HSBC 2009 Annual Report Download - page 101

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2009 compared with 2008
Economic briefing
The performance of the Hong Kong economy
proved variable during the course of 2009, with a
robust recovery developing after a sharp contraction
was recorded during the first quarter of the year.
GDP in 2009 fell by 2.7 per cent after growth of
2.1 per cent in 2008. Unemployment rose during the
first half of 2009, before falling slightly to end the
year at 4.9 per cent, a figure still well below the
average of the past 10 years. The CPI profile proved
volatile during the course of the year, turning
negative between June and August before rising to
1.3 per cent by December 2009, although these
movements largely reflected the trends of food and
energy prices. The Hong Kong Monetary Authority
held the base rates steady at 0.5 per cent throughout
the course of the year. Asset price performance
proved unusually volatile as the Hang Seng Index
recovered strongly from a weak start to 2009 to
record a 52 per cent increase during the year.
Reconciliation of reported and underlying profit before tax
2009 compared with 2008
Hong Kong
2008
as
reported
US$m
2008
adjust-
ments10
US$m
Currency
translation11
US$m
2008
at 2009
exchange
rates12
US$m
2009
adjust-
ments10
US$m
Under-
lying
change
US$m
2009
as
reported
US$m
Re-
ported
change13
%
Under-
lying
change13
%
Net interest income .......... 5,698 – 21 5,719 – (1,524) 4,195 (26) (27)
Net fee income ................. 2,580 – 10 2,590 –
79 2,669 3 3
Changes in fair value14 .... 5 (5) – – (1) – (1) (120)
Other income15 ................. 1,871 – 7 1,878 – 726 2,604 39 39
Net operating income16 .. 10,154 (5) 38 10,187 (1) (719) 9,467 (7) (7)
Loan impairment charges
and other credit risk
provisions .................... (765) – (2) (767) – 267 (500) 35 35
Net operating income .... 9,389 (5) 36 9,420 (1) (452) 8,967 (4) (5)
Operating expenses .......... (3,943) – (16) (3,959) – 13 (3,946) – –
Operating profit ............. 5,446 (5) 20 5,461 (1) (439) 5,021 (8) (8)
Income from associates ... 15 – – 15 – (7) 8 (47) (47)
Profit before tax ............. 5,461 (5) 20 5,476 (1) (446) 5,029 (8) (8)
For footnotes, see page 149.
Review of business performance
HSBC’s operations in Hong Kong reported
pre-tax profits of US$5.0 billion compared with
US$5.5 billion in 2008, an 8 per cent decline on
both a reported and an underlying basis.
The decrease in profits came from lower
revenue, which resulted from compressed deposit
spreads in a near-zero interest rate environment. This
loss of revenue was partly offset by significantly
lower loan impairment charges and other credit risk
provisions during 2009, and a recovery in trade
activity triggered by an improvement in regional
economic conditions in the second half of the year.
Despite continuing economic challenges,
performance remained robust, and was underpinned
by HSBC’s market-leading share in deposits,
residential mortgages, cards and insurance. In
particular, HSBC consolidated its position as Hong
Kong’s leading bancassurer, growing the value of
new life insurance business by 38 per cent. In
residential mortgages, business growth was
combined with conservative loan-to-value ratios
on new business.
Net interest income declined by 27 per cent to
US$4.2 billion, driven by significant deposit spread
compression as HIBOR and LIBOR remained low
throughout 2009. Selective repricing of customer
loans helped to mitigate the impact of lower rates
on lending spreads and the continued increase in
customer account balances has positioned HSBC to
benefit from economic recovery and a resulting
widening of deposit spreads.
Average customer lending balances remained
broadly in line with 2008, as lower Commercial
Banking balances, which reflected the reduction in
exports in the first half of 2009, were broadly offset
by higher lending in Personal Financial Services and
Global Banking and Markets. As the regional
economy rebounded, trade volumes and Commercial