Interim Report - 8 of 28

RNS Number : 8992L

HSBC Holdings PLC

16 August 2013

 



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 2013.
	Half-year to
	30 Jun		30 Jun		31 Dec
	2013		2012		2012
	US$m		US$m		US$m
Net interest income .....	2,866		2,599		2,717
Net fee income ............	2,006		1,618		1,717
Net trading income ......	872		762		701
Other income ..............	899		1,154		1,154
Net operating income22 ..................................	6,643		6,133		6,289
LICs55 ..........................	(46)		(32)		(42)
Net operating income	6,597		6,101		6,247
Total operating expenses ..................................	(2,418)		(2,396)		(2,452)
Operating profit .......	4,179		3,705		3,795
Income from associates56	26		56		26
Profit before tax .......	4,205		3,761		3,821
Cost efficiency ratio ....	36.4%		39.1%		39.0%
RoRWA49 ....................	7.1%		7.1%		6.9%
Period-end staff numbers	27,966		27,976		27,742
9% growth in underlying revenue
14% growth in combined CMB and GB&M lending balances (on a constant currency basis)
Best Bank in Hong Kong (FinanceAsia, Country Awards for Achievement, 2013)
For footnotes, see page 100.

Economic background

GDP growth in Hong Kong decelerated to a rate of 0.2% quarter on quarter in the first three months of 2013, on the back of mainland China's slowdown in the first quarter and sluggish demand from the West. The resilient local job market and solid income growth supported the economy in the absence of strong external demand. Unemployment was steady at around 3.4% even though the labour force grew to a record high in the first quarter. The 3-month Hibor eased to an average of 0.38% during the first half of 2013, down from 0.4% in the second half of 2012. Low borrowing costs and a continued increase in real wages helped private consumption to rise by 7% on the year in the first quarter. Investment spending contracted by 2.2% in the same period, however, due to cooling business sentiment. Inflationary pressures eased slightly, with the CPI slowing to 3.9% in May from an average of 4.1% in 2012. The growth in residential property prices slowed too, rising by 2.8% in the first five months of 2013 compared with 7.6% for the same period in 2012.

Review of performance

Our operations in Hong Kong reported a pre-tax profit of US$4.2bn compared with US$3.8bn in the first half of 2012, an increase of 12%. This reflected higher revenue, driven by increased net fees from unit trusts and debt issuance and balance sheet growth. Excluding the effect of disposals in 2012, underlying profit before tax increased by 13%.

In RBWM, average loan to value ratios were 44% on new mortgage drawdowns and an estimated 32% on the portfolio as a whole. We enhanced our digital banking capabilities with the launch of a new mobile banking application and implemented the Global Wealth Incentive Plan.

In CMB, we further strengthened the collaboration with GB&M particularly in Foreign Exchange as well as debt capital markets issuance where the number of transactions more than tripled compared with the first half of 2012. We were named 'Best Domestic Bank in Hong Kong' by Asiamoney.

In GB&M we continued to lead the market in Hong Kong dollar bond issuance and are now one of the top five for both equity capital markets and mergers and acquisitions.

We led the market in offshore RMB bond issuance and were voted 'Best provider of offshore renminbi products and services' for the second year running by Asiamoney.

Profit/(loss) before tax by global business

	Half-year to
	30 June 2013 US$m		30 June 2012 US$m		31 December 2012 US$m
Retail Banking and Wealth Management ....................................................	1,867		1,753		1,941
Commercial Banking ..................................................................................	1,083		1,001		1,187
Global Banking and Markets .......................................................................	1,078		786		732
Global Private Banking ..............................................................................	137		122		127
Other .........................................................................................................	40		99		(166)
Profit before tax ........................................................................................	4,205		3,761		3,821

The following commentary is on a constant currency basis.

Net interest income increased by US$266m on the first half of 2012, led by RBWM and supported by CMB and GB&M. This was mainly due to higher average lending balances, wider spreads on mortgages in RBWM reflecting lower funding costs, and growth in the insurance debt securities portfolio.

There was strong loan growth in both CMB and GB&M, driven by trade-related lending, though the benefit of this growth was partly offset by spread compression reflecting competition and increased liquidity in the markets. Mortgage lending in RBWM also increased, although the rate of growth began to slow as transaction volumes in the property market reduced.

Average deposit balances increased, in part reflecting new Premier customers in RBWM and increased Payments and Cash Management balances in CMB, though the benefit of this growth was more than offset by narrower deposit spreads due to a fall in short-term interest rates.

Net fee income rose by US$388m in the first half of 2013, primarily in RBWM. Strong customer demand and favourable market sentiment led to higher fees from unit trusts and increased brokerage income. Fee income was higher in GB&M due to a rise in debt and equity underwriting and corporate finance activity compared with the first half of 2012, in part reflecting collaboration with CMB. Fee income also increased in CMB as trade volumes increased.

Net trading income was 14% higher than in the first six months of 2012. Rates revenue rose due to higher net interest income on increased debt securities holdings. Foreign Exchange revenue increased due to higher customer trading volumes. There was also a favourable DVA (see page 28).

Net expense from financial instruments designated at fair value was US$258m compared with net income of US$44m in the first half of 2012, primarily due to net investment losses on assets held by the insurance business as both equity and bond markets fell towards the end of the first half of 2013. To the extent that these investment returns were attributed to policyholders holding unit-linked insurance policies and insurance contracts with DPF, there was a corresponding movement in Net insurance claims incurred and movement in liabilities to policyholders.

Net gains less losses from financial investments were US$19m in the first half of 2013 compared with US$279m in 2012, largely due to the non-recurrence of the gains on sale of our shares in two Indian banks in the first half of 2012.

Net earned insurance premiums grew by 3% due to increased renewals of insurance contracts with DPF and unit-linked insurance contracts, and higher new business premiums partly offset by the absence of non-life insurance premiums following the disposal of these businesses in 2012. The growth in premiums resulted in a corresponding increase in Net insurance claims incurred and movement in liabilities to policyholders.

Other operating income was US$59m higher from disposal and revaluation gains on investment properties. This was partly offset by a lower increase in the PVIF asset largely due to the favourable valuation of policyholder options and guarantees in 2012.

LICs were US$13m higher due to an increase from a revision to the assumptions used in our collective assessment models in RBWM partly offset by collective impairment releases in CMB.

Operating expenses rose by US$22m in the first half of 2013, driven by increased property rental prices, costs relating to the introduction of updated payment cards and information technology platforms. These were partly offset by reduced performance-related costs in GB&M, and lower restructuring and other related costs relating to organisational effectiveness programmes in 2012.

Share of profit from associates and joint ventures was US$30m lower due to the non-

recurrence of a deferred tax credit in 2012 relating to investment properties held by an associate, and the effect of the disposal of our interest in Global Payments Asia-Pacific Ltd last year.

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

	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$m		Inter-    segment elimination62        US$m		Total         US$m
Profit before tax
Net interest income/(expense) ...........	1,563		827		609		66		(194)		(5)		2,866
Net fee income ..................	1,029		495		384		88		10		-		2,006
Trading income/(expense) excluding net interest income ...........................	49		91		493		80		(24)		-		689
Net interest income on trading activities ............	1		-		166		-		11		5		183
Net trading income/(expense)57 ........	50		91		659		80		(13)		5		872
Net income/(expense) from financial instruments designated at fair value ...	(241)		(12)		3		-		(8)		-		(258)
Gains less losses from financial investments .....	-		-		20		1		(2)		-		19
Dividend income ................	-		-		2		-		14		-		16
Net earned insurance premiums .......................	2,912		267		-		-		-		-		3,179
Other operating income .....	264		27		31		4		707		(148)		885
Total operating income ..	5,577		1,695		1,708		239		514		(148)		9,585
Net insurance claims63 .......	(2,680)		(262)		-		-		-		-		(2,942)
Net operating income22 ..	2,897		1,433		1,708		239		514		(148)		6,643
Loan impairment (charges)/ recoveries and other credit risk provisions ...............	(75)		23		7		(1)		-		-		(46)
Net operating income ....	2,822		1,456		1,715		238		514		(148)		6,597
Operating expenses ............	(980)		(373)		(638)		(101)		(474)		148		(2,418)
Operating profit .............	1,842		1,083		1,077		137		40		-		4,179
Share of profit in associates and joint ventures ..........	25		-		1		-		-		-		26
Profit before tax .............	1,867		1,083		1,078		137		40		-		4,205
	%		%		%		%		%				%
Share of HSBC's profit before tax ......................	13.3		7.7		7.6		1.0		0.3				29.9
Cost efficiency ratio ..........	33.8		26.0		37.4		42.3		92.2				36.4
Balance sheet data53
	US$m		US$m		US$m		US$m		US$m				US$m
Loans and advances to customers (net) ..............	64,096		71,269		45,760		7,118		1,382				189,625
Total assets .......................	101,062		80,771		268,379		20,604		66,218		(8,322)		528,712
Customer accounts .............	199,240		87,859		35,798		19,496		271				342,664

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

	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$m		Inter-      segment elimination62         US$m		Total          US$m
Profit before tax
Net interest income/(expense) .........................................	1,396		768		553		76		(238)		44		2,599
Net fee income ....................	825		433		272		77		11		-		1,618
Trading income/(expense) excluding net interest income ............................	85		85		392		94		(25)		-		631
Net interest income on trading activities ..............	2		-		166		-		7		(44)		131
Net trading income/(expense)57 ..........	87		85		558		94		(18)		(44)		762
Net income/(expense) from financial instruments designated at fair value .....	61		(18)		16		-		(15)		-		44
Gains less losses from financial investments .......	-		-		4		-		275		-		279
Dividend income .................	-		-		2		-		16		-		18
Net earned insurance premiums .........................	2,690		385		4		-		-		-		3,079
Other operating income ......	357		35		27		6		539		(139)		825
Total operating income .......	5,416		1,688		1,436		253		570		(139)		9,224
Net insurance claims63 .........	(2,745)		(341)		(5)		-		-		-		(3,091)
Net operating income22 .......	2,671		1,347		1,431		253		570		(139)		6,133
Loan impairment (charges)/ recoveries and other credit risk provisions .................	(44)		(2)		12		2		-		-		(32)
Net operating income ..........	2,627		1,345		1,443		255		570		(139)		6,101
Operating expenses .............	(893)		(350)		(660)		(133)		(499)		139		(2,396)
Operating profit ..................	1,734		995		783		122		71		-		3,705
Share of profit in associates and joint ventures ............	19		6		3		-		28		-		56
Profit before tax .................	1,753		1,001		786		122		99		-		3,761
	%		%		%		%		%				%
Share of HSBC's profit before tax ........................	13.6		7.9		6.2		1.0		0.8				29.5
Cost efficiency ratio ............	33.4		26.0		46.1		52.6		87.5				39.1
Balance sheet data53
	US$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

	Half-year to 31 December 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$m		Inter-      segment elimination62         US$m		Total          US$m
Profit/(loss) before tax
Net interest income/(expense) .........................................	1,455		861		534		73		(244)		38		2,717
Net fee income ....................	944		417		276		78		2		-		1,717
Trading income excluding net interest income ................	91		78		274		76		23		-		542
Net interest income on trading activities ..............	8		2		186		-		1		(38)		159
Net trading income57 ...........	99		80		460		76		24		(38)		701
Net income/(expense) from financial instruments designated at fair value .....	450		(35)		7		-		(19)		-		403
Gains less losses from financial investments .......	-		-		(2)		7		38		-		43
Dividend income .................	-		1		3		-		2		-		6
Net earned insurance premiums .........................	2,604		270		4		-		-		-		2,878
Other operating income ......	354		218		50		7		613		(143)		1,099
Total operating income .......	5,906		1,812		1,332		241		416		(143)		9,564
Net insurance claims63 .........	(3,012)		(261)		(2)		-		-		-		(3,275)
Net operating income22 .......	2,894		1,551		1,330		241		416		(143)		6,289
Loan impairment (charges)/ recoveries and other credit risk provisions .................	(53)		5		5		1		-		-		(42)
Net operating income ..........	2,841		1,556		1,335		242		416		(143)		6,247
Operating expenses .............	(926)		(369)		(603)		(115)		(582)		143		(2,452)
Operating profit/(loss) .........	1,915		1,187		732		127		(166)		-		3,795
Share of profit in associates and joint ventures ............	26		-		-		-		-		-		26
Profit/(loss) before tax ........	1,941		1,187		732		127		(166)		-		3,821
	%		%		%		%		%				%
Share of HSBC's profit before tax ........................	24.5		15.0		9.3		1.6		(2.1)				48.3
Cost efficiency ratio ............	32.0		23.8		45.3		47.7		139.9				39.0
Balance sheet data53
	US$m		US$m		US$m		US$m		US$m				US$m
Loans and advances to customers (net) ................	62,533		62,944		40,223		6,464		1,449				173,613
Total assets .........................	96,185		72,056		256,295		20,705		81,085		(7,992)		518,334
Customer accounts ..............	201,649		90,152		34,171		19,566		670				346,208

For footnotes, see page 100.

 

END

 

 

IR UNVRRORAWAAR