HSBC 2001 Annual Report Download - page 71

69
Bad and doubtful debts
Year ended 31 December
Figures in US$m 2001 2000 1999
Loans and advances to
customers
– specific charge
new provisions ..................... 440 302 194
releases and recoveries ......... (134 ) (100) (66)
306 202 128
– additional general charge
for Argentine exposure .... 600
–
–
–
general charge/(release)..... 34 25
Customer bad and doubtful
debt charge ...................... 940 204 133
Total bad and doubtful debt
charge .............................. 940 204 133
Customer bad debt charge as
a percentage of closing
gross loans and advances . 15.03% 2.75% 2.25%
Figures in US$m
At 31
December
2001
At 31
Decembe
r
2000
Assets
Loans and advances to customers (net)....... 5,180 6,849
Loans and advances to banks (net) ............. 2,367 3,362
Debt securities, treasury bills and other
eligible bills ........................................... 3,847 5,281
Total assets................................................. 15,210 19,073
Liabilities
Deposits by banks....................................... 1,849 2,644
Customer accounts ..................................... 8,556 10,265
Year ended 31 December 2001 compared with
year ended 31 December 2000
The main focus in Latin America has been Argentina,
where following the inability to secure a financing
package from the International Monetary Fund
(‘IMF’ ), the Argentine government introduced
measures to restrict the withdrawal of US dollar
denominated deposits and the transfer of monies
abroad. Following the declaration of a state of siege
by the Argentine government, in late December, the
president and the three subsequent incumbents
resigned within a space of two weeks. In January
2002 the new president, Eduardo Dulhalde, formally
announced that Argentina would default on its
sovereign debt and at the same time announced the
“pesification” of certain in-country US dollar
denominated assets and liabilities. In addition, after
a brief period of dual exchange rates (with a floating
rate for financial transactions and a fixed rate for
trade), the fixed exchange rate policy of one-to-one
parity with the US dollar was abandoned and the
peso moved to a freely floating basis. Against this
background of uncertainty and turmoil the Argentine
economy contracted by around 5 per cent in 2001,
the third successive year of recession. This economic
downturn is forecast to worsen during 2002.
Encouragingly, despite the Argentine crisis, the
Brazilian economy remained relatively stable.
Initially the Argentine crisis prompted a sharp
devaluation of the real which prompted the Central
bank to raise interest rates by 375 basis points,
between January 2001 and July 2001, to control
inflationary pressures and dampen domestic demand.
In the fourth quarter, a combination of sharp cuts in
US interest rates and an improved Brazilian current
account balance resulted in the real recovering to be
only 15.6 per cent lower against the US dollar over
the course of 2001. It is anticipated that GDP growth
in 2001 was around 2 per cent (compared to forecast
growth of 4 per cent) with inflation slightly higher at
7.7 per cent compared with 5.97 per cent in 2000.
HSBC’s operations in Latin America reported a
cash basis pre-tax loss of US$977 million in 2001
compared with a cash basis pre–tax profit of US$324
million in 2000. In view of the continuing unsettled
and deteriorating economic environment in
Argentina, the bad debt charge arising on HSBC’ s
Argentine exposure was US$737 million, US$681
million higher than that in 2000, and included a
US$600 million additional general provision charge
raised against this exposure. In addition, the 2001
pre-tax loss included a loss of US$520 million
arising from the pesification of HSBC Argentina’s
US dollar assets and liabilities at mandatory differing
rates of exchange which destroyed capital in the
Argentine banking system. In Brazil, cash basis
profit before tax of US$136 million, US$72 million
lower than in 2000, reflected curtailment in the rate
of credit expansion during 2001 as a consequence of
volatility in foreign exchange and interest rate
markets reflecting concerns over the Argentine
economy, energy shortages and political
uncertainties. At constant exchange rates, cash basis
pre-tax profits in Brazil were only US$28 million
lower than in 2000.
The following commentary on Latin America’s
results is based on constant exchange rates.
Net interest income in Latin America at
US$1,113 million was US$86 million higher than in
2000. In Brazil net interest income was US$98
million, or 14 per cent, higher than in 2000 reflecting
increased levels of corporate and retail lending
(principally arising from the full years contribution
from CCF’s Brazilian operations) and holdings of US
dollar linked securities to take advantage of wider
spreads from lower funding costs. This was partly
offset by a decline in HSBC Bank Brasil’s net