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HSBC to expand in personal finance

The bank will export its Household model to China and India

China and India are among the main targets as HSBC Holdings moves to expand its personal finance business globally, leveraging on the model of its recently acquired United States consumer finance unit Household International, an official said yesterday.

Speaking at a press conference in Hong Kong, HSBC's new chief executive, Stephen Green, also described Greater China and the North American Free Trade Agreement (Nafta) area - encompassing the US, Canada and Mexico - as two long-term economic powerhouses.

'We see Greater China and Nafta as being the two significant economic growth areas over the next 10 years-plus,' he said. 'India will also offer a good growth opportunity in years to come.' While describing China's and India's profit contribution to HSBC as not yet material, Mr Green said: 'I would like to believe that both of them would grow faster than the group average [in coming years].'

Although foreign banks are not yet free to conduct yuan business with mainland individuals, Mr Green said China was among destinations where HSBC would like to export the Household model to build up its consumer lending and credit card business.

HSBC completed its US$14.8 billion takeover of Household in March. Household, the largest independent consumer finance company in the US, specialises in mortgage and credit card lending to people with poorer credit histories. It was HSBC's most significant acquisition in more than a decade.

Mr Green said one of the biggest strengths of the Household model was its credit-scoring system, allowing it to target markets effectively and price properly. HSBC will be looking at exporting the model to Mexico, Britain, France, India and Brazil over the medium term.

'The demographic trends are such that in emerging markets in particular, consumer finance is a business with obvious growth opportunities,' Mr Green said.

He added Hong Kong's high personal bankruptcy rate would not deter HSBC from applying the Household model to the local market.

Personal financial services, including consumer finance, are already HSBC's largest profit contributor, accounting for 39.7 per cent of its pre-tax cash profit of US$6.8 billion in the first half.

'The likelihood is that around half of our business going forward will be in personal financial business generally in profit contribution terms,' Mr Green said.

Contributing US$651 million of HSBC's interim pre-tax cash profit, Household also made $1.5 billion in bad and doubtful charges in its first three months within the HSBC family, on the back of rising personal bankruptcy filings and a higher level of overdue debts amid a weak US economy.

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