HSBC Holdings plc Annual Results 2023

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.

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.”

2023 financial performance (vs 2022)

• Profit before tax rose by $13.3bn to $30.3bn, primarily reflecting revenue growth. This included a favourable year-on-year impact of $2.5bn relating to the sale of our retail banking operations in France, which completed on 1 January 2024, and a $1.6bn provisional gain recognised on the acquisition of Silicon Valley Bank UK Limited (‘SVB UK‘) in 2023. These were partly offset by the recognition of an impairment charge in 2023 of $3.0bn relating to the investment in our associate, Bank of Communications Co., Limited (‘BoCom’), which followed the reassessment of our accounting value-in-use. On a constant currency basis, profit before tax increased by $13.8bn to $30.3bn. Profit after tax increased by $8.3bn to $24.6bn.
• Revenue rose by $15.4bn or 30% to $66.1bn, including growth in net interest income (‘NII’) of $5.4bn, with rises in all of our global businesses due to the higher interest rate environment. Non-interest income increased by $10.0bn, reflecting a rise in trading and fair value income of $6.4bn, mainly in Global Banking and Markets. The associated funding costs reported in NII grew by $6.2bn. The increase also included the impact of the strategic transactions referred to above, partly offset by disposal losses of $1.0bn relating to repositioning and risk management activities in our hold-to-collect-and-sell portfolio.
• Net interest margin (‘NIM’) of 1.66% increased by 24 basis points (‘bps’), reflecting higher interest rates.
• Expected credit losses and other credit impairment charges (‘ECL’) were $3.4bn, a reduction of $0.1bn. The net charge in 2023 primarily comprised stage 3 charges, notably related to mainland China commercial real estate sector exposures. It also reflected continued economic uncertainty, rising interest rates and inflationary pressures. ECL were 33bps of average gross loans, including a 3bps reduction due to the inclusion of loans and advances classified as held for sale.
• Operating expenses fell by $0.6bn or 2% to $32.1bn, mainly due to the non-recurrence of restructuring and other related costs following the completion of our cost to achieve programme at the end of 2022. This more than offset higher technology costs, inflationary pressures and an increase in performance-related pay. We also incurred a higher UK bank levy and a charge relating to the Federal Deposit Insurance Corporation (‘FDIC’) special assessment in the US. Target basis operating expenses rose by 6%. This is measured on a constant currency basis, excluding notable items and the impact of the acquisition of SVB UK and related investments internationally. It also excludes the impact of retranslating the prior year results of hyperinflationary economies at constant currency.
• Customer lending balances rose by $15bn on a reported basis, but fell by $3bn on a constant currency basis. Growth included a $7.8bn reclassification of secured loans in France from held for sale, an addition of $8bn from the acquisition of SVB UK, and higher mortgage balances in HSBC UK and Hong Kong. These increases were more than offset by a reduction in wholesale term lending, notably in Asia, and from business divestments in Oman and New Zealand.
• Customer accounts rose by $41bn on a reported basis, and $13bn on a constant currency basis, primarily in Wealth and Personal Banking, reflecting growth in Asia, partly offset by reductions in HSBC UK, reflecting cost of living pressures and the competitive environment, despite an increase of $6bn from the acquisition of SVB UK. There was also a reduction due to the sale of our business in Oman.
• Common equity tier 1 (‘CET1’) capital ratio of 14.8% rose by 0.6 percentage points, as capital generation was partly offset by dividends and share buy-backs.
• The Board has approved a fourth interim dividend of $0.31 per share, resulting in a total for 2023 of $0.61 per share. We also intend to initiate a share buy-back of up to $2.0bn, which we expect to complete by our first quarter 2024 results announcement.

4Q23 financial performance (vs 4Q22)

• Reported profit before tax down $4.1bn to $1.0bn. The reduction included the recognition of an impairment charge in 4Q23 of $3.0bn relating to the investment in our associate BoCom, and the impact of a 4Q23 impairment relating to the sale of our retail banking operations in France of $2.0bn as we reclassified these operations as held for sale. On a constant currency basis, profit before tax down $4.0bn to $1.0bn. Reported profit after tax down $4.4bn to $0.2bn.
• Reported revenue down 11% to $13.0bn, due to the impact of 4Q23 impairment relating to the sale of our retail banking operations in France, as mentioned above, disposal losses relating to repositioning and risk management activities in our hold-to-collect and sell portfolio and the impact of hyperinflationary accounting in Argentina. These factors were in part offset by revenue growth in Global Payments Solutions, Capital Markets and Advisory and Markets and Securities Services (‘MSS’).
• Reported ECL down $0.4bn to $1.0bn. The charge in 4Q23 included $0.2bn of charges relating to exposures in the mainland China commercial real estate sector.
• Reported operating expenses down 2% to $8.6bn, as lower restructuring expenses following the completion of our cost-saving programme at the end of 2022, more than offset growth from a higher UK bank levy, the FDIC special assessment in the US, the impact of rising inflation and higher performance-related pay.

Outlook

• We continue to target a return on average tangible equity (‘RoTE’) in the mid-teens for 2024, excluding the impact of notable items (see page 25 of our Annual Report and Accounts 2023 for information on our RoTE target for 2024). Our guidance reflects our current outlook for the global macroeconomic environment, including customer and financial markets activity.
• Based upon our current forecasts, we expect banking NII of at least $41bn for 2024. This guidance reflects our current modelling of a number of market dependent factors, including market-implied interest rates (as of mid-February 2024), as well as customer behaviour and activity levels, which we would also expect to impact our non-interest income. We do not reconcile our forward guidance on banking NII to reported NII.
• While our outlook for loan growth remains cautious for the first half of 2024, we continue to expect year-on-year customer lending percentage growth in the mid-single digits over the medium to long term.
• Given continued uncertainty in the forward economic outlook, we expect ECL charges as a percentage of average gross loans to be around 40bps in 2024 (including customer lending balances transferred to held for sale). We continue to expect our ECL charges to normalise towards a range of 30bps to 40bps of average loans over the medium to long term.
• We retain a Group-wide focus on cost discipline. We are targeting cost growth of approximately 5% for 2024 compared with 2023, on a target basis. This target reflects our current business plan for 2024, and includes an increase in staff compensation, higher technology spend and investment for growth and efficiency, in part mitigated by cost savings from actions taken during 2023.
• Our cost target basis for 2024 excludes the impact of the disposal of our retail banking business in France and the planned disposal of our banking business in Canada from the 2023 baseline. Our cost target basis is measured on a constant currency basis and excludes notable items and the impact of retranslating the prior year results of hyperinflationary economies at constant currency. We do not reconcile our forward guidance on target basis costs to reported operating expenses.
• We intend to continue to manage the CET1 capital ratio within our medium-term target range of 14% to 14.5%.
• Our dividend payout ratio target remains at 50% for 2024, excluding material notable items and related impacts. We have announced a further share buy-back of up to $2.0bn. Further buy-backs remain subject to appropriate capital levels.

For further information contact:

Media Relations

UK – Gillian James
Telephone: +44 (0)7584 404 238
Email: pressoffice@hsbc.com

UK – Kirsten Smart
Telephone: +44 (0)7725 733 311
Email: pressoffice@hsbc.com

Hong Kong – Aman Ullah
Telephone: +852 3941 1120
Email: aspmediarelations@hsbc.com.hk

Investor Relations

UK – Neil Sankoff
Telephone: +44 (0) 20 7991 5072
Email: investorrelations@hsbc.com

Hong Kong – Yafei Tian
Telephone: +852 2899 8909
Email: investorrelations@hsbc.com.hk