HSBC 2004 Annual Report Download - page 90

HSBC HOLDINGS PLC
Financial Review (continued)
88
The commentaries that follow are based on
constant exchange rates.
In Personal Financial Services pre-tax profit,
before goodwill amortisation, of US$158 million,
increased by 25 per cent compared with 2002 and
was broadly double that achieved in 2001.
Net interest income grew by 15 per cent
compared with 2002, reflecting strong asset growth
in a number of countries across the region. The
impact on deposit taking business of lower margins
in generally low interest rate environments was more
than offset by increased customer deposits and the
growth in mortgage lending. The latter increased by
38 per cent mainly due to growth in Korea,
Singapore, Malaysia and India. Net interest income
also benefited from the acquisition of the mortgage
business of AMP Bank Limited in New Zealand in
the first half of 2003. Strong growth in card balances
contributed to a 34 per cent increase in net interest
income in Indonesia.
Other operating income grew by 20 per cent to
US$314 million. The acquisition of Keppel
Insurance, which was renamed HSBC Insurance
(Singapore) Pte Ltd, contributed US$17 million to
this increase during the year. HSBC continued to
expand its wealth management initiatives and a
number of structured deposit products were launched
across the region. Wealth management income grew
by 10 per cent, reflecting strong growth in unit trust
sales and funds under management, particularly in
Taiwan, Korea, Indonesia and India, while fee
income from credit cards rose in a number of
markets across the region. At 31 December 2003, the
bank’s card base in Asia, outside Hong Kong,
exceeded 3.7 million, 20 per cent higher than at the
end of 2002. An enhanced credit card processing
system was implemented in five countries in the
region, applying state-of-the-art technology to risk
and fraud management.
Operating expenses, excluding goodwill
amortisation, of US$804 million were 16 per cent
higher than in 2002. This reflected increased costs to
support business expansion and provisions for
restructuring costs of US$34 million. The acquisition
of HSBC Insurance (Singapore) Pte Ltd in the year
accounted for US$6 million of the increase.
Provisions for bad and doubtful debts were
38 per cent higher than in 2002. Provisions against
personal lending increased in Singapore, India,
Korea and Australia in line with growth in advances.
Commercial Banking reported pre-tax profits,
before goodwill amortisation, of US$450 million, an
increase of 4 per cent, compared with 2002.
Net interest income was in line with 2002. There
were lower margins in most countries across the
region, in particular Malaysia, Indonesia and
Singapore. Consolidation in the financial services
sector increased competition in Singapore, whilst
Indonesia was impacted by a lower interest rate
environment. In addition, Malaysia suffered lower
margins on lending. These effects were offset by
increased income in both the Middle East and
Australia. In the Middle East an intensive marketing
campaign led to an expansion in term lending in
addition to a growth in overdraft balances. Net
interest income in Australia was boosted by the full
year contribution from the acquisition of State Street
Bank’s trade finance portfolio in July 2002.
Other operating income rose by 10 per cent to
US$286 million. HSBC Bank Middle East reported a
strong performance despite a subdued first quarter as
a result of the war in Iraq. In addition, insurance
income in Singapore increased as a result of the
acquisition of Keppel Insurance, as detailed
previously.
Operating expenses increased by 3 per cent to
US$324 million, mainly due to restructuring costs in
India and Singapore and the impact of the
acquisition in Singapore.
Credit experience continued to be very good,
benefiting from ongoing success in recovering
historical troubled debt. The net release of provisions
increased 46 per cent to US$52 million in 2003 with
higher net releases of specific provisions in Malaysia
than last year. This was partly offset by an increase
in specific provisions in Indonesia.
Corporate, Investment Banking and Markets
reported pre-tax profit, before amortisation of
goodwill, of US$732 million, which was broadly in
line with 2002.
Net interest income fell by 7 per cent compared
with last year, with reductions in Singapore, and to a
lesser extent in the Middle East, as higher yielding
assets matured and the proceeds were reinvested at
lower rates. This was partly offset by an increase in
net interest income from corporate banking business
in India, Korea and mainland China.
Dealing profits increased, primarily in Taiwan,
Japan and Thailand, reflecting a broader product
offering, more customer-focused sales activity and
successful positioning to take advantage of
directional trends in the generally more volatile
market conditions. Higher fee income was generated
from brokerage and corporate finance transactions in
the Middle East.