Hang Seng pt 6/6

HSBC Holdings PLC
05 March 2007

Cross-border claims

Cross-border claims include receivables, loans and advances, balances due from
banks, holdings of certificates of deposit, bills, promissory notes, commercial
paper and other negotiable debt instruments, as well as 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, the 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   Sovereign
                               & other    & public
                             financial      sector
Figures in HK$m           institutions    entities        Other         Total

At 31Dec06
                     
Asia-Pacific excluding
  Hong Kong:
- Australia                     33,724           -        1,355        35,079
- other                         49,686       1,247        9,677        60,610
                                83,410       1,247       11,032        95,689
The Americas:
- United States                 25,998       1,451        9,114        36,563
- other                         18,800       3,482        6,837        29,119
                                44,798       4,933       15,951        65,682
Western Europe:
- United Kingdom                38,203           -        9,619        47,822
- other                        101,805         590        4,165       106,560
                               140,008         590       13,784       154,382

At 31Dec05
                    
Asia-Pacific excluding
  Hong Kong:
- Australia                     23,961         144          712        24,817
- other                         38,140       1,447        6,882        46,469
                                62,101       1,591        7,594        71,286
The Americas:
- United States                 13,163       1,709        6,575        21,447
- other                         16,248       4,727        5,814        26,789
                                29,411       6,436       12,389        48,236
Western Europe:
- United Kingdom                23,008           -        7,842        30,850
- other                         81,089       1,430        6,207        88,726
                               104,097       1,430       14,049       119,576

Additional information

1. Statutory accounts and accounting policies

The information in this news release does not constitute statutory accounts.

Certain financial information in this news release is extracted from the
statutory accounts for the year ended 31 December 2006 ('2006 accounts'), which
will be delivered to the Registrar of Companies and the HKMA. The statutory
accounts comply with the module on 'Financial Disclosure by Locally Incorporated
Authorised Institutions' under the Supervisory Policy Manual issued by the HKMA.
The auditors expressed an unqualified opinion on those statutory accounts in
their report dated 5 March 2007.

The 2006 accounts and this news release have been prepared on a basis consistent
with the accounting policies adopted in the 2005 accounts except for the
following:

Change in presentation - Hong Kong Accounting Standard 1 'Presentation of
Financial Statements'

With effect from 2006 reporting, interest income and expense from trading
financial assets and liabilities and 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. The change has been made principally to
match the interest expense arising from trading liabilities with the interest
income from non-trading assets. This also facilitates the comparison of the
group's net interest income and net interest margin with peer banks in Hong Kong.

Comparative figures have been reclassified to conform with the current year's
presentation as follows:
                                           
                                                2005                      2005
                                      (as previously   Effect of           (as
Figures in HK$m                             reported)    change^      restated)

Interest income                               19,029         684        19,713
Interest expense                              (7,961)       (956)       (8,917)
Net interest income                           11,068        (272)       10,796

Net trading income                               579         306           885

Net income/(expense) from
  financial instruments
  designated at fair value                         2         (34)          (32)

^ Increase/(decrease) in the profit for the year.

For HSBC Group reporting, interest income and interest expense arising from
financial assets and financial liabilities held for trading are reported 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 the derivatives managed in conjunction with them).

Amendments to Hong Kong Accounting Standard 39 ('HKAS 39') and Hong Kong
Financial Reporting Standard 4 'Financial Instruments: Recognition and
Measurement and Insurance Contracts - Financial Guarantee Contracts'

In prior years, financial guarantee contracts were accounted for under HKAS 37
'Provisions, Contingent Liabilities and Contingent Assets' as contingent
liabilities and were disclosed as off-balance sheet items.

With effect from 1 January 2006 and in accordance with the above amendments,
financial guarantee contracts issued are recognised as financial liabilities and
reported under 'Other liabilities'. Financial guarantees are recognised
initially at fair value and subsequently measured as the higher of (a) the
amount as provisions determined in accordance with HKAS 37; and (b) the amount
initially recognised less cumulative amortisation.

Financial liabilities recorded under 'Other liabilities' at 31 December 2006
amounted to HK$4 million. No restatement of comparative figures was made as the
amounts were immaterial.

Hong Kong Financial Reporting Standard 7 ('HKFRS 7') 'Financial Instruments:
Disclosures'

The group has adopted HKFRS 7 prior to its required application date of 1
January 2007. The adoption of HKFRS 7 impacted the type and amount of
disclosures made in the financial statements, but had no impact on the reported
profits or financial position of the group. In accordance with the transitional
requirements of HKFRS 7, the group has provided full comparative information.

2. Comparative figures

Certain comparative figures have been reclassified to conform with the current
year's presentation.

3. Property revaluation

On 30 September 2006, the group's premises and investment properties were
revalued by DTZ Debenham Tie Leung Limited who confirmed that there had been no
material change in valuation as at 31 December 2006. The valuation was carried
out by qualified persons who are members of the Hong Kong Institute of
Surveyors. The basis of the valuation of premises was open market value for
existing use and the basis of valuation for investment properties was open
market value. The revaluation surplus for group premises amounted to HK$646
million of which HK$17 million was a reversal of revaluation deficits previously
charged to the income statement. The balance of HK$629 million was credited to
the premises revaluation reserve. Revaluation gains on investment properties of
HK$304 million were recognised through the income statement. The related
deferred tax provisions for group premises and investment properties were HK$113
million and HK$53 million respectively.

4. Market risk

Market risk is the risk that foreign exchange rates, interest rates or equity
and commodity prices will move and result in profits or losses for the group.
The group'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.

The group 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. In line with the HSBC Group,
Hang Seng has changed its VAR calculation from a variance/co-variance ('VCV')
basis to historical simulation ('HS') basis with effect from 3 May 2005. HS uses
scenarios derived from historical market rates and takes account of the
relationships between different markets and rates, for example, interest rates
and foreign exchange rates. Movements in market prices are calculated by
reference to market data from the last two years. The assumed holding period is
a one-day period with a 99 per cent level of confidence, reflecting the way the
risk positions are managed. Aggregation of VAR from different risk types is
based upon the assumption of independence between risk types. In recognition of
the inherent limitations of VAR methodology, stress testing is performed to
assess the impact of extreme events on market risk exposures.

The group has obtained approval from the HKMA to use HS for calculating market
risk in capital adequacy reporting.

The group's VAR for all interest rate risk and foreign exchange risk positions
and on individual risk portfolios during 2006 and 2005 are shown in the tables
below. The VAR figures for 2005 are based on four months' VCV and eight months'
HS.

VAR
                                                Minimum      Maximum     Average
                                                 during       during         for
                                                    the          the         the
Figures in HK$m                  At 31Dec06        year         year        year

VAR for all interest rate risk
and foreign exchange risk                42          29          119          64
VAR for foreign exchange risk
  (trading)                               2           1           16           5
VAR for interest rate risk
- trading                                 4           3           16           8
- non-trading                            45          35          123          68

                                                Minimum      Maximum     Average
                                                 during       during         for
                                                    the          the         the
Figures in HK$m                  At 31Dec05        year         year        year

VAR for all interest rate risk
  and foreign exchange risk             113         111          264         181
VAR for foreign exchange risk
 (trading)                                3           _            6           2
VAR for interest rate risk
- trading                                 3           1           21           4
- non-trading                           118         117          260         180

The average daily revenue earned from market risk-related treasury activities in
2006, including non-trading book net interest income and funding related to
trading positions, was HK$5 million (HK$5 million for 2005). The standard
deviation of these daily revenues was HK$3 million (HK$8 million for 2005).

Interest rate risk arises in both the treasury trading and non-trading
portfolios, which are managed by treasury under limits approved by the Board of
Directors. The average daily revenue earned from treasury-related interest rate
activities for 2006 was HK$2 million (HK$3 million for 2005).

The group's foreign exchange exposures mainly comprise foreign exchange trading
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 average
one-day foreign exchange profit for 2006 was HK$3 million (HK$2 million for
2005).

Structural foreign exchange positions arising from capital investment in
subsidiaries and branches outside Hong Kong, mainly in US dollar and renminbi 
('RMB') as set out in Note 5, are managed by the Asset and Liability Management 
Committee.

5. Foreign currency positions

Foreign currency exposures include those arising from trading, non-trading and
structural positions. At 31 December 2006, the US dollar (US$) was the only
currency in which the group had a non-structural foreign currency position that
exceeded 10 per cent of the total net position in all foreign currencies.
                                      
Figures in HK$m                      At 31Dec06                  At 31Dec05
                              US$           RMB            US$          RMB
Non-structural position
Spot assets               205,544        14,422        193,149        5,955
Spot liabilities         (189,232)      (12,670)      (168,513)      (6,008)
Forward purchases         128,102           353         84,026          439
Forward sales            (141,544)       (1,904)      (104,960)        (300)
Net options position          120             _            (77)           _
Net long
  non-structural
  position                  2,990           201          3,625           86

At 31 December 2006, the group's major structural foreign currency positions
were US dollar and RMB.
                                 
                                At 31Dec06                     At 31Dec05
                                                                (restated)
                                      % of                           % of
                                 total net                      total net
                                structural                     structural
                          HK$m    position          HK$m         position
Structural positions
US dollar                1,430        26.8         1,035             28.9
RMB                      3,760        70.5         2,439             68.1

6. Non-adjusting post balance sheet event

On 5 February 2007, Industrial Bank Co., Ltd. ('Industrial Bank'), an associate
of the bank, issued 1,001 million new shares for a total consideration of
RMB15,996 million. The bank did not subscribe for any additional shares and,
as a result, its interest in the equity of Industrial Bank decreased from 15.98
per cent to 12.78 per cent. While the bank's interest has reduced, the assets of
Industrial Bank have substantially increased as a result of this issue.
Consequently, it is expected that this transaction would result in an increase
of about RMB1.5 billion in the group's share of the underlying net assets of 
Industrial Bank.

The decrease of the bank's interest in the equity of Industrial Bank does not
affect the influence that the bank has over this associate, as there has been no
change in the composition of major shareholders in Industrial Bank or in the
bank's representation in the Industrial Bank's Board of Directors or Executive
Committee. The bank will continue to have the power to participate in the
financial and operating policy decisions of Industrial Bank, and its investment
will continue to be accounted for using the equity method.

7. Ultimate holding company

Hang Seng Bank is an indirectly held, 62.14 per cent-owned subsidiary of HSBC
Holdings plc.

8. Register of shareholders

The register of shareholders of Hang Seng Bank will be closed on Tuesday, 20
March 2007, during which no transfer of shares can be registered. In order to
qualify for the fourth interim dividend, all transfers, accompanied by the
relevant share certificates, must be lodged with the bank's registrars,
Computershare Hong Kong Investor Services Limited, Shops 1712-1716, 17th Floor,
Hopewell Centre, 183 Queen's Road East, Wanchai, Hong Kong, for registration no
later than 4:30 pm on Monday, 19 March 2007. The fourth interim dividend will be
payable on 30 March 2007 to shareholders on the register of shareholders of the
bank on 20 March 2007.

9. Proposed timetable for 2007 quarterly dividends

                         First           Second             Third         Fourth
                       interim          interim           interim        interim
                      dividend         dividend          dividend       dividend

Announcement        3 May 2007     30 July 2007   5 November 2007   3 March 2008
Book close date    22 May 2007   21 August 2007  27 November 2007  18 March 2008
Payment date       5 June 2007   30 August 2007  11 December 2007  28 March 2008
                                                             
10. News release

Copies of this news release may be obtained from Legal and Company Secretarial
Services Department, Level 10, 83 Des Voeux Road Central, Hong Kong; or from
Hang Seng's website http://www.hangseng.com.

The 2006 Annual Report and Accounts are available from the same website on
Monday, 5 March 2007 and will also be published on the website of The Stock
Exchange of Hong Kong Limited in due course. Printed copies of the 2006 Annual
Report will be sent to shareholders by early-April 2007.




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