HSBC Holdings reported a record annual pre-tax profit for 2023 thanks to higher global interest rates, despite the US$3 billion hit on its stake in China's Bank of Communications.
The global bank reported on Wednesday a pre-tax profit of $30.3 billion for 2023, up by 77.2% year-on-year, primarily reflecting revenue growth.
This included the sale of its retail banking operations in France, which was completed on Jan 1, 2024, and higher net interest income (NII) in line with elevated interest rates worldwide, Noel Quinn, HSBC Group chief executive, said in a statement.
Revenue rose to $66.1 billion, up by 30% year-on-year, including growth in NII of $5.4 billion, with upticks in all of its global businesses based on the interest rate environment.
Non-interest income increased by $10 billion, reflecting a rise in trading and fair value income, mainly in global banking and markets.
The net interest margin of 1.66% increased by 24 basis points (bps), reflecting higher interest rates.
Expected credit losses (ECL) and other credit impairment charges were $3.4 billion, a reduction of $100 million.
The net charge in 2023 primarily comprised stage 3 charges, notably related to mainland China commercial real estate sector exposure, said the firm.
The charge also reflected continued economic uncertainty, rising interest rates and inflationary pressures.
The ECL included 33 bps for average gross loans, including a 3 bps reduction for the inclusion of loans and advances classified as held for sale.
Customer lending balances rose by $15 billion on a reported basis, but fell by $3 billion on a constant currency basis, he said in the statement.
In addition, HSBC's board approved a fourth interim dividend of $0.31 per share, resulting in a total for 2023 of $0.61 per share. The bank said it would initiate a share buy-back of up to $2 billion (expected to be completed by the first quarter of 2024), following the announcement last year of three buy-backs totalling $7 billion.
"Our dividend payout ratio target remains at 50% for 2024, excluding material notable items and related impacts. We announced a further share buy-back of up to $2 billion. Further buy-backs are subject to appropriate capital levels," Mr Quinn said in the statement.
For 2024, the bank continues to target a return on average tangible equity in the mid-teens, in line with the global macroeconomic environment, including customer and financial markets activity.
Based on current forecasts, the bank expects banking NII of at least $41 billion this year.
While HSBC plans to be more prudent with its loan expansion in the first half of 2024, it expects year-on-year customer lending percentage growth in the mid-single digits over the medium to long term.
Given continued uncertainty in the forward economic outlook, the bank expects ECL charges as a percentage of average gross loans to be around 40 bps in 2024. HSBC expects ECL charges to normalise towards a range of 30-40 bps of average loans over the medium to long term.