Interim Report - 10 of 26

RNS Number : 1159M

HSBC Holdings PLC

12 August 2011

 



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 Middle East and North Africa. Our associate in Saudi Arabia, The Saudi British Bank (40% owned), is the Kingdom's sixth largest bank by total assets.
	Half-year to
	30 Jun			30 Jun		31 Dec
	2011			2010		2010
	US$m			US$m		US$m
Net interest income ......	673			667		700
Net fee income .............	327			356		321
Net trading income .......	237			194		176
Other income/(expense)	(1)			(29)		25
Net operating income41 ...................................	1,236			1,188		1,222
Impairment charges42 ....	(99)			(438)		(189)
Net operating income	1,137			750		1,033
Total operating expenses ...................................	(574)			(519)		(559)
Operating profit ........	563			231		474
Income from associates43	184			115		72
Profit before tax .........	747			346		546
Cost efficiency ratio .....	46.4%			43.7%		45.7%
RoRWA44 .....................	2.7%			1.3%		2.0%
Period-end staff numbers	8,755			8,264		8,676
Underlying profits nearly doubled despite political unrest and economic pressures
Loan impairment charges declined to their lowest levels since 1H08
Best International Islamic Bank (Euromoney Islamic Finance Awards 2011)		Best Risk Advisor in Middle East (Euromoney Awards for Excellence 2011)
For footnotes, see page 81. The commentary on the Middle East and North Africa is on an underlying basis unless stated otherwise.

Economic background

Political unrest weighed heavily on economic performance in the Middle East and North Africa in the first half of 2011. Those economies that saw the most pronounced turmoil fell into recession as production was disrupted, consumption scaled back and investor confidence compromised. While in economies such as Egypt there were early signs of economic activity normalising as political conditions improved, in others where unrest continued, output losses were substantial and ongoing. Continued high oil prices allowed the region's key energy exporters to increase public spending, providing a significant boost to domestic demand. Access to domestic credit improved as the effect of the 2008/09 downturn continued to fade and interest rates remained at historic lows. Inflation was subdued region-wide.

Review of performance

Our operations in the Middle East and North Africa reported a profit before tax of US$747m. On an underlying basis, pre-tax profits increased by 94%, largely driven by the non-recurrence of significant loan impairment charges. This was partly offset by higher operating expenses as we continued to invest in distribution and marketing initiatives to drive future revenue growth.

The increase in profits reflected strong risk management practices, and was achieved despite political unrest and economic pressures in 10 of the 14 countries in which we operate in the region. The overall resilience of the oil-based regional economies and the strength of the HSBC brand were evidenced by a robust growth in deposits during the volatile conditions experienced in the region in the first half of 2011. Except when instructed to close by the central bank in Egypt and the one day of closure in Bahrain, our branch network in the region remained open for business throughout the period, reflecting our commitment to serve our customers.

In RBWM, we continued to build long-term relationships through our Premier and Advance customer offerings, focusing on wealth management and secured lending for affluent expatriates in the region.

We also strengthened our position as the leading international trade and business bank and achieved strong synergies by connecting our CMB and GB&M businesses, with CMB revenues from GB&M products increasing compared with the first half of 2010. As part of our continued

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

	Retail     Banking and Wealth Management16          US$m		Commercial     Banking         US$m	Global     Banking             and     Markets16         US$m			Global       Private     Banking         US$m		Other         US$m		Total         US$m
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 30 June 2010
Egypt .......................................................	18		41		19		-		-		78
Qatar .......................................................	10		28		33		-		-		71
United Arab Emirates ...............................	7		98		24		(2)		(1)		126
Other .......................................................	14		15		(64)		(1)		-		(36)
MENA (excluding Saudi Arabia) ...............	49		182		12		(3)		(1)		239
Saudi Arabia .............................................	16		76		30		(20)		5		107
	65		258		42		(23)		4		346
Half-year to 31 December 2010
Egypt .......................................................	20		41		58		-		(2)		117
Qatar .......................................................	9		24		34		-		-		67
United Arab Emirates ...............................	10		88		97		3		-		198
Other .......................................................	5		42		45		1		-		93
MENA (excluding Saudi Arabia) ...............	44		195		234		4		(2)		475
Saudi Arabia .............................................	9		31		23		4		4		71
	53		226		257		8		2		546

For footnote, see page 81.

support to local internationally-focused businesses, we pledged a second US$100m fund to UAE SME customers engaged in cross-border business during the period, and the amount has been fully utilised.

In GB&M, we won a number of awards, including 'Best Overall Primary Debt Provider' and 'Best for Middle East Currencies'from Euromoney and 'Best Middle East House' in the EuroWeek Bond Market Awards.

Net interest income rose marginally, driven by higher trade balances in CMB as we saw increased opportunities to support global and intra‑regional trade flows. This was partly offset by lower average lending balances and narrower spreads in RBWM as unsecured lending portfolios continued to be managed down and new lending was directed to higher quality but lower yielding lending.

Net fee income decreased by 8% despite higher trade volumes in CMB as institutional equity activity receded in the challenging political and economic environment. In addition, card fee income decreased due to a decline in the number of credit cards in issue in RBWM as certain portfolios were managed down.

Trading income benefited from higher local currency Rates trading due to a combination of new customer trades along with valuation gains on trading positions in relation to Middle East currency derivatives.

Loan impairment charges and other credit risk provisions declined to their lowest levels since the first half of 2008, driven by an overall improvement in credit conditions. Repositioning of the loan book towards higher quality lending, and strengthened collection practices contributed to a significant improvement in delinquency rates in RBWM. In CMB, loan impairment charges and other credit risk provisions remained broadly in line with the first half of 2010 and included specific impairments in relation to a few corporate customers reflecting economic uncertainty in the region. Loan impairment charges and other credit risk provisions in GB&M reduced markedly as loan impairment charges which followed restructuring activity for a small number of large UAE corporate customers in the first half of 2010 did not recur.

Operating expenses increased by 11%, mainly as a result of higher staff costs driven by a rise in staff numbers, as the branch network was expanded, and wage inflation. The increase included restructuring costs of US$16m across the region as initiatives taken as a result of the strategic review of costs to drive future revenue growth were implemented. Marketing and advertising costs also rose as we increased investment in the promotion of the HSBC brand, including at the Abu Dhabi International and Dubai International airports. Excluding restructuring costs, expenses were broadly in line with the second half of 2010.

Profit from associates and joint ventures increased by 60%, mainly from the Saudi British Bank, driven by strong revenues, 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 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$m		Inter-     segment elimination52         US$m		Total         US$m
Profit/(loss) before tax
Net interest income .............	253		243		174		1		3		(1)		673
Net fee income/(expense) ....	90		135		96		8		(2)		-		327
Trading income/(expense) excluding net interest income ............................	30		48		129		-		(1)		-		206
Net interest income on trading activities ..............	1		7		22		-		-		1		31
Net trading income/ (expense)45 ......................	31		55		151		-		(1)		1		237
Net expense from financial instruments designated at fair value ..........................	-		-		-		-		(6)		-		(6)
Gains less losses from financial investments .......	-		-		(6)		-		-		-		(6)
Dividend income .................	-		-		1		-		1		-		2
Other operating income ......	10		7		3		-		43		(54)		9
Total operating income ...	384		440		419		9		38		(54)		1,236
Net insurance claims53 .........	-		-		-		-		-		-		-
Net operating income41 ....	384		440		419		9		38		(54)		1,236
Loan impairment (charges)/ recoveries and other credit risk provisions .................	(58)		(48)		6		-		1		-		(99)
Net operating income ......	326		392		425		9		39		(54)		1,137
Operating expenses .............	(263)		(155)		(148)		(12)		(50)		54		(574)
Operating profit/(loss) ....	63		237		277		(3)		(11)		-		563
Share of profit in associates and joint ventures ............	38		59		62		2		23		-		184
Profit/(loss) before tax .....	101		296		339		(1)		12		-		747
	%		%		%		%		%				%
Share of HSBC's profit before tax ........................	0.9		2.6		3.0		-		-				6.5
Cost efficiency ratio ............	68.5		35.2		35.3		133.3		131.6				46.4
Balance sheet data39
	US$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 30 June 2010
	Retail      Banking and Wealth Management16          US$m		Commercial       Banking          US$m	Global       Banking              and       Markets16          US$m			Global        Private       Banking          US$m		Other          US$m		Inter-       segment elimination52          US$m		Total          US$m
Profit/(loss) before tax
Net interest income ............	287		214		163		1		5		(3)		667
Net fee income ...................	103		134		113		6		-		-		356
Trading income/(expense) excluding net interest income ............................	30		44		113		-		(3)		-		184
Net interest income/(expense) on trading activities ........	1		3		5		-		(2)		3		10
Net trading income/ (expense)45 ......................	31		47		118		-		(5)		3		194
Gains less losses from financial investments ......	1		-		(1)		-		(1)		-		(1)
Dividend income .................	2		1		2		-		-		-		5
Other operating income/ (expense) ........................	11		(20)		(11)		-		16		(29)		(33)
Total operating income ......	435		376		384		7		15		(29)		1,188
Net insurance claims53 .........	-		-		-		-		-		-		-
Net operating income41 .......	435		376		384		7		15		(29)		1,188
Loan impairment charges and other credit risk provisions	(141)		(47)		(250)		-		-		-		(438)
Net operating income .........	294		329		134		7		15		(29)		750
Operating expenses .............	(245)		(150)		(127)		(10)		(16)		29		(519)
Operating profit/(loss) ........	49		179		7		(3)		(1)		-		231
Share of profit/(loss) in associates and joint ventures ..........................	16		79		35		(20)		5		-		115
Profit/(loss) before tax .......	65		258		42		(23)		4		-		346
	%		%		%		%		%				%
Share of HSBC's profit before tax .......................	0.6		2.3		0.3		(0.2)		0.1				3.1
Cost efficiency ratio ...........	56.3		39.9		33.1		142.9		106.7				43.7
Balance sheet data39
	US$m		US$m		US$m		US$m		US$m				US$m
Loans and advances to customers (net) ...............	5,443		11,541		6,389		18		3				23,394
Total assets ........................	6,266		13,892		29,078		(267)		4,247		(3,579)		49,637
Customer accounts ..............	16,449		10,482		5,359		641		46				32,977

	Half-year to 31 December 2010
	Retail      Banking and Wealth Management16          US$m		Commercial       Banking          US$m		Global      Banking             and     Markets16         US$m		Global        Private       Banking          US$m		Other          US$m		Inter-       segment elimination52          US$m		Total          US$m
Profit/(loss) before tax
Net interest income/(expense) ........................................	266		259		171		(1)		9		(4)		700
Net fee income ...................	97		124		89		11		-		-		321
Trading income/(expense) excluding net interest income ...........................	29		41		92		1		(4)		-		159
Net interest income/(expense) on trading activities ........	-		4		13		-		(4)		4		17
Net trading income/(expense)45 .........	29		45		105		1		(8)		4		176
Gains less losses from financial investments ......	-		-		(2)		-		-		-		(2)
Dividend income ................	-		-		2		-		-		-		2
Other operating income .....	16		12		10		1		24		(38)		25
Total operating income ......	408		440		375		12		25		(38)		1,222
Net insurance claims53 ........	-		-		-		-		-		-		-
Net operating income41 ......	408		440		375		12		25		(38)		1,222
Loan impairment charges and other credit risk provisions	(86)		(98)		(5)		-		-		-		(189)
Net operating income .........	322		342		370		12		25		(38)		1,033
Operating expenses ............	(279)		(147)		(136)		(8)		(27)		38		(559)
Operating profit/(loss) ........	43		195		234		4		(2)		-		474
Share of profit in associates and joint ventures ...........	10		31		23		4		4		-		72
Profit before tax ................	53		226		257		8		2		-		546
	%		%		%		%		%				%
Share of HSBC's profit before tax .......................	0.7		2.8		3.2		0.1		0.1				6.9
Cost efficiency ratio ...........	68.4		33.4		36.3		66.7		108.0				45.7
Balance sheet data39
	US$m		US$m		US$m		US$m		US$m				US$m
Loans and advances to customers (net) ...............	5,063		12,293		7,247		21		2				24,626
Total assets ........................	6,286		13,991		31,253		59		4,129		(2,961)		52,757
Customer accounts .............	17,538		10,319		5,306		290		58				33,511

For footnotes, see page 81.

 

END

 

 

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