董事會報告書及 directors’ report and 綜合財務報表 ......2013/04/16 · 2012 2011...
TRANSCRIPT
Standard Chartered Bank (Hong Kong) Limited
For the year ended 31 December 2012
Directors’ Report andConsolidated FinancialStatements
渣打銀行(香港)有限公司
截至二零一二年十二月三十一日止年度
董事會報告書及綜合財務報表
C M Y K
Panto
ne 368C
Panto
ne 362C
Panto
ne 7469C
Process Cyan
C
Panto
ne 307C
Standard C
hartered Bank (H
ong Kong) Lim
ited D
irectors’ Report and C
onsolidated F
inancial Sta
tements 2012
渣打銀行(香港)有限公司
二零一二年度董事會報告書及綜合財務報表
Standard Chartered Bank (Hong Kong) LimitedContents
Page
Report of the directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Independent auditor’s report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Consolidated income statement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Consolidated statement of comprehensive income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Consolidated balance sheet . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Balance sheet . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Consolidated statement of changes in equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Statement of changes in equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Consolidated cash flow statement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Notes to the financial statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Unaudited supplementary financial information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 126
Standard Chartered Bank (Hong Kong) Limited 1
Report of the directors
Thedirectorshavepleasureinsubmittingtheirannualreporttogetherwiththeauditedfinancialstatementsfortheyearended31December2012.
Principal place of business
StandardCharteredBank(HongKong)Limited(the“Bank”)isabankincorporatedanddomiciledinHongKongandhasitsregisteredofficeat32/F.,4–4ADesVoeuxRoadCentral,HongKong.
Principal activities
TheBankisalicensedbankregisteredundertheHongKongBankingOrdinance.TheBank’sprincipalactivitiesaretheprovisionofbankingandrelatedfinancialservices.TheprincipalactivitiesandotherparticularsoftheBank’sprincipalsubsidiariesaresetoutinnote19tothefinancialstatements.
Financial statements
TheprofitoftheBankanditssubsidiariesfortheyearended31December2012andthestateoftheBank’sanditssubsidiaries’affairsasatthatdatearesetoutinthefinancialstatementsonpages5to125.
During theyearended31December2012, thedirectorshaddeclaredandpaidanordinarydividendofHK$1.6005(2011:HK$3.0114)pereach“A”and“B”ordinarysharetotallingHK$3,100million(2011:HK$5,833million).
Detailsofthemovementsinreservesaresetoutintheconsolidatedstatementofchangesinequity.
Charitable donations
Charitable donations made by the Bank and its subsidiaries during the year amounted to HK$8 million(2011:HK$10million).
Fixed assets
Detailsofthemovementsinfixedassetsaresetoutinnote21tothefinancialstatements.
Share capital
TherewerenomovementsintheBank’ssharecapitalduringtheyear.
Directors
Thedirectorsduringtheyearanduptothedateofthisreportare:
Executive directorsBenjaminHungPiChengLingFouTsong(appointedon24April2012)TanSiewBoiSaleemRazvi(resignedon2April2012)
Standard Chartered Bank (Hong Kong) Limited 2
Report of the directors (continued)
Non-executive directorsKatherineTsangKingSuen,ChairpersonJaspalSinghBindraJulianFongLoongChoonJanardhanParthasarathiCadambi(appointedon5April2012)MaXuezheng*NormanLyle*ChanWingKin*RaymondKwokPingLuen*(resignedon27July2012)
* Independent non-executive directors
MrLingFouTsongandMrJanardhanParthasarathiCadambiwerere-electedatthe2012annualgeneralmeetinginaccordancewithArticle109oftheBank’sArticlesofAssociation.
Directors’ service contracts
Themaximumtermofappointmentofindependentnon-executivedirectorsis2years.Theirremunerationisdeterminedbytheshareholdersattheannualgeneralmeeting.
Directors’ interests in Share Option Schemes
CertaindirectorsoftheBankhavebeengrantedoptionsundervariousshareoptionschemesofStandardCharteredPLC,theultimateholdingcompanyoftheBank.Duringtheyear,JaspalSinghBindra,KatherineTsangKingSuen,BenjaminHungPiCheng,JulianFongLoongChoon,SaleemRazvi,LingFouTsong,TanSiewBoiandJanardhanParthasarathiCadambiweregrantedoptionsundertheseschemes.
Directors’ rights to acquire shares
AtnotimeduringtheyearwastheBank,anyofitsholdingcompanies,subsidiaries,orfellowsubsidiaries,apartytoanyotherarrangementtoenablethedirectorsoftheBanktoacquirebenefitsbymeansoftheacquisitionofsharesinordebenturesoftheBankoranyotherbodycorporate.
Directors’ interests in contracts
NocontractofsignificancetowhichtheBank,itsholdingcompanies,subsidiariesorfellowsubsidiarieswasapartyandinwhichadirectoroftheBankhadamaterialinterest,subsistedattheendoftheyearoratanytimeduringtheyear.
Standard Chartered Bank (Hong Kong) Limited 3
Report of the directors (continued)
Auditor
ThefinancialstatementshavebeenauditedbyKPMGwhowillretireand,beingeligible,offerthemselvesforre-appointment.Aresolutionforthere-appointmentofKPMGastheauditoroftheBankistobeproposedattheforthcomingannualgeneralmeeting.
OnbehalfoftheBoard
KatherineTsangKingSuenChairperson
HongKong,5March2013
Standard Chartered Bank (Hong Kong) Limited 4
Independent auditor’s report to the shareholders ofStandard Chartered Bank (Hong Kong) Limited(Incorporated in Hong Kong SAR with limited liability)
WehaveauditedtheconsolidatedfinancialstatementsofStandardCharteredBank(HongKong)Limited(the“Bank”)and itssubsidiaries (together “theBankand itssubsidiaries”)setoutonpages5 to125,whichcomprisetheconsolidatedandthebankbalancesheetsasat31December2012,theconsolidatedincomestatement,theconsolidatedstatementofcomprehensiveincome,theconsolidatedandthebankstatementsofchangesinequityandtheconsolidatedcashflowstatementfortheyearthenendedandasummaryofsignificantaccountingpoliciesandotherexplanatoryinformation.
Directors’ responsibility for the financial statements
ThedirectorsoftheBankareresponsibleforthepreparationoftheconsolidatedfinancialstatementsthatgive a true and fair view in accordance with International Financial Reporting Standards issued by theInternationalAccountingStandardsBoardandwithHongKongFinancialReportingStandardsissuedbytheHongKongInstituteofCertifiedPublicAccountantsandtheHongKongCompaniesOrdinanceandforsuchinternalcontrolasthedirectorsdetermineisnecessarytoenablethepreparationofconsolidatedfinancialstatementsthatarefreefrommaterialmisstatements,whetherduetofraudorerror.
Auditor’s responsibility
Ourresponsibilityistoexpressanopinionontheseconsolidatedfinancialstatementsbasedonouraudit.Thisreportismadesolelytoyou,asabody,inaccordancewithsection141oftheHongKongCompaniesOrdinance,andfornootherpurpose.Wedonotassumeresponsibilitytowardsoracceptliabilitytoanyotherpersonforthecontentsofthisreport.
WeconductedourauditinaccordancewithHongKongStandardsonAuditingissuedbytheHongKongInstituteofCertifiedPublicAccountants.Thosestandardsrequirethatwecomplywithethicalrequirementsandplanandperformtheaudittoobtainreasonableassuranceaboutwhethertheconsolidatedfinancialstatementsarefreefrommaterialmisstatement.
Anauditinvolvesperformingprocedurestoobtainauditevidenceabouttheamountsanddisclosuresintheconsolidatedfinancialstatements.Theproceduresselecteddependontheauditor’sjudgement,includingtheassessmentoftherisksofmaterialmisstatementoftheconsolidatedfinancialstatements,whetherduetofraudorerror. Inmakingthoseriskassessments, theauditorconsiders internalcontrol relevanttotheentity’spreparationoftheconsolidatedfinancialstatementsthatgiveatrueandfairviewinordertodesignauditproceduresthatareappropriateinthecircumstances,butnotforthepurposeofexpressinganopinionontheeffectivenessoftheentity’sinternalcontrol.Anauditalsoincludesevaluatingtheappropriatenessofaccountingpoliciesusedandthereasonablenessofaccountingestimatesmadebythedirectors,aswellasevaluatingtheoverallpresentationoftheconsolidatedfinancialstatements.
Webelievethattheauditevidencewehaveobtainedissufficientandappropriatetoprovideabasisforourauditopinion.
Opinion
Inouropinion,theconsolidatedfinancialstatementsgiveatrueandfairviewofthestateofaffairsoftheBankandoftheBankanditssubsidiariesasat31December2012andoftheBankanditssubsidiaries’profitandcashflowsfortheyearthenendedinaccordancewithInternationalFinancialReportingStandardsandwithHongKongFinancialReportingStandardsandhavebeenproperlypreparedinaccordancewiththeHongKongCompaniesOrdinance.
KPMGCertifiedPublicAccountants
8thFloor,Prince’sBuilding10ChaterRoadCentral,HongKong
5March2013
Standard Chartered Bank (Hong Kong) Limited 5
Consolidated income statementFor the year ended 31 December 2012(Expressed in millions of Hong Kong dollars)
Note 2012 2011
HK$’M HK$’M
Interestincome 4(a) 18,349 15,200Interestexpense 4(b) (6,052) (3,477)
Net interest income 12,297 11,723
Feeandcommissionincome 7,480 7,067Feeandcommissionexpense (702) (654)
Netfeeandcommissionincome 4(c) 6,778 6,413Nettradingincome 4(d) 3,079 2,631Netgains/(losses)fromfinancialinstrumentsdesignated
atfairvaluethroughprofitorloss 4(e) 188 (30)Netgainsfromdisposalofavailable-for-salesecurities 5 149 307Otheroperatingincome 4(f) 1,162 450
11,356 9,771
Total operating income 23,653 21,494
Staffcosts (6,693) (6,272)Premisesandequipment (1,862) (1,343)Others (4,398) (3,753)
Operatingexpenses 4(g) (12,953) (11,368)
Operating profit before impairment 10,700 10,126
Impairmentchargesonadvancestobanksandcustomers 6(a) (789) (592)Otherimpairmentcharges 6(b) (1,043) (141)
Operating profit after impairment 8,868 9,393Shareofprofitofassociates 893 570
Profit before taxation 9,761 9,963Taxation 7(a) (1,523) (1,619)
Profit after taxation 8,238 8,344
Attributableto:EquityshareholdersoftheBank 8,221 8,324Non-controllinginterests 17 20
Profit after taxation 8,238 8,344
Thenotesonpages13to125formpartofthesefinancialstatements.
Standard Chartered Bank (Hong Kong) Limited 6
Consolidated statement of comprehensive incomeFor the year ended 31 December 2012(Expressed in millions of Hong Kong dollars)
2012 2011
HK$’M HK$’M
Profit after taxation 8,238 8,344
Other comprehensive income/(losses):Definedbenefitplans:
–Actuariallosses (61) (399)–Relatedtaxeffect 10 65
Available-for-salesecurities:–Changesinfairvaluerecognisedduringtheyear 1,115 (365)–Changesinfairvaluetransferredtotheincomestatementondisposal (149) (307)–Transfertotheincomestatementonfairvaluehedgeditems
attributabletohedgedrisk 213 (421)–Relatedtaxeffect (207) 178
Cashflowhedges:–Changesinfairvaluerecognisedduringtheyear 94 113–Transfertotheincomestatementontermination
ofhedgingderivatives (16) 31–Relatedtaxeffect (13) (24)
Netchangesinshareoptionequityreserve 76 10Surplusonrevaluationofbuildingsandleaseholdlandheldforownuse 2 –Exchangedifference 121 99
Othercomprehensiveincome/(losses)fortheyear,netoftax 1,185 (1,020)
Total comprehensive income for the year 9,423 7,324
Attributable to:ShareholdersoftheBank 9,406 7,304Non-controllinginterests 17 20
9,423 7,324
Thenotesonpages13to125formpartofthesefinancialstatements.
Standard Chartered Bank (Hong Kong) Limited 7
Consolidated balance sheet as at 31 December 2012(Expressed in millions of Hong Kong dollars)
Note 2012 2011HK$’M HK$’M
Assets
Cashandbalanceswithbanks,centralbanksandotherfinancialinstitutions 10 20,492 21,777
Placementswithbanksandotherfinancialinstitutions 11(a) 143,581 136,513HongKongSARGovernmentcertificatesofindebtedness 12 32,481 31,401Tradingassets 13 28,414 35,377Financialassetsdesignatedatfairvalue 14 3,216 4,275Investmentsecurities 17 174,379 135,090Advancestocustomers 15(a) 408,018 389,763Amountsduefromimmediateholdingcompany 18 58,731 50,957Amountsduefromfellowsubsidiaries 18 20,591 17,531Interestinassociates 20 7,101 6,619Fixedassets 21 23,746 10,522Goodwillandintangibleassets 22 1,821 1,741Currenttaxassets 13 3Deferredtaxassets 27 89 319Otherassets 23 17,001 11,966
939,674 853,854
Liabilities
HongKongSARcurrencynotesincirculation 12 32,481 31,401Depositsandbalancesofbanksandotherfinancialinstitutions 12,281 15,729Depositsfromcustomers 24 756,589 672,940Tradingliabilities 28 23,068 24,638Financialliabilitiesdesignatedatfairvalue 26 3,612 3,487Debtsecuritiesinissue 25 10,006 13,265Amountsduetoimmediateholdingcompany 18 19,606 13,023Amountsduetofellowsubsidiaries 18 5,117 5,073Currenttaxliabilities 629 917Deferredtaxliabilities 27 43 5Otherliabilities 29 18,204 19,775Subordinatedliabilities 31 11,267 13,100
892,903 813,353
Equity
Sharecapital 32 97 97Reserves 33 46,652 40,346
Shareholders’equity 46,749 40,443Non-controllinginterests 22 58
46,771 40,501
939,674 853,854
ApprovedandauthorisedforissuebytheBoardofDirectorson5March2013.
Tsang King Suen Katherine Hung Pi Cheng Benjamin Chairperson Director
Ling Fou Tsong Wang Wei MinDirector CompanySecretary
Thenotesonpages13to125formpartofthesefinancialstatements.
Standard Chartered Bank (Hong Kong) Limited 8
Balance sheet as at 31 December 2012(Expressed in millions of Hong Kong dollars)
Note 2012 2011HK$’M HK$’M
Assets
Cashandbalanceswithbanks,centralbanksandotherfinancialinstitutions 10 20,331 21,676
Placementswithbanksandotherfinancialinstitutions 11(a) 143,571 136,477HongKongSARGovernmentcertificatesofindebtedness 12 32,481 31,401Tradingassets 13 28,410 35,377Financialassetsdesignatedatfairvalue 14 3,216 4,275Investmentsecurities 17 174,312 133,263Advancestocustomers 15(a) 395,386 377,477Amountsduefromimmediateholdingcompany 18 57,746 50,279Amountsduefromfellowsubsidiaries 18 20,460 17,370AmountsduefromsubsidiariesoftheBank 18 33,693 19,181InvestmentsinsubsidiariesoftheBank 19 1,100 1,096Interestinassociates 20 4,059 4,814Fixedassets 21 2,830 2,919Goodwillandintangibleassets 22 1,011 921Deferredtaxassets 27 38 275Otherassets 23 14,406 10,978
933,050 847,779
Liabilities
HongKongSARcurrencynotesincirculation 12 32,481 31,401Depositsandbalancesofbanksandotherfinancialinstitutions 11,356 14,734Depositsfromcustomers 24 755,487 672,425Tradingliabilities 28 23,065 24,638Financialliabilitiesdesignatedatfairvalue 26 3,612 3,487Debtsecuritiesinissue 25 10,006 13,265Amountsduetoimmediateholdingcompany 18 19,124 12,366Amountsduetofellowsubsidiaries 18 5,008 3,602AmountsduetosubsidiariesoftheBank 18 2,017 1,891Currenttaxliabilities 596 762Otherliabilities 29 17,205 18,987Subordinatedliabilities 31 11,267 13,100
891,224 810,658
Equity
Sharecapital 32 97 97Reserves 33 41,729 37,024
Shareholders’equity 41,826 37,121
933,050 847,779
ApprovedandauthorisedforissuebytheBoardofDirectorson5March2013.
Tsang King Suen Katherine Hung Pi Cheng Benjamin Chairperson Director
Ling Fou Tsong Wang Wei MinDirector CompanySecretary
Thenotesonpages13to125formpartofthesefinancialstatements.
Standard Chartered Bank (Hong Kong) Limited 9
Consolidated statement of changes in equityFor the year ended 31 December 2012(Expressed in millions of Hong Kong dollars)
Attributable to equity shareholders of the Bank
Sharecapital
Sharepremium
Capitalredemption
reserve
Cash flowhedge
reserve
Available-for-sale
investmentreserve
Revaluationreserve
Pensionreserve
Exchangereserve
Propertyrevaluation
reserveRetained
profits
Shareoptionequity
reserve Total
Non-controlling
interests TotalHK$’M HK$’M HK$’M HK$’M HK$’M HK$’M HK$’M HK$’M HK$’M HK$’M HK$’M HK$’M HK$’M HK$’M
At1January2011 97 12,477 3,804 (121) 45 146 (110) 150 – 22,190 294 38,972 69 39,041Totalcomprehensive
income – – – 120 (915) – (334) 99 – 8,324 10 7,304 20 7,324Dividendpaid – – – – – – – – – (5,833) – (5,833) (31) (5,864)Transfertoretained
profits – – – – – – (15) – – 15 – – – –
At31December2011 97 12,477 3,804 (1) (870) 146 (459) 249 – 24,696 304 40,443 58 40,501Totalcomprehensive
income – – – 65 972 – (51) 121 2 8,221 76 9,406 17 9,423Dividendpaid – – – – – – – – – (3,100) – (3,100) (53) (3,153)
At31December2012 97 12,477 3,804 64 102 146 (510) 370 2 29,817 380 46,749 22 46,771
Thenotesonpages13to125formpartofthesefinancialstatements.
Standard Chartered Bank (Hong Kong) Limited 10
Statement of changes in equityFor the year ended 31 December 2012(Expressed in millions of Hong Kong dollars)
Sharecapital
Sharepremium
Capitalredemption
reserve
Cash flowhedge
reserve
Available-for-sale
investmentreserve
Pensionreserve
Retainedprofits
Shareoption equity
reserve TotalHK$’M HK$’M HK$’M HK$’M HK$’M HK$’M HK$’M HK$’M HK$’M
At1January2011 97 12,477 3,804 (115) 51 (143) 20,027 294 36,492Totalcomprehensiveincome – – – 114 (923) (316) 7,624 (37) 6,462Dividendpaid – – – – – – (5,833) – (5,833)
At31December2011 97 12,477 3,804 (1) (872) (459) 21,818 257 37,121Totalcomprehensiveincome – – – 65 983 (51) 6,762 46 7,805Dividendpaid – – – – – – (3,100) – (3,100)
At31December2012 97 12,477 3,804 64 111 (510) 25,480 303 41,826
During theyearended31December2012, thedirectorshaddeclaredandpaidanordinarydividendofHK$1.6005(2011:HK$3.0114)pereach‘A’and‘B’ordinarysharetotallingHK$3,100million(2011:HK$5,833million).
Thenotesonpages13to125formpartofthesefinancialstatements.
Standard Chartered Bank (Hong Kong) Limited 11
Consolidated cash flow statementFor the year ended 31 December 2012(Expressed in millions of Hong Kong dollars)
Note 2012 2011
HK$’M HK$’M
Operating activities
Profitbeforetaxation 9,761 9,963
Adjustmentsfor:Impairmentchargesonadvancestobanksandcustomers 789 592Advanceswrittenoffnetofrecoveries (845) (682)Unwindingofdiscountonloanimpairmentcharges (19) (23)Otherimpairmentcharges 1,043 141Depreciation 753 315Amortisationofintangibleassets 85 93Gainsondisposaloffixedassets (3) (20)Netlosses/(gains)onrevaluationofinvestmentproperties 30 (5)Shareofprofitofassociates (893) (570)Interestexpenseonsubordinatedliabilities 355 410Fairvalue(gains)/lossestransferredfromreserveson cashflowhedges (16) 31Exchangetranslationonsubordinatedliabilities 149 (6)
11,189 10,239(Increase)/decreaseinoperatingassets:
Placementswithbanksandotherfinancialinstitutionswithoriginalmaturitybeyondthreemonths (14,097) (5,764)
Tradingassets (5,296) 9,695Financialassetsdesignatedatfairvalue 1,059 2,285Investmentsecurities (28,176) (1,235)Grossadvancestocustomers (18,232) (54,446)Amountsduefromimmediateholdingcompanyandfellowsubsidiaries (2,032) (10,996)Otherassets (5,775) (3,239)
Increase/(decrease)inoperatingliabilities:Depositsandbalancesofbanksandotherfinancialinstitutions (3,524) (4,047)Depositsfromcustomers 83,638 99,668Debtsecuritiesinissue (3,259) 13,265Financialliabilitiesdesignatedatfairvalue 125 435Amountsduetoimmediateholdingcompanyandfellowsubsidiaries 2,013 (13,194)Tradingliabilities (1,569) (11,808)Otherliabilities (2,452) 3,324
Cash generated from operations 13,612 34,182
Incometaxpaid (1,756) (827)
Net cash generated from operating activities 11,856 33,355
Standard Chartered Bank (Hong Kong) Limited 12
Consolidated cash flow statement (continued)For the year ended 31 December 2012(Expressed in millions of Hong Kong dollars)
Note 2012 2011
HK$’M HK$’M
Investing activities
Dividendreceivedfromassociates 104 70Paymentforpurchaseofanassociate (54) –Paymentforadditionalinvestmentinassociates – (1,507)Proceedsfromdisposalofasubsidiary 158 –Paymentforpurchaseoffixedassets (14,036) (7,799)Paymentforpurchaseofintangibleassets (165) (115)Proceedsfromdisposaloffixedassets 34 90Proceedsfromdisposalofintangibleassets – 2
Net cash used in investing activities (13,959) (9,259)
Financing activities
Paymentforredemptionofsubordinatedliabilities (2,335) –Proceedsfromissuanceofsubordinatedliabilities – 4,597Interestpaidonsubordinatedliabilities (345) (350)DividendpaidtoshareholdersoftheBank (3,100) (5,833)Dividendpaidtonon-controllinginterests (53) (31)
Net cash used in financing activities (5,833) (1,617)
Net (decrease)/increase in cash and cash equivalents (7,936) 22,479
Cash and cash equivalents at 1 January 148,525 124,308Effectofforeignexchange 559 1,738
Cash and cash equivalents at 31 December 34 141,148 148,525
Cashflowsfromoperatingactivitiesinclude:Interestreceived 17,318 14,500Interestpaid 5,184 2,731Dividendsreceived 25 19
Thenotesonpages13to125formpartofthesefinancialstatements.
Standard Chartered Bank (Hong Kong) Limited 13
Notes to the financial statements(Expressed in millions of Hong Kong dollars)
1 Principal activities
TheprincipalactivitiesofStandardCharteredBank(HongKong)Limited(the“Bank”)anditssubsidiaries(togetherreferredtoasthe“Bankanditssubsidiaries”)aretheprovisionofbankingandrelatedfinancialservices.
2 Significant accounting policies
(a) Statementofcompliance
ThesefinancialstatementshavebeenpreparedinaccordancewithallapplicableHongKongFinancialReportingStandards(“HKFRSs”),whichcollectivetermincludesallapplicableHongKongFinancialReportingStandards,HongKongAccountingStandards(“HKASs”)andInterpretationsissuedbytheHongKongInstituteofCertifiedPublicAccountants(“HKICPA”),accountingprinciplesgenerallyacceptedinHongKongandtherequirementsoftheHongKongCompaniesOrdinance.AsHKFRSsareconsistentwithInternationalFinancialReportingStandards(“IFRSs”),whichcollectivetermincludesallapplicableindividual International Financial Reporting Standards, International Accounting Standards andInterpretations issued by the International Accounting Standards Board (“IASB”), these financialstatementsalsocomplywithIFRSs.
(b) Basisofpreparationofthefinancialstatements
(i) BasisofPreparation
The consolidated financial statements comprise the financial statements of the Bank and itssubsidiariesmadeupto31December2012.
TheconsolidatedandtheBank’sfinancialstatementshavebeenpreparedunderthehistoricalcostconvention,asmodifiedbytherevaluationofinvestmentproperties,available-for-saleassets,andfinancialassetsandliabilities(includingderivatives)atfairvaluethroughprofitorloss.
ThepreparationoffinancialstatementsinconformitywithadoptedHKFRS/IFRSrequirestheuseofcertaincriticalaccountingestimates.ItalsorequiresmanagementtoexerciseitsjudgementintheprocessofapplyingtheBankanditssubsidiaries’accountingpolicies.Actualresultsmaydifferfromtheseestimates.Thesignificantjudgementsmadebymanagementinapplyingtheaccountingpoliciesandkeysourcesofuncertaintywerethesameasthoseappliedtotheconsolidatedfinancialstatementsasatandfortheyearended31December2011.
TheaccountingpoliciessetoutbelowhavebeenappliedconsistentlyacrosstheBankanditssubsidiariesandtoallperiodspresentedinthesefinancialstatements.
(ii) ConsolidatedFinancialStatements
Duringtheyear,theBankhadsubordinateddebtsinissue.Thesesubordinateddebtswereissuedunder a note issuance programme which is listed on the Stock Exchange of Hong Kong.Consequently,theBankisrequiredtoproduceconsolidatedfinancialstatementsinaccordancewithHKAS27/IAS27“ConsolidatedandSeparateFinancialStatements”.
Standard Chartered Bank (Hong Kong) Limited 14
Notes to the financial statements (continued)(Expressed in millions of Hong Kong dollars)
2 Significant accounting policies (continued)
(c) Subsidiariesandnon-controllinginterests
SubsidiariesareentitiescontrolledbytheBankanditssubsidiaries.ControlexistswhentheBankanditssubsidiarieshavethepowertodirectlyorindirectlygovernthefinancialandoperatingpoliciessoasto obtain benefits from its activities. In assessing control, potential voting rights that presently areexercisablearetakenintoaccount.
Aninvestmentinasubsidiaryisconsolidatedintotheconsolidatedfinancialstatementsfromthedatethatcontrolcommencesuntilthedatethatcontrolceases.Intra-groupbalancesandtransactionsandany unrealised profits arising from intra-group transactions are eliminated in full in preparing theconsolidatedfinancialstatements.Unrealisedlossesresultingfromintra-grouptransactionsareeliminatedinthesamewayasunrealisedgainsbutonlytotheextentthatthereisnoevidenceofimpairment.
Non-controllinginterestsrepresenttheportionofthenetassetsofsubsidiariesattributabletointereststhatarenotownedbytheBank,whetherdirectlyorindirectlythroughsubsidiaries,andinrespectofwhichtheBankanditssubsidiarieshavenotagreedanyadditionaltermswiththeholdersofthoseinterestswhichwouldresultintheBankanditssubsidiariesasawholehavingacontractualobligationinrespectofthoseintereststhatmeetthedefinitionofafinancialliability.Non-controllinginterestsarepresentedintheconsolidatedbalancesheetwithinequity,separatelyfromequityattributabletotheequityshareholdersoftheBank.Non-controllinginterestsarepresentedonthefaceoftheconsolidatedincomestatementandtheconsolidatedstatementofcomprehensiveincomeasanallocationofthetotalprofitorlossandtotalcomprehensiveincomefortheyearbetweennon-controllinginterestsandtheequityshareholdersoftheBank.
Wherelossesapplicabletothenon-controllinginterestexceeditsinterestintheequityofasubsidiary,theexcess,andanyfurtherlossesapplicabletothenon-controllinginterest,arechargedagainsttheBankanditssubsidiaries’interestexcepttotheextentthatthenon-controllinginteresthasabindingobligationto,andisableto,makeadditionalinvestmenttocoverthelosses.Ifthesubsidiarysubsequentlyreportsprofits, theBankand itssubsidiaries’areallocatedall suchprofitsuntil thenon-controllinginterest’sshareoflossespreviouslyabsorbedbytheBankanditssubsidiarieshavebeenrecovered.
IntheBank’sbalancesheet,itsinvestmentsinsubsidiariesarestatedatcostlessimpairmentlosses,ifany.
(d) Associates
AssociatesareentitiesinrespectofwhichtheBankhassignificantinfluence,butnotcontrol,overthefinancialandoperatingpoliciesandprocedures.Investmentsinassociatesareaccountedforusingtheequitymethodofaccountingintheconsolidatedfinancialstatementsandareinitiallyrecognisedatcost.TheBankanditssubsidiaries’investmentinassociatesincludesgoodwillidentifiedonacquisitionandaccumulatedimpairmentloss.
TheBankanditssubsidiaries’shareofitsassociates’post-acquisitionprofitsorlossesarerecognisedintheincomestatement,andtheshareofpost-acquisitionmovementsinothercomprehensiveincomearerecognisedinreserves.Thecumulativepost-acquisitionmovementsareadjustedagainstthecarryingamountoftheinvestmentintheconsolidatedbalancesheet.WhentheBankanditssubsidiaries’shareoflossesinanassociateisequaltoorexceedsitsinterestintheassociate,includinganyotherunsecuredreceivables,theBankanditssubsidiariesdonotrecognisefurtherlosses,unlesstheyhaveincurredobligationsormadepaymentsonbehalfoftheassociate.
Standard Chartered Bank (Hong Kong) Limited 15
Notes to the financial statements (continued)(Expressed in millions of Hong Kong dollars)
2 Significant accounting policies (continued)
(d) Associates(continued)
UnrealisedgainsandlossesontransactionsbetweentheBankanditsassociatesareeliminatedtotheextentoftheBankanditssubsidiaries’interestintheassociates.
IntheBank’sbalancesheet,investmentinassociatesarestatedatcostlessimpairmentlossesanddividendsfrompre-acquisitionprofitsreceivedpriorto1January2009,ifany.
(e) Intangibleassets
(i) Goodwill
GoodwillrepresentstheexcessofthecostofanacquisitionoverthefairvalueoftheBankanditssubsidiaries’shareofthenetidentifiableassetsandcontingentliabilitiesoftheacquiredsubsidiary/associateatthedateofacquisition.Goodwillonacquisitionsofsubsidiariesisincludedin“Goodwillandintangibleassets”.Goodwillonacquisitionsofassociatesisincludedin“Interestinassociates”.
Goodwillincludedin“Goodwillandintangibleassets”istestedannuallyforimpairmentandcarriedatcostlessanyaccumulatedimpairmentlosses.Goodwillisallocatedtocash-generatingunitsforthepurposeofimpairmenttesting.
(ii) Acquiredintangibles
Atthedateofacquisitionofasubsidiaryorassociate,intangibleassetswhicharedeemedseparableandthatarisefromcontractualorotherlegalrightsarecapitalisedandincludedwithinthenetidentifiableassetsacquired.These intangibleassetsare initiallymeasuredat fair value,whichreflectsmarketexpectationsoftheprobabilitythatthefutureeconomicbenefitsembodiedintheassetwillflowtotheentity,andareamortisedonthebasisoftheirexpectedusefullives(4to16years).Ateachbalancesheetdate,theseassetsareassessedforindicatorsofimpairment.Intheeventthatanasset’scarryingamountisdeterminedtobegreaterthanitsrecoverableamount,theassetiswrittendownimmediately.
(iii) Computersoftware
Acquiredcomputersoftwarelicensesarecapitalisedonthebasisofthecostsincurredtoacquireandbringtousethespecificsoftware.Costsassociatedwiththedevelopmentofsoftwarearecapitalisedwhereitisprobablethatitwillgeneratefutureeconomicbenefitsinexcessofitscost.Computersoftwarecostsareamortisedonthebasisofexpectedusefullife(3to5years).Costsassociatedwithmaintainingsoftwarearerecognisedasanexpenseasincurred.Ateachbalancesheetdate,theseassetsareassessedforindicatorsofimpairment.Intheeventthatanasset’scarryingamountisdeterminedtobegreaterthanitsrecoverableamount,theassetiswrittendownimmediately.
(f) Investmentproperties
Investmentpropertiesarelandandbuildingswhichareownedeithertoearnrentalincomeorforlongterminvestmentsorforboth.Investmentpropertiesarestatedinthebalancesheetatfairvalue.Anygainsorlossesarisingfromachangeinfairvalueorfromthedisposalofaninvestmentpropertyisrecognisedintheincomestatement.
Standard Chartered Bank (Hong Kong) Limited 16
Notes to the financial statements (continued)(Expressed in millions of Hong Kong dollars)
2 Significant accounting policies (continued)
(g) Otherproperty,plantandequipment
Property,plantandequipmentisstatedatcostlessaccumulateddepreciationandimpairment,ifany.Costincludesexpenditurethatisdirectlyattributabletotheacquisitionoftheitems.Subsequentcostsareincludedintheasset’scarryingamountorarerecognisedasaseparateasset,asappropriate,onlywhenitisprobablethatfutureeconomicbenefitsassociatedwiththeitemwillflowtotheBankandthecostoftheitemcanbemeasuredreliably.Allotherrepairsandmaintenancearechargedtotheincomestatementduringthefinancialperiodinwhichtheyareincurred.
Depreciationonfixedassetsiscalculatedusingthestraight-linemethodtoallocatetheircosttotheirresidualvaluesovertheirestimatedusefullives,asfollows:
– Buildings,leaseholdlandandleaseholdimprovements,aredepreciatedovertheshorteroftheirestimatedusefullives,being50yearsfromthedateofcompletion,andtheunexpiredtermsofthelease.
– Equipmentandmotorvehicles,aredepreciatedover3to15years.
– Aircraftandvessels,aredepreciatedover25years.
Theassets’residualvaluesandusefullivesarereviewed,andadjustedifappropriate,ateachbalancesheetdate.Ateachbalancesheetdate,theseassetsareassessedforindicatorsofimpairment.Intheeventthatanasset’scarryingamountisdeterminedtobegreaterthanitsrecoverableamount,theassetiswrittendownimmediately.
Gainsandlossesondisposalsareincludedintheincomestatement.
(h) Leases
Where the Bank and its subsidiaries are the lessees
TheleasesenteredintobytheBankanditssubsidiariesareprimarilyoperatingleases.Thetotalpaymentsmadeunderoperatingleasesarechargedtotheincomestatementonastraight-linebasisovertheperiodoftheleases.
Where the Bank and its subsidiaries are the lessors
Whenassetsareleasedtocustomersunderfinanceleases,thepresentvalueoftheleasepaymentsisrecognisedasareceivable.Thedifferencebetweenthegrossreceivableandthepresentvalueofthereceivableisrecognisedasunearnedfinanceincome.Leaseincomeisrecognisedoverthetermoftheleaseusingthenetinvestmentmethod(beforetax),whichreflectsaconstantperiodicrateofreturnignoringtaxcashflows.
AssetsleasedtocustomersunderoperatingleasesareincludedwithinFixedassetsanddepreciatedovertheirestimateduseful lives.Rental incomeontheseleasedassetsisrecognisedintheincomestatementonastraight-linebasisunlessanothersystematicbasisismorerepresentative.
Standard Chartered Bank (Hong Kong) Limited 17
Notes to the financial statements (continued)(Expressed in millions of Hong Kong dollars)
2 Significant accounting policies (continued)
(i) Financialassetsandliabilities(excludingderivatives)
Financialassetsareclassifiedintothefollowingcategories:financialassetsheldatfairvaluethroughprofit or loss, loans and receivables, and available-for-sale financial assets. Financial liabilities areclassifiedaseitherheldatfairvaluethroughprofitorloss,oratamortisedcost.Managementdeterminestheclassificationofthefinancialassetsandliabilitiesoninitialrecognitionor,whereappropriate,atthetimeofreclassification.
(i) Financial assets and liabilities held at fair value through profit or loss
Thiscategoryhastwosub-categories:financialassetsandliabilitiesheldfortrading,andthosedesignatedatfairvaluethroughprofitorlossatinception.Afinancialassetorliabilityisclassifiedastradingifacquiredprincipallyforthepurposeofsellingorrepurchasingintheshorttermorispartofaportfolioofidentifiedfinancialinstrumentsthataremanagedtogetherandforwhichthereisevidenceofarecentactualpatternofshort-termprofittaking.
Financialassetsandliabilitiesmaybedesignatedatfairvaluethroughprofitorlosswhen:
– thedesignationeliminatesorsignificantlyreducesameasurementorrecognitioninconsistencythatwouldotherwisearisefrommeasuringassetsorliabilitiesonadifferentbasis,or
– agroupoffinancialassetsand/orliabilitiesismanagedanditsperformanceevaluatedonafairvaluebasis,or
– assetsorliabilitiesincludeembeddedderivativesandsuchderivativesarenotrecognisedseparately.
(ii) Loans and receivables
Loansandreceivablesarenon-derivativefinancialassetswithfixedordeterminablepaymentsthatarenotquotedinanactivemarketanditisexpectedthatsubstantiallyalloftheinitialinvestmentwillberecovered,otherthanbecauseofcreditdeterioration.
(iii) Available-for-sale assets
Available-for-sale assets are those non-derivative financial assets intended to be held for anindefiniteperiodoftime,whichmaybesoldinresponsetoliquidityrequirementsorchangesininterestrates,exchangeratesorequityprices.
(iv) Financial liabilities held at amortised cost
Financialliabilities,whichincludeborrowings,notclassifiedasheldatfairvaluethroughprofitorlossareclassifiedasamortisedcostinstruments.
Initial recognition
Purchasesandsalesoffinancialassetsandliabilitiesheldatfairvaluethroughprofitorlossorwhichareavailable-for-saleareinitiallyrecognisedusingtradedateaccounting(thedateonwhichtheBankanditssubsidiariescommittopurchaseorselltheasset).Loansandreceivablesarerecognisedwhencashisadvancedtotheborrowers.Otherfinancialassetsandfinancialliabilitiesareinitiallyrecognisedonvaluedateatfairvalueplusdirectlyattributabletransactioncosts.
Standard Chartered Bank (Hong Kong) Limited 18
Notes to the financial statements (continued)(Expressed in millions of Hong Kong dollars)
2 Significant accounting policies (continued)
(i) Financialassetsandliabilities(excludingderivatives)(continued)
Subsequent measurement
Financialassetsandliabilitiesheldatfairvaluethroughprofitorlossaresubsequentlycarriedatfairvalue,withgainsandlossesarisingfromchangesinfairvaluetakendirectlytotheincomestatement.
Available-for-salefinancialassetsaresubsequentlycarriedatfairvalue,withgainsandlossesarisingfromchangesinfairvaluetakentoaseparatecomponentofequityuntiltheassetissold,orisimpaired,whenthecumulativegainorlossistransferredtotheincomestatement.
Loansandreceivablesaresubsequentlycarriedatamortisedcostusingtheeffectiveinterestmethod.
Financialliabilitiesotherthanthoseheldatfairvaluethroughprofitorlossaresubsequentlystatedatamortisedcost,withanydifferencebetweenproceedsnetofdirectlyattributabletransactioncostsandtheredemptionvaluerecognisedintheincomestatementovertheperiodoftheborrowingsusingtheeffectiveinterestmethod.
Inadditiontotheseinstruments,thecarryingvalueofafinancialinstrumentcarriedatamortisedcostthatisthehedgediteminaqualifyingfairvaluehedgerelationshipisadjustedbythefairvaluegainorlossattributabletothehedgedrisk.
Fair value of financial assets and liabilities
Fair value is the amount for which an asset could be exchanged, or a liability settled, betweenknowledgeable,willingpartiesinanarm’slengthtransaction.
Thefairvaluesofquotedfinancialassetsorfinancialliabilitiesinactivemarketsarebasedoncurrentprices.Ifthemarketforafinancialassetorfinancialliabilityisnotactive,andforunlistedsecurities,theBankanditssubsidiariesestablishfairvaluebyusingvaluationtechniques.Theseincludetheuseofrecentarm’slengthtransactions,discountedcashflowanalysis,optionpricingmodelsandothervaluationtechniquescommonlyusedbymarketparticipants.
Reclassifications
Reclassificationsoffinancialassets,otherthanasdisclosedbelow,oroffinancialliabilitiesbetweenmeasurementcategoriesarenotpermittedfollowingtheirinitialrecognition.
Heldfortradingnon-derivativefinancialassetscanonlybetransferredoutoftheheldatfairvaluethroughprofitor losscategory inthefollowingcircumstances: (i) totheavailable-for-salecategory,where, inrarecircumstances,theyarenolongerheldforthepurposeofsellingorrepurchasinginthenearterm;or(ii)totheloansandreceivablescategory,wheretheyarenolongerheldforthepurposeofsellingorrepurchasingintheneartermandtheywouldhavemetthedefinitionofaloanandreceivableoninitialrecognitionandtheBankanditssubsidiarieshavetheintentandabilitytoholdtheassetsfortheforeseeablefutureoruntilmaturity.
Financialassetscanonlybetransferredoutoftheavailable-for-salecategorytotheloansandreceivablescategory,wheretheywouldhavemetthedefinitionofaloanandreceivableoninitialrecognitionandtheBankanditssubsidiarieshavetheintentandabilitytoholdtheassetsfortheforeseeablefutureoruntilmaturity.
Financialassetsarereclassifiedattheirfairvalueonthedateofreclassification.Forfinancialassetsreclassifiedoutoftheavailable-for-salecategoryintoloansandreceivables,anygainorlossonthoseassetsrecognisedinshareholders’equitypriortothedateofreclassificationisamortisedtotheincomestatementovertheremaininglifeofthefinancialasset,usingtheeffectiveinterestmethod.
Standard Chartered Bank (Hong Kong) Limited 19
Notes to the financial statements (continued)(Expressed in millions of Hong Kong dollars)
2 Significant accounting policies (continued)
(i) Financialassetsandliabilities(excludingderivatives)(continued)
Renegotiated loans
Loansandreceivableswithrenegotiatedtermsareloansthathavebeenrestructuredduetodeteriorationintheborrower’sfinancialpositionandwheretheBankanditssubsidiarieshavemadeconcessionsthat theywouldnototherwiseconsider.Renegotiated loansandreceivablesaresubject toongoingmonitoringtodeterminewhethertheyremainimpairedorpastdue.
Derecognition
FinancialassetsarederecognisedwhentherightstoreceivecashflowsfromthefinancialassetshaveexpiredorwheretheBankanditssubsidiarieshavetransferredsubstantiallyallrisksandrewardsofownership.Financialliabilitiesarederecognisedwhentheyareextinguished,i.e.whentheobligationisdischarged,cancelledorexpires.
(j) Derivativefinancialinstrumentsandhedgeaccounting
Derivativesarecategorisedastradingunlesstheyaredesignatedashedginginstruments.
Derivativecontractsareinitiallyrecognisedatfairvalueonthedateonwhichtheyareenteredintoandaresubsequentlyre-measuredattheirfairvalue.Fairvaluesareobtainedfrommarketpricesinactivemarkets, includingrecentmarkettransactions,andvaluationtechniques, includingdiscountedcashflowmodelsandoptionpricingmodels,asappropriate.Allderivativesarecarriedasassetswhentheirfairvaluesarepositiveandasliabilitieswhentheirfairvaluesarenegative.
Certainderivativesembeddedinotherfinancialinstrumentsaretreatedasseparatederivativeswhentheireconomiccharacteristicsandrisksarenotcloselyrelatedtothoseofthehostcontractandthehostcontractisnotcarriedatfairvaluethroughprofitorloss.Theseembeddedderivativesaremeasuredatfairvaluewithchangesinfairvaluerecognisedintheincomestatement.
Themethodofrecognisingtheresultingfairvaluegainorlossdependsonwhetherthederivativeisdesignatedasahedginginstrument,andifso,thenatureoftheitembeinghedged.TheBankanditssubsidiariesdesignatecertainderivativesaseither:(1)hedgesofthefairvalueofrecognisedassetsorliabilities,orcommitments(fairvaluehedge);or,(2)hedgesofhighlyprobablefuturecashflowsattributabletoarecognisedassetorliability,oraforecastedtransaction(cashflowhedge).Hedgeaccountingisusedforderivativesdesignatedinthiswayprovidedcertaincriteriaaremet.
TheBankanditssubsidiariesdocument,attheinceptionofthetransaction,therelationshipbetweenhedging instruments and hedged items, as well as its risk management objective and strategy forundertakingvarioushedgetransactions.TheBankanditssubsidiariesalsodocumenttheassessment,bothathedgeinceptionandonanongoingbasis,ofwhetherthederivativesthatareusedinhedgingtransactionsarehighlyeffectiveinoffsettingchangesinfairvaluesorcashflowsofhedgeditems.
(i) Fair value hedge
Changesinthefairvalueofderivativesthataredesignatedandthatqualifyasfairvaluehedginginstrumentsarerecordedintheincomestatement,togetherwithanychangesinthefairvalueofthehedgedassetorliabilitythatareattributabletothehedgedrisk.Ifthehedgenolongermeetsthecriteriaforhedgeaccounting,theadjustmenttothecarryingamountofahedgeditemforwhichtheeffective interestmethod isused isamortised to the incomestatementover theperiod tomaturityorderecognition.
Standard Chartered Bank (Hong Kong) Limited 20
Notes to the financial statements (continued)(Expressed in millions of Hong Kong dollars)
2 Significant accounting policies (continued)
(j) Derivativefinancialinstrumentsandhedgeaccounting(continued)
(ii) Cash flow hedge
Theeffectiveportionofchangesinthefairvalueofderivativesthataredesignatedandqualifyascashflowhedginginstrumentsarerecognisedinequity.Thegainorlossrelatingtotheineffectiveportionisrecognisedimmediatelyintheincomestatement.
Amountsaccumulatedinequityarerecycledtotheincomestatementintheperiodsinwhichthehedgeditemaffectsprofitorloss.
Whenahedginginstrumentexpiresorissold,orwhenahedgenolongermeetsthecriteriaforhedgeaccounting,anycumulativegainorlossexistinginequityatthattimeremainsinequityandis recognisedwhen the forecast transaction isultimately recognised in the incomestatement.Whenaforecasttransactionisnolongerexpectedtooccur,thecumulativegainorlossthatwasreportedinequityisimmediatelytransferredtotheincomestatement.
Derivatives that do not qualify for hedge accounting
Certainderivativetransactionsdonotqualifyforhedgeaccounting.Changesinthefairvalueofanyderivativeinstrumentsthatdonotqualifyforhedgeaccountingarerecognisedimmediatelyintheincomestatement.
(k) Impairmentoffinancialassets
TheBankanditssubsidiariesassessateachbalancesheetdatewhetherthereisobjectiveevidencethatafinancialassetorgroupoffinancialassetsisimpaired.Afinancialassetoragroupoffinancialassets is impairedand impairment lossesare incurred if,andonly if, there isobjectiveevidenceofimpairmentasaresultofoneormoreeventsthatoccurredaftertheinitialrecognitionoftheasset(a‘lossevent’)andthatlossevent(orevents)hasanimpactontheestimatedfuturecashflowsofthefinancialassetorgroupoffinancialassetsthatcanbereliablyestimated.
Thefollowingfactorsareconsideredinassessingobjectiveevidenceofimpairment:
– whetherthecounterpartyisindefaultofprincipalorinterestpayments;
– acounterpartyfilesforbankruptcyprotection(orthelocalequivalent)wherethiswouldavoidordelayrepaymentofitsobligation;
– theBankanditssubsidiariesfiletohavethecounterpartydeclaredbankruptorfileasimilarorderinrespectofacreditobligation;
– theBankanditssubsidiariesconsenttoarestructuringoftheobligation,resultinginadiminishedfinancialobligation,demonstratedbyamaterialforgivenessofdebtorpostponementofscheduledpayments;
– theBankanditssubsidiariessellacreditobligationatamaterialcredit-relatedeconomicloss;or
Standard Chartered Bank (Hong Kong) Limited 21
Notes to the financial statements (continued)(Expressed in millions of Hong Kong dollars)
2 Significant accounting policies (continued)
(k) Impairmentoffinancialassets(continued)
– thereisobservabledataindicatingthatthereisameasurabledecreaseintheestimatedfuturecashflowsofagroupoffinancialassets,although thedecreasecannotyetbe identifiedwithspecificindividualfinancialassets.
Assets carried at amortised cost
TheBankanditssubsidiariesfirstassesswhetherobjectiveevidenceofimpairmentexistsindividuallyforfinancialassetsthatareindividuallysignificant,andindividuallyorcollectivelyforfinancialassetsthatarenotindividuallysignificant.IftheBankanditssubsidiariesdeterminethatnoobjectiveevidenceofimpairmentexistsforanindividuallyassessedfinancialasset,whethersignificantornot,itincludestheassetinagroupoffinancialassetswithsimilarcreditriskcharacteristicsandcollectivelyassessesthemforimpairment.Assetsthatareindividuallyassessedforimpairmentandforwhichanimpairmentlossisorcontinuestoberecognisedarenotincludedinacollectiveassessmentofimpairment.
Ifthereisobjectiveevidencethatanimpairmentlossonloansandreceivablescarriedatamortisedcosthasbeenincurred,theamountofthelossismeasuredasthedifferencebetweentheasset’scarryingamountandthepresentvalueofestimatedfuturecashflows(excludingfuturecreditlossesthathavenotbeenincurred)discountedatthefinancialasset’soriginaleffectiveinterestrate.Thecarryingamountoftheassetisreducedthroughtheuseofanallowanceaccountandtheamountofthelossisrecognisedin the incomestatement. Ifa loanhasavariable interest rate, thediscount rate formeasuringanyimpairment loss is the current effective interest rate determined under the contract. As a practicalexpedient,theBankanditssubsidiariesmaymeasureimpairmentonthebasisofaninstrument’sfairvalueusingobservablemarketprice.
Thecalculationofthepresentvalueoftheestimatedfuturecashflowsofacollateralisedfinancialassetreflectsthecashflowsthatmayresultfromforeclosurelesscostsforobtainingandsellingthecollateral,whetherornotforeclosureisprobable.Forthepurposesofacollectiveevaluationofimpairment,financialassetsaregroupedonthebasisofsimilarcreditriskcharacteristics (i.e.onthebasisoftheBank’sgradingprocessthatconsidersassettype, industry,geographical location,collateraltype,past-duestatusandotherrelevantfactors).Thosecharacteristicsarerelevanttotheestimationoffuturecashflowsforgroupsofsuchassetsbybeingindicativeofthedebtors’abilitytopayallamountsdueaccordingtothecontractualtermsoftheassetsbeingevaluated.
Futurecashflowsinagroupoffinancialassetsthatarecollectivelyevaluatedforimpairmentarebasedontheprobabilityofdefaultinherentwithintheportfolioofimpairedloansorreceivablesandthehistoricallossexperienceforassetswithcreditriskcharacteristicssimilartothoseinthegroup.Historicallossexperienceisadjustedonthebasisofcurrentobservabledatatoreflecttheeffectsofcurrentconditionsthatdidnotaffecttheperiodonwhichthehistoricallossexperienceisbasedandtoremovetheeffectsofconditionsinthehistoricalperiodthatdonotcurrentlyexist.
Totheextentaloanisirrecoverable,itiswrittenoffagainsttherelatedprovisionforloanimpairment.Suchloansarewrittenoffafterallthenecessaryprocedureshavebeencompletedandtheamountofthelosshasbeendetermined.Subsequentrecoveriesofamountspreviouslywrittenoffarecreditedtotheincomestatement.
If,inasubsequentperiod,theamountoftheimpairmentlossdecreasesandthedecreasecanberelatedobjectivelytoaneventoccurringaftertheimpairmentwasrecognised(suchasanimprovementinthedebtor’screditrating),thepreviouslyrecognisedimpairmentlossisreversedbyadjustingtheallowanceaccount.Theamountofthereversalisrecognisedintheincomestatement.
Standard Chartered Bank (Hong Kong) Limited 22
Notes to the financial statements (continued)(Expressed in millions of Hong Kong dollars)
2 Significant accounting policies (continued)
(k) Impairmentoffinancialassets(continued)
Available-for-sale assets
Asignificantorprolongeddeclineinthefairvalueofanequitysecuritybelowitscostisconsidered,amongstotherfactorsindeterminingwhethertheequitysecurityisimpaired.Whereobjectiveevidenceofimpairmentexistsforavailable-for-salefinancialassets,thecumulativeloss(measuredasthedifferencebetweentheacquisitioncostandthecurrentfairvalue,lessanyimpairmentlossonthatfinancialassetpreviouslyrecognisedintheincomestatement)isremovedfromequityandrecognisedintheincomestatement.If,inasubsequentperiod,thefairvalueofadebtinstrumentclassifiedasavailable-for-saleincreasesandtheincreasecanbeobjectivelyrelatedtoaneventoccurringaftertheimpairmentlosswasrecognisedintheincomestatement,theimpairmentlossisreversedthroughtheincomestatement.Impairmentlossesrecognisedintheincomestatementonequityinstrumentsarenotreversedthroughtheincomestatement.
(l) Offsettingfinancialtransactions
Financialassetsandliabilitiesareoffsetandthenetamountreportedinthebalancesheetwhenthereisalegallyenforceablerighttooffsettherecognisedamountsandthereisanintentiontosettleonanetbasis,ortorealisetheassetandsettletheliabilitysimultaneously.
(m) Fiduciaryactivities
TheBankanditssubsidiariescommonlyactastrusteeandinotherfiduciarycapacitiesthatresultintheholdingorplacingof assetsonbehalf of individuals, trusts, retirementbenefitplansandotherinstitutions.Theassetsandincomearisingthereonareexcludedfromthesefinancialstatements,astheyarenotassetsandincomeoftheBankanditssubsidiaries.
(n) Cashandcashequivalents
Forthepurposesofthecashflowstatement,cashandcashequivalentscomprisebalanceswithlessthan threemonths’maturity fromthedateofacquisition, including:cashandbalanceswithbanks,centralbanksandotherfinancialinstitutions,tradingassets,placementswithbanksandotherfinancialinstitutions,andamountsduefromimmediateholdingcompanyandfellowsubsidiaries.
(o) Revenuerecognition
(i) Interest income and expense
Interest incomeandexpenseonavailable-for-saleassets, financial assetsor liabilitiesheldatamortisedcostandfinancialassetsandliabilitiesheldatfairvaluethroughprofitorlossexcludingderivativesisrecognisedintheincomestatementusingtheeffectiveinterestratemethod.
Theeffectiveinterestratemethodisamethodofcalculatingtheamortisedcostofafinancialassetorafinancialliabilityandofallocatingtheinterestincomeorinterestexpenseovertherelevantperiod.Theeffectiveinterestrateistheratethatdiscountsestimatedfuturecashpaymentsorreceiptsthroughtheexpectedlifeofthefinancialinstrumentor,whenappropriate,ashorterperiod,tothenetcarryingamountofthefinancialassetorfinancialliability.Whencalculatingtheeffectiveinterestrate,theBankanditssubsidiariesestimatecashflowsconsideringallcontractualtermsofthefinancialinstrument(forexample,prepaymentoptions)butdoesnotconsiderfuturecreditlosses.Thecalculationincludesallamountspaidorreceivedbetweenpartiestothecontractthatareanintegralpartoftheeffectiveinterestrate,includingtransactioncostsandallotherpremiumsordiscounts.
Standard Chartered Bank (Hong Kong) Limited 23
Notes to the financial statements (continued)(Expressed in millions of Hong Kong dollars)
2 Significant accounting policies (continued)
(o) Revenuerecognition(continued)
(i) Interest income and expense (continued)
Onceafinancialassetoragroupofsimilarfinancialassetshasbeenwrittendownasaresultofanimpairmentloss,interestincomeisrecognisedattheoriginaleffectiveinterestrateofthefinancialassetappliedtotheimpairedcarryingamount.
(ii) Fees and commissions
Feesandcommissionsaregenerallyrecognisedonanaccrualbasiswhentheservicehasbeenprovidedorsignificantactperformed.LoansyndicationfeesarerecognisedasrevenuewhenthesyndicationhasbeencompletedandtheBankanditssubsidiarieshaveretainednopartoftheloanpackageforitselforhaveretainedapartatthesameeffectiveinterestrateasfortheotherparticipants.Portfolioandothermanagementadvisoryandservicefeesarerecognisedbasedontheapplicableservicecontracts,usuallyonatime-apportionedbasis.
(iii) Other income from financial assets and liabilities
Gainsandlossesarisingfromchangesinthefairvalueoffinancialassetsandliabilitiesheldatfairvaluethroughprofitorloss,aswellasanyinterestreceivableorpayable,areincludedintheincomestatementintheperiodinwhichtheyarise.
Gainsandlossesarisingfromchangesinthefairvalueofavailable-for-salefinancialassetsotherthanforeignexchangegainsandlossesfrommonetaryitems,arerecogniseddirectlyinequity,until thefinancialasset isderecognisedor impairedatwhich timethecumulativegainor losspreviouslyrecognisedinequityisrecognisedintheincomestatement.
DividendsonequityinstrumentsarerecognisedintheincomestatementwhentheBankanditssubsidiaries’righttoreceivepaymentisestablished.
(p) Incometax
Incometaxpayableonprofits,basedontheapplicabletaxlawineachjurisdiction,isrecognisedasanexpenseintheperiodinwhichprofitsarise.Thetaxeffectsof incometaxlossesavailableforcarryforwardarerecognisedasanassetwhenitisprobablethatfuturetaxableprofitswillbeavailableagainstwhichtheselossescanbeutilised.
Deferredtaxisprovidedinfull,usingtheliabilitymethod,ontemporarydifferencesarisingbetweenthetaxbasesofassetsandliabilitiesandtheircarryingamountsintheconsolidatedfinancialstatements.Deferredincometaxisdeterminedusingtaxratesandlawsthathavebeenenactedorsubstantiallyenactedbythebalancesheetdateandthatareexpectedtoapplywhentherelateddeferredincometaxassetisrealisedorthedeferredincometaxliabilityissettled.
Deferredtaxassetsarerecognisedwhereitisprobablethatfuturetaxableprofitswillbeavailableagainstwhichthetemporarydifferencescanbeutilised.
Currentanddeferredtaxrelatingtoitemswhicharechargedorcrediteddirectlytoequity,arecreditedorchargeddirectlytoequityandaresubsequentlyrecognisedintheincomestatementtogetherwiththecurrentordeferredgainorloss.
Standard Chartered Bank (Hong Kong) Limited 24
Notes to the financial statements (continued)(Expressed in millions of Hong Kong dollars)
2 Significant accounting policies (continued)
(p) Incometax(continued)
Currenttaxbalancesanddeferredtaxbalances,andmovementstherein,arepresentedseparatelyfromeachotherandarenotoffset.Currenttaxassetsareoffsetagainstcurrenttaxliabilities,anddeferredtaxassetsagainstdeferredtaxliabilitiesiftheBankanditssubsidiarieshavealegallyenforceablerighttosetoffcurrenttaxassetsagainstcurrenttaxliabilitiesandthefollowingadditionalconditionsaremet:
– inthecaseofcurrenttaxassetsandliabilities,theBankoritssubsidiariesintendeithertosettleonanetbasis,ortorealisetheassetandsettletheliabilitysimultaneously;or
– inthecaseofdeferredtaxassetsandliabilities,iftheyrelatetoincometaxesleviedbythesametaxationauthorityoneitherthesametaxableentityordifferenttaxableentitiesforwhichalegalrightofsetoffexists.
(q) Provisions
ProvisionsforrestructuringcostsandlegalclaimsarerecognisedwhentheBankanditssubsidiarieshaveapresentlegalorconstructiveobligationasaresultofpastevents;itismorelikelythannotthatanoutflowofresourceswillberequiredtosettletheobligationandtheamountcanbereliablyestimated.
(r) Employeebenefits
(i) Short term employee benefits
Salaries,annualbonuses,andthecostofnon-monetarybenefitsareaccruedintheyearinwhichtheassociatedservicesarerenderedbyemployees.
(ii) Pension obligations
TheBankanditssubsidiariesoperateanumberofdefinedcontributionanddefinedbenefitplans.
Fordefinedcontributionplans,theBankanditssubsidiariespaycontributionstopubliclyorprivatelyadministeredpensioninsuranceplansonamandatory,contractualorvoluntarybasis,andsuchamountsarechargedtooperatingexpenses.TheBankanditssubsidiarieshavenofurtherpaymentobligationsoncethecontributionshavebeenpaid.
Forfundeddefinedbenefitplans,thenetliabilityrecognisedinthebalancesheetrepresentsthepresentvalueofthedefinedbenefitobligationsatthebalancesheetdatelessthefairvalueofplanassets.Thedefinedbenefitobligationsarecalculatedannuallybyindependentactuariesusingtheprojected unit method. The present value of the defined benefit obligations is determined bydiscountingtheestimatedfuturecashoutflowsusinganinterestrateequaltotheyieldonhigh-qualitycorporatebondsthataredenominatedinthecurrencyinwhichthebenefitswillbepaid,andthathaveatermtomaturityapproximatingtothetermoftherelatedpensionliability.
Actuarialgainsandlossesthatarisearerecognisedinshareholders’equityandpresentedintheconsolidatedstatementofothercomprehensiveincomeintheperiodtheyarise.Pastservicecostsarerecognisedimmediatelytotheextentthatbenefitsarevestedandareotherwiserecognisedovertheaverageperioduntilbenefitsarevestedonastraight-linebasis.Currentservicecostsandanypastservicecosts,togetherwiththeunwindingofthediscountonplanliabilities,offsetbytheexpectedreturnonplanassetswhereapplicable,arechargedtooperatingexpenses.
Standard Chartered Bank (Hong Kong) Limited 25
Notes to the financial statements (continued)(Expressed in millions of Hong Kong dollars)
2 Significant accounting policies (continued)
(r) Employeebenefits(continued)
(iii) Share-based compensation
TheGroupoperatesequity-settledshare-basedcompensationplansinwhichtheBankanditssubsidiaries’employeesparticipate.Thefairvalueoftheemployeeservicesreceivedinexchangeforthegrantoftheoptionsisrecognisedasanexpense.Fordeferredshareawardsgrantedaspartofanannualperformanceaward,theexpenseisrecognisedovertheperiodfromthestartoftheperformanceperiodtothevestingdate.Forallotherawardstheexpenseisrecognisedovertheperiodfromthestartofthedateofgranttothevestingdate.
Forequity-settledawards,thetotalamounttobeexpensedoverthevestingperiodisdeterminedbyreferencetothefairvalueoftheoptionsgranted,excludingtheimpactofanynon-marketvestingconditions(forexample,profitabilityandgrowthtargets).Thefairvalueofequityinstrumentsgrantedisbasedonmarketprices,ifavailable,atthedateofgrant.Intheabsenceofmarketprices,thefairvalueof the instruments isestimatedusinganappropriatevaluation technique,suchasabinomialoptionpricingmodel.
Non-marketvestingconditionsareincludedinassumptionsaboutthenumberofoptionsthatareexpectedtovest.Ateachbalancesheetdate,theBankanditssubsidiariesreviseitsestimatesofthenumberofoptionsthatareexpectedtovest. Itrecognisesthe impactoftherevisionoforiginalestimates,ifany,intheincomestatement,andacorrespondingadjustmenttoequityovertheremainingvestingperiod.Forfeiturespriortovestingattributabletofactorsotherthanthefailuretosatisfyanon-marketvestingconditionaretreatedasacancellationandtheremainingunamortisedchargeisdebitedtotheincomestatementatthetimeofcancellation.
(s) Translationofforeigncurrencies
ForeigncurrencytransactionsaretranslatedintoHongKongdollarsusingtheexchangeratesprevailingatthedatesofthetransactions.Foreignexchangegainsandlossesresultingfromthesettlementofsuchtransactions,andfromthetranslationatyear-endexchangeratesofmonetaryassetsandliabilitiesdenominatedinforeigncurrencies,arerecognisedintheincomestatement.
Non-monetaryassetsandliabilitiesaretranslatedathistoricalexchangeratesifheldathistoricalcostoryear-endexchangeratesifheldatfairvalue,andtheresultingforeignexchangegainsandlossesarerecognisedineithertheincomestatementorshareholders’equitydependingonthetreatmentofthegainorlossontheassetorliability.
TheresultsandfinancialpositionofallforeignoperationsthathaveafunctionalcurrencydifferentfromtheBank’spresentationcurrencyareaccountedforasfollows:
– assetsandliabilitiesforeachbalancesheetpresentedaretranslatedattheclosingrateatthebalancesheetdate.
– incomeandexpensesforeachincomestatementaretranslatedataverageexchangeratesoratratesonthedateofthetransactionwhereexchangeratesfluctuatesignificantly;and
– allresultingexchangedifferencesarerecognisedasaseparatecomponentofequity.
Onconsolidation,exchangedifferencesarising fromthe translationof thenet investment in foreignentities,andofborrowingsandothercurrencyinstrumentsdesignatedashedgesofsuchinvestments,aretakentoothercomprehensiveincome.Whenaforeignoperationissold,theexchangedifferencesarerecognisedintheincomestatementaspartofthegainorlossondisposal.
Standard Chartered Bank (Hong Kong) Limited 26
Notes to the financial statements (continued)(Expressed in millions of Hong Kong dollars)
2 Significant accounting policies (continued)
(t) Relatedparties
Forthepurposesofthesefinancialstatements,partiesareconsideredtoberelatedtotheBankanditssubsidiariesiftheBankanditssubsidiarieshavetheability,directlyorindirectly,tocontrolthepartyorexercisesignificantinfluenceoverthepartyinmakingfinancialandoperatingdecisions,orviceversa,orwheretheBankanditssubsidiariesandthepartyaresubjecttocommoncontrolorcommonsignificantinfluence.Relatedpartiesmaybeindividuals(beingmembersofkeymanagementpersonnel,significantshareholdersand/ortheirclosefamilymembers)orotherentitiesandinclude(i)associatesandjointventuresoftheGroup,(ii)entitieswhichareunderthesignificantinfluenceofrelatedpartiesoftheBankwherethosepartiesareindividuals,and(iii)post-employmentbenefitplanswhichareforthebenefitofemployeesoftheBankorofanyentitythatisarelatedpartyoftheBank.
(u) Segmentreporting
Operatingsegments,andtheamountsofeachsegmentitemreportedinthefinancialstatements,areidentifiedfromthefinancialinformationprovidedregularlytotheBankanditssubsidiaries’mostseniorexecutivemanagementforthepurposesofallocatingresourcesto,andassessingtheperformanceof,theBankanditssubsidiaries’variouslinesofbusinessandgeographicallocations.
(v) Saleandrepurchaseagreements
Wheresecuritiesaresoldsubjecttoacommitmenttorepurchasethematapredeterminedprice(‘repos’),theyremainonthebalancesheetandaliabilityisrecordedinrespectoftheconsiderationreceived.Securitiespurchasedundercommitmentstore-sell(‘reverserepos’)arenotrecognisedonthebalancesheetandtheconsiderationpaidisrecordedin‘Advancestocustomers’or‘Placementswithbanksandotherfinancialinstitutions’asappropriate.Thedifferencebetweenthesaleandrepurchasepriceistreatedasinterestandrecognisedoverthelifeoftheagreement.
Securitiesborrowedarenotrecognisedinthefinancialstatements,unlessthesearesoldtothirdparties,inwhichcasethepurchaseandsalearerecordedwiththegainorlossincludedintradingincome.
3 Changes in accounting policies
Amendments to HKFRSs/IFRSs and new Interpretations
TheHKICPA/IASBhas issuedseveralamendments toHKFRSs/IFRSs thatarefirsteffective for thecurrentaccountingperiodcommencing1January2012.
TheBankanditssubsidiariesadoptedthefollowingamendmentstoexistingaccountingstandardsfrom1January2012.
AmendmentstoHKFRS7/IFRS 7 Financial instruments: Disclosurerequiresadditionaldisclosureswhenanassetistransferredbutisnotderecognised.Theseamendmentsalsorequiredisclosureofassetsthatarederecognisedbutwheretheentitycontinuestohaveacontinuingexposuretotheassetaftersale.Note38(c)providesthedisclosurewithrespecttotransferredassets.
None of the other amendments had a material impact on the Bank and its subsidiaries’ financialstatements.
Standard Chartered Bank (Hong Kong) Limited 27
Notes to the financial statements (continued)(Expressed in millions of Hong Kong dollars)
4 Operating profit
Theoperatingprofitfortheyearisstatedaftertakingintoaccountthefollowing:
2012 2011
HK$’M HK$’M
(a) InterestincomeInterestincomeonlistedsecurities 497 457Interestincomeonunlistedsecurities 2,240 2,501Otherinterestincome 15,612 12,242
Amountshownintheincomestatement 18,349 15,200
Less:interestincomearisingfromtradingassets (265) (194)Less:interestincomeonfinancialassetsdesignatedatfairvalue (161) (166)
Totalinterestincomeonfinancialassetsthatarenotmeasuredatfairvaluethroughprofitorloss 17,923 14,840
OtherinterestincomeincludesinterestincomeonunwindingofdiscountsonloanimpairmentchargesofHK$19million(note16)(2011:HK$23million),andfairvaluegainsofHK$16milliontransferredfromreservesoncashflowhedges(2011:fairvaluelossesofHK$31million).
2012 2011
HK$’M HK$’M
(b) InterestexpenseInterestexpenseoncustomerdeposits,depositsofbanks,
certificatesofdepositissued,debtsecuritiesissued,tradingliabilitiesandfinancialliabilitiesdesignatedatfairvalue 5,697 3,067
Interestexpenseonsubordinatedliabilities 355 410
Amountshownintheincomestatement 6,052 3,477
Less:interestexpensearisingfromtradingliabilities (130) (14)Less:interestexpensearisingfromfinancialliabilitiesdesignated
atfairvalue (38) (7)
Totalinterestexpenseonfinancialliabilitiesthatarenotmeasuredatfairvaluethroughprofitorloss 5,884 3,456
Standard Chartered Bank (Hong Kong) Limited 28
Notes to the financial statements (continued)(Expressed in millions of Hong Kong dollars)
4 Operating profit (continued)
2012 2011
HK$’M HK$’M
(c) NetfeeandcommissionincomeNetfeeandcommissionincome(otherthanamounts
includedindeterminingtheeffectiveinterestrate)arisingfromfinancialassetsorfinancialliabilitiesthatarenotheldfortradingordesignatedatfairvalue–feeandcommissionincome 2,975 2,866–feeandcommissionexpense 173 285
NetfeeandcommissionincomefromtrustandotherfiduciaryactivitieswheretheBankanditssubsidiariesholdorinvestassetsonbehalfofitscustomers–feeandcommissionincome 441 471–feeandcommissionexpense 117 128
2012 2011
HK$’M HK$’M
(d) NettradingincomeGainslesslossesfromdealinginforeigncurrencies 2,209 2,293Gainslesslossesfromtradingsecurities 49 147Gainslesslossesfromotherdealingactivities 821 191
Amountshownintheincomestatement 3,079 2,631
Add:interestincomearisingfromtradingassets 265 194Less:interestexpensearisingfromtradingliabilities (130) (14)
Netincomefromtradinginstruments 3,214 2,811
2012 2011
HK$’M HK$’M
(e) Netgains/(losses)fromfinancialinstrumentsdesignatedatfairvalueNetgains/(losses)asshownintheincomestatement 188 (30)Add:interestincomearisingfromfinancialassetsdesignatedatfairvalue 161 166Less:interestexpensearisingfromfinancialliabilitiesdesignated
atfairvalue (38) (7)
311 129
Standard Chartered Bank (Hong Kong) Limited 29
Notes to the financial statements (continued)(Expressed in millions of Hong Kong dollars)
4 Operating profit (continued)
2012 2011
HK$’M HK$’M
(f) OtheroperatingincomeRentalincomefromoperatingleaseassets 1,070 229Dividendincomefromlistedavailable-for-salesecurities 1 1Dividendincomefromunlistedavailable-for-salesecurities 24 18Gainsondisposaloffixedassets 3 20Net(losses)/gainsondisposaloffinancialinstruments
measuredatamortisedcost (17) 109Net(losses)/gainsonrevaluationofinvestmentproperties(note21) (30) 5Others 111 68
1,162 450
Restated
2012 2011
HK$’M HK$’M
(g) OperatingexpensesStaffcosts–contributionstodefinedcontributionplans 188 166–expenseinrespectofthedefinedbenefitsplans(note30(d)) 17 24–equity-settledshare-basedpaymentexpenses 457 501–salariesandotherstaffcosts 6,031 5,581Depreciation(note21) 753 315Premisesandequipmentexpense,excludingdepreciation–rentalofpremises 713 680–others 396 348Amortisation–otherintangibleassets(note22) 85 93Auditor’sremuneration 17 16Others 4,296 3,644
12,953 11,368
5 Net gains from disposal of available-for-sale securities
2012 2011
HK$’M HK$’M
Netgainstransferredfromreserves 149 307
Standard Chartered Bank (Hong Kong) Limited 30
Notes to the financial statements (continued)(Expressed in millions of Hong Kong dollars)
6 Impairment charges
2012 2011
HK$’M HK$’M
(a) ImpairmentchargesonadvancestobanksandcustomersIndividualimpairmentprovisions(note16)–additions 1,196 803–releases (76) (81)–recoveries (344) (211)
776 511
Portfolioimpairmentcharges(note16) 13 81
789 592
(b) OtherimpairmentchargesChargesforaninterestinanassociate 465 –Chargesforriskparticipationtransactions 583 –Releasesforcontingentliabilities – (7)(Releases)/chargesrelatingtodebtsecuritiesclassifiedasloansand
receivables (5) 148
1,043 141
7 Taxation in the consolidated income statement
(a) Taxationintheconsolidatedincomestatementrepresents:
2012 2011
HK$’M HK$’M
Current taxHongKongprofitstax 1,465 1,321Overseastaxation 46 102Over-provisioninrespectofprioryears (46) (39)
1,465 1,384
Deferred tax (note 27)Origination/reversaloftemporarydifferences 65 190(Over)/under-provisioninrespectofprioryears (7) 45
58 235
1,523 1,619
TheprovisionforHongKongprofitstaxfor2012iscalculatedat16.5%(2011:16.5%)oftheestimatedassessableprofitsfortheyear.Taxationforoverseassubsidiariesischargedattheappropriatecurrentratesoftaxationrulingintherelevantcountries.
Standard Chartered Bank (Hong Kong) Limited 31
Notes to the financial statements (continued)(Expressed in millions of Hong Kong dollars)
7 Taxation in the consolidated income statement (continued)
(b) Reconciliationbetweentaxexpensesandaccountingprofitatapplicabletaxrates:
2012 2011
HK$’M HK$’M
Profitbeforetaxation 9,761 9,963
Notionaltaxonprofitbeforetaxation,calculatedatHongKongprofitstaxrateof16.5% 1,610 1,644
Taxeffectofnon-deductibleexpenses 165 86Taxeffectofnon-taxablerevenue (209) (154)(Over)/under-provisioninprioryears (53) 6Taxeffectofdifferenttaxratesofsubsidiariesoperating
inotherjurisdictions 8 32Others 2 5
Actualtaxexpense 1,523 1,619
8 Directors’ remuneration
Directors’remunerationdisclosedpursuanttosection161oftheHongKongCompaniesOrdinanceisasfollows:
Bank
Restated
2012 2011
HK$’M HK$’M
Fees 1 1Salariesandotheremoluments 115 87
116 88
9 Segmental reporting
TheBankanditssubsidiariesmanageitsbusinessesusingtwomainbusinesssegments:
• ConsumerBankingwhichprovidesfinancialservicestocustomersincludinglendinganddeposittakingactivities,creditcardfacilitiesandinvestmentservices;and
• WholesaleBankingwhichprovidesfinancialservicestocorporationsandinstitutions,includinglending and deposit taking activities, structured finance products, syndicated loans, cashmanagement, investmentadvice,distributingfixed incomeandequity investments,brokerageservices,interbankandcapitalmarketactivitiesandproprietarytrading.
Inaddition,certainitemswhichdonotfallwithinthetwomainbusinesssegments,includingunallocatedcentralcostsarereportedin“OtherBanking”.FinancialinformationispresentedinternallytotheBank’sseniormanagementusingthesethreebusinesssegments.
Standard Chartered Bank (Hong Kong) Limited 32
Notes to the financial statements (continued)(Expressed in millions of Hong Kong dollars)
9 Segmental reporting (continued)
TheBankanditssubsidiariescompriseonlyonegeographicalsegmentasover90%ofthebusinessisbasedinHongKong.Geographicalsegmentisclassifiedbythelocationoftheprincipaloperationsofthesubsidiaryor,inthecaseoftheBank,thelocationofthebranchresponsibleforreportingtheresultsoradvancingthefunds.
(a) Segmentresults,assetsandliabilities
Revenueandexpensesareallocatedtothereportablesegmentswithreferencetoincomegeneratedbythosesegmentsandtheexpensesincurredbythosesegmentsorwhichotherwisearisefromthedepreciationoramortisationofassetsattributabletothosesegments.
Consumer
banking
Wholesale
banking
Other
banking
Inter-segment
eliminations
Consolidated
Total
2012 2011 2012 2011 2012 2011 2012 2011 2012 2011
HK$’M HK$’M HK$’M HK$’M HK$’M HK$’M HK$’M HK$’M HK$’M HK$’M
Operating income–Netinterestincome 6,685 5,961 6,673 6,038 (619) (76) 12,739 11,923–Otheroperatingincome 4,175 4,227 8,405 7,071 (6) (17) 12,574 11,281
10,860 10,188 15,078 13,109 (625) (93) 25,313 23,204Operatingexpenses (5,951) (5,442) (6,234) (5,502) 29 53 (12,156) (10,891)
Operatingprofitbeforeimpairment 4,909 4,746 8,844 7,607 (596) (40) 13,157 12,313
Impairmentcharges (739) (552) (168) (250) – (1) (907) (803)
Profitbeforetaxation 4,170 4,194 8,676 7,357 (596) (41) 12,250 11,510
Totalassets 253,230 217,638 683,632 621,646 92,329 85,107 (46,660) (42,112) 982,531 882,279
Segmentliabilities 367,457 323,749 544,964 497,985 69,237 62,473 (46,660) (42,112) 934,998 842,095
(b) Reconciliationofreportablesegmentrevenues,profitbeforetaxation,assetsandliabilities
Revenue
Consolidated
2012 2011
HK$’M HK$’M
Reportablesegmentrevenue 25,313 23,204IncomerelatingtoFinancialMarketproducts (1,521) (1,025)Costoffreefunds 208 203Others (347) (888)
Totaloperatingincome 23,653 21,494
Standard Chartered Bank (Hong Kong) Limited 33
Notes to the financial statements (continued)(Expressed in millions of Hong Kong dollars)
9 Segmental reporting (continued)
(b) Reconciliation of reportable segment revenues, profit before taxation, assets and liabilities(continued)
Consolidated
2012 2011
HK$’M HK$’M
Profit before taxationReportablesegmentprofitbeforetaxation 12,250 11,510IncomerelatingtoFinancialMarketproducts (1,521) (1,025)Costoffreefunds 208 203Reallocationsofimpairmentcharges (947) (55)Others (229) (670)
Profitbeforetaxation 9,761 9,963
Consolidated
2012 2011
HK$’M HK$’M
AssetsReportablesegmentassets 982,531 882,279Assetsofgroupcompaniesnotincludedinconsolidatedtotalassets (2,221) (3,264)Others (40,636) (25,161)
Totalassets 939,674 853,854
Consolidated
2012 2011
HK$’M HK$’M
LiabilitiesReportablesegmentliabilities 934,998 842,095Liabilitiesofgroupcompaniesnotincludedinconsolidatedtotalliabilities (1,928) (2,701)Others (40,167) (26,041)
Totalliabilities 892,903 813,353
Incomeandprofitbeforetaxationrecognisedintheconsolidatedfinancialstatementsrepresentanarm’slengthcompensation for theservicesprovidedand risksborne.For internalmanagement reportingpurposes,incomeandprofitbeforetaxationareallocatedonaglobalperspective.Inaddition,forinternalmanagementreportingpurposes,achargeisallocatedtoreportablesegmentsfortheuseofinterest-freefunds.
Reportablesegmentassetsandliabilities includeassetsandliabilitieswhicharenotbookedontheBankanditssubsidiaries’balancesheetsbutwhichcontributetothereportablesegment’sincomeandprofitbeforetaxation.
Standard Chartered Bank (Hong Kong) Limited 34
Notes to the financial statements (continued)(Expressed in millions of Hong Kong dollars)
10 Cash and balances with banks, central banks and other financial institutions
Consolidated Bank
2012 2011 2012 2011
HK$’M HK$’M HK$’M HK$’M
Cashinhand 1,833 1,737 1,821 1,714Balanceswithcentralbanks 12,600 9,036 12,600 9,036Balanceswithbanksandother
financialinstitutions 6,059 11,004 5,910 10,926
20,492 21,777 20,331 21,676
11 Placements with banks and other financial institutions
(a) Placementswithbanksandotherfinancialinstitutions
Consolidated Bank
2012 2011 2012 2011
HK$’M HK$’M HK$’M HK$’M
Grossplacementswithbanksandotherfinancialinstitutions–maturingwithinonemonth 47,206 53,814 47,197 53,778–maturingbetweenonemonthtooneyear 95,154 81,198 95,153 81,198–maturingbetweenoneyeartofiveyears 1,222 1,504 1,222 1,504
143,582 136,516 143,572 136,480Less:impairmentchargesindividuallyassessed
(note16(b)) (1) (3) (1) (3)
143,581 136,513 143,571 136,477
Ofwhich:
Balancesundercollateralisedreverserepurchaseagreements 2,362 10,771 2,362 10,771
(b) Impairedplacementswithbanksandotherfinancialinstitutions
Consolidated and Bank
2012 2011
HK$’M HK$’M
Grossimpairedadvancestobanks 44 64Impairmentcharges–individuallyassessed (1) (3)
43 61
Grossimpairedadvancestobanksasa%ofgrossadvancestobanks 0.03% 0.05%
Thereisnocollateralheldagainstimpairedadvancestobanks.
Standard Chartered Bank (Hong Kong) Limited 35
Notes to the financial statements (continued)(Expressed in millions of Hong Kong dollars)
12 Hong Kong SAR Government certificates of indebtedness and currency notes in circulation
TheHongKongSpecialAdministrativeRegioncurrencynotesincirculationaresecuredbythedepositoffundsinrespectofwhichtheGovernmentofHongKongSpecialAdministrativeRegioncertificatesofindebtednessareheld.
13 Trading assets
Consolidated Bank
2012 2011 2012 2011
HK$’M HK$’M HK$’M HK$’M
Tradingsecurities 27,651 34,381 27,651 34,381Placementswithbanksandotherfinancial
institutions – 21 – 21Advancestocustomers 186 185 186 185Positivefairvaluesoftradingderivatives 577 790 573 790
28,414 35,377 28,410 35,377
Consolidated and Bank
2012 2011
HK$’M HK$’M
Tradingsecurities:Treasurybills(includingExchangeFundBills) 8,702 13,738Certificatesofdepositheld 1,079 2,120Debtsecurities 17,369 18,513Equitysecurities 501 10
27,651 34,381
Issuedby:Centralgovernmentsandcentralbanks 24,270 30,360Publicsectorentities 16 71Banksandotherfinancialinstitutions 1,446 2,956Corporateentities 1,919 994
27,651 34,381
Byplaceoflisting:ListedinHongKong 14,563 13,827ListedoutsideHongKong 3,591 2,999
18,154 16,826Unlisted 9,497 17,555
27,651 34,381
Standard Chartered Bank (Hong Kong) Limited 36
Notes to the financial statements (continued)(Expressed in millions of Hong Kong dollars)
14 Financial assets designated at fair value
Consolidated and Bank
2012 2011
HK$’M HK$’M
Debtsecurities 3,216 4,275
Issuedby:Corporateentities 3,216 4,275
Byplaceoflisting:ListedoutsideHongKong 2,268 3,216Unlisted 948 1,059
3,216 4,275
Theabovefinancialassetsdesignatedatfairvaluerepresentcertaindebtsecuritieswithembeddedderivativesthatarenotseparatelyrecognised.
15 Advances to customers
(a) Advancestocustomers
Consolidated
2012 2011
HK$’M HK$’M
Grossadvancestocustomers 406,222 379,110Tradebills 2,857 11,787
409,079 390,897Less:Impairmentcharges
–individuallyassessed(note16(a)) (494) (580)–collectivelyassessed(note16(a)) (567) (554)
408,018 389,763
Ofwhich:
Balancesundercollateralisedreverserepurchaseagreementsandsecuritiesborrowingtransactions 1,072 2,327
Standard Chartered Bank (Hong Kong) Limited 37
Notes to the financial statements (continued)(Expressed in millions of Hong Kong dollars)
15 Advances to customers (continued)
(a) Advancestocustomers(continued)
Bank
2012 2011
HK$’M HK$’M
Grossadvancestocustomers 393,472 366,712Tradebills 2,857 11,787
396,329 378,499Less:Impairmentcharges
–individuallyassessed(note16(a)) (489) (578)–collectivelyassessed(note16(a)) (454) (444)
395,386 377,477
Ofwhich:
Balancesundercollateralisedreverserepurchaseagreementsandsecuritiesborrowingtransactions 1,072 2,327
(b) Impairedadvancestocustomers
Consolidated
2012 2011
HK$’M HK$’M
Grossimpairedadvancestocustomers 1,352 971Impairmentcharges–individuallyassessed (494) (580)
858 391
Grossimpairedadvancestocustomersasa%ofgrossadvancestocustomers 0.33% 0.25%
Fairvalueofcollateralheldagainstthecoveredportionofimpairedadvancestocustomers 749 577
Coveredportionofimpairedadvancestocustomers 307 249Uncoveredportionofimpairedadvancestocustomers 1,045 722
Standard Chartered Bank (Hong Kong) Limited 38
Notes to the financial statements (continued)(Expressed in millions of Hong Kong dollars)
15 Advances to customers (continued)
(b) Impairedadvancestocustomers(continued)
Bank
2012 2011
HK$’M HK$’M
Grossimpairedadvancestocustomers 1,325 962Impairmentcharges–individuallyassessed (489) (578)
836 384
Grossimpairedadvancestocustomersasa%ofgrossadvancestocustomers 0.33% 0.25%
Fairvalueofcollateralheldagainstthecoveredportionofimpairedadvancestocustomers 729 577
Coveredportionofimpairedadvancestocustomers 298 249Uncoveredportionofimpairedadvancestocustomers 1,027 713
Thecoveredportionofimpairedadvancestocustomersrepresentstheamountofcollateralheldagainstoutstandingbalances.Itdoesnotincludeanycollateralheldoverandaboveoutstandingexposures.
Standard Chartered Bank (Hong Kong) Limited 39
Notes to the financial statements (continued)(Expressed in millions of Hong Kong dollars)
15 Advances to customers (continued)
(c) Netinvestmentinfinanceleases
Advancestocustomersincludethenetinvestmentinequipmentleasedtocustomersunderfinanceleases.Thetotalminimumleasepaymentsreceivableunderfinanceleasesandtheirpresentvaluesattheyearend,areasfollows:
Consolidated
2012 2011
Present
value of
the minimum
lease
payments
receivable
Interest
income
relating
to future
periods
Total
minimum
lease
payments
Present
value of
the minimum
lease
payments
receivable
Interest
income
relating
to future
periods
Total
minimum
lease
payments
HK$’M HK$’M HK$’M HK$’M HK$’M HK$’M
Within1year 7 – 7 58 2 60After1yearbutwithin5years – – – 12 1 13After5years – – – 1 – 1
7 – 7 71 3 74
Impairmentcharges:–individuallyassessed – –
Netinvestmentinfinanceleases 7 71
Bank
2012 2011
Present
value of
the minimum
lease
payments
receivable
Interest
income
relating
to future
periods
Total
minimum
lease
payments
Present
value of
the minimum
lease
payments
receivable
Interest
income
relating
to future
periods
Total
minimum
lease
payments
HK$’M HK$’M HK$’M HK$’M HK$’M HK$’M
Within1year – – – 1 – 1After1yearbutwithin5years – – – – – –After5years – – – – – –
– – – 1 – 1
Impairmentcharges:–individuallyassessed – –
Netinvestmentinfinanceleases – 1
Standard Chartered Bank (Hong Kong) Limited 40
Notes to the financial statements (continued)(Expressed in millions of Hong Kong dollars)
16 Movement in impairment charges on advances to banks and customers
(a) Advancestocustomers
Consolidated
2012
Individually
assessed
Collectively
assessed Total
HK$’M HK$’M HK$’M
At1January2012 580 554 1,134Amountswrittenoff (1,189) – (1,189)Recoveriesofadvanceswrittenoffinpreviousyears 344 – 344Netchargetotheincomestatement(note6(a)) 776 13 789Unwindofdiscountonloanimpairmentcharges(note4(a)) (17) – (17)
At31December2012(note15(a)) 494 567 1,061
2011
Individually
assessed
Collectively
assessed Total
HK$’M HK$’M HK$’M
At1January2011 775 473 1,248Amountswrittenoff (893) – (893)Recoveriesofadvanceswrittenoffinpreviousyears 211 – 211Netchargetotheincomestatement(note6(a)) 508 81 589Unwindofdiscountonloanimpairmentcharges(note4(a)) (21) – (21)
At31December2011(note15(a)) 580 554 1,134
Standard Chartered Bank (Hong Kong) Limited 41
Notes to the financial statements (continued)(Expressed in millions of Hong Kong dollars)
16 Movement in impairment charges on advances to banks and customers (continued)
(a) Advancestocustomers(continued)
Bank
2012
Individually
assessed
Collectively
assessed Total
HK$’M HK$’M HK$’M
At1January2012 578 444 1,022Amountswrittenoff (889) – (889)Recoveriesofadvanceswrittenoffinpreviousyears 294 – 294Netchargetotheincomestatement 523 10 533Unwindofdiscountonloanimpairmentcharges (17) – (17)
At31December2012(note15(a)) 489 454 943
2011
Individually
assessed
Collectively
assessed Total
HK$’M HK$’M HK$’M
At1January2011 774 374 1,148Amountswrittenoff (688) – (688)Recoveriesofadvanceswrittenoffinpreviousyears 180 – 180Netchargetotheincomestatement 333 70 403Unwindofdiscountonloanimpairmentcharges (21) – (21)
At31December2011(note15(a)) 578 444 1,022
(b) Placementswithbanksandotherfinancialinstitutions
ConsolidatedandBank
Individually assessed
2012 2011
HK$’M HK$’M
At1January 3 2Chargetotheincomestatement(note6(a)) – 3Unwindofdiscountonloanimpairmentcharges(note4(a)) (2) (2)
At31December(note11(a)) 1 3
Standard Chartered Bank (Hong Kong) Limited 42
Notes to the financial statements (continued)(Expressed in millions of Hong Kong dollars)
17 Investment securities
Consolidated Bank
2012 2011 2012 2011
HK$’M HK$’M HK$’M HK$’M
Available-for-salesecuritiesTreasurybills(includingExchangeFundBills) 33,507 34,516 33,507 34,516Certificatesofdepositheld 31,756 23,787 31,756 23,787Debtsecurities 99,706 66,320 99,706 66,320Equityshares 526 423 526 423Less:impairmentcharges (6) (6) (6) (6)
165,489 125,040 165,489 125,040
Loansandreceivables–Debtsecurities 8,916 10,084 8,849 8,253Less:impairmentcharges (26) (34) (26) (30)
8,890 10,050 8,823 8,223
174,379 135,090 174,312 133,263
Issuedby:Available-for-salesecurities
Centralgovernmentsandcentralbanks 56,040 42,689 56,040 42,689Publicsectorentities 3,162 3,143 3,162 3,143Banksandotherfinancialinstitutions 88,744 71,042 88,744 71,042Corporateentities 17,543 8,166 17,543 8,166
165,489 125,040 165,489 125,040
Loansandreceivables–DebtsecuritiesBanksandotherfinancialinstitutions – 1,715 – 1,715Corporateentities 8,890 8,335 8,823 6,508
8,890 10,050 8,823 8,223
174,379 135,090 174,312 133,263
Standard Chartered Bank (Hong Kong) Limited 43
Notes to the financial statements (continued)(Expressed in millions of Hong Kong dollars)
17 Investment securities (continued)
Consolidated Bank
2012 2011 2012 2011
HK$’M HK$’M HK$’M HK$’M
Byplaceoflisting:Available-for-salesecurities
ListedinHongKong 4,581 2,540 4,581 2,540ListedoutsideHongKong 66,327 34,104 66,327 34,104
70,908 36,644 70,908 36,644Unlisted 94,581 88,396 94,581 88,396
165,489 125,040 165,489 125,040
Loansandreceivables–DebtsecuritiesListedoutsideHongKong 1,519 – 1,519 –Unlisted 7,371 10,050 7,304 8,223
8,890 10,050 8,823 8,223
174,379 135,090 174,312 133,263
18 Amounts due from/to immediate holding company, fellow subsidiaries and subsidiaries of the Bank
Duringtheyear,theBankanditssubsidiariesenteredintotransactionswithrelatedpartiesintheordinarycourseofitsbankingbusinessincludinglending,acceptanceandplacementofinter-bankdeposits,correspondentbankingtransactions,bankingoperation/outsourcingactivitiesandoff-balancesheettransactions.
TheBankhasenteredintovariousriskparticipationtransactionswithrelatedcompanies.Forfundedriskparticipationtransactions,theBankundertakestodepositanamountequaltotheparticipatingbalanceswiththerelatedcompanies. Whenthere isadefault,undertheundertakingclauseoftheagreement,theBankisobligatedtohonortheriskparticipationbytransferringsuchdepositstotherelatedcompanies.
Duringtheyear,HK$583millionofsuchdepositshasbeentransferredtotherelatedcompanies.Asat31December2012,theamountduefromgroupcompaniesshownonthebalancesheetisstatednetofHK$1,585millioninrespectofsuchobligations.
Standard Chartered Bank (Hong Kong) Limited 44
Notes to the financial statements (continued)(Expressed in millions of Hong Kong dollars)
18 Amounts due from/to immediate holding company, fellow subsidiaries and subsidiaries of the Bank (continued)
Consolidated
Theamountsofmaterialtransactionsduringtheyeararesetoutbelow:
Immediate holding
company Fellow subsidiaries
2012
Restated
2011 2012
Restated
2011
HK$’M HK$’M HK$’M HK$’M
Operatingincome 560 655 214 172
Operatingexpenses 1,583 1,163 569 538
Theamountsduefrom/toimmediateholdingcompanyandfellowsubsidiariesstatedontheconsolidatedbalancesheetincludedthefollowing:
2012 2011
Immediate
holding
company
Fellow
subsidiaries
Immediate
holding
company
Fellow
subsidiaries
HK$’M HK$’M HK$’M HK$’M
Amounts due from:Cashandbalanceswithbanksandother
financialinstitutions 2,156 4,271 3,712 3,148Placementswithbanksandotherfinancial
institutions 45,952 14,585 37,190 11,708Tradingassets
–Unlisteddebtsecurities – – 17 ––Positivefairvaluesoftradingderivatives 6,097 81 2,569 103
Financialassetsdesignatedatfairvalue–Listeddebtsecurities – 98 – 221
Investmentsecurities–Listedavailable-for-saledebtsecurities – 1,305 – 2,119
Otherassets–Positivefairvaluesofhedgingderivatives 911 – 802 99–Others 3,615 251 6,667 133
58,731 20,591 50,957 17,531
Standard Chartered Bank (Hong Kong) Limited 45
Notes to the financial statements (continued)(Expressed in millions of Hong Kong dollars)
18 Amounts due from/to immediate holding company, fellow subsidiaries and subsidiaries of the Bank (continued)
Consolidated(continued)
2012 2011
Immediate
holding
company
Fellow
subsidiaries
Immediate
holding
company
Fellow
subsidiaries
HK$’M HK$’M HK$’M HK$’M
Amounts due to:Depositsandbalancesofbanksandother
financialinstitutions 9,681 2,995 4,767 2,024Depositsfromcustomers – 5 – 5Tradingliabilities:
–Negativefairvaluesoftradingderivatives 5,642 76 3,377 12Financialliabilitiesdesignatedatfairvalue:
–Structuredcustomerdeposits 186 – – –Debtsecuritiesinissue – 1,144 – 1,084Otherliabilities
–Negativefairvaluesofhedgingderivatives 1,654 264 1,358 16–Others 2,443 633 3,521 1,932
19,606 5,117 13,023 5,073
Thecontractualamountsofcontingentliabilitiesandcommitmentstotheimmediateholdingcompanyandfellowsubsidiariesaresetoutbelow:
2012 2011
Immediate
holding
company
Fellow
subsidiaries
Immediate
holding
company
Fellow
subsidiaries
HK$’M HK$’M HK$’M HK$’M
Financialguaranteesandothercreditrelatedcontingentliabilities 3,529 5 11,943 108
Loancommitmentsandothercreditrelatedcommitments 1,550 50,402 2,004 41,330
Bank
Theamountsofmaterialtransactionsduringtheyeararesetoutbelow:
Immediate holding company Fellow subsidiaries
Subsidiaries of the Bank
2012
Restated
2011 2012
Restated
2011 2012 2011
HK$’M HK$’M HK$’M HK$’M HK$’M HK$’M
Operatingincome 551 622 223 218 1,217 1,053
Operatingexpenses 1,583 1,163 569 538 24 –
Standard Chartered Bank (Hong Kong) Limited 46
Notes to the financial statements (continued)(Expressed in millions of Hong Kong dollars)
18 Amounts due from/to immediate holding company, fellow subsidiaries and subsidiaries of the Bank (continued)
Bank(continued)
Theamountsduefrom/toimmediateholdingcompany,fellowsubsidiariesandsubsidiariesoftheBankstatedonthebalancesheetincludedthefollowing:
2012 2011Immediate
holdingcompany
Fellowsubsidiaries
Subsidiariesof the Bank
Immediateholding
companyFellow
subsidiariesSubsidiariesof the Bank
HK$’M HK$’M HK$’M HK$’M HK$’M HK$’M
Amounts due from:Cashandbalanceswithbanksandother
financialinstitutions 1,255 4,195 – 3,182 3,000 –Placementswithbanksandotherfinancial
institutions 45,952 14,584 7,998 37,190 11,708 7,311Tradingassets
–Unlisteddebtsecurities – – – 17 – ––Positivefairvaluesoftradingderivatives 6,093 81 – 2,566 103 –
Financialassetsdesignatedatfairvalue–Listeddebtsecurities – 98 – – 221 –
Investmentsecurities–Listedavailable-for-saledebtsecurities – 1,305 – – 2,119 –
Advancestocustomers – – 23,168 – – 10,332Otherassets
–Positivefairvaluesofhedgingderivatives 911 – – 802 99 ––Others 3,535 197 2,527 6,522 120 1,538
57,746 20,460 33,693 50,279 17,370 19,181
Amounts due to:Depositsandbalancesofbanksandother
financialinstitutions 9,681 2,995 722 4,767 2,024 442Depositsfromcustomers – 5 171 – 5 325Tradingliabilities:
–Negativefairvaluesoftradingderivatives 5,642 76 – 3,377 12 –Financialliabilitiesdesignatedatfairvalue:
–Structuredcustomerdeposits 186 – – – – –Debtsecuritiesinissue – 1,144 – – 1,084 –Otherliabilities
–Negativefairvaluesofhedgingderivatives 1,654 264 – 1,358 16 ––Others 1,961 524 1,124 2,864 461 1,124
19,124 5,008 2,017 12,366 3,602 1,891
Thecontractualamountsofcontingentliabilitiesandcommitmentstotheimmediateholdingcompany,fellowsubsidiariesandsubsidiariesoftheBankaresetoutbelow:
2012 2011Immediate
holdingcompany
Fellowsubsidiaries
Subsidiariesof the Bank
Immediateholding
companyFellow
subsidiariesSubsidiariesof the Bank
HK$’M HK$’M HK$’M HK$’M HK$’M HK$’M
Financialguaranteesandothercreditrelatedcontingentliabilities 3,529 5 83 11,943 108 131
Loancommitmentsandothercreditrelatedcommitments 1,550 50,402 14,748 2,004 41,330 21,479
Standard Chartered Bank (Hong Kong) Limited 47
Notes to the financial statements (continued)(Expressed in millions of Hong Kong dollars)
19 Investments in subsidiaries of the Bank
Bank
2012 2011
HK$’M HK$’M
Unlistedshares,atcostlessimpairmentcharges,ifany 1,100 1,096
The following listcontainsonly theparticularsofsubsidiarieswhichprincipallyaffected the results,assetsorliabilitiesoftheBankanditssubsidiaries.
Name of companyPlace of
incorporation
Particulars of issued and paid up capital
and securities
Proportion ofownership
interest held by the Bank
Principalactivity
StandardCharteredAPRLimited
UnitedKingdom 21,971,715ordinarysharesofUS$1each
100% Investmentholdings
StandardCharteredSecurities(HongKong)Limited
HongKong 1,000,000ordinarysharesofHK$10each
100% Equitycapitalmarkets,
corporatefinanceandinstitutional
brokerage
PrimeCreditLimited(“PCL”)
HongKong 400,000ordinarysharesofHK$100each
100% Provisionofbankingand
relatedfinancialservices
StandardCharteredLeasingGroupLimited
HongKong 30,000ordinarysharesofUS$1each
100% Provisionofleasingservices
20 Interest in associates
Consolidated
2012 2011
HK$’M HK$’M
Shareofnetassets 5,849 4,902Goodwill 1,717 1,717Less:Impairmentlosses (465) –
7,101 6,619
Bank
2012 2011
HK$’M HK$’M
Unlistedinvestments,atcostlessimpairmentlosses,ifany 3,222 3,168Listedinvestment,atcostlessimpairmentlosses,ifany 837 1,646
4,059 4,814
Standard Chartered Bank (Hong Kong) Limited 48
Notes to the financial statements (continued)(Expressed in millions of Hong Kong dollars)
20 Interest in associates (continued)
TheassociatedcompaniesoftheBankanditssubsidiariesare:
Name of associate
Place of establishment and operation
Particulars of issued and
paid up capital
Proportion of ownership
interestPrincipal
activity
AsiaCommercialJointStockBank(“ACB”)
Vietnam 937,696,506ordinarysharesofVND10,000each
15% Provisionofbankingand
relatedfinancialservices
ChinaBohaiBankCompanyLimited(“Bohai”)
ThePeople’sRepublicofChina
13,855,000,000ordinarysharesofRMB1each
20% Provisionofbankingand
relatedfinancialservices
MerchantSolutionsPrivateLimited(“MS”)
Singapore 560,000“A”sharesand
440,000“B”shares
44% Creditcardmerchantacquiring
business
ShenzhenPrimeCreditLimited
ThePeople’sRepublicofChina
RMB112,660,000ordinaryshares
30% Provisionofconsumerfinancing
services
ShareholdingsinassociatedcompaniesincludealistedinvestmentofHK$2,016million(2011:HK$2,457million).Atthebalancesheetdate,theinvestmentbasedonquotedmarketpriceswasvaluedatHK$862million(2011:HK$1,142million).Impairmenttestingontheinvestmenthasbeencarriedoutusingavalue-in-usemethodologyresultinginanimpairmentchargeofHK$465million.
TheBankanditssubsidiaries’investmentinACBislessthan20%butithasbeenaccountedforasanassociate,astheBankhasrepresentationontheBoardofDirectorsandalsothroughaTechnicalSupportandAssistanceAgreement,whichincludesthesecondmentofstafftoACB,isabletoexercisesignificantinfluenceoverthecompany’smanagement,financialandoperatingpolicies.
Inrespectoftheyearended31December2012,theshareoftheresultsofMSandACBwasincludedinthesefinancialstatementsbasedonaccountsdrawnupto30September2012,buttakingintoaccountanyeventsortransactionsinthesubsequentperiodfrom1October2012to31December2012thatwouldmateriallyaffecttheresults.Bohai’sresultwasincludedinthefinancialstatementsbasedonaccountsdrawnupto30November2012.TheBankanditssubsidiarieshavetakenadvantageoftheprovisioncontainedinHKAS28/IAS28“InvestmentsinAssociates”wherebyitispermittedtoincludetheattributableshareofassociates’resultsbasedonaccountsdrawnuptoanon-coterminousperiodandwherethedifferenceisnotgreaterthanthreemonths.
TheBankanditssubsidiaries’unrecognisedshareofprofitsofassociatesfortheyearisHK$12million(2011:HK$7million).Wherethereareaccumulatedunrecognisedshareofassociates’losses,subsequentprofitsearnedarenotrecogniseduntilpreviouslyunrecognisedlossesareextinguished.TheBankanditssubsidiaries’unrecognisedshareoflossesofassociatesnetofunrecognisedprofitsonacumulativebasisisHK$66million(2011:HK$78million).
Standard Chartered Bank (Hong Kong) Limited 49
Notes to the financial statements (continued)(Expressed in millions of Hong Kong dollars)
20 Interest in associates (continued)
Summary of financial information of associates
Assets Liabilities Equity Revenue ProfitHK$’M HK$’M HK$’M HK$’M HK$’M
2012100percent 615,010 584,891 30,119 20,841 4,690EffectiveinterestoftheBank
anditssubsidiaries 118,905 113,056 5,849 3,689 893
Assets Liabilities Equity Revenue Profit
HK$’M HK$’M HK$’M HK$’M HK$’M
2011100percent 439,969 414,542 25,427 16,501 3,115EffectiveinterestoftheBank
anditssubsidiaries 82,933 78,031 4,902 2,844 570
21 Fixed assets
Consolidated
2012Buildings and
leasehold land held for
own use
Equipment, furniture
& fixtures
Operatinglease
assets Sub-totalInvestment properties
Total fixed assets
HK$’M HK$’M HK$’M HK$’M HK$’M HK$’M
Costorvaluation:At1January2012 2,958 488 7,359 10,805 586 11,391Additions 119 67 13,843 14,029 7 14,036Disposalsandwrite-offs (54) (115) – (169) (17) (186)Surplusonrevaluationcredited
topropertyrevaluationreserve 2 – – 2 – 2Reclassifications (79) 73 – (6) 6 –Fairvalueadjustments(note4(f)) – – – – (30) (30)
At31December2012 2,946 513 21,202 24,661 552 25,213
Representing:Cost 2,946 513 21,202 24,661 – 24,661Valuation – – – – 552 552
2,946 513 21,202 24,661 552 25,213
Accumulateddepreciation:At1January2012 535 241 93 869 – 869Chargefortheyear(note4(g)) 96 143 514 753 – 753Attributabletoassetssoldor
writtenoff (40) (115) – (155) – (155)
At31December2012 591 269 607 1,467 – 1,467
Netbookvalue:At31December2012 2,355 244 20,595 23,194 552 23,746
Standard Chartered Bank (Hong Kong) Limited 50
Notes to the financial statements (continued)(Expressed in millions of Hong Kong dollars)
21 Fixed assets (continued)
Consolidated(continued)
2011
Buildings and
leasehold
land held for
own use
Equipment,
furniture
& fixtures
Operating
lease
assets Sub-total
Investment
properties
Total
fixed assets
HK$’M HK$’M HK$’M HK$’M HK$’M HK$’M
Costorvaluation:At1January2011 2,862 389 – 3,251 541 3,792Additions 150 180 7,359 7,689 110 7,799Disposalsandwrite-offs (52) (83) – (135) (70) (205)Reclassifications (2) 2 – – – –Fairvalueadjustments(note4(f)) – – – – 5 5
At31December2011 2,958 488 7,359 10,805 586 11,391
Representing:Cost 2,958 488 7,359 10,805 – 10,805Valuation – – – – 586 586
2,958 488 7,359 10,805 586 11,391
Accumulateddepreciation:At1January2011 492 197 – 689 – 689Chargefortheyear(note4(g)) 95 127 93 315 – 315Attributabletoassetssoldor
writtenoff (52) (83) – (135) – (135)
At31December2011 535 241 93 869 – 869
Netbookvalue:At31December2011 2,423 247 7,266 9,936 586 10,522
Standard Chartered Bank (Hong Kong) Limited 51
Notes to the financial statements (continued)(Expressed in millions of Hong Kong dollars)
21 Fixed assets (continued)
Bank
2012
Buildings and
leasehold
land held for
own use
Equipment,
furniture
& fixtures Sub-total
Investment
properties
Total
fixed assets
HK$’M HK$’M HK$’M HK$’M HK$’M
Costorvaluation:At1January2012 2,694 456 3,150 531 3,681Additions 116 48 164 – 164Disposalsandwrite-offs (40) (110) (150) – (150)Reclassifications (71) 71 – – –Fairvalueadjustments – – – (28) (28)
At31December2012 2,699 465 3,164 503 3,667
Representing:Cost 2,699 465 3,164 – 3,164Valuation – – – 503 503
2,699 465 3,164 503 3,667
Accumulateddepreciation:At1January2012 527 235 762 – 762Chargefortheyear 91 133 224 – 224Attributabletoassetssoldor
writtenoff (39) (110) (149) – (149)
At31December2012 579 258 837 – 837
Netbookvalue:At31December2012 2,120 207 2,327 503 2,830
Standard Chartered Bank (Hong Kong) Limited 52
Notes to the financial statements (continued)(Expressed in millions of Hong Kong dollars)
21 Fixed assets (continued)
Bank(continued)
2011
Buildings and
leasehold
land held for
own use
Equipment,
furniture
& fixtures Sub-total
Investment
properties
Total
fixed assets
HK$’M HK$’M HK$’M HK$’M HK$’M
Costorvaluation:At1January2011 2,686 372 3,058 541 3,599Additions 42 157 199 106 305Disposalsandwrite-offs (32) (75) (107) (106) (213)Reclassifications (2) 2 – – –Fairvalueadjustments – – – (10) (10)
At31December2011 2,694 456 3,150 531 3,681
Representing:Cost 2,694 456 3,150 – 3,150Valuation – – – 531 531
2,694 456 3,150 531 3,681
Accumulateddepreciation:At1January2011 473 188 661 – 661Chargefortheyear 86 122 208 – 208Attributabletoassetssoldor
writtenoff (32) (75) (107) – (107)
At31December2011 527 235 762 – 762
Netbookvalue:At31December2011 2,167 221 2,388 531 2,919
Standard Chartered Bank (Hong Kong) Limited 53
Notes to the financial statements (continued)(Expressed in millions of Hong Kong dollars)
21 Fixed assets (continued)
Buildings and leasehold land held for own use:
Consolidated Bank
2012 2011 2012 2011
HK$’M HK$’M HK$’M HK$’M
LeaseholdinHongKong,atcost–long-termleases 33 33 – ––medium-termleases 2,044 2,114 2,032 2,095–short-termleases 88 72 88 72
2,165 2,219 2,120 2,167
FreeholdoutsideHongKong,atcost 190 204 – –
2,355 2,423 2,120 2,167
Investment properties:
Consolidated Bank
2012 2011 2012 2011
HK$’M HK$’M HK$’M HK$’M
LeaseholdinHongKong,atfairvalue–medium-termlease 8 – – –FreeholdoutsideHongKong,atfairvalue 544 586 503 531
552 586 503 531
Investmentpropertieswere revaluedasat31December2012onanopenmarketvaluebasis.Thevaluationwascarriedoutbyanindependentfirm,CBRELimited,whichhasamongitsstaff,membersoftheRoyalInstituteofCharteredSurveyorswithrecentexperienceinthelocationandcategoryofthepropertybeingvalued.
Operating lease assets:
Assetsleasedtocustomersunderoperatingleasesconsistofcommercialaircraftandvessels.At31December,thetotalfutureminimumleasereceivablesunderoperatingleasesareasfollows:
Consolidated
2012 2011
HK$’M HK$’M
Within1year 2,057 747After1yearbutwithin5years 5,906 2,807After5years 9,992 4,486
17,955 8,040
Standard Chartered Bank (Hong Kong) Limited 54
Notes to the financial statements (continued)(Expressed in millions of Hong Kong dollars)
22 Goodwill and intangible assets
Consolidated
2012
Capitalised
software
and other
intangible assets Goodwill Total
HK$’M HK$’M HK$’M
Cost:At1January2012 381 1,507 1,888Additions 165 – 165Disposalsandwrite-offs (65) – (65)
At31December2012 481 1,507 1,988
Accumulatedamortisation:At1January2012 147 – 147Chargefortheyear(note4(g)) 85 – 85Attributabletointangibleassetssoldorwrittenoff (65) – (65)
At31December2012 167 – 167
Carryingamount:At31December2012 314 1,507 1,821
2011
Capitalised
software
and other
intangible assets Goodwill Total
HK$’M HK$’M HK$’M
Cost:At1January2011 373 1,507 1,880Additions 115 – 115Disposalsandwrite-offs (107) – (107)
At31December2011 381 1,507 1,888
Accumulatedamortisation:At1January2011 159 – 159Chargefortheyear(note4(g)) 93 – 93Attributabletointangibleassetssoldorwrittenoff (105) – (105)
At31December2011 147 – 147
Carryingamount:At31December2011 234 1,507 1,741
Standard Chartered Bank (Hong Kong) Limited 55
Notes to the financial statements (continued)(Expressed in millions of Hong Kong dollars)
22 Goodwill and intangible assets (continued)
Bank
2012
Capitalised
software
and other
intangible assets Goodwill Total
HK$’M HK$’M HK$’M
Cost:At1January2012 298 729 1,027Additions 165 – 165Disposalsandwrite-offs (65) – (65)
At31December2012 398 729 1,127
Accumulatedamortisation:At1January2012 106 – 106Chargefortheyear 75 – 75Attributabletointangibleassetssoldorwrittenoff (65) – (65)
At31December2012 116 – 116
Carryingamount:At31December2012 282 729 1,011
2011
Capitalised
software
and other
intangible assets Goodwill Total
HK$’M HK$’M HK$’M
Cost:At1January2011 280 729 1,009Additions 115 – 115Disposalsandwrite-offs (97) – (97)
At31December2011 298 729 1,027
Accumulatedamortisation:At1January2011 123 – 123Chargefortheyear 80 – 80Attributabletointangibleassetssoldorwrittenoff (97) – (97)
At31December2011 106 – 106
Carryingamount:At31December2011 192 729 921
Standard Chartered Bank (Hong Kong) Limited 56
Notes to the financial statements (continued)(Expressed in millions of Hong Kong dollars)
22 Goodwill and intangible assets (continued)
Impairmenttestsforcash-generatingunitscontaininggoodwill
GoodwillisallocatedtotheBankanditssubsidiaries’cash-generatingunits(“CGUs”)asfollows:
Consolidated Bank
2012 2011 2012 2011
HK$’M HK$’M HK$’M HK$’M
Lending 611 611 611 611PrivateBanking 118 118 118 118StandardCharteredSecurities(HongKong)Limited 253 253 – –PrimeCreditLimited(“PCL”) 525 525 – –
1,507 1,507 729 729
Therecoverableamountsof theCGUsaredeterminedbasedonvalue inusecalculations.Thekeyassumptionsandapproachtodeterminingvalueinusecalculations,assetoutbelow,aresolelyestimatesfor the purpose of assessing impairment on acquired goodwill. These calculations use cash flowprojections based on budgets and forecasts approved by management covering one year andextrapolatedforafurther19yearsusingsteadygrowthratesof4.2percent(2011:4.3percent).
Inassessingimpairmentofgoodwill,theBankanditssubsidiariesassumedgrowthatasteadyrateinlinewithlong-termforecastGDPgrowth.Adiscountrateof11.8percent(2011:18.0percent)wasused.
23 Other assets
Consolidated Bank
2012 2011 2012 2011
HK$’M HK$’M HK$’M HK$’M
Prepaymentsandaccruedincome 3,012 2,480 2,921 2,306Sundrydebtors 3,190 2,222 2,965 1,990Acceptancesandendorsements 4,839 4,777 4,839 4,777Positivefairvaluesofhedgingderivatives – 56 – 56Unsettledtradesandothers 5,960 2,431 3,681 1,849
17,001 11,966 14,406 10,978
Standard Chartered Bank (Hong Kong) Limited 57
Notes to the financial statements (continued)(Expressed in millions of Hong Kong dollars)
24 Deposits from customers
Consolidated Bank
2012 2011 2012 2011
HK$’M HK$’M HK$’M HK$’M
Currentaccounts 101,131 96,528 101,131 96,528Savingsaccounts 373,620 318,359 373,620 318,359Time,callandnoticedeposits 257,669 252,626 256,567 252,111Depositsandbalancesofcentralbanks 24,169 5,427 24,169 5,427
756,589 672,940 755,487 672,425
25 Debt securities in issue
Consolidated and Bank
2012 2011
HK$’M HK$’M
Certificatesofdeposit,measuredatamortisedcost 10,006 13,265
26 Financial liabilities designated at fair value
Consolidated and Bank
2012 2011
HK$’M HK$’M
Structuredcustomerdeposits 3,574 2,615Debtsecuritiesissued 38 872
3,612 3,487
TheBankdesignatescertainfinancialliabilitiesatfairvaluewhereeithertheliabilities:
– havefixedratesofinterestandinterestrateswapsorotherinterestrelatedderivativeshavebeentransactedwiththeintentionofsignificantlyreducinginterestraterisk;or
– areexposedtoequitypriceriskorforeigncurrencyriskandderivativeshavebeentransactedwiththeintentionofsignificantlyreducingexposuretomarketchanges;
At31December2012,thecontractualamountpayableatmaturityofthesefinancialliabilitiesexceededthecarryingamountbyHK$30million(2011:HK$56million).Thischangeisattributabletochangesinmarketrates.
Standard Chartered Bank (Hong Kong) Limited 58
Notes to the financial statements (continued)(Expressed in millions of Hong Kong dollars)
27 Taxation in the balance sheet
Deferredtaxassetsandliabilities:
The components of gross deferred tax (assets)/liabilities recognised in the balance sheet and the movements during the year are as follows:
Consolidated
Depreciation
allowances
in excess
of related
depreciation
Impairment
losses on
financial
assets
Available-
for-sale
securities Others Total
HK$’M HK$’M HK$’M HK$’M HK$’M
2012
Deferredtaxarisingfrom:At1January2012 53 (103) (167) (97) (314)Charge/(release)toincomestatement
(note7(a)) 168 2 – (112) 58Chargetoreserves – – 207 3 210
At31December2012 221 (101) 40 (206) (46)
2011
At1January2011 (3) (78) 11 (263) (333)Charge/(release)toincomestatement
(note7(a)) 56 (25) – 204 235Releasetoreserves – – (178) (41) (219)Others – – – 3 3
At31December2011 53 (103) (167) (97) (314)
Standard Chartered Bank (Hong Kong) Limited 59
Notes to the financial statements (continued)(Expressed in millions of Hong Kong dollars)
27 Taxation in the balance sheet (continued)
Deferredtaxassetsandliabilities(continued):
The components of gross deferred tax (assets)/liabilities recognised in the balance sheet and themovementsduringtheyearareasfollows:(continued)
Bank
Depreciation
allowances
in excess
of related
depreciation
Impairment
losses on
financial
assets
Available-
for-sale
securities Others Total
HK$’M HK$’M HK$’M HK$’M HK$’M
2012
Deferredtaxarisingfrom:At1January2012 12 (74) (167) (46) (275)Charge/(release)toincomestatement 17 (1) – 11 27Chargetoreserves – – 207 3 210
At31December2012 29 (75) 40 (32) (38)
2011
At1January2011 (3) (62) 11 (258) (312)Charge/(release)toincomestatement 15 (12) – 252 255Releasetoreserves – – (178) (40) (218)
At31December2011 12 (74) (167) (46) (275)
Consolidated Bank
2012 2011 2012 2011
HK$’M HK$’M HK$’M HK$’M
Analysedby:Netdeferredtaxassetrecognisedonthe
balancesheet (89) (319) (38) (275)Netdeferredtaxliabilityrecognisedonthe
balancesheet 43 5 – –
(46) (314) (38) (275)
Standard Chartered Bank (Hong Kong) Limited 60
Notes to the financial statements (continued)(Expressed in millions of Hong Kong dollars)
28 Trading liabilities
Consolidated Bank
2012 2011 2012 2011
HK$’M HK$’M HK$’M HK$’M
Shortpositionsinsecurities 22,229 23,855 22,229 23,855Negativefairvaluesoftradingderivatives 839 783 836 783
23,068 24,638 23,065 24,638
29 Other liabilities
Consolidated Bank
2012 2011 2012 2011
HK$’M HK$’M HK$’M HK$’M
Accrualsanddeferredincome 5,014 4,372 4,603 3,960Provisionforliabilitiesandcharges 230 1,082 230 1,082Acceptancesandendorsements 4,839 4,777 4,839 4,777Unsettledtradesandothers 8,121 9,544 7,533 9,168
18,204 19,775 17,205 18,987
30 Employee retirement benefits
TheBankanditssubsidiariesmadecontributionstotwodefinedbenefitretirementschemes,namelyStandardCharteredBankHongKongRetirementScheme(“SCBScheme”)andCazenoveHongKongRetirement Scheme (“Cazenove Scheme”) which covered 16% (2011: 18%) of the Bank and itssubsidiaries’employees.Theschemesareadministeredbytrustees,withtheassetsheldseparatelyfromthoseoftheBankanditssubsidiaries.
InDecember2011, theBankclosed theCazenoveScheme.Members’benefitsaccruedunder theCazenoveSchemewere transferred to theSCBScheme inDecember2011.Theassetsunder theCazenoveSchemewereredeemedandalsotransferredtotheSCBSchemeinDecember2011.
(a) Theamountsrecognisedintheconsolidatedbalancesheetareasfollows:
SCB SchemeCazenove Scheme
2012 2011 2011
HK$’M HK$’M HK$’M
Fairvalueofplanassets 2,069 1,906 –Presentvalueofwhollyorpartlyfundedobligations (2,309) (2,129) –
Netliabilityrecognisedinthebalancesheet(includedin“Otherliabilities”) (240) (223) –
Standard Chartered Bank (Hong Kong) Limited 61
Notes to the financial statements (continued)(Expressed in millions of Hong Kong dollars)
30 Employee retirement benefits (continued)
(b) Movementsinthepresentvalueofthedefinedbenefitobligations:
SCB SchemeCazenove Scheme
2012 2011 2011
HK$’M HK$’M HK$’M
Atthebeginningoftheyear 2,129 1,807 56Currentservicecost 106 96 5Interestcost 30 46 2Benefitspaid (135) (110) (2)Actuariallosses 179 222 7Transferin/(out) – 68 (68)
Attheendoftheyear 2,309 2,129 –
(c) Movementsinthefairvalueofplanassets:
SCB SchemeCazenove Scheme
2012 2011 2011
HK$’M HK$’M HK$’M
Atthebeginningoftheyear 1,906 1,927 75Contributions 61 57 4Expectedreturnonassets 119 120 5Benefitspaid (135) (110) (2)Actuarialgains/(losses)onplanassets 118 (159) (11)Transferin/(out) – 71 (71)
Attheendoftheyear 2,069 1,906 –
(d) Movements inthenet (liabilities)/assetsrecognised intheconsolidatedbalancesheetareasfollows:
SCB SchemeCazenove Scheme
2012 2011 2011
HK$’M HK$’M HK$’M
Atthebeginningoftheyear (223) 120 19Contributions 61 57 4Expenserecognisedintheincomestatement(note4(g)) (17) (22) (2)Actuariallossestopensionreserve (61) (381) (18)Transferin/(out) – 3 (3)
Attheendoftheyear (240) (223) –
Asat31December2012,theSchemedidnotinvestintheBank’sownfinancialinstrumentsandproperties(2011:HK$Nil).TheBankexpectstocontributeapproximatelyHK$62milliontotheSCBSchemein2013.
Thetotalcumulativeamountofactuarialgainsand lossesrecogniseddirectly inconsolidatedothercomprehensiveincometodateisalossofHK$610million(2011:lossofHK$549million).
Standard Chartered Bank (Hong Kong) Limited 62
Notes to the financial statements (continued)(Expressed in millions of Hong Kong dollars)
30 Employee retirement benefits (continued)
(e) Theexpenserecognisedintheconsolidatedincomestatementfortheyearisasfollows:
SCB SchemeCazenove Scheme
2012 2011 2011
HK$’M HK$’M HK$’M
Currentservicecost 106 96 5Interestcost 30 46 2Actuarialexpectedreturnonplanassets (119) (120) (5)
17 22 2
Theactualreturnonplanassets(takingintoaccountallchangesinthefairvalueofplanassets)wasanetincomeofHK$237million(2011:netlossesofHK$45million(restated)).
(f) Theprincipalactuarialassumptionsusedinthevaluationareasfollows:
SCB SchemeCazenove Scheme
2012 2011 2011
HK$’M HK$’M HK$’M
Discountrate 0.70% 1.50% 1.50%Expectedrateofreturnonplanassets 6.50% 6.50% 6.50%Futuresalaryincreases 3.50% 3.50% 3.50%
Theexpectedreturnisbasedonmarketexpectationsatthebeginningoftheyear,forthereturnnetofadministrationcosts,overtheentirelifeoftherelatedobligations.
(g) Themajorcategoriesofassetsasapercentageoftotalassetsareasfollows:
SCB SchemeCazenove Scheme
2012 2011 2011
HK$’M HK$’M HK$’M
Equities 52% 47% –Bonds 45% 46% –Cash 3% 7% –
100% 100% –
(h) Amountsforthecurrentandpreviousyears
SCB Scheme
2012 2011 2010 2009 2008
HK$’M HK$’M HK$’M HK$’M HK$’M
Fairvalueofplanassets 2,069 1,906 1,927 1,799 1,467Presentvalueofdefinedbenefitobligations (2,309) (2,129) (1,807) (1,712) (1,890)
Net(deficit)/surplus (240) (223) 120 87 (423)
Experiencegains/(losses)onschemeassets 118 (159) 36 261 (623)Experiencegains/(losses)onschemeliabilities (59) (70) (50) (9) (57)
Standard Chartered Bank (Hong Kong) Limited 63
Notes to the financial statements (continued)(Expressed in millions of Hong Kong dollars)
30 Employee retirement benefits (continued)
(h) Amountsforthecurrentandpreviousyears(continued)
Cazenove Scheme
2011 2010
30 January to
31 December 2009
HK$’M HK$’M HK$’M
Fairvalueofplanassets – 75 70Presentvalueofdefinedbenefitobligations – (56) (54)
Netsurplus/(deficit) – 19 16
Experience(losses)/gainsonschemeassets (11) – 13Experience(losses)/gainsonschemeliabilities (2) 1 7
31 Subordinated liabilities
Consolidated and Bank
2012 2011
HK$’M HK$’M
US$300millionFloatingRateStep-UpNotes2017(1) – 2,330US$750million5.875%FixedRateNotes2020(2) 6,565 6,427SGD750million4.15%FixedRateNotes2021(3) 4,702 4,343
11,267 13,100
Allsubordinatedliabilitiesareunsecuredandsubordinatedtotheclaimsofothercreditors.
(1) Interestrateatthree-monthsUSdollarLIBORplus0.25percent,payablequarterly,tothecalloptiondateon13April2012.Thereafter,itwillberesettothree-monthsUSdollarLIBORplus0.75percent,payablequarterly.TheBankexerciseditsoptiontoredeemtheNotesinfullon13April2012.
(2) Interestrateat5.875percentperannum,payablesemi-annually,tothematuritydateon24June2020.
(3) Interestrateat4.15percentperannum,payablesemi-annually,tothematuritydateon27October2021.
32 Share capital
2012 and 2011
No . of shares
in millions HK$’M
Authorised:‘A’ordinarysharesofHK$0.05each 780 39‘B’ordinarysharesofHK$0.05each 1,231 62
2,011 101PreferencesharesofHK$1.00each 3,800 3,800
5,811 3,901
Standard Chartered Bank (Hong Kong) Limited 64
Notes to the financial statements (continued)(Expressed in millions of Hong Kong dollars)
32 Share capital (continued)
2012 and 2011
No . of shares
in millions HK$’M
Issuedandfullypaid:‘A’ordinarysharesofHK$0.05each 706 35‘B’ordinarysharesofHK$0.05each 1,231 62
1,937 97PreferencesharesofHK$1.00each – –
1,937 97
Thepreferencesharesbearanon-cumulativepreferentialdividendatarateof8.25%perannumontheirnominalamountandrankinprioritytothe‘A’ordinarysharesandthe‘B’ordinaryshareswithrespecttothepaymentofdividendsandanyreturnofcapital.The‘B’ordinarysharesrankinprioritytothe‘A’ordinaryshareswithrespecttoanyreturnofcapital.
33 Reserves
Natureandpurposeofreserves
(i) Sharepremium
Theapplicationof thesharepremiumaccount isgovernedbySection48Bof theHongKongCompaniesOrdinance.
(ii) Capitalredemptionreserve
ThecapitalredemptionreserverepresentstherepurchaseoftheBank’sownshares.
(iii) Available-for-saleinvestmentreserve
Theavailable-for-saleinvestmentreservecomprisesthecumulativenetchangeinthefairvalueofavailable-for-salesecuritiesheldatthebalancesheetdateandisdealtwithinaccordancewiththeaccountingpolicyinnote2(i).
(iv) Cashflowhedgereserve
Thecashflowhedgereservecomprisestheeffectiveportionofthecumulativenetchangeinthefairvalueofhedginginstrumentsusedincashflowhedgespendingsubsequentrecognitionofthehedgedcashflowinaccordancewiththeaccountingpolicyadoptedforcashflowhedgesinnote2(j).
(v) Pensionreserve
Thepensionreservecomprisesthecumulativeneteffectoftheactuarialgainsandlossesforthedefinedbenefitplan.
Standard Chartered Bank (Hong Kong) Limited 65
Notes to the financial statements (continued)(Expressed in millions of Hong Kong dollars)
33 Reserves (continued)
Natureandpurposeofreserves(continued)
(vi) Exchangereserve
Theexchangereservecomprisesallforeignexchangedifferencesarisingfromthetranslationofthefinancialstatementsofforeignoperations.Thereserveisdealtwithinaccordancewiththeaccountingpolicysetoutinnote2(s).
(vii) Revaluationreserve
Therevaluationreservecomprisestheshareofthechangeinfairvalueofanassociate’sidentifiablenetassetspriortotheBankanditssubsidiariesobtainingsignificantinfluenceinastep-acquisition.
(viii) Shareoptionequityreserve
TheGroupoperatesequity-settledshare-basedcompensationplansinwhichtheBankanditssubsidiaries’employeesparticipate.Thefairvalueoftheemployeeservicesreceivedinexchangeforthegrantoftheshareawardsisrecognizedasanexpensewiththecorrespondingamountcreditedtotheshareoptionequityreserve.
(ix) PropertyrevaluationreserveThepropertyrevaluationreserverepresentstherevaluationsurplusarisinguponthereclassificationofapropertypreviouslyincludedin“Buildingsandleaseholdlandheldforownuse”to“investmentproperties”.
TheHKMArequirestheBankanditssubsidiariestomaintainaminimumlevelofimpairmentallowanceswhichisinexcessoftheimpairmentallowancesrequiredunderHongKongFinancialReportingStandards.Oftheretainedearningsasat31December2012,anamountofHK$5,561million(2011:HK$5,309million)hasbeenreservedforthispurpose.
34 Cash and cash equivalents
2012 2011
HK$’M HK$’M
(a) Componentsofcashandcashequivalentsinthecashflowstatement
Cashandbalanceswithbanks,centralbanksandotherfinancialinstitutions 20,492 21,777
Tradingassetswithoriginalmaturitywithinthreemonths 2,599 14,856Placementswithbanksandotherfinancialinstitutionswith
originalmaturitywithinthreemonths 60,270 67,301Investmentsecuritieswithoriginalmaturitywithinthreemonths 10,609 –Amountsduefromimmediateholdingcompanyandfellow
subsidiarieswithoriginalmaturitywithinthreemonths 53,067 44,789Less:Overdraftsincludedin“depositsandbalances
ofbanksandotherfinancialinstitutions (153) (77)Less:Overdraftsincludedin“amountsdueto
immediateholdingcompany” (5,736) (121)
141,148 148,525
Standard Chartered Bank (Hong Kong) Limited 66
Notes to the financial statements (continued)(Expressed in millions of Hong Kong dollars)
34 Cash and cash equivalents (continued)
2012 2011
HK$’M HK$’M
(b) ReconciliationwiththeconsolidatedbalancesheetCashandbalanceswithbanks,centralbanks,and
otherfinancialinstitutions 20,492 21,777Tradingassets 28,414 35,377Placementswithbanksandotherfinancialinstitutions 143,581 136,513Investmentsecurities 174,379 135,090Amountsduefromimmediateholdingcompanyand
fellowsubsidiaries 79,322 68,488Overdraftsincludedin“depositsandbalancesof
banksandotherfinancialinstitutions” (153) (77)Overdraftsincludedin“amountsduetoimmediate
holdingcompany” (5,736) (121)
Amountsshowninthebalancesheet 440,299 397,047Less:amountswithanoriginalmaturityofbeyondthreemonths (299,151) (248,522)
Cashandcashequivalentsintheconsolidatedcashflowstatement 141,148 148,525
35 Derivative financial instruments
Theuseofderivativesfortradingandtheirsaletocustomersasriskmanagementproductsisanintegralpartof theBank’sbusinessactivities.These instrumentsarealsoused tomanage theBank’sownexposurestomarketriskaspartofitsassetandliabilitymanagementprocess.TheprincipalderivativeinstrumentsusedbytheBankareforeignexchangerelatedandinterestraterelatedcontracts,whichareprimarilyover-the-counterderivatives.MostoftheBank’sderivativepositionshavebeenenteredintotomeetcustomerdemandandtohedgetheseandothertradingpositions.Foraccountingpurposes,derivativesareclassifiedaseitherheldfortradingorheldforhedging.
(a) Notionalamountsofderivatives
Derivativesarefinancialinstrumentsthatderivetheirvalueinreferencetochangesininterestorexchangerates,creditrisk,financialinstrumentpricesandindices.Thenotionalamountsoftheseinstrumentsindicatethevolumeoftransactionsoutstandinganddonotrepresentamountsatrisk.
Standard Chartered Bank (Hong Kong) Limited 67
Notes to the financial statements (continued)(Expressed in millions of Hong Kong dollars)
35 Derivative financial instruments (continued)
(a) Notionalamountsofderivatives(continued)
ThefollowingisasummaryofthenotionalamountsofeachsignificanttypeofderivativeenteredintobytheBankanditssubsidiaries:
Consolidated
2012
Qualifying
for hedge
accounting
Managed
in conjunction with
financial instruments
designated at
fair value through
profit or loss
Others,
including
held for
trading Total
HK$’M HK$’M HK$’M HK$’M
ExchangeratecontractsForwards – 99 1,192,815 1,192,914Crosscurrencyswaps 36,264 1,214 32,176 69,654Optionspurchased – 69 13,210 13,279Optionswritten – 1,927 13,231 15,158
InterestratecontractsSwaps 103,927 108 28,587 132,622Optionspurchased – – 436 436Optionswritten – 217 43 260
Otherderivatives – – 2,442 2,442
140,191 3,634 1,282,940 1,426,765
2011
ExchangeratecontractsForwards – 795 690,004 690,799Crosscurrencyswaps 12,502 1,372 20,756 34,630Optionspurchased – 382 15,177 15,559Optionswritten – 2,233 15,600 17,833
InterestratecontractsSwaps 105,278 593 11,924 117,795Optionspurchased – 416 350 766Optionswritten – 480 350 830
Otherderivatives – 99 14,035 14,134
117,780 6,370 768,196 892,346
Standard Chartered Bank (Hong Kong) Limited 68
Notes to the financial statements (continued)(Expressed in millions of Hong Kong dollars)
35 Derivative financial instruments (continued)
(a) Notionalamountsofderivatives(continued)
Bank
2012
Qualifying
for hedge
accounting
Managed
in conjunction with
financial instruments
designated at
fair value through
profit or loss
Others,
including
held for
trading Total
HK$’M HK$’M HK$’M HK$’M
ExchangeratecontractsForwards – 99 1,192,815 1,192,914Crosscurrencyswaps 36,264 1,214 32,176 69,654Optionspurchased – 69 13,210 13,279Optionswritten – 1,927 13,231 15,158
InterestratecontractsSwaps 103,927 108 27,482 131,517Optionspurchased – – 436 436Optionswritten – 217 43 260
Otherderivatives – – 2,270 2,270
140,191 3,634 1,281,663 1,425,488
2011
ExchangeratecontractsForwards – 795 690,004 690,799Crosscurrencyswaps 12,502 1,372 20,756 34,630Optionspurchased – 382 15,177 15,559Optionswritten – 2,233 15,600 17,833
InterestratecontractsSwaps 105,278 593 11,384 117,255Optionspurchased – 416 350 766Optionswritten – 480 350 830
Otherderivatives – 99 14,035 14,134
117,780 6,370 767,656 891,806
Standard Chartered Bank (Hong Kong) Limited 69
Notes to the financial statements (continued)(Expressed in millions of Hong Kong dollars)
35 Derivative financial instruments (continued)
(b) Fairvaluesandcreditriskweightedamountsofderivatives
Consolidated2012 2011 Restated
Fair valueassets
Fair valueliabilities
Credit risk weighted
amount
Fair valueassets
Fair valueliabilities
Credit risk weighted
amountHK$’M HK$’M HK$’M HK$’M HK$’M HK$’M
Exchangeratecontracts 6,467 6,653 1,597 2,644 3,088 1,135Interestratecontracts 1,079 1,749 360 872 1,549 295Otherderivatives 120 73 90 903 909 7
7,666 8,475 2,047 4,419 5,546 1,437
Bank2012 2011 Restated
Fair valueassets
Fair valueliabilities
Credit risk weighted
amount
Fair valueassets
Fair valueliabilities
Credit risk weighted
amountHK$’M HK$’M HK$’M HK$’M HK$’M HK$’M
Exchangeratecontracts 6,467 6,653 1,597 2,644 3,088 1,135Interestratecontracts 1,075 1,749 357 869 1,549 294Otherderivatives 116 70 34 903 909 7
7,658 8,472 1,988 4,416 5,546 1,436
CreditriskweightedamountreferstotheamountascomputedinaccordancewiththeBanking(Capital)RulesoftheHongKongBankingOrdinance.Theamountcalculatedisdependentuponthestatusofthecounterpartyandmaturitycharacteristicsofeachtypeofcontract.
The fair values and credit risk weighted amounts do not take into account any bilateral nettingarrangementsenteredintoduringtheyearandaccordinglytheseamountsareshownonagrossbasis.
(c) Fairvalueofderivativefinancialinstrumentsdesignatedashedginginstruments
ThefollowingisasummaryofthefairvaluesofderivativesheldforhedgingpurposesbyproducttypeenteredintobytheBankanditssubsidiariesasat31December2012:
ConsolidatedandBank2012
Assets
(Included in Amounts
due from immediate holding company
and fellow subsidiaries)
Liabilities
(Included in
Amounts due to immediate holding
company and fellow subsidiaries)
HK$’M HK$’M
Exchangeratecontracts 16 355Interestratecontracts 895 1,563
911 1,918
Standard Chartered Bank (Hong Kong) Limited 70
Notes to the financial statements (continued)(Expressed in millions of Hong Kong dollars)
35 Derivative financial instruments (continued)
(c) Fairvalueofderivativefinancialinstrumentsdesignatedashedginginstruments(continued)
ConsolidatedandBank2011
Assets
(Included in Other assets and Amounts
due from immediate holding company
and fellow subsidiaries)
Liabilities
(Included in
Amounts due to immediate holding
company and fellow subsidiaries)
HK$’M HK$’M
Exchangeratecontracts 269 30Interestratecontracts 688 1,344
957 1,374
Fairvaluehedges
Thefairvaluehedgesprincipallyconsistofinterestrateswapsandcrosscurrencyswaps.Theinterestrateswapsareusedtoprotectagainstchangesinthefairvalueofcertainfixedrateassetsandliabilitiesdue tomovements inmarket interest rates.Thecrosscurrencyswapsareused tomanage foreignexchangeexposures.At31December2012,thenetnegativefairvalueofderivativesheldasfairvaluehedgeswasHK$705million(2011:negativeHK$338million)comprisingassetsofHK$827million(2011:HK$917million)andliabilitiesofHK$1,532million(2011:HK$1,255million).ThelossesonthehedginginstrumentsfortheyearwereHK$330million(2011:lossesofHK$501million).ThegainsonthehedgeditemattributabletothehedgedriskwereHK$330million(2011:gainsofHK$501million).
Cashflowhedges
Thecashflowhedgesprincipallyconsistofinterestrateswapsandcrosscurrencyswapsthatareusedtohedgeagainstthevariabilityincashflowsofcertainfloatingrateassetsandliabilities.At31December2012,thenetnegativefairvalueofderivativesheldascashflowhedgeswasHK$302million(2011:negativeHK$79million) comprising assets ofHK$84million (2011:HK$40million) and liabilitiesofHK$386million(2011:HK$119million).Thederivativeswillmaturewithin5years(2011:within5years)fromthebalancesheetdate.Duringtheyear,therewasnoineffectivenessrecognisedintheincomestatementthatarosefromcashflowhedges(2011:HK$Nil).
Standard Chartered Bank (Hong Kong) Limited 71
Notes to the financial statements (continued)(Expressed in millions of Hong Kong dollars)
36 Contingent liabilities and commitments
(a) Thefollowingisasummaryofthecontractualamountsofeachsignificantcontingentliabilityandcommitment:
Consolidated Bank
Restated Restated
2012 2011 2012 2011
HK$’M HK$’M HK$’M HK$’M
Directcreditsubstitutes 7,963 16,520 7,963 16,615Transaction-relatedcontingencies 10,786 13,755 10,790 13,755Trade-relatedcontingencies 23,009 22,054 23,088 22,086Forwardassetpurchases 140 622 140 622Othercommitments:whicharenotunconditionallycancellable:
withoriginalmaturityofnotmorethanoneyear 8,649 11,479 7,741 10,096withoriginalmaturityofmorethanoneyear 18,425 13,436 17,639 13,309
whichareunconditionallycancellable 368,461 303,223 382,477 323,993
437,433 381,089 449,838 400,476
Creditriskweightedamount 34,779 30,891 34,597 31,057
Contingentliabilitiesandcommitmentsarecredit-relatedinstruments,whichincludelettersofcredit,guaranteesandcommitmentstoextendcredit.Theriskinvolvedissimilartothecreditriskinvolvedinextending loan facilities to customers. These transactions are, therefore, subject to thesamecreditapplication,portfoliomaintenanceandcollateralrequirementsasforcustomersapplyingforloans.Thecontractualamountsrepresenttheamountsatriskshouldthecontractbefullydrawnuponandtheclientdefaults.Asthefacilitiesmayexpirewithoutbeingdrawnupon,thecontractedamountsdonotrepresentexpectedfuturecashflows.
(b) Capitalcommitments
Capitalcommitmentsoutstandingat31Decemberinrespectoffixedassetpurchasesnotprovidedforinthefinancialstatementswereasfollows:
Consolidated and Bank
2012 2011
HK$’M HK$’M
Contractedfor 63 66Authorisedbutnotcontractedfor 61 76
124 142
Standard Chartered Bank (Hong Kong) Limited 72
Notes to the financial statements (continued)(Expressed in millions of Hong Kong dollars)
36 Contingent liabilities and commitments (continued)
(c) Leasecommitments
TheBankanditssubsidiariesleaseanumberofpropertiesunderoperatingleases.Theleasestypicallyrun for an initial period of two to ten years, with an option to renew the lease when all terms arerenegotiated.At31December,totalfutureminimumleasepaymentsundernon-cancellableoperatingleasesarepayableasfollows:
Consolidated Bank
2012 2011 2012 2011
HK$’M HK$’M HK$’M HK$’M
Within1year 759 710 737 691After1yearbutwithin5years 1,531 1,433 1,519 1,425After5years 1,094 931 1,094 931
3,384 3,074 3,350 3,047
DuringtheyearHK$744million(2011:HK$707million)wasrecognisedasanexpenseintheincomestatement inrespectofoperating leases.TheBankand itssubsidiaries leasevariouspremisesandequipmentundernon-cancellableoperatingleaseagreements.
(d) Contingencies
TheBankanditssubsidiariesarenamedinandaredefendinganumberoflegalactionsarisingfromitsbankingactivities.ManagementoftheBankbelievesthattheresolutionoftheseactionsandproceedingswillnotbematerialtothefinancialpositionoftheBankanditssubsidiaries.
37 Risk management
ThemanagementofriskliesattheheartoftheBank’sbusiness.OneoftheprincipalriskstheBankincursarisesfromextendingcredittocustomersthroughitstradingandlendingoperations.Beyondcreditrisk,theBankisalsoexposedtoarangeofotherrisktypessuchascross-bordercountry,market,liquidity,operational,pensions, reputationalandotherrisksthatare inherent totheBank’sstrategy,productrangeandbusinesscoverage.
Risk management framework
Effective risk management is fundamental to being able to generate profits consistently andsustainably–andisthusacentralpartofthefinancialandoperationalmanagementoftheBank.
ThroughitsriskmanagementframeworktheBankmanagesenterprise-widerisks,withtheobjectiveofmaximisingrisk-adjustedreturnswhileremainingwithinitsriskappetite.
Aspartofthisframework,theBankusesasetofprinciplesthatdescribetheriskmanagementculturetheBankwishestosustain:
• Balancingriskandreturn:riskistakeninsupportoftherequirementsoftheBank’sstakeholders,inlinewiththeBank’sstrategyandwithinitsriskappetite;
Standard Chartered Bank (Hong Kong) Limited 73
Notes to the financial statements (continued)(Expressed in millions of Hong Kong dollars)
37 Risk management (continued)
Risk management framework (continued)
• Responsibility:itistheresponsibilityofallemployeestoensurethatrisk-takingisdisciplinedandfocused.TheBanktakesaccountofitssocialresponsibilities,anditscommitmenttocustomersintakingrisktoproduceareturn;
• Accountability: risk is taken only within agreed authorities and where there is appropriateinfrastructureandresource.Allrisk-takingmustbetransparent,controlledandreported;
• Anticipation:theBankseekstoanticipatefuturerisksandensureawarenessofallknownrisks;and
• Competitiveadvantage:theBankseekscompetitiveadvantagethroughefficientandeffectiveriskmanagementandcontrol.
The Risk function
TheCountryChiefRiskOfficer(“CCRO”)directlymanagesaRiskfunctionthatisseparatefromandindependentoftheorigination,tradingandsalesfunctionsofthebusinesses.TheCCROchairstheRiskCommittee.
TheroleoftheRiskfunctionis:
• To maintain the Risk Management Framework, ensuring it remains appropriate to the Bank’sactivities,iseffectivelycommunicatedandimplementedacrosstheBankandforadministeringrelatedgovernanceandreportingprocesses.
• ToupholdtheoverallintegrityoftheBank’srisk/returndecisions,andinparticularforensuringthatrisksareproperlyassessed,thatrisk/returndecisionsaremadetransparentlyonthebasisofthisproperassessment,andarecontrolledinaccordancewiththeBank’sstandards.
• ToexercisedirectRiskControlOwnershipforCredit,Market,CountryCross-Border,Short-termLiquidityandOperationalrisktypes.
(a) Creditrisk
Creditriskisthepotentialforlossduetothefailureofacounterpartytomeetitsobligationstopayinaccordancewithagreedterms.Creditexposuresmayarisefromboththebankingandtradingbooks.
Credit risk is managed through a framework that sets out policies and procedures covering themeasurementandmanagementofcreditrisk.Thereisaclearsegregationofdutiesbetweentransactionoriginators in the businesses and the approvers in the Risk function. All credit exposure limits areapprovedwithinadefinedcreditapprovalauthorityframework.
Group-widecreditpoliciesandstandardsareconsideredandapprovedbytheGroupRiskCommittee(“GRC”), which also oversees the delegation of credit approval and loan impairment provisioningauthorities.
Standard Chartered Bank (Hong Kong) Limited 74
Notes to the financial statements (continued)(Expressed in millions of Hong Kong dollars)
37 Risk management (continued)
(a) Creditrisk(continued)
TheBank’sRiskCommitteeisresponsibleforthemanagementofallrisks,exceptthoseforwhichtheAssetandLiabilityCommitteeandthePensionsExecutiveCommitteehavedirectresponsibility.TheRiskCommitteeapprovespoliciesandstandardsbasedonthoseapprovedbyGRC,risklimitsandriskexposuredelegatedapprovalauthorityframeworks.Whenapprovingriskpoliciesandstandards,theRiskCommitteetakesintoaccounttherequirementsoftheHongKongBankingOrdinanceandtheguidelinesissuedbytheHKMAwithrespecttolargeexposuresandprovisioningrequirements.
Credit rating and measurement
Riskmeasurementplaysacentralrole,alongwithjudgementandexperience,ininformingrisk-takingandportfoliomanagementdecisions.Itisaprimaryareaforsustainedinvestmentandseniormanagementattention.
Since1January2008,theBankhasusedtheadvancedInternalRatingsBased(IRB)approachundertheBaselIIregulatoryframeworktocalculatecreditriskcapital.
ForIRBportfolios,astandardalphanumericcreditrisk-gradingsystemisusedinbothWholesaleandConsumerBanking.ThegradingisbasedontheGroup’sinternalestimateofprobabilityofdefaultoveraoneyearhorizon,withcustomersorportfoliosassessedagainstarangeofquantitativeandqualitativefactors.Thenumericgradesrunfrom1to14andsomeofthegradesarefurthersub-classifiedA,BorC.Lowercreditgradesareindicativeofalowerlikelihoodofdefault.Creditgrades1Ato12Careassignedtoperformingcustomersoraccounts,whilecreditgrades13and14areassignedtonon-performingordefaultedcustomers.
TheBank’screditgradesinWholesaleBankingarenotintendedtoreplicateexternalcreditgrades,andratingsassignedbyexternal ratingsagenciesarenotused indeterminingtheBank’s internalcreditgrades.Nonetheless,asthefactorsusedtogradeaborrowermaybesimilar,aborrowerratedpoorlybyanexternalratingagencyistypicallyassignedaworseinternalcreditgrade.
Advanced IRBmodelscoverasubstantialmajorityof theBank’s loansandareusedextensively inassessingrisksatcustomerandportfoliolevel,settingstrategyandoptimisingtheBank’srisk-returndecisions.
IRBriskmeasurementmodelsareapprovedbytheRiskCommittee,ontherecommendationoftheGroupModelAssessmentCommittee(‘MAC’)andtheBank’sMAC.TheBank’sMACsupportstheRiskCommitteeinensuringriskidentificationandmeasurementcapabilitiesareobjectiveandconsistent,sothatriskcontrolandriskoriginationdecisionsareproperlyinformed.PriortoreviewbytheMAC,allIRBmodelsarevalidatedindetailbyamodelvalidationteam,whichisseparatefromtheteamswhichdevelopandmaintainthemodels.Modelsundergoadetailedannualreview.Reviewsarealsotriggeredif the performance of a model deteriorates materially against predetermined thresholds during theongoingmodelperformancemonitoringprocess.
Standard Chartered Bank (Hong Kong) Limited 75
Notes to the financial statements (continued)(Expressed in millions of Hong Kong dollars)
37 Risk management (continued)
(a) Creditrisk(continued)
Credit Approval
TheBankhasbeenlocallyincorporatedsince1July2004.Sincethen,theapprovalprocessreflectsthatstrategicdecisionsarebeingmadeinaccordancewithindividualmanagers’delegatedauthoritiesandthetermsofreferenceoftheappropriatecommittees.Itisrecognisedthat,asamajorpartoftheGroup,allsignificantriskdecisionsemanatingfromHongKongwillhaveanimpacttotheGroup,beitregulatory,concentration,strategic,etc.ItisthereforerecognisedthatitisessentialfortheGrouptoconsidersuchtransactionstoensurethattheseGroupissuesareincludedaspartofthedecisionmakingprocess.DelegatedauthoritiesapprovedbytheRiskCommitteeoftheBankaredelegatedtothekeyriskmanagerstoensurethatallriskdecisionsaremadewithintheBank.Whereproposalsfalloutsideoftheindividual’sauthorities,theadviceandguidanceoftheGroupissought.Insuchcases,therelevantGroupentity,whetheranindividualoracommittee(includingbutnotlimitedtotheGRC),willreviewtheproposalfromaGroupperspectiveandgivetheirrecommendation.Onreceiptofsuchrecommendation,theBank’sExcessApprovalCommittee,beingasub-committeeoftheRiskCommittee,willmeettoconsidersuchadviceandreachasuitabledecision.AllthecreditapplicationsapprovedbytheExcessApprovalCommitteewillbereportedateachRiskCommitteemeetingfornoting.
Concentration risk
Credit concentration risk is managed within concentration caps set by counterparty or groups ofconnectedcounterparties,bycountryandindustryinWholesaleBanking;andtrackedbyproductinConsumerBanking(andalsobyindustryforthesmallandmedium-sizedenterprisebusiness(SME)).Additionaltargetsaresetandmonitoredforconcentrationsbycreditrating.
CreditconcentrationsaremonitoredbytheRiskCommitteeandconcentrationlimitsthatarematerialtotheBankarereviewedandapprovedatleastannuallybytheRiskCommittee.
Credit monitoring
TheBankanditssubsidiariesregularlymonitorcreditexposures,portfolioperformance,andexternaltrendsthatmayimpactriskmanagementoutcomes.
Internal risk management reports are presented to risk committees, containing information on keyenvironmental,politicalandeconomictrendsacrossmajorportfoliosandcountries;portfoliodelinquencyandloanimpairmentperformance;aswellasIRBportfoliometricsincludingcreditgrademigration.
TheBank’sWholesaleBankingCreditIssuesForum(whichisasub-committeeoftheRiskCommittee)meetsregularlytoassesstheimpactofexternaleventsandtrendsontheWholesaleBankingcreditriskportfolioandtodefineandimplementtheBank’sresponseintermsofappropriatechangestoportfolioshape,portfolioandunderwritingstandards,riskpolicyandprocedures.
ClientaccountsareplacedonEarlyAlertwhentheydisplaysignsofactualorpotentialweakness.Forexamplewherethereisadeclineintheclients’positionwithintheindustry,afinancialdeterioration,abreachofcovenants,non-performanceofanobligation,orthereareissuesrelatingtoownershipormanagement.
Standard Chartered Bank (Hong Kong) Limited 76
Notes to the financial statements (continued)(Expressed in millions of Hong Kong dollars)
37 Risk management (continued)
(a) Creditrisk(continued)
SuchaccountsandportfoliosaresubjectedtoadedicatedprocessoverseenbyanEarlyAlertCommittee.Clientaccountplansandcreditgradesarere-evaluatedandremedialactionsareagreedandmonitored.Remedialactionsinclude,butarenotlimitedto,exposurereduction,securityenhancement,exitingtheaccountorimmediatemovementoftheaccountintothecontrolofGroupSpecialAssetsManagement(GSAM),theBank’sspecialistrecoveryunit.
In Consumer Banking, portfolio delinquency trends are monitored continuously at a detailed level.Individualcustomerbehaviourisalsotrackedandisconsideredforlendingdecisions.Accountsthatarepastduearesubjecttoacollectionsprocess,managedindependentlybytheRiskfunction.Charged-offaccountsaremanagedbyaspecialistrecoveryteam.
TheSMEbusinessismanagedwithinConsumerBankingintwodistinctcustomersub-segments:smallbusinessesandmediumenterprises,differentiatedbytheannualturnoverofthecounterparty.Thecreditprocessesarefurtherrefinedbasedonexposureatrisk.LargerexposuresaremanagedthroughtheDiscretionaryLendingapproach,inlinewithWholesaleBankingprocedures,andsmallerexposuresaremanaged through Programmed Lending, in line with Consumer Banking procedures. DiscretionaryLendingandPrivateBankingpastdueaccountsaremanagedbyGSAM.
Credit mitigation
Potentialcreditlossesfromanygivenaccount,customerorportfolioaremitigatedusingarangeoftoolssuchascollateral,nettingagreements,creditinsurance,creditderivativesandotherguarantees.Thereliancethatcanbeplacedonthesemitigants iscarefullyassessed in lightof issuessuchas legalenforceability,marketvalueandcounterpartyriskoftheguarantor.
Riskmitigationpoliciesdeterminetheeligibilityofcollateraltypes.Collateraltypeswhichareeligibleforriskmitigationinclude:cash;residential,commercialandindustrialproperty;fixedassetssuchasmotorvehicles,aircraft,plantandmachinery;marketablesecurities;commodities;bankguarantees;andlettersofcredit.Riskmitigationpoliciescontroltheapprovalofcollateraltypes.
CollateralisvaluedinaccordancewiththeBank’sriskmitigationpolicy,whichprescribesthefrequencyofvaluationfordifferentcollateraltypes.Thevaluationfrequencyisdrivenbythelevelofpricevolatilityofeachtypeofcollateralandthenatureoftheunderlyingproductorriskexposure.
InWholesaleBankingtheeffectivenessofcreditmitigationisensuredbypolicieswhichgoverneligibilitycriteriasuchasmonitoringofconcentrationofcollateral,correlationofthecollateraltounderlyingassets,adjustmentsforcurrencyfluctuationsforcollateral.Forallcreditriskmitigationthatmeetsthepolicycriteria,aclearsetofproceduresareappliedtoensurethatthevalueoftheunderlyingcollateral isappropriatelyrecordedandupdatedregularly.
Standard Chartered Bank (Hong Kong) Limited 77
Notes to the financial statements (continued)(Expressed in millions of Hong Kong dollars)
37 Risk management (continued)
(a) Creditrisk(continued)
InConsumerBankingeffectiveuseofcollateralisakeytoolbywhichcreditriskismitigated.AlleligiblecollateralacceptedbyConsumerBankingiscoveredbyaproductproposalapprovedbyseniorcreditofficersdelegatedwiththerelevantauthority.Newcollateraltypeshavetobevettedthroughastringent‘NewBusinessApproval’processandareapprovedinaccordancewiththedelegatedauthoritieswithinConsumerBankingRiskorbytheExcessApprovalCommitteeunderadviceoftheBank’sConsumerBankingRiskCommitteeasappropriate.Inordertoberecognizedassecurityandfortheloantobeclassifiedassecured,allitemspledgedmustbevaluedandanactivesecondaryresalemarketmustexistforthecollateral.DocumentationmustbeheldtoenableConsumerBankingtorealizetheassetwithout thecooperationof theassetowner in theevent that this isnecessary.RegularvaluationofcollateralisrequiredinaccordancewiththeGroup’sriskmitigationpolicy,whichprescribesboththeprocessofvaluationandthefrequencyofvaluationfordifferentcollateraltypes.Thevaluationfrequencyisdrivenbythelevelofpricevolatilityofeachtypeofcollateralandthenatureoftheunderlyingproductorriskexposure.Stresstestsareperformedonchangesincollateralvaluesforkeyportfoliostoassistseniormanagementinmanagingtherisksinthoseportfolios.Physicalcollateralisrequiredtobeinsuredatalltimesandagainstallrisks,withtheBankasthelosspayeeundertheinsurancepolicy.
Detailedproceduresovercollateralmanagementmustbeinplaceforeachbusiness.
Traded Products
Creditriskfromtradedproductsismanagedwithintheoverallcreditriskappetiteforcorporatesandfinancialinstitutions.
Thecreditriskexposurefromtradedproductsisderivedfromthepositivemark-to-marketvalueoftheunderlyinginstruments,andanadditionalcomponenttocaterforpotentialmarketmovements.
Forderivativecontracts,theBanklimitsitsexposuretocreditlossesintheeventofdefaultbyenteringintomasternettingagreementswithcertaincounterparties.AsrequiredbyHKAS32/IAS32,exposuresarepresentedonagrossbasisinthefinancialstatementsassuchtransactionsarenotintendedtobesettlednetintheordinarycourseofbusiness.
Inaddition,theBankentersintoCreditSupportAnnexes(‘CSA’)withcounterpartieswherecollateralisdeemedanecessaryordesirablemitiganttotheexposure.Underavariationmarginprocess,additionalcollateraliscalledfromthecounterpartyiftotaluncollateralisedmark-to-marketexposureexceedsthethresholdandminimumtransferamountspecifiedintheCSA.Withcertaincounterparties,theCSAisreciprocalandrequirestheBanktopostcollateraliftheoverallmark-to-marketvalueofpositionsisinthecounterparty’sfavourandexceedsanagreedthreshold.
Securities
WithinWholesaleBanking,theExcessApprovalCommitteeunderadviceoftheGroup’sUnderwritingCommittee (asapprovedby theBank’sBoard)approves theportfolio limitsandparameters for theunderwritingandpurchaseofallpre-definedsecuritiesassetstobeheldforsale.TheUnderwritingCommitteeisestablishedundertheauthorityoftheRiskCommitteeunderadviceoftheGroup.WholesaleBankingoperateswithinsetlimits,whichincludecountry,singleissuer,holdingperiodandcreditgradelimits.
DaytodaycreditriskmanagementactivitiesfortradedsecuritiesarecarriedoutbyTradedCreditRiskManagement whose activities include oversight and approval within the levels delegated by theUnderwritingCommittee.Issuercreditrisk,includingsettlementandpre-settlementrisk,iscontrolledbyWholesaleBankingRisk,whilepriceriskiscontrolledbyMarketRisk.
Standard Chartered Bank (Hong Kong) Limited 78
Notes to the financial statements (continued)(Expressed in millions of Hong Kong dollars)
37 Risk management (continued)
(a) Creditrisk(continued)
TheUnderwritingCommitteeapprovesindividualproposalstounderwritenewcorporatesecurityissuesforclients.Whereanunderwrittensecurityisheldforaperiodlongerthanthetargetsell-downperiod,thefinaldecisiononwhethertosellthepositionrestswithintheRiskfunction.
Maximumexposuretocreditrisk
Themaximumexposurestocreditriskofon-balancesheetfinancialinstruments,beforetakingaccountofanycollateralorothercreditenhancementsisthecarryingamountreportedonthebalancesheet.Foroff-balancesheetinstruments,themaximumexposuretocreditriskexcludesloancommitmentswhichareunconditionallycancellableisthecontractualnominalamountsassetoutbelow:
Consolidated Bank
2012
Restated
2011 2012
Restated
2011
HK$’M HK$’M HK$’M HK$’M
Financialguaranteesandothercreditrelatedcontingentliabilities 41,758 52,329 41,841 52,456
Loancommitmentsandothercreditrelatedcommitments 27,214 25,537 25,520 24,027
68,972 77,866 67,361 76,483
Collateral
Collateralisheldtomitigatecreditriskexposuresandriskmitigationpoliciesdeterminetheeligibilityofcollateraltypes.
Forcertaintypesoflending–typicallymortgagesandassetfinancing–therighttotakechargeoverphysicalassetsissignificantintermsofdeterminingappropriatepricingandrecoverabilityintheeventofdefault.
Collateral isvalued inaccordancewithourriskmitigationpolicy,whichprescribesthefrequencyofvaluationfordifferentcollateraltypes,basedonthelevelofpricevolatilityofeachtypeofcollateralandthenatureoftheunderlyingproductorriskexposure.Whereappropriate,collateralvaluesareadjustedtoreflectcurrentmarketconditions,probabilityofrecoveryandtheperiodoftimetorealisethecollateralintheeventofpossession.Thecollateralvaluesreportedbelowreflectthisconservativebasisandarealsoadjustedfortheeffectsofover-collateralisation.
(i) Loans and advances
Therequirementforcollateralisnotasubstitutefortheabilitytopay,however,whichistheprimaryconsiderationforanylendingdecisions.Indeterminingthefinancialeffectofcollateralheldagainstloansneitherpastduenorimpaired,wehaveassessedthesignificanceofthecollateralheldinrelationtothetypeoflending.
Standard Chartered Bank (Hong Kong) Limited 79
Notes to the financial statements (continued)(Expressed in millions of Hong Kong dollars)
37 Risk management (continued)
(a) Creditrisk(continued)
Loans neither past due nor impaired
At31December2012,theBankanditssubsidiarieshaveHK$173,846million(2011:HK$153,707million)ofmortgageloansinConsumerBankingthatareneitherpastduenorimpaired.Thesearegenerallyfullysecuredexposures(2011:fullysecured).
InWholesaleBanking,theBankanditssubsidiarieshaveHK$159,310million(2011:HK$178,402million)ofcorporateexposuresthatareneitherpastduenorimpaired.Basedonthefairvalueofthecollateralheld(Note),20%(2011:24%)oftheseexposuresaresecuredbytangiblecollaterals.
TheBankanditssubsidiariesalsoundertakecollateralisedlendingandborrowing(reverserepoandrepo)arrangements,andthecollateralheldagainstthesetypesofloansaresetoutinnote39tothefinancialstatements.
Non-tangiblecollateral–suchasguaranteesandlettersofcredit–mayalsobeheldagainstcorporateexposuresalthoughthefinancialeffectofthistypeofcollateralislesssignificantintermsofrecoveries.Itisnotpracticabletoquantifytheeffectofthiscollateralasthevalueofthecollateralisconditionaloncircumstancesatthetimeofdefaultandothercreditrelatedfactors.
Loans past due or impaired
Thefairvalueofcollateralheldagainstpastdueorimpairedloansisdetailedinthetablebelowasat31December:
Consolidated
2012 2011
Advances to
customers
Advances to
banks
Advances to
customers
Advances to
banks
HK$’M HK$’M HK$’M HK$’M
Estimatedfairvalueofcollateral(Note):Heldagainstimpairedadvances 307 – 249 –Heldagainstpastduebutnotimpairedadvances 6,407 – 2,650 –
Bank
2012 2011
Advances to
customers
Advances to
banks
Advances to
customers
Advances to
banks
HK$’M HK$’M HK$’M HK$’M
Estimatedfairvalueofcollateral(Note):Heldagainstimpairedadvances 298 – 249 –Heldagainstpastduebutnotimpairedadvances 6,297 – 2,510 –
(Note)Thefairvalueofthecollateralheldrepresentsfairvalue,aftertakingintoaccounttheeffectsofover-collateralisationwhereitisnotavailableforoffsetagainstotherloans.
Standard Chartered Bank (Hong Kong) Limited 80
Notes to the financial statements (continued)(Expressed in millions of Hong Kong dollars)
37 Risk management (continued)
(a) Creditrisk(continued)
Repossessed Collateral
Asat31December,theamountsofassetsobtainedbytakingpossessionofcollateralheldassecuritywereasfollows:
Consolidated Bank
2012 2011 2012 2011
HK$’M HK$’M HK$’M HK$’M
Property,plantandequipment 32 48 26 31
Loancollateralacquiredfromborrowersduetorestructuringortheirinabilitytorepay,continuestoberecordedas“Advancestocustomers”inthebalancesheetattheloweroffairvalue(lesscoststosell)andthecarryingamountoftheloan(netofanyimpairmentallowances),untilthecollateralisrealised.
RepossessedcollateralsobtainedareintendedtoberealisedinanorderlyfashiontorepaytheimpairedloansandarenotheldfortheownuseoftheBankanditssubsidiaries.
(ii) Off-balance sheet exposures
Forcertaintypesofexposuressuchaslettersofcreditandguarantees,theBankanditssubsidiariesobtaincollateralsuchascashdependingoninternalcreditriskassessments.However,fortradefinanceproductssuchaslettersofcredit,theBankanditssubsidiarieswillalsoholdlegaltitletotheunderlyingassetsshouldadefaulttakesplace.
Standard Chartered Bank (Hong Kong) Limited 81
Notes to the financial statements (continued)(Expressed in millions of Hong Kong dollars)
37 Risk management (continued)
(a) Creditrisk(continued)
Creditquality
(i) Analysis of the loan portfolio
Consolidated2012 2011
Advances to
customers
Advances to
banks
Advances to
customers
Advances to
banks
HK$’M HK$’M HK$’M HK$’M
Loansandadvances–neitherpastduenorimpaired 398,645 143,525 386,145 135,967–pastduebutnotimpaired 9,082 13 3,781 485–impaired,netofindividuallyassessed
impairmentcharges 858 43 391 61Less:collectivelyassessed
impairmentcharges (567) – (554) –
408,018 143,581 389,763 136,513
Bank2012 2011
Advances to
customers
Advances to
banks
Advances to
customers
Advances to
banks
HK$’M HK$’M HK$’M HK$’M
Loansandadvances–neitherpastduenorimpaired 386,169 143,515 374,011 135,931–pastduebutnotimpaired 8,835 13 3,526 485–impaired,netofindividuallyassessed
impairmentcharges 836 43 384 61Less:collectivelyassessed
impairmentcharges (454) – (444) –
395,386 143,571 377,477 136,477
Standard Chartered Bank (Hong Kong) Limited 82
Notes to the financial statements (continued)(Expressed in millions of Hong Kong dollars)
37 Risk management (continued)
(a) Creditrisk(continued)
(i) Analysis of the loan portfolio (continued)
Thefollowingtablessetoutananalysisoftheinternalcreditgradingsforadvanceswhicharenotpastdueandforwhichnoindividualimpairmentprovisionhasbeenraised.Thecreditgradingssetoutinthetablesbelowarebasedonaprobabilityofdefaultmeasureassetoutonpage74.
Consolidated2012 2011
Advances to
customers
Advances to
banks
Advances to
customers
Advances to
banks
HK$’M HK$’M HK$’M HK$’M
Creditgrades:1to5 238,341 142,449 225,102 134,8286to8 115,727 953 115,332 1,0959to11 43,194 123 44,226 4412 1,383 – 1,485 –
398,645 143,525 386,145 135,967
Bank2012 2011
Advances to
customers
Advances to
banks
Advances to
customers
Advances to
banks
HK$’M HK$’M HK$’M HK$’M
Creditgrades:1to5 233,993 142,439 223,420 134,7926to8 112,022 953 108,114 1,0959to11 38,976 123 41,374 4412 1,178 – 1,103 –
386,169 143,515 374,011 135,931
Thefollowingtablessetouttheageingofadvanceswhicharepastdueandforwhichnoindividualimpairmentprovisionhasbeenraised.Aloanisconsideredtobepastduewhenthecounterpartyhas failedtomakeaprincipalor interestpaymentwhencontractuallydue.Pastduedoesnotnecessarilymeanthatthecounterpartyisimpaired.
Consolidated2012 2011
Advances to
customers
Advances to
banks
Advances to
customers
Advances to
banks
HK$’M HK$’M HK$’M HK$’M
Pastdue–upto30days 7,903 13 3,474 485–31-60days 200 – 176 ––61-90days 844 – 55 ––91-120days 45 – 13 ––121-150days 90 – 63 –
9,082 13 3,781 485
Standard Chartered Bank (Hong Kong) Limited 83
Notes to the financial statements (continued)(Expressed in millions of Hong Kong dollars)
37 Risk management (continued)
(a) Creditrisk(continued)
(i) Analysis of the loan portfolio (continued)
Bank2012 2011
Advances to
customers
Advances to
banks
Advances to
customers
Advances to
banks
HK$’M HK$’M HK$’M HK$’M
Pastdue–upto30days 7,705 13 3,274 485–31-60days 174 – 138 ––61-90days 821 – 38 ––91-120days 45 – 13 ––121-150days 90 – 63 –
8,835 13 3,526 485
(ii) Analysis of debt securities (including certificates of deposit), equity shares and treasury bills
Consolidated2012
Treasury
bills
Debt
securities
Equity
shares Total
HK$’M HK$’M HK$’M HK$’M
Impairedsecurities – 26 6 32Impairmentprovisions – (26) (6) (32)
Netimpairedsecurities – – – –Securitiesneitherpastduenorimpaired 42,209 163,419 1,021 206,649
2011
Treasury
bills
Debt
securities
Equity
shares Total
HK$’M HK$’M HK$’M HK$’M
Impairedsecurities – 44 6 50Impairmentprovisions – (34) (6) (40)
Netimpairedsecurities – 10 – 10Securitiesneitherpastduenorimpaired 48,254 127,412 427 176,093
Bank2012
Treasury
bills
Debt
securities
Equity
shares Total
HK$’M HK$’M HK$’M HK$’M
Impairedsecurities – 26 6 32Impairmentprovisions – (26) (6) (32)
Netimpairedsecurities – – – –Securitiesneitherpastduenorimpaired 42,209 163,352 1,021 206,582
Standard Chartered Bank (Hong Kong) Limited 84
Notes to the financial statements (continued)(Expressed in millions of Hong Kong dollars)
37 Risk management (continued)
(a) Creditrisk(continued)
(ii) Analysis of debt securities (including certificates of deposit), equity shares and treasury bills(continued)
Bank(continued)2011
Treasury
bills
Debt
securities
Equity
shares Total
HK$’M HK$’M HK$’M HK$’M
Impairedsecurities – 36 6 42Impairmentprovisions – (30) (6) (36)
Netimpairedsecurities – 6 – 6Securitiesneitherpastduenorimpaired 48,254 125,589 427 174,270
Thefollowingtableanalysesdebtsecurities(includingcertificatesofdeposit)andtreasurybillswhichareneitherpastduenorimpairedbyexternalcreditrating.ThestandardcreditratingsusedbytheBankarethoseusedbyStandard&Poorsortheirequivalent.Debtsecuritiesheldwhichhaveashort-termratingarereportedagainstthelong-termratingoftheissuer.
Consolidated2012 2011
Treasury
bills
Debt
securities
Treasury
bills
Debt
securities
HK$’M HK$’M HK$’M HK$’M
AAA – 19,122 – 12,704AA-toAA+ 42,209 72,764 48,254 50,658A-toA+ – 65,339 – 58,012LowerthanA- – 1,487 – 890Unrated – 4,707 – 5,148
42,209 163,419 48,254 127,412
Bank2012 2011
Treasury
bills
Debt
securities
Treasury
bills
Debt
securities
HK$’M HK$’M HK$’M HK$’M
AAA – 19,122 – 12,704AA-toAA+ 42,209 72,764 48,254 50,658A-toA+ – 65,339 – 58,012LowerthanA- – 1,487 – 890Unrated – 4,640 – 3,325
42,209 163,352 48,254 125,589
Standard Chartered Bank (Hong Kong) Limited 85
Notes to the financial statements (continued)(Expressed in millions of Hong Kong dollars)
37 Risk management (continued)
(b) Countrycross-borderrisk
Countrycross-borderriskistheriskthattheBankwillbeunabletoobtainpaymentfromitscustomersorthirdpartiesontheircontractualobligationsasaresultofcertainactionstakenbyforeigngovernments,chieflyrelatingtoconvertibilityandtransferabilityofforeigncurrency.
TheRiskCommitteeisresponsibleforourcountrycross-borderrisklimits.
Cross-borderassetscompriseloansandadvances,interest-bearingdepositswithotherbanks,tradeandotherbills,acceptances,amountsreceivableunderfinanceleases,derivatives,certificatesofdepositandothernegotiablepaper,investmentsecuritiesandformalcommitmentswherethecounterpartyisresident in a country other than where the assets are recorded. Cross-border assets also includeexposuresto local residentsdenominated incurrenciesother thanthe localcurrency.Cross-borderexposurealsoincludesthevalueofcommodity,aircraftandshippingassetsownedbytheBankthatareheldinagivencountry.
(c) Marketriskmanagement
Marketrisk
TheBankrecognisesmarketriskasthepotentiallossofearningsoreconomicvalueduetoadversechangesinfinancialmarketratesorprices.TheBank’sexposuretomarketriskarisesprincipallyfromcustomer-driventransactions.TheobjectiveoftheBank’smarketriskpoliciesandprocessesistoobtainthebestbalanceofriskandreturnwhilstmeetingcustomers’requirements.
TheBanktransactsinthemoneymarket,foreignexchangemarkets,equitymarkets,andcapitalmarketsgivingrisetomarketriskexposures.Financialinstrumentstransactedincludedebtandothersecuritiesand certain off-balance sheet (“derivatives”) financial instruments. Derivatives are contracts withcharacteristicsandvaluederivedfromunderlyingfinancialinstruments,interestandexchangeratesorindices.Theyincludefutures,forwards,swaps,andoptionstransactionsintheforeignexchangeandinterestratemarkets.TheBankentersintoderivativecontractsinthenormalcourseofbusinesstomeetcustomerdemandandforhedgingpurposes.DerivativecontractsenteredintobytheBankareprimarilyover-the-counterderivativeswhichthemark-to-marketvaluesarereadilydeterminablebyreferencetoindependentpricesandvaluationquotes.
TheBankhasestablishedamarketriskmanagementframeworkandpolicies,includinglimitssetting,monitoringandreportingandcontrolprocedures,whicharereviewedregularlybytheRiskCommittee.MarketrisklimitsareproposedbythebusinesswithinthetermsofagreedpolicyandreviewedbytheMarketRiskdepartment.TheRiskCommitteeapproves the limitsand theMarketRiskdepartmentmonitorsexposureagainsttheselimitsandapprovestemporarylimitswithinthedelegatedauthorities.Additional limitsareplacedonspecific instrumentsandpositionconcentrationswhereappropriate.Sensitivitymeasuresareusedinadditiontousingvalue-at-risk(“VaR”)asriskmanagementtools.Forexample,interestratesensitivityismeasuredintermsofexposuretoaonebasispointincreaseinyields.
ValueatRisk
VaR,ingeneral,isaquantitativemeasureofmarketriskthatappliesrecenthistoricalmarketconditionstoestimatethepotentialfuturelossinmarketvaluethatwillnotbeexceededinasettimeperiodatasetstatisticalconfidencelevel.VaRprovidesaconsistentmeasurethatcanbeappliedacrosstradingbusinessesandproductsovertimeandcanbesetagainstactualdailytradingprofitandlossoutcome.
Standard Chartered Bank (Hong Kong) Limited 86
Notes to the financial statements (continued)(Expressed in millions of Hong Kong dollars)
37 Risk management (continued)
(c) Marketriskmanagement(continued)
ValueatRisk(continued)
VaRiscalculatedforexpectedmovementsoveraminimumofonebusinessdayandtoaconfidencelevelof97.5percent.Thisconfidencelevelsuggeststhatpotentialdailylosses,inexcessoftheVaRmeasure,arelikelytobeexperiencedsixtimesperyear.
TheBankappliestwoVaRmethodologies,historicsimulationandMonteCarlosimulation,withahistoricalobservationperiodofoneyear.Historicsimulationisappliedforgeneralmarketriskfactors.Thisapproachinvolvestherevaluationofallexistingpositionstoreflecttheeffectofhistoricallyobservedchangesinmarketriskfactorsonthevaluationofthecurrentportfolio.MonteCarlosimulationisappliedforcreditspreadVaRofthebankingbook.Thisapproachissimilartohistoricsimulationbutwithconsiderablymoreinputriskfactorobservations.Thesearegeneratedbyrandomsamplingtechniques,buttheresultsretaintheessentialvariabilityandcorrelationsofhistoricallyobservedriskfactorchanges.
StressTesting
LossesbeyondtheconfidenceintervalarenotcapturedbyaVaRcalculation,whichthereforegivesnoindicationofthesizeofunexpectedlossesinthesesituations.
VaRandotherriskmeasuresarecomplementedbyweeklystresstestingofmarketriskexposurestohighlightpotentialriskthatmayarisefromextrememarketeventsthatarerarebutplausible.Stresstestingisanintegralpartofthemarketriskmanagementframeworkandconsidersbothhistoricalmarketeventsandforwardlookingscenarios.Aconsistentstresstestingmethodologyisappliedtotradingandnon-tradingbooks.Thestresstestingmethodologyassumesthatscopeformanagementactionwouldbelimitedduringastressevent,reflectingthedecreaseinliquiditythatoftenoccurs.
Stressscenariosareregularlyupdatedtoreflectchangesinriskprofileandeconomicevents.TheRiskCommitteereviewsstresstestresultsonaregularbasis.Adhocscenariosarealsopreparedreflectingspecificmarketconditionsandforparticularconcentrationsofriskthatarisewithinthebusiness.
2011 Distribution of Market Risk-Related Revenues2012 Distribution of Market Risk-Related Revenues
58
6
16
27
38
43
32 31
18
117
31
3 1 154 3 3
7 6
17 16
2227
46
2925
18
96 4
9
-20
or b
elow
-20
to -1
5
-15
to -1
0
-10
to -5
-5 to
00
to 5
5 to
10
10 to
15
15 to
20
20 to
25
25 to
30
30 to
35
35 to
40
40 to
45
45 to
50
50 to
55
-5 o
r belo
w
-5 to
00
to 5
5 to
10
10 to
15
15 to
20
20 to
25
25 to
30
30 to
35
35 to
40
40 to
45
45 to
50
50 to
55
55 to
60
60 to
65
65 to
70
70 to
75
75 to
80
over
80
over
55
Revenue (HK$’M)Revenue (HK$’M)
Num
ber
of D
ays
Num
ber
of D
ays
0
10
20
30
40
50
60
4
0
10
20
30
40
50
Standard Chartered Bank (Hong Kong) Limited 87
Notes to the financial statements (continued)(Expressed in millions of Hong Kong dollars)
37 Risk management (continued)
(c) Marketriskmanagement(continued)
TradingandNon-trading(VaRat97.5%,1day)*
Value at risk: 2012 2011
Average High Low Actual** Average High Low Actual**
HK$’M HK$’M HK$’M HK$’M HK$’M HK$’M HK$’M HK$’M
Interestraterisk^ 75.3 116.9 52.2 52.2 45.2 54.2 35.8 51.7Foreignexchangerisk 4.8 9.2 2.2 3.4 3.5 6.6 0.9 1.8
Total^^ 76.3 117.2 53.5 53.7 45.4 54.3 36.0 51.7
Trading(VaRat97.5%,1day)
Value at risk: 2012 2011
Average High Low Actual** Average High Low Actual**
HK$’M HK$’M HK$’M HK$’M HK$’M HK$’M HK$’M HK$’M
Interestraterisk 13.6 26.7 8.5 11.9 12.3 16.6 9.1 9.2Foreignexchangerisk 4.8 9.2 2.2 3.4 3.5 6.6 0.9 1.8
Total^^ 14.9 26.3 8.9 11.7 13.0 18.6 9.3 10.1
Non-trading(VaRat97.5%,1day)
Value at risk: 2012 2011
Average High Low Actual** Average High Low Actual**
HK$’M HK$’M HK$’M HK$’M HK$’M HK$’M HK$’M HK$’M
Interestraterisk^ 74.1 109.2 51.2 51.2 43.4 52.8 34.0 50.8
Averagedailyincomeearnedfrommarketriskrelatedactivities***areasfollows:
2012 2011
HK$’M HK$’M
TradingInterestraterisk 5.1 3.8Foreignexchangerisk 10.0 9.8
Total 15.1 13.6
Non-TradingInterestraterisk 6.5 4.0
Standard Chartered Bank (Hong Kong) Limited 88
Notes to the financial statements (continued)(Expressed in millions of Hong Kong dollars)
37 Risk management (continued)
(c) Marketriskmanagement(continued)
ThehighestandlowestVaRareindependentandusuallyoccurondifferentdays.* VaRisrepresentativeofSCBHKonshoreportfoliosonly.** ThisrepresentstheactualonedayVaRasat31December.*** P/Lincludesprofitscomingfromoffshoreportfolios.^ InterestrateriskVaRincludescreditspreadriskarisingfromsecuritiesheldbytheFinancialMarkets’
AssetandLiabilityManagementdesk(“ALM”).^^ ThetotalVaRshowninthetableaboveisnotasumofthecomponentrisksduetooffsetsbetween
them.
(d) Foreignexchangerisk
TheforeignexchangepositionsoftheBankanditssubsidiariesarisefromforeignexchangetradingandcommercialbankingoperations.Foreignexchangetradingexposuresareprincipallyderivedfromcustomerdriven transactions.TheMarketRiskdepartmentapproves foreignexchange limitswithindelegatedauthoritiesandmonitorsexposuresagainsttheselimits.Thenetoptionpositioniscalculatedonthebasisofthedelta-weightedpositionsofallforeignexchangeoptioncontracts.
Foreignexchangeriskonthenon-tradingbookportfoliosisminimisedbymatchfundingassetsandliabilitiesinthesamecurrency.
TheBankanditssubsidiarieshadthefollowingnon-structuralforeigncurrencypositionswhichexceeded10%ofthenetnon-structuralpositioninallforeigncurrencies:
Consolidated Bank
2012 2011 2012 2011
HK$’M HK$’M HK$’M HK$’M
US dollars exposure
Spotassets 320,683 311,090 320,680 311,090Spotliabilities (279,069) (262,066) (279,069) (262,066)Forwardpurchases 608,542 328,649 608,542 328,649Forwardsales (644,729) (378,787) (644,729) (378,787)Netoptionposition – – – –
Netlong/(short)non-structuralposition 5,427 (1,114) 5,424 (1,114)
Standard Chartered Bank (Hong Kong) Limited 89
Notes to the financial statements (continued)(Expressed in millions of Hong Kong dollars)
37 Risk management (continued)
(d) Foreignexchangerisk(continued)
Consolidated and Bank
2012 2011
HK$’M HK$’M
Chinese renminbi exposure
Spotassets 98,441 87,053Spotliabilities (86,732) (63,195)Forwardpurchases 382,433 162,096Forwardsales (393,558) (185,047)Netoptionposition – –
Netlongnon-structuralposition 584 907
Consolidated and Bank
2012 2011
HK$’M HK$’M
Australian dollars exposure
Spotassets 7,239 6,800Spotliabilities (13,599) (15,005)Forwardpurchases 12,433 10,833Forwardsales (5,980) (2,977)Netoptionposition – –
Netlong/(short)non-structuralposition 93 (349)
TheBankanditssubsidiarieshadthefollowingstructuralforeigncurrencypositionswhichexceeded10%ofthenetstructuralpositioninallforeigncurrencies:
Consolidated Bank
2012 2011 2012
Restated
2011
HK$’M HK$’M HK$’M HK$’M
ChineseRenminbi 5,085 4,163 5,085 4,163UnitedArabEmiratesDirham 503 531 503 531VietnameseDong 764 740 317 307USdollars 318 363 318 363
6,670 5,797 6,223 5,364
Standard Chartered Bank (Hong Kong) Limited 90
Notes to the financial statements (continued)(Expressed in millions of Hong Kong dollars)
37 Risk management (continued)
(e) Interestraterisk
TheBank’sinterestrateexposurescomprisetradingexposuresandnon-tradingstructuralinterestrateexposures.Structuralinterestrateriskgenerallyarisesfromthedifferingre-pricingcharacteristicsofcommercialbankingassetsandliabilities.
Interest raterisk fromthenon-tradingbookportfolios is transferredtoFinancialMarkets .FinancialMarketsmanagestheseriskswithoversightbytheAssetandLiabilityCommittee(“ALCO”)andwithinlimitsapprovedbytheMarketRiskdepartment.VaRandstresstestsareappliedtonon-tradingbookinterestrateexposuresinthesamewayasforthetradingbook.
TheBankhasestablishedprinciples,policiesandtechniquesformanaginginterestraterisk.InterestrateriskmanagementisgovernedbytheALCO.
(f) Liquidityrisk
TheBankdefines liquidity riskas the risk that it eitherdoesnothavesufficientfinancial resourcesavailable tomeetall itsobligationsandcommitmentsas they falldue,orcanonly secure thematexcessivecost.
TheBankhasestablishedstandards,principles,policiesandtechniquesformanagingliquidityrisk.LiquidityriskmanagementisgovernedbytheALCO.ItisthepolicyoftheBanktomaintainadequateliquidityatalltimesandhencetobeinapositiontomeetallobligationsastheyfalldue.Thetoolsusedfor themanagementof liquidity riskrangefromkeybalancesheet ratiosandmedium-termfundingrequirementsforensuringbalancesheetsarenotdevelopingstructuralimbalances,toshorttermcashflowlimits,controlsonborrowinginthewholesalemarketsandguidelinesoncommitments.Theyaresupplementedbytheestablishmentofregularstresstestingofliquiditypositionsandaliquiditycrisiscontingencyplan.
TheBankhassignificantlevelsofmarketablesecurities,principallygovernmentsecuritiesandbankpaper,whichcanberealisedintheeventthatthereisaneedfor liquidity inacrisis.TheBankalsoprescribesaliquiditystressscenariothatassumesacceleratedwithdrawalofdepositsoveraperiodoftimeandneedstoensurethatcashinflowsexceedoutflowsundersuchascenario.Theliquiditycrisismanagementplanlaysouttriggerpointsandactionsintheeventofaliquiditycrisistoensurethatthereisaneffectiveresponsebyseniormanagementincaseofsuchanevent.
FinancialMarketsisresponsiblefortheday-to-daymanagementofalltheliquidityriskintheBank,executingliquiditydirectivesandoperatingwithintheliquiditypolicyandapprovedlimits.LiquiditylimitsareregularlymonitoredbyaMarketRiskfunctionthatisindependentfromthebusiness.LiquidityprofilesarereviewedbytheALCOonaregularbasis.
CustomerdepositsformasignificantpartoftheBank’soverallfunding.Itscompositionhasremainedrelativelydiversifiedandstable.TheALCOmonitorstrendsinthebalancesheetandensuresthatanyconcernsthatmightimpactthestabilityofthesedepositsareaddressedeffectively.TheALCOalsoreviewsbalancesheetplanstoensurethatassetgrowthplansarematchedbygrowthinthestablefundingbase.Moreover,professionalmarketsareaccessedforthepurposesofprovidingadditionalfunding,maintainingapresenceinlocalmoneymarketsandoptimisingassetandliabilitymaturities.
Standard Chartered Bank (Hong Kong) Limited 91
Notes to the financial statements (continued)(Expressed in millions of Hong Kong dollars)
37 Risk management (continued)
(f) Liquidityrisk(continued)
(i) Contractualmaturity
Thefollowingmaturityprofileisbasedontheremainingperiodtothecontractualmaturitydateasatthebalancesheetdate,onadiscountedbasis.Thedisclosuredoesnotimplythattheassetswillbeheldtomaturityorthattheliabilitieswillbewithdrawnonmaturity.
Consolidated
2012
Due Due Due
Due between between between Due
Repayable within 1 month to 3 months to 1 year to after
on demand 1 month 3 months 1 year 5 years 5 years Undated Total
HK$’M HK$’M HK$’M HK$’M HK$’M HK$’M HK$’M HK$’M
AssetsCashandbalanceswithbanks,central
banksandotherfinancialinstitutions 20,492 – – – – – – 20,492Placementswithbanksand
otherfinancialinstitutions 537 46,669 47,572 47,582 1,222 – (1) 143,581HongKongSARGovernment
certificatesofindebtedness – – – – – – 32,481 32,481Tradingassets – 1,513 4,173 9,273 8,851 4,103 501 28,414Financialassetsdesignatedat
fairvalue – – – – 110 3,106 – 3,216Advancestocustomers 16,228 62,269 30,857 56,102 113,699 129,924 (1,061) 408,018Investmentsecurities 67 18,306 32,919 56,861 59,158 6,548 520 174,379Amountsduefromgroupcompanies 14,986 35,131 10,090 12,635 5,602 2,463 (1,585) 79,322Others 350 4,515 10,796 733 554 86 32,737 49,771
Total Assets 52,660 168,403 136,407 183,186 189,196 146,230 63,592 939,674
LiabilitiesHongKongSARcurrency
notesincirculation – – – – – – 32,481 32,481Depositsandbalancesofbanks
andotherfinancialinstitutions 10,798 494 217 772 – – – 12,281Depositsfromcustomers 487,710 97,913 87,138 81,955 1,831 42 – 756,589Tradingliabilities – 21,601 110 447 50 86 774 23,068Financialliabilitiesdesignatedat
fairvalue – 818 924 1,372 468 30 – 3,612Debtsecuritiesinissue – 320 3,586 6,100 – – – 10,006Amountsduetogroupcompanies 10,031 3,253 4,825 3,325 1,247 2,042 – 24,723Subordinatedliabilities – – – – – 11,267 – 11,267Others 6,395 5,025 5,528 1,309 48 244 327 18,876
Total Liabilities 514,934 129,424 102,328 95,280 3,644 13,711 33,582 892,903
Standard Chartered Bank (Hong Kong) Limited 92
Notes to the financial statements (continued)(Expressed in millions of Hong Kong dollars)
37 Risk management (continued)
(f) Liquidityrisk(continued)
(i) Contractualmaturity(continued)
Consolidated(continued)
2012
Due Due Due
Due between between between Due
Repayable within 1 month to 3 months to 1 year to after
on demand 1 month 3 months 1 year 5 years 5 years Undated Total
Of which:
Certificates of deposit held– includedinTradingassets – 4 452 590 33 – – 1,079– includedinInvestmentsecurities
asavailable-for-salesecurities – 6,603 11,663 10,634 2,856 – – 31,756
– 6,607 12,115 11,224 2,889 – – 32,835
Treasury bills (including Exchange Fund Bills)
– includedinTradingassets – 1,341 3,348 3,988 25 – – 8,702– includedinInvestmentsecurities
asavailable-for-salesecurities – 4,994 15,007 13,506 – – – 33,507
– 6,335 18,355 17,494 25 – – 42,209
Debt securities– includedinTradingassets – – 291 4,278 8,725 4,075 – 17,369– includedinFinancialassets
designatedatfairvalue – – – – 110 3,106 – 3,216– includedinInvestmentsecurities
classifiedas:– available-for-salesecurities – 6,116 6,249 28,611 52,182 6,548 – 99,706– loansandreceivables 67 593 – 4,110 4,120 – – 8,890
– includedinAmountsduefromfellowsubsidiariesclassifiedas:– available-for-salesecurities – – – – – 1,305 – 1,305– financialassetsdesignatedat
fairvalue – – – – – 98 – 98
67 6,709 6,540 36,999 65,137 15,132 – 130,584
Standard Chartered Bank (Hong Kong) Limited 93
Notes to the financial statements (continued)(Expressed in millions of Hong Kong dollars)
37 Risk management (continued)
(f) Liquidityrisk(continued)
(i) Contractualmaturity(continued)
Consolidated(continued)
2011
Due Due Due
Due between between between Due
Repayable within 1 month to 3 months to 1 year to after
on demand 1 month 3 months 1 year 5 years 5 years Undated Total
HK$’M HK$’M HK$’M HK$’M HK$’M HK$’M HK$’M HK$’M
AssetsCashandbalanceswithbanks,central
banksandotherfinancialinstitutions 21,777 – – – – – – 21,777Placementswithbanksand
otherfinancialinstitutions 510 53,304 36,128 45,070 1,504 – (3) 136,513HongKongSARGovernment
certificatesofindebtedness – – – – – – 31,401 31,401Tradingassets – 6,406 4,531 10,294 10,109 4,027 10 35,377Financialassetsdesignatedat
fairvalue – – – 38 344 3,893 – 4,275Advancestocustomers 9,476 57,041 42,141 57,247 109,954 115,038 (1,134) 389,763Investmentsecurities 1,827 12,021 25,611 45,430 48,144 1,640 417 135,090Amountsduefromgroupcompanies 6,519 33,642 12,287 4,984 8,051 3,005 – 68,488Others 322 3,789 6,739 510 326 56 19,428 31,170
Total Assets 40,431 166,203 127,437 163,573 178,432 127,659 50,119 853,854
LiabilitiesHongKongSARcurrency
notesincirculation – – – – – – 31,401 31,401Depositsandbalancesofbanks
andotherfinancialinstitutions 11,156 3,584 256 13 720 – – 15,729Depositsfromcustomers 415,667 130,939 85,872 39,022 1,422 18 – 672,940Tradingliabilities – 23,972 109 543 13 1 – 24,638Financialliabilitiesdesignatedat
fairvalue – 194 1,329 1,353 611 – – 3,487Debtsecuritiesinissue – 8,634 2,930 1,701 – – – 13,265Amountsduetogroupcompanies 2,882 2,738 5,166 3,248 2,366 1,696 – 18,096Subordinatedliabilities – – – – – 13,100 – 13,100Others 5,521 3,618 8,820 2,358 27 130 223 20,697
Total Liabilities 435,226 173,679 104,482 48,238 5,159 14,945 31,624 813,353
Standard Chartered Bank (Hong Kong) Limited 94
Notes to the financial statements (continued)(Expressed in millions of Hong Kong dollars)
37 Risk management (continued)
(f) Liquidityrisk(continued)
(i) Contractualmaturity(continued)
Consolidated(continued)
2011
Due Due Due
Due between between between Due
Repayable within 1 month to 3 months to 1 year to after
on demand 1 month 3 months 1 year 5 years 5 years Undated Total
Of which:
Certificates of deposit held– includedinTradingassets – 52 54 1,502 412 100 – 2,120– includedinInvestmentsecurities
asavailable-for-salesecurities – 4,532 6,861 7,979 4,415 – – 23,787
– 4,584 6,915 9,481 4,827 100 – 25,907
Treasury bills (including Exchange Fund Bills)
– includedinTradingassets – 5,828 3,183 4,727 – – – 13,738– includedinInvestmentsecurities
asavailable-for-salesecurities – 1,418 15,833 17,265 – – – 34,516
– 7,246 19,016 21,992 – – – 48,254
Debt securities– includedinTradingassets – 280 979 3,706 9,640 3,908 – 18,513– includedinFinancialassets
designatedatfairvalue – – – 38 344 3,893 – 4,275– includedinInvestmentsecurities
classifiedas:– available-for-salesecurities – 5,801 2,567 19,546 38,406 – – 66,320– loansandreceivables 1,827 270 350 640 5,323 1,640 – 10,050
– includedinAmountsduefromimmediateholdingcompanyastradingsecurities – – – – 2 15 – 17
– includedinAmountsduefromfellowsubsidiariesclassifiedas:– available-for-salesecurities – – – – – 2,119 – 2,119– financialassetsdesignatedat
fairvalue – – – – – 221 – 221
1,827 6,351 3,896 23,930 53,715 11,796 – 101,515
Standard Chartered Bank (Hong Kong) Limited 95
Notes to the financial statements (continued)(Expressed in millions of Hong Kong dollars)
37 Risk management (continued)
(f) Liquidityrisk(continued)
(i) Contractualmaturity(continued)
Bank
2012
Due Due Due
Due between between between Due
Repayable within 1 month to 3 months to 1 year to after
on demand 1 month 3 months 1 year 5 years 5 years Undated Total
HK$’M HK$’M HK$’M HK$’M HK$’M HK$’M HK$’M HK$’M
AssetsCashandbalanceswithbanks,central
banksandotherfinancialinstitutions 20,331 – – – – – – 20,331Placementswithbanksandother
financialinstitutions 537 46,660 47,572 47,581 1,222 – (1) 143,571HongKongSARGovernment
certificatesofindebtedness – – – – – – 32,481 32,481Tradingassets – 1,510 4,172 9,273 8,851 4,103 501 28,410Financialassetsdesignatedat
fairvalue – – – – 110 3,106 – 3,216Advancestocustomers 16,148 61,801 29,937 52,964 109,656 125,823 (943) 395,386Investmentsecurities – 18,306 32,919 56,861 59,158 6,548 520 174,312Amountsduefromgroupcompanies 14,388 36,383 12,929 16,978 18,500 14,306 (1,585) 111,899Others 337 4,096 9,364 540 38 – 9,069 23,444
Total Assets 51,741 168,756 136,893 184,197 197,535 153,886 40,042 933,050
LiabilitiesHongKongSARcurrencynotesin
circulation – – – – – – 32,481 32,481Depositsandbalancesofbanksand
otherfinancialinstitutions 10,798 444 62 52 – – – 11,356Depositsfromcustomers 487,709 97,610 86,704 81,596 1,826 42 – 755,487Tradingliabilities – 21,599 109 447 50 86 774 23,065Financialliabilitiesdesignatedat
fairvalue – 818 924 1,372 468 30 – 3,612Debtsecuritiesinissue – 320 3,586 6,100 – – – 10,006Amountsduetogroupcompanies 10,754 3,414 5,715 3,081 1,143 2,042 – 26,149Subordinatedliabilities – – – – – 11,267 – 11,267Others 6,395 4,939 5,222 1,010 – – 235 17,801
Total Liabilities 515,656 129,144 102,322 93,658 3,487 13,467 33,490 891,224
Standard Chartered Bank (Hong Kong) Limited 96
Notes to the financial statements (continued)(Expressed in millions of Hong Kong dollars)
37 Risk management (continued)
(f) Liquidityrisk(continued)
(i) Contractualmaturity(continued)
Bank(continued)
2012
Due Due Due
Due between between between Due
Repayable within 1 month to 3 months to 1 year to after
on demand 1 month 3 months 1 year 5 years 5 years Undated Total
Of which:
Certificates of deposit held– includedinTradingassets – 4 452 590 33 – – 1,079– includedinInvestmentsecuritiesas
available-for-salesecurities – 6,603 11,663 10,634 2,856 – – 31,756
– 6,607 12,115 11,224 2,889 – – 32,835
Treasury bills (including Exchange Fund Bills)
– includedinTradingassets – 1,341 3,348 3,988 25 – – 8,702– includedinInvestmentsecuritiesas
available-for-salesecurities – 4,994 15,007 13,506 – – – 33,507
– 6,335 18,355 17,494 25 – – 42,209
Debt securities– includedinTradingassets – – 291 4,278 8,725 4,075 – 17,369– includedinFinancialassets
designatedatfairvalue – – – – 110 3,106 – 3,216– includedinInvestmentsecurities
classifiedas:– available-for-salesecurities – 6,116 6,249 28,611 52,182 6,548 – 99,706– loansandreceivables – 593 – 4,110 4,120 – – 8,823
– includedinAmountsduefromfellowsubsidiariesclassifiedas:
– available-for-salesecurities – – – – – 1,305 – 1,305– financialassetsdesignatedat
fairvalue – – – – – 98 – 98
– 6,709 6,540 36,999 65,137 15,132 – 130,517
Standard Chartered Bank (Hong Kong) Limited 97
Notes to the financial statements (continued)(Expressed in millions of Hong Kong dollars)
37 Risk management (continued)
(f) Liquidityrisk(continued)
(i) Contractualmaturity(continued)
Bank(continued)
2011
Due Due Due
Due between between between Due
Repayable within 1 month to 3 months to 1 year to after
on demand 1 month 3 months 1 year 5 years 5 years Undated Total
HK$’M HK$’M HK$’M HK$’M HK$’M HK$’M HK$’M HK$’M
AssetsCashandbalanceswithbanks,central
banksandotherfinancialinstitutions 21,676 – – – – – – 21,676Placementswithbanksandother
financialinstitutions 474 53,304 36,128 45,070 1,504 – (3) 136,477HongKongSARGovernment
certificatesofindebtedness – – – – – – 31,401 31,401Tradingassets – 6,406 4,531 10,294 10,109 4,027 10 35,377Financialassetsdesignatedat
fairvalue – – – 38 344 3,893 – 4,275Advancestocustomers 9,384 56,002 40,464 54,663 106,539 111,447 (1,022) 377,477Investmentsecurities – 12,021 25,611 45,430 48,144 1,640 417 133,263Amountsduefromgroupcompanies 6,335 43,052 16,279 6,213 11,512 3,439 – 86,830Others 322 3,789 6,349 404 275 56 9,808 21,003
Total Assets 38,191 174,574 129,362 162,112 178,427 124,502 40,611 847,779
LiabilitiesHongKongSARcurrencynotesin
circulation – – – – – – 31,401 31,401Depositsandbalancesofbanksand
otherfinancialinstitutions 11,156 3,484 81 13 – – – 14,734Depositsfromcustomers 415,659 130,851 85,580 38,898 1,419 18 – 672,425Tradingliabilities – 23,972 109 543 13 1 – 24,638Financialliabilitiesdesignatedat
fairvalue – 194 1,329 1,353 611 – – 3,487Debtsecuritiesinissue – 8,634 2,930 1,701 – – – 13,265Amountsduetogroupcompanies 3,333 3,028 6,104 1,782 1,916 1,696 – 17,859Subordinatedliabilities – – – – – 13,100 – 13,100Others 5,510 3,515 8,535 1,922 – 44 223 19,749
Total Liabilities 435,658 173,678 104,668 46,212 3,959 14,859 31,624 810,658
Standard Chartered Bank (Hong Kong) Limited 98
Notes to the financial statements (continued)(Expressed in millions of Hong Kong dollars)
37 Risk management (continued)
(f) Liquidityrisk(continued)
(i) Contractualmaturity(continued)
Bank(continued)
2011
Due Due Due
Due between between between Due
Repayable within 1 month to 3 months to 1 year to after
on demand 1 month 3 months 1 year 5 years 5 years Undated Total
Of which:
Certificates of deposit held– includedinTradingassets – 52 54 1,502 412 100 – 2,120– includedinInvestmentsecuritiesas
available-for-salesecurities – 4,532 6,861 7,979 4,415 – – 23,787
– 4,584 6,915 9,481 4,827 100 – 25,907
Treasury bills (including Exchange Fund Bills)
– includedinTradingassets – 5,828 3,183 4,727 – – – 13,738– includedinInvestmentsecuritiesas
available-for-salesecurities – 1,418 15,833 17,265 – – – 34,516
– 7,246 19,016 21,992 – – – 48,254
Debt securities– includedinTradingassets – 280 979 3,706 9,640 3,908 – 18,513– includedinFinancialassets
designatedatfairvalue – – – 38 344 3,893 – 4,275– includedinInvestmentsecurities
classifiedas:– available-for-salesecurities – 5,801 2,567 19,546 38,406 – – 66,320– loansandreceivables – 270 350 640 5,323 1,640 – 8,223
– includedinAmountsduefromimmediateholdingcompanyastradingsecurities – – – – 2 15 – 17
– includedinAmountsduefromfellowsubsidiariesclassifiedas:
– available-for-salesecurities – – – – – 2,119 – 2,119– financialassetsdesignatedat
fairvalue – – – – – 221 – 221
– 6,351 3,896 23,930 53,715 11,796 – 99,688
Standard Chartered Bank (Hong Kong) Limited 99
Notes to the financial statements (continued)(Expressed in millions of Hong Kong dollars)
37 Risk management (continued)
(f) Liquidityrisk(continued)
(ii) Behaviouralmaturityoffinancialliabilitiesonadiscountedbasis
Thecashflowspresentedinnote37(f)(i)reflectthecashflowswhichwillbecontractuallypayableovertheresidualmaturityofthe instruments. Inpractice,however, liability instrumentsbehavedifferentlyfromtheircontractualtermsandtypically,shorttermcustomeraccountsextendtoalongerperiodthantheircontractualmaturity.TheBankanditssubsidiaries’expectationofwhensuchliabilitiesarelikelytobecomepayableisprovidedinthetablebelow.Noinformationhasbeenpresentedforfinancialliabilitieswhichwillbecomepayableontheircontractualduedates.
Consolidated
2012
Within 3 months
Between 3 months
and 1 year
Between 1 year
and 5 years After 5 years Total
HK$’M HK$’M HK$’M HK$’M HK$’M
Depositsandbalancesofbanksandotherfinancialinstitutions 11,509 772 – – 12,281
Depositsfromcustomers 135,216 112,815 508,558 – 756,589
Total 146,725 113,587 508,558 – 768,870
2011
Within 3 months
Between 3 months
and 1 year
Between 1 year
and 5 years After 5 years Total
HK$’M HK$’M HK$’M HK$’M HK$’M
Depositsandbalancesofbanksandotherfinancialinstitutions 14,996 13 720 – 15,729
Depositsfromcustomers 132,251 118,875 421,814 – 672,940
Total 147,247 118,888 422,534 – 688,669
Standard Chartered Bank (Hong Kong) Limited 100
Notes to the financial statements (continued)(Expressed in millions of Hong Kong dollars)
37 Risk management (continued)
(f) Liquidityrisk(continued)
(ii) Behaviouralmaturityoffinancialliabilitiesonadiscountedbasis(continued)
Bank
2012
Within 3 months
Between 3 months
and 1 year
Between 1 year
and 5 years After 5 years Total
HK$’M HK$’M HK$’M HK$’M HK$’M
Depositsandbalancesofbanksandotherfinancialinstitutions 11,304 52 – – 11,356
Depositsfromcustomers 134,479 112,456 508,552 – 755,487
Total 145,783 112,508 508,552 – 766,843
2011
Within 3 months
Between 3 months
and 1 year
Between 1 year
and 5 years After 5 years Total
HK$’M HK$’M HK$’M HK$’M HK$’M
Depositsandbalancesofbanksandotherfinancialinstitutions 14,721 13 – – 14,734
Depositsfromcustomers 131,864 118,750 421,811 – 672,425
Total 146,585 118,763 421,811 – 687,159
Standard Chartered Bank (Hong Kong) Limited 101
Notes to the financial statements (continued)(Expressed in millions of Hong Kong dollars)
37 Risk management (continued)
(f) Liquidityrisk(continued)
(iii) Financialliabilitiesexcludingderivativefinancialinstrumentsonanundiscountedbasis
ThefollowingtablesshowthecashflowsbyremainingcontractualmaturityonanundiscountedbasisfortheBank’sfinancialliabilities.Thefinancialliabilitybalancesinthetableswillnotagreetothebalancesreportedinthebalancesheetsasthetablesincorporateallcontractualcashflows,onanundiscountedbasis,relatingtobothprincipalandinterestpayments.Thecashflowspresentedinthetablesreflectthecashflowswhichwillbecontractuallypayableovertheresidualmaturityof the instruments. In practice, however, the liability instruments behave differently from theircontractualtermsandtypically,forshorttermcustomeraccounts,extendtoalongerperiodthantheircontractualmaturity.
Consolidated
2012
Due Due
between between Due
Repayable Due within 3 months to 1 year to after
on demand 3 months 1 year 5 years 5 years Undated Total
HK$’M HK$’M HK$’M HK$’M HK$’M HK$’M HK$’M
Depositsandbalancesofbanksandotherfinancialinstitutions 10,798 715 772 – – – 12,285
Depositsfromcustomers 487,710 185,600 83,138 2,005 84 – 758,537Tradingliabilities – 20,818 – – – 774 21,592Financialliabilitiesdesignatedat
fairvalue – 1,777 1,390 497 28 – 3,692Debtsecuritiesinissue – 3,918 6,161 – – – 10,079Amountsduetogroupcompanies 10,031 8,078 3,326 1,267 2,042 – 24,744Subordinatedliabilities – – 536 2,153 12,217 – 14,906Others 5,744 9,750 1,114 11 244 33,095 49,958
514,283 230,656 96,437 5,933 14,615 33,869 895,793
2011
Due Due
between between Due
Repayable Due within 3 months to 1 year to after
on demand 3 months 1 year 5 years 5 years Undated Total
HK$’M HK$’M HK$’M HK$’M HK$’M HK$’M HK$’M
Depositsandbalancesofbanksandotherfinancialinstitutions 11,156 3,845 13 720 – – 15,734
Depositsfromcustomers 415,667 217,161 39,481 1,451 18 – 673,778Tradingliabilities – 23,137 – – – – 23,137Financialliabilitiesdesignatedat
fairvalue – 1,593 1,336 618 – – 3,547Debtsecuritiesinissue – 11,570 1,712 – – – 13,282Amountsduetogroupcompanies 2,882 7,913 3,297 2,449 1,696 – 18,237Subordinatedliabilities – 2 528 2,187 14,943 – 17,660Others 5,521 11,589 2,358 27 130 31,624 51,249
435,226 276,810 48,725 7,452 16,787 31,624 816,624
Standard Chartered Bank (Hong Kong) Limited 102
Notes to the financial statements (continued)(Expressed in millions of Hong Kong dollars)
37 Risk management (continued)
(f) Liquidityrisk(continued)
(iii) Financialliabilitiesexcludingderivativefinancialinstrumentsonanundiscountedbasis(continued)
Bank
2012
Due Due
between between Due
Repayable Due within 3 months to 1 year to after
on demand 3 months 1 year 5 years 5 years Undated Total
HK$’M HK$’M HK$’M HK$’M HK$’M HK$’M HK$’M
Depositsandbalancesofbanksandotherfinancialinstitutions 10,798 509 52 – – – 11,359
Depositsfromcustomers 487,709 184,861 82,777 2,000 84 – 757,431Tradingliabilities – 20,818 – – – 774 21,592Financialliabilitiesdesignatedat
fairvalue – 1,777 1,390 497 28 – 3,692Debtsecuritiesinissue – 3,918 6,161 – – – 10,079Amountsduetogroupcompanies 10,754 9,132 3,081 1,165 2,042 – 26,174Subordinatedliabilities – – 536 2,153 12,217 – 14,906Others 5,735 9,636 968 – – 32,716 49,055
514,996 230,651 94,965 5,815 14,371 33,490 894,288
2011
Due Due
between between Due
Repayable Due within 3 months to 1 year to after
on demand 3 months 1 year 5 years 5 years Undated Total
HK$’M HK$’M HK$’M HK$’M HK$’M HK$’M HK$’M
Depositsandbalancesofbanksandotherfinancialinstitutions 11,156 3,569 13 – – – 14,738
Depositsfromcustomers 415,659 216,780 39,356 1,448 18 – 673,261Tradingliabilities – 23,137 – – – – 23,137Financialliabilitiesdesignatedat
fairvalue – 1,593 1,336 618 – – 3,547Debtsecuritiesinissue – 11,570 1,712 – – – 13,282Amountsduetogroupcompanies 3,333 9,136 1,785 1,916 1,696 – 17,866Subordinatedliabilities – 2 528 2,187 14,943 – 17,660Others 5,510 11,204 1,922 – 44 31,624 50,304
435,658 276,991 46,652 6,169 16,701 31,624 813,795
Standard Chartered Bank (Hong Kong) Limited 103
Notes to the financial statements (continued)(Expressed in millions of Hong Kong dollars)
37 Risk management (continued)
(f) Liquidityrisk(continued)
(iv) Derivativefinancialinstrumentsonanundiscountedbasis
Thefollowingtablesshowthematurityofderivativefinancialinstrumentsincludingthosenetsettledderivativecontractsinanetliabilityposition,togetherwiththepaylegofgrosssettledcontractsregardlessofwhethertheoverallcontractisinanassetorliabilityposition.Thereceivinglegisnotshowninthistableandasaresultthederivativeamountsinthistableareinflatedbytheirexclusion.
Consolidated
Due Due
between between Due
Due within 3 months to 1 year to after
3 months 1 year 5 years 5 years Total
HK$’M HK$’M HK$’M HK$’M HK$’M
2012
Derivativefinancialinstruments 731,255 532,200 26,824 6,061 1,296,340
2011
Derivativefinancialinstruments 341,680 341,484 11,107 2,398 696,669
Bank
Due Due
between between Due
Due within 3 months to 1 year to after
3 months 1 year 5 years 5 years Total
HK$’M HK$’M HK$’M HK$’M HK$’M
2012
Derivativefinancialinstruments 731,170 532,200 26,824 6,061 1,296,255
2011
Derivativefinancialinstruments 341,680 341,484 11,107 2,398 696,669
Standard Chartered Bank (Hong Kong) Limited 104
Notes to the financial statements (continued)(Expressed in millions of Hong Kong dollars)
37 Risk management (continued)
(g) Operationalrisk
Operationalriskisthepotentialforlossarisingfromthefailureofpeople,processortechnologyortheimpactofexternalevents.Weseektominimizeourexposuretooperationalrisk,subjecttocosttrade-offs.Operationalriskexposuresaremanagedthroughaconsistentsetofmanagementprocessesthatdriveriskidentification,assessment,controlandmonitoring.
TheRiskCommittee(asdelegatedbytheBoard)overseesthemanagementofoperationalrisksacrosstheBank,supportedbybusinessandfunctionallevelcommittees.ThisformalstructureofgovernanceprovidestheBoardwithconfidencethatoperationalrisksarebeingproactivelyidentifiedandeffectivelymanaged.
TheRiskCommitteeisresponsibleforsettingandmaintainingstandardsforoperationalriskmanagementandmeasurement. Inaddition, specialistoperational riskcontrolownershave responsibility for themanagementofoperationalriskarisingfromthefollowingBank-wideactivities:legalprocesses,peoplemanagement, technology management, vendor management, property management, securitymanagement,accountingandfinancialcontrol,taxmanagement,corporateauthoritiesandstructureandregulatorycompliance.EachriskcontrolownerisresponsibleforidentifyingrisksthatarematerialtotheBankandformaintaininganeffectivecontrolenvironment,whichincludesdefiningappropriatepoliciesandproceduresforapprovalbyauthorizedriskcommittees.
TheCountryOperationalRiskCommittee(“CORC”)isasub-committeeoftheRiskCommitteeandisresponsibleforthesupervisionandmanagementofoperationalrisksacrosstheBank.CORCisalsoresponsibleforensuringadequateandappropriatepoliciesandprocedures,andresourcesareinplaceforidentification,assessment,monitoring,controlandreportingofoperationalrisks.
CompliancewithoperationriskpoliciesandproceduresistheresponsibilityofallmanagerswithintheBank.WholesaleBankandConsumerBankhaveindependentOperationalRiskteamsreportingtotheRiskFunctiontoensureoperationalriskiseffectivelymanaged.Theseunitsareresponsibleforapprovingoperationalcontrols,ensuringcompliancewithpoliciesandprocedures in thebusiness,monitoringmaterial operational risk exposures, and providing guidance to the respective business areas onoperationalriskmanagement.
(h) Reputationalrisk
ReputationalriskisthepotentialfordamagetotheBank’sfranchise,resultinginlossofearningsoradverseimpactonmarketcapitalisationasaresultofstakeholderstakinganegativeviewoftheBankoritsactions.
ReputationalriskcouldarisefromthefailurebytheBanktoeffectivelymitigatetherisksinitsbusinessesincludingoneormoreofcountry,credit,liquidity,market,regulatory,legalorotheroperationalrisk.Itmayalsoarisefromafailuretocomplywithenvironmentalandsocialstandards.DamagetotheBank’sreputationcouldcauseexistingclientstoreduceorceasetodobusinesswiththeBankandprospectiveclientstobereluctanttodobusinesswiththeBank.Afailuretomanagereputationalriskeffectivelycouldmateriallyaffect theBank’sbusiness, resultsofoperationsandprospects.Allemployeesareresponsiblefordaytodayidentificationandmanagementofreputationalrisk.
Standard Chartered Bank (Hong Kong) Limited 105
Notes to the financial statements (continued)(Expressed in millions of Hong Kong dollars)
37 Risk management (continued)
(h) Reputationalrisk(continued)
The Risk Committee and its sub-committee, the Responsibility and Reputational Risk Committee,providesBank-wideoversightonreputationalrisk,setspolicyandmonitorsmaterialrisks.TheHeadofCorporateAffairsistheoverallriskcontrolownerforreputationalrisk.TheExecutiveCommittee(“EXCO”)provideadditionaloversightofreputationalriskonbehalfoftheBoard.
TheHeadofCorporateAffairsas riskcontrolowner is responsible for theprotectionof theBank’sreputationwiththesupportofthecountrymanagementteam.TheHeadofCorporateAffairsandChiefExecutiveOfficermustactively:
• PromoteawarenessandapplicationoftheBank’spoliciesandproceduresregardingreputationalrisk.
• EncouragebusinessandfunctionstotakeaccountoftheBank’sreputationinalldecision-making,includingdealingswithcustomersandsuppliers.
• Implementeffectivein-countryreportingsystemstoensuretheyareawareofallpotentialissuesintandemwithrespectivebusinesscommittees.
• Promoteeffective,proactivestakeholdermanagementthroughongoingengagement.
(i) Pensionrisk
PensionriskisthepotentialforlossduetohavingtomeetanactuariallyassessedshortfallintheBank’spensionscheme.PensionriskexposureisnotconcernedwiththefinancialperformanceoftheBank’spensionschemebutisfocusedupontherisktotheBank’sfinancialpositionarisingfromtheneedtomeetpensionschemefundingobligations.TheriskassessmentisfocusedonourobligationstowardstheBank’spensionscheme,ensuring thatour fundingobligation iscomfortablywithinourfinancialcapacity.Pensionriskismonitoredonaquarterlybasistakingaccountoftheactualvariationsinassetvaluesandupdatedexpectationsregardingtheprogressionofthepensionfundassetsandliabilities.
ThePensionRiskCommitteeisthebodyresponsibleforgovernanceofpensionriskanditreceivesitsauthorityfromEXCO.
(j) Capitalmanagement
TheHKMAsetsandmonitorscapitalrequirementsfortheBankandcertainofitssubsidiariesspecifiedbytheHKMA.Inimplementingcurrentcapitalrequirements,theHKMArequirestheBanktomaintainaprescribedratiooftotalcapitaltototalrisk-weightedassets.TheBankcalculatesitscapitaladequacyratiosinaccordancewiththeBanking(Capital)RulesoftheHongKongBankingOrdinance.
Inadditiontomeetingtheregulatoryrequirements,theBank’sprimaryobjectiveswhenmanagingcapitalaretosafeguardtheBankanditssubsidiaries’abilitytocontinueasagoingconcern,sothatitcancontinuetoprovidereturnsforshareholdersandbenefitsforotherstakeholders,bypricingproductsandservicescommensuratelywiththelevelofriskandbysecuringaccesstofinanceatareasonablecost.TheBankactivelyandregularlyreviewsandmanagesitscapitalstructuretomaintainabalancebetweenthehighershareholderreturnsthatmightotherwisebepossiblewithgreatergearingandtheadvantagesandsecurityaffordedbyasoundcapitalposition,andmakesadjustmentstothecapitalstructureinlightofchangesineconomicconditions.
Standard Chartered Bank (Hong Kong) Limited 106
Notes to the financial statements (continued)(Expressed in millions of Hong Kong dollars)
37 Risk management (continued)
(j) Capitalmanagement(continued)
TheprocessofallocatingcapitaltospecificoperationsandactivitiesisundertakenbytheAssetandLiabilityCommitteeandisreviewedregularlybytheBoardofDirectors.
Consistentwith industrypractice,theBankmonitors itscapitalstructureonthebasisofthecapitaladequacyratioandtherehavebeennomaterialchangesintheBank’spolicyonthemanagementofcapitalduringtheyear.
TheBankanditssubsidiarieshavecompliedwithallexternallyimposedcapitalrequirementsthroughouttheyearsended31December2012and2011.
Forthecapitalratiosasat31December2012and2011,theBankusesboththeadvancedinternalratings-basedapproachandstandardizedapproachtocalculateitscreditriskfornon-securitizationexposures.TheBankadoptstheinternalratings-based(securitization)approachtocalculateitscreditriskforsecuritizationexposures.
Forthecalculationofitscapitalchargeformarketrisk,theBankusesaninternalmodelsapproachfortwoguaranteedfundsandthestandardized(marketrisk)approachforotherexposures.Inaddition,theBankadoptsthestandardized(operationalrisk)approachforoperationalrisk.
The Bank’s consolidated capital as at 31 December 2012 and 2011 consists of core capital afterdeductionsofHK$34,061million(2011:HK$28,612million)andsupplementarycapitalafterdeductionsofHK$10,441million(2011:HK$11,708million).Supplementarycapitalincludessubordinateddebt,andcollectiveimpairmentallowancesforimpairedassets.
38 Financial instruments
(a) Valuationoffinancialinstrumentscarriedatfairvalue
ValuationoffinancialassetsandliabilitiesheldatfairvaluearesubjecttoareviewindependentofthebusinessbyValuationControl.Forthosefinancialassetsandliabilitieswhosefairvalueisdeterminedbyreferencetoexternallyquotedpricesormarketobservablepricinginputstovaluationmodels,anassessmentismadeagainstexternalmarketdataandconsensusservices.Financialinstrumentsheldat fair value in the balance sheet have been classified into a valuation hierarchy that reflects thesignificanceoftheinputsusedinthefairvaluemeasurements.
Valuation methodologies
Thevaluationhierarchy,andthetypesofinstrumentsclassifiedintoeachlevelwithinthathierarchy,issetoutbelow:
Level1 Level2 Level3
Fairvaluedeterminedusing: Unadjustedquotedpriceinanactivemarketforidenticalassetsandliabilities
Valuationmodelswithdirectlyorindirectlymarketobservableinputs
Valuationmodelsusingsignificantnon-marketobservableinputs
Typesoffinancialassets ActivelytradedgovernmentandagencysecuritiesListedequitiesQuotedderivativeinstruments
CorporateandothergovernmentbondsandloansOver-the-counterderivativesAssetbackedsecurities
AssetbackedsecuritiesCorporatebondsandloansinilliquidmarketsUnlistedequities
Typesoffinancialliabilities ShortpositionsinactivelytradedgovernmentandagencysecuritiesShortpositionsinlistedequitiesQuotedderivativeinstruments
StructuredcustomerdepositsOver-the-counterderivatives
Over-the-counterderivativeswithunobservableparameters
Standard Chartered Bank (Hong Kong) Limited 107
Notes to the financial statements (continued)(Expressed in millions of Hong Kong dollars)
38 Financial instruments (continued)
(a) Valuationoffinancialinstrumentscarriedatfairvalue(continued)
Thetablesbelowshowtheclassificationoffinancialinstrumentsheldatfairvalueintothevaluationhierarchysetoutaboveasat31December:
Consolidated
2012
Level 1 Level 2 Level 3 Total
HK$’M HK$’M HK$’M HK$’M
Tradingassets– Tradingsecurities 24,871 2,780 – 27,651– Advancestocustomers – 186 – 186– Positivefairvaluesoftradingderivatives 2 567 8 577
Amountsduefromimmediateholdingcompany– Positivefairvaluesoftradingderivatives 3 6,093 1 6,097– Positivefairvaluesofhedgingderivatives – 911 – 911
Amountsduefromfellowsubsidiaries– Available-for-saledebtsecurities – – 1,305 1,305– Debtsecuritiesdesignatedatfairvalue – – 98 98– Positivefairvaluesoftradingderivatives – 81 – 81
Financialassetsdesignatedatfairvalue– Debtsecurities – 2,668 548 3,216
Available-for-salesecurities– Treasurybills(includingExchangeFund
Bills) 33,507 – – 33,507– Certificatesofdepositheld – 31,756 – 31,756– Debtsecurities 28,692 71,014 – 99,706– Equityshares,netofimpairment 90 – 430 520
Total assets measured at fair value 87,165 116,056 2,390 205,611
Tradingliabilities– Shortpositionsinsecurities 22,229 – – 22,229– Negativefairvaluesoftradingderivatives – 838 1 839
Financialliabilitiesdesignatedatfairvalue– Structuredcustomerdeposits – 3,574 – 3,574– Debtsecuritiesissued – 38 – 38
Amountsduetoimmediateholdingcompany– Structureddepositsdesignatedatfairvalue – 186 – 186– Negativefairvaluesoftradingderivatives 2 5,632 8 5,642– Negativefairvaluesofhedgingderivatives – 1,654 – 1,654
Amountsduetofellowsubsidiaries– Negativefairvaluesoftradingderivatives – 76 – 76– Negativefairvaluesofhedgingderivatives – 264 – 264
Total liabilities measured at fair value 22,231 12,262 9 34,502
Therewerenosignificanttransfersbetweenlevel1andlevel2instrumentsin2012.
Standard Chartered Bank (Hong Kong) Limited 108
Notes to the financial statements (continued)(Expressed in millions of Hong Kong dollars)
38 Financial instruments (continued)
(a) Valuationoffinancialinstrumentscarriedatfairvalue(continued)
Consolidated(continued)
2011 Restated
Level 1 Level 2 Level 3 Total
HK$’M HK$’M HK$’M HK$’M
Tradingassets– Tradingsecurities 30,410 3,971 – 34,381– Placementwithbanksandotherfinancial
institutions – 21 – 21– Advancestocustomers – 185 – 185– Positivefairvaluesoftradingderivatives 45 745 – 790
Amountsduefromimmediateholdingcompany– Tradingdebtsecurities – 17 – 17– Positivefairvaluesoftradingderivatives 6 2,563 – 2,569– Positivefairvaluesofhedgingderivatives – 802 – 802
Amountsduefromfellowsubsidiaries– Available-for-saledebtsecurities – – 2,119 2,119– Debtsecuritiesdesignatedatfairvalue – – 221 221– Positivefairvaluesoftradingderivatives – 103 – 103– Positivefairvaluesofhedgingderivatives – 99 – 99
Financialassetsdesignatedatfairvalue– Debtsecurities – 2,659 1,616 4,275
Available-for-salesecurities– Treasurybills(includingExchangeFund
Bills) 34,516 – – 34,516– Certificatesofdepositheld – 23,787 – 23,787– Debtsecurities 15,757 50,563 – 66,320– Equityshares,netofimpairment 99 – 318 417
Otherassets– Positivefairvaluesofhedgingderivatives – 56 – 56
Total assets measured at fair value 80,833 85,571 4,274 170,678
Tradingliabilities– Shortpositionsinsecurities 23,855 – – 23,855– Negativefairvaluesoftradingderivatives 6 777 – 783
Financialliabilitiesdesignatedatfairvalue– Structuredcustomerdeposits – 2,615 – 2,615– Debtsecuritiesissued – 872 – 872
Amountsduetoimmediateholdingcompany– Negativefairvaluesoftradingderivatives 2 3,375 – 3,377– Negativefairvaluesofhedgingderivatives – 1,358 – 1,358
Amountsduetofellowsubsidiaries– Negativefairvaluesoftradingderivatives – 12 – 12– Negativefairvaluesofhedgingderivatives – 16 – 16
Total liabilities measured at fair value 23,863 9,025 – 32,888
Therewerenosignificanttransfersbetweenlevel1andlevel2instrumentsin2011.
Standard Chartered Bank (Hong Kong) Limited 109
Notes to the financial statements (continued)(Expressed in millions of Hong Kong dollars)
38 Financial instruments (continued)
(a) Valuationoffinancialinstrumentscarriedatfairvalue(continued)
Bank
2012
Level 1 Level 2 Level 3 Total
HK$’M HK$’M HK$’M HK$’M
Tradingassets– Tradingsecurities 24,871 2,780 – 27,651– Advancestocustomers – 186 – 186– Positivefairvaluesoftradingderivatives 2 563 8 573
Amountsduefromimmediateholdingcompany– Positivefairvaluesoftradingderivatives 3 6,089 1 6,093– Positivefairvaluesofhedgingderivatives – 911 – 911
Amountsduefromfellowsubsidiaries– Available-for-saledebtsecurities – – 1,305 1,305– Debtsecuritiesdesignatedatfairvalue – – 98 98– Positivefairvaluesoftradingderivatives – 81 – 81
Financialassetsdesignatedatfairvalue– Debtsecurities – 2,668 548 3,216
Available-for-salesecurities– Treasurybills(includingExchangeFund
Bills) 33,507 – – 33,507– Certificatesofdepositheld – 31,756 – 31,756– Debtsecurities 28,692 71,014 – 99,706– Equityshares,netofimpairment 90 – 430 520
Total assets measured at fair value 87,165 116,048 2,390 205,603
Tradingliabilities– Shortpositionsinsecurities 22,229 – – 22,229– Negativefairvaluesoftradingderivatives – 835 1 836
Financialliabilitiesdesignatedatfairvalue– Structuredcustomerdeposits – 3,574 – 3,574– Debtsecuritiesissued – 38 – 38
Amountsduetoimmediateholdingcompany– Structureddepositsdesignatedatfairvalue – 186 – 186– Negativefairvaluesoftradingderivatives 2 5,632 8 5,642– Negativefairvaluesofhedgingderivatives – 1,654 – 1,654
Amountsduetofellowsubsidiaries– Negativefairvaluesoftradingderivatives – 76 – 76– Negativefairvaluesofhedgingderivatives – 264 – 264
Total liabilities measured at fair value 22,231 12,259 9 34,499
Therewerenosignificanttransfersbetweenlevel1andlevel2instrumentsin2012.
Standard Chartered Bank (Hong Kong) Limited 110
Notes to the financial statements (continued)(Expressed in millions of Hong Kong dollars)
38 Financial instruments (continued)
(a) Valuationoffinancialinstrumentscarriedatfairvalue(continued)
Bank(continued)
2011 Restated
Level 1 Level 2 Level 3 Total
HK$’M HK$’M HK$’M HK$’M
Tradingassets– Tradingsecurities 30,410 3,971 – 34,381– Placementwithbanksandotherfinancial
institutions – 21 – 21– Advancestocustomers – 185 – 185– Positivefairvaluesoftradingderivatives 45 745 – 790
Amountsduefromimmediateholdingcompany– Tradingdebtsecurities – 17 – 17– Positivefairvaluesoftradingderivatives 6 2,560 – 2,566– Positivefairvaluesofhedgingderivatives – 802 – 802
Amountsduefromfellowsubsidiaries– Available-for-saledebtsecurities – – 2,119 2,119– Debtsecuritiesdesignatedatfairvalue – – 221 221– Positivefairvaluesoftradingderivatives – 103 – 103– Positivefairvaluesofhedgingderivatives – 99 – 99Financialassetsdesignatedatfairvalue– Debtsecurities – 2,659 1,616 4,275
Available-for-salesecurities– Treasurybills(includingExchangeFund
Bills) 34,516 – – 34,516– Certificatesofdepositheld – 23,787 – 23,787– Debtsecurities 15,757 50,563 – 66,320– Equityshares,netofimpairment 99 – 318 417
Otherassets– Positivefairvaluesofhedgingderivatives – 56 – 56
Total assets measured at fair value 80,833 85,568 4,274 170,675
Tradingliabilities– Shortpositionsinsecurities 23,855 – – 23,855– Negativefairvaluesoftradingderivatives 6 777 – 783
Financialliabilitiesdesignatedatfairvalue– Structuredcustomerdeposits – 2,615 – 2,615– Debtsecuritiesissued – 872 – 872
Amountsduetoimmediateholdingcompany– Negativefairvaluesoftradingderivatives 2 3,375 – 3,377– Negativefairvaluesofhedgingderivatives – 1,358 – 1,358
Amountsduetofellowsubsidiaries– Negativefairvaluesoftradingderivatives – 12 – 12– Negativefairvaluesofhedgingderivatives – 16 – 16
Total liabilities measured at fair value 23,863 9,025 – 32,888
Therewerenosignificanttransfersbetweenlevel1andlevel2instrumentsin2011.
Standard Chartered Bank (Hong Kong) Limited 111
Notes to the financial statements (continued)(Expressed in millions of Hong Kong dollars)
38 Financial instruments (continued)
(a) Valuationoffinancialinstrumentscarriedatfairvalue(continued)
Themovementsduringtheyearforlevel3financialassetsandliabilitiesareasfollows:
ConsolidatedandBank
2012
Financial
assets
designated at
fair value
Amounts due
from immediate
holding
company
Amounts due
from fellow
subsidiaries
(Note)
Available-
for-sale
securities
Derivatives
financial
instruments
Total level
3 assets
HK$’M HK$’M HK$’M HK$’M HK$’M HK$’M
FinancialassetsAt1January2012 1,616 – 2,340 318 – 4,274Totalgainsrecognisedinthe
incomestatement 76 1 35 – 8 120Totalgainsrecognisedinthe
available-for-saleinvestmentreserve – – 8 30 – 38Purchases – – – 217 – 217Sales – – – (31) – (31)Settlements (700) – (980) (104) – (1,784)Transferredintolevel3 113 – – – – 113Transferredoutoflevel3 (557) – – – – (557)
At31December2012 548 1 1,403 430 8 2,390
Totalgains/(losses)recognisedintheincomestatementrelatingtoassetsheldat31December2012 5 1 (1) – 8 13
Amounts due
to immediate
holding
company
Derivatives
financial
instruments
Total level
3 liabilities
HK$’M HK$’M HK$’M
FinancialliabilitiesAt1January2012 – – –Totallossesrecognisedintheincomestatement 8 1 9
At31December2012 8 1 9
Totallossesrecognisedintheincomestatementrelatingtoliabilitiesheldat31December2012 8 1 9
Standard Chartered Bank (Hong Kong) Limited 112
Notes to the financial statements (continued)(Expressed in millions of Hong Kong dollars)
38 Financial instruments (continued)
(a) Valuationoffinancialinstrumentscarriedatfairvalue(continued)
2011
Financial
assets
designated at
fair value
Amounts due
from fellow
subsidiaries
(Note)
Available-
for-sale
securities
Total level
3 assets
HK$’M HK$’M HK$’M HK$’M
FinancialassetsAt1January2011 2,385 3,309 277 5,971Totalgainsrecognisedinthe
incomestatement 31 10 240 281Totalgains/(losses)recognisedinthe
available-for-saleinvestmentreserve – 13 (38) (25)Purchases – – 526 526Sales – – (491) (491)Settlements (1,133) (992) (196) (2,321)Transferredintolevel3 824 – – 824Transferredoutoflevel3 (491) – – (491)
At31December2011 1,616 2,340 318 4,274
Totalgainsrecognisedintheincomestatementrelatingtoassetsheldat31December2011 6 18 – 24
Note: Amountsduefromfellowsubsidiariesincludeddebtsecuritieswhichareavailableforsaleanddesignatedatfairvalue.
Sensitivitiesinrespectofthefairvaluesoflevel3assetsandliabilitiesareasfollows:
ConsolidatedandBank
2012
Held at fair value through profit or loss Available-for-sale securities
Net
exposure
Favourable
changes
Unfavourable
changes
Net
exposure
Favourable
changes
Unfavourable
changes
HK$’M HK$’M HK$’M HK$’M HK$’M HK$’M
Amountsduefromimmediateholdingcompany 1 1 1 – – –
Amountsduefromfellowsubsidiaries 98 98 98 1,305 1,310 1,300
Debtsecurities 548 554 542 – – –Equitysecurities – – – 430 473 387Derivativefinancial
instruments 7 7 7 – – –Amountsduetoimmediate
holdingcompany (8) (8) (8) – – –
646 652 640 1,735 1,783 1,687
Standard Chartered Bank (Hong Kong) Limited 113
Notes to the financial statements (continued)(Expressed in millions of Hong Kong dollars)
38 Financial instruments (continued)
(a) Valuationoffinancialinstrumentscarriedatfairvalue(continued)
2011
Held at fair value through profit or loss Available-for-sale securities
Net
exposure
Favourable
changes
Unfavourable
changes
Net
exposure
Favourable
changes
Unfavourable
changes
HK$’M HK$’M HK$’M HK$’M HK$’M HK$’M
Amountsduefromfellowsubsidiaries 221 222 220 2,119 2,126 2,112
Debtsecurities 1,616 1,631 1,601 – – –Equityshares – – – 318 350 286
1,837 1,853 1,821 2,437 2,476 2,398
Wherethefairvalueoffinancialinstrumentsaremeasuredusingvaluationtechniquesthatincorporateoneormoresignificantinputwhicharebasedonunobservablemarketdata,weapplystressesontheseunobservableparameterinputs.A10percentincreaseordecreaseincorrelationandcreditsensitivitieshasbeenusedtogeneratearangeofreasonablypossiblealternativevaluations.Asof31December2012,thesestressescouldhaveincreasedordecreasedthefairvaluesoffinancialinstrumentsheldatfairvaluebyHK$6million(2011:HK$16million)andavailable-for-salesecuritiesbyHK$48million(2011:HK$39million).
(b) Valuationoffinancialinstrumentscarriedatamortizedcost
Allfinancialinstrumentsarestatedatfairvalueoramountsnotmateriallydifferentfromtheirfairvalueasat31December2012and2011.
ThefollowingsetsouttheBank’sbasisofestablishingthefairvalueofitsfinancialassetsandliabilitieswhicharenotcarriedatfairvalue.Thebasisforestablishingthefairvalueoffinancialassetsandliabilitiesheldatfairvalueandofderivativesissetoutinnote2(i)andnote2(j),respectively.
Cash and balances with banks, central banks and other financial institutions
Thefairvalueofcashandbalanceswithbanks,centralbanksandotherfinancialinstitutionsistheircarryingamounts.
Standard Chartered Bank (Hong Kong) Limited 114
Notes to the financial statements (continued)(Expressed in millions of Hong Kong dollars)
38 Financial instruments (continued)
(b) Valuationoffinancialinstrumentscarriedatamortizedcost(continued)
Placements with banks and other financial institutions
Thefairvalueoffloatingrateplacementsandovernightdepositsistheircarryingamounts.Theestimatedfairvalueoffixedinterestbearingdepositsisbasedondiscountedcashflowsusingtheprevailingmoneymarketratesfordebtswithasimilarcreditriskandremainingmaturity.
Advances to customers
Advancesarenetofprovisionsfor impairment.Theestimatedfairvalueofadvancesrepresentsthediscountedamountof futurecashflowsexpectedtobereceived, includingassumptionsrelatingtoprepaymentratesand,whereappropriate,creditspreads.Expectedcashflowsarediscountedatcurrentmarketratestodeterminefairvalue.
Deposits and balances of banks, other financial institutions and customers
Theestimatedfairvalueofdepositswithnostatedmaturityistheamountrepayableondemand.Theestimatedfairvalueoffixedinterestbearingdepositsandotherborrowingswithoutquotedmarketpricesisbasedondiscountingcashflowsusingtheprevailingmarketratesfordebtswithasimilarcreditriskandremainingmaturity.
Debt securities in issue and subordinated liabilities
Theaggregatefairvaluesarecalculatedbasedonquotedmarketprices.Forthosesecuritieswherequotedmarketpricesarenotavailable,adiscountedcashflowmodelisusedbasedonacurrentmarketrelatedyieldcurveappropriatefortheremainingtermtomaturity.
(c) Transfersoffinancialassets
TheBankentersintocollateralisedrepurchaseagreements(repos).ThesetransactionstypicallyentitletheBankanditscounterpartiestohaverecoursetoassetssimilartothoseprovidedascollateralintheeventofadefault.SecuritiessoldsubjecttoreposamountingtoHK$847millioncontinuetoberecognisedonthebalancesheetastheBankretainssubstantiallytheassociatedriskandrewardsofthesesecurities.ThecounterpartyliabilityamountingtoHK$813millionisincludedin“Amountsduetoimmediateholdingcompany”.
39 Assets pledged as security for liabilities
LiabilitiesoftheBankamountingtoHK$23,043million(2011:HK$24,245million)aresecuredbythedepositofassets, includingassetspledgedinrespectofsaleandrepurchaseagreements,tocovershortpositionsandtofacilitatesettlementprocesseswithclearinghouses.TheamountofassetspledgedbytheBanktosecuretheseliabilitiesisHK$23,076million(2011:HK$24,247million).Theseassetsmainlycompriseofdebtsecuritiesandtreasurybills.
Standard Chartered Bank (Hong Kong) Limited 115
Notes to the financial statements (continued)(Expressed in millions of Hong Kong dollars)
39 Assets pledged as security for liabilities (continued)
Inrespectofreverserepurchaseagreementsandsecuritiesborrowingtransactions,thefairvalueofcollateralheldbytheBankwhichwaspermittedtobesoldorrepledgedamountedtoHK$3,333million(2011:HK$11,397million). The fair valueof suchcollateral actually soldor repledgedby theBankamountedtoHK$Nilmillion(2011:HK$2,396million).
Thesetransactionsareconductedundertermsthatareusualandcustomarytostandardlendingandstockborrowingactivities.
40 Material related party transactions
Inadditiontothetransactionsandbalancesdisclosedelsewhereinthesefinancialstatements,theBankanditssubsidiariesenteredintothefollowingmaterialrelatedpartytransactions.ThetransactionsoftheBankaremateriallythesameasthoseappearingintheconsolidatedfinancialstatementsin2012and2011.
(a) Keymanagementpersonnelremuneration
RemunerationforkeymanagementpersonneloftheBank,includingamountspaidtothedirectorsasdisclosedinnote8isasfollows:
Restated
2012 2011
HK$’M HK$’M
Short-termemployeebenefits 129 110Post-employmentbenefits 12 11Equitycompensationbenefits 48 33
189 154
Totalremunerationisincludedinstaffcosts(seenote4(g)).
(b) Creditfacilitiesandloanstokeymanagementpersonnel
Duringtheyear,theBankprovidedcreditfacilitiestokeymanagementpersonneloftheBankandtheirclosefamilymembersandcompaniescontrolledorsignificantlyinfluencedbythem.Thecreditfacilitieswereprovidedintheordinarycourseofbusinessandonsubstantiallythesametermsasforcomparabletransactionswithpersonsofasimilarstandingor,whereapplicable,withotheremployees.
Restated
2012 2011
HK$’M HK$’M
Loanbalances:At1January 441 1,240
At31December 124 441
Averagebalanceduringtheyear 454 909
Incomeearned 4 8
Standard Chartered Bank (Hong Kong) Limited 116
Notes to the financial statements (continued)(Expressed in millions of Hong Kong dollars)
40 Material related party transactions (continued)
(c) Sharebasedpayments
TheGroupoperatesanumberofsharebasedpaymentschemesforitsdirectorsandemployees.TheschemelivesreferredtobelowrelatetotheremainingperiodinwhichoptionsmaybegrantedundertheschemebytheBankanditssubsidiaries’ultimateholdingcompanyStandardCharteredPLC(SCPLC).
2011 Standard Chartered Share Plan (the 2011 Plan)
ApprovedbyshareholdersinMay2011,itistheGroup’smainshareplan.The2011Planisdesignedtodeliverperformanceshares,deferredawards(shareorcash)andrestrictedshares,givingtheGroupsufficientflexibility tomeet thechallengesof thechangingregulatoryandcompetitiveenvironment.Discretionaryshareawardsareakeypartofbothexecutivedirectors’andseniormanagement’svariablecompensationandtheirsignificanceasaproportionofpotentialtotalremunerationisoneofthestrongestindicatorsoftheGroup’scommitmenttopayforsustainableperformanceandaligningrewardwiththeriskhorizon.PerformanceandrestrictedshareawardswillgenerallybeintheformofnilpriceoptionstoacquiresharesinSCPLC.
Performance shares
Awardsofperformancesharesvestafterathree-yearperiodandaresubjecttoacombinationofthreeperformancemeasures,TotalShareholderReturn(TSR),Earningspershare(EPS)andReturnonRiskWeightedAssets(RoRWA).Thethreeperformancemeasuresareequallyweightedwithonethirdoftheawarddependingoneachmeasure,assessedindependently.PerformanceshareawardsaresubjecttotheGroup’sclaw-backpolicy.
Restricted shares
Restrictedshareawardswhicharemadeoutsideoftheannualperformanceprocess,asbuy-outorretentionmechanisms,areprovidedasrestrictedsharesunderthe2011Plan.Theseawardsvestinequalinstalmentsonthesecondandthethirdanniversariesoftheawarddate.Inafewcircumstances,someawardsvestoverafour-yearperiodinequaltranches.ThisisinlinewithsimilarplansoperatedbytheGroup’scompetitors.Restrictedshareawardsarenotsubjecttoanannuallimitanddonothaveanyperformanceconditions,althoughtheGroup’sclaw-backpolicywillapply.
1997/2006 Restricted Share Scheme (2006 RSS)/ 2007 Supplementary Restricted Share Scheme (2007 SRSS)
TheGroup’spreviousplansfordeliveringrestrictedshareswerethe2006RSSand2007SRSS,bothofwhicharenowreplacedbythe2011Plan.Therearestillunvestedandvestedawardsoutstandingundertheseplanswhichwerepreviouslyusedtodeliverthedeferredportionofannualperformanceawardsandasanincentivetomotivateandretainhighperformingemployees.Awardswillgenerallybeintheformofnilcostoptionsanddonothaveanyperformanceconditions.Generallydeferredrestrictedshareawardsvestequallyoverthreeyearsandfornon-deferredawardshalfveststwoyearsafterthedateofgrantandthebalanceafterthreeyears.Nofurtherawardswillbegrantedunderthe2006RSSand2007SRSS.
Standard Chartered Bank (Hong Kong) Limited 117
Notes to the financial statements (continued)(Expressed in millions of Hong Kong dollars)
40 Material related party transactions (continued)
(c) Sharebasedpayments(continued)
2000 Executive Share Option Scheme (2000 ESOS)
The2000ESOSisdesignedtobeinternationallycompetitiveandfocusexecutivedirectorsandtheirseniormanagementteamsondeliveringlong-termperformance.AnEPSperformancecriterionmustbemetbeforeoptionscanbeexercised.
Executiveshareoptionstopurchaseordinarysharesintheultimateholdingcompanyareexercisableafterthethird,butbeforethetenthanniversaryofthedateofgrant.Theexercisepricepershareisthesharepriceatthedateofgrantandoptionscanonlybeexercisedifaperformanceconditionissatisfied.NofurtherawardsmaybegrantedtotheemployeesoftheBankanditssubsidiariesunderthe2000ESOS.
2001 Performance Share Plan (PSP)
The Group’s previous plan for delivering performance shares was the PSP. Although the PSP wasreplacedin2011,therearestilloutstandingvestedandunvestedawardsundertheplan.
UnderthePSP,halftheawardisdependentuponTSRperformanceandthebalanceissubjecttoatarget of defined EPS growth. Both measures use the same three-year period and are assessedindependently.Nofurtherawardscanbegrantedundertheplan.
2004 Deferred Bonus Plan
Underthe2004DeferredBonusPlan,sharesareconditionallyawardedaspartoftheexecutivedirectors’annualperformanceaward.
All Employee Sharesave Schemes (Sharesave)
UndertheSharesaveschemes,employeeshavethechoiceofopeningathree-yearorfive-yearsavingscontract.Withinaperiodofsixmonthsafterthethirdorfifthanniversary,asappropriate,employeesmaypurchaseordinarysharesintheultimateholdingcompany.Thepriceatwhichtheymaypurchasesharesisatadiscountofupto20percentonthesharepriceatthedateofinvitation.TherearenoperformanceconditionsattachedtooptionsgrantedundertheSharesaveschemes.
2011 Standard Chartered Share Plan (the 2011 plan)
Performance Shares
Valuation
The fair value isbasedon themarket value lessanadjustment to take intoaccount theexpecteddividendsoverthevestingperiodandtherelevantperformanceconditionapplyingtothatportionoftheaward.ThefairvalueoftheTSRcomponentisderivedbydiscountingathirdoftheawardthatissubjecttotheTSRconditionbythelossofexpecteddividendsovertheperformanceperiodtogetherwiththeprobabilityofmeetingtheTSRcondition.TheEPSfairvalueisderivedbydiscountingonethirdoftheawardrespectivelybythelossofexpecteddividendsovertheperformanceperiod.ThesameapproachisappliedtocalculatetheRoRWAfairvalueforonethirdoftheaward.InrespectoftheEPSandRoRWAcomponentsonly, thenumberofsharesexpected tovest isadjusted foractualperformancewhencalculatingthechargefortheyear.ThesamefairvalueisappliedtoawardsmadetobothdirectorsandemployeesoftheGroup.
Standard Chartered Bank (Hong Kong) Limited 118
Notes to the financial statements (continued)(Expressed in millions of Hong Kong dollars)
40 Material related party transactions (continued)
(c) Sharebasedpayments(continued)
2012 2011
Grant Date 21 December 13 March 20 September 6 May
Sharepriceatgrantdate(£) 15.84 15.65 13.52 16.31Sharesgranted 4,142 624,382 32,915 487,341Vestingperiod(years) 3 3 3 3Expecteddividends(yield)(%) 3.7 3.5 4.0 3.7Fairvalue(EPS)(£) 4.73 4.71 4.01 4.87Fairvalue(RoRWA)(£) 4.73 4.71 4.01 4.87Fairvalue(TSR)(£) 1.86 1.85 1.58 1.91
Theexpecteddividendyieldisbasedonthehistoricaldividendyieldoverthethreeyearspriortogrant.
Areconciliationofmovementsfortheyearto31December2012and2011isshownbelow:
2012 2011
No . of shares No . of shares
Outstandingat1January 503,484 –Granted 628,524 520,256Lapsed (50,452) (16,772)
Outstandingat31December 1,081,556 503,484Weightedaverageremainingcontractuallife 8.83years 9.45yearsExercisableat31December – –
Restricted Share Awards
Valuation
The fair value isbasedon themarket value lessanadjustment to take intoaccount theexpecteddividendsoverthevestingperiod.ThesamefairvalueisappliedforawardsmadetoboththedirectorsandemployeesoftheGroup.
2012
Grant Date 21 December 19 September 20 June 13 March
Sharepriceatgrantdate(£) 15.84 14.82 14.17 15.65Sharesgranted 37,872 63,876 111,978 1,330,714Vestingperiod(years) 2/3,1/2/3/4 2/3 2/3 2/3Expecteddividends(yield)(%) 3.7 3.0 3.8 3.8Fairvalue(£) 14.46 13.76 12.91 14.26
Standard Chartered Bank (Hong Kong) Limited 119
Notes to the financial statements (continued)(Expressed in millions of Hong Kong dollars)
40 Material related party transactions (continued)
(c) Sharebasedpayments(continued)
2011
Grant Date 14 December 20 September 22 June
Sharepriceatgrantdate(£) 14.35 13.52 15.75Sharesgranted 19,642 65,422 51,941Vestingperiod(years) 2/3 2/3 2/3Expecteddividends(yield)(%) 2.9 2.9 4.1Fairvalue(£) 13.36 12.59 14.25
Theexpecteddividendyieldisbasedonthehistoricaldividendyieldforthreeyearspriortogrant.
Areconciliationofmovementsfortheyearto31December2012and2011isshownbelow:
2012 2011
No . of shares No . of shares
Outstandingat1January 137,005 –Granted 1,544,440 137,005Lapsed (86,596) –
Outstandingat31December 1,594,849 137,005Weightedaverageremainingcontractuallife 6.21years 6.67yearsExercisableat31December – –
1997/2006 Restricted Share Scheme (2006 RSS)
Noshareawardsweregrantedin2012.
Valuation
The fair value isbasedon themarket value lessanadjustment to take intoaccount theexpecteddividendsoverthevestingperiod.
2011
Grant Date 10 March
Sharepriceatgrantdate(£) 16.82Sharesgranted 1,811,942Vestingperiod(years) 1/2/3Expecteddividends(yield)(%) 4.1Fairvalue(£) 16.82/15.22
Theexpecteddividendyieldisbasedonthehistoricaldividendyieldforthreeyearspriortogrant.
Standard Chartered Bank (Hong Kong) Limited 120
Notes to the financial statements (continued)(Expressed in millions of Hong Kong dollars)
40 Material related party transactions (continued)
(c) Sharebasedpayments(continued)
Areconciliationofmovementsfortheyearended31December2012and2011isshownbelow:
2012 2011
No . of shares No . of shares
Outstandingat1January 4,393,297 3,479,217Granted – 1,811,942AdditionalsharesforSCPLCrightsissue 53,801 –Lapsed (219,520) (202,127)Exercised (1,851,537) (695,735)
Outstandingat31December 2,376,041 4,393,297Weightedaverageremainingcontractuallife 4.53years 5.28yearsExercisableat31December 1,120,469 665,964
2007 Supplementary Restricted Share Scheme (2007 SRSS)
Noshareawardsweregrantedin2012.
Valuation
The fair value isbasedon themarket value lessanadjustment to take intoaccount theexpecteddividendsoverthevestingperiod.
2011
Grant Date 10 March
Sharepriceatgrantdate(£) 16.82Sharesgranted 10,713Vestingperiod(years) 2/3Expecteddividends(yield)(%) 4.1Fairvalue(£) 15.22
Theexpecteddividendyieldisbasedonthehistoricaldividendyieldforthreeyearspriortogrant.
Areconciliationofmovementsfortheyearto31December2012and2011isshownbelow:
2012 2011
No . of shares No . of shares
Outstandingat1January 1,525,196 2,516,214Granted – 10,713Lapsed (245,516) (20,827)Exercised (832,977) (980,904)
Outstandingat31December 446,703 1,525,196Weightedaverageremainingcontractuallife 4.18years 4.76yearsExercisableat31December 292,095 602,907
Standard Chartered Bank (Hong Kong) Limited 121
Notes to the financial statements (continued)(Expressed in millions of Hong Kong dollars)
40 Material related party transactions (continued)
(c) Sharebasedpayments(continued)
2000 Executive Share Option Scheme (2000 ESOS)
Noshareawardsweregrantedin2012and2011.
Areconciliationofoptionmovementsfortheyearended31December2012and2011isshownbelow:
2012 2011
No . of shares
Weighted
average
exercise price No . of shares
Weighted
average
exercise price
Outstandingat1January 541,426 £6.74 728,821 £6.59Lapsed (225,621) £6.58 – –Exercised (243,071) £6.62 (187,395) £6.16
Outstandingat31December 72,734 £7.67 541,426 £6.74Exercisableat31December 72,734 £7.67 541,426 £6.74
2012 2011
Range of exercise price
Weighted
average
exercise
price
No . of
shares
Weighted
average
remaining
contractual
life
Weighted
average
exercise
price
No . of
shares
Weighted
average
remaining
contractual
life
£5.82/£8.76(2011:£5.82/£7.89) £7.67 72,734 1.07years £6.74 541,426 1.07years
2001 Performance Share Plan (PSP)
Noshareawardsweregrantedin2012and2011.
Areconciliationofmovementsfortheyearended31December2012and2011isshownbelow:
2012 2011
No . of shares No . of shares
Outstandingat1January 648,053 889,647Lapsed (180,974) (87,807)Exercised (258,389) (153,787)
Outstandingat31December 208,690 648,053Weightedaverageremainingcontractuallife 6.44years 7.05yearsExercisableat31December 88,364 113,877
Standard Chartered Bank (Hong Kong) Limited 122
Notes to the financial statements (continued)(Expressed in millions of Hong Kong dollars)
40 Material related party transactions (continued)
(c) Sharebasedpayments(continued)
2004 Deferred Bonus Plan
Noshareawardsweregrantedin2012and2011.
Underthisplan,sharesareissueddirectlytoparticipantsuponvesting.
Areconciliationofsharemovementsfortheyearended31December2012and2011isshownbelow:
2012 2011
No . of shares No . of shares
Outstandingat1January – 12,649Sharesexercised – (12,649)
Outstandingat31December – –
Notes:a) Thesharesvestoneyearafterthedateofaward.b)AnotionalscripdividendaccruesonthesharesheldintheTrust.Thedividendisnormallydeliveredintheformofshares
andisreleasedonvesting.
Sharesave
Valuation
Optionsarevaluedusingabinomialoption-pricingmodel.Thefairvalueperoptiongrantedandtheassumptionsusedinthecalculationareasfollows:
2012 2011
Grant Date 11 October 11 October
Sharepriceatgrantdate(£) 13.95 14.11Exerciseprice(£) 11.40 10.65Sharesgranted 820,453 493,772Vestingperiod(years) 3 3/5Expectedvolatility(%) 29.8 45.8-53.8Expectedoptionlife(years) 3.33 3.33-5.33Riskfreerate(%) 0.4 0.9-1.4Expecteddividends(yield)(%) 3.1 3.5-3.9Fairvalue(£) 3.28 5.39-5.46
Theexpectedvolatilityisbasedonhistoricalvolatilityoverthelastthreetofiveyearsorthreetofiveyearspriortogrant.Theexpectedlifeistheaverageexpectedperiodtoexercise.Theriskfreerateofreturnistheyieldonzero-couponUKGovernmentbondsofatermconsistentwiththeassumedoptionlife.Theexpecteddividendyieldisbasedonhistoricaldividendyieldforthreeyearspriortogrant.Wheretwoamountsareshownforvolatility,riskfreerates,expecteddividendyieldandfairvalues,thefirstrelatestoathreeyearsvestingperiodandthesecondtoafiveyearsvestingperiod.
Standard Chartered Bank (Hong Kong) Limited 123
Notes to the financial statements (continued)(Expressed in millions of Hong Kong dollars)
40 Material related party transactions (continued)
(c) Sharebasedpayments(continued)
Areconciliationofoptionmovementsfortheyearended31December2012and2011isshownbelow:
2012 2011
No . of shares
Weighted
average
exercise price No . of shares
Weighted
average
exercise price
Outstandingat1January 1,703,989 £11.48 1,626,299 £11.50Granted 820,453 £11.40 493,772 £10.65Lapsed (179,473) £12.42 (199,673) £11.29Exercised (595,149) £10.80 (216,409) £9.92
Outstandingat31December 1,749,820 £11.57 1,703,989 £11.48Exercisableat31December 174,964 £10.96 114,945 £9.65
2012 2011
Range of exercise price
Weighted
average
exercise
price
No . of
shares
Weighted
average
remaining
contractual
life
Weighted
average
exercise
price
No . of
shares
Weighted
average
remaining
contractual
life
£9.79/£14.63(2011:£8.32/£14.63) £11.57 1,749,820 2.57years £11.48 1,703,989 2.30years
(d) Loanstoofficers
LoanstoofficersoftheBankdisclosedpursuanttosection161BoftheHongKongCompaniesOrdinanceareasfollows:
2012
Restated
2011
HK$’M HK$’M
AggregateamountofrelevantloansbytheBankoutstandingat31December 117 109
MaximumaggregateamountofrelevantloansbytheBankoutstandingduringtheyear 131 121
Standard Chartered Bank (Hong Kong) Limited 124
Notes to the financial statements (continued)(Expressed in millions of Hong Kong dollars)
40 Material related party transactions (continued)
(e) RelatedpartytransactionswithassociatesandjointventuresoftheGroup
Duringtheyear,theBankanditssubsidiariesenteredintotransactionswithassociatesandjointventuresoftheGroupintheordinarycourseofitsbankingbusiness.Theamountsofmaterialtransactionsduringtheyeararesetoutbelow:
2012
Restated
2011
HK$’M HK$’M
Amountsduefromassociatesandjointventures 474 1,632
Depositsfromassociatesandjointventures 287 312
Operatingincome 42 19
41 Ultimate holding company
TheBank’sultimateholdingcompanyisStandardCharteredPLC,acompanyregisteredinEnglandandWales.StandardCharteredPLChaslistingsontheLondonStockExchangeandtheStockExchangeofHongKong.Inaddition,StandardCharteredPLCisalsolistedontheBombayandNationalStockExchangesofIndiainaformofIndianDepositoryReceipts.
42 Significant accounting estimates and judgements
Indeterminingthecarryingamountsofcertainassetsandliabilities,theBankanditssubsidiariesmakeassumptionsabouttheeffectsofuncertainfutureeventsonthoseassetsandliabilitiesatthebalancesheetdate.Theseestimationsandassumptionsarebasedonhistoricalexperienceandexpectationoffutureeventsandarereviewedperiodicallyasactualresultsmaydifferfromtheseestimates.
Pensions
Actuarialassumptionsaremadeinvaluingfuturedefinedpensionobligationsassetoutinnote30andareupdatedperiodically.
Taxes
Determiningincometaxprovisionsinvolvesjudgementonthefuturetaxtreatmentofcertaintransactions.Deferredtaxliabilitiesarerecognisedonalltemporarydifferencesanddeferredtaxassetsarerecognisedontemporarydifferenceswhereitisprobablethattherewillbetaxablerevenueagainstwhichthesecanbeoffset.Managementhasmadejudgementsastotheprobabilityoffuturetaxablerevenuesbeinggeneratedagainstwhichtaxlosseswillbeavailableforoffset.
Fair value of financial instruments
Fair value is the amount for which an asset could be exchanged or a liability settled, betweenknowledgeablewillingpartiesinanarm’slengthtransaction.Notes2(i)and38providefurtherinformationontheBank’sfairvalueaccountingpolicyandprocess.
Impairment of financial assets
Policiesonimpairmentoffinancialassetsaresetoutinnote2(k).
Standard Chartered Bank (Hong Kong) Limited 125
Notes to the financial statements (continued)(Expressed in millions of Hong Kong dollars)
42 Significant accounting estimates and judgements (continued)
Goodwill impairment
Anannualassessmentismade,assetoutinnote22,astowhetherthecurrentcarryingvalueofgoodwillisimpaired.
43 Possible impact of amendments, new standards and interpretations issued but not yet effective for the annual accounting period ended 31 December 2012
Uptothedateofissueofthefinancialstatements,theHKICPA/IASBhasissuedanumberofamendments,newstandardsandinterpretationswhicharenotyeteffectivefortheaccountingyearended31December2012andwhichhavenotbeenadoptedinthesefinancialstatements.
Theseinclude:
– AmendmentstoHKFRS7/IFRS7,Financial instruments: Disclosures – Offsetting financial assets and financial liabilities
– AmendmentstoHKAS1/IAS1,Presentation of financial statements – Presentation of items of other comprehensive income
– HKFRS9/IFRS9,Financial instruments
– HKFRS10/IFRS10,Consolidated financial statements
– HKFRS11/IFRS11,Joint arrangements
– HKFRS12/IFRS12,Disclosure of interests in other entities
– HKFRS13/IFRS13,Fair value measurement
– RevisedHKAS19/IAS19,Employee benefits
– HKAS27/IAS27,Separate financial statements (2011)
– HKAS28/IAS28,Investments in associates and joint ventures
– HKAS32/IAS32, Financial Instruments: Presentation – Offsetting financial assets and financial liabilities
– AnnualImprovementstoHKFRS2009-2011
TheBankanditssubsidiariesareintheprocessofmakinganassessmentofwhattheimpactoftheseamendmentsisexpectedtobeintheperiodofinitialapplication.SofarithasconcludedthattheadoptionofthesestandardsisunlikelytohaveasignificantimpactontheBankanditssubsidiaries’resultsofoperationsandfinancialpositionexceptforHKFRS9/IFRS9andHKFRS13/IFRS13whichmayhaveanimpactontheBankanditssubsidiaries’resultsandfinancialpositionarisingfromchangesintheBankanditssubsidiaries’classificationandmeasurementoffinancialinstruments.
44 Comparative figures
Certaincomparativefigureshavebeenrestatedtoconformwiththecurrentyear’spresentation.
Standard Chartered Bank (Hong Kong) Limited 126
Unaudited supplementary financial information
Disclosure on Remuneration for CG-5 Guideline on a Sound Remuneration System issued by the HKMAPursuanttosection3ofCG-5onGuidelineonaSoundRemunerationSystemoftheSupervisoryPolicymanualissuedbytheHongKongMonetaryAuthorityandthePillar3disclosurerequirementsforremunerationbytheBaselCommitteeonBankingSupervision,thefollowingdisclosuresaremade:
a) Informationrelatingtothegovernancestructureoftheremunerationsystem
b) Informationrelatingtothedesignandstructureoftheremunerationprocesses
c) Descriptionofthewaysinwhichcurrentandfuturerisksaretakenintoaccountintheremunerationprocesses
d) DescriptionofthewaysinwhichtheBankseekstolinkperformanceduringaperformancemeasurementperiodwithlevelsofremuneration
e) DescriptionofthewaysinwhichtheBankseekstoadjustremunerationtotakeaccountoflonger-termperformance
f) DescriptionofthedifferentformsofvariableremunerationthattheBankutilizesandtherationaleforusingthesedifferentforms
g) Number of meetings held by the Board Remuneration Committee during the financial year andremunerationpaidtothestaff
The Bank adopts the remuneration policy and systems of Standard Chartered PLC. Please refer to theDirectors’RemunerationReportintheAnnualReportofStandardCharteredPLCfordetailsoftheBoardRemunerationCommittee,themajorcharacteristicsoftheremunerationsystem,andhowrisksaretakenintoaccountintheremunerationprocesses.
h) AggregatequantitativeinformationonremunerationforSeniorManagementandKeyPersonnel(note1)fortheyearended31December2012and31December2011areasfollows:
Analysis of remuneration spilt between fixed and variable compensation
2012 2011
SeniorManagement KeyPersonnel SeniorManagement KeyPersonnel
HK$’000 HK$’000 HK$’000 HK$’000
Fixedcompensation 18,699 9,911 17,761 8,782Variablecompensation–Upfrontcash 15,779 12,072 13,508 4,150–Upfrontshares 1,314 – – ––Deferredcash 3,467 568 – ––Deferredshares: –Restrictedshares 4,391 6,405 9,430 10,074 –Performanceshares 9,278 951 10,484 884
Total 52,928 29,907 51,183 23,890
Numberofstaffat31December 7 4 7 4
Standard Chartered Bank (Hong Kong) Limited 127
Unaudited supplementary financial information (continued)
Disclosure on Remuneration for CG-5 Guideline on a Sound Remuneration System issued by the HKMA (continued)
Analysis of deferred remuneration (note 2)
2012 2011
SeniorManagement KeyPersonnel SeniorManagement KeyPersonnel
HK$’000 HK$’000 HK$’000 HK$’000
At1January 35,525 14,443 38,074 5,126Awardedduringtheyear 17,136 7,924 19,914 10,958Paidoutduringtheyear (13,794) (2,300) (12,257) (1,651)Notvestedduetoperformance
adjustment (2,007) (233) (2,268) –
At31December 36,860 19,834 43,463 14,433
Vestedduringtheyear 14,686 2,797 12,584 1,375
Analysis of total amount of outstanding deferred remuneration
2012 2011
SeniorManagement KeyPersonnel SeniorManagement KeyPersonnel
HK$’000 HK$’000 HK$’000 HK$’000
At31December–Vested 1,003 497 678 ––Not-vested 35,857 19,337 42,785 14,433
36,860 19,834 43,463 14,433
At31December–Cash 3,467 568 – ––Shares 33,393 19,266 43,463 14,433
36,860 19,834 43,463 14,433
Totalamountofoutstandingdeferredremunerationexposedtoexpostexplicitand/orimplicitadjustments(note3) 36,860 19,834 43,463 14,433
Standard Chartered Bank (Hong Kong) Limited 128
Unaudited supplementary financial information (continued)
Disclosure on Remuneration for CG-5 Guideline on a Sound Remuneration System issued by the HKMA (continued)
Analysis of adjustments of deferred remuneration
2012 2011
SeniorManagement KeyPersonnel SeniorManagement KeyPersonnel
HK$’000 HK$’000 HK$’000 HK$’000
Totalamountofadjustmentsduringthefinancialyeardueto
–expostexplicitadjustments (2,007) (233) (2,268) – –expostimplicitadjustments 3,463 1,996 (10,062) (3,132)
Analysis of sign-on payments and severance payments awarded during the year
2012 2011
SeniorManagement KeyPersonnel SeniorManagement KeyPersonnel
HK$’000 HK$’000 HK$’000 HK$’000
Sign-onpayments(includingguaranteedperformanceawards) – – – 11,673
Severancepayments – – – –
Note 1: As defined in the CG5 on Guideline on a Sound Remuneration System issued by the HKMA, senior management are those who are responsible for oversight of either the Bank’s company-wide strategy or activities or those of the Bank’s material business lines . Key Personnel are individual employees whose duties or activities in the course of their employment involve the assumption of material risk or the taking on of material exposures on behalf of the Bank .
Note 2: The population of Senior Management and Key Personnel in 2012 differs from that of 2011 .
Note 3: Ex post adjustments are adjustments made after the awards are granted .