HSBC's pre-tax profit more than doubles in first half as economies recover

All regions recorded profit in the first six months, driven by an improved economic outlook

HSBC says it will resume paying dividends to shareholders as an ongoing restructuring and pivot to Asia continues to pay off. AFP

HSBC's pre-tax profit more than doubled during the first half of 2021, with Europe's biggest bank by assets citing the return of growth in its main markets, an increase in lending and a drop in bad loan charges as economies continue to recover from the coronavirus pandemic.

Adjusted profit before tax in the first six months of 2021 jumped to $11.9 billion from $5.6bn in the same period a year ago, the bank said on Monday. The results were higher than the $9.45bn average of 15 analyst estimates compiled by the bank.

Half-year adjusted revenue fell by 7 per cent to $25.7bn, down from $27.5bn in the same period a year ago, reflecting the effect of interest rate cuts in 2020, it said.

Second-quarter adjusted pre-tax profit doubled to $5.6bn, from $2.5bn in the same quarter of 2020, as Asia drove the strongest growth in profitability among the bank's other regions of operation. Revenue for the second quarter fell by 10 per cent from the same period a year ago to $12bn.

"We were profitable in every region in the first half of the year, supported by the release of expected credit loss provisions," said chief executive Noel Quinn.

"Our lending pipeline began to translate into business growth in the second quarter and we further strengthened that pipeline during the half."

Lenders around the world are benefitting from improved operating conditions as businesses stabilise and economies shake off the coronavirus-induced slowdown.

In July, the International Monetary Fund maintained its global economic forecast at 6 per cent but downgraded its growth outlook for emerging market and developing economies due to the uneven access to vaccines and the emergence of Covid-19 variants that are hindering the shape of recovery.

HSBC said it would distribute an interim first-half dividend of 7 cents an ordinary share, which will be paid in cash. This comes after the Bank of England removed limits on cash payouts in July.

"Reflecting the current improved economic outlook and operating environment in many of our markets, we now expect to move to within our target dividend payout ratio range of 40 per cent to 55 per cent of reported earnings per ordinary share in 2021," HSBC said in its outlook for the year.

Adjusted expected credit losses and other credit impairment charges that had been set aside to cover potential bad loans dropped to $719 million in the first half of this year. This compared to $7.2bn in adjusted bad-loan provisions made in the same period of 2020.

"The improved economic outlook enabled us to begin releasing expected credit losses, which was the main driver of our improved profitability," the bank said.

HSBC expects credit loss charges for 2021 to be "materially lower" than its medium-term forecast of 0.3 per cent to 0.4 per cent of average loans.

Funding, liquidity and capital "remain strong" after the bank grew deposits by $27bn on a constant currency basis, with growth reported in all three global businesses, it said.

In the first half of 2021, lending increased by $21.5bn on a reported basis, reflecting growth in the lender's wealth and personal banking unit and its commercial banking business. Deposits grew by $26.3bn on a reported basis, with increases reported in all global businesses.

HSBC's operating expenses rose by 3 per cent due to an increase in performance-related pay and spending on technology, despite reducing its workforce by about 3,500 in the first six months of 2021. The lender spent about $3bn on technology in the first half of the year, up 4 per cent on the same period last year.

As it moves to a hybrid model where possible, HSBC will need less office space as a result and plans to reduce its global office footprint by more than 3.6 million square feet (334,450 square metres) – or about 20 per cent – by the end of 2021, it said.

In the first half, HSBC also announced the sale of its US mass market retail banking business, subject to regulatory approval, as it focuses on its international corporate and wealth business. This sale would include about one million clients and 90 out of its existing 148 branches.

It also signed an agreement for the potential sale of its retail banking operations in France, marking a significant step in the transformation of its European franchise, the bank said.

The deals "will help enable both our US and continental Europe businesses to become more focused, simpler and sustainably profitable, and to better serve the international needs of our wholesale and wealth management customers", said Mr Quinn.

HSBC began a fresh restructuring this year that aims to refocus the bank on Asian markets, where it makes most of its money by serving the region's wealthiest customers.

The bank maintained uninterrupted services to India, which was struck with the devastating spread of the Covid-19 delta variant. The country is both a growth market and an important service centre for the group, with about 39,000 employees based there, it said.

"Despite continued revenue headwinds, notably in fixed-income markets relative to strong comparative periods, as well as low interest rates and Covid-19 [effects], there are emerging signs of unsecured personal lending and commercial lending growth," said Mr Quinn.

"We expect mid-single-digit lending growth for the full year."