Hang Seng Bk Ltd pt 4/6

HSBC Holdings PLC
03 March 2008


Segmental analysis

Segmental information is presented in respect of business and geographical
segments. Business by customer group information, which is more relevant to the
group in making operating and financial decisions, is chosen as the primary
reporting format.

For the purpose of segmental analysis, the allocation of revenue reflects the
benefits of capital and other funding resources allocated to the customer groups
or geographical segments by way of internal capital allocation and funds
transfer-pricing mechanisms. Cost allocation is based on the direct costs
incurred by the respective customer groups and apportionment of management
overheads. Rental charges at market rates for usage of premises are reflected as
inter-segment income for the 'Other' customer group and inter-segment expenses
for the respective customer groups.

(a) By customer group

The group's business comprises five customer groups. Personal Financial Services
provides banking (including deposits, credit cards, mortgages and other retail
lending) and wealth management services (including private banking, investment
and insurance) to personal customers. Commercial Banking manages middle market
and smaller corporate relationships and specialises in trade-related financial
services. Corporate Banking handles relationships with large corporate and
institutional customers. Treasury engages in balance sheet management and
proprietary trading. Treasury also manages the funding and liquidity positions
of the group and other market risk positions arising from banking activities.
'Other' mainly represents management of shareholders' funds and investments in
premises, investment properties and equity shares.

Profit before tax contributed by the customer groups in 2007 compared with 2006
is set out in the table below. More customer group analysis and discussions are
set out in the 'Customer group performance' section.

                            Personal
                           Financial   Commercial   Corporate
Figures in HK$m             Services      Banking     Banking     Treasury     Other     Total

Year ended 31Dec07

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%

Year ended 31Dec06

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%

(b) By geographical region

The geographical regions in this analysis are classified by the location of the
principal operations of the subsidiary companies or, in the case of the bank
itself, by the location of the branches responsible for reporting the results or
advancing the funds.
  
Figures in HK$m                         Hong Kong    Americas     Mainland     Total
                                                                 and other

Year ended 31Dec07
                             
Income and expense
Total operating income                     33,259       1,782          651    35,692
Profit before tax                          17,150       1,748        2,573    21,471
Capital expenditure incurred
  during the year                             432           _          109       541

At 31Dec07
Total assets                              630,989      71,082       43,928   745,999
Total liabilities                         663,333       4,020       22,190   689,543
Contingent liabilities and
  commitments                             200,462           _       15,007   215,469

Year ended 31Dec06
                              
Income and expense
Total operating income                     24,449       1,295          414    26,158
Profit before tax                          12,380       1,262          753    14,395
Capital expenditure incurred
  during the year                             335           _           44       379

At 31Dec06
Total assets                              573,067      65,997       30,000   669,064
Total liabilities                         603,636       4,180       12,550   620,366
Contingent liabilities and
  commitments                             165,541           _        8,701   174,242

Analysis of assets and liabilities by remaining maturity

The maturity analysis is based on the remaining period at the balance sheet date
to the contractual maturity date, with the exception of the trading portfolio
that may be sold before maturity and is accordingly recorded as 'Trading'.

                                     
                                One month                    Three        
                   Repayable      or less    One month      months    One year      Over                     No
                          on   but not on     to three      to one     to five      five            contractual
Figures in HK$m       demand       demand       months        year       years     years   Trading     maturity    Total

Assets
Cash and balances
  with banks and
  other financial
  institutions        16,864            _            _           _           _         _         _            _   16,864
Placings with and
  advances to banks 
  and other financial
  institutions        30,427       62,943       18,374       1,285           _         _         _            _  113,029
Trading assets             _            _            _           _           _         _    10,390            _   10,390
Financial assets
  designated  at 
  fair value               _            _          305         146       2,481     4,963         _        5,997   13,892
Derivative financial
  instruments              5          115          210         392         210         3     3,767            _    4,702
Advances to 
  customers           19,863       15,111       24,885      50,290      93,575   104,632         _            _  308,356
Financial investments    300       19,371       22,458      55,071     126,395    16,462         _        4,237  244,294
Investments in           
  associates               _            _            _           _           _         _         _        6,177    6,177
Investment properties      _            _            _           _           _         _         _        2,581    2,581
Premises, plant and
  equipment                _            _            _           _           _         _         _        6,794    6,794
Interest in leasehold
  land held for own
  use under operating            
  lease                    _            _            _           _           _         _         _          565      565
Intangible assets          _            _            _           _           _         _         _        2,889    2,889
Other assets           6,476        4,200        2,630       1,492         262         8         _          398   15,466
At 31Dec07            73,935      101,740       68,862     108,676     222,923   126,068    14,157       29,638  745,999

At 31Dec06            49,310       85,492       60,275      94,143     224,420   119,110    13,841       22,473  669,064

Liabilities
Current,savings and
  other  deposit
  accounts           312,427      177,361       42,612      13,055         913       285         _            _  546,653
Deposits from banks    1,791       12,994        2,640       2,311           _         _         _            _   19,736
Trading liabilities        _            _            _           _           _         _    48,151            _   48,151
Financial liabilities
  designated at fair      
  value                   41            _            _           _         997         _         _          460    1,498
Derivative financial
  instruments              _            7           11          25          47        58     4,535            _    4,683
Certificate of deposit
  and other debt 
  securities in issue      _            8            _       2,857       2,820         _         _            _    5,685
Other liabilities      8,433        4,996        1,718       1,352         124        12         _        1,215   17,850
Liabilities to 
  customers under
  insurance contracts      _            _            _           _           _         _         _       33,089   33,089
Deferred tax and 
  current tax liabilities  _            _            _       1,479           _         _         _        1,365    2,844
Subordinated liabilities   _            _            _           _       9,354         _         _            _    9,354
At 31Dec07           322,692      195,366       46,981      21,079      14,255       355    52,686       36,129  689,543

At 31Dec06           299,827      167,289       38,767      11,800      15,845       154    61,407       25,277  620,366


Cash and balances with banks and other financial institutions

Figures in HK$m                                      At 31Dec07       At 31Dec06

Cash in hand                                              3,308            4,920
Balances with central banks                               6,004              357
Balances with banks and other financial 
  institutions                                            7,552            4,113
                                                         16,864            9,390

Placings with and advances to banks and other financial institutions

Figures in HK$m                                      At 31Dec07       At 31Dec06

Placings with and advances to banks and
  other financial institutions maturing 
  within one month                                       93,370           75,722
Placings with and advances to banks and
  other financial institutions maturing 
  after one month                                        19,659           23,983
                                                        113,029           99,705

Trading assets

Figures in HK$m                                      At 31Dec07       At 31Dec06

Treasury bills                                            6,303            6,071
Certificates of deposit                                       _              212
Other debt securities                                     4,058            6,109
Debt securities                                          10,361           12,392
Equity shares                                                 2               16
Total trading securities                                 10,363           12,408
Other^                                                       27               59
Total trading assets                                     10,390           12,467

Debt securities:
- listed in Hong Kong                                     2,564            3,124
- listed outside Hong Kong                                  796            1,123
                                                          3,360            4,247
- unlisted                                                7,001            8,145
                                                         10,361           12,392
Equity shares:
- listed in Hong Kong                                         2               16
- unlisted                                                    _                _
                                                              2               16
Total trading securities                                 10,363           12,408

Debt securities:
Issued by public bodies:
- central governments and central banks                   9,061            8,969
- other public sector entities                              387              926
                                                          9,448            9,895
Issued by other bodies:
- banks and other financial institutions                    562            1,555
- corporate entities                                        351              942
                                                            913            2,497
                                                         10,361           12,392
Equity shares:
Issued by corporate entities                                  2               16
Total trading securities                                 10,363           12,408

^This represents amount receivable from counterparties on trading transactions
not yet settled.

Financial assets designated at fair value

Figures in HK$m                                      At 31Dec07       At 31Dec06

Certificates of deposit                                      52              232
Other debt securities                                     7,860            4,587
Debt securities                                           7,912            4,819
Equity shares                                             5,980            3,461
                                                         13,892            8,280

Debt securities:
- listed in Hong Kong                                     1,113              505
- listed outside Hong Kong                                1,377              309
                                                          2,490              814
- unlisted                                                5,422            4,005
                                                          7,912            4,819
Equity shares:
- listed in Hong Kong                                     1,976            1,202
- listed outside Hong Kong                                1,600            1,300
                                                          3,576            2,502
- unlisted                                                2,404              959
                                                          5,980            3,461
                                                         13,892            8,280

Debt securities:
Issued by public bodies:
- central governments and central banks                   2,004              870
- other public sector entities                              395              285
                                                          2,399            1,155
Issued by other bodies:
- banks and other financial institutions                  4,682            3,535
- corporate entities                                        831              129
                                                          5,513            3,664
                                                          7,912            4,819
Equity shares:
Issued by corporate entities                              5,980            3,461
                                                         13,892            8,280

Financial assets are designated at fair value, usually together with the related
liabilities or derivative financial instruments, primarily for the purpose of
eliminating or significantly reducing the accounting mismatch. The figures also
include those financial assets of life insurance funds designated at fair value
for backing policyholders' liabilities.

Advances to customers

Figures in HK$m                                      At 31Dec07       At 31Dec06

Gross advances to customers                             309,409          280,277
Less:
Loan impairment allowances:
- individually assessed                                    (417)            (406)
- collectively assessed                                    (636)            (518)
                                                        308,356          279,353

Included in advances to customers are:
- trade bills                                             3,690            3,907
- loan impairment allowances                                (14)             (16)
                                                          3,676            3,891

Loan impairment allowances against advances to customers



                                  Individually     Collectively
Figures in HK$m                       assessed         assessed            Total

At 1Jan07                                  406              518              924
Amounts written off                       (242)            (249)            (491)
Recoveries of advances
  written off in previous years             21               41               62
New impairment allowances
  charged to income statement              335              367              702
Impairment allowances released
to income statement                        (85)             (41)            (126)
Unwinding of discount of loan
  impairment allowances
  recognised as 'interest income'          (18)               _              (18)
At 31Dec07                                 417              636            1,053


Total loan impairment allowances as a percentage of gross advances to customers
are as follows:

                                                    At 31 Dec07       At 31Dec06
                                                              %                %

Loan impairment allowances:
- individually assessed                                    0.13             0.15
- collectively assessed                                    0.21             0.18
Total loan impairment allowances                           0.34             0.33

Total loan impairment allowances as a percentage of gross advances to customers
were 0.34 per cent at 31 December 2007, 0.1 percentage point higher than last
year. Individually assessed allowances as a percentage of gross advances fell by
0.02 percentage points to 0.13 per cent, reflecting recoveries from doubtful
accounts and the writing off of irrecoverable balances against impairment
allowances. The percentage of collectively assessed allowances increased by 0.03
percentage point to 0.21 per cent, reflecting higher impairment allowances made
on the card and personal loan portfolio and the increase in impairment
allowances made on advances not identified as impaired as a result of the growth
in gross advances to customers and the update of the historical loss rates used
for 2007.

Impaired advances and allowances

                                            
Figures in HK$m                                      At 31Dec07       At 31Dec06

Gross impaired advances                                   1,261            1,387
Individually assessed allowances                           (417)            (406)
Net impaired advances                                       844              981

Individually assessed allowances as a
  percentage of gross impaired advances                    33.1%            29.3%

Gross impaired advances as a percentage of
  gross advances to customers                               0.4%             0.5%

Impaired advances are those advances with objective evidence of impairment as
assessed on an individual basis. Impairment allowances are made to write down
the carrying value of the advances to the discounted value of future recoverable
amounts, including the realisation of collateral.

Gross impaired advances fell by HK$126 million, or 9.1 per cent, to HK$1,261
million, due mainly to the write-off of irrecoverable balances against
impairment allowances and customer repayments, although there was a downgrade of
certain commercial accounts. Gross impaired advances as a percentage of gross
advances to customers stood at 0.4 per cent, compared with 0.5 per cent at the
end of 2006.

Overdue advances

Advances to customers that are more than three months overdue and their
expression as a percentage of gross advances to customers are as follows:

                                                     At 31Dec07       At 31Dec06
                                                   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                                 329     0.1      504     0.2
- one year or less but
  over six months                                   312     0.1      263     0.1
- over one year                                     112       _      173       _
                                                    753     0.2      940     0.3

Advances with a specific repayment date are classified as overdue when the
principal or interest is overdue and remains unpaid at year-end. Advances
repayable by regular instalments are treated as overdue when an instalment
payment is overdue and remains unpaid at 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 demand
notice, or when the advances have remained continuously outside the approved
limit advised to the borrower for more than the overdue period in question.

Overdue advances fell by 19.9 per cent to HK$753 million at 31 December 2007,
attributable to the write-off of overdue advances against impairment allowances.
Overdue advances as a percentage of gross advances to customers stood at 0.2 per
cent, compared with 0.3 per cent at the end of 2006.

Rescheduled advances

Rescheduled advances and their expression as a percentage of gross advances to
customers are as follows:

                                                     At 31Dec07       At 31Dec06
                                                   HK$m       %     HK$m       %

Rescheduled advances to customers                   352     0.1      357     0.1


Rescheduled advances are those that have been rescheduled or renegotiated for
reasons related to the borrower's financial difficulties. This will normally
involve the granting of concessionary terms and resetting the overdue account to
non-overdue status. A rescheduled advance will continue to be disclosed as such
unless the debt has been performing in accordance with the rescheduled terms for
a period of six to 12 months. Rescheduled advances that have been overdue for
more than three months under the rescheduled terms are reported as overdue
advances.

Rescheduled advances decreased by HK$5 million, or 1.4 per cent, to HK$352
million at 31 December 2007, representing 0.1 per cent of gross advances to
customers (same level as the previous year-end).

Segmental analysis of advances to customers by geographical area

Advances to customers by geographical area are classified according to the
location of the counterparties after taking into account the transfer of risk.
In general, risk transfer applies when an advance is guaranteed by a party
located in an area which is different from that of the counterparty. At 31
December 2007, over 90 per cent of the group's advances to customers, including
related impaired advances and overdue advances, were classified under Hong Kong,
a position unchanged from that at 31 December 2006.

Gross advances to customers by industry sector

The analysis of gross advances to customers by industry sector based on
categories and definitions used by the HKMA is as follows:

Figures in HK$m                                      At 31Dec07       At 31Dec06

Gross advances to customers for
use in Hong Kong

Industrial, commercial and financial sectors
Property development                                     20,431           18,051
Property investment                                      54,676           48,096
Financial concerns                                        3,232            2,103
Stockbrokers                                                524              234
Wholesale and retail trade                                6,034            6,360
Manufacturing                                             8,311            7,670
Transport and transport equipment                         9,368           11,145
Recreational activities                                     218              210
Information technology                                      913              478
Other                                                    21,396           22,099
                                                        125,103          116,446
Individuals
Advances for the purchase of flats under
  the Government Home Ownership
  Scheme, Private Sector Participation
  Scheme and Tenants Purchase Scheme                     18,437           20,078
Advances for the purchase of other
  residential properties                                 85,923           83,616
Credit card advances                                     11,354            9,448
Other                                                    13,155            8,813
                                                        128,869          121,955
Total gross advances for use in Hong Kong               253,972          238,401
Trade finance                                            22,995           19,684
Gross advances for use outside Hong Kong                 32,442           22,192
Gross advances to customers                             309,409          280,277

Gross advances to customers rose HK$29.1 billion, or 10.4 per cent, to HK$309.4
billion when compared with the previous year-end.

In the strong economic conditions, lending to the property development, property
investment and financial concerns sectors recorded satisfactory growth,
benefiting from the active investment and property markets. Lending to the
manufacturing sector grew by 8.4 per cent and advances to the information
technology and telecom sector rose by 91.0 per cent due to a new drawdown by a
large information technology company. Lending to the wholesale and retail sector
and 'Other' sector fell by 5.1 per cent and 3.2 per cent respectively, due
mainly to repayments by large corporate customers.

Trade finance recorded strong growth of 16.8 per cent, reflecting CMB's
achievement in broadening its range of product and service offerings for small
and medium-sized enterprise ('SME') customers. CMB also enlarged its servicing
teams and expanded delivery channels to strengthen the bank's position as a
preferred bank for SMEs in Hong Kong.

Lending to individuals recorded a rise of 5.7 per cent. Excluding the fall in
Government Home Ownership Scheme ('GHOS') mortgages, lending to individuals grew
by 8.4 per cent. Residential mortgages to individuals rose by 2.8 per cent and
the bank maintained its position as one of the market leaders amid intense
market competition. Mortgages under the GHOS fell at a slower pace of 8.2 per
cent (compared with 12.2 per cent in 2006) as there were new loans drawdown
following the Housing Authority's re-launch of GHOS flat sales earlier 2007.

With the improved economic environment and strong consumer spending, card
advances grew by 20.2 per cent, supported by a rise of 8.9 per cent in the
number of cards issued and a 21.1 per cent increase in cardholder spending.
Lending to the 'Other' sector, including mainly personal loans and overdrafts,
increased by 49.3 per cent, due in part to a series of successful promotional
initiatives.

Loans for use outside Hong Kong increased by HK$10,250 million, or 46.2 per
cent, compared with the end of 2006. This was due largely to the 63.8 per cent
expansion of mainland loan portfolios, which had reached HK$26.0 billion at 31
December 2007. Strong growth was recorded in corporate lending, driven by
renminbi loans. Trade finance rose significantly by 110.4 per cent, benefiting
from the bank's strong capabilities and experience, premium services, and broad
customer base in the Pearl River Delta region. Residential mortgage business
also grew strongly by 79.3 per cent.







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