| Staff Reporter, Hong Kong

HSBC to play by its strengths in 2021 after 30% net profit loss in 2020

The bank outlined plans to further strengthen its wealth and personal banking segment in Asia.

HSBC will be playing by its strengths in 2021 as its reported losses for FY2020 amidst higher credit impairment charges and lower revenue.

The bank’s reported profit after tax is down 30% to $6.1b in 2020, whilst reported profit before tax is down 34% to $8.8b. Revenue for the whole year totalled $50.4b, 10% lower than for the whole of 2019.

Higher credit losses, other credit impairment charges (ECL), and lower revenue dragged down profits during the year, partially offset by a fall in operating expenses.

In the results announcement, CEO Noel Quinn outlined the bank’s growth plans, with a particular focus on growing the bank’s strongest businesses and investments whilst seizing prospects related to an increasingly sustainable-conscious world.

“First, we plan to focus on and invest in the areas in which we are strongest. In Wealth and Personal Banking, we aim to become a market-leader for high net worth and ultra high net worth clients in Asia and the Asian diaspora, and to invest in our biggest retail markets where the opportunity is greatest,” Quinn said.

The bank also aims to become a global leader in cross-border trade and in serving mid-market corporates internationally as part of growing its Commercial Banking business. For the bank’s Global Banking and Markets, Quinn said that they intend to invest to capture trade and capital flows into and across Asia, whilst connecting clients to Asia and the Middle East through its international network.

Other areas of growth include ramping up investments in digitisation and upskilling and reskilling of employees.

Quinn also shared that the bank plans a return on tangible equity of 10% an above over the medium term, as the bank has to scrap its original target of 10%-12% by 2022 due to changes in the interest rate environment.

By the numbers, HSBC’s reported ECL rose from $6.1b in 2019 to $8.8b in 2020 mainly due to the impact of the COVID-19 outbreak and the forward economic outlook. As a result, HSCB raised its allowance for ECL on loans and advances to customers to $14.5b as of 31 December 2020, from only $8.7b as at 31 December 2019.

On the flipside, reported operating expenses dropped by 19% to $34.4bb on the back of a non-recurrence of a $7.3b impairment of goodwill taken in 2019. Adjusted operating expenses also dipped by 3% to $31.5b, as the bank’s cost-saving initiatives and lower performance-related pay and discretionary expenditure more than offset the growth in investment spending.

Results take into account a $1.3b impairment of software tangibles. If this and the impairment of goodwill in 2019 are not taken into account, the adjusted profit before tax is down 45% to $12.1b, according to HSBC.

The bank’s net interest margin is at 1.32% in 2020, down 26 basis points from 2019, due to the impact of lower global interest rates.

Meanwhile, deposits grew by $204b on a reported basis and $173bn on a constant currency basis.

HSBC’s Board also announced an interim dividend for 2020 at $0.15 per ordinary share to be paid in cash with no scrip alternative.

For 2021, the bank said that it will continue to target an adjusted cost base of $31bn or less in 2022.

“We will continue to target a gross risk-weighted assets reduction of over $100bn by the end of 2022,” HSBC added.

HSBC also aims to maintain a CET1 ratio above 14%, managing in the range of 14% to 14.5% in the medium term and managing this range down in the longer term; as well as transition towards a target payout ratio of between 40% and 55% of reported earnings per ordinary share from 2022 onwards.

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