HSBC 2009 Annual Report Download - page 122

HSBC HOLDINGS PLC
Report of the Directors: Operating and Financial Review (continued)
Geographical regions > Middle East > 2009 / 2008
120
market conditions, and trade finance fees declined as
regional trade deteriorated. Cards income also fell
due to lower drawdowns and originations as
underwriting criteria were tightened.
Loan impairment charges and other credit
provisions increased by US$1.1 billion as
real estate and construction were hard hit in
the UAE.
Trading income was broadly in line with 2008
as weaker foreign exchange and Rates trading
revenue were offset by higher revenue from Credit
trading on favourable positioning of the trading
portfolio in expectation of spreads narrowing from
their peak in the third quarter of 2008.
Other operating income rose by US$62 million,
driven by gains arising from the buy-back and
extinguishment of HSBC’s own debt issued locally.
Loan impairment charges and other credit risk
provisions rose significantly from US$0.3 billion to
US$1.3 billion, reflecting substantially higher
charges in the UAE where the deterioration in credit
quality was particularly significant. The UAE’s real
estate and construction industries were adversely
affected by the global economic crisis, resulting in
several large infrastructure projects being postponed
or cancelled, and triggering higher levels of
unemployment. This resulted in increased
delinquencies, notably in credit cards and personal
loans, which were exacerbated by large numbers of
expatriate workers departing the region leaving debts
unpaid. Management has taken steps to mitigate
losses, including reducing credit lines, tightening
origination criteria and strengthening collections
activities.
Commercial and corporate banking loan
impairment charges rose sharply, primarily due to
a few individually significant impairment charges
recorded on exposures to large corporates.
Operating expenditure increased by 6 per
cent. Staff costs remained broadly flat as higher
expenditure in Global Banking and Markets was
offset by lower staff costs in Personal Financial
Services and Commercial Banking as headcount
declined. Non-staff costs rose as new head office
buildings in the UAE and Qatar caused higher rental
costs, and IT investment increased from systems
upgrades and rollouts.
Profit from associates and joint ventures in the
region fell by 38 per cent as the Group’s share of
income from The Saudi British Bank declined as a
result of higher loan impairment charges. HSBC’s
share of income from HSBC Saudi Arabia Ltd
declined as a result of a slowdown in IPOs and a
decline in assets under management.
Reconciliation of reported and underlying profit before tax
2008 compared with 2007
Middle East27
2007
as
reported
US$m
2007
acquisitions,
disposals
& dilution
gains10
US$m
Currency
translation11
US$m
2007
at 2008
exchange
rates17
US$m
2008
acquisitions
and
disposals10
US$m
Under-
lying
change
US$m
2008
as
reported
US$m
Re-
ported
change13
%
Under-
lying
change13
%
Net interest income .......... 1,094 – 5 1,099 – 457 1,556 42 42
Net fee income ................. 471 – 2 473 –
218 691 47 46
Other income15 ................. 318 – 3 321 – 100 421 32 31
Net operating income16 .... 1,883 – 10 1,893 – 775 2,668 42 41
Loan impairment charges
and other credit risk
provisions .................... (55) – (1) (56) – (223) (279) (407) (398)
Net operating income ...... 1,828 – 9 1,837 – 552 2,389 31 30
Operating expenses .......... (773) – (5) (778) – (181) (959) (24) (23)
Operating profit ............... 1,055 – 4 1,059 – 371 1,430 36 35
Income from associates ... 252 – – 252 – 64 316 25 25
Profit before tax ............... 1,307 – 4 1,311 – 435 1,746 34 33
For footnotes, see page 149.