HSBC 2008 Annual Report Download - page 136

HSBC HOLDINGS PLC
Report of the Directors: Operating and Financial Review (continued)
Geographical regions > Latin America > 2007 / Profit/(loss) before tax by customer group
134
Net interest income increased by 17 per cent.
Growth was strong across the region, with net interest
income rising by 22 per cent and 11 per cent in
Mexico and Brazil, respectively.
In Mexico, net interest income rose despite a fall
in balance sheet management revenues due to growth
in both assets and liabilities. In particular, credit card
balances increased, driven by marketing and portfolio
management initiatives designed to improve
customer retention and card usage. Volume growth
was achieved in mortgages, commercial real estate
lending, trade and factoring. Customer relationship
management campaigns resulted in new customer
acquisitions and increased cross-selling. Net interest
income in Brazil increased as the sound economic
outlook and falling interest rates resulted in strong
demand for credit.
Fee income rose by 20 per cent, primarily driven
by robust business growth across the region. In
Mexico, the use of debit and credit cards grew, in
part because of the growing ATM network and the
number of cards in force, which drove commissions
from ATM cash withdrawals and point of sale billing.
Stricter guidelines on the imposition of late payment
fees also led to higher income.
A strategy to migrate more transactions to
internet-based services resulted in higher payment
and cash management transactions as the number of
active customers rose.
Current account income increased as a result of a
re-pricing exercise and a rise in volumes. Fees from
loans and funds under management also grew on
higher volumes. Strong growth in customer accounts
delivered higher transactional fees and the continuing
success of the Tu Cuenta product in Mexico led to
increased take-up with higher product fees charged to
customers.
Net income from trading activities decreased
by 4 per cent, mainly due to reduced trading
opportunities in Credit and Rates. This was partly
offset by income growth from foreign exchange
trading, driven by continuing market volatility.
Net gains from financial investments rose
significantly following a gain on sale of shares held
in a credit bureau, a stock exchange and a derivatives
exchange in Brazil.
The continued growth of insurance operations in
the region, achieved by increasing HSBC’s product
offerings and expanding its distribution channels,
along with targeted sales initiatives, led to higher net
insurance claims incurred and movements in
liabilities to policyholders.
A 97 per cent increase in other operating income
reflected the recognition of the embedded value
calculation on the PVIF life assurance business in
Mexico. The improvement on 2006 was also aided by
the non-recurrence of a loss on sale of a portfolio of
assets during that year and sundry gains on foreclosed
assets in 2007.
Loan impairment charges rose sharply, by 53 per
cent to US$1.7 billion, mainly driven by portfolio
growth, normal seasoning and higher delinquency
rates on credit cards in Mexico, following a targeted
expansion in market share. Loan impairment charges
for small and medium-sized businesses lending and
delinquencies on loans to the self-employed also
increased in Mexico. Partly offsetting these
developments was an improvement in personal and
commercial delinquency rates in Brazil.
Continuing investment and business expansion
resulted in an increase in operating expenses of
15 per cent. This compared favourably with growth
in net operating income before loan impairment
charges of 20 per cent. Staff costs rose, primarily on
higher salaries and bonuses in the region, driven by
the need to support business growth, union-agreed
pay rises and one-off costs incurred in Brazil to
improve operational efficiencies. These were partially
offset by a curtailment and settlement gain in Mexico
from staff transferring from the Group’s defined
benefit healthcare scheme to a new defined
contribution scheme.
Increases in non-staff costs included higher
marketing expenditure in support of growth in
credit card operations, continued investment in
infrastructure to support business growth and a rise
in telecommunication costs and transactional taxes.
Four additional months of Banca Nazionale expenses
also increased costs.