28th Feb 2005 08:00
HSBC Holdings PLC28 February 2005 2. Other operating income Figures in HK$m 2004 2003 Dividend income- Listed investments 87 152- Unlisted investments 99 100 186 252Fees and commissions- Account services 1,207 1,162- Credit facilities 1,447 1,295- Import/export 2,676 2,373- Remittances 1,103 957- Securities/stockbroking 2,841 2,086- Cards 3,606 3,090- Insurance 217 172- Unit trusts/funds under management 3,922 2,814- Other 2,855 2,306Fees and commissions receivable 19,874 16,255Fees and commissions payable (3,184) (2,617) 16,690 13,638 Dealing profits- Foreign exchange 4,580 3,096- Interest rate derivatives 2,380 1,248- Debt securities (423) (404)- Equities and other trading 78 84 6,615 4,024 Rental income from investment properties 211 220Other insurance income 4,293 3,275Other 1,426 1,218 29,421 22,627 Analysis of income from dealing in financial instruments 2004 2003 Dividend and Dividend and Dealing net interest Dealing net interest Figures in HK$m profits income Total profits income Total Foreign exchange 4,580 254 4,834 3,096 174 3,270Interest rate derivatives 2,380 (760) 1,620 1,248 (282) 966Debt securities (423) 1,352 929 (404) 1,526 1,122Equities and other trading 78 21 99 84 (2) 82 6,615 867 7,482 4,024 1,416 5,440 Other operating income was HK$6,794 million, or 30.0 per cent, higher than 2003.Customers' continued preference for alternative investment products and recordstock market volumes pushed wealth management and insurance income in thePersonal Financial Services business up by HK$2,219 million, or 40.7 per cent.This was evidenced by strong growth in sales of unit trusts and capitalguaranteed funds in Hong Kong, fee income from securities, stockbroking andcustody, and new individual life insurance premium income. Fee income from cardsrose, reflecting the increase in the number of cards in issue and highercardholder spending. Revenues from trade finance also grew, notably in the bankin Hong Kong and mainland China, attributable to the strong regional tradeflows. The substantial increase in dealing profits reflected successful tradingin derivatives products, growth in demand for structured interest rate productsand capital flows as customers sought to lock in funding requirements athistorically low rates. In addition, foreign exchange profits benefited from anincrease in corporate volumes and higher exchange rate volatility against abackdrop of a long-term decline in spreads. 3. Operating expenses Figures in HK$m 2004 2003 Staff costs- Salaries and other costs 13,911 12,605- Retirement benefit costs 832 979 14,743 13,584 Premises and equipment- Depreciation 2,096 2,032- Rental expenses 1,143 1,129- Other premises and equipment expenses 1,763 1,616 5,002 4,777 Other 7,247 5,663 26,992 24,024 Staff numbers by region^ At 31Dec04 At 31Dec03 Hong Kong 23,947 22,720Rest of Asia-Pacific 21,009 18,679Americas/Europe 16 16Total 44,972 41,415 ^ Full-time equivalent Operating expenses increased by HK$2,968 million, or 12.4 per cent, comparedwith 2003. Staff costs rose by HK$1,159 million, or 8.5 per cent, attributableto higher performance-related costs in line with the strong performance acrossthe region, the build-up of the investment banking division in Hong Kong, andheadcount growth. Staff numbers have increased by 3,557 to support businessexpansion, including a number of staff who have transferred from Bank ofBermuda. Retirement benefit costs were lower due to the recognition of a gainarising from the curtailment of the local pension scheme in India. During 2004,the group continued to migrate certain support-related functions to its servicecentres in mainland China in order to reduce costs. Other operating expenseswere higher than 2003 due to increased advertising and marketing expenditure inHong Kong, India, Taiwan and Australia, in line with the growth in the PersonalFinancial Services and Commercial Banking businesses in these countries.Technology costs were higher as a result of investment in channel capabilities,customer relationship systems and more efficient processing systems. Othergeneral expenses, including professional fees and communications costs,increased reflecting business expansion and increased sophistication of theproduct range. 4. Provisions for bad and doubtful debts Figures in HK$m 2004 2003 Net (release)/charge for bad and doubtful debts Advances to customers- Specific provisions New provisions 4,079 7,001 Releases (2,550) (2,771) Recoveries (617) (684) 912 3,546- General provisions (1,723) (160) (811) 3,386Placings with banks maturing after one month- Net release of specific provisions (1) -Net (release)/charge to profit and loss account (812) 3,386 There was a net release of provisions for bad and doubtful debts of HK$812million, compared with a net charge of HK$3,386 million in 2003. The charge fornew specific provisions fell, with lower provisions against mortgages and creditcard advances in Hong Kong, in line with the improving economy, with lowerbankruptcies, falling unemployment, and a rise in property prices. Provisionsagainst lending to corporates were also lower, reflecting the benign creditenvironment across the region. Releases and recoveries were lower, mainly fromcommercial banking customers in Hong Kong, Indonesia and Bahrain. The release inthe general provision for 2004 was made following an improvement in historicalloss experience. 5. Profit on tangible fixed assets and long-term investments Figures in HK$m 2004 2003 Profit/(loss) on disposal of tangible fixed assets 190 (84) Profit on disposal of long-term investments 1,705 860 Reversal of impairment of long-term investments 203 237 2,098 1,013 The profit on disposal of tangible fixed assets in 2004 was attributable togains made on the sale of residential properties in Hong Kong. The profit on disposal of long-term investments and associated companies in 2004comprised profits realised from the exchange of the group's interest in WorldFinance International Limited, an associated company, for an interest inBergesen Worldwide, together with the sale of equity investments. The reversal of impairment of long-term investments in 2004 reflected a partialwrite-back of a provision against an equity investment. 6. Share of profits less losses of associated companies In May 2004, Hang Seng Bank Limited acquired a 15.98 per cent stake inIndustrial Bank Co. Ltd., and in August 2004, The Hongkong and Shanghai BankingCorporation Limited acquired a 19.9 per cent interest in Bank of CommunicationsLimited. These companies are accounted for as associated companies, as the grouphas representation on the Board of Directors of each bank, and in accordancewith the Technical Support and Assistance Agreements, is assisting in thedevelopment of financial and operating policies. In respect of Bank ofCommunications Limited, a number of staff have been seconded to assist in thisprocess. In respect of Industrial Bank Co. Ltd., Hang Seng Bank Limited also hasrepresentation on the executive committee, whilst for Bank of CommunicationsLimited, The Hongkong and Shanghai Banking Corporation Limited hasrepresentation on the senior executive remuneration committee and on the auditcommittee. Share of profits less losses of associated companies in 2004 included thegroup's share of profits and amortisation of goodwill from Bank ofCommunications and Industrial Bank from the date of investment to 30 September2004. The group has taken advantage of the provision contained in Hong KongStatement of Standard Accounting Practice 10 whereby it is permitted to includethe attributable share of associates' results based on accounts drawn up to anon-coterminous period end where it is more practicable to do so. 7. Taxation The charge for taxation in the consolidated profit and loss account comprises: Figures in HK$m 2004 2003 Hong Kong profits tax 3,982 3,603Overseas taxation 2,476 1,802Deferred taxation 484 (30) 6,942 5,375 Share of associated companies' taxation 144 12 7,086 5,387 The effective rate of tax for 2004 was 15.8 per cent compared with 15.5 per centin 2003. 8. Dividends 2004 2003 HK$ per share HK$m HK$ per share HK$m Equity Ordinary dividends - Paid 2.18 15,500 1.33 8,650 - Proposed 0.53 4,800 1.30 8,450 2.71 20,300 2.63 17,100 Non-equity Preference dividends payable - Cumulative redeemable preference shares 192 96 198 99 - Non-cumulative irredeemable preference shares 0.26 1,444 0.24 1,075 21,840 18,274 9. Advances to customers Figures in HK$m At 31Dec04 At 31Dec03 Gross advances to customers 928,178 829,415Suspended interest (869) (1,141) 927,309 828,274 Specific provisions (5,609) (9,132)General provisions (2,447) (4,138)Total provisions (8,056) (13,270)Net advances to customers 919,253 815,004 Provisions as a percentage of gross advances to customers^Specific provisions 0.61% 1.10%General provisions 0.26% 0.50%Total provisions 0.87% 1.60% ^ Gross advances to customers are stated after deduction of interest in suspense. 10. Provisions for bad and doubtful debts against advances to customers SuspendedFigures in HK$m Specific General Total interest At 01Jan04 9,132 4,138 13,270 2,007Amounts written off (5,033) - (5,033) (1,145)Recoveries of advances written off in previous years 617 - 617 -Net charge/(release) to profit and loss account (Note 4) 912 (1,723) (811) -Interest suspended during the year - - - 744Suspended interest recovered - - - (561)Exchange and other adjustments (19) 32 13 7 At 31Dec04 5,609 2,447 8,056 1,052 Suspended interest above comprises both suspended interest netted against'Advances to customers' and suspended interest netted against accrued interestreceivable in 'Other assets'. 11. Non-performing advances to customers and provisions The geographical information shown below, and in notes 12, 13, 14 and16, has been classified by location of the principal operations of thesubsidiary company or, in the case of the bank, by location of thebranch responsible for advancing the funds. Rest of Americas/ Figures in HK$m Hong Kong Asia-Pacific Europe Total Year ended 31Dec04 Bad and doubtful debt charge/(release) (1,701) 896 (6) (811) At 31Dec04 Advances to customers on which interest is being placed in suspense or on which interest accrual has ceased as follows: Gross advances on which interest- has been placed in suspense 4,510 3,655 - 8,165- accrual has ceased 1,492 713 5 2,210Gross non-performing advances^ 6,002 4,368 5 10,375 Specific provisions (2,569) (3,035) (5) (5,609) 3,433 1,333 - 4,766 Specific provisions as a percentage of gross non- performing advances 42.8% 69.5% 100.0% 54.1% Gross non-performing advances as a percentage of gross advances to customers^^ 1.0% 1.3% 35.7% 1.1% Rest of Americas/ Figures in HK$m Hong Kong Asia-Pacific Europe Total Year ended 31Dec03 Bad and doubtful debt charge/(release) 3,098 321 (33) 3,386 At 31Dec03 Advances to customers on which interest is being placed in suspenseor on which interest accrual has ceased are as follows: Gross advances on which interest- has been placed in suspense 11,675 5,306 - 16,981- accrual has ceased 1,301 971 5 2,277Gross non-performing advances^ 12,976 6,277 5 19,258 Specific provisions (4,885) (4,242) (5) (9,132) 8,091 2,035 - 10,126 Specific provisions as a percentage of gross non- performing advances 37.6% 67.6% 100.0% 47.4% Gross non-performing advances as a percentage of gross advances to customers^^ 2.3% 2.4% 41.7% 2.3% Non-performing advances fell by HK$8,883 million, or 46.1 per cent, to HK$10,375million at 31 December 2004, reflecting the improved credit environmentthroughout the region. In Hong Kong, non-performing advances fell by HK$6,974million with reductions in both the bank and Hang Seng due to repayments andwrite-offs. In the rest of the Asia-Pacific region, non-performing advancesdecreased in most countries, notably in Thailand, Singapore and Indonesia due toa combination of repayments, upgrades and write-offs relating to commercial andcorporate banking customers. However, non-performing advances increased inmainland China. ^Gross non-performing advances to customers are stated after deduction ofinterest in suspense. ^^Expressed as a percentage of gross advances to customers after deduction ofinterest in suspense. 12. Overdue advances to customers Rest of Americas/ Figures in HK$m Hong Kong Asia-Pacific Europe Total At 31Dec04 Gross advances to customers which have been overdue with respect to either principal or interest for periods of ^ - six months or less but over three months 1,030 711 - 1,741 - one year or less but over six months 784 296 - 1,080 - over one year 1,847 1,534 - 3,381 3,661 2,541 - 6,202 Overdue advances to customers as a percentage of gross advances to customers^^ - six months or less but over three months 0.2% 0.2% - 0.2% - one year or less but over six months 0.1% 0.1% - 0.1% - over one year 0.3% 0.5% - 0.4% 0.6% 0.8% - 0.7% Overdue advances to customers (as above) 3,661 2,541 - 6,202 Less: overdue advances on which interest is still being accrued (519) (357) - (876) Add: advances overdue for periods of three months or less, or which are not yet overdue, and on which interest has been placed in suspense:- included in rescheduled advances 974 380 5 1,359- other 1,886 1,804 - 3,690 Gross non-performing advances (Note 11) 6,002 4,368 5 10,375 Rest of America/ Figures in HK$m Hong Kong Asia-Pacific Europe Total At 31Dec03 Gross advances to customers which have been overdue with respect to either principal or interest for periods of^ - six months or less but over three months 2,334 866 - 3,200 - one year or less but over six months 1,428 867 - 2,295 - over one year 3,133 2,376 - 5,509 6,895 4,109 - 11,004 Overdue advances to customers as a percentage of gross advances to customers^^ - six months or less but over three months 0.4% 0.3% - 0.4% - one year or less but over six months 0.2% 0.3% - 0.3% - over one year 0.6% 0.9% - 0.6% 1.2% 1.5% - 1.3% Overdue advances to customers (as above) 6,895 4,109 - 11,004 Less: overdue advances on which interest is still being accrued (1,593) (247) - (1,840) Add: advances overdue for periods of three months or less, or which are not yet overdue, and on which interest has been placed in suspense:- included in rescheduled advances 4,043 692 5 4,740- other 3,631 1,723 - 5,354 Gross non-performing advances (Note 11) 12,976 6,277 5 19,258 ^Gross overdue advances to customers are stated after deduction of interest insuspense. ^^Expressed as a percentage of gross advances to customers after deduction ofinterest in suspense. 13. Rescheduled advances to customers Rest of America/ Figures in HK$m Hong Kong Asia-Pacific Europe Total At 31Dec04 Rescheduled advances to customers^ 4,050 465 5 4,520 Rescheduled advances to customers as a percentage of gross advances to customers^^ 0.7% 0.1% 35.7% 0.5% At 31Dec03 Rescheduled advances to customers^ 7,520 829 5 8,354 Rescheduled advances to customers as a percentage of gross advances to customers^^ 1.3% 0.3% 41.7% 1.0% Rescheduled advances are those advances which have been restructured orrenegotiated because of a deterioration in the financial position of theborrower, or because of the inability of the borrower to meet the originalrepayment schedule. Rescheduled advances to customers are stated net of any advances which havesubsequently become overdue for over three months and which are included inoverdue advances to customers (Note 12). ^Rescheduled advances are stated after deduction of interest in suspense. ^^Expressed as a percentage of gross advances to customers after deduction ofinterest in suspense. 14. 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 America/ Figures in HK$m Hong Kong Asia-Pacific Europe Total At 31Dec04 Residential mortgages 185,047 98,080 2 283,129 Hong Kong SAR Government's Home Ownership Scheme, Private Sector Participation Scheme and Tenants Purchase Scheme mortgages 41,991 - - 41,991 Other personal 50,765 37,963 7 88,735Total personal 277,803 136,043 9 413,855 Commercial, industrial and international trade 109,895 105,452 - 215,347 Commercial real estate 80,769 27,981 5 108,755 Other property-related lending 46,324 14,066 - 60,390 Government 4,781 5,151 - 9,932 Other commercial 56,699 35,088 - 91,787Total corporate and commercial 298,468 187,738 5 486,211 Non-bank financial institutions 15,021 9,150 - 24,171 Settlement accounts 3,470 471 - 3,941Total financial 18,491 9,621 - 28,112 Gross advances to customers 594,762 333,402 14 928,178 Suspended interest (392) (477) - (869) Gross advances to customers net of suspended interest 594,370 332,925 14 927,309 Provisions for bad and doubtful debts (4,116) (3,935) (5) (8,056) Net advances to customers 590,254 328,990 9 919,253 Rest of America/ Figures in HK$m Hong Kong Asia-Pacific Europe Total At 31Dec03 Residential mortgages 183,031 79,104 - 262,135 Hong Kong SAR Government's Home Ownership Scheme, Private Sector Participation Scheme and Tenants Purchase Scheme mortgages 48,830 - - 48,830 Other personal 40,679 29,490 7 70,176Total personal 272,540 108,594 7 381,141 Commercial, industrial and international trade 85,132 79,927 - 165,059 Commercial real estate 66,362 21,899 5 88,266 Other property-related lending 39,401 11,849 - 51,250 Government 7,193 4,976 - 12,169 Other commercial 52,426 29,149 - 81,575Total corporate and commercial 250,514 147,800 5 398,319 Non-bank financial institutions 38,206 7,818 - 46,024 Settlement accounts 3,564 367 - 3,931Total financial 41,770 8,185 - 49,955 Gross advances to customers 564,824 264,579 12 829,415 Suspended interest (603) (538) - (1,141) Gross advances to customers net of suspended interest 564,221 264,041 12 828,274 Provisions for bad and doubtful debts (8,144) (5,121) (5) (13,270) Net advances to customers 556,077 258,920 7 815,004 Advances to customers increased by HK$104.2 billion, or 12.8 per cent, since theend of 2003. Advances in Hong Kong grew by HK$34.2 billion, or 6.1 per cent, since the end of2003, reflecting improved economic conditions, notwithstanding continued pricecompetition particularly in the mortgage market. In both the bank in Hong Kongand Hang Seng Bank, there was a moderate increase in non-GHOS residentialmortgage loans, although lending under the GHOS continued to decline as thescheme remained suspended during 2004. Other personal lending rose, mainly oncredit cards, reflecting the increase in cardholder spending. There wassignificant growth in commercial lending, particularly trade finance and lendingto the property and transport sectors, reflecting the success of the bank'sstrategy to appoint dedicated relationship managers in the middle market sector,and the establishment of new business banking centres to service the SME sector.Advances to financial institutions fell due to a significant reduction in stockborrowing. In the rest of the Asia-Pacific region, net advances to customers increased byHK$70.1 billion, or 27.1 per cent, since the end of 2003. There was stronggrowth in personal, commercial and corporate lending across the region. Mortgageloans increased by 24.0 per cent, principally in Singapore, Taiwan, Korea,India, mainland China and Australia. The cards business continued to expand andoutstanding credit card advances rose by 32.6 per cent, notably in Taiwan,Thailand and Australia. Lending to commercial and corporate customers rose by27.0 per cent, mainly in mainland China, Japan and Korea. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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