HK&S Banking Corp Rel PT 3

HSBC Holdings PLC
31 July 2006

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

The following analysis of advances to customers is based on categories used by the
HSBC Group, including The Hongkong and Shanghai Banking Corporation Limited and its subsidiaries,
for risk management purposes.

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

At 30JUN06

Residential mortgages           188,585         122,572            4         311,161

Hong Kong SAR Government's
  Home Ownership Scheme,
  Private Sector Participation
  Scheme and Tenants
  Purchase Scheme mortgages      33,863               -            -          33,863

Credit card advances             26,524          17,957            -          44,481

Other personal                   29,138          32,388            1          61,527
Total personal                  278,110         172,917            5         451,032

Commercial, industrial and
  international trade           138,577         122,447            -         261,024

Commercial real estate          103,403          35,462            -         138,865

Other property-related
  lending                        47,777          13,746            -          61,523

Government                        3,247           7,557            -          10,804

Other commercial                 49,325          40,088            -          89,413
Total corporate and
  commercial                    342,329         219,300            -         561,629

Non-bank financial
  institutions                   19,363          11,263            -          30,626

Settlement accounts               6,197           1,951            -           8,148
Total financial                  25,560          13,214            -          38,774

Gross advances to
  customers                     645,999         405,431            5       1,051,435

Impairment allowances            (3,039)         (4,032)           -          (7,071)

Net advances to customers       642,960         401,399            5       1,044,364

At 30JUN05

Residential mortgages           184,740         108,582            3         293,325

Hong Kong SAR Government's
  Home Ownership Scheme,
  Private Sector Participation
  Scheme and Tenants
  Purchase Scheme mortgages      39,131               -            -          39,131

Credit card advances             22,205          14,467            -          36,672

Other personal                   26,016          28,323            1          54,340
Total personal                  272,092         151,372            4         423,468

Commercial, industrial and
  international trade           126,034         112,301            -         238,335

Commercial real estate           80,473          29,560            -         110,033

Other property-related
  lending                        47,560          15,426            -          62,986

Government                        3,349           9,309            -          12,658

Other commercial                 57,113          36,308            -          93,421
Total corporate and
  commercial                    314,529         202,904            -         517,433

Non-bank financial
  institutions                   13,381          19,828            -          33,209

Settlement accounts               3,358           3,444            -           6,802
Total financial                  16,739          23,272            -          40,011

Gross advances to
  customers                     603,360         377,548            4         980,912

Impairment allowances            (3,871)         (3,404)           -          (7,275)

Net advances to customers       599,489         374,144            4         973,637

At 31DEC05

Residential mortgages           182,257         117,211            4         299,472

Hong Kong SAR Government's
  Home Ownership Scheme,
  Private Sector Participation
  Scheme and Tenants
  Purchase Scheme mortgages      36,291               -            -          36,291

Credit card advances             29,882          16,539            -          46,421

Other personal                   27,480          31,316            1          58,797
Total personal                  275,910         165,066            5         440,981

Commercial, industrial and
  international trade           129,774         110,668            -         240,442

Commercial real estate           97,364          32,615            -         129,979

Other property-related
  lending                        47,661          17,340            -          65,001

Government                        2,347           5,891            -           8,238

Other commercial                 53,681          37,851            -          91,532
Total corporate and
  commercial                    330,827         204,365            -         535,192

Non-bank financial
  institutions                   15,246          11,987            -          27,233

Settlement accounts               2,173             323            -           2,496
Total financial                  17,419          12,310            -          29,729

Gross advances to
  customers                     624,156         381,741            5       1,005,902

Impairment allowances            (3,092)         (3,484)           -          (6,576)

Net advances to customers       621,064         378,257            5         999,326

Net advances to customers increased by HK$45.0 billion, or 4.5 per cent, since
the end of 2005.

Net advances in Hong Kong grew by HK$21.9 billion, or 3.5 per cent, since the
end of 2005. Excluding the impact of lending under the Government Home Ownership
Scheme which remained suspended, mortgage lending rose by 3.5 per cent due to
the successful launch of HSBC's simplified pricing campaign. Credit card
advances dropped back from seasonally high balances at the end of December which
were inflated by personal tax payments. Corporate and commercial lending
increased, buoyed by demand for credit in the manufacturing and property
sectors, although lending to large corporations declined.

In the rest of Asia-Pacific, net advances rose by HK$23.1 billion, or 6.1 per
cent, since the end of 2005. Mortgage balances grew by 4.6 per cent with
increases in Taiwan, India and Australia. Credit card advances increased by 8.6
per cent, mainly in Australia, India, Thailand, the Philippines and Sri Lanka.
Lending to corporate and commercial customers rose by HK$14.9 billion, largely
in mainland China, Australia, Japan, India and Mauritius.

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

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

At 30JUN06

Gross advances to
  customers               581,542        378,801     83,748    7,344     1,051,435
Overdue advances to
  customers                 2,782          2,551        305        -         5,638

At 30JUN05

Gross advances to
  customers               550,724        357,221     63,356    9,611       980,912
Overdue advances to
  customers                 2,865          2,269         69        1         5,204

At 31DEC05

Gross advances to
  customers               570,329        354,626     73,959    6,988     1,005,902
Overdue advances to
  customers                 2,337          2,222        223        8         4,790

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

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

Figures in HK$m                         At 30JUN06 At 30JUN05    At 31DEC05

Gross advances to customers for use
in Hong Kong

Industrial, commercial and financial
Property development                        43,643     37,417        41,141
Property investment                        107,883     92,976       104,214
Financial concerns                          10,410     13,704        12,667
Stockbrokers                                   776        983         1,094
Wholesale and retail trade                  35,315     34,679        34,256
Manufacturing                               18,283     18,588        17,847
Transport and transport equipment           29,878     33,145        31,202
Others                                      43,868     47,570        44,697
                                           290,056    279,062       287,118

Individuals
Advances for the purchase of flats under the
  Hong Kong SAR Government's Home Ownership
  Scheme, Private Sector Participation and
  Tenants Purchase Scheme                   33,863     39,131        36,291
Advances for the purchase of other
  residential properties                   170,374    168,042       165,148
Credit card advances                        26,524     22,205        29,882
Others                                      24,776     22,557        23,826
                                           255,537    251,935       255,147

Gross advances to customers for use
  in Hong Kong                             545,593    530,997       542,265

Trade finance                               55,639     54,439        49,902

Gross advances to customers for use
  outside Hong Kong made by branches
  of the bank and subsidiary companies
  in Hong Kong                              44,767     17,924        31,989

Gross advances to customers made by
  branches of the bank and subsidiary
  companies in Hong Kong                   645,999    603,360       624,156

Gross advances to customers made by
  branches of the bank and subsidiary
  companies outside Hong Kong
- Rest of Asia-Pacific                     405,431    377,548       381,741
- Americas/Europe                                5          4             5

Gross advances to customers              1,051,435    980,912     1,005,902

24. Cross-border exposure

The country risk exposures in the tables below are prepared in accordance with
the HKMA Return of External Positions Part II: Cross-Border Claims (MA(BS)9)
guidelines.

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

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

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

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

At 30JUN06

Americas
United States                             44,625     77,197     29,906    151,728
Other                                     41,320      7,775     49,033     98,128
                                          85,945     84,972     78,939    249,856
Europe
United Kingdom                           113,869         14     24,447    138,330
Other                                    369,449      5,267     32,383    407,099
                                         483,318      5,281     56,830    545,429

Asia-Pacific excluding Hong Kong         175,332     12,084    102,108    289,524

At 30 June 2005

Americas
United States                             51,906     75,139     28,191    155,236
Other                                     40,686     13,491     47,349    101,526
                                          92,592     88,630     75,540    256,762
Europe
United Kingdom                            91,103         27     26,182    117,312
Other                                    335,154      3,746     21,533    360,433
                                         426,257      3,773     47,715    477,745

Asia-Pacific excluding Hong Kong         159,828     12,047     97,209    269,084

At 31DEC05

Americas
United States                             38,673     72,477     34,515    145,665
Other                                     39,328      9,909     50,744     99,981
                                          78,001     82,386     85,259    245,646

Europe
United Kingdom                           111,377         14     22,232    133,623
Other                                    338,060      5,842     39,509    383,411
                                         449,437      5,856     61,741    517,034

Asia-Pacific excluding Hong Kong         154,135     33,897    108,476    296,508

25. Financial investments

Figures in HK$m                      At 30JUN06      At 30JUN05      At 31DEC05

Debt securities
- available-for-sale                    375,115         379,876         350,624
- held-to-maturity                       30,873          23,671          28,102
                                        405,988         403,547         378,726
Equity shares
- available-for-sale                     21,338           6,895          15,771

                                        427,326         410,442         394,497

26. Customer accounts

Figures in HK$m                      At 30JUN06      At 30JUN05      At 31DEC05

Current accounts and demand deposits    969,450         959,723         925,008
Savings accounts                        703,023         563,002         664,478
Other deposit accounts                  145,795         148,708         145,624
                                      1,818,268       1,671,433       1,735,110

Customer accounts increased by HK$83.2 billion, or 4.8 per cent, since the end
of 2005.

In Hong Kong, customer accounts rose by HK$42.2 billion, or 3.3 per cent, in the
first half of 2006, largely from personal customers. In the rest of
Asia-Pacific, customer accounts grew by HK$41.2 billion, or 9.0 per cent.
Deposits from personal customers increased by 12.0 per cent, notably in
Singapore, Australia, mainland China, Taiwan and Indonesia. Deposits from
commercial and corporate customers rose by 7.6 per cent, with increases in
Taiwan, Singapore, mainland China and India, attributable to expansion of the
payment and cash management business and higher balances from securities custody
and clearing customers.

The group's advances-to-deposits ratio dropped slightly to 57.4 per cent at 30
June 2006 from 57.6 per cent at 31 December 2005.

27. Trading liabilities

Figures in HK$m                     At 30JUN06       At 30JUN05      At 31DEC05

Certificates of deposit in issue        76,450           83,048          83,937
Other debt securities in issue          23,184           22,976          20,361
Short positions in securities           65,500           52,402          55,025
Deposits by banks                       10,100            5,044          13,488
Customer accounts                       95,508           55,182          77,387
                                       270,742          218,652         250,198

Trading liabilities include customer deposits and certificates of deposit with
embedded options or other derivatives, the market risk of which is managed in
the trading book.

The increase in customer accounts represents growth in structured deposit
products in Hong Kong.

28. Financial liabilities designated at fair value

Figures in HK$m                     At 30JUN06       At 30JUN05      At 31DEC05

Deposits by banks                          371                -             360
Customer accounts                        1,678            1,192           1,600
Subordinated liabilities                   949              995             967
Liabilities to customers under
  investment contracts                  30,977           29,380          30,364
                                        33,975           31,567          33,291

29. Debt securities in issue

Figures in HK$m                     At 30JUN06       At 30JUN05      At 31DEC05

Certificates of deposit                 47,926           43,397          49,068
Other debt securities                   17,679           16,203          12,400
                                        65,605           59,600          61,468

30. Reserves

                                    At 30JUN06       At 30JUN05      At 31DEC05
Figures in HK$m                                        restated

Other reserves
- Property revaluation reserve           4,785            3,847           4,082
- Available-for-sale investments
  reserve                                8,218            2,399           2,899
- Cash flow hedge reserve                 (993)          (2,248)         (1,767)
- Foreign exchange reserve                 905              303              53
- Other                                  1,087              444             770
                                        14,002            4,745           6,037
Retained profits                        73,791           57,583          64,303
Total reserves                          87,793           62,328          70,340

The property revaluation reserve includes an amount of HK$149 million in
relation to properties classified as assets held for sale, included in 'Other
assets' in the consolidated balance sheet, at 30 June 2006 (30 June 2005 and 31
December 2005: nil).

31. Contingent liabilities, commitments and derivatives

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

At 30JUN06

Contingent liabilities
- Guarantees                            90,745           66,286          54,298
- Other                                     32               32              32
                                        90,777           66,318          54,330
Commitments
- Documentary credits and short-term
  trade-related transactions            66,335           24,512          13,620
- Undrawn note issuing and revolving
  underwriting facilities                  427              214               -
- Undrawn formal standby facilities,
  credit lines and other commitments:
  - one year and over                   89,723           44,861          39,771
  - under one year                     803,823                -               -
                                       960,308           69,587          53,391
Derivatives
Exchange rate contracts
- Spot and forward foreign exchange  3,246,950           43,787          11,447
- Other exchange rate contracts      1,111,295           51,188          15,497
                                     4,358,245           94,975          26,944
Interest rate contracts
- Interest rate swaps                5,551,438           70,576          18,506
- Other interest rate contracts        995,880            5,938           1,799
                                     6,547,318           76,514          20,305
Forward asset purchases and forward
 forward deposits placed                 4,971            4,971           1,682
Other derivative contracts             377,211           16,929           5,195
                                       382,182           21,900           6,877

Impact of counterparty netting
  agreements on derivatives exposure         -          (68,506)        (14,666)

At 30JUN05

Contingent liabilities
- Acceptances and endorsements          22,273            4,875           4,762
- Guarantees                           157,375          134,910          48,035
- Other                                     40               40              40
                                       179,688          139,825          52,837
Commitments
- Documentary credits and short-term
  trade-related transactions            58,058           19,828          11,658
- Undrawn note issuing and revolving
  underwriting facilities                3,982            1,991           1,614
- Undrawn formal standby facilities,
  credit lines and other commitments:
  - one year and over                   99,653           49,826          44,479
  - under one year                     715,575                -               -
                                       877,268           71,645          57,751
Derivatives
Exchange rate contracts
- Spot and forward foreign exchange  2,545,957           41,632          10,641
- Other exchange rate contracts        971,018           42,392          12,576
                                     3,516,975           84,024          23,217
Interest rate contracts
- Interest rate swaps                4,367,557           53,818          13,740
- Other interest rate contracts        679,471            5,560           1,714
                                     5,047,028           59,378          15,454

Forward asset purchases and forward
  forward deposits placed                9,710            9,710           8,746
Other derivative contracts             163,291            8,805           3,116
                                       173,001           18,515          11,862

Impact of counterparty netting
  agreements on derivatives exposure         -          (58,343)        (12,693)

At 31DEC05

Contingent liabilities
- Guarantees                            83,114           60,166          48,893
- Other                                     37               37              37
                                        83,151           60,203          48,930
Commitments
- Documentary credits and short-term
  trade-related transactions            55,402           20,650          10,905
- Undrawn note issuing and revolving
  underwriting facilities                3,249            1,625             975
- Undrawn formal standby facilities,
  credit lines and other commitments:
  - one year and over                   97,207           48,604          41,115
  - under one year                     752,797                -               -
                                       908,655           70,879          52,995
Derivatives
Exchange rate contracts
- Spot and forward foreign exchange  2,536,795           36,655           9,753
- Other exchange rate contracts        884,046           41,124          12,481
                                     3,420,841           77,779          22,234
Interest rate contracts
- Interest rate swaps                4,775,236           55,580          14,442
- Other interest rate contracts        815,110            4,159           1,340
                                     5,590,346           59,739          15,782

Forward asset purchases and forward
  forward deposits placed                1,849            1,849             775
Other derivative contracts             289,019           15,885           5,649
                                       290,868           17,734           6,424

Impact of counterparty netting
  agreements on derivatives exposure         -          (55,354)        (11,915)

The tables above give the nominal contract amounts, credit equivalent amounts
and risk-weighted amounts of contingent liabilities, commitments and
derivatives. The credit equivalent amounts are calculated for the purposes of
deriving the risk-weighted amounts. These are assessed in accordance with the
Third Schedule of the Hong Kong Banking Ordinance on capital adequacy and depend
on the status of the counterparty and maturity characteristics. The risk-weights
used range from 0 per cent to 100 per cent for contingent liabilities and
commitments, and from 0 per cent to 50 per cent for derivatives.

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

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

Fair value of derivative assets

Figures in HK$m                 At 30JUN06     At 30JUN05      At 31DEC05

Exchange rate contracts             38,552         35,368          31,074
Interest rate contracts             51,004         39,518          38,319
Other derivative contracts           3,562          2,251           2,646
                                    93,118         77,137          72,039
Less: netting adjustments          (42,248)       (34,831)        (32,038)
                                    50,870         42,306          40,001

The fair value of derivative assets represents the mark-to-market amounts of all
derivative contracts with a positive value. These assets arise from contracts
with third parties and fellow subsidiaries and are included in the balance sheet
as 'Derivatives'.

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

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

32. Foreign exchange exposure

Foreign exchange exposures may be divided broadly into two categories:
structural and non-structural. Structural exposures are normally long term in
nature and include those arising from investments in overseas subsidiaries,
branches, associates and strategic investments as well as capital instruments
denominated in currencies other than Hong Kong dollars. Non-structural exposures
arise primarily from trading positions and balance sheet management activities.
Non-structural exposures can arise and change rapidly. Foreign currency
exposures are managed in accordance with the group's risk management policies
and procedures.

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

Figures in HK$m                                          Net structural position

At 30JUN06

Chinese renminbi                                                          39,995
United States dollars                                                     10,613

At 30JUN05

Chinese renminbi                                                          21,128
Indian rupees                                                              7,603
United States dollars                                                     10,381

At 31DEC05

Chinese renminbi                                                          32,510
Indian rupees                                                              7,979
United States dollars                                                     11,780

The increase in the Chinese renminbi structural position during the first half
of 2006 was principally attributable to the rise in the market value of the
group's shareholding in Ping An Insurance, while the Indian rupee exposure fell
to below 10 per cent of the group's total foreign currency structural exposure
following the disposal of shares in UTI Bank.

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

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

At 30JUN06
Spot assets              1,144,826             105,727              6,359
Spot liabilities        (1,119,320)            (93,803)           (14,929)
Forward purchases        1,953,665             176,817             24,193
Forward sales           (1,972,119)           (180,365)           (24,055)
Net options position        (1,170)                  -                  -
                             5,882               8,376             (8,432)

At 30JUN05^
Spot assets                                     85,892              5,470
Spot liabilities                               (77,505)           (16,318)
Forward purchases                              147,882                  -
Forward sales                                 (145,643)                 -
Net options position                                 -                  -
                                                10,626            (10,848)

At 31DEC05
Spot assets              1,229,340             107,578              5,523
Spot liabilities        (1,188,737)            (90,549)           (18,062)
Forward purchases        1,507,086             157,007                 43
Forward sales           (1,558,902)           (161,647)                 -
Net options position         3,361                   -                  -
                            (7,852)             12,389            (12,496)

^ At 30 June 2005, the net US dollar non-structural position was less than 10
per cent of the group's total net position in all currencies, and is therefore
not required to be disclosed.

33. Segmental analysis

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

Income statement

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

Half-year ended 30JUN06

Interest income                 38,238        18,852          402       57,492
Interest expense               (22,167)      (11,378)        (357)     (33,902)
Net interest income             16,071         7,474           45       23,590
Fee income                       8,491         4,998            -       13,489
Fee expense                     (1,518)       (1,051)          (6)      (2,575)
Net trading income               1,816         2,660          (14)       4,462
Net income from financial
  instruments designated
  at fair value                     64           (36)           -           28
Gains less losses from
  financial investments            945           205            -        1,150
Dividend income                    579            12            -          591
Net earned insurance premiums   10,218           694            -       10,912
Other operating income           3,183           511           12        3,706
Total operating income          39,849        15,467           37       55,353
Net insurance claims
  incurred and movement in
  policyholder liabilities      (9,253)         (491)           -       (9,744)
Net operating income before
  loan impairment charges and
  other credit risk provisions  30,596        14,976           37       45,609
Loan impairment charges and
  other credit risk provisions    (544)       (2,039)           -       (2,583)
Net operating income            30,052        12,937           37       43,026
Operating expenses             (10,762)       (7,963)         (20)     (18,745)
Operating profit                19,290         4,974           17       24,281
Share of profit in associates       81         1,154            -        1,235
Profit before tax               19,371         6,128           17       25,516
Tax expense                     (2,968)       (1,591)         (10)      (4,569)
Profit for the period           16,403         4,537            7       20,947

Attributable to shareholders    14,006         4,458            7       18,471
Attributable to minority
  interests                      2,397            79            -        2,476

Half-year ended 30JUN05

Interest income                 23,529        14,225          275       38,029
Interest expense                (8,122)       (8,366)        (131)     (16,619)
Net interest income             15,407         5,859          144       21,410
Fee income                       7,057         3,701            1       10,759
Fee expense                     (1,035)         (845)          (5)      (1,885)
Net trading income               2,381         1,928         (113)       4,196
Net income from financial
  instruments designated
  at fair value                   (163)          107            -          (56)
Gains less losses from
  financial investments            359           (12)           -          347
Dividend income                    223            26            -          249
Net earned insurance
  premiums                       6,746           229            -        6,975
Other operating income           3,555           518           11        4,084
Total operating income          34,530        11,511           38       46,079
Net insurance claims
  incurred and movement 
  in policyholder liabilities   (5,851)         (288)           -       (6,139)
Net operating income before
  loan impairment charges and
  other credit risk provisions  28,679        11,223           38       39,940
Loan impairment charges and
  other credit risk provisions    (459)          (69)          12         (516)
Net operating income            28,220        11,154           50       39,424
Operating expenses              (9,754)       (6,406)         (21)     (16,181)
Operating profit                18,466         4,748           29       23,243
Share of profit in associates       28           892            -          920
Profit before tax               18,494         5,640           29       24,163
Tax expense                     (2,873)       (1,372)          (3)      (4,248)
Profit for the period           15,621         4,268           26       19,915

Attributable to shareholders    13,342         4,196           26       17,564
Attributable to minority
  interests                      2,279            72            -        2,351

Half-year ended 31DEC05

Interest income                 31,610        15,388          254       47,252
Interest expense               (16,027)       (8,970)        (174)     (25,171)
Net interest income             15,583         6,418           80       22,081
Fee income                       7,180         4,220            1       11,401
Fee expense                     (1,217)         (958)          (3)      (2,178)
Net trading income                 771         2,270          (57)       2,984
Net income from financial
  instruments designated
  at fair value                     94           346            -          440
Gains less losses from
  financial investments            355            54            -          409
Dividend income                    127            (8)           -          119
Net earned insurance
  premiums                      11,394           971            -       12,365
Other operating income           2,925           613           11        3,549
Total operating income          37,212        13,926           32       51,170
Net insurance claims
  incurred and movement in
  policyholder liabilities     (10,151)       (1,001)           -      (11,152)
Net operating income before
  loan impairment charges and
  other credit risk provisions  27,061        12,925           32       40,018
Loan impairment charges and
  other credit risk provisions    (702)         (846)           -       (1,548)
Net operating income            26,359        12,079           32       38,470
Operating expenses             (10,760)       (7,592)         (17)     (18,369)
Operating profit                15,599         4,487           15       20,101
Share of profit in associates      150           835            -          985
Profit before tax               15,749         5,322           15       21,086
Tax expense                     (2,538)       (1,262)          (3)      (3,803)
Profit for the period           13,211         4,060           12       17,283

Attributable to shareholders    11,302         3,995           12       15,309
Attributable to minority
  interests                      1,909            65            -        1,974

Interest income and interest expense for the first half of 2006 include
intra-group interest of HK$3,747 million (first half of 2005: HK$2,170 million;
second half of 2005: HK$2,912 million). Fee income and fee expense for the first
half of 2006 include intra-group fees of HK$304 million (first half of 2005:
HK$180 million; second half of 2005: HK$309 million). Other operating income and
operating expenses for the first half of 2006 include intra-group items of
HK$1,256 million (first half of 2005: HK$1,364 million; second half of 2005:
HK$1,372 million).

34. Capital adequacy

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

Figures in HK$m                     At 30JUN06     At 30JUN05     At 31DEC05

Composition of capital

Tier 1:
Shareholders' funds                    115,787         93,216         97,334
Less: proposed dividend                 (5,500)        (6,000)        (4,500)
      property revaluation reserves^    (8,027)        (7,158)        (7,892)
      available-for-sale investments
        reserve^^                       (8,198)        (2,395)        (3,051)
      classified as regulatory 
        reserve^^^                      (1,362)        (1,017)        (1,319)
      goodwill                          (3,865)        (6,043)        (3,784)
      others                               989          2,244          1,769
Irredeemable non-cumulative
  preference shares                     51,676         51,718         51,587
Minority interests^^^^                  16,172         14,666         14,808
Total qualifying tier 1 capital        157,672        139,231        144,952

Tier 2:
Property revaluation reserves
  (@70%)                                 5,619          5,011          5,524
Available-for-sale investments
  reserves (@70%)                        5,739          1,677          2,136
Collective impairment provision
  and regulatory reserve                 6,038          4,351          5,112
Perpetual subordinated debt              9,352          9,404          9,359
Term subordinated debt                  10,588          4,160          6,117
Term preference shares                   3,884          3,887          3,877
Irredeemable cumulative
  preference shares                     16,544          7,373         16,516
Total qualifying tier 2 capital         57,764         35,863         48,641

Deductions                             (44,987)       (25,640)       (39,528)

Total capital                          170,449        149,454        154,065

Risk-weighted assets                 1,305,529      1,221,620      1,238,164

^    Includes the revaluation surplus on investment properties which is reported as
     part of retained profits.
^^   Includes adjustments made in accordance with guidelines issued by the HKMA.
^^^  The regulatory reserve is maintained for satisfying the Banking Ordinance
     for prudential supervision. Movements in this reserve are made in consultation
     with the HKMA.
^^^^ After deduction of minority interests in unconsolidated subsidiary companies.

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

                     At 30JUN06        At 30JUN05        At 31DEC05

Total capital              13.1%             12.2%             12.4%

Tier 1 capital             12.1%             11.4%             11.7%

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

Total capital              12.8%             12.1%             12.0%

Tier 1 capital             11.8%             11.2%             11.2%

35. Liquidity ratio

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

                              Half-year ended  Half-year ended  Half-year ended
                                      30JUN06          30JUN05          31DEC05

The average liquidity ratio
  for the period was as
  follows:

Hong Kong branches of the bank           49.1%            48.6%            47.8%

36. Property revaluation

The group's premises and investment properties were revalued at 30 June 2006 on
the basis of open market value.

Premises and investment properties in the Hong Kong SAR were valued by DTZ
Debenham Tie Leung at 30 June 2006. The valuations were carried out by
independent qualified valuers who are members of the Hong Kong Institute of
Surveyors. Management considered that there had either been no material changes
in the values of the properties located outside Hong Kong since 30 September
2005, when the properties were last revalued or reviewed, or that the values of
the properties were not material.

The property revaluation has resulted in an increase in the group's revaluation
reserves of HK$1,036 million, net of deferred taxation of HK$217 million, as at
30 June 2006. In addition, there was a credit to the income statement of
HK$337 million, of which HK$320 million represents the surplus on the
revaluation of investment properties and HK$17 million relates to the reversal
of previous revaluation deficits that had arisen when the value of certain
premises fell below depreciated historical cost.

37. Accounting policies

The accounting policies applied in preparing this news release are the same as
those applied in preparing the accounts for the year ended 31 December 2005, as
disclosed in the Annual Report and Accounts for 2005.

38. Restatement of comparative figures

Leasehold land

As disclosed on page 31 of the 2005 Annual Report and Accounts, in the second
half of 2005 the group revised its accounting policy for land held on leases
expiring after more than 500 years and which are not eligible to be treated as
finance leases. Such interests in land were reclassified from 'Property, plant
and equipment' to 'Other assets' and were remeasured on a historical cost basis.
In order to reflect this, certain comparative figures for the half-year ended 30
June 2005 have been restated as follows: total assets and equity as at 30 June
2005 have been reduced by HK$2,902 million and HK$2,394 million respectively,
and the deferred tax liability as at 30 June 2005 has been reduced by HK$508
million.

39. Statutory accounts

The information in this news release is not audited and does not constitute
statutory accounts.

Certain financial information in this news release is extracted from the
statutory accounts for the year ended 31 December 2005 which have been delivered
to the Registrar of Companies and the Hong Kong Monetary Authority. The Auditors
expressed an unqualified opinion on those statutory accounts in their report
dated 6 March 2006. The Annual Report and Accounts for the year ended 31
December 2005, which include the statutory accounts, can be obtained on request
from Group Public Affairs, The Hongkong and Shanghai Banking Corporation
Limited, 1 Queen's Road Central, Hong Kong, and may be viewed on our website:
www.hsbc.com.hk.

40. Ultimate holding company

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

41. Statement of compliance

The information in this news release for the half-year ended 30 June 2006
complies with Hong Kong Accounting Standard 34 on Interim Financial Reporting
and the module on Interim Financial Disclosure by Locally Incorporated
Authorised Institutions under the Supervisory Policy Manual issued by the Hong
Kong Monetary Authority.



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