HSBC 2012 Annual Report Download - page 90

HSBC HOLDINGS PLC
Report of the Directors: Operating and Financial Review (continued)
Geographical regions > Hong Kong
88
Hong Kong
HSBC’s principal banking subsidiaries in Hong
Kong are The Hongkong and Shanghai Banking
Corporation Limited and Hang Seng Bank
Limited. The former is the largest bank
incorporated in Hong Kong and is our flagship
bank in the Asia-Pacific region. It is one of Hong
Kong’s three note-issuing banks, accounting for
more than 60% by value of banknotes in
circulation in 2012.
2012 2011 2010
US$m US$m US$m
Net interest income .......... 5,316 4,691 4,246
Net fee income ................. 3,335 3,097 2,962
Net trading income .......... 1,463 1,189 1,312
Other income ................... 2,308 1,705 1,682
Net operating income21 .. 12,422 10,682 10,202
LICs76 ............................... (74) (156) (114)
Net operating income .... 12,348 10,526 10,088
Total operating expenses . (4,848) (4,758) (4,431)
Operating profit ............. 7,500 5,768 5,657
Income from associates77 . 82 55 35
Profit before tax ............. 7,582 5,823 5,692
Cost efficiency ratio ........ 39.0% 44.5% 43.4%
RoRWA66 ......................... 7.0% 5.3% 5.0%
Year-end staff numbers ... 27,742 28,984 29,171
24%
growth in underlying profit before tax
Market leader in offshore renminbi bond
issuance
Best Commercial Bank 2012
(FinanceAsia)
For footnotes, see page 120.
Economic background
The Hong Kong economy started 2012 on a strong
footing, but lost momentum in the second quarter as
global trade flows slowed and the mainland Chinese
economy cooled, causing GDP to contract slightly.
Domestic demand stayed resilient, however,
supported by continued wage growth, and firm job
market conditions and asset prices. This underpinned
investment and private consumption growth, leading
the economy back into expansion in the third quarter
(0.6%, quarter-on-quarter, seasonally adjusted).
Slower economic momentum and deflationary
pressures in mainland China allowed the pressure on
Hong Kong’s asset prices to ease through most of
2012, resulting in reduced CPI inflation of 4.1%,
compared with 5.3% in 2011.
Review of performance
Reported pre-tax profits from our operations in Hong
Kong were US$7.6bn compared with US$5.8bn in
2011, an increase of 30% on both a reported and a
constant currency basis.
Reported profits included gains on the sale of
our shares in Global Payments Asia-Pacific Ltd
of US$212m and the HSBC and Hang Seng Bank
general insurance businesses of US$117m and
US$46m, respectively. Excluding these gains and
associated operating results, underlying profit of
US$7.2bn increased by 24%, driven by higher
net interest income in CMB and RBWM, the gain of
US$314m on the sale of non-strategic investments in
India, higher trading revenues in GB&M, increased
fee income in both CMB and GB&M, and a
reduction in loan impairment charges. These
favourable movements were partly offset by higher
operating expenses.
In RBWM, we continue to develop our Wealth
Management services for our retail customers and
launched new investment funds, including the
Global High Yield Bond Fund which attracted over
US$1bn of subscriptions by the end of the year. The
sale of the general insurance businesses enabled us
to focus on life insurance manufacturing, where we
maintained our market leadership position. We also
led the market in deposits, mortgages, mandatory
provident funds and credit cards. We maintained our
prudent lending approach with average loan-to-value
ratios of 48% on new mortgage drawdowns and an
estimated 32% on the portfolio as a whole. We now
offer renminbi current accounts for non-residents
and launched the first mobile payment solution in the
region, enabling contactless credit card transactions
through Visa payWave terminals.