HSBC confident in macroeconomic outlook in face of global uncertainty

Credit: Shutterstock

HSBC has reported record annual profits driven by general cross-segment revenue growth across its business, although noting that economic recovery in one of its core markets has been ‘bumpier’ than expected.

With interest rates across the world remaining high and global economic uncertainty fueled by a number of political and military conflicts, HSBC expects to continue traversing these difficult conditions through the remainder of 2024 and beyond.

Record profit for Britain’s biggest bank

Headquartered in the UK but operating with a heavy emphasis on East Asia due to its foundation in British Hong Kong in the 19th Century, HSBC outlined revenue growth of 30% from $50.7bn to $66.1bn in its full year 2023 results.

This was due to a higher interest environment, with net interest income (NNI) rising $5.4bn across HSBC’s three global businesses. Non-interest income rose by $10bn which the group stated reflected a rise in trading and air value income of $6.4bn, mainly in global banking and markets.

However, expected credit losses (ECL) and other credit impairment charges were $3.4bn, down $100m on the year prior. HSBC noted that this was due to exposure in the mainland Chinese commercial real estate sector.

Wider economic uncertainty, rising interest rates and inflationary pressure – such as in the UK where the inflation rate is double the Bank of England’s ideal rate of 2% – were also cited.

In the face of these uncertainties, HSBC was able to record profit before tax of $30.3bn, a huge 178% growth rate on the previous year’s figure of $13.3bn. 

This included a gain from its acquisition of SIlicon Valley Bank UK Ltd in 2023 and a year-on-year impact of $2.5bn from the sale of its French retail banking operations.

Noel Quinn, Group Chief Executive, said: “Our record profit performance in 2023 enabled us to reward our shareholders with our highest full-year dividend since 2008, three share buy-backs last year totalling $7bn, and a further share buy-back of up to $2bn.” 

“This reflected four years of hard work and the strength of our balance sheet in a higher interest rate environment.” 

On the other hand, whilst the full year represented an overall positive performance for HSBC, its fourth quarter operations faced some challenges.

Revenue at the close of Q4 was down 11% to $13bn ($11.6bn), with impairment as a result of the aforementioned French sale cited alongside repositioning and risk management activities and the impact of ‘hyperinflationary accounting in Argentina’.

As a result, profit before tax was also down 124% from $4.1bn to $1bn, reflecting an impairment charge during the quarter of $3bn as a result of the sale of HSBC associate BoCon and, again, the French sale impairment.

‘Another eventful year’

Offering a macroeconomic outlook, HSBC Chairman, Matt E Tucker, observed that 2024 will likely be ‘another eventful year’. Inflation in many countries remains high, and voters in some of these nations are also set to vote in general elections.

Tucker continued: “Among these potential challenges are the increased uncertainties due to wars in Europe and the Middle East, and disruption to global trade and supply chains caused by these and attacks on shipping in the Red Sea. 

“However, we remain cautiously optimistic about economic prospects for 2024. We expect growth to slow in the first half of the year and recover thereafter. We also expect the variable economic growth that has characterised recent years to continue. 

“The economies of south and south-east Asia carry good economic momentum into 2024. India and Vietnam are currently among the fastest growing economies in the world, benefiting from competitive labour costs, supportive policies and changing supply chains. 

“Chinese companies are among those increasingly looking towards these and other markets, as China’s economic transformation towards high-quality growth and domestic consumption continues.”

As the first country to be hit by the COVID-19 virus just over four years ago, China’s economy understandably took a hit. Whilst it was by far from the only economy to struggle during the following years, the country’s recovery has been ‘bumpier than expected’, Tucker said.

However, Tucker remains confident that China – despite being a cause of some financial difficulty for HSBC this year – will continue to provide opportunities, noting that the world’s second largest economy achieved its annual growth target of 5% last year.

He added: “We expect this to be maintained in 2024, with recently announced policy measures to support the property sector and local government debt gradually flowing through to the wider economy. 

“Hong Kong’s growth has moved along at a slower but healthy pace and is likely to remain in line with pre-pandemic levels.”

The HSBC Chairman is also confident in the Middle East’s economic outlook, including Saudi Arabia and the UAE which ‘continue to diversify their economies’, whilst US growth is also continuing. HSBC is also confident that the UK remains ‘resilient’ despite being confirmed to be in a recession.

HSBC confident in global opportunities

So where does macroeconomic outlook leave HSBC’s commercial outlook?

Looking ahead to the remaining 10 months of 2024, HSBC expects NII ‘of at least $41bn’ based on its current forecasts and reflecting its analysis of market factors such as market-implied interest rates and customer behaviour.

The group’s target for return on average tangible equity (‘RoTE’), meanwhile, remains ‘in the mid-teens’ for the year-end, and it expects year-on-year customer lending percentage growth in the mid-single digits although asserting that it has a ‘cautious’ outlook for lending growth in general.

Lastly, regarding ECL – the main outlier in the group’s otherwise highly positive Q4/FY23 report – charges as a percentage of average gross loans are expected to be around 40 basic points and to normalise towards a range of 30 basic points to 40 basic points of average loans over the medium to long-term.

HSBC CEO Quinn concluded: “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.”