HSBC 2002 Annual Report Download - page 71

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26 per cent lower than at 31 December 2001.
HSBC Bank Middle East reported a decrease in
operating profit before provisions of 9 per cent
compared with 2001 due to higher costs to support
growth in personal and commercial banking. Profit
before tax on a cash basis was 12 per cent higher
than in 2001, mainly as a result of a lower bad debt
charge and releases of provisions. Net interest
income increased by 3 per cent, with a 5 per cent
increase in average interest-earning assets due to
higher term lending to corporate customers in the
UAE. However, the net interest margin fell by 6
basis points to 3.78 per cent due to a lower benefit of
net free funds in a declining interest rate
environment. Net fee income rose by 12 per cent,
largely from personal banking products. The
financial planning services team, which provides
savings, retirement education and protection
planning services throughout the region sold
investments totalling US$304 million, 12 per cent
higher than in 2001. There was further growth in the
credit card business, where fee income rose by 14 per
cent. As a result of the increased staffing to support
the expansion of personal and commercial banking,
staff costs increased by 26 per cent. Increased costs
of US$2 million were incurred for the debt recovery
teams whilst net charge for personal lending bad and
doubtful debts declined by 51 per cent. Additional
one-off costs were also incurred in transferring data
processing work to other parts of HSBC. In total,
operating expenses rose by 26 per cent. The charge
for bad and doubtful debts fell by US$50 million to
US$6 million. Strengthened credit risk management
procedures and a new debt recovery unit resulted in
lower new provisioning requirements in both the
personal and corporate lending portfolio.
Elsewhere, HSBC’s operations in Taiwan,
Indonesia and Korea each contributed in excess of
US$50 million to pre-tax profits. Growth in Taiwan
was driven by increased sales of personal financial
services, particularly credit cards. HSBC’s
operations in Japan, Thailand, the Philippines,
Brunei and Australia each contributed in excess of
US$25 million to pre-tax profits, the latter benefiting
from HSBC’s acquisition of NRMA Building Society
in 2001. HSBC Bank Egypt contributed a pre-tax
profit of US$19 million, in line with 2001. HSBC’s
associates The Saudi British Bank and British Arab
Commercial Bank contributed US$113 million to
cash basis pre-tax profits.
Year ended 31 December 2001 compared with
year ended 31 December 2000
Growth slowed sharply across most of the Asia-
Pacific region in the first half of the year as exports
and investment were hit by the global downturn, in
electronics in particular. Inflationary pressures
continued to ease and interest rates were generally
declining. By the end of the year there were signs
that the worst of the industrial downturn was over,
particularly in the high-tech exposed countries such
as Korea. While growth in mainland China has also
slowed modestly, it continued to outperform the rest
of the region by a large margin with GDP growth of
7.3 per cent. India was the next strongest economy in
the region with growth of about 5 per cent.
HSBC’s operations in the rest of the Asia-Pacific
region contributed US$1,096 million of HSBC’s cash
basis profit before tax, a decrease of US$174 million,
or 14 per cent, compared with 2000. At constant
exchange rates, cash basis profit before tax was 10
per cent lower than 2000. The fall in profits mainly
resulted from a net release of customer bad and
doubtful debt provisions in 2000 which benefited
from the release of US$174 million from the special
general provision. At constant exchange rates, cash
basis operating profits before provisions were 11 per
cent higher than in 2000.
Net interest income was US$115 million, or 8
per cent (at constant exchange rates 13.7 per cent)
higher than in 2000. The increase reflected growth in
higher-yielding personal lending, increased spreads
on treasury activities and recoveries of previously
suspended interest. There was solid growth in
personal lending, reflecting the successful
development of wealth management businesses in
several countries, with increases in Taiwan,
Singapore, Korea, India, New Zealand, Brunei,
Malaysia and Australia. Spreads widened in
Singapore and Japan mainly due to strong treasury
performance and in mainland China as a result of
previously suspended interest. Subdued corporate
loan demand and intense competition for the limited
quality lending opportunities available in some
countries in the region resulted in reduced net
interest margins as excess deposit-driven growth in
average interest-earning assets was placed in lower-
yielding money market loans and debt securities.
Other operating income increased by US$52
million, or 5 per cent, (at constant exchange rates by
13 per cent) compared to 2000. Net fees and