2/5: HK&S BK CORP 2002 (1/2)

HSBC Holdings PLC
03 March 2003

             THE HONGKONG AND SHANGHAI BANKING CORPORATION LIMITED

                     2002 CONSOLIDATED RESULTS - HIGHLIGHTS



* Operating profit before provisions up 0.7 per cent to HK$35,821 million
(HK$35,585 million in 2001).



* Pre-tax profit down 2.8 per cent to HK$33,661 million (HK$34,635 million in
2001).



* Attributable profit down 1.5 per cent to HK$25,855 million (HK$26,237 million
in 2001).



* Return on average shareholders' funds of 30.0 per cent (30.1 per cent in
2001).



* Assets up 7.2 per cent to HK$1,867.7 billion (HK$1,742.7 billion at the end of
2001).



* Total capital ratio of 12.7 per cent; tier 1 capital ratio of 9.8 per cent
(13.0 per cent and 9.5 per cent at 31 December 2001).



* Cost:income ratio of 38.6 per cent (38.2 per cent for 2001).

Comment by David Eldon, Chairman

We have reported an operating profit before provisions for the year of HK$35.8
billion, slightly ahead of 2001. At HK$25.9 billion, attributable profit was 1.5
per cent lower, due to lower levels of investment gains. These results were
achieved in a difficult year marked by continuing deflation in Hong Kong and an
uncertain recovery across Asia. Highlights of 2002 include:



* Net interest margin was 2.54 per cent, only three basis points lower than in
2001, despite the loss of HK$3.6 billion in net interest income due to lower
interest rates and reduced spreads on residential mortgages in Hong Kong.



* Advances to customers grew by 7 per cent. Our market share of loans for use in
Hong Kong grew by 1.4 percentage points.



* Pre-tax profit from Personal Financial Services increased by HK$809 million,
or 6 per cent, to HK$13.6 billion, and contributed 40 per cent of profit before
tax compared to 37 per cent in 2001.



* Wealth Management income amounted to HK$4.6 billion, an increase of 28 per
cent. This included the successful sale of over HK$33.6 billion of funds
launched by the group in 2002, an increase of 33 per cent. Income from the sale
of insurance products grew by HK$508 million, or 31 per cent.



* Despite a near doubling in provisions, the contribution from credit cards
continued to grow. Fee income from cards grew by 15 per cent to HK$3.1 billion.



* Corporate, Investment Banking and Markets operating profit before provisions
rose by 2 per cent to HK$12.8 billion, with growth in treasury offsetting the
impact of narrower spreads on corporate lending and deposits.



* Profit before tax from Commercial Banking was HK$7.5 billion, up 19 per cent,
with net releases of debt provisions more than offsetting a 5 per cent decline
in operating profit before provisions.



* The cost:income ratio increased marginally to 38.6 per cent from 38.2 per cent
in 2001. Staff numbers rose by 579 to 40,687 due to business development and
acquisitions. A further 1,312 staff were employed in the Group's service centres
in mainland China, with net savings elsewhere.

The outlook for 2003 is characterised by the prospect of continuing deflation in
Hong Kong, lack of demand for loans and pressure on margins. Across Asia, the
uncertainties of the international situation will continue to constrain growth.
Yet despite these challenges, we will continue to focus on our customers,
matching products and services to the demands of a changing market.

Results by Line of Business
                                                                     Corporate,
                                                                     Investment
                                        Personal                        Banking
                                       Financial       Commercial           and      Private
Figures in HK$m                         Services          Banking       Markets      Banking        Other        Total
Year ended 31Dec02
Operating profit before
 provisions                             16,978          6,698         12,836             14         (705 )      35,821
Provisions                              (3,438 )          738            571              -         (122 )      (2,251 )
Operating profit                        13,540          7,436         13,407             14         (827 )      33,570
Other                                       42             47              7              -           (5 )          91
Profit on ordinary activities
 before tax                             13,582          7,483         13,414             14         (832 )      33,661
Year ended 31Dec01
Operating profit before
 provisions                             15,121          7,054         12,601            171          638        35,585
Provisions                              (2,381 )         (806 )          892              -          (40 )      (2,335 )
Operating profit                        12,740          6,248         13,493            171          598        33,250
Other                                       33             48            381              -          923         1,385
Profit on ordinary activities
 before tax                             12,773          6,296         13,874            171        1,521        34,635

In Personal Financial Services, pre-tax profit increased by HK$809 million, or
6.3 per cent, to HK$13,582 million, and contributed 40.3 per cent of the group
profit before tax, compared with 36.9 per cent in 2001. Net interest income was
higher than in 2001, reflecting growth in both lending and deposits in Hong Kong
and across the region. Income from wealth management initiatives continued to
grow, particularly from sales of unit trusts and insurance products in Hong
Kong. Fee income from cards also increased. Operating expenses remained at the
same level as 2001. Increased provisions in 2002 principally related to credit
cards, particularly in Hong Kong, reflecting the rise in personal bankruptcies,
although mortgage provisions were lower. The contribution from credit cards
increased in 2002 despite the higher bad debt charge.

In Commercial Banking, profit before tax grew by HK$1,187 million, or 18.9 per
cent, to HK$7,483 million. Net interest income was lower as a result of reduced
spreads. There was a net release of provisions for bad and doubtful debts,
compared with a net charge in 2001, mainly reflecting net releases in the bank
in Indonesia, Singapore and Taiwan.

Corporate, Investment Banking and Markets benefited from a substantial increase
in net interest income from the group's treasury operations although dealing
profits were lower. The contribution from the group's regional treasury
activities was 6.5 per cent higher than in 2001. Spreads on corporate lending
and deposits were lower in 2002. There was a net release of provisions for bad
and doubtful debts although this was lower than in 2001 which benefited from the
write-back of provisions against the Olympia and York exposure. As a result, the
profit before tax of Corporate, Investment Banking and Markets declined by
HK$460 million, or 3.3 per cent, to HK$13,414 million.

The reduction in the pre-tax profit of Private Banking reflects the transfer of
a business to another part of the HSBC Group during 2001. Other includes the
funding costs for staff housing loans and fixed assets. A deficit of HK$371
million arising on property revaluation was charged to profit and loss in 2002
compared with a deficit of HK$36 million in 2001. 2001 included the gain on
disposal of the investment in Modern Terminals.

Consolidated Profit and Loss Account
                                                                                 Year ended              Year ended
Figures in HK$m                                                                     31Dec02                 31Dec01

Interest income                                                                      59,194                  83,586
Interest expense                                                                    (19,549 )               (44,312 )

Net interest income                                                                  39,645                  39,274
Other operating income                                                               18,671                  18,351

Operating income                                                                     58,316                  57,625
Operating expenses                                                                  (22,495 )               (22,040 )

Operating profit before provisions                                                   35,821                  35,585
Provisions for bad and doubtful debts                                                (2,251 )                (2,257 )
Provisions for contingent liabilities
 and commitments                                                                          -                     (78 )

Operating profit                                                                     33,570                  33,250
Profit on tangible fixed assets and
 long-term investments                                                                  377                   1,289
Deficit arising on property revaluation                                                (371 )                   (36 )
Share of profits less losses of
 associated companies                                                                    85                     132

Profit on ordinary activities before tax                                             33,661                  34,635
Tax on profit on ordinary activities                                                 (4,024 )                (4,479 )

Profit on ordinary activities after tax                                              29,637                  30,156
Minority interests                                                                   (3,782 )                (3,919 )

Profit attributable to shareholders                                                  25,855                  26,237

Retained profits brought forward                                                     19,980                  44,818
Change of accounting policy in respect of
 defined benefit retirement schemes                                                     576                       -
As restated                                                                          20,556                  44,818
Exchange and other adjustments                                                          517                    (206 )
Transfer of depreciation to premises
 revaluation reserve                                                                    344                     357
Realisation on disposal of premises and
 investment properties                                                                  109                      62
Ordinary dividends paid in respect of
 the current year                                                                   (14,000 )               (22,263 )
Special interim dividend paid out of the
 bank's retained earnings                                                                 -                 (28,689 )
Ordinary dividends proposed                                                          (3,500 )                     -
Preference dividends payable                                                         (1,302 )                  (336 )
                                                                                    (18,802 )               (51,288 )
Retained profits carried forward                                                     28,579                  19,980

Extract from the Consolidated Balance Sheet
Figures in HK$m                                                                     31Dec02                 31Dec01

Assets
Cash and short-term funds                                                           322,305                  344,637
Placings with banks maturing after one month                                         90,886                  115,702
Certificates of deposit                                                              53,290                   34,468
Hong Kong SAR Government certificates
 of indebtedness                                                                     73,654                   67,344
Securities held for dealing purposes                                                 87,468                   74,384
Long-term investments                                                               350,166                  266,946
Advances to customers                                                               721,775                  674,557
Amounts due from fellow subsidiary
 companies                                                                           22,087                   22,095
Investments in associated companies                                                   1,499                    1,566
Tangible fixed assets                                                                37,988                   40,967
Other assets                                                                        106,606                  100,075
                                                                                  1,867,724                1,742,741
Liabilities
Hong Kong SAR currency notes in circulation                                          73,654                   67,344
Current, savings and other deposit accounts                                       1,473,539                1,378,119
Deposits by banks                                                                    45,545                   47,717
Amounts due to fellow subsidiary companies                                           11,052                   11,417
Amounts due to ultimate holding company                                                 441                      480
Other liabilities                                                                   135,516                  118,847
                                                                                  1,739,747                1,623,924
Capital resources
Loan capital from ultimate holding company                                            2,924                    2,924
Other loan capital                                                                   15,368                   14,828
Minority interests                                                                   17,241                   17,936
Share capital                                                                        44,940                   44,937
Reserves                                                                             44,004                   38,192
Proposed dividends                                                                    3,500                        -
Shareholders' funds                                                                  92,444                   83,129
                                                                                    127,977                  118,817
                                                                                  1,867,724                1,742,741

Consolidated Statement of Changes in Equity
                                                                                  Year ended              Year ended
Figures in HK$m                                                                      31Dec02                 31Dec01

Shareholders' funds at beginning of the year                                          83,129                  90,812

Change of accounting policy in respect of
 defined benefit retirement schemes                                                      576                       -

As restated                                                                           83,705                  90,812

Profit for the year attributable to
 shareholders                                                                         25,855                  26,237

Unrealised deficit on revaluation of premises                                         (1,422 )                (2,035 )

Unrealised deficit on revaluation of
 investment properties                                                                  (183 )                  (178 )

Long-term equity investments
 revaluation reserve
- Deficit on revaluation                                                                (643 )                  (644 )
- Realisation on disposal                                                               (264 )                (1,025 )

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

Dividends                                                                            (15,302 )               (58,288 )
Exchange and other movements                                                             698                    (429 )
Shareholders' funds at end of the year                                                92,444                  83,129

Consolidated Cash Flow Statement
Figures in HK$m                                                                          2002                 2001

Operating activities
Cash generated from operations                                                         38,255               52,194
Interest received on long-term investments                                             11,826               13,052
Dividends received on long-term investments                                               209                  226
Dividends received from associated companies                                              108                   67
Interest paid on loan capital                                                            (918 )             (1,069 )
Dividends paid to minority interests                                                   (3,549 )             (3,548 )
Ordinary dividends paid                                                               (14,000 )            (56,389 )
Preference dividends paid                                                              (1,438 )               (277 )
Taxation paid                                                                          (3,018 )             (3,035 )

Net cash inflow from operating activities                                              27,475                1,221

Investing activities
Purchase of long-term investments                                                    (311,021 )           (328,106 )
Proceeds from sale or redemption of
 long-term investments                                                                229,460              243,596
Purchase of tangible fixed assets                                                      (1,294 )             (1,641 )
Proceeds from sale of tangible fixed assets                                               216                  196
Net cash outflow in respect of acquisition
 of and increased shareholding in
 subsidiary companies                                                                    (176 )               (158 )
Net cash outflow in respect of sale of
 subsidiary companies                                                                       -              (23,541 )
Purchase of business                                                                      (60 )                 (7 )
Purchase of interest in associated company                                                  -                  (18 )
Proceeds from sale of interest in
 associated company                                                                         1                  164

Net cash outflow from investing activities                                            (82,874 )           (109,515 )

Net cash outflow before financing                                                     (55,399 )           (108,294 )

Financing
Issue of non-cumulative irredeemable preference
 share capital                                                                              -               28,679
Issue of loan capital                                                                     308                  676

Net cash inflow from financing                                                            308               29,355

Decrease in cash and cash equivalents                                                 (55,091 )            (78,939 )


Additional Information

1. Net interest income
                                                                              Year-ended                  Year-ended
Figures in HK$m                                                                  31Dec02                     31Dec01
Net interest income                                                               39,645                      39,274
Average interest-earning assets                                                1,561,932                   1,530,941
Net interest spread                                                                 2.42 %                      2.28 %
Net interest margin                                                                 2.54 %                      2.57 %

Net interest income increased by HK$371 million, or 0.9 per cent, compared with
2001, to HK$39,645 million primarily generated by a strong performance from
treasury and growth in personal lending. These were substantially offset by a
HK$2,490 million lower contribution from net free funds, reflecting lower
interest rates, and reduced spreads on home mortgage loans in Hong Kong that led
to a HK$1,106 million reduction in net interest income. Despite the continued
pressure on mortgage pricing, net interest income from Personal Financial
Services grew by HK$833 million, or 4.0 per cent, over 2001. Net interest income
from Corporate, Investment Banking and Markets increased by HK$978 million, or
8.5 per cent, mainly in the bank in Hong Kong. This was driven by pre-emptive
positioning of the accrual books that continued to benefit from the low interest
rate environment, partly offset by lower spreads on corporate lending and
deposits. Lower spreads also led to reduced net interest income in Commercial
Banking.

Average interest-earning assets increased by HK$31.0 billion, or 2.0 per cent,
compared with 2001. Average advances to customers for the group as a whole grew
by HK$38.7 billion, or 5.9 per cent, compared with last year. In the bank in
Hong Kong, average customer advances grew by 6.1 per cent during 2002 with
increases in mortgage loans and credit card advances. Average term lending to
corporate and commercial customers was also higher in the bank in Hong Kong
despite subdued loan demand in these sectors. In Hang Seng Bank, average
advances to customers rose by 1.0 per cent. Average advances to customers in the
rest of the Asia-Pacific region grew by HK$21.2 billion, or 14.1 per cent, with
strong growth in HSBC Bank Australia as a result of the acquisition of the
former NRMA Building Society at the end of 2001 and the unwinding of mortgage
securitisations in the building society during 2002. Advances in the bank in
Taiwan, Japan, India and New Zealand grew strongly. There was a reduction in
average loans to banks of HK$78.7 billion and an increase in average holdings of
debt securities of HK$80.6 billion, principally in the bank in Hong Kong and
Hang Seng Bank, reflecting the switching of funds to higher yielding assets.

The group's net interest margin of 2.54 per cent for 2002 was three basis points
lower than in 2001. Spread widened by 14 basis points compared with 2001, but
the contribution from net free funds was 17 basis points lower.

For the bank in Hong Kong, net interest margin narrowed by one basis point
compared with 2001 to 2.47 per cent. Spread widened by 13 basis points. The
strong treasury performance in 2002 accounted for an improvement of 13 basis
points in spread, and higher releases of suspended interest accounted for an
improvement of 10 basis points. The increased proportion of higher yielding
credit card advances, together with the migration of funds from time deposits to
lower cost savings and current accounts, improved spread by eight basis points.
These positive factors were partly offset by narrower spreads on foreign
currency savings deposits and on Hong Kong dollar deposits, which reduced spread
by 14 basis points. Loan refinancing at lower rates and keen market competition
led to a further decline in spreads on mortgages which accounted for a reduction
of five basis points in spread. The contribution from net free funds reduced by
14 basis points to nine basis points compared with 2001 reflecting substantially
lower interest rates in 2002.

In Hang Seng Bank, net interest margin reduced by 10 basis points to 2.46 per
cent compared with 2001. Spread improved by eight basis points mainly
attributable to higher spreads on debt securities and growth in lower cost
savings accounts which improved spread by 11 and five basis points respectively,
together with a wider spread on time deposits which accounted for a four basis
point improvement. These were partly offset by a 12 basis points reduction due
to lower spreads on mortgages, including loans made under the Government Home
Ownership Scheme. The fall in average interest rates resulted in a reduction of
18 basis points to 10 basis points in the contribution from net free funds.

Continued price competition in the residential loan market resulted in a further
reduction in the average yield on the residential mortgage portfolio, excluding
Government Home Ownership Scheme loans and staff loans, in the bank in Hong Kong
to 151 basis points below the bank's best lending rate ('BLR') in 2002. This was
before accounting for the effect of cash incentive payments and compared with 86
basis points in 2001. Similarly, the average yield on the residential mortgage
portfolio in Hang Seng Bank was 149 basis points below BLR in 2002 compared with
84 basis points below BLR in 2001.

In the rest of the Asia-Pacific region, net interest income increased by HK$828
million, or 11.4 per cent, to HK$8,069 million, and contributed 20.4 per cent of
the group net interest income, compared with 18.4 per cent in 2001. Net interest
margin narrowed by three basis points compared with 2001 to 2.20 per cent.
Spread rose by 18 basis points with wider spreads in several countries,
including the Philippines and Singapore mainly due to a strong treasury
performance. Growth in net interest income was also generated by an increased
proportion of higher yielding personal lending in Taiwan. In New Zealand, spread
widened mainly attributable to lower cost of funds and a release of suspended
interest in respect of a large corporate customer in 2002.

The contribution to the group margin from net free funds fell by 17 basis points
compared with 2001 to 12 basis points reflecting substantially lower prevailing
average interest rates during 2002.

2. Other operating income
Figures in HK$m
                                                                                       2002                    2001
Dividend income
- Listed investments                                                                    180                     194
- Unlisted investments                                                                   34                      31
                                                                                        214                     225
Fees and commissions
- Account services                                                                    1,206                   1,214
- Credit facilities                                                                   1,403                   1,534
- Import/export                                                                       2,226                   2,193
- Remittances                                                                           915                     856
- Securities/stockbroking                                                             1,551                   1,530
- Cards                                                                               3,137                   2,723
- Other                                                                               4,434                   3,584
Fees and commissions receivable                                                      14,872                  13,634
Fees and commissions payable                                                         (2,402 )                (2,170 )
                                                                                     12,470                  11,464

Dealing profits                                                                       2,481                   3,449

Rental income from investment properties                                                239                     261
Other                                                                                 3,267                   2,952

                                                                                     18,671                  18,351
Analysis of income from dealing in financial instruments

                                                         2002                                   2001
                                                      Dividend                                Dividend
                                                       and net                                 and net
                                         Dealing      interest                   Dealing      interest
Figures in HK$m                          profits        income        Total      profits        income        Total

Foreign exchange                           2,942           130        3,072        2,875            37        2,912
Interest rate derivatives                    553           (67 )        486          713            51          764
Debt securities                           (1,007 )       1,469          462          (78 )         882          804
Equities and other trading                    (7 )           1           (6 )        (61 )           3          (58 )

                                           2,481         1,533        4,014        3,449           973        4,422


Other operating income, excluding dealing profits, increased by HK$1,288
million, or 8.6 per cent, compared with 2001.

Wealth management continued to be the principal driver of growth. Net fee income
in Personal Financial Services grew by 15.1 per cent and now accounts for 41.7
per cent of total net fees, against 39.4 per cent in 2001. Income from wealth
management initiatives, including total operating income from the insurance
business, and commission on sales of unit trust products and on securities
transactions executed for personal customers, amounted to some HK$4.6 billion,
up 28 per cent on 2001. There was strong growth in revenues earned from sales of
unit trusts in both the bank in Hong Kong and in Hang Seng Bank. These included
the successful sale of over HK$33.6 billion of funds launched by the group in
2002, representing an increase of 32.7 per cent over 2001, and including over
HK$22.1 billion in sales of the group's capital guaranteed funds. Total income
from sales of unit trusts and from funds under management for personal customers
amounted to HK$1,857 million in 2002 compared with HK$1,315 million in 2001, an
increase of 41.2 per cent. Income from the insurance business grew by HK$508
million, or 31.4 per cent, compared with last year, with continued strong growth
in individual life insurance premiums and revenues from the Mandatory Provident
Fund business. Income from retail securities transactions, however, was lower in
2002.

Fee income from cards grew by HK$414 million, or 15.2 per cent, over 2001
reflecting increases in the bank in Taiwan, Hong Kong, Indonesia, India and
Thailand partly offset by a reduction in Hang Seng Bank. The group now has 5.2
million cards in issue following an increase of over 89,000 during the past 12
months.

Fee income from Corporate, Investment Banking and Markets increased by HK$240
million, or 6.1 per cent compared with 2001 mainly due to higher income from
structured finance and corporate finance in the bank in Hong Kong.

Income recorded under dealing profits was lower than in 2001, although this was
partly offset by increased net interest income on trading instruments, as debt
securities used for interest rate trading purposes generated strong net interest
income while corresponding derivative positions produced dealing losses in the
current low interest rate environment. A further contributor to the dealing
losses on debt securities trading was the widening of credit spreads largely as
a result of a series of corporate scandals in the US. Foreign exchange dealing
profits remained robust during a period of depressed economic activity and
thinner trade flows. This was achieved primarily on the back of a strong and
growing customer franchise, and the successful marketing of higher-margin
derivative products such as currency options, and structures with embedded
options. In addition, the group continues to migrate an increasing proportion of
client business to electronic dealing channels, improving transaction ease and
speed, while simultaneously reducing costs.

3. Operating expenses
Figures in HK$m                                                                        2002                    2001

Staff costs
- Salaries and other costs                                                           11,694                  11,338
- Retirement benefit costs                                                              846                   1,359
                                                                                     12,540                  12,697
Premises and equipment
- Depreciation                                                                        2,058                   2,028
- Rental expenses                                                                     1,070                   1,080
- Other premises and equipment expenses                                               1,600                   1,506
                                                                                      4,728                   4,614

Other                                                                                 5,227                   4,729
                                                                                     22,495                  22,040

Staff numbers by region^                                                         At 31Dec02              At 31Dec01

Hong Kong                                                                            22,949                  23,861
Rest of Asia-Pacific                                                                 17,720                  16,234
Americas/Europe                                                                          18                      13
Total                                                                                40,687                  40,108
^ Full-time equivalent

Operating expenses were HK$455 million, or 2.1 per cent, higher than 2001. Of
the increase, HK$212 million was attributable to the acquisition of the former
NRMA Building Society made at the end of 2001. The underlying increase in
operating expenses, using constant exchange rates, was 0.9 per cent.

Staff costs decreased by HK$157 million, or 1.2 per cent, compared with 2001. In
Hong Kong, pension costs were reduced due to lower actuarial charges for local
staff defined benefit retirement schemes and as a result of the non-recurrence
of a top-up provision to maintain the fully funded position of the local staff
retirement benefit scheme in 2001 in Hang Seng Bank. Staff costs in Singapore
were lower than in 2001 which included a provision for a voluntary separation
scheme. These reductions were partly offset by increases in staff costs as a
result of growth in headcount to support business expansion and the full year
effect of the acquisition of the former NRMA Building Society made at the end of
2001. Progress continues to be made with the transfer of a wide range of back
office functions from operations in Hong Kong to the Group service centres in
Guangzhou and Shanghai. These centres now handle processing work such as
cross-border and real time gross settlement payments, new account and credit
card account opening and customer data maintenance.

The total number of staff in the group increased to 40,687 at 31 December 2002
compared with 40,108 at 31 December 2001, with increases in the Group service
centres in Guangzhou and in Shanghai, and in the bank in China and a number of
other countries due to business expansion. Headcount in Hong Kong reduced by 912
since the end of 2001. There was also a reduction in Singapore due to
outsourcing and the implementation of a voluntary separation scheme. In the
Asia-Pacific region outside Hong Kong, eight new branches have been opened
during 2002. At the end of 2002 there were 2,310 staff employed in the two
mainland China service centres compared with 998 at 31 December 2001.

Operating expenses, other than staff costs, were up 6.6 per cent in 2002 with
increased premises and equipment expenses as a result of branch openings and
business acquisitions during 2001 and 2002. The increase was also due to higher
IT costs, higher spend on HSBC Group marketing initiatives and increased
professional fees relating to structured finance transactions.

4. Provisions for bad and doubtful debts
Figures in HK$m                                                                        2002                    2001

Net charge/(release) for bad and doubtful debts
Advances to customers
- Specific provisions                                                                
     new provisions                                                                  6,081                   6,399
     releases                                                                       (2,734 )                (3,064 )  
     recoveries                                                                       (377 )                  (995 )
                                                                                     2,970                   2,340
- General provisions                                                                  (719 )                   (85 )
                                                                                     2,251                   2,255
Placings with banks maturing after one month
- Net specific provisions                                                                -                       2
Net charge to profit and loss account                                                2,251                   2,257

The net charge for specific provisions in 2002 reflects higher provisions
against personal lending, principally on credit cards with the rise in personal
bankruptcies in Hong Kong, partly offset by net releases and recoveries from the
commercial and corporate loan books.

Provisions relating to credit cards amounted to HK$2,290 million, compared with
HK$1,219 million in 2001, and accounted for 77 per cent of the total net
specific charge for 2002. Provisions against the Hong Kong mortgage portfolio
were lower than in 2001, with a steadily declining level of delinquencies.
Elsewhere in the region, provisions for personal lending increased, particularly
in the bank in India, Taiwan and Indonesia, reflecting growth in the portfolios
and some increase in delinquency rates. The charge for new specific provisions
against commercial lending in 2002 fell by 53 per cent compared with 2001 mainly
due to a significantly reduced charge in the bank in Indonesia, Singapore, Hong
Kong, Taiwan, and Hang Seng Bank. The charge for new specific provisions against
lending to corporate customers decreased by 21 per cent with lower charges in
the bank in India, Singapore, Hong Kong, the Philippines and Hang Seng Bank
partly offset by additional provisions booked in New Zealand and Thailand.


Releases and recoveries were lower compared with 2001 which included the release
of long-standing provisions against Olympia and York. There were net recoveries
of specific provisions against both commercial and corporate customers in 2002.


There was a net release of HK$719 million of general provisions in 2002. This
release reflected a reduction in estimated latent loan losses, which had
occurred at the balance sheet date but which had not yet been reflected through
the establishment of specific provisions. The estimate of these latent losses
reflects the group's historical experience of the rate at which such losses
occur and are identified, the structure of the credit portfolio and the economic
and credit conditions prevailing at the balance sheet date.

5. Profit on tangible fixed assets and long-term investments
Figures in HK$m                                                                        2002                    2001
Loss on disposal of tangible fixed assets                                               (37 )                   (18 )

Profit on disposal of long-term investments                                             494                   1,441

Provision for impairment of long-term
 investments                                                                            (80 )                  (134 )
                                                                                        377                   1,289


The net profit on disposal of long-term investments was HK$947 million lower
than 2001 which included gains on disposal of investments in Modern Terminals
and Central Registration.

6. Taxation

The charge for taxation in the consolidated profit and loss account comprises:
Figures in HK$m                                                                         2002                   2001

Hong Kong profits tax                                                                  3,110                  3,473
Overseas taxation                                                                      1,105                  1,055
Deferred taxation                                                                       (225 )                  (59 )
                                                                                       3,990                  4,469

Share of associated companies' taxation                                                   34                     10
                                                                                       4,024                  4,479

The effective rate of tax for 2002 was 12.0 per cent compared to 12.9 per cent
in 2001. In 2002, there were releases of general provisions while 2001 benefited
from higher tax-free gains on disposals of investments.

7. Dividends
                                                                              2002                       2001
                                                                          HK$          HK$m            HK$          HK$m
                                                                    per share                    per share
Equity
 Ordinary dividends
 - Paid                                                                  2.15        14,000           7.84        50,952
 - Proposed                                                              0.54         3,500              -             -
                                                                         2.69        17,500           7.84        50,952
Non-equity
 Preference dividends payable
 -Cumulative redeemable
 preference shares                                                        230           115            472           236
 - Non-cumulative irredeemable
 preference shares                                                       0.32         1,187           0.03           100
                                                                                     18,802                       51,288

8. Advances to customers
Figures in HK$m                                                                    At 31Dec02             At 31Dec01

Gross advances to customers                                                           738,988                697,702
Suspended interest                                                                     (1,475 )               (2,625 )
                                                                                      737,513                695,077

Specific provisions                                                                   (11,500 )              (15,581 )
General provisions                                                                     (4,238 )               (4,939 )
Total provisions                                                                      (15,738 )              (20,520 )
Net advances to customers                                                             721,775                674,557

Provisions as a percentage of gross advances
 to customers^
Specific provisions                                                                      1.56 %                 2.24 %
General provisions                                                                       0.57 %                 0.71 %
Total provisions                                                                         2.13 %                 2.95 %

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

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

At 1 January 2002                                  15,581              4,939             20,520               4,050
Amounts written off                                (7,490 )                -             (7,490 )            (1,838 )
Recoveries of advances written off in
 previous years                                       377                  -                377                   -
Net charge to profit and loss account
 (Note 4)                                           2,970               (719 )            2,251                   -
Interest suspended during the year                      -                  -                  -               1,312
Suspended interest recovered                            -                  -                  -              (1,041 )
Exchange and other adjustments                         62                 18                 80                  11

At 31 December 2002                                11,500              4,238             15,738               2,494


Suspended interest above comprises both suspended interest netted against '
Advances to customers' and suspended interest netted against accrued interest
receivable in 'Other assets'.
10. Non-performing advances to customers and provisions

The geographical information shown below, and in notes 11, 12, 13 and 15, has been classified by
location of the principal operations of the subsidiary company or, in the case of the bank, by location of
the branch responsible for advancing the funds.
                                                                        Rest of         Americas/
Figures in HK$m                                   Hong Kong        Asia-Pacific            Europe             Total

Year ended 31Dec02

Bad and doubtful debt charge                          1,921                 330                 -             2,251

At 31Dec02


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

Gross advances on which interest
- has been placed in suspense                      11,381              7,321                  -              18,702
- accrual has ceased                                2,062              1,940                  4               4,006
Gross non-performing advances^                     13,443              9,261                  4              22,708

Specific provisions                                (5,367 )           (6,129 )               (4 )           (11,500 )
                                                    8,076              3,132                  -              11,208

Specific provisions as a percentage of
 gross non-performing advances                       39.9 %             66.2 %            100.0 %              50.6 %

Gross non-performing advances as a
 percentage of gross advances to
 customers^^                                          2.5 %              4.7 %              0.6 %               3.1 %


Non-performing advances fell by HK$6,391 million, or 22.0 per cent, to HK$22,708
million at 31 December 2002. In Hong Kong, non-performing advances fell by
HK$2,373 million principally in the bank in Hong Kong due to a combination of
write-offs, repayments and upgrades. In the rest of the Asia-Pacific region,
non-performing advances fell by HK$4,018 million mainly in the bank in Indonesia
due to the write-off of a number of accounts relating to commercial banking
customers, in Singapore due to a combination of upgrades, write-offs and
recoveries, and in China largely due to an upgrade of a customer account.
                                                                        Rest of         Americas/
Figures in HK$m                                   Hong Kong        Asia-Pacific            Europe             Total

Year ended 31Dec01
Bad and doubtful debt charge/(release)                1,531                 772               (48 )           2,255

At 31Dec01

Advances to customers on which interest is being placed in suspense or on which
interest accrual has ceased are as follows:
Gross advances on which interest
- has been placed in suspense                      14,002             11,952                  -              25,954
- accrual has ceased                                1,814              1,327                  4               3,145
Gross non-performing advances^                     15,816             13,279                  4              29,099

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

Specific provisions as a percentage of
 gross non-performing advances                       42.2 %             67.0 %            100.0 %              53.5 %

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


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

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

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

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

11. Overdue advances to customers
                                                                        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

                                                                         Rest of         Americas/
Figures in HK$m                                      Hong Kong      Asia Pacific            Europe             Total
At 31Dec01
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              2,286               798                 -             3,084
- one year or less but over six months                  2,064             1,636                 -             3,700
- over one year                                         7,352             6,040                 -            13,392
                                                       11,702             8,474                 -            20,176
Overdue advances to customers as a
 percentage of gross advances to
 customers^^

- six months or less but over three months                0.4 %             0.5 %               -               0.5 %
- one year or less but over six months                    0.4 %             1.0 %               -               0.5 %
- over one year                                           1.4 %             3.5 %               -               1.9 %
                                                          2.2 %             5.0 %               -               2.9 %

Overdue advances to customers (as above)               11,702             8,474                 -            20,176

Less: overdue advances on which
interest is still being accrued                          (766 )            (238 )               -            (1,004 )

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                      2,024             1,381                 4             3,409
- other                                                 2,856             3,662                 -             6,518

Gross non-performing advances (Note 10)                15,816            13,279                 4            29,099

^ 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.


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