Hang Seng Bank 2014 Interim Results

Contents

 

The financial information in this news release is based on the unaudited consolidated financial statements of Hang Seng Bank Limited ('the bank') and its subsidiaries ('the group') for the six months ended 30 June 2014.

 

1          Highlights of Results

2          Contents

4          Chairman's Comment

5          Chief Executive's Review

7          Results Summary

11        Segmental Analysis

19        Consolidated Income Statement

20        Consolidated Statement of Comprehensive Income

21        Consolidated Balance Sheet

22        Consolidated Statement of Changes in Equity

24        Consolidated Cash Flow Statement

25        Financial Review

25        Net interest income

27        Net fee income

28        Net trading income

29        Net income/(loss) from financial instruments designated at fair value

29        Other operating income

30        Analysis of income from wealth management business

31        Analysis of insurance business income

32        Loan impairment charges and other credit risk provisions

33        Operating expenses

34        Gains less losses from financial investments and fixed assets

34        Net gain on reclassification of Industrial Bank Co., Ltd. ('Industrial Bank')

and Yantai Bank Co., Ltd. ('Yantai Bank')

35        Tax expense

36        Earnings per share

36        Dividends per share

36        Segmental analysis

39        Cash and balances at central banks

39        Placings with and advances to banks

40        Trading assets

41        Financial assets designated at fair value

42        Loans and advances to customers

42        Loan impairment allowances against loans and advances to customers

43        Impaired loans and advances to customers and allowances

44        Overdue loans and advances to customers

44        Rescheduled loans and advances to customers

            45        Segmental analysis of loans and advances to customers by geographical area

            46        Gross loans and advances to customers by industry sector

48        Financial investments

50        Interest in associates

50        Intangible assets

50        Other assets

51        Current, savings and other deposit accounts

51        Certificates of deposit and other debt securities in issue

52        Trading liabilities

52        Other liabilities

53        Subordinated liabilities

54        Shareholders' funds

55        Capital management

60        Liquidity ratio

60        Reconciliation of cash flow statement

61        Contingent liabilities, commitments and derivatives

65        Statutory accounts and accounting policies

66        The New Hong Kong Companies Ordinance (Cap. 622)

66        Changes in presentation

67        Comparative figures

67        The appointment of PricewaterhouseCoopers LLP ('PwC') as the group's auditor 

68        Accounting treatment for Industrial Bank and Yantai Bank

69        Property revaluation

70        Foreign currency positions

71        Ultimate holding company

71        Register of shareholders

72        Proposed timetable for the remaining 2014 quarterly dividends

72        Code on corporate governance practices

72        Board of Directors

73        News release

 

 

Comment by Raymond Ch'ien, Chairman

With developments in the global and regional economies continuing to create uncertain market conditions - particularly in the early part of the year - Hang Seng Bank maintained good growth momentum in the first half of 2014. We reinforced our reputation for service excellence and further strengthened customer relationships by enhancing our portfolio of products and services, leveraging the close cross-border connectivity of our network and improving service channels and operational efficiency.

Operating profit increased by 6% to HK$9,496m. However, the impact of our reclassification of Industrial Bank in 2013 saw profit attributable to shareholders and earnings per share both fall by 54% to HK$8,468m and HK$4.43 respectively. Excluding the Industrial Bank reclassification, profit attributable to shareholders and earnings per share were both down 5%, reflecting a HK$769m decrease in the net surplus on property revaluation.

Return on average shareholders' funds was 15.9%, compared with 35.9% in the first half of 2013. Excluding the Industrial Bank reclassification, return on average shareholders' funds was 16.6%, compared with 19.0% in the first half of last year.

The Directors have declared a second interim dividend of HK$1.10 per share, bringing the total distribution for the first half of 2014 to HK$2.20 per share, the same as in the first half of 2013.

Economic environment

The global economy recorded a slow start in 2014, with emerging market equities and currencies falling sharply in January and harsh winter conditions in the US contributing to a first-quarter contraction in its economy. Looking ahead, improved economic conditions in the second quarter and ongoing recovery in the eurozone region are providing cause for cautious optimism, although the European Central Bank continues to take action to prevent inflation from falling further below its target.

Hong Kong's economy expanded by 2.5% in the first quarter, compared with a 2.9% increase for 2013. Domestic demand continued to be a major growth driver, although household spending appears to have slowed after years of outpacing overall economic expansion. With the recent improvement in the global economy, trade activity is likely to rebound in the second half of the year and we expect Hong Kong's real GDP to grow by 3.3% for the year.

After first-quarter GDP growth of 7.4%, mainland China's economy achieved growth of 7.5% in the second quarter, suggesting that targeted measures by the government are succeeding in stimulating growth. While property investment may remain weak for some time, a recovery in developed economies should see demand for exports increase in the second half and we expect the mainland economy to expand by 7.4% for 2014.

Challenges such as the rolling back of quantitative easing measures in the US will continue to create downside risks, but closer economic integration in the Greater China region and Hong Kong's position as a primary centre for offshore renminbi financial services will create new business opportunities.

We will continue with initiatives to leverage our competitive strengths and to improve efficiency across our business to generate increasing value for our customers and shareholders.

 

Review by Rose Lee, Vice-Chairman and Chief Executive

Under challenging operating conditions, Hang Seng Bank achieved good growth, with increases in income and profit across all business groups, in the first half of 2014.

Operating profit excluding loan impairment charges rose by 8% to HK$9,833m compared with the first half of 2013. Operating profit increased by 6% to HK$9,496m. Compared with the second half of last year, which benefited from HK$995m in dividend income from Industrial Bank, operating profit excluding loan impairment charges and operating profit were both broadly unchanged. Excluding the dividend impact from Industrial Bank, operating profit grew by 12%.

The accounting gain on Industrial Bank's reclassification in 2013 and lower gains from property disposal and revaluation resulted in a 54% drop in profit attributable to shareholders to HK$8,468m and a 47% decline in profit before tax to HK$9,877m. Compared with the second half of 2013, profit attributable to shareholders and profit before tax increased by 3% and 2% respectively.

Leveraging our trusted brand and strong market position, we strategically deployed resources and implemented customer-focused initiatives to support sustainable growth in our core business lines and enhance our cross-border and renminbi-related propositions.

In April, we further enriched our wealth management proposition with the signing of an exclusive 10-year distribution agreement with international healthcare company Bupa, under which a range of bespoke medical insurance products and services will be offered to Hang Seng customers.

We upgraded our branch network and increased our number of Prestige and Preferred Banking Centres to better serve the needs of targeted commercial and wealth clients.

The new Hang Seng Bank (China) Ltd outlets in Chengdu and the Shanghai Free Trade Zone extended our cross-border network, strengthening our ability to capture new business opportunities in mainland China. In June, Hang Seng China successfully raised RMB1bn in Hong Kong through its debut offshore renminbi bond issue with a positive response from a diverse group of investors.

Net interest income increased by 8% to HK$9,671m, underpinned by a 4% increase in average interest-earning assets and an 8-basis-point improvement in net interest margin to 1.92%. In competitive market conditions, we continued to focus on quality assets and good balance sheet management, recording a 5% increase in average customer deposits and an 8% rise in average customer loans and advances.

Non-interest income grew by 7% to HK$4,802m, benefiting from the 4% increase in net fee income. Our diverse range of products and swift response to the changing market generated a 4% rise in wealth management income amidst uncertain market conditions.

Our cost efficiency ratio improved to 32.1% - down 10 basis points and 50 basis points compared with the first and second halves of 2013 respectively.

On 30 June 2014, our total capital ratio under Basel III was 14.2% and our common equity
tier 1 and tier 1 capital ratios were both 11.8%, compared with 15.8% and 13.8% respectively at 2013 year end.

Aligned for sustainable growth

We are committed to driving long-term business growth by upholding service excellence. We will continue to provide a premium customer experience and remain well positioned to respond effectively to new business opportunities, proactively manage emerging risks and maintain high standards of corporate governance.

We will build on our strong brand and market leadership to generate balanced growth with further investments in technology, staff development and our cross-border network and capabilities.

Our long-term success is closely aligned with the economic growth and well-being of our communities. We will continue to emphasise long-term relationships and our commitment to corporate responsibility.

I would like to take this opportunity to thank our staff for their dedication and contribution to our business success. Their commitment and drive will ensure that we will continue to sustain quality growth in our core businesses to the benefit of our customers and shareholders.

 

Results summary

 

Hang Seng Bank Limited ('the bank') and its subsidiaries ('the group') reported an unaudited profit attributable to shareholders of HK$8,468m for the first half of 2014, down 54.1% compared with the first half of 2013 which benefited from the HK$9,517m accounting gain on the reclassification of Industrial Bank Co., Ltd ('Industrial Bank'). Earnings per share were down 54.1% at HK$4.43. Excluding the Industrial Bank reclassification, attributable profit fell by 5.4% mainly due to lower property revaluation gains. Attributable profit rose by 3.1% when compared with the second half of 2013.

 

Operating profit excluding loan impairment charges and other credit risk provisions grew by HK$701m, or 7.7%, to HK$9,833m. This reflected growth in net interest income, driven by balance sheet growth and increased non-interest income from wealth management businesses. Under challenging operating conditions, the bank achieved good growth, with increases in income and profit across all business groups in the first half of 2014. Compared with the second half of 2013, operating profit excluding loan impairment charges and other credit risk provisions remained broadly unchanged. Excluding the dividend received from Industrial Bank, operating profit excluding loan impairment charges and other credit risk provisions grew by 11.5%, driven by the growth in both net interest income and non-interest income together with lower operating expenses.

 

Net interest income rose by HK$702m, or 7.8%, to HK$9,671m compared with the first half of 2013, driven by growth in average interest-earning assets and a widening of the net interest margin. The 3.6% increase in average interest-earning assets was supported by the 8.0% growth in average customer lending. Net interest margin improved by eight basis points to 1.92% while net interest spread and contribution from net free funds rose by six basis points and two basis points to 1.79% and 0.13% respectively. Average loan spreads in Hong Kong improved, notably in term lending, though the benefit of this growth was partly offset by spread compression in mortgages and trade-related lending. Average customer deposits grew by 5.1%, reflecting our flexible deposit acquisition strategy to support growth, the benefit of which was broadly offset by narrower deposit spreads. There was encouraging growth in Balance Sheet Management income as Treasury enhanced the portfolio yield with a larger commercial surplus for investment. In mainland China, higher average interest-earning assets coupled with a less volatile interbank market and improved deposit spreads outweighed the narrowing of loan spreads.

 

Net fee income grew by HK$126m, or 4.3%, to HK$3,062m, reflecting the group's continuous efforts in expanding its service capabilities. Retail investment fund sales income grew by 5.4%, notwithstanding the weakening of market sentiment. Credit card fee income rose by 3.4%, benefiting from increased cardholder spending and merchant acquiring business in Hong Kong. Fee income from remittances grew by 22.2% as business volumes increased. Insurance-related fee income rose by 11.7%, reflecting growth in life re-insurance income as well as distribution commission from non-life insurance business. Income from stockbroking and related services dropped by 4.5%, as a result of the reduced stock market trading activity.

 

Net trading income decreased by HK$143m, or 11.9%, to HK$1,061m. Foreign exchange income decreased by HK$195m compared with the first half of 2013. Decreased revenue from lower customer activity and demand for foreign exchange-linked structured treasury products was partly offset by the increase in net interest income from funding swap activities.

 

Dividend income was broadly in line with first half of 2013 but decreased significantly from HK$1,010m to HK$5m when compared with the second half of 2013, due mainly to the dividend received from Industrial Bank.

 

Income from insurance business (included under 'net interest income', 'net fee income', 'net trading income', 'net income/(loss) from financial instruments designated at fair value', 'net earned insurance premiums', 'movement in present value of in-force long-term insurance business' and 'other' within 'other operating income', 'share of profits from associates' and after deducting 'net insurance claims incurred and movement in policyholders' liabilities') increased by HK$332m, or 18.2%, to HK$2,159m. Net interest income and fee income from the life insurance business grew marginally when compared with the same period last year. Under the low interest rate environment, the life insurance investment portfolios have been re-balanced with a modest shift from debt securities to equities and other assets. The investment return on life insurance benefited from the favourable movement in equity markets, though this was partly offset by lower property revaluation gains. To the extent that these investment returns were attributable to policyholders, there was an offsetting movement in net insurance claims incurred and movement in policyholders' liabilities. Net earned insurance premiums rose by 3.5% as a result of increased renewals of existing policies, partly offset by lower new business premiums written. The growth in insurance premiums resulted in a corresponding increase in 'net insurance claims incurred and movement in policyholders' liabilities'. The increase in the movement in present value of in-force long-term insurance business was driven by new sales with higher profit margins and a favourable change in market conditions. General insurance income increased by 10.5%, reflecting higher distribution commission income.

 

Operating expenses rose by HK$295m, or 6.8%, to HK$4,640m, compared with the first half of 2013, reflecting the bank's continued investment in new business platforms and mainland operations to support long-term business growth. Staff costs increased by 5.8%, due mainly to the annual salary increment and performance-related remuneration. General and administrative expenses rose by 8.2% as a result of an increase in rental expenses, marketing expenditure and processing charges. Mainland-related operating expenses increased by 6.9%, reflecting the network expansion of Hang Seng China.

 

With the increase in net operating income before loan impairment charges and other credit risk provisions outpacing the growth in operating expenses, the cost efficiency ratio improved to 32.1% when compared with 32.2% and 32.6% for the first and second halves of 2013.

 

Operating profit grew by HK$562m, or 6.3%, to HK$9,496m, after accounting for the increase of HK$139m in loan impairment charges and other credit risk provisions, reflecting a broad-based increase in core banking business income.

 

Profit before tax decreased by 47.4% to HK$9,877m after taking the following major items into account:

·    the non-recurrence of the gain of HK$8,454m on the reclassification of Industrial Bank in January 2013;

·    a HK$178m decrease in gains less losses from financial investments and fixed assets, due mainly to property disposals in the first half of 2013;

·    a 77.0% (or HK$769m) decrease in net surplus on property revaluation; and

·    a 26.8% (or HK$57m) decrease in share of profits from associates, mainly due to the reclassification of Yantai Bank in December 2013.

 

Consolidated balance sheet and key ratios

 

Total assets grew by HK$52.2bn, or 4.6%, to HK$1,196.0bn when compared with the year end, reflecting the group's balanced growth strategy to enhance profitability. Customer loans and advances increased by HK$46.7bn, or 8.0%, to HK$632.9bn, largely through growth in corporate and commercial lending. Amidst lower property market turnover, we maintained our market share in underwriting new mortgage business. Residential mortgage lending increased by 2.4% when compared with the year end. Hang Seng China lending portfolios increased by 1.9%, mainly to corporate customers. Overall loan quality remained sound with total loan impairment allowances as a percentage of gross loans and advances to customers improving to 0.23% at 30 June 2014. Customer deposits, including certificates of deposit and other debt securities in issue, rose by HK$51.1bn, or 5.9%, to HK$920.8bn. In June, Hang Seng China successfully raised RMB1bn in Hong Kong through its debut offshore renminbi bond issue with a positive response from a diverse group of investors. At 30 June 2014, the advances-to-deposits ratio was 68.7%, compared with 67.4% at 31 December 2013.

 

At 30 June 2014, shareholders' funds (excluding proposed dividends) were HK$107.4bn, an increase of HK$3.8bn, or 3.7%, against last year end. Retained profits grew by HK$4.5bn, resulting from the growth in attributable profit after the appropriation of interim dividends. The premises revaluation reserve increased by HK$296m, or 2.0%, reflecting an increase in the fair value of the bank's premises. The available-for-sale investment reserve recorded a revaluation deficit of HK$2,460m, compared with a deficit of HK$1,618m at the end of 2013, primarily reflecting the unrealised revaluation deficit on the bank's investment in Industrial Bank. Available-for-sale financial investments are tested for impairment when there is an indication that the investment may be impaired. The group's policy is to recognise an impairment loss where there is a 'significant' or 'prolonged' decline in the fair value of an equity investment.

 

The return on average total assets was 1.5%, compared with 3.4% and 1.4% for the first and second halves of 2013. The return on average shareholders' funds was 15.9%, compared with 35.9% in the first half of 2013 and 15.3% in the second half.Excluding the Industrial Bank reclassification in 2013, return on average total assets was 1.5%, compared with 1.7% and 1.4% for the first and second halves of 2013. On the same basis, return on average shareholders' funds was 16.6%, compared with 19.0% and 16.3% for the first and second halves of last year. The decrease in return on average shareholders' funds when compared with the first half of 2013 was mainly the combined effect of lower property revaluation gains and the increase in average shareholders' funds which outpaced the growth in annualised profit. Higher average shareholders' funds mainly reflected the increase in attributable profit and business premises revaluation reserve during the first half of 2014.

 

At 30 June 2014, the total capital ratio was 14.2%, down from 15.8% at the end of last year, mainly from an increase in risk-weighted assets. The overall capital base remained broadly the same as last year end as the benefit of profit growth after accounting for dividends declared in the first half of the year was offset by the discounting of non-Basel III compliant subordinated debts. The increase of 11.3% in risk-weighted assets was driven by loan growth and regulatory model changes.

 

The CET1 and T1 capital ratios stood at 11.8%, down from 13.8% as a result of the combined effect of the reduction in CET1 and T1 capital and the increase in risk-weighted assets. The effect of the phasing-in of Basel III requirements on significant capital investments in unconsolidated financial sector entities has also affected the CET1 and T1 capital but has no impact on the total capital base.

 

The bank has been maintaining liquidity at a comfortable level. The average liquidity ratio for the first half of 2014 was 34.5% (calculated in accordance with the Fourth Schedule of the Hong Kong Banking Ordinance) compared with 35.8% for the first half of 2013.

 

Dividends

 

The Directors have declared a second interim dividend of HK$1.10 per share, which will be payable on 4 September 2014 to shareholders on the register of shareholders as of 20 August 2014. Together with the first interim dividend, the total distribution for the first half of 2014 will amount to HK$2.20 per share, the same as in the first half of 2013.

 

 

Segmental analysis

 

	Hong Kong and other businesses
	Retail Banking				Global Banking										Mainland			Inter-
	and Wealth	Commercial			and										China		segment
Figures in HK$m	Management		Banking			Markets		Other				Total				business		elimination						Total
Half-year ended
30 June 2014
Net interest income/(expense)	4,888		2,228			1,764		(75		)		8,805				866				__				9,671
Net fee income/(expense)	2,030		787			120		72				3,009				53				__				3,062
Net trading income/(loss)	140		266			579		__				985				76				__				1,061
Net income/(loss) from financial
instruments designated at fair
value	429		(1		)	__		__				428				__				__				428
Dividend income	1		__			__		4				5				__				__				5
Net earned insurance premiums	5,950		54			__		__				6,004				__				__				6,004
Other operating income	903		45			__		223				1,171				1				(41		)		1,131
Total operating income	14,341		3,379			2,463		224				20,407				996				(41		)		21,362
Net insurance claims
incurred and movement
in policyholders' liabilities	(6,847	)	(42		)	__		__				(6,889		)		__				__				(6,889		)
Net operating income before
loan impairment charges and other credit risk provisions	7,494		3,337			2,463		224				13,518				996				(41		)		14,473
Loan impairment (charges)/
releases and other credit risk provisions	(247	)	12			__		__				(235		)		(102		)		__				(337		)
Net operating income	7,247		3,349			2,463		224				13,283				894				(41		)		14,136
Operating expenses W	(2,750	)	(861		)	(287	)	(52		)		(3,950		)		(731		)		41				(4,640		)
Operating profit	4,497		2,488			2,176		172				9,333				163				__				9,496
Gains less losses from financial
investments and fixed assets	__		__			3		(7		)		(4		)		(1		)		__				(5		)
Net surplus on property
revaluation	__		__			__		230				230				__				__				230
Share of profits from associates	155		1			__		__				156				__				__				156
Profit before tax	4,652		2,489			2,179		395				9,715				162				__				9,877
Share of profit before tax	47.1	%	25.2		%	22.1	%	4.0		%		98.4		%		1.6		%		__				100.0		%
Share of profit before tax as a % of   Hong Kong and other businesses	47.9	%	25.6		%	22.4	%	4.1		%		100.0		%
Operating profit excluding loan
impairment charges and other credit risk provisions	4,744		2,476			2,176		172				9,568				265				__				9,833
W Depreciation/amortisation
included in operating
expenses	(23	)	(14		)	(2	)	(373		)		(412		)		(49		)		__				(461		)
At 30 June 2014
Total assets	324,699		239,280			443,493		87,449				1,094,921				125,434				(24,391		)		1,195,964
Total liabilities	663,013		189,121			115,121		20,563				987,818				115,308				(16,663		)		1,086,463
Interest in associates	2,137		12			__		__				2,149				29				__				2,178

 

 

	Hong Kong and other businesses
	Retail Banking				Global Banking									Mainland					Inter-
	and Wealth	Commercial			and									China			segment
Figures in HK$m	Management			Banking		Markets		Other			Total			business			elimination							Total
Half-year ended
30 June 2013 (restated)
Net interest income/(expense)	4,917			2,008		1,508		(113		)	8,320			649						__				8,969
Net fee income/(expense)	1,955			793		83		66			2,897			39						__				2,936
Net trading income/(loss)	89			327		689		(9		)	1,096			108						__				1,204
Net income/(loss) from financial
instruments designated at fair
value	(108	)		(3	)	__		__			(111		)	__						__				(111	)
Dividend income	__			__		__		4			4			__						__				4
Net earned insurance premiums	5,761			39		__		__			5,800			__						__				5,800
Other operating income	956			25		__		140			1,121			__						(26			)	1,095
Total operating income	13,570			3,189		2,280		88			19,127			796						(26			)	19,897
Net insurance claims
incurred and movement
in policyholders' liabilities	(6,381	)		(39	)	__		__			(6,420		)	__						__				(6,420	)
Net operating income before
loan impairment charges and other credit risk provisions	7,189			3,150		2,280		88			12,707			796						(26			)	13,477
Loan impairment (charges)/
releases and other credit risk provisions	(280	)		59		6		__			(215		)	17						__				(198	)
Net operating income	6,909			3,209		2,286		88			12,492			813						(26			)	13,279
Operating expenses W	(2,615	)		(787	)	(250	)	(35		)	(3,687		)	(684			)			26				(4,345	)
Operating profit	4,294			2,422		2,036		53			8,805			129						__				8,934
Gains less losses from financial
investments and fixed assets	(1	)		__		1		173			173			__						__				173
Gain on reclassification of Industrial Bank	__			__		__		__			__			8,454						__				8,454
Net surplus on property
revaluation	__			__		__		999			999			__						__				999
Share of profits from associates	162			1		__		__			163			50						__				213
Profit before tax	4,455			2,423		2,037		1,225			10,140			8,633						__				18,773
Share of profit before tax	23.8	%		12.9	%	10.8	%	6.5		%	54.0		%	46.0			%			__				100.0	%
Share of profit before tax as a % of   Hong Kong and other businesses	43.9	%		23.9	%	20.1	%	12.1		%	100.0		%
Operating profit excluding loan
impairment charges and other credit risk provisions	4,574			2,363		2,030		53			9,020			112						__				9,132
W Depreciation/amortisation
included in operating
expenses	(24	)		(12	)	(2	)	(345		)	(383		)	(50			)			__				(433	)
At 30 June 2013
Total assets	307,081			215,914		392,251		98,429			1,013,675			118,176						(25,194			)	1,106,657
Total liabilities	621,704			162,820		83,686		46,569			914,779			109,913						(20,116			)	1,004,576
Interest in associates	1,769			9		__		__			1,778			975						__				2,753

 

 

	Hong Kong and other businesses
	Retail Banking				Global Banking							Mainland		Inter-
	and Wealth	Commercial			and							China	segment
Figures in HK$m	Management			Banking		Markets		Other		Total		business	elimination					Total
Half-year ended
31 December 2013 (restated)
Net interest income/(expense)	5,042			2,163		1,728		(108	)	8,825		810		__				9,635
Net fee income/(expense)	1,894			772		148		78		2,892		59		__				2,951
Net trading income/(loss)	211			179		433		(5	)	818		23		__				841
Net income/(loss) from financial
instruments designated at fair
value	458			(1	)	(1	)	__		456		__		__				456
Dividend income	__			7		__		1,003		1,010		__		__				1,010
Net earned insurance premiums	4,164			41		__		__		4,205		__		__				4,205
Other operating income	656			14		1		194		865		7		(31		)		841
Total operating income	12,425			3,175		2,309		1,162		19,071		899		(31		)		19,939
Net insurance claims
incurred and movement
in policyholders' liabilities	(5,321	)		(33	)	__		__		(5,354	)	__		__				(5,354		)
Net operating income before
loan impairment charges and other credit risk provisions	7,104			3,142		2,309		1,162		13,717		899		(31		)		14,585
Loan impairment (charges)/
releases and other credit risk provisions	(202	)		(97	)	(14	)	__		(313	)	(25	)	__				(338		)
Net operating income	6,902			3,045		2,295		1,162		13,404		874		(31		)		14,247
Operating expenses W	(2,700	)		(834	)	(265	)	(195	)	(3,994	)	(795	)	31				(4,758		)
Impairment loss on intangible assets	(11	)		(2	)	__		__		(13	)	__		__				(13		)
Operating profit	4,191			2,209		2,030		967		9,397		79		__				9,476
Gains less losses from financial
investments and fixed assets	__			1		3		3		7		(1	)	__				6
Loss on reclassification of Yantai
Bank	__			__		__		__		__		(297	)	__				(297		)
Net surplus on property
revaluation	__			__		__		189		189		__		__				189
Share of profits from associates	293			1		__		__		294		55		__				349
Profit before tax	4,484			2,211		2,033		1,159		9,887		(164	)	__				9,723
Share of profit before tax	46.1	%		22.7	%	20.9	%	12.0	%	101.7	%	(1.7	%)	__				100.0		%
Share of profit before tax as a % of   Hong Kong and other businesses	45.4	%		22.4	%	20.6	%	11.6	%	100.0	%
Operating profit excluding loan
impairment charges and other credit risk provisions	4,393			2,306		2,044		967		9,710		104		__				9,814
W Depreciation/amortisation
included in operating
expenses	(25	)		(16	)	(3	)	(350	)	(394	)	(48	)	__				(442		)
At 31 December 2013
Total assets	309,758			211,747		426,288		104,027		1,051,820		118,476		(26,566		)		1,143,730
Total liabilities	650,309			173,675		105,484		16,924		946,392		108,495		(18,935		)		1,035,952
Interest in associates	2,022			10		__		__		2,032		30		__				2,062

 

 

Hong Kong and other businesses segment

 

Retail Banking and Wealth Management ('RBWM') in Hong Kong reported profit before tax of HK$4,652m in the first half of 2014, a 4.4% increase compared with the first half of 2013. Operating profit excluding loan impairment charges reached HK$4,744m, an increase of 3.7%. Operating profit grew by 4.7% to HK$4,497m.

 

Net interest income was maintained at HK$4,888m, in line with the first half of 2013, despite downward pressure on deposit margin as a result of increased competition and moderate growth in mortgage lending.

 

Non-interest income grew strongly by 14.7% to HK$2,606m, reflecting a growth in net fee income and trading income as well as an improvement in net income from financial instruments at fair value whereas a loss was recorded in the first half of 2013. We sustained our momentum in wealth management business, with income growing by 10.7% to HK$3,495m.

 

Unsecured lending business continued to be a key growth driver. Supported by effective marketing campaigns and a good quality credit card customer base, card spending achieved year-on-year growth of 9.4%. Total cards in circulation rose by 3.2% to 2.48 million year-on-year and we were the third largest card issuer of VISA and MasterCard in the first half of 2014. We were able to reach more targeted customers from our existing customer base to grow our personal loan portfolios. Compared to last year end, the personal loan portfolio rose by 11.7%.

 

Our mortgage business maintained third position in the market, with a market share of 16.2% in terms of new mortgage registrations. Mortgage balances grew by 2.1% compared to 2013 year end.

 

Investment funds income rose year-on-year by 6.2% with turnover increasing by 9.4% compared with last year. However, reduced transaction turnover in the stock market impacted our securities business. Securities turnover and income recorded reductions of 6.4% and 4.0% respectively.

 

Total operating income for insurance business achieved growth of 19.0%, reflecting an improvement in investment portfolio return and our effective distribution effort. Supported by the initiative to broaden our protection plans offerings, we diversified the life insurance product mix to create higher business value. In addition, we have entered into an exclusive 10 year distribution agreement with international healthcare company Bupa in providing medical insurance products and services.

 

With multiple efforts in strengthening Prestige and Preferred propositions and China connectivity, Prestige and Preferred Banking customers grew 7.0% year-on-year. We launched an awareness campaign to communicate our enhanced customer propositions and product features based on customer's wealth management needs. We accelerated our pace in the development of Prestige and Preferred Banking Centres to enhance customer experience. During the first half of 2014, five more Prestige and Preferred Banking Centres were established in strategic locations, bringing a total of 17 centres in our portfolio.

 

We continued to drive sustainable business growth with environmentally friendly initiatives. We deployed the e-signature pads at our branches to facilitate an efficient and paperless transactions environment. Efforts were also made to encourage customers to adopt the e-statement / e-advices services, with over half of our e-Banking customers utilising the services in the first half of 2014. Furthermore, we enhanced our capabilities to support paperless billing process through the Electronic Bill Presentment and Payment (EBPP) platform.

 

Commercial Banking ('CMB') in Hong Kong reported a 2.7% increase in profit before tax to HK$2,489m. Operating profit excluding loan impairment charges grew by 4.8% to HK$2,476m. Operating profit grew by 2.7% to HK$2,488m.

 

Net interest income increased by 11.0% to HK$2,228m, supported by balanced growth in both customer advances and deposits compared with last year end. Customer advances increased by 13.2% with targeted marketing and cross-border collaborations leading to diversified growth in different industry sectors. Deposits increased by 9.2%, driven by continuing acquisition of quality mainland customers and propositions targeting professional firms, listed companies, property developers and retailers.

 

Non-interest income decreased by 2.9% to HK$1,109m, primarily because customers have reduced renminbi hedging activities with the depreciation of renminbi and our strategic repositioning of trade finance business to support the needs of core corporate customers.

 

Remittance income grew by 21.9% year-on-year, underpinned by cross-border business collaboration and initiatives.

 

Insurance income rose by 12.9% comparing with the first half of 2013, reflecting balanced growth in key-person and general insurance businesses. We strengthened our collaboration with QBE Insurance, resulting in good growth in general insurance income. Increased penetration of the SME sector led to a 16.1% increase in life insurance income.

 

We maintained good asset quality and recorded a net release in loan impairment charges as a result of proactive credit risk management and improved post-approval monitoring of loan assets. We continued to enhance our portfolio management to improve overall returns on risk assets.

 

We maintained our strong position for syndicated lending. According to Thomson Reuters LPC data, we ranked second and third in the Mandated Arranger and Bookrunner League Tables respectively for Hong Kong and Macau Syndicated Loans in terms of number of transactions in the first half of 2014.

 

We continued to tap cross-border business opportunities. We successfully completed the first renminbi cross-border loan to a customer in the Shanghai Free Trade Zone in the first half of 2014.     

 

We have enriched our service propositions and enhanced our Business Banking Centres network to attract and retain quality SME customers. Mainland companies continued to be one of our targeted segments, representing 44.9% of newly acquired SME customers in the first half. New customers were the primary drivers of growth in SME customer deposits and the 9.5% increase in non-interest income from SME business.

 

Our SME banking services continued to receive independent recognition. For the ninth consecutive year, Hang Seng Bank has received the SME's Best Partner Award from the Hong Kong General Chamber of Small and Medium Business.

 

Global Banking and Markets ('GBM') in Hong Kong recorded a 7.0% increase in profit before tax to HK$2,179m. Operating profit excluding loan impairment charges grew by 7.2% to HK$2,176m. Operating profit rose 6.9% to HK$2,176m.

 

Global Banking ('GB') in Hong Kong achieved a 14.5% increase in profit before tax to HK$821m. Operating profit excluding loan impairment charges grew by 15.4% to HK$819m. Operating profit grew 14.4% to HK$819m.

 

Net interest income rose by 13.9% to HK$813m, driven primarily by good loan growth, whilst maintaining strong credit quality. At the same time, we maintained robust credit risk management. Customer deposits increased by 41.6% compared with last year end as we stepped up our marketing efforts to acquire more new deposits and offer payment and cash management solutions to grow account balances.

 

Non-interest income recorded strong growth of 25.3% mainly due to increased transactional banking business.

 

To drive business opportunities in mainland China and Hong Kong, GB will continue to work closely with Hang Seng China in promoting renminbi-related services including deposit, loan and trade finance to take advantage of the liberalisation of renminbi business and opportunities arising from the development of new economic zones in Qianhai and Hengqin as well as the Shanghai Free Trade Zone.

 

Global Markets ('GM') in Hong Kong recorded a 2.9% increase in profit before tax to HK$1,358m. Operating profit excluding loan impairment charges grew by 2.8% to HK$1,357m. Operating profit increased by 2.8% to HK$1,357m.

 

Net interest income increased by 19.8% to HK$951m. The balance sheet management team has been actively managing the interest rate risk and assessing different market opportunities for better yield enhancement of the commercial surplus.

 

Non-interest income decreased by HK$97m to HK$580m. Total trading income decreased by HK$111m, or 16.1%, to HK$579m. Foreign exchange trading income decreased due to lower market volatility. Income from structured products was also impacted by reduced customer demand for renminbi products due to the depreciation of the renminbi.

 

Front-line channels (including e-Banking) and trading systems were enhanced to facilitate straight-through processing, enabling better position management. To support client clearing directly and strengthen market standing as a leading local bank, the bank will join OTC Clearing Hong Kong Limited as a direct member for central clearing of its over-the-counter derivatives in 2014.

 

To diversify revenue sources, GM has increased cross-selling of Global Markets products to RBWM and CMB customers. Strategic actions were set for identifying RBWM and CMB customer needs and cross-selling opportunities through collaboration schemes.

 

Going forward, GM will continue to position itself to capture yield enhancement opportunities by investing in Hong Kong and mainland bonds and capturing yield curves of selected currencies. As the renminbi market in Hong Kong evolves, GM will continue to develop renminbi-denominated hedging and investment products to meet customer needs as well as explore new business opportunities for cross-selling treasury products with other customer groups.

 

Mainland China business

 

The operating results of Hang Seng China improved in the first half of 2014. Operating profit excluding loan impairment charges and other credit risk provisions grew by 136.6%, mainly from the 33.4% increase in net interest income. Solid progress with expanding trade-related business and treasury product sales drove 35.9% growth in net fee and commission income. Trading income declined, reflecting the impact of market interest rate changes on the fair value of structured deposits. Overall, non-interest income fell by 11.6%. Operating profit increased by 26.4%, reflecting higher impairment charges in the first half of 2014 compared with a net release in same period last year. Asset quality remains stable with impaired loan ratios at 0.42% at the end of 30 June 2014. Profit before tax decreased by 98.1% when compared with the first half of 2013, which benefited from the HK$8,454m accounting gain on the reclassification of Industrial Bank and a HK$52m share of profit from Yantai Bank. Excluding these items, profit before tax rose by 27.6%.

 

Backed by enhanced cross-border collaboration, Hang Seng China achieved a 5.8% rise in customer deposits compared to 2013 year end. In June, Hang Seng China successfully raised RMB1bn in Hong Kong through its debut offshore renminbi bond issue with a positive response from a diverse group of investors. Lending grew by 1.9% with continuing emphasis on sound credit risk management.

 

 

	As reported				Constant currencyW
Half-year ended 30 June 2014 compared with 30 June 2013
Total operating income		25.1	%		23.1	%
Operating profit excluding loan impairment   charges and other credit risk provisions		136.6	%		134.5	%
Operating profit		26.4	%		24.4	%
Profit before tax		-98.1	%		n.a
At 30 June 2014 compared with 31 December 2013
Gross loans and advances to customers		1.9	%		3.7	%
Customer deposits and debt securities in   issue		5.8	%		7.7	%

 

Given the growing economic ties between Hong Kong and the Mainland, Hang Seng China has enhanced the cooperation and connectivity with Hang Seng Hong Kong, aiming to create more synergy and to seize new opportunities. In this regard, the Shanghai Free Trade Zone Sub-branch was opened in February 2014 to provide the latest available solutions to our clients. In April, the Greater China Prestige programme was launched to serve clients with banking needs in both mainland China and Hong Kong. Hang Seng China will continue to capture opportunities generated by increasing cross-border economic integration and renminbi internationalisation.

 

The Chengdu Branch was also opened in February to serve and develop our clients in the fast growing central and western region to supplement our coverage in the Pearl River Delta, Yangtze River Delta and Bohai Rim. Meanwhile, Hang Seng China continues to invest in direct channels including call centres, e-Banking and SMS services to enhance our customers' experience.

 

 

 

 

^W Constant currency comparatives for 2013 referred to in the tables above are computed by translating into Hong Kong dollars the functional currency (renminbi) of Hang Seng's mainland China business:

- the income statement for the half year to 30 June 2013 at the average rates of exchange for the half year to 30 June 2014; and

- the balance sheet at 31 December 2013 at the prevailing rates of exchange on 30 June 2014.

 

 

Consolidated Income Statement (unaudited)

 

	Half-year ended			Half-year ended			Half-year ended
	30 June			30 June			31 December
Figures in HK$m		2014			2013			2013
Interest income		12,774			11,459			12,366
Interest expense		(3,103	)		(2,490	)		(2,731	)
Net interest income		9,671			8,969			9,635
Fee income		3,757			3,637			3,692
Fee expense		(695	)		(701	)		(741	)
Net fee income		3,062			2,936			2,951
Net trading income		1,061			1,204			841
Net income/(loss) from financial
instruments designated at fair value		428			(111	)		456
Dividend income		5			4			1,010
Net earned insurance premiums		6,004			5,800			4,205
Other operating income		1,131			1,095			841
Total operating income		21,362			19,897			19,939
Net insurance claims incurred and
movement in policyholders' liabilities		(6,889	)		(6,420	)		(5,354	)
Net operating income before loan
impairment charges and other credit  risk provisions		14,473			13,477			14,585
Loan impairment charges and   other credit risk provisions		(337	)		(198	)		(338	)
Net operating income		14,136			13,279			14,247
Employee compensation and benefits		(2,295	)		(2,170	)		(2,262	)
General and administrative expenses		(1,884	)		(1,742	)		(2,054	)
Depreciation of premises, plant
and equipment		(406	)		(376	)		(386	)
Amortisation of intangible assets		(55	)		(57	)		(56	)
Operating expenses		(4,640	)		(4,345	)		(4,758	)
Impairment loss on intangible assets		__			__			(13	)
Operating profit		9,496			8,934			9,476
Gains less losses from financial investments
and fixed assets		(5	)		173			6
Gain on reclassification of Industrial Bank		__			8,454			__
Loss on reclassification of Yantai Bank		__			__			(297	)
Net surplus on property revaluation		230			999			189
Share of profits from associates		156			213			349
Profit before tax		9,877			18,773			9,723
Tax expense		(1,409	)		(305	)		(1,513	)
Profit for the period		8,468			18,468			8,210
Profit attributable to shareholders		8,468			18,468			8,210
Earnings per share (in HK$)		4.43			9.66			4.29

 

Details of dividends payable to shareholders of the bank attributable to the profit for the half year are set out on page 36.

 

 

Consolidated Statement of Comprehensive Income (unaudited)

 

	Half-year ended			Half-year ended			Half-year ended
	30 June			30 June			31 December
Figures in HK$m	2014			2013			2013
Profit for the period	8,468			18,468			8,210
Other comprehensive income
Items that will be reclassified   subsequently to the income statement   when specific conditions are met:
Available-for-sale investment reserve:
- fair value changes taken to equity:
-- on debt securities	350			(685	)		(228	)
-- on equity shares	(417	)		(3,458	)		820
- fair value changes transferred
to income statement:
-- on hedged items	29			461			228
-- on disposal	2			__			(1	)
- share of changes in equity of associates:
-- fair value changes	__			4			(5	)
-- fair value changes transferred to income statement on reclassification of Industrial Bank and Yantai Bank	__			94			17
- deferred taxes	(76	)		42			15
- exchange difference and other	(730	)		431			420
Cash flow hedging reserve:
- fair value changes taken to equity	(74	)		498			(66	)
- fair value changes transferred to
income statement	70			(516	)		71
- deferred taxes	1			3			(1	)
Exchange differences on translation of:
- financial statements of overseas
branches, subsidiaries and associates	(170	)		338			100
- cumulative foreign exchange reserve transferred to income statement on reclassification of Industrial Bank and
Yantai Bank	__			(2,039	)		(111	)
- other	__			(3	)		5
Others	__			30			__
Items that will not be reclassified   subsequently to the income statement:
Premises:
- unrealised surplus on revaluation of
premises	612			1,526			577
- deferred taxes	(103	)		(241	)		(96	)
- exchange difference	(1	)		2			1
Defined benefit plans:
- actuarial gains/(losses) on defined
benefit plans	75			855			(77	)
- deferred taxes	(12	)		(141	)		13
Share-based payments	(1	)		(1	)		(2	)
Other comprehensive income for the
period, net of tax	(445	)		(2,800	)		1,680
Total comprehensive income
for the period	8,023			15,668			9,890
Total comprehensive income
for the period attributable to
shareholders	8,023			15,668			9,890

 

 

Consolidated Balance Sheet (unaudited)

 

	At 30 June			At 30 June			At 31 December
Figures in HK$m		2014			2013			2013
					(restated)
ASSETS
Cash and balances at central banks		7,721			9,798			22,717
Placings with and advances to banks		142,975			141,012			141,940
Trading assets		26,213			34,509			31,996
Financial assets designated at fair value		10,331			10,150			6,987
Derivative financial instruments		6,296			4,752			6,646
Reverse repurchase agreements   - non trading		2,309			__			__
Loans and advances to customers		632,947			579,705			586,240
Financial investments		297,303			263,369			282,845
Interest in associates		2,178			2,753			2,062
Investment properties		11,108			10,547			10,918
Premises, plant and equipment		21,594			20,690			21,000
Intangible assets		8,779			7,403			7,974
Other assets		26,210			21,969			22,405
Total assets		1,195,964			1,106,657			1,143,730
LIABILITIES AND EQUITY
Liabilities
Current, savings and other deposit accounts		860,092			779,884			824,996
Repurchase agreements - non trading		1,837			1,625			__
Deposits from banks		11,335			14,165			11,826
Trading liabilities		65,713			67,749			62,117
Financial liabilities designated at fair value		493			466			489
Derivative financial instruments		5,825			4,817			5,246
Certificates of deposit and other
debt securities in issue		9,904			11,022			8,601
Other liabilities		24,451			20,874			20,467
Liabilities to customers under
insurance contracts		89,049			86,584			85,844
Current tax liabilities		1,830			1,928			692
Deferred tax liabilities		4,114			3,633			3,850
Subordinated liabilities		11,820			11,829			11,824
Total liabilities		1,086,463			1,004,576			1,035,952
Equity
Share capital		9,658			9,559			9,559
Retained profits		83,215			76,633			78,679
Other reserves		14,525			13,786			15,334
Proposed dividends		2,103			2,103			4,206
Shareholders' funds		109,501			102,081			107,778
Total equity and liabilities		1,195,964			1,106,657			1,143,730

 

 

Consolidated Statement of Changes in Equity (unaudited)

 

		Half-year ended		Half-year ended		Half-year ended
Figures in HK$m		30 June  2014		30 June  2013		31 December 2013
Share capital
At beginning and end of period		9,559		9,559		9,559
Transfer from capital redemption     reserve		99		__		__
		9,658		9,559		9,559
Retained profits (including   proposed dividends)
At beginning of period		82,885		63,507		78,736
Dividends to shareholders
- dividends approved in respect of the      previous year		(4,206	)	(3,824	)	__
- dividends declared in respect of the      current period		(2,103	)	(2,103	)	(4,206	)
Transfer		212		1,978		206
Total comprehensive income     for the period		8,530		19,178		8,149
		85,318		78,736		82,885
Other reserves
Premises revaluation reserve
At beginning of period		14,904		13,790		14,628
Transfer		(212	)	(449	)	(206	)
Total comprehensive income     for the period		508		1,287		482
		15,200		14,628		14,904
Available-for-sale investment reserve
At beginning of period		(1,618	)	227		(2,884	)
Total comprehensive income     for the period		(842	)	(3,111	)	1,266
		(2,460	)	(2,884	)	(1,618	)
Cash flow hedging reserve
At beginning of period		6		17		2
Total comprehensive income     for the period		(3	)	(15	)	4
		3		2		6
Foreign exchange reserve
At beginning of period		1,295		3,071		1,306
Transfer		__		(64	)	__
Total comprehensive income   for the period		(170	)	(1,701	)	(11	)
		1,125		1,306		1,295

 

		Half-year ended		Half-year ended		Half-year ended
Figures in HK$m		30 June  2014		30 June  2013		31 December 2013
Other reserves
At beginning of period		747		2,152		734
Cost of share-based payment     arrangements		9		17		13
Transfer		__		(1,465	)	__
Transfer of capital redemption      reserve		(99	)	__		__
Total comprehensive income     for the period		__		30		__
		657		734		747
Total equity
At beginning of period		107,778		92,323		102,081
Dividends to shareholders		(6,309	)	(5,927	)	(4,206	)
Cost of share-based payment      arrangements		9		17		13
Total comprehensive income     for the period		8,023		15,668		9,890
		109,501		102,081		107,778

 

 

Consolidated Cash Flow Statement (unaudited)

 

	Half-year ended			Half-year ended
		30 June			30 June
2BFigures in HK$m		2014			2013
					(restated)
Net cash (outflow)/inflow from operating activities		(6,833	)		3,607
Cash flows from investing activities
Dividends received from associates		__			__
Purchase of available-for-sale investments		(27,896	)		(23,729	)
Purchase of held-to-maturity debt securities		(430	)		(953	)
Proceeds from sale or redemption of
available-for-sale investments		27,001			16,177
Proceeds from redemption of held-to-maturity
debt securities		315			55
Net cash inflow from sale of loan portfolio		368			__
Purchase of premises, plant and equipment and
intangible assets		(397	)		(3,229	)
Proceeds from sale of premises, plant and equipment
and assets held for sale		2			910
Interest received from available-for-sale investments		731			826
Dividends received from available-for-sale investments		6			5
Net cash outflow from investing activities		(300	)		(9,938	)
Cash flows from financing activities
Dividends paid		(6,309	)		(5,927	)
Interest paid for subordinated liabilities		(152	)		(155	)
Net cash outflow from financing activities		(6,461	)		(6,082	)
Decrease in cash and cash equivalents		(13,594	)		(12,413	)
Cash and cash equivalents at 1 January		115,779			115,947
Effect of foreign exchange rate changes		42			(2,557	)
Cash and cash equivalents at 30 June		102,227			100,977

 

 

Financial Review

 

Net interest income

 

Half-year ended			Half-year ended			Half-year ended
	30 June			30 June			31 December
Figures in HK$m	2014			2013			2013
Net interest income/(expense) arising from:
- financial assets and liabilities that are
not at fair value through profit and loss	10,754			9,705			10,537
- trading assets and liabilities	(1,085	)		(770	)		(927	)
- financial instruments designated
at fair value	2			34			25
	9,671			8,969			9,635
Average interest-earning assets	1,016,759			981,814			991,320
Net interest spread	1.79	%		1.73	%		1.81	%
Net interest margin	1.92	%		1.84	%		1.93	%

 

Net interest income rose by HK$702m, or 7.8%, to HK$9,671m, driven mainly by the 3.6% increase in average interest-earning assets and an improvement in the net interest margin.

 

Average interest-earning assets increased by HK$34.9bn, or 3.6%, compared with the same period last year. The increase was underpinned by the 8.0% growth in average customer lending, with notable growth in corporate and commercial and mortgage lending. The rise in net interest income also included higher contributions from offshore RMB business as Treasury has been actively managing the interest rate risk and assessing different market opportunities for better yield enhancement of the commercial surplus. Partially offsetting this increase was a lower contribution from the insurance debt securities portfolios as the bank re-balanced assets under the low interest rate environment.  

 

Net interest margin widened by eight basis points to 1.92% whilst the net interest spread improved by six basis points to 1.79%. In Hong Kong, the spread on customer lending improved, notably on corporate and commercial term lending, though this was offset in part by the spread compression in trade-related and mortgage lending. On the back of the group's flexible deposit acquisition strategy to support balanced growth, average customer deposit balances increased, though the benefit of this growth was more than offset by narrower deposit spreads. On the Mainland, the net interest margin and net interest spread widened, reflecting the improved deposit spread, coupled with a less volatile interbank market, outweighing the compression of loan spreads.

 

The contribution from net free funds grew by two basis points to 0.13%, benefiting from the modest increase in the average interest rate.

 

Compared with the second half of 2013, net interest income was broadly unchanged, reflecting the combined effect of an increase in average interest earning assets, widening loan spreads, improved returns from offshore RMB business and less volatility in the mainland interbank market but offset by lower deposit spreads and more calendar days in the second half. The net interest margin has stabilised but remains at a compressed level.

 

The HSBC Group reports interest income and interest expense arising from financial assets and financial liabilities held for trading as 'Net trading income', while that arising from financial instruments designated at fair value through profit and loss is reported as 'Net income from financial instruments designated at fair value' (other than for debt securities in issue and subordinated liabilities, together with derivatives managed in conjunction with them).

 

The table below presents the net interest income of Hang Seng, as included in the HSBC Group accounts:

 

	Half-year ended			Half-year ended			Half-year ended
	30 June			30 June			31 December
Figures in HK$m		2014			2013			2013
Net interest income and   expense reported as 'Net  interest income'
- Interest income		12,687			11,334			12,279
- Interest expense		(1,933	)		(1,629	)		(1,742	)
- Net interest income		10,754			9,705			10,537
Net interest income and expense reported as 'Net trading income'		(1,085	)		(770	)		(927	)
Net interest income and expense reported as 'Net  income from financial instruments designated at fair value'		2			34			25
Average interest-earning assets		986,694			944,273			957,970
Net interest spread		2.09	%		1.98	%		2.09	%
Net interest margin		2.20	%		2.07	%		2.18	%

 

 

Net fee income

 

Half-year ended					Half-year ended				Half-year ended
	30 June				30 June				31 December
Figures in HK$m		2014				2013				2013
- Stockbroking and related services		511				535				538
- Retail investment funds		891				845				703
- Insurance		249				223				218
- Account services		184				179				175
- Private banking service fee		54				53				51
- Remittances		193				158				190
- Cards		1,051				1,016				1,126
- Credit facilities		185				163				207
- Trade services		260				284				301
- Other		179				181				183
Fee income		3,757				3,637				3,692
Fee expense		(695	)			(701	)			(741	)
		3,062				2,936				2,951

 

Net fee income increased by HK$126m, or 4.3%, to HK$3,062m when compared with the first half of 2013.

 

Retail investment funds income increased by 5.4%, benefiting from increased funds sale volumes.

 

Insurance-related fee income rose by 11.7%, reflecting growth in life re-insurance commission income as a result of the successful sale of the life insurance product - Prosper Dragon Life Insurance Plan - as well as the distribution commission from non-life insurance products during the period.

 

Card services income was 3.4% higher than the first half of 2013, in line with the growth in average card balances. The bank's effective customer loyalty scheme and card utilisation promotions helped drive up the bank's card spending. The growth in card income was also supported by the increase of 9.3% in cardholder spending and a 3.3% increase in the number of cards in circulation as well as a 7.7% increase in merchant acquiring business. 

 

Credit facilities fee income rose by 13.5%, due mainly to higher fees from increased corporate lending.

 

Fees from remittances recorded encouraging growth of 22.2%, underpinned by increased business volumes as a result of the expansion of renminbi cross-border trade settlement volumes.

 

Stockbroking and related services income fell by 4.5%, as a result of subdued stock market trading activity. Trade-related service income was down by 8.5%.

 

Compared with the second half of 2013, net fee income increased by 3.8%, primarily from higher retail investment funds income.

 

 

Net trading income

 

	Half-year ended			Half-year ended				Half-year ended
	30 June			30 June				31 December
Figures in HK$m		2014			2013				2013
- Foreign exchange		995				1,190			774
- Interest rate derivatives		(1	)			35			29
- Debt securities		43				(6	)		(29	)
- Equities and other trading		30				(4	)		63
Dealing profits		1,067				1,215			837
Net income/(loss) from hedging activities		(6	)			(11	)		4
		1,061				1,204			841

 

 

Net trading income decreased by HK$143m, or 11.9%, to HK$1,061m when compared with first half of 2013.

 

Dealing profits fell by HK$148m, or 12.2%, to HK$1,067m. Foreign exchange income was lower, affected by subdued customer activity levels as market volatility was low. Income from foreign exchange option-linked structured products dropped, with reduced arbitrage opportunities during the second quarter reducing customer appetite for renminbi-denominated products. However, these unfavourable factors were offset by higher net interest income from funding swaps^Wactivities.

 

Income from securities, derivatives and other trading activities recorded a net gain of HK$72m, up HK$47m, when compared with the same period last year, reflecting the combined effect of higher income on equity derivatives and the revaluation loss on equity options backing a life endowment product in first half of 2013. Debt securities recorded a revaluation gain compared with a revaluation loss for the same period last year, mainly reflecting the movement in market interest rates. These increases were offset in part by the revaluation loss on interest rate derivatives products.

 

 

 

^WFrom time to time Treasury employs foreign exchange swaps for its funding activities, which in essence involve swapping a currency ('original currency') into another currency ('swap currency') at the spot exchange rate for short-term placement and simultaneously entering into a forward exchange contract to convert the funds back to the original currency on maturity of the placement. In accordance with HKAS 39, the exchange difference of the spot and forward contracts is required to be recognised as a foreign exchange gain/loss, while the corresponding interest differential between the original and swap funding is reflected in net interest income.

 

 

Net income/(loss) from financial instruments designated at fair value

 

	Half-year ended			Half-year ended			Half-year ended
	30 June			30 June			31 December
Figures in HK$m		2014			2013			2013
Net income/(loss) on assets   designated at fair value which   back insurance and   investment contracts		428			(111	)		456

 

Net income from financial instruments designated at fair value recorded a net gain of HK$428m compared with a net loss of HK$111m for the first half of 2013, due mainly to favourable equity market movements during the first half of 2014. To the extent that the investment return is attributable to policyholders, there is an offsetting movement reported under 'net insurance claims incurred and movement in policyholders' liabilities' or 'movement in present value of in-force long-term insurance business ('PVIF').

 

 

Other operating income

 

	Half-year ended			Half-year ended			Half-year ended
	30 June			30 June			31 December
Figures in HK$m		2014			2013			2013
Rental income from
investment properties		195			106			187
Movement in present value
of in-force long-term
insurance business		807			622			573
Others		129			367			81
		1,131			1,095			841

 

Other operating income rose by HK$36m, or 3.3% compared with the first half of 2013, driven by the increase in rental income and growth in the movement in present value of in-force long-term insurance business, partly offset by a lower revaluation gain on a property held by the insurance business. The increase in the movement in present value of in-force long-term insurance business was mainly due tonew sales with a higher profit margin and a favourable change in market conditions.

 

 

Analysis of income from wealth management business

 

Half-year ended				Half-year ended					Half-year ended
	30 June					30 June				31 December
Figures in HK$m			2014			2013				2013
						(restated)
Investment income:
- retail investment funds			891				845				703
- structured investment productsW			523				675				290
- stockbroking and related services			495				519				522
- margin trading and others			146				173				146
			2,055				2,212				1,661
Insurance income:
- life insurance			2,043				1,722				1,757
- general insurance and others			116				105				102
			2,159				1,827				1,859
Total			4,214				4,039				3,520

 

^WIncome from structured investment products includes income reported under net fee income on the sales of third-party structured investment products. It also includes profits generated from the selling of structured investment products in issue, reported under net trading income.

 

Wealth management business income maintained good growth momentum in the first half of 2014, achieving a 4.3% increase when compared with the same period last year. Investment income declined by 7.1%, mainly affected by weaker investor sentiment in the second quarter of 2014, as reflected by slower fund sales and securities broking activities. Insurance business income grew by 18.2%, due mainly to our proactive management of the life insurance investment portfolio which resulted in an increase of HK$390m in investment gains when compared with the same period last year. Compared with the second half of 2013, wealth management business income grew by 19.7%, driven by the increase of 23.7% in investment income and 16.1% in insurance income.

 

 

Analysis of insurance business income

 

Half-year ended			Half-year ended						Half-year ended
	30 June				30 June				31 December
Figures in HK$m		2014				2013				2013
Life insurance:
- net interest income and fee income		1,517				1,506				1,527
- returns on life insurance investment
portfolios (including share of associate's profit and surplus on property revaluation backing insurance contracts)		604				214				806
- net earned insurance premiums		6,004				5,800				4,205
- net insurance claims incurred and
movement in policyholders' liabilities		(6,889	)			(6,420	)			(5,354	)
- movement in present value of in-force
long-term insurance business		807				622				573
		2,043				1,722				1,757
General insurance and others		116				105				102
Total		2,159				1,827				1,859

 

Against a backdrop of weakening investment sentiment, our comprehensive range of life insurance products underpinned the wealth management income stream. Life insurance income achieved growth of HK$321m, or 18.6%, to HK$2,043m, reflecting the improvement in the life insurance investment portfolios return and the growth of business.

 

Supported by our diversified range of life insurance products, the bank achieved a 4.4% increase in new annualised life insurance premiums when compared with the first half of 2013. To better meet the needs of customers at different life stages, the bank has entered into an exclusive 10-year distribution agreement with international healthcare company Bupa in providing medical insurance products and services.

 

Net interest income and fee income from the life insurance investment portfolio grew by 0.7% as the bank has re-balanced assets under the low interest rate environment. Investment returns on life insurance grew strongly by 182.2%, benefiting from the favourable movement in equity markets, though partly offset by lower property revaluation gains. To the extent that the investment return is attributable to policyholders, there is an offsetting movement reported under 'net insurance claims incurred and movement in policyholders' liabilities' or 'movement in present value of in-force long-term insurance business ('PVIF')'. Net earned insurance premiums rose by 3.5% as a result of increased renewals of existing policies, partly offset by lower new business premiums written. The growth in insurance premiums earned resulted in a corresponding increase in 'net insurance claims incurred and movement in policyholders' liabilities'. The increase in the movement in present value of in-force long-term insurance business was driven by new sales with a higher profit margin and a favourable change in market conditions.

 

General insurance income increased by 10.5%, reflecting higher distribution commission income.

 

 

Loan impairment charges and other credit risk provisions

 

	Half-year ended			Half-year ended			Half-year ended
	30 June			30 June			31 December
Figures in HK$m		2014			2013			2013
Net charge for impairment of loans   and advances to customers:
Individually assessed impairment   allowances:
- new allowances		(179	)		(61	)		(130	)
- releases		91			57			34
- recoveries		31			7			9
		(57	)		3			(87	)
Net charge for collectively assessed   impairment allowances		(252	)		(201	)		(251	)
Other credit risk provisions		(28	)		__			__
Loan impairment charges and other
credit risk provisions		(337	)		(198	)		(338	)

 

Loan impairment charges and other credit risk provisions increased by HK$139m, or 70.2%, when compared with first half of last year, but were at the same level compared with the second half.

 

Individually assessed impairment charges increased from a low base of a HK$3m net release to a HK$57m net charge, due to the downgrade of a few corporate and commercial customers of Hang Seng China, partly offset by higher releases and recoveries from corporate and commercial customers in the first half of 2014.

 

Collectively assessed charges increased by HK$51m, or 25.4%, when compared with the first half of 2013. Impairment allowances for loans not individually identified as impaired recorded a lower release compared with the first half of 2013 as a result of the increase in customer loan balances and updated assumptions in the assessment model. Impairment charges for credit card and personal loan portfolios decreased, reflecting the revision to the collective impairment models in the first half of 2013.

 

Overall credit quality was relatively stable with total loan impairment allowances as a percentage of gross advances lowered to 0.23% when compared with 0.25% at last year end. The group remains cautious on the credit outlook.

 

 

Operating expenses

 

	Half-year ended		Half-year ended			Half-year ended
	30 June			30 June			31 December
Figures in HK$m		2014			2013			2013
Employee compensation and benefits:
- salaries and other costs		2,071			1,953			2,038
- retirement benefit costs		224			217			224
		2,295			2,170			2,262
General and administrative expenses:
- rental expenses		336			315			330
- other premises and equipment		507			519			579
- marketing and advertising expenses		381			322			391
- other operating expenses		660			586			754
		1,884			1,742			2,054
Depreciation of premises, plant
and equipment		406			376			386
Amortisation of intangible assets		55			57			56
		4,640			4,345			4,758
Cost efficiency ratio		32.1	%		32.2	%		32.6	%
Full-time equivalent staff numbers	At 30 June			At 30 June		At 31 December
by region		2014			2013			2013
Hong Kong and others		7,894			8,014			8,001
Mainland		1,769			1,820			1,855
Total		9,663			9,834			9,856

 

Operating expenses increased by HK$295m, or 6.8%, compared with the first half of 2013, reflecting the bank's continued investment in new business platforms and mainland operations to support long-term business growth and capture business opportunities while continuing carefully to manage costs. Mainland-related operating expenses increased by 6.9% due to ongoing investment in enhancing Hang Seng China's infrastructure and service capabilities. Compared with the second half of 2013, operating expenses fell by HK$118m, or 2.5%.

 

Employee compensation and benefits increased by HK$125m, or 5.8%. Salaries and other costs increased by 6.0%, reflecting the annual salary increment and performance related remuneration. General and administrative expenses were up 8.2%, due mainly to the rise in marketing expenditure to support business growth. Rental expenses rose as a result of increased rents for branches in Hong Kong and on the Mainland. Other operating expenses also increased as a result of higher processing charges. Depreciation charges were up 8.0%, reflecting higher depreciation charges on business premises following the upward commercial property revaluation in Hong Kong.

 

At 30 June 2014, the group's number of full-time equivalent staff was down by 193 compared with the end of 2013.

 

The bank continued to focus on enhancing operational efficiency while maintaining growth momentum. With the increase in net operating income before loan impairment charges outpacing the growth in operating expenses, the cost efficiency ratio lowered by 0.1 percentage points to 32.1%.

 

 

Gains less losses from financial investments and fixed assets

 

	Half-year ended			Half-year ended			Half-year ended
	30 June			30 June			31 December
Figures in HK$m		2014			2013			2013
Net losses from disposal of
available-for-sale equity securities		(3	)		__			__
Net gains from disposal of
available-for-sale debt securities		1			__			1
Gains less losses on disposal of
assets held for sale		__			175			2
Gains less losses on disposal of loans
and advances		2			1			4
Gains less losses on disposal of fixed
assets		(5	)		(3	)		(1	)
		(5	)		173			6

 

Gains less losses from financial investments and fixed assets recorded a loss of HK$5m in the first half of 2014 compared with a gain of HK$173m in the first half of 2013. The HK$175m net gain on disposal of assets held for sale in the same period last year was from the disposal of certain properties in Hong Kong.

 

 

Net gain on reclassification of Industrial Bank Co., Ltd. ('Industrial Bank') and Yantai Bank Co., Ltd. ('Yantai Bank')

 

	Half-year ended			Half-year ended			Half-year ended
	30 June			30 June			31 December
Figures in HK$m		2014			2013			2013
Gain on reclassification of Industrial Bank		__			8,454			__
Loss on reclassification of Yantai Bank		__			__			(297	)
		__			8,454			(297	)

The group recorded an accounting gain of HK$8,454m on the reclassification of Industrial Bank as a financial investment following its issue of additional share capital to third parties in the first half of 2013.

 

The group recorded an accounting loss of HK$297m on the reclassification of Yantai Bank as a financial investment following an increase in its registered share capital to enable a private placement of additional share capital to a third party in the second half 2013.

 

 

Tax expense

 

Taxation in the consolidated income statement represents:

 

	Half-year ended			Half-year ended				Half-year ended
	30 June			30 June				31 December
Figures in HK$m		2014			2013				2013
Current tax - provision for
Hong Kong profits tax
Tax for the period		1,396				1,298				1,236
Adjustment in respect of
prior periods		(96	)			__				(14	)
Current tax - taxation outside
Hong Kong
Tax for the period		13				52				161
Adjustment in respect of
prior periods		12				7				__
Deferred tax
Origination and reversal of
temporary differences		84				(1,052	)			130
Total tax expense		1,409				305				1,513

 

The current tax provision is based on the estimated assessable profit for the first half of 2014, and is determined for the bank and its subsidiaries operating in Hong Kong by using the Hong Kong profits tax rate of 16.5% (the same as in 2013). For subsidiaries and branches operating in other jurisdictions, the appropriate tax rates prevailing in the relevant countries are used. Deferred tax is calculated at the tax rates that are expected to apply in the period when the liability is settled or the asset is realised. The release in deferred tax in the first half of 2013 was mainly related to the reclassification of Industrial Bank as a financial investment.

 

 

Earnings per share

 

The calculation of earnings per share for the first half of 2014 is based on earnings of HK$8,468m (HK$18,468m and HK$8,210m for the first and second halves of 2013 respectively) and on the weighted average number of ordinary shares in issue of 1,911,842,736 shares (unchanged from the first and second halves of 2013).

 

 

Dividends per share

 

	Half-year ended			Half-year ended			Half-year ended
		30 June			30 June		31 December
		2014			2013			2013
	HK$	HK$m		HK$	HK$m		HK$	HK$m
	per share			per share			per share
First interim	1.10	2,103		1.10	2,103		__	__
Second interim	1.10	2,103		1.10	2,103		__	__
Third interim	__	__		__	__		1.10	2,103
Fourth interim	__	__		__	__		2.20	4,206
	2.20	4,206		2.20	4,206		3.30	6,309

 

 

Segmental analysis

 

Hong Kong Financial Reporting Standard 8 ('HKFRS 8') requires segmental disclosure to be based on the way that the group's chief operating decision maker regards and manages the group, with the amounts reported for each reportable segment being the measures reported to the group's chief operating decision maker for the purpose of assessing segmental performance and making decisions about operating matters. In 2014, there was a change in the reportable segments information reported internally to the group's most senior executive management for the purposes of resources allocation and performance assessment. To align with the internal reporting information, the group has presented the following five reportable segments. Corresponding amounts have been restated to ensure information is provided on a basis consistent with the revised segment information. Consolidation adjustments made in preparing the group's financial statements and inter-segment elimination of income or expenses upon consolidation are included in the 'Inter-segment elimination'.

 

Hong Kong and other businesses segment

·    Retail Banking and Wealth Management activities offer a broad range of products and services to meet the personal banking, consumer lending and wealth management needs of individual customers. Personal banking products typically include current and savings accounts, mortgages and personal loans, credit cards, insurance and wealth management;

·    Commercial Banking activities offer a comprehensive suite of products and services to corporate, commercial and SME customers - including corporate lending, trade and receivable finance, payments and cash management, treasury and foreign exchange, general insurance, key-person insurance, investment services and corporate wealth management.

·    Global Banking and Markets provides tailored financial solutions to major corporate and institutional clients. Undertaking a long-term relationships management approach, its services include general banking, corporate lending, interest rates, foreign exchange, money markets, structured products and derivatives, etc. Global Banking and Markets also manages the funding and liquidity positions of the bank and other market risk positions arising from banking activities;

·    Other mainly represents management of shareholders' funds and investments in premises, investment properties, equity shares and subordinated debt funding;

 

 

Mainland China business segment

·    Mainland China business segment comprises the business of Hang Seng Bank (China) Limited and our share of profits from mainland associates.

 

 (a) Segmental result

 

For the purpose of segmental analysis, the allocation of revenue reflects the benefits of capital and other funding resources allocated to the business segments by way of internal capital allocation and fund transfer-pricing mechanisms. Cost allocation is based on the direct costs incurred by the respective business segments and apportionment of management overheads. Bank-owned premises are reported under 'Other' segment. When these premises are utilised by Global Businesses, notional rent will be charged to the relevant business segments based on market rates.

 

Profit before tax contributed by the business segments for the periods stated is set out in the table below. More business segment analysis and discussion is set out in the 'Segmental analysis' section on page 11.

 

	Hong Kong and other businesses
	Retail Banking								Global Banking																								Mainland
	and Wealth	Commercial							and																						China
3BFigures in HK$m	Management			Banking									Markets								Other							Total			business								Total
Half-year ended 30 June 2014
Profit before tax	4,652			2,489									2,179								395							9,715					162						9,877
Share of profit before tax	47.1	%		25.2					%				22.1						%		4.0					%		98.4			%		1.6				%		100.0			%
Share of profit before tax as a % of   Hong Kong and other businesses	47.9	%		25.6					%				22.4						%		4.1					%		100.0			%
Half-year ended 30 June 2013 (restated)
Profit before tax	4,455			2,423								2,037									1,225						10,140					8,633							18,773
Share of profit before tax	23.8	%		12.9					%			10.8							%		6.5					%	54.0				%	46.0					%		100.0			%
Share of profit before tax as a % of   Hong Kong and other businesses	43.9	%		23.9					%			20.1							%		12.1					%	100.0				%
Half-year ended 31 December 2013 (restated)
Profit before tax	4,484		2,211								2,033									1,159							9,887						(164				)				9,723
Share of profit before tax	46.1	%	22.7							%	20.9							%		12.0						%	101.7				%		(1.7				%)				100.0	%
Share of profit before tax as a % of   Hong Kong and other businesses	45.4	%	22.4						%		20.6							%		11.6						%	100.0				%

 

 

(b) Geographic information

 

The geographical regions in this analysis are classified by the location of the principal operations of the subsidiary companies or, in the case of the bank itself, by the location of the branches responsible for reporting the results or advancing the funds.

 

											Inter-segment
4BFigures in HK$m	Hong Kong			Mainland			Americas		Others		elimination		Total
Half-year ended 30 June 2014
Income and expense
Total operating income		20,307			996		__		100		(41	)	21,362
Profit before tax		9,654			162		(8	)	69		__		9,877
At 30 June 2014
Total assets		1,090,718			125,434		34		14,879		(35,101	)	1,195,964
Total liabilities		984,146			115,308		5		14,482		(27,478	)	1,086,463
Equity		106,572			10,126		29		397		(7,623	)	109,501
Share capital		9,658			8,691		18		12		(8,721	)	9,658
Interest in associates		2,149			29		__		__		__		2,178
Non-current assetsW		40,384			1,096		__		1		__		41,481

 

Half-year ended 30 June 2013
Income and expense
Total operating income		18,640		796		421		81		(41	)	19,897
Profit before tax		9,683		8,633		404		53		__		18,773
At 30 June 2013
Total assets		1,008,809		118,176		57,583		10,996		(88,907	)	1,106,657
Total liabilities		911,782		109,913		56,008		10,703		(83,830	)	1,004,576
Equity		97,027		8,263		1,575		293		(5,077	)	102,081
Share capital		9,559		6,224		18		12		(6,254	)	9,559
Interest in associates		1,778		975		__		__		__		2,753
Non-current assetsW		37,556		1,083		__		1		__		38,640

 

Half-year ended 31 December 2013
Income and expense
Total operating income		18,818		899		179		90		(47	)	19,939
Profit before tax		9,660		(164	)	169		58		__		9,723
At 31 December 2013
Total assets		1,048,106		118,476		185		12,702		(35,739	)	1,143,730
Total liabilities		943,141		108,495		48		12,356		(28,088	)	1,035,952
Equity		104,965		9,981		137		346		(7,651	)	107,778
Share capital		9,559		8,847		18		12		(8,877	)	9,559
Interest in associates		2,032		30		__		__		__		2,062
Non-current assetsW		38,786		1,105		__		1		__		39,892

^W Non-current assets consist of properties, plant and equipment, goodwill and other intangible assets.

 

 

Cash and balances at central banks

 

	At 30 June			At 30 June			At 31 December
Figures in HK$m		2014			2013			2013
					(restated)
Cash in hand		5,496			5,782			6,005
Balances at central banks		2,225			4,016			16,712
		7,721			9,798			22,717

 

 

Placings with and advances to banks

 

	At 30 June			At 30 June			At 31 December
Figures in HK$m		2014			2013			2013
Balances with banks		7,828			5,013			10,577
Placings with and advances to banks
maturing within one month		73,515			80,620			64,749
Placings with and advances to banks
maturing after one month
but less than one year		59,563			53,392			64,586
Placings with and advances to banks
maturing after one year		2,069			1,987			2,028
		142,975			141,012			141,940

 

 

Trading assets

 

	At 30 June			At 30 June			At 31 December
Figures in HK$m		2014			2013			2013
Treasury bills		16,108			28,206			18,336
Certificates of deposit		__			__			__
Other debt securities		8,778			5,935			5,471
Debt securities		24,886			34,141			23,807
Investment funds		35			25			28
Total trading securities		24,921			34,166			23,835
OtherW		1,292			343			8,161
Total trading assets		26,213			34,509			31,996
Debt securities:
- listed in Hong Kong		5,013			4,322			3,783
- listed outside Hong Kong		647			780			700
		5,660			5,102			4,483
- unlisted		19,226			29,039			19,324
		24,886			34,141			23,807
Investment funds:
- listed in Hong Kong		35			25			28
Total trading securities		24,921			34,166			23,835
Debt securities:
Issued by public bodies:
- central governments and central banks		21,770			33,077			22,650
- other public sector entities		__			69			__
		21,770			33,146			22,650
Issued by other bodies:
- banks		627			581			853
- corporate entities		2,489			414			304
		3,116			995			1,157
		24,886			34,141			23,807
Investment funds:
Issued by corporate entities		35			25			28
Total trading securities		24,921			34,166			23,835

^W This represents the amount receivable from counterparties on trading transactions not yet settled.

 

 

Trading assets decreased by HK$5.8bn, or 18.1%, compared with the end of 2013. Trading securities rose by HK$1.1bn mainly due to increased holdings of corporate bonds. This was, however, offset by the HK$6.9bn decrease in amounts receivable from counterparties on trading transactions not yet settled.

 

 

Financial assets designated at fair value

 

	At 30 June			At 30 June			At 31 December
Figures in HK$m		2014			2013			2013
Debt securities		60			4,228			812
Equity shares		7,015			2,990			3,639
Investment funds		3,256			2,932			2,536
		10,331			10,150			6,987
Debt securities:
- listed in Hong Kong		11			87			103
- listed outside Hong Kong		49			468			489
		60			555			592
- unlisted		__			3,673			220
		60			4,228			812
Equity shares:
- listed in Hong Kong		2,299			1,554			2,072
- listed outside Hong Kong		4,634			1,408			1,539
		6,933			2,962			3,611
- unlisted		82			28			28
		7,015			2,990			3,639
Investment funds:
- listed in Hong Kong		509			27			32
- listed outside Hong Kong		341			741			314
		850			768			346
- unlisted		2,406			2,164			2,190
		3,256			2,932			2,536
		10,331			10,150			6,987
Debt securities:
Issued by public bodies:
- central governments and central banks		__			313			358
- other public sector entities		1			46			44
		1			359			402
Issued by other bodies:
- banks		10			3,664			208
- corporate entities		49			205			202
		59			3,869			410
		60			4,228			812
Equity shares:
Issued by banks		903			499			634
Issued by public sector entities		13			12			12
Issued by corporate entities		6,099			2,479			2,993
		7,015			2,990			3,639
Investment funds:
Issued by banks		82			__			__
Issued by corporate entities		3,174			2,932			2,536
		3,256			2,932			2,536
		10,331			10,150			6,987

 

 

Loans and advances to customers

 

	At 30 June			At 30 June			At 31 December
Figures in HK$m		2014			2013			2013
Gross loans and advances to   customers		634,413			581,080			587,688
Less:
Loan impairment allowances:
- individually assessed		(721	)		(666	)		(709	)
- collectively assessed		(745	)		(709	)		(739	)
		632,947			579,705			586,240

 

 

Loan impairment allowances against loans and advances to customers

 

		10BIndividually		Collectively
Figures in HK$m		11Bassessed		assessed				Total
At 1 January 2014		709			739			1,448
Amounts written off		(70	)		(269	)		(339	)
Recoveries of loans and advances
written off in previous years		31			27			58
New impairment allowances
charged to income statement		179			284			463
Impairment allowances released
to income statement		(122	)		(32	)		(154	)
Unwinding of discount of loan
impairment allowances
recognised as 'interest income'		(3	)		(2	)		(5	)
Exchange		(3	)		(2	)		(5	)
At 30 June 2014		721			745			1,466

 

Total loan impairment allowances as a percentage of gross loans and advances to customers are as follows:

 

	At 30 June			At 30 June			At 31 December
		2014			2013			2013
		%			%			%
Loan impairment allowances:
- individually assessed		0.11			0.11			0.12
- collectively assessed		0.12			0.12			0.13
Total loan impairment allowances		0.23			0.23			0.25

 

Total loan impairment allowances as a percentage of gross loans and advances to customers were 0.23% at 30 June 2014 compared with 0.25% at the end of 2013. Individually assessed allowances as a percentage of gross loans and advances improved by one basis point to 0.11% as overall asset quality remained sound. Collectively assessed allowances as a percentage of gross loans and advances fell by one basis point to 0.12%.

 

 

Impaired loans and advances to customers and allowances

 

	At 30 June			At 30 June			At 31 December
Figures in HK$m		2014			2013			2013
Gross impaired loans and   advances		1,292			1,289			1,311
Individually assessed allowances		(721	)		(666	)		(709	)
		571			623			602
Individually assessed allowances   as a percentage of gross   impaired loans and advances		55.8	%		51.7	%		54.1	%
Gross impaired loans and advances as a percentage of gross loans and advances to customers		0.20	%		0.22	%		0.22	%

 

Impaired loans and advances to customers are those loans and advances where objective evidence exists that full repayment of principal or interest is considered unlikely.

 

Gross impaired loans and advances decreased by HK$19m, or 1.4%, to HK$1,292m compared with the year end of 2013, due to repayments by corporate and commercial banking customers. Gross impaired loans and advances as a percentage of gross loans and advances to customers stood at 0.20% compared with 0.22% at the year end of 2013.

 

	At 30 June			At 30 June			At 31 December
Figures in HK$m		2014			2013			2013
Gross individually assessed
impaired loans and advances		1,124			1,131			1,157
Individually assessed allowances		(721	)		(666	)		(709	)
		403			465			448
Gross individually assessed
impaired loans and advances
as a percentage of
gross loans and advances to
customers		0.18	%		0.19	%		0.20	%
Amount of collateral which
has been taken into account
in respect of individually assessed
impaired loans and advances to
customers		299			407			516

Collateral includes any tangible security that carries a fair market value and is readily marketable. This includes (but is not limited to) cash and deposits, stocks and bonds, mortgages over properties and charges over other fixed assets such as plant and equipment. Where collateral values are greater than gross loans and advances to customers, only the amount of collateral up to the gross loans and advances is included.

 

 

Overdue loans and advances to customers

 

Loans and advances that are more than three months overdue and their expression as a percentage of gross loans and advances to customers are as follows:

 

	At 30 June				At 30 June				At 31 December
			2014				2013				2013
	HK$m		%		HK$m		%		HK$m		%
Gross loans and advances which have been overdue with respect to either principal or interest for periods of: - more than three months but   not more than six months - more than six months but   not more than one year - more than one year
	168		__		140		__		121		__
	100		__		50		__		73		__
	640		0.1		681		0.1		637		0.1
	908		0.1		871		0.1		831		0.1

 

Loans and advances with a specific repayment date are classified as overdue when the principal or interest is overdue and remains unpaid at the period end. Loans and advances repayable by regular instalments are treated as overdue when an instalment payment is overdue and remains unpaid at the period end. Loans and advances repayable on demand are classified as overdue either when a demand for repayment has been served on the borrower but repayment has not been made in accordance with the demand notice or when the loans and advances have remained continuously outside the approved limit advised to the borrower for more than the overdue period in question.

 

Overdue loans and advances increased by HK$77m, or 9.3%, to HK$908m compared with last year end. Overdue loans and advances as a percentage of gross loans and advances to customers stood at 0.1%.

 

 

Rescheduled loans and advances to customers

 

Rescheduled loans and advances to customers and their expression as a percentage of gross loans and advances to customers are as follows:

 

	At 30 June				At 30 June				At 31 December
			2014				2013				2013
	HK$m		%		HK$m		%		HK$m		%
Rescheduled loans and
advances to customers	139		__		167		__		123		__

Rescheduled loans and advances to customers are those loans and advances that have been rescheduled or renegotiated for reasons related to the borrower's financial difficulties. This will normally involve the granting of concessionary terms and resetting the overdue account to non-overdue status. A rescheduled loan and advance will continue to be disclosed as such unless the debt has been performing in accordance with the rescheduled terms for a period of six to 12 months. Rescheduled loans and advances to customers which have been overdue for more than three months under the rescheduled terms are reported as overdue loans and advances.

 

Rescheduled loans and advances stood at HK$139m at 30 June 2014, an increase of HK$16m, or 13.0% compared with last year end, representing 0.02% of gross loans and advances to customers.

 

 

Segmental analysis of loans and advances to customers by geographical area

 

Loans and advances to customers by geographical area are classified according to the location of the counterparties after taking into account the transfer of risk. In general, risk transfer applies when a loan is guaranteed by a party located in an area that is different from that of the counterparty.

 

Figures in HK$m	At 30 June 2014
	Gross loans and advances		Individually  impaired loans and advances		Overdue loans and advances		Individually assessed allowances		Collectively assessed allowances
Hong Kong		527,996		869		828		530		615
Rest of Asia-Pacific		99,370		253		78		191		121
Others		7,047		2		2		__		9
		634,413		1,124		908		721		745

 

Figures in HK$m	At 30 June 2013
	Gross loans and advances		Individually  impaired loans and advances		Overdue loans and advances		Individually assessed allowances		Collectively assessed allowances
Hong Kong		467,327		886		715		498		545
Rest of Asia-Pacific		106,461		212		150		163		153
Others		7,292		33		6		5		11
		581,080		1,131		871		666		709

 

Figures in HK$m	At 31 December 2013
	Gross loans and advances		Individually  impaired loans and advances		Overdue loans and advances		Individually assessed allowances		Collectively assessed allowances
Hong Kong		480,545		924		642		527		589
Rest of Asia-Pacific		99,987		233		189		182		140
Others		7,156		__		__		__		10
		587,688		1,157		831		709		739

 

 

Gross loans and advances to customers by industry sector

 

The analysis of gross loans and advances to customers by industry sector based on categories and definitions used by the Hong Kong Monetary Authority ('HKMA') is as follows:

 

	At 30 June			At 30 June			At 31 December
5BFigures in HK$m		2014			2013			2013
Gross loans and advances to   customers for use in Hong Kong
Industrial, commercial and
financial sectors
Property development		42,019			28,551			30,529
Property investment		111,550			99,722			100,912
Financial concerns		3,709			4,566			2,773
Stockbrokers		2,937			402			304
Wholesale and retail trade		24,979			19,850			21,912
Manufacturing		20,811			17,252			17,372
Transport and transport equipment		7,306			6,072			6,289
Recreational activities		137			224			160
Information technology		1,581			1,968			1,870
Other		35,958			32,751			35,664
		250,987			211,358			217,785
Individuals
Loans and advances for the purchase of   flats under the Government Home   Ownership Scheme, Private Sector   Participation Scheme and Tenants   Purchase Scheme
		14,972			13,619			14,452
Loans and advances for the purchase of   other residential properties
		134,413			129,733			131,305
Credit card loans and advances		21,554			20,081			21,419
Other		17,265			14,333			14,431
		188,204			177,766			181,607
Total gross loans and   advances for use in Hong Kong
		439,191			389,124			399,392
Trade finance		51,737			62,892			52,117
Gross loans and advances   for use outside Hong Kong
		143,485			129,064			136,179
Gross loans and advances   to customers		634,413			581,080			587,688

 

 

Gross loans and advances to customers grew by HK$46.7bn, or 8.0%, to HK$634.4bn compared with the end of 2013.

 

Loans and advances for use in Hong Kong increased by HK$39.8bn, or 10.0%. Lending to the industrial, commercial and financial sectors grew by 15.2%. Lending to property development and property investment increased by 37.6% and 10.5% respectively. Lending to stockbrokers grew by HK$2.6bn mainly from financing granted to stockbroking companies relating to several initial public offerings at the end of June 2014. The bank's continued efforts to support local business saw lending to wholesale and retail trade and manufacturing sectors grew by 14.0% and 19.8% respectively.

 

Lending to individuals increased by 3.6% compared with the last year end. The bank was able to maintain its market share for the mortgage business based on comprehensive product suite and thus residential mortgage lending to individuals rose by 2.4% compared with the end of 2013. Credit card advances were broadly at the same level as last year end. Other loans to individuals grew by 19.6%, reflecting the success of the bank in expanding its consumer finance business. 

 

Loans and advances for use outside Hong Kong rose by 5.4%, compared with the end of 2013, driven largely by lending on the Mainland. Lending by Hang Seng China increased by 1.9% to HK$62.3bn, underpinned by the expansion of renminbi lending to corporate and commercial customers as well as residential mortgages. The group employed a cautious approach to lending on the Mainland and will continue to strengthen its prudent credit policies in light of the more difficult operating conditions for mainland businesses. 

 

 

Financial investments

 

	At 30 June			At 30 June			At 31 December
Figures in HK$m		2014			2013			2013
Available-for-sale at fair value:
- debt securities		200,179			166,288			183,344
- equity shares		26,851			26,103			27,948
- investment funds		45			43			48
Held-to-maturity debt securities
at amortised cost		70,228			70,935			71,505
		297,303			263,369			282,845
Fair value of held-to-maturity debt securities		71,753			72,386			72,014
Treasury bills		105,192			75,014			91,811
Certificates of deposit		10,550			10,980			9,729
Other debt securities		154,665			151,229			153,309
Debt securities		270,407			237,223			254,849
Equity shares		26,851			26,103			27,948
Investment funds		45			43			48
		297,303			263,369			282,845
Debt securities:
- listed in Hong Kong		14,045			12,676			11,709
- listed outside Hong Kong		65,153			58,976			67,778
		79,198			71,652			79,487
- unlisted		191,209			165,571			175,362
		270,407			237,223			254,849
Equity shares:
- listed in Hong Kong		69			65			67
- listed outside Hong Kong		25,946			25,753			26,897
		26,015			25,818			26,964
- unlisted		836			285			984
		26,851			26,103			27,948
Investment funds:
- unlisted		45			43			48
		297,303			263,369			282,845
Fair value of listed financial investments		105,873			97,781			106,674
Debt securities:
Issued by public bodies:
- central governments and central banks		148,193			110,094			127,599
- other public sector entities		26,681			27,655			27,680
		174,874			137,749			155,279
Issued by other bodies:
- banks		64,892			70,860			69,189
- corporate entities		30,641			28,614			30,381
		95,533			99,474			99,570
		270,407			237,223			254,849
Equity shares:
Issued by banks		26,441			25,753			27,510
Issued by corporate entities		410			350			438
		26,851			26,103			27,948
Investment funds:
Issued by corporate entities		45			43			48
		297,303			263,369			282,845

 

 

Debt securities by rating agency designation

 

	At 30 June			At 30 June			At 31 December
Figures in HK$m		2014			2013			2013
AA- to AAA		201,920			184,183			187,387
A- to A+		59,592			43,799			59,463
B+ to BBB+		6,765			6,872			5,714
Unrated		2,130			2,369			2,285
		270,407			237,223			254,849

 

Financial investments include treasury bills, certificates of deposit, other debt securities and equity shares intended to be held for an indefinite period of time.

 

Available-for-sale financial investments may be sold in response to needs for liquidity or changes in the market environment, and are carried at fair value with the gains and losses from changes in fair value recognised through equity reserves. Held-to-maturity debt securities are stated at amortised cost. Where debt securities have been purchased at premiums or discounts, the carrying value of the securities are adjusted to reflect the effective interest rate of the debt securities taking into account such premiums and discounts.

 

Financial investments rose by HK$14.5bn, or 5.1%, compared with the last year end. Debt securities investments increased by HK$15.6bn. Equity shares declined by HK$1.1bn, reflecting the fair value change of the bank's investment in Industrial Bank. Available-for-sale financial investments are tested for impairment when there is an indication that the investment may be impaired. The group's policy is to recognise an impairment loss where there is a 'significant' or 'prolonged' decline in the fair value of an equity investment. At 30 June 2014, the fair value of the bank's investment in Industrial Bank, an 'available-for-sale' financial investment, was HK$25.9bn, 10% below the deemed cost of HK$28.8bn. In accordance with the group's policy, no impairment loss has been recognised at 30 June 2014. If the fair value remains below the deemed cost in the second half of 2014, an impairment loss may be recognised in the income statement. In subsequent periods, any further decline in fair value below the level at which the initial impairment loss was recognised, may be reflected in the income statement for the relevant period as additional impairment losses.

 

At 30 June 2014, about 99.0% of the group's holdings of debt securities were assigned investment grade ratings by rating agencies. The unrated debt securities were issued by subsidiaries of investment-grade banks and are guaranteed by their corresponding holding companies. These notes rank equally with all of the respective guarantors' other senior debt obligations. The group did not hold any investments in structured investment vehicles or any sub-prime related assets such as collateralised debt obligations, mortgage-backed securities and other asset-backed securities.

 

 

Interest in associates

	At 30 June			At 30 June			At 31 December
Figures in HK$m		2014			2013			2013
Share of net assets		2,178			2,597			2,062
Intangible assets		__			15			__
Goodwill		__			141			__
		2,178			2,753			2,062

 

 

Intangible assets

	At 30 June			At 30 June			At 31 December
Figures in HK$m		2014			2013			2013
Present value of in-force long-term
insurance business		8,005			6,625			7,198
Internally developed software		369			390			378
Acquired software		76			59			69
Goodwill		329			329			329
		8,779			7,403			7,974

 

 

Other assets

	At 30 June			At 30 June			At 31 December
Figures in HK$m		2014			2013			2013
					(restated)
Items in the course of collection
from other banks		6,912			5,540			4,743
Bullion		3,392			4,379			4,184
Prepayments and accrued income		3,972			3,245			3,519
Assets held for sale		5			4			9
Acceptances and endorsements		6,928			6,057			6,351
Retirement benefit assets		38			42			40
Other accounts		4,963			2,702			3,559
		26,210			21,969			22,405

 

Gold bullion balances were reclassified from 'Cash and balances at central banks' to 'Other assets' in the second half of 2013 to reflect better the substance of the gold lending business. 30 June 2013 comparatives have been restated accordingly.

 

 

Current, savings and other deposit accounts

 

	At 30 June			At 30 June			At 31 December
Figures in HK$m		2014			2013			2013
Current, savings and
other deposit accounts:
- as stated in consolidated
balance sheet		860,092			779,884			824,996
- structured deposits reported as
trading liabilities		47,042			39,990			34,489
		907,134			819,874			859,485
By type:
- demand and current accounts		73,367			68,142			74,664
- savings accounts		525,172			483,341			526,403
- time and other deposits		308,595			268,391			258,418
		907,134			819,874			859,485

 

 

Certificates of deposit and other debt securities in issue

 

	At 30 June			At 30 June			At 31 December
Figures in HK$m		2014			2013			2013
Certificates of deposit and
other debt securities in issue:
- as stated in consolidated
balance sheet		9,904			11,022			8,601
- structured certificates of deposit
and other debt securities in issue
reported as trading liabilities		3,743			1,312			1,615
		13,647			12,334			10,216
By type:
- certificates of deposit in issue		8,660			11,022			8,601
- other debt securities in issue		4,987			1,312			1,615
		13,647			12,334			10,216

Customer deposits, including current, savings and other deposits accounts, certificates of deposit and other debt securities in issue recorded growth of 5.9% to HK$920.8bn at 30 June 2014 from last year end. Structured deposits, certificates of deposit and other debt securities in issue increased as instruments with yield enhancement features gained popularity. Deposits with Hang Seng China also rose by 5.8%, driven mainly by renminbi deposits. In June, Hang Seng China successfully raised RMB1bn in Hong Kong through its debut offshore renminbi bond issue with a positive response from a diverse group of investors.

 

At 30 June 2014, the advances-to-deposits ratio was 68.7%, compared with 67.4% at 31 December 2013.

 

 

Trading liabilities

 

	At 30 June			At 30 June			At 31 December
Figures in HK$m		2014			2013			2013
Structured certificates of deposit and
other debt securities in issue		3,743			1,312			1,615
Structured deposits		47,042			39,990			34,489
Short positions in securities and others		14,928			26,447			26,013
		65,713			67,749			62,117

 

 

Other liabilities

 

	At 30 June			At 30 June				At 31 December
Figures in HK$m		2014			2013				2013
Items in the course of transmission
to other banks		8,759			8,034				6,987
Accruals		3,247			3,052				3,330
Acceptances and endorsements		6,956			6,057				6,351
Retirement benefit liabilities		1,768			1,682				1,772
Other		3,721			2,049				2,027
		24,451			20,874				20,467

 

 

Subordinated liabilities

 

		At 30 June			At 30 June			At 31 December
Figures in HK$m			2014			2013			2013
Nominal value	Description
Amount owed to HSBC Group undertakings
US$775m	Floating rate
	subordinated loan debt
	due December 2020		6,007			6,011			6,009
US$450m	Floating rate
	subordinated loan debt
	due July 2021		3,488			3,491			3,489
US$300m	Floating rate
	subordinated loan debt
	due July 2022		2,325			2,327			2,326
			11,820			11,829			11,824
Representing:
- measured at amortised cost			11,820			11,829			11,824

 

The outstanding subordinated loan debts serve to help the bank maintain a balanced capital structure and support business growth.

 

 

Shareholders' funds

 

	At 30 June			At 30 June			At 31 December
Figures in HK$m		2014				2013				2013
Share capital		9,658				9,559				9,559
Retained profits		83,215				76,633				78,679
Premises revaluation reserve		15,200				14,628				14,904
Cash flow hedging reserve		3				2				6
Available-for-sale investment reserve
- on debt securities		136				(141	)			(113		)
- on equity securities		(2,596	)			(2,743	)			(1,505		)
Capital redemption reserve		__				99				99
Other reserves		1,782				1,941				1,943
Total reserves		97,740				90,419				94,013
		107,398				99,978				103,572
Proposed dividends		2,103				2,103				4,206
Shareholders' funds		109,501				102,081				107,778
Return on average shareholders' fundsW		15.9	%			35.9	%			15.3		%
W For the half-year ended

Shareholders' funds (excluding proposed dividends) grew by HK$3,826m, or 3.7%, to HK$107,398m at 30 June 2014. Retained profits rose by HK$4,536m, mainly reflecting the growth in attributable profit after the appropriation of interim dividends during the period. The premises revaluation reserve increased by HK$296m, reflecting the commercial property market movement during the first half of 2014.

 

The available-for-sale investment reserve for equity securities recorded a deficit of HK$2,596m compared with a deficit of HK$1,505m at 2013 year end, reflecting mainly the fair value change of the bank's investment in Industrial Bank during the period.

 

The capital redemption reserve of HK$99m has been included in share capital under the Hong Kong New Companies Ordinance (Cap. 622) which became effective on 3 March 2014. Please refer to the section 'The New Hong Kong Companies Ordinance (Cap. 622)' on page 66 for details.

 

The return on average shareholders' funds was 15.9%, compared with 35.9% for the first half of 2013. Excluding the Industrial Bank reclassification, the return on average shareholders' funds was 16.6%, compared with 19.0% for the first half of 2013.

 

There was no purchase, sale or redemption by the bank, or any of its subsidiaries, of the bank's securities during the first half of 2014.

 

 

Capital management

 

The following tables show the capital ratios, risk-weighted assets and capital base as contained in the 'Capital Adequacy Ratio' return required to be submitted to the Hong Kong Monetary Authority ('HKMA') by the bank on a consolidated basis that is specified by the HKMA under the requirements of section 3C(1) of the Banking (Capital) Rules.

 

The group uses the advanced internal ratings-based approach to calculate its credit risk for the majority of its non-securitisation exposures. For market risk, the group uses an internal models approach to calculate its general market risk for the risk categories of interest rate and foreign exchange (including gold bullion) exposures and the standardised (market risk) approach for calculating other market risk positions. For operational risk, the group uses the standardised (operational risk) approach to calculate its operational risk.

 

The basis of consolidation for the calculation of capital ratios under the Banking (Capital) Rules follows the basis of consolidation for financial reporting with the exclusion of subsidiaries which are 'regulated financial entities' (e.g. insurance and securities companies) as defined by the Banking (Capital) Rules. Accordingly, the investment cost of these unconsolidated regulated financial entities is deducted from the capital base.

 

The bank and its subsidiaries maintain a regulatory reserve to satisfy the provisions of the Banking Ordinance and local regulatory requirements for prudential supervision purposes. At 30 June 2014, the effect of this requirement is to restrict the amount of reserves which can be distributed to shareholders by HK$6,063m (31 December 2013: HK$5,440m).

 

There are no relevant capital shortfalls in any of the group's subsidiaries at 30 June 2014 (31 December 2013: nil) which are not included in its consolidation group for regulatory purposes.

 

During the period, the group has complied with all of the externally imposed capital requirements by the HKMA.

 

(a) Capital base

	At 30 June			At 30 June			At 31 December
Figures in HK$m		2014			2013			2013
Common equity tier 1 ('CET1') capital
Shareholders' equity		98,313			93,464			98,068
- Shareholders' equity per balance sheet		109,501			102,081			107,778
- Unconsolidated subsidiaries		(11,188	)		(8,617	)		(9,710	)
Regulatory deductions to CET1 capital		(44,560	)		(40,027	)		(41,329	)
- Cash flow hedging reserve		(1	)		(3	)		(6	)
- Changes in own credit risk on fair valued
liabilities		(5	)		(109	)		(4	)
- Property revaluation reserves1		(21,006	)		(20,019	)		(20,481	)
- Regulatory reserve		(6,063	)		(5,213	)		(5,440	)
- Intangible assets		(400	)		(565	)		(401	)
- Defined benefit pension fund assets		(31	)		__			(33	)
- Deferred tax assets net of deferred tax liabilities		(41	)		__			(43	)
- Valuation adjustments		(156	)		(219	)		(180	)
- Significant capital investments in unconsolidated
financial sector entities		(6,019	)		__			(500	)
- Excess AT1 deductions		(10,838	)		(13,899	)		(14,241	)
Total CET1 capital		53,753			53,437			56,739
Additional tier 1 ('AT1') capital
Total AT1 capital before regulatory deductions		__			__			__
Regulatory deductions to AT1 capital		__			__			__
- Significant capital investments in
unconsolidated financial sector entities		(10,838	)		(13,899	)		(14,241	)
- Excess AT1 deductions		10,838			13,899			14,241
Total AT1 capital		__			__			__
Total tier 1 ('T1') capital		53,753			53,437			56,739

Tier 2 ('T2') capital

 

Total T2 capital before regulatory deductions		22,113			22,344			22,518
- Term subordinated debt		9,921			10,880			10,872
- Property revaluation reserves1		9,453			9,009			9,216
- Impairment allowances and regulatory reserve eligible for inclusion in T2 capital		2,739			2,455			2,430
Regulatory deductions to T2 capital		(10,838	)		(13,899	)		(14,241	)
- Significant capital investments in unconsolidated financial sector entities		(10,838	)		(13,899	)		(14,241	)
Total T2 capital		11,275			8,445			8,277
Total capital		65,028			61,882			65,016

¹ Includes the revaluation surplus on investment properties which is reported as part of retained profits and related adjustments made in accordance with the Banking (Capital) Rules issued by the HKMA.

 

 

The following table shows the pro-forma Basel III end point basis position once all transitional arrangements have been phased out based on the Transition Disclosures Template. It should be noted that the pro-forma Basel III end point basis position takes no account of, for example, any future profits or management actions. In addition, the current regulations or their application may change before full implementation. Given this, the final impact on the group's capital ratios may differ from the pro-forma position, which is a mechanical application of the current rules to the balance sheet at 30 June 2014; it is not a projection. On this pro-forma basis, the group's CET1 capital ratio is 9.4%, which is above the Basel III minimum requirement, including the capital conservation buffer.

 

Reconciliation of regulatory capital from transitional basis to a pro-forma Basel III end point basis

 

	At 30 June			At 30 June			At 31 December
Figures in HK$m		2014			2013			2013
CET1 capital on a transitional basis		53,753			53,437			56,739
Transitional provisions
- Significant capital investments in
unconsolidated financial sector entities		(21,676	)		(27,798	)		(28,482	)
Excess AT1 deductions		10,838			13,899			14,241
CET1 capital end point basis		42,915			39,538			42,498

 

 

AT1 capital on a transitional basis		__			__			__
Transitional provisions
- Significant capital investments in
unconsolidated financial sector entities		10,838			13,899			14,241
Excess AT1 deductions		(10,838	)		(13,899	)		(14,241	)
AT1 capital end point basis		__			__			__
T2 capital on a transitional basis		11,275			8,445			8,277
Grandfathered instruments
- Term subordinated debt		(7,596	)		(8,553	)		(8,546	)
Transitional provisions
- Significant capital investments in
unconsolidated financial sector entities		10,838			13,899			14,241
T2 capital end point basis		14,517			13,791			13,972

 

(b) Risk-weighted assets by risk type 

 

	At 30 June			At 30 June			At 31 December
Figures in HK$m		2014			2013			2013
Credit risk		410,284			350,616			365,077
Market risk		3,918			2,534			4,293
Operational risk		42,628			39,361			41,100
Total		456,830			392,511			410,470

 

(c) Capital ratios (as a percentage of risk-weighted assets) 

 

The capital ratios on a consolidated basis calculated in accordance with the Banking (Capital) Rules are as follows:

 

	At 30 June			At 30 June			At 31 December
		2014			2013			2013
CET1 capital ratio		11.8	%		13.6	%		13.8	%
Tier 1 capital ratio		11.8	%		13.6	%		13.8	%
Total capital ratio		14.2	%		15.8	%		15.8	%

 

(d) Capital instruments

 

The following is a summary of the group's CET1 and tier 2 capital instruments:

 

	Amount recognised in regulatory capital
	At 30 June					At 30 June			At 31 December
Figures in HK$m		2014					2013			2013
CET1 capital instruments issued by the bank
Ordinary shares:
1,911,842,736 issued and fully paid ordinary
shares			9,658				9,559				9,559
Tier 2 capital instruments
Issued by the bank:
Subordinated loan due 2020
(nominal value: US$775m)			4,806				5,410				5,407
Subordinated loan due 2021
(nominal value: US$450m)			2,790				3,143				3,139
Subordinated loan due 2022
(nominal value: US$300m)			2,325				2,327				2,326

 

 

(e) Additional information

 

To comply with the Banking (Disclosure) Rules ('BDR'), the following capital information can be found in the Regulatory Disclosures section of our website www.hangseng.com:

 

·      A description of the main features and the full terms and conditions of the group's capital instruments.

 

·      A detailed breakdown of the group's CET1 capital, AT1 capital, T2 capital and regulatory deductions, using the standard template as specified by the HKMA.

 

·      A full reconciliation between the group's accounting and regulatory balance sheets, using the standard template as specified by the HKMA.

 

 

Liquidity ratio

 

The average liquidity ratio for the periods indicated, calculated in accordance with the Fourth Schedule of the Hong Kong Banking Ordinance, is as follows:

 

	Half-year ended			Half-year ended			Half-year ended
		30 June			30 June		31 December
		2014			2013			2013
The bank and its subsidiaries
designated by the HKMA		34.5	%		35.8	%		33.9	%

 

 

Reconciliation of cash flow statement

 

(a) Reconciliation of operating profit to net cash flow from operating activities

 

	Half-year ended			Half-year ended
		30 June			30 June
		2014			2013
6BFigures in HK$m					(restated)
Operating profit		9,496			8,934
Net interest income		(9,671	)		(8,969	)
Dividend income		(5	)		(4	)
Loan impairment charges and other credit risk provisions		337			198
Depreciation		406			376
Amortisation of intangible assets		55			57
Amortisation of available-for-sale investments		20			49
Loans and advances written off net of recoveries		(281	)		(233	)
Movement in present value of in-force long-term insurance
business		(807	)		(622	)
Interest received		12,439			10,794
Interest paid		(3,088	)		(2,306	)
Operating profit before changes in working capital		8,901			8,274
Change in treasury bills and certificates of deposit
with original maturity more than three months		(18,983	)		7,728
Change in placings with and advances to banks
maturing after one month		5,023			7,923
Change in trading assets		6,541			2,537
Change in derivative financial instruments		929			1,126
Change in reverse repurchase agreements - non trading		(2,309	)		__
Change in loans and advances to customers		(46,464	)		(43,428	)
Change in other assets		(4,376	)		(3,925	)
Change in current, savings and other deposit accounts		35,094			10,737
Change in repurchase agreements - non trading		1,837			1,625
Change in deposits from banks		(491	)		(5,726	)
Change in trading liabilities		3,596			7,896
Change in certificates of deposit and other debt securities   in issue		1,303			(269	)
Change in other liabilities		4,485			3,660
Elimination of exchange differences and other non-cash items		(1,774	)		5,444
Cash (used in)/generated from operating activities		(6,688	)		3,602
Taxation (paid)/recovered		(145	)		5
Net cash (outflow)/inflow from operating activities		(6,833	)		3,607

 

 

(b) Analysis of the balances of cash and cash equivalents

 

	At 30 June			At 30 June
7BFigures in HK$m		8B2014			9B2013
					(restated)
Cash and balances at central banks		7,721			9,798
Balances with banks		7,828			5,013
Items in the course of collection from other banks		6,912			5,540
Placings with and advances to banks
maturing within one month		69,933			78,729
Treasury bills		18,592			9,931
Less: Items in the course of transmission to other
banks		(8,759	)		(8,034	)
		102,227			100,977

 

 

Contingent liabilities, commitments and derivatives

	At 30 June			At 30 June				At 31 December
Figures in HK$m	2014			2013				2013
Direct credit substitutes		11,905				6,973				8,977
Transaction-related contingencies		2,097				1,546				1,821
Trade-related contingencies		16,063				14,443				14,922
Forward asset purchases		34				32				43
Commitments that are unconditionally   cancellable without prior notice		256,666				247,537				243,895
Commitments which have an original
maturity of not more than one year		4,283				6,652				3,723
Commitments which have an original
maturity of more than one year		23,000				27,469				24,620
Contract amounts		314,048				304,652				298,001
Risk-weighted amounts		32,290				33,336				30,818

 

 

					Credit			Risk-
	Contract			equivalent			weighted
Figures in HK$m	amounts			amounts			amounts
At 30 June 2014
Exchange rate contracts:
Spot and forward foreign exchange			547,644			3,589		1,207
Other exchange rate contracts			146,415			7,709		6,805
			694,059			11,298		8,012
Interest rate contracts:
Interest rate swaps			230,015			1,370		447
Other interest rate contracts			981			__		__
			230,996			1,370		447
Other derivative contracts			5,529			399		212

 

 

				Credit		Risk-
	Contract		equivalent		weighted
Figures in HK$m	amounts		amounts		amounts
At 30 June 2013
Exchange rate contracts:
Spot and forward foreign exchange		449,358		2,740		777
Other exchange rate contracts		177,483		6,718		5,654
		626,841		9,458		6,431
Interest rate contracts:
Interest rate swaps		251,150		1,802		555
Other interest rate contracts		194		__		__
		251,344		1,802		555
Other derivative contracts		5,198		391		182

 

 

					Credit		Risk-
	Contract			equivalent		weighted
Figures in HK$m	amounts			amounts		amounts
At 31 December 2013
Exchange rate contracts:
Spot and forward foreign exchange			537,659		4,414		1,133
Other exchange rate contracts			108,223		3,651		2,570
			645,882		8,065		3,703
Interest rate contracts:
Interest rate swaps			225,524		2,021		626
Other interest rate contracts			78		__		__
			225,602		2,021		626
Other derivative contracts			6,044		423		188

 

The credit equivalent amounts are calculated for the purpose of deriving the risk-weighted amounts. The nominal contract amounts, credit equivalent amounts, risk-weighted amounts and the consolidation basis for the periods indicated were calculated in accordance with the Banking (Capital) Rules issued by the HKMA.

 

For the above analysis, contingent liabilities and commitments are credit-related instruments that include acceptances and endorsements, letters of credit, guarantees and commitments to extend credit. The risk involved is essentially the same as the credit risk involved in extending loan facilities to customers. These transactions are, therefore, subject to the same credit origination, portfolio management and collateral requirements as for customers applying for loans. As the facilities may expire without being drawn upon, the total of the contract amounts is not representative of future liquidity requirements.

 

Derivative financial instruments are held for trading, designated at fair value, or designated as either fair value or cash flow hedges. The following table shows the nominal contract amounts and marked-to-market value of assets and liabilities by class of derivatives.

 

	At 30 June 2014				At 30 June 2013				At 31 December 2013
Figures in HK$m	Trading		Hedging		Trading		Hedging		Trading		Hedging
Contract amounts:
Interest rate contracts	192,187		39,367		215,933		35,799		193,353		32,249
Exchange rate contracts	907,196		2,659		888,359		4,992		802,099		3,463
Other derivative contracts	13,273		__		15,617		__		9,988		__
	1,112,656		42,026		1,119,909		40,791		1,005,440		35,712
Derivative assets:
Interest rate contracts	880		72		1,257		94		1,553		109
Exchange rate contracts	4,771		417		2,505		793		4,253		667
Other derivative contracts	156		__		103		__		64		__
	5,807		489		3,865		887		5,870		776
Derivative liabilities:
Interest rate contracts	764		692		1,061		956		1,348		715
Exchange rate contracts	4,270		9		2,451		38		3,019		6
Other derivative contracts	90		__		311		__		158		__
	5,124		701		3,823		994		4,525		721

 

The above derivative assets and liabilities, being the positive or negative marked-to-market value of the respective derivative contracts, represent gross replacement costs.

 

 

Additional information

 

1. Statutory accounts and accounting policies

 

The information in this news release does not constitute statutory accounts.

 

Certain financial information in this news release is extracted from the statutory accounts for the year ended 31 December 2013 ('2013 accounts') which have been delivered to the Registrar of Companies and the HKMA. The auditors expressed an unqualified opinion on those statutory accounts in their report dated 24 February 2014.

 

Disclosures required by the Banking (Disclosure) Rules issued by the HKMA are contained in the bank's Interim Report which will be published on the websites of Hong Kong Exchanges and Clearing Limited and the bank on the date of the issue of this news release.

 

Except as described below, the accounting policies and methods of computation adopted by the group for this news release are consistent with those described on pages 144 to 164 of the 2013 accounts.

 

During the period, the group has adopted the following amendments to standards and standard interpretations which had insignificant or no effect on the group's consolidated financial statements. 

 

·    Amendments to Hong Kong Accounting Standard ('HKAS') 32 'Offsetting Financial Assets and Financial Liabilities'

 

·    Amendments to HKAS 39 'Financial Instruments: Recognition and Measurement - Novation of Derivatives and Continuation of Hedge Accounting'

 

·    Amendments to Hong Kong Financial Reporting Standard ('HKFRS') 10, HKFRS 12 and HKAS 27 'Investment Entities'

 

·    Amendments to HKAS 36 'Impairment of Assets: Recoverable Amounts Disclosures for Non-Financial Assets'

 

·    Hong Kong (International Financial Reporting Standards Interpretations Committee) 'HK(IFRIC)' Interpretation 21 'Levies'

 

 

2. The New Hong Kong Companies Ordinance (Cap. 622)

 

The New Hong Kong Companies Ordinance ('NCO') (Cap. 622) came into effect on 3 March 2014. On this effective date, the concept of par (nominal) value no longer exist. Consequently, the concepts of 'share premium', 'capital redemption reserve' and 'authorised share capital' are also abolished. Any amount received for issuing equity shares of a company should be recorded as part of 'share capital'. The effect of the transition is to subsume share premium account and capital redemption reserve balances into share capital as set out in section 37 of Schedule 11 to the NCO (Cap. 622). Prior to 3 March 2014, the application of the share premium account and the capital redemption reserve was governed by sections 48B and 49H respectively of the predecessor Hong Kong Companies Ordinance (Cap. 32).

 

As at 31 December 2013, 1,911,842,736 ordinary shares of the bank, with par value of $5 each, were authorised for issue. Under the NCO (Cap. 622), as part of the transition to the no-par value regime, the amount of HK$99m standing to the credit of the capital redemption reserve on 3 March 2014 have become part of the bank's share capital, under the NCO (Cap. 622).

 

These changes do not have an impact on the number of shares in issue or the relative entitlement of any of the members.

 

 

3. Changes in presentation

 

From 1 January 2014, non-trading reverse repurchase agreements and repurchase agreements are presented as separate lines in the balance sheet to align disclosure with market practice and provide more meaningful information in relation to loans and advances. Previously, non-trading reverse repurchase agreements were included within 'Placings with and advances to banks' and 'Loans and advances to customers' and non-trading repurchase agreements were included within 'Deposits from banks' and 'Current, savings and other deposit accounts'.

 

The group has also changed the balance sheet line item, 'Cash and balances with banks' to 'Cash and balances at central banks'. 'Balances with banks', is now included within 'Placings with and advances to banks'.

 

Comparative figures have been presented accordingly and the affected lines are shown below. There are no other effects of this change in presentation.

 

 

Figures in HK$m	As disclosed		Adjustments		As restated
31 December 2013 consolidated balance sheet items
Assets
Cash and balances with banks/ Cash and balances at central banks	33,294		(10,577	)	22,717
Placings with and advances to banks	131,363		10,577		141,940

30 June 2013 consolidated balance sheet items

Assets
Cash and balances with banksW/ Cash and balances at central banks	14,811		(5,013	)	9,798
Placings with and advances to banks	135,999		5,013		141,012

 

Liabilities
Repurchase agreements - non trading	__		1,625		1,625
Deposits from banks	15,790		(1,625	)	14,165

^W The balance as disclosed under 'Cash and balances with banks' at 30 June 2013 was HK$19,190m. After adjusting the gold bullion balances of HK$4,379m as set out under 'Other assets', the revised 'Cash and balances with banks' was HK$14,811m.

 

 

4. Comparative figures

 

Certain comparative figures have been adjusted to conform with current period's presentation.

 

 

5. The appointment of PricewaterhouseCoopers LLP ('PwC') as the group's auditor

 

The Board of the bank announces its intention to ask its shareholders to approve the appointment of PricewaterhouseCoopers LLP ('PwC') as its auditor for the year ending 31 December 2015, upon the expiry of the term of appointment of its incumbent auditor, KPMG, at the bank's Annual General Meeting in 2015.

 

The proposed appointment has been reviewed and is recommended by the bank's Audit Committee and the Board after taking into account the totality of relevant factors. 

 

KPMG (previously known as Peat, Marwick, Mitchell & Co.) has been the auditor of the group since 1955. Nevertheless, the bank considers that the appointment of PwC, being an equally professional and qualified audit firm with extensive expertise and experience in the audit of financial institutions, will align the audit arrangements between the bank and the parent company with a view to enhancing the efficiency and effectiveness of the audit in terms of both cost and audit process. Such appointment will not lead to any adverse cost implication as PwC has offered a competitive fee quotation for undertaking the audit work.

 

KPMG, the bank's current auditor, will continue in the role and will undertake the audit of the group's consolidated accounts for the year ending 31 December 2014, having been reappointed at the 2014 Annual General Meeting, in order to facilitate a smooth transition. Following finalisation of the terms of the engagement of PwC, the appointment of PwC will be recommended to shareholders for approval at the 2015 Annual General Meeting.

 

The Board looks forward to a constructive and professional relationship with PwC in support of the Audit Committee's responsibility for oversight over the integrity of financial reporting.

 

There are no matters in connection with KPMG's prospective retirement as auditors which, in the view of the Board, need to be brought to the attention of shareholders.

 

In accordance with the statutory and regulatory requirements in Hong Kong, the Board will receive from KPMG, upon their retirement as auditor, notification of any circumstances which need to be brought to the attention of either the creditors or shareholders of the bank.

 

 

6. Accounting treatment for Industrial Bank and Yantai Bank

 

Industrial Bank

 

The group recorded an accounting gain of HK$9,517m (The accounting gain included the deemed disposal profit on the reclassification of HK$8,454m and the release of deferred tax of HK$1,063m) on the reclassification of Industrial Bank as a financial investment following its issue of additional share capital to third parties in the first half of 2013.

 

Since there are significant financial implications as a result of the change in accounting treatment for Industrial Bank, the key financial results and performance metrics are not directly comparable when comparing the first half 2014 with the same period last year. For the sake of comparison, we have prepared the following key financial results and performance metrics by excluding the accounting gain in the first half of 2013.

 

	As reported			Excluding Industrial Bank reclassification
	Half-year ended 30 June 2014	Half-year ended 30 June 2013	ChangeW	Half-year ended 30 June 2014	Half-year ended 30 June 2013	ChangeW
Attributable profit	8,468	18,468	-54.1%	8,468	8,951	-5.4%
Profit before tax	9,877	18,773	-47.4%	9,877	10,319	-4.3%
Return on average   shareholders' funds (%)	15.9	35.9	-20.0pp	16.6	19.0	-2.4pp
Return on average total   assets (%)	1.5	3.4	-1.9pp	1.5	1.7	-0.2pp
Earnings per share (HK$)	4.43	9.66	-54.1%	4.43	4.68	-5.3%

^W Change in 'pp' represents change in percentage points.

 

Yantai Bank

 

The group recorded an accounting loss of HK$297m on the reclassification of Yantai Bank as a financial investment following an increase in its registered share capital to enable a private placement of additional share capital to a third party in the second half of 2013. Since then, the fair value of the Bank's investment in Yantai Bank had been below the carrying amount at 30 June 2014. The group will continue to perform an impairment review of its investment in Yantai Bank at each balance sheet date in accordance with the group's accounting policy on impairment of available-for-sale financial assets and, if appropriate, would recognise an impairment charge.

 

 

7. Property revaluation

 

The group's premises and investment properties were revalued at 30 June 2014 by DTZ Debenham Tie Leung Limited. The valuation was carried out by qualified persons who are members of the Hong Kong Institute of Surveyors. The basis of the valuation of property was market value which is consistent with the definition of fair value under HKFRS 13 'Fair Value Measurement' and takes into account the highest and best use of the property from the perspective of market participants. The highest and best use takes into account the use of the property that is physically possible, legally permissible and financially feasible as described in HKFRS 13. The net revaluation surplus for Group premises amounted to HK$612m was credited to the premises revaluation reserve. The related deferred tax provision for Group premises was HK$103m. Revaluation gains of HK$230m on investment properties (excluding the revaluation gain on properties backing insurance contracts) were recognised through the income statement.

 

The revaluation exercise also covered business premises and investment properties reclassified as properties held for sale. There was no revaluation gain recognised through the income statement during the period.

 

 

8. Foreign currency positions

 

At 30 June 2014, the US dollar ('US$') was the currency in which the group had non-structural foreign currency positions that were not less than 10% of the total net position in all foreign currencies. The group also had a Chinese renminbi ('RMB') structural foreign currency position, which was not less than 10% of the total net structural position in all foreign currencies.

Figures in HK$m	US$		RMB		AUD		EUR		JPY		Other foreign currencies		Total foreign currencies
At 30 June 2014
Non-structural position
Spot assets	185,629		152,815		17,195		4,576		31,715		18,360		410,290
Spot liabilities	(162,374	)	(146,419	)	(23,554	)	(8,107	)	(6,006	)	(29,681	)	(376,141	)
Forward purchases	310,445		148,522		10,793		9,173		8,943		22,598		510,474
Forward sales	(328,858	)	(154,612	)	(4,420	)	(6,092	)	(34,527	)	(11,027	)	(539,536	)
Net options position	60		(225	)	54		82		__		13		(16	)
Net long/(short)
non-structural position	4,902		81		68		(368	)	125		263		5,071
Structural position	205		36,392		__		__		__		601		37,198

 

Figures in HK$m	US$		RMB		AUD		EUR		JPY		Other foreign currencies		Total foreign currencies
At 30 June 2013
Non-structural position
Spot assets	173,526		147,750		44,328		12,303		6,417		39,256		423,580
Spot liabilities	(154,308	)	(128,555	)	(49,486	)	(10,226	)	(3,194	)	(45,435	)	(391,204	)
Forward purchases	271,887		113,794		10,107		7,496		11,096		13,150		427,530
Forward sales	(292,423	)	(129,830	)	(5,115	)	(9,675	)	(13,937	)	(6,807	)	(457,787	)
Net options position	753		(156	)	(209	)	(76	)	(48	)	(299	)	(35	)
Net long/(short)
non-structural position	(565	)	3,003		(375	)	(178	)	334		(135	)	2,084
Structural position	205		34,011		__		__		__		478		34,694

 

Figures in HK$m	US$		RMB		AUD		EUR		JPY		Other foreign currencies		Total foreign currencies
At 31 December 2013
Non-structural position
Spot assets	176,324		157,293		20,569		4,807		24,445		19,772		403,210
Spot liabilities	(154,695	)	(137,449	)	(26,347	)	(7,621	)	(3,046	)	(29,731	)	(358,889	)
Forward purchases	287,769		132,637		13,358		7,320		10,063		18,754		469,901
Forward sales	(310,493	)	(150,555	)	(7,658	)	(4,610	)	(31,453	)	(8,619	)	(513,388	)
Net options position	404		(146	)	(15	)	__		(38	)	(177	)	28
Net long/(short)
non-structural position	(691	)	1,780		(93	)	(104	)	(29	)	(1	)	862
Structural position	205		37,530		__		__		__		535		38,270

 

 

9. Ultimate holding company

 

Hang Seng Bank is an indirectly held, 62.14%-owned, subsidiary of HSBC Holdings plc.

 

 

10. Register of shareholders

 

The register of shareholders of the bank will be closed on Wednesday, 20 August 2014, during which time no transfer of shares can be registered. In order to qualify for the second interim dividend, all transfers, accompanied by the relevant share certificates, must be lodged with the bank's registrar, Computershare Hong Kong Investor Services Limited, at Shops 1712-1716, 17th Floor, Hopewell Centre, 183 Queen's Road East, Wanchai, Hong Kong, for registration no later than 4:30 pm on Tuesday, 19 August 2014. The second interim dividend will be payable on Thursday, 4 September 2014, to shareholders whose names appear on the register of shareholders of the bank on Wednesday, 20 August 2014. Shares of the bank will be traded ex-dividend as from Monday, 18 August 2014.

 

 

11. Proposed timetable for the remaining 2014 quarterly dividends

 

	Third	Fourth
	interim dividend	interim dividend
Announcement	6 October 2014	23 February 2015
Book close and record date	22 October 2014	11 March 2015
Payment date	6 November 2014	26 March 2015

 

 

12. Code on corporate governance practices

 

The bank is committed to high standards of corporate governance with a view to safeguarding the interests of shareholders, customers, staff and other stakeholders. The bank has followed the module on 'Corporate Governance of Locally Incorporated Authorised Institutions' under the Supervisory Policy Manual ('SPM') issued by the HKMA and has fully complied with all the code provisions and most of the recommended best practices as set out in the Corporate Governance Code contained in Appendix 14 of the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited throughout the six months ended 30 June 2014, save that the Risk Committee (all the members of which are Independent Non-executive Directors), which was established pursuant to HKMA's SPM on corporate governance, is responsible for the oversight of internal control (other than internal control over financial reporting) and risk management systems. If there were no Risk Committee, these matters would be the responsibility of the Audit Committee, as provided under the aforesaid Corporate Governance Code.

 

The Audit Committee of the bank has reviewed the results of the bank for the six months ended 30 June 2014.

 

 

13. Board of Directors

 

At 4 August 2014, the Board of Directors of the bank comprises Dr Raymond K F Ch'ien* (Chairman), Ms Rose W M Lee (Vice-Chairman and Chief Executive), Dr John C C Chan*, Mr Nixon L S Chan, Dr Henry K S Cheng*, Ms L Y Chiang*, Mr Andrew H C Fung, Dr Fred Zuliu Hu*, Ms Irene Y L Lee*, Ms Sarah C Legg^#, Dr Eric K C Li*, Dr Vincent H S Lo^#, Mr Kenneth S Y Ng^#, Mr Richard Y S Tang*, Mr Peter T S Wong^# and Mr Michael W K Wu*.

 

*   Independent non-executive Directors

^#   Non-executive Directors

 

 

14. News release

 

This news release is available on the bank's website www.hangseng.com.

 

The Interim Report 2014, which contains all disclosures required by the Banking (Disclosure) Rules issued by the HKMA, will be published on the websites of Hong Kong Exchanges and Clearing Limited and the bank on the date of the issue of this news release. Printed copies of the Interim Report 2014 will be sent to shareholders in late-August 2014.

 

Media enquiries to:
Walter Cheung	Telephone: (852) 2198 4020
Ruby Chan	Telephone: (852) 2198 4236