HSBC 2002 Annual Report Download - page 80

HSBC HOLDINGS PLC
Financial Review (continued)
78
Bad and doubtful debts
Year ended 31 December
Figures in US$m 2002 2001 2000
Loans and advances to
customers
- specific charge
new provisions ...................... 388 346 232
release of provisions no
longer require
d
................. (48 ) (35 ) (28)
recoveries of amounts
p
reviously written of
f
....... (10 ) (8 ) (9)
330 303 195
- additional general charge
against Argentine
exposure........................... (196 )600
–
- general charge/(release) ...... (17) 24 (1)
Customer bad and doubtful
debt charge....................... 117 927 194
Total bad and doubtful debt
charge............................... 117 927 194
Customer bad debt charge as
a percentage of closing
gross loans and advances.. 3.27% 17.80% 3.04%
Figures in US$m
At 31
December
2002
At 31
Decembe
r
2001
Assets
Loans and advances to customers (net) ...... 3,028 4,156
Loans and advances to banks (net) ............. 1,665 2,252
Debt securities, treasury bills and other
eligible bills........................................... 1,450 3,386
Total assets ................................................ 8,491 13,097
Liabilities
Deposits by banks ...................................... 661 1,338
Customer accounts..................................... 4,863 7,523
Year ended 31 December 2002 compared with
year ended 31 December 2001
2002 has been a year of uncertainty in both Brazil
and Argentina. The Argentine government has been
in talks with the International Monetary Fund and
World Bank for over a year, however an agreement
on the resumption of lending has yet to be reached.
The Argentine economy has experienced its fourth
successive year of recession with a large contraction
in GDP, falling 12 per cent, and unemployment
continuing to rise. However, some stability was
introduced towards the end of 2002, as the peso
began to appreciate from its lows as fears of
hyperinflation began to recede and a significant trade
surplus emerged. Elections are expected to take place
in the second quarter of 2003.
Brazil skillfully avoided major fall-out from the
collapse of the Argentine economy and steadily
improved its current account position through
growing its trade surplus with the rest of the world.
Uncertainty over the outcome of presidential
elections held in the second half of 2002 led to a
sharp depreciation in the value of the real and
upward pressure on interest rates in the first half of
the year. The newly elected government quickly
stated its commitment to fiscal discipline, leading to
improved stability towards the end of 2002 reflected
in lower interest rates and a stronger currency.
HSBC’s operations in South America reported a
cash basis operating profit before provisions of
US$181 million, compared with US$448 million in
2001. At constant exchange rates, cash basis
operating profit before provisions was US$137
million, or 43 per cent, lower than in 2001. Cash
basis losses before tax improved substantially to
US$34 million, compared with a loss of US$1,002
million in 2001.
In Brazil, cash basis operating profit before
provisions of US$268 million was US$51 million, or
16 per cent, lower than in 2001. At constant
exchange rates, cash basis operating profit before
provisions was broadly in line with 2001. A strong
performance in dealing income was offset by a loss
of revenue from account services, as new legislation
prohibited the levying of fees on certain types of
account. Higher contributions to employee pension
schemes arising from higher levels of inflation also
depressed results. In Argentina there was a cash basis
operating loss before provisions of US$111 million,
compared with a profit of US$117 million in 2001.
These losses were driven primarily by the high cost
of funding non performing assets. In addition,
revenues from the insurance businesses were
adversely affected by the prevailing market
conditions. Cash basis losses before tax of US$210
million included further losses relating to the
mandatory pesification of assets and liabilities of
US$68 million. These arose mainly from court
decisions (‘amparos’ ) relating to formerly frozen US
dollar denominated customer deposits that were
required to be settled at the prevailing market
exchange rate.
The following commentary is based on constant
exchange rates.
Net interest income of US$645 million was
US$119 million, or 16 per cent lower than in 2001.