HSBC profits from higher interest rates but says mortgages still ‘affordable’
The bank saw its net interest margin – a key measure of the returns it makes on loans – increase to 1.57% in the third quarter from 1.19% a year ago.
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Your support makes all the difference.Banking giant HSBC has seen its quarterly profits jump as it raked in more income from rising interest rates, but said that mortgages remain affordable for most of its customers.
The lender reported adjusted pre-tax profits for the three months to September 30 of 6.5 billion dollars (£5.76 billion), up from 5.5 billion dollars (£4.87 billion) a year earlier.
It also beat market expectations, which had predicted six billion dollars (£5.32 billion) in profits for the quarter.
It came as the group also announced the departure of its chief financial officer and executive director, Ewen Stevenson, who will leave HSBC in April next year.
The surprise move will see Georges Elhedery step into the role, as the bank focuses on its “long-term succession planning” following a three-year transformation programme.
Mr Stevenson said: “I think this is a natural point for me to leave the bank and I am looking forward to taking some time off and considering options for the future.”
He emphasised that there had been no fallout with HSBC’s chief executive Noel Quinn or disagreement over the group’s strategy, although he could not confirm whether it was his decision to leave the bank at this time.
Responding to speculation about his own position, Mr Quinn added: “I am not planning on going anywhere soon, I expect to be here for many years. I am only part way through my agenda of things I want to achieve.
“But clearly, as with any direction of any publicly listed company, it is always at the discretion of the board.”
Based on what we can see at the moment, for the great majority of our customers we think the higher rates are affordable
In its quarterly results, the bank saw its net interest margin – a key measure of the returns it makes on loans – increase to 1.57% in the third quarter from 1.19% a year ago.
This has been bumped up by a rise in the Bank of England’s base rate in recent months, which has made it more expensive for people to borrow and driven up mortgage rates.
But banks are able to make higher profits as they can take in more money from people’s loan repayments.
In 2023, HSBC expects to hold on to at least 36 billion dollars (£31.83 billion) in net interest income.
However, higher interest rates can also have a detrimental impact on lenders if it means that more people default on loans they can no longer afford.
I would hope that there isn't a windfall tax, but that is a matter for the Chancellor to decide next week.
HSBC said it had set aside 1.1 billion dollars (£972 million) in expected credit losses in the latest quarter, a big jump from the 659 million dollars (£584 million) in charges last year.
The bank said the charge reflects a deterioration in the economic outlook from greater uncertainty, inflation and rising interest rates, which could have an impact on people’s loan repayments in 2023.
The mortgage market has been particularly turbulent in recent weeks with average rates on two-year and fixed-rate mortgages surpassing 6% after the mini budget.
Mr Stevenson said: “We have been stress-testing customers’ ability to pay mortgages up to interest rates of 7%, so we are still comfortably within that test.
“Based on what we can see at the moment, for the great majority of our customers we think the higher rates are affordable.
“For those customers who need help, we will do whatever we can to support them.”
HSBC reported that loan losses have remained stable in the year so far, despite the worsening UK cost-of-living crisis.
Boss Mr Quinn added that the new Prime Minister Rishi Sunak should help settle the financial markets after a “challenging few weeks” in the UK.
He said: “I am pleased to see the market has stabilised and it is good to have a decision on the new Prime Minister so that we have stability politically as well.”
He also touched on the speculation that Chancellor Jeremy Hunt could be considering bumping up windfall taxes on banks at the end of the month.
“The UK’s financial services sector already has a tax burden that is higher than corporates generally, with a combination of corporation tax, plus the surcharge, plus the bank levy,” Mr Quinn explained.
“I would hope that there isn’t a windfall tax, but that is a matter for the Chancellor to decide next week.”
The London-based bank, which makes most of its profits in Asia, also reported some hefty one-off charges that dragged on its total reported profits.
It said the credit charges partly relate to the commercial real estate sector in mainland China, which has seen a slowdown in the housing market following the pandemic.
Furthermore, it set aside a heavy 2.4 billion dollar (£2.1 billion) hit from the planned sale of its retail banking operations in France.
Shares in HSBC slid by more than 7% on Tuesday as a result.