3/5: Hang Seng Bk 2002 (1/2)

HSBC Holdings PLC
03 March 2003



                               HANG SENG BANK LIMITED

                             2002 RESULTS - HIGHLIGHTS

* Operating profit before provisions down 2.2 per cent to HK$11,255 million
(HK$11,503 million in 2001).

* Pre-tax profit down 2.4 per cent to HK$11,242 million (HK$11,514 million in
2001).

* Attributable profit down 1.5 per cent to HK$9,961 million (HK$10,114 million
in 2001).

* Return on average shareholders' funds of 22.9 per cent (23.0 per cent in
2001).


* Total assets of HK$474.6 billion (HK$474.8 billion at 31 December 2001).

* Earnings per share down 1.5 per cent to HK$5.21 (HK$5.29 per share in 2001).

* Dividend per share of HK$5.40, including a special interim dividend of HK$0.50
per share (HK$4.90 per share in 2001).

* Total capital ratio of 14.2 per cent (15.3 per cent at 31 December 2001); tier
1 capital ratio of 11.9 per cent (12.3 per cent at 31 December 2001).

* Cost:income ratio of 25.4 per cent (26.3 per cent in 2001).

Hang Seng Bank attributable profit down 1.5 per cent to HK$9,961 million

Hang Seng Bank Limited (the bank) and its subsidiary and associated companies
(Hang Seng) reported a profit attributable to shareholders of HK$9,961 million
for 2002, a decrease of 1.5 per cent compared with 2001. Earnings per share of
HK$5.21 were 1.5 per cent lower than in 2001.

Operating profit before provisions fell by HK$248 million, or 2.2 per cent, to
HK$11,255 million. The positive effects of an 8.5 per cent increase in other
operating income and a 6.6 per cent reduction in operating expenses were
outweighed by a 7.3 per cent reduction in net interest income, mainly
attributable to the decline in contribution from net free funds. Operating
profit decreased by 3.6 per cent to HK$10,684 million, after accounting for a
34.7 per cent increase in the net charge for bad and doubtful debts. Profit
before tax amounted to HK$11,242 million, which was HK$272 million, or 2.4 per
cent, lower than 2001, despite the increase in profits on disposal of long-term
investments and the inclusion of the bank's share of the value of the long-term
assurance business of Hang Seng Life Limited (HSLL).

Total assets of HK$474.6 billion were in line with 31 December 2001. Customer
deposits were almost flat with a continued shift of time deposits to savings
under the persistently low interest rate environment. Advances to customers grew
by 1.0 per cent during 2002, mainly in residential mortgages, corporate lending
and trade advances while mortgages under the Government Home Ownership Scheme
fell. Investment in debt securities also rose, with funds re-deployed from lower
yielding interbank placements.

Shareholders' funds (excluding proposed dividends) declined by HK$2,463 million,
or 6.2 per cent, to HK$37,255 million at 31 December 2002. This was mainly
attributable to a decrease in retained profits after appropriation, a reduction
in the long-term equity investment revaluation reserve due to the disposal of
and the fall in fair value of long-term equities, and lower property revaluation
reserves reflecting the result of the annual property revaluation exercise.


The return on average total assets was maintained at 2.1 per cent (2.1 per cent
in 2001). The return on average shareholders' funds was 22.9 per cent, compared
with 23.0 per cent in 2001.

The advances to deposits ratio rose to 54.3 per cent at 31 December 2002 from
53.7 per cent at 31 December 2001, the effect of a modest growth in customer
advances against stable customer deposits. Hang Seng continued to maintain a
strong liquidity position, with the average liquidity ratio in 2002 (calculated
in accordance with the Fourth Schedule of the Hong Kong Banking Ordinance) at
44.4 per cent (45.6 per cent in 2001).

The total capital ratio at 31 December 2002 was 14.2 per cent (15.3 per cent at
31 December 2001) and the tier 1 capital ratio was 11.9 per cent (12.3 per cent
at 31 December 2001).

The cost:income ratio fell by 0.9 percentage point to 25.4 per cent, compared
with 26.3 per cent for 2001.

Second interim and special interim dividend

The Directors have declared a second interim dividend of HK$2.80 per share
(HK$2.80 per share for 2001) and a special interim dividend of HK$0.50 per share
to mark the bank's 70th anniversary, which will be payable on Thursday, 27 March
2003 to shareholders on the Register of Shareholders as of Thursday, 20 March
2003. Together with the first interim dividend of HK$2.10 per share already
paid, the total distribution for 2002 will amount to HK$5.40 per share (HK$4.90
per share for 2001).

Excluding the special interim dividend, which was paid out of retained profits,
total dividends for the year represent 94 per cent of the attributable profit
for 2002 (93 per cent in 2001). This should not be taken as an indication of
future dividend levels.


Comment by David Eldon, Chairman

"Hang Seng's results for 2002 demonstrate resilience in a year marked by
continuing deflation in Hong Kong and an economy constrained by a lack of
domestic consumption. Attributable profit fell by 1.5 per cent to HK$9,961
million.

"The outlook for the economy in 2003 is clouded by the international political
situation. Nonetheless, the performance of Hong Kong will remain export-led,
looking to the United States and mainland China for growth impetus. Domestic
demand will remain subdued, with continuing deflation, high unemployment and
weak asset prices. The banking sector will continue to face the challenges of
intense competition, weak loan demand and narrowing margins.

"On the occasion of our 70th anniversary, we renew our commitment to service
excellence and enhancing shareholder value. To mark the occasion we have
declared a special interim dividend of HK$0.50 per share. In 2003, we shall
continue to expand our wealth management business and services for small and
medium-sized businesses. We shall increase our presence in the Mainland to meet
the demands of our customers."

Contents

The financial information in this news release is based on the audited
consolidated accounts of Hang Seng Bank Limited and its subsidiary and
associated companies for the year ended 31 December 2002.

Highlights of Results and Chairman's Comment

Contents

Consolidated Profit and Loss Account

Consolidated Balance Sheet

Consolidated Statement of Changes in Equity

Economic Profit

Consolidated Cash Flow Statement

Financial Review

Net interest income

Other operating income

Operating expenses

Provisions for bad and doubtful debts

Profit on tangible fixed assets and long-term investments

Taxation

Earnings per share

Dividends per share

Cash and short-term funds

Placings with banks maturing after one month

Certificates of deposit

Securities held for dealing purposes

Advances to customers

Provisions against advances to customers

Non-performing advances to customers and provisions

Overdue advances to customers

Rescheduled advances to customers

Repossessed assets

Segmental analysis of advances to customers by geographical area

Gross advances to customers by industry sector

Long-term investments

Other assets

Current, savings and other deposit accounts

Deposits from banks

Other liabilities

Shareholders' funds

Capital resources management

Liquidity ratio

Reconciliation of cash flow statement

Contingent liabilities, commitments and derivatives

Segmental analysis

Cross border claims

Additional Information

Accounting policies

Comparative figures

Property revaluation

Market risk

Foreign currency positions

Material related-party transactions

Statutory accounts

Ultimate holding company

Register of shareholders

News release

Consolidated Profit and Loss Account

                                                                                           Year ended 31Dec
Figures in HK$m                                                               2002                      2001

Interest income                                                             14,960                    24,509
Interest expense                                                            (4,155 )                 (12,849 )
Net interest income                                                         10,805                    11,660
Other operating income                                                       4,282                     3,947
Operating income                                                            15,087                    15,607
Operating expenses                                                          (3,832 )                  (4,104 )
Operating profit before provisions                                          11,255                    11,503
Provisions for bad and doubtful debts                                         (571 )                    (424 )
Operating profit                                                            10,684                    11,079
Profit on tangible fixed assets and
 long-term investments                                                         461                       393
Net deficit on property revaluation                                            (36 )                     (14 )
Share of profits of associated companies                                       133                        56
Profit on ordinary activities before tax                                    11,242                    11,514
Tax on profit on ordinary activities                                        (1,266 )                  (1,400 )
Profit on ordinary activities after tax                                      9,976                    10,114
Minority interests                                                             (15 )                      __
Profit attributable to shareholders                                          9,961                    10,114
Retained profits at 1 January
- as previously reported                                                    19,618                    18,732
- arising on change in accounting policies                                    (119 )                      __
- as restated                                                               19,499                    18,732
Transfer of depreciation to
 premises revaluation reserve                                                   94                       100
Realisation on disposal of premises and
 investment properties                                                           9                        42
Exchange adjustments                                                             3                        (2 )
Dividends
- dividends paid in respect of the current year                             (4,015 )                  (4,015 )
- proposed dividends                                                        (6,309 )                  (5,353 )
Retained profits at 31Dec                                                   19,242                    19,618

Figures in HK$

Earnings per share                                                            5.21                      5.29
Dividends per share                                                           5.40                      4.90



Consolidated Balance Sheet

Figures in HK$m                                                          At 31Dec02                 At 31Dec01
Assets
Cash and short-term funds                                                    77,784                    111,099
Placings with banks maturing after one month                                 30,919                     43,666
Certificates of deposit                                                      30,120                     23,203
Securities held for dealing purposes                                          1,198                      2,167
Advances to customers                                                       224,562                    222,436
Amounts due from immediate holding company
 and fellow subsidiary companies                                              7,471                      8,297
Long-term investments                                                        79,169                     43,262
Investments in associated companies                                             672                        774
Tangible fixed assets                                                        10,439                     11,323
Other assets                                                                 12,268                      8,560
                                                                            474,602                    474,787

Liabilities
Current, savings and other deposit accounts                                 413,693                    414,328
Deposits from banks                                                           1,072                      2,622
Amounts due to immediate holding company
 and fellow subsidiary companies                                              1,615                      1,051
Other liabilities                                                            14,214                     11,715
                                                                            430,594                    429,716

Capital resources
Minority interests                                                              444                         __
Share capital                                                                 9,559                      9,559
Reserves                                                                     27,696                     30,159
Proposed dividends                                                            6,309                      5,353
Shareholders' funds                                                          43,564                     45,071
                                                                             44,008                     45,071
                                                                            474,602                    474,787


Consolidated Statement of Changes in Equity

Figures in HK$m                                                         At 31Dec02                At 31Dec01

Shareholders' funds at 1 January
- as previously reported                                                    45,071                    45,937
- change in accounting policies
-- net transitional liabilities on
 defined benefit schemes                                                      (189 )                      __
-- value on long-term assurance business                                       206                        __
-- provision for accumulated paid leave                                       (136 )                      __
                                                                              (119 )                      __
- as restated                                                               44,952                    45,937

Unrealised deficit on revaluation of premises                                 (409 )                    (209 )
Unrealised deficit on revaluation of
 investment properties
- bank and subsidiary companies                                               (270 )                    (211 )
- associated company                                                           (13 )                     (61 )
Long-term equity investment revaluation reserve
- unrealised deficit on revaluation                                           (869 )                    (850 )
- realisation on disposal                                                     (423 )                    (279 )
Exchange adjustments                                                             3                        (2 )
Net losses recognised in shareholders' funds
 for the year                                                               (1,981 )                  (1,612 )
Profit attributable to shareholders for the year                             9,961                    10,114
Dividends paid                                                              (9,368 )                  (9,368 )
Shareholders' funds at 31Dec                                                43,564                    45,071




Economic profit

Economic profit is calculated from profit after tax, adjusted for non-cash
items, and takes into account the cost of capital invested by Hang Seng's
shareholders. For consistency, the benchmark cost of capital of 15.0 per cent
was applied. This is, in Hang Seng management's view, above its true cost of
capital under the current low interest rate environment. The trend of economic
profits in this analysis shows that Hang Seng continues to create value for its
shareholders.
                                                                                            Year ended 31Dec
Figures in HK$m                                                               2002                      2001

Average invested capital                                                    31,698                    31,061

Return on invested capital ^                                                10,083                    10,222
Cost of capital                                                             (4,747 )                  (4,667 )
Economic profit                                                              5,336                     5,555

^ Return on invested capital represents profit after tax adjusted for non-cash
items.


Consolidated cash flow statement
                                                                                              Year ended 31Dec
Figures in HK$m                                                                2002                       2001

Net cash inflow/(outflow) from operating activities                           3,504                     (2,853 )

Cash flows from investing activities
Net cash outflow from investment in
 an associated company                                                          (35 )                      (40 )
Purchase of long-term investments                                           (96,052 )                  (43,180 )
Proceeds from sale or redemption of
 long-term investments                                                       61,213                     38,903
Purchase of tangible fixed assets                                              (195 )                     (193 )
Proceeds from sale of tangible fixed assets                                      14                        104
Dividends received from an associated company                                    38                         41
Interest received from long-term investments                                  1,908                      2,258
Dividend received from long-term investments                                     98                         93
Net cash outflow from investing activities                                  (33,011 )                   (2,014 )

Cash flows from financing activities
Dividends paid                                                               (9,368 )                   (9,368 )
Contribution from minority shareholders                                          25                         __
Net cash outflow from financing activities                                   (9,343 )                   (9,368 )
Decrease in cash and cash equivalents                                       (38,850 )                  (14,235 )

Cash and cash equivalents at 1Jan                                           141,103                    157,511
Effect of foreign exchange rate changes                                       3,284                     (2,173 )
Cash and cash equivalents at 31Dec                                          105,537                    141,103


Financial Review


Net interest income
Figures in HK$m                                                               2002                      2001

Net interest income                                                         10,805                    11,660
Average interest-earning assets                                            439,736                   454,937
Net interest spread                                                           2.36 %                    2.28 %
Net interest margin                                                           2.46 %                    2.56 %


Net interest income decreased by HK$855 million, or 7.3 per cent, mainly
attributable to the fall in contribution from net free funds due to lower market
interest rates. There was a reduction in average interest-earning assets of
HK$15.2 billion, or 3.3 per cent, plus a compression in net interest margin of
10 basis points to 2.46 per cent, the net effect of a rise of 8 basis points in
net interest spread and a reduction of 18 basis points in the contribution from
net free funds.

Net interest spread improved by 8 basis points to 2.36 per cent, which benefited
by 11 basis points from improved spreads on the holding of investment securities
and gained 5 and 4 basis points respectively from the growth in lower cost
savings deposits and a wider spread earned on time deposits. These were partly
offset by a further decline in the average yield on the mortgage portfolio
(including those under the Government Home Ownership Scheme), which reduced net
interest spread by 12 basis points. The contribution from net free funds fell by
18 basis points to 0.10 per cent, which accounted for a reduction of about
HK$850 million in net interest income.

As a result of the continued reduction in the pricing of new mortgages and the
re-pricing of existing loans, the average yield on the residential mortgage
portfolio, excluding Government Home Ownership Scheme mortgages and staff loans,
fell from 84 basis points below BLR in 2001 to 149 basis points below BLR in
2002. This was before accounting for the effect of cash incentive payments.


Compared with the first half of 2002, net interest income in the second half of
2002 fell by HK$101 million, or 1.9 per cent, with a 6 basis point fall in net
interest margin to 2.43 per cent. Net interest spread decreased by 5 basis
points to 2.33 per cent, mainly due to the further decline in the average yield
on the mortgage portfolio. The contribution from net free funds was one basis
point lower at 0.10 per cent.


Other operating income

Figures in HK$m                                                            2002                        2001

Dividend income
- listed investments                                                         82                          86
- unlisted investments                                                       17                           7
                                                                             99                          93
Fees and commissions
- securities/stockbroking                                                   244                         220
- retail investment funds                                                   700                         370
- insurance                                                                 343                         424
- account services                                                          255                         280
- remittance                                                                128                         123
- cards                                                                     598                         633
- credit facilities                                                         270                         305
- import/export                                                             217                         214
- other                                                                     147                         127
Fees and commissions receivable                                           2,902                       2,696
Fees and commissions payable                                              ( 297 )                      (288 )
                                                                          2,605                       2,408
Dealing profits
- foreign exchange                                                          604                         531
- securities and other trading activities                                    16                          (1 )
                                                                            620                         530
Insurance underwriting                                                      333                         226
Rental income from investment properties                                    225                         245
Other                                                                       400                         445
                                                                          4,282                       3,947

Other operating income rose by HK$335 million, or 8.5 per cent, and contributed
28.4 per cent of total operating income, compared with 25.3 per cent in 2001.
Net fees and commissions increased by HK$197 million, or 8.2 per cent, mainly
attributable to the increase of HK$330 million, or 89.2 per cent, in fees from
the distribution and management of retail investment funds. Insurance fees and
commissions fell by HK$81 million, or 19.1 per cent, mainly affected by a
reduction in commissions from Mandatory Provident Fund (MPF) services due to
higher commissions received from new customers in the previous year. Commissions
from credit facilities and card services also decreased by 11.5 per cent and 5.5
per cent respectively.

Dealing profits grew by HK$90 million, or 17.0 per cent, with improvements in
foreign exchange income and securities and other trading results. Insurance
underwriting profit increased by HK$107 million, or 47.3 per cent, mainly due to
consolidation of the underwriting profit of HSLL which became a subsidiary of
the bank in November 2002. Other income fell by HK$45 million, or 10.1 per cent,
mainly due to lower loan redemption fees.

Income from wealth management services, comprising income from investment
(securities broking and related services, investment funds distribution and
management, margin trading and private banking) and insurance (underwriting and
distribution of life and non-life insurance products and MPF services), grew
strongly by 32.6 per cent to HK$1,608 million, indicating increased product
cross-selling to customers. It represented 37.6 per cent of total other
operating income.


Operating expenses

Figures in HK$m                                                              2002                       2001

Staff costs
- salaries and other costs                                                  1,867                      1,834
- retirement benefit costs                                                    192                        434
                                                                            2,059                      2,268
Depreciation                                                                  352                        386
Premises and equipment
- rental expenses                                                             171                        164
- other                                                                       641                        703
                                                                              812                        867
Other operating expenses                                                      609                        583
                                                                            3,832                      4,104

Cost:income ratio                                                            25.4 %                     26.3 %

Staff numbers (full-time equivalent)                                        7,279                      7,488


Operating expenses fell by HK$272 million, or 6.6 per cent, to HK$3,832 million.
Staff costs decreased by HK$209 million, or 9.2 per cent, mainly due to the
non-recurrence of a special top-up contribution for the staff retirement benefit
scheme made in 2001. Depreciation charges dropped by HK$34 million, or 8.8 per
cent, reflecting a lower level of capital expenditure. Premises and equipment
expenses decreased by HK$55 million, or 6.3 per cent, attributable to a
reduction in IT expenditure after the spending in previous years on the
development of e-banking initiatives. Other operating expenses increased by
HK$26 million, or 4.5 per cent, mainly in marketing expenditure for the
promotion of personal financial services products.

The cost:income ratio fell by 0.9 percentage point to 25.4 per cent, compared
with 26.3 per cent for 2001.


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                                                            1,231                     1,135
- releases                                                                   (285 )                    (597 )
- recoveries                                                                  (45 )                    (114 )
                                                                              901                       424
General provisions                                                           (330 )                      __
Net charge to profit and loss account                                         571                       424


The net charge for bad and doubtful debts amounted to HK$571 million, an
increase of HK$147 million, or 34.7 per cent, compared with the previous year.
New and additional specific provisions rose by HK$96 million, or 8.5 per cent,
to HK$1,231 million, with the reduction in specific charges for corporate
accounts and residential mortgages more than offset by the rise in specific
charges for card advances and personal loans due to the rise in personal
bankruptcies. Releases and recoveries reduced by HK$381 million, or 53.6 per
cent, to HK$330 million, mainly in taxi loans and corporate accounts. There was
a release in general provisions of HK$330 million, reflecting a reduction in
Hang Seng's estimate of the 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 Hang Seng's historical experience of the rate at which such losses
occur and are identified, the structure of Hang Seng's loan portfolio and the
economic and credit conditions prevailing at the balance sheet date.


Profit on tangible fixed assets and long-term investments

Figures in HK$m                                                              2002                       2001

Profit on disposal of long-term equity investments
- realisation of amounts previously recognised in
 revaluation reserves at 1 January                                            528                        365
- loss arising in current year                                               (105 )                      (86 )
                                                                              423                        279
Profit less loss on disposal of held-to-maturity
 debt securities                                                               46                        120
Profit less loss on disposal of tangible fixed assets                           1                          5
Provision for impairment of long-term investments                              (9 )                      (11 )
                                                                              461                        393


Profit on disposal of tangible fixed assets and long-term investments rose by
HK$68 million, or 17.3 per cent, to HK$461 million, reflecting increased profits
on the disposal of locally-listed equities partly offset by lower profits on the
disposal of debt securities.


Taxation


Taxation in the consolidated profit and loss account represents:

Figures in HK$m                                                              2002                       2001

Provision for Hong Kong profits tax                                         1,228                      1,407
Taxation outside Hong Kong                                                      6                          6            
              
                                                                                

Deferred taxation                                                              12                        (21 )
                                                                            1,246                      1,392
Share of associated companies' taxation                                        20                          8
                                                                               

Total charge for taxation                                                   1,266                      1,400

Effective tax rate                                                           11.3 %                     12.2 %

The provision for Hong Kong profits tax was made at 16.0 per cent (the same rate
as for 2001) based on an estimate of the assessable profits for the year ended
31 December 2002. Similarly, taxation provisions for subsidiary companies and
branches outside the Hong Kong SAR were made at the appropriate rates of
taxation prevailing in the countries in which they operate.


The effective tax rate was 11.3 per cent, compared with 12.2 per cent for 2001,
mainly due to the increase in non-taxable capital gains on the disposal of
locally-listed equities and the release of general debt provisions which is not
subject to tax.


Earnings per share


The calculation of earnings per share is based on earnings of HK$9,961 million
(HK$10,114 million in 2001) and on the weighted average number of ordinary
shares in issue of 1,911,842,736 shares (unchanged from 2001).


Dividends per share

                                                                                2002                         2001
                                                                     HK$        HK$m              HK$        HK$m
                                                               per share                    per share

First interim                                                       2.10       4,015             2.10       4,015
Second interim                                                      2.80       5,353             2.80       5,353
Special interim                                                     0.50         956               __          __
                                                                    5.40      10,324             4.90       9,368


Cash and short-term funds

Figures in HK$m                                                         At 31Dec02                 At 31Dec01

Cash in hand and balances with banks
 and other financial institutions                                            3,518                      3,729
Money at call and placings with banks
 maturing within one month                                                  67,170                    101,293
Treasury bills                                                               7,096                      6,077
                                                                            77,784                    111,099

Remaining maturity of treasury bills:
- within three months                                                        5,777                      3,385
- one year or less but over three months                                     1,319                      2,692
                                                                             7,096                      6,077


Placings with banks maturing after one month

Figures in HK$                                                          At 31Dec02                 At 31Dec01

Remaining maturity:
- three months or less but over one month                                   27,996                     29,835
- one year or less but over three months                                     2,923                     13,831
                                                                            30,919                     43,666


Certificates of deposit

Figures in HK$m                                                         At 31Dec02                 At 31Dec01

Remaining maturity:
- three months or less but not repayable on demand                           1,772                      2,395
- one year or less but over three months                                     7,312                      6,096
- five years or less but over one year                                      21,036                     14,705
- over five years                                                               __                          7
                                                                            30,120                     23,203


Securities held for dealing purposes

Figures in HK$m                                                         At 31Dec02                 At 31Dec01

Debt securities by remaining maturity:
- three months or less but not repayable on demand                              97                        662
- one year or less but over three months                                        90                        920
- five years or less but over one year                                         890                        516
- over five years                                                              121                         69
                                                                             1,198                      2,167


Advances to customers

Figures in HK$m                                                         At 31Dec02                 At 31Dec01

Gross advances to customers                                                227,475                    225,926
Specific provisions                                                         (1,805 )                   (2,052 )
General provisions                                                          (1,108 )                   (1,438 )
                                                                           224,562                    222,436

Remaining maturity:
- repayable on demand                                                       11,983                     12,062
- three months or less but not repayable on demand                          18,128                     13,213
- one year or less but over three months                                    21,243                     24,815
- five years or less but over one year                                      84,466                     82,065
- over five years                                                           84,273                     86,789
- overdue for more than one month                                            1,301                        808
- non-performing advances                                                    6,081                      6,174
Gross advances to customers                                                227,475                    225,926
Provisions for bad and doubtful debts                                       (2,913 )                   (3,490 )
                                                                           224,562                    222,436

Included in advances to customers are:
- trade bills                                                                2,180                      1,882
- provisions for bad and doubtful debts                                        (78 )                      (61 )
                                                                             2,102                      1,821


Advances to customers (after deduction of interest in suspense and provisions)
recorded a modest growth of HK$2,126 million, or 1.0 per cent, to HK$224.6
billion at 31 December 2002, as loan demand remained subdued under the uncertain
economic environment.


Provisions against advances to customers

                                                                                                          Suspended
Figures in HK$m                                        Specific         General           Total            interest

At 1Jan02                                                 2,052           1,438           3,490                 509
Amounts written off                                      (1,193 )            __          (1,193 )              (182 )
Recoveries of advances
 written off in previous years                               45              __              45                  __
Net charge/release to profit and loss
 account                                                    901            (330 )           571                  __
Interest suspended during the year                           __              __              __                 150
Suspended interest recovered                                 __              __              __                 (73 )
At 31Dec02                                                1,805           1,108           2,913                 404


Suspended interest comprises both suspended interest netted against 'Advances to
customers' and suspended interest netted against accrued interest receivable in
'Prepayments and accrued income'.


Total provisions as a percentage of gross advances to customers are as follows:

                                                                        At 31Dec02                 At 31Dec01
                                                                                 %                          %
Specific provisions                                                           0.79                       0.91
General provisions                                                            0.49                       0.64
Total provisions                                                              1.28                       1.55


Total provisions as a percentage of gross advances to customers fell to 1.28 per
cent at 31 December 2002, compared with 1.55 per cent at the end of 2001.
Specific provisions as a percentage of gross advances decreased by 0.12
percentage point to 0.79 per cent, despite the increase in the net charge for
specific provisions. The reduction mainly reflects the writing-off of
irrecoverable balances and the upgrading of rescheduled advances and doubtful
accounts to performing status. General provisions fell by 0.15 percentage point
to 0.49 per cent of gross advances to customers, compared with 0.64 per cent at
the end of 2001, taking into account the release in general provisions.


Non-performing advances to customers and provisions

Non-performing advances to customers on which interest has been placed in
suspense or on which interest has ceased to accrue are as follows:
Figures in HK$m                                                         At 31Dec02                 At 31Dec01

Gross non-performing advances on which interest:
- has been placed in suspense                                                5,767                      6,084
- accrual has ceased                                                           429                        251
                                                                             6,196                      6,335
Suspended interest                                                            (115 )                     (161 )
Gross non-performing advances ^ (page 20)                                    6,081                      6,174
Specific provisions                                                         (1,805 )                   (2,052 )
Net non-performing advances                                                  4,276                      4,122

Specific provisions as a percentage of
 gross non-performing advances ^                                              29.7 %                     33.2 %

Gross non-performing advances ^ as a
 percentage of gross advances to customers                                     2.7 %                      2.7 %

^ Stated after deduction of interest in suspense.


Non-performing advances to customers are those advances where full repayment of
principal or interest is considered unlikely and are so classified as soon as
such a situation becomes apparent. Non-performing advances may include advances
that are not yet overdue for more than three months but are considered doubtful.
Except in certain limited circumstances, all advances on which principal or
interest is overdue for more than three months are classified as non-performing.
Specific provisions are made after taking into account the value of collateral
held in respect of such advances.


Gross non-performing advances (after deduction of interest in suspense) fell by
HK$93 million, or 1.5 per cent, to HK$6,081 million, compared with the end of
2001. The ratio of gross non-performing advances to gross advances to customers
was maintained at 2.7 per cent, the same level as at the end of 2001.


Overdue advances to customers


The amounts of advances to customers which are overdue for more than three
months and their expression as a percentage of gross advances to customers are
as follows:

                                                                       At 31Dec02                 At 31Dec01
                                                                  HK$m          %            HK$m          %
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                         934        0.4           1,338        0.6
- one year or less but over six months                           1,097        0.5             894        0.4
- over one year                                                  2,734        1.2           3,203        1.4
                                                                 4,765        2.1           5,435        2.4

Overdue advances to customers (as above)                         4,765        2.1           5,435        2.4
Less: overdue advances on which interest
 is still being accrued                                         (1,131 )     (0.5 )          (622 )     (0.3 )
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                               1,814        0.8             484        0.2
- other                                                            633        0.3             877        0.4
Gross non-performing advances (page 19)                          6,081        2.7           6,174        2.7

^ Stated after deduction of interest in suspense.


Advances with a specific repayment date are classified as overdue when the
principal or interest is overdue and remains unpaid at the year-end. Advances
repayable by regular instalments are treated as overdue when an instalment
payment is overdue and remains unpaid at the year-end. Advances repayable on
demand are classified as overdue either when a demand for repayment has been
served on the borrower but repayment has not been made in accordance with the
demand notice, or when the advances have remained continuously outside the
approved limit advised to the borrower for more than the overdue period in
question.

Rescheduled advances to customers

The amount of rescheduled advances and its expression as a percentage of gross
advances to customers are as follows:

                                                                         At 31Dec02                 At 31Dec01
                                                                   HK$m           %           HK$m           %

Rescheduled advances to customers ^                               1,831         0.8            512         0.2          
                
                                                                  


^ Stated after deduction of interest in suspense.


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


Rescheduled advances to customers are stated net of any advances that have
subsequently become overdue for over three months and are included in overdue
advances to customers (page 20).

Rescheduled advances to customers increased by HK$1,319 million to HK$1,831
million at the year-end, representing 0.8 per cent of gross advances to
customers, mainly attributable to a limited number of corporate accounts which
have undergone debt restructuring.

Repossessed assets

In the recovery of non-performing advances, the bank may take repossession of
the collateral assets through court proceedings or voluntary delivery of
possession by the borrowers. In accordance with the bank's accounting policy,
specific provisions for non-performing advances are maintained after taking into
account the net realisable value of the related collateral which is revalued
periodically. Upon repossession of the collateral assets, the advances are
adjusted to the net realisable value of the repossessed assets, usually
resulting in a partial write-off of the advances against specific provisions.
Advances with repossessed collateral assets will continue to be accounted for as
customer advances and classified as non-performing. The total value of
repossessed assets at 31 December 2002, which mainly related to residential
mortgages, amounted to HK$638 million (HK$853 million at 31 December 2001).

Segmental analysis of advances to customers by geographical area

Advances to customers by geographical area are classified according to the
location of the counterparties after taking into account the transfer of risk.
In general, risk transfer applies when an advance is guaranteed by a party
located in an area which is different from that of the counterparty. At 31
December 2002, over 90 per cent of Hang Seng's advances to customers and the
related non-performing advances and overdue advances were classified under the
area of Hong Kong (unchanged from the position at 31 December 2001).


Gross advances to customers by industry sector


The analysis of gross advances to customers (after deduction of interest in
suspense) by industry sector based on categories and definitions used by the
Hong Kong Monetary Authority is as follows:

Figures in HK$m                                                        At 31Dec02                 At 31Dec01

Gross advances to customers for
 use in Hong Kong

Industrial, commercial and financial sectors
Property development                                                       19,300                     20,237
Property investment                                                        31,507                     29,403
Financial concerns                                                          2,071                      1,991
Stockbrokers                                                                  219                        115
Wholesale and retail trade                                                  3,941                      3,737
Manufacturing                                                               2,037                      1,683
Transport and transport equipment                                           9,238                      9,687
Other                                                                      19,521                     17,109
                                                                           87,834                     83,962
Individuals
Advances for the purchase of flats under
 the Government Home Ownership Scheme,
 Private Sector Participation Scheme and
 Tenants Purchase Scheme                                                   35,050                     39,295
Advances for the purchase of other
 residential properties                                                    78,518                     77,537
Credit card advances                                                        5,578                      5,262
Other                                                                       6,251                      6,050
                                                                          125,397                    128,144
Total gross advances for use in Hong Kong                                 213,231                    212,106
Trade finance                                                               9,751                      9,434
Gross advances for use outside Hong Kong                                    4,493                      4,386
Gross advances to customers                                               227,475                    225,926

Lending to the industrial, commercial and financial sectors grew by HK$3,872
million, or 4.6 per cent, mainly in lending to property investment companies and
the 'Other' sector which includes working capital financing of large
corporations in public utility and civil engineering businesses.

Excluding the fall of HK$4,245 million in advances under the Government Home
Ownership Scheme which has been suspended and other Government subsidised home
purchasing schemes, total lending to individuals rose slightly by HK$1,498
million, or 1.7 per cent. Residential mortgages and credit card advances
recorded moderate growth amidst intense market competition. Hang Seng gained
market share of total loans and loans for use in Hong Kong in 2002.

Trade finance rose by HK$317 million, or 3.4 per cent, benefiting from the
improvement in Hong Kong's re-export trade.


Long-term investments
                                                                             Carrying value
Figures in HK$m                                                         At 31Dec02                At 31Dec01

Held-to-maturity debt securities
Issued by public bodies
- central governments and central banks                                     10,664                     3,324
- other public sector entities                                               9,219                     6,510
                                                                            19,883                     9,834
Issued by other bodies
- banks and other financial institutions                                    40,011                    15,234
- corporate entities                                                        16,960                    14,537
                                                                            56,971                    29,771
                                                                            76,854                    39,605
Equity investments
Issued by corporate entities                                                 2,315                     3,657
                                                                            79,169                    43,262

Held-to-maturity debt securities
- listed in Hong Kong                                                        2,340                       311
- listed outside Hong Kong                                                  19,551                     9,762
                                                                            21,891                    10,073
- unlisted                                                                  54,963                    29,532
                                                                            76,854                    39,605

Equity investments
- listed in Hong Kong                                                        1,603                     2,848
- listed outside Hong Kong                                                      70                        95
                                                                             1,673                     2,943
- unlisted                                                                     642                       714
                                                                             2,315                     3,657

                                                                            79,169                    43,262


Held-to-maturity debt securities are stated at cost, adjusted for the
amortisation of premiums and accretion of discounts over the period from the
date of purchase to the date of redemption. Equity investments are stated at
fair value, less provision for impairment.


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