HSBC Shifts Focus to Asia After Seeing a 34% Drop in Profits Amid Low Interest Rates

By Adriaan Brits Tuesday, February 23, 2021

HSBC, a major British banking and investing business, reported a 34% decline in profit before tax to $8.78 billion for the full 2020 year, compared to analysts’ expectations of $8.33 billion. As such, the banking business recorded better-than-expected full-year earnings and announced a first dividend payout since Q3 2019.

HSBC Bank signs.

Focus on Asia

The company also reported revenue of $50.43 billion for 2020, marking a 10% decline from 2019. As a result, HSBC stock is trading nearly 3% lower in London today.

Despite having headquarters in London, the company is generating the majority of its revenues from Asia. Thus, a new strategy will see the company’s focus shifted to wealth management operations in Asia.

The investing business initially targeted to make a return on tangible equity of 10-12%, but will instead pursue 10% over the medium term, the bank said. Furthermore, the company dropped its long-term profitability objective, which underlines the challenging environment for the banking business sector, which is taking hits from low interest rates.

“The big structural shift that’s gone on since we set out the plan last February has really been the shift in interest rates down toward zero in most markets that we do business in,” Ewen Stevenson, a chief financial officer of the company, told Reuters.

“If interest rates were 100 basis points higher today across the board it would improve our returns by [three] percentage points.”

Other noteworthy points from HSBC’s report are that its expected credit losses jumped by $6.1 billion in 2019 to $8.8 billion in 2020 as the bank reinforced its reserves to prepare for the pandemic.

“The pandemic inevitably affected our 2020 financial performance,” Noel Quinn, CEO of the banking business, said in a statement.

“The shutdown of much of the global economy in the first half of the year caused a large rise in expected credit losses, and cuts in central bank interest rates reduced revenue in rate-sensitive business lines.”

Also, the bank’s net interest margin was at 1.32% last year, compared to 1.58% in 2019 as a result of lower interest rates on a global scale. Furthermore, HSBC also announced a dividend payout of $0.15 per share for the first time since Q3 2019.

However, Quinn said the bank has introduced a new policy on dividends to ensure a balance between offering income to investors and investing in the bank’s growth.

“We will consider share buy-backs, over time and not in the near term, where no immediate opportunity for capital redeployment exists. We will also no longer offer a scrip dividend option, and will pay dividends entirely in cash,” Quinn added.

The British company is the largest bank in Europe by assets.

Summary

HSBC, the largest European banking company, has recorded a tumble in profits for 2020 and a new strategy that will see the business focus more on growth in Asia.

About the Author


Headshot of Adriaan Brits

An analyst of global affairs, Adriaan has an MSC from Oxford, with diverse interests in the digital economy, entertainment, and business. He is a specialist trainer in advanced analytics and media.

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