HSBC considers interest rate hike as quarterly profits surge

The banking giant has told its shareholders that its earnings expectations are starting to be more positive, saying it is lending more and expects a hike in key rates.

In the three months leading up to the end of September, reported pre-tax profit rose from $ 2.3 billion (£ 1.7 billion) to $ 5.4 billion, compared to the previous year. It was aided by the bank’s decision to release $ 700 million that it had set aside to cover bad debts during the Covid-19 pandemic.

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Managing Director Noel Quinn said: “We had a good performance in the third quarter, with strong earnings growth supported by additional releases of credit provisions.

HSBC is the largest of the UK banks, although much of its business is generated in Asia. Photo: Kirsty O’Connor / PA Wire

“Our strategy remains on track, with good delivery in all areas. This has been reflected in more consistent revenue growth, strong loan pipelines across all of our businesses, and increased trade and mortgage balances.

“While we remain cautious about the external risk environment, we believe the lows of recent quarters are behind us.”

The company announced a $ 2 billion share buyback, which it says was made possible by a strong capital position.

The payment comes two months after HSBC announced an interim dividend of 7 cents per share, totaling around $ 1.4 billion.

Richard Hunter, Head of Markets at the Interactive Investor investment platform, said: “HSBC has flexed its financial muscles as it continues to emerge from the horror show of 2020.

“The numbers are flattered by further bad debt discharges, in what will be the likely theme of the season, but the announcement of a share buyback program is a positive endorsement of the bank’s own confidence in perspectives.

“In the meantime, the increased strategic concentration in Asia, from which the bank already derives around 60% of profits, underlines not only its historic presence in the region, but also its aspirations for future growth. “

Adam Vettese, analyst at multi-asset investment platform eToro, said: “HSBC performed significantly better in the third quarter, with profits doubling year over year with slightly lower revenues.

“Much of this was driven by the release of cash set aside for defaults due to improving economic conditions and the better than expected credit performance of its portfolio.

“Europe, including the UK, had a strong quarter, reversing a strong loss in the third quarter of last year, while Asia – HSBC’s largest market – again generated the essential profits. “

He added: “The decline in its net interest margin – the difference between the interest the bank pays on savings and the interest it receives on loans – is of slight concern, suggesting that margins are. squeezed in a low interest rate environment.

Sophie Lund-Yates, equity analyst at Hargreaves Lansdown, said: “HSBC is the latest bank to hint at an expected interest rate hike. This helps to improve the mood, as higher interest rates improve the profitability of loans.

“Overall, the situation looks healthier for HSBC, but as long as interest rates remain at the bottom, the group will continue to be held back.”

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