HSBC 2007 Annual Report Download - page 85

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Personal Financial Services reported a pre-tax
profit of US$477 million, 16 per cent lower than in
2005. Strong operating trends were masked by a
US$160 million rise in loan impairment charges in
Taiwan, which suffered from regulatory changes
introduced to address high levels of consumer
indebtedness. Pre-provision operating income
increased by 29 per cent, driven by balance sheet
growth, wider deposit spreads and increased fee
income. Income growth was supported by business
development activity which contributed to a 26 per
cent increase in operating costs. The cost efficiency
ratio improved by 1.3 percentage points.
The development of HSBC’s regional business
continued apace, and double digit profit growth
was achieved in 5 sites, namely the Middle East,
mainland China, Malaysia, Singapore and the
Philippines. Customer numbers increased by
1.5 million, or 21 per cent, to 8.9 million, through
strong growth in the credit card business, increased
marketing activity and expansion of the sales force.
36 new branches and 28 consumer loan centres were
opened in 13 countries, most notably Indonesia,
mainland China and the Middle East, and at the end
of 2006, HSBC had 396 branches in Rest of Asia-
Pacific region and 7.3 million cards in issue.
Net interest income increased by 24 per cent to
US$1.6 billion. Average asset and liability balances
grew strongly, while interest rate rises contributed to
a 31 basis point widening of deposit spreads. Asset
spreads were in line with 2005.
Average deposit balances rose by 16 per cent to
US$34.4 billion, principally due to growth in the
HSBC Premier customer base. Development of the
Premier business was supported by a concerted
customer acquisition campaign which included
regional and local advertising and the establishment
of new, dedicated Premier centres. Overall deposit
balance growth was especially strong in Singapore,
the Middle East and mainland China. In Singapore,
promotional campaigns, which included a deposit
product sale, contributed to a 23 per cent increase in
liability balances while, in the Middle East, HSBC
ran a deposit raising campaign with new product
launches, marketing and internal sales incentives,
leading to a 20 per cent rise in average deposit
balances. In mainland China, growth in HSBC
Premier, which accompanied the opening of 12 new
Premier sub-branches, contributed to higher deposit
balances.
Average loans and advances to customers rose
by 16 per cent, driven by higher credit card advances
and increased mortgage balances. Average card
balances increased by 22 per cent to US$3.1 billion,
reflecting higher cardholder spending and a 21 per
cent increase in cards in circulation. Over 2.5 million
cards were issued during 2006, with new products
launched in the Middle East, Sri Lanka and
Singapore. HSBC ran marketing and incentive
campaigns in a number of countries and card
balances rose substantially in Malaysia, the Middle
East, Indonesia, India and the Philippines.
Average mortgage balances increased by
13 per cent to US$18.9 billion, reflecting robust
growth in Singapore, Taiwan, India and Malaysia. In
Singapore, HSBC used targeted promotional rates to
build market share and this, together with increased
marketing activity, contributed to a 25 per cent
increase in mortgage balances. In Taiwan,
competitive pricing and customer retention initiatives
contributed to a rise in customer numbers and
resulted in a 22 per cent increase in average mortgage
balances. In India, mortgage balances rose by 27 per
cent, benefiting from increased marketing and direct
sales efforts, while in Malaysia, the successful
promotion of Homesmart, a flexible offset mortgage
product, enabled HSBC to increase average mortgage
balances by 10 per cent and widen spreads in a
highly competitive market.
Personal lending balances increased by
22 per cent, partly as a result of significant growth
in HSBC’s consumer finance business in India,
Australia and Indonesia. In Indonesia, HSBC opened
28 dedicated consumer finance outlets while, in
India, 25 new outlets were opened in branches. In
Australia, consumer finance was developed in
partnership with well known international retailers
such as IKEA and Bang & Olufsen, together with
established local retailers including Clive Peeters
and Bing Lee. HSBC signed a number of exclusive
supplier agreements with retailers and, as a result, the
number of retail distribution outlets grew to more
than 1,100, which enabled HSBC to increase its
market share. In Malaysia, the success of HSBC’s
instalment loan product, Anytime Money, which was
relaunched in 2005, contributed to a 93 per cent rise
in average personal lending balances. In the Middle
East, HSBC focused on promoting a select portfolio
of products following a product simplification
exercise instigated in the fourth quarter of 2005
which led to a 22 per cent rise in personal lending
balances. Investments in HSBC’s South Korean
operations had immediate results and personal
lending balances more than doubled.
Net fee income rose by 24 per cent to
US$524 million. Regional card fees were 30 per cent
higher, reflecting solid growth in cardholder
spending while, in Indonesia, higher card fee income
was a consequence of a rise in delinquencies.