HSBC 2005 Annual Report Download - page 20

HSBC HOLDINGS PLC
Description of Business (continued)
18
attracted banks’ attention as consumer spending
revived strongly.
The Chinese currency regime was reformed in
July 2005 and the second phase of Hong Kong’s
renminbi business introduced late in the year. While
developments in these areas remain at an early stage,
they are expected, along with the benefits flowing
from the liberalisation of China’s financial sector
under the World Trade Organisation agreement, to be
a continued source of growth in the future.
Rest of Asia-Pacific
(including the Middle East)
The competitive environment in the Rest of
Asia-Pacific continues to intensify as international
banks focus on targeted sectors in emerging markets
in pursuit of higher returns. Local banks are also
actively expanding their reach and business, both
within countries and across borders. Competition
remains intense throughout the region in all the
customer groups served by HSBC. However, in
many countries the growing sophistication of the
relatively young population and increasing affluence
of the middle class continue to provide HSBC with
further opportunities for growth.
Banks and non-banks, both local and
international, are rapidly building consumer finance
and direct banking businesses in a number of
countries in the region.
North America
In an already highly competitive US financial
services industry, institutions involved in a broad
range of financial products and services continued to
consolidate. Within the banking sector, consolidation
continued into 2006, with a greater focus on national
networks and retail branch banking.
The Group’s principal US subsidiaries, HSBC
Bank USA and HSBC Finance, face vigorous
competition from a wide array of financial
institutions. These include banks, thrifts, insurance
companies, credit unions, mortgage lenders and
brokers, and non-bank suppliers of consumer credit
and other financial services. Many of these
institutions are not subject to US banking industry
regulation, unlike HSBC. This gives some of them
cost and product advantages and will further increase
competitive pressures. HSBC competes by
expanding its customer base through portfolio
acquisitions or alliances, co-branding opportunities
and direct sales channels, by offering a very wide
variety of consumer loan products and by
maintaining a strong service orientation.
The five largest banks in Canada dominate the
country’s financial services industry. Despite this,
the market remains very competitive with
comparable financial products and services offered
by other banks, insurance companies and other
institutions. Merger activity among the largest banks
in Canada remains possible, but without such
consolidation major financial institutions will
continue to look elsewhere for growth.
Mexico’s banking industry is highly
concentrated. Five large foreign-owned banks,
including HSBC, control 75 per cent of banking
assets and 78 per cent of deposits through their local
subsidiaries. The majority of Mexico’s 105 million
people neither have access to nor use the banking
system. Thus there are favourable growth
opportunities for retail banking over the medium to
long term. HSBC is well placed in this environment,
with an extensive branch network and an expanding
base of young customers from which to develop
growth opportunities. Currently, there is strong
regulatory and consumer pressure to reduce banking
and pension management fees and commissions as
volumes increase, constraining growth in non-funds
income. Mexico’s economy is very closely linked to
the US and 88 per cent of its exports are sent there.
South America
The composition of the Brazilian financial system
saw relatively little change in 2005. The top ten
banking groups, which account for 68 per cent of
assets and 86 per cent of branches, remained
dominated by a combination of large state-owned
banks, privately-owned local banks and subsidiaries
of foreign banks such as HSBC. In 2005, HSBC was
the sixth largest non-state owned bank in the country,
ranked by assets.
Notwithstanding the persistence of high interest
rates in Brazil and an uncertain outlook for the
economy, 2005 saw strong growth in lending to
individuals. Central Bank statistics indicate that
personal lending increased by an estimated 37 per
cent during the year, following growth of 28.6 per
cent in 2004. However, total lending as a percentage
of GDP remained low in international terms at
31.3 per cent. This, together with the fact that within
the economically active population an estimated
40 million people have limited access to financial
services, indicates that the outlook for further growth
is positive.
Against this background, banks continued to
develop their consumer finance businesses, with
particular emphasis on partnerships with large
retailers and ‘green field’ ventures. In the retail