15th Aug 2014 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 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 | ||||
2014 | 2013 | 2013 | ||||
US$m | US$m | US$m | ||||
Net interest income ..... | 736 | 746 | 740 | |||
Net fee income ............ | 335 | 311 | 311 | |||
Net trading income ...... | 193 | 203 | 154 | |||
Other income/(expense) | 30 | (7) | 45 | |||
Net operating income13 .................................. | 1,294 | 1,253 | 1,250 | |||
LICs53 .......................... | 50 | 47 | (5) | |||
Net operating income | 1,344 | 1,300 | 1,245 | |||
Total operating expenses .................................. | (614) | (616) | (673) | |||
Operating profit ....... | 730 | 684 | 572 | |||
Income from associates54 .................................. | 259 | 225 | 213 | |||
| ||||||
Profit before tax ....... | 989 | 909 | 785 | |||
Cost efficiency ratio .... | 47.4% | 49.2% | 53.8% | |||
RoRWA47 .................... | 3.2% | 2.9% | 2.4% | |||
Period-end staff numbers | 8,530 | 8,667 | 8,618 | |||
Strong GB&M performance drivenby robust risk management | ||||||
Completed disposal of our operations in Jordan and announced the sale of our operations in Pakistan in line with theGroup's six filters investment criteria | ||||||
Best Wealth Management in the Middle East (The Asian Banker) | Best Project Finance Advisor in theMiddle East (EMEA Finance ProjectFinance Awards 2013) | |||||
For footnotes, see page 96. The following commentary is on a constant currency basis and comparisons are with the first half of 2013, unless stated otherwise. Tables are on a reported basis. | ||||||
Economic background
Economic performance remained uneven in the Middle East and North Africa during the first half of 2014. In the Gulf Cooperation Council, the region's commodity exporters experienced strong growth supported by oil prices that remained comfortably over US$100 per barrel. The high level of receipts boosted sentiment and allowed governments to maintain their expansionary fiscal stance. Low interest rates, a reflection of the US dollar-pegged currency regimes, also supported the pace of growth. Qatar continued to be the fastest growing of the region's oil exporting states, and Saudi Arabia remained the largest, but the UAE showed the most improvement in momentum led by Dubai's export-orientated service sector and a recovery in its real estate market. Despite strong demand and loose fiscal policy, CPI inflation remained subdued across the region.
The economic environment for the region's non‑commodity exporters remained much more challenging, however, particularly for those states where political uncertainty was high. In Egypt, financial support from overseas allies eased pressure on public finances and on the country's external accounts, allowing government foreign currency reserves to stabilise. However, the public budget continued to generate a deficit equivalent to more than 10% of GDP, and foreign currency was controlled. Growth also remained weak, held back by low levels of investment, consumption and exports. Inflation, though easing, remained high.
Financial overview
Our operations in the Middle East and North Africa reported a profit before tax of US$1.0bn, an increase of 9% on both reported and constant currency bases.
On an underlying basis, profit before tax increased by US$93m, mainly due to higher revenue and increased income from our associate, The Saudi British Bank.
Country business highlights
In the UAE, we made good progress in executing the strategic plan we announced in 2013. In RBWM, we continued to focus on the Wealth Management business through investment in innovative platforms, tablet solutions and an expanded range of products and were awarded 'Best Wealth Management in the Middle East' by The Asian Banker. We launched an enhanced personal banking proposition, including
Profit/(loss) before tax by country within global businesses
Retail Bankingand Wealth Management US$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 2014 | |||||||||||
Egypt ....................................................... | 33 | 46 | 71 | - | (1) | 149 | |||||
Qatar ........................................................ | 9 | 22 | 35 | - | - | 66 | |||||
United Arab Emirates ............................... | 82 | 133 | 203 | - | (35) | 383 | |||||
Other ........................................................ | 3 | 61 | 69 | - | - | 133 | |||||
MENA (excluding Saudi Arabia) ................ | 127 | 262 | 378 | - | (36) | 731 | |||||
Saudi Arabia .............................................. | 55 | 94 | 99 | 9 | 1 | 258 | |||||
182 | 356 | 477 | 9 | (35) | 989 | ||||||
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 31 December 2013 | |||||||||||
Egypt ....................................................... | 4 | 3 | 94 | − | (13) | 88 | |||||
Qatar ........................................................ | 3 | 17 | 29 | − | − | 49 | |||||
United Arab Emirates ............................... | 45 | 144 | 156 | − | (46) | 299 | |||||
Other ........................................................ | (13) | 61 | 89 | − | (1) | 136 | |||||
− | |||||||||||
MENA (excluding Saudi Arabia) ................ | 39 | 225 | 368 | − | (60) | 572 | |||||
Saudi Arabia .............................................. | 39 | 69 | 90 | 9 | 6 | 213 | |||||
78 | 294 | 458 | 9 | (54) | 785 | ||||||
additional competitive features on personal loans, which was extended to Egypt and Qatar.
In CMB, key appointments were made in line with the global strategy to focus the business on client segments and drive intra-regional and global client revenue, and we implemented an internal framework to increase relationship managers' time with customers.
We were awarded the 'Best International Trade Finance Bank' in a number of countries including the UAE and Egypt by the Global Trade Review Magazine. Our Payments and Cash Management business continued to invest in new products and resources across the region.
In GB&M, we utilised our distinctive geographic network to help clients meet their financing requirements. For example, we acted as a coordinator, book runner and joint lead manager for a number of issuances in the UAE and other countries, allowing our clients to access our global investor base. We won awards for 'Best Project Finance Advisor in the Middle East', 'Best Power Deal in the Middle East' and 'Best Water Deal in EMEA' at the EMEA Finance Project Finance Awards 2013, demonstrating our excellence in this area.
In Egypt, we continued to manage risk in an uncertain political and economic environment. During the period, the Central Bank of Egypt resumed interest payments on overnight placements. In RBWM, we were ranked number one in the Customer Recommendation Index and we continued to invest in our personal internet banking platform. In GB&M, we acted as a mandated lead arranger of an EGP2.3bn (US$330m) syndicated term loan facility, demonstrating our ability to deliver large and complex transactions.
In Saudi Arabia, our associate, The Saudi British Bank, won The Global Finance Magazine's award of 'The Best Trade Finance Provider in Saudi Arabia, 2014'.
In line with our six filters investment criteria, we completed the disposal of our operation in Jordan and entered into an agreement to sell our operation in Pakistan. This transaction is expected to complete during the second half of 2014.
Review of performance
The following commentary is on a constant currency basis and comparisons are with the first half of 2013, unless stated otherwise.
Net interest income was broadly unchanged. Increases in the UAE, primarily in RBWM due to an increase in residential mortgage balances, reflected growth in the property market and improved deposit spreads as a result of re-pricing initiatives. This was partly offset by reduced revenue from lower lending balances and spreads in CMB, reflecting a highly liquid and competitive market. In addition, income increased in Kuwait due to the restructuring of a small number of specific customer loans. These factors were broadly offset by a decrease in Egypt, primarily in CMB from lower customer deposit and lending balances, and in GB&M from declining spreads and lower balances on the available-for-sale portfolio, offset in part by the resumption of interest on overnight placements with the Central Bank of Egypt. In Jordan, net interest income decreased following the announcement to dispose of the business.
Net fee income increased by 8%, primarily in the UAE. In GB&M, net fee income was higher, driven by increased flows in our Equities business which in part reflected the upgrade of the UAE to 'Emerging Markets' status in the MSCI index. In addition, there was an increase in advisory mandates in Project and Export Finance in Capital Financing. This was partially offset by lower fees in RBWM relating to our Insurance and Wealth Management businesses following various repositioning initiatives.
Net trading income decreased by 5%, primarily in Algeria following regulatory restrictions on foreign exchange spreads charged on corporate customer transactions. This was coupled with a decrease in Qatar from lower foreign exchange revenues reflecting a reduction in trading volumes from GB&M customers. These factors were partly offset by increased net trading income in the UAE due to higher CVA releases on trading positions relating to a small number of exposures in GB&M.
Gains less losses from financial investmentsincreased by US$21m, mainly in Egypt, due to the non-recurrence of the loss on disposal of available-for-sale debt securities in the first half of 2013.
Net loan impairment releases were higher by US$3m, primarily in the UAE driven by net releases of individually assessed allowances in GB&M. However, this was offset in part by lower impairment releases for a small number of UAE-related exposures.
Operating expenses were broadly unchanged. In Egypt, expenses decreased due to the non-recurrence of charges relating to changes in the interpretation of tax regulations. This was partly offset by increased expenses in the UAE, driven by wage inflation, investment in the Risk and Compliance functions, higher customer facing staff in RBWM and increased service and product support staff in CMB. In addition, expenses increased in Qatar due to wage inflation.
Share of profits from associates and joint venturesincreased by 15%, mainly from The Saudi British Bank. This was driven by higher revenue resulting from strong balance sheet growth, and the management of costs and risks.
Profit/(loss) before tax and balance sheet data - Middle East and North Africa
Half-year to 30 June 2014 | |||||||||||||
Retail Bankingand WealthManagement US$m |
| Commercial Banking US$m | Global Banking and Markets US$m | Global Private Banking US$m | Other US$m | Inter- segment elimination65 US$m | Total US$m | ||||||
Profit before tax | |||||||||||||
Net interest income ........... | 311 | 228 | 182 | - | 2 | 13 | 736 | ||||||
Net fee income/(expense) .. | 74 | 137 | 127 | - | (3) | - | 335 | ||||||
Trading income/(expense)excluding net interestincome ........................... ....................................... | 30 | 35 | 139 | - | (4) | - | 200 | ||||||
Net interest income ontrading activities ............ | - | - | 6 | - | - | (13) | (7) | ||||||
Net trading income/(expense)59......... | 30 | 35 | 145 | - | (4) | (13) | 193 | ||||||
Net expense from financial instruments designated atfair value ........................ | - | - | - | - | (5) | - | (5) | ||||||
Gains less losses fromfinancial investments ..... | - | - | 2 | 1 | - | - | 3 | ||||||
Dividend income ................ | 1 | 1 | 7 | - | - | - | 9 | ||||||
Other operating income ..... | 8 | 7 | 8 | - | 53 | (53) | 23 | ||||||
Total operating income .. | 424 | 408 | 471 | 1 | 43 | (53) | 1,294 | ||||||
Net insurance claims66 ....... | - | - | - | - | - | - | - | ||||||
Net operating income13 .. | 424 | 408 | 471 | 1 | 43 | (53) | 1,294 | ||||||
Loan impairment (charges)/recoveries and other creditrisk provisions ............... | (14) | 30 | 34 | - | - | - | 50 | ||||||
Net operating income .... | 410 | 438 | 505 | 1 | 43 | (53) | 1,344 | ||||||
Operating expenses ............ | (284) | (176) | (128) | - | (79) | 53 | (614) | ||||||
Operating profit/(loss) ... | 126 | 262 | 377 | 1 | (36) | - | 730 | ||||||
Share of profit in associatesand joint ventures .......... | 56 | 94 | 100 | 8 | 1 | - | 259 | ||||||
Profit/(loss) before tax ... | 182 | 356 | 477 | 9 | (35) | - | 989 | ||||||
% | % | % | % | % | % | ||||||||
Share of HSBC's profitbefore tax ...................... | 1.5 | 2.9 | 3.9 | − | (0.3) | 8.0 | |||||||
Cost efficiency ratio .......... | 67.0 | 43.1 | 27.2 | − | 183.7 | 47.4 | |||||||
Balance sheet data51 | |||||||||||||
US$m | US$m | US$m | US$m | US$m | US$m | ||||||||
Loans and advances tocustomers (net)3 ............. | 6,230 | 13,126 | 9,554 | - | - | 28,910 | |||||||
Total assets ....................... | 6,968 | 14,830 | 38,358 | 71 | 3,566 | (2,504) | 61,289 | ||||||
Customer accounts3 ........... | 19,051 | 11,967 | 8,802 | - | 262 | 40,082 | |||||||
Half-year to 30 June 2013 | |||||||||||||
Retail Bankingand WealthManagement US$m | Commercial Banking US$m | Global Banking and Markets US$m | Global Private Banking US$m | Other US$m | Inter- segment elimination65 US$m | Total US$m | |||||||
Profit before tax | |||||||||||||
Net interest income ............. | 295 | 246 | 194 | − | 2 | 9 | 746 | ||||||
Net fee income/(expense) .... | 88 | 137 | 88 | − | (2) | - | 311 | ||||||
Trading income excludingnet interest income ........... | 32 | 47 | 125 | − | - | - | 204 | ||||||
Net interest income/(expense)on trading activities ......... | - | - | 9 | − | (1) | (9) | (1) | ||||||
Net trading income/(expense)59........... | 32 | 47 | 134 | − | (1) | (9) | 203 | ||||||
Net expense from financial instruments designated atfair value .......................... | − | − | − | − | (1) | − | (1) | ||||||
Gains less losses fromfinancial investments ....... | - | - | (18) | − | - | - | (18) | ||||||
Dividend income ................. | - | - | 4 | − | - | - | 4 | ||||||
Other operating income ...... | 12 | 2 | 8 | − | 49 | (63) | 8 | ||||||
Total operating income ....... | 427 | 432 | 410 | − | 47 | (63) | 1,253 | ||||||
Net insurance claims66 ......... | - | - | - | − | − | - | - | ||||||
Net operating income13 ....... | 427 | 432 | 410 | − | 47 | (63) | 1,253 | ||||||
Loan impairment (charges)/recoveries and other creditrisk provisions ................. | (14) | 16 | 44 | 1 | - | - | 47 | ||||||
Net operating income .......... | 413 | 448 | 454 | 1 | 47 | (63) | 1,300 | ||||||
Operating expenses ............. | (276) | (174) | (141) | - | (88) | 63 | (616) | ||||||
Operating profit/(loss) ......... | 137 | 274 | 313 | 1 | (41) | - | 684 | ||||||
Share of profit in associatesand joint ventures ............ | 43 | 77 | 98 | 6 | 1 | - | 225 | ||||||
Profit/(loss) before tax ........ | 180 | 351 | 411 | 7 | (40) | - | 909 | ||||||
% | % | % | % | % | % | ||||||||
Share of HSBC's profitbefore tax ........................ | 1.3 | 2.5 | 2.9 | - | (0.2) | 6.5 | |||||||
Cost efficiency ratio ............ | 64.6 | 40.3 | 34.4 | - | 187.2 | 49.2 | |||||||
Balance sheet data51 | |||||||||||||
US$m | US$m | US$m | US$m | US$m | US$m | ||||||||
Loans and advances tocustomers (net)3 .............. | 6,018 | 13,048 | 8,868 | - | - | 27,934 | |||||||
Total assets ......................... | 6,742 | 14,995 | 41,041 | 55 | 3,319 | (2,860) | 63,292 | ||||||
Customer accounts3 ............. | 19,594 | 13,652 | 7,816 | 1 | 79 | 41,142 | |||||||
Profit/(loss) before tax and balance sheet data - Middle East and North Africa (continued)
Half-year to 31 December 2013 | |||||||||||||
Retail Banking and Wealth Management US$m | Commercial Banking US$m | Global Banking and Markets US$m | Global Private Banking US$m | Other US$m | Inter- segment elimination65 US$m | Total US$m | |||||||
Profit/(loss) before tax | |||||||||||||
Net interest income ............. | 290 | 240 | 196 | − | 2 | 12 | 740 | ||||||
Net fee income/(expense) .... | 73 | 132 | 109 | − | (3) | − | 311 | ||||||
Trading income excluding net interest income .......... | 27 | 38 | 95 | − | − | − | 160 | ||||||
Net interest income ontrading activities .............. | − | − | 5 | − | 1 | (12) | (6) | ||||||
Net trading income59 ........... | 27 | 38 | 100 | − | 1 | (12) | 154 | ||||||
Net expense from financial instruments designatedat fair value ..................... | − | − | − | − | (1) | − | (1) | ||||||
Gains less losses fromfinancial investments ....... | − | − | − | − | − | − | − | ||||||
Dividend income ................. | − | − | 5 | − | − | − | 5 | ||||||
Other operating income ...... | 13 | 28 | 7 | − | 50 | (57) | 41 | ||||||
Total operating income ....... | 403 | 438 | 417 | − | 49 | (57) | 1,250 | ||||||
Net insurance claims66 ......... | − | − | − | − | − | − | − | ||||||
Net operating income13 ....... | 403 | 438 | 417 | − | 49 | (57) | 1,250 | ||||||
Loan impairment (charges)/recoveries and other creditrisk provisions ................. | (35) | (36) | 66 | − | − | − | (5) | ||||||
Net operating income .......... | 368 | 402 | 483 | − | 49 | (57) | 1,245 | ||||||
Operating expenses ............. | (330) | (176) | (115) | − | (109) | 57 | (673) | ||||||
Operating profit/(loss) ......... | 38 | 226 | 368 | − | (60) | − | 572 | ||||||
Share of profit in associatesand joint ventures ............ | 40 | 68 | 90 | 9 | 6 | − | 213 | ||||||
Profit/(loss) before tax ........ | 78 | 294 | 458 | 9 | (54) | − | 785 | ||||||
% | % | % | % | % | % | ||||||||
Share of HSBC's profitbefore tax ........................ | 0.9 | 3.4 | 5.4 | 0.1 | (0.6) | 9.2 | |||||||
Cost efficiency ratio ............ | 81.9 | 40.2 | 27.6 | − | 222.4 | 53.8 | |||||||
Balance sheet data51 | |||||||||||||
US$m | US$m | US$m | US$m | US$m | US$m | ||||||||
Loans and advances tocustomers (net)3 ............... | 6,152 | 11,814 | 9,241 | − | 4 | 27,211 | |||||||
Total assets ......................... | 7,016 | 13,776 | 39,302 | 64 | 3,340 | (2,688) | 60,810 | ||||||
Customer accounts3 ............. | 18,771 | 12,402 | 7,432 | 1 | 77 | 38,683 | |||||||
For footnotes, see page 96.
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