2/4: HK&S Bk Corp 1H03 (1/2)
HSBC Holdings PLC
04 August 2003
THE HONG KONG AND SHANGHAI BANKING CORPORATION LIMITED
2003 INTERIM CONSOLIDATED RESULTS - HIGHLIGHTS
* Operating profit before provisions up 6.6 per cent to HK$19,223 million
(HK$18,032 million in the first half of 2002; up 8.1 per cent from HK$17,789
million in the second half of last year).
* Pre-tax profit down 0.3 per cent to HK$17,193 million (HK$17,240 million in
the first half of 2002; up 4.7 per cent from HK$16,421 million in the second
half of last year).
* Attributable profit up 0.2 per cent to HK$12,424 million (HK$12,404 million in
the first half of 2002; down 2.7 per cent from HK$12,763 million in the second
half of last year).
* Return on average shareholders' funds of 27.8 per cent (29.7 per cent and 28.8
per cent in the first and second halves of 2002).
* Assets up 6.4 per cent to HK$1,987.6 billion (HK$1,868.7 billion at the end of
2002).
* Total capital ratio of 12.7 per cent; tier 1 capital ratio of 10.6 per cent
(12.7 per cent and 9.8 per cent at 31 December 2002).
* Cost:income ratio of 36.6 per cent (37.1 per cent and 40.0 per cent for the
first and second halves of 2002).
Note: Certain figures for 2002 have been restated to reflect the adoption of
Hong Kong Statement of Standard Accounting Practice 12 (revised) on 'Income
taxes', details of which are set out in Note 27 of the additional information.
Results
Comment by David Eldon, Chairman
Operating profit before provisions was 6.6 per cent higher at HK$19,223 million
in the first half of 2003, a robust performance given the effects of the SARS
outbreak on an uncertain regional recovery and a Hong Kong economy already
marked by unemployment of 8.6 per cent, deflation and subdued demand.
Attributable profit was up 0.2 per cent at HK$12,424 million, with higher
provisions compared with the first half of 2002 driven by declining collateral
values in the residential property sector in Hong Kong, increased lending and
one significant corporate bad debt charge. Highlights include:
* Income from wealth management initiatives grew by 31.7 per cent to HK$3.2
billion compared with the same period in 2002.
* There was strong growth in unit trust sales and in funds under management for
personal customers, with income 29.0 per cent higher at HK$1,388 million, and
with strong sales of capital guaranteed products by Hang Seng Bank.
* Income from the insurance business, including the Mandatory Provident Fund,
grew by HK$390 million, or 40.2 per cent, reflecting strong growth in individual
life premiums and, in part, the acquisition of HSBC Insurance (Singapore) during
2003.
* From the end of 2002, mortgages in the region outside Hong Kong grew by
HK$13.8 billion or 30.0 per cent at constant exchange rates.
* Credit card lending in the region outside Hong Kong was up 6.1 per cent since
the end of 2002 with increases in Australia, Thailand and Indonesia.
* The contribution from the group's regional treasury activities was 17.0 per
cent higher than in the first half of 2002.
* In Commercial Banking, other operating income was 12.5 per cent higher, mainly
in Hong Kong, due to higher income from insurance, trade services and cash
management.
* The cost:income ratio reduced to 36.6 per cent compared with 37.1 per cent and
40.0 per cent in the first and second halves of 2002.
* In Hong Kong, staff costs rose by HK$39 million, or 0.9 per cent, over the
first half of 2002, primarily due to performance related staff costs in the bank
in Hong Kong partially offset by the effects of lower headcount.
The uncertainties of the global economy and the lingering effects of the SARS
outbreak cloud the regional outlook for the rest of the year. Deflation is
likely to persist in Hong Kong. Despite these challenges, we will continue to
build on the fundamental strengths of our business - clear customer focus,
prudent management and operating efficiency, and providing products and services
that meet ever-changing demand.
Results by Line of Business
Corporate,
Investment
Personal Banking
Financial Commercial and Private
Figures in HK$m Services Banking Markets Banking Other Total
Half-year ended 30 June 2003
Operating profit before
provisions 9,556 3,426 6,968 10 (737) 19,223
Provisions (2,242) 288 (495) - (27) (2,476)
Operating profit 7,314 3,714 6,473 10 (764) 16,747
Other 23 29 130 - 264 446
Profit on ordinary activities
before tax 7,337 3,743 6,603 10 (500) 17,193
Half-year ended 30 June 2002
Operating profit before
provisions 8,754 3,425 6,261 7 (415) 18,032
Provisions (1,683) 235 264 - 3 (1,181)
Operating profit 7,071 3,660 6,525 7 (412) 16,851
Other 36 54 76 - 223 389
Profit on ordinary activities
before tax 7,107 3,714 6,601 7 (189) 17,240
Half-year ended 31 December 2002
Operating profit before
provisions 8,224 3,273 6,575 7 (290) 17,789
Provisions (1,755) 503 307 - (125) (1,070)
Operating profit 6,469 3,776 6,882 7 (415) 16,719
Other 6 (7) (69) - (228) (298)
Profit on ordinary activities
before tax 6,475 3,769 6,813 7 (643) 16,421
In Personal Financial Services, profit before tax of HK$7,337 million was HK$230
million, or 3.2 per cent, higher than the comparable period last year, and
contributed 42.7 per cent of the group profit before tax, compared with 41.2 per
cent for the first half and 39.4 per cent for the second half of 2002. Net
interest income of HK$10,837 million was HK$148 million higher than the first
half of 2002 reflecting strong growth in the rest of the Asia-Pacific region,
notably in the bank in Singapore, New Zealand, Indonesia, India and Korea, and
in HSBC Bank Australia. This growth was particularly noted in mortgages, which
outside of Hong Kong grew by HK$13.8 billion, or 30.0 per cent, at constant
exchange rates since the end of 2002. Lower mortgage spreads and contraction in
the Government Home Ownership Scheme mortgage portfolio in Hang Seng Bank led to
a 2.0 per cent fall in net interest income in Hong Kong compared with the first
half of 2002. Net interest income for the first half of 2003 was 0.7 per cent
lower than the second half of 2002. Other operating income of HK$5,096 million
was 14.5 per cent higher than the first half and 16.1 per cent higher than the
second half of 2002 mainly attributable to sustained growth in income from
wealth management initiatives, particularly from unit trust sales and funds
under management which grew by 29.0 per cent and 79.6 per cent over first and
second halves of 2002 respectively, and insurance products. Operating expenses
remained flat compared with the first half of 2002 with a reduction in Hong Kong
reflecting lower headcount, and marketing and advertising costs offset by higher
expenses in the rest of the Asia-Pacific region as a result of business
expansion and acquisitions. Operating expenses were 9.9 per cent lower than the
second half of 2002 with reductions in the bank in Hong Kong and Hang Seng Bank.
Provisions for bad and doubtful debts in the first half of 2003 increased,
particularly in Hong Kong, reflecting higher charges for mortgages and unsecured
personal lending.
In Commercial Banking, profit before tax of HK$3,743 million for the first half
of 2003 was broadly in line with both halves of 2002. Net interest income of
HK$3,126 million was 6.0 per cent lower than the first half and 4.8 per cent
lower than the second half of 2002 mainly due to lower recoveries of suspended
interest in the bank in Hong Kong. Other operating income of HK$2,350 million
was 12.5 per cent higher than the comparable period last year mainly in Hong
Kong due to higher income from insurance, trade services and cash management.
Operating expenses were HK$61 million, or 3.1 per cent, higher than the
comparable period last year and include increased expenditure on business
internet banking in Hong Kong. There was an increase in the general provision
for bad and doubtful debts in the first half of 2003 compared with a release in
the second half of 2002 reflecting loan loss experience.
Profit before tax of HK$6,603 million for Corporate, Investment Banking and
Markets held firm compared with the first half of 2002, despite a charge of
HK$495 million for provisions for bad and doubtful debts and contingent
liabilities in the first half of 2003 compared with releases of provisions in
2002. The contribution from the group's regional treasury activities was 17.0
per cent higher than the first half of 2002. This was achieved through a
significant increase in dealing profits, which at HK$1,847 million were HK$1,066
million higher than the comparable period in 2002. Profits from interest rate
derivatives trading increased due to the continuing growth in demand for the
structuring of tailored solutions for corporate customers, together with the
increased volumes of structured transactions offering yield enhancement products
to retail clients. This was augmented by successful directional trading in the
major swap books. Trading income from debt securities was higher in the first
half of 2003 as credit spreads narrowed and there was no recurrence of the US
corporate accounting scandals that had led to securities dealing losses in 2002.
During the first half of 2003, there was a charge for bad and doubtful debts
compared with releases in both halves of 2002. This was due to a significant
specific provision raised against a corporate customer in Hong Kong. With the
exception of this charge, credit quality remained stable.
Other includes the funding costs of staff housing loans and fixed assets. A
deficit of HK$322 million arising on property revaluation was charged to profit
and loss in the first half of 2003. There was no such deficit in the first half
of 2002 but a deficit of HK$371 million was recorded in the second half of 2002.
2003 benefited from higher profit on disposal of equity investments.
Consolidated Profit and Loss Account
Half-year ended Half-year ended Half-year ended
30Jun03 30Jun02 31Dec02
Figures in HK$m restated ^ restated ^
Interest income 28,153 29,427 29,767
Interest expense (8,633) (9,711) (9,838)
Net interest income 19,520 19,716 19,929
Other operating income 10,786 8,968 9,703
Operating income 30,306 28,684 29,632
Operating expenses (11,083) (10,652) (11,843)
Operating profit before provisions 19,223 18,032 17,789
Provisions for bad and doubtful debts (2,413) (1,280) (971)
Provisions for contingent liabilities
and commitments (63) 99 (99)
Operating profit 16,747 16,851 16,719
Profit on tangible fixed assets and
long-term investments 717 326 51
Deficit arising on property revaluation (322) - (371)
Share of profits less losses of
associated companies 51 63 22
Profit on ordinary activities before tax 17,193 17,240 16,421
Tax on profit on ordinary activities (2,867) (2,864) (1,870)
Profit on ordinary activities after tax 14,326 14,376 14,551
Minority interests (1,902) (1,972) (1,788)
Profit attributable to shareholders 12,424 12,404 12,763
Retained profits brought forward 28,579 20,556 24,527
Change of accounting policies in respect of
- deferred tax 1,191 1,826 1,573
- transfer to revaluation reserve (818) (250) (258)
As restated 28,952 22,132 25,842
Exchange and other adjustments 519 791 (154)
Transfer of depreciation to premises
revaluation reserve 126 136 141
Transfer to premises revaluation reserve (145) (8) (560)
Realisation on disposal of premises and
investment properties 40 45 64
Ordinary dividends paid in respect of
the current period (3,150) (3,000) (5,000)
Ordinary dividends proposed (3,200) (6,000) (3,500)
Preference dividends payable (574) (658) (644)
(6,924) (9,658) (9,144)
Retained profits carried forward 34,992 25,842 28,952
^ Certain figures for 2002 have been restated to reflect the adoption of Hong
Kong Statement of Standard Accounting Practice 12 (revised) on 'Income taxes',
details of which are set out in note 27.
Extract from the Consolidated Balance Sheet
At 30Jun03 At 30Jun02 At 31Dec02
Figures in HK$m restated ^ restated ^
Assets
Cash and short-term funds 323,767 322,704 322,305
Placings with banks maturing after one month 106,002 106,263 90,886
Certificates of deposit 53,376 44,134 53,290
Hong Kong SAR Government certificates
of indebtedness 77,804 70,094 73,654
Securities held for dealing purposes 79,766 86,746 87,468
Long-term investments 380,114 306,493 350,166
Advances to customers 764,811 708,285 721,775
Amounts due from fellow subsidiary
companies 41,716 24,095 22,087
Investments in associated companies 1,764 1,520 1,499
Tangible fixed assets 35,076 40,529 37,988
Other assets 123,366 103,530 107,582
1,987,562 1,814,393 1,868,700
Liabilities
Hong Kong SAR currency notes in circulation 77,804 70,094 73,654
Current, savings and other deposit accounts 1,548,867 1,419,076 1,473,539
Deposits by banks 59,805 41,969 45,545
Amounts due to fellow subsidiary companies 15,653 10,958 11,052
Amounts due to ultimate holding company 696 587 441
Other liabilities 155,013 144,448 137,983
1,857,838 1,687,132 1,742,214
Capital resources
Loan capital from ultimate holding company - 2,925 2,924
Other loan capital 15,556 15,035 15,368
Minority interests 16,305 17,302 17,060
Share capital 47,864 44,946 44,940
Reserves 46,799 41,053 42,694
Proposed dividends 3,200 6,000 3,500
Shareholders' funds 97,863 91,999 91,134
129,724 127,261 126,486
1,987,562 1,814,393 1,868,700
^ Certain figures for 2002 have been restated to reflect the adoption of Hong
Kong Statement of Standard Accounting Practice 12 (revised) on 'Income taxes',
details of which are set out in note 27.
Consolidated Statement of Changes in Equity
Half-year ended Half-year ended Half-year ended
30Jun03 30Jun02 31Dec02
Figures in HK$m restated ^ restated ^
Shareholders' funds at beginning of the period 92,444 83,705 93,226
Change of accounting policy in respect of
deferred taxes (1,310) (994) (1,227)
As restated 91,134 82,711 91,999
Profit for the period attributable to
shareholders 12,424 12,404 12,763
Unrealised deficit on revaluation of premises (1,151) - (1,166)
Unrealised deficit on revaluation of
investment properties (184) - (183)
Long-term equity investments
revaluation reserve
- Surplus/(deficit) on revaluation 48 (195) (418)
- Realisation on disposal (447) (172) (92)
Issue of non-cumulative irredeemable
preference share capital 2,925 - -
Dividends (7,224) (3,658) (11,644)
Exchange and other movements 338 909 (125)
Shareholders' funds at end of the period 97,863 91,999 91,134
^ Certain figures for 2002 have been restated to reflect the adoption of Hong
Kong Statement of Standard Accounting Practice 12 (revised) on 'Income taxes',
details of which are set out in note 27.
Consolidated Cash Flow Statement
Half-year ended Half-year ended
Figures in HK$m 30Jun03 30Jun02
Operating activities
Cash generated from/(used in) operations 30,936 (4,003)
Interest received on long-term investments 6,705 5,753
Dividends received on long-term investments 133 85
Dividends received from associated companies 35 91
Interest paid on loan capital (440) (521)
Dividends paid to minority interests (2,390) (2,027)
Ordinary dividends paid (6,650) (3,000)
Preference dividends paid (115) (235)
Taxation paid (1,071) (792)
Net cash inflow/(outflow) from operating
activities 27,143 (4,649)
Investing activities
Purchase of long-term investments (180,895) (149,875)
Proceeds from sale or redemption of
long-term investments 162,949 115,493
Purchase of tangible fixed assets (385) (460)
Proceeds from sale of tangible fixed assets 119 83
Net cash outflow in respect of acquisition
of and increased shareholding in
subsidiary companies (656) (176)
Purchase of business (7,037) (14)
Purchase of interest in associated company (273) -
Proceeds from sale of interest in
associated company - 1
Net cash outflow from investing activities (26,178) (34,948)
Net cash inflow/(outflow) before financing 965 (39,597)
Financing
Issue of non-cumulative irredeemable preference
share capital 2,925 -
Repayment of loan capital (2,925) -
Net cash flow from financing - -
Increase/(decrease) in cash and cash equivalents 965 (39,597)
Additional Information
1. Net interest income
Half-year ended Half-year ended Half-year ended
Figures in HK$m 30Jun03 30Jun02 31Dec02
Net interest income 19,520 19,716 19,929
Average interest-earning assets 1,660,825 1,537,160 1,586,299
Net interest spread 2.26 % 2.46 % 2.37 %
Net interest margin 2.37 % 2.59 % 2.49 %
Net interest income of HK$19,520 million was HK$196 million, or 1.0 per cent,
lower than the comparable period of 2002. Net interest income from the Personal
Financial Services business was HK$148 million, or 1.4 per cent, higher than the
first half of 2002 reflecting strong growth in the rest of the Asia-Pacific
region, notably in the bank in Singapore, New Zealand, Indonesia, India and
Korea, and in HSBC Bank Australia. This growth was particularly noted on
mortgages, where outside Hong Kong outstandings grew by HK$13.8 billion at
constant exchange rates. Lower mortgage spreads and contraction in the
Government Home Ownership Scheme ('GHOS') mortgage portfolio in Hang Seng Bank
led to a 2.0 per cent fall in net interest income in Hong Kong compared with the
first half of 2002.
Net interest income from the Commercial Banking business was HK$199 million, or
6.0 per cent, lower than the comparable period of last year mainly due to lower
recoveries of suspended interest in the bank in Hong Kong. Net interest income
from Corporate, Investment Banking and Markets was HK$155 million, or 2.5 per
cent, lower than the comparable period in 2002. This was due to lower spreads on
corporate lending particularly in Hang Seng Bank, and reduced treasury income in
the bank in Singapore and the Philippines as higher yielding assets matured in
2002, although treasury continued to perform strongly in Hong Kong through
interest risk positioning and an increase in holdings of investment grade debt
securities.
Average interest-earning assets increased by HK$123.7 billion, or 8.0 per cent,
to HK$1,660.8 billion for the first half of 2003. Average debt securities for
the group increased by HK$106.2 billion, or 21.8 per cent, compared with the
first half of 2002 with increases in both Hang Seng Bank and the bank in Hong
Kong, reflecting the deployment of funds from interbank placings into higher
yielding debt securities in the lower interest rate environment, and increased
customer deposits. There were also increases in a number of areas in the rest of
the Asia-Pacific region, notably in the bank in Singapore, Japan, Korea and
Taiwan, and HSBC Bank Australia. Average advances to customers grew by HK$60.8
billion, or 8.9 per cent, with increases in the bank in Hong Kong, Singapore,
Japan and Korea, and HSBC Bank Australia. Average loans to banks decreased by
HK$50.5 billion, or 15.3 per cent, reflecting the redeployment of funds from
lower yielding interbank placements to debt securities in Hang Seng Bank.
The group's net interest margin of 2.37 per cent for the first half of 2003 was
22 basis points lower than the comparable period in 2002. Spread narrowed by 20
basis points compared with the first half of 2002 and the contribution from net
free funds was two basis points lower.
For the bank in Hong Kong, net interest margin reduced by 25 basis points to
2.27 per cent for the first half of 2003. Spread narrowed by 24 basis points
with lower spreads on deposits accounting for a reduction of 14 basis points and
lower treasury spreads accounting for a reduction of four basis points. A net
release of suspended interest in the first half of 2002 compared with a charge
in the first half of 2003 accounted for a further reduction of two basis points
in spread. Average yield on the residential mortgage portfolio, excluding GHOS
and staff loans, in the bank in Hong Kong reduced to 166 basis points below the
bank's best lending rate ('BLR') in the first half of 2003 compared with 141
basis points below BLR in the same period last year. Cash incentive payments on
new mortgage loans of HK$60 million have been written off against interest
income in the first half of 2003 compared with HK$103 million in the first half
of 2002. The contribution from net free funds fell by one basis point compared
with the same period last year.
In Hang Seng Bank, net interest margin narrowed by eight basis points to 2.41
per cent with a reduction of five basis points in spread due to a reduction in
average mortgage portfolio yields and the narrowing of time deposit spreads
which together reduced spread by nine basis points compared with the first half
of 2002. Average yield on the residential mortgage portfolio, excluding GHOS
loans and staff loans, in Hang Seng Bank was 170 basis points below BLR in the
first half of 2003 compared with 138 basis points below BLR in the same period
last year. Cash incentive payments on new mortgage loans of HK$45 million have
been written off against interest income in the first half of 2003 compared with
HK$44 million in the first half of 2002. This was partly offset by growth in
savings and current accounts and expansion of the debt securities portfolio
which continued to benefit from lower interest rates. These factors had a
favourable impact on spread of four basis points. The contribution from net free
funds was 0.08 per cent, three basis points lower than the first half of 2002.
In the rest of the Asia-Pacific region, net interest margin at 2.09 per cent for
the first half of 2003 was 18 basis points lower than the comparable period in
2002. Spread reduced by 13 basis points to 1.92 per cent for the first half of
2003 with reductions in several countries, including the Philippines and
Singapore mainly due to lower treasury income as a result of maturity of high
yielding assets. Spread fell in Taiwan due to lower yields on mortgage loans as
a result of market competition and in HSBC Bank Australia as loans repriced as
interest rates fell. Spreads in the bank in India and Indonesia widened.
The contribution from net free funds reduced by two basis points to 0.11 per
cent for the first half of 2003 as a result of lower interest rates partly
offset by an increase in net free funds.
2. Other operating income
Half-year ended Half-year ended Half-year ended
30Jun03 30Jun02 31Dec02
Figures in HK$m
Dividend income
- Listed investments 72 78 102
- Unlisted investments 56 12 22
128 90 124
Fees and commissions
- Account services 577 601 605
- Credit facilities 651 715 688
- Import/export 1,119 1,037 1,189
- Remittances 459 438 477
- Securities/stockbroking 813 752 799
- Cards 1,418 1,536 1,601
- Unit trusts/funds under management 1,592 1,345 993
- Other 904 829 1,267
Fees and commissions receivable 7,533 7,253 7,619
Fees and commissions payable (1,185) (1,223) (1,179)
6,348 6,030 6,440
Dealing profits 2,278 1,166 1,315
Rental income from investment properties 109 121 118
Other 1,923 1,561 1,706
10,786 8,968 9,703
Analysis of income from dealing in financial instruments
Half-year ended Half-year ended Half-year ended
30Jun03 30Jun02 31Dec02
Dividend Dividend Dividend
and net and net and net
Dealing interest Dealing interest Dealing interest
Figures in HK$m profits income Total profits income Total profits income Total
Foreign exchange 1,609 86 1,695 1,439 35 1,474 1,503 95 1,598
Interest rate 759 (91) 668 186 52 238 367 (119) 248
derivatives
Debt securities (113) 760 647 (459) 655 196 (548) 814 266
Equities and other
trading 23 (2) 21 - (3) (3) (7) 4 (3)
2,278 753 3,031 1,166 739 1,905 1,315 794 2,109
Other operating income of HK$10,786 million was HK$1,818 million, or 20.3 per
cent, higher than the comparable period in 2002. This was achieved through a
significant increase in dealing profits, which at HK$2,278 million were HK$1,112
million higher than the first half of 2002. Foreign exchange profits were up on
2002 reflecting higher levels of corporate sales, coupled with trading profits
as a result of US dollar volatility against a number of currencies during 2003.
Profits from interest rate derivatives trading increased due to the continuing
growth in the structuring of tailored solutions for corporate customers,
together with increased volumes of structured transactions offering yield
enhancement products to retail clients. This was augmented by successful
directional trading in the major swap books. Trading income from debt securities
was higher in the first half of 2003 as credit spreads narrowed and there was no
recurrence of the US corporate accounting scandals that had led to securities
dealing losses in 2002.
Income from wealth management initiatives, which includes total income from the
insurance business, commissions on sales of unit trust products and securities
transactions executed for personal customers grew by 31.7 per cent to HK$3.2
billion. There was strong growth in unit trusts sales, and in funds under
management for personal customers. Income grew to HK$1,388 million, an increase
of 29.0 per cent over the comparable period last year, with strong sales of
capital guaranteed products in Hang Seng Bank. Income from the insurance
business, including the Mandatory Provident Fund business, grew by HK$390
million, or 40.2 per cent, reflecting strong growth of 30.7 per cent in new
individual life business written in Hong Kong and, to a lesser extent, the
acquisition of HSBC Insurance (Singapore) during 2003.
3. Operating expenses
Half-year ended Half-year ended Half-year ended
30Jun03 30Jun02 31Dec02
Figures in HK$m
Staff costs
- Salaries and other costs 5,859 5,605 6,089
- Retirement benefit costs 465 448 398
6,324 6,053 6,487
Premises and equipment
- Depreciation 1,019 1,018 1,040
- Rental expenses 579 556 514
- Other premises and equipment expenses 707 674 926
2,305 2,248 2,480
Other 2,454 2,351 2,876
11,083 10,652 11,843
Staff numbers by region ^
At 30Jun03 At 30Jun02 At 31Dec02
Hong Kong 22,640 23,349 22,949
Rest of Asia-Pacific 18,162 17,005 17,720
Americas/Europe 17 13 18
Total 40,819 40,367 40,687
^ Full-time equivalent
Operating expenses of HK$11,083 million were HK$431 million, or 4.0 per cent,
higher than the comparable period of 2002 reflecting branch openings and
business expansion. At constant exchange rates, total operating expenses rose by
HK$233 million, or 2.2 per cent over the comparable period of 2002. Business
acquisitions since the first half of 2002 accounted for an increase of HK$92
million.
Staff costs of HK$6,324 million were HK$271 million, or 4.5 per cent, higher
than the comparable period of 2002. In Hong Kong, staff costs rose by HK$39
million, or 0.9 per cent, over the first half of 2002 primarily due to higher
performance related staff costs in the bank in Hong Kong partially offset by the
effect of lower headcount. Headcount in Hong Kong decreased from 23,349 at 30
June 2002 to 22,640 at 30 June 2003, as a wide range of back office and call
centre functions migrated to the Group Service Centres in Guangzhou and
Shanghai, and as a result of outsourcing of property management functions. In
the rest of the Asia-Pacific region, staff costs increased by HK$230 million or
13.2 per cent. Headcount in the rest of the Asia-Pacific region increased from
17,005 at 30 June 2002 to 18,162 at 30 June 2003, an increase of 1,157, mainly
due to higher headcount to support business expansion in Group Service Centres
in China which increased by 771 to 2,473 at 30 June 2003, the bank in China and
HSBC Bank Australia, and the acquisition in the first half of 2003 of HSBC
Insurance (Singapore). The group has opened five new branches in four countries,
outside Hong Kong, since 30 June 2002.
Operating expenses, other than staff costs, were HK$160 million, or 3.5 per
cent, higher than the comparable period of 2002. There were increases in IT
costs and professional fees relating to structured finance transactions.
Advertising and marketing costs fell compared with the same period last year.
4. Provisions for bad and doubtful debts
Half-year ended Half-year ended Half-year ended
30Jun03 30Jun02 31Dec02
Figures in HK$m
Net charge/(release) for bad and doubtful debts
Advances to customers
- Specific provisions
New provisions 3,858 2,764 3,317
Releases (1,248) (1,320) (1,414)
Recoveries (321) (173) (204)
2,289 1,271 1,699
- General provisions 124 9 (728)
Net charge to profit and loss account 2,413 1,280 971
The net charge for specific provisions of HK$2,289 million was HK$1,018 million
higher than the comparable period in 2002. This was due to higher provisions
against personal lending, reflecting increased provisions against mortgages
following a further fall in property values in Hong Kong, and additional
provisions raised against unsecured personal lending and corporate loans.
The net charge for specific provisions against personal lending increased by
HK$503 million, or 30.1 per cent, over the comparable period of 2002 with higher
charges for mortgages in both the bank in Hong Kong and Hang Seng Bank
reflecting lower property values in Hong Kong. Delinquency rates for residential
mortgages have not risen significantly. Provisions for credit cards amounting to
HK$1,094 million were HK$20 million higher than the comparable period of 2002
with increases in both the bank in Hong Kong and Hang Seng Bank offsetting
reductions elsewhere in the region. In addition, there was a higher charge
against other unsecured personal lending in the bank in Hong Kong. 2003 included
a charge for bad debt provisions against corporate customers compared with a net
release in the first half of 2002 mainly due to a large provision raised against
a corporate customer in the bank in Hong Kong. With the exception of this
charge, credit quality remained stable. 2003 benefited from higher releases of
provisions in the bank in Thailand and lower charges in New Zealand and
Indonesia.
There was a charge of HK$124 million for general provisions in the first half of
2003 compared with a net release of HK$728 million in the second half of 2002
reflecting overall loan loss experience.
5. Profit on tangible fixed assets and long-term investments
Half-year ended Half-year ended Half-year ended
30Jun03 30Jun02 31Dec02
Figures in HK$m
Loss on disposal of tangible fixed assets (11) (11) (26)
Profit on disposal of long-term investments 695 382 112
Release/(charge) of provisions for
impairment of long-term investments 33 (45) (35)
717 326 51
The net profit on disposal of long-term investments of HK$695 million was HK$313
million higher than the comparable period last year and included gains on
disposal of equity investments and debt securities.
6. Taxation
The charge for taxation in the consolidated profit and loss account comprises:
Half-year ended Half-year ended Half-year ended
30Jun03 30Jun02 31Dec02
Figures in HK$m
Hong Kong profits tax 1,906 1,941 1,169
Overseas taxation 1,091 629 476
Deferred taxation (138) 266 219
2,859 2,836 1,864
Share of associated companies' taxation 8 28 6
2,867 2,864 1,870
The effective rate of tax of 16.7 per cent for the first half of 2003 was higher
than the first half of 2002 reflecting additional tax provisions raised in the
bank in Hong Kong and Hang Seng Bank following an increase in the Hong Kong
profits tax rate.
7. Dividends
Half-year ended Half-year ended Half-year ended
30Jun03 30Jun02 31Dec02
HK$ HK$m HK$ HK$m HK$ HK$m
per share per share per share
Equity
Ordinary dividends
- paid 0.48 3,150 0.46 3,000 0.77 5,000
- proposed 0.49 3,200 0.92 6,000 0.54 3,500
0.97 6,350 1.38 9,000 1.31 8,500
Non-equity
Preference dividends payable
- cumulative redeemable
preference shares 100 50 114 57 116 58
- non-cumulative irredeemable
preference shares 0.13 524 0.16 601 0.16 586
6,924 9,658 9,144
8. Advances to customers
At 30Jun03 At 30Jun02 At 31Dec02
Figures in HK$m
Gross advances to customers 781,469 728,618 738,988
Suspended interest (1,268) (2,034) (1,475)
780,201 726,584 737,513
Specific provisions (11,002) (13,337) (11,500)
General provisions (4,388) (4,962) (4,238)
Total provisions (15,390) (18,299) (15,738)
Net advances to customers 764,811 708,285 721,775
Provisions as a percentage of gross advances
to customers ^
Specific provisions 1.41 % 1.84 % 1.56 %
General provisions 0.56 % 0.68 % 0.57 %
Total provisions 1.97 % 2.52 % 2.13 %
^ Gross advances to customers are stated after deduction of interest in
suspense.
Assets acquired by repossession of collateral for realisation and reported as
advances by the group amounted to HK$1,340 million as at 30 June 2003 (HK$1,670
million at 31 December 2002).
9. Provisions for bad and doubtful debts against advances to customers
Suspended
Figures in HK$m Specific General Total interest
At 1 January 2003 11,500 4,238 15,738 2,494
Amounts written off (3,180) - (3,180) (506)
Recoveries of advances written off in
previous years 321 - 321 -
Net charge to profit and loss account
(Note 4) 2,289 124 2,413 -
Interest suspended during the period - - - 551
Suspended interest recovered - - - (351)
Exchange and other adjustments 72 26 98 -
At 30 June 2003 11,002 4,388 15,390 2,188
Suspended interest above comprises both suspended interest netted against '
Advances to customers' and suspended interest netted against accrued interest
receivable in 'Other assets'.
10. Non-performing advances to customers and provisions
The geographical information shown below, and in notes 11, 12, 13 and 15, 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 Americas/
Figures in HK$m Hong Kong Asia-Pacific Europe Total
Half-year ended 30 June 2003
Bad and doubtful debt charge/(release) 2,355 90 (32) 2,413
At 30 June 2003
Advances to customers on which interest is being placed in suspense or on which interest accrual has
ceased are as follows:
Gross advances on which interest
- has been placed in suspense 12,256 6,326 - 18,582
- accrual has ceased 1,709 1,794 4 3,507
Gross non-performing advances ^ 13,965 8,120 4 22,089
Specific provisions (5,667) (5,331) (4) (11,002)
8,298 2,789 - 11,087
Specific provisions as a percentage of
gross non-performing advances 40.6 % 65.7 % 100.0 % 49.8 %
Gross non-performing advances as a
percentage of gross advances to
customers ^ ^ 2.5 % 3.6 % 33.3 % 2.8 %
Non-performing advances fell by HK$619 million, or 2.7 per cent, since 31
December 2002 to HK$22,089 million at 30 June 2003. In Hong Kong, non-performing
advances increased by HK$522 million as a result of a downgrade of a corporate
customer in the bank in Hong Kong partly offset by a reduction in Hang Seng
Bank. In the rest of the Asia-Pacific region, non-performing advances fell by
HK$1,141 million mainly in Singapore and Indonesia due to a combination of the
write-off of a number of accounts and repayments relating to commercial banking
customers, and in China largely due to an upgrade of a customer account.
Rest of Americas/
Figures in HK$m Hong Kong Asia-Pacific Europe Total
Half-year ended 30 June 2002
Bad and doubtful debt charge 947 333 - 1,280
At 30 June 2002
Advances to customers on which interest is being placed in suspense or on which interest accrual has
ceased are as follows:
Gross advances on which interest
- has been placed in suspense 12,898 10,615 - 23,513
- accrual has ceased 1,619 1,177 4 2,800
Gross non-performing advances ^ 14,517 11,792 4 26,313
Specific provisions (5,650) (7,683) (4) (13,337)
8,867 4,109 - 12,976
Specific provisions as a percentage of
gross non-performing advances 38.9 % 65.2 % 100.0 % 50.7 %
Gross non-performing advances as a
percentage of gross advances to
customers ^ ^ 2.7 % 6.5 % 30.8 % 3.6 %
Non-performing advances to customers are those advances where full repayment of
principal or interest is considered unlikely. Non-performing advances may
include advances that are not yet more than three months overdue but are
considered doubtful. Advances are classified as non-performing as soon as it
becomes apparent that full recovery of the advance is unlikely. Except in
certain limited circumstances, all advances on which principal or interest is
more than three months overdue are classified as non-performing.
The specific provisions are made after taking into account the value of
collateral in respect of such advances.
Rest of Americas/
Figures in HK$m Hong Kong Asia-Pacific Europe Total
Half-year ended 31 December 2002
Bad and doubtful debt charge/(release) 974 (3) - 971
At 31 December 2002
Advances to customers on which interest is being placed in suspense or on which interest accrual has
ceased are as follows:
Gross advances on which interest
- has been placed in suspense 11,381 7,321 - 18,702
- accrual has ceased 2,062 1,940 4 4,006
Gross non-performing advances ^ 13,443 9,261 4 22,708
Specific provisions (5,367) (6,129) (4) (11,500)
8,076 3,132 - 11,208
Specific provisions as a percentage of
gross non-performing advances 39.9 % 66.2 % 100.0 % 50.6 %
Gross non-performing advances as a
percentage of gross advances to
customers ^ ^ 2.5 % 4.7 % 0.6 % 3.1 %
^ Gross non-performing advances to customers are stated after deduction of
interest in suspense.
^ ^ Expressed as a percentage of gross advances to customers after deduction
of interest in suspense.
11. Overdue advances to customers
Rest of Americas/
Figures in HK$m Hong Kong Asia-Pacific Europe Total
At 30 June 2003
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 2,224 1,080 - 3,304
- one year or less but over six months 1,822 927 - 2,749
- over one year 4,786 3,420 - 8,206
8,832 5,427 - 14,259
Overdue advances to customers as a
percentage of gross advances to
customers ^ ^
- six months or less but over three months 0.4 % 0.5 % - 0.4 %
- one year or less but over six months 0.3 % 0.4 % - 0.4 %
- over one year 0.9 % 1.5 % - 1.0 %
1.6 % 2.4 % - 1.8 %
Overdue advances to customers (as above) 8,832 5,427 - 14,259
Less: overdue advances on which interest
is still being accrued (1,520) (352) - (1,872)
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 4,718 837 4 5,559
- other 1,935 2,208 - 4,143
Gross non-performing advances (Note 10) 13,965 8,120 4 22,089
Rest of Americas/
Figures in HK$m Hong Kong Asia-Pacific Europe Total
At 30 June 2002
Gross advances to customers which have
been overdue with respect to either
principal or interest for periods of ^
- six months or less but over three months 1,720 1,128 - 2,848
- one year or less but over six months 2,213 656 - 2,869
- over one year 5,428 5,429 - 10,857
9,361 7,213 - 16,574
Overdue advances to customers as a
percentage of gross advances to
customers ^ ^
- six months or less but over three months 0.3 % 0.6 % - 0.4 %
- one year or less but over six months 0.4 % 0.4 % - 0.4 %
- over one year 1.0 % 3.0 % - 1.5 %
1.7 % 4.0 % - 2.3 %
Overdue advances to customers (as above) 9,361 7,213 - 16,574
Less: overdue advances on which interest
is still being accrued (895) (175) - (1,070)
Add: advances overdue for periods of
three months or less, or which are not
yet overdue, and on which interest
has been placed in suspense:
- included in rescheduled advances 2,260 1,475 4 3,739
- other 3,791 3,279 - 7,070
Gross non-performing advances (Note 10) 14,517 11,792 4 26,313
Rest of Americas/
Figures in HK$m Hong Kong Asia-Pacific Europe Total
At 31 December 2002
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 1,896 680 - 2,576
- one year or less but over six months 1,847 1,018 - 2,865
- over one year 5,376 4,011 - 9,387
9,119 5,709 - 14,828
Overdue advances to customers as a
percentage of gross advances to
customers ^ ^
- six months or less but over three months 0.4 % 0.4 % - 0.3 %
- one year or less but over six months 0.3 % 0.5 % - 0.4 %
- over one year 1.0 % 2.0 % - 1.3 %
1.7 % 2.9 % - 2.0 %
Overdue advances to customers (as above) 9,119 5,709 - 14,828
Less: overdue advances on which interest
is still being accrued (1,509) (220) - (1,729)
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 4,533 1,121 4 5,658
- other 1,300 2,651 - 3,951
Gross non-performing advances (Note 10) 13,443 9,261 4 22,708
^ 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.
12. Rescheduled advances to customers
Rest of Americas/
Figures in HK$m Hong Kong Asia-Pacific Europe Total
At 30 June 2003
Rescheduled advances to customers ^ 9,202 1,160 4 10,366
Rescheduled advances to customers as a
percentage of gross advances to
customers ^ ^ 1.7 % 0.5 % 33.3 % 1.3 %
At 30 June 2002
Rescheduled advances to customers ^ 4,286 1,580 4 5,870
Rescheduled advances to customers as a
percentage of gross advances to
customers ^ ^ 0.8 % 0.9 % 30.8 % 0.8 %
At 31 December 2002
Rescheduled advances to customers ^ 6,496 1,373 4 7,873
Rescheduled advances to customers as a
percentage of gross advances to
customers ^ ^ 1.2 % 0.7 % 0.6 % 1.1 %
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 11).
At 30 June 2003, rescheduled advances to customers were HK$2.5 billion higher
compared with 31 December 2002 with increased rescheduled advances to corporate
customers in both the bank in Hong Kong and Hang Seng Bank.
^ 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.
This information is provided by RNS
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