HSBC 2006 Annual Report Download - page 32

HSBC HOLDINGS PLC
Report of the Directors: Business Review (continued)
Competitive environment / Europe > 2006
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consolidate. Within the banking sector, consolidation
continued in 2006, with a greater focus on national
networks and retail branch banking.
The Group’s principal US subsidiaries, HSBC
Bank USA and HSBC Finance, faced 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 thus increases
competitive pressure. 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 slowing US housing market has had an
adverse effect on sub-prime mortgage originators
and lenders, including HSBC. Numerous sub-prime
lenders have exited the industry or have announced
that they are exploring alternatives. Investment
banks have been active purchasers of distressed
competitors in an attempt to vertically integrate
origination platforms to feed secondary market
demands.
The six 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, growth opportunities for the larger
banks will continue to exist mainly outside of
Canada.
Latin America
Mexico’s financial system remains highly
concentrated. Five banks dominate the industry,
controlling some 80 per cent of banking assets. Of
these five, four (including HSBC) are foreign-
owned. In 2006, new banking licences were granted
to 13 bank and non-bank institutions. This will
increase competition, mainly in customer segments
in which banking is currently under-represented.
These segments also represent potential growth areas
for the existing five major banks in the medium to
long term.
There is increasing regulatory pressure on
banking and pension management fees and
commissions, which has constrained growth in
non-funds income. As a result, competition is fierce
in consumer lending, as financial institutions seek to
build alternative income streams despite difficulties
in establishing reliable consumer credit histories.
HSBC seeks to differentiate through customer
service, and is well positioned to capitalise on
economic growth with its extensive branch and ATM
network, and growing young customer base.
In Brazil, concentration in the industry
increased, with the top ten banking groups
accounting for some 70 per cent of assets and
87 per cent of branches at 31 December 2006 (2005:
68 per cent and 86 per cent respectively). These top
ten banking groups consist mainly of state-owned,
privately owned and large foreign banks (including
HSBC), and the most significant change in the
Brazilian financial system was the growing market
share of the larger privately owned banks through
consolidation in the industry and partnerships
established with national retailers.
Improvements in the macro-economic
environment, particularly in increased solvency and
liquidity in the market and in monetary policy, have
benefited the consumer through constraining
inflationary growth. Notwithstanding persistently
high interest rates, consumer borrowing has
increased. However, total lending as a percentage of
Gross Domestic Product (‘GDP’) remained low in
international terms at 34 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.
In Argentina, HSBC’s direct competition comes
primarily from international financial groups that
provide an equivalent range of banking, insurance,
pension and annuity products and services. Given the
growth experienced over recent years in the
Argentine economy, there has been resurgent
demand for credit products, coupled with increases
in deposits. The strong recovery in consumer
confidence is reflected in the level of private sector
loans and private deposits that grew by 40 per cent
and 22 per cent respectively compared with 2005.
The life and annuities market increased by 17 per
cent in terms of assets, while pension funds
collections increased by 30 per cent.