HSBC Holdings Regulatory News (HSBA)

1 Aug 2005 09:00

HSBC Holdings PLC01 August 2005 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. At 30Jun05 At 30Jun04 At 31Dec04Figures in HK$m restated restated Gross advances to customers for use in Hong Kong Industrial, commercial and financialProperty development 37,417 32,820 36,230Property investment 92,976 85,480 93,696Financial concerns 13,704 14,282 14,784Stockbrokers 983 1,201 1,185Wholesale and retail trade 34,679 29,625 32,099Manufacturing 18,588 13,125 14,336Transport and transport equipment 33,145 33,610 35,418Others 47,570 41,332 41,134 279,062 251,475 268,882 IndividualsAdvances for the purchase of flats under the Hong Kong SAR Government's Home Ownership Scheme, Private Sector Participation and Tenants Purchase Scheme 39,131 45,057 41,845Advances for the purchase of other residential properties 168,042 168,537 169,482Credit card advances 22,205 20,189 23,162Others 22,557 19,772 20,257 251,935 253,555 254,746Gross advances to customers for use in Hong Kong 530,997 505,030 523,628 Trade finance 54,439 48,738 49,408 Gross advances to customers for use outside Hong Kong made by branches of the bank and subsidiary companies in Hong Kong 17,924 15,436 20,747 Gross advances to customers made by branches of the bank and subsidiary companies in Hong Kong 603,360 569,204 593,783 Gross advances to customers made by branches of the bank and subsidiary companies outside Hong Kong -Rest of Asia-Pacific 377,548 289,409 333,324 -Americas/Europe 4 12 14 Gross advances to customers 980,912 858,625 927,121 An explanation of the significant differences between the categories of advancesand their definitions used by the HSBC Group and those used by the HKMA is givenon page 18 of the Annual Report and Accounts for 2004. 24. Cross-border exposure The country risk exposures shown below are prepared in accordance with the HKMAReturn 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 30Jun05 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 30Jun04 AmericasUnited States 22,178 78,603 28,591 129,372Other 41,665 15,244 48,098 105,007 63,843 93,847 76,689 234,379EuropeUnited Kingdom 72,230 16 27,131 99,377Other 262,703 3,785 23,954 290,442 334,933 3,801 51,085 389,819 Asia-Pacific excluding Hong Kong 134,372 37,255 81,332 252,959 At 31Dec04 AmericasUnited States 45,518 80,047 32,010 157,575Other 43,044 16,143 47,297 106,484 88,562 96,190 79,307 264,059EuropeUnited Kingdom 86,613 27 23,294 109,934Other 332,581 4,219 22,168 358,968 419,194 4,246 45,462 468,902 Asia-Pacific excluding Hong Kong 151,183 18,454 77,266 246,903 25. Current, savings and other deposits At 30Jun05 At 30Jun04 At 31Dec04Figures in HK$m restated restated Current accounts and demand deposits 959,723 948,974 1,069,178Savings accounts 563,002 501,459 516,237Other deposit accounts 148,708 120,418 142,696 Customer accounts 1,671,433 1,570,851 1,728,111 Current, savings and other deposits decreased by HK$57 billion, or 3.3 per cent,compared with the end of 2004. In Hong Kong, current account balances and demand deposits fell in the firsthalf of 2005 by HK$118 billion, or 13.3 per cent, reflecting the shift bycustomers into savings and time deposits, in line with the increases in marketrates. In the rest of Asia-Pacific, customer accounts rose by HK$29 billion, or7.0 per cent. Certain structured deposits that were previously recorded in 'Other depositaccounts' have, in accordance with revised accounting standards, beenreclassified in 2005 to 'Trading liabilities'. The group's advances-to-deposits ratio increased to 58.3 per cent at 30 June2005 from 53.2 per cent at 31 December 2004. 26. Trading liabilities At 30Jun05 At 30Jun04 At 31Dec04Figures in HK$m restated restated Certificates of deposit in issue 83,048 - -Other debt securities in issue 22,976 - -Short positions in securities 52,402 35,810 37,281Deposits by banks 5,044 - -Customer accounts 55,182 - - 218,652 35,810 37,281 Trading liabilities include customer deposits and certificates of deposit withembedded options or other derivatives, the market risk of which is managed inthe trading book. 27. Financial liabilities designated as at fair value At 30Jun05 At 30Jun04 At 31Dec04Figures in HK$m restated restated Customer accounts 1,192 - -Subordinated liabilities 995 - - 2,187 - - There was no such category in 2004. 28. Debt securities in issue At 30Jun05 At 30Jun04 At 31Dec04Figures in HK$m restated restated Certificates of deposit 43,397 100,301 110,922Other debt securities 16,203 31,387 44,240 59,600 131,688 155,162 The fall in debt securities in issue compared with the end of 2004 reflects thereclassification of certain securities as 'Trading liabilities', as detailed inNote 26. 29. Reserves At 30Jun05 At 30Jun04 At 31Dec04Figures in HK$m restated restated Revaluation reserves- Premises revaluation reserve 5,065 3,207 3,561- Available-for-sale investments reserve 2,399 - -- Cash flow hedge reserve (2,248) - -- Long-term equity investment revaluation reserve - 1,204 1,799 5,216 4,411 5,360Foreign exchange reserve 303 (614) 843Other reserves 444 191 322 5,963 3,988 6,525Retained profits 58,759 46,215 51,497 64,722 50,203 58,022 The bank and its banking subsidiary companies operate under regulatoryjurisdictions which require the maintenance of minimum impairment provisions inexcess of those required under Hong Kong Accounting Standards. The effect ofthis requirement is to restrict the amount of reserves which can be distributedto shareholders by HK$1,017 million. 30. Contingent liabilities, commitments and derivatives Credit Risk- Contract equivalent weightedFigures in HK$m amount amount amount 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- Forward asset purchases and forward forward deposits placed 9,710 9,710 8,746- 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 - - 886,978 81,355 66,497Exchange 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 Other derivative contracts 163,291 8,805 3,116 Impact of counterparty netting agreements on derivatives exposure - (58,343) (12,693) At 30Jun04 Contingent liabilities- Acceptances and endorsements 19,538 3,908 3,782- Guarantees 143,236 126,211 43,358- Other 67 67 37 162,841 130,186 47,177Commitments- Documentary credits and short-term trade-related transactions 51,706 13,922 10,170- Forward asset purchases and forward forward deposits placed 4,320 4,320 2,140- Undrawn note issuing and revolving underwriting facilities 4,126 2,063 1,686- Undrawn formal standby facilities, credit lines and other commitments: - one year and over 70,567 35,283 33,817 - under one year 579,396 - - 710,115 55,588 47,813Exchange rate contracts- Spot and forward foreign exchange 2,300,878 35,515 8,732- Other exchange rate contracts 650,466 30,711 8,618 2,951,344 66,226 17,350Interest rate contracts- Interest rate swaps 2,974,127 46,253 12,519- Other interest rate contracts 695,439 2,652 682 3,669,566 48,905 13,201 Other derivative contracts 40,153 2,938 881 Impact of counterparty netting agreements on derivatives exposure - (41,574) (8,699) At 31Dec04 Contingent liabilities- Acceptances and endorsements 22,714 4,559 4,423- Guarantees 157,833 136,474 48,837- Other 35 35 33 180,582 141,068 53,293Commitments- Documentary credits and short-term trade-related transactions 48,493 13,770 9,591- Forward asset purchases and forward forward deposits placed 10,166 10,166 3,716- Undrawn note issuing and revolving underwriting facilities 4,116 2,058 1,680- Undrawn formal standby facilities, credit lines and other commitments: - one year and over 82,142 1,071 38,311 - under one year 657,682 - - 802,599 67,065 53,298Exchange rate contracts- Spot and forward foreign exchange 2,411,793 46,694 11,759- Other exchange rate contracts 696,883 39,635 11,180 3,108,676 86,329 22,939Interest rate contracts- Interest rate swaps 3,754,053 57,131 14,679- Other interest rate contracts 684,692 3,117 875 4,438,745 60,248 15,554 Other derivative contracts 71,395 4,030 1,222 Impact of counterparty netting agreements on derivatives exposure - (59,487) (12,535) The tables above give the nominal contract amounts, credit equivalent amountsand risk-weighted amounts of off-balance sheet transactions. The creditequivalent amounts are calculated for the purposes of deriving the risk-weightedamounts. These are assessed in accordance with the Third Schedule of the HongKong Banking Ordinance on capital adequacy and depend on the status of thecounterparty and the maturity characteristics. The risk-weights used range from0 per cent to 100 per cent for contingent liabilities and commitments, and from0 per cent to 50 per cent for exchange rate, interest rate and other derivativecontracts. The group has executed close-out netting agreements with certaincounterparties, which allow for positive and negative mark-to-market values ondifferent transactions to be offset and settled by a single payment in the eventof default by either party. These have been taken into account in calculatingtotal risk assets. Contingent liabilities and commitments are credit-related instruments whichinclude acceptances, letters of credit, guarantees and commitments to extendcredit. The contract amounts represent the amounts at risk should the contractbe fully drawn upon and the client default. Since a significant portion ofguarantees and commitments is expected to expire without being drawn upon, thetotal of the contract amounts is not representative of future liquidityrequirements. Derivatives arise from futures, forward, swap and option transactions undertakenby the group in the foreign exchange, interest rate and equity markets. Thecontract amounts of these instruments indicate the volume of transactionsoutstanding at the balance sheet date; they do not represent amounts at risk. Replacement cost of contracts Figures in HK$m At 30Jun05 At 30Jun04 At 31Dec04 Exchange rate contracts 35,368 26,380 54,216Interest rate contracts 39,518 35,328 41,486Other derivative contracts 2,251 1,318 1,722 77,137 63,026 97,424Less: netting adjustments (34,831) (24,115) (39,907) 42,306 38,911 57,517 The replacement cost of contracts represents the mark-to-market assets on allcontracts with a positive value, i.e. an asset to the group. This comprises themark-to-market assets on contracts with third parties and fellow subsidiarycompanies included in the balance sheet in 'Derivatives'. Replacement cost is a close approximation of the credit risk for these contractsas at the balance sheet date. The actual credit risk is measured internally asthe sum of positive mark-to-market values and an estimate for the futurefluctuation risk, using a future risk factor. The netting adjustments represent amounts where the group has in place legallyenforceable rights of offset with individual counterparties to offset the grossamount of positive mark-to-market assets with any negative mark-to-marketliabilities with the same customer. These offsets are recognised by the HongKong Monetary Authority in the calculation of risk assets for the capitaladequacy ratio. 31. Foreign exchange exposure The group had the following structural foreign currency exposures which exceeded10 per cent of the net structural foreign currency exposure in all currencies: Figures in HK$m Net structural position At 30Jun05 Chinese renminbi 21,128Indian rupees 7,603United States dollars 10,381 At 30Jun04 Australian dollars 3,330Chinese renminbi 4,361Indian rupees 4,064Korean won 2,670Singapore dollars 3,614United States dollars (50,013) At 31Dec04 Australian dollars 4,911Chinese renminbi 18,154Indian rupees 4,979Korean won 3,266Singapore dollars 3,370United States dollars (56,355)Thai baht 1,575 The group had the following non-structural foreign currency position whichexceeded 10 per cent of the group's net foreign currency non-structuralpositions in all currencies: United States Singapore BruneiFigures in HK$m dollars dollars dollars At 30Jun05Spot assets 85,892 5,470Spot liabilities (77,505) (16,318)Forward purchases 147,882 -Forward sales (145,643) - 10,626 (10,848) At 30Jun04Spot assets 983,440Spot liabilities (970,080)Forward purchases 1,487,766Forward sales (1,410,343)Net options position 892 91,675 At 31Dec04Spot assets 1,126,118 83,986 5,129Spot liabilities (1,042,445) (74,193) (15,134)Forward purchases 1,497,043 104,625 -Forward sales (1,516,913) (104,339) -Net options position (721) - - 63,082 10,079 (10,005) 32. Reconciliation of operating profit to cash generated from operations Half-year ended Half-year ended 30Jun05 30Jun04Figures in HK$m restated Operating profit 23,243 23,620Net interest income (21,410) (18,065)Dividend income (249) (111)Depreciation and amortisation 990 919Impairment provisions 516 (1,562)Advances written off, net of recoveries (1,120) (2,568)Other provisions for liabilities and charges 245 358Provisions utilised (47) (217)Employees' options granted cost free 140 100Interest received 28,409 21,966Interest paid (14,473) (8,383)Net cash inflow from trading activities 16,244 16,057 Change in treasury bills with original term to maturity of more than three months (6,609) (49,775)Change in placings with banks maturing after one month (20,867) (1,390)Change in trading assets (29,507) 5,872Change in trading liabilities 55,628 6,808Change in financial assets designated at fair value 425 -Change in financial liabilities designated at fair value (62) -Change in derivatives (7,063) 5,791Change in financial investments held for backing liabilities to long-term policyholders (5,160) (3,796)Change in advances to customers (57,847) (31,005)Change in amounts due from fellow subsidiary companies 13,872 13,148Change in deposits by banks 42,599 4,949Change in other assets (14,816) (6,297)Change in customer accounts (21,684) 11,596Change in amounts due to fellow subsidiary companies 7,530 20,668Change in amounts due to ultimate holding company 192 285Change in debt securities in issue (4,089) 16,732Change in liabilities to customers under investment contracts 912 -Change in liabilities to customers under insurance contracts 6,213 -Change in liabilities to policyholders under long-term assurance business - 5,336Change in other liabilities 27,064 8,275Exchange adjustments (54) (450)Cash generated from operations 2,921 22,804 33. Analysis of cash and cash equivalents a. Changes in cash and cash equivalents during the period Half-year ended Half-year ended 30Jun05 30Jun04Figures in HK$m restated Balance at beginning of period 411,535 316,678Net cash inflow/(outflow) before the effect of foreign exchange movements 15,739 (18)Effect of foreign exchange movements (8,151) (877)Balance at end of period 419,123 315,783 b. Analysis of balances of cash and cash equivalents Half-year ended Half-year ended 30Jun05 30Jun04Figures in HK$m restated Cash in hand and current balances with banks 62,923 63,700Placings with banks 326,210 227,456Treasury bills 26,822 22,251Certificates of deposit 3,168 2,376 419,123 315,783 c. Analysis of net outflow of cash and cash equivalents in respect of acquisition of and increased shareholding in subsidiary companies Half-year ended Half-year ended 30Jun05 30Jun04Figures in HK$m restated Cash consideration (1,872) (972)Cash and cash equivalents acquired 625 - (1,247) (972) d. Analysis of net flow of cash and cash equivalents in respect of sale of subsidiary companies Half-year ended Half-year endedFigures in HK$m 30Jun05 30Jun04 Sale proceeds 323 - 323 - 34. 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. Profit and loss account Rest of Americas/Figures in HK$m Hong Kong Asia-Pacific Europe Total 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)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 charge (2,873) (1,372) (3) (4,248)Profit after tax 15,621 4,268 26 19,915Profit attributable to minority interests (2,279) (72) - (2,351)Profit attributable to shareholders 13,342 4,196 26 17,564 Half-year ended 30Jun04 Interest income 18,238 10,187 258 28,683Interest expense (5,307) (5,084) (227) (10,618)Net interest income 12,931 5,103 31 18,065Fee income 7,068 2,930 1 9,999Fee expense (865) (740) (7) (1,612)Trading income 2,474 1,355 - 3,829Net investment income on assets backing policyholder liabilities 53 41 - 94Gains less losses from financial investments 548 34 - 582Dividend income 104 7 - 111Net earned insurance premiums 8,292 443 - 8,735Other operating income 2,704 323 4 3,031 Total operating income 33,309 9,496 29 42,834Net insurance claims incurred and movement in policyholder liabilities (6,995) (361) - (7,356)Net operating income before loan impairment charges and other credit risk provisions 26,314 9,135 29 35,478Loan impairment charges and other credit risk provisions 1,747 (185) - 1,562Net operating income 28,061 8,950 29 37,040Operating expenses (8,500) (4,905) (15) (13,420)Operating profit 19,561 4,045 14 23,620Share of profit in associates 24 - - 24Profit before tax 19,585 4,045 14 23,644Tax charge (2,929) (1,095) (3) (4,027)Profit after tax 16,656 2,950 11 19,617Profit attributable to minority interests (2,330) - - (2,330)Profit attributable to shareholders 14,326 2,950 11 17,287 Half-year ended 31Dec04 Interest income 20,296 11,590 343 32,229Interest expense (6,905) (6,171) (248) (13,324)Net interest income 13,391 5,419 95 18,905Fee income 6,649 3,136 - 9,785Fee expense (1,048) (838) (5) (1,891)Trading income 1,939 1,235 - 3,174Net investment income on assets backing policyholder liabilities 2,138 188 - 2,326Gains less losses from financial investments 813 101 1 915Dividend income 44 8 - 52Net earned insurance premiums 9,196 291 - 9,487Other operating income 1,982 403 4 2,389Total operating income 35,104 9,943 95 45,142Net insurance claims incurred and movement in policyholder liabilities (9,762) (266) - (10,028)Net operating income before loan impairment charges and other credit risk provsions 25,342 9,677 95 35,114Loan impairment charges and other credit risk provisions (63) (643) 6 (700)Net operating income 25,279 9,034 101 34,414Operating expenses (9,418) (5,363) (17) (14,798)Operating profit 15,861 3,671 84 19,616Share of profit in associates 28 247 - 275Profit before tax 15,889 3,918 84 19,891Tax charge (1,839) (1,119) (3) (2,961)Profit after tax 14,050 2,799 81 16,930Profit attributable to minority interests (2,043) (27) - (2,070)Profit attributable to shareholders 12,007 2,772 81 14,860 Interest income and interest expense for the first half of 2005 includeintra-group interest of HK$2,170 million (first half of 2004: HK$1,232 million;second half of 2004: HK$1,733 million). Fee income and fee expense for the firsthalf of 2005 include intra-group fees of HK$180 million (first half of 2004:HK$116 million; second half of 2004: HK$192 million). Other operating income andoperating expenses for the first half of 2005 include intra-group items ofHK$1,364 million (first half of 2004: HK$626 million; second half of 2004:HK$680 million). 35. Capital adequacy The table below sets out an analysis of regulatory capital and capital adequacyratios for the group. Figures in HK$m At 30Jun05 At 30Jun04^ At 31Dec04^ Composition of capital Tier 1:Shareholders' funds 93,216 124,346 147,495Less: proposed dividend (6,000) (4,750) (4,800) property revaluation reserves^^^ (7,158) (10,856) (11,907) available-for-sale investments and equity revaluation (2,395) (1,070) (1,609) reserves classified as regulatory reserve (1,017) - - term preference shares - (3,900) (3,886) goodwill (6,043) (1,718) (5,771) others 2,244 - -Irredeemable non-cumulative preference shares 51,718 - -Minority interests^^ 14,666 14,318 14,384Total qualifying tier 1 capital 139,231 116,370 133,906 Tier 2:Property revaluation reserves (@70%) 5,011 7,599 7,977Available-for-sale investments and equity revaluation reserves (@70%) 1,677 749 1,126Collective impairment provision and regulatory reserve 4,351 2,623 2,447Perpetual subordinated debt 9,404 9,360 9,328Term subordinated debt 4,160 1,997 1,814Term preference shares 3,887 3,120 3,109Irredeemable cumulative preference shares 7,373 - -Total qualifying tier 2 capital 35,863 25,448 25,801 Deductions (25,640) (8,634) (20,251) Total capital 149,454 133,184 139,456 Risk-weighted assets 1,221,620 1,068,628 1,173,432 ^ Comparative amounts for 30 June 2004 and 31 December 2004 are as previously reported.^^ After deduction of minority interests in unconsolidated subsidiary companies. ^^^ Includes the revaluation surplus on investment properties which is now reported as part of retained profits. 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 30Jun05 At 30Jun04 At 31Dec04 Total capital 12.2% 12.5% 11.9% Tier 1 capital 11.4% 10.9% 11.4% The group's capital adequacy ratios calculated in accordance with theprovisions of the Third Schedule of the Banking Ordinance, which does not take into account market risks, are as follows: Total capital 12.1% 12.4% 11.9% Tier 1 capital 11.2% 10.8% 11.4% 36. 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 30Jun05 30Jun04 31Dec04 The average liquidity ratio for the period was as follows: Hong Kong branches of the bank 48.6% 40.4% 41.7% 37. Property revaluation The group's premises and investment properties were revalued as at 30 June 2005on the basis of open market value. Premises and investment properties in the Hong Kong SAR were valued by DTZDebenham Tie Leung at 30 June 2005. 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 September2004, 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$1,504 million, net of deferred taxation of HK$410 million, as at30 June 2005, and a credit to the profit and loss account of HK$1,038 million,of which HK$736 million represents the surplus on the revaluation of investmentproperties and HK$302 million relates to the reversal of previous revaluationdeficits that had arisen when the value of certain premises fell belowdepreciated historical cost. 38. Transition to new Hong Kong Financial Reporting Standards and comparative figures The group has adopted the new Hong Kong Financial Reporting Standards and HongKong Accounting Standards ('new HKFRS') which are equivalent to the newInternational Financial Reporting Standards, and are effective for accountingperiods beginning on or after 1 January 2005. Comparative numbers have been restated to conform with the new accountingpolicies, except for those applicable to financial instruments and insurancecontracts (HKAS 39 and HKFRS 4 respectively). Included in the appendix to thisnews release is the reconciliation of the consolidated income statements for thefirst and second half of 2004 and of the consolidated balance sheets at 30 June2004 and 31 December 2004, as previously reported and as restated, showing theeffects of the adoption of the new HKFRS (except HKAS 39 and HKFRS 4). Alsoincluded in the appendix is the restatement of the opening consolidated balancesheet at 1 January 2005, showing the effects of the adoption of HKAS 39 andHKFRS 4. 39. Accounting policies The accounting policies adopted in 2005 and 2004 are detailed in the appendix tothis news release. This information is provided by RNS The company news service from the London Stock Exchange