HSBC 2009 Annual Report Download - page 140

HSBC HOLDINGS PLC
Report of the Directors: Operating and Financial Review (continued)
Geographical regions > Latin America > 2009
138
returned to growth during the second quarter of
the year, helped by a recovery in household
consumption and a broader stabilisation of external
demand and commodity prices. Starting the year at
unusually low levels, the unemployment rate
increased during the early months of 2009 relative to
the comparable period of 2008, before declining to
the historically low level of 6.8 per cent in December
2009. The annual CPI rate moderated from 5.9 per
cent in December 2008 to a level slightly below the
central banks’ targeted rate of 4.5 per cent at the
year end. Faced with this softening of economic
conditions and diminishing inflationary pressures,
the central bank of Brazil reduced the policy Selic
target rate by a cumulative 500 basis points during
the first seven months of 2009, placing the rate at
8.75 per cent at the end of the period.
In Argentina, economic activity was adversely
affected by the decline in external demand during
2009, with a very weak level of growth being
reported around the middle of the year. Industrial
production is reported to have risen by 0.4 per cent
during 2009. The improving global and regional
outlook during the second half of 2009 and a
recovery in commodity prices provided some relief
to the economy, enabling interest rates to ease.
Reconciliation of reported and underlying profit before tax
2009 compared with 2008
Latin America
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 .......... 6,458 – (783) 5,675 – (102) 5,573 (14) (2)
Net fee income ................. 2,167 – (291) 1,876 –
(147) 1,729 (20) (8)
Other income15 ................. 1,888 (71) (220) 1,597 – 125 1,722 (9) 8
Net operating income16 .. 10,513 (71) (1,294) 9,148 – (124) 9,024 (14) (1)
Loan impairment charges
and other credit risk
provisions .................... (2,492) – 294 (2,198) – (328) (2,526) (1) (15)
Net operating income .... 8,021 (71) (1,000) 6,950 – (452) 6,498 (19) (7)
Operating expenses .......... (5,990) – 709 (5,281) – (94) (5,375) 10 (2)
Operating profit ............. 2,031 (71) (291) 1,669 – (546) 1,123 (45) (33)
Income from associates ... 6 – (2) 4 – (3) 1 (83) (75)
Profit before tax ............. 2,037 (71) (293) 1,673 – (549) 1,124 (45) (33)
For footnotes, see page 149.
Review of business performance
HSBC’s operations in Latin America reported
pre-tax profits of US$1.1 billion, compared with
US$2.0 billion in 2008. On an underlying basis, pre-
tax profits decreased by 33 per cent, primarily
attributable to significantly higher loan impairment
charges in Personal Financial Services and
Commercial Banking and lower revenues in Personal
Financial Services. Global Banking and Markets’
performance improved driven by strong results in
trading and Balance Sheet Management.
2009 was a year of consolidating risk policies
and strongly emphasising cost control. Additional
capital was injected into Brazil and Mexico during
the fourth quarter of 2009, in line with the Group
strategy of focusing on emerging markets. In both
Panama and Argentina, strong results were achieved
in spite of the challenging economic environment.
However, performance in Honduras, Costa Rica and
El Salvador was significantly affected by higher loan
impairment charges and lower income. One HSBC
and Group systems were implemented in Chile and
the operations in Panama were fully integrated.
Net interest income remained broadly in line
with 2008 excluding the one-off interest income
which arose on recovery of transactional taxes on
insurance transactions in Brazil in 2008. Net interest
income decreased in Personal Financial Services as
average customer lending volumes declined,
primarily driven by actions taken to tighten credit
criteria and manage down existing higher risk
portfolios including credit cards, personal loans and
vehicle finance. The effect was partly offset by
higher income on increased lending to commercial
customers, primarily in Brazil. Repricing initiatives
taken during 2008 and early 2009 drove increased
spreads on lending products.