HSBC Ltd - Part 2 Results

HSBC Hldgs PLC 26 February 2001 HSBC Hldgs PLC NEWS RELEASE 3 PART(2) OF (2) 10. Overdue advances to customers (continued) Rest of Hong Asia- Americas/ Figures in HK$m Kong Pacific Europe Total At 31 December 1999 Gross advances to customers which have been overdue with respect to either principal or interest for periods of^ - six months or less but over three months 2,240 1,785 - 4,025 - one year or less but over six months 4,727 3,076 9 7,812 - over one year 11,809 8,225 - 20,034 18,776 13,086 9 31,871 Overdue advances to customers as a percentage of gross advances to customers^^ - six months or less but over three months 0.4% 1.1% - 0.6% - one year or less but over six months 1.0% 1.9% 1.0% 1.2% - over one year 2.4% 4.9% - 3.0% 3.8% 7.9% 1.0% 4.8% Overdue advances to customers (as above) 18,776 13,086 9 31,871 Less: overdue advances on which interest is still being accrued (652) (371) - (1,023) Add: advances overdue for periods of three months or less, or which are not yet overdue, and on which interest has been placed in suspense: - included in rescheduled advances 1,084 768 298 2,150 - other 5,145 5,169 18 10,332 Gross non-performing advances (Note 9) 24,353 18,652 325 43,330 ^ Gross overdue advances to customers are stated after deduction of interest in suspense. ^^ Expressed as a percentage of gross advances to customers after deduction of interest in suspense. 11. Rescheduled advances to customers Rest of Hong Asia- Americas/ Figures in HK$m Kong Pacific Europe Total At 31 December 2000 Rescheduled advances to customers^ 4,691 2,643 20 7,354 Rescheduled advances to customers as a percentage of gross advances to customers^^ 0.9% 1.6% 7.1% 1.1% At 31 December 1999 Rescheduled advances to customers^ 2,679 1,328 298 4,305 Rescheduled advances to customers as a percentage of gross advances to customers^^ 0.5% 0.8% 32.3% 0.6% Rescheduled advances are those advances which have been restructured or renegotiated because of a deterioration in the financial position of the borrower, or because of the inability of the borrower to meet the original repayment schedule. Rescheduled advances to customers are stated net of any advances which have subsequently become overdue for over three months and which are included in overdue advances to customers (Note 10). ^ Rescheduled advances are stated after deduction of interest in suspense. ^^Expressed as a percentage of gross advances to customers after deduction of interest in suspense. 12. 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 Hong Asia- Americas/ Figures in HK$m Kong Pacific Europe Total At 31 December 2000 Residential mortgages 180,192 23,770 - 203,962 Hong Kong SAR Government's Home Ownership Scheme and Private Sector Participation Scheme and Tenants Purchase Scheme mortgages 57,345 - - 57,345 Other personal 36,932 12,406 4 49,342 Total personal 274,469 36,176 4 310,649 Commercial, industrial and international trade 74,740 62,490 - 137,230 Commercial real estate 64,612 18,930 70 83,612 Other property-related lending 29,627 6,046 - 35,673 Government 1,014 2,548 207 3,769 Other commercial 58,177 32,547 - 90,724 Total corporate and commercial 228,170 122,561 277 351,008 Non-bank financial institutions 12,974 4,355 - 17,329 Settlement accounts 1,108 524 - 1,632 Total financial 14,082 4,879 - 18,961 Gross advances to customers 516,721 163,616 281 680,618 Suspended interest (2,710) (961) - (3,671) Provisions for bad and doubtful debts (14,054) (10,360) (30) (24,444) Net advances to customers 499,957 152,295 251 652,503 Rest of Hong Asia- Americas/ Figures in HK$m Kong Pacific Europe Total At 31 December 1999 Residential mortgages 183,558 18,994 6 202,558 Hong Kong SAR Government's Home Ownership Scheme and Private Sector Participation Scheme and Tenants Purchase Scheme mortgages 51,030 - - 51,030 Other personal 32,927 10,951 14 43,892 Total personal 267,515 29,945 20 297,480 Commercial, industrial and international trade 75,751 68,147 - 143,898 Commercial real estate 69,862 22,858 477 93,197 Other property-related lending 16,263 7,251 - 23,514 Government 1,065 2,527 241 3,833 Other commercial 53,403 31,325 195 84,923 Total corporate and commercial 216,344 132,108 913 349,365 Non-bank financial institutions 16,018 5,969 - 21,987 Settlement accounts 881 122 - 1,003 Total financial 16,899 6,091 - 22,990 Gross advances to customers 500,758 168,144 933 669,835 Suspended interest (2,864) (1,576) (11) (4,451) Provisions for bad and doubtful debts (14,668) (14,305) (160) (29,133) Net advances to customers 483,226 152,263 762 636,251 13.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 and is shown net of suspended interest Figures in HK$m At 31 Dec 2000 At 31 Dec 1999 Gross advances to customers for use in Hong Kong Industrial, commercial and financial Property development 34,671 31,815 Property investment 69,149 61,624 Financial concerns 12,264 15,899 Stockbrokers 186 660 Wholesale and retail trade 22,894 25,237 Manufacturing 8,331 8,717 Transport and transport equipment 28,371 25,940 Others 40,086 39,884 215,952 209,776 Individuals Advances for the purchase of flats under the Hong Kong SAR Government's Home Ownership Scheme and Private Sector Participation and Tenant Purchase Scheme 57,345 51,030 Advances for the purchase of other residential properties 162,090 164,452 Credit card advances 14,919 11,567 Others 20,877 20,390 255,231 247,439 Gross advances to customers for use in Hong Kong 471,183 457,215 Trade finance 32,771 30,506 Gross advances to customers for use outside Hong Kong made by branches of the bank and subsidiary companies in Hong Kong 10,057 10,173 Gross advances to customers made by branches of the bank and subsidiary companies in Hong Kong 514,011 497,894 Gross advances to customers made by branches of the bank and subsidiary companies outside Hong Kong -rest of Asia-Pacific 162,655 166,568 -Americas/Europe 281 922 Gross advances to customers net of suspended interest 676,947 665,384 An explanation of the significant differences between the categories of advances and their definitions used by the HSBC Group and those used by the HKMA is given on pages 12-14 and 41-43 of the Annual Report and Accounts for 1999. 14. Reserves Figures in HK$m At 31 Dec 2000 At 31 Dec 1999 Share premium account 3,891 3,876 Revaluation reserves - Premises revaluation reserve 12,694 11,335 - Investment properties revaluation reserve 2,284 2,148 - Long-term equity investment revaluation reserve 3,867 4,604 18,845 18,087 Retained profits 44,818 41,265 67,554 63,228 15. Contingent liabilities, commitments and derivatives Credit Risk- Contract equivalent weighted Figures in HK$m amount amount amount At 31 December 2000 Contingent liabilities - Acceptances and endorsements 12,092 2,548 2,391 - Guarantees 55,971 45,081 35,758 - Other 27 27 27 68,090 47,656 38,176 Commitments - Documentary credits and short- term trade-related transactions 37,641 9,345 7,084 - Forward asset purchases and forward forward deposits placed 2,661 2,661 532 - Undrawn note issuing and revolving underwriting facilities - - - - Undrawn formal standby facilities, credit lines and other commitments to lend: - one year and over 45,018 22,509 20,993 - under one year 452,257 - - 537,577 34,515 28,609 Exchange rate contracts - Spot and forward foreign exchange 1,603,602 34,595 8,095 - Other exchange rate contracts 218,065 13,666 3,960 1,821,667 48,261 12,055 Interest rate contracts - Interest rate swaps 909,236 13,933 3,320 - Other interest rate contracts 610,220 524 133 1,519,456 14,457 3,453 Other derivative contracts 430 169 161 Impact of counterparty netting agreements on Derivatives' exposure - (16,643) (3,791) Credit Risk- Contract equivalent weighted Figures in HK$m amount amount amount At 31 December 1999 Contingent liabilities - Acceptances and endorsements 9,508 2,038 1,914 - Guarantees 50,583 40,368 31,749 - Other 34 34 34 60,125 42,440 33,697 Commitments - Documentary credits and short- term trade-related transactions 33,875 8,249 7,031 - Forward asset purchases and forward forward deposits placed 1,399 1,399 280 - Undrawn note issuing and revolving underwriting facilities 233 117 117 - Undrawn formal standby facilities, credit lines and other commitments to lend: - one year and over 40,697 20,348 17,818 - under one year 408,949 - - 485,153 30,113 25,246 Exchange rate contracts - Spot and forward foreign exchange 1,320,569 33,926 7,877 - Other exchange rate contracts 183,215 4,278 1,928 1,503,784 38,204 9,805 Interest rate contracts - Interest rate swaps 821,417 7,146 1,810 - Other interest rate contracts 1,026,583 444 128 1,848,000 7,590 1,938 Other derivative contracts 384 236 234 Impact of counterparty netting agreements on derivatives' exposure - (8,004) (1,780) The tables above give the nominal contract amounts, credit equivalent amounts and risk-weighted amounts of off-balance sheet transactions. 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 Banking Ordinance on capital adequacy and depend on the status of the counterparty and the maturity characteristics. The risk weights used range from 0 per cent to 100 per cent for contingent liabilities and commitments, from 0 per cent to 50 per cent for exchange rate and interest rate contracts, and from 0 per cent to 100 per cent for other derivative contracts. The group has executed close-out netting agreements with certain counterparties, which allow for positive and negative mark-to-market values on different transactions to be offset and settled by a single payment in the event of default by either party. These have been taken into account in calculating total risk assets. Contingent liabilities and commitments are credit-related instruments which include acceptances, letters of credit, guarantees and commitments to extend credit. The contract amounts represent the amounts at risk should the contract be fully drawn upon and the client 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 and equity 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. Replacement cost of contracts Figures in HK$m At 31 Dec 2000 At 31 Dec 1999 Exchange rate contracts 28,408 22,802 Interest rate contracts 11,822 5,390 Other derivative contracts 5 5 40,235 28,197 Less: netting adjustments (12,165) (8,004) 28,070 20,193 The replacement cost of contracts represents the mark-to-market assets on all contracts with a positive value, i.e. an asset to the group. This comprises the mark-to-market assets on contracts with third parties and fellow subsidiary companies included in the balance sheet in 'Other assets', and on accrual accounted contracts which are not marked-to-market in the balance sheet. Replacement cost is a close approximation of the credit risk for these contracts as 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 where there is a right 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 Hong Kong Monetary Authority in the calculation of risk assets for the capital adequacy ratio. 16. Country risk and cross-border exposure The in-country risk exposure and cross-border exposure figures in the tables below are for the three Asian countries that have negotiated arrangements with the International Monetary Fund. They are prepared in accordance with the Bank of England Country Exposure Report (Form C1) and the HKMA Return of Cross-Border Claims (MA(BS)9) guidelines. In-country obligations represent local offices' on-balance-sheet exposures to and acceptances given under facilities opened on behalf of local residents. Net cross-border obligations are on-balance-sheet exposures to and acceptances given under facilities opened on behalf of customers based on the country of residence of the borrower or guarantor of ultimate risk, irrespective of whether such exposures are in local or foreign currency. Cross-border risk is controlled centrally through a well- developed system of country limits, which are frequently reviewed to avoid concentrations of transfer, economic or political risks. Given the improvement in the financial condition of all of the countries outlined and, provided there is no marked deterioration in the first half of 2001, we intend to dispense with the country risk and cross-border table from that date. Indonesia South Thailand Korea At 31 December 2000 Figures in HK$bn In-country local currency obligations 2.4 13.2 5.8 In-country foreign currency obligations 6.6 5.5 3.0 Net cross-border obligations 1.8 1.6 0.9 8.4 7.1 3.9 Claims under contracts in financial derivatives - 1.0 0.9 Total 10.8 21.3 10.6 Figures in HK$m Non-performing advances^ 4,307 103 2,061 Specific provisions 3,137 98 1,460 ^ Net of suspended interest. South At 31 December 1999 Indonesia Korea Thailand Figures in HK$bn In-country local currency obligations 4.1 8.6 5.3 In-country foreign currency obligations 6.4 6.0 3.3 Net cross-border obligations 2.3 4.2 1.1 8.7 10.2 4.4 Claims under contracts in financial derivatives - 0.2 0.3 Total 12.8 19.0 10.0 Figures in HK$m Non-performing advances^ 4,750 1,376 2,784 Specific provisions 3,603 977 1,686 ^ Net of suspended interest. 17. Reconciliation of operating profit to net cash inflow from operating activities Figures in HK$m 2000 1999 Operating profit 33,142 23,009 Interest on loan capital 1,182 1,004 Depreciation and amortisation 1,942 1,883 Provisions for bad and doubtful debts 1,355 7,847 Advances written off net of recoveries (5,547) (3,432) Other provisions for liabilities and charges 302 389 Provisions utilised (277) (357) Income on long-term investments (11,545) (10,255) Net cash inflow from trading activities 20,554 20,088 Change in treasury bills with original term to maturity of more than three months (7,235) 7,061 Change in placings with banks maturing after one month 29,058 (48,714) Change in certificates of deposit with original term to maturity of more than three months (10,922) (4,949) Change in securities held for dealing purposes (33,453) (4,740) Change in advances to customers (11,657) 41,811 Change in amounts due from fellow subsidiary companies (667) (14,939) Change in other assets 9,069 (43,274) Change in current, savings and other deposits accounts 132,343 95,825 Change in deposits by banks (9,068) (3,100) Change in amounts due to fellow subsidiary companies 478 567 Change in amounts due to ultimate holding company 143 (10) Change in other liabilities 31 52,185 Exchange adjustments (1,390) 248 Net cash inflow from operating activities 117,284 98,059 18. Analysis of cash and cash equivalents a. Changes in cash and cash equivalents during the year Figures in HK$m 2000 1999 Balance at beginning of period 377,649 326,881 Net cash inflow before the effect of foreign exchange movements 26,847 45,839 Effect of foreign exchange movements (4,681) 4,929 Balance at end of period 399,815 377,649 b. Analysis of balances of cash and cash equivalents as classified in the consolidated balance sheet Figures in HK$m 2000 1999 Cash in hand and current balances with 17,494 24,063 banks Placings with banks 341,485 293,780 Treasury bills 39,264 49,364 Certificates of deposit 1,572 10,442 399,815 377,649 19. 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. 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 geographic regions. The 'Rest of Asia-Pacific' geographical segment includes the Middle East, India and Australia. Profit and loss account: Rest of Hong Asia- Americas/ Figures in HK$m Kong Pacific Europe Total Year ended 31 December 2000 Interest income 89,142 19,901 1,017 110,060 Interest expense (58,173) (13,313) (934) (72,420) Net interest income 30,969 6,588 83 37,640 Dividend income 261 10 8 279 Fees and commissions receivable 9,351 3,722 27 13,100 Fees and commissions payable (1,281) (728) (2) (2,011) Dealing profits 1,715 1,574 (2) 3,287 Rental income from investment properties 260 6 - 266 Other 2,572 250 12 2,834 Operating income 43,847 11,422 126 55,395 Operating expenses (14,716) (6,036) (57) (20,809) Operating profit before provisions 29,131 5,386 69 34,586 Provisions for bad and doubtful debts (1,933) 460 118 (1,355) Provisions for contingent liabilities and commitments (76) (29) 16 (89) Operating profit 27,122 5,817 203 33,142 Profit on tangible fixed assets and long-term investments 985 160 130 1,275 Surplus/(deficit) on property revaluation 96 (42) - 54 Share of profits less losses of associated companies 163 2 - 165 Profit on ordinary activities before tax 28,366 5,937 333 34,636 Tax on profit on ordinary activities (3,646) (1,203) (68) (4,917) Profit on ordinary activities after tax 24,720 4,734 265 29,719 Minority interests (3,838) 84 - (3,754) Profit attributable to shareholders 20,882 4,818 265 25,965 Profit and loss account: Rest of Hong Asia- Americas/ Figures in HK$m Kong Pacific Europe Total Year ended 31 December 1999 Interest income 76,331 17,448 1,167 94,946 Interest expense (47,371) (11,605) (1,017) (59,993) Dividend income 291 15 - 306 Fees and commissions receivable 7,819 3,335 14 11,168 Fees and commissions payable (1,176) (605) (8) (1,789) Dealing profits 1,639 1,528 (1) 3,166 Rental income from investment properties 250 10 - 260 Other 2,408 222 22 2,652 Operating income 40,191 10,348 177 50,716 Operating expenses (14,220) (5,395) (102) (19,717) Operating profit before provisions 25,971 4,953 75 30,999 Provisions for bad and doubtful debts (4,537) (3,485) 175 (7,847) Provisions for contingent liabilities and commitments 19 (147) (15) (143) Operating profit 21,453 1,321 235 23,009 Profit on tangible fixed assets and long-term investments 1,790 13 19 1,822 Deficits on property revaluation (240) (23) - (263) Share of profits less losses of associated companies 115 12 - 127 Profit on ordinary activities before tax 23,118 1,323 254 24,695 Tax on profit on ordinary activities (2,804) (762) (59) (3,625) Profit on ordinary activities after tax 20,314 561 195 21,070 Minority interests (3,185) 20 - (3,165) Profit attributable to shareholders 17,129 581 195 17,905 Interest income and interest expense include intra-group interest of HK$5,407 million (1999: HK$4,290 million). Fees and commissions receivable and fees and commissions payable include intra-group fees of HK$23 million (1999: HK$27 million). Other operating income and operating expenses include intra-group items of HK$356 million (1999: HK$481 million). 20. Capital adequacy The table below sets out an analysis of regulatory capital and capital adequacy ratios for the group. Figures in HK$m At 31 Dec 2000 At 31 Dec 1999 Composition of capital Tier 1: Shareholders' funds 83,812 79,486 Less: property revaluation reserves (14,978) (13,483) long-term equity investments revaluation reserve (3,867) (4,604) term preference shares (3,895) (3,880) goodwill (288) (86) Minority interests^ 15,753 15,457 Total qualifying tier 1 capital 76,537 72,890 Tier 2: Property revaluation reserves (@70%)^^ 7,977 7,977 Long-term equity investments revaluation reserve (@70%) 2,707 3,223 General provisions 5,022 4,356 Perpetual subordinated debt 12,284 12,243 Term subordinated debt 3,479 4,639 Term preference shares 3,895 3,880 Total qualifying tier 2 capital 35,364 36,318 Investments in associated companies (1,641) (1,480) Investments in unconsolidated subsidiary companies (2,016) (1,746) Total capital 108,244 105,982 Risk-weighted assets 817,167 757,257 ^ After deduction of minority interests in unconsolidated subsidiary companies. ^^Capped at 31 December 1998 amount. The group's capital adequacy ratios calculated in accordance with the Hong Kong Monetary Authority Guideline on 'Maintenance of Adequate Capital Against Market Risks' are as follows: At 31 Dec 2000 At 31 Dec 1999 Total capital 13.2% 14.0% Tier 1 capital 9.4% 9.6% 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 risk are as follows: Total capital 13.2% 14.1% Tier 1 capital 9.3% 9.7% 21. Liquidity ratio The Banking Ordinance requires banks operating in Hong Kong to maintain a minimum liquidity ratio, calculated in accordance with the provisions of the Fourth Schedule of the Banking Ordinance, of 25 per cent. 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. 2000 1999 The average liquidity ratio for the year was as follows: Hong Kong branches of the bank 47.0% 38.8% 22. Property revaluation The group's premises and investment properties were revalued by professionally qualified valuers as at 30 November 2000. The basis of the valuation for premises was open market value for existing use or, in the case of the few specialised premises, depreciated replacement cost. The basis of the valuation for investment properties was open market value. Premises and investment properties in the Hong Kong SAR, the Macau SAR and mainland China, which represent 89.8 per cent by value of the group's properties subject to valuation, were valued by HSBC Property (Asia) Limited, a subsidiary of the bank. The valuations were carried out by qualified valuers who are members of the Hong Kong Institute of Surveyors. Properties in six countries, which represent 9.1 per cent by value of the group's properties, were valued by independent professionally qualified valuers. Properties in five other countries were valued by management. The property revaluation has resulted in an increase in the group's revaluation reserves of HK$2,317 million as at 31 December 2000 and a credit to the profit and loss account of HK$54 million in respect of properties where the valuation had fallen below depreciated historical cost in prior years. 23. Accounting policies The accounting policies adopted are consistent with those described in the Annual Report and Accounts for 1999. 24. Comparative figures Certain comparative figures have been reclassified to conform with the current year's presentation. 25. 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 statutory accounts for the year ended 31 December 2000 which were approved by the Board of Directors on 26 February 2001 and will be delivered to the Registrar of Companies and the Hong Kong Monetary Authority. The Auditors expressed an unqualified opinion on those statutory accounts in their report dated 26 February 2001. The Annual Report and Accounts for the year ended 31 December 2000, which include the statutory accounts, 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 web site: www.hsbc.com, on or after 20 March 2001. 26. Ultimate holding company The Hongkong and Shanghai Banking Corporation Limited is an indirectly-held, wholly-owned subsidiary of HSBC Holdings plc.

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