City reaction: HSBC's market-beating Q3 figures including £884m YOY profit jump show further 'incremental progress'
The lender reported adjusted pre-tax profits for the three months to September 30 of $6.5bn, up from $5.5bn a year earlier. It also beat market expectations, which had predicted $6bn in profits for the quarter, while also announcing the departure of chief financial officer and executive director Ewen Stevenson, who will leave in April. The surprise move will see Georges Elhedery step into the role, as the lender focuses on its "long-term succession planning" following a three-year transformation programme.
The bank saw its net interest margin – a key measure of the returns it makes on loans – increase to 1.57 per cent in the third quarter from 1.19 per cent a year ago. This has been bumped up by a rise in the Bank of England's base rate in recent months, which has made it more expensive for people to borrow and driven up mortgage rates, but banks are able to make higher profits as they can take in more money from people's loan repayments.
In 2023, HSBC expects to hold on to at least $36bn in net interest income. However, higher interest rates can also have a detrimental impact on lenders if it means that more people default on loans they can no longer afford.
The lender also said it had set aside $1.1bn in expected credit losses in the latest quarter, a big jump from the $659m in charges last year, amid a deterioration in the economic outlook from greater uncertainty, inflation and rising interest rates, which could have an impact on people's loan repayments in 2023, but it said loan losses have remained stable in the year so far, despite the worsening cost-of-living crisis in the UK.
The London-based bank, which makes most of its profits in Asia and in June said it had earmarked £1bn to support local economies, employment opportunities and drive growth across Scotland, also reported some hefty one-off charges that dragged on its total reported profits. It said the credit charges partly relate to the commercial property sector in mainland China, which has seen a slowdown in the housing market following the pandemic. Furthermore, it set aside a heavy $2.4bn hit from the planned sale of its retail banking operations in France.
Group chief executive Noel Quinn said: "We maintained our strong momentum in the third quarter and delivered a good set of results. Our strategy produced good organic growth in all three global businesses and net interest income increased on the back of rising interest rates.
"We retained a tight grip on costs, despite inflationary pressures, and remain on track to achieve our cost targets for 2022 and 2023. We are focused on executing our plans and delivering our returns target of at least 12 per cent from 2023 onwards and, as a result, higher distributions to our shareholders."
Richard Hunter, head of markets at Interactive Investor, said: “Slowing but steady progress is being made in numbers which are probably more robust than they first appear, especially when set against the current raft of challenges. HSBC may be an elephant which does not gallop, but it continues to make incremental progress.”
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