HSBC Holdings plc Interim Results 2023
Noel Quinn, Group Chief Executive, said:
“We have delivered a strong first half performance and are confident of achieving our revised mid-teens return on tangible equity target in 2023 and 2024. There was good broad-based profit generation around the world, higher revenue in our global businesses driven by strong net interest income, and continued tight cost control. I am also pleased that we can reward our shareholders with a second interim dividend of $0.10 per share and a second share buy-back in 2023 of up to $2bn, with substantial further distribution capacity still expected ahead.
There is still much work to do, especially given the many challenges in the global economy, but I am confident about the future as we move further into the next phase of our strategy and focus on opportunities to drive value creation, diversify our revenue and retain tight cost control.”
Financial performance (1H23 vs 1H22)
- Profit before tax rose by $12.9bn to $21.7bn. This included a $2.1bn reversal of an impairment relating to the planned sale of our retail banking operations in France and a provisional gain of $1.5bn on the acquisition of Silicon Valley Bank UK Limited (‘SVB UK‘). On a constant currency basis, profit before tax increased by $13.3bn to $21.7bn. Reported profit after tax increased by $9.1bn to $18.1bn.
- Revenue increased by $12.3bn to $36.9bn. The increase was driven by higher net interest income in all of our global businesses due to interest rate rises. It also included the impacts related to the planned sale in France and the acquisition in the UK. On a constant currency basis, revenue rose by $13.2bn to $36.9bn.
- Net interest margin (‘NIM’) of 1.70% increased by 46 basis points (‘bps‘).
- Expected credit losses and other credit impairment charges (‘ECL‘) of $1.3bn reflected a more stable outlook in most markets, although inflationary pressures remain. The 1H23 charge included $0.3bn relating to the commercial real estate sector in mainland China and charges in Commercial Banking (‘CMB’) in the UK. The 1H22 charge of $1.1bn reflected heightened economic uncertainty, mainly due to the Russia-Ukraine war and inflationary pressures, and also included $0.3bn relating to the commercial real estate sector in mainland China, partly offset by releases of Covid-19-related allowances.
- Operating expenses of $15.5bn were $0.7bn or 4% lower than in 1H22, primarily due to lower restructuring and other related costs following the completion of our cost-saving programme at the end of 2022 and from a $0.2bn impact from a reversal of historical asset impairments. This was partly offset by higher technology costs, an increase in performance-related pay, severance of $0.2bn in 1H23 and the effects of rising inflation. Target basis operating expenses rose by 4.3%.
- Customer lending balances increased by $36bn since 31 December 2022. On a constant currency basis, lending balances grew by $23bn, mainly due to the reclassification of balances associated with our retail banking operations in France from held for sale during the period, and $7bn of additional balances following our acquisition of SVB UK during 1Q23. These were partly offset by the reclassification of our business in Oman as held for sale, which resulted in a $3bn reduction. Excluding these factors, customer lending fell, reflecting weaker customer demand for wholesale lending, notably in Hong Kong and Europe.
- Customer accounts increased by $25bn since 31 December 2022. On a constant currency basis, customer accounts increased by $3bn, mainly due to the reclassification of balances associated with our retail banking operations in France from held for sale during the period. In addition, our acquisition of SVB UK resulted in growth of $7bn, and in 1H23, we reclassified our business in Oman as held for sale, resulting in a $5bn reduction. Excluding these factors, deposits fell, reflecting reductions in Wealth and Personal Banking (‘WPB‘) and CMB in HSBC UK, as well as in Global Banking and Markets (‘GBM‘).
- Annualised return on average tangible equity (‘RoTE’) of 22.4% compared with 10.6% in 1H22. Excluding the annualised impacts related to the planned sale in France and the acquisition in the UK, annualised RoTE was 18.5%.
- Common equity tier 1 (‘CET1’) capital ratio of 14.7% increased by 0.5 percentage points compared with 4Q22, which was driven by capital generation net of the dividend accrual, and included an approximately 0.3 percentage point impact from the reversal of an impairment on the planned sale of our retail banking operations in France and the provisional gain on the acquisition of SVB UK. This was partly offset by increased risk-weighted assets (‘RWAs’) and the impact of the share buy-back announced with our 1Q23 results in May 2023.
- The Board has approved a second interim dividend of $0.10 per share. We also intend to initiate a further share buy-back of up to $2bn, which we expect to commence shortly and complete within three months.
Financial performance (2Q23 vs 2Q22)
- Reported profit before tax increased by $4.1bn to $8.8bn.
- Revenue rose by $4.5bn to $16.7bn, with growth across all of our global businesses, primarily reflecting interest rate rises. There were good performances in insurance in WPB and in Debt Capital Markets in GBM, which offset reductions in Global Foreign Exchange and Equities.
- NIM of 1.72% increased by 3bps, compared with 1Q23.
- ECL of $0.9bn increased by $0.5bn. ECL in 2Q23 included $0.3bn of charges in the commercial real estate sector in mainland China, and $0.3bn in the UK, mainly in CMB.
- Operating expenses of $7.9bn fell by $0.1bn. This was driven by lower restructuring and other related costs following the completion of our cost-saving programme at the end of 2022 and the reversal of historical asset impairments. This reduction was partly offset by $0.2bn of severance costs incurred in 2Q23, as well as higher technology spend, an increase in our performance-related pay accrual and the effects of rising inflation.
- Customer lending decreased by $9bn compared with 31 March 2023, which included a reduction of $3bn related to a reclassification of our business in Oman to held for sale. The remaining reduction was mainly in GBM in HSBC Bank plc, reflecting client deleveraging and weaker demand as interest rates rose.
- Customer accounts decreased by $18bn compared with 31 March 2023, which included a reduction of $5bn related to the reclassification of our business in Oman to held for sale. The remaining reduction was in GBM in Europe, as corporate customers used deposits to pay down their loans, and in HSBC UK, reflecting higher cost of living and competitive pressures.
Outlook for 2023
- Our strategy has enabled us to further strengthen our balance sheet, providing us with a good platform for growth in the current interest rate cycle, while maintaining cost discipline. This has given us the confidence to revise our returns guidance for 2023 and 2024. Based on the current path implied by the market for global policy rates, we are now targeting a RoTE in the mid-teens for 2023 and 2024, which excludes the impact of material acquisitions and disposals.
- Given the current market consensus for global central bank rates, we have raised our 2023 full-year guidance for net interest income to above $35bn. While the interest rate outlook remains positive, we expect continued migration to term deposits as short-term interest rates rise.
- We continue to expect ECL charges of around 40bps of average gross loans in 2023 (including lending balances transferred to held for sale). There remains a degree of uncertainty in the forward economic outlook, particularly in the UK, and we are monitoring risks related to our exposures in mainland China’s commercial real estate sector. Over the medium to long term, we continue to use a range of 30bps to 40bps of average loans for planning our ECL charges.
- We remain highly focused on maintaining cost discipline. We continue to target operating expense growth of approximately 3% for 2023, excluding the impact of foreign currency translation differences, notable items and the impact of retranslating the 2022 results of hyperinflationary economies at constant currency. Our target also excludes the impact of our acquisition of SVB UK, and the related investments internationally, which are expected to add approximately 1% to the Group‘s operating expenses. In 2Q23, we incurred severance costs of $0.2bn, with the benefits expected to be realised towards the end of 2023 and into 2024.
- We intend to manage the CET1 ratio within our medium term target range of 14% to 14.5%, and we aim to manage this range down in the long term. In addition, our dividend payout ratio is 50% for 2023 and 2024, excluding material notable items. We have announced a second interim dividend of $0.10 per share and intend to initiate a further share buy-back of up to $2bn, which we expect to commence shortly and complete within three months. Further buy-backs for 2023 and beyond will be subject to appropriate capital levels.
For further information contact:
UK – Richard O‘Connor
Telephone: +44 (0)20 7991 6590
Hong Kong – Yafei Tian
Telephone: +852 2899 8909
UK – Gillian James
Telephone: +44 (0)7584 404 238
UK – Kirsten Smart
Telephone: +44 (0)7725 733 311
Hong Kong – Aman Ullah
Telephone: +852 3491 1120