HK&S Bank Corp Interim 05 Pt2

HSBC Holdings PLC
01 August 2005



4. Gains less losses from financial investments

                     Half-year ended        Half-year ended      Half-year ended
                             30Jun05                30Jun04              31Dec04
Figures in HK$m                                    restated             restated
 
Profit on disposal of
  available-for-sale
  securities                     348                      -                    -

Profit on disposal of
  long-term investments            -                    380                  931

Provision for
  impairment of 
  available-for-sale
  securities                      (1)                     -                    -

Reversal of/(provision
  for) impairment
  of long-term
  investments                      -                    202                  (16)

                                 347                    582                  915

The profit on disposal of available-for-sale securities primarily comprises
gains on the sale of equity securities, partly offset by losses on the disposal
of US dollar bonds.

In the first half of 2004, there was a partial write-back of a provision against
an equity investment.

5. Dividend income

                     Half-year ended        Half-year ended      Half-year ended
                             30Jun05                30Jun04              31Dec04
Figures in HK$m                                    restated             restated

Listed investments                52                     68                   32
Unlisted investments             191                     37                   14
Other participating
  interests                        6                      6                    6
                                 249                    111                   52
                                                             

6. Net earned insurance premiums

                     Half-year ended        Half-year ended      Half-year ended
                             30Jun05                30Jun04              31Dec04
Figures in HK$m                                    restated             restated

Gross insurance premium
  income                       7,239                  9,003                9,744
Less: reinsurance premiums      (264)                  (268)                (257)

                               6,975                  8,735                9,487
   
Premium income decreased compared with the first half of last year largely due
to a change in accounting treatment. In 2004, gross premium receipts on certain
investment plans and the corresponding increase in the bank's liability to
policyholders are disclosed, respectively, under 'Net earned insurance premiums'
and 'Net insurance claims incurred and movement in policyholder liabilities'. In
2005, a net number is included under 'Net fee income'.

7. Other operating income

                     Half-year ended        Half-year ended      Half-year ended
                             30Jun05                30Jun04              31Dec04
Figures in HK$m                                    restated             restated
                                       

Rental income                    230                    232                  230
Movement in present value of
  in force insurance business    490                    389                  444
Profit on disposal of tangible
  fixed assets                    19                    141                   51
Profit on disposal of subsidiary
  and associated companies        58                    309                   33
Surplus arising on
  property revaluation         1,038                    829                  209
Other                            885                    505                  742

                               2,720                  2,405                1,709
 
Profit on disposal of subsidiary and associated companies for the first half of
2005 comprises a gain made on the sale of HSBC Asset Management (Australia)
Limited. Profit for the first half of 2004 included a gain on the exchange of
the group's interest in World Finance International Limited, an associated
company, for an interest in Bergesen Worldwide.

The surplus arising on property revaluation comprises gains on the revaluation
of investment properties and the reversal of previous revaluation deficits that
had arisen when the value of certain premises fell below depreciated historical
cost. As permitted by Hong Kong Accounting Standard 40, prior year revaluation
gains on investment properties have been credited to reserves and accordingly
the prior year profit and loss figures have not been restated.

'Other' includes profits on the sale of a residential property in Hong Kong held
on an operating lease.

8. Loan impairment charges and other credit risk provisions

                     Half-year ended        Half-year ended      Half-year ended
                             30Jun05                30Jun04              31Dec04
Figures in HK$m                                    restated             restated
                                               
Net charge/(release) for
  impairment provisions

Advances to customers

- Specific individual 
  provisions:
  New provisions               1,222                  1,627                2,389
  Releases                    (1,249)                (1,379)              (1,071)
  Recoveries                    (161)                  (336)                (281)
                                (188)                   (88)               1,037
- Net charge/(release) for
  collective impairment
  provisions                     706                 (1,496)                (227)

- Country risk
  provision                       (8)                     -                    -
                                 510                 (1,584)                 810

Placings with banks maturing
  after one month
- Net release of specific
  individual provisions            -                      -                   (1)

                                 510                 (1,584)                 809
Other credit risk    
  provisions                       6                     22                 (109)
 
Total impairment
  charge/(credit)                516                 (1,562)                 700
                                                  
There was a net charge for loan impairment and other credit risk provisions of
HK$516 million compared with a net release of HK$1,562 million in the same
period last year. The charge for new specific individual provisions was lower as
credit card provisions were classified as specific individual in 2004, but as
collective in 2005. Excluding this effect, specific individual provisions rose,
largely against lending to commercial banking customers in Hong Kong. Provisions
against mortgages, credit card advances and other personal lending fell, in line
with the improving economy in Hong Kong with lower bankruptcies, falling
unemployment and a rise in property prices. Releases and recoveries were lower,
largely relating to corporates in Hong Kong, Singapore and Thailand, but this
was partly offset by higher releases against personal lending in Hong Kong and
against lending to commercial banking customers in mainland China. There was a
net charge for collective provisions, comprising the reclassification of credit
card provisions and a small charge against corporate lending, reflecting the
stable credit environment across the region.

9. Employee compensation and benefits

                     Half-year ended        Half-year ended      Half-year ended
                             30Jun05                30Jun04              31Dec04
Figures in HK$m                                    restated             restated

Salaries and other costs       7,991                  6,837                7,163
Retirement benefit costs         434                    416                  349

                               8,425                  7,253                7,512

Staff numbers by region^

                          At 30Jun05             At 30Jun04           At 31Dec04
                          
Hong Kong                     24,240                 23,132               23,947

Rest of Asia-Pacific          22,942                 19,430               21,009

Americas/Europe                   16                     16                   16
                            
Total                         47,198                 42,578               44,972
                             

^ Full-time equivalent

Staff costs increased by HK$1,172 million, or 16.2 per cent, compared with the
first half of 2004, attributable to the increase in headcount throughout the
region of 4,620. Staff numbers rose in all customer groups, notably in Personal
Financial Services in India, Taiwan, the Philippines, Thailand and Sri Lanka,
and Commercial Banking in Hong Kong and mainland China. The build-up of the
investment banking division continued in Hong Kong, and the integration of Bank
of Bermuda staff also added to headcount.

10. General and administrative expenses

                     Half-year ended        Half-year ended      Half-year ended
                             30Jun05                30Jun04              31Dec04
Figures in HK$m                                    restated             restated
                          
Premises and equipment                        
- Rental expenses                627                    597                  600
- Other premises and 
  equipment                      855                    818                  943
                               1,482                  1,415                1,543

Other administrative
  expenses                     3,716                  3,077                4,125

Litigation and other
  provisions                     204                    130                    1

                               5,402                  4,622                5,669
                              

The increase in general and administrative expenses of HK$780 million, or 16.9
per cent, reflected additional costs incurred in the business expansion
throughout the region. Advertising and marketing expenditure increased in
Thailand, Taiwan, India, Indonesia and Singapore, in line with the growth in the
Personal Financial Services business in these countries. Other expenses rose,
particularly in support of the expansion of the Corporate and Institutional
Banking businesses in Singapore, India, Korea and Taiwan.

11. Share of profit in associates

Share of profit in associates in the first half of 2005 included the group's
share of post-tax profits from Bank of Communications and Industrial Bank for
the six months to 31 March 2005.

12. Taxation

The charge for taxation in the consolidated profit and loss account comprises:

                     Half-year ended        Half-year ended      Half-year ended
                             30Jun05                30Jun04              31Dec04
Figures in HK$m                                    restated             restated
                                                         

Hong Kong profits tax          2,663                  2,292                1,690
Overseas taxation              1,300                  1,423                1,074
Deferred taxation                285                    312                  197
                               4,248                  4,027                2,961
                                                             
The effective rate of tax for the first half of 2005 was 17.6 per cent, compared
with 17.0 per cent for the first half of 2004, principally as a result of the
interest expense on preference shares for which tax relief is not available.

13. Dividends

                     Half-year ended        Half-year ended      Half-year ended
                             30Jun05                30Jun04              31Dec04
                  HK$           HK$m        HK$        HK$m         HK$     HK$m
            per share                 per share               per share

Dividends
  on ordinary
  share capital
- Paid           0.51          4,600       0.92       6,000        0.53    4,750
- Proposed       0.67          6,000       0.73       4,750        0.53    4,800
                 1.18         10,600       1.65      10,750        1.06    9,550
             
14. Trading assets

                         At 30Jun05              At 30Jun04           At 31Dec04
Figures in HK$m                                    restated             restated
             
Debt securities             117,682                  95,971               89,355
Equity shares                 5,860                  17,444               20,544
Treasury bills               34,979                       -                    -
Other                           926                       -                    -

                            159,447                 113,415              109,899
                      
Treasury bills held for trading have been reclassified from 'Cash and short-term
funds' to 'Trading assets'. Certain equity shares and debt securities are now
classified as 'Financial assets designated at fair value' (see Note 15).

15. Financial assets designated at fair value

                          At30Jun05               At30Jun04            At31Dec04
Figures in HK$m                                    restated             restated
                    
Debt securities              15,884                       -                    -
Equity shares                15,524                       -                    -
Other                         4,239                       -                    -
                             35,647                       -                    -

There was no such category in 2004.

16. Advances to customers
                          At30Jun05               At30Jun04            At31Dec04
Figures in HK$m                                    restated             restated

Gross advances to 
  customers                 980,912                 858,625              927,121

Specific individual
  provisions                 (4,114)                 (6,058)              (5,482)
Collective impairment
  provisions                 (3,158)                 (2,623)              (2,447)
Country risk provisions          (3)                      -                    -
Total provisions             (7,275)                 (8,681)              (7,929)
                            973,637                 849,944              919,192
                 
Provisions as a percentage 
  of gross advances 
  to customers:
Specific individual
  provisions                   0.42%                   0.70%                0.59%
Collective impairment
  provisions                   0.32%                   0.31%                0.26%
Country risk provisions           -                       -                    -
Total provisions               0.74%                   1.01%                0.85%
  
17. Impairment provisions against advances to customers
    
                           Specific              Collective              Country
                         individual              impairment                 risk
Figures in HK$m          provisions              provisions           provisions        Total


At 1Jan05 (restated)          4,719                   3,179                   11        7,909
Amounts written off            (571)                   (901)                   -       (1,472)
Recoveries of advances
  written off in
  previous years                161                     191                    -          352
Net charge/(release)
  to income (Note 8)           (188)                    706                   (8)         510
Exchange and other adjustments   (7)                    (17)                   -          (24)

At 30Jun05                    4,114                   3,158                    3        7,275


18. Impaired advances to customers and provisions

The geographical information shown below, and in notes 19, 20, 21, and 23, has
been classified by location of the principal operations of the subsidiary
company or, in the case of the bank, by location of the branch responsible for
advancing the funds.

                                                    Rest of            Americas/
Figures in HK$m           Hong Kong            Asia-Pacific               Europe        Total

Half-year ended 30Jun05

Impairment provision charge/
  (release)                     455                      67                  (12)         510


At 30Jun05

Advances to customers which are considered to be impaired are as follows:

Gross impaired advances       5,436                   3,438                    -        8,874
        
Specific individual 
  provisions                 (2,230)                 (1,884)                   -       (4,114)
                              3,206                   1,554                    -        4,760
               
Specific individual provisions
  as a percentage of gross
  impaired advances            41.0%                   54.8%                   -         46.4%

Gross impaired advances as a
  percentage of gross advances
  to customers                  0.9%                    0.9%                   -          0.9%
                 
                                                    Rest of            Americas/        Total
Figures in HK$m           Hong Kong            Asia-Pacific               Europe     restated
                              
Half-year ended 30Jun04

Impairment provision charge/
  (release)                 ( 1,744)                    160                    -       (1,584)
 
At 30Jun04

Advances to customers which are considered to be impaired are as follows:

Gross impaired advances       8,599                   4,327                    5       12,931

Specific individual
  provisions                 (3,016)                 (3,037)                  (5)      (6,058)
                              5,583                   1,290                    -        6,873
                             
Specific individual provisions 
  as a percentage of gross 
  impaired advances            35.1%                   70.2%               100.0%        46.8%
                             
Gross impaired advances as
  a percentage of gross advances
  to customers                  1.5%                    1.5%                41.7%         1.5%

Impaired advances to customers are those advances where objective evidence
exists that full repayment of principal or interest is considered unlikely.

The specific provisions are made after taking into account the value of
collateral in respect of such advances.

                                                    Rest of            Americas/        Total
Figures in HK$m           Hong Kong           Asia-Pacific               Europe      restated

Half-year ended 31Dec04

Impairment provision charge/  
  (release)                      64                     752                   (6)         810
  
At 31Dec04

Advances to customers which are considered to be impaired are as follows:

Gross impaired advances       5,423                   4,268                   5         9,696

Specific individual 
  provisions                 (2,485)                 (2,992)                  (5)      (5,482)
                              2,938                   1,276                    -        4,214

Specific individual provisions
  as a percentage of gross
  impaired advances            45.8%                   70.1%               100.0%        56.5%
 
Gross impaired
  advances as a
  percentage of gross advances
  to customers                  0.9%                    1.3%                35.7%         1.0%
               
19. Overdue advances to customers
                                                    Rest of            Americas/
Figures in HK$m           Hong Kong             sia-Pacific               Europe        Total
                             
At 30Jun05

Gross advances to customers which
  have been overdue with respect
  to either principal or interest
  for periods of:

- six months or less but
  over three months             814                     886                    -        1,700

- one year or less but
  over six months               307                     379                    -          686

- over one year               1,546                   1,272                    -        2,818
                              2,667                   2,537                    -        5,204
                        
Overdue advances to customers as
  a percentage of gross advances
  to customers:

- six months or less but
  over three months             0.1%                    0.2%                   -          0.2%

- one year or less but
  over six months               0.1%                    0.1%                   -          0.1%

- over one year                 0.2%                    0.4%                   -          0.2%
                                0.4%                    0.7%                   -          0.5%
                              
                                                    Rest of             Americas/       Total
Figures in HK$m           Hong Kong            Asia-Pacific                Europe    restated

At 30Jun04

Gross advances to customers
  which have been overdue
  with respect to either
  principal or interest for
  periods of:

- six months or less but over
  three months                1,447                     645                     -       2,092

- one year or less but over
  six months                    883                     466                     -       1,349

- over one year               1,685                   1,818                     -       3,503
                              4,015                   2,929                     -       6,944
             

Overdue advances to customers as
  a percentage of gross advances
  to customers:

- six months or less but over
  three months                  0.2%                    0.2%                    -         0.2%

- one year or less but over
  six months                    0.2%                    0.2%                    -         0.2%

- over one year                 0.3%                    0.6%                    -         0.4%
                                0.7%                    1.0%                    -         0.8%

                                                    Rest of             Americas/       Total
Figures in HK$m           Hong Kong            Asia-Pacific                Europe    restated
                             
At 31Dec04

Gross advances to customers
  which have been overdue with
  respect to either principal
  or interest for periods of:

- six months or less
  but over three months         959                     706                     -       1,665

- one year or less but
  over six months               607                     296                     -         903

- over one year               1,631                   1,430                     -       3,061
                              3,197                   2,432                     -       5,629
                               
Overdue advances to customers
  as a percentage of gross advances
  to customers:

- six months or less
  but over three months         0.1%                    0.2%                    -         0.2%

- one year or less but
  over six months               0.1%                    0.1%                    -         0.1%

- over one year                 0.3%                    0.4%                    -         0.3%
                                0.5%                    0.7%                    -         0.6%
                              
20. Rescheduled advances to customers

                                                    Rest of             Americas/
Figures in HK$m           Hong Kong            Asia-Pacific                Europe       Total
               
At 30Jun05

Rescheduled advances to
  customers                   2,327                     552                     -       2,879
  
Rescheduled advances to 
  customers as a percentage
  of gross advances to
  customers                     0.4%                    0.1%                    -         0.3%
                  
At 30Jun04 (restated)

Rescheduled advances to 
  customers                   6,404                     385                     5       6,794

Rescheduled advances to 
  customers as a percentage 
  of gross advances to
  customers                     1.1%                    0.1%                 41.7%        0.8%
                      
At 31Dec04 (restated)

Rescheduled advances to 
  customers                   4,009                     465                     5       4,479

Rescheduled advances to 
  customers as a percentage
  of gross advances to
  customers                     0.7%                    0.1%                 35.7%        0.5%
                       
Rescheduled advances are those advances which have been restructured or
renegotiated because of a deterioration in the financial position of the
borrower, or because of the inability of the borrower to meet the original
repayment schedule.

Rescheduled advances to customers are stated net of any advances which have
subsequently become overdue for over three months and which are included in
overdue advances to customers (Note 19).

21. Analysis of advances to customers based on categories used by the HSBC
Group

The following analysis of advances to customers is based on categories used
by the HSBC Group, including The Hongkong and Shanghai Banking Corporation 
Limited and its subsidiary companies, to manage associated risks.

                                                    Rest of            Americas/
Figures in HK$m           Hong Kong            Asia-Pacific               Europe        Total

At 30Jun05

Residential mortgages       184,740                 108,582                    3      293,325

Hong Kong SAR Government's
  Home Ownership Scheme,
  Private Sector Participation
  Scheme and Tenants
  Purchase Scheme mortgages  39,131                       -                    -       39,131

Other personal               48,221                  42,790                    1       91,012
Total personal              272,092                 151,372                    4      423,468
                 
Commercial, industrial and
  international trade       126,034                 112,301                    -      238,335

Commercial real estate       80,473                  29,560                    -      110,033

Other property-related
  lending                    47,560                  15,426                    -       62,986

Government                    3,349                   9,309                    -       12,658

Other commercial             57,113                  36,308                    -       93,421
Total corporate and  
  commercial                314,529                 202,904                    -      517,433

Non-bank financial 
  institutions               13,381                  19,828                    -       33,209

Settlement accounts           3,358                   3,444                    -        6,802
Total financial              16,739                  23,272                    -       40,011
                 
Gross advances to
  customers                 603,360                 377,548                    4      980,912

Impairment provisions        (3,871)                 (3,404)                   -       (7,275)

Net advances to customers   599,489                 374,144                    4      973,637

                                                    Rest of            Americas/        Total
Figures in HK$m           Hong Kong            Asia-Pacific               Europe     restated

At30Jun04

Residential mortgages       182,972                  84,527                    -      267,499

Hong Kong SAR Government's
  Home Ownership Scheme,
  Private Sector Participation
  Scheme and Tenants
  Purchase Scheme mortgage   45,057                       -                    -       45,057

Other personal               42,843                  31,855                    7       74,705
Total personal              270,872                 116,382                    7      387,261
                  
Commercial, industrial and
  international trade       106,210                  91,069                    -      197,279

Commercial real estate       69,943                  24,471                    5       94,419

Other property-related 
  lending                    42,202                  10,059                    -       52,261

Government                    6,515                   4,612                    -       11,127

Other commercial             57,433                  33,755                    -       91,188
Total corporate and 
  commercial                282,303                 163,966                    5      446,274

Non-bank financial 
  institutions               12,070                   7,005                    -       19,075

Settlement accounts           3,959                   2,056                    -        6,015
Total financial              16,029                   9,061                    -       25,090

Gross advances to customers 569,204                 289,409                   12      858,625

Impairment provisions        (4,664)                 (4,012)                  (5)      (8,681)

Net advances to customers   564,540                 285,397                    7      849,944
                 

                                                    Rest of            Americas/        Total
Figures in HK$m           Hong Kong            Asia-Pacific               Europe     restated

At 31Dec04

Residential mortgages       184,631                  98,516                    2      283,149

Hong Kong SAR Government's
  Home Ownership Scheme,
  Private Sector Participation
  Scheme and Tenants 
  Purchase Scheme mortgages  41,845                      -                     -       41,845

Other personal               50,741                  37,873                    7       88,621
Total personal              277,217                 136,389                    9      413,615
                  
Commercial, industrial and
  international trade       109,655                 105,133                    -      214,788

Commercial real estate       80,726                  27,956                    5      108,687

Other property-related 
  lending                    46,319                  14,070                    -       60,389

Government                    4,781                   5,150                    -        9,931

Other commercial             56,607                  35,006                    -       91,613
Total corporate and 
  commercial                298,088                 187,315                    5      485,408

Non-bank financial 
  institutions               15,008                   9,148                    -       24,156

Settlement accounts           3,470                     472                    -        3,942
Total financial              18,478                   9,620                    -       28,098

Gross advances to 
  customers                 593,783                 333,324                   14      927,121

Impairment provisions        (4,032)                 (3,892)                  (5)      (7,929)

Net advances to customers   589,751                 329,432                    9      919,192
                  

Advances to customers increased by HK$54 billion, or 5.9 per cent, since the end
of 2004.

Advances in Hong Kong increased by HK$10 billion, or 1.7 per cent. Excluding the
impact of lending under the Government Home Ownership Scheme, which remained
suspended during 2005, mortgage lending remained flat, in line with the overall
market. Commercial lending rose by 5.5 per cent, with particularly strong growth
in the manufacturing and retailing sectors and in trade finance, which benefited
from focused relationship strategies in the middle-market sector, and the
expansion of business banking centres to better serve the customer base.

In the rest of Asia-Pacific, advances grew strongly by HK$45 billion, or 13.6
per cent, since the end of 2004. Mortgage loans increased by 10.2 per cent,
principally in Korea, Taiwan, India, Singapore and Australia. The cards business
continued to expand and receivables rose by 15.2 per cent, largely in Taiwan and
Indonesia. Lending to corporate and commercial customers rose by 8.3 per cent,
notably in mainland China, India, Korea and Indonesia.

22. Analysis of advances to customers by geographical area according to the
location of counterparties, after risk transfer

                                                      Rest of          Americas/
Figures in HK$m              Hong Kong           Asia-Pacific             Europe      Others     Total

At 30Jun05

Gross advances to customers     550,724               357,221             63,356       9,611   980,912
Overdue advances to customers    2,865                  2,269                 69           1     5,204

At 30Jun04 (restated)

Gross advances to customers    522,134                275,728             56,611       4,152   858,625
Overdue advances to customers    3,979                  2,829                135           1     6,944

At 31Dec04 (restated)

Gross advances to customers    543,997                319,512             59,461       4,151   927,121
Overdue advances to customers    3,212                  2,343                 74           -     5,629



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