2/4: HK&S BK CORP FY04 PT3

HSBC Holdings PLC
28 February 2005

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

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


At 31Dec04

Gross advances to customers, 
  net of suspended interest        544,185        319,512      59,461    4,151   927,309

Overdue advances to customers        3,676          2,452          74        -     6,202
Non-performing advances
  to customers                       5,851          4,352         172        -    10,375

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

16. 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 31Dec04   At 31Dec03

Gross advances to customers for use 
  in Hong Kong
Industrial, commercial and financial
Property development                               36,230       37,873
Property investment                                93,747       74,938
Financial concerns                                 14,784       16,218
Stockbrokers                                        1,185          612
Wholesale and retail trade                         32,103       26,689
Manufacturing                                      14,366       10,498
Transport and transport equipment                  35,418       31,482
Others                                             41,140       39,641
                                                  268,973      237,951
Individuals
Advances for the purchase of flats under the
  Hong Kong SAR
Government's Home Ownership, Private Sector
  Participation and Tenants Purchase Schemes       41,991       48,830
Advances for the purchase of other residential
  properties                                      169,835      168,841
Credit card advances                               23,162       20,747
Others                                             20,247       17,689
                                                  255,235      256,107

Gross advances to customers for use in 
  Hong Kong                                       524,208      494,058

Trade finance                                      49,414       38,086

Gross advances to customers for use outside
  Hong Kong made by branches of the bank
  and subsidiary companies in Hong Kong            20,748       32,077

Gross advances to customers made by branches
  of the bank and subsidiary companies in 
  Hong Kong                                       594,370      564,221

Gross advances to customers made by branches
  of the bank and subsidiary companies outside
   Hong Kong
- rest of Asia-Pacific                            332,925      264,041
- Americas/Europe                                      14           12

Gross advances to customers net of suspended
  interest                                        927,309      828,274

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 page 18 of the Annual Report and Accounts for 2003.

17. Cross-border exposure

The country risk exposures shown below are prepared in accordance with the HKMA
Return of External Positions Part II 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 31Dec04

Americas
United States                      45,518    80,047   32,010   157,575
Other                              43,044    16,143   47,297   106,484
                                   88,562    96,190   79,307   264,059

Europe
United Kingdom                     86,613        27   23,294   109,934
Other                             332,581     4,219   22,168   358,968
                                  419,194     4,246   45,462   468,902

Asia-Pacific excluding Hong Kong  151,183    18,454   77,266   246,903

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


18. Current, savings and other deposits

Figures in HK$m                            At 31Dec04      At 31Dec03

Customer accounts
- Current accounts                            280,809         211,749
- Savings accounts                            796,977         682,412
- Other deposit accounts                      652,709         665,234

                                            1,730,495       1,559,395

Certificates of deposit in issue              114,741          92,521
Other debt securities in issue                 35,437          17,788

                                            1,880,673       1,669,704

Current, savings and other deposits increased by HK$211 billion, or 12.6 per
cent, since the end of 2003.

In Hong Kong, customer accounts grew by HK$102.2 billion, or 8.4 per cent. The
low interest rate environment, which persisted throughout 2004, prompted
personal account customers to seek higher returns by investing in wealth
management products, while surplus funds were kept in current and savings
accounts, as interest rate differentials on savings and deposit accounts fell to
near zero levels. Deposits from the Commercial and Corporate, Investment Banking
and Markets businesses rose by HK$75.7 billion, or 21.8 per cent, compared with
the end of 2003, mostly in the bank in Hong Kong.

In the rest of the Asia-Pacific region, customer accounts rose by HK$69.1
billion, or 20.1 per cent. Deposits from personal customers grew by 9.9 per
cent, mainly from expansion in mainland China and Australia. Deposits from
Commercial Banking customers increased by 17.6 per cent, principally in
Singapore and mainland China. Deposits from Corporate, Investment Banking and
Markets customers rose by 31.5 per cent, with increases in Singapore, Korea,
Japan, Brunei, Taiwan and India, reflecting the strong rise in funds received
from securities custody and clearing customers.

The increase in certificates of deposit in issue related to wealth management
products launched by the bank in Hong Kong and by Hang Seng Bank, while the rise
in other debt securities in issue was mainly in Australia to fund business
expansion.

The group's advances-to-deposits ratio increased to 48.9 per cent at 31 December
2004 from 48.8 per cent at 31 December 2003.

19. Reserves

Figures in HK$m                                At 31Dec04   At 31Dec03

Share premium account                               3,883        3,878
Revaluation reserves
- Premises revaluation reserve                      9,832        5,439
- Investment properties revaluation reserve         2,075        1,696
- Long-term equity investments revaluation
  reserve                                           1,609        1,182
                                                   13,516        8,317
Retained profits                                   51,083       37,764
                                                   68,482       49,959

20. Contingent liabilities, commitments and derivatives

                                                     Credit      Risk-
                                      Contract   equivalent   weighted
Figures in HK$m                         amount       amount     amount
At 31Dec04
Contingent liabilities
- Acceptances and endorsements          22,714        4,559      4,423
- Guarantees                           157,833      136,474     48,837
- Other                                     35           35         33
                                       180,582      141,068     53,293
Commitments
- Documentary credits and short-term
  trade-related transactions            48,493       13,770      9,591
- Forward asset purchases and
  forward forward deposits placed       10,166       10,166      3,716
- Undrawn note issuing and revolving 
  underwriting facilities                4,116        2,058      1,680
- Undrawn formal standby facilities,
  credit lines and other commitments:
- one year and over                     82,142       41,071     38,311
- under one year                       657,682            -          -
                                       802,599       67,065     53,298
Exchange rate contracts
- Spot and forward foreign exchange  2,411,793       46,694     11,759
- Swaps and other exchange rate 
  contracts                            696,883       39,635     11,180
                                     3,108,676       86,329     22,939
Interest rate contracts
- Interest rate swaps                3,754,053       57,131     14,679
- Other interest rate contracts        684,692        3,117        875
                                     4,438,745       60,248     15,554

Other derivative contracts              71,395        4,030      1,222

Impact of counterparty netting
  agreements on derivatives exposure        -      (59,487)   (12,535)

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
- Swaps and 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)

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 Hong
Kong 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 derivatives contracts. The group has
executed close-out netting agreements with certain counterparties, which allow
for positive and negative mark-to-market values on different transactions to be
offset and settled by a single payment in the event of default by either party.
These have been taken into account in calculating total risk-weighted 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 customer 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 31Dec04      At 31Dec03

Exchange rate contracts                         54,216          42,119
Interest rate contracts                         41,486          39,360
Other derivative contracts                       1,722             601
                                                97,424          82,080
Less: netting adjustments                      (39,907)        (31,259)
      cash collateral received                  (2,100)         (2,889)

                                                55,417          47,932

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 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 HKMA in the calculation
of risk-weighted assets for the capital adequacy ratio. Cash collateral received
represents amounts specifically held against identifiable transactions which
meet the offset criteria.

21. 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 31Dec04
Australian dollars                                               4,911
Chinese renminbi                                                18,154
Indian rupees                                                    4,979
Korean won                                                       3,266
Singapore dollars                                                3,370
United States dollars                                          (56,355)
Thai baht                                                        1,575

At 31Dec03

Australian dollars                                               2,510
Indian rupees                                                    3,824
Singapore dollars                                                3,432
United States dollars                                          (43,558)

The group had the following non-structural foreign currency positions which
exceeded 10 per cent of the group's net foreign currency non-structural
positions in all currencies:

                           United States       Singapore        Brunei
Figures in HK$m                  dollars         dollars       dollars

At 31Dec04
Spot assets                    1,126,118          83,986         5,129
Spot liabilities              (1,042,445)        (74,193)      (15,134)
Forward purchases              1,497,043         104,625             -
Forward sales                 (1,516,913)       (104,339)            -
Net options position                (721)              -             -
                                  63,082          10,079       (10,005)

At 31Dec03
Spot assets                      985,356
Spot liabilities                (954,240)
Forward purchases              1,320,615
Forward sales                 (1,239,787)
Net options position                (560)
                                 111,384

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

Figures in HK$m                                         2004      2003

Operating profit                                      41,430    33,879
Net interest income                                  (38,232)  (38,738)
Dividend income                                         (186)     (252)
Depreciation and amortisation                          2,171     2,044
Provisions for bad and doubtful debts                   (812)    3,386
Advances written off net of recoveries                (4,416)   (6,183)
Other provisions for liabilities and charges             668       641
Provisions utilised                                     (906)     (445)
Interest received                                     45,593    43,376
Interest paid                                        (18,294)  (15,960)

Net cash inflow from trading activities               27,016    21,748

Change in treasury bills with original term to
  maturity of more than three months                 (48,741)    4,879
Change in placings with banks maturing after 
  one month                                           38,841   (22,436)
Change in certificates of deposit with original 
  term to maturity of more than three months          (1,142)     (286)
Change in securities held for dealing purposes        10,492     5,229
Change in advances to customers                      (99,035)  (82,829)
Change in amounts due from fellow subsidiary 
  companies                                          (25,203)  (35,302)
Change in other assets                               (41,555)  (70,550)
Change in current, savings and other deposit 
  accounts                                           210,969   196,165
Change in deposits by banks                            4,987    22,566
Change in amounts due to fellow subsidiary
  companies                                            5,809       276
Change in amounts due to ultimate holding company        104       (66)
Change in other liabilities                           40,745    35,290
Exchange adjustments                                     898     1,695

Cash generated from operations                       124,185    76,379

23. Analysis of cash and cash equivalents

a. Changes in cash and cash equivalents during the year

Figures in HK$m                                         2004      2003

Balance at 1 January                                 311,435   266,407
Net cash inflow before the effect of foreign 
  exchange movements                                  85,170    33,892
Effect of foreign exchange movements                   7,596    11,136
Balance at 31 December                               404,201   311,435

b. Analysis of balances of cash and cash equivalents

Figures in HK$m                                         2004      2003

Cash in hand and current balances with banks          54,564    35,301
Placings with banks                                  328,172   227,100
Treasury bills                                        16,954    43,906
Certificates of deposit                                4,511     5,128
                                                     404,201   311,435

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                                         2004      2003

Cash consideration                                      (972)     (833)
Cash and cash equivalents acquired                         -        38
                                                        (972)     (795)

24. 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 31Dec04

Interest income                     38,534         21,739         602    60,875
Interest expense                   (10,946)       (11,223)       (474)  (22,643)
Net interest income                 27,588         10,516         128    38,232
Dividend income                        171             15           -       186
Fees and commissions receivable     14,014          6,167           1    20,182
Fees and commissions payable        (1,903)        (1,577)        (12)   (3,492)
Dealing profits                      4,034          2,581           -     6,615
Rental income from investment
  properties                           211              -           -       211
Other                                6,007          1,009           9     7,025
Operating income                    50,122         18,711         126    68,959
Operating expenses                 (18,041)       (10,229)        (28)  (28,298)
Operating profit before 
  provisions                        32,081          8,482          98    40,661
Provisions for bad and
  doubtful debts                     1,701           (895)          6       812
Provisions for contingent
  liabilities and commitments          (28)           (12)         (3)      (43)
Operating profit                    33,754          7,575         101    41,430
Profit on tangible fixed 
  assets and long-term investments   1,975            122           1     2,098
Surplus on property revaluation        960             64           -     1,024
Share of profits less losses of
  associated companies                  66            348           -       414
Profit on ordinary activities 
  before tax                        36,755          8,109         102    44,966
Tax on profit on ordinary 
  activities                        (4,725)        (2,355)         (6)   (7,086)
Profit on ordinary activities 
  after tax                         32,030          5,754          96    37,880
Minority interests                 (4,288)            (27)          -    (4,315)
Profit attributable to 
  shareholders                      27,742          5,727          96    33,565

Profit and loss account:

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

Interest income and interest expense include intra-group interest of HK$2,964
million (2003: HK$2,452 million). Fees and commissions receivable and fees and
commissions payable include intra-group fees of HK$308 million (2003: HK$179
million). Other operating income and operating expenses include intra-group
items of HK$1,306 million (2003: HK$1,034 million).

25. Capital adequacy

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

Figures in HK$m                                         At 31Dec04   At 31Dec03

Composition of capital

Tier 1:
Shareholders' funds                                        147,495      110,012
Less: proposed dividends                                    (4,800)      (8,450)
      property revaluation reserves                        (11,907)      (7,135)
      long-term equity investments
      revaluation reserve                                   (1,609)      (1,182)
      term preference shares                                (3,886)      (3,882)
      goodwill                                              (5,771)        (961)
Minority interests^                                         14,384       14,167
Total qualifying tier 1 capital                            133,906      102,569

Tier 2:
Property revaluation reserves (@70%)^^                       7,977        4,994
Long-term equity investments revaluation reserve (@70%)      1,126          827
General provisions                                           2,447        4,138
Perpetual subordinated debt                                  9,328        9,316
Term subordinated debt                                       1,814        2,099
Term preference shares^^^                                    3,109        3,882
Total qualifying tier 2 capital                             25,801       25,256

Investments in associated companies                        (12,063)      (1,443)
Investments in unconsolidated subsidiary companies          (6,461)      (4,812)
Investments in other banks                                  (1,727)        (501)
Total capital                                              139,456      121,069

Risk-weighted assets                                     1,173,432    1,008,824

^After deduction of minority interests in unconsolidated subsidiary companies.

^^Balance at 31 December 2004 is capped at the December 1998 amount.

^^^Balance at 31 December 2004 includes a discount for term preference shares
with residual maturity of less than five years.

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

                                      At 31Dec04            At 31Dec03

Total capital                              11.9%                 12.0%

Tier 1 capital                             11.4%                 10.2%

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%                 11.8%

Tier 1 capital                             11.4%                 10.0%

26. Liquidity ratio

The Hong Kong 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.

                                                           2004   2003

The average liquidity ratio for the year was as follows

Hong Kong branches of the bank                             41.7%  49.0%

27. Property revaluation

The group's premises and investment properties were revalued as at 30 September
2004 and updated for any material changes at 31 December 2004. 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 2003.

Premises and investment properties in the Hong Kong SAR, the Macau SAR and
mainland China, which represent 92.5 per cent by value of the group's properties
subject to valuation, were valued by DTZ Debenham Tie Leung Limited. The
valuations were carried out by independent qualified valuers who are members of
the Hong Kong Institute of Surveyors. Properties in 11 other countries, which
represent 7.5 per cent by value of the group's properties, were valued by
different, independent, professionally qualified valuers.

The September property revaluation, together with the revaluation of Hong Kong
properties undertaken in June 2004, has resulted in an increase in the group's
revaluation reserves of HK$5,542 million net of deferred tax, and a credit to
the profit and loss account before taxation of HK$1,024 million.

28. Accounting policies

The accounting policies adopted are consistent with those described in the
Annual Report and Accounts for 2003.

29. 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 2004 which were approved by
the Board of Directors on 28 February 2005 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 28 February 2005. The Annual Report and Accounts for the year ended 31
December 2004, 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.hk on or after 31 March 2005.

30. Ultimate holding company

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

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
                    Karen Ng       Telephone no: + 44 20 7991 0655






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