HSBC Mexico and Panama announces annual results

28 February 2006

• Net income of MXN4,981 million for the year ended 31 December 2005, an increase of 47.8 per cent over the previous year.
• Return on average common equity of 22.0 per cent for 2005, compared with 15.7 per cent in 2004.
• Cost: income ratio of 64.9 per cent in 2005, improving from the previous year’s 65.9 per cent (adjusted for a non-recurrent VAT recovery received in 2004).
• Total assets of MXN275.1 billion at 31 December 2005, compared with MXN227.8 billion at 31 December 2004.

Grupo Financiero HSBC, S.A. de C.V.’s primary subsidiary is HSBC Mexico S.A. (the bank), which is subject to supervision by the Mexican Banking and Securities Commission. The bank is required to file periodic financial information for the year ending 31 December 2005 and this information is publicly available. Given that this information is available in the public domain, Grupo Financiero HSBC, S.A. de C.V. has elected to file this release.

Results are prepared in accordance with Mexican GAAP (generally accepted accounting principles), with figures denominated in Mexican pesos (MXN). Comparative figures are presented on a real basis, indexed to constant MXN as at 31 December 2005.

Grupo Financiero HSBC, S.A. de C.V. is an indirect, wholly-owned subsidiary of HSBC Holdings plc (HSBC). HSBC’s 2005 results are scheduled for release on 6 March 2006. Those results will be released under International Financial Reporting Standards (IFRS) and will describe HSBC’s North American results, including Grupo Financiero HSBC, S.A. de C.V., as well as HSBC’s fully consolidated figures.

Commentary by Sandy Flockhart, CEO & Group General Manager

"Marking the three year anniversary of the Bital acquisition, I am very pleased with the progress being made. The combination of the knowledge, network and brand of the HSBC Group with the experience and capabilities of our Mexican colleagues has been a powerful driver for executing change and generating results in Mexico.

"HSBC continues to work towards being the number one financial services institution in Mexico. Numerous initiatives are underway to improve customer service and to strengthen the bank’s product offerings to support the future financial requirements of our customers."

Overview

Grupo Financiero HSBC reported strong 2005 results, with net income of MXN4,981 million, an increase of 47.8 per cent over the previous year. This was due to robust revenue growth in HSBC Mexico, S.A. across all product categories. Net interest income, fees and trading all reached record levels during the year. This was coupled with strong performances in the insurance, Afore and Panama bank subsidiaries.

Growth of 28.3 per cent in net interest income, from MXN11,845 million to MXN15,193 million, was driven by higher deposit balances and widening spreads, strong loan growth, and higher average interest rates than in 2004. The net interest margin improved from prior year largely due to an increase in the bank’s margin from 6.3 per cent in 2004 to 6.8 per cent in 2005.

Fees and commissions increased by 10.8 per cent over the previous year due to growth in credit cards, electronic banking, ATMs, membership programmes, commercial lending, Afore pension fund management, trade services and remittances. Trading results were excellent, up 49.3 per cent over 2004, benefiting from successful strategic positioning, higher customer volumes and the launch of new products on the back of enhanced treasury systems.

Administrative expenses grew 19.6 per cent (excluding the non-recurrent recovery of VAT received in 2004) as HSBC continued to invest heavily in its Mexican operations. Personnel costs increased due to additional headcount and variable compensation to support revenue growth and to improve customer service. Operating costs were driven by significant investment in systems and higher marketing expenses.

Loan impairment charges increased 9.4 per cent for the year, in line with robust lending growth and reflecting the high credit quality of new lending and improved economic conditions. In the bank, the ratio of non-performing loans to total loans decreased to 2.7 per cent, compared with 3.0 per cent in the previous year, and the reserve coverage on non-performing loans was 168 per cent. The bank’s capital adequacy ratio remains solid at 14.3 per cent at 31 December 2005.

Read the full news release by clicking on the link on the right hand side of this page.