HSBC Holdings Regulatory News (HSBA)

6 Mar 2006 08:15

HSBC Holdings PLC06 March 2006 HANG SENG BANK LIMITED 2005 RESULTS - HIGHLIGHTS • Total operating income up 17.3 per cent to HK$23,246 million (HK$19,825 million in 2004). • Operating profit excluding loan impairment charges and other credit risk provisions down 1.1 per cent to HK$11,686 million (HK$11,821 million in 2004). • Pre-tax profit up 0.6 per cent to HK$13,358 million (HK$13,283 million in 2004). • Attributable profit down 0.2 per cent to HK$11,342 million (HK$11,364 million in 2004). • Return on average shareholders' funds of 27.5 per cent (28.5 per cent in 2004). • Assets up 6.2 per cent to HK$580.8 billion (HK$546.9 billion at 31Dec04). • Earnings per share down 0.2 per cent to HK$5.93 (HK$5.94 per share in 2004). • Fourth interim dividend of HK$1.90 per share; total dividends of HK$5.20 per share for 2005 (HK$5.20 per share in 2004). • Total capital ratio of 12.8 per cent (12.0 per cent at 31Dec04); tier 1 capital ratio of 10.4 per cent (10.8 per cent at 31Dec04). • Cost efficiency ratio of 28.0 per cent (26.4 per cent in 2004). Note: Comparative figures have been restated to reflect the adoption of a numberof new and revised Hong Kong Financial Reporting Standards and Hong KongAccounting Standards, details of which are set out in the Appendix. Within this document, the Hong Kong Special Administrative Region of thePeople's Republic of China has been referred to as 'Hong Kong'. Comment by Michael Smith, Chairman "In 2005, Hang Seng's operating profit excluding loan impairment charges andother credit risk provisions was HK$11,686 million, a decrease of 1.1 per cent. "Attributable profit decreased 0.2 per cent to HK$11,342 million. The 2005figure benefited from a HK$1.2 billion revaluation surplus on group investmentproperties. The 2004 figure included a HK$812 million release of generalprovisions. "At the customer group level, Personal Financial Services recorded an operatingprofit excluding loan impairment charges of HK$7,436 million, an increase of10.7 per cent, reflecting an 18 per cent rise in net interest income and a 17.9per cent expansion of our insurance business as well as increases in cards,residential mortgages (excluding Government Home Ownership Scheme mortgages),and other consumer lending. Commercial Banking recorded an operating profitexcluding loan impairment charges of HK$1,647 million, an increase of 11.3 percent, due primarily to growth in net interest income, supported by an increasein advances to customers. Corporate and Institutional Banking saw operatingprofit excluding loan impairment charges decline by 19.1 per cent to HK$554million. High levels of liquidity together with limited corporate demand forloans put pressure on corporate lending margins. Treasury recorded a 50.3 percent decline in operating profit excluding loan impairment charges to HK$1,183million, marked by a sustained rise in funding costs and a flattening of yieldcurves for all major currencies. "Investment in future business growth saw operating expenses increase 7.4 percent to HK$4,546 million. Staff numbers increased to support the growth of ourPersonal Financial Services and Commercial Banking businesses. "Our mainland China network reached 12 outlets, with new openings in Shenzhen,Shanghai and Dongguan. The Bank's 15.98 per cent investment in Industrial Bankcontributed HK$358 million to profits. "The Hong Kong economy is expected to continue on an upward trend in 2006,albeit at a slower pace. The anticipated upbeat trade growth on the Mainlandwill help drive merchandise and service export activity. The improving labourmarket will boost consumer purchasing power. However, risks and uncertaintiessuch as higher oil prices and US interest rate trends may create new challenges. "Against this backdrop, we will focus on further expansion on the Mainland andcontinue to develop areas such as wealth management and consumer and tradefinance, in which we have competitive strengths." Results summary Hang Seng Bank Limited ('the bank') and its subsidiaries and associates ('thegroup') reported an audited profit attributable to shareholders of HK$11,342million for 2005, representing a marginal decline of 0.2 per cent compared with2004. Earnings per share was HK$5.93 (HK$5.94 in 2004). Operating income Total operating income rose by HK$3,421 million, or 17.3 per cent, to HK$23,246million, underpinned by the strong growth in net interest income and netpremiums earned on life insurance business. - Net interest income increased by HK$1,063 million, or 10.6 per cent, comparedwith 2004, with an increase of 5.2 per cent in average interest-earning assets.Net interest margin improved by 11 basis points to 2.19 per cent, benefitingfrom widening of deposit spreads, contribution made by net free funds, and thegrowth in customer advances, particularly higher yielding cards and personal andSME loans, outweighing the compression of spreads on treasury investment andmoney market portfolios, and the fall in mortgage portfolio yields. - Net fee income fell by HK$551 million, or 16.1 per cent, due mainly to lowersales of longer-term capital-guaranteed funds. Private banking investment andadvisory income, card services income, and insurance agency commissions,however, recorded encouraging growth. - Net trading income was down HK$534 million, or 48.0 per cent, compared with2004. This was mainly due to certain changes in accounting presentation in theinclusion of net interest expense of HK$306 million and revaluation losses ofHK$145 million on forward foreign exchange contracts linked to money markettransactions. - Net earned insurance premiums rose by HK$3,445 million, or 77.9 per cent, over2004, reflecting the strong growth of 66.4 per cent in life insurance annualisedpremiums. Net insurance claims incurred and movement in policyholder liabilitiesrose by HK$3,242 million, or 85.9 per cent, over 2004, in line with the growthin the portfolios of life insurance policies in force. - Net operating income before loan impairment charges and other credit riskprovisions rose by HK$179 million, or 1.1 per cent, to HK$16,232 million. Operating profit Operating profit excluding loan impairment charges and other credit riskprovisions declined by HK$135 million, or 1.1 per cent, compared with 2004.Operating profit fell by HK$1,530 million, or 12.1 per cent. Loan impairment charges and other credit risk provisions amounted to HK$618million, compared with a total net release of HK$777 million for 2004, whichincluded a release in general provisions of HK$812 million in 2004. Operating expenses rose by HK$314 million, or 7.4 per cent, compared with 2004.Staff costs increased by 2.1 per cent, reflecting an increase in staff number of303, primarily to strengthen the customer relationship teams of wealthmanagement and commercial banking, and to support the expansion of the group'smainland China network. The group continued to invest in information technologydevelopment to support business growth, and increased its marketing expenditureto promote card and insurance products. Attributable profit At HK$13,358 million, pre-tax profit was HK$75 million, or 0.6 per cent, higherthan the previous year after accounting for the increase in profit from thedisposal of fixed assets and long-term investments, the surplus on propertyrevaluation and the share of profits from associates, primarily the group'smainland associate, Industrial Bank Co., Ltd. ('Industrial Bank'). Attributableprofit after taxation and minority interests fell marginally by HK$22 million,or 0.2 per cent. Balance sheet and key ratios At 31Dec05, total assets were HK$580.8 billion, an increase of HK$33.9 billion,or 6.2 per cent. Advances to customers grew by 3.6 per cent, mainly reflectingthe rise in cards and personal advances, and growing demand from the propertyand manufacturing sectors. Loan portfolios of the mainland branches also grewsignificantly. Customer deposits and certificates of deposit and other debtsecurities in issue increased by 3.4 per cent. At 31Dec05, theadvances-to-deposits ratio was 54.4 per cent, compared with 54.3 per cent a yearearlier. Shareholders' funds (excluding proposed dividends) rose by HK$1,642 million, or4.4 per cent, to HK$38,938 million at 31Dec05, attributable mainly to theincrease in retained profits. The return on average total assets was 2.0 per cent (2.2 per cent in 2004). Thereturn on average shareholders' funds was 27.5 per cent (28.5 per cent in 2004). The group maintained a strong capital position. Total and tier 1 capital ratiosat 31Dec05 were 12.8 per cent and 10.4 per cent respectively, compared with 12.0per cent and 10.8 per cent at the same time in 2004. During the year,subordinated debts qualifying as tier 2 capital were raised to improve thecomposition of the capital base and enhance capital efficiency. The cost efficiency ratio, calculated as total operating expenses to netoperating income before loan impairment (charges)/releases and other credit riskprovisions, was maintained at a low level of 28.0 per cent, reflecting thegroup's operating efficiency. The cost efficiency ratio for 2004 was 26.4 percent. Dividends The Directors have declared a fourth interim dividend of HK$1.90 per share,which will be payable on 31 March 2006 to shareholders on the register ofshareholders as of 21 March 2006. Together with the interim dividends for thefirst three quarters, the total distribution for 2005 will amount to HK$5.20 pershare, the same as in 2004. Customer group performance Personal Corporate & Inter- Financial Commercial Institutional segmentFigures in HK$m Services Banking Banking Treasury Other elimination Total Year ended 31Dec05 Net interest income 7,100 1,587 612 858 514 397 11,068Net fee income 2,101 666 79 (21) 49 - 2,874Net trading income 367 134 6 503 - (431) 579Net income/(loss)from financial instruments designated at fair value (33) - - 5 (4) 34 2Dividend income 5 5 - - 50 - 60Net earned insurance premiums 7,642 223 - - - - 7,865Other operating income 562 25 4 - 207 - 798Inter-segment income - - - - 308 (308) -Total operating income 17,744 2,640 701 1,345 1,124 (308) 23,246Net insurance claims incurred and movement in policyholder liabilities (6,964) (50) - - - - (7,014)Net operating income before loan impairment(charges)/ releases and other credit risk provisions 10,780 2,590 701 1,345 1,124 (308) 16,232Loan impairment(charges)/ releases and other credit risk provisions 232 (803) (47) - - - (618)Net operating income 11,012 1,787 654 1,345 1,124 (308) 15,614 Total operating expenses^ (3,086) (903) (142) (157) (258) - (4,546)Inter-segment expenses (258) (40) (5) (5) - 308 -Operating profit 7,668 844 507 1,183 866 - 11,068Profit on disposal of fixed assets and financial investments - - - (217) 694 - 477Net surplus on property revaluation - - - - 1,313 - 1,313Share of profits from associates 18 234 - 106 142 - 500Profit before tax 7,686 1,078 507 1,072 3,015 - 13,358Share of pre-tax profit 57.5% 8.1% 3.8% 8.0% 22.6% - 100.0% Operating profit excluding inter-segment transactions 7,926 884 512 1,188 558 - 11,068 Operating profit excluding loan impairment (charges)/ releases and other credit risk provisions 7,436 1,647 554 1,183 866 - 11,686 ^Depreciation/amortisation included in operating expenses (103) (13) (3) (2) (168) - (289) At 31Dec05 Total assets 152,086 54,319 77,514 266,645 30,256 - 580,820Total liabilities 372,941 77,249 31,672 33,541 21,687 - 537,090Investments in associates 116 1,454 - 657 702 - 2,929Capital expenditure incurred during the year 107 20 7 2 95 - 231 Personal Corporate & Inter- Financial Commercial Institutional segment TotalFigures in HK$m Services Banking Banking Treasury Other elimination restated Year ended 31Dec04 Net interest income 6,016 1,332 596 1,854 207 - 10,005Net fee income 2,465 731 208 (19) 40 - 3,425Net trading income 276 125 7 706 (1) - 1,113Dividend income 28 6 - - 55 - 89Net earned insurance premiums 4,177 243 - - - - 4,420Other operating income 531 27 2 1 212 - 773Inter-segment income - - - - 320 (320) -Total operating income 13,493 2,464 813 2,542 833 (320) 19,825Net insurance claims incurred and movement in policyholder liabilities (3,691) (81) - - - - (3,772)Net operating income before loan impairment releases and other credit risk provisions 9,802 2,383 813 2,542 833 (320) 16,053Loan impairment releases and other credit risk provisions 51 596 130 - - - 777Net operating income 9,853 2,979 943 2,542 833 (320) 16,830 Total operating expenses^ (2,826) (850) (122) (158) (276) - (4,232)Inter-segment expenses (256) (53) (6) (5) - 320 -Operating profit 6,771 2,076 815 2,379 557 - 12,598Profit on disposal of fixed assets and financial investments - - - (4) 446 - 442Net surplus on property revaluation - - - - 146 - 146Share of profits from associates 4 45 - 20 28 - 97Profit before tax 6,775 2,121 815 2,395 1,177 - 13,283Share of pre-tax profit 51.0% 16.0% 6.1% 18.0% 8.9% - 100.0% Operating profit excluding inter-segment transactions 7,027 2,129 821 2,384 237 - 12,598 Operating profit excluding loan impairment releases and other credit risk provisions 6,720 1,480 685 2,379 557 - 11,821 ^Depreciation/amortisation included in operating expenses (104) (18) (2) (2) (138) - (264) At 31Dec04 Total assets 142,579 46,684 77,353 256,368 23,963 - 546,947Total liabilities 353,062 77,680 25,150 21,553 27,721 - 505,166Investments in associates 94 1,123 - 491 591 - 2,299Capital expenditure incurred during the year 104 17 2 2 23 - 148 Personal Financial Services ('PFS') reported a pre-tax profit of HK$7,686million, representing growth of 13.4 per cent over 2004, and 57.5 per cent oftotal pre-tax profit. This strong performance was underpinned by the buoyanteconomy and active property market, which boosted card spending, mortgages andconsumer loan demand. Net interest income rose significantly by 18.0 per cent,as deposit spreads improved with the steady rise in interest rates and theexpansion of the card and consumer lending portfolios. Mortgage business, otherthan that under the suspended GHOS Scheme, grew in an active but intenselycompetitive market. The mortgage portfolio yield stabilised in the second halfof the year as mortgage pricing levels gradually moved up. Substantial releasesof mortgage and personal lending loan impairment charges under a benign creditenvironment also contributed to the improved performance of PFS. PFS continued to focus on wealth management business. The slowdown in sales ofcapital-guaranteed funds under a rising interest rate environment wascompensated by increased sales of market-linked instruments. Private bankingbusiness recorded encouraging growth in both customer numbers and assetmanagement portfolios. Life insurance achieved an increase of 66.4 per cent inannualised premiums and increased its market share. The growth momentumaccelerated in the second half of 2005 with the launch of new products such asthe 'Three Year Express Wealth' life insurance plan, which providescomprehensive life cover and good potential investment returns, with the addedbenefit of a short payment term. Hang Seng Life Limited was among the marketfront-runners in the launch of annuity products designed to tap the largeretirement planning market. PFS business of the mainland branches reported good progress in the expansion ofcustomer base, deposits and mortgage loan growth. Commercial Banking ('CMB') achieved a growth of 11.3 per cent in operatingprofit excluding loan impairment charges, due primarily to encouraging growth of19.1 per cent in net interest income, driven by the increase of 15.5 per cent incustomer advances. Pre-tax profit of HK$1,078 million was down by 49.2 per centcompared with 2004, representing 8.1 per cent of group pre-tax profit. The fallwas attributable mainly to a small number of large loan impairment chargescompared with a net release in 2004. In 2005, CMB further refined its segmentation strategy. The management ofrelationships with middle-market enterprises ('MME') became even more focused byappointing major customer relationship managers to serve the customers'sophisticated financing needs. Business banking centres and sales managementteams were further strengthened to deepen relationships with small andmedium-sized enterprises ('SME') and increase product penetration. The development of CMB business was also driven by the expansion of our mainlandbranch network and loan portfolios. The results of CMB include the share ofprofit of HK$234 million from Industrial Bank, which has a large and growingcommercial banking business. Corporate and Institutional Banking ('CIB') recorded a pre-tax profit of HK$507million, 37.8 per cent lower than 2004, accounting for 3.8 per cent of totalpre-tax profit. Operating profit excluding loan impairment charges was down 19.1per cent, as the high levels of liquidity in the market, together with limitedcorporate demand for loans, put pressure on corporate lending margins. CIB hasbeen diversifying its resources away from mainly corporate lending to morecomprehensive corporate financing and the provision of treasury services incollaboration with Treasury's corporate services unit. It is also in the processof rationalising its loan portfolio towards business with higher margins. Treasury experienced a very tough operating environment in 2005 with thesustained rise in funding costs and flattening of yield curves for all majorcurrencies. The decline in net trading income was also attributable to therevaluation loss of certain financial instruments which failed to satisfy thehedging criteria of the new accounting standards. Pre-tax profit fell by 55.2per cent to HK$1,072 million, contributing 8.0 per cent to total pre-tax profit.On the mainland side, Treasury has made good progress in providing treasuryservices to corporate customers and structured deposits products for personalcustomers. Other showed a significant increase of 156.2 per cent in pre-tax profit. Thiswas mainly attributable to the surplus on revaluation of properties, and theimproved return on shareholders' funds following the rise in market interestrates. Contents The financial information in this news release is based on the auditedconsolidated accounts of Hang Seng Bank Limited ('the bank') and itssubsidiaries and associates ('the group') for the year ended 31Dec05. .....Highlights of Results and Chairman's Comment.....Contents.....Consolidated Income Statement.....Consolidated Balance Sheet.....Consolidated Statement of Changes in Equity.....Economic Profit.....Consolidated Cash Flow Statement.....Financial Review..........Net interest income..........Net fee income..........Net trading income..........Net income from financial instruments designated at fair value..........Other operating income..........Analysis of income from wealth management businesses..........Loan impairment (charges)/releases and other credit risk provisions..........Operating expenses..........Profit on disposal of fixed assets and financial investments..........Tax expenses..........Earnings per share..........Dividends per share..........Segmental analysis..........Analysis of financial assets and liabilities by accounting classification..........Analysis of assets and liabilities by remaining maturity..........Cash and balances with banks and other financial institutions..........Placings with and advances to banks and other financial institutions..........Trading assets..........Financial assets designated at fair value..........Advances to customers..........Loan impairment allowances against advances to customers..........Impaired advances/non-performing advances and allowances..........Overdue advances..........Rescheduled advances..........Segmental analysis of advances to customers by geographical area..........Gross advances to customers by industry sector..........Financial investments..........Amount due from/to immediate holding company and fellow subsidiary companies..........Investments in associates..........Intangible assets..........Other assets..........Current, savings and other deposit accounts..........Certificates of deposit and other debt securities in issue..........Trading liabilities..........Other liabilities..........Subordinated liabilities..........Shareholders' funds..........Capital resources management..........Liquidity ratio..........Reconciliation of cash flow statement..........Contingent liabilities, commitments and derivatives..........Cross-border claims..........Statutory accounts and accounting policies..........Comparative figures..........Property revaluation..........Market risk..........Foreign currency positions..........Ultimate holding company..........Register of shareholders..........Proposed timetable for 2006 quarterly dividends..........News release Appendix Consolidated Income Statement Year ended 31Dec05 31Dec04Figures in HK$m restated Interest income 19,029 12,782Interest expense (7,961) (2,777)Net interest income 11,068 10,005Fee income 3,394 3,841Fee expense (520) (416)Net fee income 2,874 3,425Net trading income 579 1,113Net income from financial instruments designated at fair value 2 -Dividend income 60 89Net earned insurance premiums 7,865 4,420Other operating income 798 773Total operating income 23,246 19,825Net insurance claims incurred and movement in policyholder liabilities (7,014) (3,772)Net operating income before loan impairment (charges)/releases and other credit risk provisions 16,232 16,053Loan impairment (charges)/releases and other credit risk provisions (618) 777Net operating income 15,614 16,830Employee compensation and benefits (2,281) (2,234)General and administrative expenses (1,976) (1,734)Depreciation of premises, plant and equipment (280) (256)Amortisation of intangible assets (9) (8)Total operating expenses (4,546) (4,232)Operating profit 11,068 12,598Profit on disposal of fixed assets and financial investments 477 442Net surplus on property revaluation 1,313 146Share of profits from associates 500 97Profit before tax 13,358 13,283Tax expenses (1,795) (1,711)Profit for the year 11,563 11,572Profit attributable to minority interests (221) (208)Profit attributable to shareholders 11,342 11,364 Dividends 9,942 9,942 Figures in HK$Earnings per share 5.93 5.94Dividends per share 5.20 5.20 Consolidated Balance Sheet At 31Dec04Figures in HK$m At 31Dec05 restated AssetsCash and balances with banks and other financial institutions 9,201 7,248Placings with and advances to banks and other financial institutions 69,286 75,079Trading assets 12,600 4,232Financial assets designated at fair value 6,027 -Derivative financial instruments 1,715 1,684Advances to customers 260,680 251,553Financial investments 189,904 184,706Investments in associates 2,929 2,299Investment properties 4,273 3,383Premises, plant and equipment 6,750 5,558Interest in leasehold land held for own use under operating lease 594 609Intangible assets 1,636 1,266Other assets 15,225 9,330 580,820 546,947 LiabilitiesCurrent, savings and other deposit accounts 430,995 447,460Deposits from banks 12,043 11,934Trading liabilities 45,804 5,840Financial liabilities designated at fair value 967 -Derivative financial instruments 1,792 1,273Certificates of deposit and other debt securities in issue 10,023 16,055Other liabilities 14,138 11,740Liabilities to customers under investment contracts 561 540Liabilities to customers under insurance contracts 15,335 8,656Deferred tax and current tax liabilities 1,921 1,668Subordinated liabilities 3,511 - 537,090 505,166 Capital resourcesMinority interests 1,159 852Share capital 9,559 9,559Retained profits 26,052 23,856Other reserves 3,327 3,881Proposed dividends 3,633 3,633Shareholders' funds 42,571 40,929 43,730 41,781 580,820 546,947Figures in HK$Net asset value per share 22.87 21.85 Consolidated Statement of Changes in Equity Attributable to shareholders Total Share Other Retained Proposed Minority equityFigures in HK$m capital reserves profits dividends Total interests restated Balance at 01Jan05- As above 9,559 3,881 23,856 3,633 40,929 852 41,781- Opening adjustment for the adoption of HKAS 39 - 532 533 - 1,065 (14) 1,051- As restated 9,559 4,413 24,389 3,633 41,994 838 42,832 Property revaluation reserve, net of tax - 765 107 - 872 - 872- Unrealised surplus on revaluation - 863 - - 863 - 863- Depreciation charge on revaluation - (58) 58 - - - -- Realisation of revaluation surplus on disposal of premises - (40) 49 - 9 - 9 Available-for-sale investments, net of tax - (1,475) - - (1,475) - (1,475)- Revaluation losses taken to equity - (988) - - (988) - (988)- Transferred to income statement on disposal - (487) - - (487) - (487) Cash flow hedges, net of tax - (492) - - (492) - (492)- Revaluation losses taken to equity - (492) - - (492) - (492) Exchange and other adjustments - 52 (2) - 50 - 50 Actuarial gains on defined benefit plans - - 158 - 158 - 158 Employees' options granted cost-free by ultimate holding company - 64 - - 64 - 64 Increase in subsidiary's capital - - - - - 100 100 Profit for the year - - 11,342 - 11,342 221 11,563 Dividends proposed during the year - - (9,942) 9,942 - - - Dividends approved and declared during the year - - - (9,942) (9,942) - (9,942) Balance at 31Dec05 9,559 3,327 26,052 3,633 42,571 1,159 43,730 Attributable to shareholders Total Share Other Retained Proposed Minority equityFigures in HK$m capital reserves profits dividends Total interests restated Balance at 01Jan04- As previously reported 9,559 6,921 19,720 3,441 39,641 644 40,285- Arising on change in accounting policies - (3,679) 2,255 - (1,424) - (1,424)- As restated 9,559 3,242 21,975 3,441 38,217 644 38,861 Property revaluation reserve, net of tax - 664 711 - 1,375 - 1,375- Unrealised surplus on revaluation - 712 637 - 1,349 - 1,349- Depreciation charge on revaluation - (46) 46 - - - -- Realisation of revaluation surplus on disposal of premises - (2) 28 - 26 - 26 Long-term equity investment revaluation reserve, net of tax - (74) - - (74) - (74)- Revaluation gains taken to equity - 332 - - 332 - 332- Transferred to income statement on disposal - (406) - - (406) - (406) Exchange and other adjustments - 3 6 - 9 - 9 Actuarial loss on defined benefit plans - - (258) - (258) - (258) Employees' options granted cost-free by ultimate holding company - 46 - - 46 - 46 Profit for the year - - 11,364 - 11,364 208 11,572 Dividends proposed during the year - - (9,942) 9,942 - - - Dividends approved and declared during the year - - - (9,750) (9,750) - (9,750) Balance at 31Dec04 9,559 3,881 23,856 3,633 40,929 852 41,781 Economic Profit Economic profit is calculated from post-tax profit, adjusted for any surplus/deficit arising from property revaluation and depreciation attributable to therevaluation surplus, and takes into account the cost of capital invested by thebank's shareholders. For the year 2005, economic profit was HK$6,084 million, adecrease of HK$1,291 million, or 17.5 per cent, as compared with 2004. Post-taxprofit, adjusted for the property revaluation surplus net of deferred tax(HK$1,083 million) and depreciation attributable to the revaluation surplus(HK$44 million), fell by HK$1,023 million, due to a large release in generalprovisions in the same period in 2004. The cost of capital rose by HK$277million, in line with the growth in invested capital. The economic profit figureindicates that the bank continues to create value for its shareholders. Year ended 31Dec05 31Dec04 restated HK$m % HK$m % Average invested capital 36,000 34,084 Return on invested capital^ 10,303 28.6 11,317 33.2Cost of capital (4,219) (11.7) (3,942) (11.6)Economic profit 6,084 16.9 7,375 21.6 ^Return on invested capital is based on post-tax profit excluding any surplus/deficit arising from property revaluation and depreciation attributable to therevaluation surplus. 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