28th Feb 2005 08:00
HSBC Holdings PLC28 February 2005 Other assets Figures in HK$m At 31Dec04 At 31Dec03 Unrealised gains on off-balance sheet interest rate, exchange rate and other derivative contracts which are marked to market 1,507 1,664Deferred taxation 11 52Items in the course of collection from other banks 4,456 3,244Prepayments and accrued income 2,350 2,179Long-term assurance assets attributable to policy holders 8,291 4,982Other accounts 3,763 3,815 20,378 15,936 Remaining maturity:- three months or less 9,165 8,811- one year or less but over three months 1,121 770- five years or less but over one year 928 183- over five years 9,133 6,135 20,347 15,899- overdue^ -- six months or less but over three months 4 5 -- one year or less but over six months 3 8 -- over one year 24 24 31 37 20,378 15,936 ^ Represented mainly by overdue interest receivable included under 'Prepaymentsand accrued income'. Other assets increased by HK$4,442 million, or 27.9 per cent, to HK$20,378million, compared with HK$15,936 million at 31 December 2003. Long-termassurance assets attributable to policy holders increased by 66.4 per cent asthe insurance fund of Hang Seng Life Limited (HSLL) continued to grow from bothnew policies taken out, and from the renewal of existing policies. Current, savings and other deposit accounts Figures in HK$m At 31Dec04 At 31Dec03 Customer deposit accounts: - current accounts 57,290 48,568 - savings accounts 224,893 205,769 - time and other deposits 165,123 177,634 Certificates of deposit in issue 15,464 7,927 Other debt securities in issue 646 15 463,416 439,913 Customer deposit accounts Repayable on demand 304,453 281,296 With agreed maturity dates or periods of notice, by remaining maturity: - three months or less but not repayable on demand 128,752 139,123 - one year or less but over three months 7,707 7,474 - five years or less but over one year 5,741 3,720 - over five years 653 358 447,306 431,971 Certificates of deposit in issue Remaining maturity: - three months or less but not repayable on demand 252 908 - one year or less but over three months 7,698 1,132 - five years or less but over one year 6,757 5,685 - over five years 757 202 15,464 7,927 Other debt securities in issue Remaining maturity: - three months or less but not repayable on demand 646 15 646 15 463,416 439,913 Current, savings and other deposit accounts, including certificates of depositand other debt securities in issue, increased by HK$23.5 billion, or 5.3 percent, to HK$463.4 billion, compared with HK$439.9 billion at 31 December 2003.Customer deposit accounts rose by HK$15.3 billion, or 3.6 per cent. The growthwas mainly recorded in savings and current accounts while time deposits fell inthe low interest rate environment. Certificates of deposit and other debt securities in issue rose by HK$8.2billion, or 102.8 per cent, to HK$16.1 billion. The above accounts include structured deposits, certificates of deposit, andother instruments with returns linked to currency, interest rate and othermarket indices, totalling HK$10.7 billion. A growth of 97.2 per cent wasrecorded as new products were introduced to satisfy customer demand for yieldenhancement products in the low interest rate environment. Deposits from banks Figures in HK$m At 31Dec04 At 31Dec03 Repayable on demand 2,251 654With agreed maturity dates or periods of notice, by remaining maturity:- three months or less but not repayable on demand 6,380 448 - one year or less but over three months - 100 8,631 1,202 Other liabilities Figures in HK$m At 31Dec04 At 31Dec03 Short positions in securities 5,840 1,514Unrealised losses on off-balance sheet interest rate, exchange rate and other derivative contracts which are marked to market 965 1,277Current taxation 514 523Deferred taxation 1,041 643Items in the course of transmission to other banks 6,136 3,968Accruals 2,188 2,155Provisions for other liabilities and charges 397 363Long-term liabilities attributable to policy holders 8,291 4,982Other 3,241 3,722 28,613 19,147 Other liabilities increased by HK$9,466 million, or 49.4 per cent, to HK$28,613million compared with HK$19,147 million at 31 December 2003. Long-termliabilities attributable to policy holders rose by 66.4 per cent as theinsurance fund of HSLL continued to grow from both new policies taken out, andfrom the renewal of existing policies. The growth in other liabilities was alsoattributable to the increase in short positions in securities, mainly ingovernment exchange fund bills, and items in the course of transmission to otherbanks. Shareholders' funds Figures in HK$m At 31Dec04 At 31Dec03 Share capital 9,559 9,559Retained profits 21,395 19,720Premises and investment properties revaluation reserves 7,564 5,813Long-term equity investment revaluation reserve 935 1,009Capital redemption reserve 99 99Total reserves 29,993 26,641 39,552 36,200Proposed dividends 3,633 3,441Shareholders' funds 43,185 39,641 Return on average shareholders' funds 27.6% 23.4% There was no purchase, sale or redemption of the bank's listed securities by thebank or any of its subsidiaries in 2004. Shareholders' funds (excluding proposed dividends) rose by HK$3,352 million, or9.3 per cent, to HK$39,552 million at 31 December 2004. Retained profits alsoincreased by HK$1,675 million. Premises and investment properties revaluationreserves rose by HK$1,751 million, reflecting the rise in the property market. The return on average shareholders' funds was 27.6 per cent, compared with 23.4per cent in 2003, reflecting the growth in attributable profit. Capital resources management Analysis of capital base and risk-weighted assets Figures in HK$m At 31Dec04 At 31Dec03 Capital baseTier 1 capital- share capital 9,559 9,559- retained profits 20,560 19,084- capital redemption reserve 99 99- less: goodwill (302) -- total 29,916 28,742Tier 2 capital- premises and investment properties revaluation reserves 5,322 4,096- long-term equity investment revaluation reserve 625 688- general provisions 289 1,101- total 6,236 5,885Unconsolidated investments and other deductions (2,829) (1,283)Total capital base after deductions 33,323 33,344 Risk-weighted assetsOn-balance sheet 259,429 234,251Off-balance sheet 16,577 15,047Total risk-weighted assets 276,006 249,298Total risk-weighted assets adjusted for market risk 277,029 253,326 Capital adequacy ratiosAfter adjusting for market risk- tier 1^ 10.8% 11.3%- total^ 12.0% 13.2% Before adjusting for market risk- tier 1 10.8% 11.5%- total 12.1% 13.4% ^ The capital ratios take into account market risks in accordance with therelevant Hong Kong Monetary Authority guideline under the Supervisory PolicyManual. The total capital ratio fell by 1.2 percentage points to 12.0 per cent at 31December 2004, compared with 13.2 per cent at 31 December 2003. The capital baseat 31 December 2004 was maintained at HK$33.3 billion, the same level as at theprevious year-end. The rise in premises and investment properties revaluationreserves and retained profits has been offset by the deduction of the cost ofinvestment in Industrial Bank Co., Ltd (IB) and the release of generalprovisions. Risk-weighted assets adjusted for market risk grew by 9.4 per cent,mainly attributable to the increase in advances to customers and debt securitiesholdings. The deduction of goodwill from tier 1 capital base on acquisition of the IBinvestment, and the growth in risk-weighted assets, caused the tier 1 capitalratio to fall by 50 basis points to 10.8 per cent. Liquidity ratio The average liquidity ratio for the year, calculated in accordance with theFourth Schedule of the Hong Kong Banking Ordinance, is as follows: 2004 2003 The bank and its major banking subsidiaries 47.2% 46.2% Reconciliation of cash flow statement (a) Reconciliation of operating profit to net cash flow from operatingactivities Figures in HK$m 2004 2003 Operating profit 12,644 10,683Net interest income (9,690) (10,179)Dividend income (96) (92)Provisions for bad and doubtful debts (814) 792Depreciation 317 329Amortisation of long-term investments 426 203Advances written off net of recoveries (652) (1,172)Interest received 9,054 10,240Interest paid (2,646) (2,747)Operating profit before changes in working capital 8,543 8,057Change in cash and short-term funds (1,757) 99Change in placings with banks maturing after one month 1,798 12,890Change in certificates of deposit (2,225) 1,392Change in securities held for dealing purposes (634) (34)Change in advances to customers (20,941) (4,524)Change in amounts due from immediate holding company and fellow subsidiary companies 1,373 341Change in other assets (4,358) (3,491)Change in customer deposit accounts 15,335 34,280Change in debt securities in issue 8,168 (8,060)Change in deposits from banks 7,429 130Change in amounts due to immediate holding company and fellow subsidiary companies 1,516 797Change in other liabilities 8,944 4,199Elimination of exchange differences and other non-cash items (4,634) (11,984)Cash generated from operating activities 18,557 34,092Taxation paid (925) (526)Net cash inflow from operating activities 17,632 33,566 (b) Analysis of the balances of cash and cash equivalents Figures in HK$m At 31Dec04 At 31Dec03 Cash in hand and balances with banks and other financial institutions 7,248 5,823Money at call and placings with banks maturing within one month 57,071 71,658Treasury bills 47 91Certificates of deposit 2,685 3 67,051 77,575 Contingent liabilities, commitments and derivatives Credit Risk- Contract equivalent weighted Figures in HK$m amount amount amount At 31Dec04 Contingent liabilities:Guarantees 10,722 10,447 3,501 Commitments:Documentary credits and short-term trade-related transactions 9,020 1,844 1,805Undrawn formal standby facilities, credit lines and other commitments to lend:- under one year 86,714 - -- one year and over 23,677 11,839 10,460Other 38 38 38 119,449 13,721 12,303 Exchange rate contracts:Spot and forward foreign exchange 138,269 1,066 298Other exchange rate contracts 23,158 323 106 161,427 1,389 404 Interest rate contracts:Interest rate swaps 120,603 1,421 347Other interest rate contracts 5,067 15 6 125,670 1,436 353 Other derivative contracts 1,373 46 23 Credit Risk- Contract equivalent weightedFigures in HK$m amount amount amount At 31Dec03 Contingent liabilities:Guarantees 12,401 12,143 3,622 Commitments:Documentary credits and short-term trade-related transactions 8,098 1,620 1,613Undrawn formal standby facilities, credit lines and other commitments to lend:- under one year 69,099 - -- one year and over 19,623 9,811 8,949Other 160 160 62 96,980 11,591 10,624 Exchange rate contracts:Spot and forward foreign exchange 76,408 1,080 322Other exchange rate contracts 33,160 401 141 109,568 1,481 463 Interest rate contracts:Interest rate swaps 91,629 1,300 315Other interest rate contracts 17,578 45 21 109,207 1,345 336 Other derivative contracts 297 9 2 The tables above give the nominal contract, credit equivalent and risk-weightedamounts of off-balance sheet transactions. The credit equivalent amounts arecalculated for the purposes of deriving the risk-weighted amounts. These areassessed in accordance with the Third Schedule of the Hong Kong BankingOrdinance on capital adequacy and depend on the status of the counterparty andthe maturity characteristics. The risk weights used range from 0 per cent to 100per cent for contingent liabilities and commitments, and from 0 per cent to 50per cent for exchange rate, interest rate and other derivative contracts. Contingent liabilities and commitments are credit-related instruments whichinclude acceptances, letters of credit, guarantees and commitments to extendcredit. The risk involved is essentially the same as the credit risk involved inextending loan facilities to customers. These transactions are, therefore,subject to the same credit origination, portfolio maintenance and collateralrequirements as for customers applying for loans. As the facilities may expirewithout being drawn upon, the total of the contract amounts is not representativeof future liquidity requirements. Off-balance sheet financial instruments arise from futures, forward, swap andoption transactions undertaken in the foreign exchange, interest rate and equitymarkets. The contract amounts of these instruments indicate the volume of transactionsoutstanding at the balance sheet date and do not represent amounts at risk. Thecredit equivalent amount of these instruments is measured as the sum of positivemark-to-market values and the potential future credit exposure in accordancewith the Third Schedule of the Hong Kong Banking Ordinance. Figures in HK$m At 31Dec04 At 31Dec03 Replacement costExchange rate contracts 834 876Interest rate contracts 939 997Other derivative contracts 5 - 1,778 1,873 The replacement cost of contracts represents the mark-to-market assets on allcontracts (including non-trading contracts) with a positive value and which havenot been subject to any bilateral netting arrangement. Cross border claims Cross border claims include receivables and loans and advances, balances duefrom banks and holdings of certificates of deposit, bills, promissory notes,commercial paper and other negotiable debt instruments and also include accruedinterest and overdue interest on these assets. Claims are classified accordingto the location of the counterparties after taking into account the transfer ofrisk. For a claim guaranteed by a party situated in a country different from thecounterparty, the risk will be transferred to the country of the guarantor. Fora claim on the branch of a bank or other financial institution, the risk will betransferred to the country where its head office is situated. Claims onindividual countries or areas, after risk transfer, amounting to 10 per cent ormore of the aggregate cross border claims are shown as follows: Banks & other Sovereign & financial public sectorFigures in HK$m institutions entities Other Total At 31Dec04 Asia-Pacific excluding Hong Kong:- Australia 21,429 62 1,223 22,714- other 26,222 1,530 5,432 33,184 47,651 1,592 6,655 55,898The Americas:- Canada 19,748 4,957 1,556 26,261- other 11,320 2,744 10,252 24,316 31,068 7,701 11,808 50,577Western Europe:- Germany 17,037 - 816 17,853- United Kingdom 23,794 16 5,945 29,755- other 59,889 2,063 4,895 66,847 100,720 2,079 11,656 114,455 At 31Dec03 Asia-Pacific excluding Hong Kong:- Australia 19,251 170 1,362 20,783- other 23,543 1,377 3,749 28,669 42,794 1,547 5,111 49,452The Americas:- Canada 17,982 10,527 686 29,195- other 8,051 7,215 9,441 24,707 26,033 17,742 10,127 53,902Western Europe:- Germany 20,417 863 371 21,651- United Kingdom 20,378 16 4,091 24,485- other 54,061 1,601 4,144 59,806 94,856 2,480 8,606 105,942 Additional information 1. Statutory accounts and accounting policies The information in this news release does not constitute statutory accounts. Certain financial information in this news release is extracted from thestatutory accounts for the year ended 31 December 2004 (2004 accounts), whichwill be delivered to the Registrar of Companies and the Hong Kong MonetaryAuthority. The statutory accounts comply with the module on 'FinancialDisclosure by Locally Incorporated Authorised Institutions' under theSupervisory Policy Manual issued by Hong Kong Monetary Authority in November2002. The auditors expressed an unqualified opinion on those statutory accountsin their report dated 28 February 2005. The 2004 accounts and this news release have been prepared on a basis consistentwith the accounting policies adopted in the 2003 accounts as no new accountingpolicies were adopted in 2004. For the accounting periods beginning on or after 1 January 2005, a number of newand revised Hong Kong Financial Reporting Standards (new HKFRSs) are effective.Hang Seng is in the process of assessing the impact of these new HKFRSs andconsiders that the adoption of the following HKFRSs will have significantfinancial or presentational effects on Hang Seng's financial statements: HKAS 12: Income taxes - HKAS Interpretation 21HKAS 17: LeasesHKAS 19: Employee benefits (International Accounting Standard 19)HKAS 39: Financial instruments: Recognition and MeasurementHKAS 40: Investment property A summary of the requirement of each of the HKFRSs as compared with the currentaccounting policy and the effect on adoption and transitional and restatementtreatment is set out in note 4 to the 2004 accounts, which will be availablefrom Hang Seng's website http://www.hangseng.com on Monday, 28 February 2005. 2. Property revaluation Hang Seng's premises and investment properties were revalued by DTZ Debenham TieLeung Limited, an independent professional valuer, at 30 September 2004, whoconfirmed that there had been no material change in valuations at 31 December2004. The valuations were carried out by qualified persons who are members ofthe Hong Kong Institute of Surveyors. The basis of the valuation of premises wasopen market value for existing use. The basis of the valuation for investmentproperties was open market value. The property revaluation has resulted in asurplus of HK$2,224 million, of which HK$1,821 million (net of deferred taxamounting to HK$255 million) has been credited to the bank's revaluationreserves at 31 December 2004. The remaining amount of HK$148 million has beencredited to the profit and loss account, being reversal of the previousrevaluation deficit which had arisen when the market value of certain premisesfell below depreciated historical cost. 3. Market risk Market risk is the risk that foreign exchange rates, interest rates or equityand commodity prices will move and result in profits or losses to Hang Seng.Market risk arises on financial instruments which are valued at current marketprices (mark-to-market basis) and those valued at cost plus any accrued interest(accrual basis). Hang Seng's market risk arises from customer-related businessand from position taking. Market risk is managed within risk limits approved by the Board of Directors.Risk limits are set by product and risk type with market liquidity being aprincipal factor in determining the level of limits set. Limits are set using acombination of risk measurement techniques, including position limits,sensitivity limits, as well as value-at-risk (VAR) limits at a portfolio level. Hang Seng adopts the risk management policies and risk measurement techniquesdeveloped by the HSBC Group. The daily risk monitoring process measures actualrisk exposures against approved limits and triggers specific action to ensurethe overall market risk is managed within an acceptable level. VAR is a technique which estimates the potential losses that could occur on riskpositions taken due to movements in market rates and prices over a specifiedtime horizon and to a given level of confidence. The model used by Hang Sengcalculates VAR on a variance/covariance basis, using historical movements inmarket rates and prices, a 99 per cent confidence level and a 10-day holdingperiod and generally takes account of correlations between different markets andrates. The movement in market prices is calculated by reference to market datafor the last two years. Aggregation of VAR from different risk types is basedupon the assumption of independence between risk types. In recognition of theinherent limitations of VAR methodology, stress testing is performed to assessthe impact of extreme events on market risk exposures. Hang Seng has obtained approval from the Hong Kong Monetary Authority (HKMA) forthe use of its VAR model to calculate market risk for capital adequacy reportingand the HKMA has expressed itself satisfied with Hang Seng's market riskmanagement process. Hang Seng's VAR for all interest rate risk and foreign exchange risk positionsand on individual risk portfolios during 2004 and 2003 are shown in the tablesbelow. VAR Minimum Maximum Average during during for theFigures in HK$m At 31Dec04 the year the year year VAR for all interest rate risk and foreign exchange risk 394 249 605 372VAR for foreign exchange risk (trading) 3 1 58 33VAR for interest rate risk:- trading 4 1 16 4- accrual 394 244 603 371 Minimum Maximum Average during during for theFigures in HK$m At 31Dec03 the year the year the year VAR for all interest rate risk and foreign exchange risk 271 186 473 321VAR for foreign exchange risk (trading) 57 2 156 32 VAR for interest rate risk:- trading 1 1 11 4- accrual 264 186 472 315 The average daily revenue earned from market risk-related treasury activities in2004, including accrual book net interest income and funding related to dealingpositions, was HK$10 million (HK$8 million for 2003). The standard deviation ofthese daily revenues was HK$5 million (HK$7 million for 2003). An analysis ofthe frequency distribution of daily revenues shows that out of 249 trading daysin 2004, losses were recorded on only two days and the maximum daily loss wasHK$6 million. The most frequent result was a daily revenue of between HK$6million and HK$10 million, with 143 occurrences. The highest daily revenue wasHK$38 million. Hang Seng's foreign exchange exposures mainly comprise foreign exchange dealingby Treasury and currency exposures originated by its banking business. Thelatter are transferred to Treasury where they are centrally managed withinforeign exchange position limits approved by the Board of Directors. The averageone-day foreign exchange profit for 2004 was HK$4 million (HK$2 million for2003). Structural foreign exchange positions arising from capital investment insubsidiaries and branches outside Hong Kong, mainly in US dollar and renminbi asset out in Note 4 on page 54, are managed by the Asset and Liability ManagementCommittee. Interest rate risk arises in both the treasury dealing portfolio and accrualsbooks, which are managed by Treasury under limits approved by the Board ofDirectors. The average daily revenue earned from treasury-related interest rateactivities for 2004 was HK$6 million (HK$6 million for 2003). 4. Foreign currency positions Foreign currency exposures include those arising from dealing, non-dealing andstructural positions. At 31 December 2004, the US dollar (US$) and renminbi(RMB) were the currencies in which Hang Seng had a non-structural foreigncurrency position which exceeded 10 per cent of the total net position in allforeign currencies. Figures in HK$m At 31Dec 04 At 31Dec 03 US$ RMB US$ RMBNon-structural position Spot assets 173,071 2,664 162,330 769Spot liabilities (171,698) (2,400) (151,706) (640)Forward purchases 68,726 207 40,537 643Forward sales (69,795) (192) (35,587) (643)Net options positions (37) - - -Net long non-structural position 267 279 15,574 129 At 31 December 2004, Hang Seng's major structural foreign currency positionswere US dollar and renminbi. At 31Dec 04 At 31Dec 03 % of % of total net total net structural structural HK$m position HK$m positionStructural positionUS dollar 850 28.8 841 68.5Renminbi 1,998 67.6 282 23.0 5. Material related-party transactions (a) Immediate holding company and fellow subsidiary companies In 2004, Hang Seng entered into transactions with its immediate holding companyand fellow subsidiary companies in the ordinary course of its interbankactivities including the acceptance and placement of interbank deposits,correspondent banking transactions and off-balance sheet transactions. Theactivities were priced at the relevant market rates at the time of thetransactions. Hang Seng participated, in its ordinary course of business, incertain structured finance deals arranged by its immediate holding company. Hang Seng used the IT of, and shared an automated teller machine network with,its immediate holding company and used certain processing services of a fellowsubsidiary on a cost recovery basis. Hang Seng also maintained a staffretirement benefit scheme for which a fellow subsidiary company acts as insurerand administrator and the bank acted as agent for the marketing of MandatoryProvident Fund products and the distribution of retail investment funds for twofellow subsidiary companies. The premiums, commissions and other fees on thesetransactions are determined on an 'arm's length' basis. The aggregate amount of income and expenses arising from these transactionsduring the year, the balances of amounts due to and from the relevant relatedparties, and the total contract sum of off-balance sheet transactions at theyear-end are as follows: Income and expenses for the year Year endedFigures in HK$m 31Dec04 31Dec03 Interest income 84 195Interest expense 91 17Other operating income 126 244Operating expenses 657 618 Balances at year-endFigures in HK$m At 31Dec04 At 31Dec03 Total amount due from 4,598 13,715Total amount due to 3,928 2,412Total contract sum of off-balance sheet transactions 34,622 35,121 (b) Associated companies Hang Seng maintained an interest-free shareholders' loan to an associatedcompany. The balance at 31 December 2004 was HK$233 million (HK$229 million at31 December 2003). (c) Ultimate holding company In 2004, no transaction was conducted with the bank's ultimate holding company(same as 2003). (d) Key management personnel In 2004, no material transaction was conducted with key management personnel ofHang Seng and its holding companies and parties related to them (same as 2003). 6. Ultimate holding company Hang Seng Bank is an indirectly-held, 62.14 per cent-owned subsidiary of HSBCHoldings plc. 7. Register of shareholders The Register of Shareholders of Hang Seng Bank will be closed on Wednesday, 16March 2005, during which no transfer of shares can be registered. In order toqualify for the fourth interim dividend, all transfers, accompanied by therelevant share certificates, must be lodged with the bank's Registrars,Computershare Hong Kong Investor Services Limited, Shops 1712-1716, 17th Floor,Hopewell Centre, 183 Queen's Road East, Wanchai, Hong Kong, for registration notlater than 4:00 pm on Tuesday, 15 March 2005. The fourth interim dividend willbe payable on Thursday, 24 March 2005 to shareholders on the Register ofShareholders of the bank on Wednesday, 16 March 2005. 8. Proposed timetable for 2005 quarterly dividends First interim Second interim Third interim Fourth interim dividend dividend dividend dividend Announcement 03May05 01Aug05 07Nov05 06Mar06Book close date 30May05 24Aug05 21Dec05 21Mar06Payment date 07June05 01Sept05 04Jan06 31Mar06 9. News release Copies of this news release may be obtained from the Legal and CompanySecretarial Services Department, Level 10, 83 Des Voeux Road Central, Hong Kong;or from Hang Seng's website http://www.hangseng.com. The 2004 Annual Report and Accounts will be available from the same website onMonday, 28 February 2005 and will also be published on the website of The StockExchange of Hong Kong Limited in due course. Printed copies of the 2004 AnnualReport will be sent to shareholders in late March 2005. Media enquiries to: Richard Beck Telephone: +44 (0)20 7991 0633Karen Ng Telephone: +44 (0)20 7991 0655 This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
HSBC Holdings