HSBC Holdings announced a historic pre-tax profit for 2023, bolstered by increased global interest rates, despite facing a $3 billion impact from its stake in China’s Bank of Communications.
The bank disclosed a pre-tax profit of $30.3 billion for the year 2023, marking a significant 77.2% year-on-year surge driven by revenue growth. This profit surge was attributed to various factors, including the completion of the sale of its retail banking operations in France and a growth in net interest income (NII) in line with the prevailing high interest rate environment globally, as highlighted by HSBC Group chief executive Noel Quinn.
Annual revenue soared to $66.1 billion, a 30% increase from the previous year, supported by a $5.4 billion uptick in NII across all its global businesses, mirroring the favorable interest rate conditions.
Non-interest income saw a substantial $10 billion increase, largely fueled by enhanced trading and fair value income, particularly within the global banking and markets domains.
The net interest margin improved to 1.66%, marking a 24 basis points (bps) increase attributable to higher interest rates.
Expected credit losses (ECL) and credit impairment charges were reported at $3.4 billion, showing a $100 million reduction from the previous year. Notably, these charges were predominantly related to stage 3 charges, particularly associated with exposure to mainland China’s commercial real estate sector, reflecting the ongoing economic uncertainties, rising interest rates, and inflationary pressures.
Customer lending balances witnessed a rise of $15 billion on a reported basis, though a $3 billion decline was seen on a constant currency basis, as stated in the release.
Further, HSBC’s board sanctioned a fourth interim dividend of $0.31 per share, summing up to a total of $0.61 per share for 2023. The bank also announced a share buy-back program of up to $2 billion, expected to be executed by the first quarter of 2024, following previous buy-backs totaling $7 billion.
Looking ahead to 2024, HSBC sets its sights on achieving a return on average tangible equity in the mid-teens range, reflecting the prevailing global economic conditions and the bank’s activities in both customer and financial markets.
Anticipating banking NII of at least $41 billion this year, the bank aims to exercise caution in its loan expansion during the initial half of 2024. However, a mid-single-digit percentage growth in customer lending year-on-year is projected over the medium to long term.
Considering ongoing economic uncertainties, HSBC foresees ECL charges as a percentage of average gross loans to hover around 40 bps in 2024. The bank looks to normalize ECL charges within a range of 30-40 bps of average loans over the medium to long term.
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