HSBC 2009 Annual Report Download - page 142

HSBC HOLDINGS PLC
Report of the Directors: Operating and Financial Review (continued)
Geographical regions > Latin America > 2008
140
2008 compared with 2007
Economic briefing
Inflationary pressures developed in Mexico during
the course of 2008, mostly due to rising commodity
prices, as consumer price inflation accelerated from
3.7 per cent in January to 6.5 per cent by the year-
end. In response, the Bank of Mexico raised its
overnight interest rate by 75 basis points to 8.25 per
cent by the end of the year, although a variety of
economic indicators pointed to a sharp loss of
momentum during the final quarter as global growth
slowed.
The Brazilian economy performed strongly
during the first half of 2008, driven by domestic
demand, with the annual rate of consumer price
inflation rising from 4.6 per cent in January to
6.4 per cent in July, towards the upper limit of the
central banks’ tolerance range. Conditions within
the labour market improved, with the rate of
unemployment well below levels observed a year
earlier. In line with many other economies within the
region, however, conditions weakened markedly
towards the end of 2008, with industrial production
falling by close to 20 per cent during the fourth
quarter.
In Argentina, economic activity held at a
reasonably robust level for much of the year,
although measures of industrial production growth
slowed noticeably during the final months of 2008.
Declines in commodity prices during the second half
of 2008 and the reduced value of exports raised
concerns over the level of capital outflow from the
country, while domestic currency interest rates
increased sharply. The official headline rate of
consumer price inflation rose during the first half of
2008, reaching 9.3 per cent in June 2008 before
slowing to 7.2 per cent in December, although
methodological changes make comparisons over
year difficult.
Reconciliation of reported and underlying profit before tax
2008 compared with 2007
Latin America
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 .......... 5,576 – 155 5,731 – 727 6,458 16 13
Net fee income ................. 2,153 – 58 2,211 – (44) 2,167 1 (2)
Other income15 ................. 1,536 (11) 23 1,548 71 269 1,888 23 17
Net operating income16 .... 9,265 (11) 236 9,490 71 952 10,513 13 10
Loan impairment charges
and other credit risk
provisions .................... (1,697) – (64) (1,761) – (731) (2,492) (47) (42)
Net operating income ...... 7,568 (11) 172 7,729 71 221 8,021 6 3
Operating expenses .......... (5,402) – (190) (5,592) – (398) (5,990) (11) (7)
Operating profit ............... 2,166 (11) (18) 2,137 71 (177) 2,031 (6) (8)
Income from associates ... 12 – – 12 – (6) 6 (50) (50)
Profit before tax ............... 2,178 (11) (18) 2,149 71 (183) 2,037 (6) (9)
For footnotes, see page 149.
Review of business performance
In Latin America, HSBC reported a pre-tax profit
of US$2.0 billion compared with US$2.2 billion in
2007, a decrease of 6 per cent. On an underlying
basis, pre-tax profits decreased by 9 per cent as
increased revenues were offset by higher loan
impairment charges, largely in Mexico and Brazil,
and increased operating costs across the region.
Net interest income increased by 13 per cent.
Growth in average personal lending volumes was
mainly driven by vehicle finance and payroll loans
in Brazil, and credit cards and personal loans in
Mexico. Average credit card balances increased as a
result of significant organic growth in 2007 which
was not repeated in 2008. Commercial loan volume
growth was driven by increased lending for working
capital and trade finance loans in Brazil, and
medium-sized businesses and the real estate sector in
Mexico. Increased income on customer liabilities,
which was driven by volume growth, particularly in
time deposits, was largely offset by a contraction in
deposit spreads, primarily on US dollar denominated
accounts. Active repricing strategies were deployed