A MAJOR drop in bad and doubtful debt provisioning helped save the day at Hongkong and Shanghai Banking Corporation. The charge for bad and doubtful debts dropped from $1.1 billion to $80 million in the first half of the year, reflecting the continued general improvement in the quality of the bank's loan book, resulting in a net write-back of provisions. The group saw interest income shrink 2.6 per cent to $25.6 billion. Expense savings saw core net interest income rise a marginal 1.2 per cent to $10.42 billion. A major downturn in dealing profits was recorded, to $335 million in the first half from a gain of $1.98 billion in the first six months of 1993. Chairman and chief executive John Gray said that overall the bank's results were satisfactory, because the downturn in dealing profits was countered by strong results elsewhere. ''Dealing profits fell significantly, reflecting the difficult trading conditions in the bond and other fixed interest markets during the period,'' he said. The risk-asset ratio was 15.3 per cent and the cost-income ratio rose marginally to 42.8 per cent, reflecting the downturn in dealing profits. On an annualised basis, Hongkong Bank's after-tax return on the average of total assets was 2.3 per cent, or 1.5 per cent excluding Malaysia. A key feature in the group's results was the sale of its Malaysian business to the parent, HSBC Holdings. This followed the re-incorporation of the group in Malaysia in accordance with local rules. The profit disposal amounts to $4.56 billion. Including the Malaysian disposal, attributable profit rose 76 per cent to $11.21 billion. Excluding the disposal, net profit rose 7.7 per cent to $6.65 billion. Mr Gray said although the interest rate margin had apparently narrowed during the period by 25 basis points, the actual impact on earnings at present was not significant. He said the interest rate margin had actually improved over the first half of 1993. ''In Hong Kong, Hongkong Bank's overall results showed an improvement over the corresponding period in 1993. ''Reflecting the continuing strength of the local economy, the level of provisioning for doubtful debts was very low and was improved further by the release of provisions made previously against certain advances to the manufacturing sector,'' he said. Demand for mortgages was buoyant in the second quarter and deposit growth was satisfactory given the fierce competition for funds, said Mr Gray. Total assets at the group shrunk by $88 billion or 7.8 per cent, to $1.04 trillion, reflecting foreign exchange changes over the two periods, the sale of the Malaysian business and the concentration of dealing operations on Midland Bank in London.