3rd Mar 2008 08:15
HSBC Holdings PLC03 March 2008 Additional Information 1. Net interest income Year ended Year endedFigures in HK$m 31Dec07 31Dec06 Net interest income 62,761 51,099Average interest-earning assets 2,649,116 2,212,521Net 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 ofHK$400 million (2006: HK$309 million), including unwinding of discounts on loanimpairment 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 percent, higher than in 2006. Higher income was attributable to strong balancesheet growth and improved deposit spreads throughout the region, coupled withhigher balance sheet management income. Net interest income in Personal Financial Services rose by HK$5,949 million, or19.8 per cent, partly due to strong growth in the deposit base in Hong Kong andin the region. Lending growth also contributed to the increase in interestincome, particularly personal instalment loans in India, South Korea, Thailandand at Hang Seng Bank, and credit cards in the Philippines, India, Singapore,Australia and at Hang Seng Bank. In addition, strong returns were generated oninvestments held by the group's insurance companies, benefiting from higheryields and growth in portfolio size. Net interest income in Commercial Bankingwas HK$3,069 million, or 21.9 per cent higher than in 2006, mainly due tobalance sheet growth, notably in Hong Kong, India and mainland China, and thewidening of deposit spreads. In Global Banking and Markets, net interest incomeincreased significantly as a result of strong balance sheet management income,reflecting the replacement of maturing assets at higher yields. This was coupledwith business growth in the payments and cash management and securities servicesbusinesses and improved deposit spreads, notably in mainland China, India, HongKong and Taiwan. Average interest-earning assets rose by HK$436.6 billion, or 19.7 per cent, toHK$2,649.1 billion. Average advances to customers grew by HK$95.4 billion, or9.1 per cent, with strong increases in corporate loans in India, mainland Chinaand at Hang Seng Bank, and a small rise in average mortgage balances in HongKong, coupled with stronger growth in India and Singapore. These were partlyoffset by the disposal of the broker-originated mortgage businesses inAustralia. Average credit card balances rose in most areas, notably Hong Kong,India, Australia, the Philippines, Thailand and Singapore, and personalinstalment loans grew, most significantly in India, South Korea and Thailand.Average placements with banks were HK$174.3 billion higher, and holdings ofavailable-for-sale securities rose by HK$85.8 billion, reflecting the deploymentof the commercial surplus. The group's net interest margin of 2.37 per cent for 2007 was six basis pointshigher than in 2006. Net interest spread improved by 13 basis points, while thecontribution from net free funds declined by seven basis points, reflecting thedeployment of funds into trading assets. For the bank in Hong Kong, net interest margin increased by one basis point to2.27 per cent. Spread rose by 11 basis points, benefiting from higher yields onmoney market placements, debt securities and term lending, and improved depositspreads in current and savings accounts, but was partly offset by lower spreadon mortgages as the Hong Kong dollar Best Lending Rate decreased. Thecontribution from net free funds decreased by 10 basis points, primarily due tothe reduction of free funds as a result of redeployment of surplus funds intotrading assets. At Hang Seng Bank, net interest margin improved by 12 basis points to 2.54 percent, benefiting from wider deposit spreads and better yields on the balancesheet management portfolio. Balance sheet management income improved as loweryielding securities gradually matured and were replaced by higher yieldingassets. Net interest spread rose by 15 basis points to 1.98 per cent, whilst thecontribution from net free funds decreased by three basis points. Higher netinterest spread was attributable to the increase of average customer deposits,mainly in lower cost savings balances, and wider deposit spreads. However, thepricing of residential mortgages and corporate lending remained under pressuredue to intense market competition. In the rest of Asia-Pacific, net interest margin at 2.25 per cent was nine basispoints higher than in 2006, and spread increased by 12 basis points to 2.06 percent. In mainland China, spread improved as the increase in lending ratesoutweighed the rise in deposit rates, supported by an increase in low costcustomer deposits. Spread improved in Indonesia as funding costs decreasedfollowing interest rate cuts. In the Philippines, local interest rates droppedbut strong growth in high yielding credit card receivables more than offset thedecline in yields for other lending products. Taiwan benefited from improvedspreads on customer accounts, whereas Singapore saw higher spreads on mortgagesand cards as funding costs decreased. The contribution from net free fundsdropped by three basis points mainly due to an increase in the redeployment offunding to trading assets in Australia, South Korea and mainland China, whichwas partly offset by a rise in both market interest rate and non-interestbearing account balances in India. 2. Net fee income Figures in HK$m 2007 2006 Account services 1,625 1,501Credit facilities 1,471 1,245Import/export 3,360 2,956Remittances 1,653 1,437Securities/stockbroking 11,874 5,267Cards 4,321 4,335Insurance 889 315Unit trusts 4,714 2,326Funds under management 4,833 2,974Other 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$12,537 million, or 56.0 per cent, higher than in 2006. Securities broking and custody fees rose by 125 per cent, reflectingsignificantly higher stock market turnover in Hong Kong. The buoyant stockmarkets also stimulated demand for unit trusts and investment funds in HongKong, South Korea, Taiwan and India, and fee income increased by 80.1 per cent. Trade finance income was 13.7 per cent higher, notably in India, mainland Chinaand Hong Kong, and in part due to the transfer into the group of HSBC's SouthAfrican banking operations in the second quarter of 2007. Remittance and otheraccount fees grew, reflecting the group's strong transactional capabilities. Card fees were in line with the disposal of the card acquiring business and thedecline in card fees in Taiwan as a result of the 2006 credit crisis largely wasoffset by strong growth in issuing fees elsewhere in the region, notably India,Hong Kong and the Philippines due to an increase in the number of cards incirculation and higher cardholder spending. 'Other' includes investment banking fees. These fees were higher than theprevious year as the group won several notable IPO mandates in Hong Kong, andthere was an increase in commissions from fellow HSBC Group companies in respectof treasury business. 3. Net trading income Figures in HK$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$16,056 million. Foreign exchangeprofits benefited from an increase in trading activity against a backdrop ofincreasing demand for local currency assets as foreign investors sought toparticipate in local stock markets, coupled with favourable positioning as theUS dollar weakened. Revenues grew strongly in the equities and equityderivatives business, reflecting previous investment in business expansion andbuoyant stock markets. 4. Gains less losses from financial investments Figures in HK$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 largelycomprises gains on the sale of equity shares and further disposals of Philippinegovernment securities. Prior year gains include the profits made on the sale ofpart of the group's stake in UTI Bank in India, and also on Philippinegovernment securities. 5. Other operating income Figures in HK$m 2007 2006 Rental income from investment properties 151 196Movement in present value of in-force insurance business 950 1,124Gains on investment properties 564 475Profit on disposal of property, plant and equipment, and assets held for sale 64 981Profit on disposal of subsidiaries, associates and business portfolios 96 904Surplus arising on property revaluation 122 70Other 2,109 1,903 4,056 5,653 Profit on the disposal of property, plant and equipment was lower than in 2006due to the non-recurrence of gains made on the sale of a property in Japan andlower gains from the disposal of Hang Seng Bank properties. Profit on disposal of subsidiaries, associates and business portfolios was lowerthan 2006 due to the non-recurrence of gains made on the disposal of thestockbroking, margin lending and broker originated mortgage businesses inAustralia. 'Other' mainly comprises recoveries of IT and other operating costs from fellowHSBC 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 tosubscribe 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 18.60per cent, from 15.98 per cent to 12.78 per cent and from 15.0 per cent to 14.44per cent respectively. The interest in Bank of Communications was subsequentlyincreased to 19.01 per cent through additional share acquisitions. The net assets of both Bank of Communications and Industrial Bank increasedsubstantially when they received proceeds from their respective new shareissues. After the new issues, the group's share of the net assets of the threeassociates increased by HK$4,735 million compared with the share of the netassets immediately prior. This increase in the group's share of net assets wasregarded as a gain arising from deemed disposals of part of its interests in theassociates and is presented in the consolidated income statement. The gains resulting from the dilution of the group's investments in theassociates were: HK$3,228 million for Bank of Communications; HK$1,465 millionfor Industrial Bank; and HK$42 million for Techcombank. The dilution of the interests does not affect the classification of the group'sinvestments as investments in associates. 7. Loan impairment charges and other credit risk provisions Figures in HK$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$996million higher than in 2006. The charge for new individually assessed allowances was higher, largelyattributable to the downgrading of certain corporate customers with activitiesin Thailand, Hang Seng Bank, India and Sri Lanka. The increase was partly offsetby lower corporate charges in Singapore, mainland China and Japan. Releases andrecoveries were lower, mainly relating to companies in Hong Kong, mainlandChina, Australia and Indonesia. The net charge for collectively assessed allowances increased. Charges increasedin India, Hong Kong and Thailand, reflecting higher credit card and otherpersonal lending volumes. 8. Employee compensation and benefits Figures in HK$m 2007 2006 Wages, salaries and other costs 16,687 14,302Performance-related pay 8,317 5,501Social security costs 327 283Retirement benefit costs 1,100 956 26,431 21,042Staff numbers by region^ At 31Dec07 At 31Dec06 Hong Kong 26,169 26,496Rest of Asia-Pacific 33,167 27,518Americas/Europe 18 17Total 59,354 54,031 ^ Full-time equivalent Staff costs increased by HK$5,389 million, or 25.6 per cent, compared with 2006.Wages and salaries rose by 16.7 per cent, in line with planned increases inheadcount throughout the region, and due to annual salary rises notably in HongKong, mainland China, India, Singapore and South Korea. Staff numbers rosesignificantly in India reflecting the establishment of the consumer financebusiness and expansion of the sales force, and in mainland China to support newbranch openings. Performance-related pay increased in line with improvedoperating revenues, higher dealing income and the increase in headcount. 9. General and administrative expenses Figures in HK$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$3,090 million, or 20.7per cent, reflected additional costs incurred in business expansion throughoutthe region. Premises and equipment costs rose due to new branch openings andrent increases. Marketing expenditure was higher due in part to increased creditcard bonus point redemption costs in Hong Kong, brand advertising at airports inmainland China, and retail banking promotions at Hang Seng Bank. Technologycosts also increased as the group continued to improve its customer relationshipmanagement systems and internet banking capabilities. Litigation and otherprovisions recognised an improvement in 2007 due to the release of twosignificant provisions. 10. Share of profit in associates and joint ventures Share of profit in associates and joint ventures principally included thegroup's share of post-tax profits from Bank of Communications and IndustrialBank, and amortisation of intangible assets arising on acquisition. 11. Tax expense The tax expense in the consolidated income statement comprises: Figures in HK$m 2007 2006 Current income tax- Hong Kong profits tax 8,279 5,506- Overseas taxation 4,651 3,955Deferred taxation 526 (50) 13,456 9,411 The effective rate of tax for 2007 was 17.1 per cent compared with 18.1 per centin 2006. The decrease was mainly as a result of the HK$4,735 million of dilutiongains recognised in the year being non-taxable. 12. Dividends 2007 2006 HK$ 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 thefinancial year ended 31 December 2007 of HK$6,500 million (HK$0.72 per ordinaryshare). 13. Advances to customers Figures in HK$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 assessedFigures in HK$m allowances allowances Total At 1Jan07 2,118 4,725 6,843Amounts written off (1,301) (4,885) (6,186)Recoveries of advances written off in previous years 197 696 893Net charge to income statement (Note 7) 1,041 4,619 5,660Unwinding of discount on loan impairment (89) (219) (308)Exchange and other adjustments 216 142 358 At 31Dec07 2,182 5,078 7,260 15. Impaired advances to customers and allowances The geographical information shown below, and in notes 16, 17 and 18, has beenclassified by location of the principal operations of the subsidiary company or,in the case of the bank, by location of the branch responsible for advancing thefunds. Rest ofFigures in HK$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 evidenceexists that full repayment of principal or interest is considered unlikely. The individually assessed allowances are made after taking into account thevalue of collateral in respect of such advances. 16. Overdue advances to customers Rest ofFigures in HK$m Hong Kong Asia-Pacific Total At 31Dec07 Gross advances to customers which have been overdue with respect to either principal or interest for periods of: - more than three months but not more than six months 737 1,403 2,140 - more than six months but not more than one year 223 837 1,060 - more than one year 637 1,042 1,679 1,597 3,282 4,879 Overdue advances to customers as a percentage of gross advances to customers: - more than three months but not more than six months 0.1% 0.3% 0.2% - more than six months but not more than one year 0.0% 0.2% 0.1% - more than one year 0.1% 0.2% 0.1% 0.2% 0.7% 0.4% At 31Dec06 Gross advances to customers which have been overdue with respect to either principal or interest for periods of: - more than three months but not more than six months 938 1,287 2,225 - more than six months but not more than one year 384 595 979 - more than one year 1,238 859 2,097 2,560 2,741 5,301 Overdue advances to customers as a percentage of gross advances to customers: - more than three months but not more than six months 0.1% 0.3% 0.2% - more than six months but not more than one year 0.1% 0.1% 0.1% - more than one year 0.2% 0.2% 0.2% 0.4% 0.6% 0.5% As at 31 December 2007 and 31 December 2006, there were no advances to banks andother financial institutions that were overdue for more than three months. 17. Rescheduled advances to customers Rest ofFigures in HK$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 advancesto banks and other financial institutions. Rescheduled advances to customers are those advances which have beenrestructured or renegotiated because of a deterioration in the financialposition of the borrower or because of the inability of the borrower to meet theoriginal repayment schedule. Rescheduled advances to customers are stated net of any advances which havesubsequently 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 bythe HSBC Group, including The Hongkong and Shanghai Banking Corporation Limitedand 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 81,683Total 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 - 93,121Total corporate and commercial 339,732 326,892 - 666,624 Non-bank financial institutions 19,363 29,344 - 48,707 Settlement accounts 3,798 225 - 4,023Total 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 66,687Total 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 - 81,967Total corporate and commercial 327,001 230,747 - 557,748 Non-bank financial institutions 18,138 16,471 - 34,609 Settlement accounts 3,774 358 - 4,132Total 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, sincethe end of 2006. Net advances in Hong Kong grew by HK$34 billion, or 5.4 per cent, since the endof 2006. Mortgage balances grew by 3.2 per cent underpinned by stable domesticinterest rates. Credit card balances increased 12.7 per cent following thelaunch of a number of credit card programmes. Lending to corporate andcommercial customers increased 3.9 per cent as lending to manufacturers who wereexpanding their operations in mainland China increased. In the rest of Asia-Pacific, net advances rose by HK$134 billion, or 32.6 percent, since the end of 2006. Mortgage balances grew by 14.0 per cent withincreases in Australia, India and Singapore. Credit card advances rose by 29.6per cent, notably in Australia, India, Thailand and the Philippines, and thegrowth in other personal lending was attributable to continued businessexpansion in India. Lending to corporate and commercial customers rose by 41.7per cent, notably in mainland China, Vietnam, India and Mauritius. 19. Analysis of advances to customers by industry sector based on categories anddefinitions used by the Hong Kong Monetary Authority ('HKMA') The following analysis of advances to customers is based on the categoriescontained in the 'Quarterly Analysis of Loans and Advances and Provisions'return required to be submitted to the HKMA by branches of the bank and bybanking subsidiary companies in Hong Kong. Figures in HK$m At 31Dec07 At 31Dec06 Gross advances to customers for use in Hong Kong Industrial, commercial and financialProperty development 47,217 46,352Property investment 116,331 99,580Financial concerns 10,731 10,136Stockbrokers 2,669 964Wholesale and retail trade 38,502 36,101Manufacturing 21,526 17,331Transport and transport equipment 26,381 27,408Recreational activities 238 442Information technology 2,504 2,494Others 40,674 40,676 306,773 281,484 IndividualsAdvances 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 31,708Advances for the purchase of other residential properties 176,591 171,014Credit card advances 35,279 31,315Others 37,188 26,966 279,796 261,003 Gross advances to customers for use in Hong Kong 586,569 542,487Trade 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 This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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