HSBC 2004 Annual Report Download - page 88

HSBC HOLDINGS PLC
Financial Review (continued)
86
implementation of chip cards. Other general
expenses, including professional fees and
communications costs, increased to support
business expansion. Within the region HSBC
expanded the scale and range of services offered by
the Group Service Centres and additional staff were
recruited to support increased workflow. As new
business and cross-sales across the region grew
HSBC increased investment in sales support.
At US$117 million, the overall charge for bad
and doubtful debts was 21 per cent lower than in
2003. There was a release of general provision in
Malaysia which reflected the improvement in
economic outlook, and higher releases and
recoveries of specific provisions in several countries
across the region. New specific provisions raised
were 9 per cent higher than in 2003, notably in the
Middle East, Indonesia and Australia, reflecting
lending growth.
Commercial Banking reported pre-tax profits,
before goodwill amortisation, of US$496 million for
2004, 9 per cent ahead of 2003. A turnaround in
provisions, from a credit of US$52 million to a
charge of US$16 million, was more than offset by
additional income arising from growth in
international trade. Pre-provision profit before tax
increased by US$81 million, or 21 per cent. The
results also included, for the first time, a contribution
of US$24 million from the group’ s 19.9 per cent
stake in Bank of Communications.
Net interest income increased by 11 per cent,
compared with 2003, reflecting growth in the Middle
East, mainland China, Australia, New Zealand and
Singapore. The Middle East benefited from the
expansion of international trade, increased lending to
infrastructure projects, which took off on the back of
strong oil prices, and growth in current accounts. In
mainland China, HSBC benefited from increased
cross-referrals from Hong Kong, while a Taiwan
team seconded to mainland China helped to capture
substantial business from Taiwanese customers
investing there.
The expansion of trade business was also
reflected in other operating income, which grew by
18 per cent to US$347 million. Growth was
particularly strong in the Middle East, which also
benefited from increased fees associated with higher
lending, and in mainland China and Malaysia, where
dealing profits from foreign currency transactions
and trade services fees were both higher.
Operating expenses, before amortisation of
goodwill, were 6 per cent higher than last year.
Additional relationship managers, business
development and sales staff, credit analysts and
support staff were recruited in the latter part of 2004
in order to benefit from anticipated business
opportunities in 2005 arising from strong regional
economies. The continued migration of back office
work from Singapore, Australia, New Zealand and
Taiwan to the Global Service Centres contributed to
cost savings.
Provisions for bad and doubtful debts were
US$16 million, reversing a net release in 2003. New
provisions increased in mainland China, largely on a
single account and in the Middle East, reflecting
growth in lending. There were lower net recoveries
in Malaysia, while net recoveries and releases
increased in Indonesia and Singapore.
Corporate, Investment Banking and Markets
reported pre-tax profit, before amortisation of
goodwill, of US$940 million, an increase of 26 per
cent compared with 2003.
Net interest income of US$592 million grew by
7 per cent, in part reflecting strong Global Markets
performance from increased treasury earnings in
India and higher holdings of debt securities in China.
Corporate and Institutional Banking benefited from a
55 per cent increase in customer advances in
mainland China and a 58 per cent increase in the
Middle East. These gains were partly offset by a
decline in treasury interest income in Singapore as
higher yielding assets matured, and a reduction in
interest income in Japan from lower holdings of debt
securities.
Fees and commissions grew by 24 per cent to
US$421 million including a 3 per cent increase
resulting from Bank of Bermuda. Corporate and
Institutional Banking fee income rose in India,
Singapore, Taiwan and Japan, as client demand grew
for more sophisticated capital markets and related
risk management products. Performance in these
countries was improved further as an expansion in
business capabilities increased investment banking
advisory revenues and boosted Global Transaction
Banking volumes. In the Middle East, increases in
private equity revenues and corporate finance and
advisory fees reflected the expansion of the private
equity business and an enhancement of HSBC’ s
advisory function. In Malaysia, higher fees were
attributable to an increase in global custody and
transactional fees and an improvement in debt
origination and loan syndication activity. The
realignment of Corporate and Institutional Banking
business with Global Markets capabilities enabled
debt finance advisory to double the number of bond
and syndicated loan transactions, following effective
marketing initiatives and the identification of capital
market opportunities.