The projected bad loans because of the Covid-19 pandemic did not happen which prompted lender HSBC to accelerate its major profitability objective by a year while also reporting a doubling of annual profits for 2021 as the lender is anticipating greater income because of expected higher interest rates.
HSBC, one of the biggest lenders of Europe, is benefiting from lower-than-expected impairment charges since borrowers of the bank took advantage of government assistance packages during the pandemic in markets that were impacted by the coronavirus pandemic, while economies are also helping out enterprises to remain afloat and bounce back.
For 2021, HSBC posted pretax earnings of $18.9 billion, up from $8.8 billion the year before but slightly shy of the $19.1 billion average of 17 analyst projections surveyed by the bank. Asia was responsible for 65 per cent of the earnings of the bank.
In afternoon trade on Tuesday, HSBC’s shares listed in Hong Kong fell 3.2 per cent, tracking broader market declines as global markets plunged as the Ukraine situation worsened.
“We have good momentum coming into 2022 and are confident that we can continue to execute against our strategy,” Group Chief Executive Noel Quinn said in the results statement.
Following the completion of a $2 billion buyback program, HSBC stated it will buy back up to $1 billion of its own shares.
It added that if global central bank interest rates rise as projected, it would achieve its objective of a double-digit return on equity in 2023, a year sooner than expected.
Quinn, who has been the bank’s permanent head and running it for the past two years, has increased his focus on Asia and is investing billions of dollars in the lucrative wealth management industry.
In the first quarter of 2022, HSBC predicts a lower performance in its wealth management business in Asia, according to the bank.
Over the last year, HSBC’s stocks that are listed in London have risen by 29 per cent, while the stocks of StanChart increased by 16 per cent and those of Barclays rose by 25 per cent in the same period.
Standard Chartered’s results came after the London-based bank upped its core profitability targets as it leans on inflation-fighting rate hikes to stimulate lending.
Due to low global interest rates and decreased income in its markets sector, the bank’s revenue fell by 2 per cent in 2021, but rising rates policies this year and beyond could help to reverse the drop, according to the bank.
“After absorbing the impact of low-interest rates for some time, we believe we have turned the corner on revenue,” Quinn said.
The bank disbursed $900 million in cash that it had earmarked account for an increase in pandemic linked bad loans, compared to $8.8 billion in predicted losses a year before for the same period, HSBC said.
On the other side, HSBC’s fourth-quarter results were hampered by a $500 million charge for projected credit losses, owing in part to China’s ailing commercial real estate market.
While Asia and most of the world’s economy are opening up, Hong Kong, HSBC’s largest market, is tightening restrictions as it deals with a rising Covid-19 epidemic, raising concerns about the economic effect on banks and businesses.
(Adapted from EuroNews.com)