HK & Shanghai Bk Pt 3/3

HSBC Holdings PLC
05 March 2007


20. 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 31Dec06   At 31Dec05

Gross advances to customers for use in Hong Kong

Industrial, commercial and financial

Property development                                            46,352       41,141
Property investment                                             99,580      104,214
Financial concerns                                              10,136       12,667
Stockbrokers                                                       964        1,094
Wholesale and retail trade                                      36,101       34,256
Manufacturing                                                   17,331       17,847
Transport and transport equipment                               27,408       31,202
Others                                                          43,612       44,697
                                                               281,484      287,118

Individuals
Advances for the purchase of flats under the
  Hong Kong SAR Government's Home
  Ownership Scheme, Private Sector
  Participation Scheme and Tenants
  Purchase Scheme                                               31,708       36,291
Advances for the purchase of other
  residential properties                                       171,014      165,148
Credit card advances                                            31,315       29,882
Others                                                          26,966       23,826
                                                               261,003      255,147

Gross advances to customers for use in Hong Kong               542,487      542,265

Trade finance                                                   56,121       49,902

Gross advances to customers for use outside
  Hong Kong made by branches of the bank
  and subsidiary companies in Hong Kong                         35,628       31,989

Gross advances to customers made by
  branches of the bank and subsidiary
  companies in Hong Kong                                       634,236      624,156

Gross advances to customers made by
  branches of the bank and subsidiary
  companies outside Hong Kong:
-  Rest of Asia-Pacific                                        416,383      381,741
-  Americas/Europe                                                   6            5

Gross advances to customers                                  1,050,625    1,005,902

21. 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 31Dec06

Americas
United States                                                62,558     78,354    72,669   213,581
Other                                                        38,585      6,568    47,393    92,546
                                                            101,143     84,922   120,062   306,127

Europe
United Kingdom                                              138,625         17    24,324   162,966
Other                                                       405,950      5,010    18,981   429,941
                                                            544,575      5,027    43,305   592,907

Asia-Pacific excluding Hong Kong                            213,292     93,968   116,242   423,502

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

22. Customer accounts

Figures in HK$m                                             At 31Dec06   At 31Dec05

Current accounts                                               292,450      245,094
Savings accounts                                               785,659      682,412
Other deposit accounts                                         911,358      807,604
                                                             1,989,467    1,735,110

Customer accounts increased by HK$254.4 billion, or 14.7 per cent since the end
of 2005. This excludes structured deposits, which rose by HK$26.0 billion, as
these are included with 'Trading liabilities'.

In Hong Kong, customer accounts rose by HK$160.6 billion, or 12.6 per cent,
largely in savings account balances, attributable to successful deposit
campaigns and effective pricing which made savings products more attractive to
customers. Deposits from personal customers increased by HK$100.7 billion, or
12.2 per cent, as a result. In Commercial Banking and Corporate, Investment
Banking and Markets, customer account balances grew by HK$59.9 billion, or 13.0
per cent, supported by targeted campaigns and a new, dedicated service team to
capture the SME customer base, and there was continued growth in the payments
and cash management business.

In the rest of Asia-Pacific, customer accounts increased by HK$94.0 billion, or
20.6 per cent, as the group actively sought to grow the deposit base throughout
the region. Deposits from personal customers grew by HK$37.7 billion, or 23.0
per cent, notably in Singapore, Australia and China. Customer account balances
held by corporate customers rose by HK$56.3 billion, or 19.8 per cent, largely
in India, mainland China, Taiwan and Singapore.

The group's advances-to-deposits ratio fell to 52.5 per cent at 31 December 2006
from 57.6 per cent at 31 December 2005.

23. Reserves

Figures in HK$m                                             At 31Dec06   At 31Dec05

Other reserves
- Property revaluation reserve                                   4,798        4,082
- Available-for-sale investment reserve                         25,812        2,899
- Cash flow hedge reserve                                         (166)      (1,767)
- Foreign exchange reserve                                       2,805           53
- Other                                                          2,265          770
                                                                35,514        6,037
Retained profits                                                80,942       64,303
Total reserves                                                 116,456       70,340

The property revaluation reserve includes an amount of HK$62 million in relation
to properties classified as assets held for sale at 31 December 2006 (31
December 2005: nil). Assets held for sale are included in 'Other assets' in the
consolidated balance sheet.

24. Contingent liabilities, commitments and derivatives

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

At 31Dec06

Contingent liabilities
- Guarantees                                                  100,964       73,862     60,534
- Other                                                            35           35         35
                                                              100,999       73,897     60,569
Commitments
- Documentary credits and short-term
  trade-related transactions                                   56,732       21,632     11,680
- Undrawn note issuing and revolving
  underwriting facilities                                       1,166          583          -
- Undrawn formal standby facilities, credit lines
  and other commitments:
  - one year and over                                          94,241       47,120     43,635
  - under one year                                            887,680            -          -
                                                            1,039,819       69,335     55,315
Derivatives
Exchange rate contracts
- Spot and forward foreign exchange                         3,267,333       52,122     13,334
- Swap and other exchange rate contracts                    1,262,208       56,377     16,868
                                                            4,529,541      108,499     30,202
Interest rate contracts
- Interest rate swaps                                       6,919,779       69,936     17,832
- Other interest rate contracts                               918,146        5,641      1,808
                                                            7,837,925       75,577     19,640
Forward asset purchases and forward forward
  deposits placed                                               2,588        2,588      2,463
Other derivative contracts                                    554,801       27,935      9,041
                                                              557,389       30,523     11,504

Impact of counterparty netting agreements on
  derivatives exposure                                              -      (67,516)   (14,352)

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
- Swap and 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.

Contingent liabilities and commitments are credit-related instruments. The
contract amounts represent the amounts at risk should the contracts be fully
drawn upon and the customers 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, 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 31Dec06   At 31Dec05

Exchange rate contracts                                         42,862       31,074
Interest rate contracts                                         46,809       38,319
Other derivative contracts                                       9,496        2,646
                                                                99,167       72,039
Less: netting adjustments                                      (40,339)     (32,038)
                                                                58,828       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 HKMA in
the calculation of risk assets for the capital adequacy ratio.

25. 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 total net structural exposure in all foreign currencies:

Figures in HK$m                                             Net structural position

At 31Dec06

Chinese renminbi                                                             54,960
United States dollars                                                        15,886

At 31Dec05

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

The increase in the Chinese renminbi structural position during 2006 was largely
attributable to the rise in the market value of the group's shareholding in Ping
An Insurance. 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 non-structural positions in all foreign
currencies:

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

At 31Dec06

Spot assets                                                     1,205,314     118,964    27,665
Spot liabilities                                               (1,222,334)   (140,566)     (107)
Forward purchases                                               2,222,005     168,534    24,949
Forward sales                                                  (2,210,290)   (141,505)  (57,857)
Net options position                                                 (132)          -         -
                                                                   (5,437)      5,427    (5,350)

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)

26. 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. Interest is charged based on market
rates. 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 with the
elimination shown in a separate column.

Consolidated income statement

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

Year ended 31Dec06

Interest income                                        82,301         40,151         884        (7,408)  115,928
Interest expense                                      (46,490)       (24,960)       (804)        7,425   (64,829)
Net interest income                                    35,811         15,191          80            17    51,099
Fee income                                             17,347          9,925           -          (718)   26,554
Fee expense                                            (3,030)        (1,826)        (12)          718    (4,150)
Net trading income/(loss)                               3,077          5,871         (13)          (17)    8,918
Net income from financial instruments
  designated at fair value                              2,048            622           -             -     2,670
Gains less losses from financial
  investments                                           1,245            221           -             -     1,466
Dividend income                                           525            224           -             -       749
Net earned insurance premiums                          20,495          1,351           -             -    21,846
Other operating income                                  6,171          2,073          22        (2,613)    5,653
Total operating income                                 83,689         33,652          77        (2,613)  114,805
Net insurance claims incurred and
  movement in policyholders'
  liabilities                                         (20,991)        (1,489)          -             -   (22,480)
Net operating income before loan
  impairment charges and other
  credit risk provisions                               62,698         32,163          77        (2,613)   92,325
Loan impairment charges and
  other credit risk provisions                         (1,336)        (3,473)          -             -    (4,809)
Net operating income                                   61,362         28,690          77        (2,613)   87,516
Operating expenses                                    (23,534)       (17,287)        (31)        2,613   (38,239)
Operating profit                                       37,828         11,403          46             -    49,277
Share of profit in associates and
  joint venture                                           150          2,589           -             -     2,739
Profit before tax                                      37,978         13,992          46             -    52,016
Tax expense                                            (6,079)        (3,317)        (15)            -    (9,411)
Profit for the year                                    31,899         10,675          31             -    42,605

Profit attributable to shareholders                    27,206         10,472          31             -    37,709
Profit attributable to minority
  interests                                             4,693            203           -             -     4,896

Year ended 31Dec05

Interest income                                        55,139         29,613         529        (5,082)   80,199
Interest expense                                      (24,149)       (17,336)       (305)        5,082   (36,708)
Net interest income                                    30,990         12,277         224             -    43,491
Fee income                                             14,237          7,921           2          (489)   21,671
Fee expense                                            (2,252)        (1,803)         (8)          489    (3,574)
Net trading income/(loss)                               3,152          4,198        (170)            -     7,180
Net income/(loss) from financial
  instruments designated at
  fair value                                              (69)           453           -             -       384
Gains less losses from financial
  investments                                             714             42           -             -       756
Dividend income                                           350             18           -             -       368
Net earned insurance premiums                          18,140          1,200           -             -    19,340
Other operating income                                  6,480          1,131          22        (2,736)    4,897
Total operating income                                 71,742         25,437          70        (2,736)   94,513
Net insurance claims incurred and
  movement in policyholders'
  liabilities                                         (16,002)        (1,289)          -             -   (17,291)
Net operating income before loan
  impairment charges and other
  credit risk provisions                               55,740         24,148          70        (2,736)   77,222
Loan impairment charges and
  other credit risk provisions                         (1,161)          (915)         12             -    (2,064)
Net operating income                                   54,579         23,233          82        (2,736)   75,158
Operating expenses                                    (20,514)       (13,998)        (38)        2,736   (31,814)
Operating profit                                       34,065          9,235          44             -    43,344
Share of profit in associates and
  joint venture                                           178          1,727           -             -     1,905
Profit before tax                                      34,243         10,962          44             -    45,249
Tax expense                                            (5,411)        (2,634)         (6)            -    (8,051)
Profit for the year                                    28,832          8,328          38             -    37,198

Profit attributable to shareholders                    24,644          8,191          38             -    32,873
Profit attributable to minority
  interests                                             4,188            137           -             -     4,325

27. Capital adequacy

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

Figures in HK$m                                             At 31Dec06   At 31Dec05

Composition of capital

Tier 1:
Total shareholders' equity                                     145,450       97,334
Less: proposed dividend                                         (6,500)      (4,500)
      property revaluation reserves^                            (7,892)      (7,892)
      available-for-sale investment reserve^^                  (26,028)      (3,051)
      classified as regulatory reserve^^^                       (1,689)      (1,319)
      goodwill                                                  (4,182)      (3,784)
      others                                                      (138)       1,769
Irredeemable non-cumulative preference shares                   51,735       51,587
Minority interests^^^^                                          17,483       14,808
Total qualifying tier 1 capital                                168,239      144,952

Tier 2:
Property revaluation reserves (@70%)                             5,524        5,524
Available-for-sale investment reserve (@70%)                    18,220        2,136
Collective impairment provision and regulatory reserve           6,610        5,112
Perpetual subordinated debt                                      9,370        9,359
Term subordinated debt                                           9,849        6,117
Term preference shares                                           8,165        3,877
Irredeemable cumulative preference shares                       16,563       16,516
Total qualifying tier 2 capital                                 74,301       48,641

Deductions                                                     (58,559)     (39,528)

Total capital                                                  183,981      154,065

Risk-weighted assets                                         1,367,607    1,238,164

^    Includes the revaluation surplus on investment properties, which is now
     reported as part of retained profits.

^^   Includes adjustments made in accordance with guidelines issued by HKMA.

^^^  The regulatory reserve is maintained for the purpose of 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 31Dec06   At 31Dec05

Total capital                                                     13.5%        12.4%

Tier 1 capital                                                    12.3%        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                                                     13.0%        12.0%

Tier 1 capital                                                    11.8%        11.2%

With effect from 1 January 2007, the group has adopted the 'standardised
approach' of capital calculation under the HKMA 'Banking (Capital) Rules'.

The increase in the group's total capital ratio at 31 December 2006 reflects
additional capital raised in anticipation of different capital requirements
under the new rules.

28. Liquidity ratio

The Hong Kong Banking Ordinance requires banks operating in Hong Kong to
maintain a minimum liquidity ratio of 25 per cent, calculated in accordance with
the provisions of the Fourth Schedule of the Banking Ordinance. 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.

                                                                  2006         2005

The average liquidity ratio for the
  year was as follows:

Hong Kong branches of the bank                                    49.3%        48.2%

29. Property revaluation

The group's premises and investment properties were revalued as at 30 September
2006 and updated for any material changes as at 31 December 2006. The basis of
valuation was open market value or depreciated replacement cost.

Premises and investment properties in the Hong Kong SAR, the Macau SAR and
mainland China, which represent 95 per cent by value of the group's properties
subject to valuation, were valued by DTZ Debenham Tie Leung Limited. The
valuations were carried out by qualified valuers who are members of the Hong
Kong Institute of Surveyors. Properties in 11 other countries, which represent
five per cent by value of the group's properties, were valued by different
independent professionally qualified valuers.

The September property revaluation, together with the revaluation of Hong Kong
properties undertaken in June 2006, has resulted in an increase in the group's
revaluation reserves of HK$1,356 million, net of deferred taxation of HK$383
million, and a credit to the income statement of HK$389 million. Of the HK$389
million credit to the income statement, HK$319 million represents the surplus on
the revaluation of investment properties and HK$70 million relates to the
reversal of previous revaluation deficits that had arisen when the value of
certain premises fell below depreciated historical cost.

30. Accounting policies

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

31. 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
financial statements for the year ended 31 December 2006, which were approved by
the Board of Directors on 5 March 2007 and will be delivered to the Registrar of
Companies and the HKMA. The Auditors expressed an unqualified opinion on those
financial statements in their report dated 5 March 2007. The Annual Report and
Accounts for the year ended 31 December 2006, which include the financial
statements, can be obtained on request from Group Public Affairs, The Hongkong
and Shanghai Banking Corporation Limited, 1 Queen's Road Central, Hong Kong, and
may be viewed on our website: www.hsbc.com.hk on or after 3 April 2007.

32. Ultimate holding company

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




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