No2 HSBL Final Results (1/2)

HSBC Holdings PLC
4 March 2002


PART 1

             THE HONGKONG AND SHANGHAI BANKING CORPORATION LIMITED

                     2001 CONSOLIDATED RESULTS - HIGHLIGHTS



* Operating profit before provisions up 2.9 per cent to HK$35,585 million
(HK$34,586 million in 2000).



* Pre-tax profit of HK$34,635 million in line with 2000 (HK$34,636 million in
2000).



* Attributable profit up 1.0 per cent to HK$26,237 million (HK$25,965 million in
2000).



* Return on average shareholders' funds of 32.2 per cent (31.8 per cent in
2000).



* Assets down 1.1 per cent to HK$1,742.7 billion (HK$1,762.0 billion at the end
of 2000).



* Total capital ratio of 13.0 per cent; tier 1 capital ratio of 9.5 per cent
(13.2 per cent and 9.4 per cent at 31 December 2000).



* Cost:income ratio of 38.2 per cent (37.2 per cent for 2000).

Comment by David Eldon, Chairman

When announcing our results for the financial year 2000 I suggested that the
year ahead would be challenging. Our concerns have proved well founded.
Successive interest rate cuts have failed to produce an upturn in the Hong Kong
economy. Despite these adverse conditions we have delivered results that are in
line with last year.

In 2001 we capitalised on our strong balance sheet to achieve a significant
increase in treasury income. We continued to implement our wealth management
strategy, growing our cards in issue by 890,000 in the course of the year. We
successfully launched innovative capital guaranteed funds with total sales of
over US$2.5 billion during the year. Despite continuing subdued demand for
lending in Hong Kong, we have increased our overall market share.

In spite of the prevailing economic pressures, we continued to grow our personal
banking business in the region with 13 new branches opened and three
acquisitions outside Hong Kong. We invested more in our front line customer
support and in the MPF business in Hong Kong, and moved more of our back office
activities to the lower cost processing centre in mainland China.

Looking ahead, conditions will continue to be challenging. Loan demand is likely
to remain subdued. Credit quality in the personal banking sector gives some
cause for concern. The regional outlook depends to a considerable extent on the
prospects for the United States economy. However, our traditional strengths of
prudent cost management, a robust balance sheet and a focus on customer needs
will ensure we are well positioned to take every advantage of the opportunities
the markets may offer.

Financial Overview

Financial Highlights
Figures in HK$m                                                         2001                        2000

Net interest income                                                   39,274                      37,640
Other operating income                                                18,351                      17,399
Operating expenses                                                   (22,040 )                   (20,453 )
Bad and doubtful debts                                                (2,257 )                    (1,355 )
Contingent liabilities and other commitments                             (78 )                       (89 )
Other                                                                  1,385                       1,494
Profit before tax                                                     34,635                      34,636

Attributable profit                                                   26,237                      25,965

Key ratios

Cost:income ratio                                                       38.2 %                      37.2 %

Net interest margin                                                     2.57 %                      2.55 %

Return on average shareholders' funds (equity)                          32.2 %                      31.8 %

                                                                  At 31Dec01                  At 31Dec00

Advances to customers                                                674,557                     652,503
Total assets                                                       1,742,741                   1,761,970
Current, savings and other deposit accounts                        1,378,119                   1,395,702
Shareholders' funds                                                   83,129                      90,812

Staff numbers (full-time equivalent)                                  40,108                      37,855

Capital ratios
- Total capital                                                         13.0 %                      13.2 %
- Tier 1 capital                                                         9.5 %                       9.4 %

Attributable profit reported by The Hongkong and Shanghai Banking Corporation
Limited ('the bank') and its subsidiary and associated companies ('the group')
increased by HK$272 million, or 1.0 per cent, to HK$26,237 million in 2001.
Operating profit before provisions increased by HK$999 million, or 2.9 per cent,
to HK$35,585 million.

Net interest income increased by HK$1,634 million, or 4.3 per cent, to HK$39,274
million despite continued pressures on mortgage spreads in Hong Kong and subdued
corporate loan demand. Net interest income from personal banking grew by 4.1 per
cent. There was an increase in cards in issue resulting in higher income and
balances, while income growth from foreign currency customer deposits reflected
wider spreads in the bank in Hong Kong. In the rest of the Asia-Pacific region,
strong growth in higher yielding personal lending led to increases in net
interest income in a number of countries including Taiwan, Korea, the
Philippines, Brunei, Australia, India and Indonesia, as the regional personal
banking business continued to expand. There was a very strong performance by the
treasury operations in the bank in Hong Kong, Singapore and Japan, and in Hang
Seng Bank, where net interest income grew significantly as accrual book
portfolios were positioned to benefit from the downward trending interest rate
environment. This was partly offset by lower income from commercial banking
mainly due to lower spreads on Hong Kong dollar savings and time deposits.
Corporate banking net interest income was also lower as excess liquidity and
subdued demand for credit put pressure on lending spreads.


Average interest-earning assets increased by HK$54.1 billion, or 3.7 per cent,
to HK$1,530.9 billion, as a result of balance sheet growth largely driven by the
continued increase in average customer deposits, particularly in the bank in
Hong Kong. In the absence of demand for corporate lending in Hong Kong, there
was a significant increase in holdings of debt securities compared with 2000 in
both the bank and Hang Seng Bank. Average advances to customers were broadly in
line with 2000. In Hong Kong, average advances to customers grew by 1.9 per cent
despite intense mortgage price competition, subdued corporate loan demand and
the transfer of the private banking business to another part of the HSBC Group.
Average credit card advances for the group increased by some 25 per cent over
2000 with the number of credit cards in issue increasing from 4,223,000 at the
end of 2000 to 5,113,000 at the end of 2001. In the rest of the region, average
advances in Hong Kong dollar terms decreased by 1.8 per cent compared with last
year, although there was underlying growth of 1.6 per cent as growth in consumer
lending offset reductions in corporate lending.

The group's net interest margin in 2001 was 2.57 per cent, two basis points
higher than 2000. Spread improved by 20 basis points to 2.28 per cent for the
group in 2001 mainly reflecting the strong treasury performance. A reduction in
suspended interest, net of releases and recoveries, accounted for an improvement
of five basis points in spread for the group. Cash incentive payments on new
mortgage loans of HK$602 million have been written off as deductions from
interest income in 2001 compared with HK$313 million in 2000.

For the bank in Hong Kong, the net interest margin for 2001 widened by one basis
point to 2.48 per cent. Spread improved by 18 basis points with the bank's
treasury activities benefiting from reduced funding costs, growth in credit card
balances and wider spreads on foreign currency savings and time deposits. In
addition, a reduction in suspended interest, net of releases and recoveries,
accounted for an improvement of six basis points in spread. Partly offsetting
these were reduced spreads on Hong Kong dollar savings and time deposits, and on
home mortgage loans. The contribution from net free funds decreased by 17 basis
points due to lower average interest rates.

In Hang Seng Bank, net interest margin declined by 12 basis points compared with
2000 to 2.56 per cent. Spread improved by nine basis points mainly due to the
benefit of lower interest rates on holdings of fixed rate investment securities,
growth in lower cost savings accounts, and a wider gap between the Hong Kong
best lending rate ('BLR') and interbank rates, partly offset by a further
decline in spreads on mortgages. The contribution from net free funds decreased
by 21 basis points.

Continued price competition in the residential mortgage market throughout the
year resulted in a reduction in the average yield of the Hong Kong residential
mortgage portfolios, excluding Government Home Ownership Scheme ('GHOS') loans
and staff loans. Mortgage yields in the bank in Hong Kong were 86 basis points
below BLR in 2001, compared with 27 basis points below BLR in 2000 (before
accounting for the effect of cash incentive payments). Similarly the mortgage
yields in Hang Seng Bank were 84 basis points below BLR in 2001, compared with
26 basis points below BLR in 2000.

In the rest of the Asia-Pacific region, net interest margin improved by five
basis points to 2.23 per cent in 2001. Spread widened by 16 basis points to 1.82
per cent in 2001 with wider spreads in Singapore and Japan mainly due to strong
treasury performance. In the Philippines, spread improved mainly due to growth
in credit card advances. Spread in mainland China widened as a result of a
substantial reduction in suspended interest for bad and doubtful debts. However
spreads in the bank in Guam, India, Indonesia and Korea narrowed largely as a
result of interest rate reductions during 2001.

The contribution from net free funds for the group decreased by 18 basis points
due to the significantly lower average interest rates during 2001.

Other operating income increased by HK$952 million or 5.5 per cent. Within other
operating income, net fees and commissions increased by HK$375 million, or 3.4
per cent, compared with 2000. The acquisition of HSBC's Asian asset management
business in January 2001 contributed HK$428 million in net fee income.

Income from wealth management initiatives, including total operating income from
the insurance business and commission on sales of unit trust products and on
securities transactions executed for personal customers, amounted to some HK$3.5
billion, an increase of 20.3 per cent compared with 2000. Fee income from unit
trust products increased significantly as a result of the successful sale of
over US$2.5 billion of capital guaranteed funds launched by the group during
2001. Total income from sales of unit trusts by the group amounted to HK$1,046
million in 2001 compared with HK$464 million in 2000. The Mandatory Provident
Fund business in Hong Kong started to contribute to income and at the end of
2001 over 770,000 individuals were enrolled in group schemes. Fee income from
cards increased by HK$240 million, or 9.7 per cent, mainly in the bank in
Indonesia, the Philippines, India and Hong Kong, and in Hang Seng Bank following
a 21 per cent increase in cards in issue over the past 12 months.

Securities and stockbroking commission income fell by HK$711 million, or 31.7
per cent, due to lower volumes, reflecting poor sentiment in stock markets
across the region in 2001 compared with the buoyant market in the early part of
last year. Stock market related revenues also decreased as a result of more
lower priced customer trades being executed via the internet. Over 60 per cent
of all trades are now transacted through this low cost channel.

Dealing profits in the year increased by HK$162 million, or 4.9 per cent. Higher
profits on interest rate derivative trading, driven by increased volatility in
interest rates, were achieved in the bank in Hong Kong, the Philippines, Japan,
Thailand, Singapore, Indonesia and India. India recorded a sharp increase in
profits on debt securities resulting from favourable moves in yields on
government securities. In the bank in Hong Kong, dealing profits were adversely
affected by a widening of credit spreads on the bond portfolio which resulted in
mark-to-market losses. Taking into account both dealing profits and interest
income earned, treasury income for the group was significantly higher than in
the previous year.

Operating expenses increased by HK$1,587 million or 7.8 per cent. Staff costs
increased by 9.0 per cent mainly due to headcount increases and also to a lesser
extent due to salary increments. The total number of staff increased from 37,855
at 31 December 2000 to 40,108 at 31 December 2001. Of the increase of 2,353 in
headcount, nearly 880 new jobs were created in India, Indonesia, Taiwan, the
Philippines and Australia to support the development of personal banking and new
branch openings; over 400 related to acquisitions in Australia, the Philippines
and Brunei; 300 more staff were added in insurance to handle the growing volumes
of MPF business; and over 430 new positions were created in the processing
centre in Guangzhou. These increases are designed to deliver future revenue
growth or cost savings. During 2001, 13 branches were opened in the Asia-Pacific
region outside Hong Kong.

Pension costs increased compared with 2000 due to a top-up provision of HK$213
million made by Hang Seng Bank to maintain the fully funded position of its
local staff retirement benefit scheme and the one-off cost of a voluntary
separation scheme in the bank in Singapore.

Premises and equipment expenses increased by HK$234 million, or 5.3 per cent,
compared with 2000 reflecting acquisitions and branch openings in the region and
higher IT costs in the bank in Hong Kong. Other operating expenses increased by
HK$306 million, or 6.9 per cent, with an increase in advertising and marketing
expenses mainly related to credit cards and other personal banking products.

Provisions for bad and doubtful debts increased by HK$902 million. New specific
provisions for doubtful debts for customers increased by HK$802 million to
HK$6,399 million while releases and recoveries were HK$713 million higher at
HK$4,059 million, with the net charge for specific provisions for customers
HK$89 million higher at HK$2,340 million. There were lower releases of general
provisions.

New specific provisions raised against personal lending rose from HK$2.0 billion
in 2000 to HK$3.1 billion in 2001 reflecting both a growth in personal lending,
particularly cards, and a worsening economic environment with, in Hong Kong, a
higher level of personal bankruptcies. Average delinquency rates for residential
mortgages remained low in absolute terms.

The charge for new specific provisions for commercial and corporate customers
decreased by HK$0.3 billion compared with 2000. Increased provisions in the bank
in Indonesia were made in view of the deteriorating political and economic
environment. These were offset by reductions elsewhere. Releases and recoveries
of specific provisions increased significantly mainly due to the release of
long-standing provisions against Olympia & York in the first half of 2001, and
higher releases in the bank in Hong Kong. This led to a net release of HK$0.1
billion of provisions for corporate and commercial customers in 2001 compared
with a charge of HK$1.0 billion in 2000.

Non-performing advances as a percentage of total advances decreased from 5.2 per
cent at 31 December 2000 to 4.2 per cent at 31 December 2001 due to a
combination of recoveries, write-offs and an increase in total advances to
customers.

There was a net release of general provisions of HK$85 million in 2001 compared
with HK$896 million in 2000, which included a release of HK$925 million, or 50
per cent, of the additional general provision made by the group in 1997.

The net profit on tangible fixed assets and long-term investments amounted to
HK$1,289 million in 2001 and mainly related to the gains on disposals of the
interest in Modern Terminals and of debt securities by the bank in Hong Kong, on
disposal of the investment in Central Registration by the investment bank, and
on disposal of debt securities and locally listed equities by Hang Seng Bank.

The effective rate of tax decreased from 14.2 per cent in 2000 to 12.9 per cent
in 2001 reflecting a higher amount of tax-free gains on the sale of investments.
Both tax rates reflect the material amount of the commercial surplus which has
been deployed in tax-exempt Hong Kong Government securities.

Total assets decreased by HK$19.3 billion, or 1.1 per cent, since 31 December
2000. At constant exchange rates and excluding the effect of restructurings,
total assets grew by HK$59.7 billion, or 3.5 per cent, due to a combination of
organic growth and acquisitions which added HK$6.5 billion to total assets.

Advances to customers were HK$22.1 billion, or 3.4 per cent, higher than
December 2000 despite the reduction relating to the transfer of the private
banking business. In Hong Kong, net advances to customers increased by HK$13.6
billion, or 2.7 per cent, since the end of 2000 with an increase of 6.5 per cent
in the bank in Hong Kong mainly due to the growth in personal lending,
commercial real estate and other property lending, and loans to non-bank
financial institutions. In Hang Seng Bank, advances increased by 2.3 per cent
with growth in GHOS mortgages, credit card advances, and tax and other personal
loans offsetting a reduction in lending to corporate customers. The market share
of loans for use in Hong Kong for the HSBC Group as a whole was up by 2.3 per
cent to 27.6 per cent during the year. In the rest of the Asia-Pacific region,
advances to customers grew by HK$8.7 billion, or 5.7 per cent, since the end of
2000. Personal lending grew strongly by HK$10.5 billion, or 28.9 per cent, with
increases in Taiwan, Korea, Singapore, India, New Zealand, Brunei and Australia.
Lending to commercial and corporate customers declined reflecting subdued loan
demand with reductions in HSBC Bank Australia, and in the bank in Korea and
Singapore.

Current, savings and other deposit accounts decreased by HK$17.6 billion, or 1.3
per cent, since the end of 2000. There was a reduction of HK$46 billion relating
to the transfer of the private banking business to another part of the HSBC
Group in April 2001.

In the bank in Hong Kong, total customer deposits increased by HK$25.3 billion,
or 3.6 per cent, with increases in savings and current accounts partly offset by
decreases in time deposits reflecting customers' preference for liquidity in the
low interest rate environment. Total customer deposits in Hang Seng Bank fell by
HK$15.3 billion, or 3.6 per cent, with a reduction in time deposits, partly the
result of the withdrawal of large deposits by certain corporate customers,
outweighing growth in current and savings account balances. The final stage of
interest rate deregulation, which was brought into effect on 3 July 2001, had no
material impact on savings account balances in either bank in Hong Kong. The
overall market share of Hong Kong dollar and foreign currency deposits increased
during the year.

In the rest of the Asia-Pacific region, customer deposits in Japan increased
significantly by HK$10.8 billion, mainly relating to one customer, while there
was good growth in personal deposits in HSBC Bank Australia, and in the bank in
Singapore, India, New Zealand, Korea, Indonesia, the Philippines and Taiwan.
These increases were partly offset by lower international demand deposits, and
decreased savings and time deposits from corporate customers in Singapore.

The group's advances-to-deposits ratio improved from 46.8 per cent at 31
December 2000 to 48.9 per cent at 31 December 2001 due to the increase in
advances to customers and the reduction in customer deposits.

Capital resources decreased by HK$7.6 billion, or 6.0 per cent to HK$118.8
billion. A dividend of HK$5.7 billion in respect of fourth quarter profits which
would normally have been payable in March 2002 was paid in December 2001. In the
same month a special interim dividend of HK$28.7 billion was paid out of the
bank's retained earnings. These distributions were made as part of a
restructuring of many of HSBC Holdings plc's underlying subsidiaries following a
change in the UK taxation of dividends from non UK companies. In order to
maintain its capital ratios, the bank issued to its immediate parent company in
December 2001 HK$28.7 billion equivalent of US$ non-cumulative irredeemable
preference shares. These new shares form part of the bank's tier 1 capital.

Capital resources also reduced due to write downs in the value of premises,
investment properties and long-term equity investments.

Consolidated Profit and Loss Account

Figures in HK$m                                                            2001                   2000

Interest income                                                          83,586                104,653
Interest expense                                                        (44,312 )              (67,013 )

Net interest income                                                      39,274                 37,640
Other operating income                                                   18,351                 17,399

Operating income                                                         57,625                 55,039
Operating expenses                                                      (22,040 )              (20,453 )

Operating profit before provisions                                       35,585                 34,586
Provisions for bad and doubtful debts                                    (2,257 )               (1,355 )
Provisions for contingent liabilities
  and commitments                                                           (78 )                  (89 )

Operating profit                                                         33,250                 33,142
Profit on tangible fixed assets and
  long-term investments                                                   1,289                  1,275
(Deficit)/surplus on property revaluation                                   (36 )                   54
Share of profits less losses of associated companies                        132                    165

Profit on ordinary activities before tax                                 34,635                 34,636
Tax on profit on ordinary activities                                     (4,479 )               (4,917 )

Profit on ordinary activities after tax                                  30,156                 29,719
Minority interests                                                       (3,919 )               (3,754 )

Profit attributable to shareholders                                      26,237                 25,965

Retained profits brought forward                                         44,818                 41,265
Exchange and other adjustments                                             (206 )                 (764 )
Transfer of depreciation to premises
  revaluation reserve                                                       357                    321
Realisation on disposal of premises and
  investment properties                                                      62                    308
Ordinary dividends paid in respect of the current year                  (22,263 )              (15,000 )
Special interim dividend paid out of the bank's
  retained earnings                                                     (28,689 )                    -
Ordinary dividends proposed (Note 24)                                         -                 (7,000 )
Preference dividends payable                                               (336 )                 (277 )
                                                                        (51,288 )              (22,277 )

Retained profits carried forward                                         19,980                 44,818


Extract from the Consolidated Balance Sheet

Figures in HK$m                                                    At 31Dec01               At 31Dec00

Assets
Cash and short-term funds                                             344,637                  455,193
Placings with banks maturing after one month                          115,702                  140,068
Certificates of deposit                                                34,468                   34,359
Hong Kong SAR Government certificates
  of indebtedness                                                      67,344                   63,904
Securities held for dealing purposes                                   74,384                   57,711
Long-term investments                                                 266,946                  193,314
Advances to customers                                                 674,557                  652,503
Amounts due from fellow subsidiary companies                           22,095                   23,723
Investments in associated companies                                     1,566                    1,641
Tangible fixed assets                                                  40,967                   44,251
Other assets                                                          100,075                   95,303
                                                                    1,742,741                1,761,970

Liabilities
Hong Kong SAR currency notes in circulation                            67,344                   63,904
Current, savings and other deposit accounts                         1,378,119                1,395,702
Deposits by banks                                                      47,717                   38,130
Amounts due to fellow subsidiary companies                             11,417                    7,291
Amounts due to ultimate holding company                                   480                      595
Other liabilities                                                     118,847                  129,953
                                                                    1,623,924                1,635,575

Capital resources
Loan capital from ultimate holding company                              2,924                    2,925
Other loan capital                                                     14,828                   14,374
Minority interests                                                     17,936                   18,284
Share capital                                                          44,937                   16,258
Reserves                                                               38,192                   67,554
Proposed dividends                                                          -                    7,000
Shareholders' funds                                                    83,129                   90,812
                                                                      118,817                  126,395
                                                                    1,742,741                1,761,970

Consolidated Statement of Recognised Gains and Losses

Figures in HK$m                                                          2001                     2000

Profit for the year attributable to shareholders                       26,237                   25,965
Unrealised (deficit)/surplus on revaluation of
  premises                                                             (2,035 )                  2,209
Unrealised (deficit)/surplus on revaluation of
  investment properties                                                  (178 )                    108
Long-term equity investments revaluation reserve
- (Deficit)/surplus on revaluation                                       (644 )                    241
- Realisation on disposal                                              (1,025 )                   (963 )
Exchange and other movements                                             (429 )                   (957 )

Recognised gains and losses for the year                               21,926                   26,603


Reconciliation of Movements in Consolidated Shareholders' Funds

Figures in HK$m                                                          2001                     2000

Shareholders' funds at beginning of year
- as previously reported                                               83,812                   79,486
- change of accounting policy in respect of
  dividends (Note 24)                                                   7,000                    8,000
- as restated                                                          90,812                   87,486

New non-cumulative irredeemable preference
  shares issued                                                        28,679                        -

Recognised gains and losses                                            21,926                   26,603

Dividends                                                             (58,288 )                (23,277 )

Shareholders' funds at end of year                                     83,129                   90,812


Consolidated Cash Flow Statement

Figures in HK$m                                                              2001                2000

Net cash inflow from operating activities                                  52,194             117,284

Returns on investments and servicing of finance
Income received on long-term investments                                   13,278              10,516
Dividends received from associated companies                                   67                  82
Interest paid on loan capital                                              (1,069 )            (1,133 )
Dividends paid to minority interests                                       (3,548 )            (3,259 )
Ordinary dividends paid                                                   (56,389 )           (23,000 )
Preference dividends paid                                                    (277 )              (217 )

Net cash outflow from returns on investments
  and servicing of finance                                                (47,938 )           (17,011 )

Taxation paid                                                              (3,035 )            (3,546 )

Investing activities
Purchase of long-term investments                                        (328,106 )          (305,490 )
Proceeds from sale or redemption of
  long-term investments                                                   243,596             236,865
Purchase of tangible fixed assets                                          (1,641 )            (1,824 )
Proceeds from sale of tangible fixed assets                                   196                 428
Net cash (outflow)/inflow in respect of acquisition of
  and increased shareholding in subsidiary companies                         (158 )                 9
Net cash (outflow)/inflow in respect of sale of
  subsidiary companies                                                    (23,541 )               213
Purchase of business from fellow subsidiary companies                          (7 )               (70 )
Purchase of interest in associated company                                    (18 )               (34 )
Proceeds from sale of interest in associated company                          164                  23

Net cash outflow from investing activities                               (109,515 )           (69,880 )

Net cash (outflow)/inflow before financing                               (108,294 )            26,847

Financing
Issue of non-cumulative irredeemable preference
  share capital                                                            28,679                   -
Issue of loan capital                                                         676                   -

Net cash inflow from financing                                             29,355                   -

(Decrease)/increase in cash and cash equivalents                          (78,939 )            26,847


Additional Information

1. Net interest income

Figures in HK$m                                                          2001                    2000

Net interest income                                                    39,274                  37,640

Average interest-earning assets                                     1,530,941               1,476,842

Net interest spread                                                      2.28 %                  2.08 %

Net interest margin                                                      2.57 %                  2.55 %


2. Other operating income

Figures in HK$m                                                          2001                    2000

Dividend income
- Listed investments                                                      194                     191
- Unlisted investments                                                     31                      88
                                                                          225                     279

Fees and commissions
- Account services                                                      1,214                   1,178
- Credit facilities                                                     1,534                   1,580
- Import/export                                                         2,193                   2,269
- Remittances                                                             856                     814
- Securities/stockbroking                                               1,530                   2,241
- Cards                                                                 2,723                   2,483
- Other                                                                 3,584                   2,512
Fees and commissions receivable                                        13,634                  13,077
Fees and commissions payable                                           (2,170 )                (1,988 )
                                                                       11,464                  11,089

Dealing profits
- Foreign exchange                                                      2,875                   2,833
- Interest rate derivatives                                               713                     208
- Debt securities                                                         (78 )                   260
- Equities and other trading                                              (61 )                   (14 )
                                                                        3,449                   3,287

Rental income from investment properties                                  261                     266
Other                                                                   2,952                   2,478
                                                                       18,351                  17,399

3. Operating expenses

Figures in HK$m                                                          2001                    2000

Staff costs
- Salaries and other costs                                             11,338                  10,702
- Retirement benefit costs                                              1,359                     948
                                                                       12,697                  11,650

Premises and equipment
- Depreciation                                                          2,028                   1,943
- Rental expenses                                                       1,080                   1,099
- Other premises and equipment expenses                                 1,506                   1,338
                                                                        4,614                   4,380

Other                                                                   4,729                   4,423
                                                                       22,040                  20,453


4. Provisions for bad and doubtful debts

Figures in HK$m                                                          2001                    2000

Net charge/(release) for bad and doubtful debts

Advances to customers
- Specific provisions
  New provisions                                                        6,399                   5,597
  Releases                                                             (3,064 )                (3,001 )
  Recoveries                                                             (995 )                  (345 )
                                                                        2,340                   2,251

- General provisions
  Additional general provisions
  - the bank                                                                -                    (800 )
  - Hang Seng Bank Limited                                                  -                    (125 )
  Other                                                                   (85 )                    29
                                                                          (85 )                  (896 )
                                                                        2,255                   1,355

Placings with banks maturing after one month
- Net specific charge                                                       2                       -

Net charge to profit and loss account                                   2,257                   1,355

5. Taxation

The bank and its subsidiary companies in Hong Kong have provided for Hong Kong
profits tax at the rate of 16.0 per cent (2000: 16.0 per cent) on the profits
for the year assessable in Hong Kong. Overseas branches and subsidiary companies
have similarly provided for tax in the countries in which they operate at the
appropriate rates of tax ruling in 2001. Deferred taxation is provided for in
accordance with the group's accounting policy.

The charge for taxation in the consolidated profit and loss account comprises:

Figures in HK$m                                                          2001                    2000

Hong Kong profits tax                                                   3,473                   3,676
Overseas taxation                                                       1,055                   1,067
Deferred taxation                                                         (59 )                   160
                                                                        4,469                   4,903

Share of associated companies' taxation                                    10                      14
                                                                        4,479                   4,917

6. Dividends
                                                          2001                            2000
                                                       HK$            HK$m             HK$            HK$m
                                                 per share                       per share
Equity
  Ordinary dividends
  - paid                                              7.84          50,952            2.31          15,000
  - proposed                                             -               -            1.07           7,000
                                                      7.84          50,952            3.38          22,000

Non-equity
  Preference dividends payable
  - cumulative redeemable preference
  shares                                               472             236             554             277
  - non-cumulative irredeemable
  preference shares                                   0.03             100               -               -
                                                                    51,288                          22,277

7. Advances to customers

Figures in HK$m                                                                   At 31Dec01              At 31Dec00

Gross advances to customers                                                          697,702                 680,618
Suspended interest                                                                    (2,625 )                (3,671 )
                                                                                     695,077                 676,947

Specific provisions                                                                  (15,581 )               (19,422 )
General provisions                                                                    (4,939 )                (5,022 )
Total provisions                                                                     (20,520 )               (24,444 )
Net advances to customers                                                            674,557                 652,503

Provisions as a percentage of gross advances to customers  ^ 
Specific provisions                                                                     2.24 %                  2.87 %
General provisions                                                                      0.71 %                  0.74 %
Total provisions                                                                        2.95 %                  3.61 %
 ^  Gross advances to customers are stated after deduction of interest in
suspense.

8. Provisions for bad and doubtful debts against advances to customers
                                                                                                          Suspended
Figures in HK$m                                  Specific            General              Total            interest

At 1 January 2001                                  19,422              5,022             24,444               5,361
Amounts written off                                (7,018 )                -             (7,018 )            (2,865 )
Recoveries of advances written off in
  previous years                                      995                  -                995                   -
Net charge/(release) to profit and loss
  account (Note 4)                                  2,340                (85 )            2,255                   -
Interest suspended during the year                      -                  -                  -               2,747
Suspended interest recovered                            -                  -                  -              (1,097 )
Exchange and other adjustments                       (158 )                2               (156 )               (96 )

At 31 December 2001                                15,581              4,939             20,520               4,050


Suspended interest above comprises both suspended interest netted against '
Advances to customers' and suspended interest netted against accrued interest
receivable in 'Other assets'.

9. Non-performing advances to customers and provisions

The geographical information shown below, and in notes 10, 11, 12 and 14, has
been classified by location of the principal operations of the subsidiary
company or, in the case of the bank, by location of the branch responsible for
advancing the funds.

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

Year ended 31 December 2001

Bad and doubtful debt charge/(release)               1,531                 772                (48 )            2,255

At 31 December 2001

Advances to customers on which interest is being placed in suspense or on which
interest accrual has ceased are as follows:

Gross advances on which interest
- has been placed in suspense                       14,002              11,952                  -             25,954
- accrual has ceased                                 1,814               1,327                  4              3,145
Gross non-performing advances  ^                    15,816              13,279                  4             29,099

Specific provisions                                 (6,678 )            (8,899 )               (4 )          (15,581 )
                                                     9,138               4,380                  -             13,518

Specific provisions as a percentage of
  gross non-performing advances                       42.2 %              67.0 %              100 %             53.5 %

Gross non-performing advances as a
  percentage of gross advances to
  customers  ^  ^                                      3.0 %               7.8 %             36.4 %              4.2 %


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

Year ended 31 December 2000

Bad and doubtful debt charge/(release)               1,933                (460 )             (118 )            1,355

At 31 December 2000

Advances to customers on which interest is being placed in suspense or on which
interest accrual has ceased are as follows:

Gross advances on which interest
- has been placed in suspense                       17,610              12,522                  -             30,132
- accrual has ceased                                 2,047               3,070                 21              5,138

Gross non-performing advances  ^                    19,657              15,592                 21             35,270

Specific provisions                                 (9,680 )            (9,712 )              (30 )          (19,422 )
                                                     9,977               5,880                 (9 )           15,848

Specific provisions as a percentage of
  gross non-performing advances                       49.2 %              62.3 %              100 %             55.1 %

Gross non-performing advances as a
  percentage of gross advances to
  customers  ^  ^                                      3.8 %               9.6 %              7.5 %              5.2 %


Non-performing advances to customers are those advances where full repayment of
principal or interest is considered unlikely. Non-performing advances may
include advances that are not yet more than three months overdue but are
considered doubtful. Advances are classified as non-performing as soon as it
becomes apparent that full recovery of the advance is unlikely. Except in
certain limited circumstances, all advances on which principal or interest is
more than three months overdue are classified as non-performing.

The specific provisions are made after taking into account the value of
collateral in respect of such advances.

 ^  Gross non-performing advances to customers are stated after deduction of
interest in suspense.

 ^  ^  Expressed as a percentage of gross advances to customers after deduction
of interest in suspense.



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

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