3rd Mar 2008 08:15
HSBC Holdings PLC03 March 2008 20. Cross-border exposure The country risk exposures in the tables below are prepared in accordance withthe HKMA Return of External Positions Part II: Cross-Border Claims (MA(BS)9)guidelines. Cross-border claims are on-balance sheet exposures to counterparties based onthe location of the counterparties after taking into account the transfer ofrisk. The tables show claims on individual countries and territories or areas, afterrisk transfer, amounting to 10 per cent or more of the aggregate cross-borderclaims. Cross-border risk is controlled centrally through a well-developed system ofcountry limits and is frequently reviewed to avoid concentration of transfer,economic or political risk. Banks and other Public financial sectorFigures in HK$m institutions entities Other Total At 31Dec07 AmericasUnited States 53,963 63,624 62,638 180,225Other 48,643 2,713 51,189 102,545 102,606 66,337 113,827 282,770 EuropeUnited Kingdom 322,972 17 46,218 369,207Other 450,375 1,651 48,113 500,139 773,347 1,668 94,331 869,346 Asia-Pacific excluding Hong Kong 241,481 104,092 171,184 516,757 At 31Dec06 AmericasUnited States 62,558 78,354 72,669 213,581Other 38,585 6,568 47,393 92,546 101,143 84,922 120,062 306,127 EuropeUnited Kingdom 138,625 17 24,324 162,966Other 405,950 5,010 18,981 429,941 544,575 5,027 43,305 592,907 Asia-Pacific excluding Hong Kong 213,292 93,968 116,242 423,502 21. Customer accounts Figures in HK$m At 31Dec07 At 31Dec06 Current accounts 417,786 292,450Savings accounts 983,874 785,659Other deposit accounts 1,084,446 911,358 2,486,106 1,989,467 Customer accounts increased by HK$497 billion, or 25 per cent, compared with theend of 2006. In Hong Kong, customer accounts rose by HK$271 billion, or 18.8 per cent,largely in savings and other account balances, attributable to successfuldeposit campaigns and effective pricing which made savings products moreattractive to customers. Deposits from personal customers increased by HK$101billion, or 12.2 per cent. In the rest of Asia-Pacific, customer accounts increased HK$226 billion, or 41.0per cent, as the group continued to expand the deposit base throughout theregion. The group's focus was on attracting mass affluent customers through HSBCPremier and increasing corporate balances by growing the payments and cashmanagement business and the securities services business. Deposits from personal customers grew by HK$54 billion, or 26.7 per cent,notably in India, Australia and mainland China. Customer account balances held by corporate customers in Commercial Banking and Global Banking and Markets rose by HK$169 billion, or 49.5 per cent, largely in mainland China, India, Singapore and South Korea. The group's advances-to-deposits ratio decreased to 48.8 per cent at 31 December2007, from 52.5 per cent at 31 December 2006. 22. Reserves Figures in HK$m At 31Dec07 At 31Dec06 Other reserves - Property revaluation reserve 6,995 4,798- Available-for-sale investment reserve 58,757 25,812- Cash flow hedge reserve 677 (166)- Foreign exchange reserve 8,887 2,805- Other 8,636 2,265 83,952 35,514Retained profits 107,908 80,942Total reserves 191,860 116,456 An amount of HK$4,180 million (excluding an amount of HK$555 million recognisedin minority interests), being the amount of the gains arising from the dilutionof investments in associates, has been transferred from retained profits toother reserves. 23. Contingent liabilities, commitments and derivatives a Off-balance sheet contingent liabilities and commitments Figures in HK$m At 31Dec07 At 31Dec06 Contingent liabilities and financial guarantee contracts- Guarantees and irrevocable letters of credit pledged as collateral security 161,493 121,911 - Other contingent liabilities 122 34 161,615 121,945 Commitments- Documentary credits and short-term trade-related transactions 54,803 34,538- Forward asset purchases and forward forward deposits placed 461 319- Undrawn note issuing and revolving underwriting facilities - 1,166- Undrawn formal standby facilities, credit lines and other commitments to lend: - 1 year and under 1,037,691 887,680 - over 1 year 93,111 93,970 1,186,066 1,017,673 The above table discloses the nominal principal amounts of third partyoff-balance sheet transactions, the amounts relating to other contingentliabilities and the nominal principal amounts relating to financial guaranteecontracts. Contingent liabilities and commitments are mainly credit-relatedinstruments which include non-financial guarantees and commitments to extendcredit. Contractual amounts represent the amounts at risk should contracts befully drawn upon and clients default. Since a significant portion of guaranteesand commitments are expected to expire without being drawn upon, the total ofthe contractual amounts is not representative of future liquidity requirements. b Guarantees (including financial guarantee contracts) The group provides guarantees and similar undertakings on behalf of both thirdparty customers and other entities within the group. These guarantees aregenerally provided in the normal course of the banking business. The principaltypes of guarantees provided, and the maximum potential amount of futurepayments which the group could be required to make at 31 December 2007, were asfollows: At 31Dec07 At 31Dec06 Guarantees Guarantees by by the group the group in Guarantees in in favour of Guarantees in favour of favour of third other HSBC favour of third other HSBCFigures in HK$m parties Group entities parties Group entities Guarantee typeFinancial guarantee contracts^ 26,157 3,912 22,195 4,229Standby letters of credit which are financial guarantee contracts^^ 25,366 28 17,734 65Other direct credit substitutes^^^ 30,384 21 27,778 4Performance bonds^^^^ 35,666 3,628 25,962 3,078Bid bonds^^^^ 2,223 147 1,175 132Standby letters of credit related to particular transactions^^^^ 4,942 137 1,703 102Other transaction-related guarantees^^^^ 27,559 4,509 20,685 1,654 152,297 12,382 117,232 9,264 ^ Financial guarantees are contracts that require the issuer to make specified payments to reimburse the holder for a loss incurred because a specified debtor fails to make payment when due in accordance with the original or modified terms of a debt instrument. The amounts in the above table are nominal principal amounts. ^^ Standby letters of credit which are financial guarantee contracts are irrevocable obligations on the part of the group to pay third parties when customers fail to make payments when due. ^^^ Other direct credit substitutes include re-insurance letters of credit and trade-related letters of credit issued without provision for the issuing entity to retain title to the underlying shipment. ^^^^ Performance bonds, bid bonds, standby letters of credit and other transaction-related guarantees are undertakings by which the obligation on the group to make payment depends on the outcome of a future event. The amounts disclosed in the above table reflect the group's maximum exposureunder a large number of individual guarantee undertakings. The risks andexposures from guarantees are captured and managed in accordance with HSBC'soverall credit risk management policies and procedures. Approximately half ofthe above guarantees have a term of less than one year. Guarantees with terms ofmore than one year are subject to HSBC's annual credit review process. c Contingencies The group is named in and defending legal actions in a number of jurisdictionsincluding Hong Kong, arising out of its normal business operations. None of theactions is regarded as material litigation, and none is expected to result in asignificant adverse effect on the financial position of the group, eithercollectively or individually. Management believes that adequate provisions havebeen made in respect of such litigation. 24. Foreign exchange exposure Foreign exchange exposures may be divided broadly into two categories:structural and non-structural. Structural exposures are normally long-term innature and include those arising from investments in overseas subsidiaries,branches, associates and strategic investments as well as capital instrumentsdenominated in currencies other than Hong Kong dollars. Non-structural exposuresarise primarily from trading positions and balance sheet management activities.Non-structural exposures can arise and change rapidly. Foreign currencyexposures are managed in accordance with the group's risk management policiesand procedures. The group had the following structural foreign currency exposures which exceeded10 per cent of the total net structural exposure in all foreign currencies: Figures in HK$m Net structural position At 31Dec07 Chinese renminbi 104,825 Indian rupee 18,774 At 31Dec06 Chinese renminbi 54,960United States dollars 15,886 The increase in the Chinese renminbi structural position during 2007 wasprincipally due to an increase in the valuation of the group's strategiclong-term foreign currency equity investments. The group had the following non-structural foreign currency positions whichexceeded 10 per cent of the group's net non-structural positions in all foreigncurrencies: United States Singapore Brunei ChineseFigures in HK$m dollars dollars dollars renminbi At 31Dec07Spot assets 2,754,883 35,820 65,053 222,368Spot liabilities (2,700,125) (81,235) (26,586) (201,629)Forward purchases 3,584,670 258,370 58 252,162Forward sales (3,653,773) (206,637) (44,713) (274,787)Net options position 18,068 - - - 3,723 6,318 (6,188) (1,886) At 31Dec06Spot assets 1,205,314 118,964 27,665 78,111Spot liabilities (1,222,334) (140,566) (107) (69,689)Forward purchases 2,222,005 168,534 24,949 97,130Forward sales (2,210,290) (141,505) (57,857) (104,949)Net options position (132) - - - (5,437) 5,427 (5,350) 603 25. Segmental analysis The allocation of earnings reflects the benefits of shareholders' funds to theextent that these are actually allocated to businesses in the segment by way ofintra-group capital and funding structures. Interest is charged based on marketrates. Common costs are included in segments on the basis of the actualrecharges made. Geographical information has been classified by the location ofthe principal operations of the subsidiary company or, in the case of the bank,by the location of the branch responsible for reporting the results or advancingthe funds. Due to the nature of the group structure, the analysis of profitsshown below includes intra-group items between geographical regions with theelimination shown in a separate column. Consolidated income statement Intra-Figures in HK$m Rest of Americas/ segment Hong Kong Asia-Pacific Europe elimination Total Year ended 31Dec07Interest income 96,700 54,384 1,079 (8,010) 144,153Interest expense (54,538) (33,877) (995) 8,018 (81,392)Net interest income 42,162 20,507 84 8 62,761Fee income 27,644 14,355 1 (851) 41,149Fee expense (3,930) (3,116) (13) 851 (6,208)Net trading income/(loss) 7,026 9,033 1 (4) 16,056Net income from financial instruments designated at fair value 5,322 883 - (4) 6,201Gains less losses from financial investments 737 155 - - 892Gains arising from dilution of investments in associates - 4,735 - - 4,735Dividend income 385 308 - - 693Net earned insurance premiums 21,934 1,761 - - 23,695Other operating income 6,580 597 22 (3,143) 4,056Total operating income 107,860 49,218 95 (3,143) 154,030Net insurance claims incurred and movement in policyholders' liabilities (25,044) (1,977) - - (27,021)Net operating income before loan impairment charges and other credit risk provisions 82,816 47,241 95 (3,143) 127,009Loan impairment charges and other credit risk provisions (1,799) (4,006) - - (5,805)Net operating income 81,017 43,235 95 (3,143) 121,204Operating expenses (27,446) (22,848) (27) 3,143 (47,178)Operating profit 53,571 20,387 68 - 74,026Share of profit in associates and joint ventures 221 4,514 - - 4,735Profit before tax 53,792 24,901 68 - 78,761Tax expense (8,826) (4,623) (7) - (13,456)Profit for the year 44,966 20,278 61 - 65,305 Profit attributable to shareholders 38,605 19,362 61 - 58,028Profit attributable to minority interests 6,361 916 - - 7,277 Year ended 31Dec06 Interest income 82,301 40,151 884 (7,408) 115,928Interest expense (46,490) (24,960) (804) 7,425 (64,829)Net interest income 35,811 15,191 80 17 51,099Fee income 17,347 9,925 - (718) 26,554Fee expense (3,030) (1,826) (12) 718 (4,150)Net trading income/(loss) 3,077 5,871 (13) (17) 8,918Net income from financial instruments designated at fair value 2,048 622 - - 2,670Gains less losses from financial investments 1,245 221 - - 1,466Dividend income 525 224 - - 749Net earned insurance premiums 20,495 1,351 - - 21,846Other operating income 6,171 2,073 22 (2,613) 5,653Total operating income 83,689 33,652 77 (2,613) 114,805Net insurance claims incurred and movement in policyholders' liabilities (20,991) (1,489) - - (22,480)Net operating income before loan impairment charges and other credit risk provisions 62,698 32,163 77 (2,613) 92,325Loan impairment charges and other credit risk provisions (1,336) (3,473) - - (4,809)Net operating income 61,362 28,690 77 (2,613) 87,516Operating expenses (23,534) (17,287) (31) 2,613 (38,239)Operating profit 37,828 11,403 46 - 49,277Share of profit in associates and joint ventures 150 2,589 - - 2,739Profit before tax 37,978 13,992 46 - 52,016Tax expense (6,079) (3,317) (15) - (9,411)Profit for the year 31,899 10,675 31 - 42,605 Profit attributable to shareholders 27,206 10,472 31 - 37,709Profit attributable to minority interests 4,693 203 - - 4,896 26. Capital adequacy The following table shows the capital adequacy ratio and the components of thecapital base contained in the 'Capital Adequacy Ratio' return required to besubmitted to the HKMA by The Hongkong and Shanghai Banking Corporation Limitedon a consolidated basis that is specified by the HKMA under the requirement ofsection 98(2) of the Banking Ordinance. The Banking (Capital) Rules ('the Rules') came into effect on 1 January 2007.The Hongkong and Shanghai Banking Corporation Limited uses the standardised(credit risk) approach and standardised (securitisation) approach to calculateits credit risk for non-securitisation exposures and credit risk forsecuritisation exposures respectively. It also uses the standardised(operational risk) approach and standardised (market risk) approach to calculateits operational risk and market risk respectively. However, an internal modelapproach is adopted for calculating the general market risk and a separate modelis used for calculating the market risk relating to equity options. This basisis different from the basis used at 31 December 2006, and the numbers aretherefore not strictly comparable. Figures in HK$m At 31Dec07 Composition of capitalCore Capital:Paid-up ordinary share capital 21,040Paid-up irredeemable non-cumulative preference shares 51,882Published reserves 72,069Profit and loss account 29,543Minority interests^^^^ 21,318Less: Deduction from core capital (11,111)Less: 50% of total amount of deductible items (@50%)^^^^^ (28,894)Total core capital 155,847 Supplementary Capital:Property revaluation reserves^ 5,869Available-for-sale investments revaluation reserves^^ 4,434Unrealised fair value gains from financial instruments designated at fair value through profit or loss 137Regulatory reserve^^^ 4,148Collective provisions 5,078Perpetual subordinated debt 9,415Paid-up irredeemable cumulative preference shares 16,610Term subordinated debt 11,970Paid-up term preference shares 21,835Less: 50% of total amount of deductible items (@50%)^^^^^ (28,894)Total supplementary capital 50,602Capital base 206,449 Total deductible items^^^^^ 57,788 There is no relevant capital shortfall in any of the group's subsidiaries whichare not included in its consolidation group for regulatory purposes. ^ Includes the revaluation surplus on investment properties which is reported as part of retained profits. ^^ Includes adjustments made in accordance with guidelines issued by the HKMA. ^^^ The regulatory reserve is maintained for satisfying the Banking Ordinance for prudential supervision. ^^^^ After deduction of minority interests in unconsolidated subsidiary companies. ^^^^^ Total deductible items are deducted from institution's core capital and supplementary capital. The capital ratios on a consolidated basis calculated in accordance with theRules are as follows: At 31Dec07 Capital adequacy ratio 11.6% Core capital ratio 8.8% The table below sets out an analysis of regulatory capital and capital adequacyratios for the group. They are calculated in accordance with the Third Scheduleof the Hong Kong Banking Ordinance. This basis is different from the basis used at 31 December 2007, and the numbersare therefore not strictly comparable. Figures in HK$m At 31Dec06 Composition of capital Tier 1:Total shareholders' equity 145,450Less: proposed dividend (6,500) property revaluation reserves^ (7,892) available-for-sale investment reserve^^ (26,028) classified as regulatory reserve^^^ (1,689) goodwill (4,182) others (138)Irredeemable non-cumulative preference shares 51,735Minority interests^^^^ 17,483Total qualifying tier 1 capital 168,239 Tier 2:Property revaluation reserves (@70%) 5,524Available-for-sale investment reserve (@70%) 18,220Collective impairment provision and regulatory reserve 6,610Perpetual subordinated debt 9,370Term subordinated debt 9,849Term preference shares 8,165Irredeemable cumulative preference shares 16,563Total qualifying tier 2 capital 74,301 Deductions (58,559)Total capital 183,981 Risk-weighted assets 1,367,607 ^ Includes the revaluation surplus on investment properties, which is now reported as part of retained profits. ^^ Includes adjustments made in accordance with guidelines issued by HKMA. ^^^ The regulatory reserve is maintained for the purpose of satisfying the Banking Ordinance for prudential supervision. Movements in this reserve are made in consultation with the HKMA. ^^^^ After deduction of minority interests in unconsolidated accounts of subsidiary companies. The group's capital adequacy ratios adjusted for market risks calculated inaccordance with the HKMA Guideline on 'Maintenance of Adequate Capital AgainstMarket Risks' are as follows: At 31Dec06 Total capital 13.5% Tier 1 capital 12.3% The group's capital adequacy ratios calculated in accordance with the provisionsof the Third Schedule of the Banking Ordinance, which does not take into accountmarket risks, are as follows: At 31Dec06 Total capital 13.0% Tier 1 capital 11.8% 27. Liquidity ratio The Hong Kong Banking Ordinance requires banks operating in Hong Kong tomaintain a minimum liquidity ratio of 25 per cent, calculated in accordance withthe provisions of the Fourth Schedule of the Banking Ordinance. This requirementapplies separately to the Hong Kong branches of the bank and to those subsidiarycompanies which are Authorised Institutions under the Banking Ordinance in HongKong. 2007 2006The average liquidity ratio for the year was as follows: Hong Kong branches of the bank 57.0% 49.3% 28. Property revaluation The group's premises and investment properties were revalued as at 30 September2007 and updated for any material changes as at 31 December 2007. The basis ofvaluation was open market value or depreciated replacement cost. Premises and investment properties in the Hong Kong SAR, the Macau SAR andmainland China, which represent 93 per cent by value of the group's propertiessubject to valuation, were valued by DTZ Debenham Tie Leung Limited. Thevaluations were carried out by qualified valuers who are members of the HongKong Institute of Surveyors. Properties in 11 other countries, which representseven per cent by value of the group's properties, were valued by differentindependent professionally qualified valuers. The September property revaluation, together with the revaluation of Hong Kongproperties undertaken in June 2007, has resulted in an increase in the group'srevaluation reserves of HK$2,432 million, net of deferred taxation of HK$658million, and a credit to the income statement of HK$384 million. Of the HK$384million credit to the income statement, HK$262 million represents the surplus onthe revaluation of investment properties and HK$122 million relates to thereversal of previous revaluation deficits that had arisen when the value ofcertain premises fell below depreciated historical cost. 29. Accounting policies The accounting policies applied in preparing this news release are the same asthose applied in preparing the financial statements for the year ended 31December 2006, as disclosed in the Annual Report and Accounts for 2006. 30. Statutory accounts The information in this news release is not audited and does not constitutestatutory accounts. Certain financial information in this news release is extracted from thefinancial statements for the year ended 31 December 2007, which were approved bythe Board of Directors on 3 March 2008 and will be delivered to the Registrar ofCompanies and the HKMA. The Auditors expressed an unqualified opinion on thosefinancial statements in their report dated 3 March 2008. The Annual Report andAccounts for the year ended 31 December 2007, which include the financialstatements, can be obtained on request from Group Communications, The Hongkongand Shanghai Banking Corporation Limited, 1 Queen's Road Central, Hong Kong, andwill be made available on our website: www.hsbc.com.hk. A further press releasewill be issued to announce the availability of this information. 31. Ultimate holding company The Hongkong and Shanghai Banking Corporation Limited is an indirectly held,wholly-owned subsidiary of HSBC Holdings plc. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
HSBC Holdings