FORM 6-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Report of Foreign Private Issuer
Pursuant to Rule 13a - 16 or 15d - 16 of
the Securities Exchange Act of 1934
For the month of March, 2008
HSBC Holdings plc
42nd Floor, 8 Canada
Square, London E14 5HQ, England
(Indicate by check mark whether the registrant files or will file annual
reports under cover of Form 20-F or Form 40-F).
Form 20-F X Form 40-F ......
(Indicate by check mark whether the registrant by furnishing the information
contained in this Form is also thereby furnishing the information to the
Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of
1934).
Yes....... No X
(If "Yes" is marked, indicate below the file number assigned to the registrant
in connection with Rule 12g3-2(b): 82- ..............)
THE HONGKONG AND SHANGHAI BANKING CORPORATION LIMITED
2007 CONSOLIDATED RESULTS - HIGHLIGHTS
.. Net operating income before loan impairment charges and other credit risk
provisions up 37.6 per cent to HK$127,009 million (HK$92,325 million in
2006).
.. Pre-tax profit up 51.4 per cent to HK$78,761 million (HK$52,016 million in
2006).
.. Pre-tax profit excluding dilution gains up 42.3 per cent to HK$74,026
million.
.. Attributable profit up 53.9 per cent to HK$58,028 million (HK$37,709
million in 2006).
.. Return on average shareholders' equity of 32.1 per cent (31.1 per cent in
2006).
.. Assets up 25.4 per cent to HK$3,952 billion (HK$3,151 billion at the end of
2006).
.. Capital adequacy ratio of 11.6 per cent; core capital ratio of 8.8 per
cent. (Total capital ratio of 13.5 per cent and tier 1 capital ratio of
12.3 per cent at 31 December 2006).
.. Cost efficiency ratio of 37.1 per cent (41.4 per cent for 2006).
Within this document, the Hong Kong Special Administrative Region of the
People's Republic of China has been referred to as 'Hong Kong'.
Comment by Vincent Cheng, Chairman
The Hongkong and Shanghai Banking Corporation Limited reported another year of
record profit in 2007, driven by the successful execution of our strategy and
robust economic conditions and markets. Profit before tax was up 42.3 per cent
to HK$74,026 million, excluding dilution gains arising from our strategic
investments in mainland China. Profit before tax in Hong Kong was up 41.6 per
cent to HK$53,792 million and up 44.1 per cent in the Rest of Asia-Pacific to
HK$20,166 million, excluding the dilution gains noted above of HK$4,735 million.
We continue to implement our core strategies of building an emerging markets-led
and financing-focused Global Banking and Markets business, a wealth management
and consumer banking focused Personal Financial Services operation and a
Commercial Banking business that capitalises on Asia's growing trade and
investment flows. Our customer group business expansion is self funding and
fully exploits the Group's unique reach to capture geographic and cross-customer
group opportunities.
HSBC continued investing for the future in 2007. In Taiwan we agreed to acquire
selected businesses and operations of The Chinese Bank, increasing our presence
on the island from eight to 47 outlets. We also acquired the factoring company
Chailease Credit Services, which gave us a leading position in this key regional
market segment. We increased our own branch network in mainland China by almost
100 per cent to 62 outlets. We remain the leading foreign bank in China and were
one of the first foreign banks to locally incorporate on the Mainland. The bank
was also the first international bank to launch a rural bank in mainland China.
We continued to grow our physical network in other parts of the region as well,
with the number of our own branded outlets in the Rest of Asia-Pacific
(excluding China) growing by just over 25 per cent from 218 to 276.
In South Korea, HSBC entered into an agreement with Lone Star to acquire 51.02
per cent of Korea Exchange Bank. The transaction, with a consideration of
approximately US$6,450 million, is subject to regulatory approvals and other
conditions being met.
We made significant progress growing our regional insurance platform to
complement existing operations in Hong Kong, Singapore and Malaysia. HSBC formed
a joint life insurance company in India with Canara Bank and Oriental Bank of
Commerce with access to 40 million customers through 3,600 outlets. Recently the
bank purchased just under 50 per cent of Hana Life from Hana Financial Group of
Korea for a consideration of US$58.4 million. In Vietnam, HSBC took a 10 per
cent stake in BaoViet Holdings (formerly Vietnam Insurance Corporation), the
country's leading insurer, for a consideration of US$255 million with rights to
take up to 25 per cent of the company, subject to certain limitations and
conditions. In China the bank received approval to set up a joint venture
insurance company under the Closer Economic Partnership Arrangement between the
Mainland and the Hong Kong Special Administrative Region. In Taiwan the bank
launched an insurance operation upon receiving an insurance branch licence.
The group's strategic investments, Bank of Communications, Ping An Insurance,
Bank of Shanghai, and Industrial Bank through our subsidiary Hang Seng Bank,
continue to progress well. Hang Seng Bank recently agreed to subscribe for 20
per cent of the enlarged share capital of Yantai City Commercial Bank for a
consideration of US$103 million. In Vietnam, we raised our stake in Vietnam
Technological and Commercial Joint-Stock Bank (Techcombank) from 10 per cent to
15 per cent which was subsequently diluted by the issue of additional shares to
14.44 per cent.
Personal Financial Services reported exceptional profit before tax growth, up
49.8 per cent to HK$32,786 million. This was driven by strong performance in net
interest income, up 19.8 per cent due to a rise in deposits. In addition, fee
income rose 85.3 per cent as a result of significant growth in wealth management
sales in Hong Kong with contributions from key markets in the region. Fee income
from stockbroking and custody services increased on the back of buoyant equity
market conditions. Retail securities volume was up 160 per cent with more than
80 per cent of the transactions performed online. During the year HSBC launched
our global Premier offering, aimed at the internationally mobile mass affluent.
Of our 10.9 million HSBC PFS customers in the region, up 10 per cent in 2007,
more than 546,000 are Premier, which is up 25 per cent on a year ago.
Commercial Banking reported pre-tax profit of HK$18,754 million, up 25.5 per
cent. Net interest income rose 21.9 per cent on strong balance sheet growth
resulting from customer acquisition, up by more than 34,000 to 403,800 across
Asia. Net fee income was up 18.5 per cent, boosted by increasing sales of wealth
management and insurance products to existing customers. The cross-border Global
Links referral system generated over HK$32.1 billion in deals in 2007.
Global Banking and Markets enjoyed an exceptional year with pre-tax profit up
62.7 per cent to HK$24,804 million, supported by strong equity market conditions
and a significant improvement in net interest income driven by better investment
returns. In Hong Kong we continue to lead in key activities, including foreign
exchange, debt capital markets, structured products, payments and cash
management and securities services. Debt underwriting enjoyed a record year as
the business focused on meeting existing clients' expanding capital needs. Our
investment banking and equity capital markets businesses made significant
progress, advancing to No.1 in the targeted Hong Kong High Yield Bond league
table.
The global economic outlook remains uncertain with expectations of a continued
slowdown in the United States. Further fallout from the US sub-prime lending
situation and turbulent market conditions are bound to affect the economic
prospects of Asia's dynamic economies. Our strong capital base and liquidity
position us well in the current environment. The flight to quality has benefited
HSBC amid the recent economic and market uncertainty. We will continue to invest
in our business expansion in the region during 2008 to ensure we fully exploit
the medium and long-term opportunities arising from Asia's economic development.
Results by Customer Group
Global
Personal Banking Intra-
Financial Commercial and Private segment
Figures in HK$m Services Banking Markets^ Banking Other elimination Total
Year ended 31Dec07
Net interest income/(expense) 36,039 17,075 15,348 47 (4,536) (1,212) 62,761
Net fee income 19,474 5,948 9,294 105 120 - 34,941
Net trading income 1,761 1,033 11,547 62 950 703 16,056
Net income/(loss) from financial
instruments designated at
fair value 6,966 (72) 31 - (1,233) 509 6,201
Gains less losses from
financial investments 23 1 427 - 441 - 892
Gains arising from dilution of
investments in associates - - - - 4,735 - 4,735
Dividend income 16 6 134 - 537 - 693
Net earned insurance premiums 22,363 1,200 132 - - - 23,695
Other operating income 1,323 249 714 20 7,137 (5,387) 4,056
Total operating income 87,965 25,440 37,627 234 8,151 (5,387) 154,030
Net insurance claims
incurred and movement in
policyholders' liabilities (26,217) (703) (101) - - - (27,021)
Net operating income before
loan impairment charges and
other credit risk provisions 61,748 24,737 37,526 234 8,151 (5,387) 127,009
Loan impairment charges and
other credit risk provisions (4,770) (784) (248) - (3) - (5,805)
Net operating income 56,978 23,953 37,278 234 8,148 (5,387) 121,204
Operating expenses (24,698) (7,946) (13,718) (241) (5,962) 5,387 (47,178)
Operating profit/(loss) 32,280 16,007 23,560 (7) 2,186 - 74,026
Share of profit in associates
and joint ventures 506 2,747 1,244 - 238 - 4,735
Profit/(loss) before tax 32,786 18,754 24,804 (7) 2,424 - 78,761
Share of profit/(loss) before tax 41.6% 23.8% 31.5% - 3.1% - 100%
Advances to customers 495,964 347,219 347,761 4,002 17,140 - 1,212,086
Customer accounts 1,263,290 576,078 629,528 9,660 7,550 - 2,486,106
Year ended 31Dec06
Net interest income/(expense) 30,090 14,006 9,104 45 (4,201) 2,055 51,099
Net fee income/ (expense) 10,512 5,018 6,937 101 (164) - 22,404
Net trading income/(loss) 889 796 8,682 14 825 (2,288) 8,918
Net income/(loss) from financial
instruments designated at
fair value 3,364 (384) 74 (1) (616) 233 2,670
Gains less losses from
financial investments 108 - 226 - 1,132 - 1,466
Dividend income 9 10 55 - 675 - 749
Net earned insurance premiums 20,741 972 133 - - - 21,846
Other operating income 2,262 348 430 14 7,005 (4,406) 5,653
Total operating income 67,975 20,766 25,641 173 4,656 (4,406) 114,805
Net insurance claims
incurred and movement in
policyholders' liabilities (21,902) (478) (100) - - - (22,480)
Net operating income before
loan impairment charges and
other credit risk provisions 46,073 20,288 25,541 173 4,656 (4,406) 92,325
Loan impairment charges and
other credit risk provisions (4,528) (446) 250 - (85) - (4,809)
Net operating income 41,545 19,842 25,791 173 4,571 (4,406) 87,516
Operating expenses (19,913) (6,531) (11,219) (167) (4,815) 4,406 (38,239)
Operating profit/(loss) 21,632 13,311 14,572 6 (244) - 49,277
Share of profit in associates
and joint ventures 257 1,634 671 - 177 - 2,739
Profit/(loss) before tax 21,889 14,945 15,243 6 (67) - 52,016
Share of profit/(loss) before tax 42.1% 28.7% 29.3% - (0.1%) - 100.0%
Advances to customers 446,990 276,172 301,069 3,312 16,239 - 1,043,782
Customer accounts 1,121,286 438,943 417,335 7,253 4,650 - 1,989,467
^ Global Banking and Markets was previously referred to as Corporate
Investment Banking and Markets
Personal Financial Services reported a profit before tax of HK$32,786 million,
an increase of 49.8 per cent over 2006. This was driven by strong growth in
operating income, partly offset by investment in continued business expansion in
the rest of the Asia-Pacific region.
Net interest income increased by HK$5,949 million, or 19.8 per cent, compared
with 2006. In Hong Kong, net interest income rose by HK$3,659 million, or 16.3
per cent, as average customer account balances grew following a series of
deposit campaigns and rate offers to address customers' demand for short-term
products amid the buoyant stock market and during IPO subscription periods. In
addition, the relaunch of our global HSBC Premier attracted new funds, and
spreads improved as a result of tactical deposit pricing and higher foreign
currency interest rates. An active property market was underpinned by strong
economic conditions, supported by stable domestic interest rates throughout the
year. However, customer appetite for higher mortgage borrowing remained muted
and intense competition led to a tightening of spreads.
In the rest of Asia-Pacific, net interest income rose by HK$2,290 million, or
29.7 per cent, driven by strong deposit growth across the region. As a result of
the group's focus on growing the mass-affluent HSBC Premier customer base,
deposits increased in a number of countries, particularly Singapore, mainland
China and India, and deposit spreads improved on the back of higher interest
rates.
Several Mainland branches were granted approval to offer certain renminbi
deposit products to local residents in late 2006 and since local incorporation
in March 2007, we have been gradually rolling out our renminbi services to local
residents. Following regulatory inspection and confirmation, branches in 11
priority cities have commenced renminbi business to local residents. Additional
branches were added in the key economic zones of the Pearl River Delta, the
Yangtze River Delta and the Bohai Rim, leading to significant deposit growth.
HSBC's own branded network has 18 branches and 44 sub-branches. HSBC has the
largest branch network among foreign banks and remains focused on offering
Premier services.
HSBC Direct was launched in South Korea in February 2007 following the launch in
Taiwan in the third quarter of 2006, and both areas have progressed well,
with over 240,000 customers generating deposits of more than HK$9 billion since
launch. Interest earned on credit cards was higher in India, the Philippines and
Thailand, reflecting growth in the number of cards in circulation and higher
levels of receivables as the relationships mature. In India, HSBC has 2.6
million credit cards in circulation. Income from consumer lending also rose,
notably from personal instalment loans in India and Indonesia, and spreads
widened as a result of higher pricing.
Net fee income of HK$19,474 million was 85.3 per cent higher than in 2006,
driven by strong business growth and favourable investment market sentiment in
Hong Kong. Fee income from stockbroking and custody services rose as transaction
volumes were significantly higher, reflecting buoyant stock market conditions
and a large number of IPOs in Hong Kong in 2007. The retail securities volume
registered over 160 per cent growth with over 80 per cent of transactions
performed online. The growth rate slowed in the last few months of the year,
when US sub-prime concerns and contractionary monetary policy in mainland China
led to equity market falls.
Throughout 2007, sales of unit trusts and structured investment products
increased significantly as investors were encouraged by informative and targeted
campaigns to boost investment awareness, and by the launch of new funds,
particularly those comprising China stocks. Strong investment sales were
recorded in mainland China, India, South Korea and Taiwan. HSBC was granted
permission to offer residents of mainland China renminbi-denominated products
through its 'Qualified Domestic Institutional Investor' offerings.
Net fee income from credit cards was HK$274 million, or 20 per cent higher than
in 2006. The group maintained its leadership position in Hong Kong and now has
more than 4.9 million cards in circulation throughout the territory. This was
augmented by a 15 per cent rise in cardholder spending as retail sales growth
remained high. In the rest of Asia-Pacific, expansion of the cards business
continued, particularly in India and the Philippines. The number of cards in
circulation rose by 14 per cent to a total of 7.7 million, and reward programmes
helped drive a 30.2 per cent increase in cardholder spending.
Income from insurance business (included within 'Net interest income', 'Net fee
income', 'Net income from financial instruments designated at fair value', 'Net
earned insurance premiums', the change in present value of in-force business
within 'Other operating income', and after deducting 'Net insurance claims
incurred and movement in policyholders' liabilities'), increased by 37%, with
continued focus on retirement planning services. The launch of new
investment-linked insurance products contributed to growth in life assurance
premium income. Sales of general insurance products also grew, supported by more
efficient usage of alternative distribution channels such as the internet.
The charge for loan impairment increased by HK$242 million to HK$4,770 million,
mainly due to the rapid expansion in the credit card business and changes in
collection methods and regulatory restrictions on collections in India. In Hong
Kong, higher loan impairment charges, mainly against credit card lending, were
largely volume-driven but were partly offset by higher collective impairment
releases. In the rest of Asia-Pacific, impairment charges rose in line with
volume growth in cards and personal loans in India, Thailand and Australia.
Delinquency rates also rose in Thailand as a result of higher minimum repayment
rules for cards, coupled with a deterioration in credit conditions.
In Taiwan, impairment charges against credit card lending were lower on account
of improved delinquency rates whereas prior year impairment levels were severely
affected by the imposition of a mandatory government debt negotiation scheme
which led to market-wide credit losses. However, conditions continue to be
monitored closely in light of proposed legislation in respect of personal
bankruptcy arrangements due to be introduced in 2008. In Indonesia higher
recoveries were a result of improved collection efforts. The reduction in the
impairment charges also benefited from greater collection efforts.
Operating expenses were HK$4,785 million, or 24 per cent, higher than in 2006,
principally driven by continued investment in organic growth across the rest of
the Asia-Pacific region. In Hong Kong, operating expenses rose by 15.8 per cent.
Staff costs were higher primarily as a result of sales incentives and other
performance-related pay, in addition to salary rises. Premises costs were
higher, comprising branch refurbishments along with rises in commercial rentals.
Marketing expenses rose as a result of ongoing promotion of the HSBC brand and
campaigns to boost business activities, particularly for wealth management
products and credit cards. In the rest of Asia-Pacific, costs increased by
HK$3,055 million, or 34.0 per cent, notably in India, mainland China, Indonesia
and the Philippines. Headcount rose by 18.6 per cent as sales and support
functions were strengthened to support business growth. Premises costs rose as
new outlets were opened in Indonesia, India, the Philippines, Sri Lanka,
Bangladesh and mainland China. Following the launch of the consumer finance
business in the region last year, India and Indonesia continued to incur
investment costs to strengthen their market presence. South Korea increased
staff, infrastructure and marketing expenditure related to the launch of HSBC
Direct.
Income from associates of HK$506 million includes improved results from Bank of
Communications and Industrial Bank.
HSBC was the recipient of four major awards from The Asian Banker this year:
Best Retail Bank in Hong Kong, Best Regional Retail Business in Asia, Excellence
in Bancassurance and Excellence in Internet Banking (Channel), affirming the
group's leading position in personal banking in the region.
Commercial Banking reported profit before tax of HK$18,754 million, an increase
of 25.5 per cent over 2006, driven by strong balance sheet growth.
Net interest income increased by HK$3,069 million, or 21.9 per cent, compared
with 2006. This reflected growth in advances and deposits from SME customers,
particularly from mainland China, resulting from product development and active
marketing efforts, coupled with improvements in deposit spreads.
In Hong Kong, net interest income rose by HK$1,540 million, or 14.8 per cent.
Stable domestic interest rates persisted through most of 2007, followed by cuts
in the latter part of the year. As a result, margins were higher than in 2006,
despite competitive pressures. Foreign currency deposits achieved significant
growth on the back of rises in global interest rates and spreads improved as a
result of active management of savings rates offered to customers. Promotional
activities and continued emphasis on the SME segment contributed to the growth
of 'BusinessVantage' accounts. Non-trade lending balances increased as the
economy continued to grow and demand for credit remained strong. Cross-border
lending to manufacturers with operations in mainland China continued to be
strong as intra-Asia trade accelerated. However, asset spreads were generally
tighter as a result of market competition, particularly for corporate and
mid-market business customers.
In the rest of Asia-Pacific, net interest income grew by 42.8 per cent. The
opening of new branches, increased commercial presence through call centres and
enhancement of Business Internet Banking across the region contributed to
customer acquisition. These factors helped deliver deposit and loan growth,
coupled with the widening of spreads, notably in India and mainland China.
Efforts were made to increase liability balances by conducting various deposit
garnering campaigns in Taiwan, mainland China and Australia. Trade balances grew
in South Korea, mainland China, Vietnam and India, and the business was
strengthened by the acquisition of Chailease Credit Services, a Taiwanese
factoring company, in May 2007. The group continued to develop its cross-border
capabilities and its cross-border referral system Global Links established
combined business opportunities across different geographical boundaries.
Country desks were established by South Korea and Taiwan in mainland China, and
a new commercial banking unit was acquired in South Africa.
Net fee income rose by HK$930 million, or 18.5 per cent, and was largely
attributable to higher cash management, remittance and trade fees, particularly
in Hong Kong and India, driven by increased trade flows and enhancements to
customer service. Fees from sales of unit trusts and structured investment
products rose as the robust Hong Kong stock market boosted investment appetite
and demand for investment products. Earnings from customer foreign exchange
trades also rose, reflecting an increase in cross-border payments. Remittance
income was boosted by an enhanced billing system and introduction of same-day
processing.
The net charge for loan impairment was HK$338 million higher than in 2006
primarily due to fewer corporate releases in Hong Kong, mainland China,
Australia and Indonesia, coupled with new specific charges against a number of
customers in Thailand. These increases were partly offset by a release of
collective impairment provisions in Hong Kong. Credit quality generally remained
stable in Hong Kong and elsewhere in the region, and there were recoveries in
Mauritius and Singapore.
Operating expenses increased by 21.7 per cent over 2006, largely attributable to
higher staff costs as the number of client-facing staff increased in Hong Kong,
India and mainland China to support SME initiatives, insurance business
expansion and product development. This included staffing of commercial-only
banking branches in Hong Kong. Performance-related costs also rose
significantly, in line with the improved results. The group continued to place
strong emphasis in leveraging its direct channel capabilities and the number of
internet-based transactions increased, contributing to efficiencies that
mitigated the increased cost of processing higher volumes. There are now over
100,000 customers registered as Business Internet Banking users in Hong Kong.
The Business Internet Banking site was enhanced in the first quarter, leading to
processing cost efficiencies. Call centres were also re-engineered to improve
their ability to promote the sale of packaged products. Direct channels
constituted 47 per cent of the total number of transactions. In the rest of the
Asia-Pacific region, higher costs reflected the increased sales force to support
initiatives and business expansion. Higher IT and infrastructure costs and
marketing expenditure were incurred in these countries and territories as a
result of branch expansion.
Income from associates of HK$2,747 million includes improved results from Bank
of Communications and Industrial Bank.
Commercial Banking was presented with a number of awards for its SME business
including the Best SME Partner from the Hong Kong Chamber of Small and Medium
Business.
Global Banking and Markets reported profit before tax of HK$24,804 million, 62.7
per cent higher than in 2006. Significant growth was recorded in Global Markets
trading businesses and fees from securities services.
Net interest income increased by HK$6,244 million, or 68.6 per cent, compared
with 2006. Balance sheet management revenues rose significantly, reflecting the
replacement of maturing low-yield assets at higher yields, as well as falling US
dollar interest rates in the second half of 2007, leading to lower cost of
funds. Global Banking also contributed to the increase as deposit balances in
payments and cash management grew on new client acquisition and organic business
growth, and margin spreads improved in a number of Asian countries. This
compensated for the drop in interest income from corporate lending, largely on
account of margin compression in Hong Kong which was principally due to surplus
liquidity in the market. Strong growth in income was recorded in India and
mainland China with increased focus on emerging markets activities.
Net fee income increased by HK$2,357 million, or 34.0 per cent compared with
2006. In Hong Kong, higher revenues in the securities and fund services business
reflected increased client volumes, driven by continuing investor confidence in
the local stock markets and high IPO activity. In addition, there were strong
performances from South Korea, Australia, and Singapore, and capabilities in the
region were strengthened by the acquisition of Westpac's sub-custody business in
Australia and New Zealand last year. Investment banking benefited from strong
capital markets, and underwriting revenues from IPO activities in Hong Kong grew
significantly. Fee income from asset management increased by 41 per cent due to
the successful launch of a number of funds, notably in China. Structured finance
reported lower fees, reflecting lower transaction volumes over the same period
last year.
Net trading income rose by 33.0 per cent to HK$11,547 million. Foreign exchange
and interest rate derivatives profits were higher as market volatility provided
good trading opportunities and higher sales volumes, particularly in Hong Kong,
India and Thailand, reflecting increasing inward investment into Asia and a
growing demand for risk management and investment products from customers. The
equities and equity derivatives businesses in Hong Kong, which have been built
up significantly over the past two years, capitalised on the strong regional
stock market performances and returned excellent results. In particular, there
was significant growth in structured equity derivatives, attributable to
cross-sales to personal and private banking customers.
There was a net charge for loan impairment of HK$248 million compared with a net
release of HK$250 million in 2006. Although the corporate credit environment
throughout the region generally remained benign, there were lower releases, and
a new specific allowance was made against a mainland China exposure.
Operating expenses increased by 22.3 per cent compared with 2006, reflecting
headcount increases to support business expansion in all areas and higher
performance-related remuneration. IT costs also rose to support business growth.
Income from associates of HK$1,244 million includes improved results from Bank
of Communications and Industrial Bank.
Other includes income and expenses relating to certain funding, investment,
property and other activities that are not allocated to the customer groups.
Gains of HK$4,735 million were made on the dilution of the group's interests in
Bank of Communications, Industrial Bank and Techcombank. These three associates
raised new capital during 2007, but the group did not subscribe for any
additional shares issued under these offers and, as a result, its percentage
shareholdings decreased. However, the assets of all three increased
substantially as a result of the new issues, and consequently the group's share
of the associates' underlying net assets increased by HK$4,735 million. This
one-off increase was regarded as a gain arising from deemed disposals of part of
the group's interests in associates, and has been recognised in the income
statement.
These gains were slightly offset by lower gains from financial investments as
2006 included profit on the disposal of part of the group's stake in UTI Bank.
In addition, there were lower profits made on property sales in 2007 compared
with 2006.
Consolidated Income Statement
Year ended Year ended
Figures in HK$m 31Dec07 31Dec06
Interest income 144,153 115,928
Interest expense (81,392) (64,829)
Net interest income 62,761 51,099
Fee income 41,149 26,554
Fee expense (6,208) (4,150)
Net fee income 34,941 22,404
Net trading income 16,056 8,918
Net income from financial instruments designated at fair
value 6,201 2,670
Gains less losses from financial investments 892 1,466
Gains arising from dilution of investments in associates 4,735 -
Dividend income 693 749
Net earned insurance premiums 23,695 21,846
Other operating income 4,056 5,653
Total operating income 154,030 114,805
Net insurance claims incurred and movement in
policyholders' liabilities (27,021) (22,480)
Net operating income before loan impairment charges and
other credit risk provisions 127,009 92,325
Loan impairment charges and other credit risk provisions (5,805) (4,809)
Net operating income 121,204 87,516
Employee compensation and benefits (26,431) (21,042)
General and administrative expenses (18,039) (14,949)
Depreciation of property, plant and equipment (2,096) (1,905)
Amortisation of intangible assets (612) (343)
Total operating expenses (47,178) (38,239)
Operating profit 74,026 49,277
Share of profit in associates and joint ventures 4,735 2,739
Profit before tax 78,761 52,016
Tax expense (13,456) (9,411)
Profit for the year 65,305 42,605
Profit attributable to shareholders 58,028 37,709
Profit attributable to minority interests 7,277 4,896
Extract from the Consolidated Balance Sheet
Figures in HK$m At 31Dec07 At 31Dec06
ASSETS
Cash and short-term funds 794,923 518,022
Items in the course of collection from other banks 20,357 46,519
Placings with banks maturing after one month 60,328 104,037
Certificates of deposit 97,358 73,200
Hong Kong SAR Government certificates of indebtedness 108,344 102,374
Trading assets 360,704 338,792
Financial assets designated at fair value 63,152 50,514
Derivatives 180,440 99,167
Advances to customers 1,212,086 1,043,782
Financial investments 532,243 484,841
Amounts due from Group companies 364,724 161,118
Investments in associates and joint ventures 39,832 25,534
Goodwill and intangible assets 12,309 10,428
Property, plant and equipment 33,356 29,159
Deferred tax assets 1,566 1,245
Retirement benefit assets 123 2,191
Other assets 70,094 59,917
Total assets 3,951,939 3,150,840
LIABILITIES
Hong Kong SAR currency notes in circulation 108,344 102,374
Items in the course of transmission to other banks 31,586 57,226
Deposits by banks 169,177 108,125
Customer accounts 2,486,106 1,989,467
Trading liabilities 265,675 272,545
Financial liabilities designated at fair value 38,147 36,554
Derivatives 173,322 98,659
Debt securities in issue 84,523 69,195
Retirement benefit liabilities 1,537 465
Amounts due to Group companies 65,846 31,356
Other liabilities 70,203 56,478
Liabilities under insurance contracts issued 91,730 61,350
Current tax liabilities 5,833 4,500
Deferred tax liabilities 5,148 4,284
Subordinated liabilities 18,500 16,353
Preference shares 90,328 76,464
Total liabilities 3,706,005 2,985,395
EQUITY
Share capital 22,494 22,494
Other reserves 83,952 35,514
Retained profits 107,908 80,942
Proposed fourth interim dividend 6,500 6,500
Total shareholders' equity 220,854 145,450
Minority interests 25,080 19,995
245,934 165,445
Total equity and liabilities 3,951,939 3,150,840
Consolidated Statement of Recognised Income and Expense
Year ended Year ended
Figures in HK$m 31Dec07 31Dec06
Available-for-sale investments:
- fair value changes taken to equity 35,801 25,115
- fair value changes transferred to the income statement
on disposal or impairment (959) (1,464)
- fair value changes transferred to the income statement
on hedged items due to hedged risk (594) (105)
Cash flow hedges:
- fair value changes taken to equity 555 (165)
- fair value changes transferred to the income statement 632 2,277
Property revaluation:
- fair value changes taken to equity 3,291 1,977
Share of changes in equity of associates and joint
ventures 14 (186)
Exchange differences 6,292 2,779
Actuarial (losses)/gains on post-employment benefits (3,568) 93
41,464 30,321
Net deferred tax on items taken directly to equity 45 (738)
Total income and expense taken to equity during the year 41,509 29,583
Profit for the year 65,305 42,605
Total recognised income and expense for the year 106,814 72,188
Total recognised income and expense for the year
attributable to:
- shareholders 98,085 66,448
- minority interests 8,729 5,740
106,814 72,188
Consolidated Cash Flow Statement
Year ended Year ended
Figures in HK$m 31Dec07 31Dec06
Operating activities
Cash generated from operations 292,331 88,942
Interest received on financial investments 21,393 17,527
Dividends received on financial investments 585 711
Dividends received from associates 1,208 766
Taxation paid (11,942) (6,159)
Net cash inflow from operating activities 303,575 101,787
Investing activities
Purchase of financial investments (436,191) (402,459)
Proceeds from sale or redemption of financial investments 443,128 361,794
Purchase of property, plant and equipment (3,197) (2,085)
Proceeds from sale of property, plant and equipment and
assets held for sale 1,214 4,176
Purchase of other intangible assets (1,271) (1,142)
Net cash outflow in respect of the acquisition of and
increased shareholding in subsidiary companies (134) (22)
Net cash inflow in respect of the sale of subsidiary
companies 111 409
Net cash inflow/(outflow) in respect of the purchase of
interests in business portfolios 1,999 (775)
Net cash outflow in respect of the purchase of
interests in associates and joint ventures (3,628) (462)
Proceeds from the sale of interests in business portfolios 1,948 16,501
Proceeds from the sale of interests in associates 238 -
Net cash inflow/ (outflow) from investing activities 4,217 (24,065)
Net cash inflow before financing 307,792 77,722
Financing
Issue of preference share capital 13,587 4,277
Change in minority interests 688 976
Repayment of subordinated liabilities (463) (1,018)
Issue of subordinated liabilities 2,345 4,661
Ordinary dividends paid (23,000) (18,757)
Dividends paid to minority interests (5,153) (3,841)
Interest paid on preference shares (5,144) (3,935)
Interest paid on subordinated liabilities (1,166) (946)
Net cash outflow from financing (18,306) (18,583)
Increase in cash and cash equivalents 289,486 59,139
Additional Information
1. Net interest income
Year ended Year ended
Figures in HK$m 31Dec07 31Dec06
Net interest income 62,761 51,099
Average interest-earning assets 2,649,116 2,212,521
Net interest spread 2.05% 1.92%
Net interest margin 2.37% 2.31%
Included in the above is interest income accrued on impaired financial assets of
HK$400 million (2006: HK$309 million), including unwinding of discounts on loan
impairment losses of HK$308 million (2006: HK$196 million).
Net interest income of HK$62,761 million was HK$11,662 million, or 22.8 per
cent, higher than in 2006. Higher income was attributable to strong balance
sheet growth and improved deposit spreads throughout the region, coupled with
higher balance sheet management income.
Net interest income in Personal Financial Services rose by HK$5,949 million, or
19.8 per cent, partly due to strong growth in the deposit base in Hong Kong and
in the region. Lending growth also contributed to the increase in interest
income, particularly personal instalment loans in India, South Korea, Thailand
and at Hang Seng Bank, and credit cards in the Philippines, India, Singapore,
Australia and at Hang Seng Bank. In addition, strong returns were generated on
investments held by the group's insurance companies, benefiting from higher
yields and growth in portfolio size. Net interest income in Commercial Banking
was HK$3,069 million, or 21.9 per cent higher than in 2006, mainly due to
balance sheet growth, notably in Hong Kong, India and mainland China, and the
widening of deposit spreads. In Global Banking and Markets, net interest income
increased significantly as a result of strong balance sheet management income,
reflecting the replacement of maturing assets at higher yields. This was coupled
with business growth in the payments and cash management and securities services
businesses and improved deposit spreads, notably in mainland China, India, Hong
Kong and Taiwan.
Average interest-earning assets rose by HK$436.6 billion, or 19.7 per cent, to
HK$2,649.1 billion. Average advances to customers grew by HK$95.4 billion, or
9.1 per cent, with strong increases in corporate loans in India, mainland China
and at Hang Seng Bank, and a small rise in average mortgage balances in Hong
Kong, coupled with stronger growth in India and Singapore. These were partly
offset by the disposal of the broker-originated mortgage businesses in
Australia. Average credit card balances rose in most areas, notably Hong Kong,
India, Australia, the Philippines, Thailand and Singapore, and personal
instalment loans grew, most significantly in India, South Korea and Thailand.
Average placements with banks were HK$174.3 billion higher, and holdings of
available-for-sale securities rose by HK$85.8 billion, reflecting the deployment
of the commercial surplus.
The group's net interest margin of 2.37 per cent for 2007 was six basis points
higher than in 2006. Net interest spread improved by 13 basis points, while the
contribution from net free funds declined by seven basis points, reflecting the
deployment of funds into trading assets.
For the bank in Hong Kong, net interest margin increased by one basis point to
2.27 per cent. Spread rose by 11 basis points, benefiting from higher yields on
money market placements, debt securities and term lending, and improved deposit
spreads in current and savings accounts, but was partly offset by lower spread
on mortgages as the Hong Kong dollar Best Lending Rate decreased. The
contribution from net free funds decreased by 10 basis points, primarily due to
the reduction of free funds as a result of redeployment of surplus funds into
trading assets.
At Hang Seng Bank, net interest margin improved by 12 basis points to 2.54 per
cent, benefiting from wider deposit spreads and better yields on the balance
sheet management portfolio. Balance sheet management income improved as lower
yielding securities gradually matured and were replaced by higher yielding
assets. Net interest spread rose by 15 basis points to 1.98 per cent, whilst the
contribution from net free funds decreased by three basis points. Higher net
interest spread was attributable to the increase of average customer deposits,
mainly in lower cost savings balances, and wider deposit spreads. However, the
pricing of residential mortgages and corporate lending remained under pressure
due to intense market competition.
In the rest of Asia-Pacific, net interest margin at 2.25 per cent was nine basis
points higher than in 2006, and spread increased by 12 basis points to 2.06 per
cent. In mainland China, spread improved as the increase in lending rates
outweighed the rise in deposit rates, supported by an increase in low cost
customer deposits. Spread improved in Indonesia as funding costs decreased
following interest rate cuts. In the Philippines, local interest rates dropped
but strong growth in high yielding credit card receivables more than offset the
decline in yields for other lending products. Taiwan benefited from improved
spreads on customer accounts, whereas Singapore saw higher spreads on mortgages
and cards as funding costs decreased. The contribution from net free funds
dropped by three basis points mainly due to an increase in the redeployment of
funding to trading assets in Australia, South Korea and mainland China, which
was partly offset by a rise in both market interest rate and non-interest
bearing account balances in India.
2. Net fee income
Figures in HK$m 2007 2006
Account services 1,625 1,501
Credit facilities 1,471 1,245
Import/export 3,360 2,956
Remittances 1,653 1,437
Securities/stockbroking 11,874 5,267
Cards 4,321 4,335
Insurance 889 315
Unit trusts 4,714 2,326
Funds under management 4,833 2,974
Other 6,409 4,198
Fee income 41,149 26,554
Fee expense (6,208) (4,150)
34,941 22,404
Net fee income was HK$12,537 million, or 56.0 per cent, higher than in 2006.
Securities broking and custody fees rose by 125 per cent, reflecting
significantly higher stock market turnover in Hong Kong. The buoyant stock
markets also stimulated demand for unit trusts and investment funds in Hong
Kong, South Korea, Taiwan and India, and fee income increased by 80.1 per cent.
Trade finance income was 13.7 per cent higher, notably in India, mainland China
and Hong Kong, and in part due to the transfer into the group of HSBC's South
African banking operations in the second quarter of 2007. Remittance and other
account fees grew, reflecting the group's strong transactional capabilities.
Card fees were in line with the disposal of the card acquiring business and the
decline in card fees in Taiwan as a result of the 2006 credit crisis largely was
offset by strong growth in issuing fees elsewhere in the region, notably India,
Hong Kong and the Philippines due to an increase in the number of cards in
circulation and higher cardholder spending.
'Other' includes investment banking fees. These fees were higher than the
previous year as the group won several notable IPO mandates in Hong Kong, and
there was an increase in commissions from fellow HSBC Group companies in respect
of treasury business.
3. Net trading income
Figures in HK$m 2007 2006
Dealing profits 12,831 10,001
Net gain from hedging activities 63 16
Net interest income/(expense) 2,678 (1,307)
Dividend income from trading securities 484 208
16,056 8,918
Trading income rose by 80 per cent to HK$16,056 million. Foreign exchange
profits benefited from an increase in trading activity against a backdrop of
increasing demand for local currency assets as foreign investors sought to
participate in local stock markets, coupled with favourable positioning as the
US dollar weakened. Revenues grew strongly in the equities and equity
derivatives business, reflecting previous investment in business expansion and
buoyant stock markets.
4. Gains less losses from financial investments
Figures in HK$m 2007 2006
Gains on disposal of available-for-sale securities 892 1,466
The profit on the disposal of available-for-sale securities in 2007 largely
comprises gains on the sale of equity shares and further disposals of Philippine
government securities. Prior year gains include the profits made on the sale of
part of the group's stake in UTI Bank in India, and also on Philippine
government securities.
5. Other operating income
Figures in HK$m 2007 2006
Rental income from investment properties 151 196
Movement in present value of in-force insurance business 950 1,124
Gains on investment properties 564 475
Profit on disposal of property, plant and equipment, and
assets held for sale 64 981
Profit on disposal of subsidiaries, associates and
business portfolios 96 904
Surplus arising on property revaluation 122 70
Other 2,109 1,903
4,056 5,653
Profit on the disposal of property, plant and equipment was lower than in 2006
due to the non-recurrence of gains made on the sale of a property in Japan and
lower gains from the disposal of Hang Seng Bank properties.
Profit on disposal of subsidiaries, associates and business portfolios was lower
than 2006 due to the non-recurrence of gains made on the disposal of the
stockbroking, margin lending and broker originated mortgage businesses in
Australia.
'Other' mainly comprises recoveries of IT and other operating costs from fellow
HSBC Group companies which were incurred on their behalf.
6. Gains arising from dilution of investments in associates
During the year, three associates of the group, Bank of Communications,
Industrial Bank and Techcombank issued new shares. The group was not able to
subscribe for any additional shares issued under these offers and, as a result,
its interests in the associates' equity decreased from 19.90 per cent to 18.60
per cent, from 15.98 per cent to 12.78 per cent and from 15.0 per cent to 14.44
per cent respectively. The interest in Bank of Communications was subsequently
increased to 19.01 per cent through additional share acquisitions.
The net assets of both Bank of Communications and Industrial Bank increased
substantially when they received proceeds from their respective new share
issues. After the new issues, the group's share of the net assets of the three
associates increased by HK$4,735 million compared with the share of the net
assets immediately prior. This increase in the group's share of net assets was
regarded as a gain arising from deemed disposals of part of its interests in the
associates and is presented in the consolidated income statement.
The gains resulting from the dilution of the group's investments in the
associates were: HK$3,228 million for Bank of Communications; HK$1,465 million
for Industrial Bank; and HK$42 million for Techcombank.
The dilution of the interests does not affect the classification of the group's
investments as investments in associates.
7. Loan impairment charges and other credit risk provisions
Figures in HK$m 2007 2006
Net charge for impairment of customer advances
- Individually assessed impairment allowances:
New allowances 1,884 1,314
Releases (646) (869)
Recoveries (197) (212)
1,041 233
- Net charge for collectively assessed
impairment allowances 4,619 4,468
5,660 4,701
Net charge for other credit risk provisions 145 108
Net charge for loan impairment and
other credit risk provisions 5,805 4,809
The net charge for loan impairment and other credit risk provisions was HK$996
million higher than in 2006.
The charge for new individually assessed allowances was higher, largely
attributable to the downgrading of certain corporate customers with activities
in Thailand, Hang Seng Bank, India and Sri Lanka. The increase was partly offset
by lower corporate charges in Singapore, mainland China and Japan. Releases and
recoveries were lower, mainly relating to companies in Hong Kong, mainland
China, Australia and Indonesia.
The net charge for collectively assessed allowances increased. Charges increased
in India, Hong Kong and Thailand, reflecting higher credit card and other
personal lending volumes.
8. Employee compensation and benefits
Figures in HK$m 2007 2006
Wages, salaries and other costs 16,687 14,302
Performance-related pay 8,317 5,501
Social security costs 327 283
Retirement benefit costs 1,100 956
26,431 21,042
Staff numbers by region^
At 31Dec07 At 31Dec06
Hong Kong 26,169 26,496
Rest of Asia-Pacific 33,167 27,518
Americas/Europe 18 17
Total 59,354 54,031
^ Full-time equivalent
Staff costs increased by HK$5,389 million, or 25.6 per cent, compared with 2006.
Wages and salaries rose by 16.7 per cent, in line with planned increases in
headcount throughout the region, and due to annual salary rises notably in Hong
Kong, mainland China, India, Singapore and South Korea. Staff numbers rose
significantly in India reflecting the establishment of the consumer finance
business and expansion of the sales force, and in mainland China to support new
branch openings. Performance-related pay increased in line with improved
operating revenues, higher dealing income and the increase in headcount.
9. General and administrative expenses
Figures in HK$m 2007 2006
Premises and equipment
- Rental expenses 1,957 1,557
- Amortisation of prepaid operating lease
payments 59 58
- Other premises and equipment 2,750 2,463
4,766 4,078
Marketing and advertising expenses 4,170 3,587
Other administrative expenses 9,537 7,268
Litigation and other provisions (434) 16
18,039 14,949
The increase in general and administrative expenses of HK$3,090 million, or 20.7
per cent, reflected additional costs incurred in business expansion throughout
the region. Premises and equipment costs rose due to new branch openings and
rent increases. Marketing expenditure was higher due in part to increased credit
card bonus point redemption costs in Hong Kong, brand advertising at airports in
mainland China, and retail banking promotions at Hang Seng Bank. Technology
costs also increased as the group continued to improve its customer relationship
management systems and internet banking capabilities. Litigation and other
provisions recognised an improvement in 2007 due to the release of two
significant provisions.
10. Share of profit in associates and joint ventures
Share of profit in associates and joint ventures principally included the
group's share of post-tax profits from Bank of Communications and Industrial
Bank, and amortisation of intangible assets arising on acquisition.
11. Tax expense
The tax expense in the consolidated income statement comprises:
Figures in HK$m 2007 2006
Current income tax
- Hong Kong profits tax 8,279 5,506
- Overseas taxation 4,651 3,955
Deferred taxation 526 (50)
13,456 9,411
The effective rate of tax for 2007 was 17.1 per cent compared with 18.1 per cent
in 2006. The decrease was mainly as a result of the HK$4,735 million of dilution
gains recognised in the year being non-taxable.
12. Dividends
2007 2006
HK$ HK$m HK$ HK$m
per share per share
Dividends paid on ordinary share capital
- In respect of the previous financial year,
approved and paid during the year 0.72 6,500 0.50 4,500
- In respect of the current financial year 1.84 16,500 1.58 14,257
2.56 23,000 2.08 18,757
The Directors have declared a fourth interim dividend in respect of the
financial year ended 31 December 2007 of HK$6,500 million (HK$0.72 per ordinary
share).
13. Advances to customers
Figures in HK$m At 31Dec07 At 31Dec06
Gross advances to customers 1,219,346 1,050,625
Impairment allowances
- Individually assessed (2,182) (2,118)
- Collectively assessed (5,078) (4,725)
(7,260) (6,843)
1,212,086 1,043,782
Allowances as a percentage of
gross advances to customers:
- Individually assessed 0.18% 0.20%
- Collectively assessed 0.42% 0.45%
Total allowances 0.60% 0.65%
14. Impairment allowances against advances to customers
Individually Collectively
assessed assessed
Figures in HK$m allowances allowances Total
At 1Jan07 2,118 4,725 6,843
Amounts written off (1,301) (4,885) (6,186)
Recoveries of advances written off in
previous years 197 696 893
Net charge to income statement (Note 7) 1,041 4,619 5,660
Unwinding of discount on loan
impairment (89) (219) (308)
Exchange and other adjustments 216 142 358
At 31Dec07 2,182 5,078 7,260
15. Impaired advances to customers and allowances
The geographical information shown below, and in notes 16, 17 and 18, has been
classified by location of the principal operations of the subsidiary company or,
in the case of the bank, by location of the branch responsible for advancing the
funds.
Rest of
Figures in HK$m Hong Kong Asia-Pacific Total
Year ended 31Dec07
Impairment allowance charge 1,654 4,006 5,660
At 31 December 2007
Advances to customers which are considered to be impaired are as follows:
Gross impaired advances 3,380 5,003 8,383
Individually assessed allowances (1,028) (1,154) (2,182)
2,352 3,849 6,201
Individually assessed allowances
as a percentage of gross
impaired advances 30.4% 23.1% 26.0%
Gross impaired advances as a
percentage of gross advances to
customers 0.5% 0.9% 0.7%
Year ended 31Dec06
Impairment allowance charge 1,228 3,473 4,701
At 31 December 2006
Advances to customers which are considered to be impaired are as follows:
Gross impaired advances 3,530 5,071 8,601
Individually assessed allowances (1,016) (1,102) (2,118)
2,514 3,969 6,483
Individually assessed allowances
as a percentage of gross impaired advances 28.8% 21.7% 24.6%
Gross impaired advances as a
percentage of gross advances to
customers 0.6% 1.2% 0.8%
Impaired advances to customers are those advances where objective evidence
exists that full repayment of principal or interest is considered unlikely.
The individually assessed allowances are made after taking into account the
value of collateral in respect of such advances.
16. Overdue advances to customers
Rest of
Figures in HK$m Hong Kong Asia-Pacific Total
At 31Dec07
Gross advances to customers which have
been overdue with respect to either
principal or interest for periods of:
- more than three months but not more than six months 737 1,403 2,140
- more than six months but not more than one year 223 837 1,060
- more than one year 637 1,042 1,679
1,597 3,282 4,879
Overdue advances to customers as a
percentage of gross advances to
customers:
- more than three months but not more than six months 0.1% 0.3% 0.2%
- more than six months but not more than one year 0.0% 0.2% 0.1%
- more than one year 0.1% 0.2% 0.1%
0.2% 0.7% 0.4%
At 31Dec06
Gross advances to customers which have been overdue
with respect to either principal or interest for
periods of:
- more than three months but not more than six months 938 1,287 2,225
- more than six months but not more than one year 384 595 979
- more than one year 1,238 859 2,097
2,560 2,741 5,301
Overdue advances to customers as a percentage of
gross advances to customers:
- more than three months but not more than six months 0.1% 0.3% 0.2%
- more than six months but not more than one year 0.1% 0.1% 0.1%
- more than one year 0.2% 0.2% 0.2%
0.4% 0.6% 0.5%
As at 31 December 2007 and 31 December 2006, there were no advances to banks and
other financial institutions that were overdue for more than three months.
17. Rescheduled advances to customers
Rest of
Figures in HK$m Hong Kong Asia-Pacific Total
At 31Dec07
Rescheduled advances to customers 1,610 1,620 3,230
Rescheduled advances to customers as a
percentage of gross advances to customers 0.2% 0.3% 0.3%
At 31Dec06
Rescheduled advances to customers 1,730 2,307 4,037
Rescheduled advances to customers as a
percentage of gross advances to customers 0.3% 0.6% 0.4%
As at 31 December 2007 and 31 December 2006, there were no rescheduled advances
to banks and other financial institutions.
Rescheduled advances to customers are those advances which have been
restructured or renegotiated because of a deterioration in the financial
position of the borrower or because of the inability of the borrower to meet the
original repayment schedule.
Rescheduled advances to customers are stated net of any advances which have
subsequently become overdue for more than three months and which are included in
'Overdue advances to customers' (Note 16).
18. 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 subsidiary companies, to manage associated risks.
Rest of Americas/
Figures in HK$m Hong Kong Asia-Pacific Europe Total
At 31Dec07
Residential mortgages 197,712 128,650 4 326,366
Hong Kong SAR Government's Home
Ownership Scheme, Private Sector
Participation Scheme and Tenants
Purchase Scheme mortgages 30,738 - - 30,738
Credit card advances 35,279 25,926 - 61,205
Other personal 41,567 40,115 1 81,683
Total personal 305,296 194,691 5 499,992
Commercial, industrial and
international trade 138,331 200,475 - 338,806
Commercial real estate 94,748 46,391 - 141,139
Other property-related lending 63,697 20,936 - 84,633
Government 2,587 6,338 - 8,925
Other commercial 40,369 52,752 - 93,121
Total corporate and commercial 339,732 326,892 - 666,624
Non-bank financial institutions 19,363 29,344 - 48,707
Settlement accounts 3,798 225 - 4,023
Total financial 23,161 29,569 - 52,730
Gross advances to customers 668,189 551,152 5 1,219,346
Impairment allowances (2,932) (4,328) - (7,260)
Net advances to customers 665,257 546,824 5 1,212,086
At 31Dec06
Residential mortgages 191,522 112,900 5 304,427
Hong Kong SAR Government's Home
Ownership Scheme, Private Sector
Participation Scheme and Tenants
Purchase Scheme mortgages 31,708 - - 31,708
Credit card advances 31,315 19,999 - 51,314
Other personal 30,778 35,908 1 66,687
Total personal 285,323 168,807 6 454,136
Commercial, industrial and
international trade 130,994 133,560 - 264,554
Commercial real estate 94,706 36,052 - 130,758
Other property-related lending 53,832 15,627 - 69,459
Government 4,283 6,727 - 11,010
Other commercial 43,186 38,781 - 81,967
Total corporate and commercial 327,001 230,747 - 557,748
Non-bank financial institutions 18,138 16,471 - 34,609
Settlement accounts 3,774 358 - 4,132
Total financial 21,912 16,829 - 38,741
Gross advances to customers 634,236 416,383 6 1,050,625
Impairment allowances (2,838) (4,005) - (6,843)
Net advances to customers 631,398 412,378 6 1,043,782
Net advances to customers increased by HK$168 billion, or 16.1 per cent, since
the end of 2006.
Net advances in Hong Kong grew by HK$34 billion, or 5.4 per cent, since the end
of 2006. Mortgage balances grew by 3.2 per cent underpinned by stable domestic
interest rates. Credit card balances increased 12.7 per cent following the
launch of a number of credit card programmes. Lending to corporate and
commercial customers increased 3.9 per cent as lending to manufacturers who were
expanding their operations in mainland China increased.
In the rest of Asia-Pacific, net advances rose by HK$134 billion, or 32.6 per
cent, since the end of 2006. Mortgage balances grew by 14.0 per cent with
increases in Australia, India and Singapore. Credit card advances rose by 29.6
per cent, notably in Australia, India, Thailand and the Philippines, and the
growth in other personal lending was attributable to continued business
expansion in India. Lending to corporate and commercial customers rose by 41.7
per cent, notably in mainland China, Vietnam, India and Mauritius.
19. Analysis of advances to customers by industry sector based on categories and
definitions used by the Hong Kong Monetary Authority ('HKMA')
The following analysis of advances to customers is based on the categories
contained in the 'Quarterly Analysis of Loans and Advances and Provisions'
return required to be submitted to the HKMA by branches of the bank and by
banking subsidiary companies in Hong Kong.
Figures in HK$m At 31Dec07 At 31Dec06
Gross advances to customers for use in Hong Kong
Industrial, commercial and financial
Property development 47,217 46,352
Property investment 116,331 99,580
Financial concerns 10,731 10,136
Stockbrokers 2,669 964
Wholesale and retail trade 38,502 36,101
Manufacturing 21,526 17,331
Transport and transport equipment 26,381 27,408
Recreational activities 238 442
Information technology 2,504 2,494
Others 40,674 40,676
306,773 281,484
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 30,738 31,708
Advances for the purchase of other
residential properties 176,591 171,014
Credit card advances 35,279 31,315
Others 37,188 26,966
279,796 261,003
Gross advances to customers for use in Hong Kong 586,569 542,487
Trade finance 65,149 56,121
Gross advances to customers for use outside Hong
Kong made by branches of the bank and subsidiary
companies in Hong Kong 16,471 35,628
Gross advances to customers made by branches of
the bank and subsidiary companies in Hong Kong 668,189 634,236
Gross advances to customers made by branches of
the bank and subsidiary companies outside
Hong Kong:
- Rest of Asia-Pacific 551,152 416,383
- Americas/Europe 5 6
Gross advances to customers 1,219,346 1,050,625
20. 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$m institutions entities Other Total
At 31Dec07
Americas
United States 53,963 63,624 62,638 180,225
Other 48,643 2,713 51,189 102,545
102,606 66,337 113,827 282,770
Europe
United Kingdom 322,972 17 46,218 369,207
Other 450,375 1,651 48,113 500,139
773,347 1,668 94,331 869,346
Asia-Pacific excluding Hong Kong 241,481 104,092 171,184 516,757
At 31Dec06
Americas
United States 62,558 78,354 72,669 213,581
Other 38,585 6,568 47,393 92,546
101,143 84,922 120,062 306,127
Europe
United Kingdom 138,625 17 24,324 162,966
Other 405,950 5,010 18,981 429,941
544,575 5,027 43,305 592,907
Asia-Pacific excluding Hong Kong 213,292 93,968 116,242 423,502
21. Customer accounts
Figures in HK$m At 31Dec07 At 31Dec06
Current accounts 417,786 292,450
Savings accounts 983,874 785,659
Other deposit accounts 1,084,446 911,358
2,486,106 1,989,467
Customer accounts increased by HK$497 billion, or 25 per cent, compared with the
end of 2006.
In Hong Kong, customer accounts rose by HK$271 billion, or 18.8 per cent,
largely in savings and other 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$101
billion, or 12.2 per cent.
In the rest of Asia-Pacific, customer accounts increased HK$226 billion, or 41.0
per cent, as the group continued to expand the deposit base throughout the
region. The group's focus was on attracting mass affluent customers through HSBC
Premier and increasing corporate balances by growing the payments and cash
management business and the securities services business. Deposits from personal
customers grew by HK$54 billion, or 26.7 per cent,notably in India, Australia
and mainland China. Customer account balances held by corporate customers in
Commercial Banking and Global Banking and Markets rose by HK$169 billion, or
49.5 per cent, largely in mainland China, India, Singapore and South Korea.
The group's advances-to-deposits ratio decreased to 48.8 per cent at 31 December
2007, from 52.5 per cent at 31 December 2006.
22. Reserves
Figures in HK$m At 31Dec07 At 31Dec06
Other reserves
- Property revaluation reserve 6,995 4,798
- Available-for-sale investment reserve 58,757 25,812
- Cash flow hedge reserve 677 (166)
- Foreign exchange reserve 8,887 2,805
- Other 8,636 2,265
83,952 35,514
Retained profits 107,908 80,942
Total reserves 191,860 116,456
An amount of HK$4,180 million (excluding an amount of HK$555 million recognised
in minority interests), being the amount of the gains arising from the dilution
of investments in associates, has been transferred from retained profits to
other reserves.
23. Contingent liabilities, commitments and derivatives
a Off-balance sheet contingent liabilities and commitments
Figures in HK$m At 31Dec07 At 31Dec06
Contingent liabilities and financial guarantee contracts
- Guarantees and irrevocable letters of credit pledged as collateral
security 161,493 121,911
- Other contingent liabilities 122 34
161,615 121,945
Commitments
- Documentary credits and short-term trade-related transactions 54,803 34,538
- Forward asset purchases and forward forward deposits placed 461 319
- Undrawn note issuing and revolving underwriting facilities - 1,166
- Undrawn formal standby facilities, credit lines and other commitments
to lend:
- 1 year and under 1,037,691 887,680
- over 1 year 93,111 93,970
1,186,066 1,017,673
The above table discloses the nominal principal amounts of third party
off-balance sheet transactions, the amounts relating to other contingent
liabilities and the nominal principal amounts relating to financial guarantee
contracts. Contingent liabilities and commitments are mainly credit-related
instruments which include non-financial guarantees and commitments to extend
credit. Contractual amounts represent the amounts at risk should contracts be
fully drawn upon and clients default. Since a significant portion of guarantees
and commitments are expected to expire without being drawn upon, the total of
the contractual amounts is not representative of future liquidity requirements.
b Guarantees (including financial guarantee contracts)
The group provides guarantees and similar undertakings on behalf of both third
party customers and other entities within the group. These guarantees are
generally provided in the normal course of the banking business. The principal
types of guarantees provided, and the maximum potential amount of future
payments which the group could be required to make at 31 December 2007, were as
follows:
At 31Dec07 At 31Dec06
Guarantees Guarantees by
by the group the group in
Guarantees in in favour of Guarantees in favour of
favour of third other HSBC favour of third other HSBC
Figures in HK$m parties Group entities parties Group entities
Guarantee type
Financial guarantee contracts^ 26,157 3,912 22,195 4,229
Standby letters of credit which are
financial guarantee contracts^^ 25,366 28 17,734 65
Other direct credit substitutes^^^ 30,384 21 27,778 4
Performance bonds^^^^ 35,666 3,628 25,962 3,078
Bid bonds^^^^ 2,223 147 1,175 132
Standby letters of credit related to
particular transactions^^^^ 4,942 137 1,703 102
Other transaction-related guarantees^^^^ 27,559 4,509 20,685 1,654
152,297 12,382 117,232 9,264
^ Financial guarantees are contracts that require the issuer to make
specified payments to reimburse the holder for a loss incurred because a
specified debtor fails to make payment when due in accordance with the
original or modified terms of a debt instrument. The amounts in the above
table are nominal principal amounts.
^^ Standby letters of credit which are financial guarantee contracts are
irrevocable obligations on the part of the group to pay third parties when
customers fail to make payments when due.
^^^ Other direct credit substitutes include re-insurance letters of credit and
trade-related letters of credit issued without provision for the issuing
entity to retain title to the underlying shipment.
^^^^ Performance bonds, bid bonds, standby letters of credit and other
transaction-related guarantees are undertakings by which the obligation on
the group to make payment depends on the outcome of a future event.
The amounts disclosed in the above table reflect the group's maximum exposure
under a large number of individual guarantee undertakings. The risks and
exposures from guarantees are captured and managed in accordance with HSBC's
overall credit risk management policies and procedures. Approximately half of
the above guarantees have a term of less than one year. Guarantees with terms of
more than one year are subject to HSBC's annual credit review process.
c Contingencies
The group is named in and defending legal actions in a number of jurisdictions
including Hong Kong, arising out of its normal business operations. None of the
actions is regarded as material litigation, and none is expected to result in a
significant adverse effect on the financial position of the group, either
collectively or individually. Management believes that adequate provisions have
been made in respect of such litigation.
24. 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 31Dec07
Chinese renminbi 104,825
Indian rupee 18,774
At 31Dec06
Chinese renminbi 54,960
United States dollars 15,886
The increase in the Chinese renminbi structural position during 2007 was
principally due to an increase in the valuation of the group's strategic
long-term foreign currency equity investments.
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 Chinese
Figures in HK$m dollars dollars dollars renminbi
At 31Dec07
Spot assets 2,754,883 35,820 65,053 222,368
Spot liabilities (2,700,125) (81,235) (26,586) (201,629)
Forward purchases 3,584,670 258,370 58 252,162
Forward sales (3,653,773) (206,637) (44,713) (274,787)
Net options position 18,068 - - -
3,723 6,318 (6,188) (1,886)
At 31Dec06
Spot assets 1,205,314 118,964 27,665 78,111
Spot liabilities (1,222,334) (140,566) (107) (69,689)
Forward purchases 2,222,005 168,534 24,949 97,130
Forward sales (2,210,290) (141,505) (57,857) (104,949)
Net options position (132) - - -
(5,437) 5,427 (5,350) 603
25. Segmental analysis
The allocation of earnings reflects the benefits of shareholders' funds to the
extent that these are actually allocated to businesses in the segment by way of
intra-group capital and funding structures. Interest is charged based on market
rates. Common costs are included in segments on the basis of the actual
recharges made. Geographical information has been classified by the location of
the principal operations of the subsidiary company or, in the case of the bank,
by the location of the branch responsible for reporting the results or advancing
the funds. Due to the nature of the group structure, the analysis of profits
shown below includes intra-group items between geographical regions with the
elimination shown in a separate column.
Consolidated income statement
Intra-
Figures in HK$m Rest of Americas/ segment
Hong Kong Asia-Pacific Europe elimination Total
Year ended 31Dec07
Interest income 96,700 54,384 1,079 (8,010) 144,153
Interest expense (54,538) (33,877) (995) 8,018 (81,392)
Net interest income 42,162 20,507 84 8 62,761
Fee income 27,644 14,355 1 (851) 41,149
Fee expense (3,930) (3,116) (13) 851 (6,208)
Net trading income/(loss) 7,026 9,033 1 (4) 16,056
Net income from financial instruments
designated at fair value 5,322 883 - (4) 6,201
Gains less losses from financial
investments 737 155 - - 892
Gains arising from dilution of
investments in associates - 4,735 - - 4,735
Dividend income 385 308 - - 693
Net earned insurance premiums 21,934 1,761 - - 23,695
Other operating income 6,580 597 22 (3,143) 4,056
Total operating income 107,860 49,218 95 (3,143) 154,030
Net insurance claims incurred and
movement in policyholders'
liabilities (25,044) (1,977) - - (27,021)
Net operating income before loan
impairment charges and other
credit risk provisions 82,816 47,241 95 (3,143) 127,009
Loan impairment charges and
other credit risk provisions (1,799) (4,006) - - (5,805)
Net operating income 81,017 43,235 95 (3,143) 121,204
Operating expenses (27,446) (22,848) (27) 3,143 (47,178)
Operating profit 53,571 20,387 68 - 74,026
Share of profit in associates and
joint ventures 221 4,514 - - 4,735
Profit before tax 53,792 24,901 68 - 78,761
Tax expense (8,826) (4,623) (7) - (13,456)
Profit for the year 44,966 20,278 61 - 65,305
Profit attributable to shareholders 38,605 19,362 61 - 58,028
Profit attributable to minority
interests 6,361 916 - - 7,277
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 ventures 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
26. Capital adequacy
The following table shows the capital adequacy ratio and the components of the
capital base contained in the 'Capital Adequacy Ratio' return required to be
submitted to the HKMA by The Hongkong and Shanghai Banking Corporation Limited
on a consolidated basis that is specified by the HKMA under the requirement of
section 98(2) of the Banking Ordinance.
The Banking (Capital) Rules ('the Rules') came into effect on 1 January 2007.
The Hongkong and Shanghai Banking Corporation Limited uses the standardised
(credit risk) approach and standardised (securitisation) approach to calculate
its credit risk for non-securitisation exposures and credit risk for
securitisation exposures respectively. It also uses the standardised
(operational risk) approach and standardised (market risk) approach to calculate
its operational risk and market risk respectively. However, an internal model
approach is adopted for calculating the general market risk and a separate model
is used for calculating the market risk relating to equity options. This basis
is different from the basis used at 31 December 2006, and the numbers are
therefore not strictly comparable.
Figures in HK$m
At 31Dec07
Composition of capital
Core Capital:
Paid-up ordinary share capital 21,040
Paid-up irredeemable non-cumulative preference shares 51,882
Published reserves 72,069
Profit and loss account 29,543
Minority interests^^^^ 21,318
Less: Deduction from core capital (11,111)
Less: 50% of total amount of deductible items (@50%)^^^^^ (28,894)
Total core capital 155,847
Supplementary Capital:
Property revaluation reserves^ 5,869
Available-for-sale investments revaluation reserves^^ 4,434
Unrealised fair value gains from financial instruments
designated at fair value through profit or loss 137
Regulatory reserve^^^ 4,148
Collective provisions 5,078
Perpetual subordinated debt 9,415
Paid-up irredeemable cumulative preference shares 16,610
Term subordinated debt 11,970
Paid-up term preference shares 21,835
Less: 50% of total amount of deductible items (@50%)^^^^^ (28,894)
Total supplementary capital 50,602
Capital base 206,449
Total deductible items^^^^^ 57,788
There is no relevant capital shortfall in any of the group's subsidiaries which
are not included in its consolidation group for regulatory purposes.
^ 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.
^^^^ After deduction of minority interests in unconsolidated subsidiary
companies.
^^^^^ Total deductible items are deducted from institution's core capital and
supplementary capital.
The capital ratios on a consolidated basis calculated in accordance with the
Rules are as follows:
At 31Dec07
Capital adequacy ratio 11.6%
Core capital ratio 8.8%
The table below sets out an analysis of regulatory capital and capital adequacy
ratios for the group. They are calculated in accordance with the Third Schedule
of the Hong Kong Banking Ordinance.
This basis is different from the basis used at 31 December 2007, and the numbers
are therefore not strictly comparable.
Figures in HK$m
At 31Dec06
Composition of capital
Tier 1:
Total shareholders' equity 145,450
Less: proposed dividend (6,500)
property revaluation reserves^ (7,892)
available-for-sale investment reserve^^ (26,028)
classified as regulatory reserve^^^ (1,689)
goodwill (4,182)
others (138)
Irredeemable non-cumulative preference shares 51,735
Minority interests^^^^ 17,483
Total qualifying tier 1 capital 168,239
Tier 2:
Property revaluation reserves (@70%) 5,524
Available-for-sale investment reserve (@70%) 18,220
Collective impairment provision and regulatory reser 6,610
Perpetual subordinated debt 9,370
Term subordinated debt 9,849
Term preference shares 8,165
Irredeemable cumulative preference shares 16,563
Total qualifying tier 2 capital 74,301
Deductions (58,559)
Total capital 183,981
Risk-weighted assets 1,367,607
^ 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 accounts of
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
Total capital 13.5%
Tier 1 capital 12.3%
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:
At 31Dec06
Total capital 13.0%
Tier 1 capital 11.8%
27. 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.
2007 2006
The average liquidity ratio for the year was as follows:
Hong Kong branches of the bank 57.0% 49.3%
28. Property revaluation
The group's premises and investment properties were revalued as at 30 September
2007 and updated for any material changes as at 31 December 2007. 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 93 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
seven 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 2007, has resulted in an increase in the group's
revaluation reserves of HK$2,432 million, net of deferred taxation of HK$658
million, and a credit to the income statement of HK$384 million. Of the HK$384
million credit to the income statement, HK$262 million represents the surplus on
the revaluation of investment properties and HK$122 million relates to the
reversal of previous revaluation deficits that had arisen when the value of
certain premises fell below depreciated historical cost.
29. 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 2006, as disclosed in the Annual Report and Accounts for 2006.
30. 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 2007, which were approved by
the Board of Directors on 3 March 2008 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 3 March 2008. The Annual Report and
Accounts for the year ended 31 December 2007, which include the financial
statements, can be obtained on request from Group Communications, The Hongkong
and Shanghai Banking Corporation Limited, 1 Queen's Road Central, Hong Kong, and
will be made available on our website: www.hsbc.com.hk. A further press release
will be issued to announce the availability of this information.
31. Ultimate holding company
The Hongkong and Shanghai Banking Corporation Limited is an indirectly held,
wholly-owned subsidiary of HSBC Holdings plc.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
HSBC Holdings plc
By:
Name: P A Stafford
Title: Assistant Group Secretary
Date: 03-03-2008