HSBC 2007 Annual Report Download - page 87

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HSBC’s inaugural global Commercial Banking
advertising campaign, increased local marketing
activity and the realisation of business development
teams throughout the Asia-Pacific region contributed
to an 8 per cent increase in Commercial Banking
customer numbers to 177,000, with particularly
strong growth in Malaysia, mainland China and
India.
Net interest income rose by 33 per cent to
US$848 million. Higher customer numbers
contributed to increased average asset and liability
balances, while interest rate rises led to wider
liability spreads, partly offset by narrower asset
spreads.
Interest rate rises also contributed to higher
demand for deposit products and liability balances
increased in a number of countries, most notably the
Middle East, Singapore, Taiwan, Malaysia and India.
In the Middle East, HSBC successfully initiated a
targeted marketing campaign offering preferential
savings rates to selected customers while, in
Singapore and Taiwan, enhanced sales incentives
contributed to growth in liability balances. In
Malaysia, expansion of the branch network together
with fresh marketing campaigns, competitive pricing
and product enhancements increased customer
numbers and led to a 31 per cent rise in average
liability balances. In India, current account and
deposit balances increased by 40 per cent, partly
from liquidity chasing new IPOs, which surged in
line with strong local equity markets.
In 2006, HSBC successfully launched a number
of initiatives designed to increase asset balances
throughout the Rest of Asia-Pacific region to deploy
the additional deposit base being attracted. For
example, in Malaysia, television and press
advertising helped trigger a 31 per cent increase in
average non-trade lending balances. Trade and Save
marketing campaigns launched in Malaysia and India
in the wake of higher regional trade flows, offered
customer incentives designed to expand HSBC’s
market share in trade lending. Targeted incentive
programmes were also launched in Singapore, Sri
Lanka, mainland China, South Korea and Indonesia.
In the Middle East, strong demand for credit
underpinned by robust economic expansion resulted
in a 26 per cent rise in average lending balances.
Net fee income rose by 7 per cent to
US$330 million as volume-related increases in trade
fees were recorded in the Middle East and India.
HSBC in India also benefited from higher fees from
lending activities, reflecting growth in the number of
borrowing customers, while payments and cash
management fee income rose in the Middle East.
Trading income increased by 25 per cent. In the
Middle East, HSBC continued to invest in its
Commercial Banking treasury business to support
an increasingly international customer base. As
customer demands became more sophisticated,
15 new products were launched in 2006, while higher
marketing activity and the establishment of an online
e-trading platform also contributed to a rise in
customer trading volumes. Increased hedging activity
among Commercial Banking customers also led to
increased foreign exchange earnings in India and
Malaysia.
The transfer of the majority of HSBC’s Asian
card acquiring business into a joint venture with
Global Payments Inc. led to the recognition of a gain
of US$10 million in Commercial Banking, reported
in ‘Other operating income’.
Strong economic conditions supported a further
net release of loan impairment charges, which
decreased by 57 per cent compared with 2005.
Underlying credit quality remained strong.
Operating expenses increased by 21 per cent to
US$554 million in support of business expansion.
HSBC recruited additional sales and support staff,
increased its Commercial Banking presence in the
branch network and committed to higher marketing
activity in a number of countries, most notably the
Middle East, India and mainland China. Strong
revenue growth resulted in higher performance
payments and this, together with salary inflation,
added to rising staff costs. In South Korea, the
Commercial Banking business expansion proceeded
as planned, staff numbers more than doubled, and
HSBC incurred higher premises, equipment and
infrastructure costs as a consequence. In the Middle
East, increased business volumes necessitated
systems improvements which resulted in higher IT
costs.
Income from HSBC’s strategic investments in
associates increased by 47 per cent. Income from
Bank of Communications rose by 45 per cent as a
result of higher asset and liability balances, effective
credit control and improvements in the cost
efficiency ratio, while income from Industrial Bank
was 55 per cent higher. In the Middle East, net
releases of loan impairments, following net charges
in 2005, led to strong growth in Commercial Banking
income in The Saudi British Bank.
Global Banking and Markets delivered a
record pre-tax profit of US$1.6 billion, an increase of
35 per cent compared with 2005. Positive revenue
trends were reported across most countries, reflecting
continued growth in HSBC’s wholesale banking
businesses in emerging markets. The Middle East,