HSBC 2006 Annual Report Download - page 31

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whether there is a case for changing the existing
rules for the sale of PPI.
The OFT conducted the follow-up review of the
SME market, prescribed by its report published in
2002. HSBC cooperated with this review and awaits
the findings.
Following MasterCard’s appeal to the
Competition Commission Appeals Tribunal, the OFT
withdrew its original interchange fee case to
concentrate on a new case against both MasterCard
and Visa. The European Commission is also
investigating interchange fees, and HSBC has
responded to its requests for information.
In November the winding down of the Payment
Systems Taskforce was announced, and a new
governance body for payment systems, the Payments
Industry Association, was established. HSBC is
positioned to deliver the faster electronic payments
introduced by the Payment Systems Taskforce and
meets its minimum standards for cheque clearing.
France
Stable interest rates in the eurozone contributed to a
strong growth in real estate investment in France.
Competition between French banks concentrated on
the promotion of real estate mortgage loans, which
are the principal means by which new customers in
France are acquired. Market activity increased and
consumers continued to enjoy improved pricing to
the detriment of bank margins.
The payment of interest on sight deposits,
authorised from the beginning of 2005, was
introduced by one major mutual French bank, albeit
linked to a quarterly fee for banking services. Market
reaction was muted and, to date, no other leading
French bank has followed suit.
From January 2006 the Banque Postale was able
to offer real estate lending and financial services,
including the sale of investment products
manufactured by third party providers. Given the
scale of Banque Postale’s geographical coverage,
this will increase competition in an already
competitive market.
The French government reformed the household
tax law for 2006/2007, notably introducing a tax
exemption on capital gains on equities sold after an
eight-year holding period and a cap on total
household taxes (including income, wealth and local
taxes) at 60 per cent of income. The higher marginal
tax rate has been limited to 40 per cent. These
reforms will increase disposable income for the
wealthier individuals who form one of HSBC
France’s key customer segments.
At the end of December 2005, French banks
were granted approval, as in the UK, to provide
equity release mortgages. This will assist customers
to invest in real estate and finance consumption.
Hong Kong
There was some improvement in the lending market
in 2006, as the stable interest rate environment,
liquid market, and moderate cost of borrowing
supported growth in consumer spending, and
demand for personal loans and credit cards rose in
consequence.
Competition remained fierce in traditional
mortgage products due to the still subdued property
market. Robust equity markets buoyed sales of
investment products and also benefited investment-
related loans.
The sustained appreciation of the Chinese
currency during 2006 had no marked effect on Hong
Kong’s renminbi deposit business. Instead, funds
were attracted to Chinese stocks listed in Hong
Kong, notably in relation to some of the substantial
Chinese IPOs. Nevertheless, local currency deposits
continued to grow rapidly due to rising household
incomes.
Rest of Asia-Pacific
(including the Middle East)
The competitive environment in the Rest of
Asia-Pacific continued to intensify as international
banks focused on targeted sectors in emerging
markets in pursuit of higher returns. Local banks
also actively expanded their reach and business, both
within countries and across borders. Competition
remained intense throughout the region in all of the
customer groups served by HSBC. Regulations in
certain countries act to limit the ability of foreign-
owned banks to grow both by acquisition and
organically by adding distribution or participating in
shared networks with domestic banks. However, in
many countries the growing sophistication of the
relatively young population and increasing affluence
of the middle class continued to provide HSBC with
further opportunities for growth.
Banks and non-banks, both local and
international, are rapidly building consumer finance
and direct banking businesses in a number of
countries in the region.
North America
In an already highly competitive US financial
services industry, institutions involved in a broad
range of financial products and services continued to