HSBC 2009 Annual Report Download - page 121

119
1998 (the last occasion on which growth trends
sharply reversed) policymakers in Saudi Arabia and
elsewhere were able to draw on reserves built up
during years of high oil earnings to maintain
spending, rather than boosting borrowing. With the
recovery in oil prices from mid-2009 onward, the
reserves allowed the region to weather the difficult
economic environment without experiencing
pressure on external balances or a downturn in the
dollar value of local currencies. Inflation also fell
across the region as growth slowed and import prices
fell, and policymakers were able to track the
exceptionally low level of interest rates in the US.
Reconciliation of reported and underlying profit before tax
2009 compared with 2008
Middle East27
2008
as
reported
US$m
2008
acquisitions
and
disposals10
US$m
Currency
translation11
US$m
2008
at 2009
exchange
rates12
US$m
2009
acquisitions
and
disposals10
US$m
Under-
lying
change
US$m
2009
as
reported
US$m
Re-
ported
change13
%
Under-
lying
change13
%
Net interest income .......... 1,556 – (7) 1,549 – (64) 1,485 (5) (4)
Net fee income ................. 691 – (4) 687 –
(62) 625 (10) (9)
Other income15 ................. 421 – (7) 414 – 70 484 15 17
Net operating income16 .. 2,668 – (18) 2,650 – (56) 2,594 (3) (2)
Loan impairment charges
and other credit risk
provisions .................... (279) – (1) (280) – (1,054) (1,334) (378) (376)
Net operating income .... 2,389 – (19) 2,370 – (1,110) 1,260 (47) (47)
Operating expenses .......... (959) – 11 (948) – (53) (1,001) (4) (6)
Operating profit ............. 1,430 – (8) 1,422 – (1,163) 259 (82) (82)
Income from associates ... 316 – 1 317 – (121) 196 (38) (38)
Profit before tax ............. 1,746 – (7) 1,739 – (1,284) 455 (74) (74)
For footnotes, see page 149.
Review of business performance
HSBC’s operations in the Middle East reported a
pre-tax profit of US$0.5 billion compared with
US$1.7 billion in 2008, a decrease of 74 per cent on
both reported and underlying bases. The decline in
profitability was largely due to the impact of the
global recession, which brought a sharp decline in
oil prices and a considerable reduction in capital
inflows in the second half of 2008, triggering a
regional economic downturn which continued
throughout 2009. The UAE was significantly
affected by declines in construction and global trade,
losses incurred by regional investors, and tight
liquidity and lower real-estate prices, which together
resulted in higher loan impairment charges as
the crisis affected both personal and corporate
customers. However, despite the severe deterioration
in credit conditions, the region remained profitable
due to Global Banking and Markets. In Personal
Financial Services, HSBC continued to focus on
Premier and affluent mass market customers,
growing its Premier customer base by 32 per cent
compared with 2008. HSBC further expanded its
presence in Egypt, opening 15 new branches in
2009.
Net interest income declined by 4 per cent,
driven by lower deposit and lending balances and
deposit spread compression across all customer
groups.
Commercial Banking lending balances fell as
trade levels declined. In Personal Financial Services,
average mortgages and credit card balances were
higher than in 2008, reflecting the deferred
drawdown of facilities approved in 2008. Unsecured
personal lending balances declined during the year
due to tighter origination criteria and a move towards
relationship lending. The shift in the composition of
personal lending portfolios, from unsecured to
secured lending, resulted in narrower asset spreads.
Customer deposit balances fell, mainly due to an
outflow of funds from corporate customers reflecting
tighter liquidity in the local markets. In Personal
Financial Services, liability balances rose due to the
combination of attractive rates offered and ongoing
marketing campaigns, although the higher rates
resulted in narrower deposit spreads.
Net fee income fell by 9 per cent, due to a
decline in custody, insurance and unit trust income
as investor sentiment weakened in the difficult