Interim Report - 9 of 28

RNS Number : 8994L

HSBC Holdings PLC

16 August 2013

 



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 primary associate, Bank of Communications. Outside mainland China, we conduct business in 18 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
	2013		2012		2012
	US$m		US$m		US$m
Net interest income ..	2,653		2,718		2,673
Net fee income .........	1,084		1,078		1,005
Net trading income ...	46		932		121
Other income ............	3,220		1,219		3,838
Net operating income22 ...............	7,003		5,947		7,637
LICs55 .......................	(152)		(298)		(138)
Net operating income ..................	6,851		5,649		7,499
Total operating expenses .................	(2,749)		(2,865)		(2,941)
Operating profit ....	4,102		2,784		4,558
Income from associates56	955		1,588		1,518
Profit before tax .....	5,057		4,372		6,076
Cost efficiency ratio .	39.3%		48.2%		38.5%
RoRWA49 .................	3.6%		3.0%		3.9%
Period-end staff numbers ..................	85,665		86,207		85,024
13% growth in CMB loans and advances (on a constant currency basis)
Issued the first offshore renminbi bond in Singapore
Best Cash Management Bank in Asia (Global Finance Magazine)
For footnotes, see page 100.

Economic background

The growth of the mainland China economy slowed unexpectedly to 7.7% in the first quarter of 2013 following its rebound to 7.9% in the fourth quarter of 2012, reflecting weak external demand. Growth continued to weaken into the second quarter to 7.5% year-on-year, as new orders slowed and inventory built up. Beijing's new policymakers showed an increasing preference for quality over quantity of growth and focused on reforms rather than stimuli to lay the foundation for sustainable growth over the medium term. A new package of measures was announced including fiscal reforms, financial reforms, deregulation and urbanisation. Inflation continued to ease in mainland China in the first half of 2013, with headline CPI averaging 2.4%, well below its 3.5% annual target.

Japan's economy expanded at an annualised rate of 4.1% in the first quarter of 2013. A weaker currency helped exporters and, after three consecutive quarters of negative growth, exports rose 16.1% in the first quarter and continued to recover into May. Robust domestic demand drove growth, and private consumption rose by 3.6% in the quarter. Public investment rose with construction orders up by 24.8% year-on-year in May 2013.

Singapore's GDP grew by a moderate 1.8% in the first quarter of 2013. Services surged, but manufacturing contracted following the slowdown in mainland China and lacklustre demand from the developed world. Annual inflation slowed to a three-year low thanks, in part, to curbs on car prices. In India, growth stabilised following reforms but, at an annual rate of 4.8% in the first quarter, it was low by historical standards. Soft domestic demand and low global commodity prices resulted in a fall in inflation which enabled the Reserve Bank of India to cut the key policy rate by 75bps to 7.25%.

Malaysia continued to enjoy robust domestic demand as long-term public projects kept employment and investments up, and imports surged. Indonesia grew at an annual pace of 6%. Faced with widening trade and budget deficits and a weakening currency, the government raised subsidised fuel prices and Bank Indonesia's reference rate rose by 25bps to 6.0%. The recovery in Vietnam remained sluggish. Australia's economy grew at a below-trend annual rate of 2.5% in the first quarter, as the mining investment boom began to fade and the pick-up in the rest of the economy was only gradual.

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 2013
Australia .............................................	51		45		108		−		29		233
India ...................................................	(1)		74		255		4		82		414
Indonesia ............................................	18		46		63		−		14		141
Mainland China ..................................	106		763		423		(2)		1,645		2,935
Industrial Bank ...............................	-		-		-		-		1,089		1,089
Ping An...........................................	-		-		-		-		553		553
Other associates ..............................	124		681		142		-		-		947
Other mainland China .....................	(18)		82		281		(2)		3		346
Malaysia .............................................	78		60		149		−		(13)		274
Singapore ...........................................	78		60		147		39		37		361
Taiwan ...............................................	(5)		19		83		−		3		100
Vietnam .............................................	106		13		29		−		3		151
Other .................................................	−		147		271		(1)		31		448
	431		1,227		1,528		40		1,831		5,057
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
Industrial Bank ...............................	32		135		138		−		−		305
Ping An ..........................................	392		31		24		−		−		447
Other associates ..............................	105		589		122		−		−		816
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 31 December 2012
Australia .............................................	46		72		104		-		(38)		184
India ...................................................	6		40		191		3		54		294
Indonesia ............................................	10		65		55		-		1		131
Mainland China ..................................	338		871		624		(2)		2,487		4,318
Industrial Bank ...............................	22		138		205		-		-		365
Ping An ..........................................	230		51		36		-		2,459		2,776
Other associates ..............................	109		604		126		-		-		839
Other mainland China .....................	(23)		78		257		(2)		28		338
Malaysia .............................................	90		63		118		-		5		276
Singapore ...........................................	96		77		170		47		(57)		333
Taiwan ...............................................	24		7		59		-		(2)		88
Vietnam .............................................	6		17		18		-		1		42
Other .................................................	(20)		140		252		(3)		41		410
	596		1,352		1,591		45		2,492		6,076

Review of performance

In Rest of Asia-Pacific, reported profit before tax was US$5.1bn compared with US$4.4bn in the first half of 2012. On a constant currency basis, profit before tax increased by US$708m.

The increase in reported profits was mainly due to an accounting gain of US$1.1bn on the reclassification of Industrial Bank as a financial investment following its issue of share capital to third parties. This was partly offset by a reduction in share of profit from associates due to the disposal of our shareholding in Ping An in December 2012 and the reclassification of Industrial Bank.

On an underlying basis, profit before tax increased by 18% due to the net gain of US$553m on the sale of our investment in Ping An. Excluding this, profit before tax was broadly unchanged as lower revenue was offset by reduced loan impairment charges and increased income from associates.

We continued to invest in our priority markets, expanding our branch network in mainland China where, at the half year, we had 148 HSBC outlets, 21 HSBC rural bank outlets and 46 Hang Seng Bank outlets. We were appointed adviser on the largest M&A transaction in India and issued the first offshore RMB bond in Singapore. In line with our strategy, we completed the disposals of non-core insurance businesses in Vietnam, South Korea and Taiwan as well as our investment in Ping An.

The following commentary is on a constant currency basis.

Net interest income reduced by US$50m, notably in mainland China where the central bank eased liquidity measures and cut rates in 2012 which reduced revenues in Balance Sheet Management.

Average residential mortgage balances in RBWM grew, primarily in mainland China and Australia, as we focused on secured lending supported by marketing campaigns, and in Singapore, reflecting lending growth in 2012. Term and trade-related lending in CMB rose, notably in mainland China and Singapore, from continued client demand as interest rates remained low. Increased average loan balances were broadly offset by lending spread compression, reflecting competitive pressures and increased liquidity.

We grew average deposit balances in both Payments and Cash Management and RBWM, though the benefit of this growth was broadly offset by narrower liability spreads in many countries following central bank interest rate cuts and increased liquidity.

Net fee income rose by US$28m, primarily in GB&M from increased activity in bond sales, corporate finance and equity underwriting in Singapore. This was partly offset by reductions in RBWM, notably in India from lower Wealth Management sales as we reviewed our product offerings.

Net trading income was US$867m lower, driven by adverse fair value movements on the Ping An contingent forward sale contract of US$682m.
In addition to this, Rates and Foreign Exchange revenues decreased in a number of countries following strong performances in the first half of 2012. This was partly offset by a favourable DVA (see page 28).

Gains less losses from financial investments were US$1.2bn higher, due to the gain on disposal of our investment in Ping An of US$1.2bn, which was partly offset by the adverse fair value movement of US$682m on the contingent forward sale contract included in Net trading income, as noted above, leading to a net gain of US$553m.

Other operating income rose by US$1.1bn, reflecting an accounting gain of US$1.1bn on the reclassification of Industrial Bank as a financial investment following its issue of additional share capital to third parties. We also recorded a gain on the disposal of our investment in Bao Viet of US$104m. In the first half of 2012, we recorded gains totalling US$305m on the disposals of the RBWM business in Thailand, the GPB business in Japan and our interest in a property company in the Philippines.

LICsdecreased by US$143m, as a result of a large individually assessed impairment of a corporate exposure in Australia and a credit risk provision on an available-for-sale debt security in GB&M in the first half of 2012.

Operating expenses decreased by US$68m in the first half of 2013 from lower restructuring and other related costs, including termination benefits, than were incurred in the comparable period in 2012, lower performance related costs in GB&M and the partial write back of a litigation provision. These were partly offset by a further US$72m write down of Hana HSBC Life Insurance made earlier in the year which was partly recovered through a gain on its disposal, recorded in Other operating income.

Share of profit from associates and joint ventures reduced by US$647m following the disposal of Ping An and the reclassification of Industrial Bank as a financial investment. Excluding these factors, income from associates increased primarily in BoCom as a result of balance sheet growth and increased fee income, partly offset by higher operating expenses and a rise in loan impairment charges.

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

	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$m
Profit before tax
Net interest income ...........	861		676		975		43		83		15		2,653
Net fee income/(expense) ..	388		285		383		36		(8)		−		1,084
Trading income/(expense) excluding net interest income ...........................	52		101		436		25		(696)		−		(82)
Net interest income/(expense) on trading activities .......	(12)		(4)		161		−		(2)		(15)		128
Net trading income/ (expense)57 ....................	40		97		597		25		(698)		(15)		46
Changes in fair value of long-term debt issued and related derivatives ....	−		−		−		−		1		−		1
Net income/(expense) from other financial instruments designated at fair value ........................	(4)		−		−		−		1		−		(3)
Net income/(expense) from financial instruments designated at fair value ...	(4)		−		−		−		2		−		(2)
Gains less losses from financial investments .....	1		−		1		−		1,206		−		1,208
Dividend income ................	−		−		1		−		−		−		1
Net earned insurance premiums .......................	323		80		−		−		1		−		404
Other operating income .....	127		−		44		1		1,836		(85)		1,923
Total operating income ..	1,736		1,138		2,001		105		2,422		(85)		7,317
Net insurance claims63 .......	(258)		(56)		−		−		−		−		(314)
Net operating income22 ..	1,478		1,082		2,001		105		2,422		(85)		7,003
Loan impairment charges and other credit risk provisions ......................	(101)		(45)		(6)		−		−		−		(152)
Net operating income ....	1,377		1,037		1,995		105		2,422		(85)		6,851
Operating expenses ............	(1,075)		(492)		(611)		(65)		(591)		85		(2,749)
Operating profit .............	302		545		1,384		40		1,831		−		4,102
Share of profit in associates and joint ventures ..........	129		682		144		−		−		−		955
Profit before tax .............	431		1,227		1,528		40		1,831		−		5,057
	%		%		%		%		%				%
Share of HSBC's profit before tax ......................	3.1		8.7		10.9		0.3		12.9				35.9
Cost efficiency ratio ..........	72.7		45.5		30.5		61.9		24.4				39.3
Balance sheet data53
	US$m		US$m		US$m		US$m		US$m				US$m
Loans and advances to customers (net) ..............	45,213		48,352		42,312		3,271		185				139,333
Total assets .......................	53,332		62,023		187,365		11,102		20,858		(9,409)		325,271
Customer accounts .............	63,128		41,869		58,278		10,726		49				174,050

Profit before tax and balance sheet data - Rest of Asia-Pacific (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$m
Profit before tax
Net interest income .............	896		691		1,120		55		83		(127)		2,718
Net fee income/(expense) ....	429		264		351		37		(3)		-		1,078
Trading income/(expense) excluding net interest income ............................	43		98		648		35		(30)		-		794
Net interest income on trading activities ..............	-		-		7		-		4		127		138
Net trading income/ (expense)57 ......................	43		98		655		35		(26)		127		932
Changes in fair value of long-term debt issued and related derivatives .....	-		-		-		-		(2)		-		(2)
Net income/(expense) from other financial instruments designated at fair value .....	41		1		(2)		-		26		-		66
Net income/(expense) from financial instruments designated at fair value .....	41		1		(2)		-		24		-		64
Gains less losses from financial investments .......	(1)		1		1		-		24		-		25
Dividend income .................	-		-		1		-		3		-		4
Net earned insurance premiums .........................	338		54		-		-		-		-		392
Other operating income ......	169		44		39		66		840		(82)		1,076
Total operating income .......	1,915		1,153		2,165		193		945		(82)		6,289
Net insurance claims63 .........	(293)		(49)		-		-		-		-		(342)
Net operating income22 .......	1,622		1,104		2,165		193		945		(82)		5,947
Loan impairment charges and other credit risk provisions	(102)		(131)		(65)		-		-		-		(298)
Net operating income ..........	1,520		973		2,100		193		945		(82)		5,649
Operating expenses .............	(1,132)		(486)		(657)		(79)		(593)		82		(2,865)
Operating profit ..................	388		487		1,443		114		352		-		2,784
Share of profit in associates and joint ventures ............	533		763		291		-		1		-		1,588
Profit before tax .................	921		1,250		1,734		114		353		-		4,372
	%		%		%		%		%				%
Share of HSBC's profit before tax ........................	7.2		9.8		13.6		0.9		2.8				34.3
Cost efficiency ratio ............	69.8		44.0		30.3		40.9		62.8				48.2
Balance sheet data53
	US$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 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 before tax
Net interest income .............	891		705		1,036		47		54		(60)		2,673
Net fee income/(expense) ....	425		235		315		34		(4)		-		1,005
Trading income/(expense) excluding net interest income ............................	53		90		354		32		(562)		-		(33)
Net interest income/(expense) on trading activities .........	(6)		(3)		93		-		10		60		154
Net trading income/ (expense)57 ......................	47		87		447		32		(552)		60		121
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 .....	68		-		(1)		-		(23)		-		44
Net income/(expense) from financial instruments designated at fair value .....	68		-		(1)		-		(25)		-		42
Gains less losses on financial investments .....................	-		1		(11)		-		1		-		(9)
Dividend income .................	-		-		-		-		1		-		1
Net earned insurance premiums .........................	231		189		-		-		-		-		420
Gain on disposal of Ping An	-		-		-		-		3,012		-		3,012
Other operating income ......	42		20		43		2		731		(90)		748
Total operating income .......	1,704		1,237		1,829		115		3,218		(90)		8,013
Net insurance claims63 .........	(230)		(146)		-		-		-		-		(376)
Net operating income22 .......	1,474		1,091		1,829		115		3,218		(90)		7,637
Loan impairment (charges)/ recoveries and other credit risk provisions .................	(132)		(23)		17		-		-		-		(138)
Net operating income ..........	1,342		1,068		1,846		115		3,218		(90)		7,499
Operating expenses .............	(1,106)		(507)		(622)		(70)		(726)		90		(2,941)
Operating profit ..................	236		561		1,224		45		2,492		-		4,558
Share of profit in associates and joint ventures ............	360		791		367		-		-		-		1,518
Profit before tax .................	596		1,352		1,591		45		2,492		-		6,076
	%		%		%		%		%				%
Share of HSBC's profit before tax ........................	7.5		17.1		20.1		0.6		31.5				76.8
Cost efficiency ratio ............	75.0		46.5		34.0		60.9		22.6				38.5
Balance sheet data53
	US$m		US$m		US$m		US$m		US$m				US$m
Loans and advances to customers (net) ................	46,027		43,968		44,721		3,238		165				138,119
Total assets .........................	55,509		59,123		201,774		12,142		24,534		(10,813)		342,269
Customer accounts ..............	63,230		44,865		64,392		11,095		39				183,621

For footnotes, see page 100.

 

END

 

 

IR UNVRROOAWAAR