HK & Shanghai Bk pt 2/3

HSBC Holdings PLC
03 March 2008



Additional Information

1. Net interest income

                                                            Year ended  Year ended
Figures in HK$m                                                31Dec07     31Dec06

Net interest income                                             62,761      51,099
Average interest-earning assets                              2,649,116   2,212,521
Net interest spread                                               2.05%       1.92%
Net interest margin                                               2.37%       2.31%

Included in the above is interest income accrued on impaired financial assets of
HK$400 million (2006: HK$309 million), including unwinding of discounts on loan
impairment losses of HK$308 million (2006: HK$196 million).

Net interest income of HK$62,761 million was HK$11,662 million, or 22.8 per
cent, higher than in 2006. Higher income was attributable to strong balance
sheet growth and improved deposit spreads throughout the region, coupled with
higher balance sheet management income.

Net interest income in Personal Financial Services rose by HK$5,949 million, or
19.8 per cent, partly due to strong growth in the deposit base in Hong Kong and
in the region. Lending growth also contributed to the increase in interest
income, particularly personal instalment loans in India, South Korea, Thailand
and at Hang Seng Bank, and credit cards in the Philippines, India, Singapore,
Australia and at Hang Seng Bank. In addition, strong returns were generated on
investments held by the group's insurance companies, benefiting from higher
yields and growth in portfolio size. Net interest income in Commercial Banking
was HK$3,069 million, or 21.9 per cent higher than in 2006, mainly due to
balance sheet growth, notably in Hong Kong, India and mainland China, and the
widening of deposit spreads. In Global Banking and Markets, net interest income
increased significantly as a result of strong balance sheet management income,
reflecting the replacement of maturing assets at higher yields. This was coupled
with business growth in the payments and cash management and securities services
businesses and improved deposit spreads, notably in mainland China, India, Hong
Kong and Taiwan.

Average interest-earning assets rose by HK$436.6 billion, or 19.7 per cent, to
HK$2,649.1 billion. Average advances to customers grew by HK$95.4 billion, or
9.1 per cent, with strong increases in corporate loans in India, mainland China
and at Hang Seng Bank, and a small rise in average mortgage balances in Hong
Kong, coupled with stronger growth in India and Singapore. These were partly
offset by the disposal of the broker-originated mortgage businesses in
Australia. Average credit card balances rose in most areas, notably Hong Kong,
India, Australia, the Philippines, Thailand and Singapore, and personal
instalment loans grew, most significantly in India, South Korea and Thailand.
Average placements with banks were HK$174.3 billion higher, and holdings of
available-for-sale securities rose by HK$85.8 billion, reflecting the deployment
of the commercial surplus.

The group's net interest margin of 2.37 per cent for 2007 was six basis points
higher than in 2006. Net interest spread improved by 13 basis points, while the
contribution from net free funds declined by seven basis points, reflecting the
deployment of funds into trading assets.

For the bank in Hong Kong, net interest margin increased by one basis point to
2.27 per cent. Spread rose by 11 basis points, benefiting from higher yields on
money market placements, debt securities and term lending, and improved deposit
spreads in current and savings accounts, but was partly offset by lower spread
on mortgages as the Hong Kong dollar Best Lending Rate decreased. The
contribution from net free funds decreased by 10 basis points, primarily due to
the reduction of free funds as a result of redeployment of surplus funds into
trading assets.

At Hang Seng Bank, net interest margin improved by 12 basis points to 2.54 per
cent, benefiting from wider deposit spreads and better yields on the balance
sheet management portfolio. Balance sheet management income improved as lower
yielding securities gradually matured and were replaced by higher yielding
assets. Net interest spread rose by 15 basis points to 1.98 per cent, whilst the
contribution from net free funds decreased by three basis points. Higher net
interest spread was attributable to the increase of average customer deposits,
mainly in lower cost savings balances, and wider deposit spreads. However, the
pricing of residential mortgages and corporate lending remained under pressure
due to intense market competition.

In the rest of Asia-Pacific, net interest margin at 2.25 per cent was nine basis
points higher than in 2006, and spread increased by 12 basis points to 2.06 per
cent. In mainland China, spread improved as the increase in lending rates
outweighed the rise in deposit rates, supported by an increase in low cost
customer deposits. Spread improved in Indonesia as funding costs decreased
following interest rate cuts. In the Philippines, local interest rates dropped
but strong growth in high yielding credit card receivables more than offset the
decline in yields for other lending products. Taiwan benefited from improved
spreads on customer accounts, whereas Singapore saw higher spreads on mortgages
and cards as funding costs decreased. The contribution from net free funds
dropped by three basis points mainly due to an increase in the redeployment of
funding to trading assets in Australia, South Korea and mainland China, which
was partly offset by a rise in both market interest rate and non-interest
bearing account balances in India.

2. Net fee income

Figures in HK$m                                                      2007     2006

Account services                                                    1,625    1,501
Credit facilities                                                   1,471    1,245
Import/export                                                       3,360    2,956
Remittances                                                         1,653    1,437
Securities/stockbroking                                            11,874    5,267
Cards                                                               4,321    4,335
Insurance                                                             889      315
Unit trusts                                                         4,714    2,326
Funds under management                                              4,833    2,974
Other                                                               6,409    4,198

Fee income                                                         41,149   26,554

Fee expense                                                        (6,208)  (4,150)

                                                                   34,941   22,404

Net fee income was HK$12,537 million, or 56.0 per cent, higher than in 2006.

Securities broking and custody fees rose by 125 per cent, reflecting
significantly higher stock market turnover in Hong Kong. The buoyant stock
markets also stimulated demand for unit trusts and investment funds in Hong
Kong, South Korea, Taiwan and India, and fee income increased by 80.1 per cent.

Trade finance income was 13.7 per cent higher, notably in India, mainland China
and Hong Kong, and in part due to the transfer into the group of HSBC's South
African banking operations in the second quarter of 2007. Remittance and other
account fees grew, reflecting the group's strong transactional capabilities.

Card fees were in line with the disposal of the card acquiring business and the
decline in card fees in Taiwan as a result of the 2006 credit crisis largely was
offset by strong growth in issuing fees elsewhere in the region, notably India,
Hong Kong and the Philippines due to an increase in the number of cards in
circulation and higher cardholder spending.

'Other' includes investment banking fees. These fees were higher than the
previous year as the group won several notable IPO mandates in Hong Kong, and
there was an increase in commissions from fellow HSBC Group companies in respect
of treasury business.

3. Net trading income

Figures in HK$m                                                       2007    2006

Dealing profits                                                     12,831  10,001

Net gain from hedging activities                                        63      16

Net interest income/(expense)                                        2,678  (1,307)

Dividend income from trading securities                                484     208

                                                                    16,056   8,918

Trading income rose by 80 per cent to HK$16,056 million. Foreign exchange
profits benefited from an increase in trading activity against a backdrop of
increasing demand for local currency assets as foreign investors sought to
participate in local stock markets, coupled with favourable positioning as the
US dollar weakened. Revenues grew strongly in the equities and equity
derivatives business, reflecting previous investment in business expansion and
buoyant stock markets.

4. Gains less losses from financial investments

Figures in HK$m                                                        2007   2006

Gains on disposal of available-for-sale securities                      892  1,466

The profit on the disposal of available-for-sale securities in 2007 largely
comprises gains on the sale of equity shares and further disposals of Philippine
government securities. Prior year gains include the profits made on the sale of
part of the group's stake in UTI Bank in India, and also on Philippine
government securities.

5. Other operating income

Figures in HK$m                                                        2007   2006

Rental income from investment properties                                151    196
Movement in present value of in-force insurance business                950  1,124
Gains on investment properties                                          564    475
Profit on disposal of property, plant and equipment, and
  assets held for sale                                                   64    981
Profit on disposal of subsidiaries, associates and
  business portfolios                                                    96    904
Surplus arising on property revaluation                                 122     70
Other                                                                 2,109  1,903
                                                                      4,056  5,653

Profit on the disposal of property, plant and equipment was lower than in 2006
due to the non-recurrence of gains made on the sale of a property in Japan and
lower gains from the disposal of Hang Seng Bank properties.

Profit on disposal of subsidiaries, associates and business portfolios was lower
than 2006 due to the non-recurrence of gains made on the disposal of the
stockbroking, margin lending and broker originated mortgage businesses in
Australia.

'Other' mainly comprises recoveries of IT and other operating costs from fellow
HSBC Group companies which were incurred on their behalf.

6. Gains arising from dilution of investments in associates

During the year, three associates of the group, Bank of Communications,
Industrial Bank and Techcombank issued new shares. The group was not able to
subscribe for any additional shares issued under these offers and, as a result,
its interests in the associates' equity decreased from 19.90 per cent to 18.60
per cent, from 15.98 per cent to 12.78 per cent and from 15.0 per cent to 14.44
per cent respectively. The interest in Bank of Communications was subsequently
increased to 19.01 per cent through additional share acquisitions.

The net assets of both Bank of Communications and Industrial Bank increased
substantially when they received proceeds from their respective new share
issues. After the new issues, the group's share of the net assets of the three
associates increased by HK$4,735 million compared with the share of the net
assets immediately prior. This increase in the group's share of net assets was
regarded as a gain arising from deemed disposals of part of its interests in the
associates and is presented in the consolidated income statement.

The gains resulting from the dilution of the group's investments in the
associates were: HK$3,228 million for Bank of Communications; HK$1,465 million
for Industrial Bank; and HK$42 million for Techcombank.

The dilution of the interests does not affect the classification of the group's
investments as investments in associates.

7. Loan impairment charges and other credit risk provisions

Figures in HK$m                                                        2007   2006

Net charge for impairment of customer advances

- Individually assessed impairment allowances:
  New allowances                                                      1,884  1,314
  Releases                                                             (646)  (869)
  Recoveries                                                           (197)  (212)
                                                                      1,041    233

- Net charge for collectively assessed
  impairment allowances                                               4,619  4,468
                                                                      5,660  4,701

Net charge for other credit risk provisions                             145    108

Net charge for loan impairment and
  other credit risk provisions                                        5,805  4,809

The net charge for loan impairment and other credit risk provisions was HK$996
million higher than in 2006.

The charge for new individually assessed allowances was higher, largely
attributable to the downgrading of certain corporate customers with activities
in Thailand, Hang Seng Bank, India and Sri Lanka. The increase was partly offset
by lower corporate charges in Singapore, mainland China and Japan. Releases and
recoveries were lower, mainly relating to companies in Hong Kong, mainland
China, Australia and Indonesia.

The net charge for collectively assessed allowances increased. Charges increased
in India, Hong Kong and Thailand, reflecting higher credit card and other
personal lending volumes.

8. Employee compensation and benefits

Figures in HK$m                                                       2007    2006

Wages, salaries and other costs                                     16,687  14,302
Performance-related pay                                              8,317   5,501
Social security costs                                                  327     283
Retirement benefit costs                                             1,100     956
                                                                    26,431  21,042
Staff numbers by region^

                                                            At 31Dec07  At 31Dec06

Hong Kong                                                       26,169      26,496
Rest of Asia-Pacific                                            33,167      27,518
Americas/Europe                                                     18          17
Total                                                           59,354      54,031

^ Full-time equivalent

Staff costs increased by HK$5,389 million, or 25.6 per cent, compared with 2006.
Wages and salaries rose by 16.7 per cent, in line with planned increases in
headcount throughout the region, and due to annual salary rises notably in Hong
Kong, mainland China, India, Singapore and South Korea. Staff numbers rose
significantly in India reflecting the establishment of the consumer finance
business and expansion of the sales force, and in mainland China to support new
branch openings. Performance-related pay increased in line with improved
operating revenues, higher dealing income and the increase in headcount.

9. General and administrative expenses

Figures in HK$m                                                       2007    2006

Premises and equipment
- Rental expenses                                                    1,957   1,557
- Amortisation of prepaid operating lease
  payments                                                              59      58
- Other premises and equipment                                       2,750   2,463
                                                                     4,766   4,078

Marketing and advertising expenses                                   4,170   3,587

Other administrative expenses                                        9,537   7,268

Litigation and other provisions                                       (434)     16

                                                                    18,039  14,949

The increase in general and administrative expenses of HK$3,090 million, or 20.7
per cent, reflected additional costs incurred in business expansion throughout
the region. Premises and equipment costs rose due to new branch openings and
rent increases. Marketing expenditure was higher due in part to increased credit
card bonus point redemption costs in Hong Kong, brand advertising at airports in
mainland China, and retail banking promotions at Hang Seng Bank. Technology
costs also increased as the group continued to improve its customer relationship
management systems and internet banking capabilities. Litigation and other
provisions recognised an improvement in 2007 due to the release of two
significant provisions.

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, and amortisation of intangible assets arising on acquisition.

11. Tax expense

The tax expense in the consolidated income statement comprises:

Figures in HK$m                                                        2007   2006

Current income tax
- Hong Kong profits tax                                               8,279  5,506
- Overseas taxation                                                   4,651  3,955
Deferred taxation                                                       526    (50)
                                                                     13,456  9,411

The effective rate of tax for 2007 was 17.1 per cent compared with 18.1 per cent
in 2006. The decrease was mainly as a result of the HK$4,735 million of dilution
gains recognised in the year being non-taxable.

12. Dividends

                                                     2007               2006
                                                    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                0.72   6,500       0.50   4,500
- In respect of the current financial year         1.84  16,500       1.58  14,257
                                                   2.56  23,000       2.08  18,757

The Directors have declared a fourth interim dividend in respect of the
financial year ended 31 December 2007 of HK$6,500 million (HK$0.72 per ordinary
share).

13. Advances to customers

Figures in HK$m                                             At 31Dec07  At 31Dec06

Gross advances to customers                                  1,219,346   1,050,625

Impairment allowances
- Individually assessed                                         (2,182)     (2,118)
- Collectively assessed                                         (5,078)     (4,725)
                                                                (7,260)     (6,843)
                                                             1,212,086   1,043,782

Allowances as a percentage of
  gross advances to customers:
- Individually assessed                                           0.18%       0.20%
- Collectively assessed                                           0.42%       0.45%
Total allowances                                                  0.60%       0.65%

14. Impairment allowances against advances to customers

                                                Individually  Collectively
                                                    assessed      assessed
Figures in HK$m                                   allowances    allowances   Total

At 1Jan07                                              2,118         4,725   6,843
Amounts written off                                   (1,301)       (4,885) (6,186)
Recoveries of advances written off in
  previous years                                         197           696     893
Net charge to income statement (Note 7)                1,041         4,619   5,660
Unwinding of discount on loan
  impairment                                             (89)         (219)   (308)
Exchange and other adjustments                           216           142     358

At 31Dec07                                             2,182         5,078   7,260

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 company 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

Year ended 31Dec07

Impairment allowance charge                            1,654         4,006   5,660

At 31 December 2007

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

Gross impaired advances                                3,380         5,003   8,383

Individually assessed allowances                      (1,028)       (1,154) (2,182)
                                                       2,352         3,849   6,201

Individually assessed allowances
  as a percentage of gross
  impaired advances                                     30.4%         23.1%   26.0%

Gross impaired advances as a
  percentage of gross advances to
  customers                                              0.5%          0.9%    0.7%

Year ended 31Dec06

Impairment allowance charge                            1,228         3,473   4,701

At 31 December 2006

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

Gross impaired advances                                3,530         5,071   8,601

Individually assessed allowances                      (1,016)       (1,102) (2,118)
                                                       2,514         3,969   6,483

Individually assessed allowances
  as a percentage of gross impaired advances            28.8%         21.7%   24.6%

Gross impaired advances as a
  percentage of gross advances to
  customers                                              0.6%          1.2%    0.8%

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 31Dec07

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

- more than three months but not more than six months        737         1,403  2,140

- more than six months but not more than one year            223           837  1,060

- more than one year                                         637         1,042  1,679
                                                           1,597         3,282  4,879

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

- more than three months but not more than six months        0.1%          0.3%   0.2%

- more than six months but not more than one year            0.0%          0.2%   0.1%

- more than one year                                         0.1%          0.2%   0.1%
                                                             0.2%          0.7%   0.4%

At 31Dec06

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

- more than three months but not more than six months        938         1,287  2,225

- more than six months but not more than one year            384           595    979

- more than one year                                       1,238           859  2,097
                                                           2,560         2,741  5,301

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

- more than three months but not more than six months        0.1%          0.3%   0.2%

- more than six months but not more than one year            0.1%          0.1%   0.1%

- more than one year                                         0.2%          0.2%   0.2%
                                                             0.4%          0.6%   0.5%

As at 31 December 2007 and 31 December 2006, 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 31Dec07                                           

Rescheduled advances to customers                          1,610         1,620  3,230
                                                     
Rescheduled advances to customers as a               
  percentage of gross advances to customers                  0.2%          0.3%   0.3%
                                                     
At 31Dec06                                           

Rescheduled advances to customers                          1,730         2,307  4,037
                                                     
Rescheduled advances to customers as a               
  percentage of gross advances to customers                  0.3%          0.6%   0.4%
                                                  
As at 31 December 2007 and 31 December 2006, there were no rescheduled advances
to banks and other financial institutions.

Rescheduled advances to customers 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 more than three months and which are included in
'Overdue advances to customers' (Note 16).

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 subsidiary companies, to manage associated risks.

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

At 31Dec07

Residential mortgages                  197,712       128,650          4    326,366

Hong Kong SAR Government's Home
  Ownership Scheme, Private Sector
  Participation Scheme and Tenants
  Purchase Scheme mortgages             30,738             -          -     30,738

Credit card advances                    35,279        25,926          -     61,205

Other personal                          41,567        40,115          1     81,683
Total personal                         305,296       194,691          5    499,992

Commercial, industrial and
  international trade                  138,331       200,475          -    338,806

Commercial real estate                  94,748        46,391          -    141,139

Other property-related lending          63,697        20,936          -     84,633

Government                               2,587         6,338          -      8,925

Other commercial                        40,369        52,752          -     93,121
Total corporate and commercial         339,732       326,892          -    666,624

Non-bank financial institutions         19,363        29,344          -     48,707

Settlement accounts                      3,798           225          -      4,023
Total financial                         23,161        29,569          -     52,730

Gross advances to customers            668,189       551,152          5  1,219,346

Impairment allowances                   (2,932)       (4,328)         -     (7,260)

Net advances to customers              665,257       546,824          5  1,212,086

At 31Dec06

Residential mortgages                  191,522       112,900          5    304,427

Hong Kong SAR Government's Home
  Ownership Scheme, Private Sector
  Participation Scheme and Tenants
  Purchase Scheme mortgages             31,708             -          -     31,708

Credit card advances                    31,315        19,999          -     51,314

Other personal                          30,778        35,908          1     66,687
Total personal                         285,323       168,807          6    454,136

Commercial, industrial and
  international trade                  130,994       133,560          -    264,554

Commercial real estate                  94,706        36,052          -    130,758

Other property-related lending          53,832        15,627          -     69,459

Government                               4,283         6,727          -     11,010

Other commercial                        43,186        38,781          -     81,967
Total corporate and commercial         327,001       230,747          -    557,748

Non-bank financial institutions         18,138        16,471          -     34,609

Settlement accounts                      3,774           358          -      4,132
Total financial                         21,912        16,829          -     38,741

Gross advances to customers            634,236       416,383          6  1,050,625

Impairment allowances                   (2,838)       (4,005)         -     (6,843)

Net advances to customers              631,398       412,378          6  1,043,782

Net advances to customers increased by HK$168 billion, or 16.1 per cent, since
the end of 2006.

Net advances in Hong Kong grew by HK$34 billion, or 5.4 per cent, since the end
of 2006. Mortgage balances grew by 3.2 per cent underpinned by stable domestic
interest rates. Credit card balances increased 12.7 per cent following the
launch of a number of credit card programmes. Lending to corporate and
commercial customers increased 3.9 per cent as lending to manufacturers who were
expanding their operations in mainland China increased.

In the rest of Asia-Pacific, net advances rose by HK$134 billion, or 32.6 per
cent, since the end of 2006. Mortgage balances grew by 14.0 per cent with
increases in Australia, India and Singapore. Credit card advances rose by 29.6
per cent, notably in Australia, India, Thailand and the Philippines, and the
growth in other personal lending was attributable to continued business
expansion in India. Lending to corporate and commercial customers rose by 41.7
per cent, notably in mainland China, Vietnam, India and Mauritius.

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 subsidiary companies in Hong Kong.

Figures in HK$m                                         At 31Dec07      At 31Dec06

Gross advances to customers for use in Hong Kong

Industrial, commercial and financial
Property development                                        47,217          46,352
Property investment                                        116,331          99,580
Financial concerns                                          10,731          10,136
Stockbrokers                                                 2,669             964
Wholesale and retail trade                                  38,502          36,101
Manufacturing                                               21,526          17,331
Transport and transport equipment                           26,381          27,408
Recreational activities                                        238             442
Information technology                                       2,504           2,494
Others                                                      40,674          40,676
                                                           306,773         281,484

Individuals
Advances for the purchase of flats under the
  Hong Kong SAR Government's Home
  Ownership Scheme, Private Sector
  Participation Scheme and Tenants
  Purchase Scheme                                           30,738          31,708
Advances for the purchase of other
  residential properties                                   176,591         171,014
Credit card advances                                        35,279          31,315
Others                                                      37,188          26,966
                                                           279,796         261,003

Gross advances to customers for use in Hong Kong           586,569         542,487
Trade finance                                               65,149          56,121

Gross advances to customers for use outside Hong
  Kong made by branches of the bank and subsidiary
  companies in Hong Kong                                    16,471         35,628

Gross advances to customers made by branches of
  the bank and subsidiary companies in Hong Kong           668,189         634,236

Gross advances to customers made by branches of
  the bank and subsidiary companies outside
  Hong Kong:
  - Rest of Asia-Pacific                                   551,152         416,383
  - Americas/Europe                                              5               6

Gross advances to customers                              1,219,346       1,050,625






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