3SBio Inc. — Annual Report 2001

Apr 25, 2002

HONGKONG CHINESE LIMITED 香港華人有限公司[*]

(Formerly THE HKCB BANK HOLDING COMPANY LIMITED)

(Incorporated in Bermuda with limited liability)

ANNOUNCEMENT OF 2001 ANNUAL RESULTS

RESULTS

The Directors of Hongkong Chinese Limited (the “Company”, formerly known as The HKCB Bank Holding Company Limited) announce that the audited consolidated results of the Company and its subsidiaries (collectively the “Group”) for the year ended 31 December 2001 are as follows:

Consolidated Profit and Loss Account

Note Interest income Interest expense Net interest income Non-interest income (4) Total operating income Operating expenses (5) Operating profit before provisions Charge for bad and doubtful debts Operating (loss)/profit after provisions Impairment losses of goodwill (6) Net loss on disposal/revaluation of fixed assets Provisions made on held-to-maturity securities Share of net profits of associates (Loss)/profit before taxation Taxation (7) (Loss)/profit after taxation Minority interests (Loss)/profit attributable to shareholders	2001 HK$’000 1,263,674 (699,983) 563,691 182,143 745,834 (545,187) 200,647 (232,506) (31,859) (137,621) (5,346) (7,320) (182,146) 32 (182,114) (10,191) (192,305) (175) (192,480)	2000 HK$’000 1,765,759 (1,130,944) 634,815 447,454 1,082,269 (421,215) 661,054 (261,693) 399,361 – (3,908) (18,654) 376,799 3,367 380,166 (11,332) 368,834 (7,007) 361,827

– 1 –

(Loss)/earnings per share (8) Basic Diluted Dividends and distributions (9) Interim dividend declared during the year Final distribution/dividend declared after the balance sheet date Special interim distribution declared after the balance sheet date Consolidated Balance Sheet Assets Cash and short-term funds Placements with banks and other financial institutions maturing between one and twelve months Certificates of deposit held Other investments in securities Held-to-maturity securities and investment securities Advances to customers, banks and other financial institutions, trade bills and other accounts Investments in associates Fixed assets Total assets Liabilities Deposits and balances of banks and other financial institutions Loan from a financial institution Current, fixed, savings and other deposits of customers Certificates of deposit issued Other accounts and provisions Total liabilities	HK¢ (14.2) (14.2) HK$’000 20,273 40,546 1,959,729 2,020,548 31 December 2001 HK$’000 5,818,886 37,847 605,402 194,146 491,134 12,171,309 55,547 1,142,916 20,517,187 60,880 – 14,589,883 990,607 790,127 16,431,497 ---------------	HK¢ 26.8 26.8 HK$’000 23,652 84,471 –
		108,123
		Restated 31 December 2000 HK$’000 8,739,852 783,432 606,512 235,035 320,338 13,258,329 55,515 1,176,863
		25,175,876
		324,336 45,000 18,438,392 1,048,890 841,854
		20,698,472 ---------------

– 2 –

Capital resources Share capital Reserves: – Distributable reserves – Other reserves Shareholders’ funds Minority interests Subordinated floating rate notes issued Total capital resources Total liabilities and capital resources	1.351,537	1.351,537	1,351,537
	2,687,272 46,070		2,846,875 46,640
	2,733,342 4,084,879 811 – 4,085,690 --------------- 20,517,187		2,893,515 4,245,052 636 231,716 4,477,404 --------------- 25,175,876

Notes:

1. The financial information set out in this announcement does not constitute the Group’s statutory accounts for the year ended 31 December 2001 but is derived from those accounts.

2. Significant impact of new/revised Statements of Standard Accounting Practice (“SSAPs”)

In the current year, the Group has adopted the new/revised SSAPs issued by the Hong Kong Society of Accountants which are effective for the current year’s accounts, certain accounting policies and disclosure practices have been changed with details of the significant impact described as follows:

(a) Dividends and distributions

In prior years, dividends and distributions proposed or declared were recognised as a liability in the accounting period to which they related. With effect from 1 January 2001, in order to comply with SSAP 9 (revised) “Events after the balance sheet date”, the Group recognises dividends and distributions proposed or declared as a liability in the accounting period in which they are declared by the Directors (in the case of interim dividends) or approved by the shareholders (in the case of final dividends).

The new accounting policy has been adopted retrospectively, with the opening balance of “Distributable reserves” and the comparative information adjusted for the amounts relating to prior periods. There is no impact on the Group’s profit attributable to shareholders for the periods presented.

As a result of the new accounting policy, the Group’s opening “Distributable reserves” as at 1 January 2001 was increased by HK$84,471,000, which represented the reversal of the provision for 2000 proposed final dividend previously recorded as a liability as at 31 December 2000, although it was not declared until after the balance sheet date.

– 3 –

(b) Segment reporting

In accordance with the new SSAP 26 “Segment reporting”, a segment is a distinguishable component of the Group that is engaged either in providing products or services (business segment), or in providing products or services within a particular economic environment (geographical segment), which is subject to risks and rewards that are different from those of other segments.

In accordance with the Group’s internal financial reporting, the Group has chosen business segment information as the primary reporting format and geographical segment information as the secondary reporting format.

Details of the segment information is set out in Note 3 below.

(c) Goodwill/Negative goodwill

Goodwill and negative goodwill arising on acquisition of subsidiaries were previously eliminated against reserves and credited as a capital reserve on consolidation, respectively. Following the adoption of the new SSAP 30 “Business combinations”, any goodwill is capitalised as asset and amortised over its estimated useful life not exceeding 20 years and stated at cost less any accumulated amortisation and any impairment losses (see note (d) below) which may be present.

Negative goodwill is presented in the consolidated balance sheet as a deduction from assets in the same balance sheet classification as goodwill. To the extent that negative goodwill relates to an expectation of future losses and expenses that are identified in the plan of acquisition and can be measured reliably, but which have not yet been recognised, it is recognised in the consolidated profit and loss account when the future losses and expenses are recognised. Any remaining negative goodwill, but not exceeding the fair value of the non-monetary assets acquired, is recognised in the consolidated profit and loss account over the weighted average useful life of those non-monetary assets that are depreciable/amortisable. Negative goodwill in excess of the fair values of the non-monetary assets acquired is recognised immediately in the consolidated profit and loss account.

The Group has adopted the transitional provision as permitted under SSAP 30 not to restate any goodwill/negative goodwill arisen in periods prior to 1 January 2001. Such goodwill was reduced by any impairment losses which may be present and recognised in the profit and loss account.

– 4 –

(d) Impairment of assets

In accordance with the new SSAP 31 “Impairment of assets”, internal and external sources of information are considered at each balance sheet date to assess whether there is any indication that the following assets may be impaired or an impairment loss previously recognised no longer exists or may have decreased:

• Fixed assets, particularly premises and leasehold properties

• Investments in subsidiaries and associates

• Goodwill (whether initially written off against reserves or recognised as an intangible asset)

If any such indication exists, the recoverable amount of the asset is estimated. The recoverable amount of an asset is the greater of its net selling price and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. An impairment loss is recognised in the profit and loss account whenever the carrying amount of an asset exceeds its recoverable amount.

3. Segment information

Segment information relating to the Group’s results is presented below in respect of the Group’s business segments. No segment information is presented in respect of the Group’s geographical segments as less than 10% of the Group’s total operating income and profit before taxation are attributable to locations outside Hong Kong.

The Group comprises the following main business segments:

Commercial banking: The taking of deposits from and the provision of loans and advances, including trade finance facilities, to commercial, industrial and institutional customers.

Retail banking: The taking of deposits from individual customers, the extension of residential mortgage loans, personal loans and consumer financing, and the provision of credit card, securities brokerage, nominee and custody services.

Treasury and investment activities: The provision of foreign exchange trading, remittance, foreign currency and asset-linked deposit services to customers, and activities conducted in relation to the overall funding position of the Group.

Corporate finance and securities brokerage: The provision of securities and futures brokerage, investment banking, underwriting and other related advisory services.

Other business activities: Property investment, fund management, the underwriting of general insurance business, the provision of general insurance agency services, income from disposal of non-core investments held by the Group, and other items which cannot be allocated to the above business segments.

– 5 –

Subsequent to the year end, the Group disposed of its 100% interest in The Hongkong Chinese Bank, Limited and its subsidiaries, which are principally engaged in the provision of commercial banking, consumer finance and other related financial services.

Treasury Corporate Commercial and finance and and retail investment securities 2001 banking activities brokerage HK$’000 HK$’000 HK$’000 Net interest income 431,771 131,146 – Non-interest income 72,742 27,257 45,993 Total operating income 504,513 158,403 45,993 Operating expenses (202,211) (96,158) (34,157) Operating profit/(loss) before provisions 302,302 62,245 11,836 Charge for bad and doubtful debts (230,130) – (2,376) Operating profit/(loss) after provisions 72,172 62,245 9,460 Impairment losses of goodwill – – – Net loss on disposal/ revaluation of fixed assets – – – Provisions made on held-to-maturity securities – (7,320) – 72,172 54,925 9,460 Share of net profits of associates – – – Profit/(loss) before taxation 72,172 54,925 9,460

Other business activities Unallocated Group total HK$’000 HK$’000 HK$’000 774 – 563,691 36,151 – 182,143 36,925 – 745,834 (95,296) (117,365) (545,187) (58,371) (117,365) 200,647 – – (232,506) (58,371) (117,365) (31,859) – (137,621) (137,621) (4,800) (546) (5,346) – – (7,320) (63,171) (255,532) (182,146) 32 – 32 (63,139) (255,532) (182,114)

– 6 –

Treasury Corporate Commercial and finance and and retail investment securities 2000 banking activities brokerage HK$’000 HK$’000 HK$’000 Net interest income 446,980 186,865 – Non-interest income 32,740 88,205 81,059 Total operating income 479,720 275,070 81,059 Operating expenses (169,795) (110,453) (29,946) Operating profit/(loss) before provisions 309,925 164,617 51,113 Charge for bad and doubtful debts (258,201) – (3,492) Operating profit/(loss) after provisions 51,724 164,617 47,621 Net loss on disposal/ revaluation of fixed assets – – – Provisions made on held-to-maturity securities – (18,654) – 51,724 145,963 47,621 Share of net profits of associates – – – Profit/(loss) before taxation 51,724 145,963 47,621

Other business activities Unallocated Group total HK$’000 HK$’000 HK$’000 970 – 634,815 245,450* – 447,454 246,420 – 1,082,269 (20,641) (90,380) (421,215) 225,779 (90,380) 661,054 – – (261,693) 225,779 (90,380) 399,361 (2,256) (1,652) (3,908) – – (18,654) 223,523 (92,032) 376,799 3,367 – 3,367 226,890 (92,032) 380,166

• Amount included a profit of HK$189 million arising from the disposal of an investment in CRC Protective Life Insurance Company Limited, a then associate of the Group, which was engaged in life insurance business.

4. Non-interest income

Included in non-interest income for the year ended 31 December 2000 were the following significant items:

• (a) A profit of HK$72 million arising from the disposal of the Group’s investment in the listed shares of the Hong Kong Exchanges and Clearing Limited (“HKEx”). As part of the Group’s securities and commodity brokerage businesses, the Group held seats in the Stock Exchange of Hong Kong and the Hong Kong Futures Exchange. In accordance with the schemes of demutualisation and merger of these exchanges implemented during 2000, the Group was given trading rights in these exchanges as well as listed shares in HKEx in exchange for the exchange seats it previously held. The listed shares in HKEx were disposed of during 2000, as a result of which the above-mentioned profit arose.

– 7 –

• (b) A profit of HK$189 million on disposal of the Group’s 50% equity interest in CRC Protective Life Insurance Company Limited, a then associate of the Group, to an independent third party.

5. Operating expenses

Included in operating expenses was an amount of HK$47,467,000 (2000: HK$41,399,000) which represented depreciation on fixed assets for the year.

6. Impairment losses of goodwill

The goodwill on which impairment losses were made represents goodwill arising on acquisition of subsidiaries previously eliminated against reserves:

• (a) Impairment loss of HK$72,500,000 is in relation to goodwill arising from the acquisition of The Hongkong Chinese Bank, Limited (“HKCB”) and Hong Kong Housing Loan Limited (“HKHL”) and is calculated with reference to the conditional sales agreement entered into by the Company on 31 October 2001 (the “Sales Agreement”) in relation to the disposal of HKCB and its subsidiaries (“HKCB Group”) and a portfolio of mortgage loans of HKHL. The Sales Agreement was completed on 17 January 2002.

For the year ended 31 December 2001, the aggregate profit before taxation and profit after taxation of HKCB Group and HKHL amounted to HK$39,424,000 (2000: HK$111,466,000) and HK$28,998,000 (2000: HK$100,031,000) respectively.

• (b) Impairment loss of HK$65,121,000 represents the write off to the profit and loss account of the goodwill arising from the acquisition of Lippo Asia Limited and its subsidiaries (“LAL Group”) after considering the estimated recoverable amount of the business of the LAL Group, which is expected to be adversely affected by the disposal of HKCB since a sizable portion of such businesses were referred by HKCB in the past.

7. Taxation

Hong Kong profits tax has been provided at the rate of 16% (2000: 16%) on the estimated assessable profit for the year. Taxation on overseas profits has been calculated on the estimated assessable profits for the year at the rates of taxation prevailing in the countries in which the Group operates.

The amount of taxation charged / (credited) to the consolidated profit and loss account represents:

The Company and its subsidiaries: Hong Kong profits tax Overseas taxation Under-provisions in prior years Taxation charge for the year	2001 HK$’000 10,192 (260) 259 10,191	2000 HK$’000 11,421 (89) – 11,332

There are no significant potential deferred taxation liabilities for which provision has not been made.

– 8 –

8. (Loss)/earnings per share

Basic (loss)/earnings per share has been calculated on the basis of the loss attributable to shareholders of HK$192,480,000 (2000: profit of HK$361,827,000) and the number of 1,351,537,000 shares (2000: weighted average number of 1,350,754,000 shares) in issue during the year.

Diluted (loss)/earnings per share has been calculated based on (i) the loss attributable to shareholders of HK$192,480,000 (2000: profit of HK$361,827,000); and (ii) the adjusted weighted average number of 1,351,659,000 shares (2000: 1,350,899,000 shares) after taking into account the weighted average number of 122,000 (2000: 145,000) ordinary shares which are deemed to have been issued at no consideration on exercise of the share options at the beginning of the year.

9. Dividends and distributions

The Company paid an interim dividend of HK1.50 cents (2000: HK1.75 cents) per share amounting to HK$20,273,000 (2000: 23,652,000) during the year.

The Directors recommend a final distribution of HK3.00 cents per share for the year ended 31 December 2001, totalling HK$40,546,000 (2000: final dividend of HK6.25 cents per share amounting to HK$84,471,000).

Subsequent to 31 December 2001, the Directors declared a special interim distribution of HK$1.45 per share for the year ending 31 December 2002, amounting to HK$1,959,729,000 , which was paid on 28 January 2002.

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OTHER FINANCIAL INFORMATION

A. Advances and Other Accounts

Advances to customers Provision for bad and doubtful debts – General – Specific Advances to banks and other financial institutions Trade bills Provision for bad and doubtful debts – General – Specific Accrued interest and other accounts Provision for bad and doubtful debts – Specific	31 December 2001 HK$’000 12,347,304 (136,030) (355,624) 11,855,650 --------------- 42,497 --------------- 80,764 (455) – 80,309 --------------- 193,426 (573) 192,853 --------------- 12,171,309	31 December 2000 HK$’000 13,248,632 (179,291) (290,161) 12,779,180 --------------- 16,707 --------------- 151,736 (506) (137) 151,093 --------------- 352,487 (41,138) 311,349 --------------- 13,258,329

– 10 –

1. Advances to customers - by industry sector

The Group’s gross advances to customers, analysed according to the industry sectors in which the borrowers operate, are as follows:

Loans for use in Hong Kong Industrial, commercial and financial: – Property development – Property investment – Financial concerns – Stockbrokers – Wholesale and retail trade – Manufacturing – Transport and transport equipment – Others Individuals: – Loans for the purchase of flats in the Home Ownership Scheme, Private Sector Participation Scheme and Tenants Purchase Scheme – Loans for the purchase of other residential properties – Credit card advances – Others Trade finance Loans for use outside Hong Kong	Unaudited 31 December 2001 HK$’000 28,498 2,389,254 530,788 19,400 540,547 607,559 1,077,894 948,289 36,735 4,062,253 176,325 970,424 11,387,966 809,002 150,336 12,347,304	Unaudited 31 December 2000 HK$’000 171,312 2,167,825 502,168 18,673 677,375 624,300 1,059,737 1,071,153 37,737 4,286,813 191,685 1,155,398
		11,964,176 994,927 289,529
		13,248,632

No geographical analysis, based on the location of the counterparties, is provided as less than 10% of the gross advances to customers, overdue and non-performing loans are attributable to locations outside Hong Kong.

– 11 –

2. Non-performing loans

Non-performing loans, which represents the gross amount of advances, net of suspended interest, on which interest has been placed in suspense or on which interest accrual has ceased are as follows:

Gross advances to customers Specific provisions made Secured non-performing loans Unsecured non-performing loans Percentage of non-performing loan to total advances to customers Market value of collateral held Amount of interest in suspense	31 December 2001 1,014,192 (348,779) 665,413 517,830 496,362 1,014,192 8.2% 541,258 478,548	31 December 2000 1,204,109 (277,348) 926,761 694,877 509,232 1,204,109 9.1% 733,555 312,719

At 31 December 2001 and 2000, there were no non-performing loans in respect of advances to banks and other financial institutions.

The specific provisions were made after taking into account the value of collateral in respect of such advances.

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3. Overdue and rescheduled advances

The gross amount of advances, net of accrued interest that has been capitalised but accrued to a suspense account, which have been overdue for:

– over 3 months but less than 6 months – over 6 months but less than 1 year – over 1 year Rescheduled advances to customers (net of those overdue for over 3 months as shown above) Total overdue and rescheduled advances Secured overdue advances Unsecured overdue advances Secured rescheduled advances Unsecured rescheduled advances Market value of collateral held against: – overdue advances – rescheduled advances Specific provisions made against: – overdue advances – rescheduled advances	Unaudited 31 December 2001 HK$’000 HK$’000 % of total HK$’000 advances 210,421 1.7 294,150 2.4 675,625 5.5 1,180,196 9.6 ------------- ------------- 17,586 0.1 ------------- ------------- 1,197,782 9.7 764,437 415,759 1,180,196 ------------- 6,600 10,986 17,586 ------------- 1,197,782 952,162 6,600 958,762 276,545 2,684 279,229	Unaudited 31 December 2000 HK$’000 HK$’000 % of total HK$’000 advances 227,017 1.7 215,552 1.6 825,905 6.3 1,268,474 9.6 ------------- ------------- 65,405 0.5 ------------- ------------- 1,333,879 10.1 828,910 439,564 1,268,474 ------------- 29,411 35,994 65,405 ------------- 1,333,879 936,632 29,585 966,217 235,848 10,840 246,688	Unaudited 31 December 2000 HK$’000 HK$’000 % of total HK$’000 advances 227,017 1.7 215,552 1.6 825,905 6.3 1,268,474 9.6 ------------- ------------- 65,405 0.5 ------------- ------------- 1,333,879 10.1 828,910 439,564 1,268,474 ------------- 29,411 35,994 65,405 ------------- 1,333,879 936,632 29,585 966,217 235,848 10,840 246,688
			9.6 ------------- 0.5 -------------
			10.1

– 13 –

At 31 December 2001 and 2000, there were no advances to banks and other financial institutions which were overdue for over 3 months, nor were there any rescheduled advances to banks and other financial institutions on these two days.

4. Reconciliation of overdue advances to non-performing loans

31 December Unaudited 31 December 2001 HK$’000 Advances which are overdue for more than 3 months 1,180,196 Add:_Non-performing loans which are not overdue, or overdue for 3 months or less 102,405 _Add:_Rescheduled advances on which interest is being placed in suspense or on which interest accrual has ceased 17,586 _Less:_Advances which are overdue for more than 3 months and on which interest is still being accrued (285,995) Non-performing loans 1,014,192 _5. Other overdue assets Unaudited 31 December 2001 HK$’000 The gross amount of trade bills which have been overdue for: – over 1 year 4,734 Other investments in securities - debt securities which have been overdue for: – over 6 months but less than 1 year – – over 1 year 3,874 3,874 Held-to-maturity securities - debt securities which have been overdue for: – over 6 months but less than 1 year – – over 1 year 30,973 30,973

31 December Unaudited 31 December 2000 HK$’000 1,268,474 112,163 65,405 (241,933) 1,204,109 Unaudited 31 December 2000 HK$’000 6,327 15,019 7,749 22,768 30,968 – 30,968

– 14 –

B. Off-Balance Sheet Exposures

1. Contingent liabilities and commitments

The following is a summary of the contract amounts of each significant class of contingent liabilities and commitments outstanding:

Direct credit substitutes Transaction-related contingencies Trade-related contingencies Forward asset purchases Forward forward deposits Other commitments with an original maturity of – under 1 year or which are unconditionally cancellable – 1 year and over	31 December 2001 HK$’000 20,882 55,854 148,277 – 77,852 2,711,893 70,853 3,085,611	31 December 2000 HK$’000 40,003 33,903 214,997 31,000 983,758 2,809,127 20,398
		4,133,186

2. Derivatives

The following is an analysis of the aggregate notional amounts of each significant type of derivative contracts outstanding:

Exchange rate contracts: – Forward contracts – Currency swaps Interest rate contracts – Interest rate swaps	31 December 2001 Trading Hedging Total HK$’000 HK$’000 HK$’000 425,038 – 425,038 63,915 30,878 94,793 – 173,881 173,881 488,953 204,759 693,712	31 December 2000 Trading Hedging Total HK$’000 HK$’000 HK$’000 179,451 – 179,451 35,097 30,885 65,982 – 120,194 120,194 214,548 151,079 365,627	31 December 2000 Trading Hedging Total HK$’000 HK$’000 HK$’000 179,451 – 179,451 35,097 30,885 65,982 – 120,194 120,194 214,548 151,079 365,627
			365,627

– 15 –

The contract/notional amounts, credit risk weighted amounts, and replacement costs of the above off-balance sheet exposures are as follows:

Contingent liabilities and commitments Derivatives: – Exchange rate contracts – Interest rate contracts	31 December 2001 Contract/ Credit risk notional weighted Replacement amount amount cost HK$’000 HK$’000 HK$’000 3,085,611 109,648 N/A 519,831 3,988 13,020 173,881 790 1,207 3,779,323 114,426 14,227	31 December 2000 Contract/ Credit risk notional weighted Replacement amount amount cost HK$’000 HK$’000 HK$’000 4,133,186 259,254 N/A 245,433 1,766 5,149 120,194 1,217 2,509 4,498,813 262,237 7,658	31 December 2000 Contract/ Credit risk notional weighted Replacement amount amount cost HK$’000 HK$’000 HK$’000 4,133,186 259,254 N/A 245,433 1,766 5,149 120,194 1,217 2,509 4,498,813 262,237 7,658
			7,658

The contract or notional amounts of off-balance sheet instruments shown above only indicate the volume of transactions outstanding as at the balance sheet date, they do not necessarily bear any direct correlation to the underlying risks associated with the exposures.

The Group had not entered into any bilateral netting agreements, accordingly the above amounts are shown on a gross basis.

The credit risk weighted amounts are the amounts which have been calculated in accordance with the Third Schedule of the Hong Kong Banking Ordinance and guidelines issued by the Hong Kong Monetary Authority(“HKMA”). The amounts calculated are dependent upon the status of the counterparty and the maturity characteristics of each type of contract.

Replacement cost is the cost of replacing all contracts which have a positive value when marked to market (should the counterparty default on its obligations) and is obtained by aggregating all contracts with a positive mark-to-market value. Replacement cost is considered to be a close approximation of the credit risk for these contracts at the balance sheet date.

– 16 –

C. Currency Concentrations

The US dollar net position constitutes more than 10% of the total net position in all foreign currencies and is reported in Hong Kong dollar equivalent as follows:

Spot assets Spot liabilities Forward purchases Forward sales Net US dollars long position Net US dollars structural position	Unaudited 2001 HK$’000 3,916,795 (4,208,808) 929,697 (240,443) 397,241 –	Unaudited 2000 HK$’000 5,463,637 (5,733,766) 844,253 (116,907) 457,217 (231,716)

The net structural position of the Group as at 31 December 2000 represented the subordinated floating rate notes issued by The Hongkong Chinese Bank, Limited (“HKCB”), a principal subsidiary of the Company.

D. Cross-border Claims

Unaudited Banks and other financial As at 31 December 2001 institutions HK$’000 Asia Pacific excluding Hong Kong 1,165,412 North and South America 840,152 Middle East and Africa 1,093 Europe 3,408,586 5,415,243 Included in the above cross-border claims to Europe are: – France 648,357 – Germany 953,267 – Netherlands 574,924 2,176,548	Unaudited Public sector entities HK$’000 – 31,087 – – 31,087 – – – –	Unaudited Others HK$’000 195,741 105,866 – 21,494 323,101 – 7,165 7,165 14,330	Unaudited Total HK$’000 1,361,153 977,105 1,093 3,430,080
			5,769,431
			648,357 960,432 582,089
			2,190,878

– 17 –

As at 31 December 2000 Asia Pacific excluding Hong Kong North and South America Middle East and Africa Europe Included in the above cross-border claims to North and South America is: – United States Included in the above cross-border claims to Europe is: – Germany	1,762,886 1,652,496 581 5,179,772 8,595,735 1,069,596 1,378,702	– 31,149 – – 31,149 – –	260,847 104,660 – – 365,507 26,672 –	2,023,733 1,788,305 581 5,179,772
				8,992,391
				1,096,268
				1,378,702

The above analysis of cross-border claims by geographical area is based on the location of the counterparty after taking into account the transfer of risk. In general, transfer of risk applies when an advance is guaranteed by a party in a country which is different from that of the counterparty.

E. Capital Adequacy and Liquidity Ratios

	Unaudited	Unaudited
	31 December	31 December
	2001	2000
	HK$’000	HK$’000
Capital adequacy ratio - before adjusting for market risk	17.7%	31.7%
Capital adequacy ratio - after adjusting for market risk	17.7%	31.6%
	Year ended
	31 December	31 December
	2001	2000
Average liquidity ratio for the year	58.8%	61.6%

The capital adequacy ratio represents the consolidated ratio of the Company and its subsidiaries at 31 December computed in accordance with the Third Schedule of the Hong Kong Banking Ordinance.

The adjusted capital adequacy ratio represents the consolidated capital adequacy ratio of the Company and its subsidiaries at 31 December computed in accordance with the Guideline “Maintenance of Adequate Capital Against Market Risks” issued by HKMA taking into account market risk as at the balance sheet date.

The liquidity ratio is the simple average of each calendar month’s average liquidity ratio for the year calculated for HKCB in accordance with the Fourth Schedule of the Hong Kong Banking Ordinance.

– 18 –

The components of capital base after deductions used in the calculation of the above capital adequacy ratios are as follows:

Core capital: Paid up ordinary share capital Share premium Reserves Profit and loss account Minority interests (in core equity capital) Supplementary capital: General provisions for doubtful debts Term subordinated debt Eligible value of supplementary capital Total capital base Deductions: Exposures to connected companies Equity investments of 20% or more in non-subsidiary companies Total capital base after deductions	Unaudited 31 December 2001 HK$’000 1,351,537 50,988 1,019,849 (297,224) 811 2,125,961 --------------- 136,485 – 136,485 --------------- 2,262,446 --------------- (7,150) (35,749) (42,899) --------------- 2,219,547	Unaudited 31 December 2000 HK$’000 1,351,537 50,988 2,504,352 253,704 636 4,161,217 --------------- 178,374 231,716 410,090 --------------- 4,571,307 --------------- (7,150) (35,749) (42,899) --------------- 4,528,408

CLOSURE OF REGISTER OF MEMBERS

The Register of Members of the Company will be closed from Wednesday, 22 May 2002 to Tuesday, 28 May 2002 (both dates inclusive) during which period no transfer of shares will be registered. In order to qualify for the final distribution for the year ended 31 December 2001, all transfers of shares accompanied by the relevant share certificates and transfer forms must be lodged with Tengis Limited, the Company’s Branch Registrars in Hong Kong, at 4th Floor, Hutchison House, 10 Harcourt Road, Central, Hong Kong not later than 4:00 p.m. on Tuesday, 21 May 2002. Warrants in respect of the final distribution will be dispatched to the shareholders on or about Friday, 14 June 2002.

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BUSINESS REVIEW

2001 was a difficult year for the global economy. Economic confidence was further shattered by the terrorist attack in the United State in September 2001. Reflecting the continuing weakness in the external environment, economic activities in Hong Kong was sluggish during the year.

The financial services sector in Hong Kong was also affected by the weak state of the local economy. Negative sentiments among investors and consumers resulted in further weakening loan demand, squeezing interest margins and declining property and stock prices. Despite the consecutive interest rate cuts during the year to historically low levels, the economy did not show signs of revival, as demonstrated by a 1.2% fall in gross domestic products for the year, rising unemployment rate and an alarming increase in personal sector bankruptcies at the year end.

Against the backdrop of a sluggish economy and declining interest rate, competition among banks further intensified during the year amid the difficult operating environment and limited growth opportunities. Banking in Hong Kong has increasingly become an industry in which the competitiveness of smaller players are disadvantaged.

The Group reported a consolidated loss attributable to shareholders of HK$192 million in 2001, compared with a profit of HK$362 million in 2000, which had included non-recurring gains of HK$260 million from the disposal of the Group’s 50% equity interest in CRC Protective Life Insurance Company Limited and the listed shares of The Hong Kong Exchanges and Clearing Limited.

The profit contributions in 2001 from The Hongkong Chinese Bank, Limited, a former principal whollyowned subsidiary of the Company, and its subsidiaries fell to HK$32 million from HK$93 million in 2000. This reduction was the combined effect of lower interest and non-interest incomes and higher operating expenses.

As previously announced, a conditional agreement was reached in late October 2001 to sell the Company’s entire 100% stake in The Hongkong Chinese Bank, Limited and its subsidiaries to CITIC Ka Wah Bank Limited at an aggregate consideration of HK$4.2 billion. This sale was completed after the year end on 17 January 2002. The name of the Company was subsequently changed from “The HKCB Bank Holding Company Limited” to “Hongkong Chinese Limited” on 8 February 2002.

The contraction in stock market activities during 2001 also caused a decline in the profit contributions from Lippo Securities Holdings Limited, a wholly-owned subsidiary of the Company, and its subsidiaries, which are principally engaged in underwriting, securities brokerage, corporate finance, investment advisory and other related services. The adverse conditions in the stock markets resulted in a provision of HK$72 million being made for the Group’s fund management operations.

DISCUSSION AND ANALYSIS OF ANNUAL RESULTS

After experiencing a slight recovery in 2000, the local economy experienced a slowdown in 2001, reflected in falling property and consumer prices and high unemployment rate. The slowdown accelerated in the third quarter. A series of interest rate reductions during the year and full deregulation of interest rates in July rendered the smaller banks less competitive. During the year, the Company successfully concluded a conditional sale and purchase agreement pursuant to which the Group disposed of its entire interest in The Hongkong Chinese Bank, Limited (“HKCB”), a then banking subsidiary of the Company,

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and its subsidiaries (the “HKCB Group”) for an aggregate consideration of HK$4.2 billion (the “Disposal”), representing a premium of 30% over the consolidated net assets of HKCB at end of 2001. The Disposal was subsequently completed on 17 January 2002. No material profit or loss is expected to arise from the Disposal. Following the Disposal, a special interim distribution totalling HK$2.0 billion, equivalent to HK$1.45 per share, was made.

Banking businesses, securities brokerage, underwriting, corporate finance, investment advisory and other related services remained core operations of the Group during the year. Facing stagnant loan demand, fierce competition in the banking sector and poor investment sentiment, the Group recorded a loss attributable to shareholders for the year of HK$192 million, as compared to last year’s profit of HK$102 million after excluding the non-recurring gains of HK$260 million arising from the disposals of the Group’s 50% equity interest in CRC Protective Life Insurance Company Limited, a then associate of the Company, and the listed shares in The Hong Kong Exchanges and Clearing Limited.

Operating results for the year

HKCB Group had a disappointing year. Consolidated profit before taxation fell significantly by HK$78 million to HK$33 million (2000 : HK$111 million) mainly due to lower interest and non-interest incomes and higher operating expenses. The under-performance of HKCB Group adversely affected the operating results of the Group.

During the year, the Group’s net interest income and non-interest income dropped 11% and 3% to HK$564 million (2000 : HK$635 million) and HK$182 million (2000 : HK$187 million, adjusted to exclude the aforesaid non-recurring gains), respectively. 68% (2000 : 44%) of total operating income was generated from commercial and retail banking businesses, 21% (2000 : 25%) from treasury and investment activities and 7% (2000 : 10%) from corporate finance, fund management and securities brokerage businesses. Included in the operating expenses for the year was a provision for fund management activities of HK$72 million (2000 : HK$3 million) as a result of the adverse conditions in the stock markets which adverse impact was further aggravated by the repercussions of the terrorist attack of 11 September. Charge for bad and doubtful debts decreased 11% to HK$233 million (2000 : HK$262 million). The quality of the loan portfolio slightly improved with level of non-performing loans reduced to 8.2% of total advances to customers at the end of 2001 from last year’s 9.1%.

Due to the Disposal, impairment losses of goodwill previously eliminated against reserves in a total of HK$138 million (2000 : Nil) was quantified and charged to profit and loss account for the year.

When excluding this one-off impairment loss of HK$138 million, loss for the year would amount to HK$54 million (2000 : profit of HK$102 million, adjusted to exclude the aforesaid non-recurring gains).

Financial position

Total assets of the Group as at 31 December 2001 were HK$20.5 billion (2000 : HK$25.2 billion), representing a decrease of HK$4.7 billion over the position at 31 December 2000. The reduction was mainly attributable to decreases in cash and inter-bank placements of HK$3.7 billion and advances to customers of HK$1.1 billion.

The decrease in cash and inter-bank placements was a direct result of a reduction in deposits from customers of HK$3.8 billion, which was a deliberate move by the Group to take advantage of its strong liquidity position and in response to the persistently sluggish borrowing appetite in the market.

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During the year, the Group repurchased all the then outstanding subordinated floating rate notes due 2007 in an aggregate principal amount of US$29.9 million (equivalent to approximately HK$232 million).

As at 31 December 2001, the Group’s shareholders’ funds amounted to HK$4.1 billion (2000 : HK$4.2 billion, restated to add back the then proposed dividend of HK$84 million) with consolidated net asset value per share stood at HK$3.08 (2000 : HK$3.14, restated to include the then proposed dividend of HK6.25 cents per share). When taking into account the increase in net assets on Disposal and the abovementioned special interim distribution totalling HK$2.0 billion, shareholders’ funds after the Disposal was HK$2.9 billion before the proposed final distribution. The Group shall focus on its future core business of investment banking and related financial services. Details of the future plans are mentioned in the section headed “Outlook” below.

Subsequent to the Disposal, the Group has a very strong financial position.

Other than those attributable to the HKCB Group, the Group did not have material contingent liabilities and capital commitments as at 31 December 2001.

Changes in accounting policies

Following the adoption of the new or revised accounting standards issued by the Hong Kong Society of Accountants, certain accounting policies of the Group were changed with details as set out in Note 2 above. There were no material impacts on the profit and loss account nor the balance sheet of the Group for previous years except the restatement of the Group’s reserves at the balance sheet date to include any dividends/distributions for the year proposed or declared after the balance sheet date.

Staff and remuneration

The Group had 670 employees as at 31 December 2001. Total staff costs incurred during the year amounted to HK$269 million (2000 : HK$228 million). The Group offered competitive remuneration packages to its employees. Certain employees were granted options under a share option scheme implemented in 1992. After the completion of the Disposal, total number of employees was reduced to 120.

COMPLIANCE WITH THE SUPERVISORY POLICY MANUAL “FINANCIAL DISCLOSURE BY LOCALLY INCORPORATED AUTHORIZED INSTITUTIONS”

The accounts of the Group for the year ended 31 December 2001 fully comply with the requirements set out in the Supervisory Policy Manual “Financial Disclosure by Locally Incorporated Authorized Institutions” issued by the Hong Kong Monetary Authority on 2 November 2001.

ANNUAL REPORT

The annual report of the Group for the year ended 31 December 2001 containing all the information required by paragraphs 45(1) to 45(3) of Appendix 16 of the Listing Rules will subsequently be published on The Stock Exchange of Hong Kong Limited’s website in due course.

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PURCHASE, SALE OR REDEMPTION OF SECURITIES

During the year, The Hongkong Chinese Bank, Limited, the then principal subsidiary of the Company, repurchased and cancelled an aggregate principal amount of US$29.9 million (approximately HK$232 million) of subordinated floating rate notes due 2007 which were listed on the Luxembourg Stock Exchange. Save for this repurchase, there was no purchase, sale or redemption of the Company’s listed securities by the Company or any of its subsidiaries during the year.

OUTLOOK

Looking ahead, despite some early signs of an economic recovery in the United States, the local economy is expected to remain sluggish for more months.

Despite the difficult business environment, we see good investment opportunities emerging in the region, in particular, the Great China area. Following the disposal of The Hongkong Chinese Bank, Limited and its subsidiaries, the Group’s principal activities include securities brokerage, underwriting, fund management, investment advisory and other related services. As announced earlier, management is looking at opportunities for the application of the proceeds from the disposal that are consistent with the Group’s objective of creating additional value for shareholders and the Group.

In particular, the Group intends to establish a new investment banking group. The management of the Group sees excellent opportunities for increasing the Group’s market share of securities businesses in Hong Kong and to expand its securities businesses and investment banking activities elsewhere in Asia, particularly Mainland China, in the light of China’s entry to the World Trade Organisation.

As announced earlier, the Group has contracted to acquire an 85% interest in the issued share capital of Impac Asset Management (Holdings) Ltd. (“Impac”). Impac, through its subsidiaries, provides investment and management advisory services in relation to mutual funds in Hong Kong and Asia.

The Group will explore investment opportunities in the financial and investment sectors. Given the current economic and business environment and uncertainties facing the world economy, the management will take a cautious approach when making investment decisions.

I take this opportunity to thank the shareholders for their continued support and my fellow directors and all the staff for their dedication and hard work during the year.

By Order of the Board HONGKONG CHINESE LIMITED Dr Mochtar Riady Chairman

24 April 2002

• For identification purpose only

"Please also refer to the published version of this announcement in the Hong Kong i-mail"

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