Hang Seng Bk Ltd pt 2/6

HSBC Holdings PLC
03 March 2008


Contents

The financial information in this news release is based on the audited
consolidated financial statements of Hang Seng Bank Limited ('the bank') and its
subsidiaries and associates ('the group') for the year ended 31 December 2007.

..Highlights of Results
..Chairman's Comment
..Chief Executive's Review
..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
....Net income from financial instruments designated at fair value
....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
....Gains on dilution of investment in associate
....Tax expense
....Earnings per share
....Dividends per share
....Segmental analysis
....Analysis of assets and liabilities by remaining maturity
....Cash and balances with banks and other financial institutions
....Placings with and advances to banks and other financial institutions
....Trading assets
....Financial assets designated at fair value
....Advances to customers
....Loan impairment allowances against advances to customers
....Impaired advances and allowances
....Overdue advances
....Rescheduled advances
....Segmental analysis of advances to customers by geographical area
....Gross advances to customers by industry sector
....Financial investments
....Amount due from/to immediate holding company and fellow subsidiary companies
....Investments in associates
....Intangible assets
....Other assets
....Current, savings and other deposit accounts
....Certificates of deposit and other debt securities in issue
....Trading liabilities
....Other liabilities
....Subordinated liabilities
....Shareholders' funds
....Capital resources management
....Liquidity ratio
....Reconciliation of cash flow statement
....Contingent liabilities, commitments and derivatives
....Statutory accounts and accounting policies
....Comparative figures
....Acquisition
....Property revaluation
....Foreign currency positions
....Post balance sheet event
....Ultimate holding company
....Register of shareholders
....Proposed timetable for 2008 quarterly dividends
....Code on corporate governance practices
....Board of directors
....News release

Consolidated Income Statement

                                                     Year ended       Year ended
Figures in HK$m                                         31Dec07          31Dec06

Interest income                                          34,406           29,262
Interest expense                                        (19,687)         (17,568)
Net interest income                                      14,719           11,694
Fee income                                                7,682            4,074
Fee expense                                                (796)            (577)
Net fee income                                            6,886            3,497
Trading income                                            1,679            1,330
Net income from financial instruments
  designated at fair value                                1,907              899
Dividend income                                              52               47
Net earned insurance premiums                             9,702            7,846
Other operating income                                      747              845
Total operating income                                   35,692           26,158
Net insurance claims incurred and
  movement in policyholders' liabilities                (10,677)          (8,077)
Net operating income before loan impairment
  charges and other credit risk provisions               25,015           18,081
Loan impairment charges and other credit risk
  provisions                                               (576)            (264)
Net operating income                                     24,439           17,817
Employee compensation and benefits                       (3,585)          (2,694)
General and administrative expenses                      (2,684)          (2,214)
Depreciation of premises, plant and equipment              (348)            (323)
Amortisation of intangible assets                           (33)             (10)
Total operating expenses                                 (6,650)          (5,241)
Operating profit                                         17,789           12,576
Gain on dilution of investment in associate               1,465                _
Profit on disposal of fixed assets and financial
  investments                                               716              843
Net surplus on property revaluation                         379              321
Share of profits from associates                          1,122              655
Profit before tax                                        21,471           14,395
Tax expense                                              (2,865)          (2,049)
Profit for the year                                      18,606           12,346

Profit attributable to shareholders                      18,242           12,038
Profit attributable to minority interests                   364              308
                                                         18,606           12,346

Dividends                                                12,045            9,942
Earnings per share (in HK$)                                9.54             6.30

With effect from 2006, interest income and interest expense for all
interest-bearing financial instruments are reported in 'Interest income' and
'Interest expense' respectively in the income statement. The change from the
HSBC Group presentation described below has been made principally to match the
interest expense arising from trading liabilities with the interest income from
non-trading assets. This facilitates the comparison of Hang Seng's net interest
income and net interest margin with peer banks in Hong Kong.

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:
                                                     Year ended       Year ended
Figures in HK$m                                         31Dec07          31Dec06

Interest income                                          33,701           28,639
Interest expense                                        (17,343)         (15,000)
Net interest income                                      16,358           13,639
Net interest income and expense reported as 'Net
  trading income'                                        (1,753)          (2,039)
Net interest income and expense reported as 'Net 
  income from financial instruments designated at 
  fair value'                                               114               94

Consolidated Balance Sheet

Figures in HK$m                                      At 31Dec07       At 31Dec06

Assets
Cash and balances with banks and
  other financial institutions                           16,864            9,390
Placings with and advances to banks and
  other financial institutions                          113,029           99,705
Trading assets                                           10,390           12,467
Financial assets designated at fair
  value                                                  13,892            8,280
Derivative financial instruments                          4,702            1,887
Advances to customers                                   308,356          279,353
Financial investments                                   244,294          227,710
Investments in associates                                 6,177            3,488
Investment properties                                     2,581            2,732
Premises, plant and equipment                             6,794            6,516
Interest in leasehold land held for own use
  under operating lease                                     565              580
Intangible assets                                         2,889            2,070
Other assets                                             15,466           14,886
                                                        745,999          669,064
Liabilities
Current, savings and other deposit
  accounts                                              546,653          482,821
Deposits from banks                                      19,736           17,950
Trading liabilities                                      48,151           60,093
Financial liabilities designated at fair
  value                                                   1,498            1,562
Derivative financial instruments                          4,683            1,531
Certificates of deposit and other
  debt securities in issue                                5,685            7,595
Other liabilities                                        17,850           16,123
Liabilities to customers under insurance
  contracts                                              33,089           22,975
Deferred tax and current tax liabilities                  2,844            2,716
Subordinated liabilities                                  9,354            7,000
                                                        689,543          620,366
Capital resources
Minority interests                                            _            1,717
Share capital                                             9,559            9,559
Retained profits                                         32,873           29,044
Other reserves                                            8,288            4,745
Proposed dividends                                        5,736            3,633
Shareholders' funds                                      56,456           46,981
                                                         56,456           48,698
                                                        745,999          669,064

Consolidated Statement of Recognised Income and Expense

                                                     Year ended       Year ended
Figures in HK$m                                         31Dec07          31Dec06

Unrealised surplus on revaluation of premises, 
  net of tax                                                443              519
Tax on realisation of revaluation surplus on 
  disposal of premises                                       45              106
Available-for-sale investments reserve, net of tax:
- fair value changes taken to equity                      1,594            1,232
- fair value changes transferred to income statement
  -- on impairment                                            _               12
  -- on hedged items                                       (181)              21
  -- on disposal                                           (444)            (325)
Cash flow hedges reserve, net of tax:
- fair value changes taken to equity                        146             (179)
- fair value changes transferred to income statement        218              442
Actuarial (losses)/gains on defined benefit plans,
  net of tax                                             (1,243)             218
Exchange differences on translation of financial 
  statements of overseas branches, subsidiaries and 
  associates                                                527              184
Net income recognised directly in equity                  1,105            2,230
Profit for the year                                      18,606           12,346
Total recognised income and expense for the year         19,711           14,576

Attributable to shareholders                             19,347           14,268
Attributable to minority interests                          364              308
                                                         19,711           14,576

Consolidated Cash Flow Statement

                                                     Year ended       Year ended
Figures in HK$m                                         31Dec07          31Dec06

Net cash inflow from operating activities                21,070           53,541

Cash flows from investing activities

Dividends received from associates                          207               33
Purchase of available-for-sale investments              (90,693)        (101,258)
Purchase of held-to-maturity debt securities               (504)            (351)
Proceeds from sale or redemption of
  available-for-sale investments                         91,813           69,279
Proceeds from sale or redemption of
  held-to-maturity debt securities                           43               38
Purchase of fixed assets and intangible assets             (540)            (379)
Proceeds from sale of fixed assets and assets held
  for sale                                                1,130            3,130
Interest received from available-for-sale
  investments                                             9,756            6,557
Dividends received from available-for-sale 
  investments                                                49               45
Net cash outflow from increase in stake of
  subsidiaries                                           (2,409)               _
Net cash inflow/(outflow) from investing activities       8,852          (22,906)

Cash flows from financing activities
Dividends paid                                           (9,942)          (9,942)
Interest paid for subordinated liabilities                 (473)            (332)
Proceeds from subordinated liabilities                    2,342            3,489
Net cash outflow from financing activities               (8,073)          (6,785)

Increase in cash and cash equivalents                    21,849           23,850

Cash and cash equivalents at 1 January                   90,275           65,513
Effect of foreign exchange rate changes                   1,350              912
Cash and cash equivalents at 31 December                113,474           90,275

























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