HSBC Middle East profit rises 25%

Increase for 2013 came amid steady oil prices, government infrastructure spending and rising property prices.

HSBC, which gets most of its profit from Asia, is focusing on its most lucrative markets amid increased regulation and compliance costs. Ravindranath K / The National

HSBC said profit before taxes from its Middle East operations increased 25 per cent last year amid steady oil prices, government infrastructure spending and rising real estate prices.

Income before profit from its operations in the region rose to US$1.69 billion from $1.35bn, Europe’s biggest bank said in its annual report yesterday.

The bank’s global banking and market division in the region had the best increase in profit, gaining 50 per cent to $869 million last year.

The bank estimated that economic growth in the region last year reached 4 per cent, led by Saudi Arabia’s expansionary fiscal policy and infrastructure spending. Unrest in Egypt kept economic growth subdued at 2.2 per cent in 2012-2013 fiscal year, while the budget deficit widened to 14 per cent of GDP.

Growth in the Arabian Gulf was also boosted by steady oil prices at about $100 to $110 per barrel last year and an economic turnaround in the UAE led mainly by real estate and services. "Despite strong demand and loose fiscal policy, inflation remained very subdued across the region throughout 2013, apart from UAE real estate," the bank said.

As a whole, HSBC posted full-year profit that fell $2bn short of analyst estimates as a cost-cutting drive missed targets and revenue shrank. Pre-tax profit for the year rose 9 per cent to $22.6bn from $20.7bn in the year-earlier period, the London-based bank said. That was lower than the $24.6bn median estimate of 30 analysts surveyed.

The bank, which gets most of its profit from Asia, is focusing on its most lucrative markets amid increased regulation and compliance costs. While the chief executive, Stuart Gulliver, has closed or sold 63 businesses since 2011, costs are running above his target of about 50 per cent of revenue, while return on equity, a measure of profitability, is still short of his goal.

HSBC will pay a 19 cent dividend for the fourth quarter, bringing the total for the year to 49 cents a share. The shares have lost 5 per cent year to date.

Costs fell to $38.6bn from $42.9bn. Expenses as a proportion of revenue fell to 59.6 per cent from 62.8 per cent. That compares with Mr Gulliver’s “mid-50s” target for 2014 to 2016.

Return on equity climbed to 9.2 per cent from 8.4 per cent in 2012, still short of the company’s goal of 12 to 15 per cent.

Revenue after insurance claims fell to $64.6bn from $68.3bn in the year-earlier period. Loan impairment charges fell to $5.85bn from $8.31bn on lower bad debts in North America and Europe, the bank said.

HSBC said yesterday the rout in emerging markets this year is not a “generalised threat”.

“We remain optimistic about the longer-term prospects for emerging markets,” Mr Gulliver said. “Nevertheless, we anticipate greater volatility in 2014 and choppy markets as adjustments are made to changing economic circumstances and sentiment.”

Mr Gulliver was paid a bonus of £1.8m (Dh11m) for last year, compared with £700,000 for 2012. The bonus pool for the lender’s global banking and markets business rose to $1.33bn from $1.27bn.

* with agencies

Follow us on Twitter @Ind_Insights