HSBC Bank Middle East, the regional unit of HSBC Holdings, said profit before tax in 2008 jumped 34 per cent, helped by gains from its investment banking and global markets business.
Pre-tax net income advanced to $1.75 billion (Dh6.4bn) from $1.31bn in the previous year, the Dubai-based bank said in an e-mailed statement.
Loans grew 26 per cent to $27.3bn, while customer deposits increased 14 per cent to $35.2bn.
At the same time, however, there has been a "significant" increase in consumer loan defaults as layoffs increased across the region.
HSBC's charges for bad loans jumped to $280 million from $55m in the previous year across the region that stretches from Egypt to Pakistan, the unit said.
Delinquent loans are "most visible on the personal side, the unsecured personal loans and credit cards," Youssef Nasr, Chief Executive Officer of HSBC Bank Middle East, said.
Defaults are likely to rise as employers reduce workforces and lenders are hampered by the lack of credit histories, Nasr said.
Consumer credit in the Middle East has surged in recent years, spurred by the region's economic boom. Personal financial services contributed $289m, or 17 per cent, of HSBC's pre-tax profit in the Middle East.
The Middle East unit includes HSBC's operations in eight countries, including Pakistan, Saudi Arabia and Egypt. It expects overall lending to grow by about 10 per cent in 2009, with Saudi Arabia, Qatar, Oman and Abu Dhabi likely to be "above-average performers", Nasr said.
There is likely to be good demand for insurance and risk management products to hedge against currency and interest rate movements, while corporate finance and advisory opportunities are also likely to emerge as companies restructure, he added.
Lending and investment banking in Gulf states is declining as oil prices and stock markets across the region are hit by the worst global recession since the 1930s. HSBC Middle East's second-half pre-tax profit fell 24 per cent from the preceding period to $756m, the bank said. Pre-tax profit in the UAE dropped 35 per cent to $339m.
Bank eyes Acquisitions
HSBC Holdings may use part of the £12.5 billion (Dh45.8bn) it is raising in a rights offering to fund acquisitions in Asia and other emerging markets.
Europe's biggest bank by market value will pursue "opportunities" for growth, including takeovers, Chairman Stephen Green said at a press conference in London. "They are more likely to be bolt-on or incremental acquisitions" in emerging markets, Green said.
HSBC may be interested in Royal Bank of Scotland Group's assets in Asia. RBS, which last week posted the biggest loss by a UK company, plans to abandon or sell retail and commercial banking operations in 13 Asian countries, including the Philippines and Vietnam.
"Asia seems to be HSBC's natural hunting ground for acquisitions," said Mamoun Tazi, an analyst at MF Global Securities in London.
"If they find something of interest in Asia that's at the right price, they may consider buying."
Sandy Flockhart, HSBC's Chief Executive Officer for Asia-Pacific, said in an interview in Hong Kong: "Organically we can grow as our competitors withdraw, we can put our capacity to work so that means you don't have to be quick to buy something to do that."
The company is still open to making purchases in markets such as China and South Korea.