HK&S Bkng Corp Results (2/2)

HSBC Holdings PLC
05 August 2002



13. Analysis of advances to customers based on categories used by the HSBC Group

The following analysis of advances to customers is based on categories used by
the HSBC Group, including The Hongkong and Shanghai Banking Corporation Limited
and its subsidiary companies, to manage associated risks.

                                                                       Rest of          Americas/
Figures in HK$m                                   Hong Kong       Asia-Pacific             Europe              Total

At 30 June 2002

Residential mortgages                               185,393             40,285                  -            225,678

Hong Kong SAR Government's Home
  Ownership Scheme and Private Sector
  Participation Scheme and Tenants
  Purchase Scheme mortgages                          59,135                  -                  -             59,135

Other personal                                       41,167             19,693                  9             60,869
Total personal                                      285,695             59,978                  9            345,682

Commercial, industrial and
  international trade                                78,735             58,747                  -            137,482

Commercial real estate                               64,527             16,236                  4             80,767

Other property-related lending                       39,236              7,892                  -             47,128

Government                                            4,914              4,192                  -              9,106

Other commercial                                     51,397             29,587                  -             80,984
Total corporate and commercial                      238,809            116,654                  4            355,467

Non-bank financial institutions                      16,458              5,279                  -             21,737

Settlement accounts                                   4,903                829                  -              5,732
Total financial                                      21,361              6,108                  -             27,469

Gross advances to customers                         545,865            182,740                 13            728,618

Suspended interest                                   (1,290 )             (744 )                -             (2,034 )

Gross advances to customers
  net of suspended interest                         544,575            181,996                 13            726,584

Provisions for bad and doubtful debts                (9,918 )           (8,377 )               (4 )          (18,299 )

Net advances to customers                           534,657            173,619                  9            708,285

                                                                       Rest of          Americas/
Figures in HK$m                                  Hong Kong        Asia-Pacific             Europe              Total

At 30 June 2001

Residential mortgages                              175,580              25,409                  -            200,989

Hong Kong SAR Government's Home
  Ownership Scheme and Private Sector
  Participation Scheme and Tenants
  Purchase Scheme mortgages                         62,885                   -                  -             62,885

Other personal                                      37,019              13,616                  8             50,643
Total personal                                     275,484              39,025                  8            314,517

Commercial, industrial and
  international trade                               82,404              58,031                  -            140,435

Commercial real estate                              64,384              16,151                  6             80,541

Other property-related lending                      30,642               6,589                  -             37,231

Government                                             678               2,604                  -              3,282

Other commercial                                    54,208              28,889                  -             83,097
Total corporate and commercial                     232,316             112,264                  6            344,586

Non-bank financial institutions                     12,237               4,344                  -             16,581

Settlement accounts                                  2,743                 475                  -              3,218
Total financial                                     14,980               4,819                  -             19,799

Gross advances to customers                        522,780             156,108                 14            678,902

Suspended interest                                  (2,553 )              (971 )                -             (3,524 )

Gross advances to customers
  net of suspended interest                        520,227             155,137                 14            675,378

Provisions for bad and doubtful debts              (13,188 )            (9,787 )               (6 )          (22,981 )

Net advances to customers                          507,039             145,350                  8            652,397

                                                                       Rest of          Americas/
Figures in HK$m                                  Hong Kong        Asia-Pacific             Europe              Total

At 31 December 2001

Residential mortgages                              179,919              30,274                  -            210,193

Hong Kong SAR Government's Home
  Ownership Scheme and Private Sector
  Participation Scheme and Tenants
  Purchase Scheme mortgages                         63,335                   -                  -             63,335

Other personal                                      37,536              16,363                  7             53,906
Total personal                                     280,790              46,637                  7            327,434

Commercial, industrial and
  international trade                               75,314              59,517                  -            134,831

Commercial real estate                              66,051              16,830                  4             82,885

Other property-related lending                      36,725               6,993                  -             43,718

Government                                           4,233               4,269                  -              8,502

Other commercial                                    49,502              31,728                  -             81,230
Total corporate and commercial                     231,825             119,337                  4            351,166

Non-bank financial institutions                     12,051               4,954                  -             17,005

Settlement accounts                                  1,547                 550                  -              2,097
Total financial                                     13,598               5,504                  -             19,102

Gross advances to customers                        526,213             171,478                 11            697,702

Suspended interest                                  (1,673 )              (952 )                -             (2,625 )

Gross advances to customers
  net of suspended interest                        524,540             170,526                 11            695,077

Provisions for bad and doubtful debts              (10,946 )            (9,570 )               (4 )          (20,520 )

Net advances to customers                          513,594             160,956                  7            674,557


Advances to customers increased by HK$33.7 billion, or 5.0 per cent, since
December 2001.

Advances in Hong Kong grew by HK$21.1 billion, or 4.1 per cent, since the end of
2001 against a background of intense mortgage price competition and subdued loan
demand for corporate lending. In the bank in Hong Kong, advances to customers
grew by HK$17.4 billion, or 6.0 per cent, since December 2001, with increases in
residential mortgages and other personal lending, trade finance, settlement
accounts and reverse repurchase transactions with treasury customers. There was
a reduction in lending under the Government Home Ownership Scheme ('GHOS')
following the suspension in the second half of 2001 of the sale of new homes
under this scheme. Advances in Hang Seng Bank grew by 1.5 per cent since
December 2001, with an increase in corporate and commercial lending, reflecting
efforts to develop business with middle market and smaller enterprises and also
increased working capital financing provided to large corporations in the public
utility and property development sectors. Increases in residential mortgages and
other personal lending were more than offset by a reduction in lending under
GHOS. The market share of loans for use in Hong Kong for the HSBC Group as a
whole was up approximately two per cent over the last 12 months including gains
in residential mortgages, credit cards and other consumer lending, although the
market share of GHOS was lower.

In the rest of the Asia-Pacific region, advances to customers increased by
HK$12.7 billion, or 7.9 per cent, since the end of 2001. At constant exchange
rates the increase was HK$2.7 billion or 1.7 per cent. Excluding the effect of
the weaker Hong Kong dollar, there has been an increase of HK$8.8 billion, or
18.8 per cent, in personal lending as a result of the growth in our Personal
Financial Services business in a number of countries during the first half of
this year. Personal lending has increased by 44.8 per cent since June 2001 at
constant exchange rates. Over the last 12 months, mortgage portfolios have grown
by 47.1 per cent with a marked increase in HSBC Bank Australia reflecting the
acquisition of the former NRMA Building Society in November 2001, and increases
in the bank in Taiwan, Singapore, New Zealand, Korea and India. Card lending has
increased by 41.8 per cent since the end of the first half of 2001 with
increases in HSBC Bank Australia, and in the bank in Taiwan and Indonesia. Other
personal lending increased by 38.2 per cent mainly in HSBC Bank Australia and in
the bank in Singapore. Corporate and commercial lending continued to decline
reflecting subdued loan demand in view of the uncertainties in the regional
economies, with reductions mainly in the bank in Singapore.

Total personal lending represented 47.4 per cent of total gross advances to
customers at 30 June 2002 compared with 46.9 per cent at 31 December 2001 and
46.3 per cent at 30 June 2001.

14. Analysis of advances to customers by geographical area according to the
location of counterparties, after risk transfer


                                                                       Rest of       Americas/
Figures in HK$m                                   Hong Kong       Asia-Pacific          Europe       Others        Total

At 30 June 2002

Gross advances to customers, net of
  suspended interest                                501,864            166,079          55,545        3,096      726,584
Overdue advances to customers                         8,678              6,856           1,026           14       16,574
Non-performing advances to customers                 12,774             11,083           2,440           16       26,313

At 30 June 2001

Gross advances to customers, net of
  suspended interest                                482,982            145,865          43,347        3,184      675,378
Overdue advances to customers                        12,577              8,409           1,961           40       22,987
Non-performing advances to customers                 15,933             13,818           2,673           40       32,464

At 31 December 2001

Gross advances to customers, net of
  suspended interest                                488,222            157,329          46,752        2,774      695,077
Overdue advances to customers                        11,059              7,649           1,467            1       20,176
Non-performing advances to customers                 13,675             12,309           3,115            -       29,099

15. Analysis of advances to customers by industry sector based on categories and
definitions used by the Hong Kong Monetary Authority ('HKMA')

The following analysis of advances to customers is based on the categories
contained in the 'Quarterly Analysis of Loans and Advances and Provisions'
return required to be submitted to the HKMA by branches of the bank and by
banking subsidiary companies in Hong Kong and is shown net of suspended
interest.

Figures in HK$m                                             At 30Jun02              At 30Jun01             At 31Dec01

Gross advances to customers for use
  in Hong Kong

Industrial, commercial and financial
Property development                                            43,260                  39,602                 43,770
Property investment                                             68,834                  64,085                 67,588
Financial concerns                                              10,456                  10,532                 10,485
Stockbrokers                                                       773                     513                    445
Wholesale and retail trade                                      24,881                  23,533                 22,231
Manufacturing                                                    9,048                   9,463                  9,182
Transport and transport equipment                               29,561                  28,859                 29,950
Others                                                          48,730                  42,470                 37,542
                                                               235,543                 219,057                221,193

Individuals
Advances for the purchase of flats under the
  Hong Kong SAR Government's Home
  Ownership Scheme and Private Sector
  Participation and Tenants Purchase Scheme                     59,130                  62,885                 63,335
Advances for the purchase of other
  residential properties                                       169,236                 158,375                163,467
Credit card advances                                            17,956                  15,877                 17,051
Others                                                          21,934                  20,418                 19,939
                                                               268,256                 257,555                263,792



Figures in HK$m                                           At 30Jun02              At 30Jun01               At 31Dec01

Gross advances to customers for use
  in Hong Kong                                              503,799                 476,612                  484,985

Trade finance                                                34,639                  34,827                   30,910

Gross advances to customers for use outside
  Hong Kong made by branches of the bank
  and subsidiary companies in Hong Kong                       6,137                   8,788                    8,645

Gross advances to customers made by
  branches of the bank and subsidiary
  companies in Hong Kong                                    544,575                 520,227                  524,540

Gross advances to customers made by
  branches of the bank and subsidiary
  companies outside Hong Kong
- rest of Asia-Pacific                                      181,996                 155,137                  170,526
- Americas/Europe                                                13                      14                       11

Gross advances to customers net of
  suspended interest                                        726,584                 675,378                  695,077


An explanation of the significant differences between the categories of advances
and their definitions used by the HSBC Group and those used by the HKMA is given
on pages 15-16 of the Annual Report and Accounts for 2001.

16. Cross-border exposure

The country risk exposures shown below are prepared in accordance with the Bank
of England Country Exposure Report (Form C1) and the HKMA Return of Cross-Border
Claims (MA(BS)9) guidelines.

Cross-border claims are on-balance sheet exposures to counterparties based on
the location of the counterparties after taking into account the transfer of
risk.

The tables show claims on individual countries or areas, after risk transfer,
amounting to 10 per cent or more of the aggregate cross-border claims.

Cross-border risk is controlled centrally through a well-developed system of
country limits and is frequently reviewed to avoid concentration of transfer,
economic or political risk.

                                                 Banks and
                                                     other             Public
                                                 financial             sector
Figures in HK$m                               institutions           entities              Other              Total

At 30 June 2002

Americas
United States                                       19,527             46,078             22,558             88,163
Other                                               31,105             14,590             19,022             64,717
                                                    50,632             60,668             41,580            152,880

Europe
Germany                                             72,687              1,873              3,909             78,469
Other                                              173,599              3,519             42,491            219,609
                                                   246,286              5,392             46,400            298,078

Asia-Pacific excluding Hong Kong                    83,810             52,699             54,183            190,692

At 31 December 2001

Americas
United States                                       21,656             35,497             24,762             81,915
Other                                               37,105             12,202             20,416             69,723
                                                    58,761             47,699             45,178            151,638

Europe
Germany                                             83,839              1,408              1,918             87,165
Other                                              212,484              3,411             31,272            247,167
                                                   296,323              4,819             33,190            334,332

Asia-Pacific excluding Hong Kong                    87,673             45,633             55,276            188,582


17. Current, savings and other deposits

Figures in HK$m                                                   At 30Jun02            At 30Jun01            At 31Dec01

Customer accounts                                                  1,345,567             1,292,634             1,319,968
Certificates of deposit in issue                                      63,000                44,818                54,329
Other debt securities in issue                                        10,509                 4,219                 3,822

                                                                   1,419,076             1,341,671             1,378,119

In Hong Kong, customer accounts decreased by HK$7.2 billion, or 0.7 per cent,
since the end of 2001 reflecting the deflationary economy. The HSBC Group in
Hong Kong has maintained its overall market share of total Hong Kong dollar and
foreign currency deposits in the first half of this year. There was some
reduction in personal account balances as customers moved funds to investment
products marketed by both the bank and Hang Seng Bank. There was a movement of
funds from time deposits to current and savings accounts in both banks as
customers preferred liquidity in an uncertain and low interest rate environment.

In the rest of the Asia-Pacific region, customer accounts increased by HK$33.3
billion, or 14.5 per cent, since the end of 2001. At constant exchange rates the
increase was HK$19.5 billion or 8.5 per cent. Customer deposits from commercial
and corporate banking businesses increased by 20.4 per cent at constant exchange
rates, with increases in the bank in Japan, Taiwan, Korea, China, Singapore and
India. There has been encouraging growth in personal deposits in a number of
countries since the end of 2001.

The increase in certificates of deposit in issue compared with December 2001 was
mainly in the bank in Hong Kong and related to the capital guaranteed funds
launched by the group.

The group's advances-to-deposits ratio improved to 49.9 per cent at 30 June 2002
from 48.9 per cent at 31 December 2001 reflecting advances to customers
increasing at a faster rate than the increase in customer deposits.

18. Reserves

Figures in HK$m                                                  At 30Jun02             At 30Jun02            At 31Dec01

Share premium account                                                 3,895                  3,893                 3,892
Revaluation reserves
- Premises revaluation reserve                                        9,905                 12,316                10,011
- Investment properties revaluation reserve                           2,138                  2,325                 2,138
- Long-term equity investments revaluation
  reserve                                                             1,815                  2,404                 2,171
                                                                     13,858                 17,045                14,320
Retained profits                                                     24,527                 46,239                19,980
                                                                     42,280                 67,177                38,192

19. Contingent liabilities, commitments and derivatives

                                                                                          Credit               Risk-
                                                                   Contract           equivalent            weighted
Figures in HK$m                                                      amount               amount              amount

At 30 June 2002

Contingent liabilities
- Acceptances and endorsements                                       13,429                2,906               2,811
- Guarantees                                                         88,242               75,771              36,687
- Other                                                                  64                   64                  64
                                                                    101,735               78,741              39,562
Commitments
- Documentary credits and short-term
  trade-related transactions                                         43,606               10,486               8,570
- Forward asset purchases and forward forward
  deposits placed                                                         5                    5                   5
- Undrawn note issuing and revolving
  underwriting facilities                                                 -                    -                   -
- Undrawn formal standby facilities, credit lines
  and other commitments to lend:
  - one year and over                                                45,557               22,778              21,408
  - under one year                                                  482,535                    -                   -
                                                                    571,703               33,269              29,983
Exchange rate contracts
- Spot and forward foreign exchange                               1,929,757               41,602               9,851
- Other exchange rate contracts                                     419,708               18,799               5,512
                                                                  2,349,465               60,401              15,363
Interest rate contracts
- Interest rate swaps                                             1,566,882               30,970               7,518
- Other interest rate contracts                                     603,692                1,089                 302
                                                                  2,170,574               32,059               7,820

Other derivative contracts                                            7,006                2,489               1,253

Impact of counterparty netting agreements on
  derivatives' exposure                                                   -              (40,253 )            (8,194 )

                                                                                          Credit               Risk-
                                                                   Contract           equivalent            weighted
Figures in HK$m                                                      amount               amount              amount

At 30 June 2001

Contingent liabilities
- Acceptances and endorsements                                       12,359                2,496               2,393
- Guarantees                                                         57,526               47,499              32,484
- Other                                                                  25                   25                  25
                                                                     69,910               50,020              34,902
Commitments
- Documentary credits and short-term
  trade-related transactions                                         41,696                9,237               8,150
- Forward asset purchases and forward forward
  deposits placed                                                     1,055                1,055                 195
- Undrawn note issuing and revolving
  underwriting facilities                                               546                  273                 273
- Undrawn formal standby facilities, credit lines
  and other commitments to lend:
  - one year and over                                                45,723               22,862              21,650
  - under one year                                                  451,539                    -                   -
                                                                    540,559               33,427              30,268
Exchange rate contracts
- Spot and forward foreign exchange                               2,103,937               36,860               8,511
- Other exchange rate contracts                                     256,237               15,201               4,435
                                                                  2,360,174               52,061              12,946
Interest rate contracts
- Interest rate swaps                                             1,166,779               20,367               4,861
- Other interest rate contracts                                     487,789                  553                 138
                                                                  1,654,568               20,920               4,999

Other derivative contracts                                              783                   90                  56

Impact of counterparty netting agreements on
  derivatives' exposure                                                   -              (21,308 )            (4,435 )

                                                                                          Credit               Risk-
                                                                   Contract           equivalent            weighted
Figures in HK$m                                                      amount               amount              amount

At 31 December 2001

Contingent liabilities
- Acceptances and endorsements                                       11,148                2,254               2,161
- Guarantees                                                         72,842               62,022              33,004
- Other                                                                  28                   28                  28
                                                                     84,018               64,304              35,193
Commitments
- Documentary credits and short-term
  trade-related transactions                                         34,348                8,208               6,715
- Forward asset purchases and forward forward
  deposits placed                                                     1,441                1,441                 288
- Undrawn note issuing and revolving
  underwriting facilities                                                 -                    -                   -
- Undrawn formal standby facilities, credit lines
  and other commitments to lend:
  - one year and over                                                49,587               24,793              21,054
  - under one year                                                  461,405                    -                   -
                                                                    546,781               34,442              28,057
Exchange rate contracts
- Spot and forward foreign exchange                               1,899,434               37,157               8,812
- Other exchange rate contracts                                     310,080               19,853               5,670
                                                                  2,209,514               57,010              14,482
Interest rate contracts
- Interest rate swaps                                             1,323,477               26,532               6,303
- Other interest rate contracts                                     544,706                  886                 256
                                                                  1,868,183               27,418               6,559

Other derivative contracts                                            2,277                  804                 264

Impact of counterparty netting agreements on
  derivatives' exposure                                                   -              (27,915 )            (5,844 )

The tables above give the nominal contract amounts, credit equivalent amounts
and risk-weighted amounts of off-balance sheet transactions. The credit
equivalent amounts are calculated for the purposes of deriving the risk-weighted
amounts. These are assessed in accordance with the Third Schedule of the Banking
Ordinance on capital adequacy and depend on the status of the counterparty and
the maturity characteristics. The risk weights used range from 0 per cent to 100
per cent for contingent liabilities and commitments, from 0 per cent to 50 per
cent for exchange rate and interest rate contracts, and from 0 per cent to 100
per cent for other derivative contracts. The group has executed close-out
netting agreements with certain counterparties, which allow for positive and
negative mark-to-market values on different transactions to be offset and
settled by a single payment in the event of default by either party. These have
been taken into account in calculating total risk-weighted amounts.

Contingent liabilities and commitments are credit-related instruments which
include acceptances, letters of credit, guarantees and commitments to extend
credit. The contract amounts represent the amounts at risk should the contract
be fully drawn upon and the client default. Since a significant portion of
guarantees and commitments is expected to expire without being drawn upon, the
total of the contract amounts is not representative of future liquidity
requirements.

Derivatives arise from futures, forward, swap and option transactions undertaken
by the group in the foreign exchange, interest rate and equity markets. The
contract amounts of these instruments indicate the volume of transactions
outstanding at the balance sheet date; they do not represent amounts at risk.

Replacement cost of contracts

Figures in HK$m                                             At 30Jun02             At 30Jun01            At 31Dec01

Exchange rate contracts                                         35,105                 24,632                26,969
Interest rate contracts                                         27,272                 17,544                24,027
Other derivative contracts                                         230                     12                    21
                                                                62,607                 42,188                51,017
Less: netting adjustments                                      (29,354 )              (14,776 )             (19,773 )
                                                                33,253                 27,412                31,244


The replacement cost of contracts represents the mark-to-market assets on all
contracts with a positive value, i.e. an asset to the group. This comprises the
mark-to-market assets on contracts with third parties and fellow subsidiary
companies included in the balance sheet in 'Other assets', and on accrual
accounted contracts which are not marked-to-market in the balance sheet.

Replacement cost is a close approximation of the credit risk for these contracts
as at the balance sheet date. The actual credit risk is measured internally as
the sum of positive mark-to-market values and an estimate for the future
fluctuation risk, using a future risk factor.

The netting adjustments represent amounts where the group has in place legally
enforceable rights of offset with individual counterparties where there is a
right to offset the gross amount of positive mark-to-market assets with any
negative mark-to-market liabilities with the same customer. These offsets are
recognised by the Hong Kong Monetary Authority in the calculation of risk assets
for the capital adequacy ratio.



20. Foreign exchange exposure

The group had the following structural foreign currency exposures which exceeded
10 per cent of the net structural foreign currency exposure in all currencies:

Figures in HK$m                                          Net structural position

At 30 June 2002

Singapore dollar                                                         3,547
United States dollar                                                   (40,271 )

At 30 June 2001

Australian dollar                                                        1,056
Indian rupee                                                             1,841
Korea won                                                                1,662
Philippine peso                                                            762
Singapore dollar                                                         4,551
Thai baht                                                                1,092
Taiwan dollar                                                              545
United States dollar                                                   (14,177 )

At 31 December 2001

United States dollar                                                   (39,680 )

The group's US dollar non-structural foreign currency position exceeded 10 per
cent of the group's net foreign currency non-structural positions in all
currencies and was made up as follows:

                                                                     US$ non-structural position

Figures in HK$m                                            At 30Jun02             At 30Jun01             At 31Dec01

Spot assets                                                   798,264                733,900                809,254
Spot liabilities                                             (729,620 )             (653,852 )             (701,270 )
Forward purchases                                           1,097,335              1,197,895              1,115,011
Forward sales                                              (1,091,666 )           (1,205,733 )           (1,151,384 )
Net options position                                             (377 )                 (261 )                  306
                                                               73,936                 71,949                 71,917

21. Reconciliation of operating profit to cash (used in)/generated from
operations
                                                                           Half-year ended          Half-year ended
Figures in HK$m                                                                    30Jun02                  30Jun01

Operating profit                                                                    16,851                   17,328
Interest on loan capital                                                               398                      529
Depreciation and amortisation                                                        1,030                      998
Provisions for bad and doubtful debts                                                1,280                      595
Advances written off net of recoveries                                              (3,605 )                 (1,775 )
Other provisions for liabilities and charges                                           333                      189
Provisions utilised                                                                   (243 )                    (61 )
Income on long-term investments                                                     (6,003 )                 (7,229 )
Net cash inflow from trading activities                                             10,041                   10,574

Change in treasury bills with original term to maturity
  of more than three months                                                        (12,935 )                 18,698
Change in placings with banks maturing after
  one month                                                                          9,439                   50,294
Change in certificates of deposit with original term to
  maturity of more than three months                                                (9,055 )                 (3,344 )
Change in securities held for dealing purposes                                     (12,362 )                (19,984 )
Change in advances to customers                                                    (31,546 )                  1,501
Change in amounts due from fellow subsidiary
  companies                                                                         (2,000 )                    932
Change in other assets                                                              (8,606 )                 32,433
Change in current, savings and other deposit accounts                               40,957                  (54,031 )
Change in deposits by banks                                                         (5,748 )                  7,374
Change in amounts due to fellow subsidiary companies                                  (459 )                  3,604
Change in amounts due to ultimate holding company                                      107                     (228 )
Change in other liabilities                                                         17,411                    1,691
Exchange adjustments                                                                   893                     (695 )
Cash (used in)/generated from operations                                            (3,863 )                 48,819


22. Analysis of cash and cash equivalents

a. Changes in cash and cash equivalents during the period

                                                                           Half-year ended          Half-year ended
Figures in HK$m                                                                    30Jun02                  30Jun01

Balance at beginning of period                                                     314,206                  399,815
Net cash outflow before the effect of
  foreign exchange movements                                                       (39,597 )                (33,673 )
Effect of foreign exchange movements                                                 5,338                   (6,499 )
Balance at end of period                                                           279,947                  359,643

b. Analysis of balances of cash and cash equivalents as classified in the consolidated balance sheet

                                                                           Half-year ended          Half-year ended
Figures in HK$m                                                                    30Jun02                  30Jun01

Cash in hand and current balances with banks                                        29,434                   21,268
Placings with banks                                                                187,351                  271,475
Treasury bills                                                                      61,844                   64,005
Certificates of deposit                                                              1,318                    2,895
                                                                                   279,947                  359,643

c Analysis of net outflow of cash and cash equivalents in respect of acquisition of and increased
 shareholding in subsidiary companies

                                                                           Half-year ended          Half-year ended
Figures in HK$m                                                                    30Jun02                  30Jun01

Cash consideration                                                                    (183 )                   (391 )
Cash and cash equivalents acquired                                                       7                      219
                                                                                      (176 )                   (172 )

d Analysis of net outflow of cash and cash equivalents in respect of sale of subsidiary
     companies


                                                                           Half-year ended          Half-year ended
Figures in HK$m                                                                    30Jun02                  30Jun01

Sale proceeds                                                                            1                        -
Cash and cash equivalents transferred                                                   (1 )                (23,599 )

                                                                                         -                  (23,599 )


23. Segmental analysis

The allocation of earnings reflects the benefits of shareholders' funds to the
extent that these are actually allocated to businesses in the segment by way of
intra-group capital and funding structures. Common costs are included in
segments on the basis of the actual recharges made. Geographical information has
been classified by the location of the principal operations of the subsidiary
company or, in the case of the bank, by the location of the branch responsible
for reporting the results or advancing the funds. Due to the nature of the group
structure, the analysis of profits shown below includes intra-group items
between geographical regions.

Profit and loss account:
                                                                       Rest of           Americas/
Figures in HK$m                                  Hong Kong        Asia-Pacific              Europe              Total

Half-year ended 30 June 2002

Interest income                                     22,465               7,995                 236             30,696
Interest expense                                    (6,743 )            (4,037 )              (200 )          (10,980 )
Net interest income                                 15,722               3,958                  36             19,716
Dividend income                                         81                   6                   3                 90
Fees and commissions receivable                      5,204               2,107                   2              7,313
Fees and commissions payable                          (731 )              (549 )                (3 )           (1,283 )
Dealing profits                                        266                 900                   -              1,166
Rental income from investment
  properties                                           120                   1                   -                121
Other                                                1,703                 156                   -              1,859
Operating income                                    22,365               6,579                  38             28,982
Operating expenses                                  (7,481 )            (3,449 )               (20 )          (10,950 )
Operating profit before provisions                  14,884               3,130                  18             18,032
Provisions for bad and doubtful debts                 (947 )              (333 )                 -             (1,280 )
Provisions for contingent liabilities
  and commitments                                       32                  67                   -                 99
Operating profit                                    13,969               2,864                  18             16,851
Profit on tangible fixed assets and
  long-term investments                                301                  25                   -                326
Deficits on property revaluation                         -                   -                   -                  -
Share of profits less losses of
  associated companies                                  63                   -                   -                 63
Profit on ordinary activities before tax            14,333               2,889                  18             17,240
Tax on profit on ordinary activities                (1,964 )              (542 )                (4 )           (2,510 )
Profit on ordinary activities after tax             12,369               2,347                  14             14,730
Minority interests                                  (1,976 )                (1 )                 -             (1,977 )
Profit attributable to shareholders                 10,393               2,346                  14             12,753

Profit and loss account:
                                                                       Rest of           Americas/
Figures in HK$m                                  Hong Kong        Asia-Pacific              Europe              Total

Half-year ended 30 June 2001

Interest income                                     40,026               9,859                 343             50,228
Interest expense                                   (24,053 )            (6,375 )              (298 )          (30,726 )
Net interest income                                 15,973               3,484                  45             19,502
Dividend income                                         96                   8                   8                112
Fees and commissions receivable                      4,823               1,825                   9              6,657
Fees and commissions payable                          (746 )              (383 )                (4 )           (1,133 )
Dealing profits                                        935               1,004                  (2 )            1,937
Rental income from investment
  properties                                           129                   1                   -                130
Other                                                1,515                 155                   1              1,671
Operating income                                    22,725               6,094                  57             28,876
Operating expenses                                  (7,678 )            (3,216 )               (23 )          (10,917 )
Operating profit before provisions                  15,047               2,878                  34             17,959
Provisions for bad and doubtful debts                 (686 )                60                  31               (595 )
Provisions for contingent liabilities
  and commitments                                       17                 (53 )                 -                (36 )
Operating profit                                    14,378               2,885                  65             17,328
Profit on tangible fixed assets and
  long-term investments                              1,243                  15                  15              1,273
Deficits on property revaluation                         -                   -                   -                  -
Share of profits less losses of
  associated companies                                  90                   -                   -                 90
Profit on ordinary activities before tax            15,711               2,900                  80             18,691
Tax on profit on ordinary activities                (1,775 )              (602 )                (9 )           (2,386 )
Profit on ordinary activities after tax             13,936               2,298                  71             16,305
Minority interests                                  (2,091 )                 -                   -             (2,091 )
Profit attributable to shareholders                 11,845               2,298                  71             14,214

Profit and loss account:
                                                                       Rest of           Americas/
Figures in HK$m                                  Hong Kong        Asia-Pacific              Europe              Total

Half-year ended 31 December 2001

Interest income                                     28,538               8,794                 258             37,590
Interest expense                                   (12,563 )            (5,037 )              (218 )          (17,818 )
Net interest income                                 15,975               3,757                  40             19,772
Dividend income                                        104                   8                   1                113
Fees and commissions receivable                      5,116               1,928                   5              7,049
Fees and commissions payable                          (702 )              (403 )                (4 )           (1,109 )
Dealing profits                                        487               1,025                   -              1,512
Rental income from investment
  properties                                           130                   1                   -                131
Other                                                1,649                 167                   -              1,816
Operating income                                    22,759               6,483                  42             29,284
Operating expenses                                  (8,246 )            (3,394 )               (18 )          (11,658 )
Operating profit before provisions                  14,513               3,089                  24             17,626
Provisions for bad and doubtful debts                 (845 )              (834 )                17             (1,662 )
Provisions for contingent liabilities
  and commitments                                       32                 (74 )                 -                (42 )
Operating profit                                    13,700               2,181                  41             15,922
Profit on tangible fixed assets and
  long-term investments                                 27                 (11 )                 -                 16
Surplus/(deficits) on property
  revaluation                                            4                 (40 )                 -                (36 )
Share of profits less losses of
  associated companies                                  42                   -                   -                 42
Profit on ordinary activities before tax            13,773               2,130                  41             15,944
Tax on profit on ordinary activities                (1,737 )              (351 )                (5 )           (2,093 )
Profit on ordinary activities after tax             12,036               1,779                  36             13,851
Minority interests                                  (1,832 )                 4                   -             (1,828 )
Profit attributable to shareholders                 10,204               1,783                  36             12,023


Interest income and interest expense for the first half of 2002 include
intra-group interest of HK$1,269 million (first half of 2001: HK$2,455 million;
second half of 2001: HK$1,777 million). Fees and commissions receivable and fees
and commissions payable for the first half of 2002 include intra-group fees of
HK$60 million (first half of 2001: HK$16 million; second half of 2001: HK$56
million). Other operating income and operating expenses for the first half of
2002 include intra-group items of HK$298 million (first half of 2001: HK$260
million; second half of 2001: HK$275 million).

24. Capital adequacy

The table below sets out an analysis of regulatory capital and capital adequacy
ratios for the group.

Figures in HK$m                                             At 30Jun02              At 30Jun01             At 31Dec01

Composition of capital

Tier 1:
Shareholders' funds                                             93,226                  88,435                 83,129
Less: proposed dividends                                        (6,000 )                (5,000 )                    -
  property revaluation reserves                                (12,043 )               (14,641 )              (12,149 )
  long-term equity investments
  revaluation reserve                                           (1,815 )                (2,404 )               (2,171 )
  term preference shares                                        (3,899 )                (3,896 )               (3,896 )
  goodwill                                                        (668 )                  (327 )                 (652 )
Minority interests ^                                            15,595                  15,970                 15,495
Total qualifying tier 1 capital                                 84,396                  78,137                 79,756

Tier 2:
Property revaluation reserves (@70%) ^^                          7,977                   7,977                  7,977
Long-term equity investments revaluation
  reserve (@70%)                                                 1,270                   1,683                  1,520
General provisions                                               4,962                   4,873                  4,939
Perpetual subordinated debt                                     12,285                  12,285                 12,282
Term subordinated debt                                           3,231                   3,375                  3,082
Term preference shares                                           3,899                   3,896                  3,896
Total qualifying tier 2 capital                                 33,624                  34,089                 33,696

Investments in associated companies                             (1,539 )                (1,608 )               (1,566 )
Investments in unconsolidated subsidiary
  companies                                                     (2,463 )                (2,212 )               (2,200 )
Investments in other banks                                        (498 )                  (600 )                 (515 )
Total capital                                                  113,520                 107,806                109,171

Risk-weighted assets                                           866,638                 819,198                836,946


^ After deduction of minority interests in unconsolidated subsidiary
companies.

^^ Capped at 31 December 1998 amount.

The group's capital adequacy ratios adjusted for market risks calculated in
accordance with the Hong Kong Monetary Authority Guideline on 'Maintenance of
Adequate Capital Against Market Risks' are as follows:

                                                            At 30Jun02              at 30Jun01             At 31Dec01

Total capital                                                     13.1 %                  13.2 %                 13.0  %

Tier 1 capital                                                     9.7 %                   9.5 %                  9.5  %

The group's capital adequacy ratios calculated in accordance with the provisions of the Third
Schedule of the Banking Ordinance which does not take into account market risk are
as follows:

Total capital                                                     12.8 %                  13.1 %                 12.8  %

Tier 1 capital                                                     9.5 %                   9.5 %                  9.3  %


25. Liquidity ratio

The Banking Ordinance requires banks operating in Hong Kong to maintain a
minimum liquidity ratio, calculated in accordance with the provisions of the
Fourth Schedule of the Banking Ordinance, of 25 per cent. This requirement
applies separately to the Hong Kong branches of the bank and to those subsidiary
companies which are Authorised Institutions under the Banking Ordinance in Hong
Kong.
                                                    Half-year ended       Half-year ended        Half-year ended
                                                            30Jun02               30Jun01                31Dec01

The average liquidity ratio for the
  period was as follows:

Hong Kong branches of the bank                             50.8 %                54.6 %                  54.1 %


26. Accounting policies

The accounting policies adopted are consistent with those described in the
Annual Report and Accounts for 2001 except for the accounting and disclosure for
employee benefits which have been amended in accordance with Hong Kong Statement
of Standard Accounting Practice 34 ('HK SSAP 34') on Employee Benefits.

In prior years, contributions to defined benefit schemes were made in accordance
with the advice of qualified actuaries so as to recognise the cost of retirement
benefits on a systematic basis over the employees' service lives and were
charged to the profit and loss account for the year. Following the
implementation of HK SSAP 34, the retirement benefit cost of defined benefit
schemes charged to the current period profit and loss account is determined by
calculating the current service cost, interest cost and expected return on
scheme assets in accordance with a set of actuarial assumptions and taking into
account the amount of actuarial gains or losses required to be recognised. In
addition, in accordance with HK SSAP 34, the transitional assets and liabilities
in respect of defined benefit schemes as of 1 January 2002, calculated by
estimating the amount of future benefit that the employees have earned in return
for their service in the prior periods, discounted to present value, and
deducting the fair value of the scheme assets, have been recognised through a
prior year adjustment.

The effect of the above change in accounting policy was to increase 'Retained
profits brought forward' by HK$576 million, being the net amount of transitional
assets and liabilities at 1 January 2002, increase 'Other assets' by HK$757
million, increase 'Other liabilities' by HK$234 million, and decrease 'Minority
interests' by HK$68 million at 30 June 2002.

27. Comparative figures

Certain comparative figures have been reclassified to conform with the current
period's presentation.

28. Statutory accounts

The information in this news release is not audited and does not constitute
statutory accounts.

Certain financial information in this news release is extracted from the
statutory accounts for the year ended 31 December 2001 which have been delivered
to the Registrar of Companies and the Hong Kong Monetary Authority. The Auditors
expressed an unqualified opinion on those statutory accounts in their report
dated 4 March 2002. The Annual Report and Accounts for the year ended 31
December 2001, which include the statutory accounts, can be obtained on request
from Group Public Affairs, The Hongkong and Shanghai Banking Corporation
Limited, 1 Queen's Road Central, Hong Kong, and may be viewed on our website:
www.hsbc.com.

29. Ultimate holding company

The Hongkong and Shanghai Banking Corporation Limited is an indirectly-held,
wholly-owned subsidiary of HSBC Holdings plc.

30. Statement of compliance

The information in this news release for the half-year ended 30 June 2002
complies with the Hong Kong Statement of Standard Accounting Practice 25 on
Interim Financial Reporting and the Hong Kong Monetary Authority's
recommendations on Interim Financial Disclosure by Authorised Institutions
Incorporated in Hong Kong.




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