HSBC 2001 Annual Report Download - page 62

HSBC HOLDINGS PLC
Financial Review (continued)
60
Hyderabad and Guangzhou. Over the past year,
HSBC has expanded its operations in Australia, the
Philippines, Egypt, Taiwan and Brunei through
acquisitions and opened some 13 new branches in
seven countries in the rest of the Asia-Pacific region.
The growth in other expenses (20 per cent, at
constant exchange rates) reflected acquisitions and
increased marketing expenditure promoting personal
banking products. In aggregate recent acquisitions
accounted for some US$31 million of the increase in
operating expenses.
The significant change in the net charge for
customer bad and doubtful debt provisions is
accounted for by the impact of the release of the
Asian special general provision in 2000. New
specific provisions reflected further provisioning on
existing non-performing loans in Indonesia due to
heightened current political and economic
uncertainties, and on an energy sector related
corporate exposure in India. Offsetting these items
were falls in the level of new specific provisions
required in Malaysia, mainland China and the
Middle East. Releases and recoveries were US$36
million higher than in 2000, mainly as a result of the
liquidation of security held against a loan to Olympia
and York.
This recovery helped boost the pre-tax profit of
HSBC’s operations in Singapore to US$270 million,
US$51 million, or 23 per cent, higher than 2000. Net
interest income was US$12 million higher than in
2000. This resulted from the combination of an
improved net interest margin as spreads on deposits
widened and surplus deposits were placed in higher-
earning investment securities together with a good
performance by treasury. Fee income was only
slightly lower than 2000 as fees from advisory
services and the sale of capital protected funds
partially offset the fall in stockbroking and credit
facilities income. Higher profits from bond trading
resulted in a 23 per cent increase in dealing profits.
Operating expenses reflecting higher performance
related bonus provisions, salary increments, the costs
of the voluntary severance scheme and increased
contributions to the central provident fund were
US$32 million higher.
In India, pre-tax profits were in line with those
earned in 2000. Dealing profits increased by US$19
million, or 49 per cent, as anticipated movements in
interest rates increased dealing profits from debt
securities and interest rate derivatives. Fee income
was 2 per cent higher as growth in credit card fees
offset falls in securities and stockbroking income
from subdued stock market activities. Operating
expenses were US$23 million higher, reflecting the
expansion of the development of the Group’s global
processing operations in Hyderabad together with
higher performance related staff costs. Costs in
respect of the former were largely offset by other
operating income received for these services. The
opening of two new branches, together with the
expansion of the processing centre in Hyderabad
resulted in an increased headcount of some 1,000
during the year. Bad and doubtful debt provisions
increased by US$12 million mainly due to exposure
to an energy sector related company. Advances to
customers grew by US$125 million, or 9 per cent,
with strong growth in personal lending and to the
commercial and industrial and public sectors.
In mainland China, HSBC’s operations returned
to profitability reporting pre-tax profit of US$33
million for 2001 compared with a loss of US$26
million in 2000. The receipt of previously suspended
interest resulted in a significant increase in net
interest income. Increased operating expenses
reflected increased headcount arising on business
expansion in personal financial services preparing for
opportunities which will arise as China’s banking
markets open post its accession to the World Trade
Organisation together with expansion of the global
processing centre in Guangzhou. Costs in respect of
the latter were largely offset by other operating
income received for these services. Business
expansion together with development of the
processing centre at Guangzhou resulted in an
increased headcount of some 500 during the year.
Consistent with the recovery of suspended interest
there was a net release in bad debt provisions for
2001 compared with a charge of US$24 million in
2000.
In Malaysia, HSBC Bank Malaysia reported
profits before tax of US$131 million, an increase of
US$15 million, 13 per cent higher than in 2000. This
was largely attributable to a lower level of provisions
for bad and doubtful debts.
Against a backdrop of subdued corporate loan
demand, intense price competition and reduced
lending margins net interest income of US$171
million was slightly lower than in 2000. However
HSBC Bank Malaysia exceeded targeted growth in
residential mortgages (up US$569 million, an
increase of 91 per cent) and in credit card loans (up
US$70 million and reflecting a 50 per cent increase