HSBC 2008 Annual Report Download - page 104

HSBC HOLDINGS PLC
Report of the Directors: Operating and Financial Review (continued)
Geographical regions > Hong Kong > 2007
102
main interest rate was cut on three separate
occasions during the final months of 2007, with the
prime rate ending the year at 6.75 per cent, down by
one per cent from its high for the year. Local asset
markets benefited accordingly. The previously very
strong levels of export growth slowed in the second
half of 2007, as demand from the US moderated and
the reduction in mainland China’s export tax rebate
in July temporarily affected Hong Kong’s re-exports.
Despite relatively modest trade growth, external
demand for Hong Kong’s services remained strong
due to the buoyant tourism sector and increasing
cross-border business activities, especially within the
financial sector.
Reconciliation of reported and underlying profit before tax
2007 compared with 2006
Hong Kong
2006
as
reported
US$m
2006
acquisitions
and
disposals1
US$m
Currency
translation2
US$m
2006
at 2007
exchange
rates6
US$m
2007
acquisitions,
disposals
& dilution
gains1
US$m
Under-
lying
change
US$m
2007
as
reported
US$m
Re-
ported
change
%
Under-
lying
change
%
Net interest income .......... 4,685 – (15) 4,670 – 813 5,483 17 17
Net fee income ................. 2,056 – (6) 2,050 – 1,312 3,362 64 64
Other income4 .................. 1,863 – (6) 1,857 – 620 2,477 33 33
Net operating income5 ..... 8,604 – (27) 8,577 – 2,745 11,322 32 32
Loan impairment charges
and other credit risk
provisions .................... (172) – 1 (171) – (60) (231) (34) (35)
Net operating income ...... 8,432 – (26) 8,406 – 2,685 11,091 32 32
Operating expenses .......... (3,269) – 9 (3,260) – (520) (3,780) (16) (16)
Operating profit ............... 5,163 – (17) 5,146 – 2,165 7,311 42 42
Income from associates ... 19 – – 19 – 9 28 47 47
Profit before tax ............... 5,182 – (17) 5,165 – 2,174 7,339 42 42
For footnotes, see page 143.
Review of business performance
HSBC’s operations in Hong Kong reported a record
pre-tax profit of US$7.3 billion, an increase of
42 per cent compared with US$5.2 billion in 2006.
The underlying change was in line with the reported
change. Net operating income increased by 32 per
cent, double the rate of growth in operating
expenses.
In Personal Financial Services, record results
reflected increased fee income, particularly from
retail brokerage and investment products, as well as
growth in net interest income from higher deposit
balances and lending. In Commercial Banking,
results were driven by balance sheet growth from
customer acquisition, increased trade flows and the
expansion of supporting businesses into mainland
China. In Global Banking and Markets, income
growth reflected improved performance in balance
sheet management and strong results from the
trading businesses and securities services in the
buoyant economic environment. Higher demand for
structured products and mutual funds drove the
increase in Private Banking profits. Cost efficiency
ratios improved in all customer groups.
Net interest income rose by 17 per cent, driven
by growth in asset and liability products in the
personal, commercial and corporate businesses. Net
interest income from Global Banking and Markets
increased by 79 per cent as balance sheet
management revenues recovered and deposits grew
strongly with higher spreads. A rise in liabilities to
fund trading activities reduced net interest income,
with a corresponding rise in trading income.
Personal Financial Services’ net interest income
grew by 16 per cent as wider spreads were recorded
on higher deposit balances, with the relaunch of
HSBC Premier contributing to the growth in deposit
balances. Card balances were also higher following a
number of promotional programmes during the year.
In Commercial Banking, strong economic growth
helped generate demand for savings products and
this, combined with strong customer acquisition,
resulted in higher net interest from the investment of
deposits.
Buoyant stock market activity drove an increase
in fee income. Broking and global custody income
rose as larger trading volumes were registered on
higher stock exchange daily turnover. This was