3/4: Hang Seng 1H03 (2/3)
HSBC Holdings PLC
04 August 2003
Financial Review (continued)
Securities held for dealing purposes
Figures in HK$m At 30Jun03 At 30Jun02 At 31Dec02
Debt securities by remaining maturity:
- three months or less but not
repayable on demand 40 579 97
- one year or less
but over three months 71 214 90
- five years or less but over one year 814 416 890
- over five years 119 - 121
1,044 1,209 1,198
Equity shares 3 - -
1,047 1,209 1,198
Advances to customers
Figures in HK$m At 30Jun03 At 30Jun02 At 31Dec02
Gross advances to customers 228,840 228,893 227,475
Specific provisions (1,568) (1,710) (1,805)
General provisions (1,101) (1,437) (1,108)
226,171 225,746 224,562
Remaining maturity:
- repayable on demand 12,162 12,128 11,983
- three months or less but not
repayable on demand 17,263 15,441 18,128
- one year or less
but over three months 22,512 26,036 21,243
- five years or less but over one year 85,981 83,242 84,466
- over five years 82,189 84,628 84,273
- overdue for more than one month 3,062 1,452 1,301
- non-performing advances 5,671 5,966 6,081
Gross advances to customers 228,840 228,893 227,475
Provisions for bad and doubtful debts (2,669) (3,147) (2,913)
226,171 225,746 224,562
Included in advances to customers are:
- trade bills 2,309 2,222 2,180
- provisions for bad and doubtful debts (23) (66) (78)
2,286 2,156 2,102
Advances to customers (after deduction of interest in suspense and provisions)
recorded a modest growth of HK$1,609 million, or 0.7 per cent, to HK$226.2
billion at 30 June 2003, with loan demand remaining weak during the period.
Provisions against advances to customers
Suspended
Figures in HK$m Specific General Total interest
At 1Jan03 1,805 1,108 2,913 404
Amounts written off (721) - (721) (93)
Recoveries of advances
written off in previous years 22 - 22 -
Net charge/(release) to
profit and loss account 462 (6) 456 -
Interest suspended during the period - - - 77
Suspended interest recovered - - - (29)
Exchange adjustment - (1) (1) -
At 30Jun03 1,568 1,101 2,669 359
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 30Jun03 At 30Jun02 At 31Dec02
% % %
Specific provisions 0.69 0.75 0.79
General provisions 0.48 0.63 0.49
Total provisions 1.17 1.38 1.28
Total provisions as a percentage of gross advances to customers fell to 1.17 per
cent at 30 June 2003, compared with 1.28 per cent at the end of 2002. Specific
provisions as a percentage of gross advances decreased by 10 basis points to
0.69 per cent. The reduction mainly reflected the writing-off of irrecoverable
balances and the repayment and upgrading of rescheduled advances and doubtful
accounts to performing status. General provisions stood at 0.48 per cent of
gross advances to customers, compared with 0.49 per cent at the end of 2002.
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 30Jun03 At 30Jun02 At 31Dec02
Gross non-performing advances on
which interest:
- has been placed in suspense 5,567 5,622 5,767
- accrual has ceased 182 479 429
5,749 6,101 6,196
Suspended interest (78) (135) (115)
Gross non-performing advances ^
(page 24) 5,671 5,966 6,081
Specific provisions (1,568) (1,710) (1,805)
Net non-performing advances 4,103 4,256 4,276
Specific provisions as a percentage of
gross non-performing advances ^ 27.6 % 28.7 % 29.7 %
Gross non-performing advances ^
as a percentage of gross advances
to customers 2.5 % 2.6 % 2.7 %
^ 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 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$410 million, or 6.7 per cent, to HK$5,671 million, compared with the end of
2002. The ratio of gross non-performing advances to gross advances to customers
further improved to 2.5 per cent from 2.7 per cent at the end of 2002.
Overdue advances to customers
The amounts of advances to customers which are overdue for more than three
months and their expression as a percentage of gross advances to customers are
as follows:
At 30Jun03 At 30Jun02 At 31Dec02
HK$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 1,196 0.5 823 0.3 934 0.4
- one year or less but over six months 1,098 0.5 1,321 0.6 1,097 0.5
- over one year 2,460 1.1 2,910 1.3 2,734 1.2
4,754 2.1 5,054 2.2 4,765 2.1
Overdue advances to customers
(as above) 4,754 2.1 5,054 2.2 4,765 2.1
Less: overdue advances on which
interest is still being accrued (1,305) (0.6) (691) (0.3) (1,131) (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 1,843 0.8 321 0.1 1,814 0.8
- other 379 0.2 1,282 0.6 633 0.3
Gross non-performing advances
(page 23) 5,671 2.5 5,966 2.6 6,081 2.7
^ 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 30Jun03 At 30Jun02 At 31Dec02
HK$m % HK$m % HK$m %
Rescheduled advances to customers ^ 2,958 1.3 391 0.2 1,831 0.8
^ Stated after deduction of interest in suspense.
Rescheduled advances are those advances which have been restructured or
renegotiated because of deterioration in the financial position of the borrower
leading 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 24).
Rescheduled advances to customers increased by HK$1,127 million, or 61.6 per
cent, to HK$2,958 million at 30 June 2003, representing 1.3 per cent of gross
advances to customers. The increase was due to the debt restructuring of certain
corporate customers.
Repossessed assets
In the recovery of non-performing advances, Hang Seng may take repossession of
the collateral assets through court proceedings or voluntary delivery of
possession by the borrowers. Specific provisions have been made in respect of
such non-performing advances taking into account the net realisable value of the
related collateral which is revalued periodically. Upon repossession of the
collateral assets, the advances are adjusted to the net realisable value of the
repossessed assets, usually resulting in a partial write-off of the advances
against specific provisions. Advances with repossessed collateral assets will
continue to be accounted for as 'Advances to customers' and classified as
non-performing.
At 30Jun03 At 30Jun02 At 31Dec02
Repossessed collateral assets 603 679 638
Segmental analysis of advances to customers by geographical area
Advances to customers by geographical area are classified according to the
location of the counterparties after taking into account the transfer of risk.
In general, risk transfer applies when an advance is guaranteed by a party
located in an area which is different from that of the counterparty. At 30 June
2003, over 90 per cent of Hang Seng's advances to customers and the related
non-performing advances and overdue advances were classified under the area of
Hong Kong (unchanged from the position at 30 June 2002 and 31 December 2002).
Gross advances to customers by industry sector
The analysis of gross advances to customers (after deduction of interest in
suspense) by industry sector based on categories and definitions used by the
Hong Kong Monetary Authority is as follows:
Figures in HK$m At 30Jun03 At 30Jun02 At 31Dec02
Gross advances to customers for
use in Hong Kong
Industrial, commercial and
financial sectors
Property development 17,910 19,775 19,300
Property investment 33,268 29,952 31,507
Financial concerns 3,681 2,121 2,071
Stockbrokers 154 199 219
Wholesale and retail trade 4,097 3,755 3,941
Manufacturing 2,096 2,032 2,037
Transport and transport equipment 8,885 9,671 9,238
Other 20,158 19,129 19,521
90,249 86,634 87,834
Individuals
Advances for the purchase of flats
under the Government Home
Ownership Scheme, Private Sector
Participation Scheme and Tenants
Purchase Scheme 32,840 36,752 35,050
Advances for the purchase of other
residential properties 77,972 78,937 78,518
Credit card advances 5,186 5,419 5,578
Other 6,283 6,944 6,251
122,281 128,052 125,397
Total gross advances for
use in Hong Kong 212,530 214,686 213,231
Trade finance 11,029 10,002 9,751
Gross advances for use
outside Hong Kong 5,281 4,205 4,493
Gross advances to customers 228,840 228,893 227,475
Lending to the industrial, commercial and financial sectors grew by HK$2,415
million, or 2.7 per cent, since the end of 2002. The increase was mainly in
lending to financial concerns which included public sector entities engaged in
financing activities. Lending to the property sector also rose slightly.
Trade finance rose by HK$1,278 million, or 13.1 per cent, benefiting from the
improvement in external trade.
Advances to individuals decreased by HK$3,116 million, or 2.5 per cent. Lending
under the GHOS continued to decline following the suspension of the sale of new
flats under this scheme since the second half of 2002. Residential mortgages and
credit card advances also fell marginally, in part due to the outbreak of SARS
in the second quarter of 2003.
Long-term investments
Carrying value
Figures in HK$m At 30Jun03 At 30Jun02 At 31Dec02
Held-to-maturity debt securities
Issued by public bodies
- central governments and central banks 10,413 6,940 10,664
- other public sector entities 12,874 8,375 9,219
23,287 15,315 19,883
Issued by other bodies
- banks and other financial institutions 58,608 21,229 40,011
- corporate entities 15,368 15,428 16,960
73,976 36,657 56,971
97,263 51,972 76,854
Equity investments
Issued by corporate entities 1,814 2,946 2,315
99,077 54,918 79,169
Held-to-maturity debt securities
- listed in Hong Kong 2,436 1,167 2,340
- listed outside Hong Kong 22,513 15,368 19,551
24,949 16,535 21,891
- unlisted 72,314 35,437 54,963
97,263 51,972 76,854
Equity investments
- listed in Hong Kong 1,085 2,189 1,603
- listed outside Hong Kong 64 82 70
1,149 2,271 1,673
- unlisted 665 675 642
1,814 2,946 2,315
99,077 54,918 79,169
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 redemption. Equity investments are stated at
fair value, less provision for impairment.
Investment in held-to-maturity debt securities rose by HK$20,409 million, or
26.6 per cent, to HK$97,263 million, 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$98.8 billion, with an unrealised
gain of HK$1.6 billion.
The following table shows the fair value of held-to-maturity debt securities:
Fair value
Figures in HK$m At 30Jun03 At 30Jun02 At 31Dec02
Held-to-maturity debt securities
Issued by public bodies
- central governments and central banks 10,673 7,055 10,924
- other public sector entities 13,465 8,649 9,645
24,138 15,704 20,569
Issued by other bodies
- banks and other financial institutions 59,018 21,278 40,213
- corporate entities 15,682 15,549 17,241
74,700 36,827 57,454
98,838 52,531 78,023
Held-to-maturity debt securities
- listed in Hong Kong 2,515 1,182 2,403
- listed outside Hong Kong 22,800 15,494 19,777
25,315 16,676 22,180
- unlisted 73,523 35,855 55,843
98,838 52,531 78,023
Maturity analysis of held-to-maturity debt securities:
Carrying value
Figures in HK$m At 30Jun03 At 30Jun02 At 31Dec02
Remaining maturity:
- three months or less but
not repayable on demand 7,959 7,532 14,875
- one year or less but over three months 12,580 10,667 8,911
- five years or less but over one year 72,966 31,481 50,807
- over five years 3,758 2,292 2,261
97,263 51,972 76,854
Other assets
At 30Jun03 At 30Jun02 At 31Dec02
Figures in HK$m restated ^ restated ^
Unrealised gains on off-balance sheet
interest rate, exchange rate and
other derivative contracts
which are marked to market 1,117 876 981
Deferred taxation 55 106 73
Items in the course of collection from
other banks 2,945 3,756 2,886
Prepayments and accrued income 2,403 2,040 2,143
Long-term assurance assets
attributable to policy holders 3,763 - 2,897
Other accounts 3,232 1,862 3,340
13,515 8,640 12,320
Remaining maturity:
- three months or less 6,551 6,874 6,929
- one year or less
but over three months 1,894 621 637
- five years or less but over one year 199 947 968
- over five years 4,826 162 3,745
13,470 8,604 12,279
- overdue ^ ^
-- six months or less
but over three months 7 5 5
-- one year or less but over six months 9 7 9
-- over one year 29 24 27
45 36 41
13,515 8,640 12,320
^ Certain figures for 2002 have been restated to reflect the adoption of Hong
Kong Statement of Standard Accounting Practice 12 (revised) (HKSSAP 12) on '
Income taxes', details of which are set out in Note 1 of the additional
information.
^ ^ Represented mainly by overdue interest receivable included under
'Prepayments and accrued income'.
Current, savings and other deposit accounts
Figures in HK$m At 30Jun03 At 30Jun02 At 31Dec02
Customer deposit accounts
- current accounts 38,854 32,548 36,242
- savings accounts 165,717 146,910 154,476
- time and other deposits 204,445 211,020 206,973
Certificates of deposit in issue 10,014 17,809 15,916
Other debt securities in issue 53 8 86
419,083 408,295 413,693
Customer deposit accounts
Repayable on demand 232,393 223,161 210,351
With agreed maturity dates
or periods of notice,
by remaining maturity:
- three months or less but
not repayable on demand 166,328 159,948 180,380
- one year or less but over three months 9,029 6,973 6,701
- five years or less
but over one year 1,266 396 259
409,016 390,478 397,691
Certificates of deposit in issue
Remaining maturity:
- three months or less but
not repayable on demand 2,121 6,836 2,887
- one year or less but
over three months 2,981 8,827 9,635
- five years or less but over one year 4,727 1,781 3,189
- over five years 185 365 205
10,014 17,809 15,916
Other debt securities in issue
Remaining maturity:
- three months or less but
not repayable on demand - 8 48
- one year or less
but over three months 53 - 38
53 8 86
419,083 408,295 413,693
Current, savings and other deposit accounts increased by HK$5.4 billion, or 1.3
per cent, to HK$419.1 billion, compared with HK$413.7 billion at 31 December
2002. The growth was mainly in customer deposit accounts which grew by HK$11.3
billion, or 2.8 per cent. During the period, customers continued to shift from
time deposits to savings and current accounts, reflecting preference for
liquidity in the prevailing low interest rate environment.
Certificates of deposit and other debt securities in issue fell by HK$5.9
billion, or 37.1 per cent, to HK$10.1 billion following the maturity of part of
the certificates of deposit portfolio.
Deposits from banks
Figures in HK$m At 30Jun03 At 30Jun02 At 31Dec02
Repayable on demand 854 1,146 555
With agreed maturity dates
or periods of notice,
by remaining maturity:
- three months or less but
not repayable on demand 1,439 1,137 515
- one year or less
but over three months 66 4 2
2,359 2,287 1,072
Other liabilities
At 30Jun03 At 30Jun02 At 31Dec02
Figures in HK$m restated ^ restated ^
Short positions in securities 5,604 5,267 2,916
Unrealised losses on off-balance sheet
interest rate, exchange rate and
other derivative contracts which
are marked to market 1,072 726 832
Current taxation 921 998 249
Deferred taxation 601 605 635
Items in the course of
transmission to other banks 4,030 4,253 4,629
Accruals and deferred income 1,531 1,303 1,668
Provisions for other liabilities
and charges 384 329 313
Long-term liabilities attributable to
policy holders 3,763 - 2,897
Other 944 1,103 606
18,850 14,584 14,745
^ Certain figures for 2002 have been restated to reflect the adoption of Hong
Kong Statement of Standard Accounting Practice 12 (revised) (HKSSAP 12) on '
Income taxes', details of which are set out in Note 1 of the additional
information.
Other liabilities increased by HK$4,105 million, or 27.8 per cent, to HK$18,850
million, compared with HK$14,745 million at 31 December 2002, reflecting the
increase in short positions in securities, long-term liabilities attributable to
policy holders and provision for current taxation. These were partly offset by a
reduction in the items in the course of transmission to other banks.
Shareholders' funds
At 30Jun03 At 30Jun02 At 31Dec02
Figures in HK$m restated ^ restated ^
Share capital 9,559 9,559 9,559
Retained profits 20,504 21,005 19,440
Premises and investment properties
revaluation reserves 5,906 7,319 6,667
Long-term equity investment
revaluation reserve 647 1,619 1,011
Capital redemption reserve 99 99 99
Total reserves 27,156 30,042 27,217
36,715 39,601 36,776
Proposed dividends 4,015 4,015 6,309
Shareholders' funds 40,730 43,616 43,085
Return on average shareholders' funds 24.4 % 24.1 % 21.9 %
^ Certain figures for 2002 have been restated to reflect the adoption of Hong
Kong Statement of Standard Accounting Practice 12 (revised) (HKSSAP 12) on '
Income taxes', details of which are set out in Note 1 of the additional
information on page 50.
There was no purchase, sale or redemption of the bank's listed securities by the
bank or any of its subsidiaries during the first half of 2003.
Shareholders' funds (excluding proposed dividends) fell by HK$61 million, or 0.2
per cent, to HK$36,715 million at 30 June 2003. Retained profits rose by
HK$1,064 million. Premises and investment properties revaluation reserves fell
by HK$761 million as a result of the further decline in the property market and
the provision for deferred tax on property revaluation surplus following the
adoption of the HKSSAP 12. The disposal of long-term equities led to a reduction
of HK$364 million in the long-term equity investment revaluation reserve.
The return on average shareholders' funds was 24.4 per cent, compared with 24.1
per cent and 21.9 per cent for the first and second halves of 2002 respectively.
Capital resources management
Analysis of capital base and risk-weighted assets
Figures in HK$m At 30Jun03 At 30Jun02 At 31Dec02
Capital base
Tier 1 capital
- share capital 9,559 9,559 9,559
- retained profits 19,919 20,533 18,795
- capital redemption reserve 99 99 99
- total 29,577 30,191 28,453
Tier 2 capital
- premises and investment properties
revaluation reserves 4,160 5,674 5,153
- long-term equity investment
revaluation reserve 459 1,056 705
- general provisions 1,101 1,437 1,108
- total 5,720 8,167 6,966
Unconsolidated investments and
other deductions (1,404) (1,608) (1,376)
Total capital base after deductions 33,893 36,750 34,043
Risk-weighted assets
On-balance sheet 226,484 224,802 222,758
Off-balance sheet 14,243 14,058 16,262
Total risk-weighted assets 240,727 238,860 239,020
Total risk-weighted assets adjusted for
market risk 241,300 239,200 239,426
Capital adequacy ratios
After adjusting for market risk
- tier 1 ^ 12.3 % 12.6 % 11.9 %
- total ^ 14.0 % 15.4 % 14.2 %
Before adjusting for market risk
- tier 1 12.3 % 12.6 % 11.9 %
- total 14.1 % 15.4 % 14.2 %
^ The capital ratios take into account market risks in accordance with the
relevant Hong Kong Monetary Authority guideline under the Supervisory Policy
Manual.
The total capital ratio fell by 20 basis points to 14.0 per cent at 30 June
2003, compared with 14.2 per cent at 31 December 2002. The capital base recorded
a reduction of 0.4 per cent while risk-weighted assets adjusted for market risk
rose by 0.8 per cent.
The tier 1 capital ratio rose by 40 basis points to 12.3 per cent as a result of
the 6.0 per cent growth in retained profits.
Liquidity ratio
The average liquidity ratio for the period, calculated in accordance with the
Fourth Schedule of the Hong Kong Banking Ordinance, is as follows:
Half-year ended Half-year ended Half-year ended
30Jun03 30Jun02 31Dec02
The bank and its major
banking subsidiaries 45.0 % 43.4 % 45.5 %
Reconciliation of cash flow statement
(a) Reconciliation of operating profit to net cash flow from operating
activities
Half-year ended Half-year ended
Figures in HK$m 30Jun03 30Jun02
Operating profit 5,617 5,568
Net interest income (5,220) (5,453)
Dividend income (37) (53)
Provisions for bad and doubtful debts 456 281
Depreciation 171 174
Amortisation of long-term investments 17 (42)
Advances written off net of recoveries (700) (624)
Interest received 5,413 6,736
Interest paid (1,462) (2,294)
Operating profit before changes in
working capital 4,255 4,293
Change in cash and short-term funds 889 1,499
Change in placings with banks
repayable after one month 3,181 (976)
Change in certificates of deposit 676 (3,374)
Change in securities held for dealing purposes 151 958
Change in advances to customers (1,365) (2,967)
Change in amounts due from
immediate holding company and
fellow subsidiary companies (357) (455)
Change in other assets (1,213) (57)
Change in customer deposit accounts 11,325 (5,286)
Change in debt securities in issue (5,935) (747)
Change in deposits from banks 1,287 (335)
Change in amounts due to
immediate holding company and
fellow subsidiary companies (858) 845
Change in other liabilities 3,487 1,759
Elimination of exchange differences
and other non-cash items (5,399) (3,985)
Cash generated from operating activities 10,124 (8,828)
Taxation paid (11) (68)
Net cash inflow/(outflow)
from operating activities 10,113 (8,896)
(b) Analysis of the balances of cash and cash equivalents
Figures in HK$m At 30Jun03 At 30Jun02
Cash in hand and balances with banks and
other financial institutions 4,014 4,244
Money at call and placings with banks
maturing within one month 61,574 82,455
Treasury bills 1,363 2,415
Certificates of deposit 229 398
67,180 89,512
Contingent liabilities, commitments and derivatives
Credit Risk-
Contract equivalent weighted
Figures in HK$m amount amount amount
At 30Jun03
Contingent liabilities:
Guarantees 10,974 10,795 3,650
Commitments:
Documentary credits and short-term
trade-related transactions 7,142 1,429 1,422
Undrawn formal standby facilities, credit
lines and other commitments to lend:
- under one year 64,708 - -
- one year and over 19,539 9,770 8,444
Other 38 38 38
91,427 11,237 9,904
Exchange rate contracts:
Spot and forward foreign exchange 84,812 1,072 264
Other exchange rate contracts 42,140 379 86
126,952 1,451 350
Interest rate contracts:
Interest rate swaps 78,220 1,366 336
Other interest rate contracts 13,281 6 3
91,501 1,372 339
Other derivative contracts 108 4 1
Credit Risk-
Contract equivalent weighted
Figures in HK$m amount amount amount
At 30Jun02
Contingent liabilities:
Guarantees 14,635 14,481 4,311
Commitments:
Documentary credits and short-term
trade-related transactions 7,470 1,501 1,492
Undrawn formal standby facilities, credit
lines and other commitments to lend:
- under one year 65,755 - -
- one year and over 16,668 8,334 7,656
Other 47 47 47
89,940 9,882 9,195
Exchange rate contracts:
Spot and forward foreign exchange 106,446 1,016 248
Other exchange rate contracts 11,855 168 42
118,301 1,184 290
Interest rate contracts:
Interest rate swaps 52,200 1,077 261
Other interest rate contracts 16,550 - -
68,750 1,077 261
Other derivative contracts 16 - -
Credit Risk-
Contract equivalent weighted
Figures in HK$m amount amount amount
At 31Dec02
Contingent liabilities:
Guarantees 13,864 13,717 4,321
Commitments:
Documentary credits and short-term
trade-related transactions 6,982 1,400 1,394
Undrawn formal standby facilities, credit
lines and other commitments to lend:
- under one year 65,110 - -
- one year and over 21,565 10,783 9,840
Other 41 41 41
93,698 12,224 11,275
Exchange rate contracts:
Spot and forward foreign exchange 73,607 894 251
Other exchange rate contracts 24,104 261 55
97,711 1,155 306
Interest rate contracts:
Interest rate swaps 64,443 1,454 357
Other interest rate contracts 7,969 8 2
72,412 1,462 359
Other derivative contracts 177 6 1
The tables above give the nominal contract, credit equivalent 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 Hong Kong 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, and from 0 per cent to 50
per cent for exchange rate, interest rate and other derivative contracts.
Contingent liabilities and commitments are credit-related instruments which
include acceptances, letters of credit, guarantees and commitments to extend
credit. The risk involved is essentially the same as the credit risk involved in
extending loan facilities to customers. These transactions are, therefore,
subject to the same credit origination, portfolio maintenance and collateral
requirements as for customers applying for loans. As the facilities may expire
without being drawn upon, the total of the contract amounts is not
representative of future liquidity requirements.
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