1 August 2005

Hang Seng Bank Limited 2005 Interim Results - Highlights

• Total operating income up 8.9 per cent to HK$10,499 million
  (HK$9,645 million for the first half of 2004)

  Operating profit before loan impairment (charges)/releases and other credit
  risk allowances down 2.2 per cent to HK$5,934 million
  (HK$6,070 million for the first half of 2004)

  Attributable profit down 2.3 per cent to HK$6,045 million
  (HK$6,188 million for the first half of 2004)

  Return on average shareholders' funds of 29.7 per cent
  (32.0 per cent for the first half of 2004)

  Total assets up 4.2 per cent to HK$569.7 billion
  (HK$547.0 billion at 31 December 2004)

  Earnings per share down 2.5 per cent to HK$3.16
  (HK$3.24 per share for the first half of 2004)

  Second interim dividend of HK$1.10 per share; total dividends of HK$2.20
  per share for the first half of 2005
  (HK$2.20 per share for the first half of 2004)

  Total capital ratio of 12.4 per cent (12.0 per cent at 31 December 2004);
  tier 1 capital ratio of 10.5 per cent (10.8 per cent at 31 December 2004)

• Cost:income ratio of 26.7 per cent
  (24.6 per cent for the first half of 2004)

Note: Certain figures have been restated to reflect the adoption of a number of new and revised Hong Kong Financial Reporting Standards and Hong Kong Accounting Standards (new ‘HKFRSs’).

Comment by Michael Smith, Chairman

“In the first half of 2005, Hang Seng’s total operating income reached HK$10,499 million, an increase of 8.9 per cent over the same period in 2004. This was achieved against a backdrop of an increasingly competitive environment.

“Profit attributable to shareholders was HK$6,045 million, representing a fall of 2.3 per cent compared with the first half of last year which benefited from a large release in general provisions.“Net interest income rose by 11.6 per cent to HK$5,264 million. This rise was due largely to improve interest spread on deposits, growth in commercial banking and consumer lending portfolios, and contributions from net free funds. Our net interest margin improved by 11 basis points to 2.13 per cent.“We also enjoyed solid growth in Personal Financial Services with pre-tax profit of HK$3,970 million, up 12.8 per cent. “We have continued to invest in the growth of our businesses. Marketing expenses increased to promote cards and insurance products. There were also increases in average headcount, mainly due to recruitment for Personal Financial Services business and the expansion of our mainland network.“Our strategy for developing our mainland China business is yielding positive results, with the first half of 2005 recording an increase in our share of profits from Industrial Bank Co., Ltd. Along with our own growing network of mainland outlets, we are well positioned to capitalise on growth opportunities created by the ongoing financial liberalisation on the Mainland. “With the rate of economic growth in the second half of 2005 expected to be more moderate, the competitive banking environment is set to continue. However, our overall outlook for the year remains positive. The improvement in employment, coupled with the wealth effects resulting from the sustained economic recovery, will help ensure that domestic demand maintains momentum. The recent interest rate rises should continue to have a positive impact on the interest margin, although further rises may dampen loan demand.

“Hang Seng will continue to focus on diversifying income through expanding our wealth management, consumer finance and SME services, improving productivity and exploring business opportunities on the Mainland. This strategy will enable us to strengthen our profitability and continue to deliver value to our shareholders.”

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