12th Aug 2011 16:24
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 Middle East and North Africa. 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 | ||||
2011 | 2010 | 2010 | ||||
US$m | US$m | US$m | ||||
Net interest income ...... | 673 | 667 | 700 | |||
Net fee income ............. | 327 | 356 | 321 | |||
Net trading income ....... | 237 | 194 | 176 | |||
Other income/(expense) | (1) | (29) | 25 | |||
Net operating income41 ................................... | 1,236 | 1,188 | 1,222 | |||
Impairment charges42 .... | (99) | (438) | (189) | |||
Net operating income | 1,137 | 750 | 1,033 | |||
Total operating expenses ................................... | (574) | (519) | (559) | |||
Operating profit ........ | 563 | 231 | 474 | |||
Income from associates43 | 184 | 115 | 72 | |||
| ||||||
Profit before tax ......... | 747 | 346 | 546 | |||
Cost efficiency ratio ..... | 46.4% | 43.7% | 45.7% | |||
RoRWA44 ..................... | 2.7% | 1.3% | 2.0% | |||
Period-end staff numbers | 8,755 | 8,264 | 8,676 | |||
Underlying profits nearly doubled despite political unrest and economic pressures | ||||||
Loan impairment charges declined to their lowest levels since 1H08 | ||||||
Best International Islamic Bank(Euromoney IslamicFinance Awards 2011) | Best Risk Advisor in Middle East(Euromoney Awards for Excellence 2011) | |||||
For footnotes, see page 81. The commentary on the Middle East and North Africa is on an underlying basis unless stated otherwise. | ||||||
Economic background
Political unrest weighed heavily on economic performance in the Middle East and North Africa in the first half of 2011. Those economies that saw the most pronounced turmoil fell into recession as production was disrupted, consumption scaled back and investor confidence compromised. While in economies such as Egypt there were early signs of economic activity normalising as political conditions improved, in others where unrest continued, output losses were substantial and ongoing. Continued high oil prices allowed the region's key energy exporters to increase public spending, providing a significant boost to domestic demand. Access to domestic credit improved as the effect of the 2008/09 downturn continued to fade and interest rates remained at historic lows. Inflation was subdued region-wide.
Review of performance
Our operations in the Middle East and North Africa reported a profit before tax of US$747m. On an underlying basis, pre-tax profits increased by 94%, largely driven by the non-recurrence of significant loan impairment charges. This was partly offset by higher operating expenses as we continued to invest in distribution and marketing initiatives to drive future revenue growth.
The increase in profits reflected strong risk management practices, and was achieved despite political unrest and economic pressures in 10 of the 14 countries in which we operate in the region. The overall resilience of the oil-based regional economies and the strength of the HSBC brand were evidenced by a robust growth in deposits during the volatile conditions experienced in the region in the first half of 2011. Except when instructed to close by the central bank in Egypt and the one day of closure in Bahrain, our branch network in the region remained open for business throughout the period, reflecting our commitment to serve our customers.
In RBWM, we continued to build long-term relationships through our Premier and Advance customer offerings, focusing on wealth management and secured lending for affluent expatriates in the region.
We also strengthened our position as the leading international trade and business bank and achieved strong synergies by connecting our CMB and GB&M businesses, with CMB revenues from GB&M products increasing compared with the first half of 2010. As part of our continued
Profit/(loss) before tax by country within customer groups and global businesses
Retail Bankingand Wealth Management16 US$m |
| Commercial Banking US$m | Global Banking and Markets16 US$m | Global Private Banking US$m | Other US$m | Total US$m | |||||
Half-year to 30 June 2011 | |||||||||||
Egypt ....................................................... | 15 | 32 | 67 | - | (1) | 113 | |||||
Qatar ....................................................... | (1) | 23 | 39 | - | - | 61 | |||||
United Arab Emirates ............................... | 40 | 120 | 119 | (3) | (11) | 265 | |||||
Other ....................................................... | 10 | 62 | 53 | - | - | 125 | |||||
MENA (excluding Saudi Arabia) ............... | 64 | 237 | 278 | (3) | (12) | 564 | |||||
Saudi Arabia ............................................. | 37 | 59 | 61 | 2 | 24 | 183 | |||||
101 | 296 | 339 | (1) | 12 | 747 | ||||||
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) | |||||
MENA (excluding Saudi Arabia) ............... | 49 | 182 | 12 | (3) | (1) | 239 | |||||
Saudi Arabia ............................................. | 16 | 76 | 30 | (20) | 5 | 107 | |||||
65 | 258 | 42 | (23) | 4 | 346 | ||||||
Half-year to 31 December 2010 | |||||||||||
Egypt ....................................................... | 20 | 41 | 58 | - | (2) | 117 | |||||
Qatar ....................................................... | 9 | 24 | 34 | - | - | 67 | |||||
United Arab Emirates ............................... | 10 | 88 | 97 | 3 | - | 198 | |||||
Other ....................................................... | 5 | 42 | 45 | 1 | - | 93 | |||||
MENA (excluding Saudi Arabia) ............... | 44 | 195 | 234 | 4 | (2) | 475 | |||||
Saudi Arabia ............................................. | 9 | 31 | 23 | 4 | 4 | 71 | |||||
53 | 226 | 257 | 8 | 2 | 546 | ||||||
For footnote, see page 81.
support to local internationally-focused businesses, we pledged a second US$100m fund to UAE SME customers engaged in cross-border business during the period, and the amount has been fully utilised.
In GB&M, we won a number of awards, including 'Best Overall Primary Debt Provider' and 'Best for Middle East Currencies'from Euromoney and 'Best Middle East House' in the EuroWeek Bond Market Awards.
Net interest income rose marginally, driven by higher trade balances in CMB as we saw increased opportunities to support global and intra‑regional trade flows. This was partly offset by lower average lending balances and narrower spreads in RBWM as unsecured lending portfolios continued to be managed down and new lending was directed to higher quality but lower yielding lending.
Net fee income decreased by 8% despite higher trade volumes in CMB as institutional equity activity receded in the challenging political and economic environment. In addition, card fee income decreased due to a decline in the number of credit cards in issue in RBWM as certain portfolios were managed down.
Trading income benefited from higher local currency Rates trading due to a combination of new customer trades along with valuation gains on trading positions in relation to Middle East currency derivatives.
Loan impairment charges and other credit risk provisions declined to their lowest levels since the first half of 2008, driven by an overall improvement in credit conditions. Repositioning of the loan book towards higher quality lending, and strengthened collection practices contributed to a significant improvement in delinquency rates in RBWM. In CMB, loan impairment charges and other credit risk provisions remained broadly in line with the first half of 2010 and included specific impairments in relation to a few corporate customers reflecting economic uncertainty in the region. Loan impairment charges and other credit risk provisions in GB&M reduced markedly as loan impairment charges which followed restructuring activity for a small number of large UAE corporate customers in the first half of 2010 did not recur.
Operating expenses increased by 11%, mainly as a result of higher staff costs driven by a rise in staff numbers, as the branch network was expanded, and wage inflation. The increase included restructuring costs of US$16m across the region as initiatives taken as a result of the strategic review of costs to drive future revenue growth were implemented. Marketing and advertising costs also rose as we increased investment in the promotion of the HSBC brand, including at the Abu Dhabi International and Dubai International airports. Excluding restructuring costs, expenses were broadly in line with the second half of 2010.
Profit from associates and joint ventures increased by 60%, mainly from the Saudi British Bank, driven by strong revenues, good cost control and a decline in loan impairment charges as operating conditions improved.
Profit/(loss) before tax and balance sheet data - Middle East and North Africa
Half-year to 30 June 2011 | |||||||||||||
Retail Bankingand WealthManagement US$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 ............. | 253 | 243 | 174 | 1 | 3 | (1) | 673 | ||||||
Net fee income/(expense) .... | 90 | 135 | 96 | 8 | (2) | - | 327 | ||||||
Trading income/(expense) excluding net interestincome ............................ | 30 | 48 | 129 | - | (1) | - | 206 | ||||||
Net interest income on trading activities .............. | 1 | 7 | 22 | - | - | 1 | 31 | ||||||
Net trading income/(expense)45 ...................... | 31 | 55 | 151 | - | (1) | 1 | 237 | ||||||
Net expense from financial instruments designated atfair value .......................... | - | - | - | - | (6) | - | (6) | ||||||
Gains less losses fromfinancial investments ....... | - | - | (6) | - | - | - | (6) | ||||||
Dividend income ................. | - | - | 1 | - | 1 | - | 2 | ||||||
Other operating income ...... | 10 | 7 | 3 | - | 43 | (54) | 9 | ||||||
Total operating income ... | 384 | 440 | 419 | 9 | 38 | (54) | 1,236 | ||||||
Net insurance claims53 ......... | - | - | - | - | - | - | - | ||||||
Net operating income41 .... | 384 | 440 | 419 | 9 | 38 | (54) | 1,236 | ||||||
Loan impairment (charges)/ recoveries and other creditrisk provisions ................. | (58) | (48) | 6 | - | 1 | - | (99) | ||||||
Net operating income ...... | 326 | 392 | 425 | 9 | 39 | (54) | 1,137 | ||||||
Operating expenses ............. | (263) | (155) | (148) | (12) | (50) | 54 | (574) | ||||||
Operating profit/(loss) .... | 63 | 237 | 277 | (3) | (11) | - | 563 | ||||||
Share of profit in associatesand joint ventures ............ | 38 | 59 | 62 | 2 | 23 | - | 184 | ||||||
Profit/(loss) before tax ..... | 101 | 296 | 339 | (1) | 12 | - | 747 | ||||||
% | % | % | % | % | % | ||||||||
Share of HSBC's profitbefore tax ........................ | 0.9 | 2.6 | 3.0 | - | - | 6.5 | |||||||
Cost efficiency ratio ............ | 68.5 | 35.2 | 35.3 | 133.3 | 131.6 | 46.4 | |||||||
Balance sheet data39 | |||||||||||||
US$m | US$m | US$m | US$m | US$m | US$m | ||||||||
Loans and advances tocustomers (net) ................ | 4,861 | 13,189 | 7,611 | 31 | 2 | 25,694 | |||||||
Total assets ......................... | 6,383 | 14,950 | 34,306 | 73 | 4,958 | (2,632) | 58,038 | ||||||
Customer accounts .............. | 19,301 | 11,101 | 6,275 | 363 | 79 | 37,119 | |||||||
Profit/(loss) before tax and balance sheet data - Middle East and North Africa (continued)
Half-year to 30 June 2010 | |||||||||||||
Retail Bankingand 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$m | |||||||
Profit/(loss) before tax | |||||||||||||
Net interest income ............ | 287 | 214 | 163 | 1 | 5 | (3) | 667 | ||||||
Net fee income ................... | 103 | 134 | 113 | 6 | - | - | 356 | ||||||
Trading income/(expense) excluding net interestincome ............................ | 30 | 44 | 113 | - | (3) | - | 184 | ||||||
Net interest income/(expense) on trading activities ........ | 1 | 3 | 5 | - | (2) | 3 | 10 | ||||||
Net trading income/(expense)45 ...................... | 31 | 47 | 118 | - | (5) | 3 | 194 | ||||||
Gains less losses fromfinancial investments ...... | 1 | - | (1) | - | (1) | - | (1) | ||||||
Dividend income ................. | 2 | 1 | 2 | - | - | - | 5 | ||||||
Other operating income/ (expense) ........................ | 11 | (20) | (11) | - | 16 | (29) | (33) | ||||||
Total operating income ...... | 435 | 376 | 384 | 7 | 15 | (29) | 1,188 | ||||||
Net insurance claims53 ......... | - | - | - | - | - | - | - | ||||||
Net operating income41 ....... | 435 | 376 | 384 | 7 | 15 | (29) | 1,188 | ||||||
Loan impairment charges and other credit risk provisions | (141) | (47) | (250) | - | - | - | (438) | ||||||
Net operating income ......... | 294 | 329 | 134 | 7 | 15 | (29) | 750 | ||||||
Operating expenses ............. | (245) | (150) | (127) | (10) | (16) | 29 | (519) | ||||||
Operating profit/(loss) ........ | 49 | 179 | 7 | (3) | (1) | - | 231 | ||||||
Share of profit/(loss) in associates and jointventures .......................... | 16 | 79 | 35 | (20) | 5 | - | 115 | ||||||
Profit/(loss) before tax ....... | 65 | 258 | 42 | (23) | 4 | - | 346 | ||||||
% | % | % | % | % | % | ||||||||
Share of HSBC's profitbefore tax ....................... | 0.6 | 2.3 | 0.3 | (0.2) | 0.1 | 3.1 | |||||||
Cost efficiency ratio ........... | 56.3 | 39.9 | 33.1 | 142.9 | 106.7 | 43.7 | |||||||
Balance sheet data39 | |||||||||||||
US$m | US$m | US$m | US$m | US$m | US$m | ||||||||
Loans and advances tocustomers (net) ............... | 5,443 | 11,541 | 6,389 | 18 | 3 | 23,394 | |||||||
Total assets ........................ | 6,266 | 13,892 | 29,078 | (267) | 4,247 | (3,579) | 49,637 | ||||||
Customer accounts .............. | 16,449 | 10,482 | 5,359 | 641 | 46 | 32,977 | |||||||
Half-year to 31 December 2010 | |||||||||||||
Retail Bankingand Wealth Management16 US$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) ........................................ | 266 | 259 | 171 | (1) | 9 | (4) | 700 | ||||||
Net fee income ................... | 97 | 124 | 89 | 11 | - | - | 321 | ||||||
Trading income/(expense) excluding net interestincome ........................... | 29 | 41 | 92 | 1 | (4) | - | 159 | ||||||
Net interest income/(expense) on trading activities ........ | - | 4 | 13 | - | (4) | 4 | 17 | ||||||
Net trading income/(expense)45 ......... | 29 | 45 | 105 | 1 | (8) | 4 | 176 | ||||||
Gains less losses fromfinancial investments ...... | - | - | (2) | - | - | - | (2) | ||||||
Dividend income ................ | - | - | 2 | - | - | - | 2 | ||||||
Other operating income ..... | 16 | 12 | 10 | 1 | 24 | (38) | 25 | ||||||
Total operating income ...... | 408 | 440 | 375 | 12 | 25 | (38) | 1,222 | ||||||
Net insurance claims53 ........ | - | - | - | - | - | - | - | ||||||
Net operating income41 ...... | 408 | 440 | 375 | 12 | 25 | (38) | 1,222 | ||||||
Loan impairment charges and other credit risk provisions | (86) | (98) | (5) | - | - | - | (189) | ||||||
Net operating income ......... | 322 | 342 | 370 | 12 | 25 | (38) | 1,033 | ||||||
Operating expenses ............ | (279) | (147) | (136) | (8) | (27) | 38 | (559) | ||||||
Operating profit/(loss) ........ | 43 | 195 | 234 | 4 | (2) | - | 474 | ||||||
Share of profit in associatesand joint ventures ........... | 10 | 31 | 23 | 4 | 4 | - | 72 | ||||||
Profit before tax ................ | 53 | 226 | 257 | 8 | 2 | - | 546 | ||||||
% | % | % | % | % | % | ||||||||
Share of HSBC's profitbefore tax ....................... | 0.7 | 2.8 | 3.2 | 0.1 | 0.1 | 6.9 | |||||||
Cost efficiency ratio ........... | 68.4 | 33.4 | 36.3 | 66.7 | 108.0 | 45.7 | |||||||
Balance sheet data39 | |||||||||||||
US$m | US$m | US$m | US$m | US$m | US$m | ||||||||
Loans and advances tocustomers (net) ............... | 5,063 | 12,293 | 7,247 | 21 | 2 | 24,626 | |||||||
Total assets ........................ | 6,286 | 13,991 | 31,253 | 59 | 4,129 | (2,961) | 52,757 | ||||||
Customer accounts ............. | 17,538 | 10,319 | 5,306 | 290 | 58 | 33,511 | |||||||
For footnotes, see page 81.
Related Shares:
HSBC Holdings