HSBC 2012 Annual Report Download - page 113

111
Overview Operating & Financial Review Corporate Governance Financial Statements Shareholder Information
Latin America
Our operations in Latin America principally
comprise HSBC Bank Brasil S.A.-Banco
Múltiplo, HSBC México, S.A., HSBC Bank
Argentina S.A. and HSBC Bank (Panama) S.A.
In addition to banking services, we operate
insurance businesses in Brazil, Mexico,
Argentina and Panama.
2012 2011 2010
US$m US$m US$m
Net interest income .......... 6,984 6,956 6,311
Net fee income ................. 1,735 1,781 1,749
Net trading income .......... 971 1,378 733
Other income ................... 1,261 1,338 938
Net operating income21 .. 10,951 11,453 9,731
LICs76 ............................... (2,137) (1,883) (1,544)
Net operating income .... 8,814 9,570 8,187
Total operating expenses .. (6,430) (7,255) (6,394)
Operating profit ............. 2,384 2,315 1,793
Income from associates77 . – – 2
Profit before tax ............. 2,384 2,315 1,795
Cost efficiency ratio ........ 58.7% 63.3% 65.7%
RoRWA66 ......................... 2.4% 2.3% 2.0%
Year-end staff numbers ... 46,556 54,035 56,044
Significant progress on reducing
fragmentation in our portfolio of businesses
Strong underlying revenue growth
across all global businesses
US$475m
increase in LICs76
(on an underlying basis)
For footnotes, see page 120.
Economic background
Brazil’s GDP growth slowed further in 2012, mostly
due to the effects of higher input costs, concern
about global financial stability, and domestic
regulatory uncertainty. Despite growth remaining
low, consumer inflation remained above the 4.5%
inflation target pursued by the Central Bank, ending
2012 at 5.8%.
By contrast, growth held up well in Mexico
in 2012 led, in particular, by favourable industrial
exports to the US. Enhanced competitiveness helped
Mexican exports to gain a larger share of total US
imports. Domestically, demand stayed largely
unchanged, encouraged by labour reforms passed
by the new administration. Despite the growth
figures, inflation ended 2012 slightly below 4%
and converging on the 3% inflation target pursued
by Banco de Mexico.
Argentina reported a sharp slowdown in 2012.
Balance of payments restrictions gradually escalated
from capital flows to the current account, including
imports of intermediate goods, which generated
disruption in production and deterioration in
business confidence. Despite this sharp slowdown,
inflation continued to remain high, partly due to
regulated price increases and import restrictions that
lowered domestic supply.
Review of performance
Our operations in Latin America reported a profit
before tax of US$2.4bn in 2012, 3% higher than in
2011 and an increase of 16% on a constant currency
basis. This included a gain of US$102m following
the completion of the sale of our general insurance
manufacturing business in Argentina, a loss of
US$62m on the sale of our operations in Costa Rica,
Honduras and El Salvador and a loss of US$96m
recognised following the reclassification of our non-
strategic businesses in Colombia, Peru, and Paraguay
to ‘Assets held for sale.’
On an underlying basis, pre-tax profits rose by
19%, primarily due to increased revenues across
all global businesses, partly offset by higher loan
impairment charges. In RBWM, the revenue increase
reflected growth in average lending balances in
Argentina and a higher yielding portfolio mix in
Brazil while, in CMB, it resulted from continued
balance sheet growth in Brazil which was driven by
a strong demand for trade-related lending and higher
balances of Payment and Cash Management current
accounts in Argentina. In addition, there were higher
Balance Sheet Management revenues in Brazil
following a downward movement in interest rates
which lowered the cost of funding. In Brazil, loan