TIDM57HB
RNS Number : 0776A
Hongkong & Shanghai Banking Corp Ld
21 March 2017
2 Operating profit
a Interest income
Interest income recognised on impaired financial assets amounted
to HK$374m in the year (2015: HK$277m).
b Net fee income
2016 2015
HK$m HK$m
Account services
...............................................................................................
............. 3,063 2,976
Funds under management(1)
............................................................................................... 5,771 6,215
Cards..........................................................................................
..................................... 7,063 7,072
Credit
facilities.....................................................................................
........................... 2,825 3,219
Broking
income.........................................................................................
..................... 3,131 5,583
Imports/exports
...............................................................................................
.............. 3,771 4,340
Unit
trusts.........................................................................................
.............................. 5,855 6,598
Underwriting...................................................................................
................................ 1,188 1,214
Remittances
...............................................................................................
.................... 3,324 3,438
Global custody
...............................................................................................
................. 3,450 3,744
Insurance agency
commission.....................................................................................
.... 1,746 1,482
Other
...............................................................................................
.............................. 5,952 6,045
------- -------
Fee income
...............................................................................................
..................... 47,139 51,926
Fee
expense........................................................................................
............................ (7,837) (6,267)
------- -------
Net fee income
...............................................................................................
............... 39,302 45,659
------- -------
1 Includes Mandatory
Provident Fund
2016 2015
HK$m HK$m
Net fee income includes the following:
* Net fee income, other than amounts included in
determining the effective interest rate, arising from
financial assets or financial liabilities that are
not held for trading or designated at fair value
* fee income
.....................................................
.....................................................
... 14,892 15,862
* fee expense
.....................................................
.....................................................
.. (3,290) (1,879)
------- -------
11,602 13,983
------- -------
* Net fee income on trust and other fiduciary
activities where the group holds or invests assets on
behalf of its customers
* fee income
.....................................................
.....................................................
... 8,551 9,032
* fee expense
.....................................................
.....................................................
.. (845) (1,005)
------- -------
7,706 8,027
------- -------
In 2016, certain expenditure in respect of credit card loyalty
programmes previously presented in 'General and administrative
expenses' is presented in 'Fee expense' to more appropriately
reflect the nature of the expenditure. This accounted for the
majority of the increase in fee expense during the year.
2 Operating profit (continued)
c Net trading income
2016 2015
HK$m HK$m
Dealing profits
..................................................................................................
............. 18,195 17,523
Net interest income on trading
activities ........................................................................ 3,718 4,439
Dividend income from trading securities
......................................................................... 2,074 1,674
------- ------
* Listed investments
.....................................................
................................................ 2,045 1,636
* Unlisted investments
.....................................................
............................................. 29 38
------- ------
Gains/(losses) from hedging activities
............................................................................. 77 (20)
------- ------
* Fair value hedges
* Net gain/(loss) on hedged items attributable to the
hedged risk ................................ (2,550) 68
* Net gain/(loss) on hedging instruments
.....................................................
.............. 2,598 (88)
* Cash flow hedges
* Net hedging gain
.....................................................
................................................ 29 -
------- ------
24,064 23,616
------- ------
d Net income/(expense) from financial instruments designated at fair value
2016 2015
HK$m HK$m
Income/(expense) on assets designated
at fair value which back
insurance and investment contracts
............................................................................ 4,104 (2,304)
Increase in fair value of liabilities
to customers under investment contracts
................... (651) (374)
----- -------
3,453 (2,678)
Net change in fair value of other
financial assets/liabilities designated
at fair value(1) ........ 102 100
Interest income on financial assets
and liabilities designated at fair
value......................... 15 18
3,570 (2,560)
----- -------
1 Gains and losses from changes in the fair value of the group's
issued debt securities include those arising from changes in the
group's own credit risk. In 2016, the group recognised a HK$62m
gain on changes in the fair value of these instruments arising from
changes in own credit risk (2015:HK$26m gain).
e Gains less losses from financial investments
2016 2015
HK$m HK$m
Gain on partial disposal of investment
in Industrial Bank ............................................... - 10,636
Gains on disposal of other available-for-sale
securities .................................................... 1,234 983
Impairment of available-for-sale
equity investments ...................................................... (2) (8)
----- ------
1,232 11,611
----- ------
There were no gains or losses on the disposal of
held-to-maturity investments in the year (2015: nil).
2 Operating profit (continued)
f Other operating income
2016 2015
HK$m HK$m
Gain on 150(th) anniversary banknotes
issuance ................................................................ - 693
Movement in present value of in-force
insurance business .............................................. 7,306 4,689
Gains on investment properties
...................................................................................... 36 480
Gains/(losses) on disposal of property,
plant and equipment and assets
held for sale ....... (57) 134
Gain on disposal of subsidiaries,
associates and business portfolios
.................................. 1 23
Rental income from investment properties
.................................................................... 400 404
Other
...................................................................................................
.......................... 3,830 4,016
------ ------
11,516 10,439
------ ------
Other included net gains on loans and receivables of HK$146m
(2015: HK$278m). There were no gains or losses on the disposal of
financial liabilities measured at amortised cost during the year
(2015: nil).
g Loan impairment charges and other credit risk provisions
2016 2015
HK$m HK$m
Individually assessed impairment
charges:
- New charges
.................................................................................................
.............. 5,224 4,011
- Releases
.................................................................................................
.................... (1,567) (1,390)
- Recoveries
.................................................................................................
................ (277) (305)
------- -------
3,380 2,316
Collectively assessed impairment
charges ....................................................................... 2,065 2,656
Other credit risk provisions
............................................................................................ 109 102
------- -------
Loan impairment charges and other
credit risk provisions .............................................. 5,554 5,074
------- -------
There were no impairment charges against available-for-sale debt
securities included in other credit risk provisions (2015: nil).
There were no impairment charges or provisions relating to
held-to-maturity investments (2015: nil).
h General and administrative expenses
2016 2015
HK$m HK$m
Premises and equipment
- Rental expenses
...................................................................................................
...... 3,665 3,542
- Other premises and equipment
expenses...................................................................... 4,107 4,032
------ ------
7,772 7,574
Marketing and advertising expenses
............................................................................... 2,909 3,900
Other administrative expenses
....................................................................................... 19,236 18,409
29,917 29,883
------ ------
In 2016, certain expenditure in respect of credit card loyalty
programmes previously presented in 'Marketing and advertising
expenses' is presented in 'Fee expense' to more appropriately
reflect the nature of the expenditure. This accounted for the
majority of the decrease in marketing and advertising expenses
during the year.
Included in operating expenses were direct operating expenses of
HK$27m (2015: HK$22m) arising from investment properties that
generated rental income during the year. Direct operating expenses
arising from investment properties that did not generate rental
income amounted to HK$4m (2015: HK$2m).
Included in operating expenses were minimum lease payments under
operating leases of HK$3,675m (2015: HK$3,692m).
i Auditors' remuneration
Auditors' remuneration amounted to HK$82m (2015: HK$78m).
3 Insurance income
a Net insurance premium income
Non-linked Linked
insurance insurance Total
HK$m HK$m HK$m
2016
...
Gross insurance premium
income.............................................................. 57,349 2,522 59,871
Reinsurers' share of gross
insurance premium income
.............................. (3,930) (29) (3,959)
---------- --------- -------
Net insurance premium
income................................................................ 53,419 2,493 55,912
---------- --------- -------
2015
Gross insurance premium income
............................................................ 51,367 4,937 56,304
Reinsurers' share of gross
insurance premium income
.............................. (3,684) (27) (3,711)
---------- --------- -------
Net insurance premium
income................................................................ 47,683 4,910 52,593
---------- --------- -------
b Net insurance claims and benefits paid and movement in liabilities to policyholders
Non-linked Linked
insurance insurance Total
HK$m HK$m HK$m
2016
Gross claims and benefits
paid and movement in liabilities
to policyholders
............................................................................. 63,473 4,472 67,945
Claims, benefits and surrenders
paid ............................................... 19,099 2,395 21,494
Movement in liabilities
................................................................. 44,374 2,077 46,451
---------- --------- -------
Reinsurers' share of claims
and benefits paid and movement
in liabilities (3,514) 155 (3,359)
Reinsurers' share of claims,
benefits and surrenders
paid ................ (319) (80) (399)
Reinsurers' share of movement
in liabilities................................... (3,195) 235 (2,960)
---------- --------- -------
Net insurance claims and
benefits paid and movement
in liabilities to
* policyholders
.....................................................
........................ 59,959 4,627 64,586
---------- --------- -------
2015
Gross claims and benefits
paid and movement in liabilities
to policyholders
............................................................................. 53,950 1,577 55,527
Claims, benefits and surrenders
paid ............................................... 21,216 3,285 24,501
Movement in liabilities
.................................................................. 32,734 (1,708) 31,026
---------- --------- -------
Reinsurers' share of claims
and benefits paid and movement
in liabilities (3,214) 118 (3,096)
Reinsurers' share of claims,
benefits and surrenders
paid ................ (318) (445) (763)
Reinsurers' share of movement
in liabilities ................................... (2,896) 563 (2,333)
---------- --------- -------
Net insurance claims and
benefits paid and movement
in liabilities to
* policyholders
.....................................................
........................ 50,736 1,695 52,431
---------- --------- -------
4 Employee compensation and benefits
a Employee compensation and benefits
2016 2015
HK$m HK$m
Wages and salaries
...............................................................................................
............ 35,376 37,846
Social security costs
...............................................................................................
.......... 1,022 1,080
Retirement benefit costs
- Defined contribution
plans..........................................................................................
. 1,505 1,449
- Defined benefit
plans..........................................................................................
.......... 993 751
------ ------
38,896 41,126
------ ------
'Wages and salaries' include the effect of
share-based payments arrangements as follows:
2016 2015
HK$m HK$m
Restricted share awards
...............................................................................................
...... 985 1,303
Savings-related shares and other
share option plans ........................................................... 107 78
------ ------
1,092 1,381
------ ------
b Directors' emoluments
The aggregate emoluments of the Directors of the Bank disclosed
pursuant to section 4 of the Companies (Disclosure of Information
about Benefits of Directors) Regulation were HK$102m (2015:
HK$100m). This comprises fees of HK$9m (2015: HK$9m) and other
emoluments of HK$93m (2015: HK$91m) which includes contributions
to
-pension schemes of HK$1m (2015: HK$1m). Non-cash benefits which
are included in other emoluments mainly relate to share-based
payment awards, and the provision of housing and furnishing.
Details on loans to directors are set out in note 38.
c Retirement benefit pension plans
The group operates a number of retirement benefit plans, with a
total cost of HK$2,498m (2015: HK$2,200m), the largest of which is
the HSBC Group Hong Kong Local Staff Retirement Benefit Scheme
('the Principal Plan').
In Hong Kong, the Principal Plan covers employees of the Bank
and certain other local employees of the Group. The Principal Plan
comprises a funded defined benefit scheme (which provides a lump
sum on retirement but is now closed to new members) and a defined
contribution scheme. The latter was established on 1 January 1999
for new employees, and the group has been moving to defined
contribution plans for all new employees. Since the defined benefit
element of the Principal Plan is a final salary lump sum scheme,
its exposure to longevity risk and interest rate risk is
limited.
The trustee assumes the overall responsibility for the Principal
Plan but a management committee and a number
of sub-committees have also been established. These committees
have been established to broaden the
governance and manage the concomitant issues.
The Principal Plan is predominantly a funded plan with assets
which are held in trust funds separate from the group. The
actuarial funding valuation of the Principal Plan is reviewed at
least on a triennial basis or in accordance with local practice and
regulations. The actuarial assumptions used to conduct the
actuarial funding valuation of the Principal Plan vary according to
the economic conditions.
The defined benefit scheme of the Principal Plan mainly invests
in bonds with a smaller portion in equities and each investment
manager has been assigned a benchmark applicable to their
respective asset class. The target asset allocations for the
portfolio are as follows: Bonds 65% and Equity 35%.
4 Employee compensation and benefits (continued)
(i) Cumulative actuarial losses recognised in other
comprehensive income in respect of defined benefit plans
2016 2015
HK$m HK$m
At 1 January
.................................................................................................
.............. (8,303) (7,641)
Actuarial gains/(losses) recognised
in other comprehensive income
............................. 1,016 (662)
------- -------
At 31 December
.................................................................................................
......... (7,287) (8,303)
------- -------
(ii) Net asset/(liability) under defined benefit pension
plans
Present
value
of
Fair defined Net defined
value benefit
of
plan obligations benefit
assets liability
HK$m HK$m HK$m
Net defined benefit liability
At 1 January 2016
.................................................................. 13,974 (19,736) (5,762)
Current service cost
................................................................ - (846) (846)
Past service cost and
losses from settlements(1)
.......................... - (32) (32)
Service cost
............................................................................. - (878) (878)
------- ----------- -----------
Net interest income/(cost)
on the net defined
benefit liability
.................................................................... 303 (415) (112)
Remeasurement effects
recognised in other
comprehensive income
........................................................ 91 925 1,016
* Return on plan assets (excluding interest income)
................ 91 - 91
* Actuarial gains from changes in financial assumptions
.....................................................
.................. - 1,558 1,558
* Actuarial losses from experience
.......................................... - (633) (633)
Exchange differences and
other movements ............................ (19) 28 9
Contributions by the group
...................................................... 1,889 - 1,889
Benefits paid
........................................................................... (1,483) 1,524 41
------- ----------- -----------
At 31 December 2016
............................................................. 14,755 (18,552) (3,797)
------- ----------- -----------
Retirement benefit liabilities
recognised
on the balance sheet
............................................................ (3,867)
Retirement benefit assets
recognised on the
balance sheet (within
'Prepayment, accrued
income and other assets')
.................................................... 70
Present value of defined
benefit obligation relating
to:
* Actives
.....................................................
........................... (18,300)
* Pensioners
.....................................................
...................... (252)
4 Employee compensation and benefits (continued)
Present
value
of
Fair defined Net defined
value benefit
of
plan obligations benefit
assets liability
HK$m HK$ HK$m
Net defined benefit liability
At 1 January 2015
.................................................................. 14,870 (20,357) (5,487)
Current service cost
................................................................ - (883) (883)
Past service cost and
gains from settlements(1)
........................... - 274 274
------- ----------- -----------
Service cost
............................................................................. - (609) (609)
------- ----------- -----------
Net interest income/(cost)
on the net defined
benefit liability
.................................................................... 297 (429) (132)
Remeasurement effects
recognised in other
comprehensive income
........................................................ (548) (114) (662)
------- ----------- -----------
* Return on plan assets (excluding interest income)
................ (548) - (548)
* Actuarial gains from changes in demographic
assumptions ... - 6 6
* Actuarial losses from changes in financial
assumptions
.....................................................
.................. - (182) (182)
* Actuarial gains from experience
........................................... - 62 62
------- ----------- -----------
Exchange differences and
other movements ............................ (26) 118 92
Contributions by the group
...................................................... 983 - 983
Contributions by employees
.................................................... 2 (2) -
Benefits paid
........................................................................... (1,604) 1,657 53
------- ----------- -----------
At 31 December 2015
............................................................. 13,974 (19,736) (5,762)
------- ----------- -----------
Retirement benefit liabilities
recognised
on the balance sheet
............................................................ (5,809)
Retirement benefit assets
recognised on the
balance sheet (within
'Prepayment, accrued
income and other assets')
.................................................... 47
Present value of defined
benefit obligation relating
to:
* Actives
.....................................................
........................... (19,475)
* Pensioners
.....................................................
...................... (261)
1 Gains / (losses) from settlements arise as the difference
between assets distributed and liabilities extinguished on
settlements.
The group expects to make HK$717m of contributions to defined
benefit pension plans during 2017.
(iii) Fair value of plan assets by asset classes
2016 2015
Quoted Quoted
market market
price price
in Thereof in Thereof
active active
Value market HSBC Value market HSBC
HK$m HK$m HK$m HK$m HK$m HK$m
Fair value
of plan assets
.......... 14,755 14,755 1,348 13,974 13,974 407
------ ------- ------- ------ ------- -------
- Equities
................................ 5,260 5,260 - 5,233 5,233 10
- Bonds ................................... 7,358 7,358 - 7,439 7,439 -
- Other(1)
.................................. 2,137 2,137 1,348 1,302 1,302 397
------ ------- ------- ------ ------- -------
1 Other mainly consists of cash and deposits.
4 Employee compensation and benefits (continued)
(iv) Benefits expected to be paid from the Principal Plan
Benefits expected to be paid from the Principal Plan to retirees
over each of the next five years, and in aggregate for the five
years thereafter, are as follows:
2017 2018 2019 2020 2021 2022-2026
HK$m HK$m HK$m HK$m HK$m HK$m
HSBC Group Hong
Kong Local Staff
Retirement Benefit
Scheme ..................... 594 778 930 1,067 1,231 4,634
(v) The Principal Plan's principal actuarial financial
assumptions
The present value of the Principal Plan's obligation was
HK$11,215m (2015: HK$12,071m). The principal actuarial assumptions
used to calculate the group's obligations for the Principal Plan
for the year, and used as the basis for measuring the expenses in
relation to the Principal Plan, were as follows:
2016 2015
% p.a. % p.a.
Discount rate
...........................................................................
............................... 1.80 1.70
Rate of pay increase
...........................................................................
.................... 3.0 4.0
Mortality table
...........................................................................
............................ HKLT2015(1) HKLT2011(1)
1 HKLT2015- Hong Kong Life Tables 2015.
The group determines the discount rates to be applied to its
obligations in consultation with the Principal Plan's local
actuary, on the basis of current average yields of Hong Kong
Government bonds, with maturities consistent with those of the
defined benefit obligations.
(vi) Actuarial assumption sensitivities
The discount rate and rate of pay increase are sensitive to
changes in market conditions arising during the reporting period.
The following table shows the financial impact of assumption
changes on the Principal Plan at year end:
Impact on Pension
Obligation
----------------------
2016 2015
HK$m HK$m
Discount rate
- increase of
25bps....................................................................................
.............. (215) (249)
- decrease of
25bps....................................................................................
.............. 222 258
Rate of pay increase
- increase of
25bps....................................................................................
.............. 227 239
- decrease of
25bps....................................................................................
.............. (221) (233)
5 Tax expense
a The Bank and its subsidiaries in Hong Kong have provided for
Hong Kong profits tax at the rate of 16.5% (2015: 16.5%) on the
profits for the year assessable in Hong Kong. Overseas branches and
subsidiaries have similarly provided for tax in the countries in
which they operate at the appropriate rates of tax ruling in 2016.
Deferred taxation is provided for in accordance with the group's
accounting policy in note 1(b)(ix).
The charge for taxation in the income statement comprises:
2016 2015
HK$m HK$m
Current income tax
- Hong Kong taxation - on current
year profit .............................................................. 8,567 10,005
- Hong Kong taxation - adjustments
in respect of prior years ....................................... (74) (134)
- Overseas taxation - on current
year profit .................................................................. 7,598 8,072
- Overseas taxation - adjustments
in respect of prior years ........................................... (337) 223
------ ------
15,754 18,166
Deferred tax
- Origination and reversal of temporary
differences ....................................................... 2,159 (769)
- Effect of changes in tax rates
...................................................................................... 13 18
- Adjustments in respect of prior
years .......................................................................... (14) (119)
------ ------
2,158 (870)
------ ------
17,912 17,296
------ ------
b Reconciliation between taxation charge and accounting profit at applicable tax rates:
2016 2015
HK$m HK$m
Profit before tax
.................................................................................................
.......... 102,707 117,279
------- -------
Notional tax on profit before tax, calculated at
the rates applicable to profits in the
countries concerned
..............................................................................................
..... 19,727 21,983
Effects of profits in associates and joint
ventures........................................................... (2,390) (2,612)
Non taxable income and gains
....................................................................................... (1,951) (3,994)
Local taxes and overseas withholding
taxes.................................................................... 1,275 1,118
Permanent
disallowables....................................................................................
............. 957 887
Others
.................................................................................................
.......................... 294 (86)
------- -------
17,912 17,296
------- -------
c Movements of deferred tax assets and liabilities:
Impairment
Accelerated Insurance allowances
capital technical Expense on financial Revaluation
allowances provisions provisions assets of properties Other Total
HK$m HK$m HK$m HK$m HK$m HK$m HK$m
2016
Assets
.................
.. 132 - 983 1,107 - 718 2,940
Liabilities
.............. (643) (6,134) - (249) (12,503) (374) (19,903)
----------- ---------- ---------- ------------ ------------- ------- -----------
At 1 January
......... (511) (6,134) 983 858 (12,503) 344 (16,963)
Exchange
and other
adjustments
....... (2) 24 (274) 6 125 198 77
Charge/(credit)
to
income statement
.......... (5) (1,213) 252 (190) 288 (1,290) (2,158)
Charge/(credit)
to
reserves.........
..... - - - - (678) (176) (854)
----------- ---------- ---------- ------------ ------------- ------- -----------
At 31 December
... (518) (7,323) 961 674 (12,768) (924) (19,898)
----------- ---------- ---------- ------------ ------------- ------- -----------
Assets
.................
.. 108 -- 961 674 - 2,415 4,158(1)
Liabilities
.............. (626) (7,323) - - (12,768) (3,339) (24,056)(1)
5 Tax expense (continued)
Impairment
Accelerated Insurance allowances
capital technical Expense on financial Revaluation
allowances provisions provisions assets of properties Other Total
HK$m HK$m HK$m HK$m HK$m HK$m HK$m
2015
Assets(1)
....................
..... 106 - 1,079 284 - 763 2,232
Liabilities(1)
.................... (736) (5,390) - - (11,728) (1,528) (19,382)
----------- ---------- ---------- ------------ ------------- ------- --------
At 1 January
................. (630) (5,390) 1,079 284 (11,728) (765) (17,150)
Exchange
and other
adjustments
............... (7) 33 (94) (21) 72 30 13
Charge/(credit)
to
income statement
..... 126 (777) (2) 595 254 674 870
Charge/(credit)
to
reserves............
......... - - - - (1,101) 405 (696)
----------- ---------- ---------- ------------ ------------- ------- --------
At 31 December
........... (511) (6,134) 983 858 (12,503) 344 (16,963)
----------- ---------- ---------- ------------ ------------- ------- --------
Assets(1)
....................
..... 132 -- 983 1,107 - 718 2,940
Liabilities(1)
.................... (643) (6,134) - (249) (12,503) (374) (19,903)
1 After netting off balances within countries, the balances as
disclosed in the accounts are as follows: deferred tax assets
HK$1,503m (2015:HK$ 1,836m); and deferred tax liabilities
HK$21,401m (2015:HK$18,799m).
The amount of unused tax losses for which no deferred tax asset
is recognised in the balance sheet is HK$2,497m (2015: HK$2,216m).
Of this amount, HK$2,047m (2015: HK$1,988m) has no expiry date and
the remaining will expire within 10 years.
Deferred tax of HK$1,334m (2015: HK$721m) has been provided in
respect of distributable reserves or post-acquisition reserves of
associates that, on distribution or sale, would attract withholding
tax.
Deferred tax is not recognised in respect of the group's
investments in subsidiaries and branches where remittance or other
realisation is not probable, and for those associates and interests
in joint ventures where it has been determined that no additional
tax will arise.
6 Dividends
Dividends to ordinary shareholders of the parent company
2016 2015
--------------------------------------- ---------------------------------------
Per share Total Per share Total
HK$ HK$m HK$ HK$m
Ordinary dividends
paid
* fourth interim dividend in respect of the previous
financial year approved and paid during the year 0.44 17,065 0.37 14,250
- first interim dividend
paid ..................................... 0.20 8,500 0.20 7,500
- second interim dividend
paid ................................. 0.19 8,500 0.20 7,500
- third interim dividend
paid .................................... 0.19 8,500 0.20 7,500
------------------ ------------------- ------------------ -------------------
1.02 42,565 0.97 36,750
------------------ ------------------- ------------------ -------------------
The Directors have declared a fourth interim dividend in respect
of the financial year ending 31 December 2016 of HK$25,438m
(HK$0.56 per ordinary share).
Distributions on other equity instruments
2016 2015
HK$m HK$m
US$1,900m floating rate perpetual
subordinated loans
(interest rate at one year US dollar
LIBOR plus 3.84%) ....................................................... 731 655
----- -----
This information is provided by RNS
The company news service from the London Stock Exchange
END
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March 21, 2017 07:53 ET (11:53 GMT)
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