HSBC 2015 Annual Report Download - page 54

Report of the Directors: Financial summary (continued)
Group performance by income and expense item
HSBC HOLDINGS PLC
52
Reported net interest income of $32.5bn decreased by
$2.2bn or 6% compared with 2014. This included the
significant items and currency translation summarised in
the table below.
Significant items and currency translation
2015 2014
$m $m
Significant items
Provisions arising from the ongoing review of compliance with the Consumer Credit Act in the UK (10) (632)
Acquisitions, disposals and dilutions
–
38
(10) (594)
Currency translation 2,890
Year ended 31 December (10) 2,296
Excluding the significant items and currency translation
tabulated above, net interest income was broadly
unchanged compared with 2014, as increases in Asia and
Latin America were offset by a reduction in North America.
On a reported basis, net interest spread and margin both
fell, mainly due to adverse foreign exchange movements in
Latin America and Europe, partly offset by a reduction in
significant items, namely lower provisions arising from the
ongoing review of compliance with the Consumer Credit
Act (‘CCA’) in the UK. Excluding these factors, net interest
spread and margin were marginally lower due to reduced
yields on customer lending in Europe and North America.
However, during the year, we changed the mix of our
overall portfolio towards higher yielding customer lending
balances. This was through a managed reduction in the
average balances of lower yielding short-term funds,
reverse repos and financial investments, notably in Europe,
reflecting our continued focus on the efficient use of our
balance sheet.
Interest income by type of asset and interest expense by
type of liability, and the associated average balances as set
out in the summary tables above, were affected by the
reclassification in June 2015, of our operations in Brazil to
‘Assets held for sale’ in ‘Other interest-earning assets’ and
liabilities of disposal groups held for sale in ‘Other interest-
bearing liabilities’, respectively.
Interest income
Reported interest income decreased by $3.8bn compared
with 2014 driven by currency translation, notably in Latin
America and Europe, although this was partly offset in
Europe as 2014 included higher provisions arising from the
on-going review of compliance with the CCA.
Excluding these factors, interest income was broadly
unchanged compared with 2014.
Interest income on loans and advances to customers was
broadly unchanged as lower interest income in Europe
and North America was offset by increases in Asia and
Latin America.
In Europe, the reduction in interest income was driven
by lower yields on mortgages in the UK in line with
competitive pricing, and the effect of downward
movements in market interest rates in the eurozone.
Interest income also fell in North America as the CML
portfolio continued to decrease from run-off and sales.
In addition, new lending to customers in RBWM and CMB
was at reduced yields in the current low interest rate
environment, although the effect of this was partly offset
by an increase in average term lending balances.
By contrast, in Asia, the rise in interest income was driven
by growth in average term lending balances, primarily in
Hong Kong and mainland China. This was partly offset by
compressed yields on customer lending, notably in
mainland China and Australia due to central bank rate
reductions, although yields in Hong Kong marginally
increased. In Latin America, the increase was primarily in
Argentina, driven by growth in average balances.
Interest income on short-term funds and financial
investments in Balance Sheet Management marginally
decreased. This was driven by lower interest income in
Europe, due to a managed reduction in average balances,
and in Asia, reflecting movement in central bank interest
rates in mainland China and India. These factors were
partly offset in North America by a change in product mix
towards higher yielding mortgage backed securities in
order to maximise the effectiveness of the portfolio.
Interest income from other interest-earning assets rose
due to the reclassification of our operations in Brazil to
‘Assets held for sale’ in June 2015. In Brazil, excluding the
impact of currency translation, interest income rose due to
growth in average term lending balances and financial
investments, together with higher yields reflecting
successive increases in central bank interest rates in
2014 and 2015.
Interest expense
Reported interest expense decreased by $1.6bn compared
with 2014 driven by currency translation, primarily in Latin
America and Europe.
Excluding this, interest expense fell driven by a lower cost
of customer accounts, debt issued and repos.
Interest expense on customer accounts fell marginally
despite growth in average balances. This reflected central
bank rate reductions in a number of markets, notably
Mexico, mainland China, Australia and India. Europe was
affected by downward movements in market rates in the
eurozone. This was partly offset by rising costs in North
America, in line with promotional deposit offerings.
Interest expense on debt issued also fell, primarily in
Europe as new debt was issued at lower prevailing rates
and average outstanding balances fell as a result of net
redemptions. Interest expense also fell on repos, notably in
Europe, reflecting the managed reduction in average
balances.