12th Aug 2011 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 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 insuranceand deposits | |||||
More than 50%increase in the number of CMBcross-border referrals betweenHong 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$2.9bn in the first half of 2010, an increase of 7%. On an underlying basis, profit before tax increased by 9%.
The increase in profitability was driven by strong balance sheet growth from 2010 onwards, higher sales of wealth management products, increased underwriting fees and higher sales of trade-related products. There was also a gain from the refinement of the calculation of the PVIF asset. Staff and support costs rose, driven by the increase in business volumes and the need to maintain our strong competitive position.
We successfully retained market leadership in Hong Kong in mortgages, deposits, credit cards and life insurance. Robust growth in lending balances continued, increasing by 13% compared with 31 December 2010, while deposit balances continued to grow.
We remained ideally positioned to capture cross-border opportunities, particularly with mainland China. The number of CMB cross-border referrals between Hong Kong and mainland China increased by more than 50% and Premier referrals rose by 47%.
Collaboration between CMB and GB&M continued to meet the demands of fast growing mid-market companies by providing foreign exchange and derivatives products as well as access to debt and equity markets to fund business growth.
We continued to bolster our position as a leading international renminbi bank. We were appointed as joint lead arranger for Hong Kong's first renminbi-denominated equity initial public offering, and led the market in offshore renminbi bond issuance. We were the first international bank to offer CMB customers a dedicated renminbi Business Card in Hong Kong.
Net interest income was 13% higher than in the first half of 2010, primarily due to strong loan
Profit/(loss) before tax by customer group and global business
Half-year to | |||||
30 June2011 US$m | 30 June2010 US$m | 31 December2010US$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$25m, driven by releases and recoveries in GB&M compared with a specific impairment charge in the same period in 2010. Though impairment charges were low, we remained cautious on the outlook for credit and continued to focus on maintaining high levels of asset quality.
Operating expenses rose by 19% as business volumes grew. Staff costs increased due to wage inflation in the competitive marketplace, increased headcount, particularly in front office functions to strengthen our sales capacity, and higher sales incentives which reflected our strong business performance in the first half of 2011. Staff costs also rose due to an acceleration in the expense recognition of deferred bonus awards.
We continued to invest in developing our key capabilities, most notably in equities, Prime Services and commodities, to drive future revenue growth. Marketing and support costs also increased in line with higher business volumes and product development. Although our cost efficiency ratio is already relatively low in Hong Kong, we continue to focus on improving operational efficiency while maintaining market leadership and strong growth.
Profit/(loss) before tax and balance sheet data - Hong Kong
Half-year to 30 June 2011 | |||||||||||||
Retail Bankingand Wealth Management US$m | Commercial Banking US$m | Global Banking and Markets US$m | Global Private Banking US$m | Other US$m | Inter- segment 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 interestincome ............................ | 89 | 86 | 320 | 69 | (9) | - | 555 | ||||||
Net interest income ontrading 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 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 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 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 data39 | |||||||||||||
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 30 June 2010 | |||||||||||||
Retail Bankingand WealthManagement16 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 excludingnet interest income .......... | 108 | 53 | 367 | 59 | 4 | - | 591 | ||||||
Net interest income ontrading 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 fromfinancial investments ....... | - | - | 63 | 8 | 40 | - | 111 | ||||||
Dividend income ................. | - | - | - | - | 13 | - | 13 | ||||||
Net earned insurancepremiums ......................... | 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 creditrisk 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 associatesand joint ventures ............ | 2 | - | - | - | 10 | - | 12 | ||||||
Profit/(loss) before tax ........ | 1,462 | 672 | 690 | 119 | (66) | - | 2,877 | ||||||
% | % | % | % | % | % | ||||||||
Share of HSBC's profitbefore 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$m | ||||||||
Loans and advances tocustomers (net) ................ | 45,121 | 37,184 | 25,501 | 4,353 | 1,916 | 114,075 | |||||||
Total assets ......................... | 69,187 | 44,409 | 213,956 | 19,919 | 92,165 | (28,645) | 410,991 | ||||||
Customer accounts .............. | 165,238 | 63,562 | 26,142 | 18,559 | 611 | 274,112 | |||||||
Profit/(loss) before tax and balance sheet data - Hong Kong (continued)
Half-year to 31 December 2010 | |||||||||||||
Retail Bankingand WealthManagement16 US$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 interestincome ............................ | 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 fromfinancial investments ....... | - | - | (7) | (7) | 1 | - | (13) | ||||||
Dividend income ................. | - | 1 | 12 | - | 4 | - | 17 | ||||||
Net earned insurancepremiums ......................... | 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 creditrisk 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 associatesand joint ventures ............ | 3 | 7 | 4 | - | 9 | - | 23 | ||||||
Profit/(loss) before tax ........ | 1,539 | 680 | 657 | 108 | (169) | - | 2,815 | ||||||
% | % | % | % | % | % | ||||||||
Share of HSBC's profitbefore 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 tocustomers (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.
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