HSBC 2002 Annual Report Download - page 70

HSBC HOLDINGS PLC
Financial Review (continued)
68
increase of US$7 million, or 7 per cent, compared
with 2001. Profit before tax of US$85 million was
broadly in line with 2001. Net interest income
increased by US$3 million, or 3 per cent to US$100
million. Growth in personal lending was partly offset
by lower treasury income as spreads narrowed. Fee
income increased by 6 per cent to US$57 million,
driven by higher credit card fees due to higher
merchant acquiring volume. Dealing profits
increased by 17 per cent to US$68 million, as profits
on interest rate derivatives trading grew, reflecting
increased business volumes as a result of the closer
co-operation between investment banking and
corporate banking to offer customised structured
solutions to major corporate customers. Operating
expenses increased by US$20 million, or 18 per cent,
to US$132 million. Of this increase, US$12 million
related to the further expansion of operations in
HSBC’s Group Service Centres in Hyderabad, which
now employs in excess of 2,300 employees. Staff
costs increased by US$10 million, of which US$6
million related to the processing centre, and the
remainder due to higher headcount due to business
expansion. Other operating expenses increased by
US$10 million, of which US$6 million related to the
processing centre. The remaining increase resulted
from an expansion in business, including investment
in IT, new branches and marketing of credit cards
and other personal financial products. The charge for
bad and doubtful debts increased by US$6 million to
US$27 million, reflecting increasing levels of
provisions against personal and credit card lending.
HSBC’s operations in mainland China reported
operating profit before provisions of US$17 million,
a decrease of US$9 million compared with 2001, as
operating expenses related to HSBC’s Group Service
Centre in Guangzhou and Shanghai increased. Profit
before tax increased by US$17 million to US$50
million due to increased bad debt recoveries. Net
interest income increased by US$4 million, or 11 per
cent to US$40 million, driven by increases in
renminbi advances and an increase in customer
deposits, resulting from a successful cash
management marketing campaign. Fee income
increased by 6 per cent to US$33 million, with
increased levels of income from trade services and
credit card merchant acquiring. Operating expenses
increased by US$26 million to US$79 million. Of
this increase, US$14 million relates to the further
expansion of operations in HSBC’s Group Service
Centres in Guangzhou and Shanghai, which now
employ in excess of 2,300 employees. Staff costs
increased by US$11 million, of which US$7 million
related to the processing centres, and the remainder
due to higher headcount due to an increased PFS
sales-force and new staff in investment banking and
card issuing. Other operating expenses increased by
US$15 million, of which US$7 million related to the
HSBC’s Group Service Centres. The remaining
increase resulted from an expansion in business,
including investment in IT to support the credit card
business and in Customer Relationship Management
systems, and increased marketing and advertising
costs for PFS services. There was a net release of
bad and doubtful debts of US$32 million, reflecting a
number of recoveries of provisions held against
various corporate customers.
In Malaysia, HSBC Bank Malaysia reported
operating profit before provisions of US$131
million, an increase of US$3 million, or 3 per cent,
compared with 2001 as fees from personal financial
services increased. Profit before tax of US$119
million was US$12 million, or 9 per cent, lower than
in 2001, which included significant levels of bad
debt recoveries as a result of repayments and credit
upgrades following a programme of loan
restructurings. Net interest income of US$169
million was broadly in line with 2001. Residential
mortgages grew by 63 per cent, including the
acquisition of ABN Amro’s residential mortgage
portfolio in the first half of 2002, and average credit
card advances increased by 34 per cent. However,
this growth was offset by a reduction in margin
resulting from subdued corporate loan demand, price
competition and lower recoveries of suspended
interest. Fee income increased by 19 per cent, as the
continuing focus on personal banking initiatives led
to increased fees from credit cards and account
services. Operating expenses were 1 per cent lower
than in 2001, mainly as a result of a reduction in
mortgage promotion expenditure. The bad and
doubtful debt charge of US$18 million was US$11
million higher than in 2001, which benefited from
significant bad debt recoveries following a series of
loan restructurings. The credit environment
remained favourable and non-performing loans were