HSBC 2012 Annual Report Download - page 85

83
Overview Operating & Financial Review Corporate Governance Financial Statements Shareholder Information
Turkey, where we are targeting mass affluent
customers.
In CMB, we continued to invest in the UK, and
have increased the number of International
Relationship Managers to over 200 during the year.
In the first half of 2012, we launched an
International SME fund in the UK to support UK
businesses that trade, or aspire to trade,
internationally. By the end of 2012, we had approved
lending through the fund of £5.1bn (US$8.2bn),
exceeding the original target of £4.0bn (US$6.5bn),
and provided £12bn (US$20bn) of gross new lending
to UK SMEs, including the renewal of overdraft and
other lending facilities. Over 80% of small business
lending applications received during the year were
approved. Revenue from international customers
increased and our focus on this client base, together
with targeted growth initiatives such as deposit
acquisition and regional pricing strategies, led to
a rise in Payments and Cash Management and
Global Trade and Receivable Finance income.
Revenues from CMB’s collaboration with
GB&M increased primarily from sales of foreign
exchange products. During the year, we made a
provision for the possible mis-selling of interest rate
protection products and the sale of these products to
customers in our Business Banking segment, which
serves SMEs, was withdrawn.
GB&M continued to develop cross-product
capabilities in the growing renminbi market. Early in
the year, we issued the first international renminbi
bond outside sovereign Chinese territory. Since then,
a number of significant transactions were supported
by in-depth collaboration between European and
other regional teams which reinforced our position
as the leading house for international renminbi
issuance. In Foreign Exchange, the focus remained
on enhancing product offerings in our e-FX
platforms for a broader client base, particularly to
RBWM and CMB customers. This included the
launch of a ‘Dynamic Currency Conversion’ product
within the transactional Foreign Exchange business.
To enhance coverage efforts in Global Banking, the
Corporate Finance Group was established to
strengthen the financial advisory and event financing
business. Payments and Cash Management won a
number of mandates and implemented the Global
Liquidity Solutions platform to provide advanced
liquidity management functionality for its clients. In
addition, our legacy credit exposure was reduced in
Europe by exiting from certain positions and the
business will reduce the size of this portfolio further
as opportunities arise.
In GPB, we revised our medium-term strategic
plan to focus the business on investing in priority
markets with a redefined client offering that
builds on product strengths and leverages Group
capabilities. We concentrated on higher net worth
international and domestic customers, enhancing our
compliance and risk framework and improving
alignment with the other global businesses.
Our activities are likely to be affected by
proposed legislation in the UK arising from the
recommendations of the UK Independent
Commission on Banking (‘ICB’) to ring-fence the
retail bank from wholesale operations and to require
the retail bank to have a greater primary loss
absorbing capacity. Proposed changes in regulations
are likely to affect how we conduct activities, with
the potential to curtail the types of business we carry
out and increase the costs of doing business. The
implementation of any proposed changes will take a
considerable amount of time and involve significant
cost (see page 132).
The following commentary is on a constant
currency basis.
Net interest income decreased by 3%. Balance
Sheet Management revenues declined, principally in
the UK, as yield curves continued to flatten and
liquidity arising from maturities and sales of
available-for-sale debt securities was re-invested at
lower prevailing rates. In addition we placed a
greater portion of our liquidity with central banks.
GPB was similarly affected as higher yielding
positions matured and as we managed selectively our
exposures to eurozone sovereign debt. Legacy credit
revenues in the UK also fell as a result of higher
interest expense on structured debt issued at the end
of 2011, coupled with lower effective yields on
assets. RBWM net interest income declined mainly
in the UK due to lower deposit spreads reflecting
strong competition in the low interest rate
environment. This was partly offset by strong growth
in average residential mortgage balances and
improved lending spreads in the UK, along with
higher personal lending and cards balances in
Turkey as the business expanded. In addition, net
interest income in CMB benefited from higher
average customer account balances as we continued
to attract deposits through our Payments and Cash
Management products as a result of competitive
pricing, while average lending balances also rose,
mainly in the UK, despite muted demand for credit.
Net fee income increased by 2%. CMB fee
income rose due to higher transaction volumes
reflecting new mandates in Payments and Cash
Management. RBWM fee income also increased due