HSBC Bank’s profit after tax up from $8.6bn to $14.7bn in 2021

HSBC bank has announced its financial results for 2021. The bank reported profit after tax was up from $8.6bn to $14.7bn and reported profit before tax was up from $10.1bn to $18.9bn. The increase was driven by a net release of expected credit losses (ECL) and other credit impairment charges and a higher share of profit from HSBC’s associates. Adjusted profit before tax was up 79 per cent to $21.9bn.

All regions were profitable in 2021, particularly  HSBC UK Bank, where reported profit before tax increased by $4.5bn to $4.8bn. HSBC’s Asia operations contributed $12.2bn to reported profit before tax, with all other regions reporting a material recovery in profitability, reflecting favourable ECL movements.

Reported revenue was down 2 per cent to $49.6bn, primarily reflecting the impact of lower global interest rates and a decrease in revenue in markets and securities services compared with a strong comparative period.

Notwithstanding these factors, HSBC saw revenue growth in areas of strategic focus, including wealth, in part due to favourable market impacts in life insurance, manufacturing, and global trade and receivables finance. Adjusted revenue was down 3 per cent to $50.1bn.

Net interest margin of 1.20 per cent was down 12 basis points (bps) from 2020, with stabilisation in the second half of 2021. Reported ECL was a net release of $0.9bn, compared with an $8.8bn charge in 2020, reflecting an improvement in economic conditions relative to 2020, and better than expected levels of credit performance.

Reported operating expenses were broadly unchanged year on year at $34.6bn. Adjusted operating expenses were down 1 per cent to $32.1bn, despite inflationary pressures, as the impact of the bank’s cost-saving initiatives and a reduction in the UK bank levy charge absorbed higher performance-related pay and continued growth in technology investment.

Customer lending balances in 2021 were up $8bn on a reported basis and $23bn on a constant currency basis, primarily driven by growth in mortgage balances, mainly in the UK and Hong Kong.

Common equity tier 1 (CET1) capital ratio of 15.8 per cent, went down 0.1 percentage points. Capital generation was more than offset by dividends, the up to $2bn share buy-back announced in October 2021, foreign exchange movements and other deductions. Risk-weighted assets (RWAs) reduced despite new Pillar 1 requirements for structural foreign exchange, reflecting actions under the bank’s transformation programme.

The bank’s board has also approved a second interim dividend of $0.18 per share, making a total for 2021 of $0.25 per share. HSBC also intends to initiate a further share buy-back of up to $1bn, to commence after the existing up to $2bn buy-back has concluded.

Noel Quinn, Group Chief Executive, said: “We made good progress against our strategy in 2021, which contributed to a strong financial performance that was supported by the global economic recovery. All of our regions were profitable and we saw growth in the fourth quarter of 2021 in many of our business lines. We have good momentum coming into 2022 and are confident that we can continue to execute against our strategy. We also remain cognisant of the potential impact that further Covid-19-related uncertainty and continued inflation might have on us and our clients.”

Today we announced our #HSBC 2021 financial results. By acting with purpose to deliver our strategy, we’re poised for growth in 2022. See our full results: https://t.co/N6zVyyzdLJ pic.twitter.com/vmxKlrA56X

— HSBC (@HSBC) February 22, 2022

Outlook for 2022-23
The bank reported good business momentum going into 2022 in most areas and expects mid-single-digit lending growth over the year. However, it expects a weaker wealth performance in Asia in the first quarter of 2022.

HSBC’s forecasts ECL charges to normalise towards 30bps of average loans in 2022, based on current consensus economic forecasts and default experience, retaining $0.6bn of Covid-19-related allowances as at the end of 2021. Uncertainty remains a given with recent developments in China’s commercial real estate sector, while inflationary pressures persist in many of the bank’s markets.

The bank will continue to target 2022 adjusted operating expenses in line with 2021, despite inflationary pressures, with cost to achieve spend of $3.4bn expected to generate over $2bn of cost savings in 2022. In 2023, the bank intends to manage growth in adjusted operating expenses to within a range of 0-2 per cent, compared with 2022 (on an IFRS 4 basis), with cost savings of at least $0.5bn from actions taken in 2022, helping to offset inflation.

HSBC expects mid-single-digit RWA growth in 2022 through a combination of business growth, acquisitions and regulatory changes, partly offset by additional RWA savings. This growth, together with capital returns, is expected to normalise the bank’s CET1 position to be within its 14-14.5 per cent target operating range during 2022.

The bank’s net interest income outlook is significantly more positive. If policy rates were to follow the current implied market consensus, HSBC expects to deliver a RoTE (return on tangible equity) of at least 10 per cent for 2023, one year ahead of its previous expectations.

HSBC will continue to target dividends within its 40-55 per cent dividend payout ratio range.