12th Aug 2011 16:23
Rest of Asia-Pacific
We offer a full range of banking and financial services in mainland China, mainly through our local subsidiary, HSBC Bank (China) Company Limited. We also participate indirectly in mainland China through our four associates. Outside Hong Kong and mainland China, we conduct business in 22 countries and territories in the Rest of Asia-Pacific region, primarily through branches and subsidiaries of The Hongkong and Shanghai Banking Corporation, with particularly strong coverage in Australia, India, Indonesia, Malaysia and Singapore. | |||||
Half-year to | |||||
30 Jun | 30 Jun | 31 Dec | |||
2011 | 2010 | 2010 | |||
US$m | US$m | US$m | |||
Net interest income ...... | 2,381 | 1,822 | 2,006 | ||
Net fee income ............. | 1,117 | 934 | 998 | ||
Net trading income ....... | 862 | 780 | 838 | ||
Other income ................ | 988 | 962 | 892 | ||
Net operating income41 ................................... | 5,348 | 4,498 | 4,734 | ||
Impairment charges42
| (100) | (147) | (292) | ||
Net operating income | 5,248 | 4,351 | 4,442 | ||
Total operating expenses ................................... | (2,836) | (2,417) | (2,726) | ||
Operating profit ........ | 2,412 | 1,934 | 1,716 | ||
Income from associates43 | 1,330 | 1,051 | 1,201 | ||
| |||||
Profit before tax ......... | 3,742 | 2,985 | 2,917 | ||
Cost efficiency ratio ..... | 53.0% | 53.7% | 57.6% | ||
RoRWA44 ..................... | 3.3% | 3.3% | 2.8% | ||
Period-end staff numbers | 91,924 | 88,605 | 91,607 | ||
25%growth in reported pre-tax profit | |||||
Best foreign Commercial Bankin mainland China(FinanceAsia) | |||||
Best International Trade Bankin mainland China(Trade Finance) | |||||
For footnotes, see page 81. The commentary on Rest of Asia-Pacific is on an underlying basis unless stated otherwise. | |||||
Economic background
In mainland China, strong inflationary pressures caused the People's Bank of China to continue raising interest rates and the Reserve Requirement Ratio on bank deposits during the first half of 2011, and GDP growth began to show signs of slowing as a result. The deceleration was modest, however, with activity in the second quarter of 2011 9.5% higher than a year ago. Investment spending remained particularly strong, growing by 26% in the first half of the year compared with the same period in 2010. Inflation reached 6.4% in June.
Economic conditions deteriorated sharply in Japan during the first quarter of 2011, following the earthquake and tsunami in March 2011. By 30 June, economic activity was beginning to accelerate. Having fallen by more than 15% in March, industrial output recovered by 7.9% in the two months to May, despite electricity shortages. The Bank of Japan kept the target unsecured overnight call rate at 0.1% and introduced measures to ensure credit and liquidity were made available.
GDP was particularly strong in Singapore in the first quarter of 2011 but fell sharply in the second quarter, with the pharmaceutical sector accounting for much of this volatility. GDP was 0.5% higher than in 2010 with inflation remaining relatively high. The annual pace of GDP growth in India slowed to 7.8% in the first quarter of 2011 from 8.3% in the final quarter of 2010, in part due to the tightening of monetary policy, with a further slowdown expected in the second quarter. Wholesale price inflation of 9.4% in June 2011 remained above the Reserve Bank of India's range. In other parts of Asia-Pacific growth showed signs of slowing. The South Korean economy continued to perform well. Exports slowed in the second quarter, but domestic demand held up well. Employment remained robust and the Bank of Korea raised interest rates by 75 basis points in the first half of the year. GDP continued to grow in the Philippines and Vietnam, though there was some evidence of a slowdown in the second quarter. CPI inflation remained a major concern in Vietnam, reaching 20% in May. In Indonesia, domestic consumption continued to support GDP growth but, like elsewhere in the region, inflation was uncomfortably high. In Malaysia and Taiwan, exports were adversely affected by supply chain disruptions following the Japanese tsunami, but domestic consumption helped support overall GDP growth. In Thailand, the recent election brought political stability and the outlook for domestic consumption and investment improved.
Profit/(loss) before tax by country within customer groups and global businesses
Retail Bankingand 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 | |||||||||||
Australia ................................................... | 36 | 33 | 70 | - | (4) | 135 | |||||
India ......................................................... | (4) | 78 | 292 | 3 | 82 | 451 | |||||
Indonesia .................................................. | (1) | 47 | 68 | - | - | 114 | |||||
Japan ........................................................ | 4 | - | 27 | 2 | (8) | 25 | |||||
Mainland China ......................................... | 490 | 617 | 472 | (2) | 194 | 1,771 | |||||
Associates ............................................. | 524 | 539 | 248 | - | 181 | 1,492 | |||||
Other mainland China ........................... | (34) | 78 | 224 | (2) | 13 | 279 | |||||
Malaysia ................................................... | 77 | 56 | 114 | - | 4 | 251 | |||||
Singapore .................................................. | 95 | 62 | 126 | 46 | (2) | 327 | |||||
South Korea .............................................. | 6 | - | 118 | - | 20 | 144 | |||||
Taiwan ...................................................... | 33 | 11 | 67 | - | 6 | 117 | |||||
Vietnam .................................................... | 1 | 26 | 40 | - | 15 | 82 | |||||
Other ........................................................ | 29 | 131 | 146 | - | 19 | 325 | |||||
766 | 1,061 | 1,540 | 49 | 326 | 3,742 | ||||||
Half-year to 30 June 2010 | |||||||||||
Australia ................................................... | 23 | 42 | 68 | - | 3 | 136 | |||||
India ......................................................... | (49) | 39 | 244 | 3 | 103 | 340 | |||||
Indonesia .................................................. | (3) | 48 | 60 | - | (3) | 102 | |||||
Japan ........................................................ | (9) | - | 39 | - | (2) | 28 | |||||
Mainland China ......................................... | 364 | 390 | 297 | (4) | 234 | 1,281 | |||||
Associates ............................................. | 415 | 356 | 215 | - | 192 | 1,178 | |||||
Other mainland China ........................... | (51) | 34 | 82 | (4) | 42 | 103 | |||||
Malaysia ................................................... | 54 | 45 | 96 | - | 6 | 201 | |||||
Singapore .................................................. | 85 | 42 | 91 | 43 | 3 | 264 | |||||
South Korea .............................................. | 8 | (4) | 180 | - | 29 | 213 | |||||
Taiwan ...................................................... | 26 | 32 | 37 | - | (9) | 86 | |||||
Vietnam .................................................... | (9) | 21 | 22 | - | 4 | 38 | |||||
Other ........................................................ | 34 | 102 | 124 | 1 | 35 | 296 | |||||
524 | 757 | 1,258 | 43 | 403 | 2,985 | ||||||
Half-year to 31 December 2010 | |||||||||||
Australia ................................................... | 36 | 54 | 27 | - | 5 | 122 | |||||
India ......................................................... | (34) | 32 | 264 | 1 | 76 | 339 | |||||
Indonesia .................................................. | 15 | 46 | 56 | - | - | 117 | |||||
Japan ........................................................ | (24) | - | 37 | (1) | (4) | 8 | |||||
Mainland China ......................................... | 475 | 443 | 386 | (3) | (17) | 1,284 | |||||
Associates ............................................. | 558 | 390 | 228 | - | (4) | 1,172 | |||||
Other mainland China ........................... | (83) | 53 | 158 | (3) | (13) | 112 | |||||
Malaysia ................................................... | 66 | 43 | 98 | - | (7) | 200 | |||||
Singapore .................................................. | 84 | 45 | 9 | 41 | 81 | 260 | |||||
South Korea .............................................. | (6) | - | 125 | - | 21 | 140 | |||||
Taiwan ...................................................... | 5 | 4 | 50 | - | 2 | 61 | |||||
Vietnam .................................................... | 2 | 29 | 39 | - | 3 | 73 | |||||
Other ........................................................ | 19 | 103 | 139 | - | 52 | 313 | |||||
638 | 799 | 1,230 | 38 | 212 | 2,917 | ||||||
For footnote, see page 81.
Review of performance
Our operations in the Rest of Asia-Pacific region reported pre-tax profits of US$3.7bn compared with US$3.0bn in the first half of 2010, an increase of 25%. Reported profits included accounting gains arising from the dilution of HSBC's shareholding in Ping An following its issue of share capital to third parties in both 2010 (US$188m) and 2011 (US$181m). On an underlying basis, which excludes these dilution gains, pre-tax profit rose by 21%.
The growth in profitability in the region in the first half of 2011 reflected strong lending and deposit growth coupled with widening deposit spreads, higher trade volumes and a growing demand for wealth management products. The contribution from our associates in mainland China also grew. Costs increased, although to a lesser extent than revenues, to support business growth and maintain our competitive position in the region.
We continued building a domestic franchise in mainland China where we remained a leading foreign bank. Asset balances grew by 9% over the first six months of 2011, and our ratio of advances to deposits in mainland China remained conservative at 74%. We now have 108 outlets, 16 rural bank outlets and 38 Hang Seng Bank outlets in our branch network. We were awarded the 'Best International Trade Bank' by Trade Finance and the 'Best Foreign Commercial Bank' by FinanceAsia, reinforcing our strong corporate brand in mainland China. We expanded our renminbi services and now offer trade products in over 50 countries worldwide and renminbi services to RBWM customers in 11 countries in Asia.
We utilised our international connectivity to capture trade, capital and wealth flows across the region, in particular with mainland China. As cross‑border referrals between mainland China and the rest of the world increased by more than 50%, we continued to facilitate outbound and inbound flows, particularly with Hong Kong, but also with Singapore, Latin America and the Middle East.
We continued to invest and build scale in the other key strategic markets of India, Singapore, Malaysia, Indonesia and Australia. In India, we made progress in RBWM with our deposit-led strategy and focus on secured lending. In Malaysia, we are the leading foreign bank by total assets and size of branch network and HSBC Amanah was named the world's number one Sukuk underwriter.
Net interest income increased by 23% due to strong loan and deposit growth coupled with wider deposit spreads as base rates rose in certain countries, partly offset by lower asset spreads than in the first half of 2010 from increased competition.
Average lending balances increased primarily in trade and term lending in GB&M and CMB due to a higher demand for credit as a result of improved trade and business volumes in the region. RBWM lending balances also rose, mainly in residential mortgages, most notably in Australia and Singapore, driven by local marketing campaigns and increased demand for credit.
Asset spreads narrowed compared with the same period in 2010, primarily due to increased market competition.
Customer deposit balances grew in CMB, GB&M and RBWM, principally in mainland China, Singapore and Australia, reflecting an increase in customer numbers and strong economic conditions across the region.
Deposit spreads increased as interest rates rose in certain countries, primarily in mainland China, India and Malaysia. Balance Sheet Management income was higher than in the comparative period, notably in mainland China and Singapore. In the former, this was driven by profit opportunities in the interbank market and the widening of onshore US dollar lending spreads. In Singapore, results reflected the higher return from short-term lending and balance sheet growth.
Net fee income rose by 11%. Trade-related fees and fees arising on Payments and Cash Management increased in CMB and GB&M, reflecting higher trade and transaction volumes in the region. Securities Services fee income increased, as equity market performance drove higher volumes and growth in assets under custody. Fee income in RBWM also rose as a result of the increased demand for investment products, notably in unit trusts, reflecting successful sales activity, improved investor sentiment and the expansion of the structured products business in mainland China.
Net trading income increased by 4%, primarily from higher Foreign Exchange trading revenues. This was most notable in mainland China, Taiwan and India as the increased market volatility led to higher client volumes and wider spreads.
Net income from financial instruments designated at fair value increased by US$7m due to higher valuation gains on assets held by the insurance business, primarily in Singapore. To the extent that these higher investment gains were attributed to policyholders, there was a corresponding increase in 'Net insurance claims incurred and movement in liabilities to policyholders'.
Losses from financial investments were US$22m compared with gains of US$41m in the first half of 2010, due to losses on disposals of debt securities, notably government bonds, coupled with an impairment loss on an equity investment in 2011.
Net earned insurance premiums increased by 57% to US$340m, largely due to higher sales of insurance products in the region, most notably in Singapore and Malaysia. This was driven by successful sales initiatives and increased demand for wealth products as economic conditions improved strongly. The growth in the insurance business resulted in a related increase in Net insurance claims incurred and movement in liabilities to policyholders.
Other operating income increased by 4% to US$752m, including a favourable movement due to the refinement of the calculation of the PVIF asset during the period (see footnote 27 on page 81) and higher life insurance sales in the region.
Loan impairment charges and other credit risk provisionsdecreased by 36% to US$100m as credit conditions throughout the region continued to improve. Loan impairment charges fell in RBWM, particularly in India, as certain unsecured lending portfolios were managed down. We remained cautious on the outlook for credit and sustained our focus on maintaining high levels of underwriting and asset quality.
Operating expenses increased by 10% as volumes grew due to the continued strong economic growth in the region. We hired more sales staff to support our continued business expansion in our key strategic markets and average wages rose, reflecting the increased demand for talent in the region.
Share of profit from associates and joint ventures increased by 21%. A higher contribution from Bank of Communications was driven by strong loan growth, an improvement in spreads and an increase in fee-based revenue streams. Income from Industrial Bank similarly rose as a result of loan growth, while strong sales growth in insurance, banking and wealth management business drove an increased contribution from Ping An.
Profit before tax and balance sheet data - Rest of Asia-Pacific
Half-year to 30 June 2011 | |||||||||||||
Retail Bankingand Wealth Management US$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 before tax | |||||||||||||
Net interest income ........... | 891 | 580 | 900 | 58 | 59 | (107) | 2,381 | ||||||
Net fee income .................. | 463 | 259 | 359 | 32 | 4 | - | 1,117 | ||||||
Trading income/(expense) excluding net interestincome .......................... | 50 | 75 | 583 | 30 | (29) | - | 709 | ||||||
Net interest income/(expense)on trading activities ....... | - | - | 51 | - | (5) | 107 | 153 | ||||||
Net trading income/(expense)45 ..................... | 50 | 75 | 634 | 30 | (34) | 107 | 862 | ||||||
Net income/(expense) from financial instruments designated at fair value ... | 7 | 2 | 1 | - | (7) | - | 3 | ||||||
Gains less losses fromfinancial investments ..... | - | 1 | (23) | 1 | (1) | - | (22) | ||||||
Dividend income ................ | - | - | 1 | - | - | - | 1 | ||||||
Net earned insurancepremiums ....................... | 225 | 115 | - | - | - | - | 340 | ||||||
Other operating income ..... | 71 | 33 | 35 | 1 | 877 | (85) | 932 | ||||||
Total operating income .. | 1,707 | 1,065 | 1,907 | 122 | 898 | (85) | 5,614 | ||||||
Net insurance claims53 ........ | (173) | (94) | - | - | 1 | - | (266) | ||||||
Net operating income41 .. | 1,534 | 971 | 1,907 | 122 | 899 | (85) | 5,348 | ||||||
Loan impairment (charges)/ recoveries and other creditrisk provisions ............... | (112) | 7 | 4 | 2 | (1) | - | (100) | ||||||
Net operating income .... | 1,422 | 978 | 1,911 | 124 | 898 | (85) | 5,248 | ||||||
Operating expenses ............ | (1,188) | (458) | (626) | (75) | (574) | 85 | (2,836) | ||||||
Operating profit ............. | 234 | 520 | 1,285 | 49 | 324 | - | 2,412 | ||||||
Share of profit in associatesand joint ventures .......... | 532 | 541 | 255 | - | 2 | - | 1,330 | ||||||
Profit before tax ............. | 766 | 1,061 | 1,540 | 49 | 326 | - | 3,742 | ||||||
% | % | % | % | % | % | ||||||||
Share of HSBC's profitbefore tax ...................... | 6.7 | 9.2 | 13.4 | 0.4 | 2.8 | 32.6 | |||||||
Cost efficiency ratio .......... | 77.4 | 47.2 | 32.8 | 61.5 | 63.8 | 53.0 | |||||||
Balance sheet data39 | |||||||||||||
US$m | US$m | US$m | US$m | US$m | US$m | ||||||||
Loans and advances tocustomers (net) .............. | 41,707 | 36,128 | 39,569 | 3,846 | 179 | 121,429 | |||||||
Total assets ....................... | 54,326 | 47,028 | 181,947 | 12,802 | 15,215 | (12,728) | 298,590 | ||||||
Customer accounts ............. | 59,352 | 39,922 | 56,262 | 13,014 | 39 | 168,589 | |||||||
Profit before tax and balance sheet data - Rest of Asia-Pacific (continued)
Half-year to 30 June 2010 | |||||||||||||
Retail Bankingand Wealth Management16 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 before tax | |||||||||||||
Net interest income ........... | 754 | 431 | 662 | 40 | 30 | (95) | 1,822 | ||||||
Net fee income/(expense) .. | 399 | 204 | 306 | 30 | (5) | - | 934 | ||||||
Trading income/(expense) excluding net interestincome ........................... | 36 | 61 | 462 | 35 | (8) | - | 586 | ||||||
Net interest income on trading activities ............. | - | - | 98 | - | 1 | 95 | 194 | ||||||
Net trading income/(expense)45 ..................... | 36 | 61 | 560 | 35 | (7) | 95 | 780 | ||||||
Net income/(expense) from financial instruments designated at fair value ... | 2 | 1 | - | - | (5) | - | (2) | ||||||
Gains less losses fromfinancial investments ..... | - | 3 | 31 | 2 | 3 | - | 39 | ||||||
Dividend income ................ | - | - | 1 | - | - | - | 1 | ||||||
Net earned insurancepremiums ....................... | 172 | 26 | - | - | - | - | 198 | ||||||
Other operating income ..... | 53 | 53 | 19 | - | 826 | (74) | 877 | ||||||
Total operating income ..... | 1,416 | 779 | 1,579 | 107 | 842 | (74) | 4,649 | ||||||
Net insurance claims53 ........ | (133) | (18) | - | - | - | - | (151) | ||||||
Net operating income41 ...... | 1,283 | 761 | 1,579 | 107 | 842 | (74) | 4,498 | ||||||
Loan impairment (charges)/ recoveries and other creditrisk provisions ................ | (175) | 18 | 10 | - | - | - | (147) | ||||||
Net operating income ........ | 1,108 | 779 | 1,589 | 107 | 842 | (74) | 4,351 | ||||||
Operating expenses ............ | (1,028) | (376) | (533) | (64) | (490) | 74 | (2,417) | ||||||
Operating profit ................. | 80 | 403 | 1,056 | 43 | 352 | - | 1,934 | ||||||
Share of profit in associatesand joint ventures ........... | 444 | 354 | 202 | - | 51 | - | 1,051 | ||||||
Profit before tax ................ | 524 | 757 | 1,258 | 43 | 403 | - | 2,985 | ||||||
% | % | % | % | % | % | ||||||||
Share of HSBC's profitbefore tax ....................... | 4.7 | 6.8 | 11.3 | 0.4 | 3.6 | 26.9 | |||||||
Cost efficiency ratio .......... | 80.1 | 49.4 | 33.8 | 59.8 | 58.2 | 53.7 | |||||||
Balance sheet data39 | |||||||||||||
US$m | US$m | US$m | US$m | US$m | US$m | ||||||||
Loans and advances tocustomers (net) .............. | 31,317 | 26,284 | 30,718 | 3,181 | 172 | 91,672 | |||||||
Total assets ........................ | 42,334 | 34,810 | 153,639 | 12,013 | 10,393 | (8,565) | 244,624 | ||||||
Customer accounts ............. | 48,890 | 31,046 | 46,089 | 12,262 | 32 | 138,319 | |||||||
Half-year to 31 December 2010 | |||||||||||||
Retail Banking and Wealth Management16 US$m | Commercial Banking US$m | Global Banking and Markets16 US$m | Global Private Banking US$m | Other US$m | Inter- segment elimination52 US$m | Total US$m | |||||||
Profit before tax | |||||||||||||
Net interest income ............. | 827 | 507 | 773 | 51 | 25 | (177) | 2,006 | ||||||
Net fee income/(expense) .... | 435 | 238 | 305 | 25 | (5) | - | 998 | ||||||
Trading income/(expense) excluding net interestincome ............................ | 44 | 68 | 505 | 34 | (30) | - | 621 | ||||||
Net interest income/(expense)on trading activities ......... | - | - | 40 | - | - | 177 | 217 | ||||||
Net trading income/(expense)45 ...................... | 44 | 68 | 545 | 34 | (30) | 177 | 838 | ||||||
Net income/(expense) from financial instruments designated at fair value ..... | 39 | 1 | (1) | - | (13) | - | 26 | ||||||
Gains less losses on financialinvestments ..................... | - | - | 20 | (2) | 89 | - | 107 | ||||||
Dividend income ................. | - | - | - | - | - | - | - | ||||||
Net earned insurancepremiums ......................... | 214 | 36 | - | - | - | - | 250 | ||||||
Other operating income ...... | 56 | 33 | 36 | 1 | 673 | (78) | 721 | ||||||
Total operating income ....... | 1,615 | 883 | 1,678 | 109 | 739 | (78) | 4,946 | ||||||
Net insurance claims53 ......... | (191) | (21) | - | - | - | - | (212) | ||||||
Net operating income41 ....... | 1,424 | 862 | 1,678 | 109 | 739 | (78) | 4,734 | ||||||
Loan impairment charges and other credit risk provisions ......................................... | (123) | (37) | (132) | - | - | - | (292) | ||||||
Net operating income .......... | 1,301 | 825 | 1,546 | 109 | 739 | (78) | 4,442 | ||||||
Operating expenses ............. | (1,205) | (423) | (561) | (71) | (544) | 78 | (2,726) | ||||||
Operating profit .................. | 96 | 402 | 985 | 38 | 195 | - | 1,716 | ||||||
Share of profit in associatesand joint ventures ............ | 542 | 397 | 245 | - | 17 | - | 1,201 | ||||||
Profit before tax ................. | 638 | 799 | 1,230 | 38 | 212 | - | 2,917 | ||||||
% | % | % | % | % | % | ||||||||
Share of HSBC's profitbefore tax ........................ | 8.0 | 10.1 | 15.5 | 0.5 | 2.7 | 36.8 | |||||||
Cost efficiency ratio ............ | 84.6 | 49.1 | 33.4 | 65.1 | 73.6 | 57.6 | |||||||
Balance sheet data39 | |||||||||||||
US$m | US$m | US$m | US$m | US$m | US$m | ||||||||
Loans and advances tocustomers (net) ................ | 37,831 | 31,423 | 35,810 | 3,489 | 178 | 108,731 | |||||||
Total assets ......................... | 49,758 | 41,588 | 166,710 | 12,126 | 19,450 | (11,570) | 278,062 | ||||||
Customer accounts .............. | 54,741 | 36,943 | 53,752 | 12,620 | 99 | 158,155 | |||||||
For footnotes, see page 81.
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