Hang Seng Bk Ltd pt 1/6

HSBC Holdings PLC
03 March 2008



                             HANG SENG BANK LIMITED
                           2007 RESULTS - HIGHLIGHTS

   • Operating profit up 41.5 per cent to HK$17,789 million (HK$12,576
     million in 2006).

   • Operating profit excluding loan impairment charges and other credit risk
     provisions up 43.0 per cent to HK$18,365 million (HK$12,840 million in
     2006).

   • Profit before tax up 49.2 per cent to HK$21,471 million (HK$14,395
     million in 2006).

   • Attributable profit up 51.5 per cent to HK$18,242 million (HK$12,038
     million in 2006).

   • Return on average shareholders' funds of 35.4 per cent (27.4 per cent in
     2006).

   • Assets up 11.5 per cent to HK$746.0 billion (HK$669.1 billion at 31
     December 2006).

   • Earnings per share up 51.4 per cent to HK$9.54 per share (HK$6.30 per
     share in 2006).

   • Fourth interim dividend of HK$3.00 per share; total dividends of HK$6.30
     per share for 2007 (HK$5.20 per share in 2006).

   • Capital adequacy ratio^ of 11.2 per cent (13.6 per cent at 31 December
     2006); core capital ratio^ of 8.4 per cent (10.7 per cent at 31 December
     2006).

   • Cost efficiency ratio of 26.6 per cent (29.0 per cent in 2006).

^The capital adequacy and core capital ratios at 31 December 2007 were
calculated in accordance with Basel II which became effective on 1 January 2007,
while those at 31 December 2006 were calculated in accordance with Basel I.

Within this document, the Hong Kong Special Administrative Region of the
People's Republic of China has been referred to as 'Hong Kong'.

Comment by Raymond Ch'ien, Chairman

Hang Seng produced excellent results in 2007, achieving attributable profit of
HK$18,242 million, an increase of 51.5 per cent, or HK$6,204 million. Earnings
per share grew 51.4 per cent to HK$9.54. Operating profit per full-time employee
rose to HK$1.94 million, up from HK$1.49 million in 2006.

This growth reflects an impressive performance by our wealth management
business, successful income diversification efforts by Treasury in an improved
operating environment, further development of Commercial Banking and increased
contribution from our mainland associate, Industrial Bank Co., Ltd.

Net operating income before loan impairment charges and other credit risk
provisions rose by 38.3 per cent to HK$25,015 million. This increase
considerably outpaced the 26.9 per cent rise in operating expenses, contributing
to our improved cost efficiency ratio of 26.6 per cent - a reduction of 2.4
percentage points compared with 2006.

Operating profit excluding loan impairment charges increased by 43.0 per cent to
HK$18,365 million. Operating profit was up HK$5,213 million at HK$17,789
million.

Profit before tax increased by 49.2 per cent to HK$21,471 million, in part
reflecting the unrealised gain of HK$1,465 million on the dilution of our
investment in Industrial Bank Co., Ltd following its listing in February 2007.

Return on average shareholders' funds was 35.4 per cent, up from 27.4 per cent
in 2006. Excluding the gain on dilution, return on average shareholders' funds
was 32.6 per cent.

On 31 December 2007, our capital adequacy ratio and core capital ratio were 11.2
per cent and 8.4 per cent respectively, as calculated in accordance with new
rules for the implementation of Basel II.

After careful consideration of capital requirements for investment in future
business growth, particularly on the Mainland, the Directors have declared a
fourth interim dividend of HK$3.00 per share, payable on 28 March 2008. This
brings the total distribution for 2007 to HK$6.30 per share, up HK$1.10 compared
with 2006. We remain committed to a policy of paying a steady but rising
dividend that is in the best interests of all shareholders.

Outlook

Hong Kong should maintain good growth momentum in 2008, underpinned by buoyant
private consumption and solid business spending in the domestic sector and
sustained economic strength on the Mainland.

Challenges include the risk of a further slowdown in the US economy, which will
continue to cloud the outlook for the export performance. Within Hong Kong,
strong domestic demand looks set to continue, supported by the tight labour
market and positive consumer sentiment. Along with low interest rates and the
growing strength of the renminbi against the US dollar, this points to rising
inflation risk.

Overall, we are cautiously optimistic for the year ahead. Economic fundamentals
in Hong Kong and on the Mainland remain sound and domestic demand is now a major
impetus for growth.

We will continue to develop our key growth drivers, particularly wealth
management services, Commercial Banking and mainland business. Using our strong
brand, leading market position and solid financial fundamentals as a
springboard, we will pursue new opportunities to expand our business in Hong
Kong and on the Mainland.

It was my honour to be appointed Chairman of Hang Seng in August 2007. I wish to
express sincere appreciation to my fellow Directors and Bank senior management
for their valuable support.

On behalf of the Board, I would like to thank staff at all levels for their hard
work and commitment to exceeding expectations. I have always admired the culture
of professionalism and loyalty that exists at Hang Seng, the strength of which
is reflected in this year's outstanding results.

I must also convey the Board's deep gratitude to customers and shareholders for
their continued support, which provides inspiration and encouragement as we
strive to achieve new heights of success.

Today, as we mark our 75th anniversary, our aim remains to achieve sustainable
growth for our shareholders and other key stakeholders.

Review by Raymond Or, Vice-Chairman and Chief Executive

Hang Seng's strong results for 2007 reflect good progress with our roadmap for
growth, supported by favourable economic conditions.

We enhanced our top-tier wealth management platform, recording significant
success with our Private Banking, investment and insurance businesses. In
mainland China, we established a wholly owned subsidiary bank and expanded the
scope and reach of our services. Commercial Banking made pleasing progress with
growth initiatives including the further development of corporate wealth
management business and offering 'joined-up' services to customers with
operations in Hong Kong and on the Mainland. Treasury benefited from an improved
operating environment and additional efforts to diversify income.

Customer Groups

Personal Financial Services achieved a 54.8 per cent increase in operating
profit excluding loan impairment charges to HK$12,139 million. Profit before tax
was up 54.2 per cent at HK$11,918 million.

Our wealth management business achieved impressive growth, with income rising
HK$4,330 million, or 100.4 per cent, to HK$8,643 million. We capitalised on
positive investor sentiment, rolling out effective marketing campaigns and
convenient new trading channels to achieve strong increases in
securities-related income and customer base. We launched several innovative
investment funds, including Hong Kong's first Securities and Futures
Commission-authorised Islamic fund, and enjoyed independent recognition of our
fund management performance. Investment fund income increased to a record
HK$1,676 million. We expanded our structured product offerings, enjoying
particularly strong sales of equity-linked instruments.

Private Banking built on its good growth momentum by further enhancing its
relationship management team and range of services. In 2006 we set a target to
double Private Banking's 2005 profit before tax in five years. We have achieved
this in just two years, with profit before tax up 122.7 per cent at HK$1,239
million.

Hang Seng Life was Hong Kong's number one provider in terms of annualised new
premiums for regular-pay (non-linked) insurance in the first three quarters of
the year. In September 2007, we completed the acquisition of the outstanding 50
per cent of Hang Seng Life from the HSBC Group. This move has created a more
effective vehicle for continued insurance business growth.

Strong consumer demand saw personal loans and card receivables enjoy good
growth. Despite intense competition in the residential mortgage sector, the
enhancement of our e-mortgage services helped us to maintain our position as a 
market leader.

Commercial Banking's operating profit excluding loan impairment charges grew by
10.4 per cent to HK$2,210 million. Profit before tax increased by 19.4 per cent
to HK$2,701 million.

Net interest income rose by 16.1 per cent. Growth in trade finance and factoring
helped drive a 22.1 per cent increase in average customer advances, while
efforts to further strengthen customer relationships saw average customer
deposits rise by 20.9 per cent. Initiatives to grow non-interest income achieved
pleasing results, with increases in corporate wealth management income and card
merchant-acquiring business. Our Octopus merchant services proved a valuable
tool in attracting new customers. Hong Kong and Mainland Commercial Banking
teams stepped up cooperative efforts with the aim of providing 'one-stop'
banking services.

The improving interest rate environment, closer collaboration with other
customer groups and increased use of e-channels, as well as success with
expanding non-interest income from proprietary trading and customer-driven
business, supported a 72.9 per cent increase in Treasury's operating profit
excluding loan impairment charges to HK$1,534 million. Profit before tax, taking
into account the increase in share of profits from associates, rose by 74.0 per
cent. With no exposure to mortgage-backed securities, collaterised debt
obligations or structured investment vehicles, Treasury was not directly
affected by the sub-prime crisis.

Corporate Banking recorded growth of 10.1 per cent in operating profit excluding
loan impairment charges to HK$598 million. Increases in average customer
deposits and average customer advances saw net interest income rise by 15.4 per
cent. With strong liquidity continuing to put downward pressure on loan margins,
Corporate Banking took effective steps to diversify its income, resulting in
growth in trade services and credit facilities fees. Profit before tax fell by
14.7 per cent to HK$475 million, affected by increased loan impairment charges
related to a single large customer.

Mainland Business

We reached several important milestones in the development of our mainland
business. Our subsidiary bank, Hang Seng Bank (China) Limited ('HACN'),
commenced operations in May, providing significant new opportunities for growth.
Since the beginning of 2007, HACN has opened two branches and seven
sub-branches, taking our mainland network to 25 outlets across 10 cities. In
August, we obtained approval to provide full renminbi services to local
residents, broadening our service scope. To support our expansion and strengthen
our sales and marketing capabilities, we increased our number of full-time staff
on the Mainland by 436 during 2007 to 1,097. These moves underpinned good growth
in lending and deposits, with total operating income rising by 69.4 per cent.

Including our share of profit from Industrial Bank, mainland business
contributed 6.5 per cent to our profit before tax, compared with 6.1 per cent in
2006.

On 31 January 2008, we signed an agreement to subscribe for 20 per cent of the
enlarged share capital of Yantai City Commercial Bank (YTCCB) - one of the
largest city commercial bank in Shandong Province - for a total consideration 
of RMB800 million.

Upon completion of the acquisition, which is subject to relevant regulatory and
YTCCB shareholder approvals, we will become YTCCB's largest shareholder. This
strategic investment in the rapidly developing Bohai Economic Rim region
supports our two-pronged strategy for growth and will complement our existing
foothold on the Mainland.

Following the acquisition, Hang Seng's total mainland investment will increase
to about RMB7.3 billion, including the capital injected into HACN.

Building On Our Achievements

Hang Seng's 2007 results are a testament to the strength of the strategy for
growth we set out in March 2006 and the dedicated efforts of our staff to
achieve its challenging goals.

We will further leverage our leading market position, brand strength and
comprehensive wealth management portfolio to attract new customers and deepen
relationships with existing ones.

With a strong focus on small and medium-sized enterprise customers, we will
enhance our reputation for 'one-stop' commercial banking through closer
collaboration between relationship management teams in Hong Kong and on the
Mainland and the further development of corporate wealth management, trade
finance and business loan services.

We will strengthen the competitiveness of our Treasury business by exploring
emerging opportunities on the Mainland and streamlining our service delivery,
particularly through greater use of online channels.

We will work to broaden and diversify Corporate Banking's customer base,
focusing on higher-margin business.

We will also continue to develop our Mainland business using our two-pronged
strategy for growth. Through Hang Seng China we will continue to pursue new
business opportunities and expand our customer base. We will open new outlets in
cities with high-growth potential, expand our renminbi service offerings and
strengthen our brand-building initiatives.

An enduring element of Hang Seng's success has been our willingness to
continually set higher objectives. Despite the challenging external environment, 
we remain firmly focused on generating long-term business growth.

Results summary

Hang Seng Bank Limited ('the bank') and its subsidiaries and associates ('the
group') reported an audited profit attributable to shareholders of HK$18,242
million for 2007, a rise of 51.5 per cent over 2006. The record results also
boosted earnings per share to HK$9.54, up HK$3.24 from 2006. Attributable profit
to shareholders for the second half of 2007 increased by HK$508 million, or 5.7
per cent, when compared with the first half.

- Operating profit excluding loan impairment charges and other credit risk
provisions rose by HK$5,525 million, or 43.0 per cent, to HK$18,365 million.
This was underpinned by strong asset and deposit growth, net interest margin
expansion and record-breaking growth of the wealth management business on the
back of a sharp rise in equity market activity, which contributed to the 25.9
per cent increase in net interest income and 61.2 per cent in non-interest
income as highlighted below.

- Net interest income increased by HK$3,025 million, or 25.9 per cent, with an
increase of 14.3 per cent in average interest-earning assets. The rise in net
interest income was supported by the 10.4 per cent growth in average customer
advances and the 10.4 per cent rise in average customer deposits. Net interest
margin improved by 21 basis points to 2.23 per cent, benefiting from improved
deposit spreads, better yields on Treasury balance sheet management portfolios
and contribution from net free funds.

- Net fees and commissions rose by HK$3,389 million, or 96.9 per cent, driven by
strong business growth and favourable investment market sentiment. Fees income
from stockbroking and related services rose by 146.6 per cent with the buoyant
stock market driving increased transaction activity and a 19.7 per cent growth
in customer base. Remarkable growth was also recorded in income from sales of
retail investment funds (110.6 per cent), sales of third-party structured
investment products (603.2 per cent) and private banking investment services
(202.1 per cent). Card services income increased by 21.9 per cent, supported by
a rise of 8.9 per cent in the number of cards issued as well as a 21.1 per cent
increase in cardholder spending.

- Trading income improved by 26.2 per cent to HK$1,679 million. Foreign exchange
income declined by 26.9 per cent, affected by the exchange loss on forward
contracts used in 'funding swap' activities in the balance sheet management
portfolios and on the revaluation of certain US dollar capital funds against the
renminbi. These US dollar funds are maintained in our mainland subsidiary bank
and are subject to regulatory controls on their conversion into renminbi.
Excluding these unfavourable factors, foreign exchange income actually rose by
16.5 per cent, attributable to the balanced growth achieved by expanding
proprietary trading and customer-driven business. Securities, derivatives and
other trading rose by HK$666 million, benefiting from the improvement in trading
results and the growth in sales volume driven by strong customer demand for
equity-linked investment products.

- Income from insurance business, including net earned insurance premiums, net
interest income, net fee income and net income from financial instruments
designated at fair value, the change in present value of in-force business, and
after deducting net insurance claims incurred and movement in policyholders'
liabilities, increased by 33.9 per cent to HK$2,403 million. Life insurance
income rose by 39.2 per cent to HK$2,055 million, reflecting strong growth in
new annualised premiums and investment returns on insurance funds.

- Net operating income before loan impairment charges and other credit risk
provisions increased by HK$6,934 million, or 38.3 per cent, to HK$25,015 million
with encouraging growth in all core banking income lines.

- Operating expenses rose by HK$1,409 million, or 26.9 per cent, to HK$6,650
million. Headcount increased by 8.6 per cent as sales and support functions were
strengthened to support business growth in Hong Kong and on the Mainland. The
bank's mainland operations accounted for HK$309 million, or 21.9 per cent, of
the increase in operating expenses, reflecting the establishment of the bank's
wholly-owned subsidiary bank HACN, the expansion of mainland network from 15 to
25 outlets and the rise in net headcount from 661 to 1,097 during 2007.
Excluding performance-related pay and mainland operations, operating expenses
increased by HK$416 million, or 9.0 per cent, due mainly to the addition of 285
staff in Hong Kong and rises in marketing and rental expenses.

- Operating profit was up HK$5,213 million, or 41.5 per cent, at HK$17,789
million, after accounting for the moderate increase of HK$312 million in loan
impairment charges and other credit risk provisions under the continued benign
credit environment.

- Profit before tax was up 49.2 per cent at HK$21,471 million after taking the
following items into account:

   • a gain on dilution of investment in an associate of HK$1,465 million
     related to the listing of Industrial Bank;
   • an increase of 18.1 per cent in net surplus on property revaluation;
   • a rise of 71.3 per cent in share of profits from associates, mainly
     contributed by Industrial Bank; and
   • a fall of 15.1 per cent in profit on disposal of fixed assets and
     financial investments, mainly from the disposal of properties.

Balance sheet and key ratios

Total assets increased by HK$76.9 billion, or 11.5 per cent, to HK$746.0
billion. Customer advances rose by 10.4 per cent. In line with the bank's
strategy to diversify its loan portfolio, encouraging growth was recorded in
mainland lending, commercial lending, mortgages, trade finance, cards and
personal loans. The 9.3 per cent increase in customer deposits funded the growth
in interbank placing and money market instruments. At 31 December 2007, the
advances-to-deposits ratio was 52.2 per cent, compared with 51.7 per cent at the
end of 2006.

Shareholders' funds (excluding proposed dividends) grew by HK$7,372 million, or
17.0 per cent, to reach HK$50,720 million as at 31 December 2007. Retained
profits rose by HK$3,829 million, reflecting the growth in attributable profit
and the HK$1,465 million gain on the dilution of the bank's investment in an
associate. The available-for-sale investments reserve also rose.

The return on average total assets was 2.6 per cent, compared with 1.9 per cent
for 2006. The return on average shareholders' funds was 35.4 per cent (27.4 per
cent in 2006).

On 31 December 2007, the capital adequacy ratio was 11.2 per cent and the core
capital ratio was 8.4 per cent, as calculated in accordance with the Banking
(Capital) Rules issued by the Hong Kong Monetary Authority ('HKMA') for the
implementation of the Basel II . The capital adequacy ratio and core capital
ratio on 31 December 2006 under the Basel I capital regime were 13.6 per cent
and 10.7 per cent respectively.

The bank maintained a strong liquidity position. The average liquidity ratio for
2007 was 52.9 per cent (calculated in accordance with the Fourth Schedule of the
Hong Kong Banking Ordinance), compared with an average liquidity ratio of 51.9
per cent for 2006.

The cost efficiency ratio for 2007 was 26.6 per cent, compared with 29.0 per
cent for 2006.

Dividends

The Directors have declared a fourth interim dividend of HK$3.00 per share,
which will be payable on 28 March 2008 to shareholders on the register of
shareholders as of 18 March 2008. Together with the interim dividends for the
first three quarters, the total distribution for 2007 will amount to HK$6.30 per
share, an increase of HK$1.10 per share over 2006.

Customer group performance

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


Year ended 31Dec07

Net interest income         8,701        2,364          719         1,312         1,623            _        14,719
Net fee income/(expense)    5,726        1,005          109           (25)           71            _         6,886
Trading income/(loss)       1,086          173            9           468           (57)           _         1,679
Net income/ (expense) from
  financial unstruments
  designated at fair value  1,901            2            _             4             _            _         1,907
Dividend income                14            1            _             _            37            _            52
Net earned insurance
  premiums                  9,519          181            2             _             _            _         9,702
Other operating
  income/(expense)            543           47            _            (3)          160            _           747
Inter-segment income            _            _            _             _           373         (373)            _
Total operating income     27,490        3,773          839         1,756         2,207         (373)       35,692
Net insurance claims
  incurred and movement
  in policyholders'
  liabilities             (10,584)         (92)          (1)            _             _            _       (10,677)
Net operating income 
  before loan impairment
  charges and other
  credit risk provisions   16,906        3,681          838         1,756         2,207         (373)       25,015
Loan impairment charges
  and other credit risk
  provisions                 (277)        (165)        (134)            _             _            _          (576)
Net operating income       16,629        3,516          704         1,756         2,207         (373)       24,439
Total operating expenses^  (4,442)      (1,437)        (234)         (214)         (323)           _        (6,650)
Inter-segment expenses       (325)         (34)          (6)           (8)            _          373             _
Operating profit           11,862        2,045          464         1,534         1,884            _        17,789
Gain on dilution of
  investment in associate       _            _            _             _         1,465            _         1,465
Profit on disposal of
  fixed assets and 
  financial investments         4            1           11             _           700            _           716
Net surplus on property 
  revaluation                   _            _            _             _           379            _           379
Share of profits from
  associates                   52          655            _           295           120            _         1,122
Profit before tax          11,918        2,701          475         1,829         4,548            _        21,471
Share of profit before tax   55.5%        12.6%         2.2%          8.5%         21.2%           _         100.0%

Operating profit
  excluding inter-segment
  transactions             12,187        2,079          470         1,542         1,511            _        17,789

Operating profit
  excluding loan
  impairment charges and 
  other credit risk
  provisions               12,139        2,210          598         1,534         1,884            _        18,365

^Depreciation/amortisation
  included in operating
  expenses                   (118)         (21)          (5)           (3)         (234)           _          (381)

At 31Dec07

Total assets              190,696       80,479       79,419       358,306        37,099            _       745,999
Total liabilities         459,756      100,857       53,373        42,486        33,071            _       689,543
Investments in associates     201        2,520            _         1,138         2,318            _         6,177
Capital expenditure
  incurred during the
  year                        226           76           21             3           215            _           541


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

Year ended 31Dec06
Net interest income         7,428        2,036          623           481         1,126            _        11,694
Net fee income/(expense)    2,576          809           86           (24)           50            _         3,497
Trading income                517          150            7           628            28            _         1,330
Net income/(expense) from
  financial instruments
  designated at fair value    910            _            _           (11)            _            _           899
Dividend income                 8            5            _             _            34            _            47
Net earned insurance
  premiums                  7,671          174            1             _             _            _         7,846
Other operating
  income/(expense)            542           26            _            (4)          281            _           845
Inter-segment income            _            _            _             _           378         (378)            _
Total operating income     19,652        3,200          717         1,070         1,897         (378)       26,158
Net insurance claims
  incurred and movement
  in policyholders'
  liabilities              (8,014)         (63)           _             _             _            _        (8,077)
Net operating income 
  before loan impairment
  (charges)/releases and
  other credit risk
  provisions               11,638        3,137          717         1,070         1,897         (378)       18,081
Loan impairment
  (charges)/releases and
  other credit risk
  provisions                 (165)        (101)          14             _           (12)           _          (264)
Net operating income       11,473        3,036          731         1,070         1,885         (378)       17,817
Total operating expenses^  (3,472)      (1,098)        (168)         (175)         (328)           _        (5,241)
Inter-segment expenses       (326)         (38)          (6)           (8)            _          378             _
Operating profit            7,675        1,900          557           887         1,557            _        12,576
Profit on disposal of
  fixed assets and 
  financial investments        26            _            _             _           817            _           843
Net surplus on property
  revaluation                   _            _            _             _           321            _           321
Share of profits from
  associates                   29          362            _           164           100            _           655
Profit before tax           7,730        2,262          557         1,051         2,795            _        14,395
Share of profit before tax   53.7%        15.7%         3.9%          7.3%         19.4%           _         100.0%

Operating profit
  excluding inter-segment
  transactions              8,001        1,938          563           895         1,179            _        12,576

Operating profit
  excluding loan
  impairment (charges)/
  releases and other
  credit risk provisions    7,840        2,001          543           887         1,569            _        12,840

^Depreciation/amortisation
  included in operating
  expenses                   (106)         (11)          (4)           (2)         (210)           _          (333)

At 31Dec06

Total assets              167,241       69,633       76,619       326,181        29,390            _       669,064
Total liabilities         429,667       82,340       41,959        38,609        27,791            _       620,366
Investments in associates     141        1,775            _           801           771            _         3,488
Capital expenditure
  incurred during the
  year                        159           44           11             8           157            _           379

Personal Financial Services ('PFS') reported a growth of 54.2 per cent in profit
before tax to HK$11,918 million, representing 55.5 per cent of the group's total
profit before tax. Operating profit excluding loan impairment charges rose by
54.8 per cent, reflecting strong growth in wealth management, private banking,
card and personal lending businesses.

Non-interest income was nearly double that of 2006, due mainly to the booming
investment market and the continued success of PFS's wealth management business,
which delivered the following record achievements:

   •Gross subscriptions of investment funds achieved significant growth of
    149.5 per cent over 2006;
   •Stock trading turnover was up by 148.4 per cent and securities customer
    base increased by 19.7 per cent, supported by the launch of new mobile phone
    trading services and the first TV trading platform in Hong Kong;
   •Equity-linked structured instruments registered year-on-year growth of
    172.0 per cent in sales volume;
   •Our life insurance business ranked number one in Hong Kong in terms of
    new regular premiums on non-linked insurance products for the first three
    quarters of 2007.

Private banking also sustained its outstanding growth momentum with total
operating income up by 109.8 per cent. Profit before tax rose by 122.7 per cent
to HK$1,239 million, triple that of 2005 and comfortably exceeding its five-year
target of doubling its 2005 profit before tax.

Net interest income rose by 17.1 per cent, due mainly to the 6.9 per cent growth
in average customer deposits and the widening of deposit spreads. Higher growth
was recorded in savings accounts, reflecting a customer preference to preserve
liquidity for investment.

The contraction in Government Home Ownership Scheme mortgages notwithstanding,
PFS's loan portfolio grew by 9.9 per cent. Amid the upward trend of the property
market, residential mortgage business remained competitive. Nevertheless, the
bank sustained its position as one of the market leaders.

Card business maintained steady growth in 2007. The launch of new credit cards
coupled with a series of promotional campaigns successfully brought the number
of cards in issue to 1.53 million and boosted card spending by 21.1 per cent
over 2006. Personal lending also registered impressive growth with a 43.0 per
cent increase in loan balance.

Hang Seng's life insurance business maintained its leading market position.
Annualised new regular premiums grew by 33.5 per cent with the launch of new
annuities and health protection products tailored for the needs of pre-retirees
and retirees. As a result, life insurance reported a rise of 34.2 per cent in
operating income, driven by growth of 17.0 per cent in the number of policies in
force.

Commercial Banking ('CMB') achieved an increase of 10.4 per cent in operating
profit excluding loan impairment charges, driven by balanced and sustained
growth in both net interest income and net fee income. Profit before tax rose by
19.4 per cent to HK$2,701 million, contributing 12.6 per cent of the group's
total profit before tax.

Net interest income recorded good growth of 16.1 per cent. Average customer
advances rose by 22.1 per cent over 2006 as a result of balanced growth in trade
and factoring, and advances to the manufacturing and wholesale and retail
sectors.

Corporate wealth management income contributed 9.9 per cent of CMB's total
operating income in 2007, up from 7.9 per cent in 2006. Investment and treasury
business accelerated in the second half of 2007, recording a 125.8 per cent
growth in income.

CMB continued its strategy of providing customer-centric solutions to retailers.
Net fee income from card merchant-acquiring business achieved strong growth of
16.7 per cent. Octopus merchant services continued to provide an important
competitive advantage in acquiring new customers. Around 75 per cent of Octopus
merchants acquired during 2007 were new customers for the bank. The number of
new commercial customers acquired in 2007 outperformed 2006 by 22.0 per cent.

In addition to corporate wealth management and card merchant-acquiring business,
CMB also achieved satisfactory growth in trade and remittance services income.
Net fees and commissions grew by 24.2 per cent.

Average customer deposits increased by 20.9 per cent, driven primarily by
dedicated relationship management and customer segmentation initiatives that
improved the management of non-borrowing SME customers.

CMB business continued to grow rapidly on the Mainland. Hong Kong and mainland
teams joined up to provide one-stop banking services to commercial customers
with cross-border financial needs. Average customer deposits and average
customer advances rose by 75.2 per cent and 89.0 per cent respectively. This
underpinned the 113.0 per cent growth in net interest income on the Mainland in
2007.

Business e-Banking enjoyed strong growth. As of 31 December 2007, over 51,000
customers had registered for Business e-Banking services, a year-on-year
increase of 33.5 per cent. The number of online business banking transactions
grew by 44.5 per cent.

Corporate Banking ('CIB') achieved an increase of 10.1 per cent in operating
profit excluding loan impairment charges, driven by satisfactory growth of 15.4
per cent in net interest income and 26.7 per cent in net fee income. Average
customer deposits rose by 31.7 per cent and deposit spreads widened. Average
customer advances increased by 5.1 per cent, mainly in lending to property
investment, securities and information technology companies. Profit before tax
fell by HK$82 million to HK$475 million, affected by an increase in loan
impairment charges.

Strong liquidity in Hong Kong continued to exert pressure on corporate loan
margins. CIB remained focused on better yield transactions and continued to
target business sectors such as investment holding companies, mid-tier property
developers and securities firms. CIB was active in financing mainland projects
of Hong Kong-based corporations during 2007 and continued to expand its mainland
customer base.

Treasury ('TRY') reported a 72.9 per cent growth in operating profit excluding
loan impairment charges. Profit before tax, taking into account the increase in
share of profits from associates, rose by 74.0 per cent to HK$1,829 million and
contributed 8.5 per cent to the group's total profit before tax.

Balance sheet management portfolios reversed their downward trend and recorded
growth of HK$831 million, or 172.8 per cent, in net interest income. Including
the net increase of HK$357 million in funding swap^ costs (described below) -
which were recognised as foreign exchange losses - net interest income rose by
HK$474 million, or 125.7 per cent. Benefiting from the aggressive rate cuts in
the United States and Hong Kong, as well as the growth in portfolios and gradual
re-pricing of lower yield investments, Treasury is now better positioned to
capture yield enhancement opportunities and deliver further profit growth.

Trading income fell by HK$160 million, or 25.5 per cent, due mainly to the
mirror effect of the 'funding swap' activities^ in the balance sheet management
portfolios which reported a loss of HK$461 million in 2007 (loss of HK$104
million in 2006). Excluding the impact of 'funding swap' activities^ , trading
income increased by HK$197 million, or 26.9 per cent. Securities and other
derivatives trading, including the provision of structured products to personal
and corporate customers, recorded encouraging growth.

^Treasury from time to time employs foreign exchange swaps for its funding
activities, which in essence involve swapping a currency ('original currency')
into another currency ('swap currency') at the spot exchange rate for short-term
placement and simultaneously entering into a forward exchange contract to
convert the funds back to the original currency on maturity of the placement. In
accordance with HKAS39, the exchange difference of the spot and forward
contracts is required to be recognised as foreign exchange gain/loss, while the
corresponding interest differential between the original and swap funding is
reflected in net interest income.

Mainland business

The opening of the bank's mainland subsidiary, HACN, in May 2007 marked the
start of a new era of business growth for the bank. This landmark event was
given a further boost in August when HACN obtained permission to begin offering
comprehensive renminbi banking services to mainland residents. At the end of
2007, HACN, which is headquartered in Shanghai, operated a network of 23 outlets
in Beijing, Shanghai, Guangzhou, Dongguan, Shenzhen, Fuzhou, Nanjing, Hangzhou
and Ningbo. The Hangzhou Branch, Ningbo Branch and seven sub-branches (three in
Shanghai, two in Guangzhou, one in Beijing and another one in Shenzhen) were
opened in 2007. The bank has a branch in Shenzhen for foreign currency wholesale
business and a representative office in Xiamen. HACN will continue to strengthen
the bank's strategic positioning by opening new outlets in high-potential areas,
focusing particularly on the Pearl River Delta, Yangtze River Delta and Bohai
Economic Rim regions, which offer excellent prospects for expanding the bank's
PFS and CMB businesses. HACN aims to grow its mainland network to over 50
outlets by 2010.

With sustained economic growth on the Mainland, HACN extended its range of
financial services, including renminbi services, and pursued new opportunities
to grow its business. Total operating income rose by 69.4 per cent, benefiting
from impressive increases in both net interest income and non-interest income,
supported by strong growth of 63.8 per cent in customer advances and 188.6 per
cent in customer deposits. Profit before tax fell by 77.5 per cent, affected by
the cost of establishing HACN as well as investment in human resources and
branch network, an exchange loss on US dollar capital funds upon revaluation
against the renminbi and an increase in loan impairment charges.

In terms of customer groups, mainland PFS successfully focused on the affluent
and mass affluent segment, capturing more business to record a 131.2 per cent
increase in Mainland Prestige Banking accounts during the year. Leveraging the
bank's well-established corporate customer base in Hong Kong, HACN's CMB and CIB
teams collaborated closely with their Hong Kong counterparts to serve customers'
business needs on the Mainland and in Hong Kong, helping to enlarge HACN's
mainland corporate customer base. TRY continued to manage the funding positions
of the branches and develop structured products to meet the investment needs of
customers.

Including the bank's share of profit from Industrial Bank Co., Ltd, mainland
business contributed 6.5 per cent of total profit before tax, compared with 6.1
per cent in 2006.








                      This information is provided by RNS
            The company news service from the London Stock Exchange