Stock Code 302 Interim Report 2009

Transcription

1 Stock Code 302 Interim Report 2009

2 Contents Page 2 Corporate Information 4 Group Results in Brief 5 Chairman s Statement 10 Unaudited Consolidated Income Statement 11 Unaudited Consolidated Statement of Comprehensive Income 12 Unaudited Consolidated Balance Sheet 13 Unaudited Consolidated Statement of Changes in Equity 15 Unaudited Consolidated Cash Flow Statement 16 Notes to Unaudited Interim Financial Report 65 Unaudited Supplementary Financial Information 74 Independent Review Report 76 Interim Dividend and Other Information WING HANG BANK Interim Report

3 Corporate Information JP BOARD OF DIRECTORS Chairman Dr FUNG Yuk Bun Patrick JP (Chief Executive) Executive Directors Mr Frank John WANG (Deputy Chief Executive) Mr FUNG Yuk Sing Michael Brian Gerard ROGAN Christopher Robert STURDY Non-executive Directors Mr HO Chi Wai Louis Mr Brian Gerard ROGAN Mr Christopher Robert STURDY GBS, JP GBS, JP MBE, JP JP GBS, JP Christopher Robert STURDY GBS, JP MBE, JP Independent Non-executive Directors Dr CHENG Hon Kwan GBS, JP Mr LAU Hon Chuen Ambrose GBS, JP Dr LEE Kwok Yin Simon MBE, JP Mr TSE Hau Yin Aloysius Mr TUNG Chee Chen EXECUTIVE COMMITTEE Dr FUNG Yuk Bun Patrick JP Mr Frank John WANG Mr FUNG Yuk Sing Michael AUDIT COMMITTEE Dr CHENG Hon Kwan GBS, JP Mr Christopher Robert STURDY Mr TSE Hau Yin Aloysius REMUNERATION COMMITTEE Dr CHENG Hon Kwan GBS, JP Dr LEE Kwok Yin Simon MBE, JP COMPANY SECRETARY Mr LEUNG Chiu Wah AUDITORS KPMG Certified Public Accountants REGISTERED OFFICE 161 Queen s Road Central, Hong Kong 2

4 BNY MELLON Shareowner Services PO Box Pittsburgh, PA SHARE LISTING The Stock Exchange of Hong Kong Limited SHARE REGISTRARS Computershare Hong Kong Investor Services Limited Shops , 17th Floor, Hopewell Centre 183 Queen s Road East, Wan Chai, Hong Kong ADR DEPOSITARY BANK The Bank of New York Mellon BNY MELLON Shareowner Services PO Box Pittsburgh, PA Telephone: shrrelations@bnymellon.com AFFILIATED WITH THE BANK OF NEW YORK MELLON CORPORATION WING HANG BANK Interim Report

5 Group Results in Brief Six months ended Six months ended Increase/ Six months ended 30th June, th June, 2008 (decrease) 30th June, 2009 HK$ million HK$ million % US$ million Profit Attributable to Equity Shareholders (45.3) 66.2 Interim Dividend (79.2) 7.6 HK$ HK$ % US$ Basic Earnings per Share (45.3) 0.22 Interim Dividend per Share (79.2) 0.03 % % Cost to Income Ratio Return on Average Assets (annualised) Return on Average Shareholders Funds (annualised) Increase/ 30th June, st December, 2008 (decrease) 30th June, 2009 HK$ million HK$ million % US$ million Shareholders Funds 11,200 10, ,445.1 Total Deposits 123, , ,947.1 Advances to Customers 78,724 80,256 (1.9) 10,157.7 Total Assets 141, , ,260.9 HK$ HK$ % US$ Net Asset Value per Share = US$1.00 = HK$

6 Chairman s Statement % 129.0% 45.3% % 7.8% 14.5% 19.2% 5.4% 4.1% 1.9% 5.7% 2.8% 10.1% For the first half of 2009, the Group achieved HK$512.6 million in profit attributable to shareholders, representing a decrease of 45.4 percent compared to the same period last year but an increase of percent over the second half of Earnings per share fell 45.3 percent to HK$1.74. The Board has declared an interim dividend of HK$0.20 per share, 79.2 percent lower than that of the same period last year. The deterioration of the business environment in Hong Kong continued into the first half of 2009 as unemployment jumped and trade continued to shrink. The recession continued to impact the local banking sector as loan demand remained weak and fee income declined. Being a small open economy, Hong Kong s trade sector has been severely affected by the slump in global demand. GDP declined 7.8 percent on a year-on-year basis in the first quarter. Hong Kong s re-exports were particularly badly hit by the contraction in global consumption. Exports and imports fell by more than 20 percent in March. However, as consumption in some markets began to pick up in April, trade began to stabilise in the second quarter. In May exports fell by 14.5 percent while imports fell by 19.2 percent. The larger contraction in imports compared to exports reflects a fall in domestic consumption due to rising unemployment, the outbreak of swine flu and a decrease in visitor arrivals. The unemployment rate rose to 5.4 percent in June compared with 4.1 percent at the end of At the beginning of the year the US Federal Reserve cut its target interest rate to almost zero and it simultaneously carried out quantitative easing to lower market interest rates further. LIBOR continued to fall during the first half of the year as credit markets began to gradually improve. Substantial amounts of capital flowed into Hong Kong in the second quarter keeping Hong Kong dollars at the strong end against US dollars while HIBOR remained at very low level. Although the real economy continued to contract, asset markets in Hong Kong started to recover significantly in the second quarter. Residential property prices started to pick up at the beginning of the year and later surged due to the low interest-rate environment coupled with abundant liquidity. Stock prices also rose strongly in the second quarter as sentiment turned bullish. The financial crisis that hit global markets last year began to impact the real economy at the beginning of Local consumption and investment demand were weak during the first half of the year. We experienced a reduction in loans of 1.9 percent during the period mainly in areas such as auto and equipment financing, manufacturing and trade finance. In contrast, customer deposits grew at a respectable rate of 5.7 percent as a result of the successful marketing of new savings products. Macau was in a similar situation as loans extended by Banco Weng Hang ( BWH ) dropped by 2.8 percent. Loans for use in Mainland China also declined by 10.1 percent as a result of intense competition from other local banks and weak demand for equipment financing by manufacturers there. On a more positive note, asset quality was better than expected as impaired loans stayed at a low level. In addition, loan growth in Hong Kong began to pick up at the end of the second quarter on increased demand for IPO financing. WING HANG BANK Interim Report

7 Chairman s Statement 63.7% 17.7% Overall our loan-to-deposit ratio dropped to 63.7 percent while our capital adequacy ratio increased to 17.7 percent supported by a shift into government guaranteed assets. 39.3% % 1.79% 11.3% % % 38.8%53.4% 8.1% Turning to other important financial indicators, operating profit before impairment losses decreased by 39.3 percent to HK$696.2 million due to a decrease in net interest and non-interest income. Net interest income decreased by 11.3 percent to HK$1,161.9 million as a result of lower loan volumes and a decrease in net interest margins from 1.94 percent to 1.79 percent. Net interest margins fell by 15 basis points compared with the same period last year as a consequence of the lower loan-to-deposit ratio and a lower yield on interest-free funds. Other operating income declined by 30.5 percent following reduced contributions from foreign exchange, trade finance and wealth management. Net losses from financial instruments held for trading and designated at fair value increased to HK$64.8 million as the fair value of our perpetual subordinated debt jumped. Meanwhile total expenses increased by 9.7 percent as the Group continued to expand its operations in China. The Group s cost-to-income ratio increased from 38.8 percent to 53.4 percent. Excluding provision for sales of structured investment products, operating expenses decreased by 8.1 percent % 1.24%3.67% Impairment losses and allowances for loans amounted to HK$84.0 million while impaired loans stabilised at 0.63 percent of total loans thanks to prudent credit monitoring. Although bad debts increased over the period, the situation was substantially better than in the second half of 2008 as property prices rose amid a favorable environment of low interest rates and high liquidity. The charge-off ratio for credit cards increased to 3.67 percent of credit card receivables compared with 1.24 percent previously due to an increase in bankruptcy cases ,062 The Group currently has 42 branches in Hong Kong, 12 branches in Macau and 5 branches and 5 sub-branches in the Mainland. As at 30th June, 2009, the Group employed a total of 3,062 people. 50.7% Below is a summary of the performance of our individual business units. RETAIL BANKING Pre-tax profit in the Retail Banking division decreased by 50.7 percent during the first half of 2009 largely because of lower fee income from wealth management services and lower yields on interest-free funds. As investment sentiment picked up at the beginning of the second quarter fee income from our stock brokerage division remained stable. We have continued to upgrade our internet trading platform to provide a more efficient and convenient service for our customers. An innovative deposit program was successfully launched earlier this year attracting new customers and bolstering the Bank s deposit base. We have continued to offer similar programs to attract premium customers. In the highly competitive mortgage market, the Bank successfully defended its market share by promoting a new mortgage plan and achieved satisfactory growth in line with the overall market. 6

8 17 Further upgrades were made to our branch network with the focus on creating a more comfortable environment for our customers and selecting more convenient locations. Two branches were renovated and a new branch was opened in Fortress Hill. In addition, we have set up 17 separate investment sections at selected branches for providing investment product services. 5 We now participate actively in the RMB business in Hong Kong to capitalise on new business opportunities. We also plan to launch a wide spectrum of RMB trade settlement and related finance services for our corporate clients. This will enable them to conduct business in RMB between Hong Kong and five pilot cities in China. CONSUMER FINANCE Wing Hang Credit boosted its leading market position in the first half of this year by promoting a number of innovative loan products. This resulted in further expansion of our customer base and reinforcing our brand image. 20 The company now has 20 branches in Hong Kong which provide a highly professional service and offer a wide range of products including personal loans, revolving credit and mortgage loans for different kinds of properties such as older developments and village houses. We are consistently evaluating new business opportunities to consolidate our leadership in the consumer finance sector. AUTO AND EQUIPMENT LEASING The Auto and Equipment Leasing division recorded a moderate decrease in loan assets during the period as demand for new vehicles faltered and exports declined. However the overall performance of Wing Hang Finance and Inchroy Credit Corporation Limited was encouraging. We achieved good returns in a favorable environment of low funding costs. 27.4% 44.8% The two companies have maintained their leading market position in vehicle financing. Cost synergies will be created by their integration with Wing Hang Bank in July CORPORATE BANKING Trade financing continued to be adversely affected by the global recession as loan volumes declined by 27.4 percent compared with the end of last year. However the Corporate Banking division recorded 44.8 percent growth in pre-tax profit due to increase in non-interest income. We have continued to participate actively in the Government s SME Loan Guarantee Scheme including the Special Loan Guarantee Scheme which was introduced to assist companies to ride out the challenges caused by the global recession. Our clients business operations in China are expected to gradually recover in the second half of the year as export orders from overseas markets improve. WING HANG BANK Interim Report

9 Chairman s Statement 46.8% 10.1% TREASURY Pre-tax profit in the Treasury division decreased by 46.8 percent due to net unrealised loss on financial instrument designated at fair value. Partially offsetting this decrease was increase in net interest income from our treasury activities due to lower interest rate environment. In addition, we are shifting the asset mix towards government or government guaranteed assets. CHINA Loans for use in Mainland China decreased by 10.1 percent to HK$11,833.7 million largely due to intense competition from local banks and weak equipment financing demand from manufacturers. Wing Hang Bank (China) Ltd. ( WHBCL ) was established in Shenzhen in 2007 as part of our business expansion strategy to serve our growing customer base in China. WHBCL now has 5 branches and 5 sub-branches on the Mainland. In addition we are in the process of establishing an independent data center in Shenzhen. 7.9% 7.6% 12.9% 14.8% 21.4% 2.8% 13.0% Looking forward WHBCL plans to gradually expand its operations in China by providing more RMB services to local individuals and opening more branches and sub-branches particularly in towns such as Shenzhen and Foshan in the Pearl River Delta Area. China s economy has remained resilient in spite of the global recession recording 7.9 percent GDP growth in the second quarter. Consequently our China business is expected to resume growth as loan demand recovers. MACAU BWH recorded a moderate decrease in pre-tax profit amid the worst recession in many years. Macau s GDP shrank by a further 12.9 percent in real terms in the first quarter of 2009 after a 7.6 percent contraction in the final quarter of 2008 due to a decline in gaming revenue and a substantial fall in construction activity. Net interest income decreased by 14.8 percent as a result of reduced loan volumes and lower yields on interest-free funds. Non-interest income decreased by 21.4 percent as fee income from trade and wealth management services was impacted by the effects of the global financial crisis. Loan decreased by 2.8 percent compared to the end of 2008, partly due to the sluggish property market in the first quarter. Despite of the difficult environment, BWH was able to achieve above-market customer deposit growth of 13.0 percent as we regained market share through the successful introduction of innovative deposit products. 8

10 FUTURE PROSPECTS Looking ahead, we expect the operating environment to continue to be challenging for the rest of the year. Although the contraction of external demand has slowed down there are still many uncertainties about future growth as global demand remains weak. However, China is better positioned to achieve a sustainable recovery. This will provide important support for both Hong Kong and Macau. Meanwhile, we expect fee income to continue to be negatively affected by the substantial drop in demand for investment products. Responding to this trend, we will shift our focus to traditional wealth management products such as share brokerage. While we are closely monitoring our loan portfolio during the economic downturn, our prudent approach to extending credit means that the portfolio remains fundamentally sound. Given the low interestrate environment, margins are expected to stabilise while expenses are likely to fall as prices stagnate. The focus of business expansion will be in Mainland China where the economy is still growing relatively robustly. Having successfully incorporated our business in China, we are now able to provide a full range of RMB services there. In summary, while there are uncertainties about the outlook for the remainder of 2009, we believe we have the right business mix in the right markets to capture opportunities as they emerge. This successful business strategy also enables us to remain resilient in times of economic adversity. Finally I would once again like to take this opportunity to thank all our customers, shareholders and colleagues for their confidence and support. I am also indebted to the Board of Directors for their continued support and counsel. Patrick Y B Fung Chairman and Chief Executive Hong Kong, 13th August, 2009 WING HANG BANK Interim Report

11 Unaudited Consolidated Income Statement (Expressed in thousands of Hong Kong dollars unless otherwise stated) Six months ended Six months ended Notes 30th June, th June, 2008 Interest income 4(a) 1,957,044 3,108,623 Interest expense 4(b) (795,096) (1,798,345) Net interest income 1,161,948 1,310,278 Other operating income 4(c) 396, ,537 Net losses from financial instruments held for trading and designated at fair value through profit or loss 4(d) (64,801) (7,088) Non-interest income 331, ,449 Operating income 1,493,722 1,873,727 Operating expenses 4(f) (797,480) (726,836) Operating profit before impairment losses and allowances 696,242 1,146,891 Impairment losses and allowances charged on loans and advances (84,003) (45,197) Impairment losses and allowances released from available-for-sale financial assets 15(b) 11,071 Operating profit 623,310 1,101,694 Net (losses)/gains on revaluation of investment properties and disposal of tangible fixed assets 5(a) (1,278) 23,239 (Losses)/gains on disposal of held-to-maturity and available-for-sale financial assets 5(b) (18,759) 43,838 Share of net losses of associated companies (4,311) (73,873) Profit before taxation 598,962 1,094,898 Taxation 6 (84,583) (157,336) Profit for the period 514, ,562 Attributable to: Equity shareholders of the Bank 512, ,122 Minority interests 1,796 (560) Profit for the period 514, ,562 HK$ HK$ Earnings per share 9 Basic Diluted The notes on pages 16 to 64 form part of the unaudited interim financial report. Details of dividends payable to equity shareholders of the Bank are set out in note 8. 10

12 Unaudited Consolidated Statement of Comprehensive Income (Expressed in thousands of Hong Kong dollars unless otherwise stated) Six months ended Six months ended Notes 30th June, th June, 2008 Profit for the period 514, ,562 Other comprehensive income for the period (after tax) 7 122,926 (11,594) Deferred tax credited to bank premises revaluation reserve 4,264 Effects of foreign exchange rate changes ,936 (7,286 ) Total comprehensive income for the period 637, ,276 Attributable to: Equity shareholders of the Bank 635, ,836 Minority interests 1,796 (560) Total comprehensive income for the period 637, , The notes on pages 16 to 64 form part of the unaudited interim financial report. WING HANG BANK Interim Report

13 Unaudited Consolidated Balance Sheet (Expressed in thousands of Hong Kong dollars unless otherwise stated) Notes 30th June, st December, 2008 ASSETS Cash and balances with banks, central banks and other financial institutions 10 3,642,644 4,675,717 Placements with banks, central banks and other financial institutions 11 8,694,488 23,847,351 Trade bills 228, ,632 Trading assets 12 2,813,249 1,748,373 Financial assets designated at fair value through profit or loss 13 5,734,318 2,509,992 Advances to customers and other accounts 14(a) 80,039,807 81,367,674 Held-to-maturity and available-for-sale financial assets 15 36,561,738 16,318,019 Investments in associated companies 169, ,751 Tangible fixed assets 16 Investment properties 242, ,400 Other properties, plants and equipment 2,036,175 1,936,520 Goodwill 17 1,306,430 1,306,430 Current tax recoverable 33,570 3,304 Deferred tax assets 23,336 34,277 Total assets 141,526, ,400,440 EQUITY AND LIABILITIES Deposits and balances of banks, central banks and other financial institutions 18 1,372, ,994 Deposits from customers ,767, ,168,340 Certificates of deposit issued ,916 1,629,488 Trading liabilities ,333 1,045,163 Current tax payable 95,375 79,556 Deferred tax liabilities 192, ,316 Other accounts and provisions 22 1,853,991 1,596,433 Subordinated liabilities 23 3,913,851 3,800,804 Total liabilities 130,306, ,795,094 Share capital 25(a) 295, ,044 Reserves 25(b) 10,904,810 10,291,861 Shareholders funds 11,199,854 10,586,905 Minority interests 20,237 18,441 Total equity 11,220,091 10,605,346 Total equity and liabilities 141,526, ,400, The notes on pages 16 to 64 form part of the unaudited interim financial report. 12

14 Unaudited Consolidated Statement of Changes in Equity (Expressed in thousands of Hong Kong dollars unless otherwise stated) Six months ended 30th June, (b) 4(f) Dividends Share premium approved in Total under Employee respect of the comprehensive Incentive Plan previous year income At 1st January (Note 4(f)) (Note 8(b)) for the period At 30th June Share capital 295, ,044 Share premium 472,728 6, ,663 Capital reserve 227, ,346 Statutory reserve 117, ,880 General reserve 2,090, ,090,617 Bank premises revaluation reserve 295, ,687 Investment revaluation reserve (101,086) 122,926 21,840 Capital redemption reserve Unappropriated profits 7,187,930 (29,505) 512,583 7,671,008 Attributable to equity shareholders of the Bank 10,586,905 6,935 (29,505) 635,519 11,199,854 Minority interests 18,441 1,796 20,237 Total equity 10,605,346 6,935 (29,505 ) 637,315 11,220,091 WING HANG BANK Interim Report

15 Unaudited Consolidated Statement of Changes in Equity (Expressed in thousands of Hong Kong dollars unless otherwise stated) Six months ended 30th June, (b) 25(a) 4(f) Dividends Share issued Share premium approved in Total under Share under Employee respect of the comprehensive Option Scheme Incentive Plan previous year Transfer to/ income At 1st January (Note 25(a)) (Note 4(f)) (Note 8(b)) (from) reserve for the period At 30th June Share capital 294, ,044 Share premium 456,329 2,529 6, ,793 Capital reserve 215, ,909 Statutory reserve General reserve 2,091,907 21, ,113,149 Bank premises revaluation reserve 291,124 4, ,388 Investment revaluation reserve (32,985 ) (11,594 ) (44,579 ) Capital redemption reserve Unappropriated profits 7,167,334 (728,760 ) (21,198 ) 938,122 7,355,498 Attributable to equity shareholders of the Bank 10,485,351 2,609 6,935 (728,760 ) 930,836 10,696,971 Minority interests 22,685 (560 ) 22,125 Total equity 10,508,036 2,609 6,935 (728,760 ) 930,276 10,719,096 Six months ended 31st December, (a) Dividends declared in Total Share issued Share premium respect of comprehensive under Share under Employee the current year Transfer to/ income At At 30th June Option Scheme Incentive Plan (Note 8(a)) (from) reserve for the period 31st December Share capital 295, ,044 Share premium 465,793 6, ,728 Capital reserve 215,909 11, ,346 Statutory reserve 117, ,880 General reserve 2,113,149 (21,198 ) (1,344 ) 2,090,607 Bank premises revaluation reserve 295, ,687 Investment revaluation reserve (44,579 ) (56,507 ) (101,086 ) Capital redemption reserve Unappropriated profits 7,355,498 (283,243 ) (108,119 ) 223,794 7,187,930 Attributable to equity shareholders of the Bank 10,696,971 6,935 (283,243 ) 166,242 10,586,905 Minority interests 22,125 (3,500 ) (184 ) 18,441 Total equity 10,719,096 6,935 (286,743 ) 166,058 10,605, The notes on pages 16 to 64 form part of the unaudited interim financial report. 14

16 Unaudited Consolidated Cash Flow Statement (Expressed in thousands of Hong Kong dollars unless otherwise stated) Six months ended Six months ended Notes 30th June, th June, 2008 Net cash outflow from operating activities 28 (a) (1,699,958 ) (98,221 ) Investing activities Purchase of held-to-maturity and available-for-sale financial assets (13,663,710) (4,098,826) Sale and redemption of held-to-maturity and available-for-sale financial assets 1,461,338 5,499,987 Loan repaid by an associated company 4,286 4,285 Purchase of properties and equipment (166,184) (146,502) Sale of properties and equipment 3,258 1,145 Net cash (outflow)/inflow from investing activities (12,361,012) 1,260,089 Financing activities Issue of new shares under Share Option Scheme 2,609 Dividends paid (29,505) (728,760) Interest paid on subordinated liabilities (175,409) (160,594) Net cash outflow from financing activities (204,914 ) (886,745 ) (Decrease)/increase in cash and cash equivalents (14,265,884) 275,123 Cash and cash equivalents at 1st January 28,708,108 28,500,507 Effect of foreign exchange rate changes 59 (1,479) Cash and cash equivalents at 30th June 28 (b) 14,442,283 28,774,151 Analysis of the balances of cash and cash equivalents Cash and balances with banks, central banks and other financial institutions 3,550,011 4,225,312 Placements with banks, central banks and other financial institutions with an original maturity within three months 8,486,167 22,297,157 Treasury bills with an original maturity within three months 2,406,105 2,251,682 14,442,283 28,774,151 Cash flows from operating activities included: Interest received 1,998,845 3,269,091 Interest paid 907,255 1,862,809 Dividend received 6,484 4, The notes on pages 16 to 64 form part of the unaudited interim financial report. WING HANG BANK Interim Report

17 Notes to Unaudited Interim Financial Report (Expressed in thousands of Hong Kong dollars unless otherwise stated) BASIS OF PREPARATION The interim financial report of Wing Hang Bank, Limited ( the Bank ) and its subsidiaries (collectively the Group ) has been prepared in accordance with the applicable disclosure provisions of the Rules Governing the Listing of Securities ( Listing Rules ) on The Stock Exchange of Hong Kong Limited, including compliance with the Hong Kong Accounting Standard ( HKAS ) 34, Interim financial reporting, issued by the Hong Kong Institute of Certified Public Accountants ( HKICPA ). It was authorised for issue on 13th August, The interim financial report has been prepared in accordance with the same accounting policies adopted in the 2008 annual financial statements, except for the accounting policy changes that are expected to be reflected in the 2009 annual financial statements. Details of these changes in accounting policies are set out in note The preparation of an interim financial report in conformity with HKAS 34 requires management to make judgments, estimates and assumptions that affect the application of policies and reported amounts of assets and liabilities, income and expenses on a year to date basis. Actual results may differ from these estimates. This interim financial report contains condensed consolidated financial statements and selected explanatory notes. The notes include an explanation of events and transactions that are significant to an understanding of the changes in financial position and performance of the Group since the 2008 annual financial statements. The condensed consolidated interim financial statements and notes thereon do not include all of the information required for a full set of financial statements prepared in accordance with Hong Kong Financial Reporting Standards ( HKFRSs ) The interim financial report is unaudited, but has been reviewed by the Audit Committee of the Bank. It has also been reviewed by the Bank s independent auditor, KPMG, in accordance with Hong Kong Standards on Review Engagements 2410, Review of interim financial information performed by the independent auditor of the entity, issued by the HKICPA. KPMG s independent review report to the Board of Directors is included on pages 74 to 75. The financial information relating to the financial year ended 31st December, 2008 that is included in the interim financial report as being previously reported information does not constitute the Bank s statutory financial statements for that financial year but is derived from those financial statements. Statutory financial statements for the year ended 31st December, 2008 are available from the Bank s registered office. The Bank s independent auditor has expressed an unqualified opinion on those financial statements in its report dated 12th March,

18 2. 2. CHANGES IN ACCOUNTING POLICIES The HKICPA has issued one new HKFRS, certain amendments to HKFRS and new Interpretations that are first effective for the current accounting period of the Group and the Bank. The following developments are relevant to the Group s financial statements: 8 1 ( (IFRIC) 13 HKFRS 8, Operating segments HKAS 1 (revised 2007), Presentation of financial statements Amendments to HKAS 27, Consolidated and separate financial statements cost of an investment in a subsidiary, jointly controlled entity or associate Amendments to HKFRS 2, Share-based payment vesting conditions and cancellations Amendments to HKFRS 7, Financial instruments: Disclosures improving disclosures about financial instruments HK(IFRIC) 13, Customer loyalty programmes 2 7 The amendment to HKFRS 2 has had no material impact on the Group s financial statements as the amendments were consistent with policies already adopted by the Group. In addition, the amendments to HKFRS 7 do not contain any additional disclosure requirements specifically applicable to the interim financial reports. (IFRIC) 13 (IFRIC) 13 HK(IFRIC) 13 addresses how reporting entities that grant their customers loyalty awards credits (often called points ) when buying goods or services should account for their obligation to provide free or discounted goods and services, if and when the customers redeem the points. It requires reporting entities to allocate some of the proceeds of the initial sale to the award credits and recognise these proceeds as revenue only when they have fulfilled their obligations to provide goods or services. The effect of the adoption of HK(IFRIC) 13 was not considered to be material for the Group and therefore, the prior year figures have not been restated. WING HANG BANK Interim Report

19 Notes to Unaudited Interim Financial Report ) 8 1 ( CHANGES IN ACCOUNTING POLICIES (Continued) The impact of the remainder of these developments on the interim financial report is as follows: HKFRS 8 requires segment 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 purposes of assessing segment performance and making decisions about operating matters. This contrasts with the presentation of segment information in prior years which was based on a disaggregation of the Group s financial statements into segments based on related products and services and on geographical areas. The adoption of HKFRS 8 has resulted in the presentation of segment information in a manner that is more consistent with internal reporting provided to the Group s most senior executive management, and has resulted in additional reportable segments being identified and presented (see note 3). As this is the first period in which the Group has presented segment information in accordance with HKFRS 8, additional explanation has been included in the interim financial report which explains the basis of preparation of the information. Corresponding amounts have also been provided on a basis consistent with the revised segment information. As a result of the adoption of HKAS 1 (revised 2007), details of change in equity during the period arising from transactions with equity shareholders in their capacity as such have been presented separately from all other income and expenses in a revised consolidated statement of changes in equity. All other items of income and expense are presented in the consolidated income statement, if they are recognised as part of profit or loss for the period, or otherwise in a new primary statement, the consolidated statement of comprehensive income. The new format for the consolidated statement of comprehensive income and the consolidated statement of changes in equity has been adopted in this interim financial report and corresponding amounts have been restated to conform to the new presentation. This change in presentation has no effect on reported profit or loss, total income and expense or net assets for any period presented. The amendments to HKAS 27 have removed the requirement that dividends out of pre-acquisition profits should be recognised as a reduction in the carrying amount of the investment in the investee, rather than as income. As a result, as from 1st January, 2009 all dividends receivable from subsidiaries and associates, whether out of pre- or post-acquisition profits, will be recognised in the Bank s profit or loss and the carrying amount of the investment in the investee will not be reduced unless that carrying amount is assessed to be impaired as a result of the investee declaring the dividend. In such cases, in addition to recognising dividend income in profit or loss, the Bank would recognise an impairment loss. In accordance with the transitional provisions in the amendment, this new policy will be applied prospectively to any dividends receivable in the current or future periods and previous periods have not been restated. 18

20 3. (a) 3. SEGMENT REPORTING (a) Segment results and assets The segment disclosure is 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 purposes of assessing segment performance and making decisions about operating matters. Hong Kong segment This is mainly composed of retail banking activities, corporate banking activities and treasury activities. Retail banking activities include acceptance of deposits, residential mortgages, hire purchase, consumer loans, wealth management, stock brokerage and insurance services. Corporate banking activities include advance of commercial and industrial loans, trade financing and institutional banking. Treasury activities include foreign exchange services, management of investment securities and trading activities. Mainland China segment This comprises the business of Wing Hang Bank (China) Limited and the Bank s Shenzhen branch for which the main businesses are on corporate banking activities. Macau segment This comprises the business of Banco Weng Hang, S.A. for which the main business is on retail banking activities. WING HANG BANK Interim Report

21 Notes to Unaudited Interim Financial Report 3. (a) 3. SEGMENT REPORTING (Continued) (a) Segment results and assets (Continued) Information regarding the Group s reportable segments as provided to the Group s most senior executive management for the purposes of resource allocation and assessment of segment performance for the period is set out below. Six months ended 30th June, 2009 Hong Kong Retail Corporate Mainland banking banking Treasury Total China Macau Total Net interest income 629,385 80, , , , ,836 1,213,038 Non-interest income 224,898 76,128 (47,395 ) 253,631 14,175 67, ,899 Reportable segment revenue 854, , ,572 1,137, , ,929 1,547,937 Reportable segment profit before tax 259,710 72,950 99, ,380 96, , ,493 Six months ended 30th June, 2008 Hong Kong Retail Corporate Mainland banking banking Treasury Total China Macau Total Net interest income 660, , , , , ,897 1,246,959 Non-interest income 305,325 30,410 83, ,531 51,653 85, ,551 Reportable segment revenue 965, , ,608 1,323, , ,264 1,803,510 Reportable segment profit before tax 526,437 50, , , , ,268 1,084,390 20

22 3. (a) 3. SEGMENT REPORTING (Continued) (a) Segment results and assets (Continued) 30th June, 2009 Hong Kong Retail Corporate Mainland banking banking Treasury Total China Macau Total Reportable segment assets 38,325,338 19,570,237 43,967, ,863,060 13,801,562 20,372, ,037,575 31st December, 2008 Hong Kong Retail Corporate Mainland banking banking Treasury Total China Macau Total Reportable segment assets 40,278,362 20,806,188 18,744,304 79,828,854 15,136,608 18,641, ,606,940 (b) (b) Reconciliations of reportable segment revenue, profit before taxation and assets Six month ended Six month ended 30th June, th June, 2008 Revenue Reportable segment revenue 1,547,937 1,803,510 Other revenue 62, ,646 Elimination of inter-segment revenue (116,374) (219,429) Consolidated operating income 1,493,722 1,873,727 WING HANG BANK Interim Report

23 Notes to Unaudited Interim Financial Report 3. (b) 3. SEGMENT REPORTING (Continued) (b) Reconciliations of reportable segment revenue, profit before taxation and assets (Continued) Six month ended Six month ended 30th June, th June, 2008 Profit before taxation Reportable segment profit before taxation 658,493 1,084,390 Other revenue and net income (3,609) 167,790 Elimination of inter-segment profit (55,922) (157,282) Consolidated profit before taxation 598,962 1,094,898 30th June, st December, 2008 Assets Reportable segment assets 136,037, ,606,940 Other assets 17,136,208 31,381,712 Elimination of inter-segment assets (11,647,625) (10,588,212) Consolidated total assets 141,526, ,400,440 Others mainly represent the management of shareholders fund, investments in premises, investment properties and equity shares. 22

24 4. (a) 4. OPERATING PROFIT (a) Interest income Six month ended Six month ended 30th June, th June, 2008 Interest income arising from: financial assets not measured at fair value through profit or loss 1,790,249 2,920,459 trading assets 83,255 58,809 financial assets designated at fair value through profit or loss 83, ,355 1,957,044 3,108,623 of which: interest income from listed investments 144, ,669 interest income from unlisted investments 267, ,198 interest income from impaired financial assets 6,889 5,396 (b) (b) Interest expense Six month ended Six month ended 30th June, th June, 2008 Interest expense arising from: financial liabilities not measured at fair value through profit or loss 623,064 1,650,869 trading liabilities 72,956 30,500 financial liabilities designated at fair value through profit or loss 99, , ,096 1,798,345 of which: interest expense for subordinated liabilities 28(a) (note 28(a)) 175, ,594 WING HANG BANK Interim Report

25 Notes to Unaudited Interim Financial Report 4. (c) 4. OPERATING PROFIT (Continued) (c) Other operating income Six month ended Six month ended 30th June, th June, 2008 Fees and commission Credit commission and fees 63,617 77,536 Credit card related fees 47,499 55,826 Trade related fees 27,138 41,171 Insurance commission 32,438 30,465 Stockbroking fees 79,488 83,405 Trust fees Wealth management fees 5,398 58,937 Other fees and commission income 66,347 78,463 Less: Fees and commission expenses (25,445) (30,944) 296, ,897 4(e)) Gains arising from dealing in foreign currencies (note 4(e)) 81, ,590 4(e)) Gains on other dealing activities (note 4(e)) 1,360 1,792 Dividend income from unlisted available-for-sale financial assets 5,563 3,746 Dividend income from listed available-for-sale financial assets Dividend income from listed trading investments Rental income from investment properties 416,000 less direct outgoings of HK$416,000 (30th June, 2008: HK$261,000) 5,392 6, ,000 Others 5,315 6, , ,537 of which: Net fees and commission, other than amounts included in determining the effective interest rate, arising from financial instruments that are not held for trading nor designated at fair value fees and commission income 102, ,811 fees and commission expenses (12) (12) 102, ,799 24

26 4. (d) 4. OPERATING PROFIT (Continued) (d) Net losses from financial instruments held for trading and designated at fair value through profit or loss Six month ended Six month ended 30th June, th June, 2008 Net realised and unrealised losses on 4(e) trading financial instruments (note 4(e)) (120,766) (23,766) Net realised and unrealised gains on financial instruments designated at fair value through profit or loss 55,965 16,678 (64,801 ) (7,088 ) (e) (e) Net trading (losses)/income Six month ended Six month ended 30th June, th June, (c) Gains arising from dealing in foreign currencies (note 4(c)) 81, ,590 4(c) Gains on other dealing activities (note 4(c)) 1,360 1,792 Net realised and unrealised losses on 4(d) trading financial instruments (note 4(d)) (120,766) (23,766) (37,908 ) 133,616 WING HANG BANK Interim Report

27 Notes to Unaudited Interim Financial Report 4. (f) 4. OPERATING PROFIT (Continued) (f) Operating expenses Six month ended Six month ended 30th June, th June, 2008 Staff costs Salaries and other staff costs 391, ,141 Retirement benefit costs 19,957 29,132 Employee Incentive Plan ( EIP ) fair value of awards 28(a) (note 28(a)) 6,935 6,935 EIP bonus 220 5, , ,630 Premises and equipment expenses, excluding depreciation 88,403 75, (a) Depreciation (notes 16 & 28(a)) 61,993 49,319 Others 228, , , , (a) 5. (a) Net (losses)/gains on revaluation of investment properties and disposal of tangible fixed assets Six month ended Six month ended 30th June, th June, 2008 Unrealised revaluation gains of investment properties 23,127 Net (losses)/gains on disposal of tangible fixed assets (1,278) 112 (1,278 ) 23,239 26

28 5. (b) 5. (b) (Losses)/gains on disposal of held-to-maturity and available-for-sale financial assets Six month ended Six month ended 30th June, th June, 2008 Losses on disposal of held-to-maturity investments (5,813) Net unrealised (losses)/gains transferred from investment revaluation reserve (6,237) 1,925 Net (losses)/gains on disposal of available-for-sale financial assets (6,709) 41,913 (18,759 ) 43, TAXATION Taxation in the consolidated income statement represents: Six month ended Six month ended 30th June, th June, 2008 Current tax Provision for Hong Kong profits tax 41, ,694 Current tax Provision for overseas tax 30,372 40,673 Deferred taxation 12,776 (12,031) ` 84, , % 16.5% The provision for Hong Kong profits tax is calculated at 16.5% (30th June, 2008: 16.5%) of the Group s estimated assessable profits for the six months ended 30th June, The provision for overseas taxation is provided at the appropriate current rates of taxation ruling in the countries in which the relevant units of the Group operate. WING HANG BANK Interim Report

29 Notes to Unaudited Interim Financial Report OTHER COMPREHENSIVE INCOME Six month ended Six month ended 30th June, th June, 2008 Available-for-sale financial assets Changes in fair value recognised during the period 101,480 (9,987) Amounts transferred from investment revaluation reserve to profit or loss: Losses/(gains) on disposal 5,208 (1,607) Amortisation for available-for-sale financial assets reclassified as held-to-maturity on 1st October, ,238 Net movement in the investment revaluation reserve during the period recognised in other comprehensive income net of deferred tax 122,926 (11,594) 8. (a) 8. DIVIDENDS (a) Dividends attributable to the period The following interim dividend was declared by the Board of Directors after the balance sheet date and has not been recognised as a liability at the balance sheet date. Six month ended Six month ended 30th June, th June, ,044, ,044,380 Interim dividend declared of HK$0.20 (30th June, 2008: HK$0.96) per ordinary share on 295,044,380 shares (30th June, 2008: 295,044,380 shares) 59, ,

30 8. (b) 8. DIVIDENDS (Continued) (b) Dividends attributable to the previous year, approved and paid during the period Six month ended Six month ended 30th June, th June, 2008 Final dividend in respect of the prior year, approved and paid during the period, 0.10 of HK$0.10 (30th June, 2008: HK$2.47) per ordinary share on 295,044,380 shares 2.47 (30th June, 2008: 295,044,380 shares) 29, , ,044, ,044, ,583, ,122, ,044, ,995, EARNINGS PER SHARE The calculation of basic earnings per share is based on profit attributable to the Bank s equity shareholders for the six months ended 30th June, 2009 of HK$512,583,000 (30th June, 2008: HK$938,122,000) and on the weighted average number of ordinary shares of 295,044,380 shares (30th June, 2008: 294,995,149 shares) in issue during the period. 30th June, th June, Number of shares of HK$1.00 each 1.00 Number of shares of HK$1.00 each Issued ordinary shares at 1st January 295,044, ,964,380 Effect of share options exercised 30,769 Weighted average number of ordinary shares used in calculating basic earnings per share 295,044, ,995,149 WING HANG BANK Interim Report

31 Notes to Unaudited Interim Financial Report ,583, ,122, ,335, ,782,590 2,291,373 2,787, EARNINGS PER SHARE (Continued) The calculation of diluted earnings per share is based on profit attributable to the Bank s equity shareholders for the six months ended 30th June, 2009 of HK$512,583,000 (30th June, 2008: HK$938,122,000) and on the weighted average number of ordinary shares of 297,335,753 shares (30th June, 2008: 297,782,590 shares) in issue during the period after adjustment for the effects of all dilutive potential ordinary shares of 2,291,373 shares (30th June, 2008: 2,787,441 shares). 30th June, th June, Number of shares of HK$1.00 each 1.00 Number of shares of HK$1.00 each Weighted average number of ordinary shares used in calculating basic earnings per share 295,044, ,995,149 Deemed exercise of Share Option Scheme 144, ,721 Deemed exercise of EIP 2,147,215 2,174,720 Weighted average number of ordinary shares used in calculating diluted earnings per share 297,335, ,782, CASH AND BALANCES WITH BANKS, CENTRAL BANKS AND OTHER FINANCIAL INSTITUTIONS 30th June, st December, 2008 Cash balances 499, ,585 Balances with central banks 1,373,494 2,556,509 Balances with banks 1,769,681 1,593,623 3,642,644 4,675,717 30

32 PLACEMENTS WITH BANKS, CENTRAL BANKS AND OTHER FINANCIAL INSTITUTIONS 30th June, st December, 2008 Placements with banks 8,694,488 23,847, TRADING ASSETS 30th June, st December, 2008 Debt securities: Listed in Hong Kong 115, ,579 Listed outside Hong Kong 82, , ,579 Unlisted 1,795, ,768 1,992, ,347 Equity securities listed in Hong Kong 5,539 5,430 Total trading securities 1,998, ,777 Positive fair values of derivative financial instruments held for trading 814,767 1,286,596 2,813,249 1,748,373 Trading debt securities include: Treasury bills 1,451,788 Other trading debt securities 541, ,347 1,992, ,347 Trading securities analysed by counterparty are as follows: 30th June, st December, 2008 Issued by: Sovereigns 1,451,788 Public sector entities Banks 345, ,189 Corporates 200, ,384 1,998, ,777 WING HANG BANK Interim Report

33 Notes to Unaudited Interim Financial Report FINANCIAL ASSETS DESIGNATED AT FAIR VALUE THROUGH PROFIT OR LOSS 30th June, st December, 2008 Debt securities: Listed in Hong Kong 48,400 43,400 Listed outside Hong Kong 3,136, ,665 3,184, ,065 Unlisted 2,549,759 1,957,927 5,734,318 2,509,992 Financial assets designated at fair value through profit or loss analysed by counterparty are as follows: 30th June, st December, 2008 Issued by: Public sector entities 1,080, ,388 Banks 3,592,588 1,349,323 Corporates 1,061, ,281 5,734,318 2,509, (a) 14. ADVANCES TO CUSTOMERS AND OTHER ACCOUNTS (a) Advances to customers and other accounts 30th June, st December, 2008 Gross advances to customers 78,723,864 80,256,196 Individual impairment allowances 14(d) for impaired loans and advances (note 14(d)) (112,920) (236,953) Collective impairment allowances for 14(d) loans and advances (note 14(d)) (190,254) (190,406) Net advances to customers 78,420,690 79,828,837 Customer liability under acceptances 305, ,339 Amount receivable from sale of available-for-sale equity financial assets 35,499 Accrued interest and other accounts 1,278,383 1,169,498 80,039,807 81,367,674 32

34 14. (b) 14. ADVANCES TO CUSTOMERS AND OTHER ACCOUNTS (Continued) (b) Advances to customers analysed by industry sectors The information concerning advances to customers by industry sectors is prepared by classifying the advances according to the usage of the advances and is stated gross of any impairment allowances. 30th June, st December, 2008 Gross Impaired Gross Impaired advances to advances to advances to advances to customers customers customers customers Advances for use in Hong Kong Industrial, commercial and financial Property development 731, ,209 Property investment 14,233,513 56,156 15,242,500 65,190 Financial concerns 1,502,292 1,501,443 Stockbrokers 1,945, ,078 Wholesale and retail trade 1,121,670 11, ,343 19,245 Manufacturing 1,267,575 35,876 1,415,687 68,887 Transport and transport equipment 5,640,201 16,875 6,443,414 35,208 Information technology 1,679 1,959 Share financing 555, ,018 Recreational activities 23,343 8,450 Others 2,922,042 38,156 2,665,975 23,287 Individuals Advances for the purchase of flats in Home Ownership Scheme, Private Sector Participation Scheme and Tenants Purchase Scheme or their respective successor schemes 2,752,511 1,303 2,738,645 1,383 Advances for the purchase of other residential properties 17,149,257 23,709 16,815,473 15,903 Credit card advances 226,740 2, ,094 3,316 Others 4,030,112 31,550 4,194,478 24,368 54,103, ,911 53,279, ,787 Trade finance 2,213,517 74,885 3,049, ,085 Advances for use outside Hong Kong Mainland China 11,833, ,901 13,162, ,870 Macau 10,561,677 94,159 10,757,163 57,766 Others 11,677 7,764 22,407, ,060 23,927, ,636 78,723, ,856 80,256, ,508 WING HANG BANK Interim Report