HSBC 2006 Annual Report Download - page 65

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competitive pricing and customer retention initiatives
contributed to a rise in customer numbers and
resulted in a 22 per cent increase in average mortgage
balances. In India, mortgage balances rose by 27 per
cent, benefiting from increased marketing and direct
sales efforts, while in Malaysia, the successful
promotion of Homesmart, a flexible offset mortgage
product, enabled HSBC to increase average mortgage
balances by 10 per cent and widen spreads in a
highly competitive market.
Personal lending balances increased by 22 per
cent, partly as a result of significant growth in
HSBC’s consumer finance business in India,
Australia and Indonesia. In Indonesia, HSBC opened
28 dedicated consumer finance outlets while, in
India, 25 new outlets were opened in branches. In
Australia, consumer finance was developed in
partnership with well known international retailers
such as IKEA and Bang & Olufsen, together with
established local retailers including Clive Peeters and
Bing Lee. HSBC signed a number of exclusive
supplier agreements with retailers and, as a result, the
number of retail distribution outlets grew to more
than 1,100, which enabled HSBC to increase its
market share. In Malaysia, the success of HSBC’s
instalment loan product, ‘Anytime Money’, which
was re-launched in 2005, contributed to a 93 per cent
rise in average personal lending balances. In the
Middle East, HSBC focused on promoting a select
portfolio of products following a product
simplification exercise instigated in the fourth quarter
of 2005 which led to a 22 per cent rise in personal
lending balances. Investments in HSBC’s South
Korean operations had immediate results and
personal lending balances more than doubled.
Net fee income rose by 24 per cent to
US$524 million. Regional card fees were 30 per cent
higher, reflecting solid growth in cardholder
spending while, in Indonesia, higher card fee income
was a consequence of a rise in delinquencies.
The robust performance of regional stock
markets during 2006 contributed to strong demand
for investment products and led to the launch of new
investment funds, which together generated a 27 per
cent increase in investment fee income, including
custody and broking fees. Growth was particularly
strong in South Korea, Taiwan, India and Singapore.
Sales of investment products, including unit trusts,
bonds and structured products, increased by 19 per
cent to US$8.0 billion and funds under management
grew by 19 per cent to US$8.6 billion.
HSBC continued to develop its regional
insurance business by launching medical insurance in
Singapore and establishing a Takaful joint venture in
Malaysia, offering Shariah-compliant insurance
products. In the Middle East, cardholder credit
insurance was launched in the fourth quarter of
2006. These product launches were supported by
increased marketing activity and targeted investment
to increase HSBC’s presence and market share.
Consequently, the number of policies in force at the
end of 2006 rose by 89 per cent to 800,000 and
insurance fee income and insurance premiums rose
by 12 per cent and 4 per cent respectively.
Other operating income increased by
US$71 million due to gains on the sale of HSBC’s
Australian stockbroking, margin lending and
mortgage broker businesses. Additionally, HSBC
established a joint venture with Global Payments Inc.
to manage the majority of the bank’s Asian card
acquiring business. This was transferred to the joint
venture in July 2006, realising a gain of
US$10 million in the region’s Personal Financial
Services business.
Loan impairment charges and other credit risk
provisions more than doubled to US$545 million,
mainly due to higher charges for personal lending in
Taiwan and Indonesia. In Taiwan, regulatory changes
restricted collection activities and eased repayment
terms for delinquent borrowers. These changes,
coupled with a deteriorating credit environment, led
to a US$160 million increase in loan impairment
charges related mainly to the credit card portfolio,
most of which were recognised in the first half of
2006. In Indonesia, changes in minimum repayment
amounts, along with hardship following a significant
reduction in the government subsidy of fuel prices,
led to increased delinquency rates on credit cards,
also mainly in the first half of 2006. Elsewhere in the
region, credit quality was broadly stable and growth
in impairment charges followed increases in credit
card and personal lending balances.
Operating expenses increased by 26 per cent to
US$1,593 million, largely tracking revenue growth.
Expansion of the branch network and development of
sales and support functions led to higher staff
numbers and, together with higher performance-
related incentive payments, contributed to a rise in
staff costs. The new branch openings increased
premises and equipment costs. The establishment of
a number of consumer finance businesses and HSBC
Direct’s introduction in Taiwan were also factors in
the rise in operating expenses.
Marketing costs rose as HSBC increased
advertising and promotional activity directed to
attracting new customers, enlarging HSBC’s share of
the credit card, mortgage and unsecured personal
lending markets and increasing deposit balances. In