HSBC 2007 Annual Report Download - page 116

HSBC HOLDINGS PLC
Report of the Directors: Business Review (continued)
Latin America > 2007
114
In Brazil, fee income rose by 3 per cent on
the back of growth in lending balances and a
commensurate rise in credit facility fees. Fee
income further benefited from re-pricing initiatives,
particularly in current account fees.
Fee income in Argentina, higher by 12 per cent,
primarily reflected an extra four months of Banca
Nazionale revenues. Business growth in
bancassurance and credit cards also contributed
to improved fees.
The continued growth of insurance operations in
the region, through increased product offerings and
expanded distribution channels, led to higher
insurance premiums and claims.
In Mexico, increased cross-selling activities in
the branch network resulted in higher net insurance
income, mainly driven by sales of a five-year life
assurance product. Refinement of the recognition
methodology used in respect of the PVIF long-term
insurance contracts resulted in a one-off revenue
increment in the first half of 2007.
In Brazil, income grew from higher sales
volumes of pension and life assurance products. The
growth in the life portfolio was driven by growth of
106 per cent in credit insurance products. Pension
portfolio income grew by 48 per cent following
targeted sales initiatives. Net insurance claims also
grew substantially during the year. Increased
premium income in Argentina was generated from
higher sales volumes of general insurance and life
protection policies, supported by innovative
marketing campaigns.
Net gains from financial investments increased
significantly, driven by a gain of US$97 million,
following a sale of shares held in a credit bureau, a
stock exchange and a derivatives exchange in Brazil.
Loan impairment charges rose by 70 per cent
to US$1.5 billion, mainly due to higher delinquency
from seasoned loan growth in Mexico.
Mexico reported a more than threefold increase
in loan impairment charges to US$737 million,
driven by higher impairments on credit cards
following the targeted expansion in market share, and
higher delinquencies from self-employed loan
balances. The increase in loan impairment charge is
part of the cost of building strong organic growth as
portfolios season. Regular reviews are undertaken to
improve the quality of new business, based on
underwriting experience, improved collection
strategies and better managed customer acquisition
channels. Credit models were updated during 2007 to
adjust to credit behaviour in underlying portfolios.
Loan impairment charges rose only modestly
in Brazil, notwithstanding strong asset growth,
reflecting the benign credit environment and the
application of proactive risk management techniques.
Increased loan impairment charges from the vehicle
finance, cards, payroll loans and store loans
portfolios were partially offset by lower loan
impairment charges in overdrafts and personal loans.
In Argentina, loan impairment charges grew by
US$14 million, again mainly due to the inclusion of
the Banca Nazionale portfolio, as well as organic
loan growth.
Operating expenses of US$3.8 billion were
12 per cent higher, mainly because of activities
undertaken in support of product and distribution
expansion initiatives, and integrating recent
acquisitions.
In Mexico, operating expenses increased by
14 per cent, as non-staff costs rose to support organic
business growth. Staff costs were flat as increases to
support business growth, mainly in debt collection
and call centres, were offset by one-off curtailment
and settlement gains from staff transferring out of the
bank’s defined benefit healthcare scheme to a new
defined contribution scheme. Growth in non-staff
costs was mainly attributable to supporting credit
card business growth and servicing, strengthening of
IT infrastructure and higher marketing spend on
product campaigns, promotions and sponsorships.
Campaigns included the HSBC Premier relaunch,
Tu Cuenta and insurance. The increased popularity of
the cash-back facility on the Tu Cuenta account,
where a customer receives a rebate on amounts spent
by credit or debit cards, also drove up expenses.
In Brazil, operating expenses were 8 per cent
higher. Staff costs included one-off expenditure
incurred to enable the business to improve
operational efficiencies and position itself for future
growth. Union-agreed pay rises took effect during
2007. Non-staff expenses, including marketing
campaigns, payroll acquisition costs and transactional
taxes also increased in support of revenue growth.
Costs in Argentina rose by 39 per cent, mainly
from the inclusion of four extra months of Banca
Nazionale costs. The rise in expenses reflected both
continued investment in infrastructure to support
business growth, and general price rises evident in
the economy as inflation rose. Increased marketing
campaign spending was focused on cards, personal
loans and the Premier relaunch.
Commercial Banking pre-tax profits rose by
46 per cent to US$740 million during 2007, mainly
driven by significant growth in Brazil and Mexico.