HSBC 2002 Annual Report Download - page 72

HSBC HOLDINGS PLC
Financial Review (continued)
70
commissions were US$29 million lower than in 2000
(but 3 per cent higher at constant exchange rates).
The focus on expanding HSBC’s personal banking
operations, most notably in the Philippines, Taiwan,
India, Indonesia and the Middle East, resulted in an
increase of 23 per cent at constant exchange rates (or
16 per cent on a reported basis) in credit card fee
income. Securities and stockbroking income fell by
some 26 per cent (at constant exchange rates some
18 per cent) reflecting subdued stock market activity
across the region. Dealing profits increased by
US$71 million due to increased profits on interest
rate derivatives (which benefited from increased
volatility in interest rates), particularly in India,
Indonesia, Singapore, the Philippines, Japan, and
Thailand. There were also increased profits on debt
securities trading in Singapore and India.
Operating expenses on a cash basis increased by
US$105 million, or 8 per cent, (at constant exchange
rates by 16 per cent) compared with 2000. The
growth in staff costs (at constant exchange rates 12
per cent) reflected increased staff numbers to support
business expansion and notably increased transfer of
back office processing from overseas to premises in
Hyderabad and Guangzhou. Over the past year,
HSBC has expanded its operations in Australia, the
Philippines, Egypt, Taiwan and Brunei through
acquisitions and opened some 13 new branches in
seven countries in the rest of the Asia-Pacific region.
The growth in other expenses (20 per cent, at
constant exchange rates) reflected acquisitions and
increased marketing expenditure promoting personal
banking products. In aggregate recent acquisitions
accounted for some US$31 million of the increase in
operating expenses.
The significant change in the net charge for
customer bad and doubtful debt provisions is
accounted for by the impact of the release of the
Asian special general provision in 2000. New
specific provisions reflected further provisioning on
existing non-performing loans in Indonesia due to
heightened current political and economic
uncertainties, and on an energy sector related
corporate exposure in India. Offsetting these items
were falls in the level of new specific provisions
required in Malaysia, mainland China and the
Middle East. Releases and recoveries were US$36
million higher than in 2000, mainly as a result of the
liquidation of security held against a loan to Olympia
and York.
This recovery helped boost the pre-tax profit of
HSBC’s operations in Singapore to US$270 million,
US$51 million, or 23 per cent, higher than 2000. Net
interest income was US$12 million higher than in
2000. This resulted from the combination of an
improved net interest margin as spreads on deposits
widened and surplus deposits were placed in higher-
earning investment securities together with a good
performance by treasury. Fee income was only
slightly lower than 2000 as fees from advisory
services and the sale of capital protected funds
partially offset the fall in stockbroking and credit
facilities income. Higher profits from bond trading
resulted in a 23 per cent increase in dealing profits.
Operating expenses reflecting higher performance
related bonus provisions, salary increments, the costs
of the voluntary severance scheme and increased
contributions to the central provident fund were
US$32 million higher.
In India, pre-tax profits were in line with those
earned in 2000. Dealing profits increased by US$19
million, or 49 per cent, as anticipated movements in
interest rates increased dealing profits from debt
securities and interest rate derivatives. Fee income
was 2 per cent higher as growth in credit card fees
offset falls in securities and stockbroking income
from subdued stock market activities. Operating
expenses were US$23 million higher, reflecting the
expansion of the development of the Group’s global
processing operations in Hyderabad together with
higher performance related staff costs. Costs in
respect of the former were largely offset by other
operating income received for these services. The
opening of two new branches, together with the
expansion of the processing centre in Hyderabad
resulted in an increased headcount of some 1,000
during the year. Bad and doubtful debt provisions
increased by US$12 million mainly due to exposure
to an energy sector related company. Advances to
customers grew by US$125 million, or 9 per cent,
with strong growth in personal lending and to the
commercial and industrial and public sectors.
In mainland China, HSBC’s operations returned
to profitability reporting pre-tax profit of US$33
million for 2001 compared with a loss of US$26