The HK & Shanghai Banking Cor

RNS Number : 3188Q
HSBC Holdings PLC
02 August 2010
 



  

 

 

 

 

THE HONGKONG AND SHANGHAI BANKING CORPORATION LIMITED                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  

2010 INTERIM CONSOLIDATED RESULTS - HIGHLIGHTS

 

 

·    Net operating income before loan impairment charges and other credit risk provisions up 6.7 per cent to HK$62,827 million (HK$58,860 million in the first half of 2009).

 

·    Pre-tax profit up 26.4 per cent to HK$38,575 million (HK$30,509 million in the first half of 2009).

 

·    Attributable profit up 28.9 per cent to HK$28,675 million (HK$22,246 million in the first half of 2009).

 

·    Return on average shareholders' funds of 22.8 per cent (21.0 per cent in the first half of 2009).

 

·    Assets up 6.3 per cent to HK$4,635 billion (HK$4,361 billion at the end of 2009).

 

·    Cost efficiency ratio of 44.0 per cent (43.3 per cent for the first half of 2009).

 

 

 

Within this document, the Hong Kong Special Administrative Region of the People's Republic of China has been referred to as 'Hong Kong'.


Results

 

 

 

 

Comment by Michael Geoghegan, Chairman

 

While the upturn in the West struggled to gain momentum during the first half of 2010, Asian economies remained at the forefront of the world's emerging markets-led recovery. The pick-up in world trade continued to improve, and as emerging nations increasingly trade with each other, Asia's role in keeping the global economy on track looks more important than ever.

 

Against these sound fundamentals, The Hongkong and Shanghai Banking Corporation Limited delivered a strong and improved performance. Profits of HK$38,575 million were well ahead of the first half of 2009, increasing by 26.4 per cent. Profits outside Hong Kong contributed 45.5 per cent of the total, nearly double the level of four years ago. Growth was well spread across the region, driven by improving economic conditions, higher trade flows, increasing customer confidence, improved sales productivity and our relentless focus on developing the products and services that our customers need.

 

We continue to explore both organic and inorganic opportunities for growth in Hong Kong and the region. Outside Hong Kong, our focus is on the six key regional markets of mainland China, India, Indonesia, Singapore, Malaysia and Australia where we see the greatest opportunity to support the growing local and international needs of our customers.

 

In July, we announced our third investment in India in the space of three years. Subject to regulatory approvals, our purchase of the retail and commercial banking business of the Royal Bank of Scotland will allow us to increase our scale in the region's third largest economy and will give us access to 1.1 million new customer relationships. We underlined our commitment to the future of the market in mainland China by subscribing for our full entitlement of H-Shares in the Bank of Communications rights issue, for a consideration of US$921 million. We incorporated locally in Taiwan in May, and in Vietnam, we increased our holding in Bao Viet Holdings to 18 per cent in January.

 

As a deposit-rich bank, we continued to feel the impact of low interest rates on our deposit spreads. Competition remained fierce across the region and asset spreads narrowed, but this is "business as usual" for us, and we maintained market share in key segments and grew our balance sheet. Revenue growth in payments and cash management, insurance and debt and equity capital markets in our key target segments more than offset the effect of low interest rates on net interest income.

 

We grew gross loans and advances to customers by 14.7 per cent, responding to higher demand for mortgages and commercial lending, which resulted in lending growth across a number of key markets including Hong Kong, mainland China, Malaysia, Singapore and Indonesia. We are now growing lending at a faster rate than deposits, and our Advances to Deposits ratio increased from 45.9 per cent at the start of the year to 51.9 per cent.

 

Keeping a strong liquidity position remains fundamental to our banking philosophy and we will continue to maintain a significant surplus of deposits over loans. However, we expect to see further opportunities to grow our asset portfolios and are encouraged by the quality of the assets we are winning. Loan impairment charges were significantly lower across the retail portfolio compared with the first and second halves of 2009 as credit quality improved, particularly in India.

We maintained tight control of operating expenses, while investing for the future. We  increased marketing spend to win new customers in our target segments and continued to build the branch network across the region. As a result, our cost efficiency ratio rose slightly from 43.3 per cent to 44.0 percent. In mainland China, we opened a new China head office in Shanghai in June and opened our 100th branch. We also added new branches in India, Malaysia, Australia, Taiwan, Bangladesh and Sri Lanka.

 

In Personal Financial Services, while our business in Hong Kong continued to contribute significant profits, the Rest of Asia Pacific returned to profitability during the period as loan impairments moderated and loan momentum increased. In Premier, we passed a new milestone of one million customers, and we are targeting two million across the region within the next two years. Our new Advance proposition for the next generation of Premier customers was also rolled out in seven markets. 

 

Commercial Banking benefited from increased business confidence across the region. Loans and advances to customers increased by 24.6 per cent during the period. The pipeline of new business remains very strong. Reflecting our strategic objective to be the Leading International Business Bank, we saw a significant rise in cross-border business. Referrals into the region grew 62 per cent, while those from Asia into other regions were 75 per cent higher, compared with the first half of 2009. Championing offshore renminbi (RMB) developments, HSBC established RMB trade settlement capability in 23 markets globally.

 

Global Banking and Markets successfully maintained revenue momentum across a number of business lines, despite strong competition and the reduction in Balance Sheet Management revenues that we had signalled at year-end 2009. During the period, we made considerable progress in growing our equities platform, investing in both technology and people, and broadening our coverage, particularly in Hong Kong and mainland China. Adding to our credentials, we won a number of prestigious awards, including FinanceAsia's Best Investment Bank and Best Equity House in Hong Kong, and Euromoney's Best Debt House and Best at Risk Management in Asia.

 

Supported by our strong brand and integrated bancassurance model, our Insurance business performed very strongly, generating increased growth in premium income and profits. We gained market share across the region and boosted our number one position in Hong Kong. We grew our joint ventures, particularly in mainland China and India. Canara HSBC Oriental Bank of Commerce Life Insurance in India ranked 12th among 22 private providers within only its second year of operation, while within nine months of launch, HSBC Life Insurance Company has risen to rank third in bancassurance business among 18 foreign or jointly owned insurance companies in Shanghai.

 

Although the outlook for the global economy remains uncertain, the prospects for Asia remain strong, both in the short and long-term. The fast pace of economic change will bring its own challenges, and the financial needs of households and businesses across the region will grow. However, our strong footprint, our global connectivity, our unrivalled brand, our distinctive liquidity and our recognised capital strength means we are perfectly placed for the future.

 

Finally, on behalf of the Board, I would like to say thank you to all of our 70,400 staff. My past six months in Asia have only reaffirmed that their commitment and customer focus is second to none.



 

Results by Geographical Region

 

 

 

 

 

Geographical Regions







 





Intra-



 



Hong

Rest of

segment



 

Figures in HK$m


Kong

Asia-Pacific

elimination


Total

 

 











 

Period ended 30 June 2010










 











 

Net interest income


14,964


14,316


29


29,309


 











 

Net fee income


9,882


6,811


-


16,693


 











 

Net trading income


4,380


5,803


(29

)

10,154


 











 

Net income from financial instruments










 

  designated at fair value


4


9


-


13


 











 

Gains less losses from financial investments


979


305


-


1,284


 











 

Dividend income


110


218


-


328


 











 

Net earned insurance premiums


17,494


1,538


-


19,032


 











 

Other operating income


5,159


1,141


(2,254

)

4,046


 











 

Total operating income


52,972


30,141


(2,254

)

80,859


 











 

Net insurance claims incurred and movements in










 

  policyholders' liabilities


(16,858

)

(1,174

)

-


(18,032

)

 











 

Net operating income before loan impairment










 

  charges and other credit risk provisions


36,114


28,967


(2,254

)

62,827


 











 

Loan impairment charges and other credit










 

  risk provisions


(487

)

(1,467

)

-


(1,954

)

 











 

Net operating income


35,627


27,500


(2,254

)

60,873


 











 

Operating expenses


(14,695

)

(15,183

)

2,254


(27,624

)

 











 

Operating profit


20,932


12,317


-


33,249


 











 

Share of profit in associates and joint ventures


89


5,237


-


5,326


 











 

Profit before tax


21,021


17,554


-


38,575


 











 

Share of profit before tax


54.5

%

45.5

%

-


100.0

%

 











 

Net advances to customers


854,435


698,129


-


1,552,564


 











 

Customer accounts


1,990,074


998,986


-


2,989,060


 

 

 

Geographical Regions







 





Intra-



 



Hong

Rest of

segment



 

Figures in HK$m


Kong

Asia-Pacific

elimination


Total

 

 











 

Period ended 30 June 2009 (restated1)










 











 

Net interest income


16,367


13,736


8


30,111


 











 

Net fee income


8,692


5,198


-


13,890


 











 

Net trading income


4,802


6,870


(8

)

11,664


 











 

Net income from financial instruments










 

  designated at fair value


2,650


235


-


2,885


 











 

Gains less losses from financial investments


(17

)

(225

)

-


(242

)

 











 

Dividend income


127


5


-


132


 











 

Net earned insurance premiums


14,261


1,178


-


15,439


 











 

Other operating income


3,956


872


(2,119

)

2,709


 











 

Total operating income


50,838


27,869


(2,119

)

76,588


 











 

Net insurance claims incurred and movements in










 

  policyholders' liabilities


(16,517

)

(1,211

)

-


(17,728

)

 











 

Net operating income before loan impairment










 

  charges and other credit risk provisions


34,321


26,658


(2,119

)

58,860


 











 

Loan impairment charges and other credit










 

  risk provisions


(2,115

)

(4,289

)

-


(6,404

)

 











 

Net operating income


32,206


22,369


(2,119

)

52,456


 











 

Operating expenses


(14,244

)

(13,349

)

2,119


(25,474

)

 











 

Operating profit


17,962


9,020


-


26,982


 











 

Share of profit in associates and joint ventures


(40

)

3,567


-


3,527


 











 

Profit before tax


17,922


12,587


-


30,509


 











 

Share of profit before tax


58.7

%

41.3

%

-


100

%

 











 

Net advances to customers


731,860


558,750


-


1,290,610


 











 

Customer accounts


1,919,022


898,410


-


2,817,432


 











 

 

 

 

 

1 Restated for the adoption of HKAS 17 'Leases'. See Note 18 for further information.


 

Results by Geographic Customer Group

 

 

 

 

 

 

 

 

Hong Kong



Global







 


Personal


Banking




Intra-



 


Financial

Commercial

and


Private


segment



 

Figures in HK$m

Services

Banking

Markets


Banking

Other

elimination


Total

 

 
















 

Period ended 30 June 2010















 
















 

Net interest income/(expense)

10,005


3,920


3,396


-


(1,924

)

(433

)

14,964


 
















 

Net fee income

5,425


2,367


2,022


-


68


-


9,882


 
















 

Net trading income

425


410


3,076


-


36


433


4,380


 
















 

Net income/(loss) from financial















 

  instruments designated at















 

  fair value

(505

)

178


323


-


8


-


4


 
















 

Gains less losses from















 

  financial investments

(1

)

-


495


-


485


-


979


 
















 

Dividend income

-


3


1


-


106


-


110


 
















 

Net earned insurance premiums

14,574


2,855


65


-


-


-


17,494


 
















 

Other operating income

1,720


208


231


-


3,937


(937

)

5,159


 
















 

Total operating income

31,643


9,941


9,609


-


2,716


(937

)

52,972


 
















 

Net insurance claims















 

  incurred and movement in















 

  policyholders' liabilities

(14,400

)

(2,407

)

(51

)

-


-


-


(16,858

)

 
















 

Net operating income before















 

  loan impairment charges and















 

  other credit risk provisions

17,243


7,534


9,558


-


2,716


(937

)

36,114


 
















 

Loan impairment charges and















 

  other credit risk provisions

(324

)

(13

)

(152

)

-


2


-


(487

)

 
















 

Net operating income

16,919


7,521


9,406


-


2,718


(937

)

35,627


 
















 

Operating expenses

(5,889

)

(2,299

)

(3,968

)

-


(3,476

)

937


(14,695

)

 
















 

Operating profit/(loss)

11,030


5,222


5,438


-


(758

)

-


20,932


 
















 

Share of profit/(loss) in















 

  associates and joint ventures

18


(5

)

-


-


76


-


89


 
















 

Profit/(loss) before tax

11,048


5,217


5,438


-


(682

)

-


21,021


 
















 

Share of profit/(loss) before tax

28.6

%

13.5

%

14.1

%

-


(1.7)

%

-


54.5

%

 
















 

Net advances to customers

351,372


289,563


198,587


-


14,913


-


854,435


 
















 

Customer accounts

1,286,761


494,979


203,573


-


4,761


-


1,990,074


 



 

 

 

Hong Kong



Global







 


Personal


Banking




Intra-



 


Financial

Commercial

and


Private


segment



 

Figures in HK$m

Services

Banking

Markets


Banking

Other

elimination


Total

 

 
















 

Period ended 30 June 2009 (restated1)















 
















 

Net interest income/(expense)

10,036


3,716


5,539


1


(2,458

)

(467

)

16,367


 
















 

Net fee income

4,988


1,891


1,615


-


198


-


8,692


 
















 

Net trading income

550


316


3,995


-


(525

)

466


4,802


 
















 

Net income/(loss) from financial















 

  instruments designated at















 

  fair value

2,469


(170

)

232


-


118


1


2,650


 
















 

Gains less losses from















 

  financial investments

623


135


(515

)

-


(260

)

-


(17

)

 
















 

Dividend income

30


4


3


-


90


-


127


 
















 

Net earned insurance premiums

12,579


1,616


66


-


-


-


14,261


 
















 

Other operating income

1,128


303


135


-


3,384


(994

)

3,956


 
















 

Total operating income

32,403


7,811


11,070


1


547


(994

)

50,838


 
















 

Net insurance claims















 

  incurred and movement in















 

  policyholders' liabilities

(15,162

)

(1,307

)

(48

)

-


-


-


(16,517

)

 
















 

Net operating income before















 

  loan impairment charges and















 

  other credit risk provisions

17,241


6,504


11,022


1


547


(994

)

34,321


 
















 
















 

Loan impairment charges and















 

  other credit risk provisions

(946

)

(1,063

)

(105

)

-


(1

)

-


(2,115

)

 
















 

Net operating income

16,295


5,441


10,917


1


546


(994

)

32,206


 
















 

Operating expenses

(5,963

)

(2,152

)

(4,059

)

-


(3,064

)

994


(14,244

)

 
















 

Operating profit/(loss)

10,332


3,289


6,858


1


(2,518

)

-


17,962


 
















 

Share of (loss)/profit in















 

  associates and joint ventures

17


-


4


-


(61

)

-


(40

)

 
















 

Profit/(loss) before tax

10,349


3,289


6,862


1


(2,579

)

-


17,922


 
















 

Share of profit/(loss) before tax

33.9

%

10.8

%

22.5

%

-


(8.5

)%

-


58.7

%

 
















 

Net advances to customers

330,662


206,786


179,664


-


14,748


-


731,860


 
















 

Customer accounts

1,220,152


424,163


270,282


-


4,425


-


1,919,022


1 Restated for the adoption of HKAS 17 'Leases'. See Note 18 for further information.

 

 

 

Rest of Asia-Pacific



Global







 


Personal


Banking




Intra-



 


Financial

Commercial

and


Private


segment



 

Figures in HK$m

Services

Banking

Markets


Banking

Other

elimination


Total

 

 
















 

Period ended 30 June 2010















 
















 

Net interest income/(expense)

5,864


3,347


5,577


56


214


(742

)

14,316


 
















 

Net fee income

2,486


1,586


2,702


75


(38

)

-


6,811


 
















 

Net trading income

275


478


4,351


21


(64

)

742


5,803


 
















 

Net income/(loss) from financial















 

  instruments designated at















 

  fair value

18


8


(3

)

-


(14

)

-


9


 
















 

Gains less losses from















 

  financial investments

7


26


238


-


34


-


305


 
















 

Dividend income

-


-


-


-


218


-


218


 
















 

Net earned insurance premiums

1,335


203


-


-


-


-


1,538


 
















 

Other operating income

408


411


130


5


416


(229

)

1,141


 
















 

Total operating income

10,393


6,059


12,995


157


766


(229

)

30,141


 
















 

Net insurance claims















 

  incurred and movement in















 

  policyholders' liabilities

(1,028

)

(146

)

-


-


-


-


(1,174

)

 
















 

Net operating income before















 

  loan impairment charges and















 

  other credit risk provisions

9,365


5,913


12,995


157


766


(229

)

28,967


 
















 
















 

Loan impairment charges and















 

  other credit risk provisions

(1,364

)

80


(183

)

-


-


-


(1,467

)

 
















 

Net operating income

8,001


5,993


12,812


157


766


(229

)

27,500


 
















 

Operating expenses

(7,749

)

(2,920

)

(4,166

)

(171

)

(406

)

229


(15,183

)

 
















 

Operating profit/(loss)

252


3,073


8,646


(14

)

360


-


12,317


 
















 

Share of profit in associates















 

  and joint ventures

693


2,753


1,397


-


394


-


5,237


 
















 

Profit/(loss) before tax

945


5,826


10,043


(14

)

754


-


17,554


 
















 

Share of profit/(loss) before tax

2.4

%

15.1

%

26.0

%

-


2.0

%

-


45.5

%

 
















 

Net advances to customers

243,877


204,743


241,792


6,388


1,329


-


698,129


 
















 

Customer accounts

381,200


242,215


360,972


13,667


932


-


998,986


 

 

 

 

Rest of Asia-Pacific



Global







 


Personal


Banking




Intra-



 


Financial

Commercial

and


Private


segment



 

Figures in HK$m

Services

Banking

Markets


Banking

Other

elimination


Total

 

 
















 

Period ended 30 June 2009 (restated1)















 
















 

Net interest income/(expense)

5,644


2,939


5,483


(23

)

361


(668

)

13,736


 
















 

Net fee income

1,975


1,193


2,073


18


(61

)

-


5,198


 
















 

Net trading income

305


553


5,325


129


(110

)

668


6,870


 
















 

Net income/(loss) from financial















 

  instruments designated at















 

  fair value

258


1


(21

)

-


(3

)

-


235


 
















 

Gains less losses from















 

  financial investments

44


20


(116

)

-


(173

)

-


(225

)

 
















 

Dividend income

1


-


2


-


2


-


5


 
















 

Net earned insurance premiums

1,050


128


-


-


-


-


1,178


 
















 

Other operating income

282


218


119


8


344


(99

)

872


 
















 

Total operating income

9,559


5,052


12,865


132


360


(99

)

27,869


 
















 

Net insurance claims















 

  incurred and movement in















 

  policyholders' liabilities

(1,129

)

(82

)

-


-


-


-


(1,211

)

 
















 

Net operating income before















 

  loan impairment charges and















 

  other credit risk provisions

8,430


4,970


12,865


132


360


(99

)

26,658


 
















 
















 

Loan impairment charges and















 

  other credit risk provisions

(2,909

)

(1,342

)

(37

)

-


(1

)

-


(4,289

)

 
















 

Net operating income

5,521


3,628


12,828


132


359


(99

)

22,369


 
















 

Operating expenses

(6,752

)

(2,259

)

(3,824

)

(183

)

(430

)

99


(13,349

)

 
















 

Operating profit/(loss)

(1,231

)

1,369


9,004


(51

)

(71

)

-


9,020


 
















 

Share of profit in associates















 

  and joint ventures

510


2,013


1,048


-


(4

)

-


3,567


 
















 

Profit/(loss) before tax

(721

)

3,382


10,052


(51

)

(75

)

-


12,587


 
















 

Share of profit/(loss) before tax

(2.4

)%

11.1

%

33.0

%

(0.2

)%

(0.2

)%

-


41.3

%

 
















 

Net advances to customers

215,296


168,518


168,157


5,478


1,301


-


558,750


 
















 

Customer accounts

350,578


202,298


331,699


12,690


1,145


-


898,410


 

 

 

1 Restated for the adoption of HKAS 17 'Leases'. See Note 18 for further information.


Results by Geographic Region

 

 

 

 

Hong Kong reported profit before tax of HK$21,021 million, an increase of 17.3 per cent, compared to the first six months of 2009, primarily due to an increase in non-interest income and a fall in loan impairment charges along with effective cost management.

 

Net interest income decreased by HK$1,403 million, or 8.6 per cent, compared to the same period in 2009 as the low interest rate environment continued to impact both asset and liability spreads. Strong growth in the loan book across all customer groups helped mitigate the impact of reduced margins.

 

HSBC continued to be a market leader in deposits, mortgages, life insurance and credit cards. Premier customers increased to 438,000 and HSBC Advance was successfully launched in February to capture the mid-market customer segment. Commercial Banking cross-border referrals increased in line with the strategy to capitalise on international connectivity to grow the business. Commercial Banking continued to develop the renminbi business and was the first international bank to launch a number of new RMB related products in the first half of 2010, such as a RMB trade finance standard rate and current account.

 

In Personal Financial Services, the launch of a new HIBOR mortgage contributed to HSBC (including Hang Seng Bank) maintaining the number one position in Hong Kong for new business in the first half of 2010. The average loan-to-value ratio for the mortgage book was 37.9 per cent at 30 June 2010, with the ratio on new lending at 55.6 per cent, and continues to remain well secured. In Commercial Banking, net customer loans and advances increased by 40.0 per cent since 30 June 2009, reflecting a recovery in business activity as a result of an improved economy and our continuing support to customers. HSBC continued to actively participate in the Hong Kong Government Special Loan Guarantee Scheme.

 

Deposit balances increased by 3.7 per cent over 30 June 2009 against a back-drop of low interest rates and reflects HSBC's brand leadership. This was particularly evident in Commercial Banking where deposits increased by 16.7 per cent, supported by a rise in customer numbers of 8.1 per cent.

 

Global Banking and Markets, net interest income decreased as higher yielding assets in Balance Sheet Management continued to roll off and funds were reinvested at lower market rates.

 

Net fee income increased by HK$1,190 million, or 13.7 per cent, over the first half of 2009 as the equity markets rose in the second half of last year and investor sentiment improved. There was a significant increase in demand for wealth management and insurance products from both personal and commercial customers. Fee income from investment products such as unit trusts and funds under management increased by 18.7 per cent over the same period in 2009. Commercial Banking also recognised an increase in remittances and trade related fee income as trade flows and international business volumes increased.

 

In Global Banking and Markets, revenues in Debt Capital Markets and Equity Capital Markets increased, demonstrating the continuing benefit of HSBC's emerging markets-led and financing focused strategy. In addition to registering an increase in equities broking income, significant fees were recorded in Securities Services and Asset Management where increases were reflected in assets under custody and assets under management.

 

 

Trading income decreased by HK$422 million, or 8.8 per cent, compared to prior year as a result of reduced customer margins as competition intensified in the Global Markets business. The comparable period in 2009 was particularly strong due to highly volatile market movements and tightening credit spreads from distressed levels.

 

Income from the insurance business (which is recognised across the following income statement lines 'Net interest income', 'Net fee income', 'Net income from financial instruments designated at fair value', 'Net earned insurance premiums', the change in present value of in-force business within 'Other operating income', and after deducting 'Net insurance claims incurred and movement in policyholders' liabilities') increased by 46.0 per cent compared with the first six months of 2009. The insurance business benefited from the improvement in customer sentiment towards the end of 2009 and the first half of 2010 with strong business growth and positive investment returns. However, Net income from financial investments designated at fair value decreased by HK$2,627 million reflecting lower revaluation gains on unit-linked funds held in the insurance business. This was offset by a corresponding movement in 'Net insurance claims incurred and movement in policyholder liabilities' to reflect the extent to which unit-linked policyholders participated in the performance experienced on the linked investment portfolio.

 

Insurance premiums increased by 22.7 per cent due to strong sales of unit-linked and deferred annuity products. HSBC (including Hang Seng Bank) continued to be the market leader in the life industry with a market share of 26.3 per cent in new business annualised premium at the end of the first quarter 2010.

 

Loan impairment charges and other credit risk provisions decreased significantly by HK$1,628 million, or 77.0 per cent, compared to the first six months of 2009. The fall was a result of improving market conditions and effective credit management. In Personal Financial Services, loan impairment charges decreased by HK$622 million, but caution still remains on the unsecured lending book as the credit environment continues to recover. In Commercial Banking, loan impairment charges were significantly down by HK$1,050 million due to the non-recurrence of a number of specific impairment charges as credit conditions improved. In Global Banking and Markets the impairment charge increased but continued to remain at a very low level, at only HK$152 million.

 

Operating expenses were higher by HK$451 million, or 3.2 per cent. Employee compensation and benefits were broadly in line with those in the same period in 2009. However, there was an increase in non-staff related costs as the business returned to more normal levels of activity. There was an increase in marketing expenses as new campaigns were launched in 2010. In addition, there was an increase in recruitment costs and business travel as customer demand improved. The move of more operations to the Global Resourcing Centres resulted in an increase in inter-company processing costs. This was offset by tight cost control measures and higher utilisation of cost efficient electronic channels.



 

Rest of Asia-Pacific reported profit before tax of HK$17,554 million, an increase of HK$4,967 million, or 39.5 per cent, compared to the same period last year as a result of improved fee income and lower loan impairment charges, partly offset by reduced trading income and increased expenses.

 

Net interest income increased slightly by HK$580 million, or 4.2 per cent, as a result of growth in the loan portfolio.

 

Net advances to customers increased by HK$139,379 million since 30 June 2009. In Personal Financial Services, growth in the loan book was particularly strong in Australia, Malaysia, Singapore and mainland China as customer demand returned. This was partly offset by a fall in unsecured lending balances particularly in India. In Commercial Banking, customer confidence started to return and HSBC continued to build on its international network with mainland China and Indonesia. In particular, trade financing increased in the Greater China region and Singapore. Global Banking and Markets registered promising growth in the loan portfolio with an increase of 43.8 per cent over the same period last year.

 

Liability spreads continued to be constrained as interest rates remained at low levels in many countries across the region. However, this effect was partly offset by Australia, Malaysia, mainland China and India where rates were increased. Balance Sheet Management income decreased as higher yielding assets matured and were rolled over at lower rates mainly in Singapore and Japan, while in mainland China, the reserve ratio rises increased funding costs and reduced spreads.

 

Net fee income increased significantly by HK$1,613 million, or 31.0 per cent, compared with the same period last year as the economic environment continued to improve and confidence returned to the markets. Sales of wealth management and insurance products were strong as the equity markets started to stabilise and sales activities increased. In Commercial Banking, transactional banking fee income increased as regional trade started to improve, remittance volumes increased and re-pricing initiatives were implemented in late 2009.

 

In Global Banking and Markets, the rebound in assets under custody and assets under management in Securities Services and Asset Management led to an increase in revenue in Japan, South Korea and Singapore. The region also recorded higher advisory revenues earned from the Project and Export Finance business and the completion of a number of cross-border advisory transactions in India and South East Asia.

 

Net trading income decreased by HK$1,067 million, or 15.5 per cent, compared to the first half of 2009 due to fewer opportunities arising as a result of lower market volatility in India, mainland China, Singapore and South Korea. However, HSBC's cross-border sales platform served to sustain revenue in spite of competitive pricing.

 

Net income from financial investments designated at fair value decreased by HK$226 million, or 96.2 per cent, reflecting lower revaluation gains on unit-linked funds held in the insurance business. To the extent that these losses were attributable to policyholders, there was a corresponding decrease in net insurance claims incurred and movement in liabilities to policyholders.

 

Gains less losses from financial investments were HK$305 million compared to a loss of HK$225 million in the first half of 2009 as a result of gains on sales of available-for-sale investments and the non-recurrence of impairments reported in the first half of 2009.

 

Net earned insurance premiums increased by HK$360 million, or 30.6 per cent, as sales of insurance products strengthened, primarily in Taiwan and Malaysia, on the back of increased confidence in the market with a corresponding increase in net insurance claims incurred and movement in liabilities to policyholders.

 

Loan impairment charges decreased significantly by HK$2,822 million, or 65.8 per cent over the same period last year as the economic environment in the region started to improve. In Personal Financial Services, the credit quality of the portfolio strengthened relative to the second half of 2009. The reduction in loan impairment charges was particularly notable in India as credit issues associated with the unsecured portfolio were largely resolved. In Commercial Banking, loan impairment charges were also significantly reduced due to the non-recurrence of losses taken in 2009 against a number of customers, most notably in India. Whilst loan impairment charges are down, we remain cautious and will continue to closely monitor the portfolio.

 

Operating expenses increased as HSBC continued to show its commitment to the region through the addition of new branches in India, Malaysia, Australia, mainland China, Taiwan, Bangladesh and Sri Lanka. In mainland China, a new head office building was opened in Shanghai along with the 100th HSBC branded outlet. This consolidated HSBC's position as the leading foreign bank in the country. Across the region, marketing costs and IT spend increased as the business started to position itself for the recovery.

 

Profit from associates increased 46.8 per cent as a result of a higher revenues, particularly net interest income, from Bank of Communications Co., Ltd and lower loan impairment charges in Industrial Bank Co., Ltd ('Industrial Bank'). In addition, HSBC increased its holding in Bao Viet to 18 per cent at the beginning of the year and accounted for it as an associate from then. Following Industrial Bank's rights issue in May 2010, the bank took up its full share entitlement in June 2010 and increased its equity interest from 12.78 per cent to 12.80 per cent at 30 June 2010.

 

 


 

Consolidated Income Statement

 

 

 

 

 

Half-year ended

Half-year ended

 

 

30 June
30 June

 

 

2010

2009

 

Figures in HK$m

 

(restated1)

 

 

 

 

 

 

 

Interest income

40,108

 

 

43,390

 

Interest expense

(10,799

)

 

(13,279

)

Net interest income

29,309

 

 

30,111

 

Fee income

19,605

 

 

16,220

 

Fee expense

(2,912

)

 

(2,330

)

Net fee income

16,693

 

 

13,890

 

Net trading income

10,154

 

 

11,664

 

Net income from financial instruments

 

 

 

 

 

  designated at fair value

13

 

 

2,885

 

Gains less losses from financial investments

1,284

 

 

(242

)

Dividend income

328

 

 

132

 

Net earned insurance premiums

19,032

 

 

15,439

 

Other operating income

4,046

 

 

2,709

 

Total operating income

80,859

 

 

76,588

 

Net insurance claims incurred and

 

 

 

 

 

  movement in policyholders' liabilities

(18,032

)

 

(17,728

)

Net operating income before loan

 

 

 

 

 

  impairment charges and other credit

 

 

 

 

 

  risk provisions

62,827

 

 

58,860

 

Loan impairment charges and other

 

 

 

 

 

  credit risk provisions

(1,954

)

 

(6,404

)

Net operating income

60,873

 

 

52,456

 

Employee compensation and benefits

(15,496

)

 

(14,550

)

General and administrative expenses

(9,794

)

 

(8,827

)

Depreciation of property, plant and equipment

(1,620

)

 

(1,551

)

Amortisation of intangible assets

(714

)

 

(546

)

Total operating expenses

(27,624

)

 

(25,474

)

Operating profit

33,249

 

 

26,982

 

Share of profit in associates and joint ventures

5,326

 

 

3,527

 

Profit before tax

38,575

 

 

30,509

 

Tax expense

(7,207

)

 

(6,119

)

Profit for the period

31,368

 

 

24,390

 

 

 

 

 

 

 

Profit attributable to shareholders

28,675

 

 

22,246

 

Profit attributable to minority interests

2,693

 

 

2,144

 

 

 

 

 

 

 

 1 Restated for the adoption of HKAS 17 'Leases'. See Note 18 for further information.


Consolidated Statement of Comprehensive Income

 

 

 

 

 

Half-year ended

 

Half-year ended

 

 

30 June

30 June

 

 

2010

2009

 

Figures in HK$m

 

 

 

(restated1

)

 

 

 

 

 

 

 

Profit for the period

 

31,368

 

 

24,390

 

 

 

 

 

 

 

 

Available-for-sale investments:

 

 

 

 

 

 

- fair value changes taken to equity

 

1,992

 

 

20,102

 

- fair value changes transferred to the income statement

 

 

 

 

 

 

  on disposal

 

(1,168

)

 

(863

)

- fair value changes transferred to the income statement

 

 

 

 

 

 

  on impairment

 

-

 

 

123

 

- fair value changes transferred to the income statement

 

 

 

 

 

 

  on hedged items due to hedged risks

 

(1,043

)

 

622

 

- income taxes

 

112

 

 

(877

)

 

 

 

 

 

 

 

Cash flow hedges:

 

 

 

 

 

 

- fair value changes taken to equity

 

242

 

 

618

 

- fair value changes transferred to the income statement

 

(1,041

)

 

(1,740

)

- income taxes

 

136

 

 

173

 

 

 

 

 

 

 

 

Property revaluation:

 

 

 

 

 

 

- fair value changes taken to equity

 

2,358

 

 

1,658

 

- income taxes

 

(418

)

 

(275

)

 

 

 

 

 

 

 

Share of changes in equity of associates and joint ventures

 

(31

)

 

356

 

Exchange differences

 

964

 

 

1,629

 

Actuarial (losses)/gains on post-employment benefits

 

 

 

 

 

 

- before income taxes

 

(784

)

 

3,115

 

- income taxes

 

126

 

 

(499

)

Total comprehensive income for the period, net of tax

 

32,813

 

 

48,532

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total comprehensive income for the period attributable to:

 

 

 

 

 

 

- shareholders

 

29,461

 

 

45,071

 

- minority interests

 

3,352

 

 

3,461

 

 

 

32,813

 

 

48,532

 

 

 

 

1 Restated for the adoption of HKAS 17 'Leases'. See Note 18 for further information.


Consolidated Statement of Financial Position

 

 

 

 

 

At 30 June
At 31 December

 

 

2010

2009

 

Figures in HK$m

 

(restated1)

 

 

 

 

 

 

 

ASSETS

 

 

 

 

 

Cash and short-term funds

860,597

 

 

892,175

 

Items in the course of collection from other banks

50,560

 

 

15,528

 

Placings with banks maturing after one month

124,607

 

 

107,070

 

Certificates of deposit

55,346

 

 

37,388

 

Hong Kong SAR Government certificates

 

 

 

 

 

  of indebtedness

143,004

 

 

135,414

 

Trading assets

360,681

 

 

322,731

 

Financial assets designated at fair value

48,379

 

 

48,087

 

Derivatives

264,345

 

 

235,171

 

Advances to customers

1,552,564

 

 

1,350,644

 

Financial investments

826,002

 

 

882,689

 

Amounts due from Group companies

128,133

 

 

134,511

 

Investments in associates and joint ventures

69,308

 

 

53,683

 

Goodwill and intangible assets

26,977

 

 

25,069

 

Property, plant and equipment

60,543

 

 

58,810

 

Deferred tax assets

2,373

 

 

2,668

 

Retirement benefit assets

302

 

 

292

 

Other assets

61,108

 

 

58,818

 

Total assets

4,634,829

 

 

4,360,748

 

 

 

 

 

 

 

LIABILITIES

 

 

 

 

 

Hong Kong SAR currency notes in circulation

143,004

 

 

135,414

 

Items in the course of transmission to other banks

71,640

 

 

22,960

 

Deposits by banks

199,884

 

 

111,206

 

Customer accounts

2,989,060

 

 

2,944,539

 

Trading liabilities

157,355

 

 

154,366

 

Financial liabilities designated at fair value

37,587

 

 

36,709

 

Derivatives

262,886

 

 

232,846

 

Debt securities in issue

38,512

 

 

43,396

 

Retirement benefit liabilities

4,764

 

 

3,922

 

Amounts due to Group companies

61,264

 

 

50,842

 

Other liabilities and provisions

67,099

 

 

55,982

 

Liabilities under insurance contracts issued

160,249

 

 

144,928

 

Current tax liabilities

5,932

 

 

4,119

 

Deferred tax liabilities

11,434

 

 

10,503

 

Subordinated liabilities

19,727

 

 

21,181

 

Preference shares

101,638

 

 

101,208

 

Total liabilities

4,332,035

 

 

4,074,121

 

 

 

1 Restated for the adoption of HKAS 17 'Leases'. See Note 18 for further information.


 

At 30 June
At 31 December

 

 

2010

2009

 

Figures in HK$m

 

(restated1)

 

 

 

 

 

 

 

EQUITY

 

 

 

 

 

Share capital

22,494

 

 

22,494

 

Other reserves

91,808

 

 

89,603

 

Retained profits

154,818

 

 

139,255

 

Proposed dividend

6,000

 

 

8,850

 

Total shareholders' equity

275,120

 

 

260,202

 

Minority interests

27,674

 

 

26,425

 

 

302,794

 

 

286,627

 

Total equity and liabilities

4,634,829

 

 

4,360,748

 

 

 

 

 

 

 

 

  

 

1 Restated for the adoption of HKAS 17 'Leases'. See Note 18 for further information.


Consolidated Statement of Changes in Equity

 

 

 

 

 

Half-year ended

 

Half-year ended

 

Half-year ended

 

 

 

 

30 June   2010

 

31 December 2009

 

30 June      2009

 

 

 

 

 

 

(restated1)

 

(restated1)

 

 

Figures in HK$m

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Share Capital

 

 

 

 

 

 

 

 

At beginning and end of period

 

22,494

 

22,494

 

22,494

 

 

 

 

 

 

 

 

 

 

 

Retained profits

 

 

 

 

 

 

 

 

As previously reported

 

 

 

 

 

123,085

 

 

Restatement for HKAS 17

 

 

 

 

 

5

 

 

At beginning of period

 

139,255

 

135,855

 

123,090

 

 

Dividends to shareholders

 

(12,000

)

(14,740

)

(11,780

)

 

Other movements

 

154

 

54

 

203

 

 

Transfers

 

(1,228

)

(6,935

)

(1,142

)

 

Total comprehensive income for the period

 

28,637

 

25,021

 

25,484

 

 

 

 

154,818

 

139,255

 

135,855

 

 

 

 

 

 

 

 

 

 

 

Other reserves

 

 

 

 

 

 

 

 

Property revaluation reserve

 

 

 

 

 

 

 

 

 As previously reported

 

 

 

 

 

8,578

 

 

  Restatement for HKAS 17

 

 

 

 

 

11,864

 

 

  At beginning of period

 

22,983

 

21,425

 

20,442

 

 

  Other movements

 

1

 

(16

)

-

 

 

  Transfers

 

(306

)

(723

)

(281

)

 

Total comprehensive income for the period

 

1,777

 

2,297

 

1,264

 

 

 

 

24,455

 

22,983

 

21,425

 

 

 

 

 

 

 

 

 

 

 

Available-for-sale investment reserve

 

 

 

 

 

 

 

 

  At beginning of period

 

43,385

 

33,759

 

15,103

 

 

  Other movements

 

1

 

(3

)

(8

)

 

  Transfers

 

(42

)

17

 

56

 

 

Total comprehensive (expense)/income for

  the period

 

(436

)

9,612

 

18,608

 

 

 

 

42,908

 

43,385

 

33,759

 

 

 

 

 

 

 

 

 

 

 

Cash flow hedging reserve

 

 

 

 

 

 

 

 

  At beginning of period

 

848

 

1,015

 

1,833

 

 

  Transfers

 

(2

)

4

 

3

 

 

Total comprehensive expense for the period

 

(617

)

(171

)

(821

)

 

 

 

229

 

848

 

1,015

 

 

 

 

 

 

 

 

 

 

 

Foreign exchange reserve

 

 

 

 

 

 

 

 

  At beginning of period

 

6,998

 

3,303

 

1,666

 

 

  Transfers

 

818

 

1,585

 

1,088

 

 

Total comprehensive income for the period

 

77

 

2,110

 

549

 

 

 

 

7,893

 

6,998

 

3,303

 

 

 

1 Restated for the adoption of HKAS 17 'Leases'. See Note 18 for further information.


 

 

Half-year ended

 

Half-year ended

 

Half-year ended

 

 

 

 

30 June

2010

 

31 December 2009

 

30 June

2009

 

 

 

 

 

(restated1)

 

(restated1)

 

Figures in HK$m

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other reserves

 

 

 

 

 

 

 

  At beginning of period

 

15,389

 

9,271

 

9,683

 

Movement in respect of share-based payment

  arrangements

 

603

 

482

 

104

 

  Transfers

 

760

 

6,052

 

276

 

  Other movements

 

(452

)

(609

)

(779

)

Total comprehensive income/(expense) for the

   period

 

23

 

193

 

(13

)

 

 

16,323

 

15,389

 

9,271

 

 

 

 

 

 

 

 

 

Total shareholders equity

 

 

 

 

 

 

 

As previously reported

 

 

 

 

 

182,442

 

Restatement for HKAS 17

 

 

 

 

 

11,869

 

At beginning of period

 

251,352

 

227,122

 

194,311

 

Dividends to shareholders

 

(12,000

)

(14,740

)

(11,780

)

Movement in respect of share-based payment

  arrangements

 

603

 

482

 

104

 

Other movements

 

(296

)

(574

)

(584

)

Total comprehensive income for the period

 

29,461

 

39,062

 

45,071

 

 

 

269,120

 

251,352

 

227,122

 

 

 

 

 

 

 

 

 

Minority interests

 

 

 

 

 

 

 

As previously reported

 

 

 

 

 

22,874

 

Restatement for HKAS 17

 

 

 

 

 

1,265

 

At beginning of period

 

26,425

 

24,496

 

24,139

 

Dividends to shareholders

 

(2,192

)

(1,713

)

(3,117

)

Movement in respect of share-based payment

  arrangements

 

16

 

34

 

3

 

Other movements

 

73

 

(178

)

10

 

Total comprehensive income for the period

 

3,352

 

3,786

 

3,461

 

 

 

27,674

 

26,425

 

24,496

 

 

 

 

 

 

 

 

 

Total equity

 

 

 

 

 

 

 

As previously reported

 

 

 

 

 

205,316

 

Restatement for HKAS 17

 

 

 

 

 

13,134

 

At beginning of period

 

277,777

 

251,618

 

218,450

 

Dividends to shareholders

 

(14,192

)

(16,453

)

(14,897

)

Movement in respect of share-based payment

  arrangements

 

619

 

516

 

107

 

Other movements

 

(223

)

(752

)

(574

)

Total comprehensive income for the period

 

32,813

 

42,848

 

48,532

 

 

 

296,794

 

277,777

 

251,618

 

 

1 Restated for the adoption of HKAS 17 'Leases'. See Note 18 for further information.


Consolidated Cash Flow Statement

 

 

 

 

 

Half-year ended

 Half-year ended

 

 

 

30 June

 

30 June

 

Figures in HK$m

2010

 

2009

 

 

 

 

 

 

 

Operating activities

 

 

 

 

 

Cash (used in)/generated from operations

 

(87,338

)

298,653

 

Interest received on financial investments

 

6,759

 

7,560

 

Dividends received on financial investments

 

74

 

77

 

Dividends received from associates

 

1,500

 

1,469

 

Taxation paid

 

(4,560

)

(3,539

)

Net cash (outflow)/inflow from operating activities

 

(83,565

)

304,220

 

 

 

 

 

 

 

Investing activities

 

 

 

 

 

Purchase of financial investments

 

(251,793

)

(333,119

)

Proceeds from sale or redemption of financial

 

 

 

 

 

  investments

 

307,806

 

203,910

 

Purchase of property, plant and equipment

 

(749

)

(524

)

Proceeds from sale of property, plant and equipment

 

52

 

79

 

Purchase of other intangible assets

 

(629

)

(600

)

Net cash (outflow)/inflow in respect of the acquisition of

 

 

 

 

 

  and increased holdings in subsidiaries

 

(105

)

15,245

 

Net cash outflow in respect of the purchase of interests in

 

 

 

 

 

  associates and joint ventures

 

(3,452

)

-

 

Net cash inflow from the sale of interests in associates

 

95

 

-

 

Net cash inflow from sale of interest in a business portfolio

 

-

 

251

 

Net cash inflow/(outflow) from investing activities

 

51,225

 

(114,758

)

 

 

 

 

 

 

Net cash (outflow)/inflow before financing

 

(32,340

)

189,462

 

 

 

 

 

 

 

Financing

 

 

 

 

 

Issue of preference shares

 

-

 

8,226

 

Change in minority interests

 

60

 

(131

)

Repayment of subordinated liabilities

 

(1,580

)

-

 

Ordinary dividends paid

 

(14,850

)

(17,060

)

Dividends paid to minority interests

 

(2,192

)

(3,117

)

Interest paid on preference shares

 

(1,850

)

(1,838

)

Interest paid on subordinated liabilities

 

(277

)

(389

)

Net cash outflow from financing

 

(20,689

)

(14,309

)

 

 

 

 

 

 

(Decrease)/increase in cash and cash equivalents

 

(53,029

)

175,153

 

 

 

 

 

 

 

 

Additional Information

 

 

 

 

1. Net interest income

 

 

Half-year ended

Half-year ended

 

 

30 June

 

30 June

 

Figures in HK$m

2010

 

2009

 

 

 

 

 

 

 

Net interest income

29,309

 

 

30,111

 

Average interest-earning assets

3,259,261

 

 

2,969,847

 

Net interest spread

1.74

%

 

1.99

%

Net interest margin

1.81

%

 

2.04

%

 

Included in the above is interest income accrued on impaired financial assets of HK$168 million (2009: HK$227 million), including unwinding of discounts on loan impairment losses of HK$153 million (2009: HK$152 million).

 

Net interest income declined slightly by HK$802 million or 2.7 per cent compared to the first half of 2009 as the low interest rate environment in many countries in Asia continued to impact both deposit and liability spreads. Despite the repricing of assets off a lower yield curve and continuous margin compression, the adverse impact on net interest income was largely mitigated by strong growth in the loan book and the benefit from lower cost of funds.

 

Average interest-earning assets increased by HK$289,414 million or 9.7 per cent compared to the half-year ended 30 June 2009. Average customer lending increased 11 per cent with notable growth in corporate and commercial lending, and mortgages. Financial investments also increased as the commercial surplus was deployed in treasury bills, government bonds and debt securities.

 

Net interest margin decreased by 23 basis points to 1.81 per cent compared to the first half of 2009 despite an increase in average interest-earning assets. Liability spreads continued to be constrained as interest rates remained at low levels in many countries across the region. Net interest spread declined by 25 basis points to 1.74 per cent, whilst the contribution from net free funds increased by two basis points to seven basis points.

 

In Hong Kong, the bank recorded a drop in net interest margin of 32 basis points to 1.35 per cent. Net interest spread decreased by 35 basis points to 1.34 per cent. Net interest income decreased as the low interest rate environment continued to impact both asset and liability spreads. Assets in Balance Sheet Management continued to mature and funds were reinvested at lower market rates.

 

At Hang Seng Bank, the net interest margin declined by 36 basis points to 1.93 per cent while the net interest spread declined by 34 basis points to 1.89 per cent. Net interest spread declined due to narrowing deposit spreads and the repricing of assets off a lower yield curve. This adverse impact was moderated by growth in mortgages, on the back of an active property market, and other personal and commercial lending. The benefit of net free funds decreased by two basis points to four basis points as a consequence of the low interest rate environment.

 

In the Rest of Asia-Pacific, the net interest margin was 2.09 per cent, 14 basis points lower than the first half of 2009 with a general low interest rate environment in most countries across the region.  Notable growth in the loan book was recorded in mainland China, Singapore and Malaysia.

 

 

2. Net fee income 

 

 

Half-year ended

Half-year ended

 

 

30 June

 

 

30 June

 

 

Figures in HK$m

2010

 

 

2009

 

 

 

 

 

 

 

 

 

Account services

1,149

 

 

1,063

 

 

Credit facilities

1,350

 

 

925

 

 

Import/export

1,941

 

 

1,822

 

 

Remittances

1,149

 

 

948

 

 

Securities/stockbroking

4,048

 

 

3,887

 

 

Cards

2,901

 

 

2,699

 

 

Insurance

313

 

 

208

 

 

Unit trusts

1,432

 

 

580

 

 

Funds under management

2,186

 

 

1,374

 

 

Other

3,136

 

 

2,714

 

 

 

 

 

 

 

 

 

Fee income

19,605

 

 

16,220

 

 

 

 

 

 

 

 

 

Fee expense

(2,912

)

 

(2,330

)

 

 

 

 

 

 

 

 

 

16,693

 

 

13,890

 

 

 

 

 

 

 

 

 

 

Net fee income was HK$2,803 million, or 20.2 per cent higher than the first half of 2009.

 

Fees from unit trusts increased 146.9 per cent with higher subscription fees and commissions driven by higher demand for investment-based products, notably in Hong Kong, India and Taiwan. The trend correlated with improving sentiment as global equity markets gradually recovered since late 2009.

 

Income from funds under management was 59.1 per cent higher, attributable to improved sales of new funds, together with a more stable investment environment in 2010. It also reflected the ongoing growth in the value of assets under management. Securities and stockbroking income also rose by 4.1 per cent as a result of the improved investment environment.

 

Fees from credit facilities increased 45.9 per cent, which mainly reflected higher fees for arranging syndicated loans in 2010, notably in Hong Kong, Australia, New Zealand and India.

 

'Other' fee income grew primarily through higher fees earned from mandatory provident funds.  In addition, the completion of several large advisory transactions in Hong Kong, Japan and Singapore led to increased corporate finance fees, while higher underwriting income benefited from a participation in a number of equity capital market underwriting deals in Hong Kong in the first half of 2010.

3. Gains less losses from financial investments

 

 

Half-year ended

Half-year ended

 

 

30 June

 

 

30 June

 

Figures in HK$m

2010

 

 

2009

 

 

 

 

 

 

 

Gains less losses on available-for-sale financial

  investments

1,312

 

 

905

 

Impairment of available-for-sale equity investments

(28

)

 

(1,147

)

 

1,284

 

 

(242

)

 

 

 

 

 

 

During the first half of 2010, the group recognised gains on disposals of debt securities and also a gain on the reclassification of its investment in Bao Viet Holdings to an associate company following the purchase of additional shares in January 2010.  Prior year gains included profit arising from the disposal of Visa shares.

 

Impairment of available-for-sale equity investments in 2009 related to write-downs of strategic investments.

 

 

4. Other operating income

 

 

Half-year ended

Half-year ended

 

 

30 June

 

 

30 June

 

 

2010

 

 

2009

 

Figures in HK$m

 

 

 

(restated1)

 

 

 

 

 

 

 

Rental income from investment properties

155

 

 

83

 

Movement in present value of

 

 

 

 

 

  in-force insurance business

1,845

 

 

1,189

 

Profit/(loss) on disposal of property,

 

 

 

 

 

  plant and equipment, and assets held for sale

2

 


(18

)

Net gains from the disposal or revaluation of

 

 

 

 

 

  investment properties

153

 

 

98

 

Other

1,891

 

 

1,357

 

 

4,046

 

 

2,709

 

 

 

 

 

 

 

 

 

'Other' largely comprises recoveries of IT and other operating costs from shared services that were incurred on behalf of fellow Group companies.  It also included gains on acquired loans from The Chinese Bank and PT Bank Ekonomi Raharja Tbk ('Bank Ekonomi').

 

The present value of in-force insurance business rose by 55.2 per cent, or HK$656 million, as a result of more new business written in the first half of 2010.

 

  

1 Restated for the adoption of HKAS 17 'Leases'. See Note 18 for further information.


5. Insurance income

 

Included in the consolidated income statement are the following revenues earned by the insurance business:

 

 

 

Half-year ended

 

 

Half-year ended

 

 

 

30 June

 

 

30 June

 

Figures in HK$m

 

2010

 

 

2009

 

 

 

 

 

 

 

 

Net interest income

 

2,748

 

 

2,191

 

Net fee income

 

545

 

 

341

 

Net trading (loss)/income

 

(9

)

 

60

 

Net (loss)/income from financial instruments

 

 

 

 

 

 

  designated at fair value

 

(301

)

 

2,558

 

Gains less losses from financial investments

 

385

 

 

(5

)

Dividend income

 

-

 

 

27

 

Net earned insurance premiums

 

19,032

 

 

15,439

 

Movement in present value of in-force business

 

1,845

 

 

1,189

 

Other operating income/(expense)

 

27

 

 

(15

)

 

 

24,272

 

 

21,785

 

Net insurance claims incurred and movement

 

 

 

 

 

 

  in policyholders' liabilities

 

(18,032

)

 

(17,728

)

 

 

 

 

 

 

 

Net operating income

 

6,240

 

 

4,057

 

 

 

 

 

 

 

 

 

 

The decline in net income from financial instruments designated at fair value was primarily attributable to equity market-related losses on unit-linked contracts, with offsetting movements in the value of those contracts in 'Net insurance claims incurred and movement in policyholders' liabilities'.

 

Net earned insurance premiums increased 23.3 per cent as a result of higher sales in high-net-worth business, unit-linked insurance products and deferred annuity products in the first half of 2010.

 

The increase in net insurance claims incurred and movement in policyholder liabilities was driven by business growth, partly offset by the movement in fair value change from unit-linked contracts.


6. Loan impairment charges and other credit risk provisions

 

 

Half-year ended

Half-year ended

 

 

30 June

 

 

30 June

 

Figures in HK$m

2010

 

 

2009

 

 

 

 

 

 

 

Net charge for impairment of customer advances

 

 

 

 

 

 

 

 

 

 

- Individually assessed impairment allowances:

 

 

 

 

 

    New allowances

1,342

 

 

2,882

 

    Releases

(625

)

 

(422

)

    Recoveries

(117

)

 

(64

)

 

600

 

 

2,396

 

- Net charge for collectively assessed

 

 

 

 

 

  impairment allowances

1,355

 

 

3,917

 

 

1,955

 

 

6,313

 

 

 

 

 

 

 

Net (release)/charge for other credit risk provisions

(1

)

 

91

 

 

 

 

 

 

 

 

1,954

 

 

6,404

 

 

 

The net charge for loan impairment and other credit risk provisions decreased by HK$4,450 million, or 69.5 per cent over the first half of 2009.

 

The net charge for individually assessed allowances decreased notably in Hong Kong, India and Malaysia, representing a reduction in the number of customer credit downgrades in the first half of 2010 as economic conditions improved.

 

The net charge for collectively assessed impairment allowances also decreased in Hong Kong, India and Taiwan.  Hong Kong reported lower net impairment charges on credit cards, together with an improved economic factor and lower loss rates inherent in the corporate portfolio. A lower net impairment charge in India resulted primarily from improving delinquencies and a reduction in the overall credit card and unsecured lending portfolios.

 

Included in the net charge for other credit risk provisions was an impairment release of HK$3 million against available-for-sale debt securities (2009: a charge of HK$17 million). There were no impairment losses or provisions against held-to-maturity investments.

 

7. Employee compensation and benefits

 

 

Half-year ended

Half-year ended

 

 

30 June

 

 

30 June

 

Figures in HK$m

2010

 

 

2009

 

 

 

 

 

 

 

Wages and salaries

10,699

 

 

10,148

 

Performance-related pay

3,631

 

 

3,399

 

Social security costs

352

 

 

355

 

Retirement benefit costs

814

 

 

648

 

 

15,496

 

 

14,550

 

 

 

 

 

 

 

Staff numbers by regionW

 

 

 

 

 

 

At 30 June 2010

 

 

At 30 June 2009

 

 

 

 

 

 

 

Hong Kong

26,936

 

 

26,865

 

Rest of Asia-Pacific

43,468

 

 

43,175

 

Total

70,404

 

 

70,040

 

 

 

 

 

 

 

WFull-time equivalent

 

 

 

 

 

 

 

 

 

 

 

 

Total employee compensation and benefits increased by HK$946 million, or 6.5 per cent. Wages and salaries were HK$551 million higher, reflecting annual salary increments and higher average staff numbers over the period as a result of the acquisition of Bank Ekonomi in the first half of 2009, the expansion of the rural bank network in mainland China, and the growth of the business in Taiwan.

 

8. General and administrative expenses

 

 

Half-year ended

Half-year ended

 

 

30 June

 

 

30 June

 

 

2010

 

 

2009

 

Figures in HK$m

 

 

 

(restated1)

 

 

 

 

 

 

 

Premises and equipment

 

 

 

 

 

- Rental expenses

1,459

 

 

1,324

 

- Amortisation of prepaid operating lease payments

9

 

 

8

 

- Other premises and equipment

1,514

 

 

1,454

 

 

2,982

 

 

2,786

 







Marketing and advertising expenses

1,604

 

 

1,366

 

 






Other administrative expenses

5,216



4,732


 

 

 

 

 

 

Litigation and other provisions

(8

)

 

(57

)

 

9,794

 

 

8,827

 

 

 

 

 

 

 

 

 

General and administrative expenses increased by HK$967 million, or 11.0 per cent.

 

Other administrative expenses rose 10.2 per cent, or HK$484 million, mainly in Hong Kong with increasing expenditure on recruitment, consultancy, travel and intercompany processing. In the Rest of Asia-Pacific, higher expenses in mainland China were consistent with the growth in local operations, while increases in Taiwan reflected the migration of operations from a branch to a locally incorporated subsidiary in 2010. Marketing and advertising costs also increased by HK$238 million due to more branding and promotional activities carried out in 2010 in order to meet increasing competition across the region.

 

Charges in respect of premises and equipment were HK$196 million, or 7.0 per cent, higher in 2010. This was as a result of higher costs in mainland China due to an expanding branch network and the opening of the new Head Office building in Shanghai, along with a full six months reporting of Bank Ekonomi after the acquisition in May 2009. 

 

  

 

 

1 Restated for the adoption of HKAS 17 'Leases'. See Note 18 for further information.


9. Tax expense

 

The tax expense in the consolidated income statement comprises:

 

 

Half-year ended

Half-year ended

 

 

30 June

 

 

30 June

 

Figures in HK$m

2010

 

 

2009

 

 

 

 

 

(restated1

)

 

 

 

 

 

 

Current income tax

 

 

 

 

 

- Hong Kong profits tax

3,050

 

 

3,146

 

- Overseas taxation

2,954

 

 

2,752

 

Deferred taxation

1,203

 

 

221

 

 

7,207

 

 

6,119

 

 

 

 

 

 

 

 

The effective rate of tax for the first half of 2010 was 18.7 per cent, compared with 20.1 per cent for the first half of 2009.

 

10. Dividends

 

 

Half-year ended

 

Half-year ended

 

 

30 June

 

30 June

 

 

2010

 

2009

 

 

HK$

 

      HK$m

 

HK$

 

HK$m

 

 

per share

 

 

 

per share

 

 

 

 

 

 

 

 

 

 

 

 

Dividends paid on ordinary share capital

 

 

 

 

 

 

 

 

 - fourth interim dividend in respect of the

 

 

 

 

 

 

 

 

      previous financial year

0.98

 

8,850

 

1.24

 

11,170

 

 - first interim dividend paid

0.67

 

6,000

 

0.65

 

5,890

 

 

1.65

 

14,850

 

1.89

 

17,060

 

 

 

 

 

 

 

 

 

 

 

The Directors have declared a second interim dividend in respect of the half-year ended 30 June 2010 of HK$6,000 million (HK$0.67 per ordinary share).

 

  

 

1 Restated for the adoption of HKAS 17 'Leases'. See Note 18 for further information.


11. Advances to customers

 

 

At 30 June

 At 31 December

 

Figures in HK$m

2010

2009

 

 

 

 

 

 

 

Gross advances to customers

1,565,575

 

 

1,364,924

 

 

 

 

 

 

 

Impairment allowances:

 

 

 

 

 

- Individually assessed

(7,827

)

 

(8,088

)

- Collectively assessed

(5,184

)

 

(6,192

)

 

(13,011

)

 

(14,280

)

 

1,552,564

 

 

1,350,644

 

 

 

 

 

 

 

Allowances as a percentage of gross advances to customers:

 

 

 

 

 

- Individually assessed

0.50

%

 

0.59

%

- Collectively assessed

0.33

%

 

0.46

%

Total allowances

0.83

%

 

1.05

%

 

 

 

 

 

 

 

12. Impairment allowances against advances to customers

 

 

Individually

 

Collectively

 

 

 

 

assessed

 

assessed

 

 

 

Figures in HK$m

allowances

 

allowances

 

Total

 

 

 

 

 

 

 

 

At 1 January 2010

8,088

 

6,192

 

14,280

 

Amounts written off

(892

)

(2,983

)

(3,875

)

Recoveries of advances written off in

 

 

 

 

 

 

  previous years

117

 

699

 

816

 

Net charge to income statement

600

 

1,355

 

1,955

 

Unwinding of discount of loan impairment

(34

)

(119

)

(153

)

Exchange and other adjustments

(52

)

40

 

(12

)

 

 

 

 

 

 

 

At 30 June 2010

7,827

 

5,184

 

13,011

 

 

 

 

 

 

 

 


13. Impaired advances to customers and allowances

 

The geographical information shown below, and in note 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 

 

 

 

Figures in HK$m

 

Hong Kong

Asia-Pacific

 

 

 

 

 

 

 

 

 

 

Half-year ended 30 June 2010

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Impairment charge

 

 

491

 

1,464

 

1,955

 

 

 

 

 

 

 

 

 

Half-year ended 30 June 2009

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Impairment charge

 

 

2,090

 

4,223

 

6,313

 

 

 

 

 

 

 

 

 

 

 

At 30 June 2010

 

 

Advances to customers that are considered to be impaired are as follows:

 

 

 

 

 

 

 

 

 

Gross impaired advances

 

 

6,189

 

9,974

 

16,163

 

 

 

 

 

 

 

 

 

 

Individually assessed allowances

 

 

(3,390

)

(4,437

)

(7,827

)

 

 

 

2,799

 

5,537

 

8,336

 

 

 

 

 

 

 

 

 

 

Individually assessed allowances as a

 

 

 

 

 

 

 

 

  percentage of gross impaired advances

 

 

54.8

%

44.5

%

48.4

%

 

 

 

 

 

 

 

 

 

Gross impaired advances as a

 

 

 

 

 

 

 

 

  percentage of gross advances to

 

 

 

 

 

 

 

 

  customers

 

 

0.7

%

1.4

%

1.0

%

 

 


 

 

 

 

 

 

 
Rest of

 

 

 

Figures in HK$m

 

Hong Kong

 Asia-Pacific

Total

 

 

 

At 31 December 2009

 

 

Advances to customers that are considered to be impaired are as follows:

 

 

 

 

 

 

 

 

 

Gross impaired advances

 

 

6,358

 

9,838

 

16,196

 

 

 

 

 

 

 

 

 

 

Individually assessed allowances

 

 

(3,724

)

(4,364

)

(8,088

)

 

 

 

2,634

 

5,474

 

8,108

 

 

 

 

 

 

 

 

 

 

Individually assessed allowances as a

 

 

 

 

 

 

 

 

  percentage of gross impaired advances

 

 

58.6

%

44.4

%

49.9

%

 

 

 

 

 

 

 

 

 

Gross impaired advances as a

 

 

 

 

 

 

 

 

  percentage of gross advances to

 

 

 

 

 

 

 

 

  customers

 

 

0.8

%

1.6

%

1.2

%

 

 

 

 

 

 

 

 

 

 

Impaired advances to customers are those for which objective evidence exists that full repayment of principal or interest is considered unlikely.

 

Individually assessed allowances are made after taking into account the value of collateral held in respect of such advances.


14. 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 subsidiaries, for risk management purposes.

 

 

 

 

 

 

 

 

 

 

 

 

 
 
Rest of

 

 

 

Figures in HK$m

 

Hong Kong
Asia-Pacific


Total

 

 

 

 

 

 

 

 

 

At 30 June 2010

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential mortgages

 

 

261,696

 

179,861

 

441,557

 

 

 

 

 

 

 

 

 

 

Hong Kong SAR Government's Home

 

 

 

 

 

 

 

 

  Ownership Scheme, Private Sector

 

 

 

 

 

 

 

 

  Participation Scheme and Tenants

 

 

 

 

 

 

 

 

  Purchase Scheme mortgages

 

 

26,181

 

-

 

26,181

 

 

 

 

 

 

 

 

 

 

Credit card advances

 

 

33,350

 

30,086

 

63,436

 

 

 

 

 

 

 

 

 

 

Other personal

 

 

44,237

 

34,528

 

78,765

 

Total personal

 

 

365,464

 

244,475

 

609,939

 

 

 

 

 

 

 

 

 

 

Commercial, industrial and international trade

 

 

181,936

 

273,659

 

455,595

 

 

 

 

 

 

 

 

 

 

Commercial real estate

 

 

128,341

 

55,634

 

183,975

 

 

 

 

 

 

 

 

 

 

Other property-related lending

 

 

94,838

 

32,651

 

127,489

 

 

 

 

 

 

 

 

 

 

Government

 

 

2,777

 

7,504

 

10,281

 

 

 

 

 

 

 

 

 

 

Other commercial

 

 

63,143

 

73,416

 

136,559

 

Total corporate and commercial

 

 

471,035

 

442,864

 

913,899

 

 

 

 

 

 

 

 

 

 

Non-bank financial institutions

 

 

19,646

 

17,627

 

37,273

 

 

 

 

 

 

 

 

 

 

Settlement accounts

 

 

3,889

 

575

 

4,464

 

Total financial

 

 

23,535

 

18,202

 

41,737

 

 

 

 

 

 

 

 

 

 

Gross advances to customers

 

 

860,034

 

705,541

 

1,565,575

 

 

 

 

 

 

 

 

 

 

Impairment allowances

 

(5,599

)

(7,412

)

(13,011

)

 

 

 

 

 

 

 

 

 

Net advances to customers

 

 

854,435

 

698,129

 

1,552,564

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 


 

 
 
Rest of

 

 

 

Figures in HK$m

 

Hong Kong

Asia-Pacific

 

Total

 

 

 

 

 

 

 

 

 

At 31 December 2009

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential mortgages

 

 

244,328

 

169,016

 

413,344

 

 

 

 

 

 

 

 

 

 

Hong Kong SAR Government's Home

 

 

 

 

 

 

 

 

  Ownership Scheme, Private Sector

 

 

 

 

 

 

 

 

  Participation Scheme and Tenants

 

 

 

 

 

 

 

 

  Purchase Scheme mortgages

 

 

26,801

 

-

 

26,801

 

 

 

 

 

 

 

 

 

 

Credit card advances

 

 

35,545

 

31,654

 

67,199

 

 

 

 

 

 

 

 

 

 

Other personal

 

 

41,384

 

35,550

 

76,934

 

Total personal

 

 

348,058

 

236,220

 

584,278

 

 

 

 

 

 

 

 

 

 

Commercial, industrial and international trade

 

 

137,461

 

219,631

 

357,092

 

 

 

 

 

 

 

 

 

 

Commercial real estate

 

 

105,404

 

50,131

 

155,535

 

 

 

 

 

 

 

 

 

 

Other property-related lending

 

 

78,028

 

30,030

 

108,058

 

 

 

 

 

 

 

 

 

 

Government

 

 

3,416

 

4,615

 

8,031

 

 

 

 

 

 

 

 

 

 

Other commercial

 

 

56,821

 

55,312

 

112,133

 

Total corporate and commercial

 

 

381,130

 

359,719

 

740,849

 

 

 

 

 

 

 

 

 

 

Non-bank financial institutions

 

 

19,088

 

17,976

 

37,064

 

 

 

 

 

 

 

 

 

 

Settlement accounts

 

 

2,437

 

296

 

2,733

 

Total financial

 

 

21,525

 

18,272

 

39,797

 

 

 

 

 

 

 

 

 

 

Gross advances to customers

 

 

750,713

 

614,211

 

1,364,924

 

 

 

 

 

 

 

 

 

 

Impairment allowances

 

(6,136

)

(8,144

)

(14,280

)

 

 

 

 

 

 

 

 

 

Net advances to customers

 

 

744,577

 

606,067

 

1,350,644

 

 

 

 

 

 

 

 

 

 

  

Net advances in Hong Kong increased by HK$109.9 billion, or 14.8 per cent, since the end of 2009. The increase was largely attributable to significant growth in corporate and commercial lending (up HK$89.9 billion), with increases particularly in the commercial real estate and other property-related sectors and commercial, industrial and international trade. Residential mortgages increased by HK$17.4 billion, as the property market became more active in the first half of 2010.

 

In the Rest of Asia-Pacific, net advances to customers increased by HK$92.1 billion, or 15.2 per cent. The increase was mainly from corporate and commercial lending (up HK$83.1 billion) with notable growth across all sectors, reflecting higher demand due to a general improvement in economic conditions. Advances to personal customers increased by HK$8.3 billion, or 3.5 per cent, of which residential mortgages increased by HK$10.8 billion, with notable growth in Malaysia, Australia, mainland China and Singapore. 

 

15. Customer accounts

 

 

At 30 June
At 31 December

Figures in HK$m

2010

2009

 

 

 

 

Current accounts

535,437

 

536,350

Savings accounts

1,588,971

 

1,591,351

Other deposit accounts

864,652

 

816,838

 

2,989,060

 

2,944,539

 

 

 

 

 

Customer accounts increased by HK$44.5 billion, or 1.5 per cent, since the end of 2009.

 

In Hong Kong, customer accounts increased by HK$5.2 billion, or 0.3 per cent, with increased money market deposits placed by institutional investors, partially offset by decreases in current accounts, saving accounts and time deposits.  The drop in current accounts, saving accounts and time deposits reflected customers' preference for investment opportunities in the current low interest rate environment. 

 

In the Rest of Asia-Pacific, customer accounts increased by HK$39.3 billion, or 4.1 per cent, as compared to the end of 2009.  Strong underlying growth was noted in Singapore, Mauritius, Australia, Taiwan and Indonesia. Malaysia also recorded an increase, largely attributable to an appreciation in the underlying currency.

 

The group's advances-to-deposits ratio increased to 51.9 per cent at 30 June 2010, from 45.9 per cent at 31 December 2009.

 

16. Disclosure for selected exposures

a          Holdings of asset-backed securities

 

The group has holdings of asset-backed securities (ABSs), including those represented by mortgage-backed securities (MBSs) and by collateralised debt obligations (CDOs). The table below shows the group's exposure to ABSs issued by entities which are not consolidated by any HSBC Group entities. The carrying amounts of these exposures are measured at fair value.

 

Figures in HK$m

Gross principalW


CDS Gross protectionWW


Net principal exposureWWW


Carrying amountWWWW

At 30 June 2010








Sub-prime residential mortgage-

  related assets:








MBSs and MBS CDOs








- high grade (AA or AAA rated)

50


-


50


43

- rated C to A

558


-


558


76


608


-


608


119

US government-sponsored  

  enterprises' mortgage-related    assets:








MBSs








- high grade (AA or AAA rated)

5,654


-


5,654


5,654









Other residential mortgage-related

  assets:








MBSs








- high grade (AA or AAA rated)

2,766


-


2,766


2,626

- rated C to A

1


-


1


1

- not publicly rated

8


-


8


8


2,775


-


2,775


2,635

Commercial property








  mortgage-related assets:








MBSs








- rated C to A

879


-


879


346









Leverage finance-related assets:








ABSs and ABS CDOs








- high grade (AA or AAA rated)

149


-


149


133









Student loan-related assets:








ABSs and ABS CDOs








- high grade (AA or AAA rated)

1,269


-


1,269


1,266









Other assets








ABS and ABS CDOs








- high grade (AA or AAA rated)

939


-


939


911

- rated C to A

51


-


51


16


990


-


990


927










12,324


-


12,324


11,080


  

The table below shows the geographical distribution of the group's exposures to ABSs shown above.

 

 

At 30 June 2010

Figures in HK$m

Gross principalW

 

CDS Gross protectionWW

 

Net principal exposureWWW

 

Carrying amountWWWW

US

8,567

 

-

 

8,567

 

7,498

UK

1,006

 

-

 

1,006

 

884

Rest of the world

2,751

 

-

 

2,751

 

2,698

 

12,324

 

-

 

12,324

 

11,080

 

 

At 31 December 2009

Figures in HK$m

Gross principalW

 

CDS Gross protectionWW

 

Net principal exposureWWW

 

Carrying amountWWWW

US

7,249

 

-

 

7,249

 

5,982

UK

1,105

 

-

 

1,105

 

918

Rest of the world

4,062

 

(190

)

3,872

 

3,805

 

12,416

 

(190

)

12,226

 

10,705

 

 

W             The gross principal is the redemption amount on maturity or, in the case of an amortising instrument, the sum of the future redemption amounts through the residual life of the security.

WW          A CDS is a credit default swap. CDS protection principal is the gross principal of the underlying instrument that is protected by CDSs.

WWW      Net principal exposure is the gross principal amount of assets that are not protected by CDSs. It includes assets that benefit from monoline protection, except where this protection is purchased with a CDS.

WWWW    Carrying amount of the net principal exposure.

 

 

b          Exposure to derivative transactions entered into with monoline insurers

 

The group's principal exposure to monoline insurers is through a number of derivative transactions, primarily CDSs.

 

There is no exposure to derivative transactions entered into with monoline insurers at 30 June 2010.

 

The table below sets out the fair value of the monoline derivative contracts at 31 December 2009, and hence the amount at risk, based on 31 December 2009 security prices, if the protection purchased were to be wholly ineffective because, for example, the monoline insurer was unable to meet its obligations. The 'Credit risk adjustment' column indicates the valuation adjustment taken against the fair value exposures, and reflects the estimated deterioration in creditworthiness of a monoline insurer during the year. There was no valuation adjustment taken during 2009.



 

 

Figures in HK$m

 

Notional

amount

 

 

Net exposure before credit risk adjustmentW

 

 

Credit risk adjustmentWW

 

Net exposure after credit risk adjustment

At 30 June 2010

 

 

 

 

 

 

 

 

Derivative transactions with monolines

 

 

 

 

 

 

 

 

- investment grade

 

-

 

-

 

-

 

-

 

 

 

 

 

 

 

 

 

At 31 December 2009

 

 

 

 

 

 

 

 

Derivative transactions with monolines

 

 

 

 

 

 

 

 

- investment grade

 

190

 

-

 

-

 

-

 

W             Net exposure after legal netting and any other relevant credit mitigation prior to deduction of credit risk adjustment.

WW         Fair value adjustment recorded against over-the-counter derivative counterparty exposures to reflect the credit worthiness of the counterparty.

 

 

c          Leveraged finance transactions

 

Leveraged finance commitments held by the group were HK$670 million at 30 June 2010 (31 December 2009: HK$712 million), of which HK$491 million (31 December 2009: HK$545 million) was funded.

 

 

d          Involvement with Special Purpose Entities ('SPEs')

 

The group enters into certain transactions with customers in the ordinary course of business that involve the establishment of SPEs. The purposes for which the SPEs are established include facilitating the raising of funding for customers' business activities or to effect a lease. The use of SPEs is not a significant part of the group's activities and the group is not reliant on SPEs for any material part of its business operations or profitability.

 

 


 

17. Contingent liabilities and commitments

 

 

At 30 June
At 31 December

Figures in HK$m

2010

2009

 

 

 

 

Contract amount:

 

 

 

 

 

 

 

Contingent liabilities

149,031

 

142,660

Commitments

1,232,233

 

1,135,475

 

1,381,264

 

1,278,135

 

 

 

 

 

18. Accounting policies

 

The accounting policies and methods of computation adopted by the group for this news release are consistent with those described on pages 37 to 52 of the 2009 Annual Report and Accounts. A number of new and revised Hong Kong Financial Reporting Standards have become effective in 2010. The only standard that has a material impact on the group is HKAS 17 'Leases'.

 

Following the amendment to HKAS 17 issued by the Hong Kong Institute of Certified Public Accountants ('HKICPA') in May 2009, the group reclassified interests in leasehold land held under long leases from operating leases to finance leases. Before the amendment, these leases were recorded at historical cost and amortised over the term of the lease. Upon reclassification to finance leases, the leases are carried at valuation and included under 'Property, Plant and Equipment', with the difference between the amortised cost and the valuation recognised in the property revaluation reserve. The corresponding prior-year comparatives have been adjusted accordingly.

 

The following primary statement lines have been impacted by the adoption of HKAS 17:

 

 

 

As reported

 

Adjustment

 

Restated

 

 

 

HK$m

 

HK$m

 

HK$m

 

Half-year ended 30 June 2009

 

 

 

 

 

 

 

Profit for the period

 

24,443

 

(53

)

24,390

 

Total comprehensive income

 

47,581

 

951

 

48,532

 

Profit attributable to minority interests

 

2,148

 

(4

)

2,144

 

 

 

 

 

 

 

 

 

As at 31 December 2009

 

 

 

 

 

 

 

Property, plant and equipment

 

36,327

 

22,483

 

58,810

 

Property revaluation reserve

 

8,593

 

14,390

 

22,983

 

Retained profits

 

139,231

 

24

 

139,255

 

Minority interests

 

24,939

 

1,486

 

26,425

 


19. Subsequent events

 

On 2 July 2010, the group entered into an agreement to acquire The Royal Bank of Scotland Group plc's retail and commercial banking businesses in India. The total consideration will comprise a premium of up to US$95 million over the net asset value of the businesses being acquired. The purchase price will be reduced in respect of 90 per cent of any credit losses incurred on the unsecured lending portfolio in the two years subsequent to completion. The initial consideration paid will be reduced by an estimate of these losses with an adjustment to reflect the actual losses at the end of the two year protection period. The acquisition is subject to regulatory approvals and is expected to complete in the first half of 2011.

 

20. Additional information

 

Additional financial information, including the group's capital ratios, relating to the period ended 30 June 2010, prepared in accordance with the Banking (Disclosure) Rules made under section 60A of the Banking Ordinance, will be made available on our website: www.hsbc.com.hk. A further press release will be issued to announce the availability of this information.

 

21. 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 2009 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 1 March 2010. The Annual Report and Accounts for the year ended 31 December 2009, which include the statutory accounts, can be obtained on request from Group Communications (Asia), The Hongkong and Shanghai Banking Corporation Limited, 1 Queen's Road Central, Hong Kong, and may be viewed on our website: www.hsbc.com.hk.

 

22. Ultimate holding company

 

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

 

23. Statement of compliance

 

The information in this news release for the half-year ended 30 June 2010 complies with Hong Kong Accounting Standard 34, Interim Financial Reporting.

 

 

 

Media enquiries to:                       David Hall                         Telephone no: + 852 2822 1133

                                                        Gareth Hewett                  Telephone no: + 852 2822 4929

                                                        Richard Beck                    Telephone no: + 44 20 7991 0633

                                                        Patrick McGuinness          Telephone no: + 44 20 7991 0111


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