(Alliance News) - HSBC Holdings PLC on Monday reported a drop in profit in the first half, on a rise in expected credit losses, but has vowed to up its returns to shareholders as the bank looks set to benefit from the current interest rates cycle.
Shares in the Asia focused lender were down 0.6% in Hong Kong on Monday at HKD49.10. They closed at 511.85 pence in London on Friday.
"We are now two and a half years into our transformation programme to make HSBC fit for the future. We still have more work to do in the second half of this year - but we are now much better positioned to meet the needs of our international customers and to deliver higher returns for our shareholders," Chief Executive Noel Quinn said.
In the six months to June 30, pretax profit fell to USD9.18 billion from USD10.84 billion a year before.
Keeping a lid on profit was HSBC racking up USD1.09 billion in expected credit losses, swinging from a USD719 million release the year prior. The bank said the rise reflects "heightened economic uncertainty and inflation".
In the first half, net interest income rose to USD14.45 billion from USD13.10 billion, aided by rising central interest rates around the world. The lender's net interest margin improved to 1.30% from 1.21%.
Net fee income slipped to USD6.06 billion from USD6.67 billion.
HSBC also booked a USD3.05 billion expense from assets and liabilities of insurance businesses, including related derivatives, measured at fair value through profit or loss, swinging from a USD2.80 billion profit the year prior.
As a result, total operating income fell to USD30.60 billion from USD33.48 billion.
Quinn said: "Our first-half performance reflected much of the progress we have made since 2020, with good organic growth across the business and tight cost control. In addition, increased net interest income reflected rising global interest rates, with further policy rate rises anticipated over the coming months."
Net operating income before change in expected credit losses and other credit impairment charges was broadly flat year-on-year at USD25.24 billion versus USD25.55 billion.
The bank declared an interim dividend of USD0.09, rising from the USD0.07 distributed a year prior. Looking ahead, HSBC said it is targeting a payout ratio guidance of around 50% for 2023 and 2024.
"We understand and appreciate the importance of dividends to all of our shareholders. We will aim to restore the dividend to pre-Covid-19 levels as soon as possible. We also intend to revert to quarterly dividends in 2023," Quinn said.
The bank noted the quarterly dividend for the first three quarters will initially be reinstated at a lower level than the historical quarterly dividend of USD0.10 per share paid up to the end of 2019.
The lender ended the first half with a CET1 ratio of 13.6%, which is down from 15.6% at the same point last year and down from 15.8% at the end of 2021.
HSBC's cost efficiency ratio worsened to 65.1% from 66.9%.
Its loan book stood at USD1.028 trillion at June 30, down from USD1.060 trillion the year before. Customer deposits slipped to USD1.651 trillion from USD1.669 trillion.
Regionally, HSBC saw profit in Asia fall to USD6.30 billion from USD6.94 billion. In Europe, profit was down to USD883 million from USD1.97 billion. In North America, it was a brighter picture, as profit rose to USD858 million from USD805 million, while it increased to USD748 million from USD723 million in Middle East & North Africa. In Latin America, profit was down to USD387 million from USD407 million.
Looking ahead, the bank said its revenue outlook "remains positive".
"Based on the current market consensus for global central bank rates and our continued mid-single digit percentage lending growth expectations for 2022, we would expect net interest income of at least USD31 billion for 2022 and at least USD37 billion for 2023," it added.
In 2022, NII stood at USD26.49 billion.
CEO Quinn added: "The progress that we've made growing and transforming HSBC means we are in a strong position as we enter the current rates cycle. We are confident of achieving a return on tangible equity of at least 12% from 2023 onwards, which would represent our best returns in a decade."
By Paul McGowan; paulmcgowan@alliancenews.com
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