HSBC Holdings Regulatory News (HSBA)

5 Mar 2007 08:22

HSBC Holdings PLC05 March 2007 20. 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 31Dec06 At 31Dec05 Gross advances to customers for use in Hong Kong Industrial, commercial and financial Property development 46,352 41,141Property investment 99,580 104,214Financial concerns 10,136 12,667Stockbrokers 964 1,094Wholesale and retail trade 36,101 34,256Manufacturing 17,331 17,847Transport and transport equipment 27,408 31,202Others 43,612 44,697 281,484 287,118 IndividualsAdvances for the purchase of flats under the Hong Kong SAR Government's Home Ownership Scheme, Private Sector Participation Scheme and Tenants Purchase Scheme 31,708 36,291Advances for the purchase of other residential properties 171,014 165,148Credit card advances 31,315 29,882Others 26,966 23,826 261,003 255,147 Gross advances to customers for use in Hong Kong 542,487 542,265 Trade finance 56,121 49,902 Gross advances to customers for use outside Hong Kong made by branches of the bank and subsidiary companies in Hong Kong 35,628 31,989 Gross advances to customers made by branches of the bank and subsidiary companies in Hong Kong 634,236 624,156 Gross advances to customers made by branches of the bank and subsidiary companies outside Hong Kong:- Rest of Asia-Pacific 416,383 381,741- Americas/Europe 6 5 Gross advances to customers 1,050,625 1,005,902 21. 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 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 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 22. Customer accounts Figures in HK$m At 31Dec06 At 31Dec05 Current accounts 292,450 245,094Savings accounts 785,659 682,412Other deposit accounts 911,358 807,604 1,989,467 1,735,110 Customer accounts increased by HK$254.4 billion, or 14.7 per cent since the endof 2005. This excludes structured deposits, which rose by HK$26.0 billion, asthese are included with 'Trading liabilities'. In Hong Kong, customer accounts rose by HK$160.6 billion, or 12.6 per cent,largely in savings account balances, attributable to successful depositcampaigns and effective pricing which made savings products more attractive tocustomers. Deposits from personal customers increased by HK$100.7 billion, or12.2 per cent, as a result. In Commercial Banking and Corporate, InvestmentBanking and Markets, customer account balances grew by HK$59.9 billion, or 13.0per cent, supported by targeted campaigns and a new, dedicated service team tocapture the SME customer base, and there was continued growth in the paymentsand cash management business. In the rest of Asia-Pacific, customer accounts increased by HK$94.0 billion, or20.6 per cent, as the group actively sought to grow the deposit base throughoutthe region. Deposits from personal customers grew by HK$37.7 billion, or 23.0per cent, notably in Singapore, Australia and China. Customer account balancesheld by corporate customers rose by HK$56.3 billion, or 19.8 per cent, largelyin India, mainland China, Taiwan and Singapore. The group's advances-to-deposits ratio fell to 52.5 per cent at 31 December 2006from 57.6 per cent at 31 December 2005. 23. Reserves Figures in HK$m At 31Dec06 At 31Dec05 Other reserves- Property revaluation reserve 4,798 4,082- Available-for-sale investment reserve 25,812 2,899- Cash flow hedge reserve (166) (1,767)- Foreign exchange reserve 2,805 53- Other 2,265 770 35,514 6,037Retained profits 80,942 64,303Total reserves 116,456 70,340 The property revaluation reserve includes an amount of HK$62 million in relationto properties classified as assets held for sale at 31 December 2006 (31December 2005: nil). Assets held for sale are included in 'Other assets' in theconsolidated balance sheet. 24. Contingent liabilities, commitments and derivatives Credit Risk- Contract equivalent weightedFigures in HK$m amount amount amount At 31Dec06 Contingent liabilities- Guarantees 100,964 73,862 60,534- Other 35 35 35 100,999 73,897 60,569Commitments- Documentary credits and short-term trade-related transactions 56,732 21,632 11,680- Undrawn note issuing and revolving underwriting facilities 1,166 583 -- Undrawn formal standby facilities, credit lines and other commitments: - one year and over 94,241 47,120 43,635 - under one year 887,680 - - 1,039,819 69,335 55,315DerivativesExchange rate contracts- Spot and forward foreign exchange 3,267,333 52,122 13,334- Swap and other exchange rate contracts 1,262,208 56,377 16,868 4,529,541 108,499 30,202Interest rate contracts- Interest rate swaps 6,919,779 69,936 17,832- Other interest rate contracts 918,146 5,641 1,808 7,837,925 75,577 19,640Forward asset purchases and forward forward deposits placed 2,588 2,588 2,463Other derivative contracts 554,801 27,935 9,041 557,389 30,523 11,504 Impact of counterparty netting agreements on derivatives exposure - (67,516) (14,352) 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- Swap and 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. Contingent liabilities and commitments are credit-related instruments. Thecontract amounts represent the amounts at risk should the contracts be fullydrawn upon and the customers default. Since a significant portion of guaranteesand commitments 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, 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$m At 31Dec06 At 31Dec05 Exchange rate contracts 42,862 31,074Interest rate contracts 46,809 38,319Other derivative contracts 9,496 2,646 99,167 72,039Less: netting adjustments (40,339) (32,038) 58,828 40,001 The fair value of derivative assets represents the mark-to-market amounts of allderivative contracts with a positive value. These assets arise from contractswith third parties and fellow subsidiaries and are included in the balance sheetas 'Derivatives'. Fair value is a close approximation of the credit risk for these contracts atthe balance sheet date. The actual credit risk is measured internally as the sumof positive mark-to-market values and an estimate for the future fluctuationrisk, using a future risk factor. The netting adjustments represent amounts where the group has in place legallyenforceable rights of offset with individual counterparties to offset the grossamount of positive mark-to-market assets with any negative mark-to-marketliabilities with the same customer. These offsets are recognised by the HKMA inthe calculation of risk assets for the capital adequacy ratio. 25. Foreign exchange exposure Foreign exchange exposures may be divided broadly into two categories:structural and non-structural. Structural exposures are normally long-term innature and include those arising from investments in overseas subsidiaries,branches, associates and strategic investments as well as capital instrumentsdenominated in currencies other than Hong Kong dollars. Non-structural exposuresarise primarily from trading positions and balance sheet management activities.Non-structural exposures can arise and change rapidly. Foreign currencyexposures are managed in accordance with the group's risk management policiesand procedures. The group had the following structural foreign currency exposures which exceeded10 per cent of the total net structural exposure in all foreign currencies: Figures in HK$m Net structural position At 31Dec06 Chinese renminbi 54,960United States dollars 15,886 At 31Dec05 Chinese renminbi 32,510Indian rupees 7,979United States dollars 11,780 The increase in the Chinese renminbi structural position during 2006 was largelyattributable to the rise in the market value of the group's shareholding in PingAn Insurance. The Indian rupee exposure fell to below 10 per cent of the group'stotal foreign currency structural exposure following the disposal of shares inUTI Bank. 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 BruneiFigures in HK$m dollars dollars dollars At 31Dec06 Spot assets 1,205,314 118,964 27,665Spot liabilities (1,222,334) (140,566) (107)Forward purchases 2,222,005 168,534 24,949Forward sales (2,210,290) (141,505) (57,857)Net options position (132) - - (5,437) 5,427 (5,350) At 31Dec05 Spot assets 1,229,340 107,578 5,523Spot liabilities (1,188,737) (90,549) (18,062)Forward purchases 1,507,086 157,007 43Forward sales (1,558,902) (161,647) -Net options position 3,361 - - (7,852) 12,389 (12,496) 26. Segmental analysis The allocation of earnings reflects the benefits of shareholders' funds to theextent that these are actually allocated to businesses in the segment by way ofintra-group capital and funding structures. Interest is charged based on marketrates. Common costs are included in segments on the basis of the actualrecharges made. Geographical information has been classified by the location ofthe principal operations of the subsidiary company or, in the case of the bank,by the location of the branch responsible for reporting the results or advancingthe funds. Due to the nature of the group structure, the analysis of profitsshown below includes intra-group items between geographical regions with theelimination shown in a separate column. Consolidated income statement Intra- Rest of Americas/ segmentFigures in HK$m Hong Kong Asia-Pacific Europe elimination Total 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 venture 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 Year ended 31Dec05 Interest income 55,139 29,613 529 (5,082) 80,199Interest expense (24,149) (17,336) (305) 5,082 (36,708)Net interest income 30,990 12,277 224 - 43,491Fee income 14,237 7,921 2 (489) 21,671Fee expense (2,252) (1,803) (8) 489 (3,574)Net trading income/(loss) 3,152 4,198 (170) - 7,180Net income/(loss) from financial instruments designated at fair value (69) 453 - - 384Gains less losses from financial investments 714 42 - - 756Dividend income 350 18 - - 368Net earned insurance premiums 18,140 1,200 - - 19,340Other operating income 6,480 1,131 22 (2,736) 4,897Total operating income 71,742 25,437 70 (2,736) 94,513Net insurance claims incurred and movement in policyholders' liabilities (16,002) (1,289) - - (17,291)Net operating income before loan impairment charges and other credit risk provisions 55,740 24,148 70 (2,736) 77,222Loan impairment charges and other credit risk provisions (1,161) (915) 12 - (2,064)Net operating income 54,579 23,233 82 (2,736) 75,158Operating expenses (20,514) (13,998) (38) 2,736 (31,814)Operating profit 34,065 9,235 44 - 43,344Share of profit in associates and joint venture 178 1,727 - - 1,905Profit before tax 34,243 10,962 44 - 45,249Tax expense (5,411) (2,634) (6) - (8,051)Profit for the year 28,832 8,328 38 - 37,198 Profit attributable to shareholders 24,644 8,191 38 - 32,873Profit attributable to minority interests 4,188 137 - - 4,325 27. Capital adequacy The table below sets out an analysis of regulatory capital and capital adequacyratios for the group: Figures in HK$m At 31Dec06 At 31Dec05 Composition of capital Tier 1:Total shareholders' equity 145,450 97,334Less: proposed dividend (6,500) (4,500) property revaluation reserves^ (7,892) (7,892) available-for-sale investment reserve^^ (26,028) (3,051) classified as regulatory reserve^^^ (1,689) (1,319) goodwill (4,182) (3,784) others (138) 1,769Irredeemable non-cumulative preference shares 51,735 51,587Minority interests^^^^ 17,483 14,808Total qualifying tier 1 capital 168,239 144,952 Tier 2:Property revaluation reserves (@70%) 5,524 5,524Available-for-sale investment reserve (@70%) 18,220 2,136Collective impairment provision and regulatory reserve 6,610 5,112Perpetual subordinated debt 9,370 9,359Term subordinated debt 9,849 6,117Term preference shares 8,165 3,877Irredeemable cumulative preference shares 16,563 16,516Total qualifying tier 2 capital 74,301 48,641 Deductions (58,559) (39,528) Total capital 183,981 154,065 Risk-weighted assets 1,367,607 1,238,164 ^ 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 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 At 31Dec05 Total capital 13.5% 12.4% Tier 1 capital 12.3% 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 accountmarket risks, are as follows: Total capital 13.0% 12.0% Tier 1 capital 11.8% 11.2% With effect from 1 January 2007, the group has adopted the 'standardisedapproach' of capital calculation under the HKMA 'Banking (Capital) Rules'. The increase in the group's total capital ratio at 31 December 2006 reflectsadditional capital raised in anticipation of different capital requirementsunder the new rules. 28. 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. 2006 2005 The average liquidity ratio for the year was as follows: Hong Kong branches of the bank 49.3% 48.2% 29. Property revaluation The group's premises and investment properties were revalued as at 30 September2006 and updated for any material changes as at 31 December 2006. 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 95 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 representfive 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 2006, has resulted in an increase in the group'srevaluation reserves of HK$1,356 million, net of deferred taxation of HK$383million, and a credit to the income statement of HK$389 million. Of the HK$389million credit to the income statement, HK$319 million represents the surplus onthe revaluation of investment properties and HK$70 million relates to thereversal of previous revaluation deficits that had arisen when the value ofcertain premises fell below depreciated historical cost. 30. 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 2005, as disclosed in the Annual Report and Accounts for 2005. 31. 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 2006, which were approved bythe Board of Directors on 5 March 2007 and will be delivered to the Registrar ofCompanies and the HKMA. The Auditors expressed an unqualified opinion on thosefinancial statements in their report dated 5 March 2007. The Annual Report andAccounts for the year ended 31 December 2006, which include the financialstatements, can be obtained on request from Group Public Affairs, The Hongkongand Shanghai Banking Corporation Limited, 1 Queen's Road Central, Hong Kong, andmay be viewed on our website: www.hsbc.com.hk on or after 3 April 2007. 32. 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 Exchange