Hang Seng PT3

HSBC Holdings PLC
31 July 2006

Operating expenses

                               Half-year          Half-year         Half-year
                                   ended              ended             ended
Figures in HK$m                  30Jun06            30Jun05           31Dec05

Employee compensation 
  and benefits:
- salaries and
  other costs                      1,218              1,059             1,085
- retirement
  benefit costs                       59                 66                71
                                   1,277              1,125             1,156

General and administrative
  expenses:
- rental expenses                    117                 98               109
- other premises
  and equipment                      350                343               408
- other operating
  expenses                           440                451               567
                                     907                892             1,084
Depreciation of business
  premises and
  equipment                          150                135               145
Amortisation of
  intangible assets                    4                  4                 5
                                   2,338              2,156             2,390

Cost efficiency ratio               26.8%              26.7%             29.4%

Staff numbers by region^
                                At 30Jun06       At 30Jun05       At 31Dec05

Hong Kong                            7,524            7,148            7,425
Mainland and others                    521              377              420
Total                                8,045            7,525            7,845

^ Full-time equivalent

Operating expenses rose by HK$182 million, or 8.4 per cent, compared with the
same period last year. Employee compensation and benefits increased by 13.5 per
cent, due to the annual salary increment and the increase in number of staff.
General and administrative expenses were up 1.7 per cent and depreciation
charges rose by 11.1 per cent as a result of the increase in fair value of
business premises.

The number of full-time equivalent staff increased by 200 compared with the
previous year-end, with new staff hired to further strengthen the PFS and CMB
relationship management teams and to support the expansion of the mainland China
network and IT system development and enhancement.

The cost efficiency ratio for the first half of 2006 was 26.8 per cent, compared
with 26.7 per cent and 29.4 per cent for the first and second halves of 2005
respectively.



Profit on disposal of fixed assets and financial investments

                                Half-year        Half-year        Half-year
                                    ended            ended            ended
Figures in HK$m                   30Jun06          30Jun05          31Dec05

Profit on disposal of
  available-for-sale
  securities                          126              328              130

Profit less loss on 
  disposal of fixed
  assets                              448               20               (1)

                                      574              348              129

The profit on disposal of fixed assets and financial investments amounted to
HK$574 million, an increase of 64.9 per cent over the same period last year.
There was a HK$202 million reduction in profit from disposal of long-term equity
securities. Profit on disposal of fixed assets, however, rose by HK$428 million
to HK$448 million, mainly from the disposal of a commercial building situated in
Central in Hong Kong.

Tax expenses

Taxation in the consolidated income statement represents:

                               Half-year          Half-year        Half-year
                                   ended              ended            ended
Figures in HK$m                  30Jun06            30Jun05          31Dec05

Current tax
Tax for the period                 1,378                789              724

Deferred tax 
Origination and reversal
  of temporary differences          (176)               135              147

Total tax expenses                 1,202                924              871

The current tax provision is based on the estimated assessable profit for the
first half of 2006, and is determined for the bank and its subsidiaries
operating in Hong Kong by using the Hong Kong profits tax rate of 17.5 per cent
(the same rate as in 2005). For subsidiaries and branches operating in other
jurisdictions, the appropriate tax rates prevailing in the relevant countries
are used.

Deferred tax is calculated at the tax rates that are expected to apply in the
year when the liability is settled or the asset is realised. Deferred tax is
charged or credited in the income statement except when it relates to items
charged or credited directly to reserves, in which case the deferred tax is also
recorded within reserves. The carrying amount of deferred tax assets/liabilities
is reviewed at each balance sheet date and is reduced to the extent that it is
no longer probable that sufficient taxable profit will be available to allow the
related tax benefit to be utilised.

Earnings per share

The calculation of earnings per share for the first half of 2006 is based on
earnings of HK$6,190 million (HK$6,045 million for the first half of 2005) and
on the weighted average number of ordinary shares in issue of 1,911,842,736
shares (unchanged from the first half of 2005).

Dividends per share

                  Half-year ended      Half-year ended       Half-year ended
                          30Jun06              30Jun05               31Dec05
                   HK$       HK$m        HK$     HK$m          HK$      HK$m
             per share             per share             per share

First interim     1.10      2,103       1.10    2,103            -         -
Second interim    1.10      2,103       1.10    2,103            -         -
Third interim        -          -          -        -         1.10     2,103
Fourth interim       -          -          -        -         1.90     3,633
                  2.20      4,206       2.20    4,206         3.00     5,736

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 cost
incurred by the respective customer groups and apportionment of management
overheads. Rental charges at market rate 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 interbank and capital market
activities 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.
Pre-tax profit contributed by the customer groups for the periods as indicated
is set out in the table below. More customer group analysis and discussions are
set out in the 'Customer group performance' section on pages 7 to 12.

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

Half-year ended 30Jun06

Profit before tax          3,897           1,096           271               506      1,743             -        7,513
Share of pre-tax 
  profit                    51.9%           14.6%          3.6%              6.7%      23.2%            -        100.0%

Half-year ended 30Jun05

Profit before tax          3,970             437           171               784      1,700             -        7,062
Share of pre-tax
  profit                    56.2%            6.2%          2.4%             11.1%      24.1%            -        100.0%

Half-year ended 31Dec05

Profit before tax          3,716             641           336               288      1,315             -        6,296
Share of pre-tax 
  profit                    59.0%           10.2%          5.3%              4.6%      20.9%            -        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.

                                                     Mainland
Figures in HK$m                 Hong Kong Americas  and other       Total
                                                      
Half-year ended 30Jun06

Total operating income             11,666      573        157      12,396
Profit before tax                   6,668      558        287       7,513
Capital expenditure incurred          130        -         12         142

At 30Jun06

Total assets                      539,776   63,216     25,297     628,289
Total liabilities                 567,193    6,782      9,316     583,291
Contingent liabilities and
  commitments                     146,988        -      9,197     156,185

Half-year ended 30Jun05

Total operating income              9,441      962         96      10,499
Profit before tax                   5,877      947        238       7,062
Capital expenditure incurred           81        -         16          97

At 30Jun05

Total assets                      487,581   64,811     19,841     572,233
Total liabilities                 512,998   10,095      6,709     529,802
Contingent liabilities 
  and commitments                 138,219        -      3,429     141,648

                                                     Mainland
Figures in HK$m                 Hong Kong Americas  and other       Total

Half-year ended 31Dec05

Total operating income             11,936      682        129      12,747
Profit before tax                   5,376      667        253       6,296
Capital expenditure incurred          125        -          9         134

At 31Dec05

Total assets                      497,406   60,845     22,569     580,820
Total liabilities                 520,260    9,395      7,435     537,090
Contingent liabilities 
  and commitments                 137,536        -      3,973     141,509


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 'Repayable on
demand'.

                                      Three
                                     months          Three             One
                    Repayable       or less         months            year          Over
                           on       but not             to              to          five
Figures in HK$m     on demand     on demand       one year       five year         years        Undated        Total

Assets
Cash and balances
  with banks and
  other financial
  institutions         13,763             -              -               -             -              -       13,763
Placings with
  and advances to
  banks and other
  financial 
  institutions          9,146        69,689          3,628             100             -              -       82,563
Trading assets         14,543             -              -               -             -              -       14,543
Financial assets
  designated at 
  fair value                -            41            298           1,460         2,679          1,951        6,429
Derivative 
  financial
  instruments           1,631            30             71             277           152              -        2,161
Advances to
  customers            14,922        29,248         38,550          88,183        95,602              -      266,505
Financial
  investments              58        22,001         36,506         138,026        14,013          1,351      211,955
Investments
  in associates             -             -              -               -             -          3,267        3,267
Investment
  properties                -             -              -               -             -          3,161        3,161
Premises, plant 
  and equipment             -             -              -               -             -          6,553        6,553
Interest in
leasehold land
  held for own
  use under
  operating lease           -             -              -               -             -            587          587
Intangible assets           -             -              -               -             -          1,857        1,857
Other assets            5,180         7,398          1,001             418             4            944       14,945

At 30Jun06             59,243       128,407         80,054         228,464       112,450         19,671      628,289

At 30Jun05             40,599       111,720         76,324         222,444       102,633         18,513      572,233

At 31Dec05             57,790        97,970         74,642         220,176       110,087         20,155      580,820
                           
                                      Three
                                     months          Three             One
                    Repayable       or less         months            year          Over                              
                           on       but not             to              to          five                              
Figures in HK$m     on demand     on demand       one year       five year         years        Undated        Total


Liabilities
Current, savings
  and other 
  deposit accounts    250,973       188,149          8,042             933             -              -      448,097
Deposits from banks     9,999        11,764            368               -             -              -       22,131
Trading liabilities    61,630             -              -               -             -              -       61,630
Financial
  liabilities
  designated at
  fair value                -             -              -               -           995            (45)         950
Derivative
  financial
  instruments           1,733            21            197             303             2              -        2,256
Certificates
  of deposit and
  other debt
  securities in
  issue                     -            79            755           7,478             -              -        8,312
Other liabilities       5,231         4,554            571              42           106            317       10,821
Liabilities to
  customers under
  investment
  contracts                -             -               -               -             -            544          544
Liabilities to
  customers under
  insurance
  contracts                -             -               -               -             -         18,877       18,877
Deferred tax
and current tax
  liabilities              1             8           1,411               -             -          1,248        2,668
Subordinated
  liabilities              -             -               -               -         7,005              -        7,005
At 30Jun06           329,567       204,575          11,344           8,756         8,108         20,941      583,291

At 30Jun05           273,285       213,445          13,321          12,571         3,518         13,662      529,802

At 31Dec05           289,758       207,494           8,478           9,148         4,690         17,522      537,090


Cash and balances with banks and other financial institutions

Figures in HK$m         At 30Jun06    At 30Jun05          At 31Dec05

Cash in hand                 5,229         4,172               4,772
Balances with central
  banks                        323           405                 303
Balances with banks
  and other financial 
  institutions               8,211         3,239               4,126
                            13,763         7,816               9,201


Placings with and advances to banks and other financial institutions

Figures in HK$m                  At 30Jun06    At 30Jun05      At 31Dec05

Placings with and advances
  to banks and other
  financial institutions
  maturing within one month          61,425        43,150          54,338
Placings with and advances
  to banks and other 
  financial institutions 
  maturing after one month           21,138        22,832          14,948
                                     82,563        65,982          69,286

Trading assets

Figures in HK$m                  At 30Jun06    At 30Jun05      At 31Dec05

Treasury bills                        7,966         1,843           2,594
Certificates of deposit                 294         1,017             538
Other debt securities                 6,269        10,920           9,440
Debt securities                      14,529        13,780          12,572
Equity shares                            14            32              28
                                     14,543        13,812          12,600

Debt securities:
- listed in Hong Kong                   874           908             767
- listed outside Hong Kong              164             -               -
                                      1,038           908             767
- unlisted                           13,491        12,872          11,805
                                     14,529        13,780          12,572
Equity shares:
- listed in Hong Kong                    14            14              17
- unlisted                                -            18              11
                                         14            32              28
                                     14,543        13,812          12,600

Debt securities:
Issued by public bodies:
- central governments and
  central banks                      10,188         4,679           5,625
- other public sector entities        1,163         1,491           1,489
                                     11,351         6,170           7,114
Issued by other bodies:
- banks and other financial
  institutions                        1,945         4,281           2,836
- corporate entities                  1,233         3,329           2,622
                                      3,178         7,610           5,458
Equity shares:
Issued by corporate entities             14            32              28
                                     14,543        13,812          12,600

Financial assets designated at fair value

Figures in HK$m                   At 30Jun06       At 30Jun05       At 31Dec05

Certificates of deposit                  234              190              194
Other debt securities                  3,906            2,392            4,075
Debt securities                        4,140            2,582            4,269
Equity shares                          2,289            1,161            1,758
                                       6,429            3,743            6,027

Debt securities:
- listed in Hong Kong                    101              106              100
- listed outside Hong Kong                30               20               22
                                         131              126              122
- unlisted                             4,009            2,456            4,147
                                       4,140            2,582            4,269
Equity shares:
- listed in Hong Kong                    918              576              732
- listed outside Hong Kong             1,069              538              979
                                       1,987            1,114            1,711
- unlisted                               302               47               47
                                       2,289            1,161            1,758
                                       6,429            3,743            6,027

Debt securities:
Issued by public bodies:
- central governments and
  central banks                          846              875              865
- other public sector
  entities                               287              420              295
                                       1,133            1,295            1,160
Issued by other bodies:
- banks and other
  financial institutions               2,888            1,140            2,937
- corporate entities                     119              147              172
                                       3,007            1,287            3,109
Equity shares:
Issued by corporate
  entities                             2,289            1,161            1,758
                                       6,429            3,743            6,027

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 the life insurance funds designated at fair
value for backing policyholder liabilities.


Advances to customers

Figures in HK$m               At 30Jun06       At 30Jun05        At 31Dec05

Gross advances to customers      267,393          261,713           261,714

Loan impairment allowances:
- individually assessed             (377)            (733)             (524)
- collectively assessed             (511)            (468)             (510)
                                 266,505          260,512           260,680

Included in advances to
customers are:
- trade bills                      3,577            3,015             3,024
- loan impairment allowances         (15)             (12)              (14)
                                   3,562            3,003             3,010

Loan impairment allowances against advances to customers

                             Individually      Collectively
Figures in HK$m                  assessed          assessed        Total

At 01Jan06                            524               510        1,034
Amounts written off                  (119)              (81)        (200)
Recoveries of advances
  written off in 
  previous years                       15                19           34
New impairment allowances
  charged to income
  statement                            83                82          165
Impairment allowances
  released to 
  income statement                   (112)              (19)        (131)
Unwind of discount of 
  loan impairment
  allowances                          (14)                -          (14)
At30Jun06                             377               511          888

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

                             At 30Jun06       At 30Jun05       At 31Dec05
                                      %                %                %

Loan impairment
  allowances
- individually assessed            0.14             0.28             0.20
- collectively assessed            0.19             0.18             0.19
Total loan impairment              0.33             0.46             0.39
  allowances

Total loan impairment allowances as a percentage of gross advances to customers
stood at 0.33 per cent at 30 June 2006, compared with 0.39 per cent at the
previous year-end. Individually assessed allowances as a percentage of gross
advances fell to 0.14 per cent, reflecting recoveries from doubtful accounts and
writing off of irrecoverable balances against impairment allowances.





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