3rd Mar 2008 08:19
HSBC Holdings PLC03 March 2008 HANG SENG BANK LIMITED 2007 RESULTS - HIGHLIGHTS • Operating profit up 41.5 per cent to HK$17,789 million (HK$12,576 million in 2006). • Operating profit excluding loan impairment charges and other credit risk provisions up 43.0 per cent to HK$18,365 million (HK$12,840 million in 2006). • Profit before tax up 49.2 per cent to HK$21,471 million (HK$14,395 million in 2006). • Attributable profit up 51.5 per cent to HK$18,242 million (HK$12,038 million in 2006). • Return on average shareholders' funds of 35.4 per cent (27.4 per cent in 2006). • Assets up 11.5 per cent to HK$746.0 billion (HK$669.1 billion at 31 December 2006). • Earnings per share up 51.4 per cent to HK$9.54 per share (HK$6.30 per share in 2006). • Fourth interim dividend of HK$3.00 per share; total dividends of HK$6.30 per share for 2007 (HK$5.20 per share in 2006). • Capital adequacy ratio^ of 11.2 per cent (13.6 per cent at 31 December 2006); core capital ratio^ of 8.4 per cent (10.7 per cent at 31 December 2006). • Cost efficiency ratio of 26.6 per cent (29.0 per cent in 2006). ^The capital adequacy and core capital ratios at 31 December 2007 werecalculated in accordance with Basel II which became effective on 1 January 2007,while those at 31 December 2006 were calculated in accordance with Basel I. Within this document, the Hong Kong Special Administrative Region of thePeople's Republic of China has been referred to as 'Hong Kong'. Comment by Raymond Ch'ien, Chairman Hang Seng produced excellent results in 2007, achieving attributable profit ofHK$18,242 million, an increase of 51.5 per cent, or HK$6,204 million. Earningsper share grew 51.4 per cent to HK$9.54. Operating profit per full-time employeerose to HK$1.94 million, up from HK$1.49 million in 2006. This growth reflects an impressive performance by our wealth managementbusiness, successful income diversification efforts by Treasury in an improvedoperating environment, further development of Commercial Banking and increasedcontribution from our mainland associate, Industrial Bank Co., Ltd. Net operating income before loan impairment charges and other credit riskprovisions rose by 38.3 per cent to HK$25,015 million. This increaseconsiderably outpaced the 26.9 per cent rise in operating expenses, contributingto our improved cost efficiency ratio of 26.6 per cent - a reduction of 2.4percentage points compared with 2006. Operating profit excluding loan impairment charges increased by 43.0 per cent toHK$18,365 million. Operating profit was up HK$5,213 million at HK$17,789million. Profit before tax increased by 49.2 per cent to HK$21,471 million, in partreflecting the unrealised gain of HK$1,465 million on the dilution of ourinvestment in Industrial Bank Co., Ltd following its listing in February 2007. Return on average shareholders' funds was 35.4 per cent, up from 27.4 per centin 2006. Excluding the gain on dilution, return on average shareholders' fundswas 32.6 per cent. On 31 December 2007, our capital adequacy ratio and core capital ratio were 11.2per cent and 8.4 per cent respectively, as calculated in accordance with newrules for the implementation of Basel II. After careful consideration of capital requirements for investment in futurebusiness growth, particularly on the Mainland, the Directors have declared afourth interim dividend of HK$3.00 per share, payable on 28 March 2008. Thisbrings the total distribution for 2007 to HK$6.30 per share, up HK$1.10 comparedwith 2006. We remain committed to a policy of paying a steady but risingdividend that is in the best interests of all shareholders. Outlook Hong Kong should maintain good growth momentum in 2008, underpinned by buoyantprivate consumption and solid business spending in the domestic sector andsustained economic strength on the Mainland. Challenges include the risk of a further slowdown in the US economy, which willcontinue to cloud the outlook for the export performance. Within Hong Kong,strong domestic demand looks set to continue, supported by the tight labourmarket and positive consumer sentiment. Along with low interest rates and thegrowing strength of the renminbi against the US dollar, this points to risinginflation risk. Overall, we are cautiously optimistic for the year ahead. Economic fundamentalsin Hong Kong and on the Mainland remain sound and domestic demand is now a majorimpetus for growth. We will continue to develop our key growth drivers, particularly wealthmanagement services, Commercial Banking and mainland business. Using our strongbrand, leading market position and solid financial fundamentals as aspringboard, we will pursue new opportunities to expand our business in HongKong and on the Mainland. It was my honour to be appointed Chairman of Hang Seng in August 2007. I wish toexpress sincere appreciation to my fellow Directors and Bank senior managementfor their valuable support. On behalf of the Board, I would like to thank staff at all levels for their hardwork and commitment to exceeding expectations. I have always admired the cultureof professionalism and loyalty that exists at Hang Seng, the strength of whichis reflected in this year's outstanding results. I must also convey the Board's deep gratitude to customers and shareholders fortheir continued support, which provides inspiration and encouragement as westrive to achieve new heights of success. Today, as we mark our 75th anniversary, our aim remains to achieve sustainablegrowth for our shareholders and other key stakeholders. Review by Raymond Or, Vice-Chairman and Chief Executive Hang Seng's strong results for 2007 reflect good progress with our roadmap forgrowth, supported by favourable economic conditions. We enhanced our top-tier wealth management platform, recording significantsuccess with our Private Banking, investment and insurance businesses. Inmainland China, we established a wholly owned subsidiary bank and expanded thescope and reach of our services. Commercial Banking made pleasing progress withgrowth initiatives including the further development of corporate wealthmanagement business and offering 'joined-up' services to customers withoperations in Hong Kong and on the Mainland. Treasury benefited from an improvedoperating environment and additional efforts to diversify income. Customer Groups Personal Financial Services achieved a 54.8 per cent increase in operatingprofit excluding loan impairment charges to HK$12,139 million. Profit before taxwas up 54.2 per cent at HK$11,918 million. Our wealth management business achieved impressive growth, with income risingHK$4,330 million, or 100.4 per cent, to HK$8,643 million. We capitalised onpositive investor sentiment, rolling out effective marketing campaigns andconvenient new trading channels to achieve strong increases insecurities-related income and customer base. We launched several innovativeinvestment funds, including Hong Kong's first Securities and FuturesCommission-authorised Islamic fund, and enjoyed independent recognition of ourfund management performance. Investment fund income increased to a recordHK$1,676 million. We expanded our structured product offerings, enjoyingparticularly strong sales of equity-linked instruments. Private Banking built on its good growth momentum by further enhancing itsrelationship management team and range of services. In 2006 we set a target todouble Private Banking's 2005 profit before tax in five years. We have achievedthis in just two years, with profit before tax up 122.7 per cent at HK$1,239million. Hang Seng Life was Hong Kong's number one provider in terms of annualised newpremiums for regular-pay (non-linked) insurance in the first three quarters ofthe year. In September 2007, we completed the acquisition of the outstanding 50per cent of Hang Seng Life from the HSBC Group. This move has created a moreeffective vehicle for continued insurance business growth. Strong consumer demand saw personal loans and card receivables enjoy goodgrowth. Despite intense competition in the residential mortgage sector, theenhancement of our e-mortgage services helped us to maintain our position as a market leader. Commercial Banking's operating profit excluding loan impairment charges grew by10.4 per cent to HK$2,210 million. Profit before tax increased by 19.4 per centto HK$2,701 million. Net interest income rose by 16.1 per cent. Growth in trade finance and factoringhelped drive a 22.1 per cent increase in average customer advances, whileefforts to further strengthen customer relationships saw average customerdeposits rise by 20.9 per cent. Initiatives to grow non-interest income achievedpleasing results, with increases in corporate wealth management income and cardmerchant-acquiring business. Our Octopus merchant services proved a valuabletool in attracting new customers. Hong Kong and Mainland Commercial Bankingteams stepped up cooperative efforts with the aim of providing 'one-stop'banking services. The improving interest rate environment, closer collaboration with othercustomer groups and increased use of e-channels, as well as success withexpanding non-interest income from proprietary trading and customer-drivenbusiness, supported a 72.9 per cent increase in Treasury's operating profitexcluding loan impairment charges to HK$1,534 million. Profit before tax, takinginto account the increase in share of profits from associates, rose by 74.0 percent. With no exposure to mortgage-backed securities, collaterised debtobligations or structured investment vehicles, Treasury was not directlyaffected by the sub-prime crisis. Corporate Banking recorded growth of 10.1 per cent in operating profit excludingloan impairment charges to HK$598 million. Increases in average customerdeposits and average customer advances saw net interest income rise by 15.4 percent. With strong liquidity continuing to put downward pressure on loan margins,Corporate Banking took effective steps to diversify its income, resulting ingrowth in trade services and credit facilities fees. Profit before tax fell by14.7 per cent to HK$475 million, affected by increased loan impairment chargesrelated to a single large customer. Mainland Business We reached several important milestones in the development of our mainlandbusiness. Our subsidiary bank, Hang Seng Bank (China) Limited ('HACN'),commenced operations in May, providing significant new opportunities for growth.Since the beginning of 2007, HACN has opened two branches and sevensub-branches, taking our mainland network to 25 outlets across 10 cities. InAugust, we obtained approval to provide full renminbi services to localresidents, broadening our service scope. To support our expansion and strengthenour sales and marketing capabilities, we increased our number of full-time staffon the Mainland by 436 during 2007 to 1,097. These moves underpinned good growthin lending and deposits, with total operating income rising by 69.4 per cent. Including our share of profit from Industrial Bank, mainland businesscontributed 6.5 per cent to our profit before tax, compared with 6.1 per cent in2006. On 31 January 2008, we signed an agreement to subscribe for 20 per cent of theenlarged share capital of Yantai City Commercial Bank (YTCCB) - one of thelargest city commercial bank in Shandong Province - for a total consideration of RMB800 million. Upon completion of the acquisition, which is subject to relevant regulatory andYTCCB shareholder approvals, we will become YTCCB's largest shareholder. Thisstrategic investment in the rapidly developing Bohai Economic Rim regionsupports our two-pronged strategy for growth and will complement our existingfoothold on the Mainland. Following the acquisition, Hang Seng's total mainland investment will increaseto about RMB7.3 billion, including the capital injected into HACN. Building On Our Achievements Hang Seng's 2007 results are a testament to the strength of the strategy forgrowth we set out in March 2006 and the dedicated efforts of our staff toachieve its challenging goals. We will further leverage our leading market position, brand strength andcomprehensive wealth management portfolio to attract new customers and deepenrelationships with existing ones. With a strong focus on small and medium-sized enterprise customers, we willenhance our reputation for 'one-stop' commercial banking through closercollaboration between relationship management teams in Hong Kong and on theMainland and the further development of corporate wealth management, tradefinance and business loan services. We will strengthen the competitiveness of our Treasury business by exploringemerging opportunities on the Mainland and streamlining our service delivery,particularly through greater use of online channels. We will work to broaden and diversify Corporate Banking's customer base,focusing on higher-margin business. We will also continue to develop our Mainland business using our two-prongedstrategy for growth. Through Hang Seng China we will continue to pursue newbusiness opportunities and expand our customer base. We will open new outlets incities with high-growth potential, expand our renminbi service offerings andstrengthen our brand-building initiatives. An enduring element of Hang Seng's success has been our willingness tocontinually set higher objectives. Despite the challenging external environment, we remain firmly focused on generating long-term business growth. Results summary Hang Seng Bank Limited ('the bank') and its subsidiaries and associates ('thegroup') reported an audited profit attributable to shareholders of HK$18,242million for 2007, a rise of 51.5 per cent over 2006. The record results alsoboosted earnings per share to HK$9.54, up HK$3.24 from 2006. Attributable profitto shareholders for the second half of 2007 increased by HK$508 million, or 5.7per cent, when compared with the first half. - Operating profit excluding loan impairment charges and other credit riskprovisions rose by HK$5,525 million, or 43.0 per cent, to HK$18,365 million.This was underpinned by strong asset and deposit growth, net interest marginexpansion and record-breaking growth of the wealth management business on theback of a sharp rise in equity market activity, which contributed to the 25.9per cent increase in net interest income and 61.2 per cent in non-interestincome as highlighted below. - Net interest income increased by HK$3,025 million, or 25.9 per cent, with anincrease of 14.3 per cent in average interest-earning assets. The rise in netinterest income was supported by the 10.4 per cent growth in average customeradvances and the 10.4 per cent rise in average customer deposits. Net interestmargin improved by 21 basis points to 2.23 per cent, benefiting from improveddeposit spreads, better yields on Treasury balance sheet management portfoliosand contribution from net free funds. - Net fees and commissions rose by HK$3,389 million, or 96.9 per cent, driven bystrong business growth and favourable investment market sentiment. Fees incomefrom stockbroking and related services rose by 146.6 per cent with the buoyantstock market driving increased transaction activity and a 19.7 per cent growthin customer base. Remarkable growth was also recorded in income from sales ofretail investment funds (110.6 per cent), sales of third-party structuredinvestment products (603.2 per cent) and private banking investment services(202.1 per cent). Card services income increased by 21.9 per cent, supported bya rise of 8.9 per cent in the number of cards issued as well as a 21.1 per centincrease in cardholder spending. - Trading income improved by 26.2 per cent to HK$1,679 million. Foreign exchangeincome declined by 26.9 per cent, affected by the exchange loss on forwardcontracts used in 'funding swap' activities in the balance sheet managementportfolios and on the revaluation of certain US dollar capital funds against therenminbi. These US dollar funds are maintained in our mainland subsidiary bankand are subject to regulatory controls on their conversion into renminbi.Excluding these unfavourable factors, foreign exchange income actually rose by16.5 per cent, attributable to the balanced growth achieved by expandingproprietary trading and customer-driven business. Securities, derivatives andother trading rose by HK$666 million, benefiting from the improvement in tradingresults and the growth in sales volume driven by strong customer demand forequity-linked investment products. - Income from insurance business, including net earned insurance premiums, netinterest income, net fee income and net income from financial instrumentsdesignated at fair value, the change in present value of in-force business, andafter deducting net insurance claims incurred and movement in policyholders'liabilities, increased by 33.9 per cent to HK$2,403 million. Life insuranceincome rose by 39.2 per cent to HK$2,055 million, reflecting strong growth innew annualised premiums and investment returns on insurance funds. - Net operating income before loan impairment charges and other credit riskprovisions increased by HK$6,934 million, or 38.3 per cent, to HK$25,015 millionwith encouraging growth in all core banking income lines. - Operating expenses rose by HK$1,409 million, or 26.9 per cent, to HK$6,650million. Headcount increased by 8.6 per cent as sales and support functions werestrengthened to support business growth in Hong Kong and on the Mainland. Thebank's mainland operations accounted for HK$309 million, or 21.9 per cent, ofthe increase in operating expenses, reflecting the establishment of the bank'swholly-owned subsidiary bank HACN, the expansion of mainland network from 15 to25 outlets and the rise in net headcount from 661 to 1,097 during 2007.Excluding performance-related pay and mainland operations, operating expensesincreased by HK$416 million, or 9.0 per cent, due mainly to the addition of 285staff in Hong Kong and rises in marketing and rental expenses. - Operating profit was up HK$5,213 million, or 41.5 per cent, at HK$17,789million, after accounting for the moderate increase of HK$312 million in loanimpairment charges and other credit risk provisions under the continued benigncredit environment. - Profit before tax was up 49.2 per cent at HK$21,471 million after taking thefollowing items into account: • a gain on dilution of investment in an associate of HK$1,465 million related to the listing of Industrial Bank; • an increase of 18.1 per cent in net surplus on property revaluation; • a rise of 71.3 per cent in share of profits from associates, mainly contributed by Industrial Bank; and • a fall of 15.1 per cent in profit on disposal of fixed assets and financial investments, mainly from the disposal of properties. Balance sheet and key ratios Total assets increased by HK$76.9 billion, or 11.5 per cent, to HK$746.0billion. Customer advances rose by 10.4 per cent. In line with the bank'sstrategy to diversify its loan portfolio, encouraging growth was recorded inmainland lending, commercial lending, mortgages, trade finance, cards andpersonal loans. The 9.3 per cent increase in customer deposits funded the growthin interbank placing and money market instruments. At 31 December 2007, theadvances-to-deposits ratio was 52.2 per cent, compared with 51.7 per cent at theend of 2006. Shareholders' funds (excluding proposed dividends) grew by HK$7,372 million, or17.0 per cent, to reach HK$50,720 million as at 31 December 2007. Retainedprofits rose by HK$3,829 million, reflecting the growth in attributable profitand the HK$1,465 million gain on the dilution of the bank's investment in anassociate. The available-for-sale investments reserve also rose. The return on average total assets was 2.6 per cent, compared with 1.9 per centfor 2006. The return on average shareholders' funds was 35.4 per cent (27.4 percent in 2006). On 31 December 2007, the capital adequacy ratio was 11.2 per cent and the corecapital ratio was 8.4 per cent, as calculated in accordance with the Banking(Capital) Rules issued by the Hong Kong Monetary Authority ('HKMA') for theimplementation of the Basel II . The capital adequacy ratio and core capitalratio on 31 December 2006 under the Basel I capital regime were 13.6 per centand 10.7 per cent respectively. The bank maintained a strong liquidity position. The average liquidity ratio for2007 was 52.9 per cent (calculated in accordance with the Fourth Schedule of theHong Kong Banking Ordinance), compared with an average liquidity ratio of 51.9per cent for 2006. The cost efficiency ratio for 2007 was 26.6 per cent, compared with 29.0 percent for 2006. Dividends The Directors have declared a fourth interim dividend of HK$3.00 per share,which will be payable on 28 March 2008 to shareholders on the register ofshareholders as of 18 March 2008. Together with the interim dividends for thefirst three quarters, the total distribution for 2007 will amount to HK$6.30 pershare, an increase of HK$1.10 per share over 2006. Customer group performance Personal Inter- Financial Commercial Corporate segmentFigures in HK$m Services Banking Banking Treasury Other elimination Total Year ended 31Dec07 Net interest income 8,701 2,364 719 1,312 1,623 _ 14,719Net fee income/(expense) 5,726 1,005 109 (25) 71 _ 6,886Trading income/(loss) 1,086 173 9 468 (57) _ 1,679Net income/ (expense) from financial unstruments designated at fair value 1,901 2 _ 4 _ _ 1,907Dividend income 14 1 _ _ 37 _ 52Net earned insurance premiums 9,519 181 2 _ _ _ 9,702Other operating income/(expense) 543 47 _ (3) 160 _ 747Inter-segment income _ _ _ _ 373 (373) _Total operating income 27,490 3,773 839 1,756 2,207 (373) 35,692Net insurance claims incurred and movement in policyholders' liabilities (10,584) (92) (1) _ _ _ (10,677)Net operating income before loan impairment charges and other credit risk provisions 16,906 3,681 838 1,756 2,207 (373) 25,015Loan impairment charges and other credit risk provisions (277) (165) (134) _ _ _ (576)Net operating income 16,629 3,516 704 1,756 2,207 (373) 24,439Total operating expenses^ (4,442) (1,437) (234) (214) (323) _ (6,650)Inter-segment expenses (325) (34) (6) (8) _ 373 _Operating profit 11,862 2,045 464 1,534 1,884 _ 17,789Gain on dilution of investment in associate _ _ _ _ 1,465 _ 1,465Profit on disposal of fixed assets and financial investments 4 1 11 _ 700 _ 716Net surplus on property revaluation _ _ _ _ 379 _ 379Share of profits from associates 52 655 _ 295 120 _ 1,122Profit before tax 11,918 2,701 475 1,829 4,548 _ 21,471Share of profit before tax 55.5% 12.6% 2.2% 8.5% 21.2% _ 100.0% Operating profit excluding inter-segment transactions 12,187 2,079 470 1,542 1,511 _ 17,789 Operating profit excluding loan impairment charges and other credit risk provisions 12,139 2,210 598 1,534 1,884 _ 18,365 ^Depreciation/amortisation included in operating expenses (118) (21) (5) (3) (234) _ (381) At 31Dec07 Total assets 190,696 80,479 79,419 358,306 37,099 _ 745,999Total liabilities 459,756 100,857 53,373 42,486 33,071 _ 689,543Investments in associates 201 2,520 _ 1,138 2,318 _ 6,177Capital expenditure incurred during the year 226 76 21 3 215 _ 541 Personal Inter- Financial Commercial Corporate segmentFigures in HK$m Services Banking Banking Treasury Other elimination Total Year ended 31Dec06Net interest income 7,428 2,036 623 481 1,126 _ 11,694Net fee income/(expense) 2,576 809 86 (24) 50 _ 3,497Trading income 517 150 7 628 28 _ 1,330Net income/(expense) from financial instruments designated at fair value 910 _ _ (11) _ _ 899Dividend income 8 5 _ _ 34 _ 47Net earned insurance premiums 7,671 174 1 _ _ _ 7,846Other operating income/(expense) 542 26 _ (4) 281 _ 845Inter-segment income _ _ _ _ 378 (378) _Total operating income 19,652 3,200 717 1,070 1,897 (378) 26,158Net insurance claims incurred and movement in policyholders' liabilities (8,014) (63) _ _ _ _ (8,077)Net operating income before loan impairment (charges)/releases and other credit risk provisions 11,638 3,137 717 1,070 1,897 (378) 18,081Loan impairment (charges)/releases and other credit risk provisions (165) (101) 14 _ (12) _ (264)Net operating income 11,473 3,036 731 1,070 1,885 (378) 17,817Total operating expenses^ (3,472) (1,098) (168) (175) (328) _ (5,241)Inter-segment expenses (326) (38) (6) (8) _ 378 _Operating profit 7,675 1,900 557 887 1,557 _ 12,576Profit on disposal of fixed assets and financial investments 26 _ _ _ 817 _ 843Net surplus on property revaluation _ _ _ _ 321 _ 321Share of profits from associates 29 362 _ 164 100 _ 655Profit before tax 7,730 2,262 557 1,051 2,795 _ 14,395Share of profit before tax 53.7% 15.7% 3.9% 7.3% 19.4% _ 100.0% Operating profit excluding inter-segment transactions 8,001 1,938 563 895 1,179 _ 12,576 Operating profit excluding loan impairment (charges)/ releases and other credit risk provisions 7,840 2,001 543 887 1,569 _ 12,840 ^Depreciation/amortisation included in operating expenses (106) (11) (4) (2) (210) _ (333) At 31Dec06 Total assets 167,241 69,633 76,619 326,181 29,390 _ 669,064Total liabilities 429,667 82,340 41,959 38,609 27,791 _ 620,366Investments in associates 141 1,775 _ 801 771 _ 3,488Capital expenditure incurred during the year 159 44 11 8 157 _ 379 Personal Financial Services ('PFS') reported a growth of 54.2 per cent in profitbefore tax to HK$11,918 million, representing 55.5 per cent of the group's totalprofit before tax. Operating profit excluding loan impairment charges rose by54.8 per cent, reflecting strong growth in wealth management, private banking,card and personal lending businesses. Non-interest income was nearly double that of 2006, due mainly to the boominginvestment market and the continued success of PFS's wealth management business,which delivered the following record achievements: •Gross subscriptions of investment funds achieved significant growth of 149.5 per cent over 2006; •Stock trading turnover was up by 148.4 per cent and securities customer base increased by 19.7 per cent, supported by the launch of new mobile phone trading services and the first TV trading platform in Hong Kong; •Equity-linked structured instruments registered year-on-year growth of 172.0 per cent in sales volume; •Our life insurance business ranked number one in Hong Kong in terms of new regular premiums on non-linked insurance products for the first three quarters of 2007. Private banking also sustained its outstanding growth momentum with totaloperating income up by 109.8 per cent. Profit before tax rose by 122.7 per centto HK$1,239 million, triple that of 2005 and comfortably exceeding its five-yeartarget of doubling its 2005 profit before tax. Net interest income rose by 17.1 per cent, due mainly to the 6.9 per cent growthin average customer deposits and the widening of deposit spreads. Higher growthwas recorded in savings accounts, reflecting a customer preference to preserveliquidity for investment. The contraction in Government Home Ownership Scheme mortgages notwithstanding,PFS's loan portfolio grew by 9.9 per cent. Amid the upward trend of the propertymarket, residential mortgage business remained competitive. Nevertheless, thebank sustained its position as one of the market leaders. Card business maintained steady growth in 2007. The launch of new credit cardscoupled with a series of promotional campaigns successfully brought the numberof cards in issue to 1.53 million and boosted card spending by 21.1 per centover 2006. Personal lending also registered impressive growth with a 43.0 percent increase in loan balance. Hang Seng's life insurance business maintained its leading market position.Annualised new regular premiums grew by 33.5 per cent with the launch of newannuities and health protection products tailored for the needs of pre-retireesand retirees. As a result, life insurance reported a rise of 34.2 per cent inoperating income, driven by growth of 17.0 per cent in the number of policies inforce. Commercial Banking ('CMB') achieved an increase of 10.4 per cent in operatingprofit excluding loan impairment charges, driven by balanced and sustainedgrowth in both net interest income and net fee income. Profit before tax rose by19.4 per cent to HK$2,701 million, contributing 12.6 per cent of the group'stotal profit before tax. Net interest income recorded good growth of 16.1 per cent. Average customeradvances rose by 22.1 per cent over 2006 as a result of balanced growth in tradeand factoring, and advances to the manufacturing and wholesale and retailsectors. Corporate wealth management income contributed 9.9 per cent of CMB's totaloperating income in 2007, up from 7.9 per cent in 2006. Investment and treasurybusiness accelerated in the second half of 2007, recording a 125.8 per centgrowth in income. CMB continued its strategy of providing customer-centric solutions to retailers.Net fee income from card merchant-acquiring business achieved strong growth of16.7 per cent. Octopus merchant services continued to provide an importantcompetitive advantage in acquiring new customers. Around 75 per cent of Octopusmerchants acquired during 2007 were new customers for the bank. The number ofnew commercial customers acquired in 2007 outperformed 2006 by 22.0 per cent. In addition to corporate wealth management and card merchant-acquiring business,CMB also achieved satisfactory growth in trade and remittance services income.Net fees and commissions grew by 24.2 per cent. Average customer deposits increased by 20.9 per cent, driven primarily bydedicated relationship management and customer segmentation initiatives thatimproved the management of non-borrowing SME customers. CMB business continued to grow rapidly on the Mainland. Hong Kong and mainlandteams joined up to provide one-stop banking services to commercial customerswith cross-border financial needs. Average customer deposits and averagecustomer advances rose by 75.2 per cent and 89.0 per cent respectively. Thisunderpinned the 113.0 per cent growth in net interest income on the Mainland in2007. Business e-Banking enjoyed strong growth. As of 31 December 2007, over 51,000customers had registered for Business e-Banking services, a year-on-yearincrease of 33.5 per cent. The number of online business banking transactionsgrew by 44.5 per cent. Corporate Banking ('CIB') achieved an increase of 10.1 per cent in operatingprofit excluding loan impairment charges, driven by satisfactory growth of 15.4per cent in net interest income and 26.7 per cent in net fee income. Averagecustomer deposits rose by 31.7 per cent and deposit spreads widened. Averagecustomer advances increased by 5.1 per cent, mainly in lending to propertyinvestment, securities and information technology companies. Profit before taxfell by HK$82 million to HK$475 million, affected by an increase in loanimpairment charges. Strong liquidity in Hong Kong continued to exert pressure on corporate loanmargins. CIB remained focused on better yield transactions and continued totarget business sectors such as investment holding companies, mid-tier propertydevelopers and securities firms. CIB was active in financing mainland projectsof Hong Kong-based corporations during 2007 and continued to expand its mainlandcustomer base. Treasury ('TRY') reported a 72.9 per cent growth in operating profit excludingloan impairment charges. Profit before tax, taking into account the increase inshare of profits from associates, rose by 74.0 per cent to HK$1,829 million andcontributed 8.5 per cent to the group's total profit before tax. Balance sheet management portfolios reversed their downward trend and recordedgrowth of HK$831 million, or 172.8 per cent, in net interest income. Includingthe net increase of HK$357 million in funding swap^ costs (described below) -which were recognised as foreign exchange losses - net interest income rose byHK$474 million, or 125.7 per cent. Benefiting from the aggressive rate cuts inthe United States and Hong Kong, as well as the growth in portfolios and gradualre-pricing of lower yield investments, Treasury is now better positioned tocapture yield enhancement opportunities and deliver further profit growth. Trading income fell by HK$160 million, or 25.5 per cent, due mainly to themirror effect of the 'funding swap' activities^ in the balance sheet managementportfolios which reported a loss of HK$461 million in 2007 (loss of HK$104million in 2006). Excluding the impact of 'funding swap' activities^ , tradingincome increased by HK$197 million, or 26.9 per cent. Securities and otherderivatives trading, including the provision of structured products to personaland corporate customers, recorded encouraging growth. ^Treasury from time to time employs foreign exchange swaps for its fundingactivities, which in essence involve swapping a currency ('original currency')into another currency ('swap currency') at the spot exchange rate for short-termplacement and simultaneously entering into a forward exchange contract toconvert the funds back to the original currency on maturity of the placement. Inaccordance with HKAS39, the exchange difference of the spot and forwardcontracts is required to be recognised as foreign exchange gain/loss, while thecorresponding interest differential between the original and swap funding isreflected in net interest income. Mainland business The opening of the bank's mainland subsidiary, HACN, in May 2007 marked thestart of a new era of business growth for the bank. This landmark event wasgiven a further boost in August when HACN obtained permission to begin offeringcomprehensive renminbi banking services to mainland residents. At the end of2007, HACN, which is headquartered in Shanghai, operated a network of 23 outletsin Beijing, Shanghai, Guangzhou, Dongguan, Shenzhen, Fuzhou, Nanjing, Hangzhouand Ningbo. The Hangzhou Branch, Ningbo Branch and seven sub-branches (three inShanghai, two in Guangzhou, one in Beijing and another one in Shenzhen) wereopened in 2007. The bank has a branch in Shenzhen for foreign currency wholesalebusiness and a representative office in Xiamen. HACN will continue to strengthenthe bank's strategic positioning by opening new outlets in high-potential areas,focusing particularly on the Pearl River Delta, Yangtze River Delta and BohaiEconomic Rim regions, which offer excellent prospects for expanding the bank'sPFS and CMB businesses. HACN aims to grow its mainland network to over 50outlets by 2010. With sustained economic growth on the Mainland, HACN extended its range offinancial services, including renminbi services, and pursued new opportunitiesto grow its business. Total operating income rose by 69.4 per cent, benefitingfrom impressive increases in both net interest income and non-interest income,supported by strong growth of 63.8 per cent in customer advances and 188.6 percent in customer deposits. Profit before tax fell by 77.5 per cent, affected bythe cost of establishing HACN as well as investment in human resources andbranch network, an exchange loss on US dollar capital funds upon revaluationagainst the renminbi and an increase in loan impairment charges. In terms of customer groups, mainland PFS successfully focused on the affluentand mass affluent segment, capturing more business to record a 131.2 per centincrease in Mainland Prestige Banking accounts during the year. Leveraging thebank's well-established corporate customer base in Hong Kong, HACN's CMB and CIBteams collaborated closely with their Hong Kong counterparts to serve customers'business needs on the Mainland and in Hong Kong, helping to enlarge HACN'smainland corporate customer base. TRY continued to manage the funding positionsof the branches and develop structured products to meet the investment needs ofcustomers. Including the bank's share of profit from Industrial Bank Co., Ltd, mainlandbusiness contributed 6.5 per cent of total profit before tax, compared with 6.1per cent in 2006. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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