HSBC 2001 Annual Report Download - page 78

HSBC HOLDINGS PLC
Financial Review (continued)
76
America were lower by US$182 million, mainly due
to the effect of exchange rate changes in Brazil.
Local currency costs were up slightly in Brazil,
reflecting higher transactional taxes.
Provisions for bad and doubtful debts rose from
US$602 million to US$772 million. In Europe lower
provisions (down by US$58 million), partly reflected
improved recovery procedures in First Direct and the
cards portfolio.
Provisions in Hong Kong rose by US$94 million
as the weakening economic environment led to an
increase in personal bankruptcies and this, together
with a rise in card lending, resulted in increased
provisions on credit cards. Provisions in the Rest of
Asia-Pacific rose by US$84 million, with higher
charges in Taiwan and the non-recurrence of the
benefit seen in 2000 from the release of part of the
Asia special general provision. Latin American loan
losses rose by US$37 million, including US$11
million in Argentina due to the economic situation in
the country. Latin American provisioning excludes
the exceptional provision taken against 2001 results
following the formal default of sovereign debt and
the pesification of the banking system. Brazil’s
growing provisioning requirements reflected planned
expansion of the personal lending portfolio in 2000.
Provisions for contingent liabilities and
commitments saw a US$17 million charge in the
year, compared with US$31 million in 2000, all of
which arose in Europe. The 2001 charge included
US$13 million relating to CCF.
Losses from associated undertakings reduced by
US$40 million, mainly reflecting the sale of British
Interactive Broadcasting which also contributed
US$202 million to profit on disposal of fixed asset
investments. In other associates and joint ventures,
an improved performance in Cyprus partly offset
higher losses in Merrill Lynch HSBC and lower
profits in the personal banking business of Saudi
British Bank.
Commercial
The commercial line of business contributed
US$2,385 million to pre-tax profits in 2001 and
represented 27.1 per cent of such profits. Pre-tax
profits were US$395 million lower, a decline of 14
per cent reflecting higher net provisions for bad and
doubtful debts as recoveries fell and the impact of
the release of the Asian special general provision in
2000 was not repeated. Operating profits before
provisions were up slightly, by US$51 million or 2
per cent.
Net interest income increased by US$280
million or 8 per cent. Net interest income in Europe
rose by US$254 million, mainly reflecting the
inclusion of a full year’ s income for CCF in 2001.
Excluding the impact of CCF, net interest income in
Europe was down slightly, mainly due to foreign
exchange movements. Underlying net interest
income in the UK was broadly unchanged, as
significant growth in UK commercial loans and
deposits was offset by falling margins due to lower
base rates and increased competitive pressures. Net
interest income in Hong Kong fell slightly, by US$44
million, due to lower margins on current account
deposits. The Rest of Asia-Pacific saw a small rise in
net interest income as the benefit of lower funding
costs in the Middle East offset lower margins in
Singapore.
North America saw strong growth in net interest
income, which rose by US$82 million reflecting
organic growth, increased commercial deposit levels
and improved margins in commercial real estate
lending.
Net fees and commissions rose by US$92
million or 6 per cent against 2000. The main part of
this rise was in Europe, again mainly reflecting the
impact of including a full year of results for CCF.
Fees in the UK were broadly flat in constant
currency terms.
Operating expenses increased by US$400
million or 15 per cent, within which US$227 million
reflected a rise in staff costs and US$64 million
increased premises and equipment. Again, the
inclusion of a full impact for CCF was the main
contributor.
Provisions for bad and doubtful debts rose
sharply from US$202 million to US$662 million. Of
the increase in Europe (up by US$171 million),
US$60 million related to CCF, with the remainder
mainly reflecting higher provisions in the UK due to
the less favourable economic environment and
pressures on UK manufacturing industry. Provisions
in the Rest of Asia-Pacific rose by US$123 million,
notably due to further charges in Indonesia and the
non-recurrence of the benefit seen in 2000 from the
release of the special general provision.
In North America provisions rose by US$98
million, reflecting losses in receivables lending and