16th Aug 2013 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 primary associate, Bank of Communications. Outside mainland China, we conduct business in 18 countries and territories in the Rest of Asia-Pacific region, primarily through branches and subsidiaries of The Hongkong and Shanghai Banking Corporation Limited, with particularly strong coverage in Australia, India, Indonesia, Malaysia and Singapore. | |||||
Half-year to | |||||
30 Jun | 30 Jun | 31 Dec | |||
2013 | 2012 | 2012 | |||
US$m | US$m | US$m | |||
Net interest income .. | 2,653 | 2,718 | 2,673 | ||
Net fee income ......... | 1,084 | 1,078 | 1,005 | ||
Net trading income ... | 46 | 932 | 121 | ||
Other income ............ | 3,220 | 1,219 | 3,838 | ||
Net operating income22 ............... | 7,003 | 5,947 | 7,637 | ||
LICs55 ....................... | (152) | (298) | (138) | ||
Net operating income .................. | 6,851 | 5,649 | 7,499 | ||
Total operating expenses ................. | (2,749) | (2,865) | (2,941) | ||
Operating profit .... | 4,102 | 2,784 | 4,558 | ||
Income from associates56 | 955 | 1,588 | 1,518 | ||
| |||||
Profit before tax ..... | 5,057 | 4,372 | 6,076 | ||
Cost efficiency ratio . | 39.3% | 48.2% | 38.5% | ||
RoRWA49 ................. | 3.6% | 3.0% | 3.9% | ||
Period-end staff numbers .................. | 85,665 | 86,207 | 85,024 | ||
13%growth in CMB loans and advances(on a constant currency basis) | |||||
Issued the first offshore renminbi bondin Singapore | |||||
Best Cash Management Bank in Asia(Global Finance Magazine) | |||||
For footnotes, see page 100. | |||||
Economic background
The growth of the mainland China economy slowed unexpectedly to 7.7% in the first quarter of 2013 following its rebound to 7.9% in the fourth quarter of 2012, reflecting weak external demand. Growth continued to weaken into the second quarter to 7.5% year-on-year, as new orders slowed and inventory built up. Beijing's new policymakers showed an increasing preference for quality over quantity of growth and focused on reforms rather than stimuli to lay the foundation for sustainable growth over the medium term. A new package of measures was announced including fiscal reforms, financial reforms, deregulation and urbanisation. Inflation continued to ease in mainland China in the first half of 2013, with headline CPI averaging 2.4%, well below its 3.5% annual target.
Japan's economy expanded at an annualised rate of 4.1% in the first quarter of 2013. A weaker currency helped exporters and, after three consecutive quarters of negative growth, exports rose 16.1% in the first quarter and continued to recover into May. Robust domestic demand drove growth, and private consumption rose by 3.6% in the quarter. Public investment rose with construction orders up by 24.8% year-on-year in May 2013.
Singapore's GDP grew by a moderate 1.8% in the first quarter of 2013. Services surged, but manufacturing contracted following the slowdown in mainland China and lacklustre demand from the developed world. Annual inflation slowed to a three-year low thanks, in part, to curbs on car prices. In India, growth stabilised following reforms but, at an annual rate of 4.8% in the first quarter, it was low by historical standards. Soft domestic demand and low global commodity prices resulted in a fall in inflation which enabled the Reserve Bank of India to cut the key policy rate by 75bps to 7.25%.
Malaysia continued to enjoy robust domestic demand as long-term public projects kept employment and investments up, and imports surged. Indonesia grew at an annual pace of 6%. Faced with widening trade and budget deficits and a weakening currency, the government raised subsidised fuel prices and Bank Indonesia's reference rate rose by 25bps to 6.0%. The recovery in Vietnam remained sluggish. Australia's economy grew at a below-trend annual rate of 2.5% in the first quarter, as the mining investment boom began to fade and the pick-up in the rest of the economy was only gradual.
Profit/(loss) before tax by country within global businesses
Retail Bankingand Wealth Management US$m |
| Commercial Banking US$m | Global Banking and Markets US$m | Global Private Banking US$m | Other US$m | Total US$m | |||||
Half-year to 30 June 2013 | |||||||||||
Australia ............................................. | 51 | 45 | 108 | − | 29 | 233 | |||||
India ................................................... | (1) | 74 | 255 | 4 | 82 | 414 | |||||
Indonesia ............................................ | 18 | 46 | 63 | − | 14 | 141 | |||||
Mainland China .................................. | 106 | 763 | 423 | (2) | 1,645 | 2,935 | |||||
Industrial Bank ............................... | - | - | - | - | 1,089 | 1,089 | |||||
Ping An........................................... | - | - | - | - | 553 | 553 | |||||
Other associates .............................. | 124 | 681 | 142 | - | - | 947 | |||||
Other mainland China ..................... | (18) | 82 | 281 | (2) | 3 | 346 | |||||
Malaysia ............................................. | 78 | 60 | 149 | − | (13) | 274 | |||||
Singapore ........................................... | 78 | 60 | 147 | 39 | 37 | 361 | |||||
Taiwan ............................................... | (5) | 19 | 83 | − | 3 | 100 | |||||
Vietnam ............................................. | 106 | 13 | 29 | − | 3 | 151 | |||||
Other ................................................. | − | 147 | 271 | (1) | 31 | 448 | |||||
431 | 1,227 | 1,528 | 40 | 1,831 | 5,057 | ||||||
Half-year to 30 June 2012 | |||||||||||
Australia ............................................. | 51 | (34) | 80 | − | (6) | 91 | |||||
India ................................................... | 35 | 49 | 306 | 4 | 121 | 515 | |||||
Indonesia ............................................ | 19 | 59 | 91 | − | 6 | 175 | |||||
Mainland China .................................. | 500 | 853 | 633 | (2) | 38 | 2,022 | |||||
Industrial Bank ............................... | 32 | 135 | 138 | − | − | 305 | |||||
Ping An .......................................... | 392 | 31 | 24 | − | − | 447 | |||||
Other associates .............................. | 105 | 589 | 122 | − | − | 816 | |||||
Other mainland China ..................... | (29) | 98 | 349 | (2) | 38 | 454 | |||||
Malaysia ............................................. | 93 | 68 | 124 | − | 3 | 288 | |||||
Singapore ........................................... | 105 | 62 | 126 | 50 | (8) | 335 | |||||
Taiwan ............................................... | 38 | 29 | 77 | − | 2 | 146 | |||||
Vietnam ............................................. | 3 | 28 | 39 | − | 8 | 78 | |||||
Other ................................................. | 77 | 136 | 258 | 62 | 189 | 722 | |||||
921 | 1,250 | 1,734 | 114 | 353 | 4,372 | ||||||
Half-year to 31 December 2012 | |||||||||||
Australia ............................................. | 46 | 72 | 104 | - | (38) | 184 | |||||
India ................................................... | 6 | 40 | 191 | 3 | 54 | 294 | |||||
Indonesia ............................................ | 10 | 65 | 55 | - | 1 | 131 | |||||
Mainland China .................................. | 338 | 871 | 624 | (2) | 2,487 | 4,318 | |||||
Industrial Bank ............................... | 22 | 138 | 205 | - | - | 365 | |||||
Ping An .......................................... | 230 | 51 | 36 | - | 2,459 | 2,776 | |||||
Other associates .............................. | 109 | 604 | 126 | - | - | 839 | |||||
Other mainland China ..................... | (23) | 78 | 257 | (2) | 28 | 338 | |||||
Malaysia ............................................. | 90 | 63 | 118 | - | 5 | 276 | |||||
Singapore ........................................... | 96 | 77 | 170 | 47 | (57) | 333 | |||||
Taiwan ............................................... | 24 | 7 | 59 | - | (2) | 88 | |||||
Vietnam ............................................. | 6 | 17 | 18 | - | 1 | 42 | |||||
Other ................................................. | (20) | 140 | 252 | (3) | 41 | 410 | |||||
596 | 1,352 | 1,591 | 45 | 2,492 | 6,076 | ||||||
Review of performance
In Rest of Asia-Pacific, reported profit before tax was US$5.1bn compared with US$4.4bn in the first half of 2012. On a constant currency basis, profit before tax increased by US$708m.
The increase in reported profits was mainly due to an accounting gain of US$1.1bn on the reclassification of Industrial Bank as a financial investment following its issue of share capital to third parties. This was partly offset by a reduction in share of profit from associates due to the disposal of our shareholding in Ping An in December 2012 and the reclassification of Industrial Bank.
On an underlying basis, profit before tax increased by 18% due to the net gain of US$553m on the sale of our investment in Ping An. Excluding this, profit before tax was broadly unchanged as lower revenue was offset by reduced loan impairment charges and increased income from associates.
We continued to invest in our priority markets, expanding our branch network in mainland China where, at the half year, we had 148 HSBC outlets, 21 HSBC rural bank outlets and 46 Hang Seng Bank outlets. We were appointed adviser on the largest M&A transaction in India and issued the first offshore RMB bond in Singapore. In line with our strategy, we completed the disposals of non-core insurance businesses in Vietnam, South Korea and Taiwan as well as our investment in Ping An.
The following commentary is on a constant currency basis.
Net interest income reduced by US$50m, notably in mainland China where the central bank eased liquidity measures and cut rates in 2012 which reduced revenues in Balance Sheet Management.
Average residential mortgage balances in RBWM grew, primarily in mainland China and Australia, as we focused on secured lending supported by marketing campaigns, and in Singapore, reflecting lending growth in 2012. Term and trade-related lending in CMB rose, notably in mainland China and Singapore, from continued client demand as interest rates remained low. Increased average loan balances were broadly offset by lending spread compression, reflecting competitive pressures and increased liquidity.
We grew average deposit balances in both Payments and Cash Management and RBWM, though the benefit of this growth was broadly offset by narrower liability spreads in many countries following central bank interest rate cuts and increased liquidity.
Net fee income rose by US$28m, primarily in GB&M from increased activity in bond sales, corporate finance and equity underwriting in Singapore. This was partly offset by reductions in RBWM, notably in India from lower Wealth Management sales as we reviewed our product offerings.
Net trading income was US$867m lower, driven by adverse fair value movements on the Ping An contingent forward sale contract of US$682m.In addition to this, Rates and Foreign Exchange revenues decreased in a number of countries following strong performances in the first half of 2012. This was partly offset by a favourable DVA (see page 28).
Gains less losses from financial investments were US$1.2bn higher, due to the gain on disposal of our investment in Ping An of US$1.2bn, which was partly offset by the adverse fair value movement of US$682m on the contingent forward sale contract included in Net trading income, as noted above, leading to a net gain of US$553m.
Other operating income rose by US$1.1bn, reflecting an accounting gain of US$1.1bn on the reclassification of Industrial Bank as a financial investment following its issue of additional share capital to third parties. We also recorded a gain on the disposal of our investment in Bao Viet of US$104m. In the first half of 2012, we recorded gains totalling US$305m on the disposals of the RBWM business in Thailand, the GPB business in Japan and our interest in a property company in the Philippines.
LICsdecreased by US$143m, as a result of a large individually assessed impairment of a corporate exposure in Australia and a credit risk provision on an available-for-sale debt security in GB&M in the first half of 2012.
Operating expenses decreased by US$68m in the first half of 2013 from lower restructuring and other related costs, including termination benefits, than were incurred in the comparable period in 2012, lower performance related costs in GB&M and the partial write back of a litigation provision. These were partly offset by a further US$72m write down of Hana HSBC Life Insurance made earlier in the year which was partly recovered through a gain on its disposal, recorded in Other operating income.
Share of profit from associates and joint ventures reduced by US$647m following the disposal of Ping An and the reclassification of Industrial Bank as a financial investment. Excluding these factors, income from associates increased primarily in BoCom as a result of balance sheet growth and increased fee income, partly offset by higher operating expenses and a rise in loan impairment charges.
Profit before tax and balance sheet data - Rest of Asia-Pacific
Half-year to 30 June 2013 | |||||||||||||
Retail Bankingand Wealth Management US$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 ........... | 861 | 676 | 975 | 43 | 83 | 15 | 2,653 | ||||||
Net fee income/(expense) .. | 388 | 285 | 383 | 36 | (8) | − | 1,084 | ||||||
Trading income/(expense) excluding net interestincome ........................... | 52 | 101 | 436 | 25 | (696) | − | (82) | ||||||
Net interest income/(expense)on trading activities ....... | (12) | (4) | 161 | − | (2) | (15) | 128 | ||||||
Net trading income/(expense)57 .................... | 40 | 97 | 597 | 25 | (698) | (15) | 46 | ||||||
Changes in fair value oflong-term debt issuedand related derivatives .... | − | − | − | − | 1 | − | 1 | ||||||
Net income/(expense) fromother financial instruments designated at fair value ........................ | (4) | − | − | − | 1 | − | (3) | ||||||
Net income/(expense) from financial instruments designated at fair value ... | (4) | − | − | − | 2 | − | (2) | ||||||
Gains less losses fromfinancial investments ..... | 1 | − | 1 | − | 1,206 | − | 1,208 | ||||||
Dividend income ................ | − | − | 1 | − | − | − | 1 | ||||||
Net earned insurancepremiums ....................... | 323 | 80 | − | − | 1 | − | 404 | ||||||
Other operating income ..... | 127 | − | 44 | 1 | 1,836 | (85) | 1,923 | ||||||
Total operating income .. | 1,736 | 1,138 | 2,001 | 105 | 2,422 | (85) | 7,317 | ||||||
Net insurance claims63 ....... | (258) | (56) | − | − | − | − | (314) | ||||||
Net operating income22 .. | 1,478 | 1,082 | 2,001 | 105 | 2,422 | (85) | 7,003 | ||||||
Loan impairment charges and other credit risk provisions ...................... | (101) | (45) | (6) | − | − | − | (152) | ||||||
Net operating income .... | 1,377 | 1,037 | 1,995 | 105 | 2,422 | (85) | 6,851 | ||||||
Operating expenses ............ | (1,075) | (492) | (611) | (65) | (591) | 85 | (2,749) | ||||||
Operating profit ............. | 302 | 545 | 1,384 | 40 | 1,831 | − | 4,102 | ||||||
Share of profit in associatesand joint ventures .......... | 129 | 682 | 144 | − | − | − | 955 | ||||||
Profit before tax ............. | 431 | 1,227 | 1,528 | 40 | 1,831 | − | 5,057 | ||||||
% | % | % | % | % | % | ||||||||
Share of HSBC's profitbefore tax ...................... | 3.1 | 8.7 | 10.9 | 0.3 | 12.9 | 35.9 | |||||||
Cost efficiency ratio .......... | 72.7 | 45.5 | 30.5 | 61.9 | 24.4 | 39.3 | |||||||
Balance sheet data53 | |||||||||||||
US$m | US$m | US$m | US$m | US$m | US$m | ||||||||
Loans and advances tocustomers (net) .............. | 45,213 | 48,352 | 42,312 | 3,271 | 185 | 139,333 | |||||||
Total assets ....................... | 53,332 | 62,023 | 187,365 | 11,102 | 20,858 | (9,409) | 325,271 | ||||||
Customer accounts ............. | 63,128 | 41,869 | 58,278 | 10,726 | 49 | 174,050 | |||||||
Profit before tax and balance sheet data - Rest of Asia-Pacific (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 ............. | 896 | 691 | 1,120 | 55 | 83 | (127) | 2,718 | ||||||
Net fee income/(expense) .... | 429 | 264 | 351 | 37 | (3) | - | 1,078 | ||||||
Trading income/(expense) excluding net interestincome ............................ | 43 | 98 | 648 | 35 | (30) | - | 794 | ||||||
Net interest income ontrading activities .............. | - | - | 7 | - | 4 | 127 | 138 | ||||||
Net trading income/(expense)57 ...................... | 43 | 98 | 655 | 35 | (26) | 127 | 932 | ||||||
Changes in fair value oflong-term debt issuedand related derivatives ..... | - | - | - | - | (2) | - | (2) | ||||||
Net income/(expense) fromother financial instruments designated at fair value ..... | 41 | 1 | (2) | - | 26 | - | 66 | ||||||
Net income/(expense) from financial instruments designated at fair value ..... | 41 | 1 | (2) | - | 24 | - | 64 | ||||||
Gains less losses fromfinancial investments ....... | (1) | 1 | 1 | - | 24 | - | 25 | ||||||
Dividend income ................. | - | - | 1 | - | 3 | - | 4 | ||||||
Net earned insurancepremiums ......................... | 338 | 54 | - | - | - | - | 392 | ||||||
Other operating income ...... | 169 | 44 | 39 | 66 | 840 | (82) | 1,076 | ||||||
Total operating income ....... | 1,915 | 1,153 | 2,165 | 193 | 945 | (82) | 6,289 | ||||||
Net insurance claims63 ......... | (293) | (49) | - | - | - | - | (342) | ||||||
Net operating income22 ....... | 1,622 | 1,104 | 2,165 | 193 | 945 | (82) | 5,947 | ||||||
Loan impairment charges and other credit risk provisions | (102) | (131) | (65) | - | - | - | (298) | ||||||
Net operating income .......... | 1,520 | 973 | 2,100 | 193 | 945 | (82) | 5,649 | ||||||
Operating expenses ............. | (1,132) | (486) | (657) | (79) | (593) | 82 | (2,865) | ||||||
Operating profit .................. | 388 | 487 | 1,443 | 114 | 352 | - | 2,784 | ||||||
Share of profit in associatesand joint ventures ............ | 533 | 763 | 291 | - | 1 | - | 1,588 | ||||||
Profit before tax ................. | 921 | 1,250 | 1,734 | 114 | 353 | - | 4,372 | ||||||
% | % | % | % | % | % | ||||||||
Share of HSBC's profitbefore tax ........................ | 7.2 | 9.8 | 13.6 | 0.9 | 2.8 | 34.3 | |||||||
Cost efficiency ratio ............ | 69.8 | 44.0 | 30.3 | 40.9 | 62.8 | 48.2 | |||||||
Balance sheet data53 | |||||||||||||
US$m | US$m | US$m | US$m | US$m | US$m | ||||||||
Loans and advances tocustomers (net) ................ | 42,171 | 41,241 | 42,652 | 3,243 | 182 | 129,489 | |||||||
Total assets ......................... | 57,289 | 56,071 | 202,228 | 12,240 | 17,066 | (9,916) | 334,978 | ||||||
Customer accounts .............. | 60,037 | 41,999 | 59,475 | 11,600 | 46 | 173,157 | |||||||
Half-year to 31 December 2012 | |||||||||||||
Retail Banking and Wealth Management US$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 ............. | 891 | 705 | 1,036 | 47 | 54 | (60) | 2,673 | ||||||
Net fee income/(expense) .... | 425 | 235 | 315 | 34 | (4) | - | 1,005 | ||||||
Trading income/(expense) excluding net interestincome ............................ | 53 | 90 | 354 | 32 | (562) | - | (33) | ||||||
Net interest income/(expense)on trading activities ......... | (6) | (3) | 93 | - | 10 | 60 | 154 | ||||||
Net trading income/(expense)57 ...................... | 47 | 87 | 447 | 32 | (552) | 60 | 121 | ||||||
Changes in fair value oflong-term debt issuedand related derivatives ..... | - | - | - | - | (2) | - | (2) | ||||||
Net income/(expense) fromother financial instruments designated at fair value ..... | 68 | - | (1) | - | (23) | - | 44 | ||||||
Net income/(expense) from financial instruments designated at fair value ..... | 68 | - | (1) | - | (25) | - | 42 | ||||||
Gains less losses on financialinvestments ..................... | - | 1 | (11) | - | 1 | - | (9) | ||||||
Dividend income ................. | - | - | - | - | 1 | - | 1 | ||||||
Net earned insurancepremiums ......................... | 231 | 189 | - | - | - | - | 420 | ||||||
Gain on disposal of Ping An | - | - | - | - | 3,012 | - | 3,012 | ||||||
Other operating income ...... | 42 | 20 | 43 | 2 | 731 | (90) | 748 | ||||||
Total operating income ....... | 1,704 | 1,237 | 1,829 | 115 | 3,218 | (90) | 8,013 | ||||||
Net insurance claims63 ......... | (230) | (146) | - | - | - | - | (376) | ||||||
Net operating income22 ....... | 1,474 | 1,091 | 1,829 | 115 | 3,218 | (90) | 7,637 | ||||||
Loan impairment (charges)/ recoveries and other creditrisk provisions ................. | (132) | (23) | 17 | - | - | - | (138) | ||||||
Net operating income .......... | 1,342 | 1,068 | 1,846 | 115 | 3,218 | (90) | 7,499 | ||||||
Operating expenses ............. | (1,106) | (507) | (622) | (70) | (726) | 90 | (2,941) | ||||||
Operating profit .................. | 236 | 561 | 1,224 | 45 | 2,492 | - | 4,558 | ||||||
Share of profit in associatesand joint ventures ............ | 360 | 791 | 367 | - | - | - | 1,518 | ||||||
Profit before tax ................. | 596 | 1,352 | 1,591 | 45 | 2,492 | - | 6,076 | ||||||
% | % | % | % | % | % | ||||||||
Share of HSBC's profitbefore tax ........................ | 7.5 | 17.1 | 20.1 | 0.6 | 31.5 | 76.8 | |||||||
Cost efficiency ratio ............ | 75.0 | 46.5 | 34.0 | 60.9 | 22.6 | 38.5 | |||||||
Balance sheet data53 | |||||||||||||
US$m | US$m | US$m | US$m | US$m | US$m | ||||||||
Loans and advances tocustomers (net) ................ | 46,027 | 43,968 | 44,721 | 3,238 | 165 | 138,119 | |||||||
Total assets ......................... | 55,509 | 59,123 | 201,774 | 12,142 | 24,534 | (10,813) | 342,269 | ||||||
Customer accounts .............. | 63,230 | 44,865 | 64,392 | 11,095 | 39 | 183,621 | |||||||
For footnotes, see page 100.
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