HSBC, Europe’s largest lender, reported an 89 per cent rise in its second-quarter profit before tax, boosted by a sharp increase in net interest income as benchmark interest rates across the world continue to rise.
Pre-tax profit for the three months to the end of June climbed to $8.8 billion, HSBC said a statement on Tuesday.
Quarterly revenue rose by 38 per cent on an annual basis to $16.7 billion, with growth across all of the bank's global businesses, primarily reflecting rising interest rates.
“Good performances” in the bank's insurance, wealth, debt capital markets and global banking businesses boosted income, offsetting reductions in global foreign exchange and equities.
Net interest income of $9.3 billion for the three-month period was 38 per cent higher on an annual basis and rose by $300 million compared with the first quarter of this year.
“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,” said group chief executive Noel Quinn.
“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 $2 billion, with substantial further distribution capacity still expected ahead.”
The bank said impairment charges more than doubled to $913 million in the second quarter, from $442 million in the same period in 2022, including a $300 million charge in the commercial real estate sector in mainland China.
Customer lending at the end of the second quarter fell by $9 billion to $960 billion from the end of March 2023 level, which included a reduction of $3 billion related to a “reclassification of our business in Oman to held for sale”, HSBC said.
Customer accounts also fell by $18 billion compared with the first quarter of this year, partly due to a slide in Europe, as “corporate customers used deposits to pay down their loans, and in HSBC UK, reflecting higher cost of living and competitive pressures”.
The lender said its profit before tax for the first six months rose more than twofold to $21.7 billion.
The first-half profit included a $2.1 billion reversal of an impairment relating to the planned sale HSBC's retail banking operations in France as well as a provisional gain of $1.5 billion on the acquisition of Silicon Valley Bank's UK operations.
The first-half profit beat the $20.9 billion average estimate of analysts compiled by the bank as net interest margin rose to 1.70 per cent from 1.24 per cent at the end of the first half of 2022.
Revenue in the January-June period increased by 50 per cent on an annual basis to $36.9 billion, which included the impacts related to the planned sale in France and the acquisition in the UK.
“We have delivered a strong first-half performance", and the bank is confident of achieving its revised targets, Mr Quinn said.
The US Federal Reserve, which in recent quarters has increased its key interest rate aggressively, raised it again this month, pushing it to a 22-year high in its effort to tame inflation and restore price stability.
After pausing its tightening cycle last month, the Fed increased the policy rate for the 11th time since March 2022, by 25 basis points, the highest since 2001, as it aims to bring inflation down to its 2 per cent target range after prices hit a four-decade high in June 2022.
The Fed has now raised rates by a total of 525 bps since March 2022. This latest increase raises the federal funds rate to between 5.25 per cent and 5.5 per cent.
The US banking regulator has left the door open for the further interest rate increases this year, and the market expects the Fed to raise rates at least once more this year.
“Given the current market consensus for global central bank rates, we have raised our 2023 full-year guidance for net interest income to above $35 billion,” Mr Quinn said.
“While the interest rate outlook remains positive, we expect continued migration to term deposits as short-term interest rates rise.”
The bank said its strategy has strengthen its balance sheet, providing a platform for growth in the current interest rate cycle, which has allowed it raise its near-term return on tangible equity (RoTE) target, a key measure of a bank's performance for this year and next 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,” Mr Quinn said.
“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.”