31st Jul 2006 09:15
HSBC Holdings PLC31 July 2006 21. Analysis of advances to customers based on categories used by the HSBC Group The following analysis of advances to customers is based on categories used by theHSBC Group, including The Hongkong and Shanghai Banking Corporation Limited and its subsidiaries,for risk management purposes. Rest of Americas/Figures in HK$m Hong Kong Asia-Pacific Europe Total At 30JUN06 Residential mortgages 188,585 122,572 4 311,161 Hong Kong SAR Government's Home Ownership Scheme, Private Sector Participation Scheme and Tenants Purchase Scheme mortgages 33,863 - - 33,863 Credit card advances 26,524 17,957 - 44,481 Other personal 29,138 32,388 1 61,527Total personal 278,110 172,917 5 451,032 Commercial, industrial and international trade 138,577 122,447 - 261,024 Commercial real estate 103,403 35,462 - 138,865 Other property-related lending 47,777 13,746 - 61,523 Government 3,247 7,557 - 10,804 Other commercial 49,325 40,088 - 89,413Total corporate and commercial 342,329 219,300 - 561,629 Non-bank financial institutions 19,363 11,263 - 30,626 Settlement accounts 6,197 1,951 - 8,148Total financial 25,560 13,214 - 38,774 Gross advances to customers 645,999 405,431 5 1,051,435 Impairment allowances (3,039) (4,032) - (7,071) Net advances to customers 642,960 401,399 5 1,044,364 At 30JUN05 Residential mortgages 184,740 108,582 3 293,325 Hong Kong SAR Government's Home Ownership Scheme, Private Sector Participation Scheme and Tenants Purchase Scheme mortgages 39,131 - - 39,131 Credit card advances 22,205 14,467 - 36,672 Other personal 26,016 28,323 1 54,340Total personal 272,092 151,372 4 423,468 Commercial, industrial and international trade 126,034 112,301 - 238,335 Commercial real estate 80,473 29,560 - 110,033 Other property-related lending 47,560 15,426 - 62,986 Government 3,349 9,309 - 12,658 Other commercial 57,113 36,308 - 93,421Total corporate and commercial 314,529 202,904 - 517,433 Non-bank financial institutions 13,381 19,828 - 33,209 Settlement accounts 3,358 3,444 - 6,802Total financial 16,739 23,272 - 40,011 Gross advances to customers 603,360 377,548 4 980,912 Impairment allowances (3,871) (3,404) - (7,275) Net advances to customers 599,489 374,144 4 973,637 At 31DEC05 Residential mortgages 182,257 117,211 4 299,472 Hong Kong SAR Government's Home Ownership Scheme, Private Sector Participation Scheme and Tenants Purchase Scheme mortgages 36,291 - - 36,291 Credit card advances 29,882 16,539 - 46,421 Other personal 27,480 31,316 1 58,797Total personal 275,910 165,066 5 440,981 Commercial, industrial and international trade 129,774 110,668 - 240,442 Commercial real estate 97,364 32,615 - 129,979 Other property-related lending 47,661 17,340 - 65,001 Government 2,347 5,891 - 8,238 Other commercial 53,681 37,851 - 91,532Total corporate and commercial 330,827 204,365 - 535,192 Non-bank financial institutions 15,246 11,987 - 27,233 Settlement accounts 2,173 323 - 2,496Total financial 17,419 12,310 - 29,729 Gross advances to customers 624,156 381,741 5 1,005,902 Impairment allowances (3,092) (3,484) - (6,576) Net advances to customers 621,064 378,257 5 999,326 Net advances to customers increased by HK$45.0 billion, or 4.5 per cent, sincethe end of 2005. Net advances in Hong Kong grew by HK$21.9 billion, or 3.5 per cent, since theend of 2005. Excluding the impact of lending under the Government Home OwnershipScheme which remained suspended, mortgage lending rose by 3.5 per cent due tothe successful launch of HSBC's simplified pricing campaign. Credit cardadvances dropped back from seasonally high balances at the end of December whichwere inflated by personal tax payments. Corporate and commercial lendingincreased, buoyed by demand for credit in the manufacturing and propertysectors, although lending to large corporations declined. In the rest of Asia-Pacific, net advances rose by HK$23.1 billion, or 6.1 percent, since the end of 2005. Mortgage balances grew by 4.6 per cent withincreases in Taiwan, India and Australia. Credit card advances increased by 8.6per cent, mainly in Australia, India, Thailand, the Philippines and Sri Lanka.Lending to corporate and commercial customers rose by HK$14.9 billion, largelyin mainland China, Australia, Japan, India and Mauritius. 22. Analysis of advances to customers by geographical area according to thelocation of counterparties, after risk transfer Rest of Americas/Figures in HK$m Hong Kong Asia-Pacific Europe Others Total At 30JUN06 Gross advances to customers 581,542 378,801 83,748 7,344 1,051,435Overdue advances to customers 2,782 2,551 305 - 5,638 At 30JUN05 Gross advances to customers 550,724 357,221 63,356 9,611 980,912Overdue advances to customers 2,865 2,269 69 1 5,204 At 31DEC05 Gross advances to customers 570,329 354,626 73,959 6,988 1,005,902Overdue advances to customers 2,337 2,222 223 8 4,790 23. 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 30JUN06 At 30JUN05 At 31DEC05 Gross advances to customers for usein Hong Kong Industrial, commercial and financialProperty development 43,643 37,417 41,141Property investment 107,883 92,976 104,214Financial concerns 10,410 13,704 12,667Stockbrokers 776 983 1,094Wholesale and retail trade 35,315 34,679 34,256Manufacturing 18,283 18,588 17,847Transport and transport equipment 29,878 33,145 31,202Others 43,868 47,570 44,697 290,056 279,062 287,118 IndividualsAdvances for the purchase of flats under the Hong Kong SAR Government's Home Ownership Scheme, Private Sector Participation and Tenants Purchase Scheme 33,863 39,131 36,291Advances for the purchase of other residential properties 170,374 168,042 165,148Credit card advances 26,524 22,205 29,882Others 24,776 22,557 23,826 255,537 251,935 255,147 Gross advances to customers for use in Hong Kong 545,593 530,997 542,265 Trade finance 55,639 54,439 49,902 Gross advances to customers for use outside Hong Kong made by branches of the bank and subsidiary companies in Hong Kong 44,767 17,924 31,989 Gross advances to customers made by branches of the bank and subsidiary companies in Hong Kong 645,999 603,360 624,156 Gross advances to customers made by branches of the bank and subsidiary companies outside Hong Kong- Rest of Asia-Pacific 405,431 377,548 381,741- Americas/Europe 5 4 5 Gross advances to customers 1,051,435 980,912 1,005,902 24. 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 30JUN06 AmericasUnited States 44,625 77,197 29,906 151,728Other 41,320 7,775 49,033 98,128 85,945 84,972 78,939 249,856EuropeUnited Kingdom 113,869 14 24,447 138,330Other 369,449 5,267 32,383 407,099 483,318 5,281 56,830 545,429 Asia-Pacific excluding Hong Kong 175,332 12,084 102,108 289,524 At 30 June 2005 AmericasUnited States 51,906 75,139 28,191 155,236Other 40,686 13,491 47,349 101,526 92,592 88,630 75,540 256,762EuropeUnited Kingdom 91,103 27 26,182 117,312Other 335,154 3,746 21,533 360,433 426,257 3,773 47,715 477,745 Asia-Pacific excluding Hong Kong 159,828 12,047 97,209 269,084 At 31DEC05 AmericasUnited States 38,673 72,477 34,515 145,665Other 39,328 9,909 50,744 99,981 78,001 82,386 85,259 245,646 EuropeUnited Kingdom 111,377 14 22,232 133,623Other 338,060 5,842 39,509 383,411 449,437 5,856 61,741 517,034 Asia-Pacific excluding Hong Kong 154,135 33,897 108,476 296,508 25. Financial investments Figures in HK$m At 30JUN06 At 30JUN05 At 31DEC05 Debt securities- available-for-sale 375,115 379,876 350,624- held-to-maturity 30,873 23,671 28,102 405,988 403,547 378,726Equity shares- available-for-sale 21,338 6,895 15,771 427,326 410,442 394,497 26. Customer accounts Figures in HK$m At 30JUN06 At 30JUN05 At 31DEC05 Current accounts and demand deposits 969,450 959,723 925,008Savings accounts 703,023 563,002 664,478Other deposit accounts 145,795 148,708 145,624 1,818,268 1,671,433 1,735,110 Customer accounts increased by HK$83.2 billion, or 4.8 per cent, since the endof 2005. In Hong Kong, customer accounts rose by HK$42.2 billion, or 3.3 per cent, in thefirst half of 2006, largely from personal customers. In the rest ofAsia-Pacific, customer accounts grew by HK$41.2 billion, or 9.0 per cent.Deposits from personal customers increased by 12.0 per cent, notably inSingapore, Australia, mainland China, Taiwan and Indonesia. Deposits fromcommercial and corporate customers rose by 7.6 per cent, with increases inTaiwan, Singapore, mainland China and India, attributable to expansion of thepayment and cash management business and higher balances from securities custodyand clearing customers. The group's advances-to-deposits ratio dropped slightly to 57.4 per cent at 30June 2006 from 57.6 per cent at 31 December 2005. 27. Trading liabilities Figures in HK$m At 30JUN06 At 30JUN05 At 31DEC05 Certificates of deposit in issue 76,450 83,048 83,937Other debt securities in issue 23,184 22,976 20,361Short positions in securities 65,500 52,402 55,025Deposits by banks 10,100 5,044 13,488Customer accounts 95,508 55,182 77,387 270,742 218,652 250,198 Trading liabilities include customer deposits and certificates of deposit withembedded options or other derivatives, the market risk of which is managed inthe trading book. The increase in customer accounts represents growth in structured depositproducts in Hong Kong. 28. Financial liabilities designated at fair value Figures in HK$m At 30JUN06 At 30JUN05 At 31DEC05 Deposits by banks 371 - 360Customer accounts 1,678 1,192 1,600Subordinated liabilities 949 995 967Liabilities to customers under investment contracts 30,977 29,380 30,364 33,975 31,567 33,291 29. Debt securities in issue Figures in HK$m At 30JUN06 At 30JUN05 At 31DEC05 Certificates of deposit 47,926 43,397 49,068Other debt securities 17,679 16,203 12,400 65,605 59,600 61,468 30. Reserves At 30JUN06 At 30JUN05 At 31DEC05Figures in HK$m restated Other reserves- Property revaluation reserve 4,785 3,847 4,082- Available-for-sale investments reserve 8,218 2,399 2,899- Cash flow hedge reserve (993) (2,248) (1,767)- Foreign exchange reserve 905 303 53- Other 1,087 444 770 14,002 4,745 6,037Retained profits 73,791 57,583 64,303Total reserves 87,793 62,328 70,340 The property revaluation reserve includes an amount of HK$149 million inrelation to properties classified as assets held for sale, included in 'Otherassets' in the consolidated balance sheet, at 30 June 2006 (30 June 2005 and 31December 2005: nil). 31. Contingent liabilities, commitments and derivatives Credit Risk- Contract equivalent weightedFigures in HK$m amount amount amount At 30JUN06 Contingent liabilities- Guarantees 90,745 66,286 54,298- Other 32 32 32 90,777 66,318 54,330Commitments- Documentary credits and short-term trade-related transactions 66,335 24,512 13,620- Undrawn note issuing and revolving underwriting facilities 427 214 -- Undrawn formal standby facilities, credit lines and other commitments: - one year and over 89,723 44,861 39,771 - under one year 803,823 - - 960,308 69,587 53,391DerivativesExchange rate contracts- Spot and forward foreign exchange 3,246,950 43,787 11,447- Other exchange rate contracts 1,111,295 51,188 15,497 4,358,245 94,975 26,944Interest rate contracts- Interest rate swaps 5,551,438 70,576 18,506- Other interest rate contracts 995,880 5,938 1,799 6,547,318 76,514 20,305Forward asset purchases and forward forward deposits placed 4,971 4,971 1,682Other derivative contracts 377,211 16,929 5,195 382,182 21,900 6,877 Impact of counterparty netting agreements on derivatives exposure - (68,506) (14,666) At 30JUN05 Contingent liabilities- Acceptances and endorsements 22,273 4,875 4,762- Guarantees 157,375 134,910 48,035- Other 40 40 40 179,688 139,825 52,837Commitments- Documentary credits and short-term trade-related transactions 58,058 19,828 11,658- Undrawn note issuing and revolving underwriting facilities 3,982 1,991 1,614- Undrawn formal standby facilities, credit lines and other commitments: - one year and over 99,653 49,826 44,479 - under one year 715,575 - - 877,268 71,645 57,751DerivativesExchange rate contracts- Spot and forward foreign exchange 2,545,957 41,632 10,641- Other exchange rate contracts 971,018 42,392 12,576 3,516,975 84,024 23,217Interest rate contracts- Interest rate swaps 4,367,557 53,818 13,740- Other interest rate contracts 679,471 5,560 1,714 5,047,028 59,378 15,454 Forward asset purchases and forward forward deposits placed 9,710 9,710 8,746Other derivative contracts 163,291 8,805 3,116 173,001 18,515 11,862 Impact of counterparty netting agreements on derivatives exposure - (58,343) (12,693) At 31DEC05 Contingent liabilities- Guarantees 83,114 60,166 48,893- Other 37 37 37 83,151 60,203 48,930Commitments- Documentary credits and short-term trade-related transactions 55,402 20,650 10,905- Undrawn note issuing and revolving underwriting facilities 3,249 1,625 975- Undrawn formal standby facilities, credit lines and other commitments: - one year and over 97,207 48,604 41,115 - under one year 752,797 - - 908,655 70,879 52,995DerivativesExchange rate contracts- Spot and forward foreign exchange 2,536,795 36,655 9,753- Other exchange rate contracts 884,046 41,124 12,481 3,420,841 77,779 22,234Interest rate contracts- Interest rate swaps 4,775,236 55,580 14,442- Other interest rate contracts 815,110 4,159 1,340 5,590,346 59,739 15,782 Forward asset purchases and forward forward deposits placed 1,849 1,849 775Other derivative contracts 289,019 15,885 5,649 290,868 17,734 6,424 Impact of counterparty netting agreements on derivatives exposure - (55,354) (11,915) The tables above give the nominal contract amounts, credit equivalent amountsand risk-weighted amounts of contingent liabilities, commitments andderivatives. The credit equivalent amounts are calculated for the purposes ofderiving the risk-weighted amounts. These are assessed in accordance with theThird Schedule of the Hong Kong Banking Ordinance on capital adequacy and dependon the status of the counterparty and maturity characteristics. The risk-weightsused range from 0 per cent to 100 per cent for contingent liabilities andcommitments, and from 0 per cent to 50 per cent for derivatives. Contingent liabilities and commitments are credit-related instruments. Thecontract amounts represent the amounts at risk should the contract be fullydrawn upon and the client default. Since a significant portion of guarantees andcommitments is expected to expire without being drawn upon, the total of thecontract amounts is not representative of future liquidity requirements. Derivatives arise from futures, forward, swap and option transactions undertakenby the group in the foreign exchange, interest rate and equity, credit andcommodity markets. The contract amounts of these instruments indicate the volumeof transactions outstanding at the balance sheet date; they do not representamounts at risk. Fair value of derivative assets Figures in HK$m At 30JUN06 At 30JUN05 At 31DEC05 Exchange rate contracts 38,552 35,368 31,074Interest rate contracts 51,004 39,518 38,319Other derivative contracts 3,562 2,251 2,646 93,118 77,137 72,039Less: netting adjustments (42,248) (34,831) (32,038) 50,870 42,306 40,001 The fair value of derivative assets represents the mark-to-market amounts of allderivative contracts with a positive value. These assets arise from contractswith third parties and fellow subsidiaries and are included in the balance sheetas 'Derivatives'. Fair value is a close approximation of the credit risk for these contracts atthe balance sheet date. The actual credit risk is measured internally as the sumof positive mark-to-market values and an estimate for the future fluctuationrisk, using a future risk factor. The netting adjustments represent amounts where the group has in place legallyenforceable rights of offset with individual counterparties to offset the grossamount of positive mark-to-market assets with any negative mark-to-marketliabilities with the same customer. These offsets are recognised by the HongKong Monetary Authority in the calculation of risk assets for the capitaladequacy ratio. 32. 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 net structural foreign currency exposure in all currencies: Figures in HK$m Net structural position At 30JUN06 Chinese renminbi 39,995United States dollars 10,613 At 30JUN05 Chinese renminbi 21,128Indian rupees 7,603United States dollars 10,381 At 31DEC05 Chinese renminbi 32,510Indian rupees 7,979United States dollars 11,780 The increase in the Chinese renminbi structural position during the first halfof 2006 was principally attributable to the rise in the market value of thegroup's shareholding in Ping An Insurance, while the Indian rupee exposure fellto below 10 per cent of the group's total foreign currency structural exposurefollowing the disposal of shares in UTI Bank. The group had the following non-structural foreign currency positions whichexceeded 10 per cent of the group's net foreign currency non-structuralpositions in all currencies: United States Singapore BruneiFigures in HK$m dollars dollars dollars At 30JUN06Spot assets 1,144,826 105,727 6,359Spot liabilities (1,119,320) (93,803) (14,929)Forward purchases 1,953,665 176,817 24,193Forward sales (1,972,119) (180,365) (24,055)Net options position (1,170) - - 5,882 8,376 (8,432) At 30JUN05^Spot assets 85,892 5,470Spot liabilities (77,505) (16,318)Forward purchases 147,882 -Forward sales (145,643) -Net options position - - 10,626 (10,848) At 31DEC05Spot assets 1,229,340 107,578 5,523Spot liabilities (1,188,737) (90,549) (18,062)Forward purchases 1,507,086 157,007 43Forward sales (1,558,902) (161,647) -Net options position 3,361 - - (7,852) 12,389 (12,496) ^ At 30 June 2005, the net US dollar non-structural position was less than 10per cent of the group's total net position in all currencies, and is thereforenot required to be disclosed. 33. Segmental analysis The allocation of earnings reflects the benefits of shareholders' funds to theextent that these are actually allocated to businesses in the segment by way ofintra-group capital and funding structures. Common costs are included insegments on the basis of the actual recharges made. Geographical information hasbeen classified by the location of the principal operations of the subsidiarycompany or, in the case of the bank, by the location of the branch responsiblefor reporting the results or advancing the funds. Due to the nature of the groupstructure, the analysis of profits shown below includes intra-group itemsbetween geographical regions. Income statement Rest of Americas/Figures in HK$m Hong Kong Asia-Pacific Europe Total Half-year ended 30JUN06 Interest income 38,238 18,852 402 57,492Interest expense (22,167) (11,378) (357) (33,902)Net interest income 16,071 7,474 45 23,590Fee income 8,491 4,998 - 13,489Fee expense (1,518) (1,051) (6) (2,575)Net trading income 1,816 2,660 (14) 4,462Net income from financial instruments designated at fair value 64 (36) - 28Gains less losses from financial investments 945 205 - 1,150Dividend income 579 12 - 591Net earned insurance premiums 10,218 694 - 10,912Other operating income 3,183 511 12 3,706Total operating income 39,849 15,467 37 55,353Net insurance claims incurred and movement in policyholder liabilities (9,253) (491) - (9,744)Net operating income before loan impairment charges and other credit risk provisions 30,596 14,976 37 45,609Loan impairment charges and other credit risk provisions (544) (2,039) - (2,583)Net operating income 30,052 12,937 37 43,026Operating expenses (10,762) (7,963) (20) (18,745)Operating profit 19,290 4,974 17 24,281Share of profit in associates 81 1,154 - 1,235Profit before tax 19,371 6,128 17 25,516Tax expense (2,968) (1,591) (10) (4,569)Profit for the period 16,403 4,537 7 20,947 Attributable to shareholders 14,006 4,458 7 18,471Attributable to minority interests 2,397 79 - 2,476 Half-year ended 30JUN05 Interest income 23,529 14,225 275 38,029Interest expense (8,122) (8,366) (131) (16,619)Net interest income 15,407 5,859 144 21,410Fee income 7,057 3,701 1 10,759Fee expense (1,035) (845) (5) (1,885)Net trading income 2,381 1,928 (113) 4,196Net income from financial instruments designated at fair value (163) 107 - (56)Gains less losses from financial investments 359 (12) - 347Dividend income 223 26 - 249Net earned insurance premiums 6,746 229 - 6,975Other operating income 3,555 518 11 4,084Total operating income 34,530 11,511 38 46,079Net insurance claims incurred and movement in policyholder liabilities (5,851) (288) - (6,139)Net operating income before loan impairment charges and other credit risk provisions 28,679 11,223 38 39,940Loan impairment charges and other credit risk provisions (459) (69) 12 (516)Net operating income 28,220 11,154 50 39,424Operating expenses (9,754) (6,406) (21) (16,181)Operating profit 18,466 4,748 29 23,243Share of profit in associates 28 892 - 920Profit before tax 18,494 5,640 29 24,163Tax expense (2,873) (1,372) (3) (4,248)Profit for the period 15,621 4,268 26 19,915 Attributable to shareholders 13,342 4,196 26 17,564Attributable to minority interests 2,279 72 - 2,351 Half-year ended 31DEC05 Interest income 31,610 15,388 254 47,252Interest expense (16,027) (8,970) (174) (25,171)Net interest income 15,583 6,418 80 22,081Fee income 7,180 4,220 1 11,401Fee expense (1,217) (958) (3) (2,178)Net trading income 771 2,270 (57) 2,984Net income from financial instruments designated at fair value 94 346 - 440Gains less losses from financial investments 355 54 - 409Dividend income 127 (8) - 119Net earned insurance premiums 11,394 971 - 12,365Other operating income 2,925 613 11 3,549Total operating income 37,212 13,926 32 51,170Net insurance claims incurred and movement in policyholder liabilities (10,151) (1,001) - (11,152)Net operating income before loan impairment charges and other credit risk provisions 27,061 12,925 32 40,018Loan impairment charges and other credit risk provisions (702) (846) - (1,548)Net operating income 26,359 12,079 32 38,470Operating expenses (10,760) (7,592) (17) (18,369)Operating profit 15,599 4,487 15 20,101Share of profit in associates 150 835 - 985Profit before tax 15,749 5,322 15 21,086Tax expense (2,538) (1,262) (3) (3,803)Profit for the period 13,211 4,060 12 17,283 Attributable to shareholders 11,302 3,995 12 15,309Attributable to minority interests 1,909 65 - 1,974 Interest income and interest expense for the first half of 2006 includeintra-group interest of HK$3,747 million (first half of 2005: HK$2,170 million;second half of 2005: HK$2,912 million). Fee income and fee expense for the firsthalf of 2006 include intra-group fees of HK$304 million (first half of 2005:HK$180 million; second half of 2005: HK$309 million). Other operating income andoperating expenses for the first half of 2006 include intra-group items ofHK$1,256 million (first half of 2005: HK$1,364 million; second half of 2005:HK$1,372 million). 34. Capital adequacy The table below sets out an analysis of regulatory capital and capital adequacyratios for the group: Figures in HK$m At 30JUN06 At 30JUN05 At 31DEC05 Composition of capital Tier 1:Shareholders' funds 115,787 93,216 97,334Less: proposed dividend (5,500) (6,000) (4,500) property revaluation reserves^ (8,027) (7,158) (7,892) available-for-sale investments reserve^^ (8,198) (2,395) (3,051) classified as regulatory reserve^^^ (1,362) (1,017) (1,319) goodwill (3,865) (6,043) (3,784) others 989 2,244 1,769Irredeemable non-cumulative preference shares 51,676 51,718 51,587Minority interests^^^^ 16,172 14,666 14,808Total qualifying tier 1 capital 157,672 139,231 144,952 Tier 2:Property revaluation reserves (@70%) 5,619 5,011 5,524Available-for-sale investments reserves (@70%) 5,739 1,677 2,136Collective impairment provision and regulatory reserve 6,038 4,351 5,112Perpetual subordinated debt 9,352 9,404 9,359Term subordinated debt 10,588 4,160 6,117Term preference shares 3,884 3,887 3,877Irredeemable cumulative preference shares 16,544 7,373 16,516Total qualifying tier 2 capital 57,764 35,863 48,641 Deductions (44,987) (25,640) (39,528) Total capital 170,449 149,454 154,065 Risk-weighted assets 1,305,529 1,221,620 1,238,164 ^ 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. Movements in this reserve are made in consultation with the HKMA.^^^^ After deduction of minority interests in unconsolidated 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 30JUN06 At 30JUN05 At 31DEC05 Total capital 13.1% 12.2% 12.4% Tier 1 capital 12.1% 11.4% 11.7% The group's capital adequacy ratios calculated in accordance with the provisionsof the Third Schedule of the Banking Ordinance, which does not take into account market risks, are as follows: Total capital 12.8% 12.1% 12.0% Tier 1 capital 11.8% 11.2% 11.2% 35. Liquidity ratio The Banking Ordinance requires banks operating in Hong Kong to maintain aminimum liquidity ratio, calculated in accordance with the provisions of theFourth Schedule of the Banking Ordinance, of 25 per cent. 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. Half-year ended Half-year ended Half-year ended 30JUN06 30JUN05 31DEC05 The average liquidity ratio for the period was as follows: Hong Kong branches of the bank 49.1% 48.6% 47.8% 36. Property revaluation The group's premises and investment properties were revalued at 30 June 2006 onthe basis of open market value. Premises and investment properties in the Hong Kong SAR were valued by DTZDebenham Tie Leung at 30 June 2006. The valuations were carried out byindependent qualified valuers who are members of the Hong Kong Institute ofSurveyors. Management considered that there had either been no material changesin the values of the properties located outside Hong Kong since 30 September2005, when the properties were last revalued or reviewed, or that the values ofthe properties were not material. The property revaluation has resulted in an increase in the group's revaluationreserves of HK$1,036 million, net of deferred taxation of HK$217 million, as at30 June 2006. In addition, there was a credit to the income statement ofHK$337 million, of which HK$320 million represents the surplus on therevaluation of investment properties and HK$17 million relates to the reversalof previous revaluation deficits that had arisen when the value of certainpremises fell below depreciated historical cost. 37. Accounting policies The accounting policies applied in preparing this news release are the same asthose applied in preparing the accounts for the year ended 31 December 2005, asdisclosed in the Annual Report and Accounts for 2005. 38. Restatement of comparative figures Leasehold land As disclosed on page 31 of the 2005 Annual Report and Accounts, in the secondhalf of 2005 the group revised its accounting policy for land held on leasesexpiring after more than 500 years and which are not eligible to be treated asfinance leases. Such interests in land were reclassified from 'Property, plantand equipment' to 'Other assets' and were remeasured on a historical cost basis.In order to reflect this, certain comparative figures for the half-year ended 30June 2005 have been restated as follows: total assets and equity as at 30 June2005 have been reduced by HK$2,902 million and HK$2,394 million respectively,and the deferred tax liability as at 30 June 2005 has been reduced by HK$508million. 39. 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 thestatutory accounts for the year ended 31 December 2005 which have been deliveredto the Registrar of Companies and the Hong Kong Monetary Authority. The Auditorsexpressed an unqualified opinion on those statutory accounts in their reportdated 6 March 2006. The Annual Report and Accounts for the year ended 31December 2005, which include the statutory accounts, can be obtained on requestfrom Group Public Affairs, The Hongkong and Shanghai Banking CorporationLimited, 1 Queen's Road Central, Hong Kong, and may be viewed on our website:www.hsbc.com.hk. 40. Ultimate holding company The Hongkong and Shanghai Banking Corporation Limited is an indirectly-held,wholly-owned subsidiary of HSBC Holdings plc. 41. Statement of compliance The information in this news release for the half-year ended 30 June 2006complies with Hong Kong Accounting Standard 34 on Interim Financial Reportingand the module on Interim Financial Disclosure by Locally IncorporatedAuthorised Institutions under the Supervisory Policy Manual issued by the HongKong Monetary Authority. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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