12th Aug 2011 16:26
Latin America
Our operations in Latin America principally comprise HSBC Bank Brasil S.A.-Banco Múltiplo, HSBC México, S.A., HSBC Bank Argentina S.A. and HSBC Bank (Panama) S.A. In addition to banking services, we operate insurance businesses in Brazil, Mexico, Argentina, Panama and a range of smaller markets. | |||||
Half-year to | |||||
30 Jun | 30 Jun | 31 Dec | |||
2011 | 2010 | 2010 | |||
US$m | US$m | US$m | |||
Net interest income ...... | 3,517 | 3,119 | 3,192 | ||
Net fee income ............. | 902 | 855 | 894 | ||
Net trading income ....... | 589 | 353 | 380 | ||
Other income ................ | 675 | 388 | 550 | ||
Net operating income41 ................................... | 5,683 | 4,715 | 5,016 | ||
Impairment charges42 .... | (820) | (820) | (724) | ||
Net operating income | 4,863 | 3,895 | 4,292 | ||
Total operating expenses ................................... | (3,712) | (3,013) | (3,381) | ||
Operating profit ........ | 1,151 | 882 | 911 | ||
Income from associates43 | - | 1 | 1 | ||
| |||||
Profit before tax ......... | 1,151 | 883 | 912 | ||
Cost efficiency ratio ..... | 65.3% | 63.9% | 67.4% | ||
RoRWA44 ..................... | 2.2% | 2.1% | 2.0% | ||
Period-end staff numbers | 55,618 | 54,886 | 56,044 | ||
30%increase in profit before tax | |||||
13%increase in lending balancessince the end of 2010 | |||||
8%reduction in impairment charges on an underlying basis | |||||
For footnotes, see page 81. The commentary on Latin America is on an underlying basis unless stated otherwise. | |||||
Economic background
After a very strong 2010, Latin American growth slowed in the first half of 2011 due to a combination of weaker global demand and a downturn in domestic demand following a considerable tightening of monetary conditions in the period. Monetary policy rates rose by 2% in Chile, 1.5% in Brazil and Uruguay, and 1.25% in Colombia and Peru. In Brazil, the annual pace of GDP growth eased to 4.2% in the first quarter of 2011 from 7.5% in the comparable period in 2010.
The slowdown in activity, coupled with some easing in the rate of growth of food prices, helped to moderate inflation in the region, although it remained above the mid-point target of most countries that had adopted explicit inflation targets. Inflationary risks continued in Argentina, Brazil, Chile and Uruguay, where very high employment put upward pressure on wage growth.
Given its close ties to the US, Mexico suffered more immediately from the reduction in the growth of US demand. Some easing in global commodity prices and the strength of the Mexican peso helped restrain inflation and, accordingly, Banco de México left the monetary policy rate unchanged at 4.5% in the period.
Review of performance
Our operations in Latin America reported a profit before tax of US$1.2bn for the first half of 2011, representing an increase of 30% over the same period in 2010. On an underlying basis, pre-tax profits increased by 23% due to increased revenues in CMB and RBWM and lower loan impairment charges, partly offset by higher costs as a result of inflationary pressures, strategic business growth and restructuring costs.
Several strategic measures were implemented, focusing on organic growth and improving efficiency. We increased the number of relationship managers in Brazil, mainly in RBWM and CMB, to leverage on the strong economic environment and, in Mexico, to grow our CMB business. We consolidated the branch network in Mexico, reducing it by 66 during the first half of 2011, and restructured the regional and country support functions, thereby improving the efficiency of the business. To ensure the strategic alignment of our portfolios, we entered into a sale agreement for HSBC Afore (the Mexican pension business) which is expected to be completed in the second half of 2011. Also, in RBWM we continued to reposition our lending portfolio to higher quality customers, achieving a better risk-adjusted return.
Profit/(loss) before tax by country within customer groups and global businesses
Retail Banking and Wealth Management16 US$m |
| Commercial Banking US$m | Global Banking and Markets16 US$m | Global Private Banking US$m | Other US$m | Total US$m | |||||
Half-year to 30 June 2011 | |||||||||||
Argentina ................................................ | 49 | 46 | 67 | - | (8) | 154 | |||||
Brazil ....................................................... | 136 | 294 | 250 | 7 | (50) | 637 | |||||
Mexico .................................................... | 169 | 103 | 171 | 2 | (142) | 303 | |||||
Panama ................................................... | 17 | 27 | 26 | 1 | (2) | 69 | |||||
Other ....................................................... | (35) | 5 | 29 | - | (11) | (12) | |||||
336 | 475 | 543 | 10 | (213) | 1,151 | ||||||
Half-year to 30 June 2010 | |||||||||||
Argentina ................................................ | 39 | 41 | 53 | - | - | 133 | |||||
Brazil ....................................................... | 60 | 160 | 227 | 2 | 29 | 478 | |||||
Mexico .................................................... | 95 | (2) | 112 | 1 | 18 | 224 | |||||
Panama ................................................... | 18 | 26 | 15 | 1 | - | 60 | |||||
Other ....................................................... | (44) | 11 | 27 | - | (6) | (12) | |||||
168 | 236 | 434 | 4 | 41 | 883 | ||||||
Half-year to 31 December 2010 | |||||||||||
Argentina ................................................ | 50 | 49 | 52 | - | - | 151 | |||||
Brazil ....................................................... | 91 | 222 | 203 | 4 | 35 | 555 | |||||
Mexico .................................................... | 79 | 26 | 98 | 3 | (29) | 177 | |||||
Panama ................................................... | 30 | 31 | 18 | 1 | - | 80 | |||||
Other ....................................................... | (56) | (10) | 24 | (2) | (7) | (51) | |||||
194 | 318 | 395 | 6 | (1) | 912 | ||||||
For footnote, see page 81.
Net interest income increased by 5% compared with the first half of 2010, driven by higher lending balances in the stronger economic environment. Net interest income in CMB grew by 29%, supported by strong asset growth of 33% with moderate spread compression in the competitive environment. In RBWM, lending grew in personal loans, mortgages, overdrafts and cards in Brazil and, in Argentina, on strong consumer demand. In Mexico, net interest income in RBWM fell by 15% as we continued to shift our portfolio to lower risk, lower yielding assets. This fall was partly offset by strong balance growth in personal and payroll lending.
In Balance Sheet Management, results were affected by higher funding costs, in line with an increase in interest rates, and higher yielding deals maturing.
Fee income fell marginally compared with the first half of 2010. Higher card transaction volumes, current accounts and Payments and Cash Management revenues in Brazil were offset by a decline in the volumes of cards and fewer account services and automated teller machine ('ATM') transactions in Mexico, where increased regulatory charges to non-HSBC customers led to a change in customer behaviour.
Net trading income of US$589m was 56% higher than in the first half of 2010, primarily due to a rise in volumes, mainly in Brazil; the cost of internally funding these assets also increased, but this interest expense is reported under 'Net interest income'. Revenue in Brazil further benefited from a significant growth in sales of GB&M products across customer groups. In Mexico, revenue increased due to a limited number of large derivative transactions.
Net income on financial instruments designated at fair valueincreased by 70% due to growth of a unit-linked product in Brazil, where new money received was invested in assets designated at fair value, and an increase was registered in the value of policyholder assets supporting these contracts. An offsetting increase was recorded in 'Net insurance claims incurred and movement in liabilities to policyholders'.
Gains less losses from financial investments increased by US$17m, mainly due to a gain on the sale of shares in a Mexican listed company.
Other operating income increased by US$168m, primarily due to the gain on sale of buildings including the sale and leaseback of branches in Mexico.
Net earned insurance premiums increased by 24% to US$1.3bn, driven by increased sales in Brazil of both credit-related products and term life insurance, and higher contributions on a unit-linked product which reflected the improved economic environment and an increase in the sales force. Premiums also rose in Argentina, mainly from repricing initiatives in the motor insurance segment. This growth resulted in an increase in Net insurance claims and movement in liabilities to policyholders.
Loan impairment charges and other credit risk provisions declined by 8%, mainly in RBWM, where riskier portfolios of credit cards in Mexico were managed down and collections and underwriting processes were tightened. The decline in loan impairment charges also reflected an improvement in the economic environment. In CMB, loan impairment charges increased by 3%. This increaseoccurred mainly in Brazil following a significant expansion in lending since the first half of 2010, and was partly offset by the non-recurrence of individual loan impairment charges booked in the first half of 2010 in the real estate portfolio in Mexico.
Operating expenses increased by 15%, in part due to restructuring costs of US$149m recognised in the first half of 2011 as we took measures to improve the efficiency of our processes in order to lower the future cost base of our operations. This included charges relating to certain regional projects, restructuring regional and country support functions and consolidating the branch network in Mexico. Costs also rose due to inflationary pressures, union-agreed wage increases in Brazil and Argentina, increased front office staffing levels in Brazil and Mexico to support strategic growth and volume-driven transactional taxes in Brazil and Argentina.
Profit/(loss) before tax and balance sheet data - Latin America
Half-year to 30 June 2011 | |||||||||||||
Retail Bankingand WealthManagement US$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/(expense) ........ ........................ | 2,215 | 1,096 | 456 | 12 | (1) | (261) | 3,517 | ||||||
Net fee income ... ........................ ........................ ........................ | 492 | 292 | 98 | 19 | 1 | - | 902 | ||||||
Trading income excluding net interest income ........................ | 29 | 49 | 186 | 2 | 3 | - | 269 | ||||||
Net interest income ontrading activities ......... | 1 | - | 58 | - | - | 261 | 320 | ||||||
Net trading income45 ......... | 30 | 49 | 244 | 2 | 3 | 261 | 589 | ||||||
Net income from financial instruments designatedat fair value ..... | 181 | 55 | - | - | - | - | 236 | ||||||
Gains less losses from financial investments .... | - | - | 73 | - | - | - | 73 | ||||||
Dividend income . | 5 | 2 | - | - | - | - | 7 | ||||||
Net earned insurance premiums ........ | 961 | 289 | 18 | - | - | - | 1,268 | ||||||
Other operating income ............ | 118 | 40 | 24 | 1 | 127 | (130) | 180 | ||||||
Total operating income........... | 4,002 | 1,823 | 913 | 34 | 130 | (130) | 6,772 | ||||||
Net insurance claims53 ........... | (821) | (258) | (10) | - | - | - | (1,089) | ||||||
Net operating income41 ........ | 3,181 | 1,565 | 903 | 34 | 130 | (130) | 5,683 | ||||||
Loan impairment chargesand other credit risk provisions | (633) | (180) | (7) | - | - | - | (820) | ||||||
Net operating income .......... | 2,548 | 1,385 | 896 | 34 | 130 | (130) | 4,863 | ||||||
Operating expenses ......... | (2,212) | (910) | (353) | (24) | (343) | 130 | (3,712) | ||||||
Operating profit/(loss) ... | 336 | 475 | 543 | 10 | (213) | - | 1,151 | ||||||
Share of profit in associates and joint ventures .. | - | - | - | - | - | - | - | ||||||
Profit/(loss) before tax ...... | 336 | 475 | 543 | 10 | (213) | - | 1,151 | ||||||
% | % | % | % | % | % | ||||||||
Share of HSBC's profit before tax ....... | 2.9 | 4.1 | 4.7 | 0.1 | (1.8) | - | 10.0 | ||||||
Cost efficiency ratio ................ | 69.5 | 58.1 | 39.1 | 70.6 | 263.8 | 100 | 65.3 | ||||||
Balance sheet data39 | |||||||||||||
US$m | US$m | US$m | US$m | US$m | US$m | ||||||||
Loans and advances tocustomers (net) ........................ | 22,431 | 29,036 | 14,271 | 64 | - | 65,802 | |||||||
Total assets ........ | 40,866 | 41,136 | 78,131 | 1,564 | 2,926 | (1,012) | 163,611 | ||||||
Customer accounts ........................ | 32,619 | 27,251 | 29,402 | 6,837 | - | 96,109 | |||||||
Profit/(loss) before tax and balance sheet data - Latin America (continued)
Half-year to 30 June 2010 | |||||||||||||
Retail Bankingand WealthManagement16 US$m |
| Commercial Banking US$m |
| Global Banking and Markets16 US$m |
| GlobalPrivate Banking US$m |
| Other US$m |
| Inter- segment elimination52 US$m |
| Total US$m | |
Profit/(loss) before tax | |||||||||||||
Net interest income .......... ...................... | 1,978 | 793 | 389 | 10 | 53 | (104) | 3,119 | ||||||
Net fee income . ...................... ...................... ...................... | 492 | 244 | 99 | 14 | 6 | - | 855 | ||||||
Trading income/(expense) excluding net interest income .......... | 21 | 38 | 181 | 1 | (4) | - | 237 | ||||||
Net interest income ontrading activities ....... | - | - | 11 | - | 1 | 104 | 116 | ||||||
Net trading income/(expense)45 .... | 21 | 38 | 192 | 1 | (3) | 104 | 353 | ||||||
Net income from financial instruments designated at fair value ....... | 102 | 28 | - | - | - | - | 130 | ||||||
Gains less losses from financial investments ... | 1 | - | 52 | - | - | - | 53 | ||||||
Dividend income ...................... | 3 | 1 | 1 | - | - | - | 5 | ||||||
Net earned insurance premiums ...... | 770 | 171 | 16 | - | - | - | 957 | ||||||
Other operating income .......... | 17 | 10 | 2 | 1 | 81 | (101) | 10 | ||||||
Total operating income........... | 3,384 | 1,285 | 751 | 26 | 137 | (101) | 5,482 | ||||||
Net insurance claims53 ......... | (628) | (129) | (10) | - | - | - | (767) | ||||||
Net operating income41 ....... | 2,756 | 1,156 | 741 | 26 | 137 | (101) | 4,715 | ||||||
Loan impairment (charges)/ recoveries and other credit risk provisions ...................... | (661) | (160) | 3 | - | (2) | - | (820) | ||||||
Net operating income .......... | 2,095 | 996 | 744 | 26 | 135 | (101) | 3,895 | ||||||
Operating expenses ........ | (1,928) | (760) | (310) | (22) | (94) | 101 | (3,013) | ||||||
Operating profit | 167 | 236 | 434 | 4 | 41 | - | 882 | ||||||
Share of profit in associates and joint ventures | 1 | - | - | - | - | - | 1 | ||||||
Profit before tax ...................... | 168 | 236 | 434 | 4 | 41 | - | 883 | ||||||
% | % | % | % | % | % | ||||||||
Share of HSBC's profit before tax ...... | 1.5 | 2.2 | 3.9 | - | 0.4 | - | 8.0 | ||||||
Cost efficiency ratio .............. | 70.0 | 65.7 | 41.8 | 84.6 | 68.6 | 100 | 63.9 | ||||||
Balance sheet data39 | |||||||||||||
US$m | US$m | US$m | US$m | US$m | US$m | ||||||||
Loans and advances tocustomers (net) .............. | 19,350 | 19,434 | 10,006 | 39 | - | 48,829 | |||||||
Total assets ....... | 34,645 | 27,307 | 59,302 | 1,110 | 314 | (793) | 121,885 | ||||||
Customer accounts ........ | 26,618 | 20,115 | 23,158 | 5,326 | - | 75,217 | |||||||
Half-year to 31 December 2010 | |||||||||||||
Retail Bankingand Wealth Management16 US$m |
| Commercial Banking US$m |
| Global Banking and Markets16 US$m |
| GlobalPrivate Banking US$m |
| Other US$m |
| Inter- segment elimination52 US$m |
| Total US$m | |
Profit/(loss) before tax | |||||||||||||
Net interest income .......... ...................... | 2,001 | 878 | 383 | 10 | 68 | (148) | 3,192 | ||||||
Net fee income/(expense) ................. ...................... ...................... ...................... | 514 | 282 | 92 | 18 | (12) | - | 894 | ||||||
Trading income/(expense) excluding net interest income .......... | 14 | 34 | 189 | 2 | (23) | - | 216 | ||||||
Net interest income/(expense) on trading activities ....... | - | - | 17 | - | (1) | 148 | 164 | ||||||
Net trading income/(expense)45 .... | 14 | 34 | 206 | 2 | (24) | 148 | 380 | ||||||
Net income from financial instruments designatedat fair value ... | 237 | 57 | 1 | - | - | - | 295 | ||||||
Gains less losses from financial investments ... | 5 | 2 | 41 | - | (3) | - | 45 | ||||||
Dividend income ...................... | 4 | 1 | 2 | - | - | - | 7 | ||||||
Net earned insurance premiums ...... | 881 | 203 | 13 | - | - | - | 1,097 | ||||||
Other operating income .......... | 81 | 24 | 13 | 1 | 140 | (128) | 131 | ||||||
Total operating income .......... | 3,737 | 1,481 | 751 | 31 | 169 | (128) | 6,041 | ||||||
Net insurance claims53 ......... | (851) | (168) | (6) | - | - | - | (1,025) | ||||||
Net operating income41 ....... | 2,886 | 1,313 | 745 | 31 | 169 | (128) | 5,016 | ||||||
Loan impairment (charges)/recoveries and othercredit risk provisions ..... | (586) | (133) | (7) | - | 2 | - | (724) | ||||||
Net operating income........... | 2,300 | 1,180 | 738 | 31 | 171 | (128) | 4,292 | ||||||
Operating expenses ........ | (2,106) | (863) | (343) | (25) | (172) | 128 | (3,381) | ||||||
Operating profit/(loss) ... | 194 | 317 | 395 | 6 | (1) | - | 911 | ||||||
Share of profit in associates and joint ventures | - | 1 | - | - | - | - | 1 | ||||||
Profit/(loss) before tax ...... | 194 | 318 | 395 | 6 | (1) | - | 912 | ||||||
% | % | % | % | % | % | ||||||||
Share of HSBC's profitbefore tax ...... | 2.5 | 4.0 | 5.0 | - | - |
| 11.5 | ||||||
Cost efficiency ratio .............. | 73.0 | 65.7 | 46.0 | 80.6 | 101.8 |
| 67.4 | ||||||
Balance sheet data39 | |||||||||||||
US$m | US$m | US$m | US$m | US$m | US$m | ||||||||
Loans and advances tocustomers (net) .............. | 20,823 | 24,879 | 12,242 | 43 | - | 57,987 | |||||||
Total assets ....... | 38,819 | 35,619 | 64,635 | 1,608 | 196 | (939) | 139,938 | ||||||
Customer accounts ........ | 30,149 | 24,514 | 27,810 | 6,053 | - | 88,526 | |||||||
For footnotes, see page 81.
Related Shares:
HSBC Holdings