High interest rates propel HSBC’s annual profits past $30bn

HSBC has reported that its profit before tax jumped by $13.3bn (£10.5bn) in 2023 to total $30.3bn (£24bn).

The bank’s annual profits, up almost 80% from the $17bn (£13.5bn) recorded in 2022, came as central banks around the globe hiked interest rates last year in efforts to curb rates of inflation.

As a result of the higher interest rate environment, HSBC has rewarded its shareholders with its highest full-year dividend since 2008, as well as three share buybacks last year totalling $7bn (£5.5bn), and a further share buyback of up to $2bn (£1.6bn).

Group chief executive at HSBC, Noel Quinn, said: “We have a strong platform for growth with the opportunities that exist within our two home markets and across our international wholesale, market-leading transaction banking, and wealth management businesses.

“We are focused on capturing these growth opportunities, improving our earnings sustainability and targeting mid-teens returns in 2024.”

Equity analyst at Hargreaves Lansdown, Matt Britzman, commented that 2023 was a strong year for HSBC, but that its “earnings momentum” looks to be coming to an end.

“The group has options, not least from a capital perspective with today’s $2bn (£1.6bn) buyback a teaser of more to come once the sale of its Canadian business completes,” Britzman added. “But when it comes to UK banks, the more traditional lenders like NatWest and Lloyds look to be better placed for upside.”

HSBC’s profitability has been impacted by a slowdown in China’s economy, with its bottom line also affected by a $3bn (£2.4bn) charge from its stake in China’s Bank of Communications (BoCom).

In its latest trading statement, HSBC described the performance of the economy in China as “bumpier than expected” but added that the Chinese economy still grew in line with its annual target of around 5% in 2023, which HSBC expects to be maintained in 2024.

“Mainland China remains a question mark,” Britzman added. “The write-down of BoCom follows a similar pattern to what Standard Chartered did last quarter and while loan loss charges were better than expected, the Chinese commercial real estate sector continues to be weak.

“The outlook is equally as messy. Returns are expected in the mid-teens once some one-off bits are backed out, costs are forecast to rise 5% and loan loss levels are expected to tick higher. Overall, that paints a mixed underlying picture that looks to be a little worse than the current consensus has built in.”

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