standard chartered bank (hong kong) limited directors' report

Standard Chartered Bank (Hong Kong) Limited

For the year ended 31 December 2015

Directors’ Report andConsolidated FinancialStatements

渣打銀行（香港）有限公司

截至二零一五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

Pantone 368C

Pantone 362C

Pantone 7469C

Process Cyan C

Pantone 307C

Standard C

hartered Bank (H

ong Kong) Lim

ited D

irectors’ Report and C

onsolidated F

inancial Sta

tements 2015

渣打銀行(香港)有限公司

二零一五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 statement of financial position . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7

Consolidated statement of changes in equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8

Consolidated cash flow statement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9

Notes to the financial statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11

Appendix I: unaudited supplementary financial information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 128

Appendix II: directors of the Bank’s subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 131

Standard Chartered Bank (Hong Kong) Limited 1

Report of the directors

Thedirectorshavepleasureinsubmittingtheirannualreporttogetherwiththeauditedfinancialstatementsfortheyearended31December2015.

Principal place of business

StandardCharteredBank(HongKong)Limited(the“Bank”)isabankincorporatedanddomiciledinHongKongandhasitsregisteredofficeat32/F.,4–4ADesVoeuxRoadCentral,HongKong.

Principal activities

TheBankisalicensedbankregisteredundertheHongKongBankingOrdinance.TheBank’sprincipalactivitiesaretheprovisionofbankingandrelatedfinancialservices.TheprincipalactivitiesandotherparticularsoftheBank’sprincipalsubsidiariesaresetoutinnote19tothefinancialstatements.

Financial statements

TheprofitoftheBankanditssubsidiariesfortheyearended31December2015andthestateoftheBank’sanditssubsidiaries’affairsasatthatdatearesetoutinthefinancialstatementsonpages5to127.

During theyearended31December2015, thedirectorshaddeclaredandpaidanordinarydividendofHK$4.0214(2014:HK$1.9215)pereach“A”and“B”ordinarysharetotallingHK$7,790million(2014:HK$3,722million.AtotaldividendofHK$242million(2014:Nil)waspaidinrespectoftheUS$500million6.25%perpetualnon-cumulativeconvertiblepreferencesharesclassifiedasequity.

Detailsofthemovementsinreservesaresetoutintheconsolidatedstatementofchangesinequity.

Charitable donations

Charitable donations made by the Bank and its subsidiaries during the year amounted to HK$8 million(2014:HK$11million).

Share capital

DetailsofthemovementsinthesharecapitaloftheBankduringtheyeararesetoutinnote32tothefinancialstatements.

Directors

Thedirectorsduringtheyearanduptothedateofthisreportare:

Executive directorsTanSiewBoiLingFouTsong


Report of the directors (continued)

Non-executive directorsHungPiChengBenjamin,ChairpersonJaspalSinghBindra(resignedon30June2015)JulianFongLoongChoon(resignedon31August2015)SunilKaushalEdwardMartinWilliams(appointedon4August2015)AnnaElizabethMarrs(appointedon11September2015)ChanWingKin*(resignedon17July2015)FongChing*StephenRobertEno*ChengEdwardWaiSun*TungLiehCheungAndrew*(appointedon31July2015)

* Independent non-executive directors

TungLiehCheungAndrew,EdwardMartinWilliamsandAnnaElizabethMarrswillbesubjecttore-electionatthe2016annualgeneralmeetinginaccordancewithArticle110oftheBank’sArticleofAssociation.

AfulllistofthenamesofthedirectorsoftheBank’ssubsidiariesissetoutinAppendixII.

Directors’ service contracts

Themaximumtermofappointmentofindependentnon-executivedirectorsis2years.Theirremunerationisdeterminedbytheshareholdersattheannualgeneralmeeting.

Directors’ interests in Share Option Schemes

CertaindirectorsoftheBankhavebeengrantedoptionsundervariousshareoptionschemesofStandardCharteredPLC,theultimateholdingcompanyoftheBank.Duringtheyear,JaspalSinghBindra,AnnaElizabethMarrs,HungPiChengBenjamin,JulianFongLoongChoon,EdwardMartinWilliams,LingFouTsong,TanSiewBoiandSunilKaushalweregrantedoptionsundertheseschemes.

Directors’ rights to acquire shares

AtnotimeduringtheyearwastheBank,anyofitsholdingcompanies,subsidiaries,orfellowsubsidiaries,apartytoanyotherarrangementtoenablethedirectorsoftheBanktoacquirebenefitsbymeansoftheacquisitionofsharesinordebenturesoftheBankoranyotherbodycorporate.

Directors’ interests in transactions, arrangements or contracts

No transactions, arrangements or contract of significance to which the Bank, its holding companies,subsidiariesorfellowsubsidiarieswasapartyandinwhichadirectoroftheBankhadamaterialinterest,subsistedattheendoftheyearoratanytimeduringtheyear.

Indemnity of directors

Apermittedindemnityprovision(asdefinedinsection469oftheHongKongCompaniesOrdinance)forthebenefitofthedirectorsoftheBankiscurrentlyinforceandwasinforcethroughouttheyear.


Report of the directors (continued)

Auditor

ThefinancialstatementshavebeenauditedbyKPMGwhowillretireand,beingeligible,offerthemselvesforre-appointment.Aresolutionforthere-appointmentofKPMGastheauditoroftheBankistobeproposedattheforthcomingannualgeneralmeeting.

OnbehalfoftheBoard

HungPiChengBenjaminChairman

HongKong,23February2016


Independent auditor’s report to the members ofStandard Chartered Bank (Hong Kong) Limited(Incorporated in Hong Kong with limited liability)

WehaveauditedtheconsolidatedfinancialstatementsofStandardCharteredBank(HongKong)Limited(the“Bank”)and itssubsidiaries (together “theBankand itssubsidiaries”)setoutonpages5 to127,whichcomprisetheconsolidatedstatementoffinancialpositionasat31December2015,theconsolidatedincomestatement,theconsolidatedstatementofcomprehensiveincome,theconsolidatedstatementofchangesinequity and theconsolidatedcashflowstatement for the year thenendedanda summaryof significantaccountingpoliciesandotherexplanatoryinformation.

Directors’ responsibility for the consolidated financial statements

ThedirectorsoftheBankareresponsibleforthepreparationofconsolidatedfinancialstatementsthatgiveatrueandfairviewinaccordancewithInternationalFinancialReportingStandardsissuedbytheInternationalAccountingStandardsBoardandwithHongKongFinancialReportingStandardsissuedbytheHongKongInstituteofCertifiedPublicAccountantsandtheHongKongCompaniesOrdinanceandforsuchinternalcontrolasthedirectorsdetermineisnecessarytoenablethepreparationofconsolidatedfinancialstatementsthatarefreefrommaterialmisstatements,whetherduetofraudorerror.

Auditor’s responsibility

Ourresponsibilityistoexpressanopinionontheseconsolidatedfinancialstatementsbasedonouraudit.Thisreportismadesolelytoyou,asabody,inaccordancewithsection405oftheHongKongCompaniesOrdinance,andfornootherpurpose.Wedonotassumeresponsibilitytowardsoracceptliabilitytoanyotherpersonforthecontentsofthisreport.

WeconductedourauditinaccordancewithHongKongStandardsonAuditingissuedbytheHongKongInstituteofCertifiedPublicAccountants.Thosestandardsrequirethatwecomplywithethicalrequirementsandplanandperformtheaudittoobtainreasonableassuranceaboutwhethertheconsolidatedfinancialstatementsarefreefrommaterialmisstatement.

Anauditinvolvesperformingprocedurestoobtainauditevidenceabouttheamountsanddisclosuresintheconsolidatedfinancialstatements.Theproceduresselecteddependontheauditor’sjudgement,includingtheassessmentoftherisksofmaterialmisstatementoftheconsolidatedfinancialstatements,whetherduetofraudorerror. Inmakingthoseriskassessments, theauditorconsiders internalcontrol relevanttotheentity’spreparationoftheconsolidatedfinancialstatementsthatgiveatrueandfairviewinordertodesignauditproceduresthatareappropriateinthecircumstances,butnotforthepurposeofexpressinganopinionontheeffectivenessoftheentity’sinternalcontrol.Anauditalsoincludesevaluatingtheappropriatenessofaccountingpoliciesusedandthereasonablenessofaccountingestimatesmadebythedirectors,aswellasevaluatingtheoverallpresentationoftheconsolidatedfinancialstatements.

Webelievethattheauditevidencewehaveobtainedissufficientandappropriatetoprovideabasisforourauditopinion.

Opinion

Inouropinion,theconsolidatedfinancialstatementsgiveatrueandfairviewofthefinancialpositionoftheBankanditssubsidiariesasat31December2015andoftheBankanditssubsidiaries’financialperformanceandcashflowsfortheyearthenendedinaccordancewithInternationalFinancialReportingStandardsandwithHongKongFinancialReportingStandardsandhavebeenproperlyprepared incompliancewiththeHongKongCompaniesOrdinance.

KPMGCertifiedPublicAccountants

8thFloor,Prince’sBuilding10ChaterRoadCentral,HongKong

23February2016


Consolidated income statementFor the year ended 31 December 2015(Expressed in millions of Hong Kong dollars)

Note 2015 2014

HK$’M HK$’M

Interestincome 4(a) 16,103 18,899Interestexpense 4(b) (4,724) (5,169)

Net interest income 11,379 13,730

Feeandcommissionincome 9,759 10,434Feeandcommissionexpense (382) (520)

Netfeeandcommissionincome 4(c) 9,377 9,914Nettradingincome 4(d) 1,143 1,023Netgainsfromfinancialinstrumentsdesignated

atfairvaluethroughprofitorloss 4(e) 13 641Netgainsfromdisposalofavailable-for-salesecurities 5 85 19Otheroperatingincome 4(f) 4,845 3,121

15,463 14,718

Total operating income 26,842 28,448

Staffcosts (6,762) (6,924)Premisesandequipment (3,104) (2,763)Others (5,069) (5,156)

Operatingexpenses 4(g) (14,935) (14,843)

Operating profit before impairment 11,907 13,605

Impairmentchargesonadvancestobanksandcustomers 6(a) (3,067) (2,141)Otherimpairmentcharges 6(b) (763) (911)

Operating profit after impairment 8,077 10,553Shareofprofitofassociates 1,388 1,412

Profit before taxation 9,465 11,965Taxation 7(a) (975) (1,560)

Profit after taxation 8,490 10,405

Thenotesonpages11to127formpartofthesefinancialstatements.


Consolidated statement of comprehensive incomeFor the year ended 31 December 2015(Expressed in millions of Hong Kong dollars)

2015 2014

HK$’M HK$’M

Profit after taxation 8,490 10,405

Other comprehensive income:Itemsthatwillnotbereclassifiedtotheincomestatement:Definedbenefitplans:

–Remeasurementofnetdefinedbenefitliability (143) 9–Relatedtaxeffect 23 (2)

Itemsthatmaybereclassifiedsubsequentlytotheincomestatement:Available-for-salesecurities:

–Changesinfairvaluerecognisedduringtheyear (298) 237–Changesinfairvaluetransferredtotheincomestatementondisposal (85) (19)–Transfertotheincomestatementonfairvaluehedgeditems

attributabletohedgedrisk (7) 54–Relatedtaxeffect 72 (13)

Cashflowhedges:–Changesinfairvaluerecognisedduringtheyear (6) 102–Transfertotheincomestatementonterminationofhedgingderivatives (34) (1)–Relatedtaxeffect 7 (17)

Exchangedifference (572) (63)

Othercomprehensiveincomefortheyear,netoftax (1,043) 287

Total comprehensive income for the year 7,447 10,692



Consolidated statement of financial position as at 31 December 2015(Expressed in millions of Hong Kong dollars)

Note 2015 2014HK$’M HK$’M

Assets

Cashandbalanceswithbanks,centralbanksandotherfinancialinstitutions 10 48,769 53,076Placementswithbanksandotherfinancialinstitutions 11 119,658 145,770HongKongSARGovernmentcertificatesofindebtedness 12 38,031 36,741Tradingassets 13 18,597 23,388Financialassetsdesignatedatfairvalue 14 666 1,575Investmentsecurities 17 210,572 172,302Advancestocustomers 15(a) 414,955 454,996Amountsduefromimmediateholdingcompany 18 30,357 70,263Amountsduefromfellowsubsidiaries 18 16,105 46,061Interestinassociates 20 9,481 9,008Property,plantandequipment 21 37,480 39,950Goodwillandintangibleassets 22 1,075 1,116Currenttaxassets 556 266Deferredtaxassets 27 314 141Otherassets 23 12,349 24,389

958,965 1,079,042

Liabilities

HongKongSARcurrencynotesincirculation 12 38,031 36,741Depositsandbalancesofbanksandotherfinancialinstitutions 24,655 32,605Depositsfromcustomers 24 745,701 851,029Tradingliabilities 28 8,847 12,800Financialliabilitiesdesignatedatfairvalue 26 13,724 14,915Debtsecuritiesinissue 25 1,209 13,838Amountsduetoimmediateholdingcompany 18 27,519 17,209Amountsduetofellowsubsidiaries 18 8,314 3,644Currenttaxliabilities 4 18Deferredtaxliabilities 27 274 212Otherliabilities 29 15,245 19,582Subordinatedliabilities 31 10,093 10,406

893,616 1,012,999

Equity

Sharecapital 32 20,256 20,256Reserves 33 45,093 45,787

Shareholders’equity 65,349 66,043

958,965 1,079,042

ApprovedandauthorisedforissuebytheBoardofDirectorson23February2016.

Tan Siew Boi Ling Fou TsongDirector Director



Consolidated statement of changes in equityFor the year ended 31 December 2015

Attributable to equity shareholders of the Bank

Sharecapital

Sharepremium

Capitalredemption

reserve

Cash flowhedge

reserve

Available-for-sale

investmentreserve

Revaluationreserve

Exchangereserve

Propertyrevaluation

reserveRetained

profits

Shareoptionequity

reserve TotalHK$’M HK$’M HK$’M HK$’M HK$’M HK$’M HK$’M HK$’M HK$’M HK$’M HK$’M

At1January2014 97 12,477 3,804 (33) 52 146 432 2 37,804 265 55,046Totalcomprehensiveincome – – – 84 259 – (63) – 10,412 – 10,692Dividendpaid – – – – – – – – (3,722) – (3,722)Movementinrespectofshare-based

compensationplans – – – – – – – – – 149 149Amalgamationofsharepremiumand

capitalredemptionreservewithsharecapital(note33(i)) 16,281 (12,477) (3,804) – – – – – – – –

Issuanceofperpetualnon-cumulativeconvertiblepreferenceshares,netofissuancecost(note32) 3,878 – – – – – – – – – 3,878

At31December2014 20,256 – – 51 311 146 369 2 44,494 414 66,043

Totalcomprehensiveincome – – – (33) (318) – (572) – 8,370 – 7,447Dividendpaid – – – – – – – – (8,032) – (8,032)Movementinrespectofshare-based

compensationplans – – – – – – – – – (108) (108)Disposalofinterestinasubsidiaryandan

associate – – – – – – (1) (2) 2 – (1)

At31December2015 20,256 – – 18 (7) 146 (204) – 44,834 306 65,349



Consolidated cash flow statementFor the year ended 31 December 2015(Expressed in millions of Hong Kong dollars)

Note 2015 2014

HK$’M HK$’M

Operating activities

Profitbeforetaxation 9,465 11,965

Adjustmentsfor:Impairmentchargesonadvancestobanksandcustomers 3,067 2,141Advanceswrittenoffnetofrecoveries (2,708) (1,180)Unwindingofdiscountonloanimpairmentprovision (44) (36)Otherimpairmentcharges 763 911Depreciation 1,717 1,422Amortisationofintangibleassets 121 112Lossed/(gains)ondisposalofproperty,plantandequipment 61 (104)Gainsondisposalofasubsidiaryandanassociate (1,758) –Netgainsonrevaluationofinvestmentproperties (3) (306)Shareofprofitofassociates (1,388) (1,412)Interestexpenseonsubordinatedliabilities 364 343Expenseinrespectofthedefinedbenefitplan 99 101Fairvaluegainstransferredfromreserveson cashflowhedges (34) (1)Exchangetranslationonsubordinatedliabilities (272) (185)

9,450 13,771(Increase)/decreaseinoperatingassets:

Placementswithbanksandotherfinancialinstitutionswithoriginalmaturitybeyondthreemonths (12,112) (5,096)

Tradingassets 3,410 12,167Financialassetsdesignatedatfairvalue 909 579Investmentsecurities (13,636) 42,148Grossadvancestocustomers 39,740 (14,599)Amountsduefromimmediateholdingcompanyandfellowsubsidiaries 16,931 (13,280)Otherassets 13,921 5,859

Increase/(decrease)inoperatingliabilities:Depositsandbalancesofbanksandotherfinancialinstitutions (7,953) 17,431Depositsfromcustomers (105,330) 34,407Debtsecuritiesinissue (12,629) (1,498)Financialliabilitiesdesignatedatfairvalue (1,191) 9,192Amountsduetoimmediateholdingcompanyandfellowsubsidiaries 16,562 (3,415)Tradingliabilities (3,953) (10,747)Otherliabilities (4,707) (5,783)

Cash (used in)/generated from operations (60,588) 81,136

Incometaxpaid (1,248) (2,404)

Net cash (used in)/generated from operating activities (61,836) 78,732


Consolidated cash flow statement (continued)For the year ended 31 December 2015(Expressed in millions of Hong Kong dollars)

Note 2015 2014

HK$’M HK$’M

Investing activities

Dividendreceivedfromassociates 35 36Paymentforpurchaseofproperty,plantandequipment (6,897) (15,395)Paymentforpurchaseofintangibleassets (80) (111)Proceedsfromdisposalofproperty,plantandequipment 5,539 2,950Proceedsfromdisposalofasubsidiaryandanassociate 4,437 –

Net cash generated from/(used in) investing activities 3,034 (12,520)

Financing activities

Issuanceofperpetualnon-cumulativeconvertiblepreferenceshares – 3,878Interestpaidonsubordinatedliabilities (348) (330)DividendpaidtoshareholdersoftheBank (8,032) (3,722)

Net cash used in financing activities (8,380) (174)

Net (decrease)/increase in cash and cash equivalents (67,182) 66,038

Cash and cash equivalents at 1 January 232,850 168,807Effectofforeignexchange (2,808) (1,995)

Cash and cash equivalents at 31 December 34 162,860 232,850

Cashflowsfromoperatingactivitiesinclude:Interestreceived 16,079 18,877Interestpaid 4,660 5,100Dividendsreceived 25 20



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”),whichcollectivetermincludesallapplicableindividualInternationalFinancialReportingStandards,InternationalAccountingStandards(“IAS”)andInterpretations issued by the International Accounting Standards Board (“IASB”), these financialstatementsalsocomplywithIFRSs.AsummaryofthesignificantaccountingpoliciesadoptedbytheBankissetoutbelow.

TheHKICPAhasissuedcertainnewandrevisedHKFRSsthatarefirsteffectiveoravailableforearlyadoptionforthecurrentaccountingperiodoftheBankanditssubsidiaries.Note3providesinformationonanychangesinaccountingpoliciesresultingfrominitialapplicationofthesedevelopmentstotheextentthattheyarerelevanttotheBankanditssubsidiariesforthecurrentandprioraccountingperiodsreflectedinthesefinancialstatements.

(b) Basisofpreparationofthefinancialstatements

(i) BasisofPreparation

Theconsolidatedfinancialstatementsfortheyearended31December2015comprisetheBankanditssubsidiariesandtheinterestinassociate.

Themeasurementbasisusedinthepreparationofthefinancialstatementsisthehistoricalcostconvention,asmodifiedbytherevaluationofinvestmentproperties,available-for-saleassets,andfinancialassetsandliabilities(includingderivatives)atfairvaluethroughprofitorloss.

ThepreparationoffinancialstatementsinconformitywithadoptedHKFRS/IFRSrequirestheuseofcertaincriticalaccountingestimates.ItalsorequiresmanagementtoexerciseitsjudgementintheprocessofapplyingtheBankanditssubsidiaries’accountingpolicies.Actualresultsmaydifferfromtheseestimates.Thesignificantjudgementsmadebymanagementinapplyingtheaccountingpoliciesandkeysourcesofuncertaintywerethesameasthoseappliedtotheconsolidatedfinancialstatementsasatandfortheyearended31December2014.

TheaccountingpoliciessetoutbelowhavebeenappliedconsistentlyacrosstheBankanditssubsidiariesandtoallperiodspresentedinthesefinancialstatements.


Notes to the financial statements (continued)(Expressed in millions of Hong Kong dollars)

2 Significant accounting policies (continued)

(b) Basisofpreparationofthefinancialstatements(continued)

(ii) ConsolidatedFinancialStatements

Duringtheyear,theBankhadsubordinateddebtsinissue.Thesesubordinateddebtswereissuedunder a note issuance programme which is listed on the Stock Exchange of Hong Kong.Consequently,theBankisrequiredtoproduceconsolidatedfinancialstatementsinaccordancewithHKAS27/IAS27“ConsolidatedandSeparateFinancialStatements”.

(c) Subsidiariesandnon-controllinginterests

SubsidiariesareallentitieswhichtheBankanditssubsidiariescontrol.TheBankanditssubsidiariescontrolanentitywhentheyareexposedto,orhaverightsto,variablereturnsfromtheirinvolvementwith the entity and have the ability to affect those returns through their power over the investee.SubsidiariesarefullyconsolidatedfromthedateonwhichtheBankanditssubsidiarieseffectivelyobtaincontrol.Theyarede-consolidated from thedate thatcontrolceases,andwhereany interest in thesubsidiaryremains,thisisremeasuredtoitsfairvalueandthechangeincarryingamountisrecognisedintheincomestatement.DetailsoftheBank’sprincipalsubsidiariesaregiveninnote19.

Intra-groupbalancesandtransactionsandanyunrealisedprofitsarisingfromintra-grouptransactionsareeliminatedinfullinpreparingtheconsolidatedfinancialstatements.Unrealisedlossesresultingfromintra-grouptransactionsareeliminatedinthesamewayasunrealisedgainsbutonlytotheextentthatthereisnoevidenceofimpairment.

Non-controllinginterestsrepresenttheportionofthenetassetsofsubsidiariesattributabletointereststhatarenotownedbytheBank,whetherdirectlyorindirectlythroughsubsidiaries,andinrespectofwhichtheBankanditssubsidiarieshavenotagreedanyadditionaltermswiththeholdersofthoseinterestswhichwouldresultintheBankanditssubsidiariesasawholehavingacontractualobligationinrespectofthoseintereststhatmeetthedefinitionofafinancialliability.Non-controllinginterestsarepresented in the consolidated statement of financial position within equity, separately from equityattributabletotheequityshareholdersoftheBank.Non-controllinginterestsarepresentedonthefaceoftheconsolidatedincomestatementandtheconsolidatedstatementofcomprehensiveincomeasanallocationofthetotalprofitorlossandtotalcomprehensiveincomefortheyearbetweennon-controllinginterestsandtheequityshareholdersoftheBank.

Wherelossesapplicabletothenon-controllinginterestexceeditsinterestintheequityofasubsidiary,theexcess,andanyfurtherlossesapplicabletothenon-controllinginterest,arechargedagainsttheBankanditssubsidiaries’interestexcepttotheextentthatthenon-controllinginteresthasabindingobligationto,andisableto,makeadditionalinvestmenttocoverthelosses.Ifthesubsidiarysubsequentlyreportsprofits, theBankand itssubsidiaries’areallocatedall suchprofitsuntil thenon-controllinginterest’sshareoflossespreviouslyabsorbedbytheBankanditssubsidiarieshavebeenrecovered.

IntheBank’sstatementoffinancialposition,investmentsinsubsidiariesarestatedatcostlessimpairmentlosses,ifany.

(d) Associatesandjointarrangements

AssociatesareentitiesinrespectofwhichtheBankhassignificantinfluence,butnotcontrol,overthefinancialandoperatingpoliciesandprocedures,generallyaccompanyingashareholdingofbetween20percentand50percentofthevotingrights.




(d) Associatesandjointarrangments(continued)

Jointarrangementsarewheretwoormorepartieseitherhaverightstotheassets,andobligationsofthejointarrangement(jointoperations)orhaverightstothenetassetsofthejointarrangement(jointventure).TheBankanditssubsidiariesevaluatethecontractualtermsofjointarrangementstodeterminewhetherajointarrangementisajointoperationorajointventure.At31December2015,theBankanditssubsidiarieshaveaninsignificantcontractualinterestinajointventurebutdonothaveanycontructualinterestinjointoperations.DetailsoftheBankanditssubsidiaries’interestinassociatesareprovidedinnote20.

Investmentsinassociatesandjointventuresareaccountedforusingtheequitymethodofaccountingintheconsolidatedfinancialstatementsandareinitiallyrecognisedatcost.TheBankanditssubsidiaries’investmentinassociatesandjointventuresincludesgoodwillidentifiedonacquisitionandaccumulatedimpairmentloss.

TheBankanditssubsidiaries’shareof itsassociates’andjointventures’post-acquisitionprofitsorlossesarerecognisedintheincomestatement,andtheshareofpost-acquisitionmovementsinothercomprehensive incomearerecognised inreserves.Thecumulativepost-acquisitionmovementsareadjustedagainstthecarryingamountoftheinvestmentintheconsolidatedstatementoffinancialposition.WhentheBankanditssubsidiaries’shareof lossesinanassociateorajointventureisequaltoorexceedsitsinterestintheassociateandjointventure,includinganyotherunsecuredreceivables,theBankanditssubsidiariesdonotrecognisefurtherlosses,unlesstheyhaveincurredobligationsormadepaymentsonbehalfoftheassociateandjointventure.

UnrealisedgainsandlossesontransactionsbetweentheBankanditsassociatesandjointventuresareeliminatedtotheextentoftheBankanditssubsidiaries’interestintheassociatesandjointventures.

IntheBank’sstatementoffinancialposition,investmentinassociatesandjointventuresarestatedatcostlessimpairmentlossesanddividendsfrompre-acquisitionprofitsreceivedpriorto1January2009,ifany.

(e) Intangibleassets

(i) Goodwill

GoodwillrepresentstheexcessofthecostofanacquisitionoverthefairvalueoftheBankanditssubsidiaries’shareofthenetidentifiableassetsandcontingentliabilitiesoftheacquiredsubsidiary/associateatthedateofacquisition.Goodwillonacquisitionsofsubsidiariesisincludedin“Goodwillandintangibleassets”.Goodwillonacquisitionsofassociatesisincludedin“Interestinassociates”.

Goodwillincludedin“Goodwillandintangibleassets”istestedannuallyforimpairmentandcarriedatcostlessanyaccumulatedimpairmentlosses.Detailedcalculationsareperformedbasedondiscountingexpectedpre-taxcashflowsoftherelevantcashgeneratingunitsanddiscountingtheseatanappropriatediscountrate,thedeterminationofwhichrequirestheexerciseofjudgement.Goodwillisallocatedtocashgeneratingunitsforthepurposeofimpairmenttesting.Cashgeneratingunits represent the lowest level within the Bank and its subsidiaries at which the goodwill ismonitoredforinternalmanagementpurposes.Note22setsoutthemajorcash-generatingunitstowhichgoodwillhasbeenallocated.




(e) Intangibleassets(continued)

(ii) Acquiredintangibles

Atthedateofacquisitionofasubsidiaryorassociate,intangibleassetswhicharedeemedseparableandthatarisefromcontractualorotherlegalrightsarecapitalisedandincludedwithinthenetidentifiableassetsacquired.These intangibleassetsare initiallymeasuredat fair value,whichreflectsmarketexpectationsoftheprobabilitythatthefutureeconomicbenefitsembodiedintheassetwillflowtotheentity,andareamortisedonthebasisoftheirexpectedusefullives(4to16years).Ateachreportingdate,theseassetsareassessedforindicatorsofimpairment.Intheeventthatanasset’scarryingamountisdeterminedtobegreaterthanitsrecoverableamount,theassetiswrittendownimmediately.

(iii) Computersoftware

Acquiredcomputersoftwarelicensesarecapitalisedonthebasisofthecostsincurredtoacquireandbringtousethespecificsoftware.Costsassociatedwiththedevelopmentofsoftwarearecapitalisedwhereitisprobablethatitwillgeneratefutureeconomicbenefitsinexcessofitscost.Computer software costs are amortised on the basis of expected useful life (5 years). Costsassociatedwithmaintainingsoftwarearerecognisedasanexpenseasincurred.Ateachreportingdate,theseassetsareassessedforindicatorsofimpairment.Intheeventthatanasset’scarryingamount is determined to be greater than its recoverable amount, the asset is written downimmediately.

(f) Investmentproperties

Investmentpropertiesarelandandbuildingswhichareownedeithertoearnrentalincomeorforlongterminvestmentsorforboth.Investmentpropertiesarestatedinthestatementoffinancialpositionatfairvalue.Anygainsorlossesarisingfromachangeinfairvalueorfromthedisposalofaninvestmentpropertyisrecognisedintheincomestatement.

(g) Otherproperty,plantandequipment

Property,plantandequipmentisstatedatcostlessaccumulateddepreciationandimpairment,ifany.Costincludesexpenditurethatisdirectlyattributabletotheacquisitionoftheitems.Subsequentcostsareincludedintheasset’scarryingamountorarerecognisedasaseparateasset,asappropriate,onlywhenitisprobablethatfutureeconomicbenefitsassociatedwiththeitemwillflowtotheBankandthecostoftheitemcanbemeasuredreliably.Allotherrepairsandmaintenancearechargedtotheincomestatementduringthefinancialperiodinwhichtheyareincurred.

Depreciationonproperty,plantandequipmentiscalculatedusingthestraight-linemethodtoallocatetheircosttotheirresidualvaluesovertheirestimatedusefullives,asfollows:

– Buildings,leaseholdlandandleaseholdimprovements,aredepreciatedovertheshorteroftheirestimatedusefullives,being50yearsfromthedateofcompletion,andtheunexpiredtermsofthelease.

– Equipmentandmotorvehicles,aredepreciatedover3to15years.

– Aircraftandvessels,aredepreciatedover25years.




(g) Otherproperty,plantandequipment(continued)

Theassets’residualvaluesandusefullivesarereviewed,andadjustedifappropriate,ateachreportingdate.Ateachreportingdate,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

Assetsleasedtocustomersunderoperatingleasesareincludedwithinproperty,plantandequipmentanddepreciatedovertheirestimatedusefullives.Rentalincomeontheseleasedassetsisrecognisedintheincomestatementonastraight-linebasisunlessanothersystematicbasisismorerepresentative.

(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




(i) Financialassetsandliabilities(excludingderivatives)(continued)

(i) Financial assets and liabilities held at fair value through profit or loss (continued)

– 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,exchangerates,commoditypricesorequityprices.

(iv) Financial liabilities held at amortised cost

Financialliabilities,whichincludeborrowings,notclassifiedasheldatfairvaluethroughprofitorlossareclassifiedasamortisedcostinstruments.

Initial recognition

Purchasesandsalesoffinancialassetsandliabilitiesheldatfairvaluethroughprofitorlossandfinancialassetsclassifiedasavailable-for-saleareinitiallyrecognisedusingtradedateaccounting(thedateonwhichtheBankanditssubsidiariescommittopurchaseorselltheasset).Loansandreceivablesarerecognisedwhencashisadvancedtotheborrowers.Allfinancialinstrumentsareinitiallyrecognisedatfairvalue,whichisnormallythetransactionpriceplus,forthosefinancialassetsandliabilitiesnotcarriedatfairvaluethroughprofitandloss,directlyattributabletransactioncosts.

Subsequent measurement

Financialassetsandliabilitiesheldatfairvaluethroughprofitorlossaresubsequentlycarriedatfairvalue,withgainsandlossesarisingfromchangesinfairvaluetakendirectlytotheincomestatement.

Available-for-salefinancialassetsaresubsequentlycarriedatfairvalue,withgainsandlossesarisingfromchangesinfairvaluetakentoaseparatecomponentofequityuntiltheassetissold,orisimpaired,whenthecumulativegainorlossistransferredtotheincomestatement.

Loansandreceivablesaresubsequentlycarriedatamortisedcostusingtheeffectiveinterestmethod.

Financialliabilitiesotherthanthoseheldatfairvaluethroughprofitorlossaresubsequentlystatedatamortisedcost,withanydifferencebetweenproceedsnetofdirectlyattributabletransactioncostsandtheredemptionvaluerecognisedintheincomestatementovertheperiodoftheborrowingsusingtheeffectiveinterestmethod.

Inadditiontotheseinstruments,thecarryingvalueofafinancialinstrumentcarriedatamortisedcostthatisthehedgediteminaqualifyingfairvaluehedgerelationshipisadjustedbythefairvaluegainorlossattributabletothehedgedrisk.





Fair value of financial assets and liabilities

Fairvalueisthepricethatwouldbereceivedtosellanassetorpaidtotransferaliabilityinanorderlytransactionbetweenmarketparticipantsat themeasurementdate in theprincipalmarketor in theabsenceofaprincipalmarketthemostadvantageousmarkettowhichtheBankanditssubsidiarieshaveaccessatthatdate.Thefairvalueofaliabilityreflectsitsnon-performancerisk.

Thefairvaluesofquotedfinancialassetsorfinancialliabilitiesinactivemarketsarebasedoncurrentprices.Amarketisregardedasactiveiftransactionsfortheassetorliabilitytakeplacewithsufficientfrequencyandvolumetoprovidepricinginformationonanongoingbasis.Ifthemarketforafinancialassetorfinancialliabilityandforunlistedsecurities,isnotactive,theBankanditssubsidiariesestablishfairvaluebyusingvaluationtechniques.These includetheuseof recentarm’s length transactions,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.

Renegotiated loans

Loansandreceivableswithrenegotiatedtermsareloansthathavebeenrestructuredduetodeteriorationintheborrower’sfinancialpositionandwheretheBankanditssubsidiarieshavemadeconcessionsthat theywouldnototherwiseconsider.Renegotiated loansandreceivablesaresubject toongoingmonitoringtodeterminewhethertheyremainimpairedorpastdue.

Derecognition

FinancialassetsarederecognisedwhentherightstoreceivecashflowsfromthefinancialassetshaveexpiredorwheretheBankanditssubsidiarieshavetransferredsubstantiallyallrisksandrewardsofownership.





Financialliabilitiesarederecognisedwhentheyareextinguished,i.e.whentheobligationisdischarged,cancelledorexpires.IftheBankanditssubsidiariespurchasetheirowndebt,itisremovedfromthestatementoffinancialposition,andthedifferencebetweenthecarryingamountoftheliabilityandtheconsiderationpaidisincludedin‘Otheroperatingincome’.

(j) Derivativefinancialinstrumentsandhedgeaccounting

Derivativesarefinancial instrumentsthatderivetheirvalue inresponsetochanges in interestrates,financialinstrumentprices,commodityprices,foreignexchangerates,creditriskandindices.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.




(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

TheBankanditssubsidiariesassessateachreportingdatewhetherthereisobjectiveevidencethatafinancialassetorgroupoffinancialassetsisimpaired.Afinancialassetoragroupoffinancialassetsisimpairedandimpairmentlossesareincurredif,andonlyif,thereisobjectiveevidenceofimpairmentasaresultofoneormoreeventsthatoccurredaftertheinitialrecognitionoftheasset(a‘lossevent’)andthatlossevent(orevents)hasanimpactontheestimatedfuturecashflowsofthefinancialassetorgroupoffinancialassetsthatcanbereliablyestimated.

Thefollowingfactorsareconsideredinassessingobjectiveevidenceofimpairment:

– whetherthecounterpartyisindefaultofprincipalorinterestpayments;

– acounterpartyfilesforbankruptcyprotection(orthelocalequivalent)wherethiswouldavoidordelayrepaymentofitsobligation;

– theBankanditssubsidiariesfiletohavethecounterpartydeclaredbankruptorfileasimilarorderinrespectofacreditobligation;

– theBankanditssubsidiariesconsenttoarestructuringoftheobligation,resultinginadiminishedfinancialobligation,demonstratedbyamaterialforgivenessofdebtorpostponementofscheduledpayments;

– theBankanditssubsidiariessellacreditobligationatamaterialcredit-relatedeconomicloss;or




(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.




(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

Financialassetsandliabilitiesareoffsetandthenetamountreportedinthestatementoffinancialpositionwhenthereisalegallyenforceablerighttooffsettherecognisedamountsandthereisanintentiontosettleonanetbasis,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.




(o) Revenuerecognition(continued)

(i) Interest income and expense (continued)

Wheretheestimatesofcashflowshavebeenrevised,thecarryingamountofthefinancialassetorliabilityisadjustedtoreflecttheactualandrevisedcashflows,discountedattheinstrument’soriginaleffectiveinterestrate.Theadjustmentisrecognisedasinterestincomeorexpenseintheperiodinwhichtherevisionismade.

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.Deferredincometaxisdeterminedusingtaxratesandlawsthathavebeenenactedorsubstantiallyenactedbythereportingdateandthatareexpectedtoapplywhentherelateddeferredincometaxassetisrealisedorthedeferredincometaxliabilityissettled.

Deferredtaxassetsarerecognisedwhereitisprobablethatfuturetaxableprofitswillbeavailableagainstwhichthetemporarydifferencescanbeutilised.




(p) Incometax(continued)

Currentanddeferredtaxrelatingtoitemswhicharechargedorcrediteddirectlytoequity,arecreditedorchargeddirectlytoequityandaresubsequentlyrecognisedintheincomestatementtogetherwiththecurrentordeferredgainorloss.

Currenttaxbalancesanddeferredtaxbalances,andmovementstherein,arepresentedseparatelyfromeachotherandarenotoffset.Currenttaxassetsareoffsetagainstcurrenttaxliabilities,anddeferredtaxassetsagainstdeferredtaxliabilitiesiftheBankanditssubsidiarieshavealegallyenforceablerighttosetoffcurrenttaxassetsagainstcurrenttaxliabilitiesandthefollowingadditionalconditionsaremet:

– inthecaseofcurrenttaxassetsandliabilities,theBankoritssubsidiariesintendeithertosettleonanetbasis,ortorealisetheassetandsettletheliabilitysimultaneously;or

– inthecaseofdeferredtaxassetsandliabilities,iftheyrelatetoincometaxesleviedbythesametaxationauthorityoneitherthesametaxableentityordifferenttaxableentitiesforwhichalegalrightofsetoffexists.

(q) Provisions

TheBankrecognisesaprovisionforapresentlegalorconstructiveobligationresultingfromapasteventwhenitismorelikelythannotthatitwillberequiredtotransfereconomicbenefitstosettletheobligationandtheamountoftheobligationcanbeestimatedreliably.

Contingentliabilitiesarepossibleobligationsarisingfrompastevents,whoseexistencewillbeconfirmedonlybyuncertainfutureevents,orpresentobligationsarisingfrompasteventsthatarenotrecognisedbecauseeitheranoutflowofeconomicbenefitsisnotprobableortheamountoftheobligationcannotbereliablymeasured.Contingentliabilitiesarenotrecognisedbutinformationaboutthemisdisclosedunlessthepossibilityofanyoutflowofeconomicbenefitsinsettlementisremote.

(r) Employeebenefits

(i) Short term employee benefits

Salaries,annualbonuses,andthecostofnon-monetarybenefitsareaccruedintheyearinwhichtheassociatedservicesarerenderedbyemployees.

(ii) Retirement benefit obligations

TheBankanditssubsidiariesoperateanumberofdefinedcontributionanddefinedbenefitplans.

Fordefinedcontributionplans,theBankanditssubsidiariespaycontributionstopubliclyorprivatelyadministeredpensioninsuranceplansonamandatory,contractualorvoluntarybasis,andsuchamountsarechargedtooperatingexpenses.TheBankanditssubsidiarieshavenofurtherpaymentobligationsoncethecontributionshavebeenpaid.

Forfundeddefinedbenefitplans,thenetliabilityrecognisedinthestatementoffinancialpositionrepresentsthepresentvalueofthedefinedbenefitobligationsatthereportingdatelessthefairvalue of plan assets. The defined benefit obligations are calculated annually by independentactuariesusingtheprojectedunitcreditmethod.Thepresentvalueofthedefinedbenefitobligationsisdeterminedbydiscountingtheestimatedfuturecashoutflowsusinganinterestrateequaltotheyieldongovernmentbondsthataredenominatedinthecurrencyinwhichthebenefitswillbepaid,andthathaveatermtomaturityapproximatingtothetermoftherelatedpensionliability.




(r) Employeebenefits(continued)

(ii) Retirement benefit obligations (continued)

Actuarialgainsandlossesthatarisearerecognisedinshareholders’equityandpresentedintheconsolidatedstatementofothercomprehensiveincomeintheperiodtheyarise.Pastservicecostsarerecognisedimmediatelytotheextentthatbenefitsarevestedandareotherwiserecognisedovertheaverageperioduntilbenefitsarevestedonastraight-linebasis.Currentservicecostsandanypastservicecosts,togetherwiththenetinterestexpenseonthenetdefinedbenefitliability,arechargedtooperatingexpenses.

TheBankdeterminesthenetinterestexpenseonthenetdefinedbenefitliabilityfortheyearbyapplyingthediscountrateusedtomeasurethedefinedbenefitobligationatthebeginningoftheannualperiodtothethennetdefinedbenefitliability,takingintoaccountanychangesinthenetdefinedbenefitliabilityduringtheyearasaresultofcontributionsandbenefitpayment.

(iii) Share-based compensation

TheStandardCharteredPLCGroup(“Group”)operatesequity-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.Ateachreportingdate,theBankanditssubsidiariesreviseitsestimatesofthenumberofoptionsthatareexpectedtovest.Itrecognisestheimpactoftherevisionoforiginalestimates, ifany, inthe incomestatement,andacorrespondingadjustmenttoequityovertheremainingvestingperiod.Forfeiturespriortovestingattributabletofactorsotherthanthefailuretosatisfyanon-marketvestingconditionaretreatedasacancellationandtheremainingunamortisedchargeisdebitedtotheincomestatementatthetimeofcancellation.

(s) Translationofforeigncurrencies

ForeigncurrencytransactionsaretranslatedintoHongKongdollarsusingtheexchangeratesprevailingatthedatesofthetransactions.Foreignexchangegainsandlossesresultingfromthesettlementofsuchtransactions,andfromthetranslationatyear-endexchangeratesofmonetaryassetsandliabilitiesdenominatedinforeigncurrencies,arerecognisedintheincomestatement.

Non-monetaryassetsandliabilitiesaretranslatedathistoricalexchangeratesifheldathistoricalcostoryear-endexchangeratesifheldatfairvalue,andtheresultingforeignexchangegainsandlossesarerecognisedineithertheincomestatementorshareholders’equitydependingonthetreatmentofthegainorlossontheassetorliability.




(s) Translationofforeigncurrencies(continued)

TheresultsandfinancialpositionofallforeignoperationsthathaveafunctionalcurrencydifferentfromtheBank’spresentationcurrencyareaccountedforasfollows:

– assetsandliabilitiesforeachstatementoffinancialpositionpresentedaretranslatedattheclosingrateatthereportingdate.

– incomeandexpensesforeachincomestatementaretranslatedataverageexchangeratesoratratesonthedateofthetransactionwhereexchangeratesfluctuatesignificantly;and

– allresultingexchangedifferencesarerecognisedasaseparatecomponentofequity.

Onconsolidation,exchangedifferencesarising fromthe translationof thenet investment in foreignentities,andofborrowingsandothercurrencyinstrumentsdesignatedashedgesofsuchinvestments,aretakentoothercomprehensiveincome.Whenaforeignoperationissold,theexchangedifferencesarerecognisedintheincomestatementaspartofthegainorlossondisposal.

(t) Relatedparties

Forthepurposesofthesefinancialstatements,partiesareconsideredtoberelatedtotheBankanditssubsidiariesiftheBankanditssubsidiarieshavetheability,directlyorindirectly,tocontrolthepartyorexercisesignificantinfluenceoverthepartyinmakingfinancialandoperatingdecisions,orviceversa,orwheretheBankanditssubsidiariesandthepartyaresubjecttocommoncontrolorcommonsignificantinfluence.Relatedpartiesmaybeindividuals(beingmembersofkeymanagementpersonnel,significantshareholdersand/ortheirclosefamilymembers)orotherentitiesandinclude(i)associatesandjointventuresoftheGroup,(ii)entitieswhichareunderthesignificantinfluenceofrelatedpartiesoftheBankwhere thosepartiesare individuals, (iii)post-employmentbenefitplanswhichare for thebenefitofemployeesoftheBankorofanyentitythatisarelatedpartyoftheBank,and(iv)entitiesoranymemberoftheBankanditssubsidiariesofwhichitisapart,provideskeymanagementpersonnelservicestotheBankanditssubsidiariesortotheBankanditssubsidiaries’parent.

(u) Segmentreporting

Operatingsegments,andtheamountsofeachsegmentitemreportedinthefinancialstatements,areidentifiedfromthefinancialinformationprovidedregularlytotheBankanditssubsidiaries’mostseniorexecutivemanagementforthepurposesofallocatingresourcesto,andassessingtheperformanceof,theBankanditssubsidiaries’variouslinesofbusinessandgeographicallocations.

(v) Saleandrepurchaseagreements

Securitiessoldsubjecttorepurchaseagreements(“repos”)remainonthestatementoffinancialposition;thecounterpartyliabilityisincludedin“Depositsandbalancesofbanksandotherfinancialinstitutions”,“Depositsfromcustomers”or“AmountsduetoGroupcompanies”,asappropriate.Securitiespurchasedunderagreementstore-sell(“reverserepos”)arenotrecognisedonthestatementoffinancialpositionandtheconsiderationpaidisrecordedin“Advancestocustomers”,“Placementswithbanksandotherfinancialinstitutions”or“AmountsduefromGroupCompanies”asappropriate.Thedifferencebetweenthesaleandrepurchasepriceistreatedasinterestandrecognisedoverthelifeoftheagreement.

Securitiesborrowedarenotrecognisedinthefinancialstatements,unlessthesearesoldtothirdparties,inwhichcasethepurchaseandsalearerecordedwiththegainorlossincludedintradingincome.




(w) Assetsheldforsale

Non-currentassets(suchasproperty)anddisposalgroups(includingboththeassetsandliabilitiesofthedisposalgroups)areclassifiedasheldforsaleandmeasuredattheloweroftheircarryingamountandfairvaluelesscosttosellwhen:(i)theircarryingamountswillberecoveredprincipallythroughsale;(ii)theyareavailableforsaleintheirpresentcondition;and(iii)theirsaleishighlyprobable.

Immediatelybeforetheinitialclassificationasheldforsale,thecarryingamountsoftheassets(orassetsandliabilitiesinthedisposalgroup)aremeasuredinaccordancewiththeapplicableaccountingpoliciesdescribedabove.

3 Changes in accounting policies

Amendments to HKFRSs/IFRSs and new interpretation

TheHKICPA/IASBhasissuedthefollowingamendmentstoHKFRSs/IFRSsthatarefirsteffectiveforthecurrentaccountingperiodcommencing1January2015.

– AmendmentstoHKAS19/IAS19,Employeebenefits:Definedbenefitplans:Employeecontributions– AnnualImprovementstoHKFRSs/IFRSs2010-2012Cycle– AnnualImprovementstoHKFRSs/IFRSs2011-2013Cycle

TheBankanditssubsidiariesadoptedtheaboveamendmentstoexistingaccountingstandardsfrom1 January 2015. The application of these amendments did not have a material impact on theseconsolidatedfinancialstatements.

4 Operating profit

Theoperatingprofitfortheyearisstatedaftertakingintoaccountthefollowing:

2015 2014

HK$’M HK$’M

(a) InterestincomeInterestincomeonlistedsecurities 1,112 1,023Interestincomeonunlistedsecurities 1,424 1,474Otherinterestincome(note) 13,567 16,402

Amountshownintheincomestatement 16,103 18,899

Less:interestincomearisingfromtradingassets (359) (401)Less:interestincomeonfinancialassetsdesignatedatfairvalue (49) (57)

Totalinterestincomeonfinancialassetsthatarenotmeasuredatfairvaluethroughprofitorloss 15,695 18,441

(note)TheamountincludesinterestincomeonunwindingofdiscountsonloanimpairmentprovisionsofHK$44million(note16)(2014:HK$36million),andfairvaluegainsofHK$31milliontransferredfromreservesoncashflowhedges(2014:HK$1million).



4 Operating profit (continued)

2015 2014

HK$’M HK$’M

(b) InterestexpenseInterestexpenseoncustomerdeposits,depositsofbanks,

certificatesofdepositissued,debtsecuritiesissued,tradingliabilitiesandfinancialliabilitiesdesignatedatfairvalue(note) 4,360 4,826

Interestexpenseonsubordinatedliabilities 364 343


Less:interestexpensearisingfromtradingliabilities (66) (89)Less:interestexpensearisingfromfinancialliabilitiesdesignated

atfairvalue (119) (64)

Totalinterestexpenseonfinancialliabilitiesthatarenotmeasuredatfairvaluethroughprofitorloss 4,539 5,016

(note)TheamountincludesfairvaluegainsofHK$3milliontransferredfromreserveoncashflowhedges(2014:nil).

2015 2014

HK$’M HK$’M

(c) NetfeeandcommissionincomeNetfeeandcommissionincome(otherthanamounts

includedindeterminingtheeffectiveinterestrate)arisingfromfinancialassetsorfinancialliabilitiesthatarenotheldfortradingordesignatedatfairvalue–feeandcommissionincome 2,880 3,241–feeandcommissionexpense 112 165

NetfeeandcommissionincomefromtrustandotherfiduciaryactivitieswheretheBankanditssubsidiariesholdorinvestassetsonbehalfofitscustomers–feeandcommissionincome 605 512–feeandcommissionexpense 159 123




2015 2014

HK$’M HK$’M

(d) NettradingincomeGainslesslossesfromdealinginforeigncurrencies 1,008 988Gainslesslossesfromtradingsecurities 168 172Gainslesslossesfromotherdealingactivities (33) (137)


Add:interestincomearisingfromtradingassets 359 401Less:interestexpensearisingfromtradingliabilities (66) (89)

Netincomefromtradinginstruments 1,436 1,335

2015 2014

HK$’M HK$’M

(e) NetgainsfromfinancialinstrumentsdesignatedatfairvalueNetgainsasshownintheincomestatement 13 641Add:interestincomearisingfromfinancialassetsdesignatedatfairvalue 49 57Less:interestexpensearisingfromfinancialliabilitiesdesignated

atfairvalue (119) (64)

(57) 634

2015 2014

HK$’M HK$’M

(f) OtheroperatingincomeRentalincomefromoperatingleaseassets 3,120 2,662Dividendincomefromlistedavailable-for-salesecurities – –Dividendincomefromunlistedavailable-for-salesecurities 25 20Net(losses)/gainsondisposalofproperty,plantandequipment (61) 104Netlossesondisposaloffinancialinstruments

measuredatamortisedcost (76) (31)Netgainsonrevaluationofinvestmentproperties(note21) 3 306Netgainsondisposalofasubsidiaryandanassociate 1,758 –Others 76 60

4,845 3,121




2015 2014

HK$’M HK$’M

(g) OperatingexpensesStaffcosts–contributionstodefinedcontributionplans 39 223–expenseinrespectofthedefinedbenefitsplan(note30(c)) 99 101–equity-settledshare-basedpaymentexpenses 226 341–salariesandotherstaffcosts 6,398 6,259Depreciation(note21) 1,717 1,422Premisesandequipmentexpense,excludingdepreciation–rentalofpremises 998 935–others 389 406Amortisation–otherintangibleassets(note22) 121 112Auditor’sremuneration 19 17Others 4,929 5,027

14,935 14,843

5 Net gains from disposal of available-for-sale securities

2015 2014

HK$’M HK$’M

Netgainstransferredfromreserves 85 19

6 Impairment charges

2015 2014

HK$’M HK$’M

(a) ImpairmentchargesonadvancestobanksandcustomersIndividualimpairmentprovisions(note16)–additions 2,804 2,574–releases (19) (40)–recoveries (173) (242)

2,612 2,292

Portfolioimpairmentcharges/(releases)(note16) 455 (151)

3,067 2,141

(b) OtherimpairmentchargesChargesforaninterestinanassociate 357 620Chargesforgoodwillandintangibleassets – 291Chargesforriskparticipationtransactions 270 –Chargesforproperty,plantandequipment(note21) 133 –Others 3 –

763 911



7 Taxation in the consolidated income statement

(a) Taxationintheconsolidatedincomestatementrepresents:

2015 2014

HK$’M HK$’M

Current taxHongKongprofitstax 1,008 1,609Overseastaxation 20 31Over-provisioninrespectofprioryears (44) (255)

984 1,385

Deferred tax (note 27)Origination/reversaloftemporarydifferences 4 126(Over)/under-provisioninrespectofprioryears (13) 49

(9) 175

975 1,560

TheprovisionforHongKongprofitstaxfor2015iscalculatedat16.5%(2014:16.5%)oftheestimatedassessableprofitsfortheyear.Taxationforoverseassubsidiariesischargedattheappropriatecurrentratesoftaxationrulingintherelevantcountries.

(b) Reconciliationbetweentaxexpensesandaccountingprofitatapplicabletaxrates:

2015 2014

HK$’M HK$’M


Notionaltaxonprofitbeforetaxation,calculatedatHongKongprofitstaxrateof16.5% 1,562 1,974

Taxeffectofnon-deductibleexpenses 253 289Taxeffectofnon-taxablerevenue (762) (480)Over-provisioninprioryears (57) (206)Taxeffectofdifferenttaxratesofsubsidiariesoperating

inotherjurisdictions (26) (20)Others 5 3

Actualtaxexpense 975 1,560



8 Directors’ remuneration

Directors’remunerationdisclosedpursuanttosection383(1)oftheHongKongCompaniesOrdinanceandPart2oftheCompanies(DisclosureofinformationaboutBenefitsofDirectors)Regulationareasfollows:

Bank2015 2014

HK$’M HK$’M

Fees 1 1Short-termemploymentbenefits 45 58Post-employmentbenefits 1 2Equitycompensationbenefits 4 19

51 80

9 Segmental reporting

TheBankanditssubsidiariesmanageitsbusinessesbyfourclientsegments:CorporateandInstitutional,Commercial,PrivateBankingandRetail:

• Corporate & Institutional (C&I) Clients comprises Global Corporates (major multinationalcorporationsandlargebusinessgroupswhichhavesophisticated,cross-borderneedsrequiringhigh levelsof internationalservice);LocalCorporates (typicallyclientswithoperations in threegeographiesor less); andFinancial Institutions (Banks, Investorclients, Insurancecompanies,Broker Dealers, Public Sector names (including Central Banks, Sovereign Wealth Funds andDevelopmentOrganisations)andothertypesoffinancialinstitutions).ThemajorityofC&IclientincomeisgeneratedbyTransactionBanking,FinancialMarketsandCorporateFinanceproducts.

• Commercial Clients segmentservesmedium-sizedbusinessclientsandMidMarketsclientsprovidingproductsacrossTransactionBanking,FinancialMarketsandLending.

• Private Banking Clientssegmentisdedicatedtogivinghighnetworthclientshighlypersonalisedserviceandacomprehensivesuiteofproductsandservicestailoredtomeettheirfinancialneeds.IncomefromPrivateBankingclientsprimarilyrelatestoWealthManagementandRetailproducts.

• Retail Clientscomprises:• Priority&Internationalclients,managingandservicingHighValueSegmentcustomersand

deliveringadistinctanddifferentiatedcustomerexperiencetothem;• Personal&Preferredclients,providingbankingproductsandservicestoabroaderconsumer

market;and• Businessclients, servingsmallbusinessclients, soleproprietorsandprivatecompanies,

offeringsolutionssuchasworkingcapital,businessexpansion,businessesprotectionandyieldenhancement.

Besidesthefourclientsegments,tradingandproprietaryactivitiesundertakenbytheBankareclassifiedasOwnAccount.Inaddition,certainitemswhichdonotfallwithintheclientsegmentsandOwnAccount,includingunallocatedcentralcostsarereportedin“OtherBanking”.FinancialinformationispresentedinternallytotheBank’sseniormanagementusingthesesegments.

On19July2015,theGroupannouncedasimplificationofitsorganisationalstructurethatwillimproveaccountability, speed up decision-making and operational efficiency. This involves a simplifiedclient-facingstructure,comprisingthreeclientbusinesses(Corporate&InstitutionalBanking;Commercial&PrivateBankingandRetailBanking).Thesimplifiedorganisationalstructurewillbefullyinplaceby1January2016andthesegmentreportingwillbebasedonthenewstructurefrom1January2016.

TheBankanditssubsidiariescompriseonlyonegeographicalsegmentasover90%ofthebusinessisbasedinHongKong.Geographicalsegmentisclassifiedbythelocationoftheprincipaloperationsofthesubsidiaryor,inthecaseoftheBank,thelocationofthebranchresponsibleforreportingtheresultsoradvancingthefunds.



9 Segmental reporting (continued)

(a) Segmentresults,assetsandliabilities

Revenueandexpensesareallocatedtothereportablesegmentswithreferencetoincomegeneratedbythosesegmentsandtheexpensesincurredbythosesegmentsorwhichotherwisearisefromthedepreciationoramortisationofassetsattributabletothosesegments.

2015

Corporate &

Institutional

Clients

Commercial

Clients

Private

Banking

Clients Retail Clients Own Account Other Banking

Consolidated

Total

HK$’M HK$’M HK$’M HK$’M HK$’M HK$’M HK$’M

Operating income–Netinterestincome 3,386 896 444 5,488 1,760 (36) 11,938–Otheroperatingincome 8,585 725 617 5,169 (350) 1,708 16,454

11,971 1,621 1,061 10,657 1,410 1,672 28,392

Operatingexpenses(note) (6,184) (1,242) (962) (5,459) (353) (48) (14,248)

Operatingprofitbeforeimpairment 5,787 379 99 5,198 1,057 1,624 14,144

Impairmentcharges (1,199) (574) (725) (765) – (2) (3,265)

Profit/(loss)beforetaxation 4,588 (195) (626) 4,433 1,057 1,622 10,879

Segmentassets 253,546 23,124 27,956 247,319 413,698 53,664 1,019,307

Segmentliabilities 323,833 57,742 49,836 355,870 49,360 104,561 941,202




(a) Segmentresults,assetsandliabilities(continued)

2014

Corporate &

Institutional

Clients

Commercial

Clients

Private

Banking

Clients Retail Clients Own Account Other Banking

Consolidated

Total


Operating income–Netinterestincome 3,949 1,195 421 6,477 2,271 (111) 14,202–Otheroperatingincome 9,120 1,444 540 4,843 (320) 22 15,649

13,069 2,639 961 11,320 1,951 (89) 29,851

Operatingexpenses(note) (5,915) (1,403) (784) (5,491) (218) 91 (13,720)

Operatingprofitbeforeimpairment 7,154 1,236 177 5,829 1,733 2 16,131

Impairmentcharges (1,449) (492) (1) (1,108) – (271) (3,321)

Profit/(loss)beforetaxation 5,705 744 176 4,721 1,733 (269) 12,810

Segmentassets 349,407 32,512 28,919 250,720 379,330 52,779 1,093,667

Segmentliabilities 419,706 59,436 58,592 355,958 61,612 93,220 1,048,524

(note): OperatingexpensesinCorporate&InstitutionalClientssegmentincludeddepreciationchargesofHK$1,538million(2014:HK$1,214million)forcommercialaircraftandvesselsleasedtocustomersunderoperatingleases.

(b) Reconciliationofreportablesegmentoperatingincome,profitbeforetaxation,assetsandliabilities

2015 2014

HK$’M HK$’M

Operating income Reportablesegmentrevenue 28,392 29,851IncomerelatingtoFinancialMarketproducts (1,134) (1,776)Costoffreefunds 78 108Others (494) 265

Totaloperatingincome 26,842 28,448




(b) Reconciliationofreportablesegmentoperatingincome,profitbeforetaxation,assetsandliabilities(continued)

2015 2014

HK$’M HK$’M

Profit before taxationReportablesegmentprofitbeforetaxation 10,879 12,810IncomerelatingtoFinancialMarketproducts (1,134) (1,776)Costoffreefunds 78 108Reallocationsofimpairmentcharges (452) 290Others 94 533


2015 2014

HK$’M HK$’M

AssetsReportablesegmentassets 1,019,307 1,093,667Assetsofgroupcompaniesnotincludedinconsolidatedtotalassets (1,804) (2,872)Amountsduefromimmediateholdingcompanyandfellowsubsidiaries 46,462 116,324Others (105,000) (128,077)

Totalassets 958,965 1,079,042

2015 2014

HK$’M HK$’M

LiabilitiesReportablesegmentliabilities 941,202 1,048,524Liabilitiesofgroupcompaniesnotincludedinconsolidatedtotalliabilities (1,386) (1,415)Amountsduetoimmediateholdingcompanyandfellowsubsidiaries 35,833 20,853Others (82,033) (54,963)

Totalliabilities 893,616 1,012,999

Incomeandprofitbeforetaxationrecognisedintheconsolidatedfinancialstatementsrepresentanarm’slengthcompensation for theservicesprovidedand risksborne.For internalmanagement reportingpurposes,incomeandprofitbeforetaxationareallocatedonaglobalperspective.Inaddition,forinternalmanagementreportingpurposes,achargeisallocatedtoreportablesegmentsfortheuseofinterest-freefunds.

Reportablesegmentassetsandliabilities includeassetsandliabilitieswhicharenotbookedontheBankanditssubsidiaries’statementoffinancialpositionbutwhichcontributetothereportablesegment’sincomeandprofitbeforetaxation.



10 Cash and balances with banks, central banks and other financial institutions

2015 2014

HK$’M HK$’M

Cashinhand 1,572 1,905Balanceswithcentralbanks 38,290 29,732Balanceswithbanksandother

financialinstitutions 8,907 21,439

48,769 53,076

11 Placements with banks and other financial institutions

2015 2014

HK$’M HK$’M

Grossplacementswithbanksandotherfinancialinstitutions–maturingwithinonemonth 64,774 85,928–maturingbetweenonemonthtooneyear 53,090 58,053–maturingbetweenoneyeartofiveyears 1,794 1,789

119,658 145,770Less:impairmentprovision–individuallyassessed(note16(b)) – –

119,658 145,770

Therewerenoimpairedplacementswithbanksandotherfinancialinstitutionsasat31December2014and2015.

12 Hong Kong SAR Government certificates of indebtedness and currency notes in circulation

TheHongKongSpecialAdministrativeRegioncurrencynotesincirculationaresecuredbythedepositoffundsinrespectofwhichtheGovernmentofHongKongSpecialAdministrativeRegioncertificatesofindebtednessareheld.



13 Trading assets

2015 2014

HK$’M HK$’M

Tradingsecurities 16,721 20,768Advancestocustomers 163 1,604Positivefairvaluesoftradingderivatives 1,713 1,016

18,597 23,388

Tradingsecurities:Treasurybills 3,127 3,016Certificatesofdepositheld 388 374Debtsecurities 12,897 15,841Equitysecurities 309 1,537

16,721 20,768

Issuedby:Centralgovernmentsandcentralbanks 13,808 14,181Banksandotherfinancialinstitutions 1,490 1,285Corporateentities 1,423 5,302

16,721 20,768

Byplaceoflisting:ListedinHongKong 7,191 8,327ListedoutsideHongKong 7,036 8,768

14,227 17,095Unlisted 2,494 3,673

16,721 20,768



14 Financial assets designated at fair value

2015 2014

HK$’M HK$’M

Debtsecurities 666 1,575

Issuedby:Corporateentities 666 1,575

Byplaceoflisting:ListedoutsideHongKong 453 1,239Unlisted 213 336

666 1,575

Theabovefinancialassetsdesignatedatfairvaluerepresentcertaindebtsecuritieswithembeddedderivativesthatarenotseparatelyrecognised.

15 Advances to customers

(a) Advancestocustomers

2015 2014

HK$’M HK$’M

Grossadvancestocustomers 415,278 453,552Tradebills 1,785 3,237

417,063 456,789Less:Impairmentprovision

–individuallyassessed(note16(a)) (1,300) (1,440)–collectivelyassessed(note16(a)) (808) (353)

414,955 454,996



15 Advances to customers (continued)

(b) Impairedadvancestocustomers

2015 2014

HK$’M HK$’M

Grossimpairedadvancestocustomers 3,807 2,712Impairmentprovision–individuallyassessed (1,300) (1,440)

2,507 1,272

Grossimpairedadvancestocustomersasa%ofgrossadvancestocustomers 0.91% 0.59%

Fairvalueofcollateralheldagainstthecoveredportionofimpairedadvancestocustomers 1,967 1,206

Coveredportionofimpairedadvancestocustomers 1,452 725Uncoveredportionofimpairedadvancestocustomers 2,355 1,987

Thecoveredportionofimpairedadvancestocustomersrepresentstheamountofcollateralheldagainstoutstandingbalances.Itdoesnotincludeanycollateralheldoverandaboveoutstandingexposures.



16 Movement in impairment provision on advances to banks and customers

(a) Advancestocustomers

2015

Individually

assessed

Collectively

assessed Total

HK$’M HK$’M HK$’M

At1January2015 1,440 353 1,793Amountswrittenoff (2,881) – (2,881)Recoveriesofadvanceswrittenoffinpreviousyears 173 – 173Netchargetotheincomestatement(note6(a)) 2,612 455 3,067Unwindofdiscountonloanimpairmentprovision(note4(a)) (44) – (44)

At31December2015(note15(a)) 1,300 808 2,108

2014

Individually

assessed

Collectively

assessed Total


At1January2014 382 665 1,047Amountswrittenoff (1,400) – (1,400)Recoveriesofadvanceswrittenoffinpreviousyears 242 – 242Netchargetotheincomestatement(note6(a)) 2,270 (151) 2,119Unwindofdiscountonloanimpairmentprovision(note4(a)) (36) – (36)Transfertoassetheldforsale (18) (161) (179)

At31December2014(note15(a)) 1,440 353 1,793

(b) Placementswithbanksandotherfinancialinstitutions

Individually assessed

2015 2014

HK$’M HK$’M

At1January – –Chargetotheincomestatement(note6(a)) – 22Unwindofdiscountonloanimpairmentprovision(note4(a)) – –Amountswrittenoff – (22)

At31December(note11) – –



17 Investment securities

2015 2014

HK$’M HK$’M

Available-for-salesecuritiesTreasurybills 60,737 53,424Certificatesofdepositheld 14,952 15,086Debtsecurities 126,441 94,505Equityshares 632 468Less:impairmentprovision (11) (15)

202,751 163,468

Loansandreceivables–Debtsecurities 7,821 8,834

210,572 172,302

Issuedby:Available-for-salesecurities

Centralgovernmentsandcentralbanks 121,623 84,229Publicsectorentities 4,686 2,802Banksandotherfinancialinstitutions 49,286 49,707Corporateentities 27,156 26,730

202,751 163,468

Loansandreceivables–DebtsecuritiesCorporateentities 7,821 8,834

210,572 172,302

Byplaceoflisting:Available-for-salesecurities

ListedinHongKong 8,095 15,155ListedoutsideHongKong 105,257 64,540

113,352 79,695Unlisted 89,399 83,773

202,751 163,468

Loansandreceivables–DebtsecuritiesListedoutsideHongKong 3,278 2,489Unlisted 4,543 6,345

7,821 8,834

210,572 172,302



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.

During the year, HK$270 million of the above deposits (2014: Nil) were transferred to the relatedcompanies.Asat31December2015,theamountduefromgroupcompaniesshownonthestatementof financial position is stated net of HK$1,819 million (2014: HK$1,554 million) in respect of suchobligations.

Theamountsofmaterialtransactionsduringtheyeararesetoutbelow:

Immediate holding

company Fellow subsidiaries

2015 2014 2015 2014

HK$’M HK$’M HK$’M HK$’M

Operatingincome 2,280 2,632 130 728

Operatingexpenses 2,042 1,917 578 560

MaterialtransactionsenteredduringtheyearbetweentheBankanditssubsidiariesincludedoperatingincomeofHK$1,660million(2014:HK$1,910million)andoperatingexpenseofHK$97million(2014:HK$81million).Intra-grouptransactionsareeliminatedinfullintheconsolidatedincomestatement.



18 Amounts due from/to immediate holding company, fellow subsidiaries and subsidiaries of the Bank (continued)

Theamountsduefrom/toimmediateholdingcompanyandfellowsubsidiariesstatedontheconsolidatedstatementoffinancialpositionincludedthefollowing:

2015 2014

Immediate

holding

company

Fellow

subsidiaries

Immediate

holding

company

Fellow

subsidiaries


Amounts due from:Cashandbalanceswithbanksandother

financialinstitutions 1,733 628 8,170 5,028Placementswithbanksandotherfinancial

institutions 12,024 13,687 53,852 35,891Tradingassets

–Positivefairvaluesoftradingderivatives 14,390 – 4,817 1Investmentsecurities

–Listedavailable-for-saledebtsecurities – 1,395 – 4,509Otherassets

–Positivefairvaluesofhedgingderivatives 1,214 92 833 103–Others 996 303 2,591 529

30,357 16,105 70,263 46,061

2015 2014

Immediate

holding

company

Fellow

subsidiaries

Immediate

holding

company

Fellow

subsidiaries


Amounts due to:Depositsandbalancesofbanksandother

financialinstitutions 4,991 6,630 6,200 1,634Depositsfromcustomers – – – 389Tradingliabilities:

–Negativefairvaluesoftradingderivatives 15,405 – 5,580 1Debtsecuritiesinissue – 1,387 – 1,296Otherliabilities

–Negativefairvaluesofhedgingderivatives 1,755 27 1,196 ––Others 5,368 270 4,233 324

27,519 8,314 17,209 3,644



18 Amounts due from/to immediate holding company, fellow subsidiaries and subsidiaries of the Bank (continued)

Thecontractualamountsofcontingentliabilitiesandcommitmentstotheimmediateholdingcompanyandfellowsubsidiariesaresetoutbelow:

2015 2014

Immediate

holding

company

Fellow

subsidiaries

Immediate

holding

company

Fellow

subsidiaries


Financialguaranteesandothercreditrelatedcontingentliabilities 4,615 89 2,740 135

Loancommitmentsandothercreditrelatedcommitments – 29,866 3,877 41,789

19 Investments in subsidiaries of the Bank

Bank

2015 2014

HK$’M HK$’M

Unlistedshares,atcostlessimpairmentprovision,ifany 853 853

The following listcontainsonly theparticularsofsubsidiarieswhichprincipallyaffected the results,assetsorliabilitiesoftheBankanditssubsidiaries.

Name of companyPlace of

incorporationParticulars of issued and paid up capital

Proportion ofownership

interest held by the Bank

Principalactivity

StandardCharteredAPRLimited

UnitedKingdom 21,971,715ordinarysharesofUS$1each

100% Investmentholdings

StandardCharteredSecurities(HongKong)Limited

HongKong 1,000,000ordinaryshares

100% Equitycapitalmarkets,

corporatefinanceandinstitutional

brokerage

StandardCharteredLeasingGroupLimited

HongKong 30,000ordinaryshares

100% Provisionofleasingservices

20 Interest in associates

2015 2014

HK$’M HK$’M

Shareofnetassets 9,206 8,376Goodwill 1,717 1,717Less:Impairmentprovision (1,442) (1,085)

9,481 9,008



20 Interest in associates (continued)

Thefollowinglistcontainsonlytheparticularsofmaterialassociates:

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(Note1)

ChinaBohaiBankCompanyLimited(“Bohai”)

ThePeople’sRepublicofChina

13,855,000,000ordinarysharesofRMB1each

19.99% Provisionofbankingand

relatedfinancialservices(Note2)

Note1: ACBisastrategicpartnerfortheGroup,providinginvestmentopportunitiesandaccesstotheVietnammarket.

Note2: BohaiisastrategicpartnerfortheGrouptodevelopitsChinabusiness.

ShareholdingsinassociatedcompaniesincludealistedinvestmentofHK$967million(2014:HK$1,351million).Atthereportingdate,theinvestmentbasedonquotedmarketpriceswasvaluedatHK$961million(2014:HK$785million).Impairmenttestingontheinvestmenthasbeencarriedoutusingavalue-in-usemethodologyandthisdemonstratesthattherecoverableamountoftheinvestmentwasHK$967millionandanadditionalimpairmentchargeofHK$357millionwasrecordedin2015.

TheBankanditssubsidiaries’investmentsinACBandBohaiarelessthan20%butbothcompaniesareconsideredtobeassociatesbecauseofthesignificantinfluencetheBankisabletoexerciseoverthemanagementofthesecompaniesandtheirfinancialandoperatingpolicies.Significantinfluenceisevidencedlargelythroughtheinterchangeofmanagementpersonnelandtheprovisionofexpertise.

Inrespectoftheyearended31December2015,theshareoftheresultsofACBwasincludedinthesefinancialstatementsbasedonaccountsdrawnupto30September2015,buttakingintoaccountanyeventsortransactionsinthesubsequentperiodfrom1October2015to31December2015thatwouldmateriallyaffecttheresults.Bohai’sresultwasincludedinthefinancialstatementsbasedonaccountsdrawnupto30November2015.TheBankanditssubsidiarieshavetakenadvantageoftheprovisioncontained in HKAS 28/IAS 28 “Investments in Associates” whereby it is permitted to include theattributableshareofassociates’resultsbasedonaccountsdrawnuptoanon-coterminousperiodandwherethedifferenceisnotgreaterthanthreemonths.

Bothoftheaboveassociatesareaccountedforusingtheequitymethodintheconsolidatedfinancialstatements.



20 Interest in associates (continued)

Summary of financial information of the material associates and reconciliation to the carrying amounts in the consolidated financial statements

2015 2014

ACB Bohai ACB Bohai

HK$'M HK$'M HK$'M HK$'M

Gross amounts of the associates

Assets 66,572 959,690 64,979 826,655Liabilities (62,220) (917,098) (60,447) (788,351)

Netassets 4,352 42,592 4,532 38,304

Operatingincome 2,353 23,012 2,003 19,413

Profitaftertaxation 341 6,677 198 6,863Othercomprehensiveincome – 67 – 597

Totalcomprehensiveincome 341 6,744 198 7,460

Dividendsreceivedfromtheassociate 35 – 36 –

Grossamountofnetassetsoftheassociate 4,352 42,592 4,532 38,304EffectiveinterestoftheBankandits

subsidiaries 15% 19.99% 15% 19.99%

ShareofnetassetsoftheassociateattributabletotheBankanditssubsidiaries 653 8,514 680 7,657

Fairvalueadjustmentonacquisition 39 – 39 –Goodwill 1,717 – 1,717 –Less:Impairmentprovision (1,442) – (1,085) –

Carryingamountintheconsolidatedfinancialstatements 967 8,514 1,351 7,657

Reconciliation to the Bank and its subsidiaries’ total interest in associates:

2015 2014

HK$’M HK$’M

Carryingamountofmaterialassociates -ACB 967 1,351 -Bohai 8,514 7,657

Interestinassociatesintheconsolidatedfinancialstatements 9,481 9,008



21 Property, plant and equipment

2015

Buildings and

leasehold

land held for

own use

Equipment,

furniture

& fixtures

Operating

lease

assets Sub-total

Investment

properties

Total

property,

plant and

equipment

HK$’M HK$’M HK$’M HK$’M HK$’M HK$’M

Costorvaluation:At1January2015 2,921 518 39,116 42,555 934 43,489Additions 23 37 6,837 6,897 – 6,897Transferredtoassetclassifiedas

assetheldforsale – – (2,049) (2,049) – (2,049)Disposalsandwrite-offs (41) (97) (5,796) (5,934) – (5,934)Reclassifications (25) 25 – – – –Fairvalueadjustments(note4(f)) – – – – 3 3

At31December2015 2,878 483 38,108 41,469 937 42,406

Representing:Cost 2,878 483 38,108 41,469 – 41,469Valuation – – – – 937 937

2,878 483 38,108 41,469 937 42,406

Accumulateddepreciation:At1January2015 721 255 2,563 3,539 – 3,539Chargefortheperiod(note4(g)) 91 88 1,538 1,717 – 1,717Impairments(note6(b)) 64 17 52 133 – 133Transferredtoassetclassifiedas

assetheldforsale – – (129) (129) – (129)Attributabletoassetssoldor

writtenoff (39) (97) (198) (334) – (334)

At31December2015 837 263 3,826 4,926 – 4,926

Netbookvalue:At31December2015 2,041 220 34,282 36,543 937 37,480



21 Property, plant and equipment (continued)

2014Buildings and

leasehold land held for

own use

Equipment, furniture

& fixtures

Operatinglease

assets Sub-totalInvestment properties

Total property,plant and

equipmentHK$’M HK$’M HK$’M HK$’M HK$’M HK$’M

Costorvaluation:At1January2014 2,977 505 26,884 30,366 638 31,004Additions 88 61 15,246 15,395 – 15,395Transferredtoassetclassifiedas

assetheldforsale (53) (7) – (60) (10) (70)Disposalsandwrite-offs (56) (76) (3,014) (3,146) – (3,146)Reclassifications (35) 35 – – – –Fairvalueadjustments(note4(f)) – – – – 306 306

At31December2014 2,921 518 39,116 42,555 934 43,489

Representing:Cost 2,921 518 39,116 42,555 – 42,555Valuation – – – – 934 934

2,921 518 39,116 42,555 934 43,489

Accumulateddepreciation:At1January2014 676 238 1,517 2,431 – 2,431Chargefortheperiod(note4(g)) 111 97 1,214 1,422 – 1,422Transferredtoassetclassifiedas

assetheldforsale (10) (4) – (14) – (14)Attributabletoassetssoldor

writtenoff (56) (76) (168) (300) – (300)

At31December2014 721 255 2,563 3,539 – 3,539

Netbookvalue:At31December2014 2,200 263 36,553 39,016 934 39,950



21 Property, plant and equipment (continued)

(a) Buildingsandleaseholdlandheldforownuse

2015 2014

HK$’M HK$’M

LeaseholdinHongKong,atcost–medium-termleases 1,847 1,935–short-termleases 83 82

1,930 2,017

FreeholdoutsideHongKong,atcost 111 183

2,041 2,200

(b) Investmentproperties

2015 2014HK$’M HK$’M

FreeholdoutsideHongKong,atfairvalue 937 934

TheinvestmentpropertyoutsideHongKongwasrevaluedasat31December2015onanopenmarketvaluebasis.Thevaluationwascarriedoutbyanindependentfirm,CBRELimited,whichhasamongitsstaffmembersoftheRoyalInstituteofCharteredSurveyorswithrecentexperienceinthelocationandcategoryofthepropertybeingvalued.

The fair value of the investment property is primarily determined using comparable recent markettransactionsonarm’slengthterms.

Thesefairvaluesarecategorisedaslevel2valuationsusingobservableinputs.

(c) Operatingleaseassets:

Assetsleasedtocustomersunderoperatingleasesconsistofcommercialaircraftandvessels.At31December,thetotalfutureminimumleasereceivablesunderoperatingleasesareasfollows:

2015 2014

HK$’M HK$’M

Within1year 3,730 3,664After1yearbutwithin5years 13,779 11,855After5years 10,814 15,850

28,323 31,369



22 Goodwill and intangible assets

2015

Capitalised

software

and other

intangible assets Goodwill Total


Cost:At1January2015 668 729 1,397Additions 80 – 80Disposalsandwrite-offs (63) – (63)

At31December2015 685 729 1,414

Accumulatedamortisation:At1January2015 281 – 281Chargefortheyear(note4(g)) 121 – 121Attributabletointangibleassetssoldorwrittenoff (63) – (63)

At31December2015 339 – 339

Carryingamount:At31December2015 346 729 1,075

2014

Capitalised

software

and other

intangible assets Goodwill Total


Cost:At1January2014 702 1,507 2,209Additions 111 – 111Transferredtoasassetheldforsale (14) (525) (539)Disposalsandwrite-offs (131) (253) (384)

At31December2014 668 729 1,397

Accumulatedamortisation:At1January2014 276 – 276Chargefortheyear(note4(g)) 112 – 112Transferredtoassetheldforsale (14) – (14)Attributabletointangibleassetssoldorwrittenoff (93) – (93)

At31December2014 281 – 281

Carryingamount:At31December2014 387 729 1,116



22 Goodwill and intangible assets (continued)

Impairmenttestsforcash-generatingunitscontaininggoodwill

GoodwillisallocatedtotheBankanditssubsidiaries’cash-generatingunits(“CGUs”)asfollows:

2015 2014

HK$’M HK$’M

Lending 611 611PrivateBanking 118 118

729 729

Therecoverableamountsof theCGUsaredeterminedbasedonvalue inusecalculations.Thekeyassumptionsandapproachtodeterminingvalueinusecalculations,assetoutbelow,aresolelyusedfor the purpose of assessing impairment on acquired goodwill. These calculations use cash flowprojectionsovera20-yearperiodbasedonbudgetsandforecastsapprovedbymanagement.Thesebudgetsandforecastscoverperiodsoffiveyearandareextrapolatedforwardusingsteadygrowthratesof3.0percent(2014:3.9percent).

Inassessingimpairmentofgoodwill,theBankanditssubsidiariesassumedgrowthatasteadyrateinlinewithlong-termforecastGDPgrowth.Adiscountrateof14.1percent(2014:15.1percent)wasused.

23 Other assets

2015 2014

HK$’M HK$’M

Prepaymentsandaccruedincome 2,631 2,230Sundrydebtors 2,642 1,667Acceptancesandendorsements 2,588 2,843Unsettledtradesandothers 2,568 4,432Assetsheldforsale(note) 1,920 13,217

12,349 24,389

(note)Assetsheldforsaleasof31December2015includedcommercialaircraftandvesselsheldforsale.Assetsheldforsaleasof31December2014includedthedisposalgroupwhichconsistsofPrimeCreditLimitedandShenzhenPrimeCreditLimited.Theassetsandliabilitiesofthedisposalgrouparesummarisedinnote46.



24 Deposits from customers

2015 2014

HK$’M HK$’M

Currentaccounts 158,967 142,839Savingsaccounts 432,975 410,954Time,callandnoticedeposits 144,672 261,688Depositsandbalancesofcentralbanks 9,087 35,548

745,701 851,029

25 Debt securities in issue

2015 2014

HK$’M HK$’M

Certificatesofdeposit – 13,838Otherdebtsecurities 1,209 –

1,209 13,838

26 Financial liabilities designated at fair value

2015 2014

HK$’M HK$’M

Structureddepositsfrombanksandcustomers 6,542 7,528Debtsecuritiesissued 7,182 7,387

13,724 14,915

TheBankdesignatescertainfinancialliabilitiesatfairvaluewhereeithertheliabilities:

– havefixedratesofinterestandinterestrateswapsorotherinterestrelatedderivativeshavebeentransactedwiththeintentionofsignificantlyreducinginterestraterisk;or

– areexposedtoequitypricerisk, foreigncurrencyriskorcredit riskandderivativeshavebeentransactedwiththeintentionofsignificantlyreducingexposuretomarketchanges;

At31December2015,thecontractualamountpayableatmaturityofthesefinancialliabilitiesexceededthecarryingamountbyHK$1,328million (2014:HK$594million). Of this, thecumulative fairvaluemovementrelatingtochangesincreditriskwasagainofHK$1,112million(2014:HK$725million).TheamountoffairvaluemovementrelatingtochangesincreditriskrecognisedintheincomestatementduringtheyearwasHK$387million(2014:HK$723million).



27 Taxation in the statement of financial position

Deferredtaxassetsandliabilities:

The components of gross deferred tax (assets)/liabilities recognised in the statement of financial position and the movements during the year are as follows:

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

2015

Deferredtaxarisingfrom:At1January2015 688 (59) 37 (595) 71Charge/(release)toincomestatement

(note7(a)) 200 (75) – (134) (9)Releasetoreserves – – (72) (30) (102)

At31December2015 888 (134) (35) (759) (40)

2014

At1January2014 452 (110) 24 (529) (163)Charge/(release)toincomestatement

(note7(a)) 235 25 – (85) 175Chargetoreserves – – 13 19 32Transfertoassetsheldforsale 1 26 – – 27

At31December2014 688 (59) 37 (595) 71

2015 2014

HK$’M HK$’M

Analysedby:Netdeferredtaxassetrecognisedonthestatementoffinancialposition (314) (141)Netdeferredtaxliabilityrecognisedonthestatementoffinancialposition 274 212

(40) 71



28 Trading liabilities

2015 2014

HK$’M HK$’M

Shortpositionsinsecurities 8,476 11,995Negativefairvaluesoftradingderivatives 371 805

8,847 12,800

29 Other liabilities

2015 2014

HK$’M HK$’M

Accrualsanddeferredincome 3,340 4,009Provisionforliabilitiesandcharges 314 311Acceptancesandendorsements 2,588 2,843Unsettledtradesandothers 9,003 10,417Liabilitiesheldforsale(note) – 2,002

15,245 19,582

(note)LiabilitiesheldforsaleincludethedisposalgroupwhichconsistsofPrimeCreditLimitedandShenzhenPrimeCreditLimited.Theassetsandliabilitiesofthedisposalgroupissummarisedinnote46.

30 Employee retirement benefits

TheBankmakescontributionstoadefinedbenefitretirementscheme,namelyStandardCharteredBankHongKongRetirementScheme(“theScheme”),whichprovideslumpsumbenefitsbasedonamultipleofamember’sfinalsalaryandyearsofserviceuponthemember’sretirement,death,disabilityorleavingservice.TheSchemeisclosedtonewemployees.

The Scheme was established under a trust arrangement. It is registered under the OccupationalRetirementSchemesOrdinance(“ORSO”).TheBankisthesoleemployerparticipatingintheScheme.

TheBankhasanunconditionalrighttotheScheme’ssurplusandtheSchemehasnominimumfundingrequirements.

Thekey responsibilitiesof theScheme’s trusteesare toensure that theScheme isadministered inaccordancewiththetrustdeedandtoactonbehalfofallmembersimpartially,prudentlyandingoodfaith.

TheSchemeexposestheBanktointerestraterisk,investmentriskandsalaryrisk.

TheBank’scontributionsaredeterminedwith reference to the fundingvaluationcarriedoutby theScheme’sactuaryinaccordancewiththeORSOrequirements.ThelastfundingvaluationoftheSchemewascarriedoutasat31December2014.



30 Employee retirement benefits (continued)

(a) Amountsrecognisedintheconsolidatedstatementoffinancialposition

2015 2014

HK$’M HK$’M

Fairvalueofplanassets 1,970 2,173Presentvalueofwhollyorpartlyfundedobligations (2,226) (2,229)

Netliabilityrecognisedinthestatementoffinancialposition(includedin“Otherliabilities”) (256) (56)

(b) Movementsinthefairvalueofplanassetsandthepresentvalueofthedefinedbenefitobligations

2015

Assets Obligations Total


At1January2015 2,173 (2,229) (56)Contributions 40 – 40Benefitspaid (244) 244 –Currentservicecost – (98) (98)Netinterestincome/(cost) 36 (36) –Administrativeexpenses (1) – (1)Returnonplanassets,excludingamountsincludedin interestincome (34) – (34)Actuarialloss–fromexperience – (58) (58)Actuarialloss–fromfinancialassumptions – (49) (49)

At31December2015 1,970 (2,226) (256)

2014

Assets Obligations Total


At1January2014 2,203 (2,225) (22)Contributions 58 – 58Benefitspaid (188) 188 –Currentservicecost – (101) (101)Netinterestincome/(cost) 43 (42) 1Administrativeexpenses (1) – (1)Returnonplanassets,excludingamountsincludedin interestincome 58 – 58Actuarialloss–fromexperience – (11) (11)Actuarialloss–fromfinancialassumptions – (38) (38)

At31December2014 2,173 (2,229) (56)

Theweightedaveragedurationofthedefinedbenefitobligationasat31December2015is5years(2014:6years).

TheBankexpectstocontributeapproximatelyHK$30milliontotheSchemein2016.



30 Employee retirement benefits (continued)

(c) Amountsrecognisedintheconsolidatedincomestatementfortheyear

2015 2014

HK$’M HK$’M

Currentservicecost 98 101Netinterestincome – (1)Administrativeexpenses 1 1

99 101

(d) Principalactuarialassumptionsusedinthevaluationandsensitivityanalysis

2015 2014

HK$’M HK$’M

Discountrate 1.30% 1.70%Futuresalaryincreases 4.00% 4.00%

Theseassumptionsarelikelytochangeinthefutureandthuswillaffectthevalueplacedonthedefinedbenefitobligations.Changesatthereportingdatetooneoftherelevantactuarialassumptions,holdingotherassumptionsconstant,wouldhaveaffectedthedefinedbenefitobligationbytheamountsshownbelow:

• ifthediscountrateincreasedby25basispointstheobligationwouldreducebyapproximatelyHK$31million(2014:HK$32million).

• iftherateofgrowthofsalarieswashigherby25basispointstheobligationwouldincreasebyapproximatelyHK$29million(2014:HK$30million).

Theabovesensitivityanalysisisbasedontheassumptionthatchangesinactuarialassumptionsarenot correlated and therefore it does not take into account the correlations between the actuarialassumptions.

(e) Majorcategoriesofassets

2015 2014

HK$’M HK$’M

Equities 59% 59%Bonds 37% 35%Cash 4% 6%

100% 100%

Asat31December2015,theSchemedidnotinvestintheBank’sownfinancialinstrumentsandproperties(2014:Nil).TheSchemehasabenchmarkassetallocationof60%inequitiesand40%inbondsandcash(2014:60%inequitiesand40%inbondsandcash).ThelongtermstrategicassetallocationsoftheSchemearesetandreviewedfromtimetotimebythetrusteestakingintoaccounttheScheme’smembership,liabilityprofile,liquidityrequirements,andtheriskappetiteoftheBank.



31 Subordinated liabilities

2015 2014

HK$’M HK$’M

US$750million5.875%FixedRateNotes2020(note1) 6,191 6,213SGD750million4.15%FixedRateNotes2021(note2) 3,902 4,193

10,093 10,406

Allsubordinatedliabilitiesareunsecuredandsubordinatedtotheclaimsofothercreditors.

(note1)Interestrateat5.875percentperannum,payablesemi-annually,tothematuritydateon24June2020.

(note2)Interestrateat4.15percentperannum,payablesemi-annually,tothematuritydateon27October2021.

32 Share capital

2015 2014

No . of share HK$’M No . of shares HK$’M

Issued and fully paidA’ordinaryshares 706million 12,500 706million 12,500B’ordinaryshares 1,231million 78 1,231million 78US$500million6.25%perpetual

non-cumulativeconvertiblepreferenceshares 10 3,878 10 3,878

Fully repurchased in prior yearsHK$3,800million8.25%non-cumulative

preferenceshares – 3,800 – 3,800

20,256 20,256

TheHongKongCompaniesOrdinancewas revisedwitheffect from3March2014.Under thenewCompaniesOrdinance(Cap.622),amountswhichwerepreviouslycreditedtothesharepremiumaccountandcapitalredemptionreservehavebeenaggregatedtogetheraspartoftheBank’ssharecapital.SincethesharepremiumamountedtoHK$12,477millionwasoriginatedfromclass‘A’andclass‘B’ordinaryshares,andthecapitalredemptionreserveamountedtoHK$3,804millionwasoriginatedfrompartialredemptionofclass‘A’ordinarysharesandfullredemptionofpreferencesharesinprioryears,theywereallocatedbacktotheordinarysharesandpreferencesharecapitalaccordingly.

On30December2014, 10perpetual non-cumulativeconvertiblepreference shareswere issued toStandardCharteredBankatanaggregateissuepriceofUS$500millionwithaliquidationpreferenceofUS$500million.Eachpreferencesharewillbeconvertedto12,500,000‘A’SharesofUS$4.00eachuponanon-viabilityeventassetoutinthesubscriptionagreement.ThepreferencesharesqualifyasAdditionalTier1capitalundertheBanking(Capital)Rules.



32 Share capital (continued)

Theconvertiblepreferencesharesrankinprioritytothe‘A’ordinarysharesand‘B’ordinaryshareswithrespecttothepaymentofdividendsandanyreturnofcapital.The‘B’ordinarysharesrankinprioritytothe‘A’ordinaryshareswithrespecttoanyreturnofcapital.

33 Reserves

Natureandpurposeofreserves

(i) Sharepremiumandcapitalredemptionreserve

Priorto3March2014,theapplicationofthesharepremiumaccountandthecapitalredemptionreservewasgovernedbysections48Band49HrespectivelyoftheformerHongKongCompaniesOrdinance(Cap.32).Inaccordancewiththetransitionalprovisionssetoutinsection37ofSchedule11tothenewHongKongCompaniesOrdinance(Cap.622),on3March2014anyamountstandingtothecreditofthesharepremiumaccountandthecapitalredemptionreservehasbecomepartoftheBank’ssharecapital(seenote32).Theuseofsharecapitalfrom3March2014isgovernedbythenewHongKongCompaniesOrdinance(Cap.622).

(ii) Available-for-saleinvestmentreserve

Theavailable-for-saleinvestmentreservecomprisesthecumulativenetchangeinthefairvalueofavailable-for-salesecuritiesheldatthereportingdateandisdealtwith inaccordancewiththeaccountingpolicyinnote2(i).

(iii) Cashflowhedgereserve

Thecashflowhedgereservecomprisestheeffectiveportionofthecumulativenetchangeinthefairvalueofhedginginstrumentsusedincashflowhedgespendingsubsequentrecognitionofthehedgedcashflowinaccordancewiththeaccountingpolicyadoptedforcashflowhedgesinnote2(j).

(iv) Exchangereserve

Theexchangereservecomprisesallforeignexchangedifferencesarisingfromthetranslationofthefinancialstatementsofforeignoperations.Thereserveisdealtwithinaccordancewiththeaccountingpolicysetoutinnote2(s).

(v) Revaluationreserve

Therevaluationreservecomprisestheshareofthechangeinfairvalueofanassociate’sidentifiablenetassetspriortotheBankanditssubsidiariesobtainingsignificantinfluenceinastep-acquisition.

(vi) Shareoptionequityreserve

TheGroupoperatesequity-settledshare-basedcompensationplansinwhichtheBankanditssubsidiaries’employeesparticipate.Thefairvalueoftheemployeeservicesreceivedinexchangeforthegrantoftheshareawardsisrecognisedasanexpensewiththecorrespondingamountcreditedtotheshareoptionequityreserve.



33 Reserves (continued)

Natureandpurposeofreserves(continued)

(vii) Propertyrevaluationreserve

Thepropertyrevaluationreserverepresentstherevaluationsurplusarisinguponthereclassificationofapropertypreviouslyincludedin“Buildingsandleaseholdlandheldforownuse”to“investmentproperties”.

TheHKMArequirestheBankanditssubsidiariestomaintainaminimumlevelofimpairmentallowanceswhichisinexcessoftheimpairmentallowancesrequiredunderHongKongFinancialReportingStandards.Oftheretainedearningsasat31December2015,anamountofHK$5,428million(2014:HK$6,501million)hasbeenreservedforthispurpose.

34 Cash and cash equivalents

2015 2014

HK$’M HK$’M

(a) Componentsofcashandcashequivalentsinthecashflowstatement

Cashandbalanceswithbanks,centralbanksandotherfinancialinstitutions 48,769 53,076

Tradingassetswithoriginalmaturitywithinthreemonths 1,120 2,501Placementswithbanksandotherfinancialinstitutionswith

originalmaturitywithinthreemonths 42,925 81,149Investmentsecuritieswithoriginalmaturitywithinthreemonths 60,346 35,325Amountsduefromimmediateholdingcompanyandfellow

subsidiarieswithoriginalmaturitywithinthreemonths 10,824 64,071Add:Cashandbalanceswithbanks,centralbanksandotherfinancial

insititutionsincludedin“Assetsheldforsale” – 125Less:Overdraftsincludedin“depositsandbalances

ofbanksandotherfinancialinstitutions (3) –Less:Overdraftsincludedin“amountsdueto

immediateholdingcompany” (1,121) (3,397)

162,860 232,850



34 Cash and cash equivalents (continued)

2015 2014

HK$’M HK$’M

(b) ReconciliationwiththeconsolidatedstatementoffinancialpositionCashandbalanceswithbanks,centralbanks,and

otherfinancialinstitutions 48,769 53,076Tradingassets 18,597 23,388Placementswithbanksandotherfinancialinstitutions 119,658 145,770Investmentsecurities 210,572 172,302Amountsduefromimmediateholdingcompanyand

fellowsubsidiaries 46,462 116,324Cashandbalanceswithbanks,centralbanks,andotherfinancial

institutionsincludedin“Assetsheldforsale” – 125Overdraftsincludedin“depositsandbalancesof

banksandotherfinancialinstitutions” (3) –Overdraftsincludedin“amountsduetoimmediate

holdingcompany” (1,121) (3,397)

Amountsshowninthestatementoffinancialposition 442,934 507,588Less:amountswithanoriginalmaturityofbeyondthreemonths (280,074) (274,738)

Cashandcashequivalentsintheconsolidatedcashflowstatement 162,860 232,850

35 Derivative financial instruments

Theuseofderivativesfortradingandtheirsaletocustomersasriskmanagementproductsisanintegralpartof theBank’sbusinessactivities.These instrumentsarealsoused tomanage theBank’sownexposurestomarketriskaspartofitsassetandliabilitymanagementprocess.TheprincipalderivativeinstrumentsusedbytheBankareforeignexchangerelatedandinterestraterelatedcontracts,whichareprimarilyover-the-counterderivatives.MostoftheBank’sderivativepositionshavebeenenteredintotomeetcustomerdemandandtohedgetheseandothertradingpositions.Foraccountingpurposes,derivativesareclassifiedaseitherheldfortradingorheldforhedging.

(a) Notionalamountsofderivatives

Thenotionalamountsoftheseinstrumentsindicatethevolumeoftransactionsoutstandinganddonotrepresentamountsatrisk.



35 Derivative financial instruments (continued)

(a) Notionalamountsofderivatives(continued)

ThefollowingisasummaryofthenotionalamountsofeachsignificanttypeofderivativeenteredintobytheBankanditssubsidiaries:

2015

Qualifying

for hedge

accounting

Managed

in conjunction with

financial instruments

designated at

fair value through

profit or loss

Others,

including

held for

trading Total


ExchangeratecontractsForwards 630 – 1,646,789 1,647,419Crosscurrencyswaps 39,252 2,224 12,944 54,420Optionspurchased – 2,661 – 2,661Optionswritten – 4 4,317 4,321

InterestratecontractsSwaps 97,206 1,744 38,706 137,656Optionspurchased – 143 276 419Optionswritten – 4,983 – 4,983

Otherderivatives – 6,710 6,074 12,784

137,088 18,469 1,709,106 1,864,663

2014

ExchangeratecontractsForwards 202 – 1,359,821 1,360,023Crosscurrencyswaps 26,365 3,282 19,331 48,978Optionspurchased – 289 402 691Optionswritten – 19 4,187 4,206

InterestratecontractsSwaps 67,336 2,225 38,381 107,942Optionspurchased – 166 448 614Optionswritten – 3,897 2,182 6,079

Otherderivatives – 4,172 5,821 9,993

93,903 14,050 1,430,573 1,538,526




(b) Fairvaluesandcreditriskweightedamountsofderivatives

2015 2014

Fair value

assets

Fair value

liabilities

Credit risk

weighted

amount

(note)

Fair value

assets

Fair value

liabilities

Credit risk

weighted

amount


Exchangeratecontracts 14,931 14,749 3,801 5,153 5,495 5,813Interestratecontracts 2,170 2,600 701 1,430 1,889 7,347Otherderivatives 308 209 463 187 198 331

17,409 17,558 4,965 6,770 7,582 13,491

CreditriskweightedamountreferstotheamountascomputedinaccordancewiththeBanking(Capital)RulesoftheHongKongBankingOrdinance.Theamountcalculatedisdependentuponthestatusofthecounterpartyandmaturitycharacteristicsofeachtypeofcontract.

(note)Thecreditriskweightedamountshavetakenintoaccountthebilateralnettingarrangementssince2015.

(c) Fairvalueofderivativefinancialinstrumentsdesignatedashedginginstruments

ThefollowingisasummaryofthefairvaluesofderivativesheldforhedgingpurposesbyproducttypeenteredintobytheBankanditssubsidiaries:

2015

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 826 944Interestratecontracts 480 838

1,306 1,782

2014

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 444 307Interestratecontracts 492 889

936 1,196




(c) Fairvalueofderivativefinancialinstrumentsdesignatedashedginginstruments(continued)

Fairvaluehedges

Thefairvaluehedgesprincipallyconsistofinterestrateswapsandcrosscurrencyswaps.Theinterestrateswapsareusedtoprotectagainstchangesinthefairvalueofcertainfixedrateassetsandliabilitiesdue tomovements inmarket interest rates.Thecrosscurrencyswapsareused tomanage foreignexchangeexposures.At31December2015,thenetnegativefairvalueofderivativesheldasfairvaluehedgeswasHK$495million(2014:negativeHK$417million)comprisingassetsofHK$1,261million(2014:HK$752million)andliabilitiesofHK$1,756million(2014:HK$1,169million).ThelossesonthehedginginstrumentsfortheyearwereHK$272million(2014:lossesofHK$615million).ThegainsonthehedgeditemattributabletothehedgedriskwereHK$233million(2014:gainsofHK$568million).

Cashflowhedges

Thecashflowhedgesprincipallyconsistofinterestrateswapsandcrosscurrencyswapsthatareusedtohedgeagainstthevariabilityincashflowsofcertainfloatingrateassetsandliabilities.At31December2015,thenetpositivefairvalueofderivativesheldascashflowhedgeswasHK$19million(2014:positiveHK$157million)comprisingassetsofHK$45million(2014:HK$184million)andliabilitiesofHK$26million(2014:HK$27million).Duringtheyear,therewasnoineffectivenessrecognisedintheincomestatementthatarosefromcashflowhedges(2014:Nil).

Thetimeperiodsinwhichthehedgedcashflowsareexpectedtooccurandaffecttheconsolidatedstatementofcomprehensiveincomeareasfollows:

Less than

1 year

1 to 2

years

2 to 3

years

3 to 4

years

4 to 5

years Total


2015

Forecastreceivablecashflows 129 72 6 – 68 275Forecastpayablecashflows (14) (26) (24) (6) – (70)

115 46 (18) (6) 68 205

2014

Forecastreceivablecashflows 156 132 34 6 – 328Forecastpayablecashflows (18) (34) (52) (32) (5) (141)

138 98 (18) (26) (5) 187



36 Contingent liabilities and commitments

(a) Thefollowingisasummaryofthecontractualamountsofeachsignificantcontingentliabilityandcommitment:

2015 2014

HK$’M HK$’M

Directcreditsubstitutes 7,288 5,262Transaction-relatedcontingencies 6,259 5,519Trade-relatedcontingencies 13,124 17,265Forwardassetpurchases 105 289Forwardforwarddepositsplaced 358 3,877Othercommitments:whicharenotunconditionallycancellable:

withoriginalmaturityofnotmorethanoneyear 1,761 6,982withoriginalmaturityofmorethanoneyear 15,726 17,822

whichareunconditionallycancellable 339,269 391,520

383,890 448,536

Creditriskweightedamount 38,333 40,839

Contingentliabilitiesandcommitmentsarecredit-relatedinstruments,whichincludelettersofcredit,guaranteesandcommitmentstoextendcredit.Theriskinvolvedissimilartothecreditriskinvolvedinextending loan facilities to customers. These transactions are, therefore, subject to thesamecreditapplication,portfoliomaintenanceandcollateralrequirementsasforcustomersapplyingforloans.Thecontractualamountsrepresenttheamountsatriskshouldthecontractbefullydrawnuponandtheclientdefaults.Asthefacilitiesmayexpirewithoutbeingdrawnupon,thecontractedamountsdonotrepresentexpectedfuturecashflows.

(b) Capitalcommitments

Capitalcommitmentsoutstandingat31Decemberinrespectofproperty,plantandequipmentpurchasesnotprovidedforinthefinancialstatementswereasfollows:

2015 2014

HK$’M HK$’M

Contractedfor 5 50Authorisedbutnotcontractedfor 4 55

9 105



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:

2015 2014

HK$’M HK$’M

Within1year 845 821After1yearbutwithin5years 1,882 1,727After5years 643 1,067

3,370 3,615

Duringtheyear,HK$1,031million(2014:HK$966million)wasrecognisedasanexpenseintheincomestatement inrespectofoperating leases.TheBankand itssubsidiaries leasevariouspremisesandequipmentundernon-cancellableoperatingleaseagreements.

(d) Contingencies

TheBankanditssubsidiariesreceivelegalclaimsagainstitarisinginthenormalcourseofbusiness.TheBankanditssubsidiariesconsidernoneofthesemattersasmaterial.WhereappropriatetheBankanditssubsidiariesrecogniseaprovisionforliabilitieswhenitisprobablethatanoutflowofeconomicresourcesembodyingeconomicbenefitswillberequiredandforwhichareliableestimatecanbemadeoftheobligation.

37 Risk management

ThemanagementofriskliesattheheartoftheBank’sbusiness.OneoftheprincipalriskstheBankincursarisesfromextendingcredittocustomersthroughitstradingandlendingoperations.Beyondcreditrisk,theBankisalsoexposedtoarangeofotherrisktypessuchascross-bordercountry,market,liquidity,operational,pensions, reputationalandotherrisksthatare inherent totheBank’sstrategy,productrangeandbusinesscoverage.



37 Risk management (continued)

Riskmanagementframework

Effective risk management is fundamental to being able to generate profits consistently andsustainably–andisthusacentralpartofthefinancialandoperationalmanagementoftheBank.

ThroughitsRiskManagementFramework(“RMF”)theBankmanagesenterprise-widerisks,withtheobjectiveofmaximisingrisk-adjustedreturnswhileremainingwithinitsrisktolerance.

Aspartofthisframework,theBankusesasetofprinciplesthatdescribetheriskmanagementculturetheBankwishestosustain:

Balancingriskandreturn

• Wemanageourriskstobuildasustainablefranchise,intheinterestsofallourstakeholders

• We only take risk within our risk tolerances and risk appetite, and where consistent with ourapprovedstrategy

• Wemanageourriskprofiletomaintainalowprobabilityofanunexpectedlosseventthatwouldmateriallyunderminetheconfidenceofourinvestors

Conductofbusiness

• WedemonstrateweareHereforGoodthroughourconduct,andaremindfulofthereputationalconsequencesofinappropriateconduct

• Weseektoachievegoodoutcomesforclients,investors,andthemarketsinwhichweoperate,whileabidingbythespiritandletteroflawsandregulations

• Wetreatourcolleaguesfairlyandwithrespect

ResponsibilityandAccountability

• Wetakeindividualresponsibilitytoensurerisk-takingisdisciplinedandfocused,particularlywithinourareaofauthority

• Wemakesurerisktakingistransparent,controlledandreportedinlinewiththeriskmanagementframework,withinriskappetiteandrisktoleranceboundaries,andonlywherethereisappropriateinfrastructureandresource

Anticipation

• Weseektoanticipatematerialfuturerisks,learnlessonsfromeventsthathaveproducedadverseoutcomesandensureawarenessofknownrisks

Competitiveadvantage

• Weseektoachievecompetitiveadvantagethroughefficientandeffectiveriskmanagementandcontrol




Riskgovernance

UltimateresponsibilityforsettingrisktoleranceboundariesandfortheeffectivemanagementofriskrestswiththeBoard.

ActingwithinanauthoritydelegatedbytheBoard,theBoard’sAuditandRiskCommittee(“BARC”),whosemembershipiscomprisedexclusivelyofnon-executivedirectors,hasresponsibilityforoversightandreviewofprudentialrisksincludingbutnotlimitedtocredit,market,capital,liquidityandoperationalrisks.ItreviewstheBank’soverallrisktolerancestatementandmakesrecommendationsthereontotheBoard.

ActingwithinanauthoritydelegatedbytheBoardviatheExecutiveCommittee(“ExCo”),theBank’sExecutiveRiskCommittee (“ERC”) is responsible for themanagementof all risksother than thosedelegatedtotheAssetandLiabilityCommittee(“ALCO”)andtheCountryPensionsCommittee(“CPC”).TheERCisresponsiblefortheestablishmentof,andcompliancewithpoliciesrelatingtocreditrisk,countrycross-borderrisk,marketrisk,operationalriskandreputationalrisk.TheERCalsodefinestheoverallriskmanagementframework.

TheALCOisresponsibleforthemanagementofcapitalandtheestablishmentof,andcompliancewith,policiesrelatingtobalancesheetmanagement,includingmanagementofourliquidity,capitaladequacyandstructuralforeignexchangeandinterestraterisk.TheCPCisresponsibleforthemanagementofPensionsRisk.

Thecommitteegovernancestructureensuresthatrisk-takingauthorityandriskmanagementpoliciesarecascadeddownfromtheBoardthroughtotheappropriatefunctional,divisionalandcountry-levelcommittees.Informationregardingmaterialriskissuesandcompliancewithpoliciesandstandardsiscommunicatedtothebusinessandfunctionalcommittees.

Rolesandresponsibilitiesforriskmanagementaredefinedundera‘threelinesofdefence’model.Eachlineofdefencedescribesaspecificsetofresponsibilitiesforriskmanagementandcontrol.

• Firstlineofdefence:allemployeesarerequiredtoensuretheeffectivemanagementofriskswithinthe scope of their direct organisational responsibilities. Business, function and geographicgovernance heads are accountable for risk management in their respective businesses andfunctions,andforcountrieswheretheyhavegovernanceresponsibilities.

• Secondlineofdefence:thiscomprisestheRiskControlOwners,supportedbytheirrespectivecontrolfunctions.RiskControlOwnersareresponsibleforensuringthattheriskswithinthescopeoftheirresponsibilitiesremainwithinappetite.ThescopeofaRiskControlOwner’sresponsibilitiesisdefinedbyagivenRiskTypeandtheriskmanagementprocessesthatrelatetothatRiskType.TheseresponsibilitiescutacrosstheBankandarenotconstrainedbyfunctionalandbusinessboundaries.Themajorrisktypesaredescribedindividuallyinthefollowingsections.




Riskgovernance(continued)

• Thirdlineofdefence:theindependentassuranceprovidedbytheInternalAudit(“IA”)function.ItsroleisdefinedandoverseenbytheBARC.

— ThefindingsfromIA’sauditsarereportedtoallrelevantmanagementandgovernancebodies,accountablelinemanagers,relevantoversightfunctionorcommitteeandcommitteesoftheBoard.

— IAprovidesindependentassuranceoftheeffectivenessofmanagement’scontrolofitsownbusinessactivities(thefirstline)andoftheprocessesmaintainedbytheRiskControlFunctions(the second line). As a result, IA provides assurance that the overall system of controleffectivenessisworkingasrequiredwithintheRMF.

TheRiskfunction

TheCountryChiefRiskOfficer(“CCRO”)directlymanagesaRiskfunctionthatisseparatefromandindependentoftheorigination,tradingandsalesfunctionsofthebusinesses.TheCCROchairstheERCandisamemberofExCo.

TheroleoftheRiskfunctionis:

• To maintain the RMF, ensuring it remains appropriate to the Bank’s activities, is effectivelycommunicated and implemented across the Bank and to administer related governance andreportingprocesses.

• ToupholdtheoverallintegrityoftheBank’srisk/returndecisions,andinparticularensurethatrisksareproperlyassessed,thatrisk/returndecisionsaremadetransparentlyonthebasisofthisproperassessment,andarecontrolledinaccordancewiththeBank’sstandardsandriskappetite.

• ToexercisedirectRiskControlOwnershipforCredit,Market,CountryCross-Border,Short-termLiquidityandOperationalrisktypes.

TheindependenceoftheRiskfunctionistoensurethatthenecessarybalanceinrisk/returndecisionsisnotcompromisedbyshort-termpressurestogeneraterevenues.Thisisparticularlyimportantgiventhatrevenuesarerecognisedfromthepointofsale,whilelossesarisingfromriskpositionstypicallymanifestthemselvesovertime.

Inaddition,theRiskfunctionisacentreofexcellencethatprovidesspecialistcapabilitiesofrelevancetoriskmanagementprocessesinthewiderorganisation.

Risktoleranceandappetite

TheBankmanagesriskstobuildasustainablefranchiseintheinterestsofallourstakeholders.

TherearethreesetsofconstraintswhichdeterminetherisksthattheBankiswillingtotakeinpursuitofitsstrategy:




Risktoleranceandappetite(continued)

• RiskcapacitydefinesexternallyimposedconstraintswithinwhichtheBankmustoperate.ItisthemaximumlevelofrisktheBankcanassume,givenitscurrentcapabilitiesandresources,beforebreachingconstraintsdeterminedbyregulatorycapitalandliquidityrequirements,orotherwisefailingtomeettheexpectationsofregulatorsandlawenforcementagencies

• RisktoleranceistheboundarydefinedbytheBoardthatdeterminesthemaximumlevelofrisktheBankisordinarilywillingtotakeinpursuitofitsstrategy,inaccordancewithitsriskprinciplesandrecognizingthattheBankisakeypartofthewiderStandardCharteredBankGroup.Risktolerancemustconstrainrisktothelevelswherethepotentialforanyfinancialorreputationaldamageisconsistentwiththesustainedpursuitofstrategyandinlinewiththereasonableexpectationsofstakeholders.Risktolerancecannotexceedriskcapacity

• RiskappetiteistheamountofriskthattheBankregardsasoptimalinordertogeneratereturns,takingaccountofcurrentandreasonablyforeseeableexternalmarketconditions.Riskappetitecannotexceedrisktolerance

TheBank’sriskprofileistheoverallexposuretorisk,atagivenpointintime,coveringallapplicablerisktypes.Riskcontroltoolssuchasexposurelimits,underwritingstandards,scorecardcut-offsandpoliciesandotheroperationalcontrolparametersareusedtokeeptheBank’sriskprofilewithinriskappetite(andthereforealsorisktoleranceandriskcapacity).

TheBoardhasapprovedaRiskToleranceStatement,whichisunderpinnedbyasetoffinancialandoperationalcontrolparameters,knownasrisktolerances.TheserisktolerancesdirectlyconstraintheaggregateriskexposuresthatcanbetakenacrosstheBank.

TheBank’sRiskToleranceStatement,andtherelatedrisktolerancecategoriesapprovedbytheBoard,areasfollows:

• General:theBankwillnotcompromiseadherencetoitsrisktolerancesinordertopursuerevenuegrowthorhigherreturns

• Creditandcountrycross-border:theBankmanagesitscreditandcountrycross-borderexposures,sothatallconcentrationsareappropriatetotheprevailingeconomicandpoliticalenvironment,areactivelymanagedanddonotthreatenadherencetoitsrisktolerance

• Capitalandearningsvolatility:understressedconditions,ofaseverityexperiencedonaverageoncein25years,theBank’sprudentialcapitalratiosonatransitionalbasisshouldexceedminimumregulatorycapitalrequirements,withoutrecoursetoexternalsources(includingtheGroup)

• Marketrisk:theBankshouldcontrolitstradingportfolioandactivitiestoensurethatmarketrisklosses(financialorreputational)donotcausematerialdamagetotheBank’sfranchiseortheGroupfranchise

• Liquidityrisk:theBankshouldbeabletomeetitspaymentandcollateralobligationsunderextremebutplausibleliquiditystressscenarioswithoutrecoursetoextraordinarycentralbanksupport

• Operational risk: the Bank aims to control operational risks to ensure that operational losses(financialor reputational), includingany related toconductofbusinessmatters,donotcausematerialdamagetotheBank’sfranchiseortheGroupfranchise.




Risktoleranceandappetite(continued)

• Reputationalrisk:theBankwillprotectitsreputationtoensurethatthereisnomaterialdamagetotheBank’sfranchiseortheGroupfranchise

TheERCandALCOareresponsibleforensuringthattheBank’sriskprofileismanagedincompliancewiththerisktolerancessetbytheBoard.

Stresstesting

StresstestingandscenarioanalysisareusedtoassesstheabilityoftheBanktocontinueoperatingeffectivelyunderextremebutmacro-financialconditions.

TheBank’sstresstestingframeworkisdesignedto:

• Contributetothesettingandmonitoringofrisktolerancelimits

• Identifykeyriskstocapitalandliquidityposition,strategy,franchise,andreputation

• Support the development of strategic management actions and contingency plans includingbusinesscontinuity,toensuretheBankcanrecoverfromextremebutplausibleconditions

• Meetregulatoryrequirements.

TheBank’sstresstestingactivityfocusesonthepotentialimpactofmacro-financial,geo-politicalandphysicaleventsonrelevantgeographies,clientsegmentsandrisktypes.

(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.Thesepoliciessetkeycontrolstandardsoncreditoriginationandcreditriskassessment,concentrationriskandlargeexposures,creditriskmitigation,creditmonitoring,collectionandrecoverymanagement.Inaddition,thereareotherGroup-widepoliciesintegraltocreditriskmanagementsuchascreditriskmanagementsuchasthoserelatingtostresstesting,riskmeasurementandimpairmentprovisioning.

TheERCapprovespoliciesandstandardsbasedonthoseapprovedbyGRC,risklimitsandriskexposuredelegatedapprovalauthorityframeworks.Whenapprovingriskpoliciesandstandards,theERCtakesintoaccounttherequirementsoftheHongKongBankingOrdinanceandtheguidelinesissuedbytheHKMAwithrespecttolargeexposures,connectedlendingandprovisioningrequirements.




(a) Creditrisk(continued)

Creditratingandmeasurement

Riskmeasurementplaysacentralrole,alongwithjudgementandexperience,ininformingrisk-takingandportfoliomanagementdecisions.Itisaprimaryareaforsustainedinvestmentandseniormanagementattention.

Since1January2008,theBankhasusedtheAdvancedInternalRatings-Based(IRB)approachundertheBaselIIregulatoryframeworktocalculatecreditriskcapital.

A standard alphanumeric credit risk-grade (“CG”) system for Corporate & Institutional Clients andCommercialClientsused.Thenumericgradesrunfrom1to14andsomeofthegradesarefurthersub-classified.Lowercreditgradesareindicativeofalowerlikelihoodofdefault.Creditgrades1to12areassignedtoperformingcustomersoraccounts,whilecreditgrades13and14areassignedtonon-performingordefaultedcustomers.ForRetailClients IRBportfolios,theBankusesapplicationandbehaviourcreditscoresthatarecalibratedtogenerateaprobabilityofdefaultandthenmappedtothestandardalphanumericcreditriskgradesystem.

TheCGsarenotintendedtoreplicateexternalcreditgrades(wheretheseareavailable)andratingsassignedbyexternalratingsagenciesarenotusedindeterminingtheBank’sinternalcreditgrades.Nonetheless,asthefactorsusedtogradeaborrowermaybesimilar,aborrowerratedpoorlybyanexternalratingagencyistypicallyassignedaworseinternalcreditgrade.

AdvancedIRBmodelscoverasubstantialmajorityoftheBank’sexposureandareusedinassessingrisksatcustomerandportfoliolevel,settingstrategyandoptimisingtheBank’srisk-returndecisions.

IRBriskmeasurementmodelsareapprovedbytheERC,ontherecommendationoftheGroupModelAssessmentCommittee(“MAC”)andtheBank’sModelAssessmentForum(“MAF”).TheBank’sMAFsupports the ERC in ensuring risk identification and measurement capabilities are objective andconsistent,sothatriskcontrolandriskoriginationdecisionsareproperlyinformed.PriortoreviewbytheMAF,allIRBmodelsarevalidatedindetailbyamodelvalidationteam,whichisseparatefromtheteamswhichdevelopandmaintainthemodels.Modelsundergoannualperiodicreview.Reviewsarealsotriggerediftheperformanceofamodeldeterioratesmateriallyagainstpredeterminedthresholdsduringtheongoingmodelperformancemonitoringprocess.

CreditApproval

TheBankhasbeenlocallyincorporatedsince1July2004.Sincethen,theapprovalprocessreflectsthatstrategicdecisionsarebeingmadeinaccordancewithindividualmanagers’delegatedauthoritiesandthetermsofreferenceoftheappropriatecommittees.Itisrecognisedthat,asamajorpartoftheGroup,allsignificantriskdecisionsemanatingfromHongKongwillhaveanimpacttotheGroup,beitregulatory,concentration,strategic,etc.ItisthereforerecognisedthatitisessentialfortheGrouptoconsidersuchtransactionstoensurethattheseGroupissuesareincludedaspartofthedecisionmakingprocess.DelegatedauthoritiesapprovedbytheERCaredelegatedtothekeyriskmanagerstoensurethatallriskdecisionsaremadewithintheBank.Whereproposalsfalloutsideoftheindividual’sauthorities,theadviceandguidanceoftheGroupissought.Insuchcases,therelevantGroupauthority,whetheran individual or a committee, will review the proposal from a Group perspective and give theirrecommendation.Onreceiptofsuchrecommendation,theBank’sExcessApprovalCommittee(“EAC”),beingasub-committeeoftheERC,willmeettoconsidersuchadviceandreachasuitabledecision.AllthecreditapplicationsapprovedbytheEACwillbereportedateachERCmeetingfornoting.





Creditconcentrationrisk

Credit concentration risk is managed within concentration caps set by counterparty or groups ofconnectedcounterparties,bycountryandindustryinCorporate&InstitutionalClientsandCommercialClients; and tracked by product in Retail Clients. Additional targets are set and monitored forconcentrationsbycreditrating.

CreditconcentrationsaremonitoredbytheERCandconcentrationlimitsthatarematerialtotheBankarereviewedandapprovedatleastannuallybytheERC.

Creditmonitoring

TheBankanditssubsidiariesregularlymonitorcreditexposures,portfolioperformance,andexternaltrendsthatmayimpactriskmanagementoutcomes.

Internal risk management reports are presented to risk committees, containing information on keyenvironmental,politicalandeconomictrendsacrossmajorportfoliosandcountries;portfoliodelinquencyandloanimpairmentperformance;aswellasIRBportfoliometricsincludingcreditgrademigration.

TheBank’sCreditIssuesCommittee(“CIC”)meetsregularlytoassesstheimpactofexternaleventsandtrendsontheCorporate&InstitutionalClientsandCommercialClientscreditriskportfolioandtodefineandimplementtheBank’sresponseintermsofappropriatechangestoportfolioshape,portfolioandunderwritingstandards,riskpolicyandprocedures.

ClientaccountsareplacedonEarlyAlertwhentheydisplaysignsofactualorpotentialweakness.Forexamplewherethereisadeclineintheclient’spositionwithintheindustry,afinancialdeterioration,abreachofcovenants,non-performanceofanobligationwithinthestipulatedperiod,orthereareconcernsrelatingtoownershipormanagement.

SuchaccountsandportfoliosaresubjectedtoadedicatedprocessoverseenbytheCIC.ThisistomaintainaneffectiveoversightovertheexistingEarlyAlertportfolio.Clientaccountplansandcreditgradesarere-evaluatedandremedialactionsareagreedandmonitored.Remedialactionsinclude,butarenotlimitedto,exposurereduction,securityenhancement,exitingtheaccountorimmediatemovementoftheaccountintothecontrolofGroupSpecialAssetsManagement(“GSAM”),theBank’sspecialistrecoveryunit.

TheRetailClientsCreditIssuesForum(“CIF”)isasub-forumoftheERC.TheCIFmeetsregularlytoassessrelevantcreditmatters,whichincludemarketdevelopmentswithdirectcreditimplications,creditpolicychanges,prominentoremergingcreditconcerns,portfolioperformancemonitoring,andmitigatingactions.

InRetailClients,portfolioperformanceanddelinquencytrendsaremonitoredcontinuouslyatvariousdetailed segment levels. Individual customer behaviour is also tracked and considered for lendingdecisions.Accountsthatarepastduearesubjecttocollectionsprocesses,managedindependentlybytheRiskfunction.Charged-offaccountsaremanagedbyaspecialistrecoveryteam.

TheBusinessClientssegment ismanagedwithinRetailClients.ThecreditprocessesaremanagedthroughProgrammedLending,inlinewithRetailClientsprocedureswithspecificcontrolsandlimitsdesignedforBusinessClientslending.





Creditmitigation

Potentialcreditlossesfromanygivenaccount,customerorportfolioaremitigatedusingarangeoftoolssuchascollateral,nettingagreements,creditinsurance,creditderivativesandotherguarantees.Thereliancethatcanbeplacedonthesemitigants iscarefullyassessed in lightof issuessuchas legalcertaintyandenforceability,marketvalueandcounterpartyriskoftheguarantor.

Collateralisheldtomitigatecreditriskexposures.Whereappropriate,creditderivativesareusedtoreducecreditrisksintheportfolio.Duetotheirpotentialimpactonincomevolatility,suchderivativesareusedinacontrolledmannerwithreferencetotheirexpectedvolatility.

Riskmitigationpoliciesdeterminethekeyconsiderationforeligibility,enforceabilityandeffectivenessofcreditriskmitigationarrangements.Collateraltypeswhichareeligibleforriskmitigationinclude:cash;residential,commercialandindustrialproperty;property,plantandequipmentsuchasmotorvehicles,aircraft,plantandmachinery;marketablesecurities;commodities;bankguarantees;andlettersofcredit.

CollateralisvaluedinaccordancewiththeBank’sriskmitigationpolicy,whichprescribesthefrequencyofvaluationfordifferentcollateraltypes.Thevaluationfrequencyisdrivenbythelevelofpricevolatilityofeachtypeofcollateralandthenatureoftheunderlyingproductorriskexposure.

InCorporate& InstitutionalClientsandCommercialClients, theeffectivenessofcreditmitigation isensuredbypolicieswhichgoverneligibilitycriteriasuchasmonitoringofconcentrationofcollateral,correlationofthecollateraltounderlyingassets,adjustmentsforcurrencyfluctuationsforcollateral.Forallcreditriskmitigationthatmeetsthepolicycriteria,aclearsetofproceduresareappliedtoensurethatthevalueoftheunderlyingcollateralisappropriatelyrecordedandupdatedregularly.

InRetailClients,effectiveuseofcollateral isakeytoolbywhichcreditrisk ismitigated.AlleligiblecollateralacceptedbyRetailClientsiscoveredbyaproductproposalapprovedbyseniorcreditofficersdelegatedwiththerelevantauthority.Newcollateraltypeshavetobevettedthroughastringent‘NewBusinessApproval’processandareapprovedinaccordancewiththedelegatedauthoritieswithinRetailClientsRiskCommittee.Inordertoberecognisedassecurityandfortheloantobeclassifiedassecured,allitemspledgedmustbevaluedandanactivesecondaryresalemarketmustexistforthecollateral.DocumentationmustbeheldtoenableRetailClientstorealisetheassetwithoutthecooperationoftheassetownerintheeventthatthisisnecessary.

Detailedproceduresovercollateralmanagementareinplaceforeachbusiness.

Traded Products

Creditriskfromtradedproductsismanagedwithintheoverallcreditriskappetiteforcorporatesandfinancialinstitutions.

Thecreditriskexposurefromtradedproductsisderivedfromthepositivemark-to-marketvalueoftheunderlyinginstruments,andanadditionalcomponenttocaterforpotentialmarketmovements.

Forderivativecontracts,theBanklimitsitsexposuretocreditlossesintheeventofdefaultbyenteringintomasternettingagreementswithcertaincounterparties.AsrequiredbyHKAS32/IAS32,exposuresarepresentedonagrossbasisinthefinancialstatementsassuchtransactionsarenotintendedtobesettlednetintheordinarycourseofbusiness.





Traded Products (continued)

Inaddition,theBankentersintoCreditSupportAnnexes(“CSA”)withcounterpartieswherecollateralisdeemedanecessaryordesirablemitiganttotheexposure.Underavariationmarginprocess,additionalcollateraliscalledfromthecounterpartyiftotaluncollateralisedmark-to-marketexposureexceedsthethresholdandminimumtransferamountspecifiedintheCSA.Withcertaincounterparties,theCSAisreciprocalandrequirestheBanktopostcollateraliftheoverallmark-to-marketvalueofpositionsisinthecounterparty’sfavourandexceedsanagreedthreshold.

Securities

WithinCorporate&InstitutionalClientsandCommercialClients,theGroup’sUnderwritingCommittee(“UC”)(asapprovedbytheBank’sBoard)approvestheportfoliolimitsandparametersfortheunderwritingandpurchaseofallpre-definedsecuritiesassetstobeheldforsale.TheUCisestablishedundertheauthorityoftheBoardandunderadviceoftheGroup.Corporate&InstitutionalClientsandCommercialClientsoperateswithinsetlimits,whichincludecountry,singleissuer,holdingperiodandcreditgradelimits.

DaytodaycreditriskmanagementactivitiesfortradedsecuritiesarecarriedoutbyTradedCreditRiskManagementwhoseactivitiesincludeoversightandapprovalwithinthelevelsdelegatedbytheUC.Issuercreditrisk,includingsettlementandpre-settlementrisk,iscontrolledbyCorporate&InstitutionalClientsandCommercialClientsRisk,whilepriceriskiscontrolledbyMarketandTradedCreditRiskfunction(“MTCR”).

TheUCapprovesindividualproposalstounderwritenewcorporatesecurityissuesforclients.Whereanunderwrittensecurityisheldforaperiodlongerthanthetargetsell-downperiod,thefinaldecisiononwhethertosellthepositionrestswithintheRiskfunction.

Maximum exposure to credit risk

Themaximumexposurestocreditriskofon-balancesheetfinancialinstruments,beforetakingaccountofanycollateralorothercreditenhancements is thecarryingamount reportedonthestatementoffinancialposition.Foroff-balancesheetinstruments,themaximumexposuretocreditrisk,whichexcludesloancommitmentswhichareunconditionallycancellable,isthecontractualnominalamountsassetoutbelow:

2015 2014

HK$’M HK$’M

Financialguaranteesandothercreditrelatedcontingentliabilities 26,671 28,046

Loancommitmentsandothercreditrelatedcommitments 17,950 28,970

44,621 57,016





(i) Loans and advances

Therequirementforcollateralisnotasubstitutefortheabilitytopay,however,whichistheprimaryconsiderationforanylendingdecisions.Indeterminingthefinancialeffectofcollateralheldagainstloansneitherpastduenorimpaired,theBankhaveassessedthesignificanceofthecollateralheldinrelationtothetypeoflending.

Loans neither past due nor impaired

At31December2015,theBankanditssubsidiarieshaveHK$214,572million(2014:HK$195,366million)ofmortgage loans inRetailClients thatareneitherpastduenor impaired.Thesearegenerally fullysecuredexposures(2014:fullysecured).

In Corporate & Institutional Clients and Commercial Clients, the Bank and its subsidiaries haveHK$141,857million(2014:HK$196,678million)ofcorporateexposuresthatareneitherpastduenorimpaired.Basedonthefairvalueofthecollateralheld,28%(2014:25%)oftheseexposuresaresecuredbytangiblecollateral.

TheBankanditssubsidiariesalsoundertakecollateralisedlendingandborrowing(reversereposandrepos)arrangements,andthecollateralheldagainstthesetypesofloansaresetoutinnote39tothefinancialstatements.

Non-tangiblecollateral–suchasguaranteesandlettersofcredit–mayalsobeheldagainstcorporateexposuresalthoughthefinancialeffectofthistypeofcollateralislesssignificantintermsofrecoveries.Itisnotpracticabletoquantifytheeffectofthiscollateralasthevalueofthecollateralisconditionaloncircumstancesatthetimeofdefaultandothercreditrelatedfactors.

Loans past due or impaired

Thefairvalueofcollateralheldagainstpastdueorimpairedloansisdetailedinthetablebelowasat31December:

2015 2014

Advances to

customers

Advances to

banks

Advances to

customers

Advances to

banks


Estimatedfairvalueofcollateral(Note):Heldagainstimpairedadvances 1,452 – 725 –Heldagainstpastduebutnotimpairedadvances 1,399 – 2,570 –





(i) Loans and advances (continued)

Loans past due or impaired (continued)

(Note)Thefairvalueofthecollateralheldrepresentsfairvalue,aftertakingintoaccounttheeffectsofover-collateralisationwhereitisnotavailableforoffsetagainstotherloans.

Repossessed Collateral

Asat31December,theamountofassetsobtainedbytakingpossessionofcollateralheldassecuritywereasfollows:

2015 2014

HK$’M HK$’M

Property,plantandequipment 185 229

Loancollateralacquiredfromborrowersduetorestructuringortheirinabilitytorepay,continuestoberecordedas“Advancestocustomers”inthestatementoffinancialpositionattheloweroffairvalue(lesscoststosell)andthecarryingamountoftheloan(netofanyimpairmentallowances),untilthecollateralisrealised.

RepossessedcollateralobtainedareintendedtoberealisedinanorderlyfashiontorepaytheimpairedloansandarenotheldfortheownuseoftheBankanditssubsidiaries.

(ii) Off-balance sheet exposures

Forcertaintypesofexposuressuchaslettersofcreditandguarantees,theBankanditssubsidiariesobtaincollateralsuchascashdependingoninternalcreditriskassessments.However,fortradefinanceproductssuchas lettersofcredit, theBankand itssubsidiarieswill normallyhold legal title to theunderlyingassetsshouldadefaulttakeplace.





Creditquality

(i) Analysis of the loan portfolio

2015 2014

Advances to

customers

Advances to

banks

Advances to

customers

Advances to

banks


Loansandadvances–neitherpastduenorimpaired 411,174 119,653 450,427 145,757–pastduebutnotimpaired 2,082 5 3,650 13–impaired,netofindividuallyassessed

impairmentprovision 2,507 – 1,272 –Less:collectivelyassessed

impairmentprovision (808) – (353) –

414,955 119,658 454,996 145,770

Thefollowingtablessetoutananalysisoftheinternalcreditgradingsforadvanceswhicharenotpastdueandforwhichnoindividualimpairmentprovisionhasbeenraised.Thecreditgradingssetoutinthetablesbelowarebasedonaprobabilityofdefaultmeasureassetoutonpage70.

2015 2014

Advances to

customers

Advances to

banks

Advances to

customers

Advances to

banks


Creditgrades:1to5 294,070 118,920 291,715 145,0506to8 88,339 676 119,307 5239to11 27,891 57 37,625 18412 874 – 1,780 –

411,174 119,653 450,427 145,757





(i) Analysis of the loan portfolio (continued)

Thefollowingtablessetouttheageingofadvanceswhicharepastdueandforwhichnoindividualimpairmentprovisionhasbeenraised.Aloanisconsideredtobepastduewhenthecounterpartyhas failedtomakeaprincipalor interestpaymentwhencontractuallydue.Pastduedoesnotnecessarilymeanthatthecounterpartyisimpaired.

2015 2014

Advances to

customers

Advances to

banks

Advances to

customers

Advances to

banks


Pastdue–upto30days 1,775 5 3,319 13–31-60days 165 – 145 ––61-90days 58 – 97 ––91-120days 48 – 51 ––121-150days 36 – 38 –

2,082 5 3,650 13

(ii) Analysis of debt securities (including certificates of deposit), equity shares and treasury bills

2015

Treasury

bills

Debt

securities

Equity

shares Total


Impairedsecurities – – 19 19Impairmentprovisions – – (11) (11)

Netimpairedsecurities – – 8 8Securitiesneitherpastduenorimpaired 63,864 164,560 922 229,346

2014

Treasury

bills

Debt

securities

Equity

shares Total


Impairedsecurities – – 34 34Impairmentprovisions – – (15) (15)

Netimpairedsecurities – – 19 19Securitiesneitherpastduenorimpaired 56,440 140,724 1,971 199,135





(ii) Analysis of debt securities (including certificates of deposit), equity shares and treasury bills (continued)

Thefollowingtableanalysesdebtsecurities(includingcertificatesofdeposit)andtreasurybillswhichareneitherpastduenorimpairedbyexternalcreditrating.ThestandardcreditratingsusedbytheBankarethoseusedbyStandard&Poorsortheirequivalent.Debtsecuritiesheldwhichhaveashort-termratingarereportedagainstthelong-termratingoftheissuer.

2015 2014

Treasury

bills

Debt

securities

Treasury

bills

Debt

securities


AAA – 48,203 – 39,413AA-toAA+ 62,618 58,082 56,278 43,109A-toA+ 1,246 53,863 162 51,612LowerthanA- – 2,595 – 2,348Unrated – 1,817 – 4,242

63,864 164,560 56,440 140,724

(b) Countrycross-borderrisk

Countrycross-borderriskistheriskthattheBankwillbeunabletoobtainpaymentfromourcustomersorthirdpartiesontheircontractualobligationsasaresultofcertainactionstakenbyforeigngovernments,chieflyrelatingtoconvertibilityandtransferabilityofforeigncurrency.

TheERCisresponsibleforcountrycross-borderrisklimitsanddelegatesthesettingandmanagementofthoselimitstothecountry’sRiskfunction.Thebusinessteamsmanageexposureswithintheselimitsandpolicies.Countriesdesignatedashigherriskaresubjecttoincreasedmonitoring.

Assetsthatgeneratecountrycross-borderexposurearethosewherethemainsourceofrepaymentorsecurityisderivedfromacountryotherthanthecountryinwhichtheassetisbooked.Thesecoverawiderangeofproductsincludingloansandadvances,interest-bearingdepositswithotherbanks,tradeandotherbills,acceptances,amountsreceivableunderfinanceleases,derivatives,certificatesofdepositandothernegotiablepaper,investmentsecuritiesandformalcommitments.Cross-borderassetsalsoincludeexposurestolocalresidentsdenominatedincurrenciesotherthanthelocalcurrencyandlocalcurrency assets funded by intra-group funding. Cross-border exposure also includes the value ofcommodity,aircraftandshippingassetsownedbytheGroupthatareheldinagivencountry.




(c) Marketriskmanagement

Marketriskgovernance

Marketriskisthepotentialforlossofearningsoreconomicvalueduetoadversechangesinfinancialmarketratesorprices.TheBank’sexposuretomarketriskarisesinsupportofitsactivities,facilitationofwhichentails theBank’s takingmoderatemarket riskpositions.All trading teamssupport clientactivity;therearenoproprietarytradingteams.Hence,incomeearnedfrommarketriskrelatedactivitiesisbroadlystable.

TheprimarycategoriesofmarketriskfortheBankare:

• interestraterisk:arisingfromchangesinyieldcurves,creditspreadsandimpliedvolatilitiesoninterestrateoptions;

• currencyexchangeraterisk:arisingfromchangesinexchangeratesandimpliedvolatilitiesonforeignexchangeoptions.

TheBanksetstheBankrisktoleranceframework.WithinthistolerancetheERCapprovestheBank’soverallmarketriskVaRandstresslosstriggerstakingaccountofmarketvolatility,therangeofproductsandassetclasses,businessvolumesandtransactionsizes.TheERCisresponsibleforsettingbusinessanddesklevelVaR,andstresslosstriggersformarketrisk.TheERCisalsoresponsibleforpoliciesandotherstandards for thecontrolofmarket riskandoverseeing theireffective implementation.Thesepoliciescoverbothtradingandnon-tradingbooksoftheBank.

TheMarketandTradedCreditRiskfunction(“MTCR”)approvesthelimitswithindelegatedauthoritiesandmonitorsexposuresagainsttheselimits.Additionallimitsareplacedonspecificinstrumentsandpositionconcentrationswhereappropriate.Sensitivitymeasuresareused inadditiontoVaRasriskmanagementtools.Forexample,interestratesensitivityismeasuredintermsofexposuretoaonebasispointincreaseinyields.

ValueatRisk

TheBankmeasurestheriskoflossesarisingfromfuturepotentialadversemovementsinmarketrates,pricesandvolatilitiesusingaVaRmethodology.VaR,ingeneral,isaquantitativemeasureofmarketriskthatappliesrecenthistoricalmarketconditionstoestimatethepotentialfuturelossinmarketvaluethatwill notbeexceeded in a set timeperiodat a set statistical confidence level.VaRprovidesaconsistentmeasurethatcanbeappliedacrosstradingbusinessesandproductsovertimeandcanbesetagainstactualdailytradingprofitandlossoutcome.

VaRiscalculatedforexpectedmovementsoveraminimumofonebusinessdayandtoaconfidencelevelof97.5percent.ThisconfidencelevelsuggeststhatpotentialdailylossesinexcessoftheVaRmeasurearelikelytobeexperiencedsixtimesperyear.




(c) Marketriskmanagement(continued)

ValueatRisk(continued)

TheBankappliestwoVaRmethodologies:

• Historicalsimulation:involvestherevaluationofallexistingpositionstoreflecttheeffectofhistoricallyobservedchangesinmarketriskfactorsonthevaluationofthecurrentportfolio.Thisapproachisappliedforgeneralmarketriskfactorsandthemajorityofspecific(creditspread)riskVaR.

• MonteCarlosimulation:thismethodologyissimilartohistoricalsimulationbutwithconsiderablymoreinputriskfactorobservations.Thesearegeneratedbyrandomsamplingtechniques,buttheresultsretaintheessentialvariabilityandcorrelationsofhistoricallyobservedriskfactorchanges.Thisapproachisappliedforsomeofthespecific(creditspread)riskVaRinrelationtoidiosyncraticexposuresincreditmarkets.

Inbothmethods,anhistoricalobservationperiodofoneyearischosenandapplied.

StressTesting

Lossesbeyondthe97.5percentconfidenceintervalarenotcapturedbyaVaRcalculation,thereforeVaRcalculationgivesnoindicationofthesizeofunexpectedlossesinthesesituations.

MTCRcomplementstheVaRmeasurementbyweeklystresstestingofmarketriskexposurestohighlightthepotentialriskthatmayarisefromextrememarketeventsthatarerarebutplausible.

Stresstestingisanintegralpartofthemarketriskmanagementframeworkandconsidersbothhistoricalmarketeventsandforward-lookingscenarios.Aconsistentstresstestingmethodologyisappliedtotradingandnon-tradingbooks.Thestresstestingmethodologyassumesthatscopeformanagementactionwouldbelimitedduringastressevent,reflectingthedecreaseinmarketliquiditythatoftenoccurs.

Stressscenariosareregularlyupdatedtoreflectchangesinriskprofileandeconomicevents.MTCRreviewsstressexposuresand,wherenecessary,enforcesreductionsinoverallmarketriskexposure.TheERCconsiderstheresultsofstresstestsaspartofitssupervisionofriskappetite.

Regularstresstestscenariosareappliedto interestrates,creditspreads,andexchangerates.ThiscoversallassetclassesintheFinancialMarketsbankingandtradingbooks.

Adhocscenariosarealsopreparedreflectingspecificmarketconditionsandforparticularconcentrationsofriskthatarisewithinthebusiness.

MarketriskVaRcoverage

Interestrateriskfromnon-tradingbookportfoliosistransferredtoFinancialMarketswhereitismanagedbytheAssetandLiabilityManagement(ALM)deskunderthesupervisionofALCO.ALMdealsinthemarketinapprovedfinancialinstrumentsinordertomanagethenetinterestraterisk,subjecttoapprovedVaRandrisklimits.




(c) Marketriskmanagement(continued)

MarketriskVaRcoverage(continued)

VaRandstresstestsarethereforeappliedtothesenon-tradingbookexposuresinthesamewayasforthetradingbook,includingavailable-for-salesecurities.SecuritiesclassedasLoansandReceivablesorHeldtoMaturityarenotreflectedinVaRorstresstestssincetheyareaccountedonanamortisedcostbasis,somarketpricemovementshavelimitedeffectoneitherprofitandlossorreserves.

StructuralforeignexchangecurrencyrisksaremanagedbyGroupTreasury,andarenotincludedwithinVaR.Otherwise,thenon-tradingbookdoesnotrunopenforeignexchangepositions.

TradingandNon-trading(VaRat97.5%,1day)

Value at risk: 2015 2014

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^ 51.3 67.9 35.1 54.9 45.3 60.0 35.0 38.6Foreignexchangerisk 3.8 10.6 0.9 7.7 2.4 5.7 1.1 4.4

Total^^ 51.9 67.9 35.2 57.1 45.9 60.9 34.7 38.5 7

Trading(VaRat97.5%,1day)




Interestraterisk 9.6 12.9 6.0 11.0 9.9 14.1 6.8 9.0Foreignexchangerisk 3.8 10.6 0.9 7.7 2.4 5.7 1.1 4.4

Total^^ 11.1 20.0 7.0 15.9 10.2 14.0 6.9 8.6

Non-trading(VaRat97.5%,1day)




Interestraterisk^ 47.2 63.9 30.9 47.1 40.3 51.5 31.3 36.0

* ActualonedayVaRatperiodenddate.** HighestandlowestVaRforeachriskfactorareindependentandusuallyoccurondifferentdays.^ InterestrateriskVaRincludescreditspreadriskarisingfromsecuritiesheldfortradingoravailable-

for-sale.^^ ThetotalVaRshowninthetablesaboveisnotasumofthecomponentrisksduetooffsetsbetween

them.Totalincludedtradingbookequityriskthatisinsignificant.




(d) Foreignexchangerisk

TheforeignexchangepositionsoftheBankanditssubsidiariesarisefromforeignexchangetradingandcommercialbankingoperations.Foreignexchangetradingexposuresareprincipallyderivedfromcustomerdriventransactions.

Foreignexchangeriskinthenon-tradingbookportfoliosisminimisedbymatchfundingassetsandliabilitiesinthesamecurrency.

TheBankanditssubsidiarieshadthefollowingnon-structuralforeigncurrencypositionswhichexceeded10%ofthenetnon-structuralpositioninallforeigncurrencies:

2015 2014

HK$’M HK$’M

US dollars exposure

Spotassets 278,272 373,653Spotliabilities (293,469) (340,519)Forwardpurchases 838,812 669,828Forwardsales (819,270) (696,706)Netoptionposition – –

Netlongnon-structuralposition 4,345 6,256

2015 2014

HK$’M HK$’M

Chinese renminbi exposure

Spotassets 83,495 135,189Spotliabilities (55,165) (97,721)Forwardpurchases 564,160 477,387Forwardsales (590,802) (516,333)Netoptionposition – –

Netlong/(short)non-structuralposition 1,688 (1,478)




(d) Foreignexchangerisk(continued)

TheBankanditssubsidiarieshadthefollowingstructuralforeigncurrencypositionswhichexceeded10%ofthenetstructuralpositioninallforeigncurrencies:

2015 2014HK$’M HK$’M

ChineseRenminbi 8,515 7,803USdollars 2,147 1,570

10,662 9,373

(e) Interestrateriskinthebankingbook

InterestrateriskinthebankingbookismanagedchieflybytheAssetandLiabilityManagement(“ALM”)functionwithinFinancialMarkets.Theseinterestrateriskpositionsaremeasured,reportedandmonitoredindependentlyagainstlimitsonadailybasis.

Assumptionsonloanprepaymentandbehaviourofdepositsarecountryandproductspecific.TransferpricingofinterestrateriskisoverseenbylocalALCOsinaccordancewiththeBank’sFundTransferPricingPolicy.

(f) Liquidityrisk

LiquidityriskistheriskthattheBankeitherdoesnothavesufficientfinancialresourcesavailabletomeetallitsobligationsastheyfalldue,orcanonlyaccessthesefinancialresourcesatexcessivecost.

ItistheBank’spolicytomaintainadequateliquidityandfundingatalltimesandhencetobeinapositiontomeetobligationsastheyfalldue.TheBankmanagesliquidityriskbothonashort-termandstructuralbasis.Intheshort-term,thefocusisonensuringthatthecashflowdemandscanbemetwhenrequired.Inthemedium-term,thefocusisonensuringthestatementoffinancialpositionremainsstructurallysoundandalignedtotheBank’sfundingstrategy.

Liquidity is managed by the Asset and Liability Committee, supported by the Asset and LiabilityManagementfunction.TheBankoperateswithinpredefinedliquiditylimitsandincompliancewithGroupliquiditypoliciesandpractices,aswellas localregulatoryrequirements.MTCRandGroupTreasuryproposeandoverseetheimplementationofpoliciesandothercontrolsrelatingtotheaboverisks.

TheBankseekstomanagetheliquidityprudently.ExceptionalmarketeventscouldimpacttheBankadversely,therebypotentiallyaffectingtheBank’sabilitytofulfilobligationsastheyfalldue.Theprincipaluncertaintiesforliquidityriskarethatcustomerswithdrawtheirdepositsatasubstantiallyfasterratethanexpected,orthatassetrepaymentsarenotreceivedontheexpectedmaturitydate.Tomitigatetheseuncertainties,theBankmaintainsadiverseandlargelycustomer-drivenfundingbase.InadditiontheBankhascontingencyfundingplansincludingaportfolioofliquidassetsthatcanberealisedifaliquiditystressoccurs,aswellasreadyaccesstowholesalefundsundernormalmarketconditions.




(f) Liquidityrisk(continued)

Customerassetsareasfaraspossiblefundedinthesamecurrency.Wheremismatchesarise,theyarecontrolledbylimitsontheamountofforeigncurrencythatcanbeswappedtolocalcurrencyandviceversa.Suchlimitsarethereforeameansofreducingtheriskthatobligationscouldnotbemetintherequiredcurrencyintheeventthataccesstoforeignexchangemarketsbecomesrestricted.Insizingthelimits,theBankconsidersarangeoffactorsincluding:

• Thesizeanddepthoflocalforeignexchangemarkets;and

• Thelocalregulatoryenvironment,particularlythepresenceorriskofimpositionofforeignexchangecontrols.

Liquidity risk framework

TheBoardsetsliquidityrisktolerancelevelsforliquiditystresssurvivalhorizons,short-termwholesaleborrowing,minimumassets-to-depositsandregulatory liquiditycoverageratios.ALCOmaysetriskappetitelevelssuchthattheBankoperateswithintheBoard’stolerance.

Forstresssurvivalhorizons,thetolerancereflectstheBank’sspecificstructure.TheBankintendstomaintainaprudentandsustainable fundingand liquiditypositionsuch that itcanwithstandsevereliquiditystress:

• TheBankintendstobeabletomeetitspaymentandcollateralobligationsforatleast60daysinacombinedname-specificandmarket-wide liquiditystress,without recourse toextraordinarycentralbanksupport;

Therearefurtherlimitson:

• TheLiquidityCoverageRatio(“LCR”),tomaintainaminimumlevelofhighqualityliquidassetsandensuretheGroupremainsresilienttosuddenliquidityshocks

• Thelocalandforeigncurrencycashflowgaps

• ThelevelofborrowingfromothercountrieswithintheGroup,tocontaintheriskofcontagionfromonecountrytoanother

• Commitments,bothon-andoff-balancesheet,toensuretherearesufficientfundsavailableintheeventofdrawdown

• Theamountofassetsthatmaybefundedfromothercurrencies

• Theamountofmedium-termassetsthathavetobefundedbymedium-termfunding





Liquidity risk framework (continued)

All limitsare reviewedat leastannually,andmore frequently if required, toensure that they remainrelevantgivenmarketconditionsandbusinessstrategy.CompliancewithlimitsismonitoredindependentlyonaregularbasisbyMTCRandFinance.LimitexcessesareescalatedandapprovedunderadelegatedauthoritystructureandreportedtotheAssetandLiabilityCommittee.

TheBankhassignificantlevelsofmarketablesecurities,includinggovernmentsecuritiesthatcanbemonetisedorpledgedascollateralintheeventofliquiditystress.Inaddition,aFundingCrisisResponseandRecoveryPlan (“FCRRP”) is reviewedandapprovedannually.TheFCRRPstrengthensexistinggovernanceprocessesbyprovidingabroadsetofEarlyWarning Indicators (“EWIs”),anescalationframeworkandasetofmanagementactionsthatcouldbeeffectivelyimplementedbytheappropriatelevelofseniormanagementintheeventofaliquiditystress.

Liquidity metrics

TheBankmonitorskeyliquiditymetricsonaregularbasis.Thekeymetricsare:

(1) Advancestodepositsratio

Thisisdefinedastheratiooftotalloansandadvancestocustomersrelativetototalcustomerdeposits.Alowadvancestodepositsratiodemonstratesthatcustomerdepositsexceedcustomerloansresultingfromemphasisplacedongeneratingahighlevelofstablefundingfromcustomers.

2015 2014

HK$’M HK$’M

Advancestocustomers 414,955 454,996Depositsfromcustomers 745,701 851,029Advancestodepositsratio 56% 53%

(2) LiquidityCoverageRatio(“LCR”)

TheBankmonitorstheLCRin linewiththeBankof InternationalSettlementsandHongKongMonetaryAuthority’sguidelines.TheBankisreportingofitsLCRonamonthlybasistoitslocalregulator,theHongKongMonetaryAuthority(HKMA).





Liquidity metrics (continued)

(3) Otherliquiditymetrics

Arangeofshort-termandstructuralliquiditymetricsaremonitoredtoensurearobustliquiditystrategyinlinewiththeBank’soverallriskappetite.Thecontractualmediumtermfundingratioisintendedtohighlightrelianceontheabilityof theBanktorollovershort termliabilitiestofundmediumtermassetsbasedontheBank’scontractualobligations.ThebehaviouralmediumtermfundingratioisintendedtohighlightwhethertheBank’sbusiness/productmixandstatementoffinancial position structure in a business-as-usual environment is sustainable over time. TheMaximumCumulativeOutflowreportallowstheBanktomanageanymismatchesinthematurityofcashinflowsandoutflows.Intradayliquidityrisk,wholesaleborrowingcapacityandoutflowsduetooff-balancesheetcommitmentsarealsomonitored.

Liquidity management – stress scenarios

TheBankconductsarangeofliquidityrelatedstressanalyses,bothforinternalandregulatorypurposes.Internally,threetypesofstresstestsarerunroutinely:anacute8-dayname-specificstress,a30-daymarketwidestressanda90-daycombinednamespecificandmarketwidestress.Liquidityrisksarealsoconsideredaspartofthebank’swiderperiodicscenarioanalysis,includingreversestresstesting.Inaddition,thebankrunsarangeofstressteststomeetregulatoryrequirements,asdefinedbythelocalregulator.

The8-daystressisspecificallydesignedtodetermineaminimumquantityofmarketablesecuritiesthatmust be held at all times. This stress is computed daily, and the minimum marketable securitiesrequirementisobserveddaily.Thisisintendedtoensurethat,intheunlikelyeventofanacutelossofconfidence in theBank, there issufficient timeto takecorrectiveaction.Nosupport fromGroup ispresumed.TheBank’sresiliencetomarket-widedisruption,suchasalossofinterbankmoneyorforeignexchangemarkets,istestedusingthe30-daymarket-widestressscenario,andismonitoredbyAssetandLiabilityCommittee.

TheBank’sliquiditystresstestingalsoconsiderspotentialcurrencymismatchesbetweenoutflowsandinflows.Particularfocusispaidtomismatchesinlessliquidcurrenciesandthosethatarenotfreelyconvertible.MismatchesarecontrolledbymanagementactiontriggerssetbyMTCR.

TheBank’screditratingsasattheendofDecember2015wereAA-withnegativeoutlook(Fitch),A+(S&P)andAa2withnegativeoutlook(Moody’s).Adowngradeincreditratingwouldincreasederivativecollateralrequirements.Theimpactofa2-notchdowngradehasaminimalimpactontheBank’sderivativecollateralrequirements.





(i) Contractualmaturityofassetsandliabilities

Thetableanalysesassetsandliabilities inrelevantmaturitygroupingsbasedontheremainingperiodtothecontractualmaturitydateasatthereportingdateonadiscountedbasis.Contractualmaturitiesdonotnecessarilyreflectactualrepaymentsorcashflow.Withinthetablesbelowcashandbalanceswithbanks,centralbanksandotherfinancialinstitutions,placementswithbanksandotherfinancialinstitutions,andtradingassetsareusedbytheBankprincipallyforliquiditymanagementpurposes.

2015

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


AssetsCashandbalanceswithbanks,central

banksandotherfinancialinstitutions 48,769 – – – – – – 48,769Placementswithbanksand

otherfinancialinstitutions 12 64,762 39,993 13,097 1,794 – – 119,658HongKongSARGovernment

certificatesofindebtedness – – – – – – 38,031 38,031Tradingassets – 259 1,506 6,094 6,783 3,646 309 18,597Financialassetsdesignatedat

fairvalue – – – – – 666 – 666Advancestocustomers 11,337 70,496 27,664 53,656 91,205 162,705 (2,108) 414,955Investmentsecurities 234 20,866 49,071 41,139 83,570 15,071 621 210,572Amountsduefromgroupcompanies 2,384 9,235 15,494 13,116 6,877 1,175 (1,819) 46,462Others 532 1,242 7,440 990 321 679 50,051 61,255

Total Assets 63,268 166,860 141,168 128,092 190,550 183,942 85,085 958,965

LiabilitiesHongKongSARcurrency

notesincirculation – – – – – – 38,031 38,031Depositsandbalancesofbanks

andotherfinancialinstitutions 22,637 1,107 – – 911 – – 24,655Depositsfromcustomers 595,324 62,853 51,438 35,237 849 – – 745,701Tradingliabilities – 8,537 73 139 87 11 – 8,847Financialliabilitiesdesignatedat

fairvalue – 68 2,051 3,356 2,978 5,271 – 13,724Debtsecuritiesinissue – – – – 1,209 – – 1,209Amountsduetogroupcompanies 7,778 5,750 8,411 8,796 2,637 2,461 – 35,833Subordinatedliabilities – – – – 6,191 3,902 – 10,093Others 5,985 1,459 5,178 2,107 256 282 256 15,523

Total Liabilities 631,724 79,774 67,151 49,635 15,118 11,927 38,287 893,616





(i) Contractualmaturity(continued)

2014

Due Due Due





AssetsCashandbalanceswithbanks,central

banksandotherfinancialinstitutions 53,076 – – – – – – 53,076Placementswithbanksand

otherfinancialinstitutions 120 85,808 18,442 39,611 1,789 – – 145,770HongKongSARGovernment

certificatesofindebtedness – – – – – – 36,741 36,741Tradingassets – 1,562 3,338 4,087 10,219 2,645 1,537 23,388Financialassetsdesignatedat

fairvalue – – – – 62 1,513 – 1,575Advancestocustomers 19,153 80,048 35,368 61,735 112,252 148,234 (1,794) 454,996Investmentsecurities 234 33,011 30,810 30,242 61,394 16,158 453 172,302Amountsduefromgroupcompanies 13,202 51,259 9,162 20,089 22,703 1,463 (1,554) 116,324Others 756 1,799 7,909 4,186 5,291 4,583 50,346 74,870

Total Assets 86,541 253,487 105,029 159,950 213,710 174,596 85,729 1,079,042

LiabilitiesHongKongSARcurrency

notesincirculation – – – – – – 36,741 36,741Depositsandbalancesofbanks

andotherfinancialinstitutions 28,402 2,683 595 14 911 – – 32,605Depositsfromcustomers 563,433 131,109 92,598 62,644 1,221 24 – 851,029Tradingliabilities – 12,333 135 235 56 – 41 12,800Financialliabilitiesdesignatedat

fairvalue – 169 1,456 4,780 2,714 5,796 – 14,915Debtsecuritiesinissue – 9,796 3,930 90 22 – – 13,838Amountsduetogroupcompanies 6,133 2,428 6,060 2,253 2,331 1,648 – 20,853Subordinatedliabilities – – – – – 10,406 – 10,406Others 8,215 6,069 3,793 868 212 599 56 19,812

Total Liabilities 606,183 164,587 108,567 70,884 7,467 18,473 36,838 1,012,999






2015

Due Due Due





Of which:

Certificates of deposit held– includedinTradingassets – 1 6 301 80 – – 388– includedinInvestmentsecuritiesas

available-for-salesecurities – – 2,089 12,863 – – – 14,952

– 1 2,095 13,164 80 – – 15,340

Treasury bills– includedinTradingassets – 40 1,225 1,862 – – – 3,127– includedinInvestmentsecuritiesas

available-for-salesecurities – 19,017 41,720 – – – – 60,737

– 19,057 42,945 1,862 – – – 63,864

Debt securities– includedinTradingassets – 94 160 3,100 6,149 3,394 – 12,897– includedinFinancialassets

designatedatfairvalue – – – – – 666 – 666– includedinInvestmentsecurities

classifiedas:– available-for-salesecurities – 1,849 5,262 26,339 77,920 15,071 – 126,441– loansandreceivables 234 – – 1,937 5,650 – – 7,821

– includedinAmountsduefromfellowsubsidiariesclassifiedas:

– available-for-salesecurities – 1,395 – – – – – 1,395

234 3,338 5,422 31,376 89,719 19,131 – 149,220






2014

Due Due Due





Of which:

Certificates of deposit held– includedinTradingassets – 50 2 302 7 13 – 374– includedinInvestmentsecuritiesas

available-for-salesecurities – 381 9,044 4,715 946 – – 15,086

– 431 9,046 5,017 953 13 – 15,460

Treasury bills– includedinTradingassets – 832 1,737 447 – – – 3,016– includedinInvestmentsecuritiesas

available-for-salesecurities – 31,529 17,645 4,250 – – – 53,424

– 32,361 19,382 4,697 – – – 56,440

Debt securities– includedinTradingassets – 508 1,387 2,904 8,602 2,440 – 15,841– includedinFinancialassets

designatedatfairvalue – – – – 62 1,513 – 1,575– includedinInvestmentsecurities

classifiedas:– available-for-salesecurities – 1,101 4,121 21,044 52,081 16,158 – 94,505– loansandreceivables 234 – – 233 8,367 – – 8,834

– includedinAmountsduefromfellowsubsidiariesclassifiedas:

– available-for-salesecurities – – – – 4,509 – – 4,509

234 1,609 5,508 24,181 73,621 20,111 – 125,264





(ii) Behaviouralmaturityoffinancialliabilitiesonadiscountedbasis

Thecashflowspresentedinnote37(f)(i)reflectthecashflowswhichwillbecontractuallypayableovertheresidualmaturityoftheinstruments.However,contractualmaturitiesdonotnecessarilyreflectthetimingofactualrepaymentsorcashflow.Inpractice,certainliabilityinstrumentsbehavedifferentlyfromtheircontractualtermsand,especiallyforshorttermcustomeraccounts,whichextendtoalongerperiodthantheircontractualmaturity.Suchbehaviouraladjustmentsareidentifiedandmanagedthroughanalysisofthehistoricbehaviourofbalances.TheBank’sexpectationofwhenliabilitiesarelikelytobecomedueisprovidedbelow.Noinformationhasbeenpresentedforfinancialliabilitieswhichwillbecomepayableontheircontractualduedates.

2015

Within 3 months

Between 3 months

and 1 year

Between 1 year

and 5 years After 5 years Total


Depositsandbalancesofbanksandotherfinancialinstitutions 23,745 – 910 – 24,655

Depositsfromcustomers 104,097 71,801 569,803 – 745,701

Total 127,842 71,801 570,713 – 770,356

2014

Within 3 months

Between 3 months

and 1 year

Between 1 year

and 5 years After 5 years Total


Depositsandbalancesofbanksandotherfinancialinstitutions 31,680 14 911 – 32,605

Depositsfromcustomers 122,812 93,099 635,118 – 851,029

Total 154,492 93,113 636,029 – 883,634

(iii) Financialliabilities(excludingderivativefinancialinstrumentsonanundiscountedbasis)

Thefollowingtablesanalysethecontractualcashflowspayableforthebank’sfinancialliabilitiesbyremainingcontractualmaturityonanundiscountedbasis.Thefinancialliabilitybalancesinthetablesbelowwillnotagreetothebalancesreportedinthestatementoffinancialpositionasthetablesincorporateallcontractualcashflows,onanundiscountedbasis,relatingtobothprincipalandinterestpayments.Thecashflowspresentedinthetablesreflectthecashflowswhichwillbecontractuallypayableovertheresidualmaturityoftheinstruments.Inpractice,however,theliabilityinstrumentsbehavedifferentlyfromtheircontractualtermsandtypically,forshorttermcustomeraccounts,extendtoalongerperiodthantheircontractualmaturity.





(iii) Financialliabilitiesexcludingderivativefinancialinstrumentsonanundiscountedbasis(continued)

2015

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


Depositsandbalancesofbanksandotherfinancialinstitutions 22,638 1,107 – 949 – – 24,694

Depositsfromcustomers 595,325 114,630 35,556 871 – – 746,382Tradingliabilities – 8,494 – – – – 8,494Financialliabilitiesdesignatedat

fairvalue – 2,163 3,370 3,589 5,761 – 14,883Debtsecuritiesinissue – – 41 1,298 – – 1,339Amountsduetogroupcompanies 7,778 14,162 8,796 2,643 2,461 – 35,840Subordinatedliabilities – – 510 8,068 4,064 – 12,642Others 5,824 6,336 2,067 254 282 38,287 53,050

631,565 146,892 50,340 17,672 12,568 38,287 897,324

2014

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


Depositsandbalancesofbanksandotherfinancialinstitutions 28,402 3,283 14 933 – – 32,632

Depositsfromcustomers 563,433 224,371 63,135 1,264 24 – 852,227Tradingliabilities _ 11,987 _ _ _ 41 12,028Financialliabilitiesdesignatedat

fairvalue _ 1,637 4,821 3,507 5,480 – 15,445Debtsecuritiesinissue _ 13,727 91 22 _ – 13,840Amountsduetogroupcompanies 6,134 8,489 2,255 2,342 1,648 – 20,868Subordinatedliabilities _ _ 522 2,094 10,750 – 13,366Others 7,954 9,478 729 213 599 36,797 55,770

605,923 272,972 71,567 10,375 18,501 36,838 1,016,176





(iv) Derivativefinancialinstrumentsonanundiscountedbasis

Thefollowingtablesshowthematurityofderivativefinancialinstrumentsincludingthosenet-settledderivativecontractsinanetliabilityposition,togetherwiththepaylegofgrosssettledcontractsregardlessofwhethertheoverallcontractisinanassetorliabilityposition.Thereceivinglegisnotshowninthistableandasaresultthederivativeamountsinthistableareinflatedbytheirexclusion.

Due Due

between between Due

Due within 3 months to 1 year to after

3 months 1 year 5 years 5 years Total


2015

Derivativefinancialinstruments 946,903 718,835 37,099 6,606 1,709,443

2014

Derivativefinancialinstruments 833,363 540,553 27,853 5,428 1,407,197

(g) Operationalrisk

Operationalriskisthepotentialforlossarisingfromthefailureofpeople,processortechnologyortheimpact of external events. We seek to minimize our exposure to operational risk. Operational riskexposuresaremanagedthroughaconsistentsetofmanagementprocessesthatdriveriskidentification,assessment,controlandmonitoring.

OperationalriskscanarisefromallbusinesslinesandfromallactivitiescarriedoutbytheBank.

Operational Risk Framework (ORF)

TheBankdefinesoperationalriskasthepotentialforlossresultingfrominadequateorfailedinternalprocesses,peopleandsystemsorfromtheimpactofexternalevents,includinglegalrisks.

AsoperationalriskarisesfromallactivitiescarriedoutwithintheBank,thepotentialforoperationalriskeventsoccurringacrossa largeandcomplex internationalorganisation isaconstantchallenge.Toaddressthisweaimtoachieve‘industrialstrength’processandcontroldesignstandardsforallactivities,andbenchmarkpracticesagainstpeers,otherindustriesandregulatoryrequirements.

Operational Risk Governance

TheERCprovidesoversightofoperationalriskmanagementacrosstheBank.ItissupportedbytheCountryOperationalRiskCommittee(“CORC”)andtheFinancialCrimeRiskCommittee(“FCRC”),whichoversees operational risk arising from businesses and functions, and financial crime compliancerespectively.




(g) Operationalrisk(continued)

Risk Tolerance approach

OperationalriskismanagedwithintolerancesalignedtoachievetheBoard-approvedRiskToleranceStatement.TheBankaimstocontroloperationalriskstoensurethatoperational losses(financialorreputational),includinganyrelatedtoconductofbusinessmatters,donotcausematerialdamagetotheGroup’sfranchise.

Inordertocomplywiththisstatement,theoperationalriskmanagementapproachincludesthefollowingrequirements:

• TheBankwillsystematicallyidentifyTopRisksandemergingriskswiththeinvolvementofSeniorManagement/Boardtodefinetheappropriatecourseofactionincludingbusinessrestrictions

• Allprocesseswillbemappedandownedwithappropriatekeycontrolstandardsdefinedtomitigaterisks

• TheBankwillnotmissanyopportunitytolearnlessonsfrominternalorexternaleventsandwillimplementrelevantmitigationactions

• TheBankwillsystematicallytestinternalcapitaladequacythroughscenarioanalysisandstresstesting





Risk classification

RisktypesarethedifferentwaysthattheBankmaybeexposedtoloss.Eachrisktypeisagroupingofpotentiallossesthatarematerial,andwhichmayariseindifferentactivitiesorareasoftheBank.

TheBankusesrisktypesprincipallyasanaidtoensurecomprehensiveandconsistentidentificationofrisks,wherevertheymayarise.Operationalrisktypesarelistedinthetablebelow:

OPERATIONALRISKSUB-TYPESANDDESCRIPTIONS

ExternalRules&Regulations Potentialforactualoropportunitylossduetofailuretocomplywithlawsorregulations,orasaresultofchangesinlawsorregulationsorintheirinterpretationorapplication

Liability PotentialforlossorsanctionduetoalegalclaimagainstanypartoftheGrouporindividualswithintheGroup

Legalenforceability PotentialforlossduetofailuretoprotectlegallytheGroup’sinterestsorfromdifficultyinenforcingtheGroup’srights

Damageorlossofphysicalassets

Potentialforlossordamageordenialofuseofpropertyorotherphysicalassets

Safety&security Potentialforlossordamagerelatingtohealthandsafetyorphysicalsecurity

Internalfraudordishonesty Potentialforlossduetoactionbystaffwhichisintendedtodefraud,ortocircumventthelaworcompanypolicy

Externalfraud Potentialforlossduetocriminalactsbyexternalpartiessuchasfraudortheftoffinancialassets

InformationSecurity Potentialforlossduetounauthorizedaccess,use,disclosure,disruption,modificationordestructionofinformation

Processingfailure Potentialforlossduetofailureofanestablishedprocessortoaprocessdesignweakness

Model Potentialforlossduetoasignificantdiscrepancybetweentheoutputofcreditandmarketriskmeasurementmodelsandactualexperience.

Potentialforregulatorybreachduetoasignificantdiscrepancybetweentheoutputofclientriskscoring,namescreeningandsurveillancedetectionmodelsandactualexperience.





Conduct

Conductofbusiness,orconduct,isatermthatisusedinabroadnumberofwaysacrossthefinancialservicesindustry.Atitsbroadest,goodconductistheappropriateexecutionofbusiness,bytheBankoranyindividualactingonitsbehalf,inaccordancewithourstrategicintent,riskmanagementprinciplesandriskappetite.Morenarrowly,itreferstospecificregulationsdesignedtoachievefairoutcomesforcustomersandtheeffectiveoperationofmarkets.

GoodconductisevidencedthroughdisciplinedadherencetoouroverallframeworkofsystemsandcontrolsoutlinedintheriskmanagementframeworkandthestandardsofindividualbehavioursetoutintheCodeofConduct(the‘Code’).

Specificallyforoperationalrisk:

• External rulesandregulationsclassificationsdefined in theORF includespecificcategoriesofregulationdesignedtoachievefairoutcomesforclients(clientconduct)andtheeffectiveoperationofmarkets(marketconduct).ThisensuresthateachcategoryofregulationisproperlyclassifiedandalignedtotheBank’ssystemsandcontrolstructures.Riskcontrolownersareresponsiblefordefining theBank’sminimumstandardsandcontrols in respectofeachcategory.TheBank’spolicies and standards may frequently exceed the minimum requirements or expectations ofregulators

• ConductisconsideredintheBank’stoprisks.TheBankaimstopreventtherisksoffailuretodelivertheconductofbusinessstandardsexpectedbytheBank’sclients,investorsandmarketsinwhichweoperate.ManyofthetopriskscanbedrivenbypoorconductsotheBankisfocusedonitscontrolstandardsaroundtheserisks.Additionally,thereisaspecifictopriskforadditionalconductrelatedliabilityforbriberyandcorruption

(h) Reputationalrisk

ReputationalriskcouldarisefromthefailurebytheBanktoeffectivelymitigatetherisksinitsbusinessesincludingoneormoreofcountry,credit,liquidity,market,regulatory,legal,strategicorotheroperationalrisk.DamagetotheBank’sreputationcouldcauseexistingclientstoreduceorceasetodobusinesswiththeBankandprospectiveclientstobereluctanttodobusinesswiththeBank.Allemployeesareresponsiblefordaytodayidentificationandmanagementofreputationalrisk.Theseresponsibilitiesform part of the Code of Conduct and are further embedded through values-based performanceassessments.RiskControlOwnersmustidentifymaterialreputationalrisksarisingfromanybusinessactivityortransactionthattheycontrolandensurethattheseareescalatedandcontrolledinaccordancewiththeReputationalRiskPolicyandapplicableprocedures.

Reputationalriskmayalsoarisefromafailuretocomplywithenvironmentalandsocialstandards.TheBank’sprimaryenvironmentalandsocialimpactsarisethroughrelationshipwithclientsandcustomersandthefinancingdecisionstheBanktakes.TheGrouphaspublishedaseriesofPositionstatementsthatweapplyintheprovisionoffinancialservicestoclientswhooperateinsectorswithspecificrisks,andforkeyissues.TheBankhavemechanismsintheoriginationandcreditprocessestoidentifyandassessenvironmentalandsocialrisks,andadedicatedEnvironmentalandSocialRiskManagementteamthatreviewsproposedtransactionswithidentifiedrisks.




(h) Reputationalrisk(continued)

TheERCanditssub-committee,theSCBHKReputationalRiskSub-committee,providesBank-wideoversightonreputationalrisk,setspolicyandmonitorsmaterialrisks.TheHeadofCorporateAffairsistheoverallriskcontrolownerforreputationalrisk.TheExCoprovidesadditionaloversightofreputationalriskonbehalfoftheBoard.

TheHeadofCorporateAffairsas riskcontrolowner is responsible for theprotectionof theBank’sreputationwiththesupportofthecountrymanagementteam.TheHeadofCorporateAffairsandChiefExecutiveOfficermustactively:

• PromoteawarenessandapplicationoftheBank’spoliciesandproceduresregardingreputationalrisk.

• EncouragebusinessesandfunctionstotakeaccountoftheBank’sreputationinalldecision-making,includingdealingswithcustomersandsuppliers.

• Implementeffectivein-countryreportingsystemstoensuretheyareawareofallpotentialissuesintandemwithrespectivebusinesscommittees.

• Promoteeffective,proactivestakeholdermanagementthroughongoingengagement.

(i) Pensionrisk

PensionriskisthepotentialforlossduetohavingtomeetanactuariallyassessedshortfallintheBank’spensionscheme.PensionriskexposureisnotconcernedwiththefinancialperformanceoftheBank’spensionschemebutisfocusedupontherisktotheBank’sfinancialpositionarisingfromtheneedtomeetpensionschemefundingobligations.TheriskassessmentisfocusedontheobligationstowardstheBank’spensionscheme,ensuringthattheBank’sfundingobligationiscomfortablywithintheBank’sfinancialcapacity.Pensionriskismonitoredonasemi-annualbasistakingaccountoftheactualvariationsinassetvaluesandupdatedexpectationsregardingtheprogressionofthepensionfundassetsandliabilities.

TheCPCisthebodyresponsibleforgovernanceofpensionriskanditreceivesitsauthorityfromExCo.

(j) Capitalmanagement

TheHKMAsetsandmonitorscapitalrequirementsfortheBankandcertainsubsidiariesspecifiedbytheHKMA.Inimplementingcurrentcapitalrequirements,theHKMArequirestheBanktomaintainaprescribedratiooftotalcapitaltototalrisk-weightedassets.TheBankcalculatesitscapitaladequacyratiosinaccordancewiththeBanking(Capital)RulesoftheHongKongBankingOrdinance.

Inadditiontomeetingtheregulatoryrequirements,theBank’sprimaryobjectiveswhenmanagingcapitalaretosafeguardtheBankanditssubsidiaries’abilitytocontinueasagoingconcern,sothatitcancontinuetoprovidereturnsforshareholdersandbenefitsforotherstakeholders,bypricingproductsandservicescommensuratelywiththelevelofriskandbysecuringaccesstofinanceatareasonablecost.TheBankactivelyandregularlyreviewsandmanagesitscapitalstructuretomaintainabalancebetweenthehighershareholderreturnsthatmightotherwisebepossiblewithgreatergearingandtheadvantagesandsecurityaffordedbyasoundcapitalposition,andmakesadjustmentstothecapitalstructureinlightofchangesineconomicconditions.




(j) Capitalmanagement(continued)

TheprocessofallocatingcapitaltospecificoperationsandactivitiesisundertakenbyALCOandisreviewedregularlybytheBoard.

Consistentwith industrypractice,theBankmonitors itscapitalstructureonthebasisofthecapitaladequacyratioandtherehavebeennomaterialchangesintheBank’spolicyonthemanagementofcapitalduringtheyear.

TheBankanditssubsidiarieshavecompliedwithallexternallyimposedcapitalrequirementsthroughouttheyearsended31December2015and2014.

TheBankusestheIRBapproachforboththemeasurementofcreditriskcapitalandthemanagementofcreditriskforthemajorityofitsportfolios.TheBankalsousesthestandardised(creditrisk)approachfor certain insignificant portfolios exempted from IRB. The Bank adopts the internal ratings-based(securitization)approachtocalculateitscreditriskforsecuritizationexposures.

For market risk, the Bank uses an internal models approach for two guaranteed funds and thestandardized(marketrisk)approachforotherexposures.Inaddition,theBankadoptsthestandardized(operationalrisk)approachforoperationalrisk.

TheBanking(Capital)RulesissuedbytheHKMArequireallauthorizedinstitutionsinHongKongtomeetthreelevelsofminimumcapitalratios,namelycommonequitytier1,tier1andtotalcapitalratios.

TheBank’sconsolidatedcapitalasat31December2015consistsoftier1capitalafterdeductionofHK$51,412million(2014:HK$51,577million)andtier2capitalafterdeductionsofHK$9,618million(2014:HK$10,867million).Tier2capitalincludessubordinateddebtandcollectiveimpairmentallowancesforimpairedassets.

38 Financial instruments

(a) Valuationoffinancialinstrumentscarriedatfairvalue

ValuationoffinancialassetsandliabilitiesheldatfairvaluearesubjecttoareviewindependentofthebusinessbyValuationControl.Forthosefinancialassetsandliabilitieswhosefairvalueisdeterminedbyreferencetoexternallyquotedpricesormarketobservablepricinginputstovaluationmodels,anassessmentismadeagainstexternalmarketdataandconsensusservices.Financialinstrumentsheldatfairvalueinthestatementoffinancialpositionhavebeenclassifiedintoavaluationhierarchythatreflectsthesignificanceoftheinputsusedinthefairvaluemeasurements.



38 Financial instruments (continued)

(a) Valuationoffinancialinstrumentscarriedatfairvalue(continued)

Valuation methodologies

Thevaluationhierarchy,andthetypesofinstrumentsclassifiedintoeachlevelwithinthathierarchy,issetoutbelow:

Level1 Level2 Level3

Fairvaluedeterminedusing: Unadjustedquotedpriceinanactivemarketforidenticalassetsandliabilities

DirectlyorindirectlyobservableinputsotherthanunadjustedquotedpricesincludedwithinLevel1thatareobservable(note1)

Significantinputsfortheassetorliabilitythatarenotbasedonobservablemarketdata(unobservableinputs)(seenote38(a)(i))

Typesoffinancialassets Activelytradedgovernment,agencyandothersecuritiesListedequitiesQuotedderivativeinstruments

AssetbackedsecuritiesCorporateandothergovernmentbondsandloansOver-the-counterderivatives

AssetbackedsecuritiesinilliquidmarketsCorporatebondsandloansinilliquidmarketsUnlistedequitiesOver-the-counterderivativeswithunobservableinputs

Typesoffinancialliabilities ShortpositionsinactivelytradedgovernmentandagencysecuritiesShortpositionsinlistedequitiesQuotedderivativeinstruments

StructuredbankandcustomerdepositsDebtsecuritiesinissueOver-the-counterderivatives

StructuredbankandcustomerdepositsDebtsecuritiesissuedOver-the-counterderivativeswithunobservableinputs

(Note1) Theseincludedvaluationmodelssuchasdiscountedcashflowanalysis,optionpricingmodelsand other valuation techniques commonly used by market participants. These modelsincorporateassumptionsandinputsthatothermarketparticipantswoulduseintheirvaluations,suchasdiscountrates,defaultrates,creditspreadsandoptionvolatilities.TheseinputsneedtobedirectlyorindirectlyobservableinordertobeclassifiedasLevel2.





Thetablesbelowshowtheclassificationoffinancialinstrumentsheldatfairvalueintothevaluationhierarchysetoutaboveasat31December:

2015

Level 1 Level 2 Level 3 Total


Tradingassets– Tradingsecurities 9,010 7,711 – 16,721– Advancestocustomers – 163 – 163– Positivefairvaluesoftradingderivatives – 1,713 – 1,713

Amountsduefromimmediateholdingcompany– Positivefairvaluesoftradingderivatives – 13,919 471 14,390– Positivefairvaluesofhedgingderivatives – 1,214 – 1,214

Amountsduefromfellowsubsidiaries– Listedavailable-for-saledebtsecurities – 1,395 – 1,395– Positivefairvaluesofhedgingderivatives – 92 – 92

Financialassetsdesignatedatfairvalue– Debtsecurities – 666 – 666

Available-for-salesecurities– Treasurybills 60,737 – – 60,737– Certificatesofdepositheld – 14,952 – 14,952– Debtsecurities 60,921 65,380 140 126,441– Equityshares,netofimpairment 8 1 612 621

Total assets measured at fair value 130,676 107,206 1,223 239,105

Tradingliabilities– Shortpositionsinsecurities 3,198 5,278 – 8,476– Negativefairvaluesoftradingderivatives – 371 – 371

Financialliabilitiesdesignatedatfairvalue– Structuredbankandcustomerdeposits – 6,533 9 6,542– Debtsecuritiesissued – 5,367 1,815 7,182

Amountsduetoimmediateholdingcompany– Negativefairvaluesoftradingderivatives – 15,393 12 15,405– Negativefairvaluesofhedgingderivatives – 1,755 – 1,755

Amountsduetofellowsubsidiaries– Negativefairvaluesofhedgingderivatives – 27 – 27

Total liabilities measured at fair value 3,198 34,724 1,836 39,758

TheBank’spolicyistorecognizetransferintoandtransferoutoffairvaluehierarchylevelsasofthedateoftheeventorchangeincircumstancesthatcausedthetransfer.TheBanktransferredgovernmentbondswithacarryingvalueofHK$9,348millionduring2015fromLevel1intoLevel2wherethemarketforsuchbondsbecameinactive.





2014

Level 1 Level 2 Level 3 Total


Tradingassets– Tradingsecurities 16,251 4,517 – 20,768– Advancestocustomers – 1,604 – 1,604– Positivefairvaluesoftradingderivatives 1 1,015 – 1,016

Amountsduefromimmediateholdingcompany– Positivefairvaluesoftradingderivatives – 4,784 33 4,817– Positivefairvaluesofhedgingderivatives – 833 – 833

Amountsduefromfellowsubsidiaries– Listedavailable-for-saledebtsecurities – 4,509 – 4,509– Positivefairvaluesoftradingderivatives – 1 – 1– Positivefairvaluesofhedgingderivatives – 103 – 103

Financialassetsdesignatedatfairvalue– Debtsecurities – 1,513 62 1,575

Available-for-salesecurities– Treasurybills 53,424 – – 53,424– Certificatesofdepositheld – 15,086 – 15,086– Debtsecurities 39,646 54,859 – 94,505– Equityshares,netofimpairment 71 1 381 453

Total assets measured at fair value 109,393 88,825 476 198,694

Tradingliabilities– Shortpositionsinsecurities 11,995 – – 11,995– Negativefairvaluesoftradingderivatives 1 804 – 805

Financialliabilitiesdesignatedatfairvalue– Structuredbankandcustomerdeposits – 7,519 9 7,528– Debtsecuritiesissued – 6,735 652 7,387

Amountsduetoimmediateholdingcompany– Negativefairvaluesoftradingderivatives – 5,570 10 5,580– Negativefairvaluesofhedgingderivatives – 1,196 – 1,196

Amountsduetofellowsubsidiaries– Negativefairvaluesoftradingderivatives – 1 – 1

Total liabilities measured at fair value 11,996 21,825 671 34,492

Therewerenosignificanttransfersbetweenlevel1andlevel2instrumentsin2014.





(i) Valuationoffinancialinstrumentswithsignificantunobservableinputs

Themovementsduringtheyearforlevel3financialassetsandliabilitiesareasfollows:

2015

Financial

assets

designated at

fair value

Amounts due

from immediate

holding

company

Available-

for-sale

securities

Total level

3 assets


FinancialassetsAt1January2015 62 33 381 476Totalgainsrecognisedintheincomestatement

–Nettradingincome – 80 – 80–Netgainsfromfinancial

instrumentsdesignatedatfairvaluethroughprofitorloss 1 – – 1

Total(losses)/gainsrecognisedintheavailable-for-saleinvestmentreserve – – 38 38

Purchases – 358 190 548Settlements (63) – (295) (358)Transferredintolevel3(Note1) – – 438 438

At31December2015 – 471 752 1,223

Totalgainsrecognisedintheincomestatementrelatingtoassetsheldat31December2015–Nettradingincome – 438 – 438–Netgainsfromfinancial

instrumentsdesignatedatfairvaluethroughprofitorloss – – – –





(i) Valuationoffinancialinstrumentswithsignificantunobservableinputs(continued)

Financial

liabilities

designated at

fair value

Amounts due

to immediate

holding

company

Total level

3 liabilities


FinancialliabilitiesAt1January2015 661 10 671Totallossesrecognisedintheincomestatement

–Netlossesfromfinancialinstrumentsdesignatedatfairvaluethroughprofitorloss 65 – 65

Issuances 1,098 2 1,100

At31December2015 1,824 12 1,836

Totallossesrecognisedintheincomestatementrelatingtoliabilitiesheldat31December2015–Netlossesfromfinancialinstrumentsdesignatedatfair

valuethroughprofitorloss 65 – 65

(Note1) Transfersinto/(outof)level3duringtheyearrelatetofinancialinstrumentswherethevaluationparametersbecameunobservable/(observable)duringtheyear.






2014

Financial

assets

designated at

fair value

Amounts due

from immediate

holding

company

Amounts due

from fellow

subsidiaries

(Note 1)

Available-

for-sale

securities

Total level

3 assets


FinancialassetsAt1January2014 83 1 498 990 1,572Totalgainsrecognisedintheincome

statement–Nettradingincome – 32 – – 32–Netgainsfromfinancial

instrumentsdesignatedatfairvaluethroughprofitorloss 5 – – – 5

–Netgainsfromdisposalofavailable-for-salesecurities – – 2 – 2

Total(losses)/gainsrecognisedintheavailable-for-saleinvestmentreserve – – (11) 39 28

Purchases – – – 14 14Sales – – – (25) (25)Settlements (26) – (489) (199) (714)Transferredintolevel3(Note2) – – – – –Transferredoutoflevel3(Note2) – – – (438) (438)

At31December2014 62 33 – 381 476

Totalgainsrecognisedintheincomestatementrelatingtoassetsheldat31December2014–Nettradingincome – 32 – – 32–Netgainsfromfinancial

instrumentsdesignatedatfairvaluethroughprofitorloss 3 – – – 3






Financial

liabilities

designated at

fair value

Amounts due

to immediate

holding

company

Total level

3 liabilities


FinancialliabilitiesAt1January2014 65 12 77Totallosses/(gains)recognisedintheincomestatement

–Nettradingincome – (2) (2)–Netlossesfromfinancialinstrumentsdesignatedatfair

valuethroughprofitorloss 32 – 32Issuances 620 – 620Settlements (56) – (56)

At31December2014 661 10 671

Totallosses/(gains)recognisedintheincomestatementrelatingtoliabilitiesheldat31December2014–Nettradingincome – (2) (2)–Netlossesfromfinancialinstrumentsdesignatedatfair

valuethroughprofitorloss 31 – 31

(Note1) Amountsduefromfellowsubsidiariesincludeddebtsecuritieswhichareavailableforsaleanddesignatedatfairvalue.

(Note2) Transfersinto/(outof)level3duringtheyearrelatetofinancialinstrumentswherethevaluationparametersbecameunobservable/(observable)duringtheyear.






The following tablepresents thekeyvaluation techniquesused tomeasure the fairvalueof level3financialinstrumentswhichareheldatfairvalue,thesignificantunobservableinputsandtherangeofvaluesforthoseinputsandtheweightedaverageofthoseinputs.

Typeofinstruments Principalvaluationtechnique Significantunobservableinputs Range(Note1) Weightedaverage(Note2)

Debtsecurities Discountedcashflows Yield 2.1%(2014:2.39%to2.92%)

2.1%(2014:2.65%)

Structuredbankandcustomerdeposits

Internalpricingmodel Equity-equitycorrelation

Equity-foreignexchangecorrelation

Nil(2014:56%to75%)40%to75%(2014:Nil)

Nil(2014:N/A)

58%(2014:Nil)

Debtsecuritiesinissue

Discountedcashflows Creditspreads 1.9%to4.0%(2014:4%) 2.1%(2014:4%)

DerivativefinancialInstruments

Internalpricingmodel Equity-equitycorrelation

Equity-foreignexchangecorrelation

Nil(2014:56%to75%)40%to75%(2014:Nil)

Nil(2014:N/A)

58%(2014:Nil)

Discountedcashflows Creditspreads 1.9%to4.0%(2014:4%) 2.4%(2014:4%)

(Note1)Therangesofvaluesshownrepresentthehighestandlowestlevelsusedinthevaluationofthe level3financial instrumentsasat31December2015and2014.Therangesofvaluesusedarereflectiveoftheunderlyingcharacteristicsoftheselevel3financialinstrumentsbasedonthemarketconditionsatthereportingdate.However,theserangesofvaluesmaynotrepresenttheuncertaintyinfairvaluemeasurementsoftheselevel3financialinstruments.

(Note2)Weightedaveragefornon-derivativefinancialinstrumentshavebeencalculatedbyweightinginputsbytherelativefairvalue.Weightedaverageforderivativeshasbeenprovidedbyweightinginputsbytheriskrelevanttothatvariable.N/Ahasbeenenteredforthecaseswhereweightedaverageisnotameaningfulindicator.

(Note3)Level3equityshares,whicharemainlymeasuredusingunadjustednetassetvalue,areexcluded.

Thefollowingsectiondescribesthesignificantunobservableinputsidentifiedintheabovevaluationtechniquetable.

Yield

Yieldistheinterestratethatisusedtodiscountthefuturecashflowsinadiscountedcashflowmodel.Anincreaseintheyield,inisolation,wouldresultinadecreaseinafairvaluemeasurement.

Correlation

Correlationisthemeasureofhowmovementinonevariableinfluencesthemovementinanothervariable.Inderivativeproducts,wherethepayoffissubjecttothevalueofmorethanoneunderlying,thecorrelationbetweentwovariablesisusedasaninputindeterminingthevalueoftheproduct.Examplesincludecorrelationbetweentwostocks,astockandanindex,anindexandanotherindexetc.Correlationcanbehighorlowaswellaspositiveornegative.Positivehighcorrelationbetweentwovariablesmeansthatanincreaseinonevariableisexpectedtocauseasimilarincreaseinothervariable.






Credit spreads

Creditspreadsrepresenttheadditionalyieldthatamarketparticipantwoulddemandfortakingexposurestothecreditriskofaninstrument.

(ii) Sensitivitiesinrespectofthefairvaluesoflevel3assetsandliabilities

2015

Held at fair value through profit or loss Available-for-sale securities

Net

exposure

Favourable

changes

Unfavourable

changes

Net

exposure

Favourable

changes

Unfavourable

changes


Amountsduefromimmediateholdingcompany 471 533 401 – – –

Debtsecurities – – – 140 141 140Equitysecurities – – – 612 673 551Amountsduetoimmediate

holdingcompany (12) (12) (12) – – –Structuredbankand

customerdeposits (9) (8) (9) – – –Debtsecuritiesissued (1,815) (1,746) (1,885) – – –

(1,365) (1,233) (1,505) 752 814 691

2014

Held at fair value through profit or loss Available-for-sale securities

Net

exposure

Favourable

changes

Unfavourable

changes

Net

exposure

Favourable

changes

Unfavourable

changes


Amountsduefromimmediateholdingcompany 33 88 (23) – – –

Debtsecurities 62 62 62 – – –Equitysecurities – – – 381 419 343Amountsduetoimmediate

holdingcompany (10) (10) (10) – – –Structuredbankand

customerdeposits (9) (8) (10) – – –Debtsecuritiesissued (652) (608) (696) – – –

(576) (476) (677) 381 419 343





Wherethefairvalueoffinancialinstrumentsaremeasuredusingvaluationtechniquesthatincorporateoneormoresignificantinputswhicharebasedonunobservablemarketdata,weapplya10percentincreaseordecreaseonthevaluesoftheseunobservableparameter inputs,togeneratearangeofreasonablypossiblealternativevaluationsinaccordancewiththerequirementsofHKFRS7/IFRS7.Thepercentageshift isdeterminedbystatisticalanalysesperformedonasetofreferenceprices,whichincludedcertainequityindices,creditindicesandvolatilityindices,basedonthecompositionofourlevel3financial instruments.Favourableandunfavourablechangesaredeterminedon thebasisofchangesinthevalueoftheinstrumentasaresultofvaryingthelevelsoftheunobservableparameters.This level3sensitivityanalysisassumesaonewaymarketmoveanddoesnotconsideroffsets forhedges.

Asof31December2015,thesereasonablypossiblealternativescouldhaveincreasedthenetfairvaluesoffinancialinstrumentsheldatfairvaluethroughprofitorlossbyHK$132million(2014:HK$100million)ordecreasedthembyHK$140million(2014:HK$101million);andincreasedthefairvaluesofavailable-for-salesecuritiesbyHK$62million(2014:HK$38million)ordecreasedthembyHK$61million(2014:HK$38million).

(b) Valuationoffinancialinstrumentscarriedatamortisedcost

Allfinancialinstrumentsarestatedatfairvalueoramountsnotmateriallydifferentfromtheirfairvalueasat31December2015and2014,exceptforsubordinatedliabilities.

Thefollowingtablesummarisesthecarryingamountsandfairvalues(includingthevaluationhierarchy)ofsubordinated liabilities.Thevalues inthetablebelowarestatedasat31Decemberandmaybedifferentfromtheactualamountsthatwillbereceivedonthesettlementormaturityofthesubordinatedliabilities.

2015 2014

Carrying amount

Fair value

Level 1 Carrying amount

Fair value

Level 1


Subordinatedliabilities 10,093 10,579 10,406 10,973

ThefollowingsetsouttheBank’sbasisofestablishingthefairvalueofitsfinancialassetsandliabilitieswhicharenotcarriedatfairvalue.Thebasisforestablishingthefairvalueoffinancialassetsandliabilitiesheldatfairvalueandofderivativesissetoutinnote2(i)andnote2(j),respectively.

Cash and balances with banks, central banks and other financial institutions

Thefairvalueofcashandbalanceswithbanks,centralbanksandotherfinancialinstitutionsistheircarryingamounts.

Placements with banks and other financial institutions

Thefairvalueoffloatingrateplacementsandovernightdepositsistheircarryingamounts.Theestimatedfairvalueoffixedinterestbearingdepositsisbasedondiscountedcashflowsusingtheprevailingmoneymarketratesfordebtswithasimilarcreditriskandremainingmaturity.




(b) Valuationoffinancialinstrumentscarriedatamortisedcost(continued)

Advances to customers

Advancesarenetofprovisionsfor impairment.Theestimatedfairvalueofadvancesrepresentsthediscountedamountof futurecashflowsexpectedtobereceived, includingassumptionsrelatingtoprepaymentratesand,whereappropriate,creditspreads.Expectedcashflowsarediscountedatcurrentmarketratestodeterminefairvalue.

Deposits and balances of banks, other financial institutions and customers

Theestimatedfairvalueofdepositswithnostatedmaturityistheamountrepayableondemand.Theestimatedfairvalueoffixedinterestbearingdepositsandotherborrowingswithoutquotedmarketpricesisbasedondiscountedcashflowsusingtheprevailingmarketratesfordebtswithasimilarcreditriskandremainingmaturity.

Debt securities in issue and subordinated liabilities

Theaggregatefairvaluesarecalculatedbasedonquotedmarketprices.Forthosesecuritieswherequotedmarketpricesarenotavailable,adiscountedcashflowmodelisusedbasedonacurrentmarketyieldcurveappropriatefortheremainingtermtomaturity.

(c) Transfersoffinancialassets

TheBankentersintocollateralisedrepurchaseagreements(repos).ThesetransactionstypicallyentitletheBankanditscounterpartiestohaverecoursetoassetssimilartothoseprovidedascollateralintheeventofadefault.AssetspledgedinrespectofreposcontinuetoberecognisedonthestatementoffinancialpositionastheBankretainssubstantiallytheassociatedriskandrewardsoftheseassets.Theassociatedliabilityisincludedin“Amountsduetoimmediateholdingcompany”.

ThetablebelowsetsoutthefinancialassetsprovidedbytheBankascollateralforrepos:

2015 2014

HK$’M HK$’M

CollateralpledgedagainstreposOnbalancesheet

Cash – 4Offbalancesheet

Repledgedcollateralreceived – 626

– 630

Statementoffinancialpositionliabilities-reposAmountduetoGroupcompanies – 622

– 622




(d) Offsettingfinancialassetsandfinancialliabilities

Thefollowingtablespresentdetailsoffinancialinstrumentssubjecttooffsetting,enforceablemasternettingarrangementsandsimilaragreements.

2015

Assets

Gross

amounts of

recognised

financial

assets

Gross amounts

of recognised

financial

liabilities offset

in the

statement of

financial

position

Net amounts of

financial assets

presented

in the

statement of

financial

position

Related

amounts not

offset in the

statement of

financial

position Net amount


Positivefairvaluesofderivativefinancialinstruments 17,409 – 17,409 (15,900) 1,509

Reverserepos,securitiesborrowingandsimilaragreements 34,924 – 34,924 (34,722) 202

52,333 – 52,333 (50,622) 1,711

Liabilities

Gross

amounts of

recognised

financial

liabilities

Gross amounts

of recognised

financial assets

offset in the

statement of

financial

position

Net amounts of

financial

liabilities

presented

in the

statement of

financial

position

Related

amounts not

offset in the

statement of

financial

position Net amount


Negativefairvaluesofderivativefinancialinstruments 17,558 – 17,558 (17,343) 215

Reposandsimilaragreements – – – – –

17,558 – 17,558 (17,343) 215




(d) Offsettingfinancialassetsandfinancialliabilities(continued)

2014

Assets

Gross

amounts of

recognised

financial

assets

Gross amounts

of recognised

financial

liabilities offset

in the

statement of

financial

position

Net amounts of

financial assets

presented

in the

statement of

financial

position

Related

amounts not

offset in the

statement of

financial

position Net amount


Positivefairvaluesofderivativefinancialinstruments 6,770 – 6,770 (5,797) 973

Reverserepos,securitiesborrowingandsimilaragreements 19,538 – 19,538 (19,433) 105

26,308 – 26,308 (25,230) 1,078

Liabilities

Gross

amounts of

recognised

financial

liabilities

Gross amounts

of recognised

financial assets

offset in the

statement of

financial

position

Net amounts of

financial

liabilities

presented

in the

statement of

financial

position

Related

amounts not

offset in the

statement of

financial

position Net amount


Negativefairvaluesofderivativefinancialinstruments 7,582 – 7,582 (6,875) 707

Reposandsimilaragreements 622 – 622 (622) –

8,204 – 8,204 (7,497) 707




(d) Offsettingfinancialassetsandfinancialliabilities(continued)

TheBankanditssubsidiariesareabletooffsetassetsandliabilitieswhichdonotmeettheHKAS32/IAS 32 netting criteria (see note 2(l)). Such arrangements include master netting arrangements forderivativesandglobalmasterrepurchaseagreementsforreposandreverserepos.Theseagreementsgenerallyallowthatalloutstandingtransactionswithaparticularcounterpartycanbeoffsetbutonlyintheeventofdefaultorotherpre-determinedevents,thereforetherelatedfinancialassetsandfinancialliabilitiesarenotoffsetinthestatementoffinancialposition.

Underreposandreverserepos,theBankanditssubsidiarieswouldpledge(legallysell)andobtain(legallypurchase)financialcollateralwhicharemainlyhighlyliquidassetswhichcanbesoldintheeventofadefault.

Therelatedamountsnotoffsetinthestatementoffinancialpositionwhicharedisclosedinthetableaboveincludefinancial instrumentscoveredbymasternettingarrangementsandfinancialcollateralpledgedandobtained,butexcludetheeffectofovercollateralisation.

39 Assets pledged as security for liabilities

TheBankmaintainspledgedcashandsecuritiesaccountstosecureanyborrowingsorotherobligationsresultingfromtheBank’suseofclearingsystemsandtocovershortpositions.Asat31December2015,theBankhadsecuritiesamountingtoHK$8,476million(2014:HK$11,995million)tocovertheshortpositions.

Reversereposandsecuritiesborrowingtransactions

TheBankalsoundertakesreversereposandsecuritiesborrowingtransactionsassetoutinthetablebelow:

2015 2014

HK$’M HK$’M

Statementoffinancialpositionassets-reversereposandsecuritiesborrowingPlacementswithbanksandotherfinancialinstitutions 29,499 19,154Advancestocustomers 5,425 384

34,924 19,538

Underreversereposandsecuritiesborrowingarrangements,theBankobtainssecuritiesontermsthatpermitittorepledgeorresellthesecuritiestoothers.TheamountofsecuritieswhichtheBankisabletorepledgeorresellareasfollows:

2015 2014

HK$’M HK$’M

Securitiesandcollateralthatcanberepledgedorsold(atfairvalue) 34,802 19,474Thereofrepledged/transferredtoothersunderrepos(atfairvalue) – 626

Thesetransactionsareconductedundertermsthatareusualandcustomarytostandardlendingandstockborrowingactivities.



40 Material related party transactions

Inadditiontothetransactionsandbalancesdisclosedelsewhereinthesefinancialstatements,theBankanditssubsidiariesenteredintothefollowingmaterialrelatedpartytransactions.ThetransactionsoftheBankaremateriallythesameasthoseappearingintheconsolidatedfinancialstatementsin2015and2014.

(a) Keymanagementpersonnelremuneration

RemunerationforkeymanagementpersonneloftheBank,includingamountspaidtothedirectorsasdisclosedinnote8isasfollows:

2015 2014

HK$’M HK$’M

Short-termemployeebenefits 94 127Post-employmentbenefits 3 5Equitycompensationbenefits 8 30Terminationbenefits 3 –

108 162

Totalremunerationisincludedinstaffcosts(seenote4(g)).

(b) Creditfacilitiesandloanstokeymanagementpersonnel

Duringtheyear,theBankprovidedcreditfacilitiestokeymanagementpersonneloftheBankandtheirclosefamilymembersandcompaniescontrolledorsignificantlyinfluencedbythem.Thecreditfacilitieswereprovidedintheordinarycourseofbusinessandonsubstantiallythesametermsasforcomparabletransactionswithpersonsofasimilarstandingor,whereapplicable,withotheremployees.

2015 2014

HK$’M HK$’M

Loanbalances:At1January 203 105

At31December 1,468 203

Averagebalanceduringtheyear 1,627 383

Incomeearned 15 6



40 Material related party transactions (continued)

(c) Sharebasedpayments

TheGroupoperatesanumberofsharebasedpaymentschemesforitsdirectorsandemployees.

2011 Standard Chartered Share Plan (the 2011 Plan)

ApprovedbyshareholdersinMay2011,thisistheGroup’smainshareplan.The2011Planisdesignedtodeliverperformanceshares,deferredawardsandrestrictedshares,givingtheGroupsufficientflexibilitytomeetthechallengesofthechangingregulatoryandcompetitiveenvironment.Shareawardsareakey part of both executive directors’ and senior management’s variable compensation and theirsignificanceasaproportionofpotential total remuneration isoneof thestrongest indicatorsof theGroup’scommitmenttopayforsustainableperformanceensuringthereisanappropriatereturnfortherisktakenandthatameasureisalignedwiththeGroup’sriskappetite.PerformanceandrestrictedshareawardswillgenerallybeintheformofnilpriceoptionstoacquiresharesinSCPLC.

Performance shares

Awardsofperformancesharesvestafterathree-yearperiodandaresubjecttoacombinationofthreeperformancemeasures,TotalShareholderReturn(TSR),Earningspershare(EPS)andReturnonRiskWeightedAssets(RoRWA).Thethreeperformancemeasuresareequallyweightedwithonethirdoftheawarddependingoneachmeasure,assessedindependently.Performanceshareawardsformpartofthe variable compensation awarded to executive directors. In line with regulatory requirements,discretionaryvariablecompensationforexecutivedirectorswillnotexceed200percentoffixedpay.

Deferred share awards/Restricted shares

Deferredawardsareusedtodeliverthedeferredportionoftotalvariablecompensation,inlinewithbothmarketpracticeandregulatoryrequirements.Theseawardsaresubjecttoathree-yeardeferralperiod,vestingequallyonethirdoneachofthefirst,secondandthirdanniversaries.Theseawardsarenotsubjecttoanannuallimittoensurethatregulatoryrequirementsrelatingtodeferrallevelscanbemetandinlinewithmarketpracticeofourcompetitors.Deferredawardswillnotbesubjecttoanyfurtherperformancecriteria,althoughtheGroup’sclaw-backpolicywillapply.

Restrictedshareawardswhicharemadeoutsideof theannualperformanceprocess,asadditionalincentiveorretentionmechanisms,areprovidedasrestrictedsharesunderthe2011Plan.Theseawardsvest in equal instalments on the second and the third anniversaries of the award date. In a fewcircumstances,someawardsvestoverafour-yearperiodinequaltranches.Inlinewithsimilarplansoperatedbyourcompetitors,restrictedshareawardsarenotsubjecttoanannuallimitanddonothaveanyperformanceconditions.

1997/2006 Restricted Share Scheme (2006 RSS)/ 2007 Supplementary Restricted Share Scheme (2007 SRSS)

TheGroup’spreviousplansfordeliveringrestrictedshareswerethe2006RSSand2007SRSS,bothofwhicharenowreplacedbythe2011Plan.Therearevestedawardsoutstandingundertheseplans.Awardswillgenerallybeintheformofnilcostoptionsanddonothaveanyperformanceconditions.Generallydeferredrestrictedshareawardsvestequallyoverthreeyearsandfornon-deferredawardshalfveststwoyearsafterthedateofgrantandthebalanceafterthreeyears.Nofurtherawardswillbegrantedunderthe2006RSSand2007SRSS.




(c) Sharebasedpayments(continued)

2000 Executive Share Option Scheme (2000 ESOS)

The2000ESOSisdesignedtobeinternationallycompetitiveandfocusexecutivedirectorsandtheirseniormanagementteamsondeliveringlong-termperformance.AnEPSperformancecriterionmustbemetbeforeoptionscanbeexercised.

Executiveshareoptionstopurchaseordinarysharesintheultimateholdingcompanyareexercisableafterthethird,butbeforethetenthanniversaryofthedateofgrant.Theexercisepricepershareisthesharepriceatthedateofgrantandoptionscanonlybeexercisedifaperformanceconditionissatisfied.NofurtherawardsmaybegrantedtotheemployeesoftheBankanditssubsidiariesunderthe2000ESOS.Therearenooutstandingawardsunderthisplan.

2001 Performance Share Plan (2001 PSP)

TheGroup’spreviousplanfordeliveringperformanceshareswasthe2001PSP.Althoughthe2001PSPwasreplacedin2011,therearestilloutstandingvestedundertheplan.

Underthe2001PSP,halftheawardisdependentuponTSRperformanceandthebalanceissubjecttoa targetofdefinedEPSgrowth.Bothmeasuresuse the same three-yearperiodandareassessedindependently.Nofurtherawardscanbegrantedundertheplan.

All Employee Sharesave Plan (2004 International Sharesave, 2004 UK Sharesave and 2013 Sharesave)

UndertheSharesaveschemes,employeeshavethechoiceofopeningasavingscontract.Withinaperiodofsixmonthsafterthethirdorfifthanniversary,asappropriate,employeesmaypurchaseordinarysharesintheultimateholdingcompany.Thepriceatwhichtheymaypurchasesharesisatadiscountofupto20percentonthesharepriceatthedateofinvitation.TherearenoperformanceconditionsattachedtooptionsgrantedundertheSharesaveschemes.Nofurtherawardcanbegrantedunder2004Sharesaveplans.

TheStandardChartered2014SharesavePlanwasapprovedbyShareholdersinMay2014andsincethenallSharesaveinvitationshavebeenmadeunderthisplan.





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.

2014

Grant Date 10 December 18 June 13 March

Sharepriceatgrantdate(£) 9.34 12.83 11.92Sharesgranted 6,781 71 568,381Vestingperiod(years) 3 3 3Expecteddividends(yield)(%) 5.7 5.6 5.3Fairvalue(EPS)(£) 2.64 3.63 3.40Fairvalue(RoRWA)(£) 2.64 3.63 3.40Fairvalue(TSR)(£) 1.07 1.48 1.38

Theexpecteddividendyieldisbasedonthehistoricaldividendyieldoverthethreeyearspriortogrant.

Noshareawardsweregrantedin2015.

Areconciliationofmovementsfortheyearto31December2015and2014isshownbelow:

2015 2014

No . of shares No . of shares

Outstandingat1January 1,721,430 1,626,356Adjustmentforrightsissue 57,236 –Granted – 575,233Lapsed (539,920) (358,901)Exercised (52,471) (121,258)

Outstandingat31December 1,186,275 1,721,430Weightedaverageremainingcontractuallife 7.66years 8.16yearsExercisableat31December 45,068 40,549





Deferred Share Awards

Valuation

Thefairvalue,forallemployeesincludingdirectors,isbasedon100%ofthefacevalueofthesharesatdateofgrantasthesharepricewillreflectexpectationsofallfuturedividends.

2015 2014

Grant Date 17 June 19 March 18 June 13 March

Sharepriceatgrantdate(£) 10.28 10.5 12.83 11.92Sharesgranted 3,723 1,564,894 1,217 1,226,630Vestingperiod(years) 1/2/3/4/5 1/2/3/4/5 1/2/3 1/2/3Expecteddividendsyield(%) n/a n/a n/a n/aFairvalue(£) 10.28 10.5 12.83 11.92

Deferredawardsaccruedividendequivalentpaymentsduringthevestingperiod.

Restricted Share Awards

Valuation

The fair value isbasedon themarket value lessanadjustment to take intoaccount theexpecteddividendsoverthevestingperiod.ThesamefairvalueisappliedforawardsmadetoboththedirectorsandemployeesoftheGroup.

2015

Grant Date 1 December 22 September 17 June 19 March

Sharepriceatgrantdate(£) 5.57 6.73 10.28 10.50Sharesgranted 8,496 20,585 4,379 19,527Vestingperiod(years) 2/3 2/3,1/2/3/4 2/3 2/3Expecteddividends(yield)(%) 6.4 6.4 7.0 7.0Fairvalue(£) 4.77 5.77 8.68 8.88

2014

Grant Date 10 December 17 September 18 June 13 March

Sharepriceatgrantdate(£) 9.34 12.28 12.83 11.92Sharesgranted 27,869 88,253 45,901 4,026Vestingperiod(years) 2/3,1/2/3/4 2/3,1/2/3/4 2/3,1/2/3/4 2/3Expecteddividends(yield)(%) 5.5 5.7 6.1 5.8Fairvalue(£) 8.17 10.69 11.08 10.37

Theexpecteddividendyieldisbasedonthehistoricaldividendyieldforthreeyearspriortogrant.





Deferred Share Awards/ Restricted Shares


2015 2014


Outstandingat1January 2,910,711 2,351,016Adjustmentforrightsissue 171,608 –Granted 1,621,604 1,393,896AdditionalsharesforNotionalDividend 118,179 72,958Lapsed (196,422) (128,748)Exercised (1,095,977) (778,411)

Outstandingat31December 3,529,703 2,910,711Weightedaverageremainingcontractuallife 5.42years 5.50yearsExercisableat31December 489,970 193,128

1997/2006 Restricted Share Scheme (2006 RSS)

Noshareawardsweregrantedin2015and2014.

Areconciliationofmovementsfortheyearended31December2015and2014isshownbelow:

2015 2014


Outstandingat1January 327,711 917,138Adjustmentforrightsissue 6,067 –AdditionalsharesforNotionalDividend – 20,632Lapsed (103,612) (11,301)Exercised (104,640) (598,758)

Outstandingat31December 125,526 327,711Weightedaverageremainingcontractuallife 1.65years 2.53yearsExercisableat31December 125,526 327,711

2007 Supplementary Restricted Share Scheme (2007 SRSS)



2015 2014


Outstandingat1January 119,766 180,281Adjustmentforrightsissue 1,565 –Lapsed (54,546) (1,972)Exercised (34,291) (58,543)






2000 Executive Share Option Scheme (2000 ESOS)


Areconciliationofoptionmovementsfortheyearended31December2015and2014isshownbelow:

2015 2014

No . of shares

Weighted

average

exercise price No . of shares

Weighted

average

exercise price

Outstandingat1January – – 5,840 £7.89Exercised – – (5,840) £7.89

Outstandingat31December – – – –Exercisableat31December – – – –

2001 Performance Share Plan (PSP)


Areconciliationofmovementsfortheyearended31December2015and2014isshownbelow:

2015 2014


Outstandingat1January 17,720 30,800Adjustmentforrightsissue 159 –Lapsed (10,900) (1,321)Exercised (3,661) (11,759)






Sharesave (2004 International Sharesave, 2004 UK Sharesave and 2013 Sharesave)

Valuation

Optionsarevaluedusingabinomialoption-pricingmodel.Thefairvalueperoptiongrantedandtheassumptionsusedinthecalculationareasfollows:

2015 2014

Grant Date 7 October 8 October

Sharepriceatgrantdate(£) 7.41 11.12Exerciseprice(£) 5.57 9.85Sharesgranted 1,034,721 506,846Vestingperiod(years) 3 3Expectedvolatility(%) 28.0 25.1Expectedoptionlife(years) 3.33 3.33Riskfreerate(%) 0.9 1.19Expecteddividends(yield)(%) 6.3 5.8Fairvalue(£) 1.4 1.61

Theexpectedvolatilityisbasedonhistoricalvolatilityoverthelastthreetofiveyears,orthreeyearspriortogrant.Theexpectedlifeistheaverageexpectedperiodtoexercise.Theriskfreerateofreturnistheyieldonzero-couponUKGovernmentbondsofatermconsistentwiththeassumedoptionlife.Theexpecteddividendyieldisbasedonhistoricaldividendyieldforthreeyearspriortogrant.





Sharesave (2004 International Sharesave and 2004 UK Sharesave)


Areconciliationofoptionmovementsfortheyearended31December2015and2014isshownbelow:

2015 2014

No . of shares

Weighted

average


Weighted

average

exercise price

Outstandingat1January 687,108 £11.26 1,270,791 £11.48Adjustmentforrightsissue 15,812 N/A – N/ALapsed (556,014) £10.89 (554,367) £11.69Exercised (27,078) £10.66 (29,316) £12.25

Outstandingat31December 119,828 £10.76 687,108 £11.26Exercisableat31December 102,923 £10.86 132,559 £10.69

2015 2014

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

£10.14/£13.93(2014:£10.65/£14.63) £10.76 119,828 0.56years £11.26 687,108 1.26years





2013 Sharesave

2015 2014

No . of shares

Weighted

average


Weighted

average

exercise price

Outstandingat1January 679,102 £10.66 413,113 £11.78Adjustmentforrightsissue 71,357 N/A – N/AGranted 1,034,721 £5.86 506,846 £9.85Lapsed (371,007) £9.78 (240,857) £10.88

Outstandingat31December 1,414,173 £6.73 679,102 £10.66Exercisableat31December – – – –

2015 2014

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

£5.58/£11.21(2014:£10.66) £6.73 1,414,173 3.06years £10.66 679,102 3years

(d) Loanstodirectors

LoanstodirectorsoftheBankdisclosedpursuanttosection383(1)(d)oftheHongKongCompaniesOrdinanceandPart3oftheCompanies(DisclosureofInformationaboutBenefitsofDirectors)Regulationareasfollows:

2015 2014

HK$’M HK$’M

AggregateamountofrelevantloansbytheBankoutstandingat31December 28 26

MaximumaggregateamountofrelevantloansbytheBankoutstandingduringtheyear 37 97




(e) RelatedpartytransactionswithassociatesandjointventuresoftheGroup

Duringtheyear,theBankanditssubsidiariesenteredintotransactionswithassociatesandjointventuresoftheGroupintheordinarycourseofitsbankingbusinessandonsubstantiallythesametermsasforcomparabletransactionswiththird-partycounterparties.Theamountsofmaterialtransactionsduringtheyeararesetoutbelow:

2015 2014

HK$’M HK$’M

Amountsduefromassociatesandjointventures 3 3

Depositsfromassociatesandjointventures 540 688

Operatingincome 26 19

41 Ultimate holding company

TheBank’sultimateholdingcompanyisStandardCharteredPLC,acompanyregisteredinEnglandandWales.StandardCharteredPLChaslistingsontheLondonStockExchangeandtheStockExchangeofHongKong.Inaddition,StandardCharteredPLCisalsolistedontheBombayandNationalStockExchangesofIndiaintheformofIndianDepositoryReceipts.

42 Significant accounting estimates and judgements

Indeterminingthecarryingamountsofcertainassetsandliabilities,theBankanditssubsidiariesmakeassumptionsabouttheeffectsofuncertainfutureeventsonthoseassetsandliabilitiesatthereportingdate.Theseestimationsandassumptionsarebasedonhistoricalexperienceandexpectationoffutureeventsandarereviewedperiodicallyasactualresultsmaydifferfromtheseestimates.

Pensions

Actuarialassumptionsaremadeinvaluingdefinedbenefitobligationsassetout innote30andareupdatedperiodically.

Taxes

Determiningincometaxprovisionsinvolvesjudgementonthefuturetaxtreatmentofcertaintransactions.Deferredtaxliabilitiesarerecognisedonalltemporarydifferencesanddeferredtaxassetsarerecognisedontemporarydifferenceswhereitisprobablethattherewillbetaxablerevenueagainstwhichthesecanbeoffset.Managementhasmadejudgementsastotheprobabilityoffuturetaxablerevenuesbeinggeneratedagainstwhichtaxlosseswillbeavailableforoffset.



42 Significant accounting estimates and judgements (continued)

Fair value of financial instruments

Notes2(i)and38providefurtherinformationontheBank’sfairvalueaccountingpolicyandprocess.

Impairment of financial assets

Policiesonimpairmentoffinancialassetsaresetoutinnote2(k).

Goodwill impairment

Anannualassessmentismade,assetoutinnote22,astowhetherthecurrentcarryingvalueofgoodwillisimpaired.

Impairment of interest in associates

Detailsofimpairmenttestingaresetoutinnote20.

43 Possible impact of amendments, new standards and interpretations issued but not yet effective for the annual accounting period ended 31 December 2015

Upto thedateof issueof thefinancialstatements, theHKICPA/IASBhas issuedanumberofnewstandardswhicharenotyeteffectivefortheaccountingyearended31December2015andwhichhavenotbeenadoptedinthesefinancialstatements.

Theseinclude:

– HKFRS9/IFRS9,Financial instruments (effectiveon1January2018)

– HKFRS15/IFRS15,Revenue from contracts with customers (effectiveon1January2017)

– HKFRS16/IFRS16,Leases (effectiveon1January2019)

TheBankanditssubsidiariesareintheprocessofmakinganassessmentofwhattheimpactoftheseamendmentsisexpectedtobeintheperiodofinitialapplication.Itisnotyetpracticabletoquantifytheeffectontheseconsolidatedfinancialstatements.



44 Statement of financial position as at 31 December 2015

2015 2014HK$’M HK$’M

Assets

Cashandbalanceswithbanks,centralbanksandotherfinancialinstitutions 48,763 53,064Placementswithbanksandotherfinancialinstitutions 119,648 145,757HongKongSARGovernmentcertificatesofindebtedness 38,031 36,741Tradingassets 18,597 23,388Financialassetsdesignatedatfairvalue 666 1,575Investmentsecurities 210,572 172,302Advancestocustomers 412,619 452,717Amountsduefromimmediateholdingcompany 29,749 68,680Amountsduefromfellowsubsidiaries 15,687 45,785AmountsduefromsubsidiariesoftheBank 39,684 49,900InvestmentsinsubsidiariesoftheBank 853 853Interestinassociates 3,570 3,729Property,plantandequipment 3,053 3,163Goodwillandintangibleassets 1,075 1,116Currenttaxassets 550 256Deferredtaxassets 306 122Otherassets 8,596 9,365

952,019 1,068,513

Liabilities

HongKongSARcurrencynotesincirculation 38,031 36,741Depositsandbalancesofbanksandotherfinancialinstitutions 24,655 32,605Depositsfromcustomers 745,701 851,029Tradingliabilities 8,847 12,800Financialliabilitiesdesignatedatfairvalue 13,724 14,915Debtsecuritiesinissue 1,209 13,838Amountsduetoimmediateholdingcompany 27,397 16,589Amountsduetofellowsubsidiaries 8,314 3,580AmountsduetosubsidiariesoftheBank 2,114 2,458Otherliabilities 14,332 16,210Subordinatedliabilities 10,093 10,406

894,417 1,011,171

Equity

Sharecapital 20,256 20,256Reserves 37,346 37,086

Shareholders’equity 57,602 57,342

952,019 1,068,513

ApprovedandauthorisedforissuebytheBoardofDirectorson23February2016.

Tan Siew Boi Ling Fou TsongDirector Director



45 Statement of changes in equity for the year ended 31 December 2015

Sharecapital

Sharepremium

Capitalredemption

reserve

Cash flowhedge

reserve

Available-for-sale

investmentreserve

Retainedprofits

Shareoption equity

reserve TotalHK$’M HK$’M HK$’M HK$’M HK$’M HK$’M HK$’M HK$’M

At1January2014 97 12,477 3,804 (33) 115 31,734 178 48,372Totalcomprehensiveincome – – – 84 140 8,449 – 8,673Dividendpaid – – – – – (3,722) – (3,722)Movementinrespectofshare-based

compensationplans – – – – – – 141 141Amalgamationofsharepremiumand

capitalredemptionreservewithsharecapital(note33(i)) 16,281 (12,477) (3,804) – – – – –

Issuanceofperpetualnon-cumulativeconvertiblepreferenceshares,netofissuancecost(note32) 3,878 – – – – – – 3,878

At31December2014 20,256 – – 51 255 36,461 319 57,342

Totalcomprehensiveincome – – – (33) (332) 8,753 – 8,388Dividendpaid – – – – – (8,032) – (8,032)Movementinrespectofshare-based

compensationplans – – – – – – (96) (96)

At31December2015 20,256 – – 18 (77) 37,182 223 57,602

Duringtheyearended31December2015,thedirectorshaddeclaredandpaidanordinarydividendofHK$4.0214 (2014:HK$1.9215)pereach ‘A’and‘B’ordinarysharetotallingHK$7,790million (2014:HK$3,722million).AtotaldividendofHK$242million(2014:Nil)waspaidinrespectoftheUS$500million6.25%perpetualnon-cumulativeconvertiblepreferencesharesclassifiedasequity.



46 Disposal group held for sale

Theassetsandliabilitiesofthedisposalgroupheldforsaleissummarisedbelow:

2014

HK$’M

AssetsCashandbalanceswithbanksandotherfinancialinstitution 125Advancestocustomers 12,220Interestinassociates 144Property,plantandequipment 56Goodwillandintangibleassets 525Otherassets 147

Assetsheldforsale 13,217

LiabilitiesDepositsandbalancesofbanksandotherfinancialinstitutions 1,020Depositfromcustomers 808Otherliabilities 174

Liabilitiesheldforsale 2,002


Appendix I: 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)fortheyearended31December2015and31December2014areasfollows:

Analysis of remuneration split between fixed and variable compensation

2015 2014

SeniorManagement KeyPersonnel SeniorManagement KeyPersonnel

HK$’000 HK$’000 HK$’000 HK$’000

Fixedcompensation 22,383 24,502 35,218 10,665Variablecompensation–Upfrontcash 9,565 9,308 11,455 3,669–Upfrontshares 3,194 7,140 2,009 ––Deferredcash 1,055 4,159 557 ––Deferredshares: –Restrictedshares 6,843 13,744 14,145 2,812 –Performanceshares – – 8,310 528

Total 43,040 58,853 71,694 17,674

Numberofstaffat31December 8 13 12 10


Appendix I: 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)

2015 2014


HK$’000 HK$’000 HK$’000 HK$’000

At1January 33,049 42,090 49,928 6,620Adjustedforrightsissue (4) (6) – –Awardedduringtheyear 7,899 17,903 23,012 3,340Paidoutduringtheyear (5,845) (8,602) (5,356) (3,037)Vestedandlapsedduringtheyear – (403) – –Notvestedduetoperformance

adjustment (4,503) (3,305) (4,999) (170)

At31December 30,596 47,677 62,585 6,753

Vestedduringtheyear 7,256 12,860 12,082 2,205

Analysis of total amount of outstanding deferred remuneration

2015 2014


HK$’000 HK$’000 HK$’000 HK$’000

At31December–Vested 6,089 7,246 9,493 325–Not-vested 24,507 40,431 53,092 6,428

30,596 47,677 62,585 6,753

At31December–Cash 1,287 7,205 1,494 189–Shares 29,309 40,472 61,091 6,564

30,596 47,677 62,585 6,753

Totalamountofoutstandingdeferredremunerationexposedtoexpostexplicitand/orimplicitadjustments(note3) 30,596 47,677 62,585 6,753


Appendix I: 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

2015 2014


HK$’000 HK$’000 HK$’000 HK$’000

Totalamountofadjustmentsduringthefinancialyeardueto

–expostexplicitadjustments (4,503) (3,305) (4,999) (170) –expostimplicitadjustments (8,928) (13,484) (16,620) (1,902)

Analysis of guaranteed bonuses, sign-on awards and severance payments during the year

2015 2014


HK$’000 HK$’000 HK$’000 HK$’000

Guaranteedbonusesawarded – – 2,792 –Sign-onawardsmade – – – –Severancepaymentsawarded

andmade 3,101 215 – –Highestseverancepayments

awarded 2,210 215 – –

Numberofbeneficiariesofguaranteedbonusesawarded – – 1 –

Numberofbeneficiariesofsign-onawardsmade – – – –

Numberofbeneficiariesofseverancepaymentsawardedandmade 2 1 – –

Note 1: As defined in the CG-5 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 2015 differs from that of 2014 .

Note 3: Ex post adjustments are adjustments made after the awards are granted .


Appendix II: directors of the Bank’s subsidiaries

ThenamesofalldirectorswhohaveservedontheboardofthesubsidiariesoftheBankduringtheyearandupto23February2016:

* TANSiewBoi* LINGFouTsong* AACHIVinod* SamiABDELKAFI TimothyWilliamANDREW* SanjeevAGRAWAL* NigelANTON* StanBARNES StephenGordonDelanoBARNES* StephenJohnBARNHAM RussellTrevorMichaelBEARDMORE-HAGELBERG* GarryBURKE* PeterWilliamBURNETT* PaulStuartCHAMBERS* CHANEricsonLapMing CHANKangMuk ConlonCHEN* CHENPoonisAnnie CHEUNGChiLeung CHEUNGYupFan* CHUNGByungHo* KieranCORR* ChristopherJohnDANIELS* AndrewWilliamDAWSON* CarlosRuizDELUZURIAGA* JeanFERNANDES FONGJulianLoongChoon* FUNGAlanJoiLun EdwardLeoHOGAN* HONSauYee,Kenneth* JonathanDaveyHOWARD* HUIHelenS* GuyRolandISHERWOOD RichardKAO* KONGPikTung* NilsKristianKOVDAL* DineshKUMAR* LAIDarcyTat-Sze* LAIYanHong* LAMChiKwongJonathan* LAMHuiYip* LAWHeungYee,Nita* LEEHoiKeung* PatrickLEE LEEWeiHsiung* LIMHanSiangPeter ThomasLIU*# TimLORD* MAIWaiLam KnutMATHIASSEN


Appendix II: directors of the Bank’s subsidiaries (continued)

* WilliamMCCALLUM CraigMCGEE* PeterMOYLAN* PeterNAGLE* FrancisEdwinNEVIS* NGChauShingDantes* NGChiMing RichardRayNIETO* AmitKumarPURI* PradeepRANA DavidWilliamRymanRICHARDS* SanderJohanWillemSCHEEPENS* MadhavSHANKAR*# AllisonHelenSTRACHAN* SamirSUBBERWAL* SZETOHoYinJeffrey SandipTALUKDAR* TAMPatrickKwongYuen AdelineTAN TANKokBoon TANMingKiuJohn DavidLouisTAYLOR*^ TiaraLtd* SamVILO* JimWANG PaulDavidWILDEN YEUNGChunSing AmeliaZHANG* ZHANGXiaoLei

# Alternatedirector^ Corporatedirector* DirectorsservingtheBoardasat23February2016

standard chartered bank (hong kong) limited directors' report

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