HSBC 2007 Annual Report Download - page 64

HSBC HOLDINGS PLC
Report of the Directors: Business Review (continued)
Hong Kong > 2007
62
Commercial Banking reported pre-tax profits
of US$1.6 billion, 23 per cent higher than in 2006,
due to strong balance sheet growth. The rise in asset
balances was supported by active marketing efforts
and increased trade volumes in Hong Kong. Higher
customer numbers across all segments helped to
boost deposits and fee income rose as a result of a
wider product range and increased sales of
investment products. The cost efficiency ratio
improved by 1.2 percentage points.
While strong economic growth was a stimulus
to revenue growth, HSBC also actively increased its
customer base by opening business banking branches
and adding frontline staff. Market share increased
for key products, including remittances and the
integrated account package, Business Vantage,
which attracted 36,000 new accounts. Revenues
from payments and cash management rose by 17 per
cent. A series of reward programmes and customer
events strengthened existing client relationships. The
launch of SmartForms for cross-border as well as
domestic account openings further improved
accessibility to services for small businesses. Total
customer numbers grew by 9 per cent.
Net interest income rose by 15 per cent as a
result of higher deposits, as strong economic growth
generated demand for savings products. New
customers based in mainland China increased the
small and mid-market client base and generated an
increase in Hong Kong dollar deposits. Foreign
currency deposits, including US dollars, also
increased significantly as global interest rates rose
and spreads were actively managed in a highly
competitive market.
Overall, loans and advances to customers grew
by 10 per cent as HSBC continued to increase its
lending to manufacturers who were expanding their
operations in mainland China, while intra-Asian
trade flows continued to accelerate. HSBC also
promoted its Green Equipment Financing option to
borrowers in Hong Kong to enable them to finance
energy-efficient equipment. Successful cross-border
referrals rose by 95 per cent, due to continued
initiatives promoting regional interaction. Hang Seng
Bank also targeted the cross-border activity of small
and medium-sized businesses by promoting its
import and export products. Market competition
squeezed asset spreads on lending to corporate and
mid-market business customers.
Increased sales of packaged products to small
and micro businesses were partially driven by
lending campaigns for equipment financing and
micro lending.
The business card launched by HSBC in 2006
was quickly adopted; in 2007, over 21,000 new
business credit cards were issued. Spreads, however,
tightened due to competitive pressures.
Net fee income of US$526 million was 16 per
cent higher, driven by increased sales of investment
products, remittances, and trade services. Demand
from commercial clients for retail securities, unit
trusts and structured products helped fee income
from these products to rise by 173 per cent.
Remittance income rose by 26 per cent, boosted by
an increase in transaction volumes. In addition, a
focus on straight-through processing and simplified
account opening procedures attracted customers to
fee-based products as the convenience of the internet
and other direct options provided them with more
flexible options for their business operations.
As a result of several commercial insurance
marketing campaigns launched during the year, and
a realigned sales force, insurance fee income
increased by 11 per cent and net earned insurance
premiums rose by 37 per cent. Composite sales
teams were established to enable general insurance
sales managers to also sell life products.
Improved trading income was underpinned by
exchange rate volatility, which drove increased
payments and trade activity as well as income from
foreign exchange and derivatives. Targeted
marketing and the enhancement of Business Internet
Banking (‘BIB’) to include forward contracts helped
to increase transactions. Trading between US and
Hong Kong dollars and the hedging of renminbi
transactions also led to higher transaction volumes.
Loan impairment charges fell sharply by 59 per
cent due to releases of provisions in a stable credit
environment.
Expenses rose by 12 per cent as a result of
higher staff costs and rising commercial rents. Staff
cost increases reflected a combination of wage
inflation, performance-related compensation and the
costs of additional client-facing staff to support
enhanced product offerings. In addition, marketing
costs rose to support branding and campaign activity.
A total of 176,000 customers were registered as
internet users at the end of 2007, reflecting wide
adoption of direct channel offerings. The BIB site
was relaunched in the first quarter of the year,
leading to processing cost efficiencies. Call centres
were also re-engineered to promote the sale of
packaged products. Transactions through direct
channels constituted 40 per cent of the total number
of transactions.