3/3: Hang Seng 1H04 PT 2

HSBC Holdings PLC 02 August 2004 Taxation Taxation in the consolidated profit and loss account represents: Half-year Half-year Half-year ended ended ended Figures in HK$m 30Jun04 30Jun03 31Dec03 Current tax - provision for Hong Kong profits tax Tax for the period 864 839 604 Benefit of previously unrecognised tax losses (1) (3) 3 Over-provision in respect of prior years (15) - (39) 848 836 568 Current tax - taxation outside Hong Kong Tax for the period 3 2 2 Over-provision in respect of prior years - - (14) 3 2 (12) Deferred tax Origination and reversal of temporary differences 145 31 39 Effect of increase in tax rate on deferred tax balances - (9) - Benefit of previously unrecognised tax losses now recognised - (17) (19) 145 5 20 Share of associated companies' taxation 2 3 1 Total charge for taxation 998 846 577 Effective tax rate 13.6% 14.3% 11.1% The current tax provision is based on the estimated assessable profit for the first half of 2004 and, for the bank and its subsidiaries operating in the Hong Kong SAR, using the Hong Kong profits tax rate of 17.5 per cent (17.5 per cent for 2003). For subsidiaries and branches operating in other jurisdictions, the appropriate tax rates prevailing in the countries in which they operate are used. Deferred tax is calculated at the tax rates that are expected to apply in the year when the liability is settled or the asset is realised. Deferred tax is charged or credited in the profit and loss account, except when it relates to items charged or credited directly to reserves, in which case the deferred tax is also dealt with in the reserves. The carrying amount of deferred tax assets/ liabilities is reviewed at each balance sheet date and is reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow the related tax benefit to be utilised. The effective tax rate for the first half of 2004 was 13.6 per cent compared with 14.3 per cent for the first half of 2003. A deferred tax asset of HK$122 million was reversed following the release of HK$698 million in general provisions. Earnings per share The calculation of earnings per share for the first half of 2004 is based on earnings of HK$6,245 million (HK$5,022 million for the first half of 2003) and on the weighted average number of ordinary shares in issue of 1,911,842,736 shares (unchanged from the first half of 2003). Dividends per share Half-year Half-year Half-year ended ended ended 30Jun04 30Jun03 31Dec03 HK$ HK$m HK$ HK$m HK$ HK$m per-share per share per share First interim 1.10 2,103 2.10 4,015 - - Second interim 1.10 2,103 - - 1.00 1,912 Third interim - - - - 1.80 3,441 2.20 4,206 2.10 4,015 2.80 5,353 Segmental analysis Segmental information is presented in respect of business and geographical segments. Business segment information, which is more relevant to Hang Seng in making operating and financial decisions, is chosen as the primary reporting format. For the purpose of segmental analysis, the allocation of revenue reflects the benefits of capital and other funding resources allocated to the business or geographical segments by way of internal capital allocation and funds transfer pricing mechanisms. Cost allocation is based on the direct cost incurred by the respective segments and apportionment of management overheads. Rental charges at the market rate for usage of premises are reflected as inter-segment income for the 'Other' segment and inter-segment expenses for the respective business segments. (a) By business segment Hang Seng comprises five business segments. Personal Financial Services (PFS) provides banking (including deposits, credit cards, mortgages and other retail lending) and wealth management services (including insurance and investment) to personal customers. Commercial Banking (CMB) manages middle market and smaller corporate relationships and provides trade-related financial services. Corporate and Institutional Banking (CIB) handles relationships with large corporate and institutional customers. Treasury engages in interbank and capital market activities and proprietary trading. Treasury also manages the funding and liquidity positions of the bank and other market risk positions arising from banking activities. 'Other' segment mainly represents management of shareholders' funds and investments in premises, investment properties and long-term equities. Personal Financial Services reported growth of 16.8 per cent in profit before tax, benefiting from the reduction of 85.1 per cent in specific provisions and a release of general provisions. Net interest income fell by 12.3 per cent, mainly due to the significant reduction in spreads on time deposits due to the exceptionally low HK dollar interest rates and the further decline in mortgage portfolio yield under severe market competition. PFS customer advances recorded a growth of 1.6 per cent. Private sector residential mortgages rose by 1.8 per cent but those under the suspended GHOS fell by 7.0 per cent. During the period, PFS continued to expand its consumer lending portfolio, with credit card and personal lending together recording encouraging growth of 16.8 per cent. Credit cards in issue rose by 12.5 per cent to 1,093,000 during the first half of 2004 with card spending increasing by 58.1 per cent over the comparable period in 2003, benefiting from a rise in consumer spending in line with the improving economic environment, and the introduction of new e-payment services. Other operating income rose by 25.4 per cent, driven by the continuing expansion of the wealth management business. Investment services income rose by 33.3 per cent, benefiting from the active stock market and positive investor sentiment which boosted securities brokerage and retail investment product sales. Total funds under management grew by HK$12.6 billion, or 21.7 per cent, since the end of last year, reflecting further expansion of the Hang Seng Investment Series and the growth in private banking business. Insurance income grew by 26.3 per cent, mainly due to the success of the life insurance business which recorded impressive growth of 115.7 per cent in annualised premiums and 27.7 per cent in underwriting income. This reflected the success in promoting a new series of products featuring a shorter premium subscription period for longer protection. Commercial Banking reported growth of 101.5 per cent in profit before tax for the first half of 2004. Led by buoyant exports and consumer spending, business activity gathered momentum during this period. CMB made advancements in both the middle market corporate and the SME (small and medium enterprise) sectors. CMB on the mainland also registered encouraging growth in the customer base, loans and trade services. The growth of 24.8 per cent in net interest income was underpinned by the encouraging 25.7 per cent increase in customer advances, recorded in trade finance and lending to the sectors of manufacturing, wholesale and retail trade and property investment. Other operating income grew by 12.7 per cent, mainly in trade services. The operating results also included the substantial releases in specific provisions and general provisions, reflecting the improvement in the credit environment and loan quality. Corporate and Institutional Banking recorded growth of 18.1 per cent in profit before tax, mainly due to the release in general provisions. Despite an encouraging growth of 9.7 per cent in customer advances, interest margin continued to be under pressure. The operating results, however, benefited from the release in general provisions, reflecting further improvement in the quality of the CIB loan portfolios. Treasury reported growth of 20.8 per cent in profit before tax. Net interest income rose by 11.3 per cent, reflecting the successful positioning of the accrual portfolios in a low interest rate environment. Other operating income increased by 73.2 per cent, mainly contributed by foreign exchange income, including profit on currency-linked investment products provided to customers. Other showed a decline of 9.4 per cent in profit before tax. This was mainly attributable to the substantial reduction in return on shareholders' funds due to the exceptionally low HK dollar interest rates. The shortfall was partly made up by the increase in dividend income and the surplus on revaluation of properties. Personal Corporate & Inter- Financial Commercial Institutional segment Figures in HK$m Services Banking Banking Treasury Other elimination Total Half-year ended 30 June 2004 Income and expenses Net interest income 2,794 625 259 1,003 30 - 4,711 Other operating income 2,138 523 114 395 192 - 3,362 Inter-segment income - - - - 159 (159) - Total operating income 4,932 1,148 373 1,398 381 (159) 8,073 Operating expenses^ (1,320) (390) (56) (67) (144) - (1,977) Inter-segment expenses (128) (26) (3) (2) - 159 - Operating profit before provisions 3,484 732 314 1,329 237 - 6,096 Provisions for bad and doubtful debts 65 582 116 - - - 763 Operating profit 3,549 1,314 430 1,329 237 - 6,859 Profit on tangible fixed assets and long-term investments - - - - 339 - 339 Net surplus on property revaluation - - - - 119 - 119 Share of profits of associated companies - - - - 6 - 6 Profit on ordinary activities before tax 3,549 1,314 430 1,329 701 - 7,323 Share of pre-tax profit 48.5% 17.9% 5.9% 18.1% 9.6% - 100.0% Operating profit excluding inter-segment transactions 3,677 1,340 433 1,331 78 - 6,859 ^Including depreciation (53) (9) (1) (1) (89) - (153) At 30 June 2004 Total assets 140,214 41,344 75,160 222,033 25,178 - 503,929 Total liabilities 327,444 72,671 24,605 18,538 18,602 - 461,860 Investments in associated companies - - - - 2,183 - 2,183 Capital expenditure incurred during the period 35 6 1 1 15 - 58 Personal Corporate & Inter- Financial Commercial Institutional segment Figures in HK$m Services Banking Banking Treasury Other elimination Total Half-year ended 30 June 2003 Income and expenses Net interest income 3,186 501 271 901 361 - 5,220 Other operating income 1,705 464 105 228 172 - 2,674 Inter-segment income - - - - 173 (173) - Total operating income 4,891 965 376 1,129 706 (173) 7,894 Operating expenses^ (1,157) (383) (52) (66) (163) - (1,821) Inter-segment expenses (138) (29) (3) (3) - 173 - Operating profit before provisions 3,596 553 321 1,060 543 - 6,073 Provisions for bad and doubtful debts (570) 71 43 - - - (456) Operating profit 3,026 624 364 1,060 543 - 5,617 Profit on tangible fixed assets and long-term investments 12 28 - 40 261 - 341 Net deficit on property revaluation - - - - (48) - (48) Share of profits of associated companies - - - - 18 - 18 Profit on ordinary activities before tax 3,038 652 364 1,100 774 - 5,928 Share of pre-tax profit 51.2% 11.0% 6.1% 18.6% 13.1% - 100.0% Operating profit excluding inter-segment transactions 3,164 653 367 1,063 370 - 5,617 ^Including depreciation (63) (11) (1) (1) (95) - (171) At 30 June 2003 Total assets 134,547 28,246 67,731 229,219 22,565 - 482,308 Total liabilities 324,132 71,354 16,948 10,839 17,776 - 441,049 Investments in associated companies - - - - 675 - 675 Capital expenditure incurred during the period 48 10 2 1 23 - 84 Personal Corporate & Inter- Financial Commercial Institutional segment Figures in HK$m Services Banking Banking Treasury Other elimination Total Half-year ended 30 December 2003 Income and expenses Net interest income 2,989 563 272 973 162 - 4,959 Other operating income 1,462 466 113 281 202 - 2,524 Inter-segment income - - - - 172 (172) - Total operating income 4,451 1,029 385 1,254 536 (172) 7,483 Operating expenses^ (1,361) (416) (59) (82) (163) - (2,081) Inter-segment expenses (138) (28) (4) (2) - 172 - Operating profit before provisions 2,952 585 322 1,170 373 - 5,402 Provisions for bad and doubtful debts (360) (60) 84 - - - (336) Operating profit 2,592 525 406 1,170 373 - 5,066 Profit on tangible fixed assets and long-term investments - - - 8 112 - 120 Net surplus on property revaluation - - - - 11 - 11 Share of profits of associated companies - - - - 12 - 12 Profit on ordinary activities before tax 2,592 525 406 1,178 508 - 5,209 Share of pre-tax profit 49.8% 10.1% 7.8% 22.6% 9.7% - 100.0% Operating profit excluding inter-segment transactions 2,730 553 410 1,172 201 - 5,066 ^Including depreciation (59) (9) (1) (1) (88) - (158) At 31 December 2003 Total assets 137,988 31,749 68,393 242,014 22,815 - 502,959 Total liabilities 344,281 72,625 19,760 7,225 18,783 - 462,674 Investments in associated companies - - - - 549 - 549 Capital expenditure incurred during the period 29 9 2 - 18 - 58 (b) By geographical region The geographical regions in this analysis are classified by the location of the principal operations of the subsidiary companies or, in the case of the bank itself, by the location of the branches responsible for reporting the results or advancing the funds. Figures in HK$m Hong Kong Americas Other Total Half-year ended 30 June 2004 Income and expenses Total operating income 7,291 731 51 8,073 Profit on ordinary activities before tax 6,587 718 18 7,323 At 30 June 2004 Total assets 424,681 65,212 14,036 503,929 Total liabilities 447,841 7,967 6,052 461,860 Capital expenditure incurred during the period 55 - 3 58 Contingent liabilities and commitments 111,159 113 1,938 113,210 Half-year ended 30 June 2003 Income and expenses Total operating income 7,196 661 37 7,894 Profit on ordinary activities before tax 5,238 648 42 5,928 At 30 June 2003 Total assets 408,425 65,882 8,001 482,308 Total liabilities 426,991 9,718 4,340 441,049 Capital expenditure incurred during the period 78 - 6 84 Contingent liabilities and commitments 101,084 - 1,317 102,401 Figures in HK$m Hong Kong Americas Other Total Half-year ended 31 December 2003 Income and expenses Total operating income 6,785 661 37 7,483 Profit on ordinary activities before tax 4,543 647 19 5,209 At 31 December 2003 Total assets 427,539 65,204 10,216 502,959 Total liabilities 449,243 8,376 5,055 462,674 Capital expenditure incurred during the period 52 - 6 58 Contingent liabilities and commitments 107,588 122 1,671 109,381 Cash and short-term funds Figures in HK$m At 30Jun04 At 30Jun03 At 31Dec03 Cash in hand and balances with banks and other financial institutions 4,358 3,544 4,780 Money at call and placings with banks maturing within one month 52,646 58,726 62,566 Treasury bills 5,372 5,039 4,557 62,376 67,309 71,903 Remaining maturity of treasury bills: - within three months 3,950 3,720 174 - one year or less but over three 1,422 1,319 4,383 months 5,372 5,039 4,557 Placings with banks maturing after one month Figures in HK$m At 30Jun04 At 30Jun03 At 31Dec03 Remaining maturity: - three months or less but over one month 2,437 19,638 15,576 - one year or less but over three months 2,478 8,100 2,253 - five years or less but over one year 400 - 200 5,315 27,738 18,029 Certificates of deposit Figures in HK$m At 30Jun04 At 30Jun03 At 31Dec03 Remaining maturity: - three months or less but not repayable on demand 7,099 2,952 1,870 - one year or less but over three months 11,039 5,915 10,171 - five years or less but over one year 13,340 20,758 16,642 31,478 29,625 28,683 Securities held for dealing purposes Figures in HK$m At 30Jun04 At 30Jun03 At 31Dec03 Debt securities by remaining maturity: - three months or less but not repayable on demand 146 40 38 - one year or less but over three months 90 71 191 - five years or less but over one year 592 814 840 - over five years 318 119 146 1,146 1,044 1,215 Equity shares 34 3 17 1,180 1,047 1,232 Debt securities held for dealing purposes exclude treasury bills and certificates of deposit which are included under the respective headings in the balance sheet. Advances to customers Figures in HK$m At 30Jun04 At 30Jun03 At 31Dec03 Gross advances to customers 248,085 228,840 231,999 Specific provisions (903) (1,568) (1,432) General provisions (403) (1,101) (1,101) 246,779 226,171 229,466 Remaining maturity: - repayable on demand 12,271 12,162 11,488 - three months or less but not repayable on demand 25,002 17,263 20,341 - one year or less but over three months 26,697 22,512 22,585 - five years or less but over one year 92,636 85,981 89,565 - over five years 86,290 82,189 81,402 - overdue for more than one month 1,285 3,062 1,375 - non-performing advances 3,904 5,671 5,243 Gross advances to customers 248,085 228,840 231,999 Provisions for bad and doubtful debts (1,306) (2,669) (2,533) 246,779 226,171 229,466 Included in advances to customers are: - trade bills 2,861 2,309 2,226 - provisions for bad and doubtful (12) (23) (17) debts 2,849 2,286 2,209 Advances to customers (after deduction of interest in suspense and provisions) recorded a growth of HK$17,313 million, or 7.5 per cent, to HK$246.8 billion at 30 June 2004. Provisions against advances to customers Suspended Figures in HK$m Specific General Total interest At 1 January 2004 1,432 1,101 2,533 293 Amounts written off (519) - (519) (97) Recoveries of advances written off in previous years 55 - 55 - New provisions charged to profit and loss account 242 - 242 - Provisions released to profit and loss account (307) (698) (1,005) - Interest suspended during the period - - - 42 Suspended interest recovered - - - (22) At 30 June 2004 903 403 1,306 216 Suspended interest comprises both suspended interest netted against 'Advances to customers' and suspended interest netted against accrued interest receivable in 'Prepayments and accrued income'. Total provisions as a percentage of gross advances to customers are as follows: At 30Jun04 At 30Jun03 At 31Dec03 % % % Specific provisions 0.36 0.69 0.62 General provisions 0.16 0.48 0.48 Total provisions 0.52 1.17 1.10 Total provisions as a percentage of gross advances to customers fell to 0.52 per cent at 30 June 2004, compared with 1.10 per cent at the end of 2003. Specific provisions as a percentage of gross advances decreased by 26 basis points to 0.36 per cent. The reduction mainly reflected the writing-off of irrecoverable balances against provisions, repayments and upgrading of doubtful accounts to performing status. General provisions fell by 32 basis points to 0.16 per cent of gross advances to customers, compared with 0.48 per cent at the end of 2003 following a review of the estimated latent losses within advances, based on historical loss experience. Non-performing advances to customers and provisions Non-performing advances to customers on which interest has been placed in suspense or on which interest has ceased to accrue are as follows: Figures in HK$m At 30Jun04 At 30Jun03 At 31Dec03 Gross non-performing advances on which interest: - has been placed in suspense 3,872 5,567 5,182 - accrual has ceased 95 182 134 3,967 5,749 5,316 Suspended interest (63) (78) (73) Gross non-performing advances^ (page 31) 3,904 5,671 5,243 Specific provisions (903) (1,568) (1,432) Net non-performing advances 3,001 4,103 3,811 Specific provisions as a percentage of gross non-performing advances^ 23.1% 27.6% 27.3% Gross non-performing advances^ as a percentage of gross advances to customers 1.6% 2.5% 2.3% ^Stated after deduction of interest in suspense. Non-performing advances to customers are those advances where full repayment of principal or interest is considered unlikely and are so classified as soon as such a situation becomes apparent. Non-performing advances may include advances that are not yet overdue for more than three months but which are considered doubtful. Except in certain limited circumstances, all advances on which principal or interest is overdue for more than three months are classified as non-performing. Specific provisions are made after taking into account the value of collateral held in respect of such advances. Gross non-performing advances (after deduction of interest in suspense) fell by HK$1,339 million, or 25.5 per cent, to HK$3,904 million, compared with the end of 2003. Irrecoverable balances of HK$519 million were written off against provisions. Due to the improvement in the repayment capabilities of certain corporate customers through disposal of assets, a total of HK$972 million was repaid. In relation to residential mortgages, HK$498 million was recovered through the realisation of collateral, while the sum of HK$664 million in respect of residential mortgages and personal lending was classified as non-performing during the period. The ratio of gross non-performing advances to gross advances to customers further improved to 1.6 per cent from 2.3 per cent at the end of 2003. Overdue advances to customers The amounts of advances to customers which are overdue for more than three months and their expression as a percentage of gross advances to customers are as follows: At 30Jun04 At 30Jun03 At 31Dec03 HK$m % 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 769 0.3 1,196 0.5 1,297 0.5 - one year or less but over six months 532 0.2 1,098 0.5 858 0.4 - over one year 759 0.3 2,460 1.1 1,152 0.5 2,060 0.8 4,754 2.1 3,307 1.4 Overdue advances to customers (as above) 2,060 0.8 4,754 2.1 3,307 1.4 Less: overdue advances on which interest is still being accured (567) (0.2) (1,305) (0.6) (1,108) (0.5) 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 1,534 0.6 1,843 0.8 1,536 0.7 - other 877 0.4 379 0.2 1,508 0.7 Gross non-performing advances^ (page 30) 3,904 1.6 5,671 2.5 5,243 2.3 ^Stated after deduction of interest in suspense. Advances with a specific repayment date are classified as overdue when the principal or interest is overdue and remains unpaid at the period-end. Advances repayable by regular instalments are treated as overdue when an instalment payment is overdue and remains unpaid at the period-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 to customers The amount of rescheduled advances and its expression as a percentage of gross advances to customers are as follows: At 30Jun04 At 30Jun03 At 31Dec03 HK$m % HK$m % HK$m % Rescheduled advances to customers^ 2,621 1.1 2,958 1.3 2,608 1.1 ^Stated after deduction of interest in suspense. Rescheduled advances are those advances which have been restructured or renegotiated because a deterioration in the financial position of the borrower has led to an inability to meet the original repayment schedule. Rescheduled advances to customers are stated net of any advances that have subsequently become overdue for over three months and are included in overdue advances to customers (page 31). Repossessed assets In the recovery of non-performing advances, Hang Seng may take repossession of the collateral assets through court proceedings or voluntary delivery of possession by the borrowers. Specific provisions have been made in respect of such non-performing advances taking into account the net realisable value of the related collateral which is revalued periodically. Upon repossession of the collateral assets, the advances are adjusted to the net realisable value of the repossessed assets, usually resulting in a partial write-off of the advances against specific provisions. Advances with repossessed collateral assets will continue to be accounted for as 'Advances to customers' and classified as non-performing. The aggregate valuation of the repossessed collateral assets amounted to: Figures in HK$m At 30Jun04 At 30Jun03 At 31Dec03 Repossessed collateral assets 385 603 506 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 30 June 2004, over 90 per cent of Hang Seng's advances to customers and the related non-performing advances and overdue advances were classified under the area of Hong Kong (unchanged from the positions at 30 June 2003 and 31 December 2003). Gross advances to customers by industry sector The analysis of gross advances to customers (after deduction of interest in suspense) by industry sector based on categories and definitions used by the Hong Kong Monetary Authority is as follows: Figures in HK$m At 30Jun04 At 30Jun03 At 31Dec03 Gross advances to customers for use in Hong Kong Industrial, commercial and financial sectors Property development 13,909 17,910 16,828 Property investment 39,993 33,268 34,555 Financial concerns 4,819 3,681 6,109 Stockbrokers 372 154 226 Wholesale and retail trade 5,111 4,097 4,376 Manufacturing 3,735 2,096 2,556 Transport and transport equipment 11,416 8,885 10,139 Other 20,408 20,158 17,727 99,763 90,249 92,516 Individuals Advances for the purchase of flats under the Government Home Ownership Scheme, Private Sector Participation Scheme and Tenants Purchase Scheme 28,310 32,840 30,431 Advances for the purchase of other residential properties 81,022 77,972 79,830 Credit card advances 5,508 5,186 5,430 Other 7,435 6,283 5,779 122,275 122,281 121,470 Total gross advances for use in Hong Kong 222,038 212,530 213,986 Trade finance 15,807 11,029 11,322 Gross advances for use outside Hong Kong 10,240 5,281 6,691 Gross advances to customers 248,085 228,840 231,999 Lending to the industrial, commercial and financial sectors grew by HK$7,247 million, or 7.8 per cent, during the first half of 2004. With the recovery of the local economy, double-digit growth was recorded in the sectors of property investment, wholesale and retail trade, manufacturing, transportation and others. Trade finance advances recorded an encouraging growth of HK$4,485 million, or 39.6 per cent, reflecting the improvement in the market and the result of our focus on the expansion of commercial banking and trade services. Lending to individuals rose by HK$805 million, or 0.7 per cent. Excluding the fall of HK$2,121 million in mortgages under the suspended GHOS, the growth in individual lending was 3.2 per cent. Credit card advances and other lending to individuals, mainly overdraft, personal and tax loans, together rose HK$1,734 million or 15.5 per cent. Residential mortgages increased by HK$1,192 million, or 1.5 per cent, in an active and intensely competitive market environment. Gross advances for use outside Hong Kong rose by HK$3,549 million, or 53.0 per cent, mainly reflecting the encouraging growth in the loan portfolios of mainland branches. Long-term investments Carrying value Figures in HK$m At 30Jun04 At 30Jun03 At 31Dec03 Held-to-maturity debt securities Issued by public bodies: - central governments and central banks 13,382 10,413 12,408 - other public sector entities 11,253 12,874 12,365 24,635 23,287 24,773 Issued by other bodies: - banks and other financial institutions 75,395 58,608 68,230 - corporate entities 19,311 15,368 18,747 94,706 73,976 86,977 119,341 97,263 111,750 Equity investments Issued by corporate entities 1,656 1,814 2,131 120,997 99,077 113,881 Held-to-maturity debt securities: - listed in Hong Kong 4,818 2,436 3,001 - listed outside Hong Kong 25,273 22,513 24,687 30,091 24,949 27,688 - unlisted 89,250 72,314 84,062 119,341 97,263 111,750 Equity investments: - listed in Hong Kong 928 1,085 1,313 - listed outside Hong Kong 80 64 87 1,008 1,149 1,400 - unlisted 648 665 731 1,656 1,814 2,131 120,997 99,077 113,881 Held-to-maturity debt securities are stated at cost, adjusted for the amortisation of premiums and accretion of discounts over the period from the date of purchase to the date of maturity. Equity investments are stated at fair value. Investment in held-to-maturity debt securities rose by HK$7.6 billion, or 6.8 per cent, to HK$119.3 billion, with funds re-deployed from interbank placings to enhance net interest yield. Over 95 per cent of the held-to-maturity debt securities will mature within five years. The fair value of the held-to-maturity debt securities amounted to HK$119.4 billion, with an unrealised gain of HK$26 million at 30 June 2004. The following table shows the fair value of held-to-maturity debt securities: Fair value Figures in HK$m At 30Jun04 At 30Jun03 At 31Dec03 Held-to-maturity debt securities Issued by public bodies: - central governments and central banks 13,334 10,673 12,578 - other public sector entities 11,458 13,465 12,763 24,792 24,138 25,341 Issued by other bodies: - banks and other financial institutions 75,241 59,018 68,375 - corporate entities 19,334 15,682 18,929 94,575 74,700 87,304 119,367 98,838 112,645 Held-to-maturity debt securities: - listed in Hong Kong 4,804 2,515 3,074 - listed outside Hong Kong 25,284 22,800 24,790 30,088 25,315 27,864 - unlisted 89,279 73,523 84,781 119,367 98,838 112,645 Maturity analysis of held-to-maturity debt securities: Carrying value Figures in HK$m At 30Jun04 At 30Jun03 At 31Dec03 Remaining maturity: - repayable on demand 77 - 78 - three months or less but not repayable on demand 5,617 7,959 6,827 - one year or less but over three months 17,018 12,580 17,474 - five years or less but over one year 90,876 72,966 82,130 - over five years 5,753 3,758 5,241 119,341 97,263 111,750 Investments in associated companies Figures in HK$m At 30Jun04 At 30Jun03 At 31Dec03 Investments in associated companies 2,183 675 549 Investment in associated companies increased by HK$1,634 million, or 297.6 per cent, to HK$2,183 million, reflecting Hang Seng's subscription of 15.98 per cent in the enlarged share capital of Industrial Bank Co., Ltd. (IB). In accordance with the Hong Kong Generally Accepted Accounting Practice, an associated company is an entity over which one company has significant influence, including participation in the financial and operating policy decisions, without controlling the management of the company. Usually a holding of less than 20 per cent is presumed not to have significant influence unless such influence can be clearly demonstrated, and is treated on an investment basis, with the holding recognised at cost and dividends accounted for as declared. The investment in IB has, however, been accounted for as an associated company using the equity method, by which Hang Seng will recognise its share of the profits and losses earned by IB. This reflects that Hang Seng has representation in both the Board and Executive Committee of IB, and the ability to participate in the decision making process. Other assets Figures in HK$m At 30Jun04 At 30Jun03 At 31Dec03 Unrealised gains on off-balance sheet interest rate, exchange rate and other derivative contracts which are marked to market 1,023 1,117 1,664 Deferred taxation 17 55 52 Items in the course of collection from other banks 4,235 2,945 3,244 Prepayments and accrued income 2,182 2,403 2,179 Long-term assurance assets attributable to policy holders 6,342 3,763 4,982 Other accounts 2,989 3,232 3,815 16,788 13,515 15,936 Remaining maturity: - three months or less 7,346 6,551 8,811 - one year or less but over three months 1,289 1,894 770 - five years or less but over one year 458 199 183 - over five years 7,654 4,826 6,135 16,747 13,470 15,899 - overdue^ - six months or less but over three months 5 7 5 - one year or less but over six months 5 9 8 - over one year 31 29 24 41 45 37 16,788 13,515 15,936 ^Represented mainly by overdue interest receivable included under 'Prepayments and accrued income'. Other assets increased by HK$852 million, or 5.3 per cent, to HK$16,788 million, compared with HK$15,936 million at 31 December 2003, mainly due to the increase in long-term assurance assets attributable to policy holders. This information is provided by RNS The company news service from the London Stock Exchange

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