HSBC 2006 Annual Report Download - page 103

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higher sales to Losango clients, approximately a third
of whom now have a commercial banking
relationship with HSBC.
Deposit balances in Brazil increased by 21 per
cent, reflecting initiatives to incentivise staff to
prioritise sales of liability products. However,
competitive pressures contributed to a 5 percentage
points decrease in spreads on loans and advances to
customers, while deposit spreads were 13 basis points
lower. In Argentina, deposits from commercial
customers increased by 42 per cent, reflecting the
continuing economic recovery, while loans and
overdrafts more than doubled and current account
balances increased by 38 per cent. HSBC increased
its market share in both loans and deposits.
Net fee income was 3 per cent higher, led by
increases in Mexico and Brazil which were partly
offset by IFRSs changes to accounting for effective
interest rates which reduced fee income by 22 per
cent.
In Mexico, marketing campaigns, tariff
reductions and the promotion of business internet
banking, together with increased customer numbers,
contributed to a 31 per cent increase in payment and
cash management fees, while card fees increased
following the launch of a credit card as part of the
‘Estimulo’ suite of products. Trade services fee
income increased by 63 per cent as a result of
customer acquisition and increased cross-sales to
existing customers, nearly doubling the bank’s
market share in a growing market.
In Brazil, the increase was due to higher fees
from payments and cash management, current
accounts, and lending. Current account fees increased
by 26 per cent, reflecting tariff increases, improved
collection procedures and higher transaction volumes,
while lending fees benefited from higher business
volumes. In Argentina, the launch of a commercial
banking call centre in the first half of 2005 enhanced
the customer service proposition. This, together with
the recruitment of additional relationship managers,
supported a 14 per cent increase in customer numbers
and, as a result, current account fee income increased
by 21 per cent. Improvements in the Argentinian
economic climate contributed to increased trade
flows which, together with the establishment of a
dedicated trade service sales team, led to a 22 per
cent increase in trade services income.
Loan impairment charges and other credit risk
provisions of US$89 million compared with a net
release of US$23 million in 2004. In Mexico, growth
in the lending portfolio led to a US$49 million
increase in loan impairment charges, although
underlying credit quality improved.
In Brazil, asset growth contributed to a
US$47 million increase in charges. Impaired loans as
a proportion of assets increased by 3 percentage
points in the SME portfolio, in line with overall
market performance, and MME credit quality also
declined slightly. In Argentina, net recoveries
decreased as significant releases from amounts
recognised at the time of the sovereign debt default
and pesification were not repeated. However,
underlying credit quality improved substantially and
impaired loans as a percentage of assets more than
halved.
Operating expenses of US$621 million were
23 per cent higher than in 2004, though the cost
efficiency ratio improved by 3 percentage points as
income grew faster than costs. In Mexico, operating
expenses increased by 29 per cent, due to an 11 per
cent increase in staff numbers to support business
growth, higher incentive payments reflecting strong
income growth, and increased ‘Estimulo’ marketing
expenditure.
Staff numbers in Brazil increased by 34 per cent
following a recruitment drive initiated in the second
half of 2004 to support expansion of the SME
business. Higher incentive payments, reflecting
increased income, and union-agreed pay increases
also contributed to an increase in staff costs. New
marketing campaigns, including the award winning
‘30, 60, 90 Dias de Apuros’ campaign focusing on
invoice financing, increased advertising and
marketing costs. Expenses in Argentina increased by
24 per cent, driven by higher staff costs, reflecting
pay rises agreed with local unions, together with a
9 per cent increase in headcount in support of
business expansion.
Corporate, Investment Banking and Markets
reported a pre-tax profit of US$347 million, an
increase of 56 per cent, primarily driven by strong
growth in net interest income and trading revenues in
Mexico.
Total operating income at US$653 million
increased by 28 per cent compared with 2004. In
Mexico, net interest income more than doubled, due
to the strong performance in balance sheet
management, which benefited from higher volumes
and successful strategic positioning against a rising
short-term interest rate environment, with an overall
flattening of the yield curve in the first part of 2005.
In the latter half of the year, positions were
effectively managed to take advantage of the decline
in local rates.
In Argentina, a reduction in funding costs in
Global Markets was augmented by the positive
impact of an appreciating CER (an inflation-linked