HK & Shanghai Banking Corp Ltd 2010 Results

RNS Number : 9296B

HSBC Holdings PLC

26 February 2011

 



28 February 2011

THE HONGKONG AND SHANGHAI BANKING CORPORATION LIMITED

2010 CONSOLIDATED RESULTS - HIGHLIGHTS

·    Net operating income before loan impairment charges and other credit risk provisions up 11% to HK$131,566m (HK$117,998m in 2009).

·    Pre-tax profit up 25% to HK$77,885m (HK$62,093m in 2009).

·    Attributable profit up 27% to HK$57,597m (HK$45,396m in 2009).

·    Return on average shareholders' equity of 21.1% (19.8% in 2009).

·    Assets up 16% to HK$5,040bn (HK$4,361bn at 31 December 2009).

·    Capital adequacy ratio of 14.7%; core capital ratio of 11.7%. (Capital adequacy ratio of 16.1%; core capital ratio of 12.2% at 31 December 2009).

·    Cost efficiency ratio of 45.8% (44.4% for 2009).

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

The abbreviations 'HK$m' and 'HK$bn' represent millions and billions (thousands of millions) of Hong Kong dollars respectively.

Results

Comment by Stuart Gulliver, Chairman

Asian economies grew strongly during 2010, while those in the West began to show some signs of stabilisation. China and India led the way, with smaller economies showing increasing momentum during the second half of the year, driven by continued strength in trade activity across the region. Bank lending growth accelerated during the year in response to the stimulus of low interest rates. This increase in leverage and early signs of inflation raise some concerns over asset bubbles and excessive investment, but with robust balance sheets and confidence, the outlook for the region remains sound for 2011.

Against this positive backdrop, The Hongkong and Shanghai Banking Corporation Limited delivered a robust and broadly based performance. Profits of HK$77,885m were significantly ahead of 2009, increasing by 25%. Loan impairment charges fell significantly across the region, as credit quality improved, particularly in India. Growth was well spread throughout the region, and across customer groups. The contribution to profits from outside Hong Kong increased as a percentage of the total to 46%, nearly double the level of five years ago. Strong growth in trade finance helped to drive asset expansion, and we also achieved success in growing non-interest income across a broad range of products. These included, in particular, insurance, wealth management, trade, payments and cash management. The contribution from our associates in mainland China also grew strongly.

As a deposit-rich bank, we continued to feel the impact of low rates on our deposit spreads, and an increasingly competitive market for loans had an effect on asset spreads. Against this, we grew lending strongly in support of our customers, most particularly in Commercial, industrial and international trade, while maintaining a strict focus on asset quality. Property-related lending increased by a lesser amount, and while overall loans and advances to customers grew by 40%, the increase in risk-weighted assets was lower, at 18%. As we enter 2011 we continue to see good quality opportunities to maintain balance sheet growth. Our model of continually deepening client relationships resulted in sustained growth in total income, more than offsetting the effect of low interest rates.

We maintained tight control of operating expenses, while continuing to invest in future growth, particularly in our regional core target markets of mainland China, India, Singapore, Malaysia, Indonesia and Australia. This resulted in an increase in the cost efficiency ratio from 44.4% to 45.8%.

During 2010 mainland China continued to accelerate the internationalisation of its currency, and we established our position as a leader in the provision of new products denominated in renminbi (RMB). For example, HSBC was the first bank to launch offshore RMB investment and structured products, and certificates of deposit. We were a leading bookrunner of offshore RMB bond issuance in Hong Kong, the first international bank to settle cross-border RMB trade deals across six continents and now offer RMB trade settlement in 36 markets. As Hong Kong continues to play a leading role in the development of RMB denominated products, and becomes a key offshore centre for the currency, we aim to consolidate our position as the international bank best-placed to meet our customers' needs.

In Personal Financial Services, our business in Hong Kong continued to generate strong returns, while the Rest of Asia-Pacific delivered a robust return to profit during the period, as loan impairments moderated, revenue momentum improved and we continued to invest in growth, particularly in mainland China. Malaysia and Singapore both generated significant contributions. In Hong Kong, despite competitive conditions, we reinforced our number one market position in key products and services, including mortgages, deposits and credit cards. Premier customer numbers passed the one million milestone, reaching over 1.2 million customers by the end of the year. In addition Advance was launched in nine markets, and now has over 1.3 million customers.

Commercial Banking experienced strong and sustained business momentum during the year, with healthy growth in assets and non-interest income, driven by increased cross-border and cross-sell activity. Loans and advances to customers increased by 58%, while non-interest income was 25% above the previous year. Our focus remained on supporting our customers in growing their businesses, particularly through financing their international trade, payments, foreign exchange and cash management and providing advisory services. We also selectively attracted new customers around the region. Our drive to be the leading international business bank resulted in a significant increase in cross-border business, while cross-regional referrals more than doubled compared with 2009. Deposit inflows remained strong during the year, reflecting customers' continued confidence in the HSBC brand. The risk profile of our loan book also continued to improve, as evidenced by a reduction in loan impairment charges.

Global Banking and Markets delivered a robust business performance, driven by strong loan growth and good performances in Foreign Exchange and Asset Management. Trading revenues were impacted by reduced market volatility and tighter credit spreads, and Balance Sheet Management revenues were lower, as signalled at year-end 2009. Despite competitive conditions we grew market shares in several areas, including Mergers & Acquisitions and Equity Capital Markets, and we successfully launched a number of new funds in Asset Management. Loan growth was targeted at supporting our core customers, while selectively growing our client base. We continued to invest in growing core businesses including our equities platform. During the year we gained a number of prestigious awards, including Euromoney's Best Global Emerging Markets Bank and Debt House and Best Global Wealth Management House, and Finance Asia's Best Islamic Finance House and Best Trade Finance Bank.

Insurance delivered impressive results, with increased growth in premium income and profits, as customers continued to value our strong brand and integrated bancassurance model. In Hong Kong we maintained our leading position in life insurance with a market share of 27%, and maintained our top position in assets managed under the Mandatory Provident Fund, with almost one third of the market. In the Rest of Asia-Pacific our joint venture in India ranked among the top 10 private life insurers in its market in a little over two years of operation. Our business in mainland China continues to demonstrate good growth and market recognition for its innovative propositions. In Vietnam, our partnership with Bao Viet continues to prove successful and we increased our stake to 18%.

We expect the global recovery to continue in 2011 but that the pace of GDP growth will slow slightly and progress will be uneven. Above all, we believe that growth rates in many Western markets will continue significantly to underperform those of the emerging world. The outlook for Asia's economies therefore remains bright, provided policymakers take decisive steps to manage the emerging threats of inflation and asset bubbles. HSBC enters 2011 well positioned and with strong business momentum. Our unrivalled global network, combined with our distinctive liquidity and capital strength, position us uniquely to serve our customers, both business and personal, in meeting their financial needs in Asia and around the world.

In this, my first year as Chairman, I look forward to working with our 72,500 staff to build further success and, on behalf of the Board, I thank them warmly for their unrivalled commitment and customer focus.

Results 

	Geographical Regions
								Intra-
				Hong		Rest of		segment
Figures in HK$m				Kong		Asia-Pacific		elimination			Total
		Year ended 31 December 2010
		Net interest income			31,736		30,123		17		61,876
		Net fee income			21,080		14,203		-		35,283
		Net trading income			8,699		12,034		(17	)	20,716
		Net income from financial instruments
		designated at fair value			3,454		303		-		3,757
		Gains less losses from financial investments			937		1,079		-		2,016
		Dividend income			545		19		-		564
		Net earned insurance premiums			33,713		3,480		-		37,193
		Other operating income			12,714		2,282		(4,992	)	10,004
		Total operating income			112,878		63,523		(4,992	)	171,409
		Net insurance claims incurred and movements in
		policyholders' liabilities			(37,022	)	(2,821	)	-		(39,843	)
		Net operating income before loan impairment
		charges and other credit risk provisions			75,856		60,702		(4,992	)	131,566
		Loan impairment charges and other credit
		risk provisions			(883	)	(3,736	)	-		(4,619	)
		Net operating income			74,973		56,966		(4,992	)	126,947
		Operating expenses			(33,053	)	(32,183	)	4,992		(60,244	)
		Operating profit			41,920		24,783		-		66,703
		Share of profit in associates and joint ventures			270		10,912		-		11,182
		Profit before tax			42,190		35,695		-		77,885
		Share of profit before tax			54.2	%	45.8	%	-		100.0	%
		Advances to customers			1,056,595		834,465		-		1,891,060
		Customer accounts			2,162,796		1,150,448		-		3,313,244

	Geographical Regions
								Intra-
				Hong		Rest of		segment
Figures in HK$m				Kong		Asia-Pacific		elimination			Total
		Year ended 31 December 2009 (restated1)
		Net interest income			30,935		27,484		13		58,432
		Net fee income			19,119		11,159		-		30,278
		Net trading income			8,427		12,112		(13	)	20,526
		Net income from financial instruments
		designated at fair value			6,391		868		-		7,259
		Gains less losses from financial investments			117		(248	)	-		(131	)
		Dividend income			245		119		-		364
		Net earned insurance premiums			28,566		2,829		-		31,395
		Other operating income			9,539		1,746		(4,279	)	7,006
		Total operating income			103,339		56,069		(4,279	)	155,129
		Net insurance claims incurred and movements in
		policyholders' liabilities			(34,070	)	(3,061	)	-		(37,131	)
		Net operating income before loan impairment
		charges and other credit risk provisions			69,269		53,008		(4,279	)	117,998
		Loan impairment charges and other credit
		risk provisions			(3,875	)	(7,360	)	-		(11,235	)
		Net operating income			65,394		45,648		(4,279	)	106,763
		Operating expenses			(29,135	)	(27,555	)	4,279		(52,411	)
		Operating profit			36,259		18,093		-		54,352
		Share of profit in associates and joint ventures			59		7,682		-		7,741
		Profit before tax			36,318		25,775		-		62,093
		Share of profit before tax			58.5	%	41.5	%	-		100.0	%
		Advances to customers			744,577		606,067		-		1,350,644
		Customer accounts			1,984,872		959,667		-		2,944,539

1. Restated for the amendment of HKAS 17 'Leases'. See Note 27 for further information

Results by Geographic Customer Group

	Hong Kong					Global
			Personal			Banking							Intra-
			Financial	Commercial		and			Private				segment
Figures in HK$m			Services	Banking		Markets			Banking		Other		elimination			Total
		Year ended 31 December 2010
		Net interest income/(expense)	20,332		8,595		7,101			-		(3,597	)	(695	)	31,736
		Net fee income	11,820		4,922		4,227			-		111		-		21,080
		Net trading income	1,080		941		5,986			-		(1	)	693		8,699
		Net income/(loss) from financial
		instruments designated at
		fair value	3,113		(74	)	470			-		(57	)	2		3,454
		Gains less losses from
		financial investments	(2	)	-		451			-		488		-		937
		Dividend income	-		10		80			-		455		-		545
		Net earned insurance premiums	28,409		5,171		133			-		-		-		33,713
		Other operating income	3,907		525		1,281			-		8,938		(1,937	)	12,714
		Total operating income	68,659		20,090		19,729			-		6,337		(1,937	)	112,878
		Net insurance claims
		incurred and movement in
		policyholders' liabilities	(32,576	)	(4,346	)	(100	)		-		-		-		(37,022	)
		Net operating income before
		loan impairment charges and
		other credit risk provisions	36,083		15,744		19,629			-		6,337		(1,937	)	75,856
		Loan impairment charges and
		other credit risk provisions	(585	)	(219	)	(80	)		-		1		-		(883	)
		Net operating income	35,498		15,525		19,549			-		6,338		(1,937	)	74,973
		Operating expenses	(12,679	)	(5,077	)	(8,900	)		-		(8,334	)	1,937		(33,053	)
		Operating profit/(loss)	22,819		10,448		10,649			-		(1,996	)	-		41,920
		Share of profit in associates
		and joint ventures	43		56		26			-		145		--		270
		Profit/(loss) before tax	22,862		10,504		10,675			-		(1,851	)	-		42,190
		Share of profit/(loss) before tax	29.4	%	13.4	%	13.7	%		-		(2.3	)%	-		54.2	%
		Advances to customers	396,294		378,314		268,098			-		13,889		-		1,056,595
		Customer accounts	1,375,521		553,507		228,434			-		5,334		-		2,162,796

	Hong Kong					Global
			Personal			Banking							Intra-
			Financial	Commercial		and			Private				segment
Figures in HK$m			Services	Banking		Markets			Banking		Other		elimination			Total
		Year ended 31 December 2009
		(restated1)
		Net interest income/(expense)	20,039		7,274		8,912			-		(4,367	)	(923	)	30,935
		Net fee income	10,933		4,106		3,760			-		320		-		19,119
		Net trading income	1,091		718		6,226			-		(529	)	921		8,427
		Net income/(loss) from financial
		instruments designated at
		fair value	5,650		(359	)	1,072			-		26		2		6,391
		Gains less losses from
		financial investments	623		136		(661	)		-		19		-		117
		Dividend income	5		11		71			-		158		-		245
		Net earned insurance premiums	24,512		3,926		128			-		-		-		28,566
		Other operating income	2,680		498		439			-		7,790		(1,868	)	9,539
		Total operating income	65,533		16,310		19,947			-		3,417		(1,868	)	103,339
		Net insurance claims
		incurred and movement in
		policyholders' liabilities	(30,840	)	(3,142	)	(88	)		-		-		-		(34,070	)
		Net operating income before
		loan impairment charges and
		other credit risk provisions	34,693		13,168		19,859			-		3,417		(1,868	)	69,269
		Loan impairment charges and
		other credit risk provisions	(1,575	)	(1,301	)	(1,004	)		-		5		-		(3,875	)
		Net operating income	33,118		11,867		18,855			-		3,422		(1,868	)	65,394
		Operating expenses	(12,138	)	(4,469	)	(7,361	)		-		(7,035	)	1,868		(29,135	)
		Operating profit/(loss)	20,980		7,398		11,494			-		(3,613	)	-		36,259
		Share of profit in associates
		and joint ventures	40		10		11			-		(2	)	-		59
		Profit/(loss) before tax	21,020		7,408		11,505			-		(3,615	)	-		36,318
		Share of profit/(loss) before tax	33.9	%	11.9	%	18.5	%		-		(5.8)	%	-		58.5	%
		Advances to customers	340,177		218,808		170,527			-		15,065		-		744,577
		Customer accounts	1,290,680		481,904		206,657			-		5,631		-		1,984,872

1. Restated for the amendment of HKAS 17 'Leases'. See Note 27 for further information

	Rest of Asia-Pacific					Global
			Personal			Banking							Intra-
			Financial	Commercial		and			Private				segment
Figures in HK$m			Services	Banking		Markets			Banking		Other		elimination			Total
		Year ended 31 December 2010
		Net interest income/(expense)	12,281		7,281		12,165			127		390		(2,121	)	30,123
		Net fee income	5,197		3,432		5,529			144		(99	)			14,203
		Net trading income	630		1,003		8,572			48		(340	)	2,121		12,034
		Net income/(loss) from financial
		instruments designated at
		fair value	319		14		(7	)		-		(23	)	-		303
		Gains less losses from
		financial investments	8		21		388			-		662		-		1,079
		Dividend income	-		-		3			-		16		-		19
		Net earned insurance premiums	2,994		486		-			-		-		-		3,480
		Other operating income	841		676		379			9		820		(443	)	2,282
		Total operating income	22,270		12,913		27,029			328		1,426		(443	)	63,523
		Net insurance claims
		incurred and movement in
		policyholders' liabilities	(2,514	)	(307	)	-			-		-		-		(2,821)
		Net operating income before
		loan impairment charges and
		other credit risk provisions	19,756		12,606		27,029			328		1,426		(443	)	60,702
		Loan impairment charges and
		other credit risk provisions	(2,315	)	(209	)	(1,209	)		(5	)	2		-		(3,736	)
		Net operating income	17,441		12,397		25,820			323		1,428		(443	)	56,966
		Operating expenses	(16,819	)	(6,207	)	(8,538	)		(348	)	(714	)	443		(32,183	)
		Operating profit/(loss)	622		6,190		17,282			(25	)	714		-		24,783
		Share of profit in associates
		and joint ventures	1,471		5,833		3,077			-		531		-		10,912
		Profit/(loss) before tax	2,093		12,023		20,359			(25	)	1,245		-		35,695
		Share of profit/(loss) before tax	2.7	%	15.4	%	26.1	%		-		1.6	%	-		45.8	%
		Advances to customers	294,061		244,302		286,569			8,150		1,383		-		834,465
		Customer accounts	425,975		287,629		418,953			16,280		1,611		-		1,150,448

	Rest of Asia-Pacific					Global
			Personal			Banking							Intra-
			Financial	Commercial		and			Private				segment
Figures in HK$m			Services	Banking		Markets			Banking		Other		elimination			Total
		Year ended 31 December 2009
		(restated1)
		Net interest income/(expense)	11,568		6,248		10,213			121		171		(837	)	27,484
		Net fee income	4,296		2,569		4,388			51		(145	)	-		11,159
		Net trading income	613		1,040		9,412			98		112		837		12,112
		Net income/(loss) from financial
		instruments designated at
		fair value	851		8		(13	)		-		22		-		868
		Gains less losses from
		financial investments	41		18		(111	)		-		(196	)	-		(248	)
		Dividend income	1		-		1			-		117		-		119
		Net earned insurance premiums	2,613		216		-			-		-		-		2,829
		Other operating income	519		514		254			16		682		(239	)	1,746
		Total operating income	20,502		10,613		24,144			286		763		(239	)	56,069
		Net insurance claims
		incurred and movement in
		policyholders' liabilities	(2,947	)	(114	)	-			-		-		-		(3,061	)
		Net operating income before
		loan impairment charges and
		other credit risk provisions	17,555		10,499		24,144			286		763		(239	)	53,008
		Loan impairment charges and
		other credit risk provisions	(5,028	)	(2,150	)	(173	)		-		(9	)	-		(7,360	)
		Net operating income	12,527		8,349		23,971			286		754		(239	)	45,648
		Operating expenses	(14,260	)	(4,934	)	(7,334	)		(358	)	(908	)	239		(27,555	)
		Operating profit/(loss)	(1,733	)	3,415		16,637			(72	)	(154	)	-		18,093
		Share of profit in associates
		and joint ventures	1,106		4,393		2,181			-		2		-		7,682
		Profit/(loss) before tax	(627	)	7,808		18,818			(72	)	(152	)	-		25,775
		Share of profit/(loss) before tax	(1.0)	%	12.6	%	30.2	%		(0.1	)%	(0.2	)%	-		41.5	%
		Advances to customers	235,994		175,335		187,365			5,892		1,481		-		606,067
		Customer accounts	369,347		234,637		340,796			13,824		1,063		-		959,667

1. Restated for the amendment of HKAS 17 'Leases'. See Note 27 for further information

Hong Kong reported pre-tax profits of HK$42,190m compared with HK$36,318m in 2009, an increase of 16.2%, driven by strong insurance sales, increased fee income and lower loan impairment charges.

Lending balances rose across customer groups, with significant increases in both Commercial Banking (CMB) and Global Banking and Markets (GB&M) following strong economic growth and a recovery in trade flows. Revenue growth has in part been offset by an increase in staff and IT costs driven by business expansion to maintain our strong market position. Loan impairment charges were significantly lower than last year across all customer groups, reflecting an improvement in credit conditions.

We have maintained our market leadership in residential mortgages, credit cards, life insurance and deposits. Premier customer numbers increased by 31% compared with 31 December 2009 to more than 500,000 and the Advance proposition, which was launched in early 2010 to capture the mid-market segment, achieved a customer base of over 670,000 by year end. Premier and Advance numbers include both existing and new to bank customers. In life insurance, we retained the number one market share position as measured by new business annualised premium equivalent. This was a result of strong customer demand and a strategy targeted towards the high net worth customer segment. We continued the development of offshore renminbi-related products and maintained our position as a market leader for renminbi products in Hong Kong.

Net interest income increased by 2.6% as strong loan growth, most notably in CMB and GB&M, was partly offset by lower spreads resulting from competitive pressures, the low interest rate environment and loan growth being weighted towards the latter part of the year.

Commercial lending growth was a result of the recovery in trade volumes, our continuing support to customers and the pursuit of our leading international business bank strategy. Growth was most pronounced in commercial, industrial and international trade-related lending. To a lesser extent, growth was also noted in commercial real estate and other property-related lending, supported by a buoyant property market. Personal lending balances were 18.4% higher, driven by residential mortgage lending where we continued to lend conservatively with an average loan-to-value ratio of 55% on new mortgage drawdowns and 38% on the overall portfolio.

Asset spreads narrowed in 2010 compared to 2009 as a result of competitive pressures, particularly in trade-related lending and HIBOR-linked residential mortgages. In Balance Sheet Management, net interest income decreased as yield curves flattened and maturing higher yield positions were reinvested at lower rates.

Customer deposits increased reflecting growth in customer numbers in CMB as well as Premier in Personal Financial Services (PFS). The benefit of these deposits was reduced by narrow deposit spreads as interest rates remained at historically low levels.

Net fee income increased by 10.3%, with fees from investment products growing as improved market sentiment led to higher demand, particularly in unit trusts, along with higher fees from funds under management as a result of higher net inflows and improved fund performance. There was growth in trade-related fees and income from payments and cash management as business volumes improved. Underwriting fees rose as several significant initial public offerings (IPOs) and loan syndications concluded in 2010.

Net trading income was 3.2% higher than in 2009. Increased holdings of trading debt securities led to an increase in net interest income. Foreign exchange revenues benefited from increased turnover on the back of client demand. This was partly offset by lower revenues from Credit trading following the strong results achieved in 2009 as spreads recovered from distressed levels and from Rates trading as market volatility reduced in 2010.

Net income from financial instruments designated at fair value was HK$3,454m compared with HK$6,391m in 2009. The movement was primarily due to lower revaluation gains in 2010 on assets held to support linked insurance liabilities following the strong rebound in stock markets in 2009. The value of our liabilities to policyholders is determined in line with the value of supporting assets, so to the extent that these lower investment gains were attributed to policyholders, there was a decrease in net insurance claims incurred and movements in liabilities to policyholders.

Net earned insurance premiums grew by 18.0% to HK$33,713m as successful sales campaigns drove strong growth, particularly in deferred annuity and unit-linked products. A life insurance product designed for high net worth individuals also performed well.

Net insurance claims incurred and movement in liabilities to policyholders increased by 8.7% in 2010 to HK$37,022m as increases in liabilities to policyholders arising from new business inflows were partly offset by lower investment returns in 2010 compared to 2009, as noted above.

Gains less losses from financial investments increased to HK$937m compared to HK$117m in 2009, mainly due to gains from the disposal of available-for-sale investments in Balance Sheet Management in the first half of 2010. In January 2010, we increased our stake in Bao Viet Holdings from 10.3% to 18.0% and accounted for it as an associate from then, leading to an accounting gain of HK$386m.

Other operating income increased by 33.3% to HK$12,714m largely due to an increase in PVIF, reflecting higher life insurance sales, as well as the gain recognised on the sale of HSBC Private Equity (Asia) Limited to its management, partly offset by the non-recurrence of a gain on sale of a property in 2009.

Loan impairment charges and other credit risk provisions decreased by 77.2% to HK$883m, reflecting the recovery in economic conditions. There were fewer large specific impairments in CMB and GB&M as credit conditions improved. Loan impairment charges also fell in PFS, mainly on unsecured lending as unemployment and bankruptcy levels fell.

Operating expenses rose by 13.4% as the business grew and the economy recovered. We continued to hire both customer facing and support staff to meet growing business demand. Marketing costs rose, notably in PFS due to the launch of several large campaigns, including for Advance and credit cards, and rising transaction volumes led to increased back office and support costs.

Rest of Asia-Pacific reported pre-tax profits of HK$35,695m compared with HK$25,775m in 2009, an increase of 38.5%. The economic performance of the region was reflected in a recovery in trade volumes, an increase in our customers' appetite for investment-related products, strong growth in lending balances and a significant decline in loan impairment charges. There was also a significant increase in the contribution from associates in mainland China. These factors contributed to the increased profitability, offset by a rise in operating expenses to support this growth.

During 2010 we continued to target growth particularly in the key regional markets of mainland China, India, Indonesia, Singapore, Malaysia and Australia. We have consolidated our position as the leading foreign bank in mainland China with 106 outlets in 27 cities, 16 rural bank outlets and 38 Hang Seng outlets in 13 cities. We maintained our leadership in the development of renminbi-related products and now have renminbi settlement capability in 36 countries covering all six continents. In July 2010 we agreed to acquire a substantial part of The Royal Bank of Scotland Group plc's commercial and retail businesses in India. In Malaysia, four additional Amanah branches were opened and our first Amanah branch opened in Bangladesh, further expanding our footprint in this sector.

Net interest income increased by 9.6%, following strong loan growth throughout the region as business and consumer confidence increased, partly offset by narrower asset spreads in the face of strong competition. Higher lending balances resulted from business growth in both GB&M and CMB across the key regional markets of mainland China, Singapore, India, Australia, Malaysia and Indonesia. This reflected our targeted business strategy and the recovery in trade volumes across the region. PFS lending balances also rose, mainly in the mortgage book, most notably in Singapore, Australia and Malaysia, as well as in Taiwan and mainland China, supported by successful marketing campaigns.

Narrower asset spreads were also the result of a shift to lower risk customers following the managed reduction of certain unsecured lending portfolios, most notably in India.

Customer deposits grew by 19.9%, primarily in mainland China, Singapore and Australia, as a result of a targeted strategy to attract new customers in higher value segments, coupled with improved economic conditions in the region.

Balance Sheet Management income declined from the very strong results in 2009 as higher yielding trades matured, interest rates generally remained low and yield curves flattened.

Net fee income was 27.3% higher, with particular growth in GB&M following an increase in funds under management driven by inflows and an improvement in equity markets. There was also an increase in trade-related fees, credit facilities and payments and cash management in CMB as trade activity recovered. In PFS fee income also rose from the increased sales of investment and insurance products.

Net trading income declined by 0.6%, as reduced market volatility led to lower Credit and Rates trading income. In India, Rates trading income fell as gains achieved in 2009 from narrowing bond yields did not recur. Lower trading revenues in South Korea reflected a non-recurrence of one-off gains recognised in 2009. This was partly offset by higher foreign exchange income in mainland China, India and Malaysia as a result of strong volumes on the back of economic growth and increased client hedging requirements. Interest income from trading activities also increased, resulting from increased holdings of debt securities.

Net income from financial instruments designated at fair value was HK$303m, compared with HK$868m in 2009. The movement was due to higher revaluation gains in 2009 on assets held to support insurance business liabilities as equity markets had experienced a strong rebound. To the extent that the lower investment gains in 2010 were attributed to policyholders, there was a lower increase in net insurance claims incurred and movement in liabilities to policyholders.

Gains less losses from financial investments recorded income of HK$1,079m compared to a loss of HK$248m in 2009 as a result of a gain on disposal of an equity investment in a Singaporean property company, coupled with gains on sales of other available-for-sale investments and the non-recurrence of impairments reported in 2009.

Other operating income increased by 30.7% to HK$2,282m. This was primarily due to an increase in PVIF reflecting higher new life insurance sales in Taiwan, mainland China and Malaysia, as well as recoveries against initial fair values on loan portfolios acquired with PT Bank Ekonomi Raharja Tbk in Indonesia and from The Chinese Bank Co., Ltd in Taiwan.

Net earned insurance premiums increased by 23.0% to HK$3,480m, largely due to higher sales in Taiwan, mainland China and Malaysia, primarily from successful product launches and marketing campaigns. Growth in the insurance business resulted in a related increase in net insurance claims incurred and movement in liabilities to policyholders, which was more than offset by the lower investment gains reported above in net income from financial instruments designated at fair value.

Loan impairment charges and other credit risk provisions decreased by 49.2% to HK$3,736m. Loan impairment charges fell in PFS, most notably in India as certain unsecured and higher risk lending portfolios were managed down, and as economic and credit conditions improved across the region. Fewer specific impairments were recognised in CMB as a result of the recovery in the economic environment. These were partly offset by certain specific impairment charges in GB&M incurred in Singapore.

Operating expenses increased by 16.8% to HK$32,183m in support of business growth and to capitalise on the region's economic recovery. Examples were the ongoing expansion of the branch network in mainland China and opening of the new headquarters in Shanghai, as well as the local incorporation and expansion of the Taiwan operations. Staff numbers rose to support business expansion, particularly in the key regional markets of mainland China, Indonesia, Singapore and Australia. Higher marketing costs were incurred in India, Australia, Taiwan, Singapore and Malaysia and higher business volumes led to increased intercompany processing costs.

Share of profit from associates and joint ventures in the region increased by 42.0% to HK$10,912m, with a higher contribution from Bank of Communications due to lending growth and higher net fee income from cards, wealth management and settlement activity. Growth in lending and an increase in fee income led to a higher contribution from Industrial Bank.

Consolidated Income Statement
		Year ended				Year ended
		31 December				31 December
	Figures in HK$m	2010				2009
						(restated1)
	Interest income				85,523			82,550
	Interest expense				(23,647	)		(24,118	)
	Net interest income				61,876			58,432
	Fee income				41,657			35,583
	Fee expense				(6,374	)		(5,305	)
	Net fee income				35,283			30,278
	Net trading income				20,716			20,526
	Net income from financial instruments
	designated at fair value				3,757			7,259
	Gains less losses from financial investments				2,016			(131	)
	Dividend income				564			364
	Net earned insurance premiums				37,193			31,395
	Other operating income				10,004			7,006
	Total operating income				171,409			155,129
	Net insurance claims incurred and
	movement in policyholders' liabilities				(39,843	)		(37,131	)
	Net operating income before loan
	impairment charges and other credit
	risk provisions				131,566			117,998
	Loan impairment charges and other
	credit risk provisions				(4,619	)		(11,235	)
	Net operating income				126,947			106,763
	Employee compensation and benefits				(32,766	)		(28,585	)
	General and administrative expenses				(22,389	)		(19,487	)
	Depreciation of property, plant and
	equipment				(3,425	)		(3,162	)
	Amortisation and impairment of intangible assets				(1,664	)		(1,177	)
	Total operating expenses				(60,244	)		(52,411	)
	Operating profit				66,703			54,352
	Share of profit in associates and
	joint ventures				11,182			7,741
	Profit before tax				77,885			62,093
	Tax expense				(14,608	)		(11,883	)
	Profit for the year				63,277			50,210
	Profit attributable to shareholders				57,597			45,396
	Profit attributable to non-controlling interests				5,680			4,814

1. Restated for the amendment of HKAS 17 'Leases'. See Note 27 for further information

Consolidated Statement of Comprehensive Income

	Year ended			Year ended
	31 December			31 December
Figures in HK$m	2010			2009
				(restated1)
Profit for the year			63,277			50,210
Available-for-sale investments:
- fair value changes taken to equity			18,252			31,250
- fair value changes transferred to the income statement
on disposal			(2,076	)		(1,174	)
- amounts derecognised on deconsolidation			(1,849	)		-
- amounts transferred to the income statement on impairment			(24	)		472
- fair value changes transferred to the income statement
on hedged items due to hedged risk			(500	)		483
- income taxes			330			(1,241	)
Cash flow hedges:
- fair value changes taken to equity			654			1,650
- fair value changes transferred to the income statement			(1,591	)		(3,026	)
- income taxes			155			204
Property revaluation:
- fair value changes taken to equity			9,936			4,588
- income taxes			(1,766	)		(639	)
Share of changes in equity of associates and joint ventures			(66	)		212
Exchange differences			8,881			5,344
Actuarial (losses)/gains on post-employment benefits
- before income taxes			(807	)		3,606
- income taxes			149			(559	)
			29,678			41,170
Total comprehensive income for the year, net of tax			92,955			91,380
Total comprehensive income for the year attributable to:
- shareholders			86,473			84,133
- non-controlling interests			6,482			7,247
			92,955			91,380

1.   Restated for the amendment of HKAS 17 'Leases'. See Note 27 for further information

Consolidated Balance Sheet
				At 31 December			At 31 December
	Figures in HK$m			2010			2009
							(restated1)
	ASSETS
	Cash and short-term funds					807,985			892,175
	Items in the course of collection from other banks					16,878			15,528
	Placings with banks maturing after one month					149,557			107,070
	Certificates of deposit					73,247			37,388
	Hong Kong Government certificates of indebtedness					148,134			135,414
	Trading assets					390,208			322,731
	Financial assets designated at fair value					54,604			48,087
	Derivatives					302,622			235,171
	Advances to customers					1,891,060			1,350,644
	Financial investments					826,662			882,689
	Amounts due from Group companies					137,633			134,511
	Interests in associates and joint ventures					75,568			53,683
	Goodwill and intangible assets					29,690			25,069
	Property, plant and equipment					72,347			58,810
	Deferred tax assets					2,515			2,668
	Retirement benefit assets					301			292
	Other assets					60,907			58,818
	Total assets					5,039,918			4,360,748
	LIABILITIES
	Hong Kong currency notes in circulation					148,134			135,414
	Items in the course of transmission to other banks					26,495			22,960
	Deposits by banks					167,827			111,206
	Customer accounts					3,313,244			2,944,539
	Trading liabilities					151,534			154,366
	Financial liabilities designated at fair value					40,327			36,709
	Derivatives					309,838			232,846
	Debt securities in issue					59,283			43,396
	Retirement benefit liabilities					4,713			3,922
	Amounts due to Group companies					83,128			50,842
	Other liabilities and provisions					70,946			55,982
	Liabilities under insurance contracts issued					177,970			144,928
	Current tax liabilities					4,419			4,119
	Deferred tax liabilities					11,913			10,503
	Subordinated liabilities					21,254			21,181
	Preference shares					101,458			101,208
	Total liabilities					4,692,483			4,074,121

1. Restated for the amendment of HKAS 17 'Leases'. See Note 27 for further information

		At 31 December			At 31 December
Figures in HK$m		2010			2009
					(restated1)
EQUITY
Share capital				22,494			22,494
Other reserves				124,382			89,603
Retained profits				161,254			139,255
Proposed fourth interim dividend				12,000			8,850
Total shareholders' equity				320,130			260,202
Non-controlling interests				27,305			26,425
Total equity				347,435			286,627
Total equity and liabilities				5,039,918			4,360,748

1. Restated for the amendment of HKAS 17 'Leases'. See Note 27 for further information

Consolidated Statement of  Changes in Equity

	At 31 December			At 31 December
Figures in HK$m			2010			2009
						(restated1)
Share capital
At beginning and end of year			22,494			22,494
Retained profits and proposed dividend
At beginning of year			148,105			134,260
Dividends to shareholders			(26,850	)		(28,840	)
Movement in respect of share-based payment arrangements			159			330
Changes in ownership interest in subsidiaries			(88	)		-
Other movements			10			(73	)
Transfers			(4,913	)		(5,348	)
Total comprehensive income for the year			56,831			47,776
			173,254			148,105
Other reserves
Property revaluation reserve
At beginning of year			22,983			20,442
Other movements			1			(16	)
Transfers			(609	)		(1,004	)
Total comprehensive income for the year			7,605			3,561
			29,980			22,983
Available-for-sale investment reserve
At beginning of year			43,385			15,103
Other movements			4			(11	)
Transfers			(4	)		(1	)
Total comprehensive income for the year			14,168			28,294
			57,553			43,385
Cash flow hedging reserve
At beginning of year			848			1,833
Total comprehensive expense for the year			(742	)		(985	)
			106			848
Foreign exchange reserve
At beginning of year			6,998			1,666
Total comprehensive income for the year			8,791			5,332
			15,789			6,998

1. Restated for the amendment of HKAS 17 'Leases'. See Note 27 for further information

	At 31 December			At 31 December
Figures in HK$m			2010			2009
						(restated1)
Other reserves
At beginning of year			15,389			9,683
Movement in respect of share-based payment   arrangements			219			(800	)
Transfers			5,526			6,353
Other movements			-			(2	)
Total comprehensive (expense)/income for the year			(180	)		155
			20,954			15,389
Total shareholders equity
At beginning of year			260,202			205,481
Dividends to shareholders			(26,850	)		(28,840	)
Movement in respect of share-based payment   arrangements			378			(470	)
Change in ownership interest in subsidiaries			(88	)		-
Other movements			15			(102	)
Total comprehensive income for the    year			86,473			84,133
			320,130			260,202
Non-controlling interests
At beginning of year			26,425			24,139
Dividends to shareholders			(3,899	)		(4,830	)
Movement in respect of share-based payment   arrangements			36			37
Changes in non-controlling interests on deconsolidation			(1,708	)		-
Other movements			(31	)		(168	)
Total comprehensive income for the year			6,482			7,247
			27,305			26,425
Total equity
At beginning of year			286,627			229,620
Dividends to shareholders			(30,749	)		(33,670	)
Movement in respect of share-based payment   arrangements			414			(433	)
Change in ownership interest in subsidiaries			(88	)		-
Changes in non-controlling interests on deconsolidation			(1,708	)		-
Other movements			(16	)		(270	)
Total comprehensive income for the year			92,955			91,380
			347,435			286,627

1. Restated for the amendment of HKAS 17 'Leases'. See Note 27 for further information

Consolidated Cash Flow Statement

			Year ended		Year ended
			31 December			31 December
Figures in HK$m			2010			2009
Operating activities
Cash (used in)/generated from operations			(107,924	)	123,789
Interest received on financial investments			12,711		15,420
Dividends received on financial investments			560		306
Dividends received from associates			2,768		2,565
Taxation paid			(13,269	)	(10,239		)
Net cash (outflow)/inflow from operating activities			(105,154	)	131,841
Investing activities
Purchase of financial investments			(475,669	)	(533,217		)
Proceeds from sale or redemption of financial
investments			548,115		423,421
Purchase of property, plant and equipment			(6,165	)	(1,984		)
Proceeds from sale of property, plant and equipment and assets held for sale			63		1,848
Purchase of other intangible assets			(1,373	)	(1,271		)
Net cash (outflow)/inflow in respect of the acquisition
of and increased shareholding in subsidiary companies			(127	)	15,271
Net cash outflow in respect of the sale of
subsidiaries			(13)		-
Net cash outflow in respect of the purchase of
interests in associates and joint ventures			(10,676	)	(43		)
Net cash inflow from the sale of interests in business portfolios			-		251
Proceeds from the sale of interests in associates			136		20
Net cash inflow/(outflow) from investing activities			54,291		(95,704		)
Net cash (outflow)/inflow before financing			(50,863	)	36,137
Financing
Issue of preference share capital			-		8,282
Change in non-controlling interests			(24	)	(160		)
Repayment of subordinated liabilities			(2,055	)	(659		)
Issue of subordinated liabilities			1,533		-
Ordinary dividends paid			(26,850	)	(28,840		)
Dividends paid to non-controlling interests			(3,899	)	(4,830		)
Interest paid on preference shares			(3,118	)	(4,034		)
Interest paid on subordinated liabilities			(582	)	(741		)
Net cash outflow from financing			(34,995	)	(30,982		)
(Decrease)/increase in cash and cash equivalents			(85,858	)	5,155

Additional Information

1. Net interest income

				Year ended			Year ended
				31 December			31 December
Figures in HK$m					2010			2009
Net interest income					61,876			58,432
Average interest-earning assets					3,388,861			3,047,570
Net interest spread					1.75	%		1.86	%
Net interest margin					1.83	%		1.92	%

Net interest income increased by HK$3,444m or 5.9% compared to 2009 on the back of strong loan growth across customer groups, weighted towards the second half of the year. Net interest income continued to be affected by the compression of asset spreads and the low interest rate environment constrained deposit spreads.

Average interest-earning assets increased by HK$341,291m or 11.2% compared to 2009. Loans and advances to customers increased significantly as the economy strengthened across the region. Loan growth was most significant in CMB and GB&M, notably in commercial, industrial and international trade-related lending, and the buoyant property market led to increased commercial real estate and mortgage lending.

Net interest margin decreased to 1.83%, a reduction of nine basis points when compared to 2009. The lower interest margin reflects the continued pressure on asset spreads. Net interest spread declined by 11 basis points to 1.75%. The contribution of net free funds increased by two basis points to eight basis points, reflecting the growth in the deposit base, offset by margin pressure.

In Hong Kong, the bank recorded a drop in net interest margin of 14 basis points to 1.38% for the year. Asset yields remained under pressure, particularly in HIBOR-linked residential mortgages which were launched early in 2010 and accounted for most new mortgage drawdowns by year end, as well as in trade-related lending. The margin in the second half improved to 1.40% from 1.35% in the first half, as a greater proportion of the commercial surplus was directed towards customer lending.

At Hang Seng Bank, the net interest margin declined by 20 basis points to 1.91% while the net interest spread also declined by 20 basis points to 1.86%. Strong growth in customer advances was partly offset by the continuing compression of margins, and the re-pricing of assets at lower market rates reduced the contribution from Balance Sheet Management.

In the Rest of Asia-Pacific, net interest margin was 2.04%, 15 basis points lower than 2009. Net interest spread narrowed by 10 basis points to 1.89%. The lower margin reflected continued pressure on asset spreads and the shift to lower risk customers. Strong loan growth across the region, notably in Singapore and mainland China, led to a 9.6% increase in net interest income.

2. Net fee income

Figures in HK$m					2010			2009
Funds under management					4,658			3,327
Unit trusts					3,218			1,719
Account services					2,314			2,181
Credit facilities					2,642			2,025
Trade finance					4,171			3,744
Remittances					2,457			2,059
Securities/stockbroking					8,744			8,628
Cards					5,963			5,673
Insurance					626			478
Other					6,864			5,749
Fee income					41,657			35,583
Fee expense					(6,374	)		(5,305	)
					35,283			30,278

Net fee income increased by HK$5,005m, or 16.5%, compared to 2009.

Income from funds under management was 40.0% higher than in 2009 as improved investor sentiment led to fund inflows and equity markets continued to perform strongly.

Fees from unit trusts rose by 87.2%, with notable increases coming from Hong Kong, Taiwan, India and Singapore. The launch of new products, marketing campaigns and improved investor sentiment led to a significant increase in business.

Fees from credit facilities increased by 30.5% as demand for credit was strong and more syndicated loans were arranged for large corporates, especially in Hong Kong, India and Singapore. Fees from remittances and trade finance were up 19.3% and 11.4% respectively, with higher transaction volumes particularly in Hong Kong, mainland China and Singapore.

Fee income from cards rose as transaction volumes and overseas spending increased, notably in Hong Kong and Indonesia, as well as an increase in card issuance in Australia.

Other fee income rose by 19.4%, driven by higher fees from the Mandatory Provident Fund, the completion of several large project advisory transactions in Hong Kong, Japan and Singapore, along with fees generated from a number of equity underwriting participations, notably in Hong Kong and Singapore.

3. Net trading income

Figures in HK$m					2010			2009
Dealing profits					15,484			16,275
Net loss from hedging activities					(11	)		(23	)
Net interest income on trading assets and liabilities					4,767			3,853
Dividend income from trading securities					476			421
					20,716			20,526

Net trading income increased by HK$190m, or 0.9%.

Dealing profits fell by 4.9% or HK$791m, reflecting the exceptional profit captured last year, mainly from gains on held-for-trading investments as well as Rates trading, which benefited from volatile market conditions in 2009, especially in Hong Kong, India and South Korea. In 2010, foreign exchange income grew as economic growth led to increased client demand, especially in Hong Kong, mainland China, Japan, India and Malaysia. Increased client hedging requirements also led to higher foreign exchange income, notably in mainland China and Malaysia.

Interest on trading assets and liabilities rose by HK$914m, or 23.7%, primarily due to an increase in trading debt securities, notably in Hong Kong and India.

4. Gains less losses from financial investments

Figures in HK$m					2010			2009
Gains on disposal of available-for-sale securities					2,365			1,191
Impairment of available-for-sale equity investments					(349	)		(1,322	)
					2,016			(131	)

Gains on disposal of available-for-sale securities increased by HK$1,174m. This was mainly attributable to the sale of debt securities in Hong Kong and an equity stake in a property company in Singapore. There was also a gain on the reclassification of Bao Viet Holdings to an associate following the purchase of additional shares in January 2010. The gain in 2009 included the disposal of Visa Inc. shares.

Impairment of available-for-sale equity investments decreased HK$973m in 2010 as improved market conditions generally reduced the level of write-downs of strategic investments in the year.

5. Other operating income

Figures in HK$m		2010			2009
					(restated1)
Rental income from investment properties		170			169
Movement in present value of in-force insurance business		4,106			2,888
Gains on investment properties		483			262
Gains on disposal of property, plant and equipment, and assets
held for sale		13			410
Gain/(loss) on disposal of subsidiaries, associates   and business portfolios		603			(6	)
Surplus/(deficit) arising on property revaluation		102			(109	)
Other		4,527			3,392
		10,004			7,006

1. Restated for the amendment of HKAS 17 'Leases'. See Note 27 for further information

The movement in the present value of in-force insurance business rose substantially in 2010, primarily due to an increase in sales of life insurance products in Hong Kong during the year.

Gains on investment properties increased reflecting the favourable property market conditions in Hong Kong in 2010. The profit on disposal of property, plant and equipment, and assets held for sale was lower following the profit on sale of a property in Hong Kong in 2009.

The gain on disposal of subsidiaries, associates and business portfolios mainly represented gains recognised following the sale of the private equity businesses during the year.

The increase in 'Other' largely comprises higher recoveries of IT and other operating costs from shared services activities incurred on behalf of fellow Group companies. It also included recoveries against initial fair value on loan portfolios acquired with Bank Ekonomi in Indonesia and from The Chinese Bank in Taiwan.

6. Insurance income

Included in the consolidated income statement are the following revenues earned by the insurance business:

Figures in HK$m		2010		2009
Net interest income		5,832		4,691
Net fee income		1,070		768
Net trading loss		(5	)	(8	)
Net income from financial instruments
designated at fair value		3,371		6,150
Gains less losses from financial investments		386		(7	)
Dividend income		-		29
Net earned insurance premiums		37,193		31,395
Movement in present value of in-force business		4,106		2,888
Other operating income		70		29
		52,023		45,935
Net insurance claims incurred and movement
in policyholders' liabilities		(39,843	)	(37,131	)
Net operating income		12,180		8,804

Net interest income increased 24.3% as funds under management grew, including from the Mandatory Provident Fund (MPF) and Occupational Retirement Schemes Ordinance (ORSO). Net fee income increased 39.3% from rising fund balances in both MPF and ORSO and favourable fund valuations from improved equity market performance in 2010.

Net income from financial instruments designated at fair value declined by 45.2% due to lower revaluation gains on equities supporting unit-linked insurance funds. The larger revaluation gains in 2009 reflected the strong rebound in equity markets, whereas in 2010 markets rose more modestly. To the extent that gains on revaluation are recognised here, an offsetting movement is reported under 'Net insurance claims incurred and movements in policyholders' liabilities'.

In January 2010 we increased our stake in Bao Viet Holdings, Vietnam's leading insurance and financial services group, from 10.3% to 18.0% and treated it as an associate from then. This led to the accounting gain of HK$386m which is included in gains less losses from financial investments.

Net insurance premiums rose by 18.5%, mainly from higher sales of the deferred annuity and unit-linked products. Non-life premiums also increased through improved sales on medical, accident and health and general liability products.

The movement in present value of in-force business increased by 42.2% reflecting higher new life insurance sales during the year.

7. Loan impairment charges and other credit risk provisions

Figures in HK$m					2010			2009
Net charge for impairment of customer advances
- Individually assessed impairment allowances:
New allowances					3,605			5,504
Releases					(1,069	)		(1,135	)
Recoveries					(322	)		(188	)
					2,214			4,181
- Net charge for collectively assessed
impairment allowances					2,474			6,498
					4,688			10,679
Net charge for other credit risk provisions					(69)			556
Net charge for loan impairment and
other credit risk provisions					4,619			11,235

The net charge for loan impairment and other credit risk provisions decreased by HK$6,616m or 58.9% compared to 2009.

The net charge for individually assessed allowances decreased HK$1,967m as a number of large specific impairment charges recorded in 2009 did not recur, specifically for customers in Hong Kong, India and the Private Equity business. The overall decline was partly offset by an impairment charge against a specific GB&M exposure.

The net charge for collectively assessed impairment allowances fell by HK$4,024m, mainly driven by a managed reduction in cards and unsecured lending portfolios in India. Hong Kong has also experienced lower impairment charges against credit cards reflecting an improvement in delinquency rates. The improved economic environment also contributed to lower charges against corporate portfolios.

Net charge for other credit risk provisions fell primarily due to lower impairment charges and some impairment releases against asset-backed securities in 2010.

8. Employee compensation and benefits

Figures in HK$m						2010			2009
Wages and salaries						30,412			26,514
Social security costs						736			698
Retirement benefit costs						1,618			1,373
						32,766			28,585
Staff numbers by region1
				At 31 December			At 31 December
						2010			2009
Hong Kong						27,892			26,192
Rest of Asia-Pacific						44,675			42,582
Total						72,567			68,774
1 Full-time equivalent

Total employee compensation and benefits rose by HK$4,181m, or 14.6%. Wages and salaries were HK$3,898m higher, due to the annual salary increment in early 2010 and higher performance related pay reflecting the overall 2010 performance, along with the increase in staff numbers in both frontline and support functions. 

Higher headcount in 2010 reflected the ongoing expansion in a number of countries, including Hong Kong, mainland China, Indonesia, Taiwan, Singapore and Australia.

9. General and administrative expenses

Figures in HK$m			2010			2009
						(restated1)
Premises and equipment
- Rental expenses			2,749			2,747
- Amortisation of prepaid operating lease payments			18			18
- Other premises and equipment			3,496			3,192
			6,263			5,957
Marketing and advertising expenses			3,891			3,168
Other administrative expenses			12,254			10,368
Litigation and other provisions			(19	)		(6	)
			22,389			19,487

1. Restated for the amendment of HKAS 17 'Leases'. See Note 27 for further information

General and administrative expenses increased by 14.9%, or HK$2,902m in 2010.

Charges in respect of premises and equipment were up HK$306m, or 5.1%, with higher costs in Hong Kong from rising property and IT network rental charges. In the rest of Asia Pacific, increases in mainland China and Malaysia mainly reflected ongoing local business expansion through the opening of new branches and country headquarters.        

Other administrative expenses increased by HK$1,886m, or 18.2%, on the back of increasing recruitment, consultancy, business travel and processing expenditure across the region to support growing business activities. Meanwhile, marketing expenses were 22.8% or HK$723m higher, as more marketing activity was carried out for propositions such as Advance, Premier, Cards and wealth management. These activities were undertaken to capitalise on the region's continued economic strength.

10. Share of profit in associates and joint ventures

Share of profit in associates and joint ventures principally included the group's share of post-tax profits from Bank of Communications and Industrial Bank, less the amortisation of intangible assets arising on acquisition.

11. Tax expense

The tax expense in the consolidated income statement comprises:

Figures in HK$m					2010			2009
								(restated1)
Current income tax
- Hong Kong profits tax					6,471			5,839
- Overseas taxation					7,587			6,175
Deferred taxation					550			(131	)
					14,608			11,883

1. Restated for the amendment of HKAS 17 'Leases'. See Note 27 for further information

The effective rate of tax for 2010 was 18.8% compared with 19.1% in 2009.

12. Dividends

		2010				2009
	HK$			HK$m		HK$		HK$m
	per share					per share
Dividends paid on ordinary share capital
- In respect of the previous financial year,
approved and paid during the year		0.98		8,850		1.24		11,170
- In respect of the current financial year		2.01		18,000		1.95		17,670
		2.99		26,850		3.19		28,840

The Directors have declared a fourth interim dividend in respect of the financial year ended 31 December 2010 of HK$12,000m (HK$1.33 per ordinary share).

13. Advances to customers

		At 31 December			At 31 December
Figures in HK$m				2010			2009
Gross advances to customers				1,904,054			1,364,924
Impairment allowances
- Individually assessed				(8,259	)		(8,088	)
- Collectively assessed				(4,735	)		(6,192	)
				(12,994	)		(14,280	)
Net loans and advances to customers				1,891,060			1,350,644
Allowances as a percentage of gross advances
to customers:
- Individually assessed				0.43	%		0.59	%
- Collectively assessed				0.25	%		0.46	%
Total allowances				0.68	%		1.05	%

14. Impairment allowances against advances to customers

			Individually		Collectively
			assessed		assessed
Figures in HK$m			allowances		allowances		Total
At 1 January 2010			8,088		6,192		14,280
Amounts written off			(1,995	)	(5,326	)	(7,321	)
Recoveries of advances written off in
previous years			322		1,442		1,764
Net charge to income statement (Note 7)			2,214		2,474		4,688
Unwinding of discount on loan impairment			(81	)	(243	)	(324	)
Exchange and other adjustments			(289	)	196		(93	)
At 31 December 2010			8,259		4,735		12,994

15. Impaired advances to customers and allowances

The geographical information shown below, and in notes 16, 17 and 18, has been classified by location of the principal operations of the subsidiary or, in the case of the bank, by location of the branch responsible for advancing the funds.

					Rest of
Figures in HK$m	Hong Kong				Asia-Pacific					Total
At 31 December 2010
Advances to customers that are considered to be impaired are as follows:
Gross impaired advances		4,987				11,294			16,281
Individually assessed allowances		(2,615	)			(5,644	)		(8,259		)
		2,372				5,650			8,022
Individually assessed allowances as a
percentage of gross impaired advances		52.4	%			50.0	%		50.7		%
Gross impaired advances as a percentage
of gross advances to customers		0.5	%			1.3	%		0.9		%

			Rest of
Figures in HK$m	Hong Kong		Asia-Pacific		Total
At 31 December 2009
Advances to customers that are considered to be impaired are as follows:
Gross impaired advances	6,358		9,838		16,196
Individually assessed allowances	(3,724	)	(4,364	)	(8,088	)
	2,634		5,474		8,108
Individually assessed allowances as a
percentage of gross impaired advances	58.6	%	44.4	%	49.9	%
Gross impaired advances as a percentage
of gross advances to customers	0.8	%	1.6	%	1.2	%

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

The individually assessed allowances are made after taking into account the value of collateral in respect of such advances.

16. Overdue advances to customers
					Rest of
Figures in HK$m		Hong Kong		Asia-Pacific					Total
At 31 December 2010
Gross advances to customers that have
been overdue with respect to either
principal or interest for periods of:
- more than three months but not more than six months			341			1,906			2,247
- more than six months but not more than one year			974			825			1,799
- more than one year			2,234			4,345			6,579
			3,549			7,076			10,625
Overdue advances to customers as a
percentage of gross advances to customers:
- more than three months but not more than six months			0.0	%		0.2		%	0.1	%
- more than six months but not more than one year			0.1	%		0.1		%	0.1	%
- more than one year			0.2	%		0.5		%	0.4	%
			0.3	%		0.8		%	0.6	%
					Rest of
Figures in HK$m	Hong Kong			Asia-Pacific					Total
At 31 December 2009
Gross advances to customers that have
been overdue with respect to either
principal or interest for periods of:
- more than three months but not more than six months			583			2,728			3,311
- more than six months but not more than one year			1,206			1,888			3,094
- more than one year			1,963			2,865			4,828
			3,752			7,481			11,233
Overdue advances to customers as a
percentage of gross advances to customers:
- more than three months but not more than six months			0.1	%		0.4	%		0.2	%
- more than six months but not more than one year			0.1	%		0.3	%		0.2	%
- more than one year			0.3	%		0.5	%		0.4	%
			0.5	%		1.2	%		0.8	%

As at 31 December 2010 and 31 December 2009, there were no advances to banks and other financial institutions that were overdue for more than three months.

17. Rescheduled advances to customers
					Rest of
Figures in HK$m		Hong Kong			Asia-Pacific			Total
At 31 December 2010
Rescheduled advances to customers				891		2,793		3,684
Rescheduled advances to customers as a
percentage of gross advances to customers				0.1	%	0.3	%	0.2	%
At 31 December 2009
Rescheduled advances to customers				2,379		2,671		5,050
Rescheduled advances to customers as a
percentage of gross advances to customers				0.3	%	0.4	%	0.4	%

Rescheduled advances to customers are those advances that have been restructured or renegotiated because of deterioration in the financial position of the borrower or 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 more than three months and which are included in 'Overdue advances to customers' (Note 16).

As at 31 December 2010 and 31 December 2009, there were no rescheduled advances to banks and other financial institutions.

18. 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 subsidiaries, to manage associated risks

			Rest of
Figures in HK$m	Hong Kong		Asia-Pacific		Total
At 31 December 2010
Residential mortgages	299,271		221,558		520,829
Hong Kong Government's Home
Ownership Scheme, Private Sector
Participation Scheme and Tenants
Purchase Scheme mortgages	27,496		-		27,496
Credit card advances	37,351		34,287		71,638
Other personal	47,874		37,779		85,653
Total personal	411,992		293,624		705,616
Commercial, industrial and
international trade	260,020		325,253		585,273
Commercial real estate	150,142		67,804		217,946
Other property-related lending	118,401		42,231		160,632
Government	18,185		3,223		21,408
Other commercial	78,676		93,569		172,245
Total corporate and commercial	625,424		532,080		1,157,504
Non-bank financial institutions	21,952		16,486		38,438
Settlement accounts	2,020		476		2,496
Total financial	23,972		16,962		40,934
Gross advances to customers	1,061,388		842,666		1,904,054
Impairment allowances	(4,793	)	(8,201	)	(12,994	)
Net advances to customers	1,056,595		834,465		1,891,060

		Rest of
Figures in HK$m	Hong Kong	Asia-Pacific			Total
At 31 December 2009
Residential mortgages	244,328		169,016		413,344
Hong Kong Government's Home
Ownership Scheme, Private Sector
Participation Scheme and Tenants
Purchase Scheme mortgages	26,801		-		26,801
Credit card advances	35,545		31,654		67,199
Other personal	41,384		35,550		76,934
Total personal	348,058		236,220		584,278
Commercial, industrial and
international trade	137,461		219,631		357,092
Commercial real estate	105,404		50,131		155,535
Other property-related lending	78,028		30,030		108,058
Government	3,416		4,615		8,031
Other commercial	56,821		55,312		112,133
Total corporate and commercial	381,130		359,719		740,849
Non-bank financial institutions	19,088		17,976		37,064
Settlement accounts	2,437		296		2,733
Total financial	21,525		18,272		39,797
Gross advances to customers	750,713		614,211		1,364,924
Impairment allowances	(6,136	)	(8,144	)	(14,280	)
Net advances to customers	744,577		606,067		1,350,644

Net loans and advances in Hong Kong increased by HK$312.0bn, or 41.9%, during 2010. The increase was largely attributable to significant growth in Corporate and Commercial lending (up HK$244.3bn), with increases in all sectors, reflecting higher demand due to the general improvement in economic conditions. Personal lending increased by HK$63.9bn, largely driven by mortgage lending which increased by HK$54.9bn. The growth in mortgages came from a buoyant property market and the success of HIBOR-linked mortgages which accounted for the majority of new lending by year end.

In the Rest of Asia-Pacific, net advances to customers increased by HK$228.4bn, or 37.7%, of which the impact of foreign exchange translation was HK$46.5bn. The underlying increase was mainly from Corporate and Commercial lending (up HK$148.0bn). Residential mortgages increased by HK$36.6bn, with growth notably in Australia, Singapore, Malaysia, Taiwan, and mainland China.

19. Analysis of advances to customers by industry sector based on categories and definitions used by the Hong Kong Monetary Authority ('HKMA')

The following analysis of advances to customers is based on the categories contained in the 'Quarterly Analysis of Loans and Advances and Provisions' return required to be submitted to the HKMA by branches of the bank and by banking subsidiaries in Hong Kong.

	At 31 December				At 31 December
Figures in HK$m		2010					2009
Gross advances to customers for use in Hong Kong
Industrial, commercial and financial
Property development		83,565					50,034
Property investment		186,120					144,396
Financial concerns		12,346					9,442
Stockbrokers		1,993					1,155
Wholesale and retail trade		68,403					46,145
Manufacturing		37,284					27,318
Transport and transport equipment		24,764					21,543
Recreational activities		945					330
Information technology		5,844					5,336
Others		80,677					49,963
		501,941					355,662
Individuals
Advances for the purchase of flats under the
Hong Kong Government's Home Ownership Scheme,
Private Sector Participation Scheme
and Tenants Purchase Scheme		27,496					26,801
Advances for the purchase of other residential properties		267,133					217,626
Credit card advances		37,351					35,545
Others		36,634					32,641
		368,614					312,613
	At 31 December					At 31 December
Figures in HK$m				2010				2009
Gross advances to customers for use in Hong Kong			870,555					668,275
Trade finance			135,650					54,015
Gross advances to customers for use outside Hong
Kong made by branches of the Bank and subsidiary
companies in Hong Kong			55,183					28,423
Gross advances to customers made by branches of
the Bank and subsidiary companies in Hong Kong			1,061,388					750,713
Gross advances to customers made by branches of
the Bank and subsidiary companies outside Hong Kong			842,666					614,211
Gross advances to customers			1,904,054					1,364,924

20. Cross-border exposure

The country risk exposures in the tables below are prepared in accordance with the HKMA Return of External Positions Part II: Cross-Border Claims (MA(BS)9) guidelines.

Cross-border claims are on-balance sheet exposures to counterparties based on the location of the counterparties after taking into account the transfer of risk. The tables show claims on individual countries and territories or areas, after risk transfer, amounting to 10% or more of the aggregate cross-border claims. Cross-border risk is controlled centrally through a well-developed system of country limits and is frequently reviewed to avoid concentration of transfer, economic or political risk.

	Banks and
	other			Public
	financial			sector
Figures in HK$m	institutions			entities		Other		Total
At 31 December 2010
Americas
United States		104,109		93,618		48,703		246,430
Other		20,390		14,361		67,699		102,450
		124,499		107,979		116,402		348,880
Europe
United Kingdom		151,629		1,364		12,543		165,536
Other		128,561		58,372		21,594		208,527
		280,190		59,736		34,137		374,063
Asia-Pacific excluding Hong Kong
China		156,972		9,782		64,089		230,843
Other		95,700		132,909		211,971		440,580
		252,672		142,691		276,060		671,423
At 31 December 2009
Americas
United States		124,438		89,352		48,777		262,567
Other		20,249		10,595		45,805		76,649
		144,687		99,947		94,582		339,216
Europe
United Kingdom		228,935		854		13,247		243,036
Other		182,577		50,833		19,040		252,450
		411,512		51,687		32,287		495,486
Asia-Pacific excluding Hong Kong		197,633		92,634		178,339		468,606

21. Customer accounts

		At 31 December		At 31 December
Figures in HK$m			2010		2009
Current accounts			643,850		536,350
Savings accounts			1,765,835		1,591,351
Other deposit accounts			903,559		816,838
			3,313,244		2,944,539

Customer accounts increased by HK$368.7bn, or 12.5 %, during 2010.

In Hong Kong, customer accounts increased by HK$177.9bn, or 9.0 %, and in the Rest of Asia-Pacific customer accounts increased by HK$190.8bn or 19.9 % as compared to 2009.

The group's advances-to-deposits ratio increased to 57.1% at 31 December 2010, from 45.9% at 31 December 2009 as more of the commercial surplus was deployed to customer lending.

22. Contingent liabilities, commitments and derivatives

a          Off-balance sheet contingent liabilities and commitments

	At 31 December		At 31 December
Figures in HK$m		2010		2009
Contingent liabilities and financial guarantee contracts
- Guarantees and irrevocable letters of credit pledged as collateral security		164,145			142,469
- Other contingent liabilities		213			191
		164,358			142,660
Commitments
- Documentary credits and short-term trade-related transactions		45,572			32,079
- Forward asset purchases and forward forward deposits placed		1,299			1,308
- Undrawn formal standby facilities, credit lines and other commitments to lend		1,324,243			1,102,088
		1,371,114			1,135,475

The above table discloses the nominal principal amounts of third-party off-balance sheet transactions, the amounts relating to other contingent liabilities and the nominal principal amounts relating to financial guarantee contracts. Contingent liabilities and commitments are mainly credit-related instruments that include non-financial guarantees and commitments to extend credit. Contractual amounts represent the amounts at risk should contracts be fully drawn upon and clients default. Since a significant portion of guarantees and commitments are expected to expire without being drawn upon, the total of the contractual amounts is not representative of future liquidity requirements.

b          Guarantees (including financial guarantee contracts)

The group provides guarantees and similar undertakings on behalf of both third-party customers and other entities within the group. These guarantees are generally provided in the normal course of the banking business. The principal types of guarantees provided, and the maximum potential amount of future payments that the group could be required to make at 31 December 2009, were as follows:

				At 31 December 2010		At 31 December 2009
Figures in HK$m
Guarantees in favour of third parties
Financial guarantee contracts1				23,538		20,561
Standby letters of credit that are financial guarantee contracts2				17,374		15,670
Other direct credit substitutes3				36,798		27,260
Performance bonds4				46,116		41,105
Bid bonds4				1,911		1,454
Standby letters of credit related to particular transactions4				8,653		3,699
Other transaction-related guarantees4				25,034		25,521
				159,424		135,270
Guarantees in favour of other HSBC Group entities				4,721		7,199
				164,145		142,469

1      Financial guarantees are contracts that require the issuer to make specified payments to reimburse the holder for a loss incurred because a specified debtor fails to make payment when due in accordance with the original or modified terms of a debt instrument. The amounts in the above table are nominal principal amounts.

2      Standby letters of credit that are financial guarantee contracts are irrevocable obligations on the part of the group to pay third parties when customers fail to make payments when due.

3      Other direct credit substitutes include re-insurance letters of credit and trade-related letters of credit issued without provision for the issuing entity to retain title to the underlying shipment.

4      Performance bonds, bid bonds, standby letters of credit and other transaction-related guarantees are undertakings by which the obligation on the group to make payment depends on the outcome of a future event.

The amounts disclosed in the above table reflect the group's maximum exposure under a large number of individual guarantee undertakings. The risks and exposures from guarantees are captured and managed in accordance with HSBC's overall credit risk management policies and procedures. Guarantees are subject to HSBC's annual credit review process.

c          Contingencies

The group is named in and defending legal actions in a number of jurisdictions, including Hong Kong, arising out of its normal business operations. None of the actions is regarded as material litigation, and none is expected to result in a significant adverse effect on the financial position of the group, either collectively or individually. Management believes that adequate provisions have been made in respect of such litigation.

23. Foreign exchange exposure

Foreign exchange exposures may be divided broadly into two categories: structural and non-structural. Structural exposures are normally long-term in nature and include those arising from investments in overseas subsidiaries, branches, associates and strategic investments as well as capital instruments denominated in currencies other than Hong Kong dollars. Non-structural exposures arise primarily from trading positions and balance sheet management activities. Non-structural exposures can arise and change rapidly. Foreign currency exposures are managed in accordance with the group's risk management policies and procedures.

The group had the following structural foreign currency exposures that exceeded 10% of the total net structural exposure in all foreign currencies:

Figures in HK$m	Net structural position
At 31 December 2010
Chinese renminbi	143,909
Indian rupee	31,178
At 31 December 2009
Chinese renminbi	108,347
Indian rupee	25,073

24. Capital adequacy

The Hong Kong Monetary Authority supervises the group on a consolidated basis and therefore receives information on the capital adequacy of, and sets capital requirements for, the group as a whole. Individual banking subsidiaries and branches are directly regulated by their local banking supervisors, who set and monitor their capital adequacy requirements. In most jurisdictions, non-banking financial subsidiaries are also subject to the supervision and capital requirements of local regulatory authorities.

From 1 January 2009, the group migrated to the advanced internal ratings-based approach to calculate its credit risk for the majority of its non-securitisation exposures. The group continued to use the internal ratings-based (securitisation) approach to determine credit risk for its securitisation exposures. For market risk, the group used an internal models approach to calculate its general market risk and market risk relating to equity options. From 30 March 2009, the group adopted an internal models approach to calculate its market risk in respect of specific risk for the interest rate risk category. The group continued to use the standardised (market risk) approach for calculating other market risk positions and the standardised (operational risk) approach to calculate its operational risk.

During the year, the individual entities within the group and the group itself complied with all of the externally imposed capital requirements of the Hong Kong Monetary Authority.

There is no relevant capital shortfall in any of the group's subsidiaries that is not included in its consolidation group for regulatory purposes.

	2010		2009
	%		%
Capital ratio
Core capital ratio	11.7		12.2
Total capital ratio	14.7		16.1

	2010		2009
	HK$m		HK$m
Risk weighted assets
Credit risk	1,303,535		1,075,841
Counterparty credit risk	56,451		48,733
Market risk	35,251		31,848
Operational risk	216,866		214,532
Total	1,612,103		1,370,954

	2010		2009
	HK$m		HK$m
Core capital:
Share capital per balance sheet	22,494		22,494
Revaluation reserve capitalisation issue	(1,454)		(1,454)
Paid-up ordinary share capital	21,040		21,040
Paid-up irredeemable non-cumulative preference shares	51,714		51,590
Reserves per balance sheet	297,636		223,294
Proposed dividend	(12,000)		(8,850)
Unconsolidated subsidiaries	(26,320)		(19,913)
Cash flow hedging reserve	(106)		(848)
Regulatory reserve	(7,702)		(6,413)
Reserves arising from revaluation of property and unrealised gains on available-for-sale equities and debt securities	(92,065)		(56,661)
Unrealised gains on equities and debt securities designated at fair value	(191)		(75)
Own credit spread	(231)		(64)
Total reserves included in core capital	159,021		130,470
Non-controlling interests per balance sheet	27,305		24,939
Non-controlling interests in unconsolidated investments	(2,574)		(4,295)
Regulatory adjustments to non-controlling interests	(2,002)		(1,742)
Non-controlling interests	22,729		18,902
Goodwill and intangible assets	(19,977)		(19,682)
50% of unconsolidated investments	(44,946)		(35,059)
50% of securitisation positions and other deductions	(192)		(40)
Deductions	(65,115)		(54,781)
Total core capital	189,389		167,221
	2010		2009
	HK$m		HK$m
Supplementary capital:
Paid-up irredeemable cumulative preference shares	16,557		16,517
Perpetual subordinated debt	9,404		9,393
Paid-up term preference shares	33,035		32,956
Term subordinated debt	17,957		14,406
Property revaluation reserves1	7,977		6,742
Available-for-sale equities and debt securities revaluation reserves2	3,194		3,961
Unrealised gains on equities and debt securities designated at fair value	86		34
Regulatory reserve3	1,100		937
Collective impairment allowances3	625		858
Excess impairment allowances over expected losses4	2,534		2,686
Supplementary capital before deductions	92,469		88,490
50% of unconsolidated investments	(44,946)		(35,059)
50% of securitisation positions and other deductions	(192)		(40)
Deductions	(45,138)		(35,099)
Total supplementary capital	47,331		53,391
Capital base5	236,720		220,612

1      Includes the revaluation surplus on investment properties which is reported as part of retained profits and adjustments made in accordance with the Banking (Capital) Rules issued by the HKMA.

2      Includes adjustments made in accordance with the Banking (Capital) Rules issued by the HKMA.

3      Total regulatory reserve and collective provisions are apportioned between the standardised approach and internal ratings-based approach in accordance with the Banking (Capital) Rules issued by the HKMA. Those apportioned to the standardised approach are included in supplementary capital. Those apportioned to the internal ratings-based approach are excluded from supplementary capital.

4      Excess impairment allowances over expected losses are applicable to non-securitisation exposures calculated by using the internal ratings based approach.

5      The 2009 capital base, risk weighted assets and capital ratios have not been restated for the effects of HKAS17 'Leases'.

25. Liquidity ratio

The Hong Kong Banking Ordinance requires banks operating in Hong Kong to maintain a minimum liquidity ratio of 25%, calculated in accordance with the provisions of the Fourth Schedule of the Banking Ordinance. This requirement applies separately to the Hong Kong branches of the bank and to those subsidiary companies that are Authorised Institutions under the Banking Ordinance in Hong Kong.

		2010		2009
The average liquidity ratio for the year was as follows:
Hong Kong branches of the bank		39.3	%	50.4	%

26. Property revaluation

The group's land and buildings and investment properties were revalued at 30 November 2010, updated for any material changes at 31 December 2010. The basis of valuation for land and buildings and investment properties was open market value, depreciated replacement cost or surrender value. In determining the open market value of investment properties, expected future cash flows have been discounted to their present values. The net book value of 'Land and buildings' includes HK$8,931m in respect of properties which were valued using the depreciated replacement cost method or surrender value.

Land and buildings and investment properties in Hong Kong, the Macau SAR and mainland China, representing 95% by value of the group's properties subject to valuation, were valued by DTZ Debenham Tie Leung Limited who have recent experience in these locations and types of properties. The valuations were carried out by qualified valuers who are members of the Hong Kong Institute of Surveyors. Properties in 11 countries, which represent 5% by value of the group's properties, were valued by different independent professionally qualified valuers.

The surplus on property revaluation was HK$10,521m. Amounts of HK$7,513m and HK$585m were credited to the property revaluation reserve and the income statement respectively. The amount credited to the property revaluation reserve of HK$7,513m is stated after deduction of non-controlling interests of HK$796m and deferred tax of HK$1,627m. The amount credited to the income statement comprises the surplus of HK$483m on revaluation of investment properties, less HK$102m relating to the reversal of previous revaluation deficits that arose when the value of certain land and buildings fell below depreciated historical cost or surrender value, or when land and buildings were newly acquired with revaluation losses.

27. Accounting policies

The accounting policies applied in preparing this news release are the same as those applied in preparing the financial statements for the year ended 31 December 2009, as disclosed in the Annual Report and Accounts 2009, with the exception set out below.

Hong Kong Accounting Standard 17, 'Leases' (HKAS 17) has been amended with effect from 1 January 2010 ("the amendment") as part of the 'Improvements to HKFRS' issued in May 2009. Since 2005, and prior to the amendment, a number of significant interests in long-term leasehold land owned by the group were recorded as prepaid operating leases, measured at historical cost less amortisation and included within 'Other assets' in the balance sheet. Following the application of the amendment in 2010, such interests are reclassified as prepaid finance leases on the basis that substantially all of the risks and rewards of ownership have been transferred to the group. They are included within 'Property, plant and equipment' in the balance sheet and carried at valuation. The amendment has been applied retrospectively and the corresponding prior-year comparatives have been adjusted accordingly.

The following primary financial statement lines have been impacted by the amendment of HKAS 17:

		As reported		Adjustment		Restated
		HK$m		HK$m		HK$m
Year ended 31 December 2009
Profit for the year		50,644		(434	)	50,210
Total comprehensive income		88,614		2,766		91,380
Profit attributable to non-controlling interests		4,836		(22	)	4,814
As at 31 December 2009
Property, plant and equipment		36,327		22,483		58,810
Other assets		62,256		(3,438	)	58,818
Deferred tax liabilities		7,358		3,145		10,503
Other reserves		75,213		14,390		89,603
Retained profits		139,231		24		139,255
Non-controlling interests		24,939		1,486		26,425

28. Events after the balance sheet date

There have been no events after the balance sheet date that would require disclosure in this news release.

29. Statutory accounts

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

Certain financial information in this news release is extracted from the financial statements for the year ended 31 December 2010, which were approved by the Board of Directors on 28 February 2011 and will be delivered to the Registrar of Companies and the HKMA. The Auditors expressed an unqualified opinion on those financial statements in their report dated 28 February 2011. The Annual Report and Accounts for the year ended 31 December 2010, which include the financial statements, can be obtained on request from Group Communications (Asia), The Hongkong and Shanghai Banking Corporation Limited, 1 Queen's Road Central, Hong Kong, and will be made available on our website: www.hsbc.com.hk . A further press release will be issued to announce the availability of this information.

30. Ultimate holding company

The Hongkong and Shanghai Banking Corporation Limited is an indirectly held, wholly-owned subsidiary of HSBC Holdings plc.

Media enquiries to:                    

Cindy Tang                           Telephone no: + 852 2822 1268                      

Gareth Hewett                      Telephone no: + 852 2822 4929              

Richard Beck                       Telephone no: + 44 20 7991 0633                                                                    

Patrick McGuinness             Telephone no: + 852 3663 6883

 

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