HSBC has posted a big increase in the profits it makes on lending following interest rate rises as it highlighted the resilience of the UK economy amid challenging conditions in the key China market.
The banking giant recorded a near 80 per cent increase in annual profits to $30.3 billion (£24bn) before tax, from $17bn, fuelled by strong growth in net interest income.
This represents the difference between the rates charged on lending and those paid on deposits. HSBC’s margin increased to 1.66%, from 1.42% in the preceding year, following moves by central bankers around the world to increase interest rates in response to the surge in inflation.
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HSBC said net interest income increased in all its global businesses due to the higher interest rate environment.
The bank highlighted an increase in mortgage lending in the UK. However, it said the value of savings and investment accounts fell “reflecting cost of living pressures and the competitive environment”.
The update indicates that the benefits of interest rate rises for HSBC in the UK have outweighed the negative impacts associated with the resulting squeeze on consumers and businesses.
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A spokesperson for HSBC noted the bank has four branches in Scotland along with commercial banking operations. It is developing plans for pop-up outlets to provide a more flexible way to serve customers.
HSBC bought Silicon Valley Bank’s UK operations for just £1 in March last year after the US lender collapsed. The portfolio acquired included £5.5bn loans and £6.7bn deposits.
HSBC said the global environment is challenging amid wars in Europe and the Middle East.
Chairman Mark Tucker noted: “The UK economy, which entered a technical recession at the end of 2023, has nonetheless been resilient.
“Headline inflation should fall in the first half of the year, with core inflation following by the end of 2024.”
Last week Royal Bank of Scotland owner NatWest posted a 20% increase in annual operating profits, to £6.2bn. The bank’s annual net interest margin rose to 3.04% from 2.85%.
HSBC is facing challenges in China where debt-laden property developers are struggling in the face of subdued consumer spending.
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The bank made a $3bn provision in the fourth quarter in respect of its investment in China’s Band of Communications. It incurred $0.2bn charges related to exposure to the mainland China commercial real estate sector.
The group’s fourth quarter profits plunged 80%, to $1bn, from $5.1bn.
Chief executive Noel Quinn noted HSBC’s success in the last year allowed it to reward shareholders with its highest full-year dividend since 2008 and to return billions to investors through share buybacks.
He said HSBC had a strong platform for growth within its home markets (the UK and Hong Kong) and across its international businesses.
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