HSBC 2012 Annual Report Download - page 103

101
Overview Operating & Financial Review Corporate Governance Financial Statements Shareholder Information
Wealth Management revenues for 2012. In addition,
we enhanced our internet banking capabilities in the
UAE to provide improved security and rolled out our
digital solution for mobile banking in the region to
allow customers greater accessibility.
In CMB, we continued to support internationally
oriented SMEs. This was evidenced by the launch
of our third SME fund in the UAE of AED1bn
(US$272m), targeted at international trade
customers. We continued to invest in the Global
Trade and Receivables Finance client service and
business development teams, and enhanced our
Receivables Finance products across the region. We
endeavoured to strengthen this position by holding
mainland China and Turkey events to focus on these
emerging trade routes.
Our Payments and Cash Management business
continued to record strong revenue growth, and was
named ‘The Best Cash Management House in the
Middle East 2012’ in the Euromoney awards for
excellence for the fourth consecutive year.
In GB&M, we continued to focus on ‘South-
South’ connectivity. We leveraged our global
expertise to provide access to Asian investors for
issuers in the region with funding requirements with
our dedicated coverage teams on our mainland China,
South Korea and India desks in the UAE and Saudi
Arabia. We also completed a significant number
of bond issuances, reflecting the continuing investor
appetite for the region’s debt. We won several
Euromoney awards for excellence including ‘The Best
Debt House in the Middle East’ and ‘The Best Flow
House in the Middle East’. GB&M also won Global
Investor’s ‘The Best Domestic Custodian’.
The following commentary is on a constant
currency basis.
Net interest income rose by 3%, driven by higher
average deposit balances in RBWM, primarily savings
accounts in Egypt, reflecting the competitive pricing
introduced at the beginning of the year. Despite this,
we benefited from wider spreads as interest rates rose
in Egypt. Net interest income in CMB was in line with
2011 as higher income resulting from the merger with
OIB was offset by competitive asset pricing across
most of the region.
Net fee income decreased by 4% due to a decline
in credit and lending, Securities Services and
advisory fees in GB&M, which were affected by
lower levels of deal activity and the challenging
political and economic environment. Fees also
declined in RBWM due to higher reward scheme
charges in the UAE following revisions to the
agreement with our partner aimed at improving card
utilisation, partly offset by higher insurance revenues
as a result of the strategic alliance with Zurich. The
decline in fees was also attributable to our exit from
domestic private banking in the UAE. These factors
were partly offset by higher trade import fees in
CMB in Algeria, Oman and Jordan driven by higher
volumes from targeted sales activity.
Net trading income decreased by 18%, mainly
due to unfavourable credit valuation adjustments on
trading positions relating to a small number of
exposures in GB&M. We also reported adverse fair
value movements on certain economic hedges as well
as on structured liabilities as credit spreads tightened.
This was partly offset by higher revaluation gains on
equity holdings in Principal Investments.
Gains less losses from financial investments
increased by US$17m, driven by the non-recurrence
of impairments on two available-for-sale equity
securities in 2011, together with gains on the disposal
of available-for-sale equity and debt securities in
2012.
Other operating income decreased by US$89m,
driven by the US$85m investment loss on a
subsidiary.
Loan impairment charges and other credit
risk provisions decreased by US$6m. Lower
impairments in RBWM attributable to an
improvement in delinquency rates reflected the
repositioning of the book towards higher quality
lending in previous years. In addition, CMB recorded
a modest reduction in loan impairment charges as
higher customer recoveries were largely offset by
individually assessed impairments. These were partly
offset by significant loan impairment charges recorded
for a small number of large exposures in GB&M.
Operating expenses increased by 1% as a result
of employee and legal costs relating to the merger of
our Omani operations with OIB and the acquisition of
the onshore retail and commercial banking business of
Lloyds Banking Group in the UAE. This was partially
offset by the benefit arising from sustainable cost
saving initiatives implemented in 2011 and throughout
2012. Excluding the effect of the two acquisitions, we
reduced both our employee numbers and our cost
base.
Share of profits from associates and joint
ventures increased by 10%, mainly from The Saudi
British Bank. This was driven by higher revenue
resulting from strong balance sheet growth, together
with lower costs derived from effective control and
monitoring.