Standard Chartered Bank (Hong Kong) Limited For the year ended 31 December 2015 Directors’ Report and Consolidated Financial Statements
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
Standard Chartered Bank (Hong Kong) Limited 2
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.
Standard Chartered Bank (Hong Kong) Limited 3
Report of the directors (continued)
Auditor
ThefinancialstatementshavebeenauditedbyKPMGwhowillretireand,beingeligible,offerthemselvesforre-appointment.Aresolutionforthere-appointmentofKPMGastheauditoroftheBankistobeproposedattheforthcomingannualgeneralmeeting.
OnbehalfoftheBoard
HungPiChengBenjaminChairman
HongKong,23February2016
Standard Chartered Bank (Hong Kong) Limited 4
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
Standard Chartered Bank (Hong Kong) Limited 5
Consolidated income statementFor the year ended 31 December 2015(Expressed in millions of Hong Kong dollars)
Note 2015 2014
HK$’M HK$’M
Interestincome 4(a) 16,103 18,899Interestexpense 4(b) (4,724) (5,169)
Net interest income 11,379 13,730
Feeandcommissionincome 9,759 10,434Feeandcommissionexpense (382) (520)
Netfeeandcommissionincome 4(c) 9,377 9,914Nettradingincome 4(d) 1,143 1,023Netgainsfromfinancialinstrumentsdesignated
atfairvaluethroughprofitorloss 4(e) 13 641Netgainsfromdisposalofavailable-for-salesecurities 5 85 19Otheroperatingincome 4(f) 4,845 3,121
15,463 14,718
Total operating income 26,842 28,448
Staffcosts (6,762) (6,924)Premisesandequipment (3,104) (2,763)Others (5,069) (5,156)
Operatingexpenses 4(g) (14,935) (14,843)
Operating profit before impairment 11,907 13,605
Impairmentchargesonadvancestobanksandcustomers 6(a) (3,067) (2,141)Otherimpairmentcharges 6(b) (763) (911)
Operating profit after impairment 8,077 10,553Shareofprofitofassociates 1,388 1,412
Profit before taxation 9,465 11,965Taxation 7(a) (975) (1,560)
Profit after taxation 8,490 10,405
Thenotesonpages11to127formpartofthesefinancialstatements.
Standard Chartered Bank (Hong Kong) Limited 6
Consolidated statement of comprehensive incomeFor the year ended 31 December 2015(Expressed in millions of Hong Kong dollars)
2015 2014
HK$’M HK$’M
Profit after taxation 8,490 10,405
Other comprehensive income:Itemsthatwillnotbereclassifiedtotheincomestatement:Definedbenefitplans:
–Remeasurementofnetdefinedbenefitliability (143) 9–Relatedtaxeffect 23 (2)
Itemsthatmaybereclassifiedsubsequentlytotheincomestatement:Available-for-salesecurities:
–Changesinfairvaluerecognisedduringtheyear (298) 237–Changesinfairvaluetransferredtotheincomestatementondisposal (85) (19)–Transfertotheincomestatementonfairvaluehedgeditems
attributabletohedgedrisk (7) 54–Relatedtaxeffect 72 (13)
Cashflowhedges:–Changesinfairvaluerecognisedduringtheyear (6) 102–Transfertotheincomestatementonterminationofhedgingderivatives (34) (1)–Relatedtaxeffect 7 (17)
Exchangedifference (572) (63)
Othercomprehensiveincomefortheyear,netoftax (1,043) 287
Total comprehensive income for the year 7,447 10,692
Thenotesonpages11to127formpartofthesefinancialstatements.
Standard Chartered Bank (Hong Kong) Limited 7
Consolidated statement of financial position as at 31 December 2015(Expressed in millions of Hong Kong dollars)
Note 2015 2014HK$’M HK$’M
Assets
Cashandbalanceswithbanks,centralbanksandotherfinancialinstitutions 10 48,769 53,076Placementswithbanksandotherfinancialinstitutions 11 119,658 145,770HongKongSARGovernmentcertificatesofindebtedness 12 38,031 36,741Tradingassets 13 18,597 23,388Financialassetsdesignatedatfairvalue 14 666 1,575Investmentsecurities 17 210,572 172,302Advancestocustomers 15(a) 414,955 454,996Amountsduefromimmediateholdingcompany 18 30,357 70,263Amountsduefromfellowsubsidiaries 18 16,105 46,061Interestinassociates 20 9,481 9,008Property,plantandequipment 21 37,480 39,950Goodwillandintangibleassets 22 1,075 1,116Currenttaxassets 556 266Deferredtaxassets 27 314 141Otherassets 23 12,349 24,389
958,965 1,079,042
Liabilities
HongKongSARcurrencynotesincirculation 12 38,031 36,741Depositsandbalancesofbanksandotherfinancialinstitutions 24,655 32,605Depositsfromcustomers 24 745,701 851,029Tradingliabilities 28 8,847 12,800Financialliabilitiesdesignatedatfairvalue 26 13,724 14,915Debtsecuritiesinissue 25 1,209 13,838Amountsduetoimmediateholdingcompany 18 27,519 17,209Amountsduetofellowsubsidiaries 18 8,314 3,644Currenttaxliabilities 4 18Deferredtaxliabilities 27 274 212Otherliabilities 29 15,245 19,582Subordinatedliabilities 31 10,093 10,406
893,616 1,012,999
Equity
Sharecapital 32 20,256 20,256Reserves 33 45,093 45,787
Shareholders’equity 65,349 66,043
958,965 1,079,042
ApprovedandauthorisedforissuebytheBoardofDirectorson23February2016.
Tan Siew Boi Ling Fou TsongDirector Director
Thenotesonpages11to127formpartofthesefinancialstatements.
Standard Chartered Bank (Hong Kong) Limited 8
Consolidated statement of changes in equityFor the year ended 31 December 2015
Attributable to equity shareholders of the Bank
Sharecapital
Sharepremium
Capitalredemption
reserve
Cash flowhedge
reserve
Available-for-sale
investmentreserve
Revaluationreserve
Exchangereserve
Propertyrevaluation
reserveRetained
profits
Shareoptionequity
reserve TotalHK$’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
Thenotesonpages11to127formpartofthesefinancialstatements.
Standard Chartered Bank (Hong Kong) Limited 9
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
Standard Chartered Bank (Hong Kong) Limited 10
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
Thenotesonpages11to127formpartofthesefinancialstatements.
Standard Chartered Bank (Hong Kong) Limited 11
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.
Standard Chartered Bank (Hong Kong) Limited 12
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.
Standard Chartered Bank (Hong Kong) Limited 13
Notes to the financial statements (continued)(Expressed in millions of Hong Kong dollars)
2 Significant accounting policies (continued)
(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.
Standard Chartered Bank (Hong Kong) Limited 14
Notes to the financial statements (continued)(Expressed in millions of Hong Kong dollars)
2 Significant accounting policies (continued)
(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.
Standard Chartered Bank (Hong Kong) Limited 15
Notes to the financial statements (continued)(Expressed in millions of Hong Kong dollars)
2 Significant accounting policies (continued)
(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
Standard Chartered Bank (Hong Kong) Limited 16
Notes to the financial statements (continued)(Expressed in millions of Hong Kong dollars)
2 Significant accounting policies (continued)
(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.
Standard Chartered Bank (Hong Kong) Limited 17
Notes to the financial statements (continued)(Expressed in millions of Hong Kong dollars)
2 Significant accounting policies (continued)
(i) Financialassetsandliabilities(excludingderivatives)(continued)
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.
Standard Chartered Bank (Hong Kong) Limited 18
Notes to the financial statements (continued)(Expressed in millions of Hong Kong dollars)
2 Significant accounting policies (continued)
(i) Financialassetsandliabilities(excludingderivatives)(continued)
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.
Standard Chartered Bank (Hong Kong) Limited 19
Notes to the financial statements (continued)(Expressed in millions of Hong Kong dollars)
2 Significant accounting policies (continued)
(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
Standard Chartered Bank (Hong Kong) Limited 20
Notes to the financial statements (continued)(Expressed in millions of Hong Kong dollars)
2 Significant accounting policies (continued)
(k) Impairmentoffinancialassets(continued)
– thereisobservabledataindicatingthatthereisameasurabledecreaseintheestimatedfuturecashflowsofagroupoffinancialassets,although thedecreasecannotyetbe identifiedwithspecificindividualfinancialassets.
Assets carried at amortised cost
TheBankanditssubsidiariesfirstassesswhetherobjectiveevidenceofimpairmentexistsindividuallyforfinancialassetsthatareindividuallysignificant,andindividuallyorcollectivelyforfinancialassetsthatarenotindividuallysignificant.IftheBankanditssubsidiariesdeterminethatnoobjectiveevidenceofimpairmentexistsforanindividuallyassessedfinancialasset,whethersignificantornot,itincludestheassetinagroupoffinancialassetswithsimilarcreditriskcharacteristicsandcollectivelyassessesthemforimpairment.Assetsthatareindividuallyassessedforimpairmentandforwhichanimpairmentlossisorcontinuestoberecognisedarenotincludedinacollectiveassessmentofimpairment.
Ifthereisobjectiveevidencethatanimpairmentlossonloansandreceivablescarriedatamortisedcosthasbeenincurred,theamountofthelossismeasuredasthedifferencebetweentheasset’scarryingamountandthepresentvalueofestimatedfuturecashflows(excludingfuturecreditlossesthathavenotbeenincurred)discountedatthefinancialasset’soriginaleffectiveinterestrate.Thecarryingamountoftheassetisreducedthroughtheuseofanallowanceaccountandtheamountofthelossisrecognisedin the incomestatement. Ifa loanhasavariable interest rate, thediscount rate formeasuringanyimpairment loss is the current effective interest rate determined under the contract. As a practicalexpedient,theBankanditssubsidiariesmaymeasureimpairmentonthebasisofaninstrument’sfairvalueusingobservablemarketprice.
Thecalculationofthepresentvalueoftheestimatedfuturecashflowsofacollateralisedfinancialassetreflectsthecashflowsthatmayresultfromforeclosurelesscostsforobtainingandsellingthecollateral,whetherornotforeclosureisprobable.Forthepurposesofacollectiveevaluationofimpairment,financialassetsaregroupedonthebasisofsimilarcreditriskcharacteristics (i.e.onthebasisoftheBank’sgradingprocessthatconsidersassettype, industry,geographical location,collateraltype,past-duestatusandotherrelevantfactors).Thosecharacteristicsarerelevanttotheestimationoffuturecashflowsforgroupsofsuchassetsbybeingindicativeofthedebtors’abilitytopayallamountsdueaccordingtothecontractualtermsoftheassetsbeingevaluated.
Futurecashflowsinagroupoffinancialassetsthatarecollectivelyevaluatedforimpairmentarebasedontheprobabilityofdefaultinherentwithintheportfolioofimpairedloansorreceivablesandthehistoricallossexperienceforassetswithcreditriskcharacteristicssimilartothoseinthegroup.Historicallossexperienceisadjustedonthebasisofcurrentobservabledatatoreflecttheeffectsofcurrentconditionsthatdidnotaffecttheperiodonwhichthehistoricallossexperienceisbasedandtoremovetheeffectsofconditionsinthehistoricalperiodthatdonotcurrentlyexist.
Totheextentaloanisirrecoverable,itiswrittenoffagainsttherelatedprovisionforloanimpairment.Suchloansarewrittenoffafterallthenecessaryprocedureshavebeencompletedandtheamountofthelosshasbeendetermined.Subsequentrecoveriesofamountspreviouslywrittenoffarecreditedtotheincomestatement.
If,inasubsequentperiod,theamountoftheimpairmentlossdecreasesandthedecreasecanberelatedobjectivelytoaneventoccurringaftertheimpairmentwasrecognised(suchasanimprovementinthedebtor’screditrating),thepreviouslyrecognisedimpairmentlossisreversedbyadjustingtheallowanceaccount.Theamountofthereversalisrecognisedintheincomestatement.
Standard Chartered Bank (Hong Kong) Limited 21
Notes to the financial statements (continued)(Expressed in millions of Hong Kong dollars)
2 Significant accounting policies (continued)
(k) Impairmentoffinancialassets(continued)
Available-for-sale assets
Asignificantorprolongeddeclineinthefairvalueofanequitysecuritybelowitscostisconsidered,amongstotherfactorsindeterminingwhethertheequitysecurityisimpaired.Whereobjectiveevidenceofimpairmentexistsforavailable-for-salefinancialassets,thecumulativeloss(measuredasthedifferencebetweentheacquisitioncostandthecurrentfairvalue,lessanyimpairmentlossonthatfinancialassetpreviouslyrecognisedintheincomestatement)isremovedfromequityandrecognisedintheincomestatement.If,inasubsequentperiod,thefairvalueofadebtinstrumentclassifiedasavailable-for-saleincreasesandtheincreasecanbeobjectivelyrelatedtoaneventoccurringaftertheimpairmentlosswasrecognisedintheincomestatement,theimpairmentlossisreversedthroughtheincomestatement.Impairmentlossesrecognisedintheincomestatementonequityinstrumentsarenotreversedthroughtheincomestatement.
(l) Offsettingfinancialtransactions
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.
Standard Chartered Bank (Hong Kong) Limited 22
Notes to the financial statements (continued)(Expressed in millions of Hong Kong dollars)
2 Significant accounting policies (continued)
(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.
Standard Chartered Bank (Hong Kong) Limited 23
Notes to the financial statements (continued)(Expressed in millions of Hong Kong dollars)
2 Significant accounting policies (continued)
(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.
Standard Chartered Bank (Hong Kong) Limited 24
Notes to the financial statements (continued)(Expressed in millions of Hong Kong dollars)
2 Significant accounting policies (continued)
(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.
Standard Chartered Bank (Hong Kong) Limited 25
Notes to the financial statements (continued)(Expressed in millions of Hong Kong dollars)
2 Significant accounting policies (continued)
(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.
Standard Chartered Bank (Hong Kong) Limited 26
Notes to the financial statements (continued)(Expressed in millions of Hong Kong dollars)
2 Significant accounting policies (continued)
(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$1million).
Standard Chartered Bank (Hong Kong) Limited 27
Notes to the financial statements (continued)(Expressed in millions of Hong Kong dollars)
4 Operating profit (continued)
2015 2014
HK$’M HK$’M
(b) InterestexpenseInterestexpenseoncustomerdeposits,depositsofbanks,
certificatesofdepositissued,debtsecuritiesissued,tradingliabilitiesandfinancialliabilitiesdesignatedatfairvalue(note) 4,360 4,826
Interestexpenseonsubordinatedliabilities 364 343
Amountshownintheincomestatement 4,724 5,169
Less:interestexpensearisingfromtradingliabilities (66) (89)Less:interestexpensearisingfromfinancialliabilitiesdesignated
atfairvalue (119) (64)
Totalinterestexpenseonfinancialliabilitiesthatarenotmeasuredatfairvaluethroughprofitorloss 4,539 5,016
(note)TheamountincludesfairvaluegainsofHK$3milliontransferredfromreserveoncashflowhedges(2014:nil).
2015 2014
HK$’M HK$’M
(c) NetfeeandcommissionincomeNetfeeandcommissionincome(otherthanamounts
includedindeterminingtheeffectiveinterestrate)arisingfromfinancialassetsorfinancialliabilitiesthatarenotheldfortradingordesignatedatfairvalue–feeandcommissionincome 2,880 3,241–feeandcommissionexpense 112 165
NetfeeandcommissionincomefromtrustandotherfiduciaryactivitieswheretheBankanditssubsidiariesholdorinvestassetsonbehalfofitscustomers–feeandcommissionincome 605 512–feeandcommissionexpense 159 123
Standard Chartered Bank (Hong Kong) Limited 28
Notes to the financial statements (continued)(Expressed in millions of Hong Kong dollars)
4 Operating profit (continued)
2015 2014
HK$’M HK$’M
(d) NettradingincomeGainslesslossesfromdealinginforeigncurrencies 1,008 988Gainslesslossesfromtradingsecurities 168 172Gainslesslossesfromotherdealingactivities (33) (137)
Amountshownintheincomestatement 1,143 1,023
Add:interestincomearisingfromtradingassets 359 401Less:interestexpensearisingfromtradingliabilities (66) (89)
Netincomefromtradinginstruments 1,436 1,335
2015 2014
HK$’M HK$’M
(e) NetgainsfromfinancialinstrumentsdesignatedatfairvalueNetgainsasshownintheincomestatement 13 641Add:interestincomearisingfromfinancialassetsdesignatedatfairvalue 49 57Less:interestexpensearisingfromfinancialliabilitiesdesignated
atfairvalue (119) (64)
(57) 634
2015 2014
HK$’M HK$’M
(f) OtheroperatingincomeRentalincomefromoperatingleaseassets 3,120 2,662Dividendincomefromlistedavailable-for-salesecurities – –Dividendincomefromunlistedavailable-for-salesecurities 25 20Net(losses)/gainsondisposalofproperty,plantandequipment (61) 104Netlossesondisposaloffinancialinstruments
measuredatamortisedcost (76) (31)Netgainsonrevaluationofinvestmentproperties(note21) 3 306Netgainsondisposalofasubsidiaryandanassociate 1,758 –Others 76 60
4,845 3,121
Standard Chartered Bank (Hong Kong) Limited 29
Notes to the financial statements (continued)(Expressed in millions of Hong Kong dollars)
4 Operating profit (continued)
2015 2014
HK$’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$’M
(a) ImpairmentchargesonadvancestobanksandcustomersIndividualimpairmentprovisions(note16)–additions 2,804 2,574–releases (19) (40)–recoveries (173) (242)
2,612 2,292
Portfolioimpairmentcharges/(releases)(note16) 455 (151)
3,067 2,141
(b) OtherimpairmentchargesChargesforaninterestinanassociate 357 620Chargesforgoodwillandintangibleassets – 291Chargesforriskparticipationtransactions 270 –Chargesforproperty,plantandequipment(note21) 133 –Others 3 –
763 911
Standard Chartered Bank (Hong Kong) Limited 30
Notes to the financial statements (continued)(Expressed in millions of Hong Kong dollars)
7 Taxation in the consolidated income statement
(a) Taxationintheconsolidatedincomestatementrepresents:
2015 2014
HK$’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$’M
Profitbeforetaxation 9,465 11,965
Notionaltaxonprofitbeforetaxation,calculatedatHongKongprofitstaxrateof16.5% 1,562 1,974
Taxeffectofnon-deductibleexpenses 253 289Taxeffectofnon-taxablerevenue (762) (480)Over-provisioninprioryears (57) (206)Taxeffectofdifferenttaxratesofsubsidiariesoperating
inotherjurisdictions (26) (20)Others 5 3
Actualtaxexpense 975 1,560
Standard Chartered Bank (Hong Kong) Limited 31
Notes to the financial statements (continued)(Expressed in millions of Hong Kong dollars)
8 Directors’ remuneration
Directors’remunerationdisclosedpursuanttosection383(1)oftheHongKongCompaniesOrdinanceandPart2oftheCompanies(DisclosureofinformationaboutBenefitsofDirectors)Regulationareasfollows:
Bank2015 2014
HK$’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.
Standard Chartered Bank (Hong Kong) Limited 32
Notes to the financial statements (continued)(Expressed in millions of Hong Kong dollars)
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
Standard Chartered Bank (Hong Kong) Limited 33
Notes to the financial statements (continued)(Expressed in millions of Hong Kong dollars)
9 Segmental reporting (continued)
(a) Segmentresults,assetsandliabilities(continued)
2014
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 3,949 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$’M
Operating income Reportablesegmentrevenue 28,392 29,851IncomerelatingtoFinancialMarketproducts (1,134) (1,776)Costoffreefunds 78 108Others (494) 265
Totaloperatingincome 26,842 28,448
Standard Chartered Bank (Hong Kong) Limited 34
Notes to the financial statements (continued)(Expressed in millions of Hong Kong dollars)
9 Segmental reporting (continued)
(b) Reconciliationofreportablesegmentoperatingincome,profitbeforetaxation,assetsandliabilities(continued)
2015 2014
HK$’M HK$’M
Profit before taxationReportablesegmentprofitbeforetaxation 10,879 12,810IncomerelatingtoFinancialMarketproducts (1,134) (1,776)Costoffreefunds 78 108Reallocationsofimpairmentcharges (452) 290Others 94 533
Profitbeforetaxation 9,465 11,965
2015 2014
HK$’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$’M
LiabilitiesReportablesegmentliabilities 941,202 1,048,524Liabilitiesofgroupcompaniesnotincludedinconsolidatedtotalliabilities (1,386) (1,415)Amountsduetoimmediateholdingcompanyandfellowsubsidiaries 35,833 20,853Others (82,033) (54,963)
Totalliabilities 893,616 1,012,999
Incomeandprofitbeforetaxationrecognisedintheconsolidatedfinancialstatementsrepresentanarm’slengthcompensation for theservicesprovidedand risksborne.For internalmanagement reportingpurposes,incomeandprofitbeforetaxationareallocatedonaglobalperspective.Inaddition,forinternalmanagementreportingpurposes,achargeisallocatedtoreportablesegmentsfortheuseofinterest-freefunds.
Reportablesegmentassetsandliabilities includeassetsandliabilitieswhicharenotbookedontheBankanditssubsidiaries’statementoffinancialpositionbutwhichcontributetothereportablesegment’sincomeandprofitbeforetaxation.
Standard Chartered Bank (Hong Kong) Limited 35
Notes to the financial statements (continued)(Expressed in millions of Hong Kong dollars)
10 Cash and balances with banks, central banks and other financial institutions
2015 2014
HK$’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$’M
Grossplacementswithbanksandotherfinancialinstitutions–maturingwithinonemonth 64,774 85,928–maturingbetweenonemonthtooneyear 53,090 58,053–maturingbetweenoneyeartofiveyears 1,794 1,789
119,658 145,770Less:impairmentprovision–individuallyassessed(note16(b)) – –
119,658 145,770
Therewerenoimpairedplacementswithbanksandotherfinancialinstitutionsasat31December2014and2015.
12 Hong Kong SAR Government certificates of indebtedness and currency notes in circulation
TheHongKongSpecialAdministrativeRegioncurrencynotesincirculationaresecuredbythedepositoffundsinrespectofwhichtheGovernmentofHongKongSpecialAdministrativeRegioncertificatesofindebtednessareheld.
Standard Chartered Bank (Hong Kong) Limited 36
Notes to the financial statements (continued)(Expressed in millions of Hong Kong dollars)
13 Trading assets
2015 2014
HK$’M HK$’M
Tradingsecurities 16,721 20,768Advancestocustomers 163 1,604Positivefairvaluesoftradingderivatives 1,713 1,016
18,597 23,388
Tradingsecurities:Treasurybills 3,127 3,016Certificatesofdepositheld 388 374Debtsecurities 12,897 15,841Equitysecurities 309 1,537
16,721 20,768
Issuedby:Centralgovernmentsandcentralbanks 13,808 14,181Banksandotherfinancialinstitutions 1,490 1,285Corporateentities 1,423 5,302
16,721 20,768
Byplaceoflisting:ListedinHongKong 7,191 8,327ListedoutsideHongKong 7,036 8,768
14,227 17,095Unlisted 2,494 3,673
16,721 20,768
Standard Chartered Bank (Hong Kong) Limited 37
Notes to the financial statements (continued)(Expressed in millions of Hong Kong dollars)
14 Financial assets designated at fair value
2015 2014
HK$’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$’M
Grossadvancestocustomers 415,278 453,552Tradebills 1,785 3,237
417,063 456,789Less:Impairmentprovision
–individuallyassessed(note16(a)) (1,300) (1,440)–collectivelyassessed(note16(a)) (808) (353)
414,955 454,996
Standard Chartered Bank (Hong Kong) Limited 38
Notes to the financial statements (continued)(Expressed in millions of Hong Kong dollars)
15 Advances to customers (continued)
(b) Impairedadvancestocustomers
2015 2014
HK$’M HK$’M
Grossimpairedadvancestocustomers 3,807 2,712Impairmentprovision–individuallyassessed (1,300) (1,440)
2,507 1,272
Grossimpairedadvancestocustomersasa%ofgrossadvancestocustomers 0.91% 0.59%
Fairvalueofcollateralheldagainstthecoveredportionofimpairedadvancestocustomers 1,967 1,206
Coveredportionofimpairedadvancestocustomers 1,452 725Uncoveredportionofimpairedadvancestocustomers 2,355 1,987
Thecoveredportionofimpairedadvancestocustomersrepresentstheamountofcollateralheldagainstoutstandingbalances.Itdoesnotincludeanycollateralheldoverandaboveoutstandingexposures.
Standard Chartered Bank (Hong Kong) Limited 39
Notes to the financial statements (continued)(Expressed in millions of Hong Kong dollars)
16 Movement in impairment provision on advances to banks and customers
(a) Advancestocustomers
2015
Individually
assessed
Collectively
assessed Total
HK$’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
HK$’M HK$’M HK$’M
At1January2014 382 665 1,047Amountswrittenoff (1,400) – (1,400)Recoveriesofadvanceswrittenoffinpreviousyears 242 – 242Netchargetotheincomestatement(note6(a)) 2,270 (151) 2,119Unwindofdiscountonloanimpairmentprovision(note4(a)) (36) – (36)Transfertoassetheldforsale (18) (161) (179)
At31December2014(note15(a)) 1,440 353 1,793
(b) Placementswithbanksandotherfinancialinstitutions
Individually assessed
2015 2014
HK$’M HK$’M
At1January – –Chargetotheincomestatement(note6(a)) – 22Unwindofdiscountonloanimpairmentprovision(note4(a)) – –Amountswrittenoff – (22)
At31December(note11) – –
Standard Chartered Bank (Hong Kong) Limited 40
Notes to the financial statements (continued)(Expressed in millions of Hong Kong dollars)
17 Investment securities
2015 2014
HK$’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
Standard Chartered Bank (Hong Kong) Limited 41
Notes to the financial statements (continued)(Expressed in millions of Hong Kong dollars)
18 Amounts due from/to immediate holding company, fellow subsidiaries and subsidiaries of the Bank
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$81million).Intra-grouptransactionsareeliminatedinfullintheconsolidatedincomestatement.
Standard Chartered Bank (Hong Kong) Limited 42
Notes to the financial statements (continued)(Expressed in millions of Hong Kong dollars)
18 Amounts due from/to immediate holding company, fellow subsidiaries and subsidiaries of the Bank (continued)
Theamountsduefrom/toimmediateholdingcompanyandfellowsubsidiariesstatedontheconsolidatedstatementoffinancialpositionincludedthefollowing:
2015 2014
Immediate
holding
company
Fellow
subsidiaries
Immediate
holding
company
Fellow
subsidiaries
HK$’M HK$’M HK$’M HK$’M
Amounts due from:Cashandbalanceswithbanksandother
financialinstitutions 1,733 628 8,170 5,028Placementswithbanksandotherfinancial
institutions 12,024 13,687 53,852 35,891Tradingassets
–Positivefairvaluesoftradingderivatives 14,390 – 4,817 1Investmentsecurities
–Listedavailable-for-saledebtsecurities – 1,395 – 4,509Otherassets
–Positivefairvaluesofhedgingderivatives 1,214 92 833 103–Others 996 303 2,591 529
30,357 16,105 70,263 46,061
2015 2014
Immediate
holding
company
Fellow
subsidiaries
Immediate
holding
company
Fellow
subsidiaries
HK$’M HK$’M HK$’M HK$’M
Amounts due to:Depositsandbalancesofbanksandother
financialinstitutions 4,991 6,630 6,200 1,634Depositsfromcustomers – – – 389Tradingliabilities:
–Negativefairvaluesoftradingderivatives 15,405 – 5,580 1Debtsecuritiesinissue – 1,387 – 1,296Otherliabilities
–Negativefairvaluesofhedgingderivatives 1,755 27 1,196 ––Others 5,368 270 4,233 324
27,519 8,314 17,209 3,644
Standard Chartered Bank (Hong Kong) Limited 43
Notes to the financial statements (continued)(Expressed in millions of Hong Kong dollars)
18 Amounts due from/to immediate holding company, fellow subsidiaries and subsidiaries of the Bank (continued)
Thecontractualamountsofcontingentliabilitiesandcommitmentstotheimmediateholdingcompanyandfellowsubsidiariesaresetoutbelow:
2015 2014
Immediate
holding
company
Fellow
subsidiaries
Immediate
holding
company
Fellow
subsidiaries
HK$’M HK$’M HK$’M HK$’M
Financialguaranteesandothercreditrelatedcontingentliabilities 4,615 89 2,740 135
Loancommitmentsandothercreditrelatedcommitments – 29,866 3,877 41,789
19 Investments in subsidiaries of the Bank
Bank
2015 2014
HK$’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
Standard Chartered Bank (Hong Kong) Limited 44
Notes to the financial statements (continued)(Expressed in millions of Hong Kong dollars)
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$357millionwasrecordedin2015.
TheBankanditssubsidiaries’investmentsinACBandBohaiarelessthan20%butbothcompaniesareconsideredtobeassociatesbecauseofthesignificantinfluencetheBankisabletoexerciseoverthemanagementofthesecompaniesandtheirfinancialandoperatingpolicies.Significantinfluenceisevidencedlargelythroughtheinterchangeofmanagementpersonnelandtheprovisionofexpertise.
Inrespectoftheyearended31December2015,theshareoftheresultsofACBwasincludedinthesefinancialstatementsbasedonaccountsdrawnupto30September2015,buttakingintoaccountanyeventsortransactionsinthesubsequentperiodfrom1October2015to31December2015thatwouldmateriallyaffecttheresults.Bohai’sresultwasincludedinthefinancialstatementsbasedonaccountsdrawnupto30November2015.TheBankanditssubsidiarieshavetakenadvantageoftheprovisioncontained in HKAS 28/IAS 28 “Investments in Associates” whereby it is permitted to include theattributableshareofassociates’resultsbasedonaccountsdrawnuptoanon-coterminousperiodandwherethedifferenceisnotgreaterthanthreemonths.
Bothoftheaboveassociatesareaccountedforusingtheequitymethodintheconsolidatedfinancialstatements.
Standard Chartered Bank (Hong Kong) Limited 45
Notes to the financial statements (continued)(Expressed in millions of Hong Kong dollars)
20 Interest in associates (continued)
Summary of financial information of the material associates and reconciliation to the carrying amounts in the consolidated financial statements
2015 2014
ACB Bohai ACB Bohai
HK$'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$’M
Carryingamountofmaterialassociates -ACB 967 1,351 -Bohai 8,514 7,657
Interestinassociatesintheconsolidatedfinancialstatements 9,481 9,008
Standard Chartered Bank (Hong Kong) Limited 46
Notes to the financial statements (continued)(Expressed in millions of Hong Kong dollars)
21 Property, plant and equipment
2015
Buildings and
leasehold
land held for
own use
Equipment,
furniture
& fixtures
Operating
lease
assets Sub-total
Investment
properties
Total
property,
plant and
equipment
HK$’M HK$’M HK$’M HK$’M HK$’M HK$’M
Costorvaluation:At1January2015 2,921 518 39,116 42,555 934 43,489Additions 23 37 6,837 6,897 – 6,897Transferredtoassetclassifiedas
assetheldforsale – – (2,049) (2,049) – (2,049)Disposalsandwrite-offs (41) (97) (5,796) (5,934) – (5,934)Reclassifications (25) 25 – – – –Fairvalueadjustments(note4(f)) – – – – 3 3
At31December2015 2,878 483 38,108 41,469 937 42,406
Representing:Cost 2,878 483 38,108 41,469 – 41,469Valuation – – – – 937 937
2,878 483 38,108 41,469 937 42,406
Accumulateddepreciation:At1January2015 721 255 2,563 3,539 – 3,539Chargefortheperiod(note4(g)) 91 88 1,538 1,717 – 1,717Impairments(note6(b)) 64 17 52 133 – 133Transferredtoassetclassifiedas
assetheldforsale – – (129) (129) – (129)Attributabletoassetssoldor
writtenoff (39) (97) (198) (334) – (334)
At31December2015 837 263 3,826 4,926 – 4,926
Netbookvalue:At31December2015 2,041 220 34,282 36,543 937 37,480
Standard Chartered Bank (Hong Kong) Limited 47
Notes to the financial statements (continued)(Expressed in millions of Hong Kong dollars)
21 Property, plant and equipment (continued)
2014Buildings and
leasehold land held for
own use
Equipment, furniture
& fixtures
Operatinglease
assets Sub-totalInvestment properties
Total property,plant and
equipmentHK$’M HK$’M HK$’M HK$’M HK$’M HK$’M
Costorvaluation:At1January2014 2,977 505 26,884 30,366 638 31,004Additions 88 61 15,246 15,395 – 15,395Transferredtoassetclassifiedas
assetheldforsale (53) (7) – (60) (10) (70)Disposalsandwrite-offs (56) (76) (3,014) (3,146) – (3,146)Reclassifications (35) 35 – – – –Fairvalueadjustments(note4(f)) – – – – 306 306
At31December2014 2,921 518 39,116 42,555 934 43,489
Representing:Cost 2,921 518 39,116 42,555 – 42,555Valuation – – – – 934 934
2,921 518 39,116 42,555 934 43,489
Accumulateddepreciation:At1January2014 676 238 1,517 2,431 – 2,431Chargefortheperiod(note4(g)) 111 97 1,214 1,422 – 1,422Transferredtoassetclassifiedas
assetheldforsale (10) (4) – (14) – (14)Attributabletoassetssoldor
writtenoff (56) (76) (168) (300) – (300)
At31December2014 721 255 2,563 3,539 – 3,539
Netbookvalue:At31December2014 2,200 263 36,553 39,016 934 39,950
Standard Chartered Bank (Hong Kong) Limited 48
Notes to the financial statements (continued)(Expressed in millions of Hong Kong dollars)
21 Property, plant and equipment (continued)
(a) Buildingsandleaseholdlandheldforownuse
2015 2014
HK$’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$’M
Within1year 3,730 3,664After1yearbutwithin5years 13,779 11,855After5years 10,814 15,850
28,323 31,369
Standard Chartered Bank (Hong Kong) Limited 49
Notes to the financial statements (continued)(Expressed in millions of Hong Kong dollars)
22 Goodwill and intangible assets
2015
Capitalised
software
and other
intangible assets Goodwill Total
HK$’M HK$’M HK$’M
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
HK$’M HK$’M HK$’M
Cost:At1January2014 702 1,507 2,209Additions 111 – 111Transferredtoasassetheldforsale (14) (525) (539)Disposalsandwrite-offs (131) (253) (384)
At31December2014 668 729 1,397
Accumulatedamortisation:At1January2014 276 – 276Chargefortheyear(note4(g)) 112 – 112Transferredtoassetheldforsale (14) – (14)Attributabletointangibleassetssoldorwrittenoff (93) – (93)
At31December2014 281 – 281
Carryingamount:At31December2014 387 729 1,116
Standard Chartered Bank (Hong Kong) Limited 50
Notes to the financial statements (continued)(Expressed in millions of Hong Kong dollars)
22 Goodwill and intangible assets (continued)
Impairmenttestsforcash-generatingunitscontaininggoodwill
GoodwillisallocatedtotheBankanditssubsidiaries’cash-generatingunits(“CGUs”)asfollows:
2015 2014
HK$’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$’M
Prepaymentsandaccruedincome 2,631 2,230Sundrydebtors 2,642 1,667Acceptancesandendorsements 2,588 2,843Unsettledtradesandothers 2,568 4,432Assetsheldforsale(note) 1,920 13,217
12,349 24,389
(note)Assetsheldforsaleasof31December2015includedcommercialaircraftandvesselsheldforsale.Assetsheldforsaleasof31December2014includedthedisposalgroupwhichconsistsofPrimeCreditLimitedandShenzhenPrimeCreditLimited.Theassetsandliabilitiesofthedisposalgrouparesummarisedinnote46.
Standard Chartered Bank (Hong Kong) Limited 51
Notes to the financial statements (continued)(Expressed in millions of Hong Kong dollars)
24 Deposits from customers
2015 2014
HK$’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$723million).
Standard Chartered Bank (Hong Kong) Limited 52
Notes to the financial statements (continued)(Expressed in millions of Hong Kong dollars)
27 Taxation in the statement of financial position
Deferredtaxassetsandliabilities:
The components of gross deferred tax (assets)/liabilities recognised in the statement of financial position and the movements during the year are as follows:
Depreciation
allowances
in excess
of related
depreciation
Impairment
losses on
financial
assets
Available-
for-sale
securities Others Total
HK$’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
Standard Chartered Bank (Hong Kong) Limited 53
Notes to the financial statements (continued)(Expressed in millions of Hong Kong dollars)
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.
Standard Chartered Bank (Hong Kong) Limited 54
Notes to the financial statements (continued)(Expressed in millions of Hong Kong dollars)
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
HK$’M HK$’M HK$’M
At1January2015 2,173 (2,229) (56)Contributions 40 – 40Benefitspaid (244) 244 –Currentservicecost – (98) (98)Netinterestincome/(cost) 36 (36) –Administrativeexpenses (1) – (1)Returnonplanassets,excludingamountsincludedin interestincome (34) – (34)Actuarialloss–fromexperience – (58) (58)Actuarialloss–fromfinancialassumptions – (49) (49)
At31December2015 1,970 (2,226) (256)
2014
Assets Obligations Total
HK$’M HK$’M HK$’M
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$30milliontotheSchemein2016.
Standard Chartered Bank (Hong Kong) Limited 55
Notes to the financial statements (continued)(Expressed in millions of Hong Kong dollars)
30 Employee retirement benefits (continued)
(c) Amountsrecognisedintheconsolidatedincomestatementfortheyear
2015 2014
HK$’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$’M
Equities 59% 59%Bonds 37% 35%Cash 4% 6%
100% 100%
Asat31December2015,theSchemedidnotinvestintheBank’sownfinancialinstrumentsandproperties(2014:Nil).TheSchemehasabenchmarkassetallocationof60%inequitiesand40%inbondsandcash(2014:60%inequitiesand40%inbondsandcash).ThelongtermstrategicassetallocationsoftheSchemearesetandreviewedfromtimetotimebythetrusteestakingintoaccounttheScheme’smembership,liabilityprofile,liquidityrequirements,andtheriskappetiteoftheBank.
Standard Chartered Bank (Hong Kong) Limited 56
Notes to the financial statements (continued)(Expressed in millions of Hong Kong dollars)
31 Subordinated liabilities
2015 2014
HK$’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.
Standard Chartered Bank (Hong Kong) Limited 57
Notes to the financial statements (continued)(Expressed in millions of Hong Kong dollars)
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.
Standard Chartered Bank (Hong Kong) Limited 58
Notes to the financial statements (continued)(Expressed in millions of Hong Kong dollars)
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$’M
(a) Componentsofcashandcashequivalentsinthecashflowstatement
Cashandbalanceswithbanks,centralbanksandotherfinancialinstitutions 48,769 53,076
Tradingassetswithoriginalmaturitywithinthreemonths 1,120 2,501Placementswithbanksandotherfinancialinstitutionswith
originalmaturitywithinthreemonths 42,925 81,149Investmentsecuritieswithoriginalmaturitywithinthreemonths 60,346 35,325Amountsduefromimmediateholdingcompanyandfellow
subsidiarieswithoriginalmaturitywithinthreemonths 10,824 64,071Add:Cashandbalanceswithbanks,centralbanksandotherfinancial
insititutionsincludedin“Assetsheldforsale” – 125Less:Overdraftsincludedin“depositsandbalances
ofbanksandotherfinancialinstitutions (3) –Less:Overdraftsincludedin“amountsdueto
immediateholdingcompany” (1,121) (3,397)
162,860 232,850
Standard Chartered Bank (Hong Kong) Limited 59
Notes to the financial statements (continued)(Expressed in millions of Hong Kong dollars)
34 Cash and cash equivalents (continued)
2015 2014
HK$’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.
Standard Chartered Bank (Hong Kong) Limited 60
Notes to the financial statements (continued)(Expressed in millions of Hong Kong dollars)
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
HK$’M HK$’M HK$’M HK$’M
ExchangeratecontractsForwards 630 – 1,646,789 1,647,419Crosscurrencyswaps 39,252 2,224 12,944 54,420Optionspurchased – 2,661 – 2,661Optionswritten – 4 4,317 4,321
InterestratecontractsSwaps 97,206 1,744 38,706 137,656Optionspurchased – 143 276 419Optionswritten – 4,983 – 4,983
Otherderivatives – 6,710 6,074 12,784
137,088 18,469 1,709,106 1,864,663
2014
ExchangeratecontractsForwards 202 – 1,359,821 1,360,023Crosscurrencyswaps 26,365 3,282 19,331 48,978Optionspurchased – 289 402 691Optionswritten – 19 4,187 4,206
InterestratecontractsSwaps 67,336 2,225 38,381 107,942Optionspurchased – 166 448 614Optionswritten – 3,897 2,182 6,079
Otherderivatives – 4,172 5,821 9,993
93,903 14,050 1,430,573 1,538,526
Standard Chartered Bank (Hong Kong) Limited 61
Notes to the financial statements (continued)(Expressed in millions of Hong Kong dollars)
35 Derivative financial instruments (continued)
(b) Fairvaluesandcreditriskweightedamountsofderivatives
2015 2014
Fair value
assets
Fair value
liabilities
Credit risk
weighted
amount
(note)
Fair value
assets
Fair value
liabilities
Credit risk
weighted
amount
HK$’M HK$’M HK$’M HK$’M HK$’M HK$’M
Exchangeratecontracts 14,931 14,749 3,801 5,153 5,495 5,813Interestratecontracts 2,170 2,600 701 1,430 1,889 7,347Otherderivatives 308 209 463 187 198 331
17,409 17,558 4,965 6,770 7,582 13,491
CreditriskweightedamountreferstotheamountascomputedinaccordancewiththeBanking(Capital)RulesoftheHongKongBankingOrdinance.Theamountcalculatedisdependentuponthestatusofthecounterpartyandmaturitycharacteristicsofeachtypeofcontract.
(note)Thecreditriskweightedamountshavetakenintoaccountthebilateralnettingarrangementssince2015.
(c) Fairvalueofderivativefinancialinstrumentsdesignatedashedginginstruments
ThefollowingisasummaryofthefairvaluesofderivativesheldforhedgingpurposesbyproducttypeenteredintobytheBankanditssubsidiaries:
2015
Assets
(Included in Amounts
due from immediate holding company
and fellow subsidiaries)
Liabilities
(Included in
Amounts due to immediate holding
company and fellow subsidiaries)
HK$’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
Standard Chartered Bank (Hong Kong) Limited 62
Notes to the financial statements (continued)(Expressed in millions of Hong Kong dollars)
35 Derivative financial instruments (continued)
(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$27million).Duringtheyear,therewasnoineffectivenessrecognisedintheincomestatementthatarosefromcashflowhedges(2014:Nil).
Thetimeperiodsinwhichthehedgedcashflowsareexpectedtooccurandaffecttheconsolidatedstatementofcomprehensiveincomeareasfollows:
Less than
1 year
1 to 2
years
2 to 3
years
3 to 4
years
4 to 5
years Total
HK$’M HK$’M HK$’M HK$’M HK$’M HK$’M
2015
Forecastreceivablecashflows 129 72 6 – 68 275Forecastpayablecashflows (14) (26) (24) (6) – (70)
115 46 (18) (6) 68 205
2014
Forecastreceivablecashflows 156 132 34 6 – 328Forecastpayablecashflows (18) (34) (52) (32) (5) (141)
138 98 (18) (26) (5) 187
Standard Chartered Bank (Hong Kong) Limited 63
Notes to the financial statements (continued)(Expressed in millions of Hong Kong dollars)
36 Contingent liabilities and commitments
(a) Thefollowingisasummaryofthecontractualamountsofeachsignificantcontingentliabilityandcommitment:
2015 2014
HK$’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$’M
Contractedfor 5 50Authorisedbutnotcontractedfor 4 55
9 105
Standard Chartered Bank (Hong Kong) Limited 64
Notes to the financial statements (continued)(Expressed in millions of Hong Kong dollars)
36 Contingent liabilities and commitments (continued)
(c) Leasecommitments
TheBankanditssubsidiariesleaseanumberofpropertiesunderoperatingleases.Theleasestypicallyrun for an initial period of two to ten years, with an option to renew the lease when all terms arerenegotiated.At31December,totalfutureminimumleasepaymentsundernon-cancellableoperatingleasesarepayableasfollows:
2015 2014
HK$’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.
Standard Chartered Bank (Hong Kong) Limited 65
Notes to the financial statements (continued)(Expressed in millions of Hong Kong dollars)
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
Standard Chartered Bank (Hong Kong) Limited 66
Notes to the financial statements (continued)(Expressed in millions of Hong Kong dollars)
37 Risk management (continued)
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.
Standard Chartered Bank (Hong Kong) Limited 67
Notes to the financial statements (continued)(Expressed in millions of Hong Kong dollars)
37 Risk management (continued)
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:
Standard Chartered Bank (Hong Kong) Limited 68
Notes to the financial statements (continued)(Expressed in millions of Hong Kong dollars)
37 Risk management (continued)
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.
Standard Chartered Bank (Hong Kong) Limited 69
Notes to the financial statements (continued)(Expressed in millions of Hong Kong dollars)
37 Risk management (continued)
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.
Standard Chartered Bank (Hong Kong) Limited 70
Notes to the financial statements (continued)(Expressed in millions of Hong Kong dollars)
37 Risk management (continued)
(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.
Standard Chartered Bank (Hong Kong) Limited 71
Notes to the financial statements (continued)(Expressed in millions of Hong Kong dollars)
37 Risk management (continued)
(a) Creditrisk(continued)
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.
Standard Chartered Bank (Hong Kong) Limited 72
Notes to the financial statements (continued)(Expressed in millions of Hong Kong dollars)
37 Risk management (continued)
(a) Creditrisk(continued)
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.
Standard Chartered Bank (Hong Kong) Limited 73
Notes to the financial statements (continued)(Expressed in millions of Hong Kong dollars)
37 Risk management (continued)
(a) Creditrisk(continued)
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
Standard Chartered Bank (Hong Kong) Limited 74
Notes to the financial statements (continued)(Expressed in millions of Hong Kong dollars)
37 Risk management (continued)
(a) Creditrisk(continued)
(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$196,678million)ofcorporateexposuresthatareneitherpastduenorimpaired.Basedonthefairvalueofthecollateralheld,28%(2014:25%)oftheseexposuresaresecuredbytangiblecollateral.
TheBankanditssubsidiariesalsoundertakecollateralisedlendingandborrowing(reversereposandrepos)arrangements,andthecollateralheldagainstthesetypesofloansaresetoutinnote39tothefinancialstatements.
Non-tangiblecollateral–suchasguaranteesandlettersofcredit–mayalsobeheldagainstcorporateexposuresalthoughthefinancialeffectofthistypeofcollateralislesssignificantintermsofrecoveries.Itisnotpracticabletoquantifytheeffectofthiscollateralasthevalueofthecollateralisconditionaloncircumstancesatthetimeofdefaultandothercreditrelatedfactors.
Loans past due or impaired
Thefairvalueofcollateralheldagainstpastdueorimpairedloansisdetailedinthetablebelowasat31December:
2015 2014
Advances to
customers
Advances to
banks
Advances to
customers
Advances to
banks
HK$’M HK$’M HK$’M HK$’M
Estimatedfairvalueofcollateral(Note):Heldagainstimpairedadvances 1,452 – 725 –Heldagainstpastduebutnotimpairedadvances 1,399 – 2,570 –
Standard Chartered Bank (Hong Kong) Limited 75
Notes to the financial statements (continued)(Expressed in millions of Hong Kong dollars)
37 Risk management (continued)
(a) Creditrisk(continued)
(i) Loans and advances (continued)
Loans past due or impaired (continued)
(Note)Thefairvalueofthecollateralheldrepresentsfairvalue,aftertakingintoaccounttheeffectsofover-collateralisationwhereitisnotavailableforoffsetagainstotherloans.
Repossessed Collateral
Asat31December,theamountofassetsobtainedbytakingpossessionofcollateralheldassecuritywereasfollows:
2015 2014
HK$’M HK$’M
Property,plantandequipment 185 229
Loancollateralacquiredfromborrowersduetorestructuringortheirinabilitytorepay,continuestoberecordedas“Advancestocustomers”inthestatementoffinancialpositionattheloweroffairvalue(lesscoststosell)andthecarryingamountoftheloan(netofanyimpairmentallowances),untilthecollateralisrealised.
RepossessedcollateralobtainedareintendedtoberealisedinanorderlyfashiontorepaytheimpairedloansandarenotheldfortheownuseoftheBankanditssubsidiaries.
(ii) Off-balance sheet exposures
Forcertaintypesofexposuressuchaslettersofcreditandguarantees,theBankanditssubsidiariesobtaincollateralsuchascashdependingoninternalcreditriskassessments.However,fortradefinanceproductssuchas lettersofcredit, theBankand itssubsidiarieswill normallyhold legal title to theunderlyingassetsshouldadefaulttakeplace.
Standard Chartered Bank (Hong Kong) Limited 76
Notes to the financial statements (continued)(Expressed in millions of Hong Kong dollars)
37 Risk management (continued)
(a) Creditrisk(continued)
Creditquality
(i) Analysis of the loan portfolio
2015 2014
Advances to
customers
Advances to
banks
Advances to
customers
Advances to
banks
HK$’M HK$’M HK$’M HK$’M
Loansandadvances–neitherpastduenorimpaired 411,174 119,653 450,427 145,757–pastduebutnotimpaired 2,082 5 3,650 13–impaired,netofindividuallyassessed
impairmentprovision 2,507 – 1,272 –Less:collectivelyassessed
impairmentprovision (808) – (353) –
414,955 119,658 454,996 145,770
Thefollowingtablessetoutananalysisoftheinternalcreditgradingsforadvanceswhicharenotpastdueandforwhichnoindividualimpairmentprovisionhasbeenraised.Thecreditgradingssetoutinthetablesbelowarebasedonaprobabilityofdefaultmeasureassetoutonpage70.
2015 2014
Advances to
customers
Advances to
banks
Advances to
customers
Advances to
banks
HK$’M HK$’M HK$’M HK$’M
Creditgrades:1to5 294,070 118,920 291,715 145,0506to8 88,339 676 119,307 5239to11 27,891 57 37,625 18412 874 – 1,780 –
411,174 119,653 450,427 145,757
Standard Chartered Bank (Hong Kong) Limited 77
Notes to the financial statements (continued)(Expressed in millions of Hong Kong dollars)
37 Risk management (continued)
(a) Creditrisk(continued)
(i) Analysis of the loan portfolio (continued)
Thefollowingtablessetouttheageingofadvanceswhicharepastdueandforwhichnoindividualimpairmentprovisionhasbeenraised.Aloanisconsideredtobepastduewhenthecounterpartyhas failedtomakeaprincipalor interestpaymentwhencontractuallydue.Pastduedoesnotnecessarilymeanthatthecounterpartyisimpaired.
2015 2014
Advances to
customers
Advances to
banks
Advances to
customers
Advances to
banks
HK$’M HK$’M HK$’M HK$’M
Pastdue–upto30days 1,775 5 3,319 13–31-60days 165 – 145 ––61-90days 58 – 97 ––91-120days 48 – 51 ––121-150days 36 – 38 –
2,082 5 3,650 13
(ii) Analysis of debt securities (including certificates of deposit), equity shares and treasury bills
2015
Treasury
bills
Debt
securities
Equity
shares Total
HK$’M HK$’M HK$’M HK$’M
Impairedsecurities – – 19 19Impairmentprovisions – – (11) (11)
Netimpairedsecurities – – 8 8Securitiesneitherpastduenorimpaired 63,864 164,560 922 229,346
2014
Treasury
bills
Debt
securities
Equity
shares Total
HK$’M HK$’M HK$’M HK$’M
Impairedsecurities – – 34 34Impairmentprovisions – – (15) (15)
Netimpairedsecurities – – 19 19Securitiesneitherpastduenorimpaired 56,440 140,724 1,971 199,135
Standard Chartered Bank (Hong Kong) Limited 78
Notes to the financial statements (continued)(Expressed in millions of Hong Kong dollars)
37 Risk management (continued)
(a) Creditrisk(continued)
(ii) Analysis of debt securities (including certificates of deposit), equity shares and treasury bills (continued)
Thefollowingtableanalysesdebtsecurities(includingcertificatesofdeposit)andtreasurybillswhichareneitherpastduenorimpairedbyexternalcreditrating.ThestandardcreditratingsusedbytheBankarethoseusedbyStandard&Poorsortheirequivalent.Debtsecuritiesheldwhichhaveashort-termratingarereportedagainstthelong-termratingoftheissuer.
2015 2014
Treasury
bills
Debt
securities
Treasury
bills
Debt
securities
HK$’M HK$’M HK$’M HK$’M
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.
Standard Chartered Bank (Hong Kong) Limited 79
Notes to the financial statements (continued)(Expressed in millions of Hong Kong dollars)
37 Risk management (continued)
(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.
Standard Chartered Bank (Hong Kong) Limited 80
Notes to the financial statements (continued)(Expressed in millions of Hong Kong dollars)
37 Risk management (continued)
(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.
Standard Chartered Bank (Hong Kong) Limited 81
Notes to the financial statements (continued)(Expressed in millions of Hong Kong dollars)
37 Risk management (continued)
(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$’M
Interestraterisk^ 51.3 67.9 35.1 54.9 45.3 60.0 35.0 38.6Foreignexchangerisk 3.8 10.6 0.9 7.7 2.4 5.7 1.1 4.4
Total^^ 51.9 67.9 35.2 57.1 45.9 60.9 34.7 38.5 7
Trading(VaRat97.5%,1day)
Value at risk: 2015 2014
Average High** Low** Actual* Average High** Low** Actual*
HK$’M HK$’M HK$’M HK$’M HK$’M HK$’M HK$’M HK$’M
Interestraterisk 9.6 12.9 6.0 11.0 9.9 14.1 6.8 9.0Foreignexchangerisk 3.8 10.6 0.9 7.7 2.4 5.7 1.1 4.4
Total^^ 11.1 20.0 7.0 15.9 10.2 14.0 6.9 8.6
Non-trading(VaRat97.5%,1day)
Value at risk: 2015 2014
Average High** Low** Actual* Average High** Low** Actual*
HK$’M HK$’M HK$’M HK$’M HK$’M HK$’M HK$’M HK$’M
Interestraterisk^ 47.2 63.9 30.9 47.1 40.3 51.5 31.3 36.0
* ActualonedayVaRatperiodenddate.** HighestandlowestVaRforeachriskfactorareindependentandusuallyoccurondifferentdays.^ InterestrateriskVaRincludescreditspreadriskarisingfromsecuritiesheldfortradingoravailable-
for-sale.^^ ThetotalVaRshowninthetablesaboveisnotasumofthecomponentrisksduetooffsetsbetween
them.Totalincludedtradingbookequityriskthatisinsignificant.
Standard Chartered Bank (Hong Kong) Limited 82
Notes to the financial statements (continued)(Expressed in millions of Hong Kong dollars)
37 Risk management (continued)
(d) Foreignexchangerisk
TheforeignexchangepositionsoftheBankanditssubsidiariesarisefromforeignexchangetradingandcommercialbankingoperations.Foreignexchangetradingexposuresareprincipallyderivedfromcustomerdriventransactions.
Foreignexchangeriskinthenon-tradingbookportfoliosisminimisedbymatchfundingassetsandliabilitiesinthesamecurrency.
TheBankanditssubsidiarieshadthefollowingnon-structuralforeigncurrencypositionswhichexceeded10%ofthenetnon-structuralpositioninallforeigncurrencies:
2015 2014
HK$’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$’M
Chinese renminbi exposure
Spotassets 83,495 135,189Spotliabilities (55,165) (97,721)Forwardpurchases 564,160 477,387Forwardsales (590,802) (516,333)Netoptionposition – –
Netlong/(short)non-structuralposition 1,688 (1,478)
Standard Chartered Bank (Hong Kong) Limited 83
Notes to the financial statements (continued)(Expressed in millions of Hong Kong dollars)
37 Risk management (continued)
(d) Foreignexchangerisk(continued)
TheBankanditssubsidiarieshadthefollowingstructuralforeigncurrencypositionswhichexceeded10%ofthenetstructuralpositioninallforeigncurrencies:
2015 2014HK$’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.
Standard Chartered Bank (Hong Kong) Limited 84
Notes to the financial statements (continued)(Expressed in millions of Hong Kong dollars)
37 Risk management (continued)
(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
Standard Chartered Bank (Hong Kong) Limited 85
Notes to the financial statements (continued)(Expressed in millions of Hong Kong dollars)
37 Risk management (continued)
(f) Liquidityrisk(continued)
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).
Standard Chartered Bank (Hong Kong) Limited 86
Notes to the financial statements (continued)(Expressed in millions of Hong Kong dollars)
37 Risk management (continued)
(f) Liquidityrisk(continued)
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.
Standard Chartered Bank (Hong Kong) Limited 87
Notes to the financial statements (continued)(Expressed in millions of Hong Kong dollars)
37 Risk management (continued)
(f) Liquidityrisk(continued)
(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
HK$’M HK$’M HK$’M HK$’M HK$’M HK$’M HK$’M HK$’M
AssetsCashandbalanceswithbanks,central
banksandotherfinancialinstitutions 48,769 – – – – – – 48,769Placementswithbanksand
otherfinancialinstitutions 12 64,762 39,993 13,097 1,794 – – 119,658HongKongSARGovernment
certificatesofindebtedness – – – – – – 38,031 38,031Tradingassets – 259 1,506 6,094 6,783 3,646 309 18,597Financialassetsdesignatedat
fairvalue – – – – – 666 – 666Advancestocustomers 11,337 70,496 27,664 53,656 91,205 162,705 (2,108) 414,955Investmentsecurities 234 20,866 49,071 41,139 83,570 15,071 621 210,572Amountsduefromgroupcompanies 2,384 9,235 15,494 13,116 6,877 1,175 (1,819) 46,462Others 532 1,242 7,440 990 321 679 50,051 61,255
Total Assets 63,268 166,860 141,168 128,092 190,550 183,942 85,085 958,965
LiabilitiesHongKongSARcurrency
notesincirculation – – – – – – 38,031 38,031Depositsandbalancesofbanks
andotherfinancialinstitutions 22,637 1,107 – – 911 – – 24,655Depositsfromcustomers 595,324 62,853 51,438 35,237 849 – – 745,701Tradingliabilities – 8,537 73 139 87 11 – 8,847Financialliabilitiesdesignatedat
fairvalue – 68 2,051 3,356 2,978 5,271 – 13,724Debtsecuritiesinissue – – – – 1,209 – – 1,209Amountsduetogroupcompanies 7,778 5,750 8,411 8,796 2,637 2,461 – 35,833Subordinatedliabilities – – – – 6,191 3,902 – 10,093Others 5,985 1,459 5,178 2,107 256 282 256 15,523
Total Liabilities 631,724 79,774 67,151 49,635 15,118 11,927 38,287 893,616
Standard Chartered Bank (Hong Kong) Limited 88
Notes to the financial statements (continued)(Expressed in millions of Hong Kong dollars)
37 Risk management (continued)
(f) Liquidityrisk(continued)
(i) Contractualmaturity(continued)
2014
Due Due Due
Due between between between Due
Repayable within 1 month to 3 months to 1 year to after
on demand 1 month 3 months 1 year 5 years 5 years Undated Total
HK$’M HK$’M HK$’M HK$’M HK$’M HK$’M HK$’M HK$’M
AssetsCashandbalanceswithbanks,central
banksandotherfinancialinstitutions 53,076 – – – – – – 53,076Placementswithbanksand
otherfinancialinstitutions 120 85,808 18,442 39,611 1,789 – – 145,770HongKongSARGovernment
certificatesofindebtedness – – – – – – 36,741 36,741Tradingassets – 1,562 3,338 4,087 10,219 2,645 1,537 23,388Financialassetsdesignatedat
fairvalue – – – – 62 1,513 – 1,575Advancestocustomers 19,153 80,048 35,368 61,735 112,252 148,234 (1,794) 454,996Investmentsecurities 234 33,011 30,810 30,242 61,394 16,158 453 172,302Amountsduefromgroupcompanies 13,202 51,259 9,162 20,089 22,703 1,463 (1,554) 116,324Others 756 1,799 7,909 4,186 5,291 4,583 50,346 74,870
Total Assets 86,541 253,487 105,029 159,950 213,710 174,596 85,729 1,079,042
LiabilitiesHongKongSARcurrency
notesincirculation – – – – – – 36,741 36,741Depositsandbalancesofbanks
andotherfinancialinstitutions 28,402 2,683 595 14 911 – – 32,605Depositsfromcustomers 563,433 131,109 92,598 62,644 1,221 24 – 851,029Tradingliabilities – 12,333 135 235 56 – 41 12,800Financialliabilitiesdesignatedat
fairvalue – 169 1,456 4,780 2,714 5,796 – 14,915Debtsecuritiesinissue – 9,796 3,930 90 22 – – 13,838Amountsduetogroupcompanies 6,133 2,428 6,060 2,253 2,331 1,648 – 20,853Subordinatedliabilities – – – – – 10,406 – 10,406Others 8,215 6,069 3,793 868 212 599 56 19,812
Total Liabilities 606,183 164,587 108,567 70,884 7,467 18,473 36,838 1,012,999
Standard Chartered Bank (Hong Kong) Limited 89
Notes to the financial statements (continued)(Expressed in millions of Hong Kong dollars)
37 Risk management (continued)
(f) Liquidityrisk(continued)
(i) Contractualmaturity(continued)
2015
Due Due Due
Due between between between Due
Repayable within 1 month to 3 months to 1 year to after
on demand 1 month 3 months 1 year 5 years 5 years Undated Total
HK$’M HK$’M HK$’M HK$’M HK$’M HK$’M HK$’M HK$’M
Of which:
Certificates of deposit held– includedinTradingassets – 1 6 301 80 – – 388– includedinInvestmentsecuritiesas
available-for-salesecurities – – 2,089 12,863 – – – 14,952
– 1 2,095 13,164 80 – – 15,340
Treasury bills– includedinTradingassets – 40 1,225 1,862 – – – 3,127– includedinInvestmentsecuritiesas
available-for-salesecurities – 19,017 41,720 – – – – 60,737
– 19,057 42,945 1,862 – – – 63,864
Debt securities– includedinTradingassets – 94 160 3,100 6,149 3,394 – 12,897– includedinFinancialassets
designatedatfairvalue – – – – – 666 – 666– includedinInvestmentsecurities
classifiedas:– available-for-salesecurities – 1,849 5,262 26,339 77,920 15,071 – 126,441– loansandreceivables 234 – – 1,937 5,650 – – 7,821
– includedinAmountsduefromfellowsubsidiariesclassifiedas:
– available-for-salesecurities – 1,395 – – – – – 1,395
234 3,338 5,422 31,376 89,719 19,131 – 149,220
Standard Chartered Bank (Hong Kong) Limited 90
Notes to the financial statements (continued)(Expressed in millions of Hong Kong dollars)
37 Risk management (continued)
(f) Liquidityrisk(continued)
(i) Contractualmaturity(continued)
2014
Due Due Due
Due between between between Due
Repayable within 1 month to 3 months to 1 year to after
on demand 1 month 3 months 1 year 5 years 5 years Undated Total
HK$’M HK$’M HK$’M HK$’M HK$’M HK$’M HK$’M HK$’M
Of which:
Certificates of deposit held– includedinTradingassets – 50 2 302 7 13 – 374– includedinInvestmentsecuritiesas
available-for-salesecurities – 381 9,044 4,715 946 – – 15,086
– 431 9,046 5,017 953 13 – 15,460
Treasury bills– includedinTradingassets – 832 1,737 447 – – – 3,016– includedinInvestmentsecuritiesas
available-for-salesecurities – 31,529 17,645 4,250 – – – 53,424
– 32,361 19,382 4,697 – – – 56,440
Debt securities– includedinTradingassets – 508 1,387 2,904 8,602 2,440 – 15,841– includedinFinancialassets
designatedatfairvalue – – – – 62 1,513 – 1,575– includedinInvestmentsecurities
classifiedas:– available-for-salesecurities – 1,101 4,121 21,044 52,081 16,158 – 94,505– loansandreceivables 234 – – 233 8,367 – – 8,834
– includedinAmountsduefromfellowsubsidiariesclassifiedas:
– available-for-salesecurities – – – – 4,509 – – 4,509
234 1,609 5,508 24,181 73,621 20,111 – 125,264
Standard Chartered Bank (Hong Kong) Limited 91
Notes to the financial statements (continued)(Expressed in millions of Hong Kong dollars)
37 Risk management (continued)
(f) Liquidityrisk(continued)
(ii) Behaviouralmaturityoffinancialliabilitiesonadiscountedbasis
Thecashflowspresentedinnote37(f)(i)reflectthecashflowswhichwillbecontractuallypayableovertheresidualmaturityoftheinstruments.However,contractualmaturitiesdonotnecessarilyreflectthetimingofactualrepaymentsorcashflow.Inpractice,certainliabilityinstrumentsbehavedifferentlyfromtheircontractualtermsand,especiallyforshorttermcustomeraccounts,whichextendtoalongerperiodthantheircontractualmaturity.Suchbehaviouraladjustmentsareidentifiedandmanagedthroughanalysisofthehistoricbehaviourofbalances.TheBank’sexpectationofwhenliabilitiesarelikelytobecomedueisprovidedbelow.Noinformationhasbeenpresentedforfinancialliabilitieswhichwillbecomepayableontheircontractualduedates.
2015
Within 3 months
Between 3 months
and 1 year
Between 1 year
and 5 years After 5 years Total
HK$’M HK$’M HK$’M HK$’M HK$’M
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
HK$’M HK$’M HK$’M HK$’M HK$’M
Depositsandbalancesofbanksandotherfinancialinstitutions 31,680 14 911 – 32,605
Depositsfromcustomers 122,812 93,099 635,118 – 851,029
Total 154,492 93,113 636,029 – 883,634
(iii) Financialliabilities(excludingderivativefinancialinstrumentsonanundiscountedbasis)
Thefollowingtablesanalysethecontractualcashflowspayableforthebank’sfinancialliabilitiesbyremainingcontractualmaturityonanundiscountedbasis.Thefinancialliabilitybalancesinthetablesbelowwillnotagreetothebalancesreportedinthestatementoffinancialpositionasthetablesincorporateallcontractualcashflows,onanundiscountedbasis,relatingtobothprincipalandinterestpayments.Thecashflowspresentedinthetablesreflectthecashflowswhichwillbecontractuallypayableovertheresidualmaturityoftheinstruments.Inpractice,however,theliabilityinstrumentsbehavedifferentlyfromtheircontractualtermsandtypically,forshorttermcustomeraccounts,extendtoalongerperiodthantheircontractualmaturity.
Standard Chartered Bank (Hong Kong) Limited 92
Notes to the financial statements (continued)(Expressed in millions of Hong Kong dollars)
37 Risk management (continued)
(f) Liquidityrisk(continued)
(iii) Financialliabilitiesexcludingderivativefinancialinstrumentsonanundiscountedbasis(continued)
2015
Due Due
between between Due
Repayable Due within 3 months to 1 year to after
on demand 3 months 1 year 5 years 5 years Undated Total
HK$’M HK$’M HK$’M HK$’M HK$’M HK$’M HK$’M
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
HK$’M HK$’M HK$’M HK$’M HK$’M HK$’M HK$’M
Depositsandbalancesofbanksandotherfinancialinstitutions 28,402 3,283 14 933 – – 32,632
Depositsfromcustomers 563,433 224,371 63,135 1,264 24 – 852,227Tradingliabilities _ 11,987 _ _ _ 41 12,028Financialliabilitiesdesignatedat
fairvalue _ 1,637 4,821 3,507 5,480 – 15,445Debtsecuritiesinissue _ 13,727 91 22 _ – 13,840Amountsduetogroupcompanies 6,134 8,489 2,255 2,342 1,648 – 20,868Subordinatedliabilities _ _ 522 2,094 10,750 – 13,366Others 7,954 9,478 729 213 599 36,797 55,770
605,923 272,972 71,567 10,375 18,501 36,838 1,016,176
Standard Chartered Bank (Hong Kong) Limited 93
Notes to the financial statements (continued)(Expressed in millions of Hong Kong dollars)
37 Risk management (continued)
(f) Liquidityrisk(continued)
(iv) Derivativefinancialinstrumentsonanundiscountedbasis
Thefollowingtablesshowthematurityofderivativefinancialinstrumentsincludingthosenet-settledderivativecontractsinanetliabilityposition,togetherwiththepaylegofgrosssettledcontractsregardlessofwhethertheoverallcontractisinanassetorliabilityposition.Thereceivinglegisnotshowninthistableandasaresultthederivativeamountsinthistableareinflatedbytheirexclusion.
Due Due
between between Due
Due within 3 months to 1 year to after
3 months 1 year 5 years 5 years Total
HK$’M HK$’M HK$’M HK$’M HK$’M
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.
Standard Chartered Bank (Hong Kong) Limited 94
Notes to the financial statements (continued)(Expressed in millions of Hong Kong dollars)
37 Risk management (continued)
(g) Operationalrisk(continued)
Risk Tolerance approach
OperationalriskismanagedwithintolerancesalignedtoachievetheBoard-approvedRiskToleranceStatement.TheBankaimstocontroloperationalriskstoensurethatoperational losses(financialorreputational),includinganyrelatedtoconductofbusinessmatters,donotcausematerialdamagetotheGroup’sfranchise.
Inordertocomplywiththisstatement,theoperationalriskmanagementapproachincludesthefollowingrequirements:
• TheBankwillsystematicallyidentifyTopRisksandemergingriskswiththeinvolvementofSeniorManagement/Boardtodefinetheappropriatecourseofactionincludingbusinessrestrictions
• Allprocesseswillbemappedandownedwithappropriatekeycontrolstandardsdefinedtomitigaterisks
• TheBankwillnotmissanyopportunitytolearnlessonsfrominternalorexternaleventsandwillimplementrelevantmitigationactions
• TheBankwillsystematicallytestinternalcapitaladequacythroughscenarioanalysisandstresstesting
Standard Chartered Bank (Hong Kong) Limited 95
Notes to the financial statements (continued)(Expressed in millions of Hong Kong dollars)
37 Risk management (continued)
(g) Operationalrisk(continued)
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.
Standard Chartered Bank (Hong Kong) Limited 96
Notes to the financial statements (continued)(Expressed in millions of Hong Kong dollars)
37 Risk management (continued)
(g) Operationalrisk(continued)
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.
Standard Chartered Bank (Hong Kong) Limited 97
Notes to the financial statements (continued)(Expressed in millions of Hong Kong dollars)
37 Risk management (continued)
(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.
Standard Chartered Bank (Hong Kong) Limited 98
Notes to the financial statements (continued)(Expressed in millions of Hong Kong dollars)
37 Risk management (continued)
(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.
Standard Chartered Bank (Hong Kong) Limited 99
Notes to the financial statements (continued)(Expressed in millions of Hong Kong dollars)
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.
Standard Chartered Bank (Hong Kong) Limited 100
Notes to the financial statements (continued)(Expressed in millions of Hong Kong dollars)
38 Financial instruments (continued)
(a) Valuationoffinancialinstrumentscarriedatfairvalue(continued)
Thetablesbelowshowtheclassificationoffinancialinstrumentsheldatfairvalueintothevaluationhierarchysetoutaboveasat31December:
2015
Level 1 Level 2 Level 3 Total
HK$’M HK$’M HK$’M HK$’M
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$9,348millionduring2015fromLevel1intoLevel2wherethemarketforsuchbondsbecameinactive.
Standard Chartered Bank (Hong Kong) Limited 101
Notes to the financial statements (continued)(Expressed in millions of Hong Kong dollars)
38 Financial instruments (continued)
(a) Valuationoffinancialinstrumentscarriedatfairvalue(continued)
2014
Level 1 Level 2 Level 3 Total
HK$’M HK$’M HK$’M HK$’M
Tradingassets– Tradingsecurities 16,251 4,517 – 20,768– Advancestocustomers – 1,604 – 1,604– Positivefairvaluesoftradingderivatives 1 1,015 – 1,016
Amountsduefromimmediateholdingcompany– Positivefairvaluesoftradingderivatives – 4,784 33 4,817– Positivefairvaluesofhedgingderivatives – 833 – 833
Amountsduefromfellowsubsidiaries– Listedavailable-for-saledebtsecurities – 4,509 – 4,509– Positivefairvaluesoftradingderivatives – 1 – 1– Positivefairvaluesofhedgingderivatives – 103 – 103
Financialassetsdesignatedatfairvalue– Debtsecurities – 1,513 62 1,575
Available-for-salesecurities– Treasurybills 53,424 – – 53,424– Certificatesofdepositheld – 15,086 – 15,086– Debtsecurities 39,646 54,859 – 94,505– Equityshares,netofimpairment 71 1 381 453
Total assets measured at fair value 109,393 88,825 476 198,694
Tradingliabilities– Shortpositionsinsecurities 11,995 – – 11,995– Negativefairvaluesoftradingderivatives 1 804 – 805
Financialliabilitiesdesignatedatfairvalue– Structuredbankandcustomerdeposits – 7,519 9 7,528– Debtsecuritiesissued – 6,735 652 7,387
Amountsduetoimmediateholdingcompany– Negativefairvaluesoftradingderivatives – 5,570 10 5,580– Negativefairvaluesofhedgingderivatives – 1,196 – 1,196
Amountsduetofellowsubsidiaries– Negativefairvaluesoftradingderivatives – 1 – 1
Total liabilities measured at fair value 11,996 21,825 671 34,492
Therewerenosignificanttransfersbetweenlevel1andlevel2instrumentsin2014.
Standard Chartered Bank (Hong Kong) Limited 102
Notes to the financial statements (continued)(Expressed in millions of Hong Kong dollars)
38 Financial instruments (continued)
(a) Valuationoffinancialinstrumentscarriedatfairvalue(continued)
(i) Valuationoffinancialinstrumentswithsignificantunobservableinputs
Themovementsduringtheyearforlevel3financialassetsandliabilitiesareasfollows:
2015
Financial
assets
designated at
fair value
Amounts due
from immediate
holding
company
Available-
for-sale
securities
Total level
3 assets
HK$’M HK$’M HK$’M HK$’M
FinancialassetsAt1January2015 62 33 381 476Totalgainsrecognisedintheincomestatement
–Nettradingincome – 80 – 80–Netgainsfromfinancial
instrumentsdesignatedatfairvaluethroughprofitorloss 1 – – 1
Total(losses)/gainsrecognisedintheavailable-for-saleinvestmentreserve – – 38 38
Purchases – 358 190 548Settlements (63) – (295) (358)Transferredintolevel3(Note1) – – 438 438
At31December2015 – 471 752 1,223
Totalgainsrecognisedintheincomestatementrelatingtoassetsheldat31December2015–Nettradingincome – 438 – 438–Netgainsfromfinancial
instrumentsdesignatedatfairvaluethroughprofitorloss – – – –
Standard Chartered Bank (Hong Kong) Limited 103
Notes to the financial statements (continued)(Expressed in millions of Hong Kong dollars)
38 Financial instruments (continued)
(a) Valuationoffinancialinstrumentscarriedatfairvalue(continued)
(i) Valuationoffinancialinstrumentswithsignificantunobservableinputs(continued)
Financial
liabilities
designated at
fair value
Amounts due
to immediate
holding
company
Total level
3 liabilities
HK$’M HK$’M HK$’M
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.
Standard Chartered Bank (Hong Kong) Limited 104
Notes to the financial statements (continued)(Expressed in millions of Hong Kong dollars)
38 Financial instruments (continued)
(a) Valuationoffinancialinstrumentscarriedatfairvalue(continued)
(i) Valuationoffinancialinstrumentswithsignificantunobservableinputs(continued)
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
HK$’M HK$’M HK$’M HK$’M HK$’M
FinancialassetsAt1January2014 83 1 498 990 1,572Totalgainsrecognisedintheincome
statement–Nettradingincome – 32 – – 32–Netgainsfromfinancial
instrumentsdesignatedatfairvaluethroughprofitorloss 5 – – – 5
–Netgainsfromdisposalofavailable-for-salesecurities – – 2 – 2
Total(losses)/gainsrecognisedintheavailable-for-saleinvestmentreserve – – (11) 39 28
Purchases – – – 14 14Sales – – – (25) (25)Settlements (26) – (489) (199) (714)Transferredintolevel3(Note2) – – – – –Transferredoutoflevel3(Note2) – – – (438) (438)
At31December2014 62 33 – 381 476
Totalgainsrecognisedintheincomestatementrelatingtoassetsheldat31December2014–Nettradingincome – 32 – – 32–Netgainsfromfinancial
instrumentsdesignatedatfairvaluethroughprofitorloss 3 – – – 3
Standard Chartered Bank (Hong Kong) Limited 105
Notes to the financial statements (continued)(Expressed in millions of Hong Kong dollars)
38 Financial instruments (continued)
(a) Valuationoffinancialinstrumentscarriedatfairvalue(continued)
(i) Valuationoffinancialinstrumentswithsignificantunobservableinputs(continued)
Financial
liabilities
designated at
fair value
Amounts due
to immediate
holding
company
Total level
3 liabilities
HK$’M HK$’M HK$’M
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.
Standard Chartered Bank (Hong Kong) Limited 106
Notes to the financial statements (continued)(Expressed in millions of Hong Kong dollars)
38 Financial instruments (continued)
(a) Valuationoffinancialinstrumentscarriedatfairvalue(continued)
(i) Valuationoffinancialinstrumentswithsignificantunobservableinputs(continued)
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.
Standard Chartered Bank (Hong Kong) Limited 107
Notes to the financial statements (continued)(Expressed in millions of Hong Kong dollars)
38 Financial instruments (continued)
(a) Valuationoffinancialinstrumentscarriedatfairvalue(continued)
(i) Valuationoffinancialinstrumentswithsignificantunobservableinputs(continued)
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
HK$’M HK$’M HK$’M HK$’M HK$’M HK$’M
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
HK$’M HK$’M HK$’M HK$’M HK$’M HK$’M
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
Standard Chartered Bank (Hong Kong) Limited 108
Notes to the financial statements (continued)(Expressed in millions of Hong Kong dollars)
38 Financial instruments (continued)
(a) Valuationoffinancialinstrumentscarriedatfairvalue(continued)
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$38million).
(b) Valuationoffinancialinstrumentscarriedatamortisedcost
Allfinancialinstrumentsarestatedatfairvalueoramountsnotmateriallydifferentfromtheirfairvalueasat31December2015and2014,exceptforsubordinatedliabilities.
Thefollowingtablesummarisesthecarryingamountsandfairvalues(includingthevaluationhierarchy)ofsubordinated liabilities.Thevalues inthetablebelowarestatedasat31Decemberandmaybedifferentfromtheactualamountsthatwillbereceivedonthesettlementormaturityofthesubordinatedliabilities.
2015 2014
Carrying amount
Fair value
Level 1 Carrying amount
Fair value
Level 1
HK$’M HK$’M HK$’M HK$’M
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.
Standard Chartered Bank (Hong Kong) Limited 109
Notes to the financial statements (continued)(Expressed in millions of Hong Kong dollars)
38 Financial instruments (continued)
(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$’M
CollateralpledgedagainstreposOnbalancesheet
Cash – 4Offbalancesheet
Repledgedcollateralreceived – 626
– 630
Statementoffinancialpositionliabilities-reposAmountduetoGroupcompanies – 622
– 622
Standard Chartered Bank (Hong Kong) Limited 110
Notes to the financial statements (continued)(Expressed in millions of Hong Kong dollars)
38 Financial instruments (continued)
(d) Offsettingfinancialassetsandfinancialliabilities
Thefollowingtablespresentdetailsoffinancialinstrumentssubjecttooffsetting,enforceablemasternettingarrangementsandsimilaragreements.
2015
Assets
Gross
amounts of
recognised
financial
assets
Gross amounts
of recognised
financial
liabilities offset
in the
statement of
financial
position
Net amounts of
financial assets
presented
in the
statement of
financial
position
Related
amounts not
offset in the
statement of
financial
position Net amount
HK$’M HK$’M HK$’M HK$’M HK$’M
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
HK$’M HK$’M HK$’M HK$’M HK$’M
Negativefairvaluesofderivativefinancialinstruments 17,558 – 17,558 (17,343) 215
Reposandsimilaragreements – – – – –
17,558 – 17,558 (17,343) 215
Standard Chartered Bank (Hong Kong) Limited 111
Notes to the financial statements (continued)(Expressed in millions of Hong Kong dollars)
38 Financial instruments (continued)
(d) Offsettingfinancialassetsandfinancialliabilities(continued)
2014
Assets
Gross
amounts of
recognised
financial
assets
Gross amounts
of recognised
financial
liabilities offset
in the
statement of
financial
position
Net amounts of
financial assets
presented
in the
statement of
financial
position
Related
amounts not
offset in the
statement of
financial
position Net amount
HK$’M HK$’M HK$’M HK$’M HK$’M
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
HK$’M HK$’M HK$’M HK$’M HK$’M
Negativefairvaluesofderivativefinancialinstruments 7,582 – 7,582 (6,875) 707
Reposandsimilaragreements 622 – 622 (622) –
8,204 – 8,204 (7,497) 707
Standard Chartered Bank (Hong Kong) Limited 112
Notes to the financial statements (continued)(Expressed in millions of Hong Kong dollars)
38 Financial instruments (continued)
(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$’M
Securitiesandcollateralthatcanberepledgedorsold(atfairvalue) 34,802 19,474Thereofrepledged/transferredtoothersunderrepos(atfairvalue) – 626
Thesetransactionsareconductedundertermsthatareusualandcustomarytostandardlendingandstockborrowingactivities.
Standard Chartered Bank (Hong Kong) Limited 113
Notes to the financial statements (continued)(Expressed in millions of Hong Kong dollars)
40 Material related party transactions
Inadditiontothetransactionsandbalancesdisclosedelsewhereinthesefinancialstatements,theBankanditssubsidiariesenteredintothefollowingmaterialrelatedpartytransactions.ThetransactionsoftheBankaremateriallythesameasthoseappearingintheconsolidatedfinancialstatementsin2015and2014.
(a) Keymanagementpersonnelremuneration
RemunerationforkeymanagementpersonneloftheBank,includingamountspaidtothedirectorsasdisclosedinnote8isasfollows:
2015 2014
HK$’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
Standard Chartered Bank (Hong Kong) Limited 114
Notes to the financial statements (continued)(Expressed in millions of Hong Kong dollars)
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.
Standard Chartered Bank (Hong Kong) Limited 115
Notes to the financial statements (continued)(Expressed in millions of Hong Kong dollars)
40 Material related party transactions (continued)
(c) Sharebasedpayments(continued)
2000 Executive Share Option Scheme (2000 ESOS)
The2000ESOSisdesignedtobeinternationallycompetitiveandfocusexecutivedirectorsandtheirseniormanagementteamsondeliveringlong-termperformance.AnEPSperformancecriterionmustbemetbeforeoptionscanbeexercised.
Executiveshareoptionstopurchaseordinarysharesintheultimateholdingcompanyareexercisableafterthethird,butbeforethetenthanniversaryofthedateofgrant.Theexercisepricepershareisthesharepriceatthedateofgrantandoptionscanonlybeexercisedifaperformanceconditionissatisfied.NofurtherawardsmaybegrantedtotheemployeesoftheBankanditssubsidiariesunderthe2000ESOS.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.
Standard Chartered Bank (Hong Kong) Limited 116
Notes to the financial statements (continued)(Expressed in millions of Hong Kong dollars)
40 Material related party transactions (continued)
(c) Sharebasedpayments(continued)
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
Standard Chartered Bank (Hong Kong) Limited 117
Notes to the financial statements (continued)(Expressed in millions of Hong Kong dollars)
40 Material related party transactions (continued)
(c) Sharebasedpayments(continued)
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.
Standard Chartered Bank (Hong Kong) Limited 118
Notes to the financial statements (continued)(Expressed in millions of Hong Kong dollars)
40 Material related party transactions (continued)
(c) Sharebasedpayments(continued)
Deferred Share Awards/ Restricted Shares
Areconciliationofmovementsfortheyearto31December2015and2014isshownbelow:
2015 2014
No . of shares No . of shares
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
No . of shares No . of shares
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)
Noshareawardsweregrantedin2015and2014.
Areconciliationofmovementsfortheyearto31December2015and2014isshownbelow:
2015 2014
No . of shares No . of shares
Outstandingat1January 119,766 180,281Adjustmentforrightsissue 1,565 –Lapsed (54,546) (1,972)Exercised (34,291) (58,543)
Outstandingat31December 32,494 119,766Weightedaverageremainingcontractuallife 1.19years 2.08yearsExercisableat31December 32,494 119,766
Standard Chartered Bank (Hong Kong) Limited 119
Notes to the financial statements (continued)(Expressed in millions of Hong Kong dollars)
40 Material related party transactions (continued)
(c) Sharebasedpayments(continued)
2000 Executive Share Option Scheme (2000 ESOS)
Noshareawardsweregrantedin2015and2014.
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)
Noshareawardsweregrantedin2015and2014.
Areconciliationofmovementsfortheyearended31December2015and2014isshownbelow:
2015 2014
No . of shares No . of shares
Outstandingat1January 17,720 30,800Adjustmentforrightsissue 159 –Lapsed (10,900) (1,321)Exercised (3,661) (11,759)
Outstandingat31December 3,318 17,720Weightedaverageremainingcontractuallife 0.2years 3.38yearsExercisableat31December 3,318 17,720
Standard Chartered Bank (Hong Kong) Limited 120
Notes to the financial statements (continued)(Expressed in millions of Hong Kong dollars)
40 Material related party transactions (continued)
(c) Sharebasedpayments(continued)
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.
Standard Chartered Bank (Hong Kong) Limited 121
Notes to the financial statements (continued)(Expressed in millions of Hong Kong dollars)
40 Material related party transactions (continued)
(c) Sharebasedpayments(continued)
Sharesave (2004 International Sharesave and 2004 UK Sharesave)
Noshareawardsweregrantedin2015and2014.
Areconciliationofoptionmovementsfortheyearended31December2015and2014isshownbelow:
2015 2014
No . of shares
Weighted
average
exercise price No . of shares
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
Standard Chartered Bank (Hong Kong) Limited 122
Notes to the financial statements (continued)(Expressed in millions of Hong Kong dollars)
40 Material related party transactions (continued)
(c) Sharebasedpayments(continued)
2013 Sharesave
2015 2014
No . of shares
Weighted
average
exercise price No . of shares
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$’M
AggregateamountofrelevantloansbytheBankoutstandingat31December 28 26
MaximumaggregateamountofrelevantloansbytheBankoutstandingduringtheyear 37 97
Standard Chartered Bank (Hong Kong) Limited 123
Notes to the financial statements (continued)(Expressed in millions of Hong Kong dollars)
40 Material related party transactions (continued)
(e) RelatedpartytransactionswithassociatesandjointventuresoftheGroup
Duringtheyear,theBankanditssubsidiariesenteredintotransactionswithassociatesandjointventuresoftheGroupintheordinarycourseofitsbankingbusinessandonsubstantiallythesametermsasforcomparabletransactionswiththird-partycounterparties.Theamountsofmaterialtransactionsduringtheyeararesetoutbelow:
2015 2014
HK$’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.
Standard Chartered Bank (Hong Kong) Limited 124
Notes to the financial statements (continued)(Expressed in millions of Hong Kong dollars)
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.
Standard Chartered Bank (Hong Kong) Limited 125
Notes to the financial statements (continued)(Expressed in millions of Hong Kong dollars)
44 Statement of financial position as at 31 December 2015
2015 2014HK$’M HK$’M
Assets
Cashandbalanceswithbanks,centralbanksandotherfinancialinstitutions 48,763 53,064Placementswithbanksandotherfinancialinstitutions 119,648 145,757HongKongSARGovernmentcertificatesofindebtedness 38,031 36,741Tradingassets 18,597 23,388Financialassetsdesignatedatfairvalue 666 1,575Investmentsecurities 210,572 172,302Advancestocustomers 412,619 452,717Amountsduefromimmediateholdingcompany 29,749 68,680Amountsduefromfellowsubsidiaries 15,687 45,785AmountsduefromsubsidiariesoftheBank 39,684 49,900InvestmentsinsubsidiariesoftheBank 853 853Interestinassociates 3,570 3,729Property,plantandequipment 3,053 3,163Goodwillandintangibleassets 1,075 1,116Currenttaxassets 550 256Deferredtaxassets 306 122Otherassets 8,596 9,365
952,019 1,068,513
Liabilities
HongKongSARcurrencynotesincirculation 38,031 36,741Depositsandbalancesofbanksandotherfinancialinstitutions 24,655 32,605Depositsfromcustomers 745,701 851,029Tradingliabilities 8,847 12,800Financialliabilitiesdesignatedatfairvalue 13,724 14,915Debtsecuritiesinissue 1,209 13,838Amountsduetoimmediateholdingcompany 27,397 16,589Amountsduetofellowsubsidiaries 8,314 3,580AmountsduetosubsidiariesoftheBank 2,114 2,458Otherliabilities 14,332 16,210Subordinatedliabilities 10,093 10,406
894,417 1,011,171
Equity
Sharecapital 20,256 20,256Reserves 37,346 37,086
Shareholders’equity 57,602 57,342
952,019 1,068,513
ApprovedandauthorisedforissuebytheBoardofDirectorson23February2016.
Tan Siew Boi Ling Fou TsongDirector Director
Standard Chartered Bank (Hong Kong) Limited 126
Notes to the financial statements (continued)(Expressed in millions of Hong Kong dollars)
45 Statement of changes in equity for the year ended 31 December 2015
Sharecapital
Sharepremium
Capitalredemption
reserve
Cash flowhedge
reserve
Available-for-sale
investmentreserve
Retainedprofits
Shareoption equity
reserve TotalHK$’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$500million6.25%perpetualnon-cumulativeconvertiblepreferencesharesclassifiedasequity.
Standard Chartered Bank (Hong Kong) Limited 127
Notes to the financial statements (continued)(Expressed in millions of Hong Kong dollars)
46 Disposal group held for sale
Theassetsandliabilitiesofthedisposalgroupheldforsaleissummarisedbelow:
2014
HK$’M
AssetsCashandbalanceswithbanksandotherfinancialinstitution 125Advancestocustomers 12,220Interestinassociates 144Property,plantandequipment 56Goodwillandintangibleassets 525Otherassets 147
Assetsheldforsale 13,217
LiabilitiesDepositsandbalancesofbanksandotherfinancialinstitutions 1,020Depositfromcustomers 808Otherliabilities 174
Liabilitiesheldforsale 2,002
Standard Chartered Bank (Hong Kong) Limited 128
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
Standard Chartered Bank (Hong Kong) Limited 129
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
SeniorManagement KeyPersonnel SeniorManagement KeyPersonnel
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
SeniorManagement KeyPersonnel SeniorManagement KeyPersonnel
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
Standard Chartered Bank (Hong Kong) Limited 130
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
SeniorManagement KeyPersonnel SeniorManagement KeyPersonnel
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
SeniorManagement KeyPersonnel SeniorManagement KeyPersonnel
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 .
Standard Chartered Bank (Hong Kong) Limited 131
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
Standard Chartered Bank (Hong Kong) Limited 132
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