HSBC sees profits jump on the back of higher interest rates

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 6 billion dollars (£5.32 billion) in profits for the quarter.

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.

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.

But it said loan losses have remained stable in the year so far, despite the worsening cost-of-living crisis in the UK.

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.

Group chief executive Noel Quinn said: “We maintained our strong momentum in the third quarter and delivered a good set of results.

“Our strategy produced good organic growth in all three global businesses and net interest income increased on the back of rising interest rates.

“We retained a tight grip on costs, despite inflationary pressures, and remain on track to achieve our cost targets for 2022 and 2023.

“We are focused on executing our plans and delivering our returns target of at least 12 per cent from 2023 onwards and, as a result, higher distributions to our shareholders.”

HSBC was founded in the 19th century by Thomas Sutherland, a young Scotsman who was working in Hong Kong for a large shipping firm.

Sutherland decided to set up a bank that would be owned and managed locally and supported international trade. HSBC opened its doors in Hong Kong in March 1865 and in Shanghai a month later.