Interim Report - 10 of 28

RNS Number : 8997L

HSBC Holdings PLC

16 August 2013

 



Middle East and North Africa

The network of branches of HSBC Bank Middle East Limited, together with HSBC's subsidiaries and associates, gives us the widest coverage in the region. Our associate in Saudi Arabia, The Saudi British Bank (40% owned), is the kingdom's sixth largest bank by total assets.
	Half-year to
	30 Jun			30 Jun		31 Dec
	2013			2012		2012
	US$m			US$m		US$m
Net interest income .....	746			705		765
Net fee income ............	311			302		293
Net trading income ......	203			216		174
Other income/(expense)	(7)			14		(39)
Net operating income22 ..................................	1,253			1,237		1,193
LICs55 ..........................	47			(135)		(151)
Net operating income	1,300			1,102		1,042
Total operating expenses ..................................	(616)			(537)		(629)
Operating profit .......	684			565		413
Income from associates56	225			207		165
Profit before tax .......	909			772		578
Cost efficiency ratio ....	49.2%			43.4%		52.7%
RoRWA49 ....................	2.9%			2.6%		1.8%
Period-end staff numbers	8,667			9,195		8,765
Increased revenue despite repositioning initiatives and a difficult socio-political environment, particularly in Egypt.
Improvement in credit quality and repositioning of portfolios contributed to lower loan impairment charges.
Best Cash Management House (Euromoney Award for Excellence, 2013)		Best Wealth Management Firm (Banker Middle East Industry Award)
For footnotes, see page 100.

Economic background

Gulf Co-operation Council ('GCC') economies grew strongly during the first half of 2013, with oil prices of above US$100 per barrel allowing governments to continue with the fiscal stimulus programmes they have pursued since early 2011. Although oil output volumes were down year-on-year following weaker demand and increased supply from Libya and Iraq, revenues were sufficient at the prevailing price level to allow GCC governments to spend and save. Saudi Arabia, for example, added US$30bn to its reserves in the first five months of the year. While Saudi Arabia, Qatar and Oman remained the region's best performers, the United Arab Emirates' ('UAE') economy substantially improved in the first half of 2013, as Dubai in particular benefited from strong external demand and its safe haven status amid continued political turmoil elsewhere in the region. Fiscal policy in the UAE also turned more expansionary in the period, as did credit conditions. Outside the GCC growth was much weaker, particularly in Egypt, where political unrest restricted economic activity, widened the budget deficit and put severe pressure on the currency. The outlook for Egypt remains highly uncertain.

Review of performance

Our operations in the Middle East and North Africa reported a profit before tax of US$909m, an increase of 18% on a reported basis and 20% on a constant currency basis compared with the first half of 2012. On an underlying basis, pre-tax profits increased by 24%, mainly due to lower impairments in all global businesses, increased net interest income and higher income from our associate, The Saudi British Bank.

As part of our implementation of Global Standards, we are undertaking a comprehensive review of business policies and controls to further guard against money laundering and sanctions risks. We continue to invest heavily in compliance and risk management.

In Egypt, we continued to manage risk proactively in an uncertain political and economic environment. Surplus liquidity levels in Egyptian pounds, which arose following the introduction of foreign currency restrictions at the end of 2012, were managed by re-pricing deposits in the currency downwards and by reducing our portfolio of investments.

In RBWM, we continued to focus on the Wealth Management business and launched a new investment monitoring platform for customers and

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
Egypt .......................................................	27		34		72		−		(16)		117
Qatar ........................................................	7		20		33		−		−		60
United Arab Emirates ...............................	97		146		119		1		(26)		337
Other ........................................................	6		74		89		−		1		170
MENA (excluding Saudi Arabia) ................	137		274		313		1		(41)		684
Saudi Arabia ..............................................	43		77		98		6		1		225
	180		351		411		7		(40)		909
Half-year to 30 June 2012
Egypt .......................................................	33		45		62		−		(3)		137
Qatar ........................................................	5		18		42		−		−		65
United Arab Emirates ...............................	52		147		104		−		(4)		299
Other ........................................................	14		62		(18)		−		1		59
MENA (excluding Saudi Arabia) ................	104		272		190		−		(6)		560
Saudi Arabia ..............................................	36		69		96		4		7		212
	140		341		286		4		1		772
Half-year to 31 December 2012
Egypt .......................................................	34		26		95		−		(2)		153
Qatar ........................................................	4		18		42		−		−		64
United Arab Emirates ...............................	91		88		37		1		(52)		165
Other ........................................................	(41)		63		47		−		(38)		31
MENA (excluding Saudi Arabia) ................	88		195		221		1		(92)		413
Saudi Arabia ..............................................	24		51		74		5		11		165
	112		246		295		6		(81)		578

a structured investment product linked to offshore mainland Chinese RMB in the UAE. We expanded our remittance services in the UAE to provide customers with real time cross-border wire transfer rates and developed our digital channels by extending the enhanced security measures for mobile banking that were launched in the UAE last year to the other RBWM businesses in the region.

In CMB, we continued to invest in our trade business and rolled out the Commodity Structured Trade Finance offering in the UAE, targeting commodity-related trade flows and strengthening our collaboration with GB&M. We expanded the RMB services offered to our customers in the region, while the Saudi British Bank increased its Receivables Finance offering.

In GB&M, our focus remained on capturing intra-Middle East and 'South-South' business flows while providing a complete suite of products across Global Markets, transaction banking and advisory services to our regional clients.

The following commentary is on a constant currency basis.

Net interest income rose by 9%, as average lending and deposit balances increased due to the merger in Oman in 2012, the acquisition of the onshore retail and commercial banking businesses from Lloyds Banking Group in the UAE ('Lloyds acquisition') and increases in average lending balances and spreads in Egypt.

Net fee income grew by 4% due to growth in fees from credit cards and consumer loans in Egypt and increases in GB&M. The higher income from GB&M was driven by institutional equities as a result of higher pricing and growth in volumes, a rise in advisory fees due to increased transactions, and growth in volumes and assets under custody in Securities Services and Credit and Lending in the UAE.

Net trading income decreased by 4% as a consequence of the sale of our 80.1% holding in our Private Equity business in December 2012, and a reduction in the debt securities portfolio and lower Foreign Exchange income in Egypt reflecting the foreign currency restrictions in place. This was partly offset by favourable CVAs relating to a small number of exposures in GB&M.

Losses from financial investments were US$18m compared with a gain of US$5m in the first half of 2012, driven by losses on the disposal of available-for-sale debt securities.

A net release of LICs of US$47m was experienced in the first half of 2013 compared witha charge of US$134m in the same period of 2012. GB&M recorded a net release of loan impairment charges, compared with a charge in the comparable period, reflecting the improvement in the financial position of certain customers. CMB also recorded a net release in loan impairment charges due to a limited number of specific customer recoveries, fewer individually assessed loan impairments and lower collective impairment charges reflecting an improvement in the credit portfolio. Lower loan impairments in RBWM were attributable to a
combination of the repositioning of the book towards higher quality lending and improved property prices in the UAE.

Operating expenses increased by 17%, reflecting the merger in Oman and the Lloyds acquisition, as well as operational losses arising from changes in the interpretation of tax regulations. This was partially offset by benefits from our sustainable cost savings programme of over US$20m in the first half of 2013 as we reduced our employee numbers, mainly from management de-layering and re-engineering initiatives.

Share of profits from associates and joint ventures increased by 8%, mainly from The Saudi British Bank, driven by higher revenues due to growth in retail lending and deposits, together with the effective management of costs.

Profit/(loss) before tax and balance sheet data - Middle East and North Africa

	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$m
Profit before tax
Net interest income ..........	295		246		194		−		2		9		746
Net fee income/(expense) .	88		137		88		−		(2)		-		311
Trading income/(expense) excluding net interest income........................... ......................................	32		47		125		−		-		-		204
Net interest income on trading activities ............	-		-		9		−		(1)		(9)		(1)
Net trading income/(expense)57........	32		47		134		−		(1)		(9)		203
Net expense from financial instruments designated at fair value .......................	−		−		−		−		(1)		−		(1)
Gains less losses from financial investments ....	-		-		(18)		−		-		-		(18)
Dividend income ...............	-		-		4		−		-		-		4
Other operating income ....	12		2		8		−		49		(63)		8
Total operating income .	427		432		410		−		47		(63)		1,253
Net insurance claims63 .......	-		-		-		−		−		-		-
Net operating income22 .	427		432		410		−		47		(63)		1,253
Loan impairment (charges)/ recoveries and other credit risk provisions ...............	(14)		16		44		1		-		-		47
Net operating income ....	413		448		454		1		47		(63)		1,300
Operating expenses ...........	(276)		(174)		(141)		-		(88)		63		(616)
Operating profit/(loss) ..	137		274		313		1		(41)		-		684
Share of profit in associates and joint ventures ..........	43		77		98		6		1		-		225
Profit/(loss) before tax ..	180		351		411		7		(40)		-		909
	%		%		%		%		%				%
Share of HSBC's profit before tax ......................	1.3		2.5		2.9		-		(0.2)				6.5
Cost efficiency ratio .........	64.6		40.3		34.4		-		187.2				49.2
Balance sheet data53
	US$m		US$m		US$m		US$m		US$m				US$m
Loans and advances to customers (net) .............	6,018		13,048		8,868		−		−				27,934
Total assets .......................	6,742		14,995		41,041		55		3,319		(2,860)		63,292
Customer accounts ............	19,594		13,652		7,816		1		79				41,142

Profit/(loss) before tax and balance sheet data - Middle East and North Africa (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$m
Profit before tax
Net interest income .............	273		240		191		−		1		−		705
Net fee income/(expense) ....	85		143		77		1		(4)		−		302
Trading income excluding net interest income ..........	35		48		122		−		1		−		206
Net interest income on trading activities ..............	−		−		4		−		6		−		10
Net trading income57 ...........	35		48		126		−		7		−		216
Net expense from financial instruments designated at fair value ..........................	−		−		−		−		(4)		−		(4)
Gains less losses from financial investments .......	−		−		5		−		−		−		5
Dividend income .................	−		−		3		−		−		−		3
Other operating income ......	2		4		5		−		51		(52)		10
Total operating income .......	395		435		407		1		51		(52)		1,237
Net insurance claims63 .........	−		−		−		−		−		−		−
Net operating income22 .......	395		435		407		1		51		(52)		1,237
Loan impairment charges and other credit risk provisions	(37)		(12)		(84)		(2)		−		−		(135)
Net operating income/ (expense) .........................	358		423		323		(1)		51		(52)		1,102
Operating income/(expense)	(249)		(151)		(134)		1		(56)		52		(537)
Operating profit/(loss) .........	109		272		189		−		(5)		−		565
Share of profit in associates and joint ventures ............	31		69		97		4		6		−		207
Profit before tax .................	140		341		286		4		1		−		772
	%		%		%		%		%				%
Share of HSBC's profit before tax ........................	1.1		2.7		2.3		-		-				6.1
Cost efficiency ratio ............	63.0		34.7		32.9		(100.0)		109.8				43.4
Balance sheet data53
	US$m		US$m		US$m		US$m		US$m				US$m
Loans and advances to customers (net) ................	5,005		12,554		8,519		1		1,817				27,896
Total assets .........................	6,437		14,482		36,539		53		8,676		(3,306)		62,881
Customer accounts ..............	18,468		11,127		6,555		14		2,865				39,029

	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$m
Profit/(loss) before tax
Net interest income .............	324		252		176		1		41		(29)		765
Net fee income/(expense) ....	79		136		83		-		(5)		-		293
Trading income excluding net interest income ..........	33		46		86		-		2		-		167
Net interest income/(expense) on trading activities .........	-		2		26		-		(50)		29		7
Net trading income/(expense)57 ..........	33		48		112		-		(48)		29		174
Net expense from financial instruments designated at fair value .....................	-		-		-		-		(8)		-		(8)
Gains less losses from financial investments .......	-		-		4		-		-		-		4
Dividend income .................	-		-		2		-		-		-		2
Other operating income/ (expense) .........................	(18)		17		9		1		(4)		(42)		(37)
Total operating income/ (expense) .........................	418		453		386		2		(24)		(42)		1,193
Net insurance claims63 .........	-		-		-		-		-		-		-
Net operating income/ (expense)22 ......................	418		453		386		2		(24)		(42)		1,193
Loan impairment charges and other credit risk provisions .	(18)		(98)		(35)		-		-		-		(151)
Net operating income/ (expense) .........................	400		355		351		2		(24)		(42)		1,042
Operating expenses .............	(312)		(160)		(130)		(1)		(68)		42		(629)
Operating profit/(loss) .........	88		195		221		1		(92)		-		413
Share of profit in associates and joint ventures ............	24		51		74		5		11		-		165
Profit/(loss) before tax ........	112		246		295		6		(81)		-		578
	%		%		%		%		%				%
Share of HSBC's profit before tax ........................	1.4		3.1		3.7		0.1		(1.0)				7.3
Cost efficiency ratio ............	74.6		35.3		33.7		-		283.3				52.7
Balance sheet data53
	US$m		US$m		US$m		US$m		US$m				US$m
Loans and advances to customers (net) ................	5,828		13,559		8,699		-		-				28,086
Total assets .........................	6,562		15,651		36,582		50		6,840		(3,080)		62,605
Customer accounts ..............	19,802		12,826		6,880		3		72				39,583

For footnotes, see page 100.

 

END

 

 

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