Hang Seng Bank pt 6/6

HSBC Holdings PLC
30 July 2007


Reconciliation of cash flow statement
 
(a) Reconciliation of operating profit to net cash flow from operating activities

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

Figures in HK$m

Operating profit                                        7,773                6,353
Net interest income                                    (6,696)              (5,541)
Dividend income                                           (26)                 (31)
Loan impairment charges and other
  credit risk provisions                                  280                   34
Depreciation                                              169                  150
Amortisation of intangible assets                          11                    4
Amortisation of available-for-sale
  investments                                            (392)                (222)
Amortisation of held-to-maturity
  debt securities                                          (2)                   -
Advances written off net of recoveries                   (215)                (166)
Interest received                                      12,029               10,530
Interest paid                                          (9,372)              (6,609)
Operating profit before changes in
  working capital                                       3,559                4,502
Change in treasury bills and certificates of
  deposit with original maturity more than 
  three months                                         (3,108)               4,505
Change in placings with and advances to banks
  maturing after one month                              3,429               (6,190)
Change in trading assets                                1,677                4,831
Change in financial assets designated at 
  fair value                                             (472)                  78
Change in derivative financial instruments                806                   18
Change in advances to customers                       (31,685)              (5,693)
Change in other assets                                  4,164               (3,105)
Change in current, savings and other
  deposit accounts                                     29,125               17,102
Change in deposits from banks                          40,154               10,080
Change in trading liabilities                         (15,799)              15,826
Change in certificates of deposit and
  other debt securities in issue                         (313)              (1,711)
Change in other liabilities                           (15,674)                (600)
Change in liabilities to customers under 
  insurance contract                                        9                   10
Change in financial liabilities
  designated at fair value                                486                  (17)
Elimination of exchange differences
  and other non-cash items                             (3,560)              (1,149)
Cash generated from operating activities               12,798               38,487
Taxation paid                                            (422)                (407)
Net cash inflow from operating activities              12,376               38,080

(b) Analysis of the balances of cash and cash equivalents

                                                   At 30Jun07           At 30Jun06

Figures in HK$m

Cash and balances with banks and
  other financial institutions                         12,921               13,763
Placings with and advances to banks and other
  financial institutions maturing within one month     71,487               59,056
Treasury bills                                          6,258                6,852
Certificates of deposit                                   445                1,191
                                                       91,111               80,862

Contingent liabilities, commitments and derivatives
                                                          Credit        Risk-
                                           Contract   equivalent     weighted
Figures in HK$m                              amount       amount       amount

At 30Jun07

Contingent liabilities:
Guarantees                                    4,541        4,506        3,772

Commitments:
Documentary credits and short-term
  trade-related transactions                 10,823        2,182        2,172
Undrawn formal standby facilities,
  credit lines and other commitments 
  to lend:
- under one year                            155,790        5,865        5,865
- one year and over                          18,365        8,692        7,409
Other                                           312           45           45
                                            185,290       16,784       15,491

Exchange rate contracts:
Spot and forward foreign exchange           485,189        4,601        1,180
Other exchange rate contracts                72,023          504          123
                                            557,212        5,105        1,303

Interest rate contracts:
Interest rate swaps                         176,491        1,524          347
Other interest rate contracts                 1,065            1            -
                                            177,556        1,525          347

Other derivative contracts                   13,120          637          293

                                                          Credit        Risk-
                                           Contract   equivalent     weighted
Figures in HK$m                              amount       amount       amount

At 30Jun06

Contingent liabilities:
Guarantees                                    3,604        3,364        3,172

Commitments:
Documentary credits and short-term
  trade-related transactions                  8,820        1,770        1,755
Undrawn formal standby facilities,
  credit lines and other commitments 
  to lend:
- under one year                            124,080            -            -
- one year and over                          19,454        9,727        8,953
Other                                           227          227          227
                                            152,581       11,724       10,935

Exchange rate contracts:
Spot and forward foreign exchange           253,985        2,404          526
Other exchange rate contracts                49,693          414           97
                                            303,678        2,818          623

Interest rate contracts:
Interest rate swaps                         155,362        1,627          340
Other interest rate contracts                 4,220           10            2
                                            159,582        1,637          342

Other derivative contracts                    4,916          267           65

                                                          Credit        Risk-
                                           Contract   equivalent     weighted
Figures in HK$m                              amount       amount       amount

At 31Dec06

Contingent liabilities:
Guarantees                                    4,150        3,877        3,679

Commitments:
Documentary credits and short-term
  trade-related transactions                  8,717        1,745        1,738
Undrawn formal standby facilities,
  credit lines and other commitments 
  to lend:
- under one year                            142,463            -            -
- one year and over                          18,719        9,360        8,696
Other                                           193          193          193
                                            170,092       11,298       10,627

Exchange rate contracts:
Spot and forward foreign exchange           267,822        2,715          591
Other exchange rate contracts                64,377          499          110
                                            332,199        3,214          701

Interest rate contracts:
Interest rate swaps                         162,969        1,376          295
Other interest rate contracts                 2,350            2            -
                                            165,319        1,378          295

Other derivative contracts                    5,668          382           90

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. The credit
equivalent, risk-weighted amounts and the consolidation basis at 30 June 2007
were calculated in accordance with the Banking (Capital) Rules issued by the
HKMA, which became effective on 1 January 2007. The corresponding amounts at 30
June and 31 December 2006 were calculated in accordance with the then Third
Schedule of the Hong Kong Banking Ordinance.

For the above analysis, contingent liabilities and commitments are
credit-related instruments that include acceptances and endorsements, 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.

Derivative financial instruments are held for trading or designated as either
fair value hedge or cash flow hedges. The following table shows the nominal
contract amounts and marked-to-market value of assets and liabilities by class
of derivatives.

                               At 30Jun07                At 30Jun06                  At 31Dec06
Figures in HK$m      Trading      Hedging       Trading     Hedging        Trading      Hedging

Contract amounts:
Interest rate
  contracts          110,819       66,737       107,608       51,974       105,001       60,318
Exchange rate
  contracts          557,212            -       303,678            -       332,199            -
Other derivative
  contracts           13,120            -         4,916            -         5,668            -
                     681,151       66,737       416,202       51,974       442,868       60,318

Derivative assets:
Interest rate
  contracts              412          650           688          480           435          513
Exchange rate
  contracts            1,214            -           983            -           866            -
Other derivative
  contracts               72            -            10            -            73            -
                       1,698          650         1,681          480         1,374          513

Derivative liabilities:
Interest rate
  contracts              580          185           999          507           573          217
Exchange rate
  contracts            1,260            -           578            -           722            -
Other derivative
  contracts               93            -           172            -            19            -
                       1,933          185         1,749          507         1,314          217

The above derivative assets and liabilities, being the positive or negative
marked-to-market value of the respective derivative contracts, represent gross
replacement costs, as none of these contracts are subject to any bilateral
netting arrangements.

Additional information

1. Accounting policies

The accounting policies applied in preparing this news release are the same as
those applied in preparing the financial statements for the year ended 31
December 2006, as disclosed in the Annual Report and Financial Statements for
2006.

2. Statement of compliance

This news release has been prepared in accordance with Hong Kong Accounting
Standard ('HKAS') 34 'Interim Financial Reporting'.

Disclosures required by the Banking (Disclosure) Rules issued by the HKMA are
contained in the bank's Interim Report which will be published on the websites
of The Stock Exchange of Hong Kong Limited and the bank on the date of the issue
of this news release.

3. Statutory accounts

The information in this news release is not audited and does not constitute
statutory accounts.

Certain financial information in this news release is extracted from the
statutory accounts for the year ended 31 December 2006, which have been
delivered to the Registrar of Companies and the HKMA. The auditors expressed an
unqualified opinion on those statutory accounts in their report dated 5 March
2007.

4. Comparative figures

Certain comparative figures have been reclassified to conform with the current
period's presentation.

5. Acquisition

On 22 June 2007, the bank announced that its wholly-owned subsidiary, Hang Seng
Insurance Company Limited ('HSIC'), had entered into a conditional agreement to
acquire 50 per cent of the issued share capital of Hang Seng Life Limited
('HSLL') from HSBC Insurance (Asia-Pacific) Holdings Limited, an indirect
wholly-owned subsidiary of HSBC Holdings plc, for a consideration of HK$2,400
million. The bank owns the remaining 50 per cent of the issued capital of HSLL
and is accounting for the results of HSLL as a subsidiary. Under the Listing
Rules, the acquisition constitutes a discloseable and connected transaction of
the bank and is subject to approval by the independent shareholders. An
Extraordinary General Meeting will be convened on 1 August 2007 for the purpose
of obtaining the necessary approval for the acquisition.

6. Property revaluation

A revaluation of Hang Seng's premises and investment properties in Hong Kong was
performed in June 2007 to reflect property market movements in the first half of
the year. The group's premises and investment properties were revalued by DTZ
Debenham Tie Leung Limited, an independent professional valuer, and carried out
by qualified persons who are members of the Hong Kong Institute of Surveyors.
The basis of the valuation of premises was open market value for existing use
and the basis of valuation for investment properties was open market value. The
revaluation surplus for group premises amounted to HK$281 million, of which HK$17
million was a reversal of revaluation deficits previously charged to the income
statement. The balance of HK$264 million was credited to the premises
revaluation reserve. Revaluation gains on investment properties of HK$154
million were recognised through the income statement. The related deferred tax
provisions for group premises and investment properties were HK$49 million and
HK$27 million respectively.

The revaluation exercise also covered investment properties reclassified as
properties held for sale. In accordance with HKFRS 5, the revaluation gain of
HK$95 million was recognised through the income statement.

7. Foreign currency positions

Foreign currency exposures include those arising from trading, non-trading and
structural positions. At 30 June 2007, the US dollar (US$) and renminbi (RMB)
were the currencies in which the group had a non-structural foreign currency
position that exceeded 10 per cent of the total net position in all foreign
currencies.

                                    At 30Jun07                 At 30Jun06                   At 31Dec06
                                US$        RMB            US$         RMB            US$           RMB
Non-structural position
Spot assets                 218,083     22,021         202,537      8,960        205,544        14,422
Spot liabilities           (212,016)   (22,935)       (189,227)    (8,582)      (189,232)      (12,670)
Forward purchases           241,832      4,049         124,061        570        128,102           353
Forward sales              (238,922)    (6,144)       (129,724)      (827)      (141,544)       (1,904)
Net option position^             60          -              25          -            120             -
Net long /(short)
  non-structural
  position                    9,037     (3,009)          7,672        121          2,990           201

^ Net option position is calculated on the basis of the delta-weighted positions
of all foreign exchange options contracts.

At 30 June 2007, the group's major structural foreign currency positions were US
dollar and renminbi.
                                 At 30Jun07                 At 30Jun06                 At 31Dec06
                                       % of                       % of                       % of
                                  total net                  total net                  total net
                                 structural                 structural                 structural
                        HK$m       position        HK$m       position        HK$m       position
Structural positions
US dollar                287            2.9       1,133           33.0       1,430           26.8
Renminbi               9,469           95.9       2,194           63.9       3,760           70.5

8. Ultimate holding company

Hang Seng Bank is an indirectly held 62.14 per cent-owned subsidiary of HSBC
Holdings plc.

9. Register of shareholders

The register of shareholders of Hang Seng Bank will be closed on Tuesday, 21
August 2007, during which no transfer of shares can be registered. In order to
qualify for the second interim dividend, all transfers, accompanied by the
relevant share certificates, must be lodged with the bank's registrars,
Computershare Hong Kong Investor Services Limited, Shops 1712-1716, 17th Floor,
Hopewell Centre, 183 Queen's Road East, Wanchai, Hong Kong, for registration no
later than 4:30 pm on Monday, 20 August 2007. The second interim dividend will
be payable on 30 August 2007 to shareholders on the register of shareholders of
the bank on 21 August 2007.

10. Proposed timetable for the remaining 2007 quarterly dividends

                                              Third interim       Fourth interim
                                                   dividend             dividend

Announcement                                5 November 2007         3 March 2008
Book close and record date                 27 November 2007        18 March 2008
Payment date                               11 December 2007        28 March 2008
                                                       
11. Code on Corporate Governance Practices

The bank follows all the code provisions set out in the Code on Corporate
Governance Practices contained in Appendix 14 of the Rules Governing the Listing
of Securities on The Stock Exchange of Hong Kong Limited throughout the period
of six months ended 30 June 2007.

The Audit Committee of the bank has reviewed the results for the six months
ended 30 June 2007.

12. Board of Directors

As at 30 July 2007, the Board of Directors of the bank comprises Mr Raymond C F
Or (Vice-Chairman and Chief Executive), Mr Edgar D Ancona^, Mr John C C Chan*,
Mr Patrick K W Chan, Dr Y T Cheng*, Dr Marvin K T Cheung*, Mr Jenkin Hui*, Mr
Peter T C Lee*, Dr Eric K C Li*, Dr Vincent H S Lo^, Mr Joseph C Y Poon, Dr
David W K Sin*, Mr Richard Y S Tang* and Mr Peter T S Wong^

* Independent non-executive Director

^ Non-executive Director

13. News release

Copies of this news release may be obtained from Legal and Company Secretarial
Services Department, Level 10, 83 Des Voeux Road Central, Hong Kong; or from
Hang Seng's website http://www.hangseng.com.

The 2007 Interim Report and Financial Statements, which contains all disclosures
required by the Banking (Disclosure) Rules issued by the HKMA, will be published
on the websites of The Stock Exchange of Hong Kong Limited and Hang Seng on the
date of the issue of this news release. Printed copies of the 2007 Interim
Report will be sent to shareholders in late August 2007.

Media enquiries to:

Walter Cheung Telephone: [phone]

Cecilia Ko Telephone: [phone]







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