Interim Report - 8 of 25

RNS Number : 4134J

HSBC Holdings PLC

10 August 2012

 



Hong Kong

HSBC's principal banking subsidiaries in Hong Kong are The Hongkong and Shanghai Banking Corporation Limited and Hang Seng Bank Limited. The former is the largest bank incorporated in Hong Kong and is our flagship bank in the Asia-Pacific region. It is one of Hong Kong's three note-issuing banks, accounting for over 60% by value of banknotes in circulation in the first half of 2012.
	Half-year to
	30 Jun		30 Jun		31 Dec
	2012		2011		2011
	US$m		US$m		US$m
Net interest income .....	2,599		2,249		2,442
Net fee income ............	1,618		1,612		1,485
Net trading income ......	762		669		520
Other income ..............	1,154		884		821
Net operating income48 ..................................	6,133		5,414		5,268
Impairment charges49 ..	(32)		(25)		(131)
Net operating income	6,101		5,389		5,137
Total operating expenses ..................................	(2,396)		(2,339)		(2,419)
Operating profit .......	3,705		3,050		2,718
Income from associates50	56		31		24
Profit before tax .......	3,761		3,081		2,742
Cost efficiency ratio ....	39.1%		43.2%		45.9%
RoRWA40 ....................	7.1%		5.6%		5.0%
Period-end staff numbers	27,976		30,214		28,984
Leading international bank in offshore renminbi products
19% growth in revenues from the collaboration between CMB and GB&M
Best domestic bank in Hong Kong (Asiamoney 2012)
For footnotes, see page 100. The commentary on Hong Kong is on a constant currency basis unless stated otherwise.

Economic background

GDP in Hong Kong grew by just 0.4% in the first quarter of 2012, as a slowdown in external demand from Europe and mainland China served to depress activity. The sharp contraction in export orders, however, was more than offset by ongoing strength in the domestic economy. The unemployment rate remained steady at close to 3.3% and, although 3 month HIBOR was 0.4% during the first half of 2012, up from 0.26% in June 2011, it remained very low, helping to underpin robust rates of private consumption and investment spending, which increased by 5.6% and 12.2%, respectively, on the year in the first quarter. Inflationary pressures and residential property price inflation eased, the latter slowing to 4.6% in May from 26% a year earlier.

Review of performance

Reported pre-tax profits from our operations in Hong Kong were US$3.8bn compared with US$3.1bn in the first half of 2011, an increase of 22% on both a reported and a constant currency basis.

The increase in profits was driven by higher net interest income in RBWM and CMB coupled with the gain on sale of our shares in two Indian banks. Trading revenues were higher in GB&M from positive performance in the Rates, Foreign Exchange and Credit businesses. These increases were partly offset by higher operating expenses, including staff costs.

In RBWM, we were awarded the 'Best Wealth Management Award' from The Asian Banker. We announced the sale of our general insurance business enabling us to focus on life insurance manufacturing where we maintained our market leadership position. We launched a dual currency Hong Kong dollar and renminbi credit card for customers who travel frequently between Hong Kong and mainland China that offers payment flexibility and protection against fluctuating exchange rates. We maintained our market leadership position in deposits, mortgages and mandatory provident funds as well as credit cards where we received 26 awards from Visa, MasterCard and China UnionPay.

In CMB, we capitalised on our international connectivity and our standing as a leading trade finance bank to grow trade-related revenues, particularly with mainland China. Cross-border referrals between Hong Kong and mainland China grew by 13% and by 10% between Hong Kong and the rest of the world. The collaboration between CMB and GB&M continued to strengthen, with growth of 19% in revenues which are shared

Profit/(loss) before tax by global business

	Half-year to
	30 June 2012 US$m		30 June 2011 US$m		31 December 2011 US$m
Retail Banking and Wealth Management ....................................................	1,753		1,599		1,423
Commercial Banking ..................................................................................	1,001		825		783
Global Banking and Markets .......................................................................	786		631		685
Global Private Banking ..............................................................................	122		130		58
Other .........................................................................................................	99		(104)		(207)
Profit before tax ........................................................................................	3,761		3,081		2,742

between the global businesses, most notably from the provision of foreign exchange products to our corporate customers. We also won the 'Best SME Partner Award' from the Hong Kong General Chamber of Small and Medium Businessfor the seventh consecutive year, and the 'Capital Weekly Service Excellence Award - SME Banking' for the fourth consecutive year.

On a reported basis we achieved record revenues in GB&M. We led the market in Hong Kong dollar bond issuance and participated in several significant debt capital markets transactions. We continued to lead the market in offshore renminbi bond issuance with several high-profile deals completed in the first half of 2012 for multinationals accessing the market.

We reinforced our position as a leading international bank for offshore renminbi products, topping all seven product categories in Asiamoney's inaugural Offshore Renminbi Survey, including the 'Best Overall Products and Services', the 'Best Clearance, Transaction Banking and Settlement' and 'Best for Deposits'.

The following commentary is on a constant currency basis.

Net interest income was 15% higher than in the first half of 2011, notably in RBWM and in CMB, driven primarily by wider deposit spreads and growth in balances of both customer loans and deposits.

In RBWM we experienced growth in average mortgage balances as we maintained our market leadership position. Average personal lending balances also grew. In CMB, average trade-related lending balances were higher as we capitalised on trade and capital flows. Growth in trade-related lending returned in the first half of 2012 following reductions in the second half of 2011.

Net interest income also rose due to higher average deposit balances as we focused on funding lending growth with deposit acquisition.

These were partly offset by narrower asset spreads, notably in residential mortgages in RBWM, as funding costs increased.

Net interest income from Balance Sheet Management was higher in the first half of 2012, through improved fund deployment amidst a consistently low interest rate environment.

Net fee incomeof US$1.6bn was broadly unchanged. Fees rose from the collaboration between CMB and GB&M and from higher trade-related volumes as we successfully captured opportunities from international trade and capital flows. We also benefited from our participation in several debt capital markets transactions in the first half of 2012. The increase was offset in RBWM, mainly by a reduction in brokerage income from lower market turnover as a result of weaker investor sentiment, and by lower fee income from unit trusts where the customer preference shifted towards lower risk products with lower fees.

Net trading income increased by 14%, driven by a positive performance in GB&M, notably in Rates trading activities, which reflected greater market volatility and tightening of spreads, and in Foreign Exchange, due to increased client activity and, in part, enhanced collaboration with CMB. Credit trading revenues also rose due to the tightening of spreads and increased volumes.

Net income from financial instruments designated at fair valuewas US$44m compared with US$26m in the first half of 2011 due to higher investment gains on assets held by the insurance business as a result of more favourable equity market conditions. To the extent that these investment gains were attributed to policyholders of unit-linked insurance policies and insurance contracts with DPF, there was a corresponding increase in 'Net insurance claims incurred and movement in liabilities to policyholders'.

Net earned insurance premiums increased by 19%, notably on insurance contracts with DPF, following higher sales volumes reflecting strong sales and renewals of life insurance products as a result of product launches and marketing campaigns. The growth in premiums resulted in a corresponding increase in 'Net insurance claims incurred and movement in liabilities to policyholders'.

Gains less losses from financial investments were US$261m higher, driven by the gain of US$275m from the sale of our shares in Axis Bank Limited and Yes Bank Limited, two non-strategic investments in India.

Other operating income of US$825m was US$90m lower than in the first half of 2011. The fall in income was primarily due to the non-recurrence of the gain from the refinement to the PVIF calculation methodology in the first half of 2011 (see footnote 27 on page 100), partly offset by a rise in PVIF reflecting favourable assumption updates and increased insurance sales in the first six months of 2012. In addition, the gain on revaluation of investment properties was lower in 2012 than in the first half of 2011.

Loan impairment charges and other credit risk provisions stayed at a low level at US$32m as the credit environment remained stable and we maintained our focus on high levels of asset quality.

Operating expenses increased by 2%, primarily due to wage inflation across the business and higher performance-related costs in GB&M reflecting increased revenue. Premises and equipment costs rose, mainly relating to systems implementation programmes and higher volume-driven processing charges, as well as increased property maintenance and rental costs. We continued to maintain strict cost control and progressed with the implementation of our organisational effectiveness programme that started in 2011.

Profit/(loss) before tax and balance sheet data - Hong Kong

	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$m
Profit before tax
Net interest income/(expense) .........................................	1,396		768		553		76		(238)		44		2,599
Net fee income ....................	825		433		272		77		11		−		1,618
Trading income/(expense) excluding net interest income ............................	85		85		392		94		(25)		−		631
Net interest income on trading activities ..............	2		−		166		−		7		(44)		131
Net trading income/(expense)51 ..........	87		85		558		94		(18)		(44)		762
Net income/(expense) from financial instruments designated at fair value .....	61		(18)		16		−		(15)		−		44
Gains less losses from financial investments .......	−		−		4		−		275		−		279
Dividend income .................	−		−		2		−		16		−		18
Net earned insurance premiums .........................	2,690		385		4		−		−		−		3,079
Other operating income ......	357		35		27		6		539		(139)		825
Total operating income ...	5,416		1,688		1,436		253		570		(139)		9,224
Net insurance claims58 .........	(2,745)		(341)		(5)		−		−		−		(3,091)
Net operating income48 ...	2,671		1,347		1,431		253		570		(139)		6,133
Loan impairment (charges)/ recoveries and other credit risk provisions .................	(44)		(2)		12		2		−		−		(32)
Net operating income ......	2,627		1,345		1,443		255		570		(139)		6,101
Operating expenses .............	(893)		(350)		(660)		(133)		(499)		139		(2,396)
Operating profit ...............	1,734		995		783		122		71		−		3,705
Share of profit in associates and joint ventures ............	19		6		3		−		28		−		56
Profit before tax ...............	1,753		1,001		786		122		99		−		3,761
	%		%		%		%		%				%
Share of HSBC's profit before tax ........................	13.6		7.9		6.2		1.0		0.8				29.5
Cost efficiency ratio ............	33.4		26.0		46.1		52.6		87.5				39.1
Balance sheet data47
	US$m		US$m		US$m		US$m		US$m				US$m
Loans and advances to customers (net) ................	58,290		58,694		40,699		6,192		1,329				165,204
Total assets .........................	89,464		67,566		242,783		19,901		82,901		(16,007)		486,608
Customer accounts ..............	184,857		80,383		34,340		18,819		421				318,820

Profit/(loss) before tax and balance sheet data - Hong Kong (continued)

	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$m
Profit/(loss) before tax
Net interest income/(expense) .........................................	1,249		625		501		88		(234)		20		2,249
Net fee income ....................	908		356		241		97		10		-		1,612
Trading income/(expense) excluding net interest income ............................	89		86		320		69		(9)		-		555
Net interest income on trading activities ..............	4		-		124		-		6		(20)		114
Net trading income/(expense)51...........	93		86		444		69		(3)		(20)		669
Net income/(expense) from financial instruments designated at fair value .....	50		(27)		2		-		1		-		26
Gains less losses from financial investments .......	-		-		20		-		(2)		-		18
Dividend income .................	-		1		11		-		19		-		31
Net earned insurance premiums .........................	2,193		390		5		-		-		-		2,588
Other operating income ......	375		83		22		6		556		(131)		911
Total operating income .......	4,868		1,514		1,246		260		347		(131)		8,104
Net insurance claims58 .........	(2,344)		(342)		(5)		-		1		-		(2,690)
Net operating income48 .......	2,524		1,172		1,241		260		348		(131)		5,414
Loan impairment (charges)/ recoveries and other credit risk provisions .................	(38)		(7)		22		(1)		(1)		-		(25)
Net operating income ..........	2,486		1,165		1,263		259		347		(131)		5,389
Operating expenses .............	(889)		(342)		(633)		(129)		(477)		131		(2,339)
Operating profit/(loss) .........	1,597		823		630		130		(130)		-		3,050
Share of profit in associates and joint ventures ............	2		2		1		-		26		-		31
Profit/(loss) before tax ........	1,599		825		631		130		(104)		-		3,081
	%		%		%		%		%				%
Share of HSBC's profit before tax ........................	13.9		7.2		5.5		1.1		(0.8)				26.9
Cost efficiency ratio ............	35.2		29.2		51.0		49.6		137.1				43.2
Balance sheet data47
	US$m		US$m		US$m		US$m		US$m				US$m
Loans and advances to customers (net) ................	53,999		58,529		39,124		5,949		1,769				159,370
Total assets .........................	82,184		66,563		232,057		21,545		81,316		(9,621)		474,044
Customer accounts ..............	175,641		74,760		34,348		20,378		599				305,726

	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$m
Profit/(loss) before tax
Net interest income/(expense) .........................................	1,322		692		550		85		(230)		23		2,442
Net fee income ....................	833		350		234		63		5		-		1,485
Trading income/(expense) excluding net interest income ............................	31		83		332		66		(107)		-		405
Net interest income on trading activities ..............	5		1		122		-		10		(23)		115
Net trading income/ (expense)51 ......................	36		84		454		66		(97)		(23)		520
Net income/(expense) from financial instruments designated at fair value .....	(525)		(45)		(7)		-		14		-		(563)
Gains less losses from financial investments .......	3		10		1		-		(8)		-		6
Dividend income .................	-		-		3		-		5		-		8
Net earned insurance premiums .........................	2,124		368		8		-		-		-		2,500
Other operating income ......	130		92		57		2		629		(137)		773
Total operating income .......	3,923		1,551		1,300		216		318		(137)		7,171
Net insurance claims58 .........	(1,543)		(355)		(4)		-		(1)		-		(1,903)
Net operating income48 .......	2,380		1,196		1,296		216		317		(137)		5,268
Loan impairment (charges)/ recoveries and other credit risk provisions .................	(39)		(59)		1		(35)		1		-		(131)
Net operating income ..........	2,341		1,137		1,297		181		318		(137)		5,137
Operating expenses .............	(922)		(361)		(615)		(123)		(535)		137		(2,419)
Operating profit/(loss) .........	1,419		776		682		58		(217)		-		2,718
Share of profit in associates and joint ventures ............	4		7		3		-		10		-		24
Profit/(loss) before tax ........	1,423		783		685		58		(207)		-		2,742
	%		%		%		%		%				%
Share of HSBC's profit before tax ........................	13.7		7.5		6.6		0.6		(2.0)				26.4
Cost efficiency ratio ............	38.7		30.2		47.5		56.9		168.8				45.9
Balance sheet data47
	US$m		US$m		US$m		US$m		US$m				US$m
Loans and advances to customers (net) ................	56,296		54,986		39,667		5,447		1,269				157,665
Total assets .........................	85,866		63,516		238,892		20,680		84,782		(20,712)		473,024
Customer accounts ..............	181,316		79,225		35,283		19,622		(101)				315,345

For footnotes, see page 100.

 

END

 

 

IR UNRVRUWAWRAR