HSBC 2007 Annual Report Download - page 115

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Brazil from SMEs, Mexico from larger corporates.
In Personal Financial Services, profit before tax
increased by 12 per cent as strong growth in revenues
was partly offset by increased loan impairment
charges in Mexico. Profit before tax in Global
Banking and Markets increased as strong growth in
net fee and net interest income was partly offset by a
decrease in trading income and higher costs related to
business expansion.
Notwithstanding continuing investment and
integration costs throughout the region, the cost
efficiency ratio improved by 2.7 percentage points to
58.3 per cent.
The following commentary is on an underlying
basis.
Personal Financial Services reported pre-tax
profits of US$893 million, 3 per cent higher than in
2006, as strong growth in revenues across the region
was partly offset by increased loan impairment
charges arising from the seasoning of recent organic
business expansion, mainly in Mexico. Revenue rose
by 21 per cent, driven by higher credit card balances
in Mexico and an increased volume of personal and
vehicle finance loans in Brazil. Four additional
months of Banca Nazionale revenues in Argentina, a
one-off adjustment to insurance embedded value in
Mexico and gains from sales of financial investments
in Brazil, also helped boost income. Loan impairment
charges in Mexico rose significantly, driven by the
growth in the past two years of the credit card
portfolio and higher delinquencies in the self-
employed lending business. Operating expenses
increased by 12 per cent, mainly supporting
expansion in the region; despite this, the cost
efficiency ratio improved by 4.7 percentage points.
Net interest income rose by 15 per cent, as
steady asset and liability growth was recorded across
the region.
In Mexico, net interest income rose by 27 per
cent, driven by a strong performance in both asset
and liability products. Credit cards, an area in which
HSBC has worked to remedy its traditionally
underweight position in Mexico, reached a
market share of more than 10 per cent, up
3.5 percentage points compared with 2006. This
reflected HSBC’s efforts to organically grow this
portfolio. Growth was enhanced by marketing
promotions and portfolio management programmes
put in place to improve customer retention and card
usage.
Demand for housing remained strong and
mortgage lending continued to grow. HSBC’s
mortgage positioning is based on speed of service and
competitive rates supported by marketing campaigns.
HSBC Premier was relaunched in Mexico in 2007
and performed well, increasing cross-sales and
income during the year.
On the liabilities side of the balance sheet, both
term and demand deposits registered growth in line
with market conditions. Overall spreads on Mexican
peso-denominated accounts remained relatively
stable while spreads on accounts in US dollars
narrowed by 141 basis points.
In Brazil, net interest income increased by
7 per cent, as growth in private consumption fuelled
a rise in loan volumes. Average customer loans were
28 per cent higher than in 2006. Customer deposits
were 23 per cent higher, driven by a sales effort to
garner deposits and the favourable economic outlook.
Spreads on customer deposits narrowed by 23 basis
points.
The vehicle finance loan portfolio grew
significantly in the positive economic environment,
while spreads narrowed due to competitive pressures.
Net interest income on payroll loans grew as volumes
expanded. Demand for personal instalment loans also
continued to rise, driving net interest income higher
on wider spreads.
Net interest income rose by 35 per cent in
Argentina, as customer balances grew strongly and
four additional months of Banca Nazionale revenues
were included. Growth in customer lending reflected
expansion in personal loans, car loans and credit
cards, supported by cross-selling initiatives and an
active marketing campaign. Customer liabilities
increased mainly in demand and term deposit
products.
Net fee income was 19 per cent higher, primarily
from robust business growth across the region.
In Mexico, fee income grew by 35 per cent with
the rapidly growing credit card customer base and
continued sales of the Tu Cuenta packaged product
the main contributors. Cards in force increased by
35 per cent, ATM cash withdrawals by 54 per cent
and point of sale billing by 84 per cent during the
year, all positively affecting commission income.
Stricter guidelines on the imposition of late payment
fees also led to higher income. Fees from Tu Cuenta
rose strongly, following a 29 per cent growth in the
number of accounts. A 6 per cent growth in the ATM
network and increased customer activity led to a rise
in HSBC’s market share in interbank transactions of
more than 12 million transactions or 2 percentage
points to 38 per cent, resulting in higher interbank
fee income.