HSBC 2008 Annual Report Download - page 116

HSBC HOLDINGS PLC
Report of the Directors: Operating and Financial Review (continued)
Geographical regions > Rest of Asia-Pacific > 2007
114
Reconciliation of reported and underlying profit before tax
2007 compared with 2006
Rest of Asia-Pacific
(including the
Middle East)
2006
as
reported
US$m
2006
acquisitions
and
disposals1
US$m
Currency
translation2
US$m
2006
at 2007
exchange
rates6
US$m
2007
acquisitions,
disposals
& dilution
gains1
US$m
Under-
lying
change
US$m
2007
as
reported
US$m
Re-
ported
change
%
Under-
lying
change
%
Net interest income .......... 3,047 – 140 3,187 – 956 4,143 36 30
Net fee income ................. 1,622 – 58 1,680 – 566 2,246 38 34
Other income4................... 2,053 – 108 2,161 1,081 410 3,652 78 19
Net operating income5...... 6,722 – 306 7,028 1,081 1,932 10,041 49 27
Loan impairment charges
and other credit risk
provisions .................... (512) – (13) (525) – (91) (616) (20) (17)
Net operating income ...... 6,210 – 293 6,503 1,081 1,841 9,425 52 28
Operating expenses .......... (3,548) – (179) (3,727) – (1,037) (4,764) (34) (28)
Operating profit ............... 2,662 – 114 2,776 1,081 804 4,661 75 29
Income from associates ... 865 – 25 890 – 458 1,348 56 51
Profit before tax ............... 3,527 – 139 3,666 1,081 1,262 6,009 70 34
For footnotes, see page 143.
Review of business performance
HSBC’s operations in Rest of Asia-Pacific reported
a pre-tax profit of US$6.0 billion compared with
US$3.5 billion in 2006, an increase of 70 per cent.
On an underlying basis, excluding dilution gains of
US$1.1 billion, profit before tax increased by
34 per cent, bolstered by sustained growth and
business expansion across the region.
In Global Banking and Markets, profit before tax
increased significantly, driven by an enhanced
product offering combined with buoyant local
markets. Commercial Banking revenue benefited
from increased customer volumes as a result of new
and enhanced banking services. In Personal Financial
Services, profit before tax rose as a result of strong
balance sheet growth and increased contributions
from associates. Private Banking delivered a solid
performance, underpinned by robust stock markets
and increasing wealth in the region.
HSBC’s three associates in mainland China,
Ping An Insurance, Bank of Communications and
Industrial Bank, all raised new capital in 2007 in the
‘A’ share market in Shanghai in which HSBC, as a
foreign investor, was unable to participate. The
dilution of the Group’s interests was considerably
less than its share of the new monies, resulting in
gains of US$1.1 billion which should be regarded
as exceptional.
Net interest income rose by 30 per cent.
Continued expansion of the branch network,
particularly in the populous markets of mainland
China, Indonesia and India, together with increased
marketing expenditure and greater brand awareness,
accelerated customer acquisition and growth in loans
and deposits.
In the Middle East, the significant increase in net
interest income was driven by balance sheet growth
across all customer groups and augmented by
improved spreads. The growth was underpinned by
strong local economies, higher oil prices and demand
for credit for infrastructure investment and trade.
In Global Banking and Markets, the rise in net
interest income was driven by the recovery in
Balance Sheet Management revenues and, as trade
and investment flows increased, by higher
transactional balances in the payments and cash
management businesses.
In Personal Financial Services, net interest
income rose by 23 per cent, driven by higher
personal lending, credit cards and deposit balances.
Growth was broad-based across the region.
Commercial Banking net interest income grew by
29 per cent due to volume growth in both loans and
deposits following an increase in customer numbers.
Fee income increased by 34 per cent. Buoyant
stock markets stimulated customer appetite for unit
trusts and other investment products. Strong
investment sales were recorded in India, Philippines,
South Korea, Singapore and mainland China.
Security services increased, driven by a sustained
level of transaction volumes and investment flows. In
the Middle East, increases were registered in cards,