Higher Interest Rates Lead to a Profit Surge for HSBC

Higher Interest Rates Lead to a Profit Surge for HSBC
HSBC has enjoyed bumper profits thanks to the high interest rate environment Daniel LEAL

London-based HSBC has reported that higher interest rates have more than doubled its quarterly profits, despite a significant financial hit from China’s property crisis.

The bank announced on Monday that its pre-tax profits for July to September were $7.7 billion, just shy of the average analyst forecasts of $8.1 billion, but significantly higher than the $3.2 billion reported during the same period last year. This increase was supported by a 15% rise in net interest income, which is the difference between what the bank charges for loans and mortgages and what it pays out to savers.

“We have had three consecutive quarters of strong financial performance,” said Noel Quinn, HSBC’s Chief Executive, in a statement.

To share its success, HSBC will be distributing more than $3 billion (£2.5 billion) to its shareholders. This will be done through a share buyback program and a dividend worth 10 cents a share. This latest share buyback announcement brings the total for this year to $7 billion, with total dividend payouts reaching 30 cents per share.

“The summer developments have been somewhat worse than we anticipated earlier in the year, right after the Covid lockdown,” commented Georges Elhedery, HSBC’s Chief Financial Officer.

UK-based banking giant HSBC

Despite these positive results, HSBC revealed that it had to set aside $1.1 billion to cover potential defaults, including $500 million linked to China’s struggling commercial property market. The bank has a significant exposure of $13.6 billion to this market.

“We continue to monitor risks related to our exposures in mainland China’s commercial real estate sector closely, and there remains a degree of uncertainty in the forward economic outlook, particularly in the UK,” the company said in the results statement.

These results come in stark contrast to HSBC’s banking rival, Standard Chartered, which reported a more than 11% drop in its shares after pre-tax profits halved due to its exposure to China. Standard Chartered’s earnings took a $186 million hit from China’s property sector and had to write down the value of its investments in China Bohai Bank.

“After seeing Standard Chartered take an unexpected impairment last week relating to its China assets, [HSBC’s] credit losses were under a microscope,” said Matt Britzman, an equity analyst at Hargreaves Lansdown.

Despite the risks associated with the Chinese property market, HSBC remains optimistic about the future. “Looking forward, I think we are expecting still a couple of quarters of difficulty as the sector adjusts. We are definitely encouraged by the ongoing policy measures that have been taken to ease the pressure on the sector, and to allow it to get through this challenge,” Elhedery concluded.

HSBC’s shares rose by 1.1% following the announcement of its profits.