HSBC 2007 Annual Report Download - page 78

HSBC HOLDINGS PLC
Report of the Directors: Business Review (continued)
Rest of Asia-Pacific > 2007
76
Reconciliation of reported and underlying profit before tax
Year ended 31 December 2007 compared with year ended 31 December 2006
Rest of Asia-Pacific
2006
as
reported
US$m
Currency
translation1
US$m
2006
at 2007
exchange
rates
US$m
Dilution
gains2
US$m
Underlying
change
US$m
2007
as
reported
US$m
Reported
change
%
Underlying
change
%
Net interest income .......... 3,047 140 3,187 – 956 4,143 36 30
Net fee income ................. 1,622 58 1,680 – 566 2,246 38 34
Other income3 .................. 2,053 108 2,161 1,081 410 3,652 78 19
Net operating income4 ... 6,722 306 7,028 1,081 1,932 10,041 49 27
Loan impairment charges
and other credit risk
provisions .................... (512) (13) (525) – (91) (616) (20) (17)
Net operating income .... 6,210 293 6,503 1,081 1,841 9,425 52 28
Operating expenses .......... (3,548) (179) (3,727) – (1,037) (4,764) (34) (28)
Operating profit ............. 2,662 114 2,776 1,081 804 4,661 75 29
Income from associates ... 865 25 890 – 458 1,348 56 51
Profit before tax ............. 3,527 139 3,666 1,081 1,262 6,009 70 34
For footnotes, see page 130.
Review of business performance
HSBC’s operations in Rest of Asia-Pacific reported
a pre-tax profit of US$6.0 billion compared with
US$3.5 billion in 2006, an increase of 71 per cent.
On an underlying basis, excluding dilution gains of
US$1.1 billion, profit before tax increased by
34 per cent, bolstered by sustained growth and
business expansion across the region.
In Global Banking and Markets, profit before tax
increased significantly, driven by an enhanced
product offering combined with buoyant local
markets. Commercial Banking revenue benefited
from increased customer volumes as a result of new
and enhanced banking services. In Personal Financial
Services, profit before tax rose as a result of strong
balance sheet growth and increased contributions
from associates. Private Banking delivered a solid
performance, underpinned by robust stock markets
and increasing wealth in the region.
HSBC’s three associates in mainland China,
Ping An Insurance, Bank of Communications and
Industrial Bank, all raised new capital in 2007 in the
‘A’ share market in Shanghai in which HSBC is not
able as a foreign investor to participate. A similar
dilution gain from Techcombank, in Vietnam, was
recorded in the second half of 2007. The resulting
dilution of the Group’s interests was considerably
less than its share of the new monies raised and
HSBC’s results therefore include within ‘Other’
aggregate pre-tax gains of US$1.1 billion which
should be regarded as exceptional.
The commentary that follows is on an underlying
basis.
Personal Financial Services reported a pre-tax
profit of US$760 million, an increase of 51 per cent
compared with 2006, due to significant growth in
operating income and in the contribution from
associates. Loan impairment charges declined
slightly with the absence of the exceptional credit
card losses incurred in Taiwan in 2006 largely offset
by new loan impairment charges from expansion in
consumer lending throughout the region. Continued
investment in the region’s emerging markets and in
Japan resulted in a slight deterioration in the cost
efficiency ratio.
Global and regional emphasis on distinctive
product offerings, including HSBC Premier and
HSBC Direct, as well as significant investment in
branches and marketing, and growth of consumer
assets in emerging markets, helped attract an
additional 1.1 million active customers, bringing the
total to over 9 million. 87 new branches in mainland
China, India, Indonesia, the Philippines, Sri Lanka,
Bangladesh and Malaysia expanded the total branch
network to 410. These initiatives spurred brisk
growth of the business, with double-digit revenue
growth in most countries in the region.
HSBC Premier was relaunched in 22 markets
in the region, extending international banking
connectivity to 35 countries globally. The number
of Premier customers within Rest of Asia-Pacific
increased by 37 per cent.