HSBC 2005 Annual Report Download - page 61

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sophisticated risk-based pricing enabled customer
rates to be differentiated more acutely.
Net interest income from other unsecured
lending in the UK increased by 4 per cent. The
launch of differentiated pricing initiatives in April,
notably through preferential personal lending rate
offers to lower-risk customers, helped boost average
loan balances by 9 per cent, and increase HSBC’s
market share of gross advances from 10.7 to 11.7 per
cent. Focused sales and marketing, notably the
‘January sale’, also contributed to higher balances.
As indebtedness levels grew, growth was curtailed
through a tightening of underwriting criteria in the
more difficult credit environment. The introduction
of preferential pricing, and a mix change towards
higher value but lower-yielding loans, led to a
48 basis point narrowing of spreads.
Recruitment of new current account customers
was strong, and HSBC’s market share of new current
accounts increased to 14.7 per cent, largely through
brand-led awareness and marketing. The launch of
two new current account propositions, including
HSBC’s first value-driven packaged account in the
UK market, and improved cross-sales aided growth
of 6 per cent in overall customer accounts. This led
to an increase in net interest income from UK
current accounts of 5 per cent to US$1.0 billion,
broadly in line with the 6 per cent increase in
average balances.
Sales of new UK savings accounts increased
markedly, and average balances rose by 15 per cent,
driven by a greater front-line focus, competitive
pricing and the launch of new products, including
‘Regular Saver’ and ‘Online Saver’. Included in this
was growth of over US$1.2 billion in First Direct’s
‘e-savings’ product, launched in September 2004.
Net interest income, however, fell by 5 per cent,
largely due to the non-recurrence of the benefit to
spreads from base rate rises in 2004, and a slight
reduction in margin. The latter arose from
competitive pricing initiatives partly designed to
improve brand awareness and widen product
consideration.
In Turkey, innovative marketing initiatives and
advertising campaigns, with an emphasis on
attracting new customers, contributed to strong
growth in net interest income, which more than
doubled compared with 2004. Average card balances
increased by 66 per cent to US$0.9 billion, and
average mortgage balances more than doubled to
US$0.6 billion. Higher card usage by existing
customers, higher average mortgage advances and a
7 per cent increase in overall customer numbers
contributed to the growth.
In France, net interest income was broadly in
line with 2004. Marketing campaigns in the run-up
to the rebranding exercise contributed to a 54 per
cent increase in mortgage sales in a buoyant market,
and a resulting 18 per cent increase in average
balances. Cross-sales of current and special
regulated savings accounts were strong, and average
deposit balances grew by 4 per cent to
US$14.9 billion. The benefit of this balance sheet
expansion was largely offset by lower spreads, as
competitive pricing reduced yields on lending
products, and the maturing of older, higher-yielding
investments reduced the funding benefit from
deposits.
Excluding net interest income, net operating
income before loan impairment charges grew by
16 per cent to US$3,386 million, of which
12 percentage points was in the UK and largely
attributable to increased fees associated with the
increase in personal lending, mortgage and credit
card volumes described above. Increased card
utilisation also led to higher cash advance fees and
currency conversion income. An improved
investment fund offering, following the
depolarisation of the previously tied sales force, was
reflected in a 5 per cent increase in related
commissions. In Turkey, fee income benefited from
increased lending activity. In France, privatisations
boosted brokerage income, and new product
launches and marketing aided growth in insurance
and investment sales.
Under IFRSs, changes in presentation from
1 January 2005, notably for certain contracts
previously accounted for as insurance, and with the
designation of insurance-related assets at fair value,
caused large movements within certain individual
income lines. These had negligible impact on income
overall. There was also a US$32 million gain from
the fair value measurement of options linked to
French home-savings products.
Loan impairment charges of US$1,711 million
were 73 per cent higher than 2004, the majority of
which occurred in the UK. In large part, this
reflected the strong growth in higher margin credit
card and other unsecured lending in recent years.
Weakening economic conditions and sharply rising
personal bankruptcies, following the change in
legislation in 2004, were also significant
contributors.
Loan impairment charges as a percentage of
period end net customer advances rose from 0.8 to
1.4 per cent.
HSBC responded to the weaker UK credit
environment by further refining its credit eligibility