HSBC INTERIM RESULTS – 30 JUNE 2023
Impressive Financial Performance: Profit Soars by 95% for Leading Group
Introduction:
In a remarkable display of financial prowess, a prominent group has reported a staggering 95% increase in profit before tax, amounting to HK$83,210 million. The company’s exceptional performance across various income streams and strategic markets has contributed to this remarkable achievement. This analysis dives deep into the group’s financial report, highlighting key factors that have driven its success and outlining the implications for the company’s future.
| Consolidated Income Statement | Half-year to 30 Jun 2023 (HK$m) | Half-year to 30 Jun 2022 (HK$m) | Change (HK$m) |
|---|---|---|---|
| Net interest income | 65,827 | 45,126 | 20,701 |
| – interest income | 137,949 | 59,331 | 78,618 |
| – interest expense | -72,122 | -14,205 | -57,917 |
| Net fee income | 20,026 | 20,632 | -606 |
| – fee income | 26,280 | 26,101 | 179 |
| – fee expense | -6,254 | -5,469 | -785 |
| Net income from financial instruments held for trading or managed on a fair value basis | 37,150 | 17,792 | 19,358 |
| Net income/(expense) from assets and liabilities of insurance businesses, including related derivatives, measured at fair value through profit or loss | 27,023 | -79,275 | 106,298 |
| Changes in fair value of designated debts issued and related derivatives | 213 | -447 | 660 |
| Changes in fair value of other financial instruments mandatorily measured at fair value through profit or loss | 156 | 34 | 122 |
| Gains less losses from financial investments | 11 | -226 | 237 |
| Insurance finance income/(expense) | -26,660 | 80,233 | -106,893 |
| Insurance service result | 3,121 | 2,254 | 867 |
| – Insurance revenue | 5,854 | 5,460 | 394 |
| – Insurance service expense | -2,733 | -3,206 | 473 |
| Other operating income | 2,729 | 2,432 | 297 |
| Net operating income before change in expected credit losses and other credit impairment charges | 129,596 | 88,555 | 41,041 |
| Change in expected credit losses and other credit impairment charges | -3,571 | -4,135 | 564 |
| Net operating income | 126,025 | 84,420 | 41,605 |
| Employee compensation and benefits | -18,971 | -18,991 | 20 |
| General and administrative expenses | -26,288 | -25,852 | -436 |
| Depreciation and impairment of property, plant and equipment | -4,654 | -4,551 | -103 |
| Amortisation and impairment of intangible assets | -3,461 | -2,829 | -632 |
| Total operating expenses | -53,374 | -52,223 | -1,151 |
| Operating profit | 72,651 | 32,197 | 40,454 |
| Share of profit in associates and joint ventures | 10,559 | 10,575 | -16 |
| Profit before tax | 83,210 | 42,772 | 40,438 |
| Tax expense | -13,455 | -7,230 | -6,225 |
| Profit for the period | 69,755 | 35,542 | 34,213 |
| Attributable to: | |||
| – ordinary shareholders of the parent company | 63,620 | 31,599 | 32,021 |
| – other equity holders | 2,397 | 1,853 | 544 |
| – non-controlling interests | 3,738 | 2,090 | 1,648 |
| Profit for the period | 69,755 | 35,542 | 34,213 |
1. Net Interest Income Surges by 46%:
The group’s net interest income experienced a substantial increase of HK$20,701 million, representing a remarkable 46% growth. This surge can primarily be attributed to wider customer deposit spreads and higher reinvestment yields, driven by rising market interest rates. Notably, both the Hong Kong and Singapore markets contributed to this growth, benefiting from higher interest rates.
2. Net Fee Income Experiences Slight Decline:
Although net fee income experienced a decrease of HK$606 million (3%), excluding the impact of foreign exchange, the decline was limited to HK$265 million (1%). The dip in net fee income can be primarily attributed to lower equities turnover, affecting securities brokerage income in Hong Kong. However, this decline was partially offset by increased net payment and card service income in Hong Kong, resulting from a surge in consumer spending following the easing of Covid-19 restrictions.
3. Financial Instruments Drive Significant Growth:
Net income from financial instruments measured at fair value through profit or loss recorded a remarkable increase of HK$126,438 million (204%). Similarly, net income from assets and liabilities of the insurance business measured at fair value through profit or loss rose by HK$106,298 million (134%) in Hong Kong and Singapore. These gains were primarily driven by fair value gains on financial assets that support insurance and investment contracts.
4. Trading and Managed Financial Instruments Witness Surge:
Net income from financial instruments held for trading or managed on a fair value basis experienced a noteworthy increase of HK$19,358 million (109%), predominantly in Hong Kong. The surge was driven by higher gains on derivatives, benefiting from rising interest rates and foreign exchange movements.
5. Insurance Finance Income Decreases:
Insurance finance income recorded a significant reduction of HK$106,893 million (133%), offsetting gains reported on the underlying assets held to support insurance contract liabilities.
6. Insurance Service Result Shows Positive Growth:
The group’s insurance service result increased by HK$867 million (38%), reflecting positive impacts from the release of contractual service margin (CSM). This increase was driven by new business written, favorable experience variances, updates to lapse rate assumptions, and higher interest rates, resulting in an improved CSM balance.
7. Other Operating Income Witnesses Modest Growth:
Other operating income increased by HK$297 million (12%), primarily driven by an increase in net income from reinsurance contracts. This growth was partially offset by a provisional gain from the acquisition of AXA Insurance Pte Limited in the previous year.
8. Decrease in Expected Credit Losses and Other Credit Impairment Charges:
The group experienced a decrease of HK$564 million (14%) in expected credit losses and other credit impairment charges. This decline was mainly attributed to improved economic forecasts and reduced concerns over continued Covid-19 restrictions, resulting in a net release in mainland China.
9. Operating Expenses Rise:
Total operating expenses increased by HK$1,151 million (2%) due to continued investments in technology to support business growth. Excluding the favorable impact of foreign exchange, operating expenses rose by HK$1,944 million (4%).
10. Share of Profit in Associates and Joint Ventures:
The share of profit in associates and joint ventures decreased by HK$16 million, but excluding the impact of foreign exchange, it increased by HK$658 million, primarily driven by Bank of Communication Co., Ltd.
Conclusion:
The group’s financial performance has been nothing short of extraordinary, with a tremendous increase in profit before tax and significant growth in various income streams. Notably, booming net interest income and impressive gains from financial instruments have been the primary drivers behind this exceptional achievement. Despite a slight decline in net fee income, the company has successfully navigated market challenges and capitalized on opportunities. With strategic investments in technology and a positive outlook for the future, the group is well-positioned for continued success in the global market.
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