Annual Financial Report - 16 of 54

RNS Number : 0719I

HSBC Holdings PLC

20 March 2015

 



Middle East and North Africa

The network of branches of HSBC Bank Middle East Limited, together with HSBC's subsidiaries and associates, gives us wide coverage in the region. Our associate in Saudi Arabia, The Saudi British Bank (40% owned), is the Kingdom's sixth largest bank by total assets.
		2014		2013		2012
		US$m		US$m		US$m
Net interest income		1,519		1,486		1,470
Net fee income		650		622		595
Net trading income		314		357		390
Other income/(expense)		65		38		(25)
Net operating income4		2,548		2,503		2,430
LICs43		6		42		(286)
Net operating income		2,554		2,545		2,144
Total operating expenses		(1,216)		(1,289)		(1,166)
Operating profit		1,338		1,256		978
Income from associates44		488		438		372
Profit before tax		1,826		1,694		1,350
Cost efficiency ratio		47.7%		51.5%		48.0%
RoRWA36		2.9%		2.7%		2.2%
Year-end staff numbers		8,305		8,618		8,765
Best Investment Bank in the Middle East (Euromoney 2014)
Record reported profit before tax of US$1.8bn
Completed disposal of our operations in Jordan and Pakistan in line with the Group's six filters investment criteria
For footnotes, see page 109.

Economic background

Economic activity across the Middle East and North Africa remained strong during 2014, despite heightened geopolitical uncertainties and weaker global oil prices towards the end of the year. The region's energy exporters fared particularly well, buoyed by an oil-funded fiscal stimulus and an expansionary monetary stance. Saudi Arabia, the Middle East's largest oil exporter, grew strongly as the Kingdom pushed ahead with its infrastructure and industrial expansion programme. The United Arab Emirates ('UAE'), however, showed the most significant gains in momentum, boosted by growth in both its export-orientated non-oil sector and an increasingly expansionary fiscal stance. Though showing some gains as growth picked up speed, inflation remained muted at under 5% across the Gulf.

Egypt showed further signs of stabilisation in 2014. Although still below the trend levels that prevailed prior to the 2011 revolution, some momentum in growth was achieved in the second half of the year, boosted by the receipt of further concessional funding and an improvement in political order and policy making following the May presidential election. Inflation rose and the budget deficit remained high, recording a third successive double-digit deficit as a percentage of GDP. International reserves fell in the latter months of the year, highlighting ongoing pressure on the currency which remained subject to significant controls.

Financial overview

Profit before tax (US$m)

Our operations in the Middle East and North Africa reported a profit before tax of US$1.8bn, an increase of 8% on a reported basis, despite the effects of business disposals, including the loss on sale of our Pakistan business. See page 42 for further details of our significant items.

On an adjusted basis, profit before tax grew by 11% driven by higher revenue and increased income from our associate, The Saudi British Bank. 

Profit/(loss) before tax by country within global businesses

		Retail Banking and Wealth Management US$m		Commercial Banking US$m		Global Banking and Markets US$m		Global Private Banking US$m		Other US$m		Total US$m
Egypt		64		94		177		−		−		335
United Arab Emirates		154		190		364		−		(46)		662
Saudi Arabia		91		168		203		19		5		486
Other		14		152		182		−		(5)		343
Year ended 31 December 2014		323		604		926		19		(46)		1,826
Egypt		31		37		166		−		(29)		205
United Arab Emirates		142		290		275		1		(72)		636
Saudi Arabia		82		146		188		15		7		438
Other		3		172		240		−		−		415
Year ended 31 December 2013		258		645		869		16		(94)		1,694
Egypt		67		71		157		-		(5)		290
United Arab Emirates		143		235		141		1		(56)		464
Saudi Arabia		60		120		170		9		18		377
Other		(18)		161		113		-		(37)		219
Year ended 31 December 2012		252		587		581		10		(80)		1,350

Country business highlights

In the UAE, we made significant progress in executing the strategic plan we announced in 2013. In RBWM, we expanded our range of products in Wealth Management, including the launch of the International Bonds and Portfolio Advisory Service to widen our offering for Premier clients. The introduction of a financial health check to better understand customer needs coupled with the opening of a Customer Service Unit in Abu Dhabi illustrated our focus on putting the customer first.

In CMB, we enhanced our services to customers that trade internationally by completing the implementation of our International Subsidiary Business model across the region in order to better meet their cross-border banking requirements and cement our strategic relationships. We also launched a second tranche of the International Growth Fund for AED1bn (US$272m). We continued to invest in our Payments and Cash Management business including recruiting client-facing and specialised staff and won the Best Regional Cash Management Provider in the Middle East award.

In GB&M, we advised a major regional airline on its investment in a European air carrier and a large investment company in Dubai on its inaugural US$1bn bond issue. In addition, we increased our collaboration with CMB, particularly in Capital Financing, focusing on existing clients and taking advantage of our connectivity with other regions.

The drop in oil prices did not have a material impact on our financial performance in the UAE.

In Egypt, in RBWM, we expanded our product offering with enhanced features and reduced pricing for credit cards, and were ranked number one in the customer recommendation index. In GB&M, we acted as the global coordinator, structuring bank, mandated lead arranger and facility agent for a government entity. This reflected our commitment to supporting the Egyptian government's plan for the development of the country's infrastructure.

In Saudi Arabia, through our associates, The Saudi British Bank and HSBC Saudi Arabia Limited, we acted as joint financial advisor, joint lead manager and a receiving bank on the US$6bn National Commercial Bank initial public offering ('IPO'). This was the Middle East's largest ever IPO and the world's second largest in 2014.

Review of adjusted performance⁴⁵

Revenue (US$m)

Revenue increased in the majority of our markets, most notably in Egypt in   all global businesses and in the UAE.

Country view of adjusted revenue

		2014		2013
		US$m		US$m
UAE		1,448		1,401
Egypt		531		451
Rest of MENA		566		550
Year ended 31 December		2,545		2,402

In Egypt, revenue increased by US$80m, reflecting higher net interest income in RBWM due to improved deposit spreads as a result of re-pricing, and the non-recurrence of losses on disposal of availab  le-for-sale debt securities in GB&M in 2013. In addition, the Central Bank resumed interest payments on overnight placements during 2014, which contributed to the rise in revenue in all global businesses.

In the UAE, revenue increased by US$47m, primarily in GB&M reflecting a rise in Capital Financing due to increased advisory mandates in Project and Export Finance and a gain on restructuring a specific loan in Credit and Lending. In addition, revenue rose in our Equities and Securities Services businesses from increased customer flows, which in part reflected the upgrade of the UAE to emerging markets status in the MSCI Index. In RBWM, revenue increased, but to a lesser extent, reflecting higher net interest income as mortgage balances rose and deposit spreads improved due to re-pricing initiatives. This was partially offset by reduced revenue in CMB from lower spreads on lending balances, reflecting a highly liquid and competitive market coupled with lower charges on foreign exchange transactions in Payments and Cash Management.

In the rest of the region, revenue was higher with increases in Oman and Qatar partly offset by a reduction in Algeria. Higher revenue in Oman in part reflected growth in customer advances in CMB. The increase in Qatar was driven by fees in GB&M reflecting increased customer flows in our Securities Services business, which in part reflected the upgrade of Qatar to emerging markets status in the MSCI Index. The reduction in Algeria reflected regulatory restrictions on foreign exchange spreads charged on corporate customer transactions.

Net loan impairment releases were lower by US$44m, primarily driven by lower impairment releases for a particular UAE-related exposure in GB&M.

Operating expenses (US$m)

Operating expenses of US$1,183m decreased by US$31m, mainly due to reductions in Egypt and the UAE. In Egypt, expenses fell following charges recorded in 2013 relating to changes in the interpretation of tax regulations. In the UAE, expenses reduced due to the non-recurrence of charges incurred in 2013 on customer redress programmes in RBWM relating to fees charged on overseas credit card transactions. This was partly offset by wage inflation, investment in Regulatory Programmes and Compliance, growth in customer-facing staff in RBWM and increased service and product support staff in CMB.

Share of profits from associates and joint venturesincreased by 12%, mainly from The Saudi British Bank. This was driven by higher revenue resulting from strong balance sheet growth.

 

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