HSBC resumes dividends as first-half profits soar
By Frank Prenesti
Date: Monday 11 Jul 2022
(Sharecast News) - HSBC on Monday said it would reinstate dividends after first-half profits more than doubled as an ongoing restructuring and pivot to Asia continues to pay off.
Reported profit before tax rose $6.5bn to $10.8bn. The bank said it pay an interim dividend of 7 cents a share after UK regulators last year ordered banks to suspend payouts amid the coronavirus pandemic.
Second-quarter profit doubled from a year earlier to $5.56bn, beating analyst forecasts of $4.73bn. The bank said it expects to meet its target of paying out 40 -55% of earnings in dividends this year.
In April, HSBC began to release credit provisions it had piled up in the early stages of the Covid-19 outbreak, saying the outlook for UK borrowers in particular was improving after more than a year of pandemic turmoil.
"We were profitable in every region in the first half of the year, supported by the release of expected credit loss provisions. Our lending pipeline began to translate into business growth in the second quarter and we further strengthened that pipeline during the half," said chief executive Noel Quinn.
The bank released $719m in reserves set aside for bad loans, including $435m in the first quarter. HSBC last year earmarked $8.8bn in credit loss provisions as the pandemic hammered the global economy. It cautioned that uncertainties remained, "as countries respond at different speeds, government support measures unwind and new virus strains test the efficacy of vaccination programmes".
Revenue fell 4% to $12.6bn in the second quarter, while net interest income declined 4.6% to $6.58bn.
Net interest margin, the difference between interest rates on loans and savings, slipped 13 basis points to 1.2% year on year.
HSBC said its restructuring programme was still on track after announcing in February last year that it would shed 35,000 jobs as part of a plan to cut $4.5bn of costs by 2022. It also signalled a "pivot to Asia", outlining plans to invest about $6bn in the region.
It said it would target wealth management and commercial banking to drive "double-digit growth" and has singled out markets such as Singapore, China and Hong Kong. HSBC already generates the bulk of its revenues from Asia.
AJ Bell investment director Russ Mould said banks were "now at a major turning point and what really matters is the speed and scale of the economic recovery".
"During the various lockdowns, consumers saved significant amounts of money while banks were overly cautious and made provisions for big losses on potential bad debts," he said.
"That dynamic could start to unravel, with consumers spending their spare cash which would help to drive economic growth, and banks have begun releasing some of their bad debt provisions which weren't needed after all. The latter effect has been a key contributor to some of the banks' earnings this year, including HSBC."
"Going forward, banks' earnings will need to be driven by more traditional means, namely making more money from the interest charged on loans and credit cards than paid out on savings deposits."
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