HSBC 2009 Annual Report Download - page 112

HSBC HOLDINGS PLC
Report of the Directors: Operating and Financial Review (continued)
Geographical regions > Rest of Asia-Pacific > 2009 / 2008
110
by asset repricing, particularly in Commercial
Banking.
Average lending balances fell in Global
Banking and Markets and Commercial Banking as a
result of lower demand for financing as international
trade volumes declined, especially in the first half of
the year. Growth returned in the second half of the
year as the volume of trade activity improved.
Customer deposits grew compared with
2008. Personal Financial Services continued to
successfully attract deposits and the acquisition
of Premier customers was strong with the region
growing customer numbers by 35 per cent to over
580,000. Payments and cash management was
adversely affected by the low interest rate
environment.
Net fee income was 13 per cent lower than in
2008, driven by a decline in income from funds
under management and global custody. Fees from
funds under management in Singapore, Japan and
Taiwan declined as a result of weak investor
sentiment and lower fee margins as customers
moved away from equity investment products
though, in the latter part of the year, an improvement
in equity markets drove a recovery in investment-
related fee income. In India, tightened credit criteria
resulted in lower fees from the card business. By
contrast, trade services and cash management
increased in a number of countries, and the Group
took various steps to capture cross-border business
and continued to benefit from its international
business reach. Significant cross-border referral
growth was seen in Greater China where numbers
rose compared with 2008.
Net trading income declined by 16 per cent, as
the fall in interest rates reduced net interest income
from trading activities. Foreign exchange and Rates
trading income also declined across the region,
reflecting relatively low market volatility, though
Credit trading performance was strong, particularly
in mainland China, Japan and Singapore. In
mainland China, the decline in Rates income resulted
from losses on bond positions following an upward
shift in yields. However, in South Korea, revenue
increased as opportunities arose from market-making
and client hedging activities.
Net income from financial instruments
designated at fair value of US$110 million was
recorded compared with a net expense of
US$171 million in 2008. This was primarily
attributable to equity market-related gains on unit-
linked insurance products and was largely offset by a
corresponding increase in liabilities to policyholders
reflected in net insurance claims incurred and
movement in liabilities to policyholders.
Net earned insurance premiums increased by
91 per cent to US$365 million. Sales growth was
particularly strong in Singapore following the launch
of new products, including a life insurance product
designed for high net worth individuals and a single
premium guaranteed saver product. Growth in
insurance business resulted in higher net insurance
claims incurred and movement in liabilities to
policyholders.
Deposit spread compression, lower fees and
a rise in loan impairment charges reduced
underlying profit before tax by 8 per cent.
Loan impairment charges and other credit risk
provisions rose by 9 per cent compared with 2008 as
credit quality deteriorated in India.
In Personal Financial Services, loan impairment
charges rose by 9 per cent to US$649 million,
primarily due to rising delinquencies in the
unsecured consumer lending businesses in India and
Indonesia. In India, a challenging credit environment
and high delinquency rates contributed to increased
loan impairment charges in personal loans, consumer
finance and mortgages. The delinquencies in India
began to moderate in the second half of 2009 as the
measures implemented by HSBC in the second half
of 2008 to mitigate loan losses, including ceasing
consumer finance loan origination and tightening
lending criteria on other unsecured lending products,
began to take effect. As a result, loan impairment
charges against cards remained broadly in line with
2008. In Commercial Banking, significant
deterioration was experienced in India in the first
half of 2009. The loan impairment charges across the
region improved in the second half of 2009 with
credit quality stabilising as a result of support from
the governments’ various economic stimulus
initiatives, together with improved liquidity and
actions taken by customers to adjust in difficult
times. Notwithstanding the improvement towards the
end of the year, HSBC continues to closely monitor
portfolios for signs of weakness.
Operating expenditure was broadly in line with
2008. Tight cost control resulted in lower
administrative costs and marketing expenditure.
Staff costs fell due to lower performance-related
costs and a decrease in staff numbers. These were
broadly offset by expenditure to support the ongoing
development of infrastructure in the region,
including branch expansion in mainland China,
Vietnam and Malaysia and integration and
development costs related to HSBC InvestDirect and