Interim Report - 8 of 21

RNS Number : 9181Q

HSBC Holdings PLC

13 August 2010

 



Rest of Asia-Pacific

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$m			Private     Banking         US$m		Other         US$m		Total         US$m
Half-year to 30 June 2010
Australia ...................................................	23		42		68		-		3		136
India .........................................................	(50)		39		245		3		103		340
Indonesia ..................................................	(3)		48		60		-		(3)		102
Japan ........................................................	(30)		-		60		-		(2)		28
Mainland China .........................................	364		390		297		(4)		234		1,281
Associates .............................................	415		356		215		-		192		1,178
Other mainland China ...........................	(51)		34		82		(4)		42		103
Malaysia ...................................................	54		45		96		-		6		201
Singapore ..................................................	65		42		111		43		3		264
South Korea ..............................................	8		(4)		180		-		29		213
Taiwan ......................................................	20		32		43		-		(9)		86
Other ........................................................	25		123		146		1		39		334
	476		757		1,306		43		403		2,985
Half-year to 30 June 2009
Australia ...................................................	12		9		60		-		3		84
India .........................................................	(124)		(39)		244		-		120		201
Indonesia ..................................................	(12)		16		77		-		(1)		80
Japan ........................................................	(41)		-		38		(4)		(1)		(8)
Mainland China .........................................	188		292		258		(3)		17		752
Associates .............................................	287		255		143		-		-		685
Other mainland China ...........................	(99)		37		115		(3)		17		67
Malaysia ...................................................	38		27		76		-		(2)		139
Singapore ..................................................	67		43		126		54		(7)		283
South Korea ..............................................	(6)		(6)		186		-		11		185
Taiwan ......................................................	(7)		32		55		-		1		81
Other ........................................................	20		85		119		-		1		225
	135		459		1,239		47		142		2,022
Half-year to 31 December 2009
Australia ...................................................	18		23		80		-		(7)		114
India .........................................................	(95)		(2)		149		1		120		173
Indonesia ..................................................	(12)		44		52		-		(10)		74
Japan ........................................................	(38)		-		27		-		2		(9)
Mainland China .........................................	306		324		221		(4)		33		880
Associates .............................................	391		303		142		-		-		836
Other mainland China ...........................	(85)		21		79		(4)		33		44
Malaysia ...................................................	50		26		64		-		7		147
Singapore ..................................................	62		34		121		44		(2)		259
South Korea ..............................................	3		1		156		-		14		174
Taiwan ......................................................	4		33		41		-		1		79
Other ........................................................	30		122		169		2		(36)		287
	328		605		1,080		43		122		2,178

Loans and advances to customers (net) by country

	At           30 June                2010              US$m		At             30 June               2009               US$m		At    31 December                2009               US$m
Australia .............................................................................................	12,737		10,594		12,112
India ...................................................................................................	5,974		5,236		4,893
Indonesia ............................................................................................	3,200		2,540		2,721
Japan ..................................................................................................	3,325		2,486		2,496
Mainland China ..................................................................................	15,295		10,784		13,294
Malaysia .............................................................................................	10,625		8,873		9,132
Singapore ...........................................................................................	17,616		12,956		14,817
South Korea .......................................................................................	4,911		4,426		4,438
Taiwan ...............................................................................................	5,385		4,123		4,280
Other .................................................................................................	12,604		12,044		11,860
	91,672		74,062		80,043

Customer accounts by country

	At           30 June                2010              US$m		At             30 June               2009               US$m		At    31 December                2009               US$m
Australia .............................................................................................	12,641		9,621		12,093
India ...................................................................................................	11,269		11,719		11,676
Indonesia ............................................................................................	5,599		4,557		5,014
Japan ..................................................................................................	4,432		4,673		4,914
Mainland China ..................................................................................	21,893		19,874		21,867
Malaysia .............................................................................................	13,751		12,080		12,809
Singapore ...........................................................................................	34,696		32,920		33,211
South Korea .......................................................................................	4,258		4,336		4,162
Taiwan ...............................................................................................	10,385		9,819		9,891
Other .................................................................................................	19,395		16,984		18,362
	138,319		126,583		133,999

Economic briefing

GDP growth in mainland China moderated slightly during the first half of 2010 as government measures aimed at cooling the previously rapid rate of expansion encouraged a modest slowdown in economic activity. In the second quarter, the level of GDP rose by 10.3 per cent in year-on-year terms, down from 11.9 per cent during the first quarter of the year, and most indicators suggest some further moderation in activity during the remainder of 2010. Growth in industrial production during the first half of the year, while slowing, proved very strong as output rose by 17.6 per cent on the comparable period in 2009. Consumer spending remained robust, with retail sales rising by 18.3 per cent over the year to June 2010. The annual CPI inflation rate rose to 3.1 per cent in May 2010 before easing slightly to 2.9 per cent in June. The renminbi's de facto peg against the US dollar, which had existed for

23 months, was removed in June 2010 as the Chinese authorities returned to the previous floating system with reference to a basket of currencies.

Economic conditions improved markedly in Japan during the first half of 2010. In the first quarter the level of GDP rose by 1.2 per cent on the previous quarter, due in large part to strong external demand and some improvement in consumer demand. Industrial production rose significantly, albeit remaining well below pre-crisis levels, and labour market conditions proved volatile as unemployment rose to 5.2 per cent at the end of June. Consumer prices fell by 0.7 per cent over the year to June in the deflationary environment. The Bank of Japan kept the target unsecured overnight call rate at 0.1 per cent and introduced a range of initiatives designed to improve the availability and flow of credit across the economy.

Profit before tax

	Half-year to
Rest of Asia-Pacific	30 June 2010 US$m		30 June 2009 US$m		31 December 2009 US$m
Net interest income ............................................................................	1,822		1,768		1,771
Net fee income ...................................................................................	934		719		838
Net trading income .............................................................................	780		909		697
Changes in fair value of long-term debt issued and related derivatives .	-		(2)		1
Net income/(expense) from other financial instruments designated at fair value ....................................................................................	(2)		31		80
Net income/(expense) from financial instruments designated at fair value .......................................................................................................	(2)		29		81
Gains less losses from financial investments .......................................	39		(21)		2
Dividend income ................................................................................	1		1		1
Net earned insurance premiums ..........................................................	198		152		213
Other operating income .....................................................................	877		608		630
Total operating income ..................................................................	4,649		4,165		4,233
Net insurance claims incurred and movement in liabilities to policyholders .............................................................................	(151)		(156)		(239)
Net operating income before loan impairment charges and other credit risk provisions .................................................................	4,498		4,009		3,994
Loan impairment charges and other credit risk provisions ..................	(147)		(531)		(365)
Net operating income .....................................................................	4,351		3,478		3,629
Operating expenses ............................................................................	(2,417)		(2,151)		(2,299)
Operating profit ..............................................................................	1,934		1,327		1,330
Share of profit in associates and joint ventures ...................................	1,051		695		848
Profit before tax ..............................................................................	2,985		2,022		2,178
	%		%		%
Share of HSBC's profit before tax ......................................................	26.9		40.3		105.7
Cost efficiency ratio ...........................................................................	53.7		53.7		57.6
Period-end staff numbers (full-time equivalent) ..................................	88,605		87,567		87,141
Balance sheet data23
	US$m		US$m		US$m
Loans and advances to customers (net) ...............................................	91,672		74,062		80,043
Loans and advances to banks (net) .....................................................	35,338		34,278		35,648
Trading assets, financial instruments designated at fair value, and financial investments ......................................................................	64,142		55,328		58,941
Total assets ........................................................................................	244,624		217,794		222,139
Deposits by banks ...............................................................................	15,412		12,980		8,075
Customer accounts .............................................................................	138,319		126,583		133,999

For footnote, see page 95.

The commentary on Rest of Asia-Pacific is on an underlying basis unless stated otherwise.

Elsewhere in Asia the recovery continued, with strong rates of growth recorded during the first half of 2010 as the rebound in activity continued from the final months of 2009. In most economies, the level of output exceeded pre-crisis peaks. Singapore, especially, staged a significant recovery, with output growing at double-digit rates, placing the economy amongst the region's best performers during the first half of 2010. Growth also recovered impressively in India, with the level of GDP rising by 8.6 per cent in year-on-year terms during the first three months of 2010, helped by an acceleration of private investment and consumer spending. The pace of recovery encouraged the Reserve Bank of India to tighten monetary conditions modestly from March onwards. In Indonesia, economic recovery continued into 2010 with the year-on-year rate of change in GDP accelerating to 5.7 per cent in the first quarter of the year, while the annual rate of growth in Malaysia rebounded sharply to double-digits in the first quarter, owing in part to an extensive government stimulus programme. Other economies in Southeast Asia also maintained a healthy pace of recovery in the first half of 2010. The Philippines, Thailand, and Vietnam - economies which appeared to lag the regional recovery in 2009 - saw impressive advances in GDP in the first quarter of 2010, with indicative data also suggesting a sustained rate of expansion into the second quarter of the year. Political uncertainties in Thailand appear to have exerted less of a depressive influence on growth than initially feared, while the Philippines and Vietnam also benefited from strong consumer spending and accommodative fiscal policies. Meanwhile, South Korea and Taiwan witnessed impressive gains in industrial output during the first half of 2010, benefiting especially from the improving global trade cycle and rapidly growing demand in mainland China. In both economies, the strength of exports supported labour markets, household income growth and consumer expenditure.

Review of business performance

Reconciliation of reported and underlying profit before tax

	Half-year to 30 June 2010 ('1H10') compared with half-year to 30 June 2009 ('1H09')
Rest of Asia-Pacific	1H09            as reported     US$m	1H09       adjust-        ments1         US$m			Currency translation2        US$m		1H09   at 1H10 exchange        rates3      US$m	1H10                as     reported         US$m			1H10     adjust-      ments1      US$m		1H10    under-      lying     US$m		Re- ported change4        %		Under-  lying change4        %
Net interest income ..	1,768		-		146		1,914		1,822		(31)		1,791		3		(6)
Net fee income ..	719		-		63		782		934		(3)		931		30		19
Changes in fair value5 ....	(3)		3		-		-		-		-		-
Other income6	1,525		-		137		1,662		1,742		(197)		1,545		14		(7)
Net operating income7 ..............	4,009		3		346		4,358		4,498		(231)		4,267		12		(2)
Loan impairment charges and other credit risk provisions ............	(531)		-		(53)		(584)		(147)		-		(147)		72		75
Net operating income	3,478		3		293		3,774		4,351		(231)		4,120		25		9
Operating expenses	(2,151)		-		(169)		(2,320)		(2,417)		19		(2,398)		(12)		(3)
Operating profit ...	1,327		3		124		1,454		1,934		(212)		1,722		46		18
Income from associates	695		-		-		695		1,051		-		1,051		51		51
Profit before tax ........	2,022		3		124		2,149		2,985		(212)		2,773		48		29

For footnotes, see page 95.

HSBC's operations in the Rest of Asia-Pacific regionreported pre-tax profits of US$3.0 billion compared with US$2.0 billion in the first half of 2009, an increase of 48 per cent. Within reported profits was an accounting gain of US$188 million arising from the dilution of HSBC's shareholding in Ping An Insurance following its issue of share capital to a third party in the first half of 2010. On an underlying basis, which excludes this dilution gain, pre-tax profit rose by 29 per cent as a result of increased economic activity, expanding trade flows and improved credit conditions.

HSBC's focus on the key regional markets of mainland China, India, Indonesia, Singapore, Malaysia and Australia, where the greatest opportunities have been identified to support customers' growing local and international needs, resulted in expansion of the business in these countries, including the opening of new branches. In addition, HSBC increased its shareholding in Bao Viet. The new mainland China head office building was opened in Shanghai in June which, along with the 100th HSBC branded outlet, reaffirmed HSBC's position as the leading foreign bank in the country. Two Hang Seng Bank branded outlets and one rural bank outlet were also opened in the first half of 2010. During the period, HSBC increased its investment in the Bank of Communications by agreeing to subscribe for its full entitlement of H‑Shares in the Bank of Communications rights issue for a consideration of approximately US$921 million. The Group also subscribed for its entitlement in Industrial Bank's rights issue through its holding in Hang Seng Bank. In July 2010, HSBC agreed to acquire a substantial part of Royal Bank of Scotland Group plc's commercial and retail business in India with assets of US$1.8 billion as at 31 March 2010 and approximately 1.1 million customers.

Advance was successfully launched in six countries and territories. The acquisition of Premier customers continued apace, with numbers growing by 15 per cent in the 15 countries and territories within Rest of Asia-Pacific where the proposition is offered. Commercial Banking further enhanced its international connectivity, with inward referrals from other regions and outward referrals increasing by 62 per cent and 75 per cent, respectively, providing evidence of its progress with implementing HSBC's strategic objective to be the leading international business bank.

Net interest income decreased by 6 per cent, mainly in Balance Sheet Management, driven by the maturing of higher yielding positions and the flattening of yield curves.

Lending increased as a result of business growth in Commercial Banking and Global Banking, primarily in mainland China but also in Singapore and Japan, in part reflecting the recovery in trade volumes in the region. Lending balances in Personal Financial Services also grew, particularly in the residential mortgage books in Malaysia, Australia, mainland China and Singapore. The risk profile of lending improved as the planned reduction in non-relationship managed cards and personal loans continued, particularly in India.

Asset spreads narrowed due to intensified market competition, primarily in residential mortgages in Personal Financial Services, and a change in the mix of assets towards more secured lending.

Customer deposits grew by 6 per cent from 30 June 2009, with continued growth in mainland China, Australia, Singapore and Malaysia. Premier customer balances in the region increased as demand for the proposition continued to expand.

Liability spreads remained constrained, reflecting low interest rates in many countries across the region. However, improvement was seen in Australia and mainland China, where overall spreads gradually widened in the first half of 2010.

Balance Sheet Management income declined from the exceptional results of the first half of 2009 as higher yielding trades matured, interest rates remained low and yield curves flattened, primarily in Japan, Singapore and Australia.

Net fee income was 19 per cent higher, driven by a rise in fees from funds under management, securities services and sales of investment products, all of which benefited from an improvement in equity markets and investor sentiment compared with the first half of 2009. Marketing activities were increased to support revenue growth opportunities arising from these developments. Increased levels of regional trade generated higher fee income from greater volumes of remittances and credit facilities. Re-pricing initiatives taken in 2009 were also a contributing factor.

Net trading income declined by 22 per cent, as lower market volatility resulted in fewer trading opportunities in Credit, Rates and foreign exchange compared with the first half of 2009. Similarly, the non-recurrence of significant gains from credit trading in India and the one-off gains recognised on certain transactions in South Korea, further affected revenues. This was partly offset by higher interest income on trading products, notably in India, reflecting growth in the size of the trading portfolio.

Increased economic activity, expanding trade flows and improved credit conditions drove a 29 per cent increase in pre-tax profit in Rest of Asia-Pacific.

A net expense of US$2 million on financial instruments designated at fair value was recorded, compared with income of US$34 million in the first half of 2009. The movement was primarily driven by lower revaluation gains on assets linked to the insurance business. To the extent that the current period gains were attributed to policyholders, there was a corresponding change in net insurance claims incurred and movement in liabilities to policyholders.

Gains less losses from financial investments rose by US$52 million as a result of gains on sales of available-for-sale investments and the non-recurrence of impairments reported in the same period in 2009.

Net earned insurance premiums increased by 22 per cent to US$198 million, largely due to higher sales in Taiwan primarily from unit-linked products, and successful product launches and marketing campaigns in Malaysia. Growth in the insurance business resulted in an increase in net insurance claims incurred and movement in liabilities to policyholders. 

Loan impairment charges decreased by 75 per cent to US$147 million. In Personal Financial Services, the decrease was driven by the planned reduction in cards and other unsecured lending balances in India, and the general improvement in economic conditions in the region. The economic environment also contributed to fewer individual loan impairment charges in Commercial Banking.

Operating expenses increased marginally by 3 per cent to US$2.4 billion. Higher staff costs in mainland China, Singapore and Taiwan to support business expansion were partly offset by reduced costs due to lower headcount in most other countries in the region, as high utilisation of direct channels continued, reflecting the progressive benefits of cost efficiency programmes and technology enhancement.

Share of profit from associates and joint ventures in the region increased by 51 per cent, with a higher contribution from Ping An Insurance, which achieved very strong sales growth as the company capitalised on improved economic conditions. An increase in net interest income and net fee income in Bank of Communications and lower loan impairment charges in Industrial Bank also resulted in higher profits as both banks benefited from buoyant economic growth and a higher lending base in mainland China following the stimulus packages implemented in 2009.

Reconciliation of reported and underlying profit before tax

	Half-year to 30 June 2010 ('1H10') compared with half-year to 31 December 2009 ('2H09')
Rest of Asia-Pacific	2H09            as reported      US$m	2H09         adjust-          ments1          US$m			Currency translation2         US$m		2H09    at 1H10 exchange         rates8       US$m	1H10                as      reported          US$m			1H10       adjust-       ments1       US$m		1H10      under-        lying      US$m		Re- ported change4         %		Under-   lying change4         %
Net interest income .....	1,771		-		47		1,818		1,822		-		1,822		3		-
Net fee income .....	838		-		19		857		934		-		934		11		9
Other income6 ..................	1,385		-		40		1,425		1,742		(188)		1,554		26		9
Net operating income7 ....	3,994		-		106		4,100		4,498		(188)		4,310		13		5
Loan impairment charges and other credit risk provisions .	(365)		-		(14)		(379)		(147)		-		(147)		60		61
Net operating income .....	3,629		-		92		3,721		4,351		(188)		4,163		20		12
Operating expenses ...	(2,299)		-		(56)		(2,355)		(2,417)		-		(2,417)		(5)		(3)
Operating profit ........	1,330		-		36		1,366		1,934		(188)		1,746		45		28
Income from associates	848		-		1		849		1,051		-		1,051		24		24
Profit before tax ............	2,178		-		37		2,215		2,985		(188)		2,797		37		26

For footnotes, see page 95.

Analysis by customer group and global business

Profit before tax

	Half-year to 30 June 2010
Rest of Asia-Pacific	Personal   Financial     Services         US$m		Commercial     Banking         US$m	Global Banking &       Markets           US$m			Private     Banking         US$m		Other         US$m		Inter-    segment elimination35         US$m		Total         US$m
Net interest income ............	754		431		662		40		30		(95)		1,822
Net fee income/(expense) ...	320		204		385		30		(5)		-		934
Trading income/(expense) excluding net interest income ............................	36		61		462		35		(8)		-		586
Net interest income on trading activities ..............	-		-		98		-		1		95		194
Net trading income/ (expense)25 ......................	36		61		560		35		(7)		95		780
Net income/(expense) from financial instruments designated at fair value ....	2		1		-		-		(5)		-		(2)
Gains less losses from financial investments ......	1		3		30		2		3		-		39
Dividend income .................	-		-		1		-		-		-		1
Net earned insurance premiums ........................	172		26		-		-		-		-		198
Other operating income ......	52		53		20		-		826		(74)		877
Total operating income ...	1,337		779		1,658		107		842		(74)		4,649
Net insurance claims26 .........	(133)		(18)		-		-		-		-		(151)
Net operating income7.....	1,204		761		1,658		107		842		(74)		4,498
Loan impairment (charges)/ recoveries and other credit risk provisions .................	(175)		18		10		-		-		-		(147)
Net operating income ......	1,029		779		1,668		107		842		(74)		4,351
Operating expenses .............	(997)		(376)		(564)		(64)		(490)		74		(2,417)
Operating profit ...............	32		403		1,104		43		352		-		1,934
Share of profit in associates and joint ventures ............	444		354		202		-		51		-		1,051
Profit before tax ...............	476		757		1,306		43		403		-		2,985
	%		%		%		%		%				%
Share of HSBC's profit before tax ........................	4.3		6.8		11.8		0.4		3.6				26.9
Cost efficiency ratio ...........	82.8		49.4		34.0		59.8		58.2				53.7
Balance sheet data23
	US$m		US$m		US$m		US$m		US$m				US$m
Loans and advances to customers (net) ...............	31,317		26,284		30,718		3,181		172				91,672
Total assets .........................	42,096		34,810		153,877		12,013		10,393		(8,565)		244,624
Customer accounts ..............	48,890		31,046		46,089		12,262		32				138,319

Profit before tax (continued)

	Half-year to 30 June 2009
Rest of Asia-Pacific	Personal      Financial       Services          US$m		Commercial       Banking          US$m	Global    Banking &        Markets            US$m			Private       Banking          US$m		Other          US$m		Inter-      segment elimination35          US$m		Total          US$m
Net interest income ..............	730		380		626		55		63		(86)		1,768
Net fee income/(expense) .....	254		154		294		25		(8)		-		719
Trading income/(expense) excluding net interest income ..............................	40		71		609		35		(15)		-		740
Net interest income/(expense) on trading activities ..........	(1)		-		82		-		2		86		169
Net trading income/ (expense)25 ........................	39		71		691		35		(13)		86		909
Net income/(expense) from financial instruments designated at fair value ......	34		-		(3)		-		(2)		-		29
Gains less losses from financial investments ........	5		3		(10)		-		(19)		-		(21)
Dividend income ...................	-		-		1		-		-		-		1
Net earned insurance premiums ..........................	136		16		-		-		-		-		152
Other operating income ........	36		28		17		-		590		(63)		608
Total operating income ........	1,234		652		1,616		115		611		(63)		4,165
Net insurance claims26 ...........	(145)		(11)		-		-		-		-		(156)
Net operating income7...........	1,089		641		1,616		115		611		(63)		4,009
Loan impairment charges and other credit risk provisions	(375)		(151)		(5)		-		-		-		(531)
Net operating income ...........	714		490		1,611		115		611		(63)		3,478
Operating expenses ...............	(870)		(291)		(517)		(68)		(468)		63		(2,151)
Operating profit/(loss)  .........	(156)		199		1,094		47		143		-		1,327
Share of profit/(loss) in associates and joint ventures ............................	291		260		145		-		(1)		-		695
Profit before tax ...................	135		459		1,239		47		142		-		2,022
	%		%		%		%		%				%
Share of HSBC's profit before tax .........................	2.7		9.1		24.7		0.9		2.9				40.3
Cost efficiency ratio .............	79.9		45.4		32.0		59.1		76.6				53.7
Balance sheet data23
	US$m		US$m		US$m		US$m		US$m				US$m
Loans and advances to customers (net) .................	27,780		21,693		21,682		2,739		168				74,062
Total assets ..........................	36,761		29,760		138,266		13,068		5,958		(6,019)		217,794
Customer accounts ................	45,179		26,031		42,712		12,624		37				126,583

	Half-year to 31 December 2009
Rest of Asia-Pacific	Personal      Financial       Services          US$m		Commercial       Banking          US$m		Global   Banking &       Markets          US$m		Private       Banking          US$m		Other          US$m		Inter-       segment elimination35          US$m		Total          US$m
Net interest income ..............	763		427		548		60		28		(55)		1,771
Net fee income/(expense) .....	300		177		342		30		(11)		-		838
Trading income/(expense) excluding net interest income ..............................	40		63		404		20		(3)		-		524
Net interest income/(expense) on trading activities ..........	-		-		120		-		(2)		55		173
Net trading income/(expense)25 ...........	40		63		524		20		(5)		55		697
Net income from financial instruments designated at fair value ...........................	76		1		1		-		3		-		81
Gains less losses on financial investments ......................	-		(1)		3		-		-		-		2
Dividend income ...................	-		-		-		-		1		-		1
Net earned insurance premiums ..........................	201		12		-		-		-		-		213
Other operating income/ (expense)...........................	31		38		24		(2)		610		(71)		630
Total operating income ........	1,411		717		1,442		108		626		(71)		4,233
Net insurance claims26 ..........	(235)		(4)		-		-		-		-		(239)
Net operating income7 ..........	1,176		713		1,442		108		626		(71)		3,994
Loan impairment charges and other credit risk provisions	(274)		(70)		(18)		(2)		(1)		-		(365)
Net operating income ...........	902		643		1,424		106		625		(71)		3,629
Operating expenses ...............	(969)		(345)		(489)		(63)		(504)		71		(2,299)
Operating profit/(loss) ..........	(67)		298		935		43		121		-		1,330
Share of profit in associates and joint ventures .............	395		307		145		-		1		-		848
Profit before tax ...................	328		605		1,080		43		122		-		2,178
	%		%		%		%		%				%
Share of HSBC's profit before tax .........................	15.9		29.4		52.4		2.1		5.9				105.7
Cost efficiency ratio .............	82.4		48.4		33.9		58.3		80.5				57.6
Balance sheet data23
	US$m		US$m		US$m		US$m		US$m				US$m
Loans and advances to customers (net) .................	30,433		22,595		23,989		2,834		192				80,043
Total assets ...........................	40,266		31,221		138,884		11,928		7,160		(7,320)		222,139
Customer accounts ................	47,573		30,196		43,698		12,496		36				133,999

For footnotes, see page 95.

Middle East

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$m			Private     Banking         US$m		Other         US$m		Total         US$m
Half-year to 30 June 2010
Egypt .........................................................	18		41		19		-		-		78
Qatar .........................................................	10		28		33		-		-		71
United Arab Emirates .................................	7		98		24		(2)		(1)		126
Other .........................................................	14		15		(64)		(1)		-		(36)
Middle East (excluding Saudi Arabia) ..........	49		182		12		(3)		(1)		239
Saudi Arabia ...............................................	9		76		37		(20)		5		107
	58		258		49		(23)		4		346
Half-year to 30 June 2009
Egypt .........................................................	10		27		49		-		34		120
Qatar .........................................................	10		29		35		-		-		74
United Arab Emirates .................................	(14)		141		182		(1)		3		311
Other .........................................................	9		6		(15)		-		(4)		(4)
Middle East (excluding Saudi Arabia) ..........	15		203		251		(1)		33		501
Saudi Arabia ...............................................	20		49		53		6		14		142
	35		252		304		5		47		643
Half-year to 31 December 2009
Egypt .........................................................	8		24		48		-		24		104
Qatar .........................................................	-		31		31		-		-		62
United Arab Emirates .................................	(163)		(277)		125		(1)		2		(314)
Other .........................................................	(6)		(21)		(65)		-		1		(91)
Middle East (excluding Saudi Arabia) ..........	(161)		(243)		139		(1)		27		(239)
Saudi Arabia ...............................................	-		12		24		2		13		51
	(161)		(231)		163		1		40		(188)

 Loans and advances to customers (net) by country

	At           30 June                2010              US$m		At             30 June               2009               US$m		At    31 December                2009               US$m
Egypt ....................................................................................................	2,689		2,503		2,553
Qatar ....................................................................................................	1,743		1,802		1,811
United Arab Emirates ............................................................................	14,350		15,906		13,883
Other ....................................................................................................	4,612		4,886		4,597
	23,394		25,097		22,844

 Customer accounts by country

	At           30 June                2010              US$m		At             30 June               2009               US$m		At    31 December                2009               US$m
Egypt ....................................................................................................	6,666		5,642		5,743
Qatar ....................................................................................................	3,192		2,742		2,698
United Arab Emirates ............................................................................	16,136		19,284		17,498
Other ....................................................................................................	6,983		6,613		6,590
	32,977		34,281		32,529

Profit/(loss) before tax

	Half-year to
Middle East	30 June 2010 US$m		30 June 2009 US$m		31 December 2009 US$m
Net interest income ..............................................................................	667		763		722
Net fee income .....................................................................................	356		308		317
Net trading income ...............................................................................	194		220		174
Gains less losses from financial investments ..........................................	(1)		13		3
Dividend income ...................................................................................	5		2		1
Other operating income/(expense) ........................................................	(33)		63		8
Total operating income .....................................................................	1,188		1,369		1,225
Net insurance claims incurred and movement in liabilities to policyholders ................................................................................	-		-		-
Net operating income before loan impairment charges and other credit risk provisions ....................................................................	1,188		1,369		1,225
Loan impairment charges and other credit risk provisions .....................	(438)		(391)		(943)
Net operating income ........................................................................	750		978		282
Operating expenses ...............................................................................	(519)		(482)		(519)
Operating profit/(loss) ......................................................................	231		496		(237)
Share of profit in associates and joint ventures ......................................	115		147		49
Profit/(loss) before tax ......................................................................	346		643		(188)
	%		%		%
Share of HSBC's profit before tax .........................................................	3.1		12.8		(9.1)
Cost efficiency ratio .............................................................................	43.7		35.2		42.4
Period-end staff numbers (full-time equivalent) .....................................	8,264		8,819		8,281
Balance sheet data23
	US$m		US$m		US$m
Loans and advances to customers (net) .................................................	23,394		25,097		22,844
Loans and advances to banks (net) ........................................................	8,627		6,556		8,420
Trading assets, financial instruments designated at fair value, and financial investments ........................................................................	10,944		10,064		10,230
Total assets ...........................................................................................	49,637		48,601		48,107
Deposits by banks .................................................................................	1,938		991		1,491
Customer accounts ................................................................................	32,977		34,281		32,529

For footnote, see page 95.

The commentary on Middle East is on an underlying basis unless stated otherwise.

Economic briefing

Most of the economies of the Middle East stabilised during the first half of 2010, but continued to show growth rates far short of pre-crisis levels. Resilient oil prices offered some support, particularly in the Gulf, with the US$77 per barrel average price of the first six months of 2010 sufficient to leave all the region's major oil producers with budget surpluses, supporting growth in public spending and a further reduction of public debt. However, while growth in public spending provided some impetus to regional economies, domestic demand struggled to build

momentum. Most immediately, consumption and investment spending were held back by a limited access to credit, with lending growth remaining weak over the first few months of 2010. More difficult access to international debt and equity funding also weighed on the performance of the economy, particularly in the UAE. Egypt, meanwhile, took more convincing steps towards recovery, with the level of GDP in the first quarter rising by more than 5.5 per cent in year-on-year terms.

Review of business performance

Reconciliation of reported and underlying profit before tax

	Half-year to 30 June 2010 ('1H10') compared with half-year to 30 June 2009 ('1H09')
Middle East	1H09            as reported     US$m	1H09       adjust-        ments1         US$m			Currency translation2        US$m		1H09   at 1H10 exchange        rates3      US$m	1H10                as     reported         US$m			1H10     adjust-      ments1      US$m		1H10    under-      lying     US$m		Re- ported change4        %		Under-  lying change4        %
Net interest income ..	763		-		-		763		667		-		667		(13)		(13)
Net fee income ..	308		-		-		308		356		-		356		16		16
Other income6	298		-		-		298		165		47		212		(45)		(29)
Net operating income7 ..............	1,369		-		-		1,369		1,188		47		1,235		(13)		(10)
Loan impairment charges and other credit risk provisions ............	(391)		-		-		(391)		(438)		-		(438)		(12)		(12)
Net operating income	978		-		-		978		750		47		797		(23)		(19)
Operating expenses	(482)		-		-		(482)		(519)		-		(519)		(8)		(8)
Operating profit ...	496		-		-		496		231		47		278		(53)		(44)
Income from associates	147		-		-		147		115		-		115		(22)		(22)
Profit before tax ........	643		-		-		643		346		47		393		(46)		(39)

For footnotes, see page 95.

HSBC's operations in the Middle East reported profit before tax of US$346 million, a decline of 46 per cent compared with US$643 million in the first half of 2009 but a significant improvement on the second half of 2009.

In June 2010, HSBC agreed to sell its shareholding in British Arab Commercial Bank plc, pending regulatory and other approvals. Reflecting the terms of the sale, an impairment of US$47 million was recognised following the reclassification of the asset as available for sale. On an underlying basis, and excluding this impairment, pre-tax profit declined by 39 per cent, largely due to the run-off of higher yielding loans and weaker economic conditions, which were reflected in a rise in loan impairment charges and other credit risk provisions and reduced revenues compared with the first half of 2009.

In light of the weaker economic backdrop, HSBC augmented its support for local internationally-focused businesses through the launch of a US$100 million fund targeted at SMEs in the UAE engaged in cross-border business. Over 75 per cent of these facilities were allocated at 30 June 2010.

The emphasis on attracting high quality Personal Financial Services customers continued with further roll out of Premier and the introduction of the Advance proposition in the region. The number of Premier customers grew by 21 per cent

in the first half of 2010 and the number of Advance customers reached 63,000 as at June 2010.

A rise in loan impairment charges and lower revenues reduced underlying pre-tax profit by 39 per cent in the Middle East.

Net interest income decreased by 13 per cent as average lending balances fell in both Personal Financial Services and Commercial Banking.

In Personal Financial Services, HSBC continued to manage down unsecured lending balances at greatest risk in the weaker economic conditions, and this more than offset new lending primarily targeted at more creditworthy Premier and Advance customers. The move from riskier unsecured lending to a higher quality portfolio resulted in a narrowing of spreads.

Average Commercial Banking lending fell compared with the first half of 2009, reflecting the decline in economic activity, particularly in construction. However, trade-related balances recovered from the low levels of the second half of 2009.

Average customer accounts declined as corporate customers reduced their funding requirements in response to lower activity levels and tighter liquidity in the local markets. This was partly offset by an increase in personal customer deposits as a result of successful marketing campaigns.

Deposit spreads improved as fixed-term deposits raised at higher rates towards the end of 2008 matured in the second half of 2009.

Net fee income grew by 16 per cent, with increased volumes in credit facilities, primarily related to trade and guarantees, and remittances in Commercial Banking. Global Banking and Markets generated higher fee income from export and project finance and an increase in the institutional equities business.

Net trading income declined by 12 per cent to US$194 million. In Credit, lower revenues were due to the non-recurrence of gains which had resulted from the tightening of credit spreads on trading positions in the first half of 2009, coupled with lower liquidity levels in the regional markets. The decrease in foreign exchange income was driven by lower market volatility as speculation regarding the unpegging of Gulf currencies from the US dollar receded.

Other operating income declined by 78 per cent. The first half of 2009 benefited from the gains arising from the one-off buy-back and extinguishment of own debt.

Loan impairment charges and other credit risk provisions rose by 12 per cent compared with the first half of 2009 to US$438 million, although this reflected a significant decline on the second half of the year. The increase on the comparable period was driven by the economic downturn which occurred in the latter part of 2009 and continued to affect activity in the first half of 2010. This, combined with further restructuring activity, led to additional loan impairment charges in Global Banking and Markets related to the UAE.

Loan impairment charges fell by 43 per cent in Commercial Banking compared with the first half of 2009 and by 90 per cent from their peak in the second half of 2009 as incremental new impairment allowances were required on only a small number of customer accounts. In Personal Financial Services, loan impairment charges were lower than in both halves of 2009 as measures taken to improve loan quality, primarily from repositioning the loan book to more creditworthy customers, strengthening origination criteria and collections processes and running off certain mass market portfolios, resulted in lower delinquency rates.

Operating expenses increased by 8 per cent. Staff costs were unchanged and other costs increased, reflecting higher premises costs, property write-downs in the UAE and higher litigation provisions.

Profit from associates and joint ventures declined by 22 per cent, principally driven by a fall in contribution from The Saudi British Bank as loan impairment charges rose and revenue declined in the challenging operating conditions as lending contracted.

Reconciliation of reported and underlying profit before tax

	Half-year to 30 June 2010 ('1H10') compared with half-year to 31 December 2009 ('2H09')
Middle East	2H09            as reported      US$m	2H09         adjust-          ments1          US$m			Currency translation2         US$m		2H09    at 1H10 exchange         rates8       US$m	1H10                as      reported          US$m			1H10       adjust-       ments1       US$m		1H10      under-        lying      US$m		Re- ported change4         %		Under-   lying change4         %
Net interest income ......	722		-		(1)		721		667		-		667		(8)		(7)
Net fee income ......	317		-		-		317		356		-		356		12		12
Other income6 ..................	186		-		(1)		185		165		47		212		(11)		15
Net operating income7 ....	1,225		-		(2)		1,223		1,188		47		1,235		(3)		1
Loan impairment charges and other credit risk provisions .	(943)		-		-		(943)		(438)		-		(438)		54		54
Net operating income ......	282		-		(2)		280		750		47		797		166		185
Operating expenses ...	(519)		-		1		(518)		(519)		-		(519)		-		-
Operating profit/(loss) ..................	(237)		-		(1)		(238)		231		47		278		197		217
Income from associates	49		-		-		49		115		-		115		135		135
Profit/(loss) before tax .	(188)		-		(1)		(189)		346		47		393		284		308

For footnotes, see page 95.

Analysis by customer group and global business

Profit/(loss) before tax

	Half-year to 30 June 2010
Middle East	Personal   Financial     Services         US$m		Commercial     Banking         US$m	Global Banking &       Markets           US$m			Private     Banking         US$m		Other         US$m		Inter-     segment elimination35         US$m		Total         US$m
Net interest income .............	287		214		163		1		5		(3)		667
Net fee income ....................	103		134		113		6		-		-		356
Trading income/(expense) excluding net interest income ............................	30		44		113		-		(3)		-		184
Net interest income on trading activities ..............	1		3		5		-		(2)		3		10
Net trading income/ (expense)25 ......................	31		47		118		-		(5)		3		194
Gains less losses from financial investments .......	1		-		(1)		-		(1)		-		(1)
Dividend income .................	2		1		2		-		-		-		5
Other operating income/ (expense) .........................	11		(20)		(11)		-		16		(29)		(33)
Total operating income ...	435		376		384		7		15		(29)		1,188
Net insurance claims26 .........	-		-		-		-		-		-		-
Net operating income7......	435		376		384		7		15		(29)		1,188
Loan impairment charges and other credit risk provisions	(141)		(47)		(250)		-		-		-		(438)
Net operating income ......	294		329		134		7		15		(29)		750
Operating expenses .............	(245)		(150)		(127)		(10)		(16)		29		(519)
Operating profit/(loss) ....	49		179		7		(3)		(1)		-		231
Share of profit/(loss) in associates and joint ventures ...........................	9		79		42		(20)		5		-		115
Profit/(loss) before tax .....	58		258		49		(23)		4		-		346
	%		%		%		%		%				%
Share of HSBC's profit before tax ........................	0.5		2.3		0.4		(0.2)		0.1				3.1
Cost efficiency ratio ............	56.3		39.9		33.1		142.9		106.7				43.7
Balance sheet data23
	US$m		US$m		US$m		US$m		US$m				US$m
Loans and advances to customers (net) ................	5,443		11,541		6,389		18		3				23,394
Total assets .........................	6,238		13,892		29,106		(267)		4,247		(3,579)		49,637
Customer accounts ..............	16,449		10,482		5,359		641		46				32,977

	Half-year to 30 June 2009
Middle East	Personal      Financial       Services          US$m		Commercial       Banking          US$m	Global    Banking &        Markets            US$m			Private       Banking          US$m		Other          US$m		Inter-       segment elimination35          US$m		Total          US$m
Net interest income .............	343		243		149		1		27		-		763
Net fee income ....................	99		109		98		1		1		-		308
Trading income excluding net interest income ..........	26		37		146		-		1		-		210
Net interest income on trading activities ..............	-		-		10		-		-		-		10
Net trading income25 ...........	26		37		156		-		1		-		220
Gains less losses from financial investments .......	11		(2)		(1)		-		5		-		13
Dividend income .................	-		-		2		-		-		-		2
Other operating income ......	24		33		25		2		19		(40)		63
Total operating income .......	503		420		429		4		53		(40)		1,369
Net insurance claims26 .........	-		-		-		-		-		-		-
Net operating income7.........	503		420		429		4		53		(40)		1,369
Loan impairment charges and other credit risk provisions	(244)		(83)		(64)		-		-		-		(391)
Net operating income ..........	259		337		365		4		53		(40)		978
Operating expenses .............	(245)		(135)		(117)		(5)		(20)		40		(482)
Operating profit/(loss) .........	14		202		248		(1)		33		-		496
Share of profit in associates and joint ventures ............	21		50		56		6		14		-		147
Profit before tax .................	35		252		304		5		47		-		643
	%		%		%		%		%				%
Share of HSBC's profit before tax ........................	0.7		5.0		6.1		0.1		0.9				12.8
Cost efficiency ratio ............	48.7		32.1		27.3		125.0		37.7				35.2
Balance sheet data23
	US$m		US$m		US$m		US$m		US$m				US$m
Loans and advances to customers (net) ................	6,645		11,567		6,799		31		55				25,097
Total assets .........................	7,578		13,040		27,423		95		5,285		(4,820)		48,601
Customer accounts ..............	14,967		9,844		7,312		1,645		513				34,281

Profit/(loss) before tax (continued)

	Half-year to 31 December 2009
Middle East	Personal      Financial       Services          US$m		Commercial       Banking          US$m		Global   Banking &       Markets          US$m		Private       Banking          US$m		Other          US$m		Inter-       segment elimination35          US$m		Total          US$m
Net interest income .............	301		221		181		-		19		-		722
Net fee income ....................	104		110		100		2		1		-		317
Trading income excluding net interest income ..........	29		38		89		1		2		-		159
Net interest income on trading activities ..............	-		-		10		-		5		-		15
Net trading income25 ...........	29		38		99		1		7		-		174
Gains less losses from financial investments .......	1		-		2		-		-		-		3
Dividend income .................	-		-		1		-		-		-		1
Other operating income/ (expense) .........................	11		6		10		(3)		20		(36)		8
Total operating income .......	446		375		393		-		47		(36)		1,225
Net insurance claims26 .........	-		-		-		-		-		-		-
Net operating income7 ........	446		375		393		-		47		(36)		1,225
Loan impairment charges and other credit risk provisions	(344)		(490)		(109)		-		-		-		(943)
Net operating income/ (expense) .........................	102		(115)		284		-		47		(36)		(282)
Operating expenses .............	(263)		(134)		(138)		(1)		(19)		36		(519)
Operating profit/(loss) .........	(161)		(249)		146		(1)		28		-		(237)
Share of profit in associates and joint ventures ............	-		18		17		2		12		-		49
Profit/(loss) before tax ........	(161)		(231)		163		1		40		-		(188)
	%		%		%		%		%				%
Share of HSBC's profit before tax ........................	(7.8)		(11.1)		7.9		-		1.9				(9.1)
Cost efficiency ratio ............	59.0		35.7		35.1		-		40.4				42.4
Balance sheet data23
	US$m		US$m		US$m		US$m		US$m				US$m
Loans and advances to customers (net) ................	5,979		10,281		6,554		28		2				22,844
Total assets .........................	6,810		11,861		28,189		96		4,952		(3,801)		48,107
Customer accounts ..............	15,074		10,122		5,752		1,172		409				32,529

For footnotes, see page 95.

 

END

 

 

IR UAAURRNAWAAR