Annual Financial Report - 12 of 41

RNS Number : 8257D

HSBC Holdings PLC

30 March 2011

 



Rest of Asia-Pacific

We offer a full suite 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 four associates. Outside Hong Kong and 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, with particularly strong coverage in Australia, India, Indonesia, Malaysia and Singapore.
	2010		2009		2008
	US$m		US$m		US$m
Net interest income ......	3,828		3,539		3,937
Net fee income .............	1,932		1,557		1,867
Net trading income .......	1,618		1,606		2,042
Other income ................	1,854		1,301		1,135
Net operating income46 ...................................	9,232		8,003		8,981
Impairment charges47 ....	(439)		(896)		(852)
Net operating income	8,793		7,107		8,129
Total operating expenses ...................................	(5,143)		(4,450)		(4,704)
Operating profit ........	3,650		2,657		3,425
Income from associates48	2,252		1,543		1,297
Profit before tax .........	5,902		4,200		4,722
Cost efficiency ratio .....	55.7%		55.6%		52.4%
Year-end staff numbers .	91,607		87,141		89,706
41% growth in reported pre-tax profit
Leadership in renminbi product development
Significant and growing presence in mainland China
For footnotes, see page 83. The commentary on Rest of Asia-Pacific is on an underlying basis unless stated otherwise.

Economic background

Economic activity accelerated in mainland China, building on the recovery which began in 2009. Annual GDP growth peaked at 11.9% in the first quarter of the year, as resilient domestic demand coincided with an acceleration in export growth as world demand recovered. Investment growth remained strong amid large scale government infrastructure projects and construction of public housing. Meanwhile, consumer spending was boosted by robust growth in employment and wages. In the final months of 2010, inflation became more of a concern, with the annual rate of CPI inflation rising to 4.6% in December. The People's Bank of China increased the commercial banking sector's required Statutory Deposit Ratio by 4.5 percentage points to 19.5% (for major banks) and 17.0% (for the rest) and raised the policy rate by 50 basis points over the course of the year. The renminbi exchange rate rose by 3% against the US dollar throughout the course of the year.

Japan's economic conditions improved in 2010, led mainly by a recovery in world trade, though unemployment remained at about 5% throughout the year. The Bank of Japan introduced a new programme of monetary stimulus in October 2010, aimed at curbing yen appreciation and reducing the deflationary pressures evident in the economy.

Elsewhere in the region, economies rebounded strongly, with growth in external demand a common feature. Comparing the third quarter of 2010 with the same period in 2009, GDP in Taiwan grew by 9.8%, in South Korea by 4.4% and in India by 8.9%. In the last, concerns emerged over the rate of wholesale price inflation, which rose to 8.4% in December. In Singapore, GDP growth was volatile as activity in the pharmaceutical sector fluctuated, contracting at an annualised rate of nearly 19% in the third quarter but rising 6.9% in the fourth quarter. Malaysian GDP, boosted by private consumption and exports, rose by 5.3% year on year in the third quarter, after surging 10.1% in the first quarter and 8.9% in the second quarter. In Thailand, the re-emergence of political risks in the second quarter of 2010 appeared not to dent household consumption or foreign direct investment. Foreign direct investment into Indonesia underpinned GDP growth of 5.8% in the third quarter. The economies of the Philippines and Vietnam also grew strongly. In Australia growth was more modest, in part because of a rise in the Reserve Bank of Australia's interest rate to 4.75% in the second half of the year. Activity in the mining sector continued to grow rapidly.

Profit/(loss) before tax by country within customer groups and global businesses

	Personal   Financial     Services         US$m		Commercial     Banking         US$m		Global Banking &     Markets         US$m		Global       Private     Banking         US$m		Other         US$m		Total         US$m
2010
Australia ...................................................	59		96		95		-		8		258
India .........................................................	(82)		71		507		4		179		679
Indonesia ..................................................	12		94		116		-		(3)		219
Japan ........................................................	(76)		-		119		(1)		(6)		36
Mainland China .........................................	839		833		683		(7)		217		2,565
Associates .............................................	973		746		443		-		188		2,350
Other mainland China ...........................	(134)		87		240		(7)		29		215
Malaysia ...................................................	120		88		194		-		(1)		401
Singapore ..................................................	126		87		143		84		84		524
South Korea ..............................................	2		(4)		305		-		50		353
Taiwan ......................................................	19		36		99		-		(7)		147
Vietnam.....................................................	(7)		50		61		-		7		111
Other ........................................................	54		205		262		1		87		609
	1,066		1,556		2,584		81		615		5,902
2009
Australia ...................................................	30		32		140		-		(4)		198
India .........................................................	(219)		(41)		393		1		240		374
Indonesia ..................................................	(24)		60		129		-		(11)		154
Japan ........................................................	(79)		-		65		(4)		1		(17)
Mainland China .........................................	494		616		479		(7)		50		1,632
Associates .............................................	678		558		285		-		-		1,521
Other mainland China ...........................	(184)		58		194		(7)		50		111
Malaysia ...................................................	88		53		140		-		5		286
Singapore ..................................................	129		77		247		98		(9)		542
South Korea ..............................................	(3)		(5)		342		-		25		359
Taiwan ......................................................	(3)		65		96		-		2		160
Vietnam.....................................................	(8)		40		63		-		6		101
Other ........................................................	58		167		225		2		(41)		411
	463		1,064		2,319		90		264		4,200
2008
Australia ...................................................	19		68		102		-		(13)		176
India .........................................................	(155)		118		578		2		123		666
Indonesia ..................................................	(22)		17		126		-		-		121
Japan ........................................................	(88)		(1)		88		1		4		4
Mainland China .........................................	284		622		688		(5)		16		1,605
Associates .............................................	393		558		335		-		-		1,286
Other mainland China ...........................	(109)		64		353		(5)		16		319
Malaysia ...................................................	94		96		171		-		8		369
Singapore ..................................................	104		83		337		110		(37)		597
South Korea ..............................................	(16)		(13)		304		-		38		313
Taiwan ......................................................	(41)		45		179		-		(8)		175
Vietnam.....................................................	(16)		32		63		-		(14)		65
Other ........................................................	48		168		334		1		80		631
	211		1,235		2,970		109		197		4,722

Review of performance

Our operations in the Rest of Asia-Pacific region reported pre-tax profits of US$5.9bn compared with US$4.2bn in 2009, an increase of 41%. Reported profits included an accounting gain of US$188m arising from the dilution of HSBC's shareholding in Ping An Insurance following its issue of share capital to a third party in 2010. On an underlying basis, which excludes this dilution gain, pre-tax profit rose by 29% as business volumes increased across many countries and all customer groups as the economic environment in the region improved.

The economic performance of the region was reflected in a recovery in trade volumes, an increase in our customers' appetite for investment-related products, strong growth in lending balances and a significant decline in loan impairment charges. All these factors contributed to an increase in our profitability, as did a rise in our share of profit from associates in mainland China. Operating expenses increased to support this business growth.

During 2010 we continued to target growth, particularly in the key regional markets of mainland China, India, Indonesia, Singapore, Malaysia and Australia. We consolidated our position as the leading foreign bank in mainland China with 106 outlets in 27 cities, 16 rural bank outlets and 38 Hang Seng Bank outlets in 13 cities. We maintained our leadership in the development of renminbi products and now have renminbi capabilities in 36 countries across all six continents. In July 2010 we agreed to acquire a substantial part of The Royal Bank of Scotland Group plc's commercial and retail businesses in India. In Malaysia, four additional Amanah branches were opened.

Our focus on higher value segments was reflected in the Premier customer base in the region which grew by 33% while the Advance proposition was launched in nine markets, exceeding 660,000 customers by the year end. In CMB, we continued to build on our international connectivity, with cross‑regional referrals nearly doubling as we pursued our objective to be the leading international business bank.

Net interest income was broadly in line with 2009 as strong loan growth was offset by narrower asset spreads in the face of strong competition. Higher average lending balances resulted from business growth in GB&M and CMB across the region, reflecting the recovery in trade activity. Average PFS lending balances also rose, mainly in the mortgage book, most notably in Australia,

Singapore and Malaysia, as well as in Taiwan and mainland China, supported by successful marketing campaigns.

The narrower asset spreads were also the consequence of a shift to lower risk customers following the managed reduction of certain unsecured lending portfolios, particularly in India.

Average customer deposit balances grew, primarily in mainland China, Australia and Singapore as a result of a targeted strategy to expand the customer base.

Balance Sheet Management income declined from 2009 as higher yielding trades matured, interest rates generally remained low and yield curves flattened.

Net fee income was 16% higher. An improvement in equity markets and inflows of funds under management drove a significant increase in fee income in GB&M while, in CMB, the recovery in trade activity led to higher trade-related fees and credit facilities. In PFS, fee income also rose from the increased sales of investment and insurance products.

Net trading income declined by 7%, as reduced market volatility led to lower Rates trading income. In India, trading income further declined as gains achieved in 2009 from narrowing bond yields did not recur while in South Korea, lower trading revenues reflected the non‑recurrence of one-off gains recognised in 2009. These were partly offset by higher foreign exchange income in mainland China and wider margins in India as a result of strong client volumes in the growing economies and a rise in interest income from trading activities resulting from increased holdings of debt securities.

Net income from financial instruments designated at fair value fell by US$95m. The movement was due to lower revaluation gains in 2010 than in 2009 on assets held to support insurance contracts. To the extent that these lower investment gains were attributed to policyholders, there was a corresponding decrease in 'Net insurance claims incurred and movement in liabilities to policyholders'.

Gains less losses from financial investments were US$141m compared with losses of US$15m in 2009, as a result of a gain on disposal of an equity investment in a Singaporean property company and gains on sales of other available-for-sale investments. Impairments reported in 2009 did not recur in 2010.

Other operating income increased by 8% to US$1.4bn, largely due to an increase in PVIF, reflecting higher life insurance sales in the region and recoveries against initial fair value on loan portfolios acquired with Bank Ekonomi in Indonesia and from The Chinese Bank Co., Ltd in Taiwan.

Net earned insurance premiums increased by 15% to US$448m, largely due to higher sales in Malaysia, Taiwan and mainland China, primarily from successful product launches and marketing campaigns.

Growth in the insurance business resulted in a related increase in Net insurance claims incurred and movement in liabilities to policyholders which was more than offset by the decrease corresponding to the lower investment gains reported above in 'Net income from financial instruments designated at fair value'.

Loan impairment charges and other credit risk provisionsdecreased by 55% to US$439m. As economic and credit conditions improved across the region, loan impairment charges fell in PFS, most notably in India as certain unsecured lending portfolios were managed down, and fewer specific impairments were recognised in CMB. Partly offsetting this improvement were specific impairment charges booked in GB&M.

Operating expenses increased by 8% to US$5.1bn in support of business growth and to capitalise on the region's economic recovery. Examples were the continuing expansion of the branch network in mainland China and the opening of the new headquarters building in Shanghai, as well as local incorporation and expansion of the Taiwan operations. Staff numbers rose to support business expansion, particularly in the key regional markets of mainland China, Australia, Singapore and Indonesia. Business initiatives were supported by marketing campaigns in most markets and higher transaction volumes which led to increased processing costs.

Share of profit from associates and joint ventures in the region increased by 45%, with a higher contribution from Ping An Insurance driven by strong sales growth. The share of profit from Bank of Communications also increased due to growth in lending and higher fee income from cards, wealth management and settlement activity. Growth in lending and an increase in fee income led to a higher contribution from Industrial Bank.

 

END

 

 

ACSUKAARAWAOUAR