16th Aug 2013 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 2013. | |||||
Half-year to | |||||
30 Jun | 30 Jun | 31 Dec | |||
2013 | 2012 | 2012 | |||
US$m | US$m | US$m | |||
Net interest income ..... | 2,866 | 2,599 | 2,717 | ||
Net fee income ............ | 2,006 | 1,618 | 1,717 | ||
Net trading income ...... | 872 | 762 | 701 | ||
Other income .............. | 899 | 1,154 | 1,154 | ||
Net operating income22 .................................. | 6,643 | 6,133 | 6,289 | ||
LICs55 .......................... | (46) | (32) | (42) | ||
Net operating income | 6,597 | 6,101 | 6,247 | ||
Total operating expenses .................................. | (2,418) | (2,396) | (2,452) | ||
Operating profit ....... | 4,179 | 3,705 | 3,795 | ||
Income from associates56 | 26 | 56 | 26 | ||
| |||||
Profit before tax ....... | 4,205 | 3,761 | 3,821 | ||
Cost efficiency ratio .... | 36.4% | 39.1% | 39.0% | ||
RoRWA49 .................... | 7.1% | 7.1% | 6.9% | ||
Period-end staff numbers | 27,966 | 27,976 | 27,742 | ||
9% growth in underlying revenue | |||||
14%growth in combinedCMB and GB&M lending balances(on a constant currency basis) | |||||
Best Bank in Hong Kong(FinanceAsia, Country Awardsfor Achievement, 2013) | |||||
For footnotes, see page 100. | |||||
Economic background
GDP growth in Hong Kong decelerated to a rate of 0.2% quarter on quarter in the first three months of 2013, on the back of mainland China's slowdown in the first quarter and sluggish demand from the West. The resilient local job market and solid income growth supported the economy in the absence of strong external demand. Unemployment was steady at around 3.4% even though the labour force grew to a record high in the first quarter. The 3-month Hibor eased to an average of 0.38% during the first half of 2013, down from 0.4% in the second half of 2012. Low borrowing costs and a continued increase in real wages helped private consumption to rise by 7% on the year in the first quarter. Investment spending contracted by 2.2% in the same period, however, due to cooling business sentiment. Inflationary pressures eased slightly, with the CPI slowing to 3.9% in May from an average of 4.1% in 2012. The growth in residential property prices slowed too, rising by 2.8% in the first five months of 2013 compared with 7.6% for the same period in 2012.
Review of performance
Our operations in Hong Kong reported a pre-tax profit of US$4.2bn compared with US$3.8bn in the first half of 2012, an increase of 12%. This reflected higher revenue, driven by increased net fees from unit trusts and debt issuance and balance sheet growth. Excluding the effect of disposals in 2012, underlying profit before tax increased by 13%.
In RBWM, average loan to value ratios were 44% on new mortgage drawdowns and an estimated 32% on the portfolio as a whole. We enhanced our digital banking capabilities with the launch of a new mobile banking application and implemented the Global Wealth Incentive Plan.
In CMB, we further strengthened the collaboration with GB&M particularly in Foreign Exchange as well as debt capital markets issuance where the number of transactions more than tripled compared with the first half of 2012. We were named 'Best Domestic Bank in Hong Kong' by Asiamoney.
In GB&M we continued to lead the market in Hong Kong dollar bond issuance and are now one of the top five for both equity capital markets and mergers and acquisitions.
We led the market in offshore RMB bond issuance and were voted 'Best provider of offshore renminbi products and services' for the second year running by Asiamoney.
Profit/(loss) before tax by global business
Half-year to | |||||
30 June2013 US$m | 30 June2012 US$m | 31 December2012US$m | |||
Retail Banking and Wealth Management .................................................... | 1,867 | 1,753 | 1,941 | ||
Commercial Banking .................................................................................. | 1,083 | 1,001 | 1,187 | ||
Global Banking and Markets ....................................................................... | 1,078 | 786 | 732 | ||
Global Private Banking .............................................................................. | 137 | 122 | 127 | ||
Other ......................................................................................................... | 40 | 99 | (166) | ||
Profit before tax ........................................................................................ | 4,205 | 3,761 | 3,821 | ||
The following commentary is on a constant currency basis.
Net interest income increased by US$266m on the first half of 2012, led by RBWM and supported by CMB and GB&M. This was mainly due to higher average lending balances, wider spreads on mortgages in RBWM reflecting lower funding costs, and growth in the insurance debt securities portfolio.
There was strong loan growth in both CMB and GB&M, driven by trade-related lending, though the benefit of this growth was partly offset by spread compression reflecting competition and increased liquidity in the markets. Mortgage lending in RBWM also increased, although the rate of growth began to slow as transaction volumes in the property market reduced.
Average deposit balances increased, in part reflecting new Premier customers in RBWM and increased Payments and Cash Management balances in CMB, though the benefit of this growth was more than offset by narrower deposit spreads due to a fall in short-term interest rates.
Net fee income rose by US$388m in the first half of 2013, primarily in RBWM. Strong customer demand and favourable market sentiment led to higher fees from unit trusts and increased brokerage income. Fee income was higher in GB&M due to a rise in debt and equity underwriting and corporate finance activity compared with the first half of 2012, in part reflecting collaboration with CMB. Fee income also increased in CMB as trade volumes increased.
Net trading income was 14% higher than in the first six months of 2012. Rates revenue rose due to higher net interest income on increased debt securities holdings. Foreign Exchange revenue increased due to higher customer trading volumes. There was also a favourable DVA (see page 28).
Net expense from financial instruments designated at fair value was US$258m compared with net income of US$44m in the first half of 2012, primarily due to net investment losses on assets held by the insurance business as both equity and bond markets fell towards the end of the first half of 2013. To the extent that these investment returns were attributed to policyholders holding unit-linked insurance policies and insurance contracts with DPF, there was a corresponding movement in Net insurance claims incurred and movement in liabilities to policyholders.
Net gains less losses from financial investments were US$19m in the first half of 2013 compared with US$279m in 2012, largely due to the non-recurrence of the gains on sale of our shares in two Indian banks in the first half of 2012.
Net earned insurance premiums grew by 3% due to increased renewals of insurance contracts with DPF and unit-linked insurance contracts, and higher new business premiums partly offset by the absence of non-life insurance premiums following the disposal of these businesses in 2012. The growth in premiums resulted in a corresponding increase in Net insurance claims incurred and movement in liabilities to policyholders.
Other operating income was US$59m higher from disposal and revaluation gains on investment properties. This was partly offset by a lower increase in the PVIF asset largely due to the favourable valuation of policyholder options and guarantees in 2012.
LICs were US$13m higher due to an increase from a revision to the assumptions used in our collective assessment models in RBWM partly offset by collective impairment releases in CMB.
Operating expenses rose by US$22m in the first half of 2013, driven by increased property rental prices, costs relating to the introduction of updated payment cards and information technology platforms. These were partly offset by reduced performance-related costs in GB&M, and lower restructuring and other related costs relating to organisational effectiveness programmes in 2012.
Share of profit from associates and joint ventures was US$30m lower due to the non-
recurrence of a deferred tax credit in 2012 relating to investment properties held by an associate, and the effect of the disposal of our interest in Global Payments Asia-Pacific Ltd last year.
Profit/(loss) before tax and balance sheet data - Hong Kong
Half-year to 30 June 2013 | |||||||||||||
Retail Bankingand Wealth Management US$m | Commercial Banking US$m | Global Banking and Markets US$m | Global Private Banking US$m | Other US$m | Inter- segment elimination62 US$m | Total US$m | |||||||
Profit before tax | |||||||||||||
Net interest income/(expense) ........... | 1,563 | 827 | 609 | 66 | (194) | (5) | 2,866 | ||||||
Net fee income .................. | 1,029 | 495 | 384 | 88 | 10 | - | 2,006 | ||||||
Trading income/(expense)excluding net interestincome ........................... | 49 | 91 | 493 | 80 | (24) | - | 689 | ||||||
Net interest income ontrading activities ............ | 1 | - | 166 | - | 11 | 5 | 183 | ||||||
Net trading income/(expense)57 ........ | 50 | 91 | 659 | 80 | (13) | 5 | 872 | ||||||
Net income/(expense) from financial instruments designated at fair value ... | (241) | (12) | 3 | - | (8) | - | (258) | ||||||
Gains less losses fromfinancial investments ..... | - | - | 20 | 1 | (2) | - | 19 | ||||||
Dividend income ................ | - | - | 2 | - | 14 | - | 16 | ||||||
Net earned insurancepremiums ....................... | 2,912 | 267 | - | - | - | - | 3,179 | ||||||
Other operating income ..... | 264 | 27 | 31 | 4 | 707 | (148) | 885 | ||||||
Total operating income .. | 5,577 | 1,695 | 1,708 | 239 | 514 | (148) | 9,585 | ||||||
Net insurance claims63 ....... | (2,680) | (262) | - | - | - | - | (2,942) | ||||||
Net operating income22 .. | 2,897 | 1,433 | 1,708 | 239 | 514 | (148) | 6,643 | ||||||
Loan impairment (charges)/recoveries and other creditrisk provisions ............... | (75) | 23 | 7 | (1) | - | - | (46) | ||||||
Net operating income .... | 2,822 | 1,456 | 1,715 | 238 | 514 | (148) | 6,597 | ||||||
Operating expenses ............ | (980) | (373) | (638) | (101) | (474) | 148 | (2,418) | ||||||
Operating profit ............. | 1,842 | 1,083 | 1,077 | 137 | 40 | - | 4,179 | ||||||
Share of profit in associatesand joint ventures .......... | 25 | - | 1 | - | - | - | 26 | ||||||
Profit before tax ............. | 1,867 | 1,083 | 1,078 | 137 | 40 | - | 4,205 | ||||||
% | % | % | % | % | % | ||||||||
Share of HSBC's profitbefore tax ...................... | 13.3 | 7.7 | 7.6 | 1.0 | 0.3 | 29.9 | |||||||
Cost efficiency ratio .......... | 33.8 | 26.0 | 37.4 | 42.3 | 92.2 | 36.4 | |||||||
Balance sheet data53 | |||||||||||||
US$m | US$m | US$m | US$m | US$m | US$m | ||||||||
Loans and advances tocustomers (net) .............. | 64,096 | 71,269 | 45,760 | 7,118 | 1,382 | 189,625 | |||||||
Total assets ....................... | 101,062 | 80,771 | 268,379 | 20,604 | 66,218 | (8,322) | 528,712 | ||||||
Customer accounts ............. | 199,240 | 87,859 | 35,798 | 19,496 | 271 | 342,664 | |||||||
Profit/(loss) before tax and balance sheet data - Hong Kong (continued)
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$m | Inter- segment elimination62 US$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)57 .......... | 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 claims63 ......... | (2,745) | (341) | (5) | - | - | - | (3,091) | ||||||
Net operating income22 ....... | 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 data53 | |||||||||||||
US$m | US$m | US$m | US$m | US$m | US$m | ||||||||
Loans and advances tocustomers (net) ................ | 58,290 | 58,694 | 40,699 | 6,192 | 1,329 | 165,204 | |||||||
Total assets ......................... | 89,464 | 67,566 | 242,783 | 19,901 | 82,901 | (16,007) | 486,608 | ||||||
Customer accounts .............. | 184,857 | 80,383 | 34,340 | 18,819 | 421 | 318,820 | |||||||
Half-year to 31 December 2012 | |||||||||||||
Retail Bankingand WealthManagement US$m | Commercial Banking US$m | Global Banking and Markets US$m | Global Private Banking US$m | Other US$m | Inter- segment elimination62 US$m | Total US$m | |||||||
Profit/(loss) before tax | |||||||||||||
Net interest income/(expense) ......................................... | 1,455 | 861 | 534 | 73 | (244) | 38 | 2,717 | ||||||
Net fee income .................... | 944 | 417 | 276 | 78 | 2 | - | 1,717 | ||||||
Trading income excluding net interest income ................ | 91 | 78 | 274 | 76 | 23 | - | 542 | ||||||
Net interest income on trading activities .............. | 8 | 2 | 186 | - | 1 | (38) | 159 | ||||||
Net trading income57 ........... | 99 | 80 | 460 | 76 | 24 | (38) | 701 | ||||||
Net income/(expense) from financial instruments designated at fair value ..... | 450 | (35) | 7 | - | (19) | - | 403 | ||||||
Gains less losses fromfinancial investments ....... | - | - | (2) | 7 | 38 | - | 43 | ||||||
Dividend income ................. | - | 1 | 3 | - | 2 | - | 6 | ||||||
Net earned insurancepremiums ......................... | 2,604 | 270 | 4 | - | - | - | 2,878 | ||||||
Other operating income ...... | 354 | 218 | 50 | 7 | 613 | (143) | 1,099 | ||||||
Total operating income ....... | 5,906 | 1,812 | 1,332 | 241 | 416 | (143) | 9,564 | ||||||
Net insurance claims63 ......... | (3,012) | (261) | (2) | - | - | - | (3,275) | ||||||
Net operating income22 ....... | 2,894 | 1,551 | 1,330 | 241 | 416 | (143) | 6,289 | ||||||
Loan impairment (charges)/ recoveries and other creditrisk provisions ................. | (53) | 5 | 5 | 1 | - | - | (42) | ||||||
Net operating income .......... | 2,841 | 1,556 | 1,335 | 242 | 416 | (143) | 6,247 | ||||||
Operating expenses ............. | (926) | (369) | (603) | (115) | (582) | 143 | (2,452) | ||||||
Operating profit/(loss) ......... | 1,915 | 1,187 | 732 | 127 | (166) | - | 3,795 | ||||||
Share of profit in associatesand joint ventures ............ | 26 | - | - | - | - | - | 26 | ||||||
Profit/(loss) before tax ........ | 1,941 | 1,187 | 732 | 127 | (166) | - | 3,821 | ||||||
% | % | % | % | % | % | ||||||||
Share of HSBC's profitbefore tax ........................ | 24.5 | 15.0 | 9.3 | 1.6 | (2.1) | 48.3 | |||||||
Cost efficiency ratio ............ | 32.0 | 23.8 | 45.3 | 47.7 | 139.9 | 39.0 | |||||||
Balance sheet data53 | |||||||||||||
US$m | US$m | US$m | US$m | US$m | US$m | ||||||||
Loans and advances tocustomers (net) ................ | 62,533 | 62,944 | 40,223 | 6,464 | 1,449 | 173,613 | |||||||
Total assets ......................... | 96,185 | 72,056 | 256,295 | 20,705 | 81,085 | (7,992) | 518,334 | ||||||
Customer accounts .............. | 201,649 | 90,152 | 34,171 | 19,566 | 670 | 346,208 | |||||||
For footnotes, see page 100.
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HSBC Holdings