HSBC 2003 Annual Report Download - page 43

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business of AMP Bank Limited in the first half of
2003.
In South America, net interest income was
broadly in line with last year. In constant currency,
net interest income grew by 10 per cent. In Brazil,
net interest income was marginally higher than in
2002, benefiting from the acquisition of the Brazilian
businesses and assets of Lloyds TSB Group plc in
December 2003. Excluding this, the favourable effect
of higher levels of customer lending and deposits
were fully offset by reduced spreads as interest rates
fell during the year. Argentina recorded net interest
income of US$14 million in 2003 compared with a
net interest expense in 2002. As the domestic
economy began to recover and the trade surplus
grew, interest rates fell. The effect of the continuing
reduction in average interest-earning assets was more
than offset by the lower cost of funding the
non-performing loan portfolio.
Overall, average interest-earning assets
increased by US$169.7 billion, or 28 per cent,
compared with 2002. Of the increase, Household
contributed US$92.0 billion and HSBC Mexico
US$17.8 billion. At constant exchange rates,
underlying average interest-earning assets increased
by 4 per cent. This growth was driven principally by
higher mortgage balances and personal lending in the
UK, France, the US, Canada, Malaysia, Australia and
Singapore, and an increase in holdings of long-term
securities in the US and debt securities in Hong
Kong.
HSBC’s net interest margin was 3.29 per cent in
2003, compared with 2.54 per cent in 2002. The
acquisitions of Household and HSBC Mexico
increased net interest margin by 77 and 6 basis points
respectively. On an underlying basis, HSBC’s net
interest margin fell by 8 basis points to 2.46 per cent.
In Europe, the fall in net interest margin was
primarily due to a decline in the benefit of net free
funds, mainly as a result of paying interest on current
account balances belonging to small and medium
sized enterprises in the UK. In Hong Kong, HSBC’s
net interest margin also declined because of lower
spreads on deposits and lower yields on redeployed
interbank placements. In Hang Seng Bank, net
interest margin narrowed due to lower mortgage
yields, narrower spreads on deposits and debt
securities, and a lower contribution from net free
funds, partly offset by switching liquidity from
interbank placements to debt securities. In the rest of
Asia-Pacific, net interest margin fell in several
countries, mainly from narrower spreads on deposits,
lower yields on mortgages, the maturing of higher
yielding assets, and a reduced contribution from net
free funds. In the US, growth in mortgage balances
and a shift in the treasury portfolio to higher yielding
fixed rate investments led to an improvement in net
interest margin.
Year ended 31 December 2002 compared with
year ended 31 December 2001
Net interest income in 2002 was US$735 million, or
5 per cent, higher than 2001, at US$15,460 million.
At constant exchange rates, net interest income was
6 per cent higher than 2001 reflecting growth in
HSBC’ s operations in Europe, North America and
the rest of Asia Pacific, as well as the acquisition of
HSBC Mexico at the end of November 2002.
In Europe, net interest income was US$780
million, or 14 per cent, higher than in 2001, mainly
reflecting the growth in average interest-earning
assets and the benefits of lower funding costs. In
constant currency, growth was 10 per cent. In North
America, net interest income increased by
US$282 million, or 12 per cent, due to a combination
of the increased level of average interest-earning
assets, primarily residential mortgages, and wider
margins on treasury activities as a steeper yield curve
led to reduced funding costs. In addition, HSBC
Mexico contributed US$85 million of net interest
income to the North American region. In Hong
Kong, notwithstanding modest loan growth and a
reduced contribution from net free funds, net interest
income was largely maintained as a strong
performance in Global Markets, together with
growth in credit card lending and in low cost
deposits, offset continuing margin compression in the
mortgage business.
In the rest of Asia-Pacific net interest income
growth of 8 per cent was driven by higher credit card
and personal lending together with the full year
impact of the acquisition of NRMA Building Society
(‘NRMA’ ) in Australia in 2001.
In South America the unsettled economic
environment caused net interest income to fall by
US$420 million to US$645 million. In Brazil,
underlying net interest income was in line with 2001
as the benefit from higher levels of customer lending
was offset by the impact of HSBC’s decision to
reduce the level of local debt securities and to