No 3 HASE Final Results (2/2)

HSBC Holdings PLC 4 March 2002 PART 2 Long-term investments (continued) Maturity analysis of held-to-maturity debt securities: Carrying value Figures in HK$m At 31Dec01 At 31Dec00 Remaining maturity: - three months or less but not repayable on demand 7,892 10,057 - one year or less but over three months 6,087 7,003 - five years or less but over one year 22,930 15,478 - over five years 2,696 2,299 39,605 34,837 Other assets Figures in HK$m At 31Dec01 At 31Dec00 Unrealised gains on off-balance sheet interest rate, exchange rate and other derivative contracts which are marked to market 570 1,800 Deferred taxation 34 13 Items in the course of collection from other banks 2,881 4,472 Prepayments and accrued income 2,294 3,849 Other accounts 2,781 1,193 8,560 11,327 Remaining maturity: - three months or less 6,467 9,296 - one year or less but over three months 1,048 1,779 - five years or less but over one year 913 134 - over five years 98 79 8,526 11,288 - overdue ^ --six months or less but over three months 5 5 --one year or less but over six months 7 7 --over one year 22 27 34 39 8,560 11,327 ^ Represented mainly by overdue interest receivable included under ' Prepayments and accrued income'. Current, savings and other deposit accounts Figures in HK$m At 31Dec01 At 31Dec00 Current accounts 31,471 25,697 Savings accounts 141,608 120,819 Time and other deposits 222,685 268,359 Certificates of deposit in issue 18,564 14,730 414,328 429,605 Current, savings, time and other deposits Repayable on demand 186,557 175,336 With agreed maturity dates or periods of notice, by remaining maturity: - three months or less but not repayable on demand 198,405 224,985 - one year or less but over three months 10,664 14,458 - five years or less but over one year 138 96 395,764 414,875 Certificates of deposit in issue Remaining maturity: - three months or less but not repayable on demand 3,888 5,358 - one year or less but over three months 6,667 2,771 - five years or less but over one year 7,644 6,276 - over five years 365 325 18,564 14,730 414,328 429,605 Current, savings, time and other deposit accounts fell by HK$19.1 billion, or 4.6 per cent, to HK$395.8 billion at 31 December 2001, compared with HK$414.9 billion at the previous year-end. Time and other deposits showed a decline of 17.0 per cent, mainly in Hong Kong dollars and US dollars, which was partly the result of the withdrawal of large deposits by certain corporate customers. Current and savings accounts, mainly in Hong Kong dollars, grew by 22.5 per cent and 17.2 per cent respectively, reflecting customers' preference for liquidity in the low interest rate environment. The final stage of interest rate deregulation which was brought into effect on 3 July 2001 had no material impact on savings account balances. In terms of currency, Hong Kong dollar deposits remained stable, US dollar deposits (mainly time deposits) fell, while deposits in other foreign currencies rose. Certificates of deposit in issue increased by HK$3.8 billion, or 26.0 per cent, to HK$18.6 billion. Shareholders' funds Figures in HK$m At 31Dec01 At 31Dec00 Share capital 9,559 9,559 Retained profits 19,618 18,732 Premises and investment properties revaluation reserves 8,119 8,742 Long-term equity investment revaluation reserve 2,323 3,452 Capital redemption reserve 99 99 Reserves 30,159 31,025 39,718 40,584 Proposed dividends 5,353 5,353 Shareholders' funds 45,071 45,937 Return on average shareholders' funds 23.0 % 22.7 % There was no purchase, sale or redemption of the bank's listed securities by the bank or any of its subsidiaries during the year. Shareholders' funds (excluding proposed dividend) decreased by HK$866 million, or 2.1 per cent, to HK$39,718 million. Despite an increase in retained profits, the decrease in shareholders' funds reflected the reductions in the long-term equity investment revaluation reserve due to disposals and decrease in fair value of the equity investments and the premises and investment properties revaluation reserves as a result of the decline in the property market. Following the adoption of the revised HKSSAP 9, dividends proposed after the balance sheet date are recorded as a separate component of shareholders' funds. Shareholders' funds and the return on average shareholders' funds at 31 December 2000 have been restated to reflect this change in accounting policy. The return on average shareholders' funds improved slightly to 23.0 per cent, compared with 22.7 per cent for 2000. Capital resources management Analysis of capital base and risk-weighted assets Figures in HK$m At 31Dec01 At 31Dec00 Capital base Tier 1 capital - share capital 9,559 9,559 - retained profits 19,342 18,455 - capital redemption reserve 99 99 - total 29,000 28,113 Tier 2 capital - premises and investment properties revaluation reserves 5,708 5,860 - long-term equity investment revaluation reserve 1,418 2,043 - general provisions 1,437 1,437 - total 8,563 9,340 Unconsolidated investments and other deductions (1,331 ) (1,346 ) Total capital base after deductions 36,232 36,107 Risk-weighted assets On-balance sheet 221,565 220,037 Off-balance sheet 14,726 13,982 Total risk-weighted assets 236,291 234,019 Total risk-weighted assets adjusted for market risk 236,588 235,453 Capital adequacy ratios After adjusting for market risk - tier 1 ^ 12.3 % 11.9 % - total ^ 15.3 % 15.3 % Before adjusting for market risk - tier 1 12.3 % 12.0 % - total 15.3 % 15.4 % ^ The capital ratios take into account market risks in accordance with the relevant Hong Kong Monetary Authority guideline. The total capital ratio at 31 December 2001 was maintained at the same level as the previous year at 15.3 per cent. The capital base recorded a small growth of 0.3 per cent while risk-weighted assets adjusted for market risk rose by 0.5 per cent. The tier 1 capital ratio rose to 12.3 per cent from the growth in retained profits while the overall capital ratio fell because of the decline in the revaluation reserves. Liquidity ratio The average liquidity ratio for the year, calculated in accordance with the Fourth Schedule of the Hong Kong Banking Ordinance, is as follows: 2001 2000 The bank and its major banking subsidiaries 45.6 % 43.3 % Reconciliation of cash flow statement (a) Reconciliation of operating profit to net cash flow from operating activities Figures in HK$m 2001 2000 Operating profit 11,079 11,344 Provisions for bad and doubtful debts 424 196 Depreciation 386 388 Amortisation of long-term investments (301 ) (571 ) Advances written off net of recoveries (1,389 ) (707 ) Income receivable on long-term investments (2,286 ) (1,863 ) Net cash inflow from trading activities 7,913 8,787 Change in cash and short-term funds 9,358 (8,377 ) Change in placings with banks repayable after three months 8,818 95 Change in certificates of deposit (6,715 ) (5,333 ) Change in securities held for dealing purposes 2,332 (4,206 ) Change in advances to customers (3,953 ) (19,729 ) Change in amounts due from immediate holding company and fellow subsidiary companies 820 1,093 Change in other assets 2,723 (1,896 ) Change in customer accounts (19,111 ) 50,837 Change in certificates of deposit in issue 3,834 3,057 Change in deposits from banks (1,180 ) (3,087 ) Change in amounts due to immediate holding company and fellow subsidiary companies (948 ) (782 ) Change in other liabilities (7,265 ) 6,391 Elimination of exchange differences and other non-cash items 928 1,913 Net cash (outflow)/inflow from operating activities (2,446 ) 28,763 (b) Analysis of the changes in cash and cash equivalents during the year Figures in HK$m 2001 2000 Balance at 1 January 157,511 150,579 Net cash (outflow)/inflow before the effect of foreign exchange movements (14,235 ) 8,472 Effect of foreign exchange movements (2,173 ) (1,540 ) Balance at 31 December 141,103 157,511 (c) Analysis of the balances of cash and cash equivalents Figures in HK$m At 31Dec01 At 31Dec00 Cash in hand and balances with banks and other financial institutions 3,789 4,330 Money at call and placings with banks maturing within one month 104,990 113,626 Treasury bills 2,274 1,522 Placings with banks repayable between one to three months 29,897 37,136 Certificates of deposit 153 897 141,103 157,511 Contingent liabilities, commitments and derivatives Credit Risk- Contract equivalent weighted Figures in HK$m amount amount amount At 31Dec01 Contingent liabilities: Guarantees 11,802 11,706 3,761 Commitments: Documentary credits and short-term trade-related transactions 5,768 1,154 1,151 Undrawn formal standby facilities, credit lines and other commitments to lend: - under one year 64,317 __ __ - one year and over 19,367 9,683 9,257 Other 47 47 47 89,499 10,884 10,455 Exchange rate contracts: Spot and forward foreign exchange 98,143 1,066 249 Other exchange rate contracts 7,917 102 21 106,060 1,168 270 Interest rate contracts: Interest rate swaps 44,446 1,035 240 Other interest rate contracts 6,842 __ __ 51,288 1,035 240 Credit Risk- Contract equivalent weighted Figures in HK$m amount amount amount At 31Dec00 Contingent liabilities: Guarantees 3,829 3,763 2,963 Commitments: Documentary credits and short-term trade-related transactions 5,801 1,168 1,160 Undrawn formal standby facilities, credit lines and other commitments to lend: - under one year 59,665 __ __ - one year and over 18,438 9,219 8,975 83,904 10,387 10,135 Exchange rate contracts: Spot and forward foreign exchange 169,896 2,886 647 Other exchange rate contracts 6,504 174 37 176,400 3,060 684 Interest rate contracts: Interest rate swaps 46,951 842 201 Other interest rate contracts 6,229 __ __ 53,180 842 201 The tables above give the nominal contract, credit equivalent and risk-weighted amounts of off-balance sheet transactions. The credit equivalent amounts are calculated for the purposes of deriving the risk-weighted amounts. These are assessed in accordance with the Third Schedule of the Hong Kong Banking Ordinance on capital adequacy and depend on the status of the counterparty and the maturity characteristics. The risk weights used range from 0 per cent to 100 per cent for contingent liabilities and commitments, and from 0 per cent to 50 per cent for exchange rate, interest rate and other derivative contracts. Contingent liabilities and commitments are credit-related instruments which include acceptances, letters of credit, guarantees and commitments to extend credit. The risk involved is essentially the same as the credit risk involved in extending loan facilities to customers. These transactions are, therefore, subject to the same credit origination, portfolio maintenance and collateral requirements as for customers applying for loans. As the facilities may expire without being drawn upon, the total of the contract amounts is not representative of future liquidity requirements. Off-balance sheet financial instruments arise from futures, forward, swap and option transactions undertaken in the foreign exchange, interest rate and equity markets. The contract amounts of these instruments indicate the volume of transactions outstanding at the balance sheet date and do not represent amounts at risk. The credit equivalent amount of these instruments is measured as the sum of positive mark-to-market values and the potential future credit exposure in accordance with the Third Schedule of the Hong Kong Banking Ordinance. Figures in HK$m At 31Dec01 At 31Dec00 Replacement cost Exchange rate contracts 310 1,491 Interest rate contracts 859 722 1,169 2,213 The replacement cost of contracts represents the mark-to-market assets on all contracts (including non-trading contracts) with a positive value and which have not been subject to any bilateral netting arrangement. Segmental analysis Segmental information is presented in respect of business and geographical segments. Business segment information, which is more relevant to Hang Seng in making operating and financial decisions, is chosen as the primary reporting format. For the purpose of segmental analysis, the allocation of revenue reflects the benefits of capital and other funding resources allocated to the business or geographical segments by way of internal capital allocation and funds transfer pricing mechanisms. Cost allocation is based on the direct cost incurred by the respective segments and apportionment of management overheads. Rental charges at market rate for usage of premises are reflected as inter-segment income for the "Other" segment and inter-segment expenses for the respective business segments. (a) By business segment Hang Seng comprises five business segments. Personal financial services provides banking services (including deposits, credit cards, mortgages and other retail lending) and wealth management products (including insurance and investment) to personal customers. Commercial banking manages middle market and smaller corporate relationships and provides trade-related financial services. Corporate and institutional banking handles relationships with large corporate and institutional customers. Treasury engages in interbank and capital market activities and proprietary trading. Treasury also manages the funding and liquidity positions of the bank and other market risk positions arising from banking activities. Other mainly represents shareholders' funds management and investments in premises, investment properties and long-term equities. Personal financial services reported a fall of 7.3 per cent in profit before tax compared with the previous year. The decline in the mortgage portfolio yield and higher bad debt charges for residential mortgages and card advances outweighed the marked growth in income from wealth management activities. Commercial banking showed a decrease of 1.9 per cent in profit before tax. Despite the growth in trade finance and commercial lending, the result was affected by a lower level of bad debt recoveries. Corporate and institutional banking achieved a growth of 2.9 per cent in profit before tax, mainly benefiting from the substantial recovery of bad and doubtful debts. Treasury recorded an encouraging growth of 60.6 per cent in profit before tax, as the fixed rate debt securities portfolio and the assets and liabilities re-pricing gap benefited significantly under the falling interest rate environment in 2001. Increased profit on disposal of debt securities from the accrual portfolio also contributed to the growth. Other showed a decrease of 18.1 per cent in profit before tax, with a lower contribution from shareholders' funds due to the fall in market interest rates. This was despite the increase in profit on disposal of long-term equities. Personal Corporate & Inter- financial Commercial institutional segment Figures in HK$m services banking banking Treasury Other elimination Total Year ended 31Dec01 Income and expenses Net interest income 6,700 1,108 732 1,667 1,453 __ 11,660 Operating income 2,073 907 288 278 401 __ 3,947 Inter-segment income __ __ __ __ 415 (415 ) __ Total operating income 8,773 2,015 1,020 1,945 2,269 (415 ) 15,607 Operating expenses ^ (2,691 ) (825 ) (104 ) (119 ) (365 ) __ (4,104 ) Inter-segment expenses (324 ) (75 ) (9 ) (7 ) __ 415 __ Operating profit before provisions 5,758 1,115 907 1,819 1,904 __ 11,503 Provisions for bad and doubtful debts (573 ) 38 81 __ 30 __ (424 ) Operating profit 5,185 1,153 988 1,819 1,934 __ 11,079 Profit on tangible fixed assets and long-term investments 17 39 __ 113 224 __ 393 Net deficit on property revaluation __ __ __ __ (14 ) __ (14 ) Share of profits of associated companies 7 __ __ __ 49 __ 56 Profit on ordinary activities before tax 5,209 1,192 988 1,932 2,193 __ 11,514 Operating profit excluding inter-segment 5,509 1,228 997 1,826 1,519 __ 11,079 transactions ^ Including (136 ) (33 ) (3 ) (2 ) (212 ) __ (386 ) depreciation At 31Dec01 Total assets 136,233 22,692 63,108 226,656 26,098 __ 474,787 Total liabilities 308,404 69,101 16,412 10,022 25,777 __ 429,716 Investments in associated companies 89 __ __ __ 685 __ 774 Capital expenditure incurred during the 114 20 1 3 55 __ 193 year Personal Corporate & Inter- financial Commercial institutional segment Figures in HK$m services banking banking Treasury Other elimination Total Year ended 31Dec00 Income and expenses Net interest income 6,617 1,197 841 1,062 1,974 __ 11,691 Operating income 1,907 780 275 268 344 __ 3,574 Inter-segment income __ __ __ __ 389 (389 ) __ Total operating income 8,524 1,977 1,116 1,330 2,707 (389 ) 15,265 Operating expenses ^ (2,339 ) (832 ) (97 ) (124 ) (333 ) __ (3,725 ) Inter-segment expenses (293 ) (84 ) (7 ) (5 ) __ 389 __ Operating profit before provisions 5,892 1,061 1,012 1,201 2,374 __ 11,540 Provisions for bad and doubtful debts (346 ) 76 (52 ) __ 126 __ (196 ) Operating profit 5,546 1,137 960 1,201 2,500 __ 11,344 Profit on tangible fixed assets and long-term investments 65 78 __ 2 103 __ 248 Net surplus on property revaluation __ __ __ __ 28 __ 28 Share of profits of associated companies 7 __ __ __ 48 __ 55 Profit on ordinary activities before tax 5,618 1,215 960 1,203 2,679 __ 11,675 Operating profit excluding inter-segment 5,839 1,221 967 1,206 2,111 __ 11,344 transactions ^ Including (131 ) (40 ) (2 ) (3 ) (212 ) __ (388 ) depreciation At 31Dec00 Total assets 132,675 20,380 64,829 254,829 28,071 __ 500,784 Total liabilities 298,208 88,641 26,375 16,077 25,546 __ 454,847 Investments in associated companies 43 __ __ __ 746 __ 789 Capital expenditure incurred during the 92 24 1 2 17 __ 136 year (b) By geographical segment The geographical segments in this analysis are classified by the location of the principal operations of the subsidiary companies or, in the case of the bank itself, by the location of the branches responsible for reporting the results or advancing the funds. Figures in HK$m Hong Kong Americas Other Total Year ended 31Dec01 Income and expenses Total operating income 14,227 1,307 73 15,607 Profit on ordinary activities before tax 10,097 1,261 156 11,514 At 31Dec01 Total assets 370,489 98,145 6,153 474,787 Total liabilities 415,739 10,068 3,909 429,716 Capital expenditure incurred during the year 190 1 2 193 Contingent liabilities and commitments 100,704 __ 597 101,301 Year ended 31Dec00 Income and expenses Total operating income 14,482 741 42 15,265 Profit on ordinary activities before tax 10,937 720 18 11,675 At 31Dec00 Total assets 431,574 63,055 6,155 500,784 Total liabilities 439,705 10,630 4,512 454,847 Capital expenditure incurred during the year 133 __ 3 136 Contingent liabilities and commitments 84,939 414 2,380 87,733 Cross border claims Cross border claims include receivables and loans and advances, balances due from banks and holdings of certificates of deposit, bills, promissory notes, commercial paper and other negotiable debt instruments and also include accrued interest and overdue interest on these assets. Claims are classified according to the location of the counterparties after taking into account the transfer of risk. For a claim guaranteed by a party situated in a country different from the counterparty, risk will be transferred to the country of the guarantor. For a claim on the branch of a bank or other financial institution, the risk will be transferred to the country where its head office is situated. Claims on individual countries or areas, after risk transfer, amounting to 10 per cent or more of the aggregate cross border claims are shown as follows: Banks & other Public financial sector Figures in HK$m institutions entities Other Total At 31Dec01 Asia-Pacific excluding Hong Kong - Australia 17,850 1,260 1,691 20,801 - other 33,442 2,283 2,707 38,432 51,292 3,543 4,398 59,233 The Americas - Canada 15,982 3,752 349 20,083 - other 6,737 1,343 7,538 15,618 22,719 5,095 7,887 35,701 Western Europe - Germany 25,136 954 2 26,092 - United Kingdom 20,465 __ 1,903 22,368 - other 54,393 1,617 2,298 58,308 99,994 2,571 4,203 106,768 Banks & other Public financial sector Figures in HK$m institutions entities Other Total At 31Dec00 Asia-Pacific excluding Hong Kong - Australia 20,826 696 509 22,031 - other 35,746 1,901 2,742 40,389 56,572 2,597 3,251 62,420 The Americas - Canada 21,329 9,632 248 31,209 - other 11,907 3,794 4,851 20,552 33,236 13,426 5,099 51,761 Western Europe - Germany 26,911 527 1 27,439 - United Kingdom 20,330 __ 511 20,841 - other 61,571 790 1,615 63,976 108,812 1,317 2,127 112,256 Additional information 1. Accounting policies This news release has been prepared on a basis consistent with the accounting policies adopted in the 2000 financial statements except for the recognition and the presentation of proposed dividends which have been amended in accordance with the revised Hong Kong Statement of Standard Accounting Practice 9 (HKSSAP 9) on 'Events after the balance sheet date' issued by the Hong Kong Society of Accountants. Dividends proposed or declared after the balance sheet date were previously recognised as a liability at the balance sheet date. Following the implementation of revised HKSSAP 9, dividends proposed after the balance sheet date are not recognised as a liability at the balance sheet date but are disclosed as a separate component of shareholders' funds. The effect of the above change in accounting policy was an increase in shareholders' funds of HK$5,353 million at 31 December 2000 and a decrease in liabilities by the same amount. The return on average shareholders' funds for the year ended 31 December 2000 has been restated to reflect the change. 2. Comparative figures Certain comparative figures have been reclassified to conform with the current year's presentation. 3. Property revaluation Hang Seng's premises and investment properties were revalued by Chesterton Petty Limited, an independent professional valuer, at 30 September 2001 who confirmed that there had been no material change in valuations at 31 December 2001. The valuations were carried out by qualified valuers who are members of the Hong Kong Institute of Surveyors. The basis of the valuation of premises was open market value for existing use. The basis of the valuation for investment properties was open market value. The property revaluation has resulted in a fall in Hang Seng's revaluation reserves of HK$481 million as at 31 December 2001 and a charge to the profit and loss account of HK$14 million in respect of properties where the valuation has fallen below the depreciated historical cost. 4. Market risk Market risk is the risk that the movements in interest rates, foreign exchange rates or equity and commodity prices will result in profits or losses to Hang Seng. Market risk arises on financial instruments which are valued at current market prices (mark-to-market basis) and those valued at cost plus any accrued interest (accrual basis). Hang Seng's market risk arises from customer-related business and from position taking. Market risk is managed within risk limits approved by the Board of Directors. Risk limits are set by product and risk type with market liquidity being a principal factor in determining the level of limits set. Limits are set using a combination of risk measurement techniques, including position limits, sensitivity limits, as well as value at risk (VAR) limits at a portfolio level. Hang Seng adopts the risk management policies and risk measurement techniques developed by the HSBC Group. The daily risk monitoring process measures actual risk exposures against approved limits and triggers specific action to ensure the overall market risk is managed within an acceptable level. VAR is a technique which estimates the potential losses that could occur on risk positions taken due to movements in market rates and prices over a specified time horizon and to a given level of confidence. The model used by Hang Seng calculates VAR on a variance/covariance basis, using historical movements in market rates and prices, a 99 per cent confidence level and a 10-day holding period, and generally takes account of correlations between different markets and rates. The movement in market prices is calculated by reference to market data for the last two years. Aggregation of VAR from different risk types is based upon the assumption of independence between risk types. Hang Seng has obtained approval from the Hong Kong Monetary Authority (HKMA) for the use of its VAR model to calculate market risk for capital adequacy reporting. The HKMA is also satisfied with Hang Seng's market risk management process. The VAR for all interest rate risk and foreign exchange risk positions at 31 December 2001 was HK$352 million compared with HK$213 million at 31 December 2000. The average VAR for 2001 was HK$248 million, with a maximum of HK$562 million and a minimum of HK$119 million for the year. On an individual portfolio basis, the values at risk at 31 December 2001 relating to the trading portfolio and accrual portfolio were HK$5 million (HK$7 million at 31 December 2000) and HK$353 million (HK$212 million at 31 December 2000) respectively. The average daily revenue earned from market risk-related treasury activities in 2001, including accrual book net interest income and funding related to dealing positions, was HK$7 million (HK$5 million for 2000). The standard deviation of these daily revenues was HK$3 million (HK$3 million for 2000). No loss was recorded out of 244 trading days in 2001. The most frequent result was a daily revenue of between HK$4 million and HK$8 million, with 203 occurrences. The highest daily revenue was HK$22 million. Hang Seng's foreign exchange exposures mainly comprise foreign exchange dealing by Treasury and currency exposures originated by its banking business. The latter are transferred to Treasury where they are centrally managed within foreign exchange position limits approved by the Board of Directors. The VAR relating to foreign exchange positions was HK$4 million at 31 December 2001 (HK$6 million at 31 December 2000) and the average amount for 2001 was HK$5 million, with a maximum of HK$8 million and a minimum of HK$3 million in the year. The average one-day foreign exchange profit for 2001 was HK$1 million (HK$1 million for 2000). Interest rate risk arises in both the treasury dealing portfolio and accruals books, which are managed by Treasury under limits approved by the Board of Directors. The VAR relating to interest rate exposures was HK$352 million at 31 December 2001 (HK$213 million at 31 December 2000) and the average amount for 2001 was HK$248 million, with a maximum of HK$562 million and a minimum of HK$119 million for the year. The average daily revenue earned from treasury-related interest rate activities for 2001 was HK$5 million (HK$4 million for 2000). Structural interest rate risk arises primarily from the deployment of non-interest bearing liabilities, such as shareholders' funds and some current accounts, as well as fixed rate loans and liabilities other than those generated by the treasury business. Structural interest rate risk is monitored by Hang Seng's Asset and Liability Management Committee. 5. Foreign currency positions Foreign currency exposures at 31 December 2001, including those arising from dealing, non-dealing and structural positions, and with an individual currency constituting 10 per cent or more of the total net position in all foreign currencies being shown separately, are as follows: Other foreign Total foreign Figures in HK$m US$ currencies currencies At 31Dec01 Spot assets 237,778 91,998 329,776 Spot liabilities (206,264 ) (93,763 ) (300,027 ) Forward purchases 39,001 9,638 48,639 Forward sales (61,725 ) (7,742 ) (69,467 ) Net options positions 4 (4 ) __ Net long non-structural position 8,794 127 8,921 Net structural position 508 51 559 At 31Dec00 Spot assets 209,969 88,563 298,532 Spot liabilities (187,255 ) (74,755 ) (262,010 ) Forward purchases 79,272 21,146 100,418 Forward sales (95,630 ) (34,920 ) (130,550 ) Net options positions 2 (2 ) __ Net long non-structural position 6,358 32 6,390 Net structural position 508 127 635 6. Material related party transactions (a) Immediate holding company and fellow subsidiary companies In 2001, Hang Seng entered into transactions with its immediate holding company and fellow subsidiary companies in the ordinary course of its interbank activities including the acceptance and placement of interbank deposits, correspondent banking transactions and off-balance sheet transactions. The activities were priced at the relevant market rates at the time of the transactions. Hang Seng participated, in its ordinary course of business, in certain finance leases arranged by its immediate holding company and received commission income therefrom at a commercial rate. Hang Seng used the IT services of, and shared an automated teller machine network with, its immediate holding company on a cost recovery basis. Hang Seng also maintained a staff retirement benefit scheme for which a fellow subsidiary company acts as insurer and administrator and acted as agent for the marketing of Mandatory Provident Fund products for a fellow subsidiary company. The aggregate amount of income and expenses arising from these transactions during the year, the balances of amounts due to and from the relevant related parties and the total contract sum of off-balance sheet transactions at the year-end are as follows: Income and expenses for the year Year ended 31 December Figures in HK$m 2001 2000 Interest income 443 702 Interest expense 51 81 Other operating income 169 55 Operating expenses 847 537 Balances at year-end Figures in HK$m At 31Dec01 At 31Dec00 Total amount due from 8,297 10,383 Total amount due to 1,051 1,999 Total contract sum of off-balance sheet transactions 21,580 41,510 (b) Associated companies Hang Seng maintained an interest-free shareholders' loan to an associated company. The balance at 31 December 2001 was HK$208 million (HK$208 million at 31 December 2000). The bank acted as agent for the marketing of life insurance products for an associated company. Total agency commissions received in 2001 amounted to HK$257 million (HK$171 million for 2000). (c) Ultimate holding company In 2001, no transaction was conducted with the bank's ultimate holding company (unchanged from 2000). (d) Key management personnel In 2001, no material transaction was conducted with key management personnel of Hang Seng and its holding companies and parties related to them (unchanged from 2000). 7. Statutory accounts The information in this news release does not constitute statutory accounts. Certain financial information in this news release is extracted from the statutory accounts for the year ended 31 December 2001, which will be delivered to the Registrar of Companies and the Hong Kong Monetary Authority. The statutory accounts comply with the module on 'Financial Disclosure by Locally Incorporated Authorised Institutions' under the Supervisory Policy Manual issued by the Hong Kong Monetary Authority in November 2001. The auditors expressed an unqualified opinion on those statutory accounts in their report dated 4 March 2002. 8. Ultimate holding company Hang Seng Bank is an indirectly-held, 62.14 per cent-owned subsidiary of HSBC Holdings plc. 9. Register of shareholders The Register of Shareholders of Hang Seng Bank will be closed on Wednesday, 20 March 2002 and Thursday, 21 March 2002, during which no transfer of shares can be registered. In order to qualify for the second interim dividend, all transfers, accompanied by the relevant share certificates, must be lodged with the bank's Registrars, Central Registration Hong Kong Limited, Shops 1712-1716, 17th Floor, Hopewell Centre, 183 Queen's Road East, Wanchai, Hong Kong, for registration not later than 4:00 pm on Tuesday, 19 March 2002. The second interim dividend will be payable on Wednesday, 27 March 2002 to shareholders on the Register of Shareholders of the bank on Thursday, 21 March 2002. 10. News release Copies of this news release may be obtained from the Company Secretary Department, Level 10, 83 Des Voeux Road Central, Hong Kong; or from Hang Seng's website http://www.hangseng.com. The 2001 Annual Report and Accounts will be available from the same website on 4 March 2002 and will also be published on the website of The Stock Exchange of Hong Kong Limited in due course. Printed copies of the 2001 Annual Report will be sent to shareholders in late March 2002. This information is provided by RNS The company news service from the London Stock Exchange

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