HSBC eyes interest rate boost as quarterly profits jump

HSBC has said it expects to benefit from central bank interest rates rising earlier than expected as it announced a third-quarter boost to its profit.

The banking giant told shareholders that its revenue expectations are beginning to look more positive, saying it is lending more and expects policy rates to rise.

In the three months to the end of September, reported profit before tax rose by $2.3 billion (£1.7bn) to $5.4bn, compared with a year earlier. It was helped by the bank's decision to release $700 million that it had put away to cover bad debt during the Covid-19 pandemic.

Chief executive Noel Quinn said: "We had a good third-quarter performance, with strong growth in profits supported by additional credit provision releases.

HSBC is the biggest of Britain's banks, though much of its business is generated in Asia. Picture: Kirsty O'Connor/PA Wire

"Our strategy remains on track, with good delivery in all areas. This was reflected in more consistent top-line growth, robust lending pipelines across our businesses, and rising trade and mortgage balances.

"While we retain a cautious outlook on the external risk environment, we believe that the lows of recent quarters are behind us."

The business announced a $2bn share buyback, which, it said, has been made possible by a strong capital position.

The payout comes two months after HSBC announced an interim dividend of 7 cents per share, adding up to around $1.4bn in total.

Richard Hunter, head of markets at investment platform Interactive Investor, said: “HSBC has flexed its financial muscles as it continues to emerge from the horror show of 2020.

“The numbers are flattered by further bad debt releases, in what will be the likely theme of the season, but the announcement of a share buyback programme is a positive endorsement of the bank’s own confidence in prospects.

“Meanwhile the increased strategic focus in Asia, from where the bank already derives around 60 per cent of profits, underlines not only its historic presence in the region but also its aspirations of future growth.”

Adam Vettese, analyst at multi-asset investment platform eToro, said: “HSBC reported a markedly better performance in the third-quarter, with profits doubling year-on-year on slightly smaller revenues.

“A large chunk of that was driven by the release of cash set aside for loan defaults due to the improving economic picture and the better-than-expected credit performance of its book.

“Europe, including the UK, produced a strong quarter, reversing a steep loss in Q3 last year, while Asia – HSBC’s biggest market – once again drove the bulk of profits.”

He added: “Slightly concerning is the fall in its net interest margin – the difference between the interest the bank pays on savings and the interest it receives on loans – suggesting that margins are being squeezed in the low-rate environment.”

Sophie Lund-Yates, equity analyst at Hargreaves Lansdown, noted: “HSBC is the latest bank to hint at an expected hike in interest rates. This helps elevate the mood because higher interest rates improve the profitability of loans.

“All in, the picture is looking healthier for HSBC, but while interest rates remain on the floor, the group will continue to be held back.”

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