Interim Report - 8 of 26

RNS Number : 1153M

HSBC Holdings PLC

12 August 2011

 



Hong Kong

HSBC's principal banking subsidiaries in Hong Kong are The Hongkong and Shanghai Banking Corporation Limited and Hang Seng Bank Limited. The former is the largest bank incorporated in Hong Kong and is our flagship bank in the Asia-Pacific region. It is one of Hong Kong's three note-issuing banks, accounting for approximately 65% by value of banknotes in circulation in the first half of 2011.
	Half-year to
	30 Jun		30 Jun		31 Dec
	2011		2010		2010
	US$m		US$m		US$m
Net interest income ......	2,249		1,994		2,252
Net fee income .............	1,612		1,395		1,567
Net trading income .......	669		688		624
Other income ................	884		819		863
Net operating income41 ...................................	5,414		4,896		5,306
Impairment charges42 ....	(25)		(63)		(51)
Net operating income	5,389		4,833		5,255
Total operating expenses ...................................	(2,339)		(1,968)		(2,463)
Operating profit ........	3,050		2,865		2,792
Income from associates43	31		12		23
Profit before tax .........	3,081		2,877		2,815
Cost efficiency ratio .....	43.2%		40.2%		46.4%
RoRWA44 .....................	5.6%		5.1%		5.0%
Period-end staff numbers	30,214		28,397		29,171
Best Bank in Hong Kong (FinanceAsia Country Awards 2011)
Market leadership in mortgages, cards, life insurance and deposits
More than 50% increase in the number of CMB cross-border referrals between Hong Kong and mainland China
For footnotes, see page 81. The commentary on Hong Kong is on an underlying basis unless stated otherwise.

Economic background

Hong Kong continued to demonstrate robust growth in economic activity, helped by strong demand from mainland China and low interest rates, with the Hong Kong Monetary Authority ('HKMA') maintaining rates at 0.5% since April 2008. Inflationary pressures built during the period, spurred by rapid gains in the price of food and property. CPI inflation rose to 5.3% in May 2011, compared with 2.9% in December 2010.

Review of performance

Our operations in Hong Kong reported pre-tax profits of US$3.1bn compared with US$2.9bn in the first half of 2010, an increase of 7%. On an underlying basis, profit before tax increased by 9%.

The increase in profitability was driven by strong balance sheet growth from 2010 onwards, higher sales of wealth management products, increased underwriting fees and higher sales of trade-related products. There was also a gain from the refinement of the calculation of the PVIF asset. Staff and support costs rose, driven by the increase in business volumes and the need to maintain our strong competitive position.

We successfully retained market leadership in Hong Kong in mortgages, deposits, credit cards and life insurance. Robust growth in lending balances continued, increasing by 13% compared with 31 December 2010, while deposit balances continued to grow.

We remained ideally positioned to capture cross-border opportunities, particularly with mainland China. The number of CMB cross-border referrals between Hong Kong and mainland China increased by more than 50% and Premier referrals rose by 47%.

Collaboration between CMB and GB&M continued to meet the demands of fast growing mid-market companies by providing foreign exchange and derivatives products as well as access to debt and equity markets to fund business growth.

We continued to bolster our position as a leading international renminbi bank. We were appointed as joint lead arranger for Hong Kong's first renminbi-denominated equity initial public offering, and led the market in offshore renminbi bond issuance. We were the first international bank to offer CMB customers a dedicated renminbi Business Card in Hong Kong.

Net interest income was 13% higher than in the first half of 2010, primarily due to strong loan

Profit/(loss) before tax by customer group and global business

	Half-year to
	30 June 2011 US$m		30 June 2010 US$m		31 December 2010 US$m
Retail Banking and Wealth Management16 ............................................	1,599		1,462		1,539
Commercial Banking .............................................................................	825		672		680
Global Banking and Markets16 ...............................................................	631		690		657
Global Private Banking .........................................................................	130		119		108
Other ....................................................................................................	(104)		(66)		(169)
Profit before tax ...................................................................................	3,081		2,877		2,815

For footnote, see page 81.

growth, particularly in CMB and GB&M, partly offset by lower asset spreads in RBWM and CMB resulting from competitive pressures. Balance Sheet Management results remained strong.

The targeted expansion of our lending book reflected our balance sheet strength, together with continued strong economic growth and trade flows. The resultant increase in demand for credit saw significant increases in lending balances in CMB, notably in trade-related lending, and in GB&M. Average personal lending balances rose, primarily in residential mortgage lending as a result of the strong property market and our leadership in new mortgage business. The continued strength of the Hong Kong property market led the HKMA to introduce further prudential measures on loan-to-value ratios in June 2011, following similar measures taken in 2010 designed to calm upward property price movement. We continued to lend prudently and average loan-to-value ratios were 51% on new residential mortgage draw-downs and an estimated 35% on the portfolio as a whole.

Asset spreads narrowed relative to the same period in 2010 as a result of competitive pressures, particularly in trade-related and term lending and HIBOR-linked residential mortgages.

Balance Sheet Management income rose due to the increased duration in the overall portfolio.

Momentum continued in the growth of deposit balances in GB&M and in CMB, reflecting increased customer numbers.

Net fee income increased by 16%, primarily from increased sales of wealth management products in the low interest rate environment, particularly unit trusts, driven by improved investor sentiment and supported by an increase in sales staff in our wealth management business. In addition, fees from funds under management grew as a result of higher net inflows including the launch of two new funds in 2011. Underwriting fees increased from our involvement in several significant IPOs, and trade-related fees and remittances also rose as transaction volumes increased, driven by economic growth.

Net trading income reduced by 3%. Revenue from foreign exchange trading increased due to higher levels of customer-driven activity and the successful capture of market volatility. The Rates and Equities businesses also performed well. This was offset by lower revenue in credit trading as credit spreads widened in some markets.

Net income from financial instruments designated at fair valuerose by US$51m due to investment gains in the first half of 2011 on assets held by the insurance business as equity markets improved, compared with revaluation losses in the same period in 2010. To the extent that these gains were attributed to policyholders, there was an offsetting change in 'Net insurance claims incurred and movement in liabilities to policyholders'.

Net earned insurance premiums increased by 15% from the rise in sales of unit-linked insurance and deferred annuity products, reflecting the increased demand. This growth in insurance sales resulted in a related increase in Net insurance claims incurred and movement in liabilities to policyholders.

Gains less losses from financial investments were 63% lower, primarily due to the non-recurrence of significant gains on the sale of debt securities in the first half of 2010 in Balance Sheet Management.

Other operating income increased by 41% to US$911m, primarily in insurance due to the refinement of the calculation of the PVIF asset during the period of US$135m (see footnote 27 on page 81), and higher life insurance sales in the first half of 2011.

Loan impairment charges and other credit risk provisionsdecreased from US$63m to US$25m, driven by releases and recoveries in GB&M compared with a specific impairment charge in the same period in 2010. Though impairment charges were low, we remained cautious on the outlook for credit and continued to focus on maintaining high levels of asset quality.

Operating expenses rose by 19% as business volumes grew. Staff costs increased due to wage inflation in the competitive marketplace, increased headcount, particularly in front office functions to strengthen our sales capacity, and higher sales incentives which reflected our strong business performance in the first half of 2011. Staff costs also rose due to an acceleration in the expense recognition of deferred bonus awards.

We continued to invest in developing our key capabilities, most notably in equities, Prime Services and commodities, to drive future revenue growth. Marketing and support costs also increased in line with higher business volumes and product development. Although our cost efficiency ratio is already relatively low in Hong Kong, we continue to focus on improving operational efficiency while maintaining market leadership and strong growth.

Profit/(loss) before tax and balance sheet data - Hong Kong

	Half-year to 30 June 2011
	Retail     Banking and Wealth Management         US$m		Commercial     Banking         US$m		Global     Banking             and     Markets         US$m		Global       Private     Banking         US$m		Other         US$m		Inter-    segment elimination52         US$m		Total         US$m
Profit/(loss) before tax
Net interest income/(expense) .........................................	1,249		625		501		88		(234)		20		2,249
Net fee income ....................	908		356		241		97		10		-		1,612
Trading income/(expense) excluding net interest income ............................	89		86		320		69		(9)		-		555
Net interest income on trading activities ..............	4		-		124		-		6		(20)		114
Net trading income/(expense)45 ..........	93		86		444		69		(3)		(20)		669
Net income/(expense) from financial instruments designated at fair value .....	50		(27)		2		-		1		-		26
Gains less losses from financial investments .......	-		-		20		-		(2)		-		18
Dividend income .................	-		1		11		-		19		-		31
Net earned insurance premiums .........................	2,193		390		5		-		-		-		2,588
Other operating income ......	375		83		22		6		556		(131)		911
Total operating income ...	4,868		1,514		1,246		260		347		(131)		8,104
Net insurance claims53 .........	(2,344)		(342)		(5)		-		1		-		(2,690)
Net operating income41 ...	2,524		1,172		1,241		260		348		(131)		5,414
Loan impairment (charges)/ recoveries and other credit risk provisions .................	(38)		(7)		22		(1)		(1)		-		(25)
Net operating income ......	2,486		1,165		1,263		259		347		(131)		5,389
Operating expenses .............	(889)		(342)		(633)		(129)		(477)		131		(2,339)
Operating profit/(loss) ....	1,597		823		630		130		(130)		-		3,050
Share of profit in associates and joint ventures ............	2		2		1		-		26		-		31
Profit/(loss) before tax .....	1,599		825		631		130		(104)		-		3,081
	%		%		%		%		%				%
Share of HSBC's profit before tax ........................	13.9		7.2		5.5		1.1		(0.8)				26.9
Cost efficiency ratio ............	35.2		29.2		51.0		49.6		137.1				43.2
Balance sheet data39
	US$m		US$m		US$m		US$m		US$m				US$m
Loans and advances to customers (net) ................	53,999		58,529		39,124		5,949		1,769				159,370
Total assets .........................	82,184		66,563		232,057		21,545		81,316		(9,621)		474,044
Customer accounts ..............	175,641		74,760		34,348		20,378		599				305,726

	Half-year to 30 June 2010
	Retail      Banking and Wealth Management16          US$m		Commercial       Banking          US$m		Global      Banking             and      Markets16         US$m		Global        Private       Banking          US$m		Other          US$m		Inter-      segment elimination52          US$m		Total          US$m
Profit/(loss) before tax
Net interest income/(expense) .........................................	1,279		504		437		77		(247)		(56)		1,994
Net fee income ....................	761		305		242		78		9		-		1,395
Trading income excluding net interest income ..........	108		53		367		59		4		-		591
Net interest income on trading activities ..............	1		-		34		-		6		56		97
Net trading income45 ...........	109		53		401		59		10		56		688
Net income/(expense) from financial instruments designated at fair value .....	(110)		23		42		-		15		-		(30)
Gains less losses from financial investments .......	-		-		63		8		40		-		111
Dividend income .................	-		-		-		-		13		-		13
Net earned insurance premiums .........................	1,874		369		5		-		-		-		2,248
Other operating income ......	228		27		24		5		499		(139)		644
Total operating income .......	4,141		1,281		1,214		227		339		(139)		7,063
Net insurance claims53 .........	(1,853)		(309)		(5)		-		-		-		(2,167)
Net operating income41 .......	2,288		972		1,209		227		339		(139)		4,896
Loan impairment (charges)/ recoveries and other credit risk provisions .................	(42)		(2)		(20)		-		1		-		(63)
Net operating income ..........	2,246		970		1,189		227		340		(139)		4,833
Operating expenses .............	(786)		(298)		(499)		(108)		(416)		139		(1,968)
Operating profit/(loss) .........	1,460		672		690		119		(76)		-		2,865
Share of profit in associates and joint ventures ............	2		-		-		-		10		-		12
Profit/(loss) before tax ........	1,462		672		690		119		(66)		-		2,877
	%		%		%		%		%				%
Share of HSBC's profit before tax ........................	13.2		6.1		6.2		1.1		(0.7)				25.9
Cost efficiency ratio ............	34.4		30.7		41.3		47.6		122.7				40.2
Balance sheet data39
	US$m		US$m		US$m		US$m		US$m				US$m
Loans and advances to customers (net) ................	45,121		37,184		25,501		4,353		1,916				114,075
Total assets .........................	69,187		44,409		213,956		19,919		92,165		(28,645)		410,991
Customer accounts ..............	165,238		63,562		26,142		18,559		611				274,112

Profit/(loss) before tax and balance sheet data - Hong Kong (continued)

	Half-year to 31 December 2010
	Retail      Banking and Wealth Management16          US$m		Commercial       Banking          US$m		Global      Banking             and     Markets16         US$m		Global        Private       Banking          US$m		Other          US$m		Inter-      segment elimination52          US$m		Total          US$m
Profit/(loss) before tax
Net interest income/(expense) .........................................	1,325		602		478		96		(216)		(33)		2,252
Net fee income ....................	895		329		253		85		5		-		1,567
Trading income/(expense) excluding net interest income ............................	90		68		313		61		(16)		-		516
Net interest income on trading activities ..............	3		-		66		-		6		33		108
Net trading income/ (expense)45 ......................	93		68		379		61		(10)		33		624
Net income/(expense) from financial instruments designated at fair value .....	438		(33)		19		-		(16)		-		408
Gains less losses from financial investments .......	-		-		(7)		(7)		1		-		(13)
Dividend income .................	-		1		12		-		4		-		17
Net earned insurance premiums .........................	1,781		296		7		-		-		-		2,084
Other operating income ......	285		41		132		7		641		(144)		962
Total operating income .......	4,817		1,304		1,273		242		409		(144)		7,901
Net insurance claims53 .........	(2,340)		(250)		(5)		-		-		-		(2,595)
Net operating income41 .......	2,477		1,054		1,268		242		409		(144)		5,306
Loan impairment (charges)/ recoveries and other credit risk provisions .................	(34)		(26)		10		-		(1)		-		(51)
Net operating income ..........	2,443		1,028		1,278		242		408		(144)		5,255
Operating expenses .............	(907)		(355)		(625)		(134)		(586)		144		(2,463)
Operating profit/(loss) .........	1,536		673		653		108		(178)		-		2,792
Share of profit in associates and joint ventures ............	3		7		4		-		9		-		23
Profit/(loss) before tax ........	1,539		680		657		108		(169)		-		2,815
	%		%		%		%		%				%
Share of HSBC's profit before tax ........................	19.4		8.6		8.3		1.4		(2.2)				35.5
Cost efficiency ratio ............	36.6		33.7		49.3		55.4		143.3				46.4
Balance sheet data39
	US$m		US$m		US$m		US$m		US$m				US$m
Loans and advances to customers (net) ................	50,983		48,670		34,491		4,760		1,787				140,691
Total assets .........................	76,871		55,030		223,286		20,598		62,486		(8,706)		429,565
Customer accounts ..............	176,960		71,209		29,388		19,241		686				297,484

For footnotes, see page 81.

 

END

 

 

IR URUURAWAWAAR