HSBC 2010 Annual Report Download - page 58

HSBC HOLDINGS PLC
Report of the Directors: Operating and Financial Review (continued)
Geographical regions > Hong Kong
56
Hong Kong
HSBC’s principal banking subsidiaries in Hong
Kong are The Hongkong and Shanghai Banking
Corporation Limited and Hang Seng Bank
Limited. The former is the largest bank
incorporated in Hong Kong and is our flagship
bank in the Asia-Pacific region. It is one of Hong
Kong’s three note-issuing banks, accounting for
more than 65% by value of banknotes in
circulation in 2010.
2010 2009 2008
US$m US$m US$m
Net interest income ........... 4,246 4,195 5,698
Net fee income .................. 2,962 2,669 2,580
Net trading income ........... 1,312 1,225 1,193
Other income .................... 1,682 1,378 683
Net operating income46 ... 10,202 9,467 10,154
Impairment charges47 ........ (114) (500) (765)
Net operating income ..... 10,088 8,967 9,389
Total operating expenses .. (4,431) (3,946) (3,943)
Operating profit .............. 5,657 5,021 5,446
Income from associates48 .. 35 8 15
Profit before tax .............. 5,692 5,029 5,461
Cost efficiency ratio ......... 43.4% 41.7% 38.8%
Year-end staff numbers .... 29,171 27,614 29,330
Best Bank in Hong Kong
(Euromoney Awards for Excellence 2010)
Market leadership in mortgages,
cards, life insurance
and deposits
64%
growth in
commercial lending balances
For footnotes, see page 83.
The commentary on Hong Kong is on an underlying basis unless
stated otherwise.
Economic background
Relatively low interest rates and rapid growth in
demand from mainland China contributed to Hong
Kong’s economic recovery in 2010. GDP in the year
was 6.8% higher than in 2009. A revival in both
employment and wage growth helped to boost
consumer demand. Inflationary pressures began to
emerge in the second half of the year with the annual
rate of CPI inflation rising to 3.1% in December.
The government initiated a number of measures in
November aimed at restricting the pace of price
increases in the property market.
Review of performance
Our operations in Hong Kong reported pre-tax
profits of US$5.7bn compared with US$5.0bn in
2009, an increase of 13%. On an underlying basis,
excluding accounting gains arising from the
reclassification of Bao Viet as an associate and
following the sale of HSBC Private Equity (Asia)
Ltd, profit before tax increased by 11%.
The increase in profitability was driven by
strong revenue growth, particularly in investment
and insurance product sales and trade-related fees,
as we capitalised on the improved economic
conditions. Lending balances rose, most notably in
CMB and GB&M following a recovery in trade
flows and strong economic growth. Customer
deposit balances increased, reflecting growth in
customer numbers in PFS and CMB. Loan
impairment charges were significantly lower than
in 2009 across all customer groups, reflecting an
improvement in credit conditions. Revenue growth
was in part offset by an increase in staff and IT costs
driven by business expansion to maintain our strong
market position.
We retained our market leadership in residential
mortgages, credit cards, life insurance and deposits.
The Premier customer base increased by 31%
compared with 31 December 2009 to more than
500,000 customers. The Advance proposition, which
was launched in early 2010, had a customer base
of over 670,000 by the end of the year. In life
insurance, we retained the number one market share
position for new business annualised premiums as
a result of successful sales activity and customer
demand and a strategy targeted towards the high
net worth customer segment. CMB’s cross-border
referrals more than doubled with the increase in
trade flows from mainland China. We continued the
development of offshore renminbi-related products
and maintained our position as a market leader for
renminbi products in Hong Kong.