2/4: HK&S Bk Corp FY03 PT 2

HSBC Holdings PLC
01 March 2004


11. Overdue advances to customers

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

At 31Dec03

Gross advances to
  customers which have
  been overdue with
  respect to either
  principal or interest
  or periods of^

- six months or less but
  over three months          2,334            866           -    3,200

- one year or less but
  over six months            1,428            867           -    2,295

- over one year              3,133          2,376           -    5,509
                             6,895          4,109           -   11,004

Overdue advances to
  customers as a
  percentage of gross
  advances to
  customers^^

- six months or less but
  over three months            0.4%           0.3%          -      0.4%

- one year or less but
  over six months              0.2%           0.3%          -      0.3%

- over one year                0.6%           0.9%          -      0.6%
                               1.2%           1.5%          -      1.3%

Overdue advances to    
  customers (as above)       6,895          4,109           -   11,004

Less: overdue advances
  on which interest
  is still being accrued    (1,593)          (247)          -   (1,840)

Add: advances overdue for
  periods of three months
  or less, or which are
  not yet overdue, and
  on which interest has 
  been placed in 
  suspense:
  - included in rescheduled
    advances                 4,043            692           5    4,740
  - other                    3,631          1,723           -    5,354

Gross non-performing 
  advances (Note 10)        12,976          6,277           5   19,258

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

At 31Dec02

Gross advances to
  customers which have
  been overdue with
  respect to either
  principal or interest
  for periods of^

- six months or less but
  over three months          1,896            680           -    2,576

- one year or less but
  over six months            1,847          1,018           -    2,865

- over one year              5,376          4,011           -    9,387
                             9,119          5,709           -   14,828

Overdue advances to
  customers as a
  percentage of gross
  advances to
  customers^^

- six months or less but 
  over three months            0.4%           0.4%          -      0.3%

- one year or less but
  over six months              0.3%           0.5%          -      0.4%

- over one year                1.0%           2.0%          -      1.3%
                               1.7%           2.9%          -      2.0%

Overdue advances to
  customers (as above)       9,119          5,709           -   14,828

Less: overdue advances
  on which interest is
  still being accrued       (1,509)          (220)          -   (1,729)

Add: advances overdue for
  periods of three months
  or less, or which are 
  not yet overdue, and on
  which interest has been
  placed in suspense:
  - included in rescheduled
    advances                 4,533          1,121           4    5,658
  - other                    1,300          2,651           -    3,951

Gross non-performing 
  advances (Note 10)        13,443          9,261           4   22,708

^Gross overdue 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.

12. Rescheduled advances to customers

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

At 31Dec03

Rescheduled advances to 
  customers^                   7,520            829          5   8,354

Rescheduled advances to
  customers as a
  percentage of gross
  advances to
  customers^^                    1.3%           0.3%      41.7%    1.0%

At 31Dec02

Rescheduled advances to
  customers^                   6,496          1,373          4   7,873

Rescheduled advances to
  customers as a
  percentage of gross
  advances to
  customers^^                    1.2%           0.7%       0.6%    1.1%

Rescheduled advances are those advances which have been restructured or
renegotiated because of a deterioration in the financial position of the
borrower, or because of the inability of the borrower to meet the original
repayment schedule.

Rescheduled advances to customers are stated net of any advances which have
subsequently become overdue for over three months and which are included in
overdue advances to customers (Note 11).

Rescheduled advances to customers increased in Hong Kong mainly due to the debt
restructuring of certain corporate customers in Hang Seng Bank.

^Rescheduled advances are stated after deduction of interest in suspense.

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

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

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

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

At 31Dec03

Residential mortgages      183,031         79,104          -   262,135

Hong Kong SAR
  Government's Home
  Ownership Scheme and
  Private Sector 
  Participation Scheme and
  Tenants Purchase Scheme
  mortgages                 48,830              -          -    48,830

Other personal              40,679         29,490          7    70,176
Total personal             272,540        108,594          7   381,141

Commercial, industrial
  and international
  trade                     85,132         79,927          -   165,059

Commercial real estate      66,362         21,899          5    88,266

Other property-related
  lending                   39,401         11,849          -    51,250

Government                   7,193          4,976          -    12,169

Other commercial            52,426         29,149          -    81,575
Total corporate and
  commercial               250,514        147,800          5   398,319

Non-bank financial
  institutions              38,206          7,818          -    46,024

Settlement accounts          3,564            367          -     3,931
Total financial             41,770          8,185          -    49,955

Gross advances to
  customers                564,824        264,579         12   829,415

Suspended interest            (603)          (538)         -    (1,141)

Gross advances to
  customers net of
  suspended interest       564,221        264,041         12   828,274

Provisions for bad and
  doubtful debts            (8,144)        (5,121)        (5)  (13,270)

Net advances to
  customers                556,077        258,920          7   815,004

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

At 31Dec02

Residential mortgages      185,439         46,017           -   231,456

Hong Kong SAR
  Government's Home
  Ownership Scheme and
  Private Sector
  Participation Scheme
  and Tenants
  Purchase Scheme
  mortgages                 56,576              -           -    56,576

Other personal              41,448         21,643          11    63,102
Total personal             283,463         67,660          11   351,134

Commercial, industrial
  and international
  trade                     79,330         64,504         664   144,498

Commercial real estate      65,009         18,290           4    83,303

Other property-related
  lending                   37,468          6,074           -    43,542

Government                   5,610          3,963           -     9,573
Other commercial            51,560         31,306           -    82,866
Total corporate and
  commercial               238,977        124,137         668   363,782

Non-bank financial
  institutions              16,027          5,626           -    21,653

Settlement accounts          1,838            581           -     2,419
Total financial             17,865          6,207           -    24,072

Gross advances to
  customers                540,305        198,004         679   738,988

Suspended interest            (904)          (571)          -    (1,475)

Gross advances to
  customers net of 
  suspended interest       539,401        197,433         679   737,513

Provisions for bad and
  doubtful debts            (8,882)        (6,852)         (4)  (15,738)

Net advances to 
  customers                530,519        190,581         675   721,775

Advances to customers increased by HK$93.2 billion, or 12.9 per cent, since
December 2002. At constant exchange rates, advances to customers grew by HK$70.0
billion or 9.7 per cent.

Advances in Hong Kong grew by HK$25.6 billion, or 4.8 per cent, since the end of
2002 against a background of continued subdued loan demand and fierce market
competition. In the bank in Hong Kong, advances to customers grew by HK$20.5
billion, or 6.7 per cent during 2003, with increases in lending relating to
stock borrowing, other property-related lending and trade finance. Advances in
Hang Seng Bank grew by HK$4.9 billion, or 2.2 per cent, since December 2002 with
an increase in corporate and commercial loans mainly in lending to financial
concerns and public sector entities engaged in financing activities. There was a
reduction in personal lending in both Hang Seng Bank and the bank in Hong Kong,
principally due to the continued decline in lending under the GHOS, which
remained suspended during 2003.

In the rest of the Asia-Pacific region, net advances to customers increased by
HK$68.3 billion, or 35.9 per cent, since the end of 2002. At constant exchange
rates the increase was HK$45.1 billion or 23.7 per cent. Excluding the effect of
the weaker Hong Kong dollar, there has been an increase of HK$30.3 billion, or
45.3 per cent, since December 2002 in personal lending as a result of the growth
in the Personal Financial Services business in a number of countries. The
mortgage portfolio, in particular, has grown by HK$23.1 billion, or 50.1 per
cent, at constant exchange rates, with a marked increase in the bank in New
Zealand reflecting the acquisition of a HK$8.4 billion mortgage portfolio from
AMP Bank. Mortgage lending also increased in the bank in Korea, Singapore, India
and HSBC Bank Australia. Card lending has increased by 22.7 per cent at constant
exchange rates since the end of 2002 with increases in HSBC Bank Australia, and
in the bank in Taiwan, Thailand and Indonesia. Lending to commercial banking
customers rose 16.6 per cent, at constant exchange rates, compared with the end
of 2002 with increases in the bank in China and HSBC Bank Australia. Lending
relating to the Corporate, Investment Banking and Markets business rose by 9.7
per cent mainly due to increased corporate lending in the bank in China.

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

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

At 31Dec03

Gross advances to 
  customers, net 
  of suspended
  interest                499,432        260,108      64,116    4,618   828,274
Overdue advances to
  customers                 6,679          3,958         366        1    11,004
Non-performing 
  advances to
  customers                11,527          6,267       1,462        2    19,258

At 31Dec02

Gross advances
  to customers,
  net of suspended 
  interest                497,925        178,002      58,405    3,181   737,513
Overdue advances to
  customers                 8,497          5,749         575        7    14,828
Non-performing 
  advances to
  customers                11,777          8,961       1,952       18    22,708

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

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

Figures in HK$m                                At 31Dec03   At 31Dec02

Gross advances to customers for use in Hong
Kong

Industrial, commercial and financial
Property development                               37,873       42,845
Property investment                                74,938       69,499
Financial concerns                                 16,218        9,813
Stockbrokers                                          612          693
Wholesale and retail trade                         26,689       25,602
Manufacturing                                      10,498        8,622
Transport and transport equipment                  31,482       30,810
Others                                             39,641       43,042
                                                  237,951      230,926

Figures in HK$m                                At 31Dec03   At 31Dec02

Individuals
Advances for the purchase of flats under the
  Hong Kong SAR Government's Home Ownership 
  Scheme and Private Sector Participation and 
  Tenants Purchase Scheme                          48,830       56,576
Advances for the purchase of other 
  residential properties                          168,841      169,836
Credit card advances                               20,747       19,696
Others                                             17,689       20,700
                                                  256,107      266,808

Gross advances to customers for use in Hong 
  Kong                                            494,058      497,734

Trade finance                                      38,086       35,096

Gross advances to customers for use outside
  Hong Kong made by branches of the bank
  and subsidiary companies in Hong Kong            32,077        6,571

Gross advances to customers made by branches
  of the bank and subsidiary companies in Hong
  Kong                                            564,221      539,401


Gross advances to customers made by branches
  of the bank and subsidiary companies outside 
  Hong Kong
- rest of Asia-Pacific                            264,041      197,433
- Americas/Europe                                      12          679

Gross advances to customers net of suspended 
  interest                                        828,274      737,513

An explanation of the significant differences between the categories of advances
and their definitions used by the HSBC Group and those used by the HKMA is given
on pages 16-17 of the Annual Report and Accounts for 2002.

16. Cross-border exposure

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

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

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

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

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

At 31Dec03

Americas
United States                     21,464     58,929   23,304   103,697
Other                             39,840     23,040   20,898    83,778
                                  61,304     81,969   44,202   187,475

Europe
United Kingdom                    81,520         16   31,175   112,711
Other                            253,748      1,567   30,124   285,439
                                 335,268      1,583   61,299   398,150

Asia-Pacific excluding Hong
  Kong                           110,348     37,847   79,558   227,753

At 31Dec02

Americas
United States                     19,273     47,023   27,185    93,481
Other                             32,788     18,052   16,975    67,815
                                  52,061     65,075   44,160   161,296

Europe
United Kingdom                    66,441          -   24,222    90,663
Other                            205,331      6,182   25,357   236,870
                                 271,772      6,182   49,579   327,533

Asia-Pacific excluding Hong
  Kong                           106,014     44,570   52,811   203,395

17. Current, savings and other deposits

Figures in HK$m                            At 31Dec03      At 31Dec02

Customer accounts
- Current accounts                            211,749         150,749
- Savings accounts                            682,412         528,231
- Other deposit accounts                      665,234         710,563

                                            1,559,395       1,389,543

Certificates of deposit in issue               92,521          74,380
Other debt securities in issue                 17,788           9,616

                                            1,669,704       1,473,539

Current, savings and other deposits rose by HK$196.2 billion, or 13.3 per cent,
since the end of 2002. At constant exchange rates, the increase was HK$166.8
billion or 11.3 per cent. Customer accounts at constant exchange rates increased
by HK$146.0 billion, or 10.5 per cent, since the end of 2002.

In Hong Kong, customer accounts increased by HK$106.8 billion, or 9.7 per cent,
since the end of 2002. Personal account balances grew by HK$56.4 billion, or 7.0
per cent, compared with 31 December 2002 while there was a further movement of
funds from time deposits to current and savings accounts in both the bank and
Hang Seng Bank as customers preferred liquidity in an uncertain and low interest
rate environment. Deposits from Commercial, and Corporate, Investment Banking
and Markets businesses rose by HK$50.4 billion compared with the end of 2002
mainly in the bank in Hong Kong.

In the rest of the Asia-Pacific region, customer accounts increased by HK$62.7
billion, or 22.3 per cent, since the end of 2002. At constant exchange rates the
increase was HK$39.1 billion or 13.9 per cent. Deposits from personal customers
grew by 9.8 per cent at constant exchange rates since the end of 2002 with
strong growth in the bank in New Zealand following the acquisition of a deposit
portfolio from AMP Bank. In addition, there were increases in the bank in China
and India and in HSBC Bank Australia. Customer deposits from Commercial Banking
business were in line with the end of 2002, while deposits from Corporate,
Investment Banking and Markets businesses increased by 28.1 per cent at constant
exchange rates, with increases in the bank in China, Taiwan, Korea and HSBC Bank
Australia.

The increase in certificates of deposit in issue compared with December 2002 was
mainly in the bank in Hong Kong and related to wealth management products
launched by the group.

The group's advances-to-deposits ratio declined to 48.8 per cent at 31 December
2003 from 49.0 per cent at 31 December 2002.

18. Reserves

                                               At 31Dec03   At 31Dec02
Figures in HK$m                                               restated

Share premium account                               3,878        3,895
Revaluation reserves
- Premises revaluation reserve                      5,439        6,613
- Investment properties revaluation reserve         1,696        1,973
- Long-term equity investments revaluation
  reserve                                           1,182        1,261
                                                    8,317        9,847
Retained profits                                   37,764       28,952
                                                   49,959       42,694

19. Contingent liabilities, commitments and derivatives

                                                     Credit      Risk-
                                      Contract   equivalent   weighted
Figures in HK$m                         amount       amount     amount
At 31Dec03
Contingent liabilities
- Acceptances and endorsements          19,355        4,033      3,803
- Guarantees                           122,075      107,562     35,892
- Other                                    130          130        130
                                       141,560      111,725     39,825
Commitments
- Documentary credits and
  short-term
  trade-related transactions            45,038       12,890      8,767
- Forward asset purchases and
  forward forward deposits placed        7,696        7,696      2,665
- Undrawn note issuing and revolving
  underwriting facilities                4,187        2,094      1,686
- Undrawn formal standby facilities,
  credit lines and other commitments:
- one year and over                     55,456       27,728     26,042
- under one year                       554,808            -          -
                                       667,185       50,408     39,160
Exchange rate contracts
- Spot and forward foreign 
  exchange                           2,043,936       40,361      9,882
- Other exchange rate contracts        563,533       30,485      8,613
                                     2,607,469       70,846     18,495
Interest rate contracts
- Interest rate swaps                2,715,154       48,890     12,719
- Other interest rate contracts        915,413        1,939        532
                                     3,630,567       50,829     13,251

Other derivative contracts              27,375        5,697      3,777

Impact of counterparty netting
  agreements on derivatives' 
  exposure                                   -      (46,347)    (9,564)

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

At 31Dec02

Contingent liabilities
- Acceptances and endorsements          16,829        3,773      3,522
- Guarantees                            96,698       84,467     35,279
- Other                                     29           29         29
                                       113,556       88,269     38,830
Commitments
- Documentary credits and
  short-term trade-related 
  transactions                          40,214       10,515      7,837
- Forward asset purchases and
  forward forward deposits placed        9,683        9,683      1,939
- Undrawn note issuing and revolving
  underwriting facilities                    -            -          -
- Undrawn formal standby facilities,
  credit lines and other 
  commitments:
- one year and over                     51,694       25,847     23,696
- under one year                       500,801            -          -
                                       602,392       46,045     33,472
Exchange rate contracts
- Spot and forward foreign 
  exchange                           1,840,129       36,126      8,634
- Other exchange rate contracts        435,160       19,512      5,534
                                     2,275,289       55,638     14,168
Interest rate contracts
- Interest rate swaps                1,951,825       46,198     11,489
- Other interest rate contracts        809,638        3,313        749
                                     2,761,463       49,511     12,238

Other derivative contracts               8,231        2,893      1,690

Impact of counterparty netting
  agreements on derivatives' 
  exposure                                  -       (45,483)    (9,339)

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

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

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

Replacement cost of contracts

Figures in HK$m                            At 31Dec03       At 31Dec02

Exchange rate contracts                        42,119           27,319
Interest rate contracts                        39,360           42,034
Other derivative contracts                        601              236
                                               82,080           69,589
Less: netting adjustments                     (31,259)         (33,522)
      cash collateral received                 (2,889)          (2,585)

                                               47,932           33,482

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

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

The netting adjustments represent amounts where the group has in place legally
enforceable rights of offset with individual counterparties to offset the gross
amount of positive mark-to-market assets with any negative mark-to-market
liabilities with the same customer. These offsets are recognised by the Hong
Kong Monetary Authority in the calculation of risk assets for the capital
adequacy ratio. Cash collateral received represents amounts specifically held
against identifiable transactions which meet the offset criteria.

20. Foreign exchange exposure

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

Figures in HK$m                                         Net structural position

At 31Dec03

Australia dollar                                                          2,510
India rupee                                                               3,824
Singapore dollar                                                          3,432
United States dollar                                                    (43,558)

At 31Dec02

Singapore dollar                                                          3,491
United States dollar                                                    (39,949)

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

                                                    US$ non-structural position

Figures in HK$m                                 At 31Dec03           At 31Dec02

Spot assets                                        985,356              857,174
Spot liabilities                                  (954,240)            (798,744)
Forward purchases                                1,320,615            1,117,731
Forward sales                                   (1,239,787)          (1,071,448)
Net options position                                  (560)                 (35)
                                                   111,384              104,678

21. Reconciliation of operating profit to cash (used in)/generated from
    operations

Figures in HK$m                                                  2003      2002

Operating profit                                               33,879    33,570
Net interest income                                           (38,738)  (39,645)
Dividend income                                                  (252)     (214)
Depreciation and amortisation                                   2,044     2,084
Provisions for bad and doubtful debts                           3,386     2,251
Advances written off net of recoveries                         (6,183)   (7,113)
Other provisions for liabilities and charges                      641       424
Provisions utilised                                              (445)     (348)
Interest received                                              43,376    47,879
Interest paid                                                 (15,960)  (19,311)

Net cash inflow from trading activities                        21,748    19,577

Change in treasury bills with original term to
  maturity of more than three months                            4,879   (26,570)
Change in placings with banks maturing after
  one month                                                   (22,436)   24,816
Change in certificates of deposit with original term
  to maturity of more than three months                          (286)  (17,717)
Change in securities held for dealing purposes                  5,229   (13,084)
Change in advances to customers                               (82,829)  (42,428)
Change in amounts due from fellow subsidiary
  companies                                                   (35,302)        8
Change in other assets                                        (70,550)  (15,145)
Change in current, savings and other deposit 
  accounts                                                    196,165    95,420
Change in deposits by banks                                    22,566    (2,172)
Change in amounts due to fellow subsidiary
  companies                                                       276      (365)
Change in amounts due to ultimate holding company                 (66)      (39)
Change in other liabilities                                    35,290    15,129
Exchange adjustments                                            1,695       825

Cash generated from operations                                 76,379    38,255

22. Analysis of cash and cash equivalents

a. Changes in cash and cash equivalents during the year

Figures in HK$m                                         2003      2002

Balance at 1 January                                 266,407   314,206
Net cash inflow/(outflow) before the effect of
  foreign exchange movements                          33,892   (55,091)
Effect of foreign exchange movements                  11,136     7,292
Balance at 31 December                               311,435   266,407

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

Figures in HK$m                                         2003      2002

Cash in hand and current balances with banks          35,301    29,257
Placings with banks                                  227,100   202,452
Treasury bills                                        43,906    32,887
Certificates of deposit                                5,128     1,811
                                                     311,435   266,407

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

Figures in HK$m                                         2003      2002

Cash consideration                                      (833)     (183)
Cash and cash equivalents acquired                        38         7
                                                        (795)     (176)

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

Figures in HK$m                                         2003      2002

Sale proceeds                                              -         1
Cash and cash equivalents transferred                      -        (1)
                                                           -         -

23. Segmental analysis

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

Profit and loss account:

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

Year ended 31Dec03

Interest income            39,809         17,714         699    58,222
Interest expense          (10,080)        (8,808)       (596)  (19,484)
Net interest income        29,729          8,906         103    38,738
Dividend income               239              9           4       252
Fees and commissions
  receivable               11,561          4,871           2    16,434
Fees and commissions
  payable                  (1,497)        (1,249)        (50)   (2,796)
Dealing profits             1,923          2,104          (3)    4,024
  Rental income from
  investment
  properties                  220              -           -       220
Other                       4,801            722           4     5,527
Operating income           46,976         15,363          60    62,399
Operating expenses        (16,296)        (8,728)        (34)  (25,058)
Operating profit before 
  provisions               30,680          6,635          26    37,341
Provisions for bad and 
  doubtful debts           (3,098)          (321)         33    (3,386)
Provisions for
  contingent
  liabilities
  and commitments             (51)           (25)          -       (76)
Operating profit           27,531          6,289          59    33,879
Profit on tangible
  fixed assets
  and long-term  
  investments                 779            110         124     1,013
Surplus/(deficit) on
  property
  revaluation                (262)            28           -      (234)
Share of profits less
  losses of associated 
  companies                   139              -           -       139
Profit on ordinary      
  activities before tax    28,187          6,427         183    34,797
Tax on profit on    
  ordinary activities      (3,612)        (1,760)        (15)   (5,387)
Profit on ordinary   
  activities after tax     24,575          4,667         168    29,410
Minority interests         (3,613)             -           -    (3,613)
Profit attributable to
  shareholders             20,962          4,667         168    25,797

Profit and loss account:

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

Year ended 31Dec02

Interest income            44,819         16,468         521    61,808
Interest expense          (13,314)        (8,399)       (450)  (22,163)
Net interest income        31,505          8,069          71    39,645
Dividend income               198             13           3       214
Fees and commissions 
  receivable               10,680          4,313           7    15,000
Fees and commissions 
  payable                  (1,433)        (1,082)        (15)   (2,530)
Dealing profits               675          1,807          (1)    2,481
Rental income from
  investment properties       238              1           -       239
Other                       3,633            393           -     4,026
Operating income           45,496         13,514          65    59,075
Operating expenses        (15,830)        (7,393)        (31)  (23,254)
Operating profit before 
  provisions               29,666          6,121          34    35,821
Provisions for bad and 
  doubtful debts           (1,921)          (330)          -    (2,251)
Provisions for
  contingent
  liabilities
  and commitments            (106)           106           -         -
Operating profit           27,639          5,897          34    33,570
Profit on tangible
  fixed assets and
  long-term investments       375              2           -       377
Surplus/(deficit) on
  property revaluation       (385)            14           -      (371)
Share of profits less
  losses of associated
  companies                    85              -           -        85
Profit on ordinary      
  activities before tax    27,714          5,913          34    33,661
Tax on profit on    
  ordinary activities      (3,216)        (1,510)         (8)   (4,734)
Profit on ordinary     
  activities after tax     24,498          4,403          26    28,927
Minority interests         (3,757)            (3)          -    (3,760)
Profit attributable to 
  shareholders             20,741          4,400          26    25,167

Interest income and interest expense include intra-group interest of HK$2,452
million (2002: HK$2,614 million). Fees and commissions receivable and fees and
commissions payable include intra-group fees of HK$179 million (2002: HK$128
million). Other operating income and operating expenses include intra-group
items of HK$1,034 million (2002: HK$759 million).

24. Capital adequacy

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

Figures in HK$m                             At 31Dec03      At 31Dec02^

Composition of capital

Tier 1:
Shareholders' funds                            110,012          92,444
Less: proposed dividends                        (8,450)         (3,500)
      property revaluation reserves             (7,135)        (10,240)
      long-term equity investments
        revaluation reserve                     (1,182)         (1,290)
      term preference shares                    (3,882)         (3,899)
      goodwill                                    (961)           (633)
Minority interests^^                            15,470          14,423
Total qualifying tier 1 capital                103,872          87,305

Tier 2:
Property revaluation reserves (@70%)^^^          4,994           7,168
Long-term equity investments revaluation
  reserve (@70%)                                   827             904
General provisions                               4,138           4,238
Perpetual subordinated debt                      9,316          12,282
Term subordinated debt                           2,099           2,632
Term preference shares                           3,882           3,899
Total qualifying tier 2 capital                 25,256          31,123

Investments in associated companies             (1,443)         (1,499)
Investments in unconsolidated subsidiary
  companies                                     (4,812)         (2,766)
Investments in other banks                        (501)           (559)
Total capital                                  122,372         113,604

Risk-weighted assets                         1,008,824         895,496

^Prior year comparatives have not been restated on adoption of SSAP 12.

^^After deduction of minority interests in unconsolidated subsidiary companies.

^^^Balance at 31 December 2002 was capped at 31 December 1998 amount.

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

                                     At 31Dec03             At 31Dec02

Total capital                              12.1%                  12.7%

Tier 1 capital                             10.3%                   9.8%

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

Total capital                              11.9%                  12.4%

Tier 1 capital                             10.1%                   9.5%

25. Liquidity ratio

The Banking Ordinance requires banks operating in Hong Kong to maintain a
minimum liquidity ratio, calculated in accordance with the provisions of the
Fourth Schedule of the Banking Ordinance, of 25 per cent. This requirement
applies separately to the Hong Kong branches of the bank and to those subsidiary
companies which are Authorised Institutions under the Banking Ordinance in Hong
Kong.
                                                       2003      2002

The average liquidity ratio for the
  year was as follows:

Hong Kong branches of the bank                         49.0%     51.1%

26. Property revaluation

The group's premises and investment properties were revalued as at 30 September
2003 and updated for any material changes at 31 December 2003. The basis of the
valuation for premises was open market value for existing use or, in the case of
one specialised building, depreciated replacement cost. The basis of the
valuation for investment properties was open market value. The bases of
valuation are unchanged from those used at 31 December 2002.

Premises and investment properties in the Hong Kong SAR, the Macau SAR and
mainland China, which represent 90.3 per cent by value of the group's properties
subject to valuation, were valued by Chesterton Petty Limited. The valuations
were carried out by independent qualified valuers who are members of the Hong
Kong Institute of Surveyors. Properties in six other countries, which represent
6.3 per cent by value of the group's properties, were valued by different
independent professionally qualified valuers. The valuations of the remaining
properties have been reviewed by local management.

The September property revaluation, together with the revaluation of Hong Kong
properties undertaken in June 2003, have resulted in a decrease in the group's
revaluation reserves of HK$1,397 million (of which a decrease of HK$1,335
million was taken to reserves in June 2003), net of deferred tax, and a charge
to the profit and loss account before taxation of HK$234 million (of which a
charge of HK$322 million was included in the profit and loss account in June
2003).

27. Accounting policies

The accounting policies adopted are consistent with those described in the
Annual Report and Accounts for 2002 except for the accounting and disclosure for
deferred taxes which have been amended in accordance with Hong Kong Statement of
Standard Accounting Practice 12 (SSAP 12) (Revised) on 'Income taxes'.

In the current year, the group has adopted SSAP 12 (Revised). The principal
effect of the implementation of SSAP 12 (Revised) is in relation to deferred
tax. In previous years, partial provision was made for deferred tax using the
income statement liability method, that is, a liability was recognised in
respect of timing differences arising, except where those timing differences
were not expected to reverse in the foreseeable future. SSAP 12 (Revised)
requires the adoption of a balance sheet liability method, whereby deferred tax
is recognised in respect of all temporary differences between the carrying
amounts of assets and liabilities in the financial statements and the
corresponding tax bases used in the computation of taxable profit, with limited
exceptions. In the absence of any specific transitional requirements in SSAP 12
(Revised), the new accounting policy has been applied retrospectively.
Comparative amounts for 2002 have been restated as follows:

Profit and loss account

                                        Tax on profit
                                          on ordinary         Minority
Figures in HK$m                            activities        interests

Year ended 31Dec02
Under previous policy                           4,024            3,782
Adoption of SSAP 12                               710              (22)
Under new policy                                4,734            3,760

Consolidated balance sheet
                                                                               Investment
                                                                                       in
Figures in HK$m     Other         Other    Minority   Revaluation   Retained   associated
                   assets   liabilities   interests      reserves    profits    companies

At 31Dec02
Under previous 
  policy          106,606       135,516      17,241        11,530     28,579        1,499
Adoption    
  of SSAP 12          976         2,467        (181)       (1,683)       373            -
Under new   
  policy          107,582       137,983      17,060         9,847     28,952        1,499

Figures in HK$m      Deferred tax assets      Deferred tax liabilities

At 31Dec03                         1,668                         3,101

At 31Dec02                         1,305                         3,191

28. Comparative figures

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

29. Constant exchange rates

When reference to constant exchange rates is made, prior and current year data,
as expressed in the functional currencies of the group's operations, have been
translated into Hong Kong dollars using the same exchange rates for both years.

30. 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 2003 which were approved by
the Board of Directors on 1 March 2004 and will be 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
2004. The Annual Report and Accounts for the year ended 31 December 2003, which
include the statutory accounts, can be obtained on request from Group Public
Affairs, The Hongkong and Shanghai Banking Corporation Limited, 1 Queen's Road
Central, Hong Kong, and may be viewed on our website: www.hsbc.com, on or after
31 March 2004.

31. Ultimate holding company

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




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