10th Aug 2012 16:22
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 over 60% by value of banknotes in circulation in the first half of 2012. | |||||
Half-year to | |||||
30 Jun | 30 Jun | 31 Dec | |||
2012 | 2011 | 2011 | |||
US$m | US$m | US$m | |||
Net interest income ..... | 2,599 | 2,249 | 2,442 | ||
Net fee income ............ | 1,618 | 1,612 | 1,485 | ||
Net trading income ...... | 762 | 669 | 520 | ||
Other income .............. | 1,154 | 884 | 821 | ||
Net operating income48 .................................. | 6,133 | 5,414 | 5,268 | ||
Impairment charges49 .. | (32) | (25) | (131) | ||
Net operating income | 6,101 | 5,389 | 5,137 | ||
Total operating expenses .................................. | (2,396) | (2,339) | (2,419) | ||
Operating profit ....... | 3,705 | 3,050 | 2,718 | ||
Income from associates50 | 56 | 31 | 24 | ||
| |||||
Profit before tax ....... | 3,761 | 3,081 | 2,742 | ||
Cost efficiency ratio .... | 39.1% | 43.2% | 45.9% | ||
RoRWA40 .................... | 7.1% | 5.6% | 5.0% | ||
Period-end staff numbers | 27,976 | 30,214 | 28,984 | ||
Leading international bank inoffshore renminbi products | |||||
19%growth in revenues from thecollaboration between CMB and GB&M | |||||
Best domestic bank in Hong Kong(Asiamoney 2012) | |||||
For footnotes, see page 100. The commentary on Hong Kong is on a constant currency basis unless stated otherwise. | |||||
Economic background
GDP in Hong Kong grew by just 0.4% in the first quarter of 2012, as a slowdown in external demand from Europe and mainland China served to depress activity. The sharp contraction in export orders, however, was more than offset by ongoing strength in the domestic economy. The unemployment rate remained steady at close to 3.3% and, although 3 month HIBOR was 0.4% during the first half of 2012, up from 0.26% in June 2011, it remained very low, helping to underpin robust rates of private consumption and investment spending, which increased by 5.6% and 12.2%, respectively, on the year in the first quarter. Inflationary pressures and residential property price inflation eased, the latter slowing to 4.6% in May from 26% a year earlier.
Review of performance
Reported pre-tax profits from our operations in Hong Kong were US$3.8bn compared with US$3.1bn in the first half of 2011, an increase of 22% on both a reported and a constant currency basis.
The increase in profits was driven by higher net interest income in RBWM and CMB coupled with the gain on sale of our shares in two Indian banks. Trading revenues were higher in GB&M from positive performance in the Rates, Foreign Exchange and Credit businesses. These increases were partly offset by higher operating expenses, including staff costs.
In RBWM, we were awarded the 'Best Wealth Management Award' from The Asian Banker. We announced the sale of our general insurance business enabling us to focus on life insurance manufacturing where we maintained our market leadership position. We launched a dual currency Hong Kong dollar and renminbi credit card for customers who travel frequently between Hong Kong and mainland China that offers payment flexibility and protection against fluctuating exchange rates. We maintained our market leadership position in deposits, mortgages and mandatory provident funds as well as credit cards where we received 26 awards from Visa, MasterCard and China UnionPay.
In CMB, we capitalised on our international connectivity and our standing as a leading trade finance bank to grow trade-related revenues, particularly with mainland China. Cross-border referrals between Hong Kong and mainland China grew by 13% and by 10% between Hong Kong and the rest of the world. The collaboration between CMB and GB&M continued to strengthen, with growth of 19% in revenues which are shared
Profit/(loss) before tax by global business
Half-year to | |||||
30 June2012 US$m | 30 June2011 US$m | 31 December2011US$m | |||
Retail Banking and Wealth Management .................................................... | 1,753 | 1,599 | 1,423 | ||
Commercial Banking .................................................................................. | 1,001 | 825 | 783 | ||
Global Banking and Markets ....................................................................... | 786 | 631 | 685 | ||
Global Private Banking .............................................................................. | 122 | 130 | 58 | ||
Other ......................................................................................................... | 99 | (104) | (207) | ||
Profit before tax ........................................................................................ | 3,761 | 3,081 | 2,742 | ||
between the global businesses, most notably from the provision of foreign exchange products to our corporate customers. We also won the 'Best SME Partner Award' from the Hong Kong General Chamber of Small and Medium Businessfor the seventh consecutive year, and the 'Capital Weekly Service Excellence Award - SME Banking' for the fourth consecutive year.
On a reported basis we achieved record revenues in GB&M. We led the market in Hong Kong dollar bond issuance and participated in several significant debt capital markets transactions. We continued to lead the market in offshore renminbi bond issuance with several high-profile deals completed in the first half of 2012 for multinationals accessing the market.
We reinforced our position as a leading international bank for offshore renminbi products, topping all seven product categories in Asiamoney's inaugural Offshore Renminbi Survey, including the 'Best Overall Products and Services', the 'Best Clearance, Transaction Banking and Settlement' and 'Best for Deposits'.
The following commentary is on a constant currency basis.
Net interest income was 15% higher than in the first half of 2011, notably in RBWM and in CMB, driven primarily by wider deposit spreads and growth in balances of both customer loans and deposits.
In RBWM we experienced growth in average mortgage balances as we maintained our market leadership position. Average personal lending balances also grew. In CMB, average trade-related lending balances were higher as we capitalised on trade and capital flows. Growth in trade-related lending returned in the first half of 2012 following reductions in the second half of 2011.
Net interest income also rose due to higher average deposit balances as we focused on funding lending growth with deposit acquisition.
These were partly offset by narrower asset spreads, notably in residential mortgages in RBWM, as funding costs increased.
Net interest income from Balance Sheet Management was higher in the first half of 2012, through improved fund deployment amidst a consistently low interest rate environment.
Net fee incomeof US$1.6bn was broadly unchanged. Fees rose from the collaboration between CMB and GB&M and from higher trade-related volumes as we successfully captured opportunities from international trade and capital flows. We also benefited from our participation in several debt capital markets transactions in the first half of 2012. The increase was offset in RBWM, mainly by a reduction in brokerage income from lower market turnover as a result of weaker investor sentiment, and by lower fee income from unit trusts where the customer preference shifted towards lower risk products with lower fees.
Net trading income increased by 14%, driven by a positive performance in GB&M, notably in Rates trading activities, which reflected greater market volatility and tightening of spreads, and in Foreign Exchange, due to increased client activity and, in part, enhanced collaboration with CMB. Credit trading revenues also rose due to the tightening of spreads and increased volumes.
Net income from financial instruments designated at fair valuewas US$44m compared with US$26m in the first half of 2011 due to higher investment gains on assets held by the insurance business as a result of more favourable equity market conditions. To the extent that these investment gains were attributed to policyholders of unit-linked insurance policies and insurance contracts with DPF, there was a corresponding increase in 'Net insurance claims incurred and movement in liabilities to policyholders'.
Net earned insurance premiums increased by 19%, notably on insurance contracts with DPF, following higher sales volumes reflecting strong sales and renewals of life insurance products as a result of product launches and marketing campaigns. The growth in premiums resulted in a corresponding increase in 'Net insurance claims incurred and movement in liabilities to policyholders'.
Gains less losses from financial investments were US$261m higher, driven by the gain of US$275m from the sale of our shares in Axis Bank Limited and Yes Bank Limited, two non-strategic investments in India.
Other operating income of US$825m was US$90m lower than in the first half of 2011. The fall in income was primarily due to the non-recurrence of the gain from the refinement to the PVIF calculation methodology in the first half of 2011 (see footnote 27 on page 100), partly offset by a rise in PVIF reflecting favourable assumption updates and increased insurance sales in the first six months of 2012. In addition, the gain on revaluation of investment properties was lower in 2012 than in the first half of 2011.
Loan impairment charges and other credit risk provisions stayed at a low level at US$32m as the credit environment remained stable and we maintained our focus on high levels of asset quality.
Operating expenses increased by 2%, primarily due to wage inflation across the business and higher performance-related costs in GB&M reflecting increased revenue. Premises and equipment costs rose, mainly relating to systems implementation programmes and higher volume-driven processing charges, as well as increased property maintenance and rental costs. We continued to maintain strict cost control and progressed with the implementation of our organisational effectiveness programme that started in 2011.
Profit/(loss) before tax and balance sheet data - Hong Kong
Half-year to 30 June 2012 | |||||||||||||
Retail Bankingand Wealth Management US$m | Commercial Banking US$m | Global Banking and Markets US$m | Global Private Banking US$m | Other US$m | Inter- segment elimination57 US$m | Total US$m | |||||||
Profit before tax | |||||||||||||
Net interest income/(expense) ......................................... | 1,396 | 768 | 553 | 76 | (238) | 44 | 2,599 | ||||||
Net fee income .................... | 825 | 433 | 272 | 77 | 11 | − | 1,618 | ||||||
Trading income/(expense)excluding net interestincome ............................ | 85 | 85 | 392 | 94 | (25) | − | 631 | ||||||
Net interest income ontrading activities .............. | 2 | − | 166 | − | 7 | (44) | 131 | ||||||
Net trading income/(expense)51 .......... | 87 | 85 | 558 | 94 | (18) | (44) | 762 | ||||||
Net income/(expense) from financial instruments designated at fair value ..... | 61 | (18) | 16 | − | (15) | − | 44 | ||||||
Gains less losses fromfinancial investments ....... | − | − | 4 | − | 275 | − | 279 | ||||||
Dividend income ................. | − | − | 2 | − | 16 | − | 18 | ||||||
Net earned insurancepremiums ......................... | 2,690 | 385 | 4 | − | − | − | 3,079 | ||||||
Other operating income ...... | 357 | 35 | 27 | 6 | 539 | (139) | 825 | ||||||
Total operating income ... | 5,416 | 1,688 | 1,436 | 253 | 570 | (139) | 9,224 | ||||||
Net insurance claims58 ......... | (2,745) | (341) | (5) | − | − | − | (3,091) | ||||||
Net operating income48 ... | 2,671 | 1,347 | 1,431 | 253 | 570 | (139) | 6,133 | ||||||
Loan impairment (charges)/recoveries and other creditrisk provisions ................. | (44) | (2) | 12 | 2 | − | − | (32) | ||||||
Net operating income ...... | 2,627 | 1,345 | 1,443 | 255 | 570 | (139) | 6,101 | ||||||
Operating expenses ............. | (893) | (350) | (660) | (133) | (499) | 139 | (2,396) | ||||||
Operating profit ............... | 1,734 | 995 | 783 | 122 | 71 | − | 3,705 | ||||||
Share of profit in associatesand joint ventures ............ | 19 | 6 | 3 | − | 28 | − | 56 | ||||||
Profit before tax ............... | 1,753 | 1,001 | 786 | 122 | 99 | − | 3,761 | ||||||
% | % | % | % | % | % | ||||||||
Share of HSBC's profitbefore tax ........................ | 13.6 | 7.9 | 6.2 | 1.0 | 0.8 | 29.5 | |||||||
Cost efficiency ratio ............ | 33.4 | 26.0 | 46.1 | 52.6 | 87.5 | 39.1 | |||||||
Balance sheet data47 | |||||||||||||
US$m | US$m | US$m | US$m | US$m | US$m | ||||||||
Loans and advances tocustomers (net) ................ | 58,290 | 58,694 | 40,699 | 6,192 | 1,329 | 165,204 | |||||||
Total assets ......................... | 89,464 | 67,566 | 242,783 | 19,901 | 82,901 | (16,007) | 486,608 | ||||||
Customer accounts .............. | 184,857 | 80,383 | 34,340 | 18,819 | 421 | 318,820 | |||||||
Profit/(loss) before tax and balance sheet data - Hong Kong (continued)
Half-year to 30 June 2011 | |||||||||||||
Retail Bankingand Wealth Management US$m | Commercial Banking US$m | Global Banking and Markets US$m | Global Private Banking US$m | Other US$m | Inter- segment elimination57 US$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 interestincome ............................ | 89 | 86 | 320 | 69 | (9) | - | 555 | ||||||
Net interest income ontrading activities .............. | 4 | - | 124 | - | 6 | (20) | 114 | ||||||
Net trading income/(expense)51........... | 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 fromfinancial investments ....... | - | - | 20 | - | (2) | - | 18 | ||||||
Dividend income ................. | - | 1 | 11 | - | 19 | - | 31 | ||||||
Net earned insurancepremiums ......................... | 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 claims58 ......... | (2,344) | (342) | (5) | - | 1 | - | (2,690) | ||||||
Net operating income48 ....... | 2,524 | 1,172 | 1,241 | 260 | 348 | (131) | 5,414 | ||||||
Loan impairment (charges)/recoveries and other creditrisk 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 associatesand joint ventures ............ | 2 | 2 | 1 | - | 26 | - | 31 | ||||||
Profit/(loss) before tax ........ | 1,599 | 825 | 631 | 130 | (104) | - | 3,081 | ||||||
% | % | % | % | % | % | ||||||||
Share of HSBC's profitbefore 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 data47 | |||||||||||||
US$m | US$m | US$m | US$m | US$m | US$m | ||||||||
Loans and advances tocustomers (net) ................ | 53,999 | 58,529 | 39,124 | 5,949 | 1,769 | 159,370 | |||||||
Total assets ......................... | 82,184 | 66,563 | 232,057 | 21,545 | 81,316 | (9,621) | 474,044 | ||||||
Customer accounts .............. | 175,641 | 74,760 | 34,348 | 20,378 | 599 | 305,726 | |||||||
Half-year to 31 December 2011 | |||||||||||||
Retail Bankingand WealthManagement US$m | Commercial Banking US$m | Global Banking and Markets US$m | Global Private Banking US$m | Other US$m | Inter- segment elimination57 US$m | Total US$m | |||||||
Profit/(loss) before tax | |||||||||||||
Net interest income/(expense) ......................................... | 1,322 | 692 | 550 | 85 | (230) | 23 | 2,442 | ||||||
Net fee income .................... | 833 | 350 | 234 | 63 | 5 | - | 1,485 | ||||||
Trading income/(expense) excluding net interestincome ............................ | 31 | 83 | 332 | 66 | (107) | - | 405 | ||||||
Net interest income on trading activities .............. | 5 | 1 | 122 | - | 10 | (23) | 115 | ||||||
Net trading income/(expense)51 ...................... | 36 | 84 | 454 | 66 | (97) | (23) | 520 | ||||||
Net income/(expense) from financial instruments designated at fair value ..... | (525) | (45) | (7) | - | 14 | - | (563) | ||||||
Gains less losses fromfinancial investments ....... | 3 | 10 | 1 | - | (8) | - | 6 | ||||||
Dividend income ................. | - | - | 3 | - | 5 | - | 8 | ||||||
Net earned insurancepremiums ......................... | 2,124 | 368 | 8 | - | - | - | 2,500 | ||||||
Other operating income ...... | 130 | 92 | 57 | 2 | 629 | (137) | 773 | ||||||
Total operating income ....... | 3,923 | 1,551 | 1,300 | 216 | 318 | (137) | 7,171 | ||||||
Net insurance claims58 ......... | (1,543) | (355) | (4) | - | (1) | - | (1,903) | ||||||
Net operating income48 ....... | 2,380 | 1,196 | 1,296 | 216 | 317 | (137) | 5,268 | ||||||
Loan impairment (charges)/ recoveries and other creditrisk provisions ................. | (39) | (59) | 1 | (35) | 1 | - | (131) | ||||||
Net operating income .......... | 2,341 | 1,137 | 1,297 | 181 | 318 | (137) | 5,137 | ||||||
Operating expenses ............. | (922) | (361) | (615) | (123) | (535) | 137 | (2,419) | ||||||
Operating profit/(loss) ......... | 1,419 | 776 | 682 | 58 | (217) | - | 2,718 | ||||||
Share of profit in associatesand joint ventures ............ | 4 | 7 | 3 | - | 10 | - | 24 | ||||||
Profit/(loss) before tax ........ | 1,423 | 783 | 685 | 58 | (207) | - | 2,742 | ||||||
% | % | % | % | % | % | ||||||||
Share of HSBC's profitbefore tax ........................ | 13.7 | 7.5 | 6.6 | 0.6 | (2.0) | 26.4 | |||||||
Cost efficiency ratio ............ | 38.7 | 30.2 | 47.5 | 56.9 | 168.8 | 45.9 | |||||||
Balance sheet data47 | |||||||||||||
US$m | US$m | US$m | US$m | US$m | US$m | ||||||||
Loans and advances tocustomers (net) ................ | 56,296 | 54,986 | 39,667 | 5,447 | 1,269 | 157,665 | |||||||
Total assets ......................... | 85,866 | 63,516 | 238,892 | 20,680 | 84,782 | (20,712) | 473,024 | ||||||
Customer accounts .............. | 181,316 | 79,225 | 35,283 | 19,622 | (101) | 315,345 | |||||||
For footnotes, see page 100.
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