Can you explain the details of the underlying performance?
Absolutely. These are record profits, $3,178m (£1.64bn) of profit, up 19% on
the previous year, but you’re right to point out that there are some underlying
factors that were at play here, in particular linking to acquisitions.
The two main factors are that we owned SC First Bank in Korea for eight and a
half months of 2005 and for the full year of 2006. And we also made two
acquisitions towards the end of 2006, one in Taiwan and one in Pakistan.
So when one looks at the numbers, it’s important, I think, to recognise those
factors, and the proportionate weighting that they bring into play in the
What are your plans for accelerating investment?
I think it’s going to be more of the same. In 2006, we invested hard in China
and in India; we invested in private banking and consumer finance and we
continued to invest in Korea. So we will do the same in 2007. China and India
will play a part, private banking will become an increasingly important part of
our investment portfolio, as will consumer finance.
Can you talk through the impairment charges we’re seeing in both
businesses, and notably in Taiwan?
The key issue with the Consumer Bank impairment charge, that you’ve
referenced, is Taiwan. So in 2006 we saw a significant increase in Taiwan (as
we’d expected and flagged to the market) of about $150m, to give Taiwan a cost
of credit of $248m in the year. That has a first half/second half picture to it.
The first half was where the crisis came and the second half has started a
trend towards a much more normalised level and that’s what we expect as we go
into 2007. Outside Taiwan, the rest of the Consumer book impairment is made up
of acquisitions, so the impact of Korea for the full year, Hsinchu and Union
Bank. And then changes in mix and volume and maturity of portfolio. We will
expect to see the impairment charge in the Consumer Bank as we go into ’07, to
continue reflecting the changes of volume and mix and maturity.
Are you happy with the strength of your balance sheet and your
Absolutely. In total capital the ratio range we work to is between 12 – 14%
and we’ve come in at the end of 2006 a touch above that, 14.3%.
One factor driving that is the impact of increased incorporation or
subsidiarisation, which causes a slight loss of flexibility within the Group’s
capital management. More importantly, Standard & Poor has demonstrated their
happiness with it – S&P increased our credit rating to A+ in the course of
Where are you in the implementation of Basel II and do you see that
as a competitive advantage?
We are in good shape. In the first two or three years, the impact on the
group is going to be broadly neutral, in part because the regulators themselves
are going to bring in the impact of Basel II on a very measured basis. I think
we will bring a level of risk sophistication, as demonstrated through our models
and our ability to understand credit capital and the ability to price for that
credit capital, that perhaps many of our local in-market competitors cannot do.
That will give us an advantage.
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