HK & Shanghai Bk Pt 3/3
HSBC Holdings PLC
05 March 2007
20. 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 31Dec06 At 31Dec05
Gross advances to customers for use in Hong Kong
Industrial, commercial and financial
Property development 46,352 41,141
Property investment 99,580 104,214
Financial concerns 10,136 12,667
Stockbrokers 964 1,094
Wholesale and retail trade 36,101 34,256
Manufacturing 17,331 17,847
Transport and transport equipment 27,408 31,202
Others 43,612 44,697
281,484 287,118
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 31,708 36,291
Advances for the purchase of other
residential properties 171,014 165,148
Credit card advances 31,315 29,882
Others 26,966 23,826
261,003 255,147
Gross advances to customers for use in Hong Kong 542,487 542,265
Trade finance 56,121 49,902
Gross advances to customers for use outside
Hong Kong made by branches of the bank
and subsidiary companies in Hong Kong 35,628 31,989
Gross advances to customers made by
branches of the bank and subsidiary
companies in Hong Kong 634,236 624,156
Gross advances to customers made by
branches of the bank and subsidiary
companies outside Hong Kong:
- Rest of Asia-Pacific 416,383 381,741
- Americas/Europe 6 5
Gross advances to customers 1,050,625 1,005,902
21. 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 per cent 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 31Dec06
Americas
United States 62,558 78,354 72,669 213,581
Other 38,585 6,568 47,393 92,546
101,143 84,922 120,062 306,127
Europe
United Kingdom 138,625 17 24,324 162,966
Other 405,950 5,010 18,981 429,941
544,575 5,027 43,305 592,907
Asia-Pacific excluding Hong Kong 213,292 93,968 116,242 423,502
At 31Dec05
Americas
United States 38,673 72,477 34,515 145,665
Other 39,328 9,909 50,744 99,981
78,001 82,386 85,259 245,646
Europe
United Kingdom 111,377 14 22,232 133,623
Other 338,060 5,842 39,509 383,411
449,437 5,856 61,741 517,034
Asia-Pacific excluding Hong Kong 154,135 33,897 108,476 296,508
22. Customer accounts
Figures in HK$m At 31Dec06 At 31Dec05
Current accounts 292,450 245,094
Savings accounts 785,659 682,412
Other deposit accounts 911,358 807,604
1,989,467 1,735,110
Customer accounts increased by HK$254.4 billion, or 14.7 per cent since the end
of 2005. This excludes structured deposits, which rose by HK$26.0 billion, as
these are included with 'Trading liabilities'.
In Hong Kong, customer accounts rose by HK$160.6 billion, or 12.6 per cent,
largely in savings account balances, attributable to successful deposit
campaigns and effective pricing which made savings products more attractive to
customers. Deposits from personal customers increased by HK$100.7 billion, or
12.2 per cent, as a result. In Commercial Banking and Corporate, Investment
Banking and Markets, customer account balances grew by HK$59.9 billion, or 13.0
per cent, supported by targeted campaigns and a new, dedicated service team to
capture the SME customer base, and there was continued growth in the payments
and cash management business.
In the rest of Asia-Pacific, customer accounts increased by HK$94.0 billion, or
20.6 per cent, as the group actively sought to grow the deposit base throughout
the region. Deposits from personal customers grew by HK$37.7 billion, or 23.0
per cent, notably in Singapore, Australia and China. Customer account balances
held by corporate customers rose by HK$56.3 billion, or 19.8 per cent, largely
in India, mainland China, Taiwan and Singapore.
The group's advances-to-deposits ratio fell to 52.5 per cent at 31 December 2006
from 57.6 per cent at 31 December 2005.
23. Reserves
Figures in HK$m At 31Dec06 At 31Dec05
Other reserves
- Property revaluation reserve 4,798 4,082
- Available-for-sale investment reserve 25,812 2,899
- Cash flow hedge reserve (166) (1,767)
- Foreign exchange reserve 2,805 53
- Other 2,265 770
35,514 6,037
Retained profits 80,942 64,303
Total reserves 116,456 70,340
The property revaluation reserve includes an amount of HK$62 million in relation
to properties classified as assets held for sale at 31 December 2006 (31
December 2005: nil). Assets held for sale are included in 'Other assets' in the
consolidated balance sheet.
24. Contingent liabilities, commitments and derivatives
Credit Risk-
Contract equivalent weighted
Figures in HK$m amount amount amount
At 31Dec06
Contingent liabilities
- Guarantees 100,964 73,862 60,534
- Other 35 35 35
100,999 73,897 60,569
Commitments
- Documentary credits and short-term
trade-related transactions 56,732 21,632 11,680
- Undrawn note issuing and revolving
underwriting facilities 1,166 583 -
- Undrawn formal standby facilities, credit lines
and other commitments:
- one year and over 94,241 47,120 43,635
- under one year 887,680 - -
1,039,819 69,335 55,315
Derivatives
Exchange rate contracts
- Spot and forward foreign exchange 3,267,333 52,122 13,334
- Swap and other exchange rate contracts 1,262,208 56,377 16,868
4,529,541 108,499 30,202
Interest rate contracts
- Interest rate swaps 6,919,779 69,936 17,832
- Other interest rate contracts 918,146 5,641 1,808
7,837,925 75,577 19,640
Forward asset purchases and forward forward
deposits placed 2,588 2,588 2,463
Other derivative contracts 554,801 27,935 9,041
557,389 30,523 11,504
Impact of counterparty netting agreements on
derivatives exposure - (67,516) (14,352)
At 31Dec05
Contingent liabilities
- Guarantees 83,114 60,166 48,893
- Other 37 37 37
83,151 60,203 48,930
Commitments
- Documentary credits and short-term
trade-related transactions 55,402 20,650 10,905
- Undrawn note issuing and revolving
underwriting facilities 3,249 1,625 975
- Undrawn formal standby facilities, credit lines
and other commitments:
- one year and over 97,207 48,604 41,115
- under one year 752,797 - -
908,655 70,879 52,995
Derivatives
Exchange rate contracts
- Spot and forward foreign exchange 2,536,795 36,655 9,753
- Swap and other exchange rate contracts 884,046 41,124 12,481
3,420,841 77,779 22,234
Interest rate contracts
- Interest rate swaps 4,775,236 55,580 14,442
- Other interest rate contracts 815,110 4,159 1,340
5,590,346 59,739 15,782
Forward asset purchases and forward forward
deposits placed 1,849 1,849 775
Other derivative contracts 289,019 15,885 5,649
290,868 17,734 6,424
Impact of counterparty netting agreements on
derivatives exposure - (55,354) (11,915)
The tables above give the nominal contract amounts, credit equivalent amounts
and risk-weighted amounts of contingent liabilities, commitments and
derivatives. The credit equivalent amounts are calculated for the purposes of
deriving the risk-weighted amounts. These are assessed in accordance with the
Third Schedule of the Hong Kong Banking Ordinance on capital adequacy and depend
on the status of the counterparty and maturity characteristics. The risk-weights
used range from 0 per cent to 100 per cent.
Contingent liabilities and commitments are credit-related instruments. The
contract amounts represent the amounts at risk should the contracts be fully
drawn upon and the customers default. Since a significant portion of guarantees
and commitments is expected to expire without being drawn upon, the total of the
contract amounts is not representative of future liquidity requirements.
Derivatives arise from futures, forward, swap and option transactions undertaken
by the group in the foreign exchange, interest rate, equity, credit and
commodity markets. The contract amounts of these instruments indicate the volume
of transactions outstanding at the balance sheet date; they do not represent
amounts at risk.
Fair value of derivative assets
Figures in HK$m At 31Dec06 At 31Dec05
Exchange rate contracts 42,862 31,074
Interest rate contracts 46,809 38,319
Other derivative contracts 9,496 2,646
99,167 72,039
Less: netting adjustments (40,339) (32,038)
58,828 40,001
The fair value of derivative assets represents the mark-to-market amounts of all
derivative contracts with a positive value. These assets arise from contracts
with third parties and fellow subsidiaries and are included in the balance sheet
as 'Derivatives'.
Fair value is a close approximation of the credit risk for these contracts at
the balance sheet date. The actual credit risk is measured internally as the sum
of positive mark-to-market values and an estimate for the future fluctuation
risk, using a future risk factor.
The netting adjustments represent amounts where the group has in place legally
enforceable rights of offset with individual counterparties to offset the gross
amount of positive mark-to-market assets with any negative mark-to-market
liabilities with the same customer. These offsets are recognised by the HKMA in
the calculation of risk assets for the capital adequacy ratio.
25. Foreign exchange exposure
Foreign exchange exposures may be divided broadly into two categories:
structural and non-structural. Structural exposures are normally long-term in
nature and include those arising from investments in overseas subsidiaries,
branches, associates and strategic investments as well as capital instruments
denominated in currencies other than Hong Kong dollars. Non-structural exposures
arise primarily from trading positions and balance sheet management activities.
Non-structural exposures can arise and change rapidly. Foreign currency
exposures are managed in accordance with the group's risk management policies
and procedures.
The group had the following structural foreign currency exposures which exceeded
10 per cent of the total net structural exposure in all foreign currencies:
Figures in HK$m Net structural position
At 31Dec06
Chinese renminbi 54,960
United States dollars 15,886
At 31Dec05
Chinese renminbi 32,510
Indian rupees 7,979
United States dollars 11,780
The increase in the Chinese renminbi structural position during 2006 was largely
attributable to the rise in the market value of the group's shareholding in Ping
An Insurance. The Indian rupee exposure fell to below 10 per cent of the group's
total foreign currency structural exposure following the disposal of shares in
UTI Bank.
The group had the following non-structural foreign currency positions which
exceeded 10 per cent of the group's net non-structural positions in all foreign
currencies:
United States Singapore Brunei
Figures in HK$m dollars dollars dollars
At 31Dec06
Spot assets 1,205,314 118,964 27,665
Spot liabilities (1,222,334) (140,566) (107)
Forward purchases 2,222,005 168,534 24,949
Forward sales (2,210,290) (141,505) (57,857)
Net options position (132) - -
(5,437) 5,427 (5,350)
At 31Dec05
Spot assets 1,229,340 107,578 5,523
Spot liabilities (1,188,737) (90,549) (18,062)
Forward purchases 1,507,086 157,007 43
Forward sales (1,558,902) (161,647) -
Net options position 3,361 - -
(7,852) 12,389 (12,496)
26. Segmental analysis
The allocation of earnings reflects the benefits of shareholders' funds to the
extent that these are actually allocated to businesses in the segment by way of
intra-group capital and funding structures. Interest is charged based on market
rates. Common costs are included in segments on the basis of the actual
recharges made. Geographical information has been classified by the location of
the principal operations of the subsidiary company or, in the case of the bank,
by the location of the branch responsible for reporting the results or advancing
the funds. Due to the nature of the group structure, the analysis of profits
shown below includes intra-group items between geographical regions with the
elimination shown in a separate column.
Consolidated income statement
Intra-
Rest of Americas/ segment
Figures in HK$m Hong Kong Asia-Pacific Europe elimination Total
Year ended 31Dec06
Interest income 82,301 40,151 884 (7,408) 115,928
Interest expense (46,490) (24,960) (804) 7,425 (64,829)
Net interest income 35,811 15,191 80 17 51,099
Fee income 17,347 9,925 - (718) 26,554
Fee expense (3,030) (1,826) (12) 718 (4,150)
Net trading income/(loss) 3,077 5,871 (13) (17) 8,918
Net income from financial instruments
designated at fair value 2,048 622 - - 2,670
Gains less losses from financial
investments 1,245 221 - - 1,466
Dividend income 525 224 - - 749
Net earned insurance premiums 20,495 1,351 - - 21,846
Other operating income 6,171 2,073 22 (2,613) 5,653
Total operating income 83,689 33,652 77 (2,613) 114,805
Net insurance claims incurred and
movement in policyholders'
liabilities (20,991) (1,489) - - (22,480)
Net operating income before loan
impairment charges and other
credit risk provisions 62,698 32,163 77 (2,613) 92,325
Loan impairment charges and
other credit risk provisions (1,336) (3,473) - - (4,809)
Net operating income 61,362 28,690 77 (2,613) 87,516
Operating expenses (23,534) (17,287) (31) 2,613 (38,239)
Operating profit 37,828 11,403 46 - 49,277
Share of profit in associates and
joint venture 150 2,589 - - 2,739
Profit before tax 37,978 13,992 46 - 52,016
Tax expense (6,079) (3,317) (15) - (9,411)
Profit for the year 31,899 10,675 31 - 42,605
Profit attributable to shareholders 27,206 10,472 31 - 37,709
Profit attributable to minority
interests 4,693 203 - - 4,896
Year ended 31Dec05
Interest income 55,139 29,613 529 (5,082) 80,199
Interest expense (24,149) (17,336) (305) 5,082 (36,708)
Net interest income 30,990 12,277 224 - 43,491
Fee income 14,237 7,921 2 (489) 21,671
Fee expense (2,252) (1,803) (8) 489 (3,574)
Net trading income/(loss) 3,152 4,198 (170) - 7,180
Net income/(loss) from financial
instruments designated at
fair value (69) 453 - - 384
Gains less losses from financial
investments 714 42 - - 756
Dividend income 350 18 - - 368
Net earned insurance premiums 18,140 1,200 - - 19,340
Other operating income 6,480 1,131 22 (2,736) 4,897
Total operating income 71,742 25,437 70 (2,736) 94,513
Net insurance claims incurred and
movement in policyholders'
liabilities (16,002) (1,289) - - (17,291)
Net operating income before loan
impairment charges and other
credit risk provisions 55,740 24,148 70 (2,736) 77,222
Loan impairment charges and
other credit risk provisions (1,161) (915) 12 - (2,064)
Net operating income 54,579 23,233 82 (2,736) 75,158
Operating expenses (20,514) (13,998) (38) 2,736 (31,814)
Operating profit 34,065 9,235 44 - 43,344
Share of profit in associates and
joint venture 178 1,727 - - 1,905
Profit before tax 34,243 10,962 44 - 45,249
Tax expense (5,411) (2,634) (6) - (8,051)
Profit for the year 28,832 8,328 38 - 37,198
Profit attributable to shareholders 24,644 8,191 38 - 32,873
Profit attributable to minority
interests 4,188 137 - - 4,325
27. Capital adequacy
The table below sets out an analysis of regulatory capital and capital adequacy
ratios for the group:
Figures in HK$m At 31Dec06 At 31Dec05
Composition of capital
Tier 1:
Total shareholders' equity 145,450 97,334
Less: proposed dividend (6,500) (4,500)
property revaluation reserves^ (7,892) (7,892)
available-for-sale investment reserve^^ (26,028) (3,051)
classified as regulatory reserve^^^ (1,689) (1,319)
goodwill (4,182) (3,784)
others (138) 1,769
Irredeemable non-cumulative preference shares 51,735 51,587
Minority interests^^^^ 17,483 14,808
Total qualifying tier 1 capital 168,239 144,952
Tier 2:
Property revaluation reserves (@70%) 5,524 5,524
Available-for-sale investment reserve (@70%) 18,220 2,136
Collective impairment provision and regulatory reserve 6,610 5,112
Perpetual subordinated debt 9,370 9,359
Term subordinated debt 9,849 6,117
Term preference shares 8,165 3,877
Irredeemable cumulative preference shares 16,563 16,516
Total qualifying tier 2 capital 74,301 48,641
Deductions (58,559) (39,528)
Total capital 183,981 154,065
Risk-weighted assets 1,367,607 1,238,164
^ Includes the revaluation surplus on investment properties, which is now
reported as part of retained profits.
^^ Includes adjustments made in accordance with guidelines issued by HKMA.
^^^ The regulatory reserve is maintained for the purpose of satisfying the
Banking Ordinance for prudential supervision. Movements in this reserve are
made in consultation with the HKMA.
^^^^ After deduction of minority interests in unconsolidated subsidiary
companies.
The group's capital adequacy ratios adjusted for market risks calculated in
accordance with the HKMA Guideline on 'Maintenance of Adequate Capital Against
Market Risks' are as follows:
At 31Dec06 At 31Dec05
Total capital 13.5% 12.4%
Tier 1 capital 12.3% 11.7%
The group's capital adequacy ratios calculated in accordance with the provisions
of the Third Schedule of the Banking Ordinance, which does not take into account
market risks, are as follows:
Total capital 13.0% 12.0%
Tier 1 capital 11.8% 11.2%
With effect from 1 January 2007, the group has adopted the 'standardised
approach' of capital calculation under the HKMA 'Banking (Capital) Rules'.
The increase in the group's total capital ratio at 31 December 2006 reflects
additional capital raised in anticipation of different capital requirements
under the new rules.
28. Liquidity ratio
The Hong Kong Banking Ordinance requires banks operating in Hong Kong to
maintain a minimum liquidity ratio of 25 per cent, 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 which are Authorised Institutions under the Banking Ordinance in Hong
Kong.
2006 2005
The average liquidity ratio for the
year was as follows:
Hong Kong branches of the bank 49.3% 48.2%
29. Property revaluation
The group's premises and investment properties were revalued as at 30 September
2006 and updated for any material changes as at 31 December 2006. The basis of
valuation was open market value or depreciated replacement cost.
Premises and investment properties in the Hong Kong SAR, the Macau SAR and
mainland China, which represent 95 per cent by value of the group's properties
subject to valuation, were valued by DTZ Debenham Tie Leung Limited. The
valuations were carried out by qualified valuers who are members of the Hong
Kong Institute of Surveyors. Properties in 11 other countries, which represent
five per cent by value of the group's properties, were valued by different
independent professionally qualified valuers.
The September property revaluation, together with the revaluation of Hong Kong
properties undertaken in June 2006, has resulted in an increase in the group's
revaluation reserves of HK$1,356 million, net of deferred taxation of HK$383
million, and a credit to the income statement of HK$389 million. Of the HK$389
million credit to the income statement, HK$319 million represents the surplus on
the revaluation of investment properties and HK$70 million relates to the
reversal of previous revaluation deficits that had arisen when the value of
certain premises fell below depreciated historical cost.
30. 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 2005, as disclosed in the Annual Report and Accounts for 2005.
31. 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 2006, which were approved by
the Board of Directors on 5 March 2007 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 5 March 2007. The Annual Report and
Accounts for the year ended 31 December 2006, which include the financial
statements, can be obtained on request from Group Public Affairs, The Hongkong
and Shanghai Banking Corporation Limited, 1 Queen's Road Central, Hong Kong, and
may be viewed on our website: www.hsbc.com.hk on or after 3 April 2007.
32. Ultimate holding company
The Hongkong and Shanghai Banking Corporation Limited is an indirectly held,
wholly-owned subsidiary of HSBC Holdings plc.
This information is provided by RNS
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