HSBC 2009 Annual Report Download - page 115

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driven by a decline in equity markets and weakened
investor sentiment.
Fee income from credit facilities rose, notably in
India, Australia and Singapore, reflecting increases
in the number of customers.
Net trading income rose by 54 per cent,
predominantly due to strong Rates and foreign
exchange trading across the region as volatile market
conditions continued, encouraging increased
corporate hedging activity.
Growth was particularly strong in South Korea,
mainland China and Australia due to strategic
positioning of HSBC’s balance sheet to benefit from
the interest rate cuts and foreign exchange volatility
in 2008, and increased activity in these local
markets. In India, foreign exchange and, to a lesser
extent, Rates revenues rose, driven mainly by
increased customer activity and high levels of
market volatility.
A net expense from financial instruments
designated at fair value of US$171 million was
recorded compared with income of US$121 million
in 2007. Declines in equity markets affected unit-
linked insurance products, particularly in Singapore.
This was largely offset by a corresponding decrease
in liabilities to policyholders reflected in net
insurance claims incurred and movement in
liabilities to policyholders.
Net earned insurance premiums decreased by
17 per cent to US$197 million, mainly in Singapore
and Malaysia due to lower sales of single premium
unit-linked products. This was partly offset by an
increase in the sale of general insurance products.
Loan impairment charges rose sharply,
increasing by 56 per cent to US$852 million,
following a marked deterioration in credit quality
across the region in the final quarter of the year.
These charges rose most significantly in India and,
to a lesser extent, in Australia.
In India, the rise was attributable to increased
delinquency across personal lending portfolios, in
response to which HSBC took action to restrict
mortgage and personal lending. However, HSBC
continued to extend credit to selected cards
customers, which resulted in volume growth and
also contributed to higher loan impairment charges.
In Australia, higher delinquencies arose from
the maturing of the cards portfolio and, to a lesser
extent, volume growth, in addition to a credit risk
provision related to an exposure to an Icelandic
Bank. Partly offsetting this, loan impairment charges
declined by 41 per cent in Taiwan due to an
improvement in asset quality. Similarly, in Thailand,
loan impairment charges were 69 per cent lower due
to the non-recurrence of charges attributable to the
down-grading of certain corporate customers.
Operating expenses increased by 15 per cent to
US$4.7 billion. Significant investment in the region
continued, notably in mainland China where 29 new
outlets were opened and staff numbers increased.
Related premises and equipment costs rose
accordingly. Expansion was also pursued in
Indonesia with the addition of new branches, and in
Japan with the rollout of seven HSBC Premier
centres. In India, the rise in operating expenses was
driven mainly by investment in IT, premises costs
and an increase in collection activities as default
rates rose. Business growth contributed to higher
operating expenses in Australia. Litigation costs in
the region rose.
Growth in operating expenses at the Group
Service and Software Development Centres was
driven by increased volumes of activity as HSBC
continued to implement a global resourcing strategy
to minimise costs throughout the Group. All related
costs are recharged to other Group entities and the
income is reported within Other operating income.
Profit from associates and joint ventures in the
region increased by 9 per cent, notwithstanding a
significant impairment recorded in Ping An
Insurance in respect of its stake in Fortis Bank.
Growth was strong across HSBC’s other principal
associates, the Bank of Communications and
Industrial Bank.