HSBC 2003 Annual Report Download - page 85

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higher IT costs supporting business growth were
funded by a reduction in staff costs. Costs fell as
back office processing functions were transferred to
HSBC’s Group Service Centres in India and China,
and pension top-up fees in Hang Seng Bank in 2001
were not repeated.
Customer demand for remote services continue
to grow and the bank responded with further
investment in internet banking. According to various
surveys in 2002, HSBC has the largest online
banking market share in Hong Kong, with over
470,000 registered users. The e-channel proposition
was enhanced during 2002 introducing a number of
new solutions and a new investment page.
Online@hsbc won a number of awards in 2002,
offering more than 50 services, including a range of
insurance personal loans, and payment services.
Hang Seng Bank’s comprehensive range of internet
banking services had similarly become an important
part of its multi-channel delivery network. By the
end of 2002, more than 250,000 customers had
registered for its Personal e-Banking Services, and
internet transactions had grown to more than 14 per
cent of total transactions.
The provision for bad and doubtful debts rose by
44 per cent to US$362 million as significantly higher
personal bankruptcy filings resulted in a higher
charge for both credit cards and other retail lending.
However, provisions against the mortgage portfolio
fell as delinquency rates reduced.
Commercial Banking in Hong Kong
contributed a pre-tax profit, before amortisation of
goodwill, of US$733 million, broadly in line with
2001.
Net interest income decreased by
US$69 million, or 10 per cent, as low interest rates
reduced the value of interest-free balances. In
addition, there were lower balances and reduced
spreads on deposits, partly offset by a higher release
of suspended interest.
Net fees and commissions increased by US$16
million, or 6 per cent, due to higher levels of fee
income on investment funds as a result of
cross-selling initiatives with HSBC Asset
Management and Treasury. Insurance and trade
services income also increased. Operating expenses
were US$33 million, or 8 per cent, lower than 2001
due to rationalisation of sales teams within the area
and the transfer of back office processing functions
to Group Service Centres.
The net release of provisions for bad and
doubtful debts was higher than 2001 mainly due to
releases of general provisions reflecting a reduction
in latent losses.
Corporate, Investment Banking and Markets
reported pre-tax profit, before amortisation of
goodwill, of US$1,226 million, broadly in line with
2001.
Net interest income was 5 per cent higher than in
2001 reflecting the benefit of a strong performance in
Global Markets as the accrual books were well
positioned for the low interest rate environment. This
was partly offset by lower net interest income from
Corporate and Institutional Banking business, as
lower spreads on deposits in HSBC combined with
reduced spreads on lending and subdued loan
demand in Hang Seng Bank. There was also a
considerable reduction in the benefit of net free funds
as average interest rates fell.
Other operating income was US$83 million, or
15 per cent, lower as growth in fee income was more
than offset by lower dealing profits. Dealing profits
fell by US$108 million as debt securities used for
interest rate trading purposes generated net interest
income while corresponding derivative positions
produced dealing losses in the current low interest
rate environment. In addition, there were dealing
losses on debt securities trading due to widening
credit spreads following a series of corporate
scandals in the US. Growth in fee income reflected
higher income from structured finance and from
corporate finance transactions.
Operating expenses were in line with 2001.
The net release of provisions during 2002 was
US$68 million, reflecting releases of specific
provisions against corporate customers. In addition,
there was a release of general provisions reflecting a
reduction in latent losses.
HSBC’s Private Banking activities in Hong
Kong reported pre-tax profits, before goodwill
amortisation, in 2002 of US$107 million, an increase
of 27 per cent over 2001. Funds under management
grew by 23 per cent to US$50 billion at 31 December
2002, benefiting from net new funds from clients,
which more than offset the effect of falling stock
prices.
Net interest income at US$91 million was 17 per
cent higher than in 2001. The steeper yield curve,
reflecting the fall in short-term interest rates