Interim Report - 10 of 28

RNS Number : 1975P

HSBC Holdings PLC

15 August 2014

 



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 sixth largest bank by total assets.
	Half-year to
	30 Jun			30 Jun		31 Dec
	2014			2013		2013
	US$m			US$m		US$m
Net interest income .....	736			746		740
Net fee income ............	335			311		311
Net trading income ......	193			203		154
Other income/(expense)	30			(7)		45
Net operating income13 ..................................	1,294			1,253		1,250
LICs53 ..........................	50			47		(5)
Net operating income	1,344			1,300		1,245
Total operating expenses ..................................	(614)			(616)		(673)
Operating profit .......	730			684		572
Income from associates54 ..................................	259			225		213
Profit before tax .......	989			909		785
Cost efficiency ratio ....	47.4%			49.2%		53.8%
RoRWA47 ....................	3.2%			2.9%		2.4%
Period-end staff numbers	8,530			8,667		8,618
Strong GB&M performance driven by robust risk management
Completed disposal of our operations in Jordan and announced the sale of our operations in Pakistan in line with the Group's six filters investment criteria
Best Wealth Management in the Middle East (The Asian Banker)		Best Project Finance Advisor in the Middle East (EMEA Finance Project Finance Awards 2013)
For footnotes, see page 96. The following commentary is on a constant currency basis and comparisons are with the first half of 2013, unless stated otherwise. Tables are on a reported basis.

Economic background

Economic performance remained uneven in the Middle East and North Africa during the first half of 2014. In the Gulf Cooperation Council, the region's commodity exporters experienced strong growth supported by oil prices that remained comfortably over US$100 per barrel. The high level of receipts boosted sentiment and allowed governments to maintain their expansionary fiscal stance. Low interest rates, a reflection of the US dollar-pegged currency regimes, also supported the pace of growth. Qatar continued to be the fastest growing of the region's oil exporting states, and Saudi Arabia remained the largest, but the UAE showed the most improvement in momentum led by Dubai's export-orientated service sector and a recovery in its real estate market. Despite strong demand and loose fiscal policy, CPI inflation remained subdued across the region.

The economic environment for the region's non‑commodity exporters remained much more challenging, however, particularly for those states where political uncertainty was high. In Egypt, financial support from overseas allies eased pressure on public finances and on the country's external accounts, allowing government foreign currency reserves to stabilise. However, the public budget continued to generate a deficit equivalent to more than 10% of GDP, and foreign currency was controlled. Growth also remained weak, held back by low levels of investment, consumption and exports. Inflation, though easing, remained high.

Financial overview

Our operations in the Middle East and North Africa reported a profit before tax of US$1.0bn, an increase of 9% on both reported and constant currency bases.

On an underlying basis, profit before tax increased by US$93m, mainly due to higher revenue and increased income from our associate, The Saudi British Bank.

Country business highlights

In the UAE, we made good progress in executing the strategic plan we announced in 2013. In RBWM, we continued to focus on the Wealth Management business through investment in innovative platforms, tablet solutions and an expanded range of products and were awarded 'Best Wealth Management in the Middle East' by The Asian Banker. We launched an enhanced personal banking proposition, including

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 2014
Egypt .......................................................	33		46		71		-		(1)		149
Qatar ........................................................	9		22		35		-		-		66
United Arab Emirates ...............................	82		133		203		-		(35)		383
Other ........................................................	3		61		69		-		-		133
MENA (excluding Saudi Arabia) ................	127		262		378		-		(36)		731
Saudi Arabia ..............................................	55		94		99		9		1		258
	182		356		477		9		(35)		989
Half-year to 30 June 2013
Egypt .......................................................	27		34		72		−		(16)		117
Qatar ........................................................	7		20		33		−		−		60
United Arab Emirates ...............................	97		146		119		1		(26)		337
Other ........................................................	6		74		89		−		1		170
MENA (excluding Saudi Arabia) ................	137		274		313		1		(41)		684
Saudi Arabia ..............................................	43		77		98		6		1		225
	180		351		411		7		(40)		909
Half-year to 31 December 2013
Egypt .......................................................	4		3		94		−		(13)		88
Qatar ........................................................	3		17		29		−		−		49
United Arab Emirates ...............................	45		144		156		−		(46)		299
Other ........................................................	(13)		61		89		−		(1)		136
							−
MENA (excluding Saudi Arabia) ................	39		225		368		−		(60)		572
Saudi Arabia ..............................................	39		69		90		9		6		213
	78		294		458		9		(54)		785

additional competitive features on personal loans, which was extended to Egypt and Qatar.

In CMB, key appointments were made in line with the global strategy to focus the business on client segments and drive intra-regional and global client revenue, and we implemented an internal framework to increase relationship managers' time with customers.

We were awarded the 'Best International Trade Finance Bank' in a number of countries including the UAE and Egypt by the Global Trade Review Magazine. Our Payments and Cash Management business continued to invest in new products and resources across the region.

In GB&M, we utilised our distinctive geographic network to help clients meet their financing requirements. For example, we acted as a coordinator, book runner and joint lead manager for a number of issuances in the UAE and other countries, allowing our clients to access our global investor base. We won awards for 'Best Project Finance Advisor in the Middle East', 'Best Power Deal in the Middle East' and 'Best Water Deal in EMEA' at the EMEA Finance Project Finance Awards 2013, demonstrating our excellence in this area.

In Egypt, we continued to manage risk in an uncertain political and economic environment. During the period, the Central Bank of Egypt resumed interest payments on overnight placements. In RBWM, we were ranked number one in the Customer Recommendation Index and we continued to invest in our personal internet banking platform. In GB&M, we acted as a mandated lead arranger of an EGP2.3bn (US$330m) syndicated term loan facility, demonstrating our ability to deliver large and complex transactions.

In Saudi Arabia, our associate, The Saudi British Bank, won The Global Finance Magazine's award of 'The Best Trade Finance Provider in Saudi Arabia, 2014'.

In line with our six filters investment criteria, we completed the disposal of our operation in Jordan and entered into an agreement to sell our operation in Pakistan. This transaction is expected to complete during the second half of 2014.

Review of performance

The following commentary is on a constant currency basis and comparisons are with the first half of 2013, unless stated otherwise.

Net interest income was broadly unchanged. Increases in the UAE, primarily in RBWM due to an increase in residential mortgage balances, reflected growth in the property market and improved deposit spreads as a result of re-pricing initiatives. This was partly offset by reduced revenue from lower lending balances and spreads in CMB, reflecting a highly liquid and competitive market. In addition, income increased in Kuwait due to the restructuring of a small number of specific customer loans. These factors were broadly offset by a decrease in Egypt, primarily in CMB from lower customer deposit and lending balances, and in GB&M from declining spreads and lower balances on the available-for-sale portfolio, offset in part by the resumption of interest on overnight placements with the Central Bank of Egypt. In Jordan, net interest income decreased following the announcement to dispose of the business.

Net fee income increased by 8%, primarily in the UAE. In GB&M, net fee income was higher, driven by increased flows in our Equities business which in part reflected the upgrade of the UAE to 'Emerging Markets' status in the MSCI index. In addition, there was an increase in advisory mandates in Project and Export Finance in Capital Financing. This was partially offset by lower fees in RBWM relating to our Insurance and Wealth Management businesses following various repositioning initiatives.

Net trading income decreased by 5%, primarily in Algeria following regulatory restrictions on foreign exchange spreads charged on corporate customer transactions. This was coupled with a decrease in Qatar from lower foreign exchange revenues reflecting a reduction in trading volumes from GB&M customers. These factors were partly offset by increased net trading income in the UAE due to higher CVA releases on trading positions relating to a small number of exposures in GB&M.

Gains less losses from financial investmentsincreased by US$21m, mainly in Egypt, due to the non-recurrence of the loss on disposal of available-for-sale debt securities in the first half of 2013.

Net loan impairment releases were higher by US$3m, primarily in the UAE driven by net releases of individually assessed allowances in GB&M. However, this was offset in part by lower impairment releases for a small number of UAE-related exposures.

Operating expenses were broadly unchanged. In Egypt, expenses decreased due to the non-recurrence of charges relating to changes in the interpretation of tax regulations. This was partly offset by increased expenses in the UAE, driven by wage inflation, investment in the Risk and Compliance functions, higher customer facing staff in RBWM and increased service and product support staff in CMB. In addition, expenses increased in Qatar due to wage inflation.

Share of profits from associates and joint venturesincreased by 15%, mainly from The Saudi British Bank. This was driven by higher revenue resulting from strong balance sheet growth, and the management of costs and risks.

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

	Half-year to 30 June 2014
	Retail     Banking and Wealth Management         US$m		Commercial     Banking         US$m	Global      Banking               and       Markets           US$m			Global       Private     Banking         US$m		Other         US$m		Inter-    segment elimination65        US$m		Total         US$m
Profit before tax
Net interest income ...........	311		228		182		-		2		13		736
Net fee income/(expense) ..	74		137		127		-		(3)		-		335
Trading income/(expense) excluding net interest income ........................... .......................................	30		35		139		-		(4)		-		200
Net interest income on trading activities ............	-		-		6		-		-		(13)		(7)
Net trading income/(expense)59.........	30		35		145		-		(4)		(13)		193
Net expense from financial instruments designated at fair value ........................	-		-		-		-		(5)		-		(5)
Gains less losses from financial investments .....	-		-		2		1		-		-		3
Dividend income ................	1		1		7		-		-		-		9
Other operating income .....	8		7		8		-		53		(53)		23
Total operating income ..	424		408		471		1		43		(53)		1,294
Net insurance claims66 .......	-		-		-		-		-		-		-
Net operating income13 ..	424		408		471		1		43		(53)		1,294
Loan impairment (charges)/ recoveries and other credit risk provisions ...............	(14)		30		34		-		-		-		50
Net operating income ....	410		438		505		1		43		(53)		1,344
Operating expenses ............	(284)		(176)		(128)		-		(79)		53		(614)
Operating profit/(loss) ...	126		262		377		1		(36)		-		730
Share of profit in associates and joint ventures ..........	56		94		100		8		1		-		259
Profit/(loss) before tax ...	182		356		477		9		(35)		-		989
	%		%		%		%		%				%
Share of HSBC's profit before tax ......................	1.5		2.9		3.9		−		(0.3)				8.0
Cost efficiency ratio ..........	67.0		43.1		27.2		−		183.7				47.4
Balance sheet data51
	US$m		US$m		US$m		US$m		US$m				US$m
Loans and advances to customers (net)3 .............	6,230		13,126		9,554		-		-				28,910
Total assets .......................	6,968		14,830		38,358		71		3,566		(2,504)		61,289
Customer accounts3 ...........	19,051		11,967		8,802		-		262				40,082

	Half-year to 30 June 2013
	Retail       Banking and Wealth Management          US$m		Commercial       Banking          US$m	Global        Banking                and        Markets            US$m			Global        Private       Banking          US$m		Other          US$m		Inter-      segment elimination65         US$m		Total          US$m
Profit before tax
Net interest income .............	295		246		194		−		2		9		746
Net fee income/(expense) ....	88		137		88		−		(2)		-		311
Trading income excluding net interest income ...........	32		47		125		−		-		-		204
Net interest income/(expense) on trading activities .........	-		-		9		−		(1)		(9)		(1)
Net trading income/(expense)59...........	32		47		134		−		(1)		(9)		203
Net expense from financial instruments designated at fair value ..........................	−		−		−		−		(1)		−		(1)
Gains less losses from financial investments .......	-		-		(18)		−		-		-		(18)
Dividend income .................	-		-		4		−		-		-		4
Other operating income ......	12		2		8		−		49		(63)		8
Total operating income .......	427		432		410		−		47		(63)		1,253
Net insurance claims66 .........	-		-		-		−		−		-		-
Net operating income13 .......	427		432		410		−		47		(63)		1,253
Loan impairment (charges)/ recoveries and other credit risk provisions .................	(14)		16		44		1		-		-		47
Net operating income ..........	413		448		454		1		47		(63)		1,300
Operating expenses .............	(276)		(174)		(141)		-		(88)		63		(616)
Operating profit/(loss) .........	137		274		313		1		(41)		-		684
Share of profit in associates and joint ventures ............	43		77		98		6		1		-		225
Profit/(loss) before tax ........	180		351		411		7		(40)		-		909
	%		%		%		%		%				%
Share of HSBC's profit before tax ........................	1.3		2.5		2.9		-		(0.2)				6.5
Cost efficiency ratio ............	64.6		40.3		34.4		-		187.2				49.2
Balance sheet data51
	US$m		US$m		US$m		US$m		US$m				US$m
Loans and advances to customers (net)3 ..............	6,018		13,048		8,868		-		-				27,934
Total assets .........................	6,742		14,995		41,041		55		3,319		(2,860)		63,292
Customer accounts3 .............	19,594		13,652		7,816		1		79				41,142

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

	Half-year to 31 December 2013
	Retail        Banking   and Wealth Management           US$m		Commercial       Banking          US$m		Global       Banking               and       Markets           US$m		Global        Private       Banking          US$m		Other          US$m		Inter-      segment elimination65         US$m		Total          US$m
Profit/(loss) before tax
Net interest income .............	290		240		196		−		2		12		740
Net fee income/(expense) ....	73		132		109		−		(3)		−		311
Trading income excluding net interest income ..........	27		38		95		−		−		−		160
Net interest income on trading activities ..............	−		−		5		−		1		(12)		(6)
Net trading income59 ...........	27		38		100		−		1		(12)		154
Net expense from financial instruments designated at fair value .....................	−		−		−		−		(1)		−		(1)
Gains less losses from financial investments .......	−		−		−		−		−		−		−
Dividend income .................	−		−		5		−		−		−		5
Other operating income ......	13		28		7		−		50		(57)		41
Total operating income .......	403		438		417		−		49		(57)		1,250
Net insurance claims66 .........	−		−		−		−		−		−		−
Net operating income13 .......	403		438		417		−		49		(57)		1,250
Loan impairment (charges)/ recoveries and other credit risk provisions .................	(35)		(36)		66		−		−		−		(5)
Net operating income ..........	368		402		483		−		49		(57)		1,245
Operating expenses .............	(330)		(176)		(115)		−		(109)		57		(673)
Operating profit/(loss) .........	38		226		368		−		(60)		−		572
Share of profit in associates and joint ventures ............	40		68		90		9		6		−		213
Profit/(loss) before tax ........	78		294		458		9		(54)		−		785
	%		%		%		%		%				%
Share of HSBC's profit before tax ........................	0.9		3.4		5.4		0.1		(0.6)				9.2
Cost efficiency ratio ............	81.9		40.2		27.6		−		222.4				53.8
Balance sheet data51
	US$m		US$m		US$m		US$m		US$m				US$m
Loans and advances to customers (net)3 ...............	6,152		11,814		9,241		−		4				27,211
Total assets .........................	7,016		13,776		39,302		64		3,340		(2,688)		60,810
Customer accounts3 .............	18,771		12,402		7,432		1		77				38,683

For footnotes, see page 96.

 

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