HSBC FY05 REL3; Pt3/5

HSBC Holdings PLC 06 March 2006 Cash and balances with banks and other financial institutions At 31Dec05 At 31Dec04 Figures in HK$m restated Cash in hand 4,772 5,037 Balances with central banks 303 692 Balances with banks and other financial institutions 4,126 1,519 9,201 7,248 Placings with and advances to banks and other financial institutions At 31Dec05 At 31Dec04 Figures in HK$m restated Placings with and advances to banks and other financial institutions maturing within one month 54,338 57,597 Placings with and advances to banks and other financial institutions maturing after one month 14,948 17,482 69,286 75,079 Trading assets At 31Dec05 At 31Dec04 Figures in HK$m restated Treasury bills 2,594 2,347 Certificates of deposit 538 19 Other debt securities 9,440 1,822 Debt securities 12,572 4,188 Equity shares 28 44 12,600 4,232 Debt securities: - listed in Hong Kong 767 693 - listed outside Hong Kong - 7 767 700 - unlisted 11,805 3,488 12,572 4,188 Equity shares: - listed in Hong Kong 17 10 - unlisted 11 34 28 44 12,600 4,232 Debt securities: Issued by public bodies: - central governments and central banks 5,625 4,027 - other public sector entities 1,489 2 7,114 4,029 Issued by other bodies: - banks and other financial institutions 2,836 78 - corporate entities 2,622 81 5,458 159 Equity shares: Issued by corporate entities 28 44 12,600 4,232 Trading assets increased by HK$8,368 million, or 197.7 per cent, due mainly to the increase in other debt securities. On adoption of HKAS 39, certain debt securities and the related interest rate swaps were transferred to the trading book to better reflect the management of these instruments. Financial assets designated at fair value Figures in HK$m At 31Dec05 At 31Dec04 Certificates of deposit 194 - Other debt securities 4,075 - Debt securities 4,269 - Equity shares 1,758 - 6,027 - Debt securities: - listed in Hong Kong 100 - - listed outside Hong Kong 22 - 122 - - unlisted 4,147 - 4,269 - Equity shares: - listed in Hong Kong 732 - - listed outside Hong Kong 979 - 1,711 - - unlisted 47 - 1,758 - 6,027 - Debt securities: Issued by public bodies: - central governments and central banks 865 - - other public sector entities 295 - 1,160 - Issued by other bodies: - banks and other financial institutions 2,937 - - corporate entities 172 - 3,109 - Equity shares: Issued by corporate entities 1,758 - 6,027 - Financial assets are designated at fair value, usually together with the related liabilities or derivative financial instruments, primarily for the purpose of eliminating or significantly reducing the accounting mismatch. The figures also include those financial assets of the life insurance funds designated at fair value for backing policyholder liabilities. The policy and criteria for financial instruments designated at fair value are set out in the appendix. Advances to customers At 31Dec05 At 31Dec04 Figures in HK$m restated Gross advances to customers 261,714 252,564 Loan impairment allowances: - individually assessed (524) (692) - collectively assessed (510) (319) 260,680 251,553 Included in advances to customers are: - trade bills 3,024 3,053 - loan impairment allowances (14) (8) 3,010 3,045 Loan impairment allowances against advances to customers Collectively assessed Loans not individually Individually Portfolio identified as Figures in HK$m assessed basis impaired Total At 1 January 2005 (restated) 692 30 289 1,011 Amounts written off (510) (166) - (676) Recoveries of advances written off in previous years 53 48 - 101 New impairment allowances charged to income statement 707 176 187 1,070 Impairment allowances released to income statement (398) (54) - (452) Unwind of discount of loan impairment allowances (20) - - (20) At 31 December 2005 524 34 476 1,034 Total loan impairment allowances as a percentage of gross advances to customers are as follows: At 31Dec05 At 31Dec04 % restated % Loan impairment allowances - individually assessed 0.20 0.27 - collectively assessed -- portfolio basis 0.01 0.01 -- loans not individually identified as impaired 0.18 0.12 Total loan impairment allowances 0.39 0.40 Total loan impairment allowances as a percentage of gross advances to customers stood at 0.39 per cent at 31 December 2005, compared with 0.40 per cent at the previous year-end. Individually assessed allowances as a percentage of gross advances fell to 0.20 per cent, reflecting the writing off of irrecoverable balances against impairment allowances, and the release of impairment allowances on mortgage and personal loans under the rising property market and stable credit environment. Collectively assessed allowances were 0.19 per cent of gross advances to customers. Impaired advances/non-performing advances and allowances At 31Dec05 At 31Dec04 Figures in HK$m restated Gross impaired advances/non-performing advances 1,433 1,793 Loan impairment allowances (558) (722) Net impaired advances/non-performing advances 875 1,071 Loan impairment allowances as a percentage of gross impaired advances/ non-performing advances 38.9% 40.3% Gross impaired advances/non-performing advances as a percentage of gross advances to customers 0.5% 0.7% Impaired advances are individually assessed advances with objective evidence of impairment on an individual basis. Impairment allowances are made to write down the carrying value of the advances to the discounted value of future recoverable amounts, including the realisation of collateral. Non-performing advances are advances on which interest has been placed in suspense or on which interest accrual has ceased to accrue. Gross impaired advances as a percentage of gross advances to customers stood at 0.5 per cent, compared with the ratio of gross non-performance advances to gross advances to customers of 0.7 per cent in 2004. Gross impaired advances were HK$1,433 million, which was lower than the non-performing advances of HK$1,793 million at last year-end, mainly due to the recovery and upgrading of residential mortgages. Overdue advances Advances to customers that are more than three months overdue and their expression as a percentage of gross advances to customers are as follows: At 31Dec05 At 31Dec04 restated HK$m % HK$m % Gross advances to customers which have been overdue with respect to either principal or interest for periods of: - six months or less but over three months 482 0.2 587 0.2 - one year or less but over six months 211 0.1 304 0.1 - over one year 169 - 430 0.2 862 0.3 1,321 0.5 Advances with a specific repayment date are classified as overdue when the principal or interest is overdue and remains unpaid at year-end. Advances repayable by regular instalments are treated as overdue when an instalment payment is overdue and remains unpaid at year-end. Advances repayable on demand are classified as overdue either when a demand for repayment has been served on the borrower but repayment has not been made in accordance with the demand notice, or when the advances have remained continuously outside the approved limit advised to the borrower for more than the overdue period in question. Rescheduled advances Rescheduled advances and their expression as a percentage of gross advances to customers is as follows: At 31Dec05 At 31Dec04 restated HK$m % HK$m % Rescheduled advances to customers 361 0.1 1,512 0.6 Rescheduled advances are those that have been rescheduled or renegotiated for reasons related to the borrower's financial difficulties. This will normally involve the granting of concessionary terms and resetting the overdue account to non-overdue status. A rescheduled advance will continue to be disclosed as such unless the debt has been performing in accordance with the rescheduled terms for a period of six to 12 months. Rescheduled advances that have been overdue for more than three months under the rescheduled terms are reported as overdue advances to customers (page 37). Rescheduled advances fell by HK$1,151 million, or 76.1 per cent, to HK$361 million at 31 December 2005, representing only 0.1 per cent of gross advances to customers. The reduction was mainly the result of the repayment and upgrade of certain corporate customer and personal loans. Segmental analysis of advances to customers by geographical area Advances to customers by geographical area are classified according to the location of the counterparties after taking into account the transfer of risk. In general, risk transfer applies when an advance is guaranteed by a party located in an area which is different from that of the counterparty. At 31 December 2005, over 90 per cent of the group's advances to customers, including related impaired advances and overdue advances, were classified under Hong Kong (position unchanged from that at 31 December 2004). Gross advances to customers by industry sector The analysis of gross advances to customers by industry sector based on categories and definitions used by the Hong Kong Monetary Authority ('HKMA') is as follows: At 31Dec05 At 31Dec04 Figures in HK$m restated Gross advances to customers for use in Hong Kong Industrial, commercial and financial sectors Property development 16,446 12,818 Property investment 45,964 44,732 Financial concerns 968 3,996 Stockbrokers 221 314 Wholesale and retail trade 5,562 5,460 Manufacturing 7,761 4,384 Transport and transport equipment 11,919 11,173 Other 21,628 22,010 110,469 104,887 Individuals Advances for the purchase of flats under the Government Home Ownership Scheme, Private Sector Participation Scheme and Tenants Purchase Scheme 22,879 26,386 Advances for the purchase of other residential properties 81,318 79,987 Credit card advances 7,735 6,534 Other 7,563 7,122 119,495 120,029 Total gross advances for use in Hong Kong 229,964 224,916 Trade finance 15,874 15,539 Gross advances for use outside Hong Kong 15,876 12,109 Gross advances to customers 261,714 252,564 Lending to the industrial, commercial and financial sectors rose by 5.3 per cent during 2005. Property development and investment grew by 8.4 per cent, reflecting the active property market. Wholesale, retail and manufacturing together were up by 35.3 per cent, driven by the continued expansion of the economy and growth in external trade. Lending to the transport and transport equipment sector, including taxi and other motor vehicle loans, recorded growth of 6.7 per cent. Financial concerns lending fell by 75.8 per cent, due mainly to the repayment of a money market loan from a public sector entity. Lending to individuals fell by 0.4 per cent compared with the end of 2004. Excluding mortgages under the GHOS Scheme, which remained suspended during 2005, lending to individuals grew by 3.2 per cent. Residential mortgages went up by 1.7 per cent in an active and competitive market. Card advances rose by 18.4 per cent, reflecting increases in card spending and in the card base of 19.7 per cent and 10.2 per cent respectively. Personal advances, grouped under the 'Other' sector, grew by 51.8 per cent, reflecting the success of the group in expanding its consumer finance business. Trade finance advances rose by 2.2 per cent. The growth in trade finance to CMB customers, who benefited from the strong regional trade flows, was partly offset by repayments made by certain CIB trading corporations. Gross advances for use outside Hong Kong recorded growth of 31.1 per cent. The loan portfolio of the mainland branches expanded by 41.9 per cent in 2005 to HK$10.5 billion, with encouraging growth recorded in commercial and residential mortgage lending. Financial investments At 31Dec05 At 31Dec04 Figures in HK$m restated Available-for-sale at fair value - debt securities 177,813 - - equity shares 1,360 - Long-term equity shares at fair value - 1,838 Other financial investments attributable to policyholders - debt securities at fair value - 676 - equity shares at fair value - 1,092 Held-to-maturity debt securities at amortised cost 10,731 181,100 189,904 184,706 Fair value of held-to-maturity debt securities 10,778 182,577 Treasury bills 4,816 4,280 Certificates of deposit 27,048 35,424 Other debt securities 156,680 142,072 Debt securities 188,544 181,776 Equity shares 1,360 2,930 189,904 184,706 Debt securities: - listed in Hong Kong 3,008 5,757 - listed outside Hong Kong 1,947 28,497 4,955 34,254 - unlisted 183,589 147,522 188,544 181,776 Equity shares: - listed in Hong Kong 1,049 2,040 - listed outside Hong Kong 186 503 1,235 2,543 - unlisted 125 387 1,360 2,930 189,904 184,706 Fair value of listed financial investments 6,209 36,927 Debt securities: Issued by public bodies: - central governments and central banks 15,981 20,134 - other public sector entities 8,667 13,932 24,648 34,066 Issued by other bodies: - banks and other financial institutions 149,557 128,051 - corporate entities 14,339 19,659 163,896 147,710 Equity shares: Issued by corporate entities 1,360 2,930 189,904 184,706 Available-for-sale investments include treasury bills, certificates of deposit, other debt securities and equity shares intended to be held for an indefinite period of time, but which may be sold in response to needs for liquidity or changes in the market environment. Available-for-sale investments are carried at fair value with the gains and losses from change in fair value recognised through equity reserves. Held-to-maturity debt securities are stated at amortised cost. Where debt securities have been purchased at a premium or discount, the carrying value of the security is adjusted to reflect the effective interest rate of the debt security taking into account such premium or discount. On adoption of HKAS 39 on 1 January 2005, with the exception of the portfolio of debt securities for life insurance funds, the group has re-designated all held-to-maturity debt securities as available-for-sale securities, trading assets and financial assets designated at fair value. There was no such re-designation in 2004, as retrospective application of HKAS 39 is not permitted. Amounts due from/to immediate holding company and fellow subsidiary companies At balance sheet dates, the amounts due from/to immediate holding company and fellow subsidiary companies included in the assets and liabilities balances of the consolidated balance sheet are analysed as follows: At 31Dec05 At 31Dec04 Figures in HK$m restated Amounts due from: Cash and balances with banks and other financial institutions 718 1,227 Placings with and advances to banks and other financial institutions 3,495 2,416 Trading assets 50 - Derivative financial instruments 145 177 Financial assets designated at fair value 2,299 - Financial investments 1,135 1,728 Other assets 29 47 7,871 5,595 At 31Dec05 At 31Dec04 Figures in HK$m restated Amounts due to: Customer accounts 167 165 Deposits from banks 5,136 3,301 Derivative financial instruments 488 308 Subordinated liabilities 2,016 - Other liabilities 361 157 8,168 3,931 Investments in associates At 31Dec05 At 31Dec04 Figures in HK$m restated Share of net assets 2,611 1,988 Goodwill 318 311 2,929 2,299 Investments in associates rose by 27.4 per cent, mainly reflecting the increase in share of profits from associates. Intangible assets At 31Dec05 At 31Dec04 Figures in HK$m restated Value of in-force long-term assurance business 1,565 1,249 Internal developed software 56 - Other intangible assets 15 17 1,636 1,266 Other assets At 31Dec05 At 31Dec04 Figures in HK$m restated Items in the course of collection from other banks 8,068 4,456 Prepayments and accrued income 3,016 2,420 Deferred tax assets 9 11 Non current assets held for sale 216 320 Acceptances and endorsements 2,371 - Other accounts 1,545 2,123 15,225 9,330 On adoption of HKFRS 5, repossessed collateral assets have been reclassified from 'Advances to customers' to 'Non current assets held for sale' under 'Other assets'. Current, savings and other deposit accounts At 31Dec05 At 31Dec04 Figures in HK$m restated Current, savings and other deposit accounts: - as per consolidated balance sheet 430,995 447,460 - structured deposits reported as trading liabilities 24,422 - 455,417 447,460 By type: - demand and current accounts 27,248 36,148 - savings accounts 188,839 251,192 - time and other deposits 239,330 160,120 455,417 447,460 Certificates of deposit and other debt securities in issue At 31Dec05 At 31Dec04 Figures in HK$m restated Certificates of deposit and other debt securities in issue: - as per consolidated balance sheet 10,023 16,055 - structured certificates of deposit and other debt securities in issue reported as trading liabilities 13,616 - 23,639 16,055 By type: - Certificates of deposit in issue 22,525 15,409 - Other debt securities in issue 1,114 646 23,639 16,055 Customer deposits, including certificates and other debt securities in issue, rose 3.4 per cent to HK$479.1 billion. Current, savings and other deposit accounts (including structured deposits reported as trading liabilities) rose by HK$8.0 billion, or 1.8 per cent, to HK$455.4 billion at 31 December 2005. Certificates of deposit and other debt securities in issue (including those reported as trading liabilities) recorded encouraging growth of HK$7.6 billion, or 47.2 per cent, to HK$23.6 billion at 31 December 2005. In the rising interest rate environment, customer deposits have shifted from current and savings accounts to time deposits. Certificates of deposit and structured deposit instruments with yield enhancement features also gained in popularity. Trading liabilities At 31Dec05 At 31Dec04 Figures in HK$m restated Certificates of deposit and other debt securities in issue 13,616 - Structured deposits 24,422 - Short positions in securities 7,766 5,840 45,804 5,840 Trading liabilities includes customer deposits and certificates of deposit with embedded options or other derivatives, the market risk of which was managed in the trading book. This information is provided by RNS The company news service from the London Stock Exchange

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