HSBC 2008 Annual Report Download - page 135

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favourable external environment, which helped
Argentina extend its fiscal and external surpluses
into a fourth successive year. Less encouraging was
the fact that inflation accelerated to about 13 per
cent, up from 10 per cent in 2006. Although food
inflation was part of the explanation, rapid demand
growth was also a factor. 2007 was an election year,
and as a result the rate of growth of fiscal spending
doubled to 45 per cent on an annual basis. As a
consequence, the primary surplus fell by around
1.2 per cent of GDP.
Throughout the region as a whole, GDP growth
roughly matched that of 2006. The slowdown in
Mexico provided a contrast to better performances
elsewhere in Central and Southern America. Central
America grew by an estimated 6.3 per cent, up from
5.9 per cent in 2006 while, in South America, growth
was an estimated 5.8 per cent, up from 5.3 per cent
in 2006. The most dynamic economies in Central
America were Panama (10.0 per cent growth in
GDP) and the Dominican Republic (8.0 per cent),
followed by Costa Rica (6.2 per cent) and Honduras
(6.2 per cent). In South America, the fastest growing
countries after Argentina were Peru (7.2 per cent
growth in GDP), Venezuela (7.0 per cent) and
Colombia (6.5 per cent). In general, inflation appears
to be under control in Latin America, averaging
around 5 per cent over the past three years. Only
Venezuela and Argentina have experienced double-
digit inflation, while the US dollar-based economies
of Panama, Ecuador and El Salvador have better
inflationary records.
Reconciliation of reported and underlying profit before tax
2007 compared with 2006
Latin America
2006
as
reported
US$m
2006
acquisitions
and
disposals1
US$m
Currency
translation2
US$m
2006
at 2007
exchange
rates6
US$m
2007
acquisitions,
disposals
& dilution
gains1
US$m
Under-
lying
change
US$m
2007
as
reported
US$m
Re-
ported
change
%
Under-
lying
change
%
Net interest income .......... 4,197 – 261 4,458 375 743 5,576 33 17
Net fee income ................. 1,630 – 86 1,716 86 351 2,153 32 20
Other income4................... 1,008 – 60 1,068 102 366 1,536 52 34
Net operating income5...... 6,835 – 407 7,242 563 1,460 9,265 36 20
Loan impairment charges
and other credit risk
provisions .................... (938) – (81) (1,019) (133) (545) (1,697) (81) (53)
Net operating income ...... 5,897 – 326 6,223 430 915 7,568 28 15
Operating expenses .......... (4,166) – (258) (4,424) (320) (658) (5,402) (30) (15)
Operating profit ............... 1,731 – 68 1,799 110 257 2,166 25 14
Income from associates ... 4 – – 4 9 (1) 12 200 (25)
Profit before tax ............... 1,735 – 68 1,803 119 256 2,178 26 14
For footnotes, see page 143.
Review of business performance
HSBC’s operations in Latin America reported a
pre-tax profit of US$2.2 billion compared with
US$1.7 billion in 2006, representing an increase of
26 per cent. The Group’s acquisitions of HSBC Bank
Panama and Banca Nazionale in 2006 strengthened
the existing business platform and geographical
representation. On an underlying basis, pre-tax profits
rose by 14 per cent as increased revenues were partly
offset by higher loan impairment charges, largely
from Mexico, and a rise in operating costs.
Notable contributions to Commercial Banking’s
pre-tax profits, which were 64 per cent higher than in
2006, arose in Brazil from small and mid-market
enterprises and in Mexico from larger corporates.
In Personal Financial Services, profit before tax
increased by 12 per cent as strong growth in revenues
was partly offset by increased loan impairment
charges in Mexico. Profit before tax in Global
Banking and Markets increased as strong growth in
net fee and net interest income was partly offset by a
decrease in trading income and higher costs related to
business expansion.
Notwithstanding continuing investment and
integration costs throughout the region, the cost
efficiency ratio improved by 2.7 percentage points to
58.3 per cent.