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Interim Report 2010 BOC Hong Kong (Holdings) Limited

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Interim Report 2010 BOC Hong Kong (Holdings) Limited CONTENTS PAGE Financial Highlights 1 Chairman’s Statement 2 Chief Executive’s Report 4 Management’s Discussion and Analysis 10 Condensed Consolidated Income Statement 44 Condensed Consolidated Statement of Comprehensive Income 45 Condensed Consolidated Balance Sheet 46 Condensed Consolidated Statement of Changes in Equity 47 Condensed Consolidated Cash Flow Statement 48 Notes to the Interim Financial Information 1. Basis of preparation and accounting policies 49 2. Critical accounting estimates and judgements in applying accounting policies 51 3. Financial risk management 52 4. Net interest income 80 5. Net fee and commission income 81 6. Net trading (loss)/gain 82 7. Net gain on investment in securities 82 8. Net insurance premium income 82 9. Other operating income 83 10. Net insurance benefits and claims 83 11. Net reversal/(charge) of impairment allowances 84 12. Operating expenses 85 13. Net gain from disposal of/fair value adjustments on investment properties 85 14. Net loss from disposal/revaluation of properties, plant and equipment 85 15. Taxation 86 16. Dividends 87 17. Earnings per share for profit attributable to the equity holders of the Company 87 18. Retirement benefit costs 87 19. Share option schemes 88 20. Cash and balances with banks and other financial institutions 90 21. Financial assets at fair value through profit or loss 90 22. Derivative financial instruments 91 23. Advances and other accounts 96 24. Investment in securities 97 25. Investment properties 99 26. Properties, plant and equipment 99 27. Other assets 101 28. Financial liabilities at fair value through profit or loss 101 29. Deposits from customers 102 30. Other accounts and provisions 102 31. Assets pledged as security 102 32. Deferred taxation 103 33. Insurance contract liabilities 105 34. Subordinated liabilities 106 Interim Report 2010 BOC Hong Kong (Holdings) Limited HIR1007018 • BOCHK • 1st Proof • 24-8-2010 • 19:42 • s013 • (Client) • 01 E_BOCHK_Contents.indd P.1 CONTENTS PAGE 35. Share capital 106 36. Reserves 106 37. Notes to condensed consolidated cash flow statement 107 38. Contingent liabilities and commitments 108 39. Capital commitments 108 40. Operating lease commitments 109 41. Segmental reporting 110 42. Significant related party transactions 113 43. Currency concentrations 115 44. Cross-border claims 116 45. Non-bank Mainland China exposures 117 46. Compliance with HKAS 34 118 47. Statutory accounts 118 Additional Information 1. Corporate information 119 2. Dividend and closure of register of members 120 3. Substantial interests in share capital 120 4. Directors’ rights to acquire shares 121 5. Directors’ and Chief Executive’s interests in shares, underlying shares and debentures 121 6. Changes to information in respect of Directors 122 7. Purchase, sale or redemption of the Company’s shares 123 8. Audit Committee 123 9. Compliance with “Code on Corporate Governance Practices” 123 10. Directors’ securities transactions 124 11. Compliance with the Banking (Disclosure) Rules and the Listing Rules 124 12. Interim Report 124 13. Reconciliation between HKFRSs vs IFRS/CAS 124 Independent Review Report 127 Appendix Subsidiaries of the Company 128 Definitions 132 BOC Hong Kong (Holdings) Limited Interim Report 2010 HIR1007018 • BOCHK • 1st Proof • 24-8-2010 • 19:42 • s013 • (Client) • 01 E_BOCHK_Contents.indd P.2 FINANCIAL HIGHLIGHTS Half-year ended Half-year ended Year ended 30 June 30 June 31 December 2010 2009 2009 HK$’m HK$’m HK$’m Net operating income before impairment allowances 12,541 13,028 26,055 Operating profit 8,168 7,719 15,104 Profit before taxation 8,767 8,244 16,724 Profit for the period/year 7,353 6,875 14,046 Profit attributable to the equity holders of the Company 7,190 6,691 13,725 HK$ HK$ HK$ Earnings per share 0.6800 0.6329 1.2981 Dividend per share 0.4000 0.2850 0.8550 HK$’m HK$’m HK$’m Capital and reserves attributable to the equity holders of the Company 106,711 94,149 102,902 Issued and fully paid share capital 52,864 52,864 52,864 Total assets 1,302,176 1,146,150 1,212,791 Financial ratios % %% Return on average total assets1 1.17 1.23 1.19 Return on average capital and reserves attributable to the equity holders of the Company2 13.72 15.13 14.79 Cost to income ratio 36.15 32.19 46.60 Loan to deposit ratio3 64.02 57.66 60.98 Average liquidity ratio4 37.81 39.70 40.18 Capital adequacy ratio5 16.17 16.10 16.85 Profit for the period/year 1. Return on average total assets = Daily average balance of total assets 2. Return on average capital and reserves attributable to the equity holders of the Company Profit attributable to the equity holders of the Company = Average of the beginning and ending balance of capital and reserves attributable to the equity holders of the Company 3. Loan to deposit ratio is calculated as at 30 June 2010, 30 June 2009 and 31 December 2009. Loan represents gross advances to customers. Deposit also includes structured deposits reported as “Financial liabilities at fair value through profit or loss”. 4. Average liquidity ratio is calculated as the simple average of each calendar month’s average liquidity ratio of BOCHK for the corresponding period. 5. Capital adequacy ratio is computed on the consolidated basis that comprises the positions of BOCHK and certain subsidiaries specified by the HKMA for its regulatory purposes and in accordance with the Banking (Capital) Rules. Interim Report 2010 BOC Hong Kong (Holdings) Limited 1 HIR1007018 • BOCHK • 1st Proof • 14-8-2010 • 15:38 • s013 • (Client) • 02 E_BOCHK_Hinglights.indd P.1 CHAIRMAN’S STATEMENT For the first six months of 2010, the Group maintained With China’s increasing importance in the global economy, its growth momentum in its core businesses and a strong we believe the offshore RMB market will continue to financial position. Despite continued improvement in expand in an incremental and orderly manner. The RMB the economic environment, overall operating conditions business will become an important growth driver for the remained challenging, especially in the competitive banking industry in Hong Kong in the longer term. The landscape. We remained focused on executing our strategy launch of the Pilot RMB Trade Settlement Scheme in July and managed to capture quality growth opportunities by 2009 marked an important milestone in the development capitalising on our core strengths. The Group’s operating of the RMB business. By enabling the use of RMB in income before impairment allowances decreased mildly global trades, it has extended the scope of RMB business by 3.7% year-on-year to HK$12,541 million. Operating beyond personal transactions in Hong Kong which was profit before impairment allowances declined by 9.4% first started in 2004. To further enhance the flexibility of to HK$8,007 million. The Group’s profit attributable to Hong Kong banks to conduct RMB businesses, the Hong shareholders increased by 7.5% year-on-year to HK$7,190 Kong Monetary Authority elucidated supervisory principles million or HK$0.68 per share. The increase in our profit and operational arrangements regarding RMB business in was helped by the improvement in the impairment February 2010. In June, the trade settlement scheme was allowances of securities investments compared to the further expanded to cover the major economic regions of same period last year. The Board has declared an interim the Mainland and its global trading partners beyond the dividend of HK$0.40 per share, representing an increase ASEAN countries. Lately, the use of RMB in foreign direct of 40.4% compared to HK$0.285 per share for the same investment into the Mainland is also allowed, subject period last year. to relevant regulatory approval. Moreover, BOCHK was appointed by People’s Bank of China as the Clearing During the period, we continued to manage our balance Bank of RMB cashnotes business for Taiwan. This new sheet prudently. As at end June 2010, total assets grew service will further facilitate exchanges between people 7.4% to HK$1,302.2 billion. Our loan book grew 11.0% and businesses across the strait and strengthen economic while loan quality remained strong with classified or and commercial ties between the Mainland and Taiwan. impaired loan ratio further improving to 0.23% from All these positive developments will enhance the use and 0.34% at end 2009. We continued to manage our circulation of RMB offshore. As the Clearing Bank of RMB treasury investments proactively as the global markets business in Hong Kong, we will continue to work closely remained volatile. We adopted a flexible deposit strategy with the regulators and are committed to supporting and to support the growth of our business. As at end June contributing to the steady and healthy growth of the 2010, our customer deposits grew 5.7% and loan-to- offshore RMB market. deposit ratio increased to 64.02% from 60.98% as at end 2009. We maintained a solid capital base with our The RMB business is an important strategic focus for consolidated capital adequacy ratio standing comfortably the Group. With the increasing significance of RMB in at 16.17% and a core capital ratio of 11.33%. Our the global economy, we believe there will be increasing liquidity position remained solid at 37.81%. demand for RMB products and services. We will focus on 2 BOC Hong Kong (Holdings) Limited Interim Report 2010 HIR1007018 • BOCHK • 1st Proof • 24-8-2010 • 11:22 • s013 • (Client) • 03 E_BOCHK_Chairman.indd P.2 CHAIRman’s STATEMENT developing a wide spectrum of RMB products and services developments and take proactive measures to safeguard to meet the needs of our customers.
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