HSBC 2001 Annual Report Download - page 59

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57
interest rates depressed domestic activity and the
local property market and, with loan demand
remaining sluggish, there was intense competition in
the residential mortgage sector leading to exceptional
levels of remortgaging.
Hong Kong operations contributed US$3,691
million to HSBC’s profit before tax. On a cash basis,
Hong Kong operations contributed US$3,692 million
to HSBC’s cash basis profit before tax, an increase of
21 per cent compared with 1999, and represented 36
per cent of HSBC’s cash basis profit before tax.
Net interest income increased by US$262
million, or 7 per cent, to US$3,997 million, which
primarily reflected the placement of increased
customer deposits.
Driven by continued growth in customer
deposits, there were increases in most categories of
average interest-earning assets particularly debt
securities and other liquid assets. For the bank in
Hong Kong, average advances to customers fell by 4
per cent due to a reduction in residential mortgages
as a result of intense price competition and also due
to muted demand for corporate loans. Hang Seng
Bank achieved growth of 7 per cent in average
customer advances, reflecting the success of its
efforts to increase corporate and personal lending.
The success of focused marketing initiatives by both
banks was reflected in strong growth in average card
balances which grew by 27 per cent in the bank in
Hong Kong and 14 per cent in Hang Seng Bank.
Average customer deposits in Hong Kong grew by 9
per cent in the bank in Hong Kong and 10 per cent in
Hang Seng Bank in 2000.
For the bank in Hong Kong, net interest margin
for 2000 remained unchanged at 2.47 per cent.
Spread narrowed by five basis points largely due to
the adverse effect of reduced mortgage spreads and
the increased commercial surplus which was placed
in lower yielding debt securities and money market
loans. These factors were partly offset by the positive
effect of a reduction in suspended interest, net of
releases and recoveries, which accounted for an
improvement of five basis points in spread, and
wider Hong Kong dollar time deposit spreads. Cash
incentive payments on new mortgage loans, which
amounted to US$14 million in 2000, an increase of
US$8 million compared to 1999, have been written
off as deductions from net interest income. The
contribution from net free funds increased by five
basis points as a result of both increased net free
funds and higher average interest rates.
In Hang Seng Bank, the net interest margin
reduced by 19 basis points compared with 1999 to
2.68 per cent. Spread narrowed by 17 basis points as
pressure on mortgage spreads and a fall in the
average advances-to-deposits ratio more than
outweighed the benefits of growth in lower cost
savings accounts, an improvement in the spreads
earned on time deposits, and the widening of the gap
between the Hong Kong best lending rate (‘BLR’ )
and interbank rates.
Continued price competition in the residential
mortgage market throughout the year resulted in a
reduction in the average yield of the residential
mortgage portfolio, excluding Government Home
Ownership Scheme loans and staff loans, in the bank
in Hong Kong to 27 basis points below BLR in 2000,
compared with 58 basis points above BLR in 1999
(before accounting for the effect of cash incentive
payments). Similarly the average yield on the
residential mortgage portfolio in Hang Seng Bank
was 26 basis points below BLR in 2000, compared
with 49 basis points above BLR in 1999. In
aggregate, US$171 million of income on the
mortgage product in 2000 was foregone as a result of
this repricing.
Other operating income increased by US$238
million, or 15 per cent. Within other operating
income, the success of initiatives to expand fee
generating services led to an increase in net fees and
commissions of US$204 million, or 21 per cent, over
1999. This included a marked increase in income
from wealth management initiatives. Total operating
income from the insurance businesses and
commissions on sale of retail investment funds and
on securities transactions executed for personal
customers increased by 32 per cent compared with
1999. Fees from credit facilities increased by US$43
million, or 40 per cent, to US$151 million with good
growth in both the bank in Hong Kong and in Hang
Seng Bank. Fee income from securities and
stockbroking increased by US$46 million, or 28 per
cent, to US$213 million largely as a result of the
buoyant Hong Kong stock market in the first part of
2000. Additionally, there was an increase of US$26
million, or 15 per cent, in fee income from cards as a
result of successful marketing initiatives which led to
a net increase in the card base in Hong Kong of 32
per cent during 2000. Dealing profits were US$18
million, or 9 per cent, higher than 1999, principally
attributable to the release of provisions against