Hang Seng pt 2/6

HSBC Holdings PLC
05 March 2007

Contents

The financial information in this news release is based on the audited
consolidated financial statements of Hang Seng Bank Limited ('the bank') and 
its subsidiaries and associates ('the group') for the year ended 31 December 
2006.

..Highlights of Results
..Chairman's Comment
..Results Summary
..Customer Group Performance
..Mainland Business
..Contents
..Consolidated Income Statement
..Consolidated Balance Sheet
..Consolidated Statement of Recognised Income and Expense
..Consolidated Cash Flow Statement
..Economic Profit
..Financial Review
....Net interest income
....Net fee income
....Trading income
....Net income/(expense) from financial instruments designated at fair value
....Other operating income
....Analysis of income from wealth management business
....Loan impairment charges and other credit risk provisions
....Operating expenses
....Profit on disposal of fixed assets and financial investments
....Tax expense
....Earnings per share
....Dividends per share
....Segmental analysis
....Analysis of assets and liabilities by remaining maturity
....Cash and balances with banks and other financial institutions
....Placings with and advances to banks and other financial institutions
....Trading assets
....Financial assets designated at fair value
....Advances to customers
....Loan impairment allowances against advances to customers
....Impaired advances and allowances
....Overdue advances
....Rescheduled advances
....Segmental analysis of advances to customers by geographical area
....Gross advances to customers by industry sector
....Financial investments
....Amount due from/to immediate holding company and fellow subsidiary companies
....Investments in associates
....Intangible assets
....Other assets
....Current, savings and other deposit accounts
....Certificates of deposit and other debt securities in issue
....Trading liabilities
....Other liabilities
....Subordinated liabilities
....Shareholders' funds
....Capital resources management
....Liquidity ratio
....Reconciliation of cash flow statement
....Contingent liabilities, commitments and derivatives
....Cross-border claims
....Statutory accounts and accounting policies
....Comparative figures
....Property revaluation
....Market risk
....Foreign currency positions
....Non-adjusting post balance sheet event
....Ultimate holding company
....Register of shareholders
....Proposed timetable for 2007 quarterly dividends
....News release

Consolidated Income Statement

                                                          Year ended 
                                                  31Dec06           31Dec05
Figures in HK$m                                                   (restated)

Interest income                                    29,262            19,713
Interest expense                                  (17,568)           (8,917)
Net interest income                                11,694            10,796
Fee income                                          4,074             3,394
Fee expense                                          (577)             (438)
Net fee income                                      3,497             2,956
Trading income                                      1,330               885
Net income/(expense) from financial
  instruments designated at fair value                899               (32)
Dividend income                                        47                60
Net earned insurance premiums                       7,846             7,783
Other operating income                                845               798
Total operating income                             26,158            23,246
Net insurance claims incurred and
  movement in policyholders' liabilities           (8,077)           (7,014)
Net operating income before loan impairment
  charges and other credit risk provisions         18,081            16,232
Loan impairment charges and other credit risk
  provisions                                         (264)             (618)
Net operating income                               17,817            15,614
Employee compensation and benefits                 (2,694)           (2,281)
General and administrative expenses                (2,214)           (1,976)
Depreciation of premises, plant and equipment        (323)             (280)
Amortisation of intangible assets                     (10)               (9)
Total operating expenses                           (5,241)           (4,546)
Operating profit                                   12,576            11,068
Profit on disposal of fixed assets and
  financial investments                               843               477
Net surplus on property revaluation                   321             1,313
Share of profits from associates                      655               500
Profit before tax                                  14,395            13,358
Tax expense                                        (2,049)           (1,795)
Profit for the year                                12,346            11,563

Profit attributable to shareholders                12,038            11,342
Profit attributable to minority interests             308               221
                                                   12,346            11,563

Dividends                                           9,942             9,942
Earnings per share (in HK$)                          6.30              5.93

With effect from 2006 (and as restated for 2005), interest income and interest
expense for all interest-bearing financial instruments are reported in 'Interest
income' and 'Interest expense' respectively in the income statement. The change
from the HSBC Group presentation described below has been made principally to
match the interest expense arising from trading liabilities with the interest
income from non-trading assets. This facilitates the comparison of Hang Seng's
net interest income and net interest margin with peer banks in Hong Kong.

The HSBC Group reports interest income and interest expense arising from
financial assets and financial liabilities held for trading as 'Net trading
income' and arising from financial instruments designated at fair value through
profit and loss as 'Net income from financial instruments designated at fair
value' (other than for debt securities in issue and subordinated liabilities,
together with derivatives managed in conjunction with them).

The table below presents the interest income and interest expense of Hang Seng,
as included within the HSBC Group accounts:

                                                                2006      2005

Interest income                                               28,639    19,029
Interest expense                                             (15,000)   (7,983)
Net interest income                                           13,639    11,046
Net interest income and expense reported as 'Net trading
  income'                                                     (2,039)     (306)
Net interest income and expense reported as 'Net income
  from financial instruments designated at fair value'            94        56

Consolidated Balance Sheet
                                              At 31Dec06         At 31Dec05
Figures in HK$m                                     

Assets
Cash and balances with banks and
  other financial institutions                     9,390              9,201
Placings with and advances to banks and
  other financial institutions                    99,705             69,286
Trading assets                                    12,467             12,600
Financial assets designated at fair value          8,280              6,027
Derivative financial instruments                   1,887              1,715
Advances to customers                            279,353            260,680
Financial investments                            227,710            189,904
Investments in associates                          3,488              2,929
Investment properties                              2,732              4,273
Premises, plant and equipment                      6,516              6,750
Interest in leasehold land held for own use
  under operating lease                              580                594
Intangible assets                                  2,070              1,636
Other assets                                      14,886             15,225
                                                 669,064            580,820

Liabilities
Current, savings and other deposit
  accounts                                       482,821            430,995
Deposits from banks                               17,950             12,043
Trading liabilities                               60,093             45,804
Financial liabilities designated at 
  fair value                                       1,562              1,528
Derivative financial instruments                   1,531              1,792
Certificates of deposit and other
  debt securities in issue                         7,595             10,023
Other liabilities                                 16,123             14,138
Liabilities to customers under
  insurance contracts                             22,975             15,335
Deferred tax and current tax
liabilities                                        2,716              1,921
Subordinated liabilities                           7,000              3,511
                                                 620,366            537,090

Capital resources
Minority interests                                 1,717              1,159
Share capital                                      9,559              9,559
Retained profits                                  29,044             26,052
Other reserves                                     4,745              3,327
Proposed dividends                                 3,633              3,633
Shareholders' funds                               46,981             42,571
                                                  48,698             43,730
                                                 669,064            580,820

Consolidated Statement of Recognised Income and Expense

                                                                                                                      
                                                           Year ended 
Figures in HK$m                                        31Dec06    31Dec05

Unrealised surplus on revaluation of premises,
  net of tax                                               519        863
Tax on realisation of revaluation surplus on disposal
  of premises                                              106          9
Available-for-sale investments reserve, net of tax:
- fair value changes taken to equity                     1,232     (1,237)
- fair value changes transferred to income statement
  - on impairment                                           12          _
  - on hedged items                                         21        249
  - on disposal                                           (325)      (487)
Cash flow hedges reserve, net of tax:
- fair value changes taken to equity                      (179)      (524)
- fair value changes transferred to income statement       442         32
Actuarial gains on defined benefit plans, net of tax       218        158
Exchange differences on translation of financial 
  statements of overseas branches, subsidiaries and
  associates                                               184         50
Net income/(expense) recognised directly in equity       2,230       (887)
Profit for the year                                     12,346     11,563
Total recognised income and expense for the year        14,576     10,676

Attributable to shareholders                            14,268     10,455
Attributable to minority interests                         308        221
                                                        14,576     10,676

Consolidated Cash Flow Statement

                                                            Year ended 
Figures in HK$m                                    31Dec06               31Dec05

Net cash inflow from operating activities           53,541                26,840

Cash flows from investing activities

Dividends received from associates                      33                    75
Purchase of available-for-sale investments        (101,258)              (48,780)
Purchase of held-to-maturity debt securities          (351)                 (190)
Proceeds from sale or redemption of
  available-for-sale investments                    69,279                21,888
Proceeds from sale or redemption of
  held-to-maturity debt securities                      38                    33
Purchase of fixed assets and intangible assets        (379)                 (167)
Proceeds from sale of fixed assets and
  assets held for sale                               3,130                   186
Interest received from available-for-sale
  investments                                        6,557                 4,495
Dividends received from available-for-sale
  investments                                           45                    58
Net cash outflow from investing activities         (22,906)              (22,402)

Cash flows from financing activities
Dividends paid                                      (9,942)               (9,942)
Interest paid for subordinated liabilities            (332)                  (58)
Proceeds from subordinated liabilities               3,489                 4,478
Net cash outflow from financing activities          (6,785)               (5,522)

Increase/(decrease) in cash and cash
  equivalents                                       23,850                (1,084)

Cash and cash equivalents at 1 January              65,513                67,051
Effect of foreign exchange rate changes                912                  (454)
Cash and cash equivalents at 31 December            90,275                65,513

Economic Profit

Economic profit is calculated from post-tax profit, adjusted for any surplus/
deficit arising from property revaluation and depreciation attributable to the
revaluation surplus, and takes into account the cost of capital invested by the
bank's shareholders.

For the year 2006, economic profit was HK$7,343 million, an increase of HK$1,259
million, or 20.7 per cent, compared with 2005. Post-tax profit, adjusted for the
property revaluation surplus net of deferred tax and depreciation attributable
to the revaluation, rose by HK$1,537 million. Cost of capital rose by HK$278
million, in line with the growth in invested capital with the accumulation of
retained profits.
                                                 Year ended 
                                          31Dec06                  31Dec05
                                 HK$m           %         HK$m           %

Average invested capital       38,962                   36,000

Return on invested capital^    11,840        30.4       10,303        28.6
Cost of capital                (4,497)      (11.5)      (4,219)      (11.7)
Economic profit                 7,343        18.9        6,084        16.9

^Return on invested capital is based on post-tax profit excluding any surplus/
deficit arising from property revaluation and depreciation attributable to the
revaluation surplus.




                      This information is provided by RNS
            The company news service from the London Stock Exchange