Hang Seng pt 1/6

HSBC Holdings PLC
05 March 2007

                            HANG SENG BANK LIMITED
                           2006 RESULTS - HIGHLIGHTS


  - Operating profit up 13.6 per cent to HK$12,576 million (HK$11,068 million
    in 2005).

  - Operating profit excluding loan impairment charges and other credit risk
    provisions up 9.9 per cent to HK$12,840 million (HK$11,686 million in 2005).

  - Profit before tax up 7.8 per cent to HK$14,395 million (HK$13,358 million 
    in 2005).

  - Attributable profit up 6.1 per cent to HK$12,038 million (HK$11,342 million 
    in 2005).
 
  - Return on average shareholders' funds of 27.4 per cent (27.5 per cent in
    2005).

  - Assets up 15.2 per cent to HK$669.1 billion (HK$580.8 billion at 31 December 2005).

  - Earnings per share up 6.2 per cent to HK$6.30 per share (HK$5.93 per
    share in 2005).

  - Fourth interim dividend of HK$1.90 per share; total dividends of HK$5.20
    per share for 2006 (HK$5.20 per share in 2005).

  - Total capital ratio of 13.6 per cent (12.8 per cent at 31 December 2005); 
    tier 1 capital ratio of 10.7 per cent (10.4 per cent at 31 December 2005).

  - Cost efficiency ratio of 29.0 per cent (28.0 per cent in 2005).

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

Comment by Michael Smith, Chairman

For the full year 2006, Hang Seng's results were supported by a strong economy
in Hong Kong, distinguished by a buoyant stock market, ample liquidity and a
benign credit environment.

Attributable profit increased by 6.1 per cent compared with 2005, to reach a
record HK$12,038 million. Earnings per share were up 6.2 per cent at HK$6.30.

The Directors have announced a fourth interim dividend of HK$1.90 per share. In
light of capital requirements for future business expansion, particularly in
mainland China, total distribution is HK$5.20 per share for 2006, the same as in
2005.

Net operating income before loan impairment charges and other credit provisions
increased 11.4 per cent to HK$18,081 million. Successful efforts to expand and
diversify lending and attract new deposits drove an 8.3 per cent rise in net
interest income to HK$11,694 million.

Our personal wealth management business achieved good growth in investment
services, insurance and private banking. Commercial Banking performed strongly,
underpinned by increases in customer advances and the development of corporate
wealth management services. Investments in our mainland business produced
positive results, with encouraging growth in customer base, advances and
deposits, and profit contribution.

Operating profit excluding loan impairment charges was up 9.9 per cent at
HK$12,840 million. Operating profit rose by 13.6 per cent, reflecting a
substantial drop in loan impairment charges.

Operating expenses increased by 15.3 per cent to HK$5,241 million with
investments in human resources, IT, marketing and branding to support business
growth on the Mainland and in Hong Kong.

Personal Financial Services' operating profit excluding loan impairment charges
grew by 5.4 per cent to HK$7,840 million. Wealth management income was up 22.7
per cent at HK$4,281 million, reflecting record investment product sales, 
a high level of stock market activity and a 17.5 per cent rise in life
insurance income. We also benefited from high levels of consumer confidence,
recording significant increases in cardholder spending and personal lending.

Commercial Banking's operating profit excluding loan impairment charges rose
21.5 per cent to HK$2,001 million. Customer advances grew by 22.2 per cent with
trade finance gaining market share. Lending to middle market customers in the
manufacturing, property, and wholesale and retail sectors grew as a result of
refined segmentation and deepened relationships. Intensified marketing saw new
SME accounts acquired in the second half of 2006 outpace the first half by 34.7
per cent. Corporate wealth management business and card acquiring business
contributed to 13.5 per cent growth in net fees and commissions and an 11.9 per
cent rise in trading income.

With strong liquidity in the banking system continuing to squeeze corporate loan
margins, Corporate Banking focused on asset yield rather than increased lending.
The strong 32.5 per cent growth in customer deposits and the further development
of corporate treasury services helped to compensate for a decline in lending to
large corporates. Net operating income increased by 11.8 per cent. Operating
profit excluding loan impairment charges was HK$543 million, down 2.0 per cent
compared with 2005.

Treasury's operating profit excluding loan impairment charges declined 25.0 per
cent to HK$887 million. Efforts to expand proprietary trading and
customer-driven business saw trading income grow by 66.1 per cent to HK$628
million. However, net interest income fell by HK$514 million, or 51.7 per cent,
as the balance sheet management portfolio continued to be challenged by rising
funding costs and flattened yield curves.

Operating profit excluding loan impairment charges at our mainland branches rose
by 211.9 per cent. We upgraded a representative office to a branch in Dongguan
and opened three new sub-branches in 2006, bringing our total number of mainland
outlets to 15. We were also granted permission to begin the necessary
preparations to establish our mainland subsidiary, which will be headquartered
in Shanghai.

Including our share of profit from Industrial Bank Co., Ltd. ('Industrial
Bank'), our mainland business contributed 6.1 per cent of total profit before
tax, compared with 4.5 per cent in 2005, bringing us closer to our target of 10
per cent by 2010.

Hong Kong is likely to experience above-trend growth in 2007. Economic
uncertainty in the US generated by weaknesses in the housing market may result
in a slowing of export and re-export trade activity. However, sustained economic
momentum, the stabilisation of interest rates and the improving labour market
should continue to drive domestic demand. The positive economic outlook for the
Mainland should also have a beneficial influence.

We will take advantage of the favourable economic conditions to further expand
commercial lending and SME services. We will also focus on developing our wealth
management business by stepping up cross-selling efforts and launching new
products to meet a wider variety of investment and insurance needs.

We will further diversify our Treasury income by growing our customer-driven
business and proprietary trading services, supported by closer collaboration
with other customer groups. Given the competitive corporate lending conditions,
Corporate Banking will target asset yield, increase cross-selling and work to
grow deposits by acquiring new customers.

On the Mainland, we will continue with our two-pronged approach of organic
growth and close collaboration with Industrial Bank.

Further financial sector liberalisation at the end of 2006 marked the start of a
new phase of financial services business opportunities on the Mainland. We will
establish our local subsidiary in the second quarter of 2007, which will enable
us to benefit from the opening up of the retail renminbi ('RMB') market and
increase our RMB deposits base to support lending growth.

We will expand our customer base on the Mainland through setting up new outlets
in the high-growth Yangtze River Delta and Pearl River Delta regions, increased
marketing and more promotion of our strong brand, including leveraging our role
as the compiler of the Hang Seng Index series.

We will capitalise on our growing capabilities in southern China by offering a
greater range of services to commercial banking customers with operations in
Hong Kong and on the Mainland. Our closer partnerships with SME customers will
help us grow our mainland trade finance and corporate wealth management
business.

We aim to grow our mainland business to more than 2,000 staff and over 50
outlets by 2010.

Results summary

Hang Seng Bank Limited ('the bank') and its subsidiaries and associates ('the
group') reported an audited profit attributable to shareholders of HK$12,038
million for 2006, a rise of 6.1 per cent over 2005. Earnings per share were
HK$6.30, up 6.2 per cent from 2005.


Operating profit after loan impairment charges and other credit risk provisions
rose 13.6 per cent, reflecting encouraging growth in total operating income and
a substantial reduction in loan impairment charges. The results, as highlighted
below, benefited from sustained economic growth, a buoyant stock market and good
investment sentiment supported by ample liquidity and a benign credit
environment.

Net interest income^ rose by HK$898 million, or 8.3 per cent, with an increase
of 10.6 per cent in average interest-earning assets. The rise in net interest
income benefited from a 7.2 per cent growth in customer advances, driven by
higher yielding card and personal loans, trade finance and mainland renminbi
advances. A wider BLR/HIBOR gap improved the spread of BLR-based lending.
Interest earned on net free funds and the debt securities portfolio of life
insurance fund investments also rose significantly. The contribution of the
strong 12.8 per cent rise in customer deposits, however, was offset by the
narrowing of deposit spreads on HK dollar savings and structured deposits. The
treasury balance sheet management portfolio continued to be challenged by the
rise in funding costs and flattened yield curves. Net interest margin fell
slightly by four basis points to 2.02 per cent.

Net fees and commissions rose by HK$541 million, or 18.3 per cent. The
investment business took advantage of the buoyant stock market, ample liquidity
and favourable investment sentiment to expand its product range and customer
base. Income from stockbroking and related services and private banking
investment services rose 63.3 per cent and 93.1 per cent respectively. Sales
turnover of retail investment funds rose significantly by 40.6 per cent. Card
services income increased by 22.0 per cent, supported by a rise of 10.5 per cent
in the number of cards issued as well as an 11.7 per cent increase in cardholder
spending.

Trading income^ rose by 50.3 per cent to HK$1,330 million. Foreign exchange
income rose by 50.1 per cent, attributable to more active position taking,
increased customer flows and spreads earned on foreign exchange option-linked
structured products. Securities, derivatives and other trading also increased
with improved trading results and strong growth in sales volume and profit
earned on equity-linked investment products provided to customers.

^ With effect from 2006 reporting, interest income and expense from trading
assets and liabilities and from financial instruments designated at fair value
are reported under 'Net interest income' instead of 'Net trading income' and
'Net income from financial instruments designated at fair value' respectively as
in the previous year. Details of the change in accounting presentation are set
out on page 56. For HSBC Group reporting, the reporting of such interest income
and expense remains unchanged.

Income from insurance business grew by HK$217 million, or 14.0 per cent:

  - net earned insurance premiums rose by HK$63 million;
  - life insurance fund investments reported a net gain of HK$910 million
    (compared with a loss of HK$25 million in 2005) under net income from
    financial instruments designated at fair value;
  - net interest income mainly from the debt securities portfolio of life
    insurance fund investments increased by HK$264 million. Net fee income
    related to insurance business fell by HK$29 million, mainly in general
    insurance agency commissions;
  - net insurance claims incurred and movement in policyholders' liabilities
    rose by HK$1,063 million, reflecting the growth in investment gains and
    interest income which are attributable to policyholders; and
  - the present value of in-force long-term insurance business under other
    operating income rose by HK$47 million.

Net operating income before loan impairment charges and other credit risk
provisions recorded growth of HK$1,849 million, or 11.4 per cent, to HK$18,081
million.

Operating expenses rose by HK$695 million, or 15.3 per cent, to HK$5,241
million, as the bank continued to expand its Hong Kong and mainland operations,
with the number of full-time equivalent staff up 619 at year-end compared with
the previous year. Employee compensation and benefits rose by 18.1 per cent.
Equipment-related costs increased with the development and enhancement of IT
systems for business expansion and regulatory-related projects. Marketing
expenditure rose due to the launch of the bank's new brand image and to support
new investment and insurance products and credit card promotion campaigns. The
bank's mainland operation, which expanded its network from 12 to 15 outlets and
increased its number of staff from 377 to 661 during 2006, also accounted for
the bank's rise in operating expenses.

Operating profit before loan impairment charges and other credit risk provisions
was up by 9.9 per cent. Loan impairment charges and other credit provisions
recorded a substantial reduction of 57.3 per cent under a benign credit
environment.

Profit before tax was up 7.8 per cent to HK$14,395 million after taking into
account:

  - an increase of 76.7 per cent in profit on disposal of fixed assets and
    financial investments, mainly from the disposal of properties;
  - a decrease of 75.6 per cent in net surplus on property revaluation; and
  - an increase of 31.0 per cent in share of profits from associates, mainly
    contributed by Industrial Bank Co., Ltd.

Balance sheet and key ratios

Total assets rose by HK$88.2 billion, or 15.2 per cent, to HK$669.1 billion.
Customer advances rose by 7.2 per cent with encouraging growth in card and
personal loans, trade finance, commercial banking lending and mainland lending.
Residential mortgages grew satisfactorily in an intensely competitive market.
Interbank placing and money market instruments also increased, driven by the
12.8 per cent growth in customer deposits. At 31 December 2006, the
advances-to-deposits ratio was 51.7 per cent, compared with 54.4 per cent at the
end of 2005.

Shareholders' funds (excluding proposed dividends) increased by HK$4,410
million, or 11.3 per cent, to HK$43,348 million at 31 December 2006. Retained
profits rose by HK$2,992 million, reflecting the growth in attributable profit
and the realisation of the property revaluation reserve on the disposal of
properties during the year. The available-for-sale investments reserve also
rose.

The return on average total assets was 1.9 per cent, compared with 2.0 per cent
for 2005. The return on average shareholders' funds was 27.4 per cent (27.5 per
cent in 2005).

The total capital ratio strengthened to 13.6 per cent at 31 December 2006, up
from 12.8 per cent at the end of 2005. The tier 1 ratio rose from 10.4 per cent
to 10.7 per cent. The capital base rose by HK$6,684 million in retained profits
and as a result of the issue of US$450 million subordinated notes. The growth in
capital base supported the 11.1 per cent growth in risk-weighted assets.

The bank maintained a strong liquidity position. The average liquidity ratio for
2006 was 51.9 per cent (calculated in accordance with the Fourth Schedule of the
Hong Kong Banking Ordinance), compared with an average liquidity ratio of 45.1
per cent for 2005.

The cost efficiency ratio for 2006 was 29.0 per cent, compared with 28.0 per
cent for 2005.

Dividends

The Directors have declared a fourth interim dividend of HK$1.90 per share,
which will be payable on 30 March 2007 to shareholders on the register of
shareholders as of 20 March 2007. Together with the interim dividends for the
first three quarters, the total distribution for 2006 will amount to HK$5.20 per
share, the same as in 2005.

Customer group performance

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

Year ended 31Dec06

Net interest income          7,428        2,036          623           481        1,126            _      11,694
Net fee income/(expense)     2,576          809           86           (24)          50            _       3,497
Trading income                 517          150            7           628           28            _       1,330
Net income/(expense) from
  financial instruments
  designated at
  fair value                   910            _            _           (11)           _            _         899
Dividend income                  8            5            _             _           34            _          47
Net earned insurance
  premiums                   7,671          174            1             _            _            _       7,846
Other operating income         542           26            _            (4)         281            _         845
Inter-segment income             _            _            _             _          378         (378)          _
Total operating income      19,652        3,200          717         1,070        1,897         (378)     26,158
Net insurance claims
  incurred and movement 
  in policyholders'
  liabilities               (8,014)         (63)           _             _            _            _      (8,077)
Net operating income 
  before loan impairment
  (charges)/releases and
  other credit risk
  provisions                11,638        3,137          717         1,070        1,897         (378)     18,081
Loan impairment
  (charges)/releases and
  other credit risk
  provisions                  (165)        (101)          14             _          (12)           _        (264)
Net operating income        11,473        3,036          731         1,070        1,885         (378)     17,817
Total operating expenses^   (3,472)      (1,098)        (168)         (175)        (328)           _      (5,241)
Inter-segment expenses        (326)         (38)          (6)           (8)           _          378           _
Operating profit             7,675        1,900          557           887        1,557            _      12,576
Profit on disposal of
  fixed assets and 
  financial investments         26            _            _             _          817            _         843
Net surplus on property
  revaluation                    _            _            _             _          321            _         321
Share of profits from
  associates                    29          362            _           164          100            _         655
Profit before tax            7,730        2,262          557         1,051        2,795            _      14,395
Share of profit 
  before tax^ ^               52.9%        16.4%         3.8%          7.6%        19.3%           _       100.0%

Operating profit
  excluding inter-segment
  transactions               8,001        1,938          563           895        1,179            _      12,576

Operating profit
  excluding loan
  impairment (charges)/
  releases and other 
  credit risk provisions     7,840        2,001          543           887        1,569            _      12,840

^ Depreciation
  /amortisation
  included in
  operating expenses          (106)         (11)          (4)           (2)        (210)           _        (333)

^ ^ Share of profits from associates is adjusted to pre-tax basis for the purpose of calculating the Customer
Groups' share of profit before tax.

At 31Dec06

Total assets               167,241       69,633       76,619       326,181       29,390            _     669,064
Total liabilities          429,667       82,340       41,959        38,609       27,791            _     620,366
Investments in associates      141        1,775            _           801          771            _       3,488
Capital expenditure
  incurred during the
  year                         159           44           11             8          157            _         379


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

Year ended 31Dec05 (restated)

Net interest income          7,092        1,587          612           995          510            _      10,796
Net fee income/(expense)     2,136          713           79           (21)          49            _       2,956
Trading income                 367          134            6           378            _            _         885
Net income/(expense) from
  financial instruments
  designated at fair value     (25)           _            _            (7)           _            _         (32)
Dividend income                  5            5            _             _           50            _          60
Net earned insurance
  premiums                   7,607          176            _             _            _            _       7,783
Other operating income         562           25            4             _          207            _         798
Inter-segment income             _            _            _             _          308         (308)          _
Total operating income      17,744        2,640          701         1,345        1,124         (308)     23,246
Net insurance claims
  incurred and movement
  in policyholders'
  liabilities               (6,964)         (50)           _             _            _            _      (7,014)
Net operating income before
  loan impairment
  (charges)/releases and
  other credit risk
  provisions                10,780        2,590          701         1,345        1,124         (308)     16,232
Loan impairment
  (charges)/releases 
  and other credit risk
  provisions                   232         (803)         (47)            _            _            _        (618)
Net operating income        11,012        1,787          654         1,345        1,124         (308)     15,614
Total operating expenses^   (3,086)        (903)        (142)         (157)        (258)           _      (4,546)
Inter-segment expenses        (258)         (40)          (5)           (5)           _          308           _
Operating profit             7,668          844          507         1,183          866            _      11,068
Profit on disposal of
  fixed assets and 
  financial investments          _            _            _          (217)         694            _         477
Net surplus on property
  revaluation                    _            _            _             _        1,313            _       1,313
Share of profits from
  associates                    18          234            _           106          142            _         500
Profit before tax            7,686        1,078          507         1,072        3,015            _      13,358
Share of profit 
  before tax^ ^               56.8%         8.8%         3.7%          8.3%        22.4%           _       100.0%

Operating profit
  excluding
  inter-segment
  transactions               7,926          884          512         1,188          558            _      11,068

Operating profit
  excluding loan
  impairment
  (charges)/releases
  and other credit risk
  provisions                 7,436        1,647          554         1,183          866            _      11,686

^ Depreciation
  /amortisation
  included in
  operating expenses          (103)         (13)          (3)           (2)        (168)           _        (289)

^ ^ Share of profits from associates is adjusted to pre-tax basis for the purpose of calculating the
Customer Groups' share of profit before tax.

At 31Dec05

Total assets               152,086       54,319       77,514       266,645       30,256            _     580,820
Total liabilities          372,941       77,249       31,672        33,541       21,687            _     537,090
Investments in associates      116        1,454            _           657          702            _       2,929
Capital expenditure
  incurred during the
  year                         107           20            7             2           95            _         231

Personal Financial Services ('PFS') reported a growth of 5.4 per cent in
operating profit excluding loan impairment charges to HK$7,840 million. Profit
before tax was up by 0.6 per cent to HK$7,730 million. There was a net charge of
HK$165 million in loan impairment provisions compared with a substantial net
release of HK$232 million in 2005 (mainly from mortgages and personal loans).
New and additional loan impairment charges were stable as the credit quality of
the PFS loan portfolio remained benign.

Net interest income rose 4.7 per cent, driven by the growth in customer advances
and improvement in spreads on BLR-based lending. The positive impact of
encouraging growth of 13.6 per cent in customer deposits was, however, offset by
the narrowing of deposit spreads on HK dollar savings and structured deposits.

The PFS loan portfolio grew 5.4 per cent, or HK$7,115 million, notwithstanding
the fall in Government Home Ownership Scheme mortgages and the disposal of a
part of the taxi loan portfolio to balance the overall loan portfolio structure.
(Excluding such factors, PFS achieved a growth of 10.7 per cent in customer
advances.) Residential mortgages, PFS's core loan product, reported encouraging
growth of 5.9 per cent and gained market share amid intense market competition.
Our marketing efforts have proved successful in improving credit card spending
as well as consumer borrowing such that our personal loans and card advances
rose 46.4 per cent and 22.1 per cent respectively. Advances for investment and
IPO subscriptions, mainly to Private Banking and Prestige Banking customers,
also reported significant growth. Non-interest income reported encouraging
growth of 14.2 per cent with wealth management income rising 22.7 per cent.

High levels of stock market and IPO activities, underpinned by ample liquidity
and bullish investment sentiment, helped investment services achieve impressive
growth:

  - Our stockbroking business out-performed the market with the growth of
    86.6 per cent in turnover. Together with a 20.0 per cent increase in
    customer base, our securities services income rose 63.3 per cent. This
    reflected the popularity of our efficient e-banking and phone trading
    channels, the competitive pricing of broker commissions, IPO subscription
    package offers and successful promotion campaigns.

  - Our endeavours to maintain a broad range of quality funds from
    high-growth China and emerging markets equity funds to more conservative
    capital-guaranteed and fixed income bond funds resulted in much success and
    recognition. Retail investment fund sales grew by 40.6 per cent over 2005. 
    Three funds managed by Hang Seng Investment Management Limited were named 
    top-performing funds at the Lipper Fund Awards Hong Kong 2007.

    To capture the vast growth potential of the China equity market, Hang Seng
    continued to be active in launching and promoting China funds. The bank's
    flagship China funds, the Hang Seng China H-Share Index Leveraged 150 Fund and
    Hang Seng China Equity Fund, reported returns of 161.1 per cent and 107.6 per
    cent respectively in 2006.

  - Structured deposits and instruments continued to grow with the launch of
    more sophisticated structures linked to equities, indices, foreign exchange
    and bullion. Spreads earned on structured products rose by 48.1 per cent.

Private banking maintained its growth momentum and delivered an outstanding
result by continuing to focus on providing tailor-made financial planning
services. Total operating income rose 51.1 per cent to HK$731 million and profit
before tax rose by 46.3 per cent to HK$556 million.

Hang Seng's life insurance business maintained its leading market position for
new annualised premiums business with the launch of new annuities and medical
insurance products tailored for the needs of pre-retirees and retirees. As a
result, life insurance reported a rise of 17.5 per cent in operating income,
driven by growth of 18.5 per cent in the number of policies in force.

Card spending grew 11.7 per cent, boosted by promotions in joint effort with
merchants and the continued improvement in consumer sentiment. Card services
income rose by 22.0 per cent. The number of cards in force increased by 10.5 per
cent to 1.4 million. New cards launched during 2006 include the alpha card, a
debit card to tap the youth market, and VISA Infinite, which targets top-tier
affluent customers.

Commercial Banking ('CMB') achieved an encouraging increase of 21.5 per cent in
operating profit excluding loan impairment charges, driven by strong growth in
customer advances and corporate wealth management business. Taking into account
the reduction in loan impairment provisions, profit before tax rose 109.8 per
cent.

Net interest income reported strong growth of 28.3 per cent. Customer advances
rose 22.2 per cent, highlighting significant growth in trade finance and
factoring loans with good gains in market share, and advances to the property,
manufacturing, and wholesale and retail sectors. The opening of a branch in
Dongguan, together with the existing branches in Guangzhou, Shenzhen and Macau,
further strengthened the bank's competitive edge in providing seamless, one-stop
commercial banking services to Hong Kong customers within the Pearl River Delta
region.

The bank further enhanced its position as the preferred SME bank through various
initiatives, such as the SME 'testimonial' TV commercial (part of the bank's
brand revitalisation campaign), the launch of the Business Partner Direct
24-hour manned telephone service hotline and the extended opening hours of MTR
branches. New SME accounts acquired in the second half of 2006 outpaced the
first half by 34.7 per cent, as a result of intensified marketing.

The heightened focus upon CMB under the bank's Roadmap for Growth has resulted
in growth of 13.5 per cent in net fees and commissions and 11.9 per cent in
trading income.

The bank has continued to launch customer-centric propositions for specific
industries. For retailers, the bank is the only financial institution to have
introduced Octopus Merchant services, which complement other retailer solutions
such as credit card merchant services, renminbi deposits, retailer insurance
protection and bulk cash deposit services. Net fee income from card acquiring
business achieved a strong growth of 45.1 per cent in 2006.

CMB identified great opportunities in developing corporate wealth management
services. A dedicated wealth management team was established in early 2006 to
better serve the investment, treasury and risk management needs of commercial
customers. Furthermore, keyperson insurance was launched in early 2006. With
these initiatives, corporate wealth management grew strongly and accounted for
22.5 per cent of CMB's non-interest income. An increasing trend in corporate
wealth management is expected to further dilute the reliance on trade fee
income.

The pace of online business banking has accelerated. At 31 December 2006, over
38,000 customers had registered for Business e-banking services, an increase of
32.1 per cent from the end of 2005. The number of online business banking
transactions also grew by 46.8 per cent.

Corporate Banking's ('CIB') net operating income increased by 11.8 per cent.
Strong liquidity in the banking system continued to squeeze corporate loan
margins, and CIB stayed focused on asset yield rather than loan growth. Customer
deposits registered a healthy growth of 32.5 per cent. CIB also stepped up its
efforts in collaboration with Treasury in providing corporate treasury services
and structured products to grow non-fund income. Operating profit before
impairment charges was down by 2.0 per cent. The strong growth of our targeted
business segments from diversification of customer base in Hong Kong and the
Mainland largely compensated for the fall in lending to large corporates. Profit
before tax increased by 9.9 per cent, benefiting from a release in collectively
assessed impairment allowances.

Treasury's ('TRY') operating profit was down by 25.0 per cent at HK$887 million.
Profit before tax, however, was down only 2.0 per cent, due to the absence of
losses on the disposal of investment securities (a loss of HK$217 million was
recorded in the previous year). TRY continued to pursue its strategy of
enhancing trading capability and providing more sophisticated products for
corporate and individual customers. This led to a substantial 66.1 per cent
increase in trading income, which reached HK$628 million. The balance sheet
management portfolio, however, continued to face the challenge of the rise in
funding costs, particularly for the US dollar portfolio, as well as flattened
yield curves. Net interest income fell by 51.7 per cent. The position, however,
has been improving since the second half of the year with the halt in US dollar
interest rate hikes and subdued HK dollar interest rates due to ample market
liquidity.

Mainland business

The bank expanded its network to 15 outlets in 2006 by upgrading the
representative office in Dongguan to a branch and opening three new sub-branches
in Shanghai and Guangzhou. This is in pursuance of its strategy to focus on the
Yangtze River Delta and Pearl River Delta regions and to develop its Prestige
Banking customer base through its sub-branch network in major cities. Strong
growth was recorded in customer advances, which rose 50.9 per cent to HK$15.9
billion. Customer deposits also rose significantly by 51.1 per cent. Profit
before tax rose 94.2 per cent to HK$134 million, with growth of 94.5 per cent in
net operating income.

By customer group, mainland PFS focused on the Prestige Banking segment,
benefiting from Hang Seng's established strengths, including excellent customer
service, strong wealth management capabilities and experience in mortgage
business. CMB and CIB teams collaborated closely with their Hong Kong
counterparts to serve customers' business needs on the Mainland and in Hong
Kong, and to cultivate new relationships to expand the mainland corporate
customer base. TRY continued to manage the funding positions of the branches and
develop structured investment products to meet customers' needs.

Including our share of profit from Industrial Bank Co., Ltd., our mainland
business contributed 6.1 per cent of total profit before tax, compared with 4.5
per cent in 2005.

Mainland business financial highlights
                                                            2006       2005
Figures in HK$m

Profit before tax of mainland branches                       134         69
Share of profit from mainland associate on pre-tax basis     763        547
Profit before tax of mainland business                       897        616

Share of group's profit before tax^                          6.1%       4.5%

^ Share of profit from associate is adjusted to pre-tax basis for the purpose
of calculating the share of group's profit before tax.




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