21 February 2023
HSBC HOLDINGS PLC
2022 RESULTS – HIGHLIGHTS
Noel Quinn, Group Chief Executive, said:
“2022 was another good year for HSBC. We completed the first phase of our transformation and our international connectivity is now underpinned by good, broad-based profit generation around the world. This contributed to a strong overall financial performance. We are on track to deliver higher returns in 2023 and have built a platform for further value creation. With the delivery of higher returns, we will have increased distribution capacity, and we will also consider a special dividend once the sale of HSBC Canada is completed.”
2022 financial performance (vs 2021)
• Reported profit before tax fell by $1.4bn to $17.5bn, including an impairment on the planned sale of our retail banking operations in France of $2.4bn. Adjusted profit before tax increased by $3.4bn to $24.0bn. Reported profit after tax increased by $2.0bn to $16.7bn, including a $2.2bn credit arising from the recognition of a deferred tax asset.
• Reported revenue increased by 4% to $51.7bn, driven by strong growth in net interest income, with increases in all of our global businesses, and higher revenue from Global Foreign Exchange in Global Banking and Markets (‘GBM’). This was in part offset by a $3.1bn adverse impact of foreign currency translation differences, the impairment on the planned sale of our retail banking operations in France and adverse movements in market impacts in insurance manufacturing in Wealth and Personal Banking (‘WPB’). In addition, fee income fell in both WPB and GBM. Adjusted revenue increased by 18% to $55.3bn.
• Net interest margin (‘NIM’) of 1.48% increased by 28 basis points (‘bps’), reflecting interest rate rises.
• Reported expected credit losses and other credit impairment charges (‘ECL’) were $3.6bn, including allowances to reflect increased economic uncertainty, inflation, rising interest rates and supply chain risks, as well as the ongoing developments in mainland China’s commercial real estate sector. These factors were in part offset by the release of most of our remaining Covid-19-related reserves. This compared with releases of $0.9bn in 2021. ECL charges were 36bps of average gross loans and advances to customers.
• Reported operating expenses decreased by $1.3bn or 4% to $33.3bn, reflecting the favourable impact of foreign currency translation differences of $2.2bn and ongoing cost discipline, which were in part offset by higher restructuring and other related costs, increased investment in technology and inflation. Adjusted operating expenses increased by $0.4bn or 1.2% to $30.5bn, including a $0.2bn adverse impact from retranslating the 2022 results of hyperinflationary economies at constant currency.
• Customer lending balances fell by $121bn on a reported basis. On an adjusted basis, lending balances fell by $66bn, reflecting an $81bn reclassification of loans, primarily relating to the planned sale of our retail banking operations in France and the planned sale of our banking business in Canada, to assets held for sale. Growth in mortgage balances in the UK and Hong Kong mitigated a reduction in term lending in Commercial Banking (‘CMB’) in Hong Kong.
• Common equity tier 1 (‘CET1’) capital ratio of 14.2% reduced by 1.6 percentage points, primarily driven by a decrease of a 0.8 percentage point from new regulatory requirements, a reduction of a 0.7 percentage point from the fall in the fair value through other comprehensive income (‘FVOCI’) and a 0.3 percentage point fall from the impairment following the reclassification of our retail banking operations in France to held for sale. Capital generation was mostly offset by an increase in risk-weighted assets (‘RWAs’) net of foreign exchange translation movements.
• The Board has approved a second interim dividend of $0.23 per share, making a total for 2022 of $0.32 per share.
4Q22 financial performance (vs 4Q21)
• Reported profit before tax up $2.5bn to $5.2bn, reflecting strong reported revenue growth and lower reported operating expenses, while reported ECL increased. Adjusted profit before tax up 92% to $6.8bn. Reported profit after tax up $2.9bn to $4.9bn.
• Reported revenue up 24% to $14.9bn, due to strong growth in net interest income and an increase in revenue from Markets and Securities Services (‘MSS’), partly offset by the adverse impact of foreign currency translation differences. Adjusted revenue up 38% to $15.4bn.
• Reported ECL were $1.4bn in 4Q22 and included stage 3 charges relating to exposures in the mainland China commercial real estate sector, as well as corporate exposures in the UK. This compared with charges of $0.5bn in 4Q21.
• Reported operating expenses down 6% to $8.9bn due to the favourable impact of foreign currency translation differences and ongoing cost discipline, which more than offset increases in technology investment and performance-related pay. Adjusted operating expenses up 2% to $7.8bn.
Outlook
• The impact of our growth and transformation programmes, as well as higher global interest rates, give us confidence in achieving our return on average tangible equity (‘RoTE’) target of at least 12% for 2023 onwards.
• Our revenue outlook remains positive. Based on the current market consensus for global central bank rates, we expect net interest income of at least $36bn in 2023 (on an IFRS 4 basis and retranslated for foreign exchange movements). We intend to update our net interest income guidance at or before our first quarter results to incorporate the expected impact of IFRS 17 ‘Insurance Contracts’.
• While we continue to use a range of 30bps to 40bps of average loans for planning our ECL charge over the medium to long term, given current macroeconomic headwinds, we expect ECL charges to be around 40bps in 2023 (including lending balances transferred to held for sale). We note recent favourable policy developments in mainland China’s commercial real estate sector and continue to monitor events closely.
• We retain our focus on cost discipline and will target 2023 adjusted cost growth of approximately 3% on an IFRS 4 basis. This includes up to $300m of severance costs in 2023, which we expect to generate further efficiencies into 2024. There may also be an incremental adverse impact from retranslating the 2022 results of hyperinflationary economies at constant currency.
• We expect to manage the CET1 ratio within our medium-term target range of 14% to 14.5%. We intend to continue to manage capital efficiently, returning excess capital to shareholders where appropriate.
• Given our current returns trajectory, we are establishing a dividend payout ratio of 50% for 2023 and 2024, excluding material significant items, with consideration of buy-backs brought forward to our first quarter results in May 2023, subject to appropriate capital levels. We also intend to revert to paying quarterly dividends from the first quarter of 2023.
• Subject to the completion of the sale of our banking business in Canada, the Board’s intention is to consider the payment of a special dividend of $0.21 per share as a priority use of the proceeds generated by completion of the transaction. A decision in relation to any potential dividend would be made following the completion of the transaction, currently expected in late 2023, with payment following in early 2024. Further details in relation to record date and other relevant information will be published at that time. Any remaining additional surplus capital is expected to be allocated towards opportunities for organic growth and investment alongside potential share buy-backs, which would be in addition to any existing share buy-back programme.
| Key financial metrics |
| For the year ended | |||
| Reported results | 2022 | 2021 | 2020 |
| Reported profit before tax ($m) | 17,528 | 18,906 | 8,777 |
| Reported profit after tax ($m) | 16,670 | 14,693 | 6,099 |
| Cost efficiency ratio (%) | 64.4 | 69.9 | 68.3 |
| Net interest margin (%) | 1.48 | 1.20 | 1.32 |
| Basic earnings per share ($) | 0.75 | 0.62 | 0.19 |
| Diluted earnings per share ($) | 0.74 | 0.62 | 0.19 |
| Dividend per ordinary share (in respect of the period) ($) | 0.32 | 0.25 | 0.15 |
| Dividend payout ratio (%)1 | 44 | 40 | 79 |
| Alternative performance measures | |||
| Adjusted profit before tax ($m) | 24,010 | 20,603 | 11,695 |
| Adjusted cost efficiency ratio (%) | 55.0 | 64.0 | 62.3 |
| Expected credit losses and other credit impairment charges (‘ECL’) as % of average gross loans and advances to customers (%) | 0.36 | (0.08) | 0.87 |
| Expected credit losses and other credit impairment charges (‘ECL’) as % of average gross loans and advances to customers, including held for sale (%)2 | 0.35 | (0.08) | 0.87 |
| Return on average ordinary shareholders’ equity (%) | 8.7 | 7.1 | 2.3 |
| Return on average tangible equity (%) | 9.9 | 8.3 | 3.1 |
| At 31 December | |||
| Balance sheet | 2022 | 2021 | 2020 |
| Total assets ($m) | 2,966,530 | 2,957,939 | 2,984,164 |
| Net loans and advances to customers ($m) | 924,854 | 1,045,814 | 1,037,987 |
| Customer accounts ($m) | 1,570,303 | 1,710,574 | 1,642,780 |
| Average interest-earning assets ($m) | 2,203,639 | 2,209,513 | 2,092,900 |
| Loans and advances to customers as % of customer accounts (%) | 58.9 | 61.1 | 63.2 |
| Total shareholders’ equity ($m) | 187,484 | 198,250 | 196,443 |
| Tangible ordinary shareholders’ equity ($m) | 149,355 | 158,193 | 156,423 |
| Net asset value per ordinary share at period end ($) | 8.50 | 8.76 | 8.62 |
| Tangible net asset value per ordinary share at period end ($) | 7.57 | 7.88 | 7.75 |
| Capital, leverage and liquidity | |||
| Common equity tier 1 capital ratio (%)3 | 14.2 | 15.8 | 15.9 |
| Risk-weighted assets ($m)3,4 | 839,720 | 838,263 | 857,520 |
| Total capital ratio (%)3,4 | 19.3 | 21.2 | 21.5 |
| Leverage ratio (%)3,4 | 5.8 | 5.2 | 5.5 |
| High-quality liquid assets (liquidity value) ($bn)4,5 | 647 | 688 | 678 |
| Liquidity coverage ratio (%)4,5 | 132 | 139 | 139 |
| Net stable funding ratio (%)4,5 | 136 | N/A | N/A |
| Share count | |||
| Period end basic number of $0.50 ordinary shares outstanding (millions) | 19,739 | 20,073 | 20,184 |
| Period end basic number of $0.50 ordinary shares outstanding and dilutive potential ordinary shares (millions) | 19,876 | 20,189 | 20,272 |
| Average basic number of $0.50 ordinary shares outstanding (millions) | 19,849 | 20,197 | 20,169 |
For reconciliations of our reported results to an adjusted basis, including lists of significant items, see page 109 of the Annual Report and Accounts 2022. Definitions and calculations of other alternative performance measures are included in our ‘Reconciliation of alternative performance measures’ on page 128 of the Annual Report and Accounts 2022.
1 Dividend per share, in respect of the period, as a percentage of earnings per share adjusted for certain items (recognition of certain deferred tax assets: $0.11 reduction in EPS; planned sales of the retail banking operations in France and banking business in Canada: $0.09 increase in EPS). No items were adjusted in 2021 or 2020.
2 Includes average gross loans and advances to customers reported within ‘assets held for sale’.
3 Unless otherwise stated, regulatory capital ratios and requirements are based on the transitional arrangements of the Capital Requirements Regulation in force at the time. These include the regulatory transitional arrangements for IFRS 9 ‘Financial Instruments’, which are explained further on page 208 of the Annual Report and Accounts 2022. Leverage ratios are reported based on the disclosure rules in force at that time, and include claims on central banks. Current period leverage metrics exclude central bank claims in accordance with the UK leverage rules that were implemented on 1 January 2022. References to EU regulations and directives (including technical standards) should, as applicable, be read as references to the UK’s version of such regulation or directive, as onshored into UK law under the European Union (Withdrawal) Act 2018, and as may be subsequently amended under UK law.
4 Regulatory numbers and ratios are as presented at the date of reporting. Small changes may exist between these numbers and ratios and those subsequently submitted in regulatory filings. Where differences are significant, we will restate in subsequent periods.
5 The liquidity coverage ratio is based on the average value of the preceding 12 months. The net stable funding ratio is based on the average value of four preceding quarters. December 2021 LCR has been restated for consistency. We have not restated the prior periods for NSFR as no comparatives are available.