HSBC, a London-based bank, experienced a significant increase in profits during the first half of the year due to rising interest rates. Pre-tax profits for the bank reached $21.7 billion, more than double the $8.8 billion reported during the same period last year. Despite allocating more funds to protect against potential defaults caused by higher living costs, HSBC was still able to provide dividend payments of 10p per share and a $2 billion share buyback to its shareholders. This move is expected to strengthen the bank’s position against its largest shareholder, Ping An, who has been advocating for a break-up of HSBC to elevate returns for investors. However, shareholders voted against the break-up at the bank’s annual meeting in May.
HSBC confirmed that it had set aside an additional $200 million for performance-related pay for staff compared to last year, although it will disclose the total bonus pool for bankers next spring. Rising interest rates have allowed banks to charge borrowers more for loans and mortgages, resulting in increased profits. However, in the UK, banks like HSBC have been accused of profiteering by not increasing rates on savings accounts at the same pace as loans and mortgages. The UK regulator has promised to take strong action against laggards in the savings market.
Although HSBC generates most of its revenue in Asia, its ringfenced UK bank, which primarily serves retail customers and smaller businesses, accounted for around a quarter of the group’s $18.3 billion net interest income. HSBC UK also contributed approximately 22% of the group’s total pre-tax profits in the first half of the year. Higher interest rates have put pressure on borrowers, who are facing rising inflation and may struggle to make payments on time.
HSBC has allocated $1.3 billion to cover potential losses from customers falling behind on loan and mortgage payments in the first half of the year, which is slightly higher than the $1.1 billion set aside last year. In the second quarter, impairments nearly doubled to $913 million, with $300 million linked to the commercial property market in China and charges related to UK businesses in its commercial banking division. The bank stated that there is still uncertainty in the economic outlook, particularly in the UK, and it will monitor its exposures to the Chinese property market.
HSBC experienced a decrease in deposits during the second quarter as corporate customers in Europe used their savings to repay expensive loans and retail customers in the UK faced higher living costs or moved their savings to other banks offering higher rates. However, the possibility of further interest rate increases, including in the UK, is expected to further boost HSBC’s earnings. The bank raised its full-year guidance and now expects interest income to exceed $35 billion. HSBC also anticipates that customers will increasingly invest in fixed-term savings accounts as interest rates continue to rise.
Noel Quinn, the CEO of HSBC, stated that the bank has transitioned from a focus on transformation to a greater emphasis on growth and value creation for shareholders. He highlighted the bank’s more focused portfolio and tight cost control as evidence that its strategy is working.