HSBC 2007 Annual Report Download - page 53

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balance sheet growth, most notably in residential
property lending. Despite this growth, there was a
decline in profit before tax, due to competitive
pressures on margin and the time lag between
incurring costs on customer acquisition and earning
incremental revenue from future opportunities to
cross-sell.
In Turkey profit before tax declined by 2 per
cent, as revenue growth was offset by investment
costs. Organic development was furthered by the
opening of 37 new branches during the year,
bringing the total to 193, and a number of marketing
initiatives to build brand awareness. Balance sheet
and revenue growth accelerated as a result, as did
customer recruitment. Overall customer numbers
stood at 2.3 million at the end of 2006.
Net interest income increased by 5 per cent to
US$5.7 billion, substantially from balance sheet
growth throughout the region.
In the UK, net interest income was driven by
growth in savings, deposit and current accounts, with
higher balances achieved through targeted sales and
marketing efforts. Interest income from credit cards
and mortgages also increased.
A focus on liabilities helped boost new UK
savings account volumes markedly in a buoyant yet
highly competitive savings market. HSBC’s
competitive internet-based products were the key
driver of growth. Cash invested in First Direct’s
‘e-savings’ product trebled; balances in HSBC’s
‘Online Saver’ increased sixfold. Overall, average
savings balances, excluding money market
investments, increased by 28 per cent and net
interest income rose by 25 per cent.
Current account balances in the UK increased
by 6 per cent to US$26.0 billion. Within this, the
proportion of value-added packaged current accounts
attracting fees rose significantly. The number of
HSBC’s fee-based accounts more than doubled
during 2006. In aggregate, packaged current account
balances increased by 25 per cent and represented
nearly half of the overall increase in current
accounts. Spreads remained broadly in line with
2005.
Average UK credit card balances rose by 5 per
cent, to US$13.7 billion, driven by promotional
campaigns and marketing. Growth was strongest in
M&S branded cards, which represented 4 percentage
points of the increase, driven by an increased sales
focus which included extensive media advertising.
This was partly offset by declining balances within
the store cards business and the cards business of
HFC Bank Ltd (‘HFC’), reflecting HSBC’s more
restricted credit appetite. Spreads increased modestly
compared with 2005.
Average UK mortgage balances rose by
11 per cent to US$68.9 billion, primarily in fixed
rate mortgages. Growth was achieved through
competitive pricing and targeted marketing
strategies, including the launch of new fixed,
discount and tracker-rate mortgages during the year.
A slight narrowing of spreads reflected a change in
mix away from variable rate mortgages to fixed rate
mortgages, and the competitive positioning referred
to above.
Average unsecured lending balances in the UK
declined by 4 per cent, reflecting HSBC’s decision
to contain growth through stricter underwriting
criteria. Spreads narrowed, following the
introduction in 2005 of preferential pricing for
lower-risk customers, and a change in mix towards
higher-value but lower-yielding loans.
In France, net interest income fell by 8 per cent.
Spreads narrowed as older higher-yielding
investments matured, while competitive pricing
reduced lending yields, particularly in the residential
mortgage market. These pressures on margin were
only partially offset by strong balance sheet growth.
Marketing campaigns building on the ‘HSBC
France’ brand aided strong sales and customer
recruitment, most notably in residential property
lending and current accounts and also increased
future cross-selling opportunities.
In Turkey, net interest income rose by 14 per
cent. Lending grew strongly, substantially funded by
deposit growth. Overall, deposit balances rose by
over 50 per cent, largely driven by customer
recruitment aided by the branch network expansion
referred to above. Spreads widened following
increases in overnight interest rates and the value of
funds rose as a consequence. Marketing initiatives
and cross-sales with credit card customers helped
more than double average unsecured lending
balances. Mortgage lending was also strong, with a
60 per cent increase in balances. Credit card
balances rose by 22 per cent, with growth dampened
by credit calming measures imposed by government
regulation.
Net fee income increased by 8 per cent to
US$2.5 billion. In the UK, rising sales of fee-earning
packaged current accounts, travel money and
investment products drove fee growth. Fees from
unsecured lending also rose. These benefits were
partly offset by lower creditor protection income,
reflecting the steps taken by HSBC to constrain
lending growth. Reduced loan sales and smaller
average loans (the result of this initiative) led to both