Interim Report 10 of 25

RNS Number : 4139J

HSBC Holdings PLC

10 August 2012

 



Middle East and North Africa

The network of branches of HSBC Bank Middle East Limited, together with HSBC's subsidiaries and associates, gives us the widest coverage in the region. Our associate in Saudi Arabia, The Saudi British Bank (40% owned), is the kingdom's fifth largest bank by total assets.
	Half-year to
	30 Jun			30 Jun		31 Dec
	2012			2011		2011
	US$m			US$m		US$m
Net interest income .....	705			673		759
Net fee income ............	302			327		300
Net trading income ......	216			237		245
Other income/(expense)	14			(1)		67
Net operating income48 ..................................	1,237			1,236		1,371
Impairment charges49 ..	(135)			(99)		(194)
Net operating income	1,102			1,137		1,177
Total operating expenses ..................................	(537)			(574)		(585)
Operating profit .......	565			563		592
Income from associates50	207			184		153
Profit before tax .......	772			747		745
Cost efficiency ratio ....	43.4%			46.4%		42.7%
RoRWA40 ....................	2.6%			2.7%		2.5%
Period-end staff numbers	9,195			8,755		8,373
6% decline in reported expenses driven by sustainable cost save initiatives
Significant progress on capital deployment programmes including key strategic acquisitions
Most impressive bank for Middle Eastern and African borrowers EuroWeek Bond Awards 2012		Best Overall Bank for Cash Management in the Middle East Global Finance Awards
For footnotes, see page 100. The commentary on the Middle East and North Africa is on a constant currency basis unless stated otherwise.

Economic background

Brent crude oil prices in excess of US$100 per barrel in the first half of 2012 helped support revenues and spending across much of the Middle East. Data from the HSBC Purchasing Managers Index, consumer indicators and credit growth all demonstrated a pick-up in economic activity driven by the expansionary government spending policies which were announced in the wake of protests in 2011. Saudi Arabia, Qatar and Oman showed the strongest signs of recovery, while the UAE economy was more subdued due to a cautious fiscal policy and lack of credit growth. Activity in Bahrain and, to a lesser extent, Kuwait, was held back by political instability. The non-oil producers were increasingly affected by exposure to the troubled eurozone economies in the first half of the year. Export and tourism activity slowed, which limited corporate investment spending. Despite electing its first president since the revolution, Egypt's economic activity remained subdued.

Review of performance

Our operations in the Middle East and North Africa reported a profit before tax of US$772m, an increase of 3% compared with the first half of 2011. On a constant currency basis, pre-tax profits increased by 4%, reflecting higher income from our associates, modest revenue growth in challenging market conditions and lower costs from the implementation of strategic restructuring programmes, partly offset by higher loan impairment charges.

We continued to make progress on our strategic programmes to improve capital deployment, using the Group's five filters framework to review our existing businesses and assess acquisitions. In the first half of 2012, we completed the merger of our operations in Oman with Oman International Bank S.A.O.G. ('OIB'), giving us a 51% ownership of the combined entity, HSBC Bank Oman S.A.O.G., now the third largest Bank in the Sultanate. We also entered into an agreement to acquire the onshore retail and commercial banking business of Lloyds Banking Group in the UAE, subject to regulatory approval. Lloyds' strong presence in expatriate retail banking and complementary commercial banking is a good strategic fit with our position as the leading international bank in the UAE.

We achieved strong growth in profit before tax in all of our priority markets, including Saudi Arabia through our associate, The Saudi British Bank, which won the Euromoney award for excellence as

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
Half-year to 30 June 2012
Egypt .......................................................	33		45		62		−		(3)		137
Qatar ........................................................	5		18		42		−		−		65
United Arab Emirates ...............................	52		147		104		−		(4)		299
Other ........................................................	14		62		(18)		−		1		59
MENA (excluding Saudi Arabia) ................	104		272		190		−		(6)		560
Saudi Arabia ..............................................	36		69		96		4		7		212
	140		341		286		4		1		772
Half-year to 30 June 2011
Egypt .......................................................	15		32		67		-		(1)		113
Qatar ........................................................	(1)		23		39		-		-		61
United Arab Emirates ...............................	40		120		119		(3)		(11)		265
Other ........................................................	10		62		53		-		-		125
MENA (excluding Saudi Arabia) ................	64		237		278		(3)		(12)		564
Saudi Arabia ..............................................	37		59		61		2		24		183
	101		296		339		(1)		12		747
Half-year to 31 December 2011
Egypt .......................................................	28		23		62		-		(1)		112
Qatar ........................................................	(3)		12		42		-		-		51
United Arab Emirates ...............................	94		120		81		(3)		18		310
Other ........................................................	7		47		40		-		-		94
MENA (excluding Saudi Arabia) ................	126		202		225		(3)		17		567
Saudi Arabia ..............................................	20		39		79		2		38		178
	146		241		304		(1)		55		745

'The Best Bank in Saudi Arabia' and 'The Best Debt House in Saudi Arabia'. Strong performances were also reported in the UAE and Egypt. Despite signs of recovery, political and economic uncertainty continued in the region. The strength of the HSBC brand and resilience of the oil-based regional economies together with our international connectivity, position us well for future growth.

Delivery of sustainable cost savings is a key priority and we realised substantial benefits from the actions taken in 2011 to reduce our cost base. In the first half of 2012, we took further steps to improve our cost efficiency and drive additional sustainable cost savings through our organisational effectiveness initiatives, including a de-layering of our management structure and the transfer of additional operational processes to our global service centre.

In RBWM, we remained focused on growing Wealth Management revenues, launching a number of new investment funds, bonds and deposit products. We also entered into a ten-year strategic partnership with Zurich Life International to be the exclusive provider of their wealth insurance products in the region. We continued to roll out our digital solution for mobile banking in the region and launched an Arabic version of the HSBC website in the UAE, becoming the first international bank with a bilingual presence there.

In CMB, we continued to strengthen our position as the leading international trade and business bank. We launched our third International Trade SME Fund in the UAE, pledging US$272m to support SMEs engaged in cross-border trade, and added resources to enhance our international capabilities, particularly in respect of emerging trade corridors. Our Payments and Cash Management business was named 'Best Cash Management Bank in the Middle East 2012' in the Euromoney Awards for Excellence and continued to achieve success by growing deposit balances.

In GB&M, our customers benefited from dedicated coverage teams on our mainland China, South Korea and India desks in the UAE, Saudi Arabia and Oman, leveraging our 'South-South' connectivity to provide access to Asian investors for issuers in the region with funding requirements. We continued to focus on generating incremental revenues through the provision of risk management services to regional clients by leveraging our global expertise, including in equity and energy derivatives. We also completed a record number of bond issuances in the first half of 2012, which is indicative of continuing investor appetite for Middle East and North Africa debt. We won seven Euromoney awards for excellence including 'The Best Project Finance House in the Middle East' and 'The Best Equity House in the Middle East'. GB&M also won a number of EMEA Finance Achievement Awards, including 'Best Sukuk House 2011', and three of GB&M's customer deals were recognised by The Banker 'Deals of the Year 2012'.

The following commentary is on a constant currency basis.

Net interest income rose by 5%, driven by higher average deposit balances in RBWM as a result of targeted customer acquisition and successful marketing campaigns, together with wider spreads as we repriced our deposits and benefited from higher interest rates in Egypt. Deposit balance growth in our Payments and Cash Management business, reflecting targeted client growth, led to an increase in net interest income in GB&M, while Balance Sheet Management benefited from higher yields on the available-for-sale investment portfolios. This was partly offset by a low level of demand for corporate credit in CMB.

Net fee income decreased by 7% due to lower advisory revenues and Securities Services' fees in GB&M, both of which were affected by the continuing challenging political and economic environment. Fees also declined due to the repositioning of RBWM's cards portfolio towards higher quality lending, which resulted in a reduction in late and over-limit fees along with higher reward scheme charges following revisions to the agreement with our partner aimed at improving card utilisation. In addition, fees declined in private banking as we exited our domestic private banking operations in the UAE. This was partly offset by higher trade import fees in CMB which were driven by targeted sales activity.

Net trading income decreased by 8%, mainly from adverse credit valuation adjustments on certain trading positions relating to a small number of exposures in GB&M. This was partly offset by higher Rates trading income from increased client activity in the first half of 2012 and revaluation gains on certain equity holdings in Principal Investments.

Gains less losses from financial investments increased by US$11m, driven principally by the non-recurrence of adverse fair value movements on certain investments in 2011.

Loan impairment charges and other credit risk provisions increased by US$37m as significant loan impairment charges were recorded for a small number of large exposures in GB&M. This was partly offset by lower impairments in RBWM, due to an improvement in credit quality which reflected the repositioning of the book towards higher quality lending in previous periods, and in CMB as we worked closely with customers through the credit cycle.

Operating expenses decreased by 6%, as a result of the sustainable cost saving initiatives implemented in 2011 and the first half of 2012. These particularly affected staff costs as we reduced employee numbers by over 750 from their peak in March 2011, although staff numbers increased by more than 1,000 following the merger of our Oman operations with OIB. Performance-related costs rose as a result of the merger with OIB and legal costs increased in connection with the strategic transactions noted above.

Share of profits from associates and joint venturesincreased by 13%, mainly from The Saudi British Bank, driven by higher revenues due to growth in lending and a rise in trade, other lending and guarantee fees, good cost control and a decline in loan impairment charges as operating conditions improved.

Profit/(loss) before tax and balance sheet data - Middle East and North Africa

	Half-year to 30 June 2012
	Retail     Banking and Wealth Management         US$m		Commercial     Banking         US$m	Global      Banking               and       Markets           US$m			Global       Private     Banking         US$m		Other         US$m		Inter-     segment elimination57         US$m		Total         US$m
Profit before tax
Net interest income .............	273		240		191		−		1		−		705
Net fee income/(expense) ....	85		143		77		1		(4)		−		302
Trading income excluding net interest income ..........	35		48		122		−		1		−		206
Net interest income on trading activities ..............	−		−		4		−		6		−		10
Net trading income51 ...........	35		48		126		−		7		−		216
Net expense from financial instruments designated at fair value ..........................	−		−		−		−		(4)		−		(4)
Gains less losses from financial investments .......	−		−		5		−		−		−		5
Dividend income .................	−		−		3		−		−		−		3
Other operating income ......	2		4		5		−		51		(52)		10
Total operating income ...	395		435		407		1		51		(52)		1,237
Net insurance claims58 .........	−		−		−		−		−		−		−
Net operating income48 ...	395		435		407		1		51		(52)		1,237
Loan impairment charges and other credit risk provisions	(37)		(12)		(84)		(2)		−		−		(135)
Net operating income/ (expense) .......................	358		423		323		(1)		51		(52)		1,102
Operating income/(expenses)	(249)		(151)		(134)		1		(56)		52		(537)
Operating profit/(loss) ....	109		272		189		−		(5)		−		565
Share of profit in associates and joint ventures ............	31		69		97		4		6		−		207
Profit before tax ...............	140		341		286		4		1		−		772
	%		%		%		%		%				%
Share of HSBC's profit before tax ........................	1.1		2.7		2.3		-		-				6.1
Cost efficiency ratio ............	63.0		34.7		32.9		(100.0)		109.8				43.4
Balance sheet data47
	US$m		US$m		US$m		US$m		US$m				US$m
Loans and advances to customers (net) ................	5,005		12,554		8,519		1		1,817				27,896
Total assets .........................	6,437		14,482		36,539		53		8,676		(3,306)		62,881
Customer accounts ..............	18,468		11,127		6,555		14		2,865				39,029

	Half-year to 30 June 2011
	Retail       Banking and Wealth Management          US$m		Commercial      Banking         US$m	Global        Banking                and        Markets            US$m			Global        Private       Banking          US$m		Other          US$m		Inter-       segment elimination57          US$m		Total          US$m
Profit/(loss) before tax
Net interest income .............	253		243		174		1		3		(1)		673
Net fee income/(expense) ....	90		135		96		8		(2)		-		327
Trading income/(expense) excluding net interest income ............................	30		48		129		-		(1)		-		206
Net interest income on trading activities ..............	1		7		22		-		-		1		31
Net trading income/ (expense)51 ......................	31		55		151		-		(1)		1		237
Net expense from financial instruments designated at fair value ..........................	-		-		-		-		(6)		-		(6)
Gains less losses from financial investments .......	-		-		(6)		-		-		-		(6)
Dividend income .................	-		-		1		-		1		-		2
Other operating income ......	10		7		3		-		43		(54)		9
Total operating income .......	384		440		419		9		38		(54)		1,236
Net insurance claims58 .........	-		-		-		-		-		-		-
Net operating income48 .......	384		440		419		9		38		(54)		1,236
Loan impairment (charges)/ recoveries and other credit risk provisions .................	(58)		(48)		6		-		1		-		(99)
Net operating income ..........	326		392		425		9		39		(54)		1,137
Operating expenses .............	(263)		(155)		(148)		(12)		(50)		54		(574)
Operating profit/(loss) .........	63		237		277		(3)		(11)		-		563
Share of profit in associates and joint ventures ............	38		59		62		2		23		-		184
Profit/(loss) before tax ........	101		296		339		(1)		12		-		747
	%		%		%		%		%				%
Share of HSBC's profit before tax ........................	0.9		2.6		3.0		-		-				6.5
Cost efficiency ratio ............	68.5		35.2		35.3		133.3		131.6				46.4
Balance sheet data47
	US$m		US$m		US$m		US$m		US$m				US$m
Loans and advances to customers (net) ................	4,861		13,189		7,611		31		2				25,694
Total assets .........................	6,383		14,950		34,306		73		4,958		(2,632)		58,038
Customer accounts ..............	19,301		11,101		6,275		363		79				37,119

Profit/(loss) before tax and balance sheet data - Middle East and North Africa (continued)

	Half-year to 31 December 2011
	Retail        Banking   and Wealth Management           US$m		Commercial       Banking          US$m		Global       Banking               and       Markets           US$m		Global        Private       Banking          US$m		Other          US$m		Inter-       segment elimination57          US$m		Total          US$m
Profit/(loss) before tax
Net interest income/(expense) .........................................	336		253		197		1		(1)		(27)		759
Net fee income/(expense) ....	83		136		77		5		(1)		-		300
Trading income excluding net interest income ..........	32		47		137		1		-		-		217
Net interest income/(expense) on trading activities .........	(1)		(7)		10		-		(1)		27		28
Net trading income/(expense)51 ..........	31		40		147		1		(1)		27		245
Net income from financial instruments designated at fair value .....................	-		-		-		-		16		-		16
Gains less losses from financial investments .......	1		1		(1)		-		(3)		-		(2)
Dividend income .................	1		1		2		-		(1)		-		3
Other operating income/ (expense) .........................	12		4		8		(1)		81		(54)		50
Total operating income .......	464		435		430		6		90		(54)		1,371
Net insurance claims58 .........	-		-		-		-		-		-		-
Net operating income48 .......	464		435		430		6		90		(54)		1,371
Loan impairment charges and other credit risk provisions	(68)		(68)		(57)		-		(1)		-		(194)
Net operating income ..........	396		367		373		6		89		(54)		1,177
Operating expenses .............	(272)		(165)		(147)		(9)		(46)		54		(585)
Operating profit/(loss) .........	124		202		226		(3)		43		-		592
Share of profit in associates and joint ventures ............	22		39		78		2		12		-		153
Profit/(loss) before tax ........	146		241		304		(1)		55		-		745
	%		%		%		%		%				%
Share of HSBC's profit before tax ........................	1.4		2.3		2.9		-		0.5				7.2
Cost efficiency ratio ............	58.6		37.9		34.2		150.0		51.1				42.7
Balance sheet data47
	US$m		US$m		US$m		US$m		US$m				US$m
Loans and advances to customers (net) ................	4,921		12,446		8,479		26		3				25,875
Total assets .........................	6,549		14,556		34,676		72		4,792		(3,181)		57,464
Customer accounts ..............	18,549		10,943		6,703		114		113				36,422

For footnotes, see page 100.

 

END

 

 

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