The Hong Kong and Shanghai Banking Corporation Ltd, the biggest local lender, said that the net interest margin of its local lending business may have bottomed out and could recover when the US raises interest rates, probably in the middle of 2011.

"As the local inter-bank lending rates have exhibited a gradual rising trend, we expect net interest margins to rise at a gradual pace," HSBC Chief Executive for Asia-Pacific Peter Wong said in a media briefing Tuesday.

For the six months ended June 30, the bank's interest income dropped 11 percent due to narrowing net interest margins. Non-interest income jumped 16 percent.

Looking ahead, Wong forecasted that profitability in the bank's lending business may grow as the bank leverages its tremendous deposit base when the US starts to raise interest rates.

"HSBC Asia Pacific's loans-to-deposit ratio has risen to 51 percent currently from 44 percent previously. Therefore, if market interest rates start to rise, we expect the returns from the lending business will be significantly higher next fiscal year," Wong asserted.

"Cross-selling among our retail and corporate clients is the business strategy we will pursue as this can enhance our return on equity and return on assets," Wong added.

Wong stressed that the Asia-Pacific region is an important geographical business segment for HSBC Holdings because the region has exhibited strong trade and capital flows.

For the six months ended June, HSBC Asia-Pacific's pre-tax profit soared by 48 percent while its return on equity (ROE) stood at 23 percent. Wong said that the group will be aggressive in expanding its business in the region so that it can make the geographical distribution of profits more balanced for the whole group.

On a country basis, Wong pointed out that the Chinese mainland and India will remain the two fastest growing markets for HSBC Holdings.

Wong added that the bank will make more investment to expand its branch networks on the mainland and plans to recruit 300 to 400 new local staff members.

The bank is poised to make new progress in yuan trade financing, yuan deposits and its yuan investment business after a revision agreement last month on yuan settlements between the Hong Kong Monetary Authority and the People's Bank of China. As of June 30, the bank's yuan deposit base had expanded by 50 percent from a year ago.

Separately, Hang Seng Bank's Vice Chairperson and Chief Executive Margaret Leung told a press briefing that she expects pressure on net interest margins to ease.

"We expect the squeeze on net interest margins to ease in the future, although the bank's net interest margin will still be pressured," Leung said.

Leung said that the bank may review its dividend policy after the Basel Committee on Banking Supervision issues its latest guidelines on capital adequacy.

China Daily

(HK Edition 08/04/2010 page2)