Hang Seng Bank pt 2/6

HSBC Holdings PLC
30 July 2007


Contents

The financial information in this news release is based on the unaudited
consolidated financial statements of Hang Seng Bank Limited ('the bank') and its
subsidiaries and associates ('the group') for the six months ended 30 June 2007.

..Highlights of Results
..Comment by Chief Executive
..Results Summary
..Customer Group Performance
..Mainland Business
..Contents
..Consolidated Income Statement
..Consolidated Balance Sheet
..Consolidated Statement of Recognised Income and Expense
..Consolidated Cash Flow Statement
..Financial Review
....Net interest income
....Net fee income
....Trading income
....Other operating income
....Analysis of income from wealth management business
....Loan impairment charges and other credit risk provisions
....Operating expenses
....Profit on disposal of fixed assets and financial investments
....Tax expenses
....Earnings per share
....Dividends per share
....Segmental analysis
....Cash and balances with banks and other financial institutions
....Placings with and advances to banks and other financial institutions
....Advances to customers
....Loan impairment allowances against advances to customers
....Impaired advances and allowances
....Overdue advances
....Segmental analysis of advances to customers by geographical area
....Rescheduled advances
....Gross advances to customers by industry sector
....Financial investments
....Investments in associates
....Current, savings and other deposit accounts
....Certificates of deposit and other debt securities in issue
....Subordinated liabilities
....Shareholders' funds
....Capital resources management
....Liquidity ratio
....Reconciliation of cash flow statement
....Contingent liabilities, commitments and derivatives
....Accounting policies
....Statement of compliance
....Statutory accounts
....Comparative figures
....Acquisition
....Property revaluation
....Foreign currency positions
....Ultimate holding company
....Register of shareholders
....Proposed timetable for 2007 quarterly dividends
....Code on corporate governance practices
....Board of directors
....News release

Consolidated Income Statement (unaudited)

                                 Half-year ended     Half-year ended     Half-year ended
                                         30Jun07             30Jun06             31Dec06
Figures in HK$m                                           (restated)

Interest income                           16,318              13,654              15,608
Interest expense                          (9,622)             (8,113)             (9,455)
Net interest income                        6,696               5,541               6,153
Fee income                                 3,163               2,035               2,039
Fee expense                                 (301)               (253)               (324)
Net fee income                             2,862               1,782               1,715
Trading income                               584                 659                 671
Net income from financial instruments 
  designated at fair value                   686                  37                 862
Dividend income                               26                  31                  16
Net earned insurance premiums              4,821               3,954               3,892
Other operating income                       397                 392                 453
Total operating income                    16,072              12,396              13,762
Net insurance claims
  incurred and movement 
  in policyholders' liabilities           (5,105)             (3,671)             (4,406)
Net operating income
  before loan impairment charges
  and other credit risk provisions        10,967               8,725               9,356
Loan impairment charges and other
  credit risk provisions                    (280)                (34)               (230)
Net operating income                      10,687               8,691               9,126
Employee compensation and benefits        (1,598)             (1,277)             (1,417)
General and administrative expenses       (1,136)               (907)             (1,307)
Depreciation of premises, plant
  and equipment                             (169)               (150)               (173)
Amortisation of intangible assets            (11)                 (4)                 (6)
Total operating expenses                  (2,914)             (2,338)             (2,903)
Operating profit                           7,773               6,353               6,223
Profit on disposal of fixed assets
  and financial investments                  274                 574                 269
Gain on dilution of investment in
  associate                                1,465                   _                   _
Net surplus on property revaluation          266                 318                   3
Share of profits from associates             440                 268                 387
Profit before tax                         10,218               7,513               6,882
Tax expenses                              (1,150)             (1,202)               (847)
Profit for the period                      9,068               6,311               6,035

Profit attributable to shareholders        8,867               6,190               5,848
Profit attributable to minority 
  interests                                  201                 121                 187
                                           9,068               6,311               6,035

Dividends                                  4,206               4,206               5,736
Earnings per share (in HK$)                 4.64                3.24                3.06

The HSBC Group reports interest income and interest expense arising from
financial assets and financial liabilities held for trading as 'Net trading
income' and arising from financial instruments designated at fair value through
profit and loss as 'Net income from financial instruments designated at fair
value' (other than for debt securities in issue and subordinated liabilities,
together with derivatives managed in conjunction with them).

The table below presents the interest income and interest expense of Hang Seng,
as included within the HSBC Group accounts:

                                 Half-year ended     Half-year ended     Half-year ended
Figures in HK$m                          30Jun07             30Jun06             31Dec06

Interest income                           15,941              13,334              15,305
Interest expense                          (8,354)             (6,959)             (8,041)
Net interest income                        7,587               6,375               7,264
Net interest income and expense
  reported as 'Net trading income'          (938)               (879)             (1,160)
Net interest income and expense 
  reported as 'Net income from
  financial instruments designated 
  at fair value'                              47                  45                  49

Consolidated Balance Sheet (unaudited)

                                      At 30Jun07          At 30Jun06          At 31Dec06
Figures in HK$m                             
                                
Assets
Cash and balances with banks and
  other financial institutions            12,921              13,763               9,390
Placings with and advances to
  banks and other financial   
  institutions                            94,485              82,563              99,705
Trading assets                             9,848              14,543              12,467
Financial assets designated
  at fair value                            9,827               6,429               8,280
Derivative financial instruments           2,348               2,161               1,887
Advances to customers                    310,972             266,505             279,353
Financial investments                    251,191             211,955             227,710
Investments in associates                  5,279               3,267               3,488
Investment properties                      2,457               3,161               2,732
Premises, plant and equipment              6,342               6,553               6,516
Interest in leasehold land held
  for own use under operating lease          572                 587                 580
Intangible assets                          2,347               1,857               2,070
Other assets                              32,733              14,945              14,886
                                         741,322             628,289             669,064

Liabilities
Current, savings and other
  deposit accounts                       512,450             448,097             482,821
Deposits from banks                       57,834              22,131              17,950
Trading liabilities                       44,294              61,630              60,093
Financial liabilities designated at 
  fair value                               1,473               1,494               1,562
Derivative financial instruments           2,118               2,256               1,531
Certificates of deposit and other 
  debt securities in issue                 7,282               8,312               7,595
Other liabilities                         22,123              10,821              16,123
Liabilities to customers under
  insurance contracts                     27,942              18,877              22,975
Deferred tax and current tax
  liabilities                              3,485               2,668               2,716
Subordinated liabilities                   9,373               7,005               7,000
                                         688,374             583,291             620,366

Capital resources
Minority interests                         1,917               1,280               1,717
Share capital                              9,559               9,559               9,559
Retained profits                          32,706              28,627              29,044
Other reserves                             6,663               3,429               4,745
Proposed dividends                         2,103               2,103               3,633
Shareholders' funds                       51,031              43,718              46,981
                                          52,948              44,998              48,698
                                         741,322             628,289             669,064

Consolidated Statement of Recognised Income and Expense (unaudited)

                                 Half-year ended     Half-year ended     Half-year ended
                                         30Jun07             30Jun06             31Dec06
Figures in HK$m

Unrealised surplus on revaluation 
  of premises, net of tax                    218                 469                  50
Tax on realisation of revaluation 
  surplus on disposal of premises             10                  97                   9
Available-for-sale investments reserve, 
  net of tax:
- fair value changes taken to equity         271                 (80)              1,312
- fair value changes transferred to 
  income statement:
  -- on impairment                             _                   _                  12
  -- on hedged items                          73                 255                (234)
  -- on disposal                            (247)               (121)               (204)
Cash flow hedges reserve, net of tax:     
- fair value changes taken to equity        (127)               (116)                (63)
- fair value changes transferred to 
  income statement                           141                  67                 375
Actuarial gains on defined benefit plans, 
  net of tax                                 369                   2                 216
Exchange differences on translation of 
  financial statements of overseas
  branches, subsidiaries and associates      180                  60                 124
Net income recognised directly in equity     888                 633               1,597
Profit for the period                      9,068               6,311               6,035
Total recognised income and expense
  for the period                           9,956               6,944               7,632

Attributable to shareholders               9,755               6,823               7,445
Attributable to minority interests           201                 121                 187
                                           9,956               6,944               7,632

Consolidated Cash Flow Statement (unaudited)

                                        Half-year ended     Half-year ended
                                                30Jun07             30Jun06

Figures in HK$m

Net cash inflow from operating activities        12,376              38,080

Cash flows from investing activities

Dividends received from associates                  195                  20
Purchase of available-for-sale investments      (47,529)            (60,007)
Purchase of held-to-maturity debt securities       (420)               (216)
Proceeds from sale or redemption of
  available-for-sale investments                 33,895              34,844
Proceeds from redemption of
  held-to-maturity debt securities                   33                  28
Purchase of fixed assets and
  intangible assets                                (218)               (143)
Proceeds from sale of fixed assets 
  and asset held for sale                           212               2,599
Interest received from
  available-for-sale investments                  4,691               2,408
Dividends received from
  available-for-sale investments                     10                  31
Net cash outflow from investing activities       (9,131)            (20,436)

Cash flows from financing activities

Dividends paid                                   (5,736)             (5,736)
Interest paid for subordinated
  liabilities                                      (212)               (108)
Proceeds from subordinated liabilities            2,342               3,495
Net cash outflow from financing activities       (3,606)             (2,349)

(Decrease)/increase in cash and
  cash equivalents                                 (361)             15,295

Cash and cash equivalents at 1 January           90,275              65,513
Effect of foreign exchange rate changes           1,197                  54
Cash and cash equivalents at 30 June             91,111              80,862

Financial Review

Net interest income

                                                    Half-year ended   Half-year ended  Half-year ended
                                                            30Jun07           30Jun06          31Dec06
Figures in HK$m                                                            (restated)

Net interest income/(expense) arising from:
- financial assets and liabilities that are
  not at fair value through profit and loss                   7,609             6,399            7,290
- trading assets and liabilities                               (938)             (879)          (1,160)
- financial instruments designated at fair value                 25                21               23
                                                              6,696             5,541            6,153
                                                            
Average interest-earning assets                             639,539           555,773          601,031

Net interest spread                                            1.72%             1.67%            1.66%
Net interest margin                                            2.11%             2.01%            2.03%

Net interest income rose by HK$1,155 million, or 20.8 per cent, to HK$6,696
million with a 15.1 per cent increase in average interest-earning assets.

Deposit products contributed HK$514 million to the increase in net interest
income. This was attributable to the increase of 10.0 per cent in average
customer deposits, mainly in lower cost savings balances and wider deposit
spreads.

Average customer advances rose by 9.7 per cent, driven by encouraging growth in
higher yielding card advances, personal loans, trade finance and mainland loans.
The pricing of residential mortgages and corporate lending, however, was still
under pressure due to intense market competition. Overall, the total loan
portfolio contributed HK$153 million to the growth in net interest income.

Net interest income of Treasury's balance sheet management portfolios improved
by HK$191 million as the holding of lower yield securities gradually matured.
The debt securities portfolio of life insurance funds grew by 45.0 per cent,
adding HK$138 million to net interest income.

Benefiting from the rise in both interest rates and funds balance, net free
funds (including non-interest-bearing account balances and net shareholders'
funds) contributed HK$159 million to the increase in net interest income.

Net interest margin rose by 10 basis points to 2.11 per cent. Net interest
spread increased by five basis points to 1.72 per cent, contributed by wider
deposit spreads and the gradual improvement of Treasury's balance sheet
management portfolio yields. The contribution from net free funds also rose by
five basis points to 0.39 per cent.

Compared with the second half of 2006, net interest income rose by HK$543
million, or 8.8 per cent, with a growth of 6.4 per cent in average
interest-earning assets. Net interest margin improved by eight basis points,
attributable mainly to wider deposit spreads and contribution from net free
funds.

The HSBC Group reports interest income and interest expense arising from
financial assets and financial liabilities held for trading as 'Net trading
income' and arising from financial instruments designated at fair value through
profit and loss as 'Net income from financial instruments designated at fair
value' (other than for debt securities in issue and subordinated liabilities,
together with derivatives managed in conjunction with them).

The table below presents the net interest income of Hang Seng, as included
within the HSBC Group accounts:

                         Half-year ended       Half-year ended     Half-year ended
                                 30Jun07               30Jun06             31Dec06
Figures in HK$m
    
Net interest income                7,587                 6,375               7,264
Average interest-earning
  assets                         620,830               541,337             586,347

Net interest spread                 1.87%                 1.82%               1.84%
Net interest margin                 2.46%                 2.37%               2.46%























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