HSBC 2010 Annual Report Download - page 11

9
Overview Operating & Financial Review Governance Financial Statements Shareholder Information
rates in many Western markets will continue to
significantly underperform those of the emerging
world. Emerging markets are no longer simply
leading the recovery from a Western crisis; the
growth gap has become a sustained secular trend.
The global economy’s structural position also
requires fundamental readjustment. Many Western
economies must still deal with a large overhang of
household and government debt and weak growth
and high unemployment will make this a slow and
painful process. As faster-growing nations seek to
limit the effect of Western monetary policy on their
own economies, we cannot discount the risk of
increased tension over exchange rate and trade
issues.
HSBC’s balance sheet remains strongly
positioned to benefit from future interest rate rises.
We are realistic that, in many developed countries at
least, historically low rates may continue to constrain
income growth in the near-term. Nevertheless,
maintaining a conservative liquidity position is core
to our proposition and to our funding strength. In our
risk appetite statement approved by the Board we
have set a maximum advances-to-deposits ratio for
the Group of 90%. This underlines our continuing
commitment to a high level of liquidity and reflects
our philosophy that HSBC should not be reliant on
wholesale markets for funding. Even with a ratio
currently slightly below 80%, we have capacity for
further lending growth.
In the short term, we expect the benefits of asset
growth achieved in 2010 to continue to flow into
revenues. In the medium term, we will continue to
target growth in the most strategically attractive
markets for HSBC and build our capabilities in
connectivity, one of our distinctive strengths as a
globally-connected bank.
At the same time, with demand in many
developed markets constrained and interest spreads
remaining compressed, we fully recognise the
importance of ever more robust cost management
discipline and the need to continue re-engineering
the business to improve efficiency.
Furthermore, capital is becoming a scarcer
resource and, as a new regulatory environment
evolves, I am committed to making capital allocation
a more disciplined and rigorous process at HSBC in
order to drive the correct investment decisions for
the future.
We will talk more to investors about each of
these initiatives later in the spring. However, as a
result of this focus, we are committed to delivering a
cost efficiency ratio and a return on average
shareholders’ equity within our published target
range.
We also recognise the importance of reliable
dividend income for our shareholders and I believe it
should be possible to benchmark a payout ratio of
between 40-60% of attributable profits under normal
market conditions.
In closing, I would like to acknowledge the huge
contribution that my predecessor, Mike Geoghegan,
made to HSBC in his five years as Group Chief
Executive – not least during 2010 – and I wish him
well for the future.
Finally, I am pleased to report that we have had
a good start to the year, with continued momentum
in lending, mainly in emerging markets and in
respect of global trade.
S T Gulliver, Group Chief Executive
28 February 2011