3/4: HANG SENG FY04 PT 2

HSBC Holdings PLC
28 February 2005



Earnings per share

The calculation of earnings per share in 2004 is based on earnings of HK$11,395
million (HK$9,539 million in 2003) and on the weighted average number of
ordinary shares in issue of 1,911,842,736 shares (unchanged from 2003).

Dividends per share
                                    2004                      2003
                           HK$                      HK$
                     per share      HK$m      per share       HK$m

First interim             1.10     2,103           2.10      4,015
Second interim            1.10     2,103           1.00      1,912
Third interim             1.10     2,103           1.80      3,441
Fourth interim            1.90     3,633              -          -
                          5.20     9,942           4.90      9,368

Segmental analysis

Segmental information is presented in respect of business and geographical
segments. Business by customer group 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 customer groups
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 customer groups and apportionment of management
overheads. Rental charges at market rate for usage of premises are reflected as
inter-segment income for the 'Other' customer group and inter-segment expenses
for the respective customer groups.

(a) By customer group

Hang Seng's business comprises five customer groups. Personal Financial Services
provides banking (including deposits, credit cards, mortgages and other retail
lending) and wealth management services (including insurance and investment) to
personal customers. Commercial Banking manages middle market and smaller
corporate relationships and specialises in trade-related financial services.
Corporate and Institutional Banking 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' mainly represents management of shareholders' funds
and investments in premises, investment properties and long-term equities.

Personal Financial Services (PFS)

PFS reported a growth of 21.2 per cent in profit before tax, underpinned by the
strong growth in other operating income which outweighed the fall in net
interest income. A net release in provisions for bad and doubtful debts was
recorded, the result of a substantial reduction in specific provisions due to
the significant improvement in credit card write-off and net release from
mortgages, and a release in general provisions.

Net interest income fell by 7.6 per cent, affected by the exceptionally low HK
dollar interest rates, which reduced the spreads earned on deposits, and fierce
competition in the mortgage market where yields suffered further declines.

The impact of the reduction in spreads was mitigated by an increase of 0.2 per
cent in customer advances, and continued diversification of the loan portfolio
through expansion of the higher yielding consumer lending business, with credit
card advances and other personal lending recording strong growth of 20.3 per
cent and 41.0 per cent respectively. Private sector residential mortgages rose
slightly but mortgages granted under the GHOS scheme, which remained suspended,
fell by 12.9 per cent.

Credit cards in issue rose by 18.7 per cent to 1,153,000 during 2004 with card
spending increasing by 46.6 per cent over 2003, benefiting from the improving
economic environment and the introduction of new e-payment services.

Other operating income rose by 28.8 per cent, driven by the growth in wealth
management business through the successful implementation of customer
segmentation and product strategies. Investment services income rose by 48.7 per
cent, due to the growth in sales of retail investment products and funds under
management, securities services and private banking. Sales of investment
products rose by 29.8 per cent as new investment funds were launched to capture
the growth potential of the global, Asia, Hong Kong and mainland China equities
markets, as well as the commodity and property markets. Riding on the active
stock market, securities services grew in customer account and transaction
volume by 52.7 per cent and 40.6 per cent respectively. Leveraging on the
strength of the e-channel, new products such as the online warrant supermarket
and customised services were launched to enhance convenience and create value
for customers.

Life insurance grew by 43.5 per cent in annualised premium and 23.2 per cent in
underwriting income. New products with special features to suit different
customer needs, including longer protection with shorter subscription periods,
medical cover for the elderly, and flexible investment return pay-out patterns,
were successfully launched.

Commercial Banking (CMB)

CMB reported growth of 83.1 per cent in profit before tax, driven by strong
growth of 25.2 per cent in net interest income as customer advances grew by 37.5
per cent in trade finance and in the manufacturing, wholesale and retail trade,
and property investment sectors. Other operating income rose by 12.5 per cent,
mainly from trade services, and net releases were recorded in specific and
general provisions.

Progress was made in expanding the customer base and service scope of both the
middle market corporate (MME) and the small and medium enterprise (SME) segments
in Hong Kong and mainland China.

On the MME side, CMB further leveraged on its strong relationship management
team, trade service capabilities, and the branches on the Mainland and in Macau
to provide a total financial services solution to customers with business
operations in both Hong Kong and mainland China. The product features of
factoring and customised trade services were further enhanced to meet customer
needs. Trade finance and other lending to MME customers grew by 31.3 per cent.

SME further strengthened its business banking team and focused on high growth
industries which benefited from the rebound of the local economy. Business
Internet Banking and Integrated Business Solutions Accounts were also further
refined and developed so as to enhance the services to this sector. Advances to
the SME segment grew by 49.7 per cent, driven by strong growth in relation to
trade finance, and in lending for the expansion of production capacity,
distribution networks and property investment.

Corporate and Institutional Banking (CIB)

CIB recorded growth of 6.0 per cent in profit before tax, with an increase of
9.8 per cent in net interest income following a growth of 12.3 per cent in
customer advances. The operating results benefited from a net release in
provisions for bad and doubtful debts, reflecting improvements in the operating
environment and a generally benign credit environment. CIB continued to
participate actively in the loan syndication market and benefited from the
increase in market activities. CIB also teamed up with Treasury to provide more
comprehensive corporate financing solutions to customers.

Treasury

Treasury reported growth of 5.5 per cent in profit before tax. Net interest
income reduced marginally by 1.1 per cent as higher yielding securities matured
and were replaced at lower yields. Dealing profit rose by 33.1 per cent,
reflecting the improvement in proprietary trading, the increase in corporate
treasury services and the growth in structured investment products.

Other

Profit before tax for the 'Other' customer group fell by 8.7 per cent compared
with last year. Return on shareholders' funds further declined in the low
interest rate environment despite the increase in profit on disposal of
investment properties and revaluation gains on property revaluation.

                        Personal                Corporate &                           Inter-
                       Financial Commercial   Institutional                          segment
Figures in HK$m         Services    Banking         Banking   Treasury    Other  elimination     Total

Year ended 31Dec04

Income and expenses

Net interest income        5,706      1,332             596      1,854      202            -     9,690
Other operating income     4,080      1,046             217        684      336            -     6,363
Inter-segment income           -          -               -          -      320         (320)        -
Operating income           9,786      2,378             813      2,538      858         (320)   16,053
Operating expenses^       (2,798)      (843)           (121)      (156)    (305)           -    (4,223)
Inter-segment expenses      (256)       (53)             (6)        (5)       -          320         -
Operating profit before
 provisions                6,732      1,482             686      2,377      553            -    11,830
Provisions for bad 
 and doubtful debts           83        601             130          -        -            -       814
Operating profit           6,815      2,083             816      2,377      553            -    12,644
Profit/(loss)on  
 tangible fixed assets
 and long-term investments     -          -               -         (5)     437            -       432
Net surplus on property
 revaluation                   -          -               -          -      148            -       148
Share of profits of
 associated companies          6         72               -         32       33            -       143
Profit on ordinary
 activities before tax     6,821      2,155             816      2,404    1,171            -    13,367

Share of pre-tax profit     51.0%      16.1%            6.1%      18.0%     8.8%           -     100.0%

Operating profit
 excluding inter-segment
 transactions              7,071      2,136             822      2,382      233            -    12,644

^Included in operating
 expenses is 
 depreciation of            (104)       (18)             (3)        (2)    (190)           -      (317)


At 31Dec04

Total assets             142,455     46,752          77,361    256,370   25,687            -   548,625
Total liabilities        352,688     77,712          25,151     21,553   27,484            -   504,588
Investments in
 associated companies         94      1,117               -        488      698            -     2,397
Capital expenditure
 incurred during 
 the year                    104         17               2          2       23            -       148

             

                        Personal                Corporate &                            Inter-
                       Financial  Commercial  Institutional                            segment
Figures in HK$m         Services     Banking        Banking    Treasury    Other   elimination    Total

Year ended 31Dec03

Income and expenses

Net interest income        6,175       1,064            543       1,874      523            -    10,179
Other operating income     3,167         930            218         509      374            -     5,198
Inter-segment income           -           -              -           -      345         (345)        -
Operating income           9,342       1,994            761       2,383    1,242         (345)   15,377
Operating expenses^       (2,518)       (799)          (111)       (148)    (326)           -    (3,902)
Inter-segment expenses      (276)        (57)            (7)         (5)       -          345         -
Operating profit before
 provisions                6,548       1,138            643       2,230      916            -    11,475
Provisions for bad 
 and doubtful debts         (930)         11            127           -        -            -      (792)
Operating profit           5,618       1,149            770       2,230      916            -    10,683
Profit on tangible
 fixed assets and
 long-term investments        12          28              -          48      373            -       461
Net deficit on property
 revaluation                   -          -               -           -      (37)           -       (37)
 Share of profits of
 associated companies          -          -               -           -       30            -        30
Profit on ordinary
 activities before tax     5,630       1,177            770       2,278    1,282            -    11,137

Share of pre-tax profit     50.6%       10.6%           6.9%       20.4%    11.5%           -     100.0%

Operating profit
 excluding inter-segment    
 transactions              5,894       1,206            777       2,235      571            -    10,683

^Included in operating
 expenses is 
 depreciation of            (122)        (20)            (2)         (2)    (183)           -      (329)

At 31Dec03

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 year                     77          19              4           1       41            -       142

(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

Year ended 31Dec04

Income and expenses

Operating income              14,333      1,594      126    16,053
Profit on ordinary            
 activities before tax        11,632      1,566      169    13,367


At 31Dec04

Total assets                 463,924     69,675   15,026   548,625
Total liabilities            490,087      9,315    5,186   504,588
Capital expenditure              
 incurred during the year        143          -        5       148
Contingent liabilities and   
 commitments                 127,246          -    2,925   130,171

Year ended 31Dec03

Income and expenses

Operating income              13,981      1,322       74    15,377
Profit on ordinary activities    
 before tax                    9,781      1,295       61    11,137


At 31Dec03

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 year                 130          -       12       142
Contingent liabilities and     
 commitments                 107,588        122    1,671   109,381


Cash and short-term funds

Figures in HK$m                               At 31Dec04     At 31Dec03

Cash in hand and balances with banks
 and other financial institutions                  6,021          4,780
Money at call and placings with
 banks maturing within one month                  55,907         62,566
Treasury bills                                     6,270          4,557
                                                  68,198         71,903

Remaining maturity of treasury bills:
- within three months                              1,167            174
- one year or less but over three months           5,103          4,383
                                                   6,270          4,557

Placings with banks maturing after one month

Figures in HK$m                               At 31Dec04     At 31Dec03

Remaining maturity:
- three months or less but over one month         10,838         15,576
- one year or less but over three months           5,143          2,253
- five years or less but over one year               250            200
                                                  16,231         18,029

Certificates of deposit

Figures in HK$m                               At 31Dec04      At 31Dec03

Remaining maturity:
- three months or less but not repayable
  on demand                                        8,076           1,870
- one year or less but over three months          12,742          10,171
- five years or less but over one year            12,231          16,642
- over five years                                    541               -
                                                  33,590          28,683

Securities held for dealing purposes

Figures in HK$m                               At 31Dec04      At 31Dec03
                                     
Debt securities by remaining maturity:
- three months or less but not repayable
  on demand                                           29              38
- one year or less but over three months             165             191
- five years or less but over one  year            1,366             840
- over five years                                    262             146
                                                   1,822           1,215
Equity shares                                         44              17
                                                   1,866           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 31Dec04      At 31Dec03        
                                                               
Gross advances to customers                      252,940         231,999
Specific provisions                                 (778)         (1,432)
General provisions                                  (289)         (1,101)
                                                 251,873         229,466

Remaining maturity:
- repayable on demand                             12,515          11,488
- three months or less but not repayable
  on demand                                       24,701          20,341
- one year or less but over three months          31,474          22,585
- five years or less but over one year            94,841          89,565
- over five years                                 86,343          81,402
- overdue for more than one month                    897           1,375
- non-performing advances                          2,169           5,243
Gross advances to customers                      252,940         231,999
Provisions for bad and doubtful debts             (1,067)         (2,533)
                                                 251,873         229,466

Included in advances to customers are:
- trade bills                                      3,053           2,226
- provisions for bad and doubtful debts               (8)            (17)
                                                   3,045           2,209

Advances to customers (after deduction of interest in suspense and provisions)
recorded a growth of HK$22.4 billion, or 9.8 per cent, to HK$251.9 billion at 31
December 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                (761)        -     (761)       (144)
Recoveries of advances
 written off in previous years      109         -      109           -
New provisions charged to
 profit and loss account            464         -      464           -
Provisions released to profit
 and loss account                  (357)     (812)  (1,169)          -
Provisions recovered to profit
 and loss account                  (109)        -     (109)          -
Interest suspended during the year    -         -        -          60
Suspended interest recovered          -         -        -         (92)
At 31 December 2004                 778       289    1,067         117

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 31Dec04           At 31Dec03
                                                %                    %

Specific provisions                          0.31                 0.62
General provisions                           0.11                 0.48
Total provisions                             0.42                 1.10

Total provisions as a percentage of gross advances to customers fell to 0.42 per
cent at 31 December 2004, compared with 1.10 per cent at the end of 2003.
Specific provisions as a percentage of gross advances decreased by 31 basis
points to 0.31 per cent. The reduction mainly reflected the writing-off of
irrecoverable balances against provisions and repayments, and upgrading of
doubtful accounts to performing status. General provisions fell by 37 basis
points to 0.11 per cent of gross advances to customers, compared with 0.48 per
cent at the end of 2003, reflecting the reduction in estimated latent losses
within the loan portfolio, 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 31Dec04    At 31Dec03

Gross non-performing advances on
  which interest:
- has been placed in suspense                     2,171         5,182
- accrual has ceased                                 48           134
                                                  2,219         5,316
Suspended interest                                  (50)          (73)

Gross non-performing advances^ (page 31)          2,169         5,243
Specific provisions                                (778)       (1,432)
Net non-performing advances                       1,391         3,811

Specific provisions as a percentage of
 gross non-performing advances^                    35.9%         27.3%

Gross non-performing advances^ as a
 percentage of gross advances to customers          0.9%          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 to write down the carrying value of
the advances to the discounted value of future recoverable amounts, including
the realisation of collateral.

Gross non-performing advances (after deduction of interest in suspense) fell by
HK$3,074 million, or 58.6 per cent, to HK$2,169 million, compared with the end
of 2003. Irrecoverable balances of HK$761 million were written off against
provisions. Corporate non-performing advances reduced significantly by HK$2,332
million, comprising large repayments and upgrades totalling HK$2,500 million and
a small amount of HK$168 million from new non-performing accounts. The level of
non-performing mortgages and card advances at 31 December 2004 also reduced
compared with the prior year, reflecting the improving economic environment, and
falling bankruptcy and unemployment levels. The ratio of gross non-performing
advances to gross advances to customers further improved to 0.9 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 31Dec04          At 31Dec03
                                             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                                630       0.2    1,297        0.5
- one year or less but                        
  over six months                             401       0.2      858        0.4
- over one year                               572       0.2    1,152        0.5
                                            1,603       0.6    3,307        1.4


Overdue advances to           
 customers (as above)                       1,603       0.6    3,307        1.4
Less: overdue advances on 
 which interest is still                    
 being accrued                               (424)     (0.1)  (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                                    430       0.2    1,536        0.7
- other                                       560       0.2    1,508        0.7

Gross non-performing advances 
^ (page 30)                                 2,169       0.9    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 year-end. Advances
repayable by regular instalments are treated as overdue when an instalment
payment is overdue and remains unpaid at the year-end. Advances repayable on
demand are classified as overdue either when a demand for repayment has been
served on the borrower but repayment has not been made in accordance with the
demand notice, or when the advances have remained continuously outside the
approved limit advised to the borrower for more than the overdue period in
question.

Rescheduled advances to customers

The amount of rescheduled advances and its expression as a percentage of gross
advances to customers are as follows:

                                 At 31Dec04            At 31Dec03
                               HK$m         %        HK$m         %
Rescheduled advances to            
 customers^                   1,553       0.6       2,608       1.1

^Stated after deduction of interest in suspense.

Rescheduled advances are those which have been rescheduled or renegotiated for
reasons related to the borrower's financial difficulties. This will normally
involve the granting of concession terms and resetting the overdue account to
non-overdue status. A rescheduled advance will continue to be disclosed as such
unless the debt has been performing in accordance with the rescheduled terms for
a period of six to 12 months. Rescheduled advances which have been overdue for
more than three months under the rescheduled terms are reported as overdue
advances to customers (page 31).

Rescheduled advances to customers were reduced by HK$1,055 million, or 40.5 per
cent, to HK$1,553 million at 31 December 2004, representing 0.6 per cent of
gross advances to customers. The reduction was mainly the result of the
repayment and upgrade of certain corporate customers.

Repossessed assets

Collateral assets are repossessed through court proceedings or voluntary
delivery of possession in the course of recovery of non-performing advances.
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 31Dec04       At 31Dec03

Repossessed collateral assets                     320              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 31
December 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 position at 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 31Dec04   At 31Dec03

Gross advances to customers for
 use in Hong Kong

Industrial, commercial and financial sectors
Property development                               12,818       16,828
Property investment                                44,755       34,555
Financial concerns                                  3,996        6,109
Stockbrokers                                          314          226
Wholesale and retail trade                          5,460        4,376
Manufacturing                                       4,389        2,556
Transport and transport equipment                  11,173       10,139
Other                                              22,017       17,727
                                                  104,922       92,516

Individuals
Advances for the purchase of flats under
 the Government Home Ownership Scheme,
 Private Sector Participation Scheme and
 Tenants Purchase Scheme                           26,496       30,431
Advances for the purchase of other
 residential properties                            80,212       79,830
Credit card advances                                6,534        5,430
Other                                               7,122        5,779
                                                  120,364      121,470
Total gross advances for use in Hong Kong         225,286      213,986
Trade finance                                      15,545       11,322
Gross advances for use outside Hong Kong           12,109        6,691
Gross advances to customers                       252,940      231,999

Lending to the commercial sectors grew by HK$12.4 billion, or 13.4 per cent,
during 2004. Property development and investment rose 12.0 per cent. Wholesale
and retail trade, manufacturing, and transport and transport equipment reported
strong growth of 24.8 per cent, 71.7 per cent and 10.2 per cent respectively.
Other, including conglomerates engaged in diversified lines of business, rose by
24.2 per cent.

Trade finance advances recorded an encouraging growth of HK$4.2 billion, or 37.3
per cent. This reflected strong regional trade flows and the success of the bank
in further expanding the commercial banking business by leveraging on strong
relationship management, customised trade solutions and e-services.

Lending to individuals fell by HK$1.1 billion, or 0.9 per cent. Excluding the
fall of HK$3.9 billion in mortgages under the suspended GHOS, there was a growth
of 3.1 per cent in individual lending. Credit card advances grew by 20.3 per
cent with an expanded card base and card spending. Other lending to individuals,
mainly personal and tax loans, together rose 23.2 per cent, reflecting improved
consumer and investor confidence. Residential mortgages rose slightly by 0.5 per
cent, in an intensely competitive market environment. Despite the strong growth
in new mortgages drawdown, early repayment rose significantly in an active
property market.

Gross advances for use outside Hong Kong rose by HK$5.4 billion, or 81.0 per
cent, mainly reflecting the encouraging growth in the loan portfolios of
Mainland branches.

Long-term investments
                                                   Carrying value
Figures in HK$m                              At 31Dec04     At 31Dec03
                                                               
Held-to-maturity debt securities
Issued by public bodies:
- central governments and central banks          15,697         12,408
- other public sector entities                   12,349         12,365
                                                 28,046         24,773
Issued by other bodies:
- banks and other financial institutions         88,459         68,230
- corporate entities                             19,573         18,747
                                                108,032         86,977
                                                136,078        111,750
Equity investments
Issued by corporate entities                      1,947          2,131
                                                138,025        113,881

Held-to-maturity debt securities:
- listed in Hong Kong                             5,720          3,001
- listed outside Hong Kong                       27,138         24,687
                                                 32,858         27,688
- unlisted                                      103,220         84,062
                                                136,078        111,750

Equity investments:
- listed in Hong Kong                             1,076          1,313
- listed outside Hong Kong                          134             87
                                                  1,210          1,400
- unlisted                                          737            731
                                                  1,947          2,131
                                                138,025        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. The carrying values are net of provisions for impairment.

Investment in held-to-maturity debt securities rose by HK$24.3 billion, or 21.8
per cent, to HK$136.1 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$137.0 billion, with an unrealised gain of HK$895
million at 31 December 2004.

The following table shows the fair value of held-to-maturity debt securities:

                                                     Fair value
Figures in HK$m                              At 31Dec04     At 31Dec03

Held-to-maturity debt securities
Issued by public bodies:
- central governments and central banks          15,955         12,578
- other public sector entities                   12,670         12,763
                                                 28,625         25,341
Issued by other bodies:
- banks and other financial institutions         88,603         68,375
- corporate entities                             19,745         18,929
                                                108,348         87,304
                                                136,973        112,645

Held-to-maturity debt securities:
- listed in Hong Kong                             5,822          3,074
- listed outside Hong Kong                       27,154         24,790
                                                 32,976         27,864
- unlisted                                      103,997         84,781
                                                136,973        112,645

Maturity analysis of held-to-maturity debt securities:

                                                    Carrying value
Figures in HK$m                              At 31Dec04     At 31Dec03

Remaining maturity:
- repayable on demand                                 -             78
- three months or less but
  not repayable on demand                         8,162          6,827
- one year or less but over three months         20,742         17,474
- five years or less but over one year          100,687         82,130
- over five years                                 6,487          5,241
                                                136,078        111,750

Investments in associated companies

Figures in HK$m                              At 31Dec04     At 31Dec03

Share of net assets                               2,095            549
Goodwill unamortised                                302              -
                                                  2,397            549

Investment in associated companies increased by HK$1,848 million, or 336.6 per
cent, to HK$2,397 million, reflecting Hang Seng's subscription of 15.98 per cent
in the enlarged share capital of Industrial Bank Co., Ltd (IB) in May 2004.

The investment of 15.98 per cent in IB is accounted for as an associate using
the equity method, as Hang Seng has representation on the Board of Directors of
IB, and on its executive committee. In accordance with the General Technical
Support and Assistance Agreement, Hang Seng is also assisting in the development
of financial and operating policies in IB.

Hang Seng has recognised its share of IB's net income from the date of
acquisition to 30 September 2004 based on the most up-to-date accounts
available, which were prepared in accordance with International Financial
Reporting Standards and which have been reviewed by IB's auditors. Goodwill on
acquisition has also been amortised over the same period.









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