HSBC 2008 Annual Report Download - page 113

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5.0 per cent in 2007 and the weakest performance for
ten years, while fourth quarter GDP fell by 3.4 per
cent on a year-on-year basis. Rising food prices
proved particularly problematic for the Philippines
during the first half of the year as inflation moved
well above the central bank’s targeted range,
although the earlier tightening of monetary policy
was partially reversed at the end of 2008. Growth
slowed sharply in Taiwan during the course of the
year, driven by deteriorating conditions overseas.
Reconciliation of reported and underlying profit before tax
2008 compared with 2007
Rest of Asia-Pacific
(including the
Middle East)
2007
as
reported
US$m
2007
acquisitions,
disposals
& dilution
gains1
US$m
Currency
translation2
US$m
2007
at 2008
exchange
rates3
US$m
2008
acquisitions
and
disposals1
US$m
Under-
lying
change
US$m
2008
as
reported
US$m
Re-
ported
change
%
Under-
lying
change
%
Net interest income .......... 4,143 – 43 4,186 31 1,276 5,493 33 30
Net fee income ................. 2,246 – 24 2,270 3
285 2,558 14 13
Other income4................... 3,652 (1,081) 18 2,589 70 939 3,598 (1) 36
Net operating income5.... 10,041 (1,081) 85 9,045 104 2,500 11,649 16 28
Loan impairment charges
and other credit risk
provisions .................... (616) – 14 (602) – (529) (1,131) (84) (88)
Net operating income .... 9,425 (1,081) 99 8,443 104 1,971 10,518 12 23
Operating expenses .......... (4,764) – (17) (4,781) (110) (772) (5,663) (19) (16)
Operating profit ............. 4,661 (1,081) 82 3,662 (6) 1,199 4,855 4 33
Income from associates ... 1,348 – 93 1,441 – 172 1,613 20 12
Profit before tax ............. 6,009 (1,081) 175 5,103 (6) 1,371 6,468 8 27
For footnotes, see page 143.
Review of business performance
HSBC’s operations in Rest of Asia-Pacific
performed strongly, reporting a pre-tax profit of
US$6.5 billion compared with US$6.0 billion in
2007, an increase of 8 per cent. HSBC continued to
increase its presence in key markets, augmenting
organic growth with the integration of the operations
of The Chinese Bank in Taiwan and the purchase
of IL&FS Investsmart Ltd in India, which was
completed in September. On an underlying basis,
excluding the dilution gains on Chinese associates of
US$1.1 billion recorded in 2007 and the acquisitions
noted above, profit before tax increased by 27 per
cent, with notable growth in the Middle East, South
Korea, mainland China, India, and an increased
contribution from associates in the region. Branches
were added in mainland China, Indonesia, Japan,
Malaysia and Bangladesh.
Net interest income increased by 30 per cent,
with growth across most major countries and all
customer groups. Deposit acquisition and related
asset deployment across the region drove net interest
income, though this volume growth was partly offset
by deposit spread compression in the second half of
the year due to declining interest rates, compounded
by strong competition to acquire deposits.
In the Middle East, net interest income
increased by 42 per cent, with deposit growth,
notably in Personal Financial Services. This
supported a strong rise in corporate lending balances
aligned to trade and infrastructure investments, as
well as increased personal lending, in particular
credit cards. Asset spreads benefited from declines in
local base rates following US dollar interest rate
cuts, which resulted in a lower cost of funds.
In India, net interest income increased by 44 per
cent as deposit balances in Personal Financial
Services and Commercial Banking rose due to
customer acquisition, notably among small
businesses following the launch of the HSBC Direct
for Business product. These deposits were deployed
in increasing lending, where spreads improved on
the corporate lending and credit card portfolios and
mortgage spreads widened following a re-pricing in
the second half of the year.
In mainland China, net interest income also rose
due to deposit growth, as investors increasingly
preferred deposits over market-led investments as
market sentiment deteriorated. This facilitated an
increase in personal lending balances following
branch network expansion and successful re-pricing
initiatives on corporate and commercial loans.