HSBC 2005 Annual Report Download - page 97

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fee income increased by US$27 million, reflecting a
29 per cent increase in credit card fees and a 29 per
cent increase in current account fee income, driven
by increased transaction volumes in a recovering
economy.
The sale of HSBC’s Brazilian property and
casualty insurance business, HSBC Seguros de
Automoveis e Bens Limitada, to HDI Seguros S.A.,
led to the recognition of an US$89 million gain,
reported in other operating income.
Loan impairment charges and other credit risk
provisions increased to US$515 million, reflecting
strong growth in unsecured lending. Credit quality in
Brazil remained stable in the majority of product
lines, but there was a 5 per cent increase in impaired
loans as a proportion of assets in the consumer
finance business. The consumer finance sector
experienced increased credit availability, which led to
indebtedness exceeding customers’ repayment
capacity, increasing delinquencies. However,
tightening of credit approval policies and
improvements in the credit scoring model led to an
improvement in the charge as a proportion of assets
in the fourth quarter. Credit quality in Argentina
improved, reflecting generally better economic
conditions.
Operating expenses increased by 27 per cent. In
Brazil, the acquisition of Valeu Promotora de Vendas
and CrediMatone S.A. led to a significant increase in
average staff numbers, though by the end of 2005
staff numbers were 2 per cent lower than at
December 2004, following a restructuring of the
consumer finance business. The increased average
number of full-time employees, the impact of a
mandatory national salary increase and the transfer of
the Brazilian insurance business from the ‘Other’
business segment contributed to a 25 per cent
increase in Brazilian staff costs. Other expenses grew
to support business expansion and the development
of direct sales channels, while transactional taxes
increased by 21 per cent, driven by higher operating
income. In Argentina, costs were 3 per cent up on
2004 as increased performance-related remuneration
and union agreed salary increases led to higher staff
costs.
Commercial Banking reported pre-tax profits of
US$185 million, 2 per cent higher than 2004. In
Brazil, pre-tax profits increased by 12 per cent as
asset growth drove higher revenues, which were
mitigated by increased loan impairment charges and
higher costs. In Argentina, pre-tax profits declined by
31 per cent, as significant loan recoveries were not
repeated.
Net interest income increased by 49 per cent,
driven by asset growth. In Brazil, a growing economy
and a 30 per cent rise in customer numbers led to
increases in both assets and liabilities. Overdraft
balances grew by 41 per cent as both the number and
the average size of facilities grew, contributing
US$40 million of additional income. Overdraft
spreads increased by 3 percentage points as a result
of increases in the rate charged to new borrowers.
The continuing success of Giro fácil, a revolving loan
and overdraft facility, resulted in a 13 per cent
increase in customer numbers which, together with an
increase in facility utilisation, resulted in a 77 per
cent increase in balances. Invoice financing balances
rose by 30 per cent, benefiting from both increased
marketing and higher sales to Losango clients,
approximately a third of whom now have a
commercial banking relationship with HSBC.
Deposit balances in Brazil increased by 21 per
cent, reflecting initiatives to incentivise staff to
prioritise sales of liability products. However,
competitive pressures contributed to a 5 percentage
points decrease in spreads on loans and advances to
customers, while deposit spreads were 13 basis points
lower. In Argentina, deposits from commercial
customers increased by 42 per cent, reflecting the
continuing economic recovery, while loans and
overdrafts more than doubled and current account
balances increased by 38 per cent. HSBC increased
its market share in both loans and deposits.
Net fee income was 14 per cent lower than 2004,
driven by IFRSs changes to accounting for effective
interest rates, which reduced fee income by 40 per
cent. Excluding this effect, net fee income increased,
due to higher fees from payments and cash
management, current accounts, and lending in Brazil.
Current account fees increased by 26 per cent,
reflecting tariff increases, improved collection
procedures and higher transaction volumes, while
lending fees benefited from higher business volumes.
In Argentina, the launch of a commercial banking
call centre in the first half of 2005 enhanced the
customer service proposition. This, together with the
recruitment of additional relationship managers,
supported a 14 per cent increase in customer numbers
and, as a result, current account fee income increased
by 21 per cent. Improvements in the Argentinian
economic climate contributed to increased trade
flows which, together with the establishment of a
dedicated trade service sales team, led to a 22 per
cent increase in trade services income.
Loan impairment charges and other credit risk
provisions were US$55 million, following a small net
release in 2004. In Brazil, asset growth contributed to
a US$47 million increase in charges. Impaired loans