Interim Report - 9 of 25

RNS Number : 4136J

HSBC Holdings PLC

10 August 2012

 



Rest of Asia-Pacific

We offer a full range of banking and financial services in mainland China, mainly through our local subsidiary, HSBC Bank (China) Company Limited. We also participate indirectly in mainland China through our associates. Outside mainland China, we conduct business in 22 countries and territories in the Rest of Asia-Pacific region, primarily through branches and subsidiaries of The Hongkong and Shanghai Banking Corporation Limited, with particularly strong coverage in Australia, India, Indonesia, Malaysia and Singapore.
	Half-year to
	30 Jun		30 Jun		31 Dec
	2012		2011		2011
	US$m		US$m		US$m
Net interest income .....	2,718		2,381		2,721
Net fee income ............	1,078		1,117		994
Net trading income ......	932		862		796
Other income ..............	1,219		988		854
Net operating income48 ..................................	5,947		5,348		5,365
Impairment charges49 ..	(298)		(100)		(167)
Net operating income	5,649		5,248		5,198
Total operating expenses ..................................	(2,865)		(2,836)		(2,970)
Operating profit .......	2,784		2,412		2,228
Income from associates50	1,588		1,330		1,501
Profit before tax .......	4,372		3,742		3,729
Cost efficiency ratio ....	48.2%		53.0%		55.4%
RoRWA40 ....................	3.0%		3.3%		2.9%
Period-end staff numbers	86,207		91,924		91,051
12% growth in trade-related lending since June 2011 on a constant currency basis
18% increase in pre-tax profit on a constant currency basis
Best Foreign Retail Bank in China Asia Banker
For footnotes, see page 100. The commentary on Rest of Asia-Pacific is on a constant currency basis unless stated otherwise.

Economic background

The mainland China economy slowed in the first half of 2012. Annual GDP growth decelerated from 9.2% in 2011 to 7.6% in the second quarter of 2012, reflecting a downturn in demand for Chinese exports and a reduction in the pace of property construction following measures by the authorities to moderate activity in the property market after the rapid price rises in recent years. The slowdown eased inflationary pressures that had been building in 2011, and the annual rate of CPI inflation fell to 2.2% in June. In response to the escalation of the eurozone crisis, policymakers adopted more accommodative measures with cuts in the reserve ratio for banks and deposit and lending rates. A number of fiscal measures were also implemented to support activity such as faster approvals for infrastructure projects, tax incentives to buy energy-efficient home appliances and lower regulatory barriers for investment.

Japan's economy delivered robust growth during the first half of the year, with GDP expanding at almost 5% in the first three months alone on an annualised basis. Domestic demand, led by private consumption and government spending, mostly accounted for the strength. The Bank of Japan also loosened monetary policy by adopting a firmer inflation targeting regime and announcing a further expansion of its asset purchase programme. Economic momentum slowed slightly in the second quarter.

In the early months of 2012, GDP growth in Singapore remained robust, driven by investment and private consumption. In the second quarter, GDP growth eased as the eurozone crisis constrained external demand. Annual CPI inflation remained high at nearly 5%, prompting the Monetary Authority of Singapore to tighten monetary policy and strengthen its trade-weighted exchange rate. The recent slowdown in India's economy continued in the first quarter of 2012, with annual growth of GDP easing to 5.3% from 6.1% in the final quarter of 2011, the slowest rate since 2004. This reflected the lagged effect of monetary tightening by the Reserve Bank of India ('RBI') during 2011 to ease inflationary pressures, the slowdown in external demand and slow progress in key structural reforms. Inflation remained high, so the RBI were only able to cut the key policy rate by half a percentage point in April to 8%.

While the domestic economies in other parts of Asia remained largely firm, the slowdown in demand from mainland China and the West reduced the rate

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
Australia .............................................	51		(34)		80		−		(6)		91
India ...................................................	35		49		306		4		121		515
Indonesia ............................................	19		59		91		−		6		175
Mainland China ..................................	500		853		633		(2)		38		2,022
Associates .......................................	529		755		284		−		−		1,568
Other mainland China .....................	(29)		98		349		(2)		38		454
Malaysia .............................................	93		68		124		−		3		288
Singapore ...........................................	105		62		126		50		(8)		335
Taiwan ...............................................	38		29		77		−		2		146
Vietnam .............................................	3		28		39		−		8		78
Other .................................................	77		136		258		62		189		722
	921		1,250		1,734		114		353		4,372
Half-year to 30 June 2011
Australia .............................................	36		33		70		-		(4)		135
India ...................................................	(4)		78		292		3		82		451
Indonesia ............................................	(1)		47		68		-		-		114
Mainland China ..................................	490		617		472		(2)		194		1,771
Associates .......................................	524		539		248		-		181		1,492
Other mainland China .....................	(34)		78		224		(2)		13		279
Malaysia .............................................	77		56		114		-		4		251
Singapore ...........................................	95		62		126		46		(2)		327
Taiwan ...............................................	33		11		67		-		6		117
Vietnam .............................................	1		26		40		-		15		82
Other .................................................	39		131		291		2		31		494
	766		1,061		1,540		49		326		3,742
Half-year to 31 December 2011
Australia .............................................	52		73		38		-		9		172
India ...................................................	(10)		44		247		2		79		362
Indonesia ............................................	7		42		89		-		7		145
Mainland China ..................................	622		723		644		(2)		(77)		1,910
Associates .......................................	655		611		281		-		(64)		1,483
Other mainland China .....................	(33)		112		363		(2)		(13)		427
Malaysia .............................................	96		62		114		1		5		278
Singapore ...........................................	88		71		63		51		(5)		268
Taiwan ...............................................	12		12		63		-		6		93
Vietnam .............................................	(1)		25		39		-		9		72
Other .................................................	9		133		252		(10)		45		429
	875		1,185		1,549		42		78		3,729

of GDP growth. In South Korea in the first half of the year, economic activity was supported by strong government spending and investment, but growth is expected to remain below the levels seen in 2011 as persistent global uncertainties weigh on domestic demand and external trade. Quarterly GDP growth accelerated in the first quarter of 2012 in the Philippines, rising by 6.4%. Recent export and remittance indicators suggested growth moderated in the second quarter in line with a slowing in the pace of world trade. Annual GDP growth in Vietnam accelerated in the second quarter but growth remained significantly below long-term trend rates. Domestic demand was relatively weak and headline inflation moderated to 6.9% in June. In Indonesia, the central bank cut its policy rate by 25bps in February to 5.75%, following concerns about the slowdown in global demand. However, first quarter GDP growth was robust at an annual rate of 6.3%. Domestic demand was also a significant driver of GDP growth in Malaysia. The same trends were apparent in Thailand. The economy recovered more strongly than expected in the first quarter in response to recovery efforts after 2011's floods.

Review of performance

Our operations in the Rest of Asia-Pacific region reported pre-tax profits of US$4.4bn compared with US$3.7bn in the first half of 2011, an increase of 17% or 18% on a constant currency basis. Reported profits included gains from the sale of our RBWM business in Thailand of US$108m, our GPB business in Japan of US$67m, and our interest in a property company in the Philippines of US$130m. These were partly offset by the non‑recurrence of an accounting gain arising from the dilution of our shareholding in Ping An in the first half of 2011, following its issue of share capital to a third party.

On an underlying basis, which excludes the above gains, pre-tax profit rose by 15%, reflecting strong growth in lending and deposit balances, coupled with improved liability spreads. These were offset by higher expenses, in part due to US$114m of restructuring costs arising from the ongoing strategic review of our businesses and support functions in the region, as well as higher loan impairment charges due to a small number of new individual charges in CMB and GB&M. Increased profits from our associates in mainland China also contributed to our improved profitability.

We maintained our focus on our key priority growth markets in the region. In mainland China, pre-tax profits grew due to higher net interest income from Balance Sheet Management activity, balance sheet growth and increased income from our associates. Loan and deposit growth, wider deposit spreads and higher trading income and significant cost reductions in RBWM contributed to improved profits in India. In Indonesia, a rise in pre-tax profit was driven by increased Rates trading activities following the country's credit ratings upgrade and growth in fee income. In Malaysia, profit growth was due to volume growth in commercial and residential mortgage lending. In Singapore, profit before tax grew on a strong contribution from higher trading revenues and a continued focus on trade‑related business. A specific loan impairment charge on a corporate customer resulted in a fall in profits in Australia, though this was partly offset by higher net interest income as a result of lending and deposit growth in both 2011 and the first half of 2012.

In RBWM, we focused on capturing wealth management opportunities in the region. We continued to expand our branch network in mainland China and Malaysia and launched initiatives to enhance our multi-channel capabilities including a mobile banking platform in Vietnam and expansion of our mobile functionality in mainland China, Australia and Singapore. We also carried out a detailed review of our loan approval process which reduced processing times. In Taiwan we launched Fundmax, a product that offers our customers the ability to invest in unit trusts with monthly management fees as an alternative to upfront fees.

In CMB, trade revenues grew as we capitalised on our global network to capture cross-border trade and capital flows, particularly with mainland China. Cross-border referrals between mainland China and the rest of the world increased by 11%. We were recognised as 'Financial institution of the year 2011' by the Brazil-China Chamber of Commerce for our contribution to the growth and development of the fast-growing South-South trade corridor.

In GB&M, we achieved record revenues on a reported basis and revenues from the collaboration between CMB and GB&M also increased as we enhanced sales coordination between the global businesses. We continued to be a key participant in the internationalisation of the renminbi and we received approval from the People's Bank of China to be a market maker for direct trading between the renminbi and the Japanese yen in mainland China's interbank market.

The following commentary is on a constant currency basis.

Net interest income increased by 17% due to higher average lending balances in CMB and GB&M, most notably in mainland China. Residential mortgage balances also grew, primarily in Singapore and Malaysia, driven by promotional campaigns.

This was partly offset by narrower asset spreads, particularly in RBWM, due to competitive pricing pressures in residential mortgage lending in a number of markets.

Customer deposit balances rose, notably in Payments and Cash Management from new mandates and deposit acquisition as customers made use of our comprehensive product offering. This reflected our strategy of supporting growth in customer lending with core funding.

Net interest income from Balance Sheet Management was higher in the first half of 2012 primarily in mainland China, reflecting growth in the overall investment portfolio.

Net fee income decreased marginally by 1%, most notably in RBWM due to lower fees in Japan following the discontinuation of our Premier business and in Singapore as a result of weak investor sentiment. This was partly offset by increased fee income from CMB due to higher remittance revenues.

Net trading income increased by 12% compared with the first half of 2011, mainly from Rates trading activities in a number of countries in the region due to a favourable movement in interest rates.

Net income from financial instruments designated at fair value rose by US$61m on the first half of 2011 to US$64m, driven by higher investment gains on assets held by the insurance business, primarily in Singapore, due to positive equity market movements during the first half of 2012. 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'.

Gains from financial investments were US$25m compared with losses of US$22m in the first half of 2011, due to a disposal gain on investments managed by a private equity fund and a lower impairment loss on an equity investment in the first half of 2012 than in 2011 in GB&M.

Net earned insurance premiums increased by 16% to US$392m, primarily in Singapore, as a result of increased renewals and new business volumes. The growth in premiums resulted in a corresponding increase in 'Net insurance claims incurred and movement in liabilities to policyholders'.

Other operating income increased by US$193m, due to gains from the sale of our RBWM business in Thailand (US$108m), our GPB business in Japan (US$67m) and our interest in a property company in the Philippines (US$130m). These were partly offset by the non-recurrence of an accounting gain of US$181m arising from the dilution of our shareholding in Ping An following its issue of share capital to a third party in the first half of 2011.

Loan impairment charges and other credit risk provisionsincreased by US$197m as a result of an individually assessed impairment of a corporate exposure in Australia, individual loan impairment charges in India and New Zealand, and a credit risk provision on an available-for-sale debt security in GB&M.

Operating expenses increased by 4%, due to restructuring costs of US$114m incurred in several countries as part of the ongoing strategic review of our businesses and support functions in the region. This resulted in a net reduction of more than 4,800 staff numbers in the first half of 2012, which was offset by inflationary pressures and business growth, including branch expansion in mainland China and Malaysia. However, we continued to maintain a tight control on costs as part of the organisational effectiveness programme launched in 2011.

Share of profit from associates and joint ventures increased by 15%, driven by higher profits from BoCom as a result of loan growth and wider spreads. Fee income also increased from settlements and credit cards. The contribution from Industrial Bank rose as a result of strong growth in customer lending and a higher fee-based revenue, which was partly offset by a rise in operating expenses. Profits from Ping An were lower as increased income from the banking business following the consolidation of Shenzhen Development Bank and stable insurance income were more than offset by lower securities broking and underwriting income.

Profit before tax and balance sheet data - Rest of Asia-Pacific

	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$m
Profit before tax
Net interest income ...........	896		691		1,120		55		83		(127)		2,718
Net fee income/(expense) ..	429		264		351		37		(3)		−		1,078
Trading income/(expense) excluding net interest income ..........................	43		98		648		35		(30)		−		794
Net interest income on trading activities ............	−		−		7		−		4		127		138
Net trading income/ (expense)51 ....................	43		98		655		35		(26)		127		932
Changes in fair value of long-term debt issued and related derivatives ...	−		−		−		−		(2)		−		(2)
Net income/(expense) from other financial instruments designated at fair value .......................	41		1		(2)		−		26		−		66
Net income/(expense) from financial instruments designated at fair value ...	41		1		(2)		−		24		−		64
Gains less losses from financial investments .....	(1)		1		1		−		24		−		25
Dividend income ...............	−		−		1		−		3		−		4
Net earned insurance premiums .......................	338		54		−		−		−		−		392
Other operating income ....	169		44		39		66		840		(82)		1,076
Total operating income .	1,915		1,153		2,165		193		945		(82)		6,289
Net insurance claims58 .......	(293)		(49)		−		−		−		−		(342)
Net operating income48 .	1,622		1,104		2,165		193		945		(82)		5,947
Loan impairment charges and other credit risk provisions ......................	(102)		(131)		(65)		−		−		−		(298)
Net operating income ....	1,520		973		2,100		193		945		(82)		5,649
Operating expenses ...........	(1,132)		(486)		(657)		(79)		(593)		82		(2,865)
Operating profit .............	388		487		1,443		114		352		−		2,784
Share of profit in associates and joint ventures ..........	533		763		291		−		1		−		1,588
Profit before tax .............	921		1,250		1,734		114		353		−		4,372
	%		%		%		%		%				%
Share of HSBC's profit before tax ......................	7.2		9.8		13.6		0.9		2.8				34.3
Cost efficiency ratio ..........	69.8		44.0		30.3		40.9		62.8				48.2
Balance sheet data47
	US$m		US$m		US$m		US$m		US$m				US$m
Loans and advances to customers (net) ..............	42,171		41,241		42,652		3,243		182				129,489
Total assets .......................	57,289		56,071		202,228		12,240		17,066		(9,916)		334,978
Customer accounts ............	60,037		41,999		59,475		11,600		46				173,157

	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$m
Profit before tax
Net interest income .............	891		580		900		58		59		(107)		2,381
Net fee income ....................	463		259		359		32		4		-		1,117
Trading income/(expense) excluding net interest income ............................	50		75		583		30		(29)		-		709
Net interest income/(expense) on trading activities .........	-		-		51		-		(5)		107		153
Net trading income/ (expense)51 ......................	50		75		634		30		(34)		107		862
Changes in fair value of long-term debt issued and related derivatives .....	-		-		-		-		(1)		-		(1)
Net income/(expense) from other financial instruments designated at fair value .....	7		2		1		-		(6)		-		4
Net income/(expense) from financial instruments designated at fair value .....	7		2		1		-		(7)		-		3
Gains less losses from financial investments .......	-		1		(23)		1		(1)		-		(22)
Dividend income .................	-		-		1		-		-		-		1
Net earned insurance premiums .........................	225		115		-		-		-		-		340
Other operating income ......	71		33		35		1		877		(85)		932
Total operating income .......	1,707		1,065		1,907		122		898		(85)		5,614
Net insurance claims58 .........	(173)		(94)		-		-		1		-		(266)
Net operating income48 .......	1,534		971		1,907		122		899		(85)		5,348
Loan impairment (charges)/ recoveries and other credit risk provisions .................	(112)		7		4		2		(1)		-		(100)
Net operating income ..........	1,422		978		1,911		124		898		(85)		5,248
Operating expenses .............	(1,188)		(458)		(626)		(75)		(574)		85		(2,836)
Operating profit ..................	234		520		1,285		49		324		-		2,412
Share of profit in associates and joint ventures ............	532		541		255		-		2		-		1,330
Profit before tax .................	766		1,061		1,540		49		326		-		3,742
	%		%		%		%		%				%
Share of HSBC's profit before tax ........................	6.7		9.2		13.4		0.4		2.8				32.6
Cost efficiency ratio ............	77.4		47.2		32.8		61.5		63.8				53.0
Balance sheet data47
	US$m		US$m		US$m		US$m		US$m				US$m
Loans and advances to customers (net) ................	41,707		36,128		39,569		3,846		179				121,429
Total assets .........................	54,326		47,028		181,947		12,802		15,215		(12,728)		298,590
Customer accounts ..............	59,352		39,922		56,262		13,014		39				168,589

Profit before tax and balance sheet data - Rest of Asia-Pacific (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 before tax
Net interest income .............	947		674		1,064		58		64		(86)		2,721
Net fee income/(expense) ....	441		254		262		50		(13)		-		994
Trading income/(expense) excluding net interest income ............................	44		81		570		36		(61)		-		670
Net interest income/(expense) on trading activities .........	(2)		1		25		-		16		86		126
Net trading income/ (expense)51 ......................	42		82		595		36		(45)		86		796
Changes in fair value of long-term debt issued and related derivatives .....	-		-		-		-		5		-		5
Net income/(expense) from other financial instruments designated at fair value .....	(45)		-		-		-		21		-		(24)
Net income/(expense) from financial instruments designated at fair value .....	(45)		-		-		-		26		-		(19)
Gains less losses on financial investments .....................	-		1		(2)		-		-		-		(1)
Dividend income .................	-		-		1		-		-		-		1
Net earned insurance premiums .........................	268		151		-		-		-		-		419
Other operating income ......	74		39		40		4		715		(93)		779
Total operating income .......	1,727		1,201		1,960		148		747		(93)		5,690
Net insurance claims58 .........	(178)		(146)		-		-		(1)		-		(325)
Net operating income48 .......	1,549		1,055		1,960		148		746		(93)		5,365
Loan impairment (charges)/ recoveries and other credit risk provisions .................	(110)		3		(61)		-		1		-		(167)
Net operating income ..........	1,439		1,058		1,899		148		747		(93)		5,198
Operating expenses .............	(1,221)		(487)		(642)		(106)		(607)		93		(2,970)
Operating profit ..................	218		571		1,257		42		140		-		2,228
Share of profit/(loss) in associates and joint ventures ...........................	657		614		292		-		(62)		-		1,501
Profit before tax .................	875		1,185		1,549		42		78		-		3,729
	%		%		%		%		%				%
Share of HSBC's profit before tax ........................	8.4		11.4		14.9		0.4		0.8				35.9
Cost efficiency ratio ............	78.8		46.2		32.8		71.6		81.4				55.4
Balance sheet data47
	US$m		US$m		US$m		US$m		US$m				US$m
Loans and advances to customers (net) ................	40,970		38,404		41,114		3,190		190				123,868
Total assets .........................	54,484		50,688		195,549		12,879		16,616		(12,400)		317,816
Customer accounts ..............	60,831		40,423		60,855		11,872		31				174,012

For footnotes, see page 100.

 

END

 

 

IR UNAVRUAAWRAR