Hang Seng Bank - Pt1 Results
HSBC Hldgs PLC
26 February 2001
HSBC Hldgs PLC
News Release 4 part (1)of(2)
HANG SENG BANK LIMITED
2000 RESULTS - HIGHLIGHTS
* Operating profit before provisions up 4.3 per cent to
HK$11,540 million (HK$11,065 million in 1999).
* Pre-tax profit up 19.3 per cent to HK$11,675 million
(HK$9,784 million in 1999).
* Attributable profit up 20.5 per cent to HK$10,014 million
(HK$8,307 million in 1999).
* Return on average shareholders' funds of 23.6 per cent
(17.6 per cent in 1999).
* Total assets up HK$58.7 billion to HK$500.8 billion
(HK$442.1 billion at 31 December 1999).
* Earnings per share up 20.5 per cent to HK$5.24 (HK$4.35 per
share in 1999).
* Dividends per share of HK$4.80 (HK$8.20 per share in 1999,
including a special interim dividend of HK$4.10).
* Total capital ratio of 15.3 per cent (17.3 per cent at 31
December 1999); tier 1 capital ratio of 11.9 per cent (13.3
per cent at 31 December 1999).
* Cost:income ratio improved to 24.4 per cent (25.3 per cent
in 1999).
Hang Seng Bank attributable profit up 20.5 per cent to HK$10,014
million.
Hang Seng Bank Limited (the bank) and its subsidiary companies
(Hang Seng) reported a profit attributable to shareholders of
HK$10,014 million for 2000, an increase of 20.5 per cent
compared with 1999, and for the first time exceeding the HK$10
billion level. Earnings per share of HK$5.24 were 20.5 per cent
higher than in 1999.
Operating profit before provisions increased by 4.3 per cent to
HK$11,540 million, mainly due to encouraging growth in other
operating income, stable net interest income and lower operating
expenses. Operating profit rose by 17.6 per cent to HK$11,344
million, benefiting from a substantial reduction in provisions
for bad and doubtful debts. Profit before tax amounted to
HK$11,675 million, 19.3 per cent higher than 1999, reflecting an
increase in profit on the disposal of long-term investments and
a surplus on property revaluation which was credited to the
profit and loss account (representing reversal of revaluation
deficits of the same properties previously charged to profit and
loss). The cost:income ratio further improved by 0.9 percentage
points to 24.4 per cent (25.3 per cent for 1999).
Total assets grew by HK$58.7 billion, or 13.3 per cent, during
the year to HK$500.8 billion at 31 December 2000. Advances to
customers recorded encouraging growth of 10.3 per cent compared
with last year, mainly in corporate lending and residential
mortgages. Interbank assets and debt securities also increased.
The increase in total assets was largely driven by the
14.3 per cent growth in customer deposits during the year.
Shareholders' funds increased by HK$1,010 million, or 2.6 per
cent, to HK$40,584 million at 31 December 2000, mainly from
profit after appropriation for the year.
The return on average total assets rose to 2.1 per cent (1.9 per
cent for 1999) while the return on average shareholders' funds
rose substantially to a record high of 23.6 per cent (17.6 per
cent for 1999).
The advances to deposits ratio was 50.6 per cent at 31 December
2000, compared with 52.5 per cent at 31 December 1999,
reflecting higher growth in customer deposits than in advances
to customers. Hang Seng continued to maintain a strong liquidity
position, with the average liquidity ratio for 2000 rising to
43.3 per cent from 42.4 per cent for 1999 (calculated in
accordance with the Fourth Schedule of the Banking Ordinance).
The total capital ratio at 31 December 2000 was 15.3 per cent
(17.3 per cent at 31 December 1999) and the tier 1 capital ratio
was 11.9 per cent (13.3 per cent at 31 December 1999).
Second interim dividend
The Directors have declared a second interim dividend of HK$2.80
per share (HK$2.50 per share for 1999), which will be payable on
Thursday, 22 March 2001 to shareholders on the Register of
Shareholders on Thursday, 15 March 2001. Together with the first
interim dividend of HK$2.00 per share already paid, the total
distribution for 2000 will amount to HK$4.80 per share (HK$8.20
per share for 1999, including a special interim dividend of
HK$4.10).
The total dividend payment for the year represents 92 per cent
of the attributable profit for 2000 (94 per cent in 1999,
excluding the special interim dividend). This should not be
taken as an indication of future dividend levels.
Comment by David Eldon, Chairman
'In 2000, Hang Seng's attributable profit exceeded the HK$10
billion mark for the first time and the 20.5 per cent growth for
the year was encouraging. The results reflect the achievements
in our personal wealth management initiatives, a record low
cost:income ratio and a substantial reduction in the provisions
for bad and doubtful debts. Despite the economic recovery,
financial market liquidity remained high, loan demand weak,
competition intense and the interest margin continued to narrow.
'In 2001, the Hong Kong economy is expected to reflect the US
economic slowdown. The banking environment will remain
competitive. Loan demand is expected to be moderate.
'In this challenging environment, Hang Seng's market leadership
in service and cost discipline has placed it in a favourable
position to maximise shareholders' value. We shall build on our
trusted brand, strong e-banking platform, superior services and
strict cost discipline to sustain growth.'
Contents
The financial information in this news release is based on the
audited consolidated accounts of Hang Seng Bank Limited and its
subsidiary companies for the year ended 31 December 2000.
Highlights of Results and Chairman's Comment
Contents
Consolidated Profit and Loss Account
Consolidated Balance Sheet
Consolidated Statement of Recognised Gains and Losses
Reconciliation of Movements in Consolidated Shareholders'
Funds
Consolidated Cash Flow Statement
Financial Review
Net interest income
Other operating income
Operating expenses
Provisions for bad and doubtful debts
Profit on tangible fixed assets and long-term
investments
Taxation
Earnings per share
Dividends per share
Cash and short-term funds
Placings with banks maturing after one month
Advances to customers
Provisions against advances to customers
Non-performing advances to customers and provisions
Overdue advances to customers
Rescheduled advances to customers
Segmental analysis of advances to customers by
geographical area
Gross advances to customers by industry sector
Long-term investments
Other assets
Current, savings and other deposit accounts
Shareholders' funds
Capital resources management
Liquidity ratio
Reconciliation of cash flow statement
Contingent liabilities, commitments and derivatives
Segmental analysis by geographical region
Additional Information
Accounting policies
Property revaluation
Market risk
Material related-party transactions
Statutory accounts
Ultimate holding company
Statement of compliance
Register of shareholders
News release
Consolidated Profit and Loss Account
Year ended 31 December
Figures in HK$m 2000 1999
Interest income 31,913 28,072
Interest expense (20,222) (16,405)
Net interest income 11,691 11,667
Other operating income 3,574 3,141
Operating income 15,265 14,808
Operating expenses (3,725) (3,743)
Operating profit before provisions 11,540 11,065
Provisions for bad and doubtful
debts (196) (1,419)
Operating profit 11,344 9,646
Profit on tangible fixed assets and
long-term investments 248 105
Net surplus/(deficit) on property
revaluation 28 (25)
Share of profits of associated
companies 55 58
Profit on ordinary activities before
tax 11,675 9,784
Tax on profit on ordinary activities (1,661) (1,477)
Profit attributable to shareholders 10,014 8,307
Retained profits at 1 January 17,729 25,005
Transfer of depreciation to premises
revaluation reserve 99 80
Realisation on disposal of premises
and investment properties 69 7
Exchange adjustments (2) 8
Dividends (9,177) (15,678)
Retained profits at 31 December 18,732 17,729
Figures in HK$
Earnings per share 5.24 4.35
Dividends per share 4.80 8.20
Consolidated Balance Sheet
Figures in HK$m At 31Dec00 At 31Dec99
Assets
Cash and short-term funds 129,312 116,414
Placings with banks maturing after
one month 58,405 55,260
Certificates of deposit 17,232 11,672
Securities held for dealing purposes 4,499 293
Advances to customers 217,518 197,281
Amounts due from immediate holding
company and fellow subsidiary
companies 10,383 12,154
Long-term investments 39,270 27,317
Investments in associated companies 789 683
Tangible fixed assets 12,049 11,806
Other assets 11,327 9,190
500,784 442,070
Liabilities
Current, savings and other deposit
accounts 429,605 375,711
Deposits from banks 3,802 6,889
Amounts due to immediate holding
company and fellow subsidiary
companies 1,999 2,781
Other liabilities 24,794 17,115
460,200 402,496
Capital resources
Share capital 9,559 9,559
Reserves 31,025 30,015
Shareholders' funds 40,584 39,574
500,784 442,070
Consolidated statement of recognised gains and losses
Year ended 31 December
Figures in HK$m 2000 1999
Profit attributable to shareholders 10,014 8,307
Unrealised surplus on revaluation of
premises 511 428
Unrealised surplus/(deficit) on
revaluation of investment
properties
- Bank and subsidiary companies 73 (520)
- Associated company 98 (12)
Long-term equity investment
revaluation reserve
- Unrealised (deficit)/surplus on
revaluation (259) 1,662
- Realisation on disposal (248) (126)
Exchange adjustments (2) 8
Recognised gains for the year 10,187 9,747
Reconciliation of movements in consolidated shareholders' funds
Figures in HK$m At 31Dec00 At 31Dec99
Shareholders' funds at 1 January 39,574 45,505
Recognised gains for the year 10,187 9,747
Dividends (9,177) (15,678)
Shareholders' funds at 31 December 40,584 39,574
Consolidated Cash Flow Statement
Year ended 31 December
Figures in HK$m 2000 1999
Net cash inflow from operating
activities 28,763 33,974
Returns on investments and servicing of
finance
Dividends received from an associated
company 39 45
Dividends paid (8,604) (14,760)
Income received on long-term
investments 1,635 1,250
Net cash outflow from returns on
investments and servicing
of finance (6,930) (13,465)
Taxation paid (758) (287)
Investing activities
Purchase of long-term investments (31,247) (34,927)
Proceeds from sale or redemption of
long-term investments 18,665 30,102
Purchase of tangible fixed assets (136) (325)
Proceeds from sale of tangible fixed
assets 115 53
Net cash outflow from investing
activities (12,603) (5,097)
Increase in cash and cash equivalents 8,472 15,125
Financial Review
Net interest income
Figures in HK$m 2000 1999
Net interest income 11,691 11,667
Average interest-earning assets 435,759 406,113
Net interest spread 2.19% 2.36%
Net interest margin 2.68% 2.87%
Net interest income was held broadly in line with last year,
with a slight increase of HK$24 million, or 0.2 per cent.
Average interest earning assets grew by HK$29.6 billion,
or 7.3 per cent, to HK$435.8 billion. The net interest margin,
however, fell by 19 basis points to 2.68 per cent due to the 17
basis points fall in net interest spread to 2.19 per cent and
a 2 basis points reduction to 0.49 per cent in the contribution
from net free funds.
The reduction in net interest spread was attributable to the
adverse effect of the continued fall in the mortgage portfolio
yield and the fall in the average advances to deposits ratio
from 54.3 per cent to 52.7 per cent. Together, these factors
outweighed the benefits of the growth in lower cost savings
deposits, improvements in the spread earned from time deposits
and the widening of the BLR/HIBOR gap. The average portfolio
yield of residential mortgages (excluding those under the
Government Home Ownership Scheme and Staff Housing Loan Scheme)
fell from 49 basis points above BLR in 1999 to 26 basis points
below BLR in 2000 as a result of intense price competition.
The contribution from net free funds declined due to the
reduction in average balances following the payment of the
special interim dividend of HK$7.8 billion in November 1999, and
despite an improvement in average yield due to higher market
interest rates.
Other operating income
Figures in HK$m 2000 1999
Dividend income
- Listed investments 94 96
- Unlisted investments 4 17
98 113
Fees and commissions receivable 2,367 1,829
Fees and commissions payable (295) (278)
2,072 1,551
Dealing profits
- Foreign exchange 534 569
- Securities and other trading
activities (5) 15
529 584
Rental income from investment
properties 247 240
Other 628 653
3,574 3,141
Other operating income increased by HK$433 million, or 13.8 per
cent, compared with 1999. Net fees and commissions rose
substantially by HK$521 million, or 33.6 per cent, reflecting
the encouraging growth in income from wealth management
initiatives including securities broking and related services,
sale of retail investment funds and commissions from life
insurance products. There were also increased contributions from
credit facilities, card services and trade finance. Dealing
profits decreased by HK$55 million, or 9.4 per cent, affected by
lower foreign exchange income and a small loss in securities and
other trading activities. Other operating income fell by HK$25
million, or 3.8 per cent, due to a decrease in general insurance
underwriting profits.
Operating expenses
Figures in HK$m 2000 1999
Staff costs
- Salaries and other costs 1,826 1,964
- Retirement benefit costs 222 231
2,048 2,195
Depreciation 388 378
Premises and equipment
- Rental expenses 158 152
- Other 608 580
766 732
Other operating expenses 523 438
3,725 3,743
Cost:income ratio 24.4% 25.3%
Staff numbers (full-time equivalent) 7,449 7,485
Operating expenses were reduced by HK$18 million, or 0.5 per
cent, although there were significant new investments in IT and
business development. Staff costs decreased by HK$147 million,
or 6.7 per cent, mainly as a result of careful headcount
control. Depreciation increased by HK$10 million, or 2.6 per
cent, compared with 1999. Premises and equipment expenses
increased by HK$34 million, or 4.6 per cent, mainly in IT costs,
although repair and maintenance, rates and utilities expenses
fell. Other operating expenses increased by HK$85 million, or
19.4 per cent, mainly attributable to increases in marketing
expenditure.
The cost:income ratio improved to 24.4 per cent (25.3 per cent
for 1999), the lowest since this ratio was first published in
1989.
Provisions for bad and doubtful debts
Figures in HK$m 2000 1999
Net charge/(release) for bad and
doubtful debts
Advances to customers
Specific provisions
- New provisions 988 1,681
- Releases (747) (242)
- Recoveries (42) (12)
199 1,427
General provisions (3) (8)
Net charge to profit and loss account 196 1,419
The charge for bad and doubtful debts decreased significantly by
HK$1,223 million, or 86.2 per cent, to HK$196 million compared
with last year. The net charge for specific provisions fell by
HK$1,228 million to HK$199 million, the combined effect of a
substantial reduction in new and additional provisions made and
increases in releases of provisions and recoveries from doubtful
accounts. There was a net release of HK$3 million from general
provisions, with provisions of HK$122 million made against loan
growth for the year and a release of HK$125 million from the
additional general provision of HK$250 million made in 1997. In
view of the slowdown in the US economy and its possible
implications for the Hong Kong economy, the balance of the
additional provision of HK$125 million has been transferred to
the general provisions for bad and doubtful debts.
Profit on tangible fixed assets and long-term investments
Figures in HK$m 2000 1999
Profit on disposal of long-term
investments
- Realisation of amounts previously
recognised in revaluation
reserves at 1 January 351 76
- (Loss)/profit arising in current
year (101) 53
250 129
Net loss on disposal of tangible fixed
assets (2) (6)
Provision for impairment of long-term
investments - (18)
248 105
Profit on disposal of tangible fixed assets and long-term
investments rose by HK$143 million to HK$248 million compared
with last year, mainly from the disposal of locally-listed
equities.
Taxation
Taxation in the consolidated profit and loss account represents:
Figures in HK$m 2000 1999
Provision for Hong Kong profits tax 1,697 1,481
Taxation outside Hong Kong 2 1
Deferred taxation (46) (11)
1,653 1,471
Share of associated companies'
taxation 8 6
Total charge for taxation 1,661 1,477
Effective tax rate 14.2% 15.1%
The provision for Hong Kong profits tax was made at 16.0 per
cent (the same rate as for 1999) based on an estimate of the
assessable profits for the year ended 31 December 2000.
Similarly, taxation provisions for subsidiary companies and
branches outside Hong Kong were made at the appropriate rates of
taxation prevailing in the countries in which they operate.
The effective tax rate fell from 15.1 per cent for 1999 to 14.2
per cent for 2000. The higher effective tax rate for 1999 was
due to the bad debt provisions made by the mainland China
branches which do not qualify for tax relief under local
legislation.
Earnings per share
The calculation of earnings per share was based on earnings of
HK$10,014 million (HK$8,307 million in 1999) and on the weighted
average number of ordinary shares in issue of 1,911,842,736
shares (unchanged from 1999).
Dividends per share
2000 1999
HK$ HK$m HK$ HK$m
per per
share share
First interim 2.00 3,824 1.60 3,059
Special interim - - 4.10 7,839
Second interim 2.80 5,353 2.50 4,780
4.80 9,177 8.20 15,678
The calculation of dividends per share for 2000 is based on
dividends paid and payable of HK$9,177 million (HK$15,678
million for 1999) and on 1,911,842,736 shares in issue
(unchanged from 1999).
Cash and short-term funds
Figures in HK$m At 31Dec00 At 31Dec99
Cash in hand and balances with banks
and other financial institutions 4,257 5,024
Money at call and placings with banks
maturing within one month 110,372 105,835
Treasury bills 14,683 5,555
129,312 116,414
Cash and short-term funds rose by HK$12,898 million, or 11.1 per
cent, with a notable increase in treasury bills, including Hong
Kong Government Exchange Fund bills and other government bills.
Placings with banks maturing after one month
Figures in HK$m At 31Dec00 At 31Dec99
Remaining maturity:
- Three months or less but over one
month 35,756 32,516
- One year or less but over three
months 22,649 22,667
- Five years or less but over one year - 77
58,405 55,260
Advances to customers
Figures in HK$m At 31Dec00 At 31Dec99
Gross advances to customers 221,973 202,244
Specific provisions (3,017) (3,522)
General provisions (1,438) (1,441)
217,518 197,281
Included in advances to customers
are:
- Trade bills 1,929 1,802
- Provisions for bad and doubtful
debts (37) (70)
1,892 1,732
Advances to customers (after deduction of interest in suspense
and provisions) showed encouraging growth of HK$20.2 billion, or
10.3 per cent, and reached HK$217.5 billion at 31 December 2000.
This reflected the bank's efforts to expand the loan portfolios,
both personal and corporate, in the face of strong competition
and sluggish loan demand in Hong Kong during the year.
Provisions against advances to customers
Figures in HK$m At 31 December 2000
Specific General Total Suspended
interest
At 1 January 2000 3,522 1,441 4,963 733
Amounts written off (749) - (749) (230)
Recoveries of advances
written off in previous
years 42 - 42 -
Net charge/(release) to
profit and loss account 199 (3) 196 -
Interest suspended during
the year - - - 386
Suspended interest recovered - - - (88)
Exchange adjustments 3 - 3 -
At 31 December 2000 3,017 1,438 4,455 801
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:
At31Dec00 At 31Dec99
% %
Specific provisions 1.36 1.74
General provisions 0.65 0.71
Total provisions 2.01 2.45
Total provisions as a percentage of gross advances to customers
fell to 2.01 per cent at 31 December 2000, compared with 2.45
per cent at the end of 1999. Specific provisions as a percentage
of gross advances decreased by 0.38 percentage points to 1.36
per cent, mainly reflecting the write-off of non-performing
advances on final settlement and the upgrading of certain
rescheduled advances and doubtful accounts to performing status.
The reduction in general provisions from 0.71 per cent to 0.65
per cent was due to the release of HK$125 million from the
additional general provision of HK$250 million made in 1997.
Non-performing advances to customers and provisions
Non-performing advances to customers on which interest has been
placed in suspense or on which interest accrual has ceased are
as follows:
Figures in HK$m At 31Dec00 At 31Dec99
Gross non-performing advances on
which interest
- Has been placed in suspense 6,894 8,323
- Accrual has ceased 867 617
7,761 8,940
Suspended interest (327) (282)
Gross non-performing advances^(page
18) 7,434 8,658
Specific provisions (3,017) (3,522)
Net non-performing advances 4,417 5,136
Specific provisions as a percentage
of gross non-performing advances^ 40.6% 40.7%
Gross non-performing advances^ as a
percentage of gross advances to
customers 3.3% 4.3%
^ 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 it becomes apparent that full
recovery is unlikely. As such, non-performing advances may
include advances that are not yet more than three months overdue
but are considered doubtful. Except in certain limited
circumstances, all advances on which principal or interest is
more than three months overdue are classified as non-performing.
Specific provisions made in respect of non-performing advances
take into account the value of collateral held.
Gross non-performing advances (after deduction of interest in
suspense) fell by HK$1,224 million, or 14.1 per cent, compared
with the end of 1999, with amounts having been written-off
against specific provisions on final settlement and on the
upgrading of certain rescheduled advances and doubtful accounts
to performing status. The percentage of gross non-performing
advances to total gross advances to customers was 3.3 per cent,
a reduction of 1.0 percentage points compared with the end of
1999.
Overdue advances to customers
The amount of advances to customers which are overdue for more
than three months and its expression as a percentage of gross
advances to customers are as follows:
At 31Dec00 At 31Dec99
HK$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 854 0.4 785 0.4
- One year or less but over six months 762 0.3 1,611 0.8
- Over one year 3,687 1.7 4,340 2.1
5,303 2.4 6,736 3.3
Overdue advances to customers (as
above) 5,303 2.4 6,736 3.3
Less: overdue advances on which
interest is still being accrued (418) (0.2) (283) (0.1)
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 1,576 0.7 892 0.4
- other 973 0.4 1,313 0.7
Gross non-performing advances (page
17) 7,434 3.3 8,658 4.3
^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 instruction, or when the
advances have remained continuously outside the approved limit
advised to the borrower for more than the overdue period in
question.
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