amounts is not
representative of future liquidity requirements.
Off-balance sheet financial instruments arise from futures, forward, swap and
option transactions undertaken in the foreign exchange, interest rate and equity
markets.
The contract amounts of these instruments indicate the volume of transactions
outstanding at the balance sheet date and do not represent amounts at risk. The
credit equivalent amount of these instruments is measured as the sum of positive
mark-to-market values and the potential future credit exposure in accordance
with the Third Schedule of the Hong Kong Banking Ordinance.
Figures in HK$m At 30Jun02 At 30Jun01 At 31Dec01
Replacement cost
Exchange rate contracts 501 936 310
Interest rate contracts 879 670 859
Other derivative contracts __ __ __
1,380 1,606 1,169
The replacement cost of contracts represents the mark-to-market assets on all
contracts (including non-trading contracts) with a positive value and which have
not been subject to any bilateral netting arrangement.
Segmental analysis
Segmental information is presented in respect of business and geographical
segments. Business segment information, which is more relevant to Hang Seng in
making operating and financial decisions, is chosen as the primary reporting
format.
For the purpose of segmental analysis, the allocation of revenue reflects the
benefits of capital and other funding resources allocated to the business or
geographical segments by way of internal capital allocation and funds transfer
pricing mechanisms. Cost allocation is based on the direct cost incurred by the
respective segments and apportionment of management overheads. Rental charges at
market rate for usage of premises are reflected as inter-segment income for the
'Other' segment and inter-segment expenses for the respective business segments.
(a) By business segment
Hang Seng comprises five business segments. Personal financial services provides
banking (including deposits, credit cards, mortgages and other retail lending)
and wealth management services (including insurance and investment) to personal
customers. Commercial banking manages middle market and smaller corporate
relationships and provides trade-related financial services. Corporate and
institutional banking handles relationships with large corporate and
institutional customers. Treasury engages in interbank and capital market
activities and proprietary trading. Treasury also manages the funding and
liquidity positions of the bank and other market risk positions arising from
banking activities. Other mainly represents management of shareholders' funds
and investments in premises, investment properties and long-term equities.
Personal financial services reported growth of 7.7 per cent in profit before tax
compared with the first half of 2001. Net interest income improved slightly,
benefiting from the shift of customer deposits to lower cost savings although
mortgage yields continued to fall. The strong growth of 31.5 per cent in other
operating income reflected the development of wealth management services which
recorded a rise in contribution of 62.1 per cent to HK$809 million for the first
half of 2002. During the first half of 2002, sales of retail investment funds,
including the popular Hang Seng Investment Series, amounted to HK$15.2 billion,
an increase of 156.4 per cent over the same period last year. Total funds under
management by Hang Seng's asset management and private banking business units
grew by HK$11.3 billion, or 44.5 per cent, during the first half year to HK$36.6
billion at 30 June 2002.
Commercial banking recorded a decrease of 15.8 per cent in profit before tax.
Despite the satisfactory growth in trade finance and other lending to the
manufacturing sector, net interest income suffered from the reduction in lending
margins. The operating result was also affected by a reduction in Mandatory
Provident Fund service income and the substantial release and recovery of bad
and doubtful debts in the same period last year.
Corporate and institutional banking recorded a decline of 17.1 per cent in
profit before tax. The operating result was affected by the compression in
corporate lending margins, a reduction in credit facilities income and lower
levels of recoveries of bad and doubtful debts compared with the same period
last year.
Treasury achieved an encouraging growth of 19.2 per cent in profit before tax.
Interest income rose by 13.7 per cent as the fixed rate debt securities
portfolio continued to benefit under a low interest rate environment. Other
operating income increased, helped by the growth in dealing profits and income
from corporate treasury services. Profit on disposal of debt securities from the
accrual portfolio also increased.
Other showed a decline of 29.3 per cent in profit before tax, mainly
attributable to the substantial reduction in free funds contribution following
the further decline in market interest rates. This was despite the increase in
profit on disposal of long-term equities.
Personal Corporate & Inter-
financial Commercial institutional segment
Figures in HK$m services banking banking Treasury Other elimination Total
Half-year ended
30 June 2002
Income and expenses
Net interest income 3,334 507 324 863 425 __ 5,453
Operating income 1,303 426 132 161 190 __ 2,212
Inter-segment income __ __ __ __ 207 (207 ) __
Total operating income 4,637 933 456 1,024 822 (207 ) 7,665
Operating expenses ^ (1,179 ) (353 ) (54 ) (61 ) (169 ) __ (1,816 )
Inter-segment expenses (167 ) (33 ) (4 ) (3 ) __ 207 __
Operating profit before
provisions 3,291 547 398 960 653 __ 5,849
Provisions for bad and
doubtful debts (383 ) 2 82 __ 18 __ (281 )
Operating profit 2,908 549 480 960 671 __ 5,568
Profit on tangible fixed
assets and long-term
investments 21 28 __ 75 219 __ 343
Share of profits of
associated companies 45 __ __ __ 22 __ 67
Profit on ordinary
activities
before tax 2,974 577 480 1,035 912 __ 5,978
Operating profit
excluding
inter-segment 3,075 582 484 963 464 __ 5,568
transactions
^ Including (60 ) (11 ) (2 ) (1 ) (100 ) __ (174 )
depreciation
At 30 June 2002
Total assets 136,420 24,752 64,673 219,769 24,992 __ 470,606
Total liabilities 309,819 66,064 12,772 11,935 25,731 __ 426,321
Investments in
associated companies 368 __ __ __ 683 __ 1,051
Capital expenditure
incurred during the 61 9 1 1 20 __ 92
period
Personal Corporate & Inter-
financial Commercial institutional segment
Figures in HK$m services banking banking Treasury Other elimination Total
Half-year ended
30 June 2001
Income and expenses
Net interest income 3,298 598 389 759 858 __ 5,902
Operating income 991 460 139 129 212 __ 1,931
Inter-segment income __ __ __ __ 209 (209 ) __
Total operating income 4,289 1,058 528 888 1,279 (209 ) 7,833
Operating expenses ^ (1,185 ) (382 ) (48 ) (60 ) (191 ) __ (1,866 )
Inter-segment expenses (162 ) (39 ) (5 ) (3 ) __ 209 __
Operating profit before
provisions 2,942 637 475 825 1,088 __ 5,967
Provisions for bad and
doubtful debts (184 ) 45 104 __ 14 __ (21 )
Operating profit 2,758 682 579 825 1,102 __ 5,946
Profit on tangible fixed
assets and long-term
investments 3 3 __ 43 163 __ 212
Share of profits of
associated companies __ __ __ __ 25 __ 25
Profit on ordinary
activities
before tax 2,761 685 579 868 1,290 __ 6,183
Operating profit
excluding
inter-segment 2,920 721 584 828 893 __ 5,946
transactions
^ Including (65 ) (17 ) (1 ) (1 ) (105 ) __ (189 )
depreciation
At 30 June 2001
Total assets 138,166 23,035 65,055 233,546 22,815 __ 482,617
Total liabilities 310,111 79,867 19,024 12,148 16,284 __ 437,434
Investments in
associated companies 68 __ __ __ 740 __ 808
Capital expenditure
incurred during the 70 13 1 1 20 __ 105
period
Personal Corporate & Inter-
financial Commercial institutional segment
Figures in HK$m services banking banking Treasury Other elimination Total
Half-year ended
31 December 2001
Income and expenses
Net interest income 3,402 510 343 908 595 __ 5,758
Operating income 1,082 447 149 149 189 __ 2,016
Inter-segment income __ __ __ __ 206 (206 ) __
Total operating income 4,484 957 492 1,057 990 (206 ) 7,774
Operating expenses ^ (1,506 ) (443 ) (56 ) (59 ) (174 ) __ (2,238 )
Inter-segment expenses (162 ) (36 ) (4 ) (4 ) __ 206 __
Operating profit before
provisions 2,816 478 432 994 816 __ 5,536
Provisions for bad and
doubtful debts (389 ) (7 ) (23 ) __ 16 __ (403 )
Operating profit 2,427 471 409 994 832 __ 5,133
Profit on tangible fixed
assets and long-term
investments 14 36 __ 70 61 __ 181
Net deficit on property
revaluation __ __ __ __ (14 ) __ (14 )
Share of profits of
associated companies 7 __ __ __ 24 __ 31
Profit on ordinary
activities
before tax 2,448 507 409 1,064 903 __ 5,331
Operating profit
excluding
inter-segment 2,589 507 413 998 626 __ 5,133
transactions
^ Including (71 ) (16 ) (2 ) (1 ) (107 ) __ (197 )
depreciation
At 31 December 2001
Total assets 136,233 22,692 63,108 226,656 26,098 __ 474,787
Total liabilities 308,404 69,101 16,412 10,022 25,777 __ 429,716
Investments in
associated companies 89 __ __ __ 685 __ 774
Capital expenditure
incurred during the 44 7 __ 2 35 __ 88
period
(b) By geographical region
The geographical regions in this analysis are classified by the location of the
principal operations of the subsidiary companies or, in the case of the bank
itself, by the location of the branches responsible for reporting the results or
advancing the funds.
Figures in HK$m Hong Kong Americas Other Total
Half-year ended
30 June 2002
Income and expenses
Total operating income 6,794 835 36 7,665
Profit on ordinary activities before tax 5,105 833 40 5,978
At 30 June 2002
Total assets 360,701 103,615 6,290 470,606
Total liabilities 412,921 9,352 4,048 426,321
Capital expenditure incurred
during the period 91 __ 1 92
Contingent liabilities and commitments 103,923 __ 652 104,575
Half-year ended
30 June 2001
Income and expenses
Total operating income 7,274 524 35 7,833
Profit on ordinary activities before tax 5,572 509 102 6,183
At 30 June 2001
Total assets 385,709 90,495 6,413 482,617
Total liabilities 420,031 13,138 4,265 437,434
Capital expenditure incurred
during the period 103 __ 2 105
Contingent liabilities and commitments 95,612 __ 761 96,373
Figures in HK$m Hong Kong Americas Other Total
Half-year ended
31 December 2001
Income and expenses
Total operating income 6,953 783 38 7,774
Profit on ordinary activities before tax 4,525 752 54 5,331
At 31 December 2001
Total assets 370,489 98,145 6,153 474,787
Total liabilities 415,739 10,068 3,909 429,716
Capital expenditure incurred
during the period 87 1 __ 88
Contingent liabilities and commitments 100,704 __ 597 101,301
Cross border claims
Cross border claims include receivables and loans and advances, balances due
from banks and holdings of certificates of deposit, bills, promissory notes,
commercial paper and other negotiable debt instruments and also include accrued
interest and overdue interest on these assets. Claims are classified according
to the location of the counterparties after taking into account the transfer of
risk. For a claim guaranteed by a party situated in a country different from the
counterparty, risk will be transferred to the country of the guarantor. For a
claim on the branch of a bank or other financial institution, the risk will be
transferred to the country where its head office is situated. Claims on
individual countries or areas, after risk transfer, amounting to 10 per cent or
more of the aggregate cross border claims are shown as follows:
Banks &
other Public
financial sector
Figures in HK$m institutions entities Other Total
At 30 June 2002
Asia-Pacific excluding Hong Kong
- Australia 16,875 480 2,159 19,514
- other 28,714 954 3,269 32,937
45,589 1,434 5,428 52,451
The Americas
- Canada 14,311 5,590 150 20,051
- other 6,969 4,859 6,969 18,797
21,280 10,449 7,119 38,848
Western Europe
- Germany 26,277 1,209 120 27,606
- United Kingdom 21,595 83 2,624 24,302
- other 50,056 1,675 2,535 54,266
97,928 2,967 5,279 106,174
Banks &
other Public
financial sector
Figures in HK$m institutions entities Other Total
At 30 June 2001
Asia-Pacific excluding Hong Kong
- Australia 19,088 1,903 859 21,850
- other 31,476 1,468 2,370 35,314
50,564 3,371 3,229 57,164
The Americas
- Canada 15,834 5,657 47 21,538
- other 10,686 2,653 6,412 19,751
26,520 8,310 6,459 41,289
Western Europe
- Germany 27,670 1,079 31 28,780
- United Kingdom 22,208 __ 1,221 23,429
- other 53,885 1,236 1,469 56,590
103,763 2,315 2,721 108,799
At 31 December 2001
Asia-Pacific excluding Hong Kong
- Australia 17,850 1,260 1,691 20,801
- other 33,442 2,283 2,707 38,432
51,292 3,543 4,398 59,233
The Americas
- Canada 15,982 3,752 349 20,083
- other 6,737 1,343 7,538 15,618
22,719 5,095 7,887 35,701
Western Europe
- Germany 25,136 954 2 26,092
- United Kingdom 20,465 __ 1,903 22,368
- other 54,393 1,617 2,298 58,308
99,994 2,571 4,203 106,768
Additional information
1. Accounting policies
This news release has been prepared on a basis consistent with the accounting
policies adopted in the 2001 financial statements except for the following.
Accounting for defined benefit schemes
In prior years, contributions to defined benefit schemes were made in accordance
with the advice of qualified actuaries so as to recognise the cost of retirement
benefits on a systematic basis over the employees' service lives and were
charged to the profit and loss account for the year. In accordance with Hong
Kong Statement of Standard Accounting Practice 34 (HKSSAP 34) on 'Employee
benefits' which was issued in December 2001 and takes effect for the accounting
periods beginning on or after 1 January 2002, the retirement benefit cost of
defined benefit schemes charged to the current period profit and loss account is
determined by calculating the current service cost, interest cost and expected
return on scheme assets in accordance with a set of actuarial assumptions and
taking into account the amount of net actuarial losses required to be
recognised.
Also in accordance with HKSSAP 34, the transitional assets/liabilities in
respect of defined benefit schemes as of 1 January 2002, calculated by
estimating the amount of future benefit that the employees have earned in return
for their service in the prior periods, discounted to present value, and
deducting the fair value of the scheme assets, have been recognised through a
prior year adjustment. An amount of HK$189 million, being the net amount of
transitional assets and liabilities, has been debited to 'Retained profits'
brought forward at 1 January 2002. Accordingly, adjustments have been made to '
Other assets' to include the transitional assets of HK$53 million, and to 'Other
liabilities' to include the transitional liabilities of HK$242 million.
Accounting for value on long-term assurance business
To reflect the value placed on Hang Seng's share of interest in the long-term
assurance business of Hang Seng Life Limited, Hang Seng has decided to recognise
a prudent valuation of the discounted future earnings expected to emerge from
business currently in force, taking into account factors such as recent
experience and general economic conditions ('value of long-term assurance
business' or 'embedded value') with effect from 1 January 2002. The embedded
value was determined in consultation with qualified actuaries and was included
in 'Share of profits of associated companies' in the consolidated accounts. The
increase in the bank's share of the value of Hang Seng Life's long-term
assurance business in the first half of 2002 amounted to HK$45 million. The
amount attributable to the periods prior to 1 January 2002, amounting to HK$206
million, has been recognised through 'Retained profits' brought forward at 1
January 2002 and 'Investment in associated companies' in the balance sheet.
2. Comparative figures
Certain comparative figures have been reclassified to conform with the current
period's presentation.
3. Market risk
Market risk is the risk that the movements in interest rates, foreign exchange
rates or equity and commodity prices will result in profits or losses to Hang
Seng. Market risk arises on financial instruments which are valued at current
market prices (mark-to-market basis) and those valued at cost plus any accrued
interest (accrual basis). Hang Seng's market risk arises from customer-related
business and from position taking.
Market risk is managed within risk limits approved by the Board of Directors.
Risk limits are set by product and risk type with market liquidity being a
principal factor in determining the level of limits set. Limits are set using a
combination of risk measurement techniques, including position limits,
sensitivity limits, as well as value at risk (VAR) limits at a portfolio level.
Hang Seng adopts the risk management policies and risk measurement techniques
developed by the HSBC Group. The daily risk monitoring process measures actual
risk exposures against approved limits and triggers specific action to ensure
the overall market risk is managed within an acceptable level.
VAR is a technique which estimates the potential losses that could occur on risk
positions taken due to movements in market rates and prices over a specified
time horizon and to a given level of confidence. The model used by Hang Seng
calculates VAR on a variance/covariance basis, using historical movements in
market rates and prices, a 99 per cent confidence level and a 10-day holding
period, and generally takes account of correlations between different markets
and rates. The movement in market prices is calculated by reference to market
data for the last two years. Aggregation of VAR from different risk types is
based upon the assumption of independence between risk types.
Hang Seng has obtained approval from the Hong Kong Monetary Authority (HKMA) for
the use of its VAR model to calculate market risk for capital adequacy
reporting. The HKMA is also satisfied with Hang Seng's market risk management
process.
The VAR for all interest rate risk and foreign exchange risk positions at 30
June 2002 was HK$285 million compared with HK$352 million at 31 December 2001.
The average VAR for the first half of 2002 was HK$297 million, with a maximum of
HK$442 million and a minimum of HK$194 million for the period. On an individual
portfolio basis, the values at risk at 30 June 2002 relating to the trading
portfolio and accrual portfolio were HK$4 million (HK$5 million at 31 December
2001) and HK$284 million (HK$353 million at 31 December 2001) respectively.
The average daily revenue earned from market risk-related treasury activities
for the first half of 2002, including accrual book net interest income and
funding related to dealing positions, was HK$8 million, compared with HK$6
million for the first half of 2001. The standard deviation of these daily
revenues was HK$4 million (HK$3 million for the first half of 2001). No loss was
recorded out of 121 trading days in the first half of 2002. The most frequent
result was a daily revenue of between HK$4 million and HK$8 million, with 98
occurrences. The highest daily revenue was HK$33 million.
Hang Seng's foreign exchange exposures mainly comprise foreign exchange dealing
by Treasury and currency exposures originated by its banking business. The
latter are transferred to Treasury where they are centrally managed within
foreign exchange position limits approved by the Board of Directors.
The VAR relating to foreign exchange positions was HK$4 million at 30 June 2002
(HK$4 million at 31 December 2001) and the average amount for the first half of
2002 was HK$4 million, with a maximum of HK$5 million and a minimum of HK$3
million in the period. The average one-day foreign exchange profit for the first
half of 2002 was HK$2 million (HK$1 million for the first half of 2001).
Interest rate risk arises in both the treasury dealing portfolio and accruals
books, which are managed by Treasury under limits approved by the Board of
Directors. The VAR relating to interest rate exposures was HK$285 million at 30
June 2002 (HK$352 million at 31 December 2001) and the average amount for the
first half of 2002 was HK$297 million, with a maximum of HK$442 million and a
minimum of HK$194 million for the period. The average daily revenue earned from
treasury-related interest rate activities for the first half of 2002 was HK$6
million (HK$5 million for the first half of 2001).
4. Foreign currency positions
Foreign currency exposures include those arising from dealing, non-dealing and
structural positions. At 30 June 2002, the US dollar was the only currency in
which Hang Seng had a non-structural foreign currency position which exceeded 10
per cent of the total net position in all foreign currencies.
Figures in HK$m At 30Jun02 At 30Jun01 At 31Dec01
US dollar non-structural position
Spot assets 238,064 235,047 237,778
Spot liabilities (210,627 ) (207,328 ) (206,264 )
Forward purchases 44,644 64,170 39,001
Forward sales (63,634 ) (83,184 ) (61,725 )
Net options positions __ __ 4
Net long non-structural position 8,447 8,705 8,794
At 30 June 2002, Hang Seng's structural foreign currency positions, which
exceeded 10 per cent of the total net structural foreign currency position in
all currencies, are as follows:
Figures in HK$m At 30Jun02 At 30Jun01 At 31Dec01
Structural position
US dollar 792 508 508
Renminbi 95 __ __
5. Material related-party transactions
(a) Immediate holding company and fellow subsidiary companies
During the first half of 2002, Hang Seng entered into transactions with its
immediate holding company and fellow subsidiary companies in the ordinary course
of its interbank activities including the acceptance and placement of interbank
deposits, correspondent banking transactions and off-balance sheet transactions.
The activities were priced at the relevant market rates at the time of the
transactions.
Hang Seng used the IT services of, and shared an automated teller machine
network with, its immediate holding company on a cost recovery basis. Hang Seng
also maintained a staff retirement benefit scheme for which a fellow subsidiary
company acts as insurer and administrator, and acted as agent for the marketing
of Mandatory Provident Fund products for a fellow subsidiary company.
The aggregate amount of income and expenses arising from these transactions
during the period, the balances of amounts due to and from the relevant related
parties, and the total contract sum of off-balance sheet transactions at the
period-end are as follows:
Income and expenses for the period
Half-year ended Half-year ended Half-year ended
Figures in HK$m 30Jun02 30Jun01 31Dec01
Interest income 126 265 178
Interest expense 9 33 18
Other operating income 38 77 92
Operating expenses 276 311 536
Balances at period-end
Figures in HK$m At 30Jun02 At 30Jun01 At 31Dec01
Total amount due from 10,425 7,641 8,297
Total amount due to 1,896 1,098 1,051
Total contract sum of
off-balance sheet transactions 28,664 26,766 21,580
(b) Associated companies
Hang Seng maintained an interest-free shareholders' loan to an associated
company. The balance at 30 June 2002 was HK$208 million (HK$208 million at 30
June 2001 and 31 December 2001). The bank acted as agent for the marketing of
life insurance products for an associated company. Total agency commissions
received during the first half of 2002 amounted to HK$142 million (HK$89 million
and HK$168 million for the first and second halves of 2001 respectively).
(c) Ultimate holding company
During the first half of 2002, no transaction was conducted with the bank's
ultimate holding company (unchanged from 2001).
(d) Key management personnel
During the first half of 2002, no material transaction was conducted with key
management personnel of Hang Seng and its holding companies and parties related
to them (unchanged from 2001).
6. Statutory accounts
The information in this news release is unaudited and does not constitute
statutory accounts.
The statutory accounts for the year ended 31 December 2001 have been delivered
to the Registrar of Companies and the Hong Kong Monetary Authority. The auditors
expressed an unqualified opinion on those statutory accounts in their report
dated 4 March 2002. The Annual Report and Accounts for the year ended 31
December 2001, which includes the statutory accounts, can be obtained on request
from the Company Secretary Department, Level 10, 83 Des Voeux Road Central, Hong
Kong; or from Hang Seng Bank's website www.hangseng.com.
7. Ultimate holding company
Hang Seng Bank is an indirectly-held, 62.14 per cent-owned subsidiary of HSBC
Holdings plc.
8. Statement of compliance
This news release has been prepared in accordance with Hong Kong Statement of
Standard Accounting Practice 25 'Interim Financial Reporting'. It also complies
with the module on 'Interim Financial Disclosure by Locally Incorporated
Authorised Institutions' under the Supervisory Policy Manual issued by the Hong
Kong Monetary Authority in November 2001.
9. Register of shareholders
The Register of Shareholders of Hang Seng Bank will be closed on Tuesday, 27
August 2002 and Wednesday, 28 August 2002, during which no transfer of shares
can be registered. In order to qualify for the first interim dividend, all
transfers, accompanied by the relevant share certificates, must be lodged with
the bank's Registrars, Computershare Hong Kong Investor Services Limited
(formerly known as Central Registration Hong Kong Limited), Shops 1712-1716,
17th Floor, Hopewell Centre, 183 Queen's Road East, Wanchai, Hong Kong, for
registration not later than 4:00 pm on Monday, 26 August 2002. The first interim
dividend will be payable on Wednesday, 4 September 2002 to shareholders on the
Register of Shareholders of the bank on Wednesday, 28 August 2002.
10. News release
Copies of the interim results announcement may be obtained from the Company
Secretary Department, Level 10, 83 Des Voeux Road Central, Hong Kong; or from
Hang Seng's website www.hangseng.com.
The 2002 Interim Report will be available from the same website on Monday, 5
August 2002 and will also be published on the website of The Stock Exchange of
Hong Kong Limited in due course. Printed copies of the 2002 Interim Report will
be sent to shareholders in late August 2002.
This information is provided by RNS
The company news service from the London Stock Exchange
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