The Hongkong and Shanghai Banking Corporation Limited 2014 consolidated results - highlights
- Pre-tax profit HK$111,189m (HK$144,756m in 2013)
- Attributable profit HK$86,428m (HK$119,009m in 2013)
- Return on average shareholders’ equity of 16.9% (25.9% in 2013)
- Assets up 7% to HK$6,877bn (HK$6,439bn at 31 December 2013)
- Common equity tier 1 ratio of 14.4%, total capital ratio of 15.7% (14.1% and 15.2% in 2013)
- Cost efficiency ratio of 42.1% (33.9% in 2013)
Reported results in 2013 included a net gain of HK$30,747m on the disposal of our shareholding in Ping An Insurance (Group) Company of China, Limited (‘Ping An’) and an accounting gain on the reclassification of Industrial Bank Co., Limited (‘Industrial Bank’) of HK$8,454m before tax (HK$5,914m attributable profit). Excluding these two gains:
- Return on average shareholders’ equity of 17.9% for 2013
- Cost efficiency ratio of 42.1% for 2013
Comment by Stuart Gulliver, Chairman
In 2014, economic performance across Asia was mixed. A number of key markets including mainland China, Japan, Indonesia and Singapore experienced slower growth, whilst India, Malaysia and Korea saw increased economic activity.
In mainland China, slower growth reflected lower manufacturing investment and falling industrial production, and there were increasing pressures in the property market. However, infrastructure investment and consumption held up and measures to maintain stable growth were implemented including policy reforms, fiscal spending and monetary easing. We expect GDP growth of 7.3% in 2015. In Hong Kong, growth in retail sales was lower during 2014 and both domestic and external demand weakened. However, employment remained strong and increased demand from mainland China for Hong Kong’s trade and services sectors will drive growth in 2015. In India, increased confidence following the decisive election result has yet to translate into meaningful investment growth, but lower inflation and commodity prices will benefit corporate balance sheets.
The Hongkong and Shanghai Banking Corporation Limited recorded profit before tax of HK$111,189m in 2014, down 23% from 2013. Profit before tax for 2013 included the net gain on disposal of our shareholding in Ping An of HK$30,747m and an accounting gain on the reclassification of Industrial Bank of HK$8,454m. Excluding these significant items, profit before tax in 2014 was 5% higher than in 2013, as robust revenue growth was broadly offset by increased costs. We also continued to build a strong capital position, resulting in a common equity tier 1 ratio of 14.4% at the end of December 2014.
We increased loans and advances to customers and grew customer accounts during the year as we continued to support our customers’ financing needs. Customer loans grew by 7% during the year, most notably in Hong Kong, mainland China, Taiwan and India. We also grew deposits, mainly in Hong Kong, mainland China, Taiwan and Singapore. At the end of 2014, the loans to deposits ratio stood at 62.8%.
Loan impairment charges increased from historically low levels, primarily due to a small number of individually assessed impairments in Commercial Banking (‘CMB’) and Global Banking and Markets (‘GB&M’) in Hong Kong and mainland China. However, overall asset quality remained resilient and overall loan impairment charges remained in line with expectations. We continued to invest in growth during the year, including hiring more people to support business expansion in CMB around the region. Spending on risk and compliance also increased in 2014. The cost efficiency ratio for the year was 42.1%.
Our market-leading position across a range of products and services was recognised through a string of awards in 2014. In particular, HSBC was named ‘Best Bank in Asia’ by Euromoney. We were also named ‘International Retail Bank of the Year’ by Asian Banking and Finance, ‘Best Commercial Bank’ by Finance Asia and ‘Best Foreign Retail Bank’ in mainland China by The Asian Banker. Our position as the leading bank for renminbi services was also reflected in our top ranking across all eight categories in Asiamoney’s Offshore RMB poll 2014. This led to us being named Best Overall Offshore RMB Products and Services provider for the third successive year.
CMB continued to expand its balance sheet in 2014, and to identify opportunities for collaboration with GB&M in support of clients. We were ranked number one in the league tables for Asian high yield, convertibles and equity linked bonds. Customer loans grew by 8%, principally in Hong Kong and mainland China, with growth mainly in term lending. In India, trade-related lending increased and there was good growth in Payments and Cash Management deposits. In Australia, we launched a AUD250m International Growth Fund to provide small and medium-sized enterprises with credit facilities to pursue their international ambitions. In Hong Kong, we were one of the first foreign banks to offer renminbi cross-border pooling capacity in the Shanghai Free Trade Zone. We also became one of the Hong Kong Monetary Authority’s Primary Liquidity Providers for offshore renminbi services.
In GB&M, we continued to support our clients through our broad and integrated range of products. We maintained our market leadership in Hong Kong dollar bond issuance and Asian local currency bonds. We also continued to lead the market in offshore renminbi bond issuance in Hong Kong. We were involved in three of the five largest equity capital market transactions during the year, as well as the first Sukuk sovereign bond issuance in Hong Kong. In addition, we became the first foreign custodian bank to service renminbi qualified foreign institutional investors based in Singapore and South Korea and were approved as one of the first banks to trade renminbi, euro and Singaporean dollars in mainland China’s interbank foreign exchange market. In Payments and Cash Management, we launched a Global Payments System to support all cross-border payments in and out of mainland China. In India, we advised on two of the largest M&A transactions in 2014.
In Retail Banking and Wealth Management (‘RBWM’) we maintained our leading market share in mortgages in Hong Kong and grew mortgage lending balances, with average LTV ratios of 47% on new drawdowns and an estimated 29% on the portfolio as a whole. Other personal lending also increased. We grew net fee income from higher unit trust volumes, credit card transactions and increased insurance premium income. In conjunction with the launch of the Hong Kong-Shanghai Stock Connect scheme in November, we launched new services enabling retail customers to trade and invest in eligible shares listed on the Shanghai Stock Exchange. Our Advance offering was re-launched in Hong Kong and in nine other regional markets. We also invested further in our branch network in 2014. In mainland China alone, we now have 173 HSBC outlets, 25 HSBC rural bank outlets and 50 Hang Seng Bank outlets. Finally, we implemented a new incentive framework for relationship managers during the year that removes the formulaic link between sales and remuneration.
As Asia enters a period of lower demand and reduced growth, the prospects of higher US interest rates and continued dollar strength carry risks for the region. If sustained, low oil and commodities prices will also have mixed effects. In mitigation, many countries have good levels of foreign exchange reserves, plus improved regulation, and there is scope for further easing and fiscal stimulation measures in several markets, including the important economies of ASEAN, mainland China and Japan. In this environment, we continue to see opportunities to invest in growing our business to increase our ability to serve and support our customers. With our strong capital and liquidity, combined with our consistent and cautious risk appetite, we are well positioned to connect customers with opportunities, enable their businesses to thrive and help them to achieve their ambitions.
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