HSBC Holdings plc — FY2023 Form 20-F
Reporting period: Year ended December 31, 2023; filed February 22, 2024. This is an annual report, not a standalone Q4 filing. Amounts are in US dollars unless stated otherwise. HSBC reports under IFRS as issued by the IASB. IFRS 17 was adopted from January 1, 2023, and 2022 comparatives were restated; 2021 figures generally remain on the prior IFRS 4 basis.
Financial performance and position
| Metric | FY2023 | FY2022 |
|---|---|---|
| Revenue | $66.1bn | $50.6bn |
| Profit before tax | $30.3bn | $17.1bn |
| Profit after tax | $24.6bn | $16.2bn |
| Return on average tangible equity (RoTE) | 14.6%; 15.6% excluding specified strategic transactions and BoCom impairment | 10.0%; 11.3% on the comparable adjusted basis |
| Net interest income / net interest margin | $35.8bn / 1.66% | $30.4bn / 1.42% |
| Operating expenses | $32.1bn reported; $31.6bn target basis | $32.7bn reported; $29.8bn target basis |
| Cost-efficiency ratio | 48.5% | 64.6% |
| Expected credit losses (ECL) | $3.4bn; 33 bps of average gross loans including balances held for sale | $3.6bn; 35 bps on the same basis |
| Total assets | $3.04tn | $2.95tn |
| Net loans to customers / customer accounts | $938.5bn / $1.61tn | $923.6bn / $1.57tn |
| CET1 ratio / total capital ratio | 14.8% / 20.0% | 14.2% / 19.3% |
| Leverage ratio | 5.6% | 5.8% |
| Liquidity coverage ratio / net stable funding ratio | 136% / 133% | 132% / 136% |
| Cash and cash equivalents at year-end | $490.9bn | $521.7bn |
Reported operating cash flow was $39.1bn, versus $19.4bn in 2022; net cash and cash equivalents decreased by $41.4bn during 2023. These consolidated cash-flow figures should be interpreted in the context of a bank’s lending, deposit and treasury activities. Average high-quality liquid assets were $647.5bn. Balance-sheet funding included $1.61tn of customer accounts, $93.9bn of debt securities in issue and $25.0bn of subordinated liabilities.
Material changes versus 2022
- Revenue increased 30%, reflecting $5.4bn higher net interest income and a $6.4bn increase in trading and fair-value income. Higher interest rates supported growth across all three global businesses, while related funding costs reported in net interest income also rose.
- Profit before tax rose $13.3bn. Key items included a $1.6bn provisional gain on acquiring SVB UK, a $3.0bn impairment of the BoCom associate investment, and a favourable $2.5bn year-on-year impact relating to the sale of the French retail banking business. The sale completed January 1, 2024.
- Reported operating expenses fell 2%, mainly because restructuring costs did not recur. Target-basis costs rose 6%, reflecting technology spending, inflation, performance-related pay and levies, including the US FDIC special assessment.
- ECL declined slightly, but included $1.0bn of charges related to mainland China commercial real estate (CRE). Stage 3 charges were the primary driver.
- CET1 rose 0.6 percentage points, as capital generation was partly offset by dividends, buy-backs, regulatory adjustments and higher risk-weighted assets. Customer lending rose $15bn reported but fell $3bn on a constant-currency basis; customer accounts rose $41bn reported and $13bn on a constant-currency basis.
Fourth-quarter indicators included net interest income of $8.3bn, down 10% from Q3, and a net interest margin of 1.52%, down 18 basis points sequentially. HSBC attributed the declines mainly to higher funding costs and deposit migration. The provided filing text does not give a clear standalone Q4 profit-before-tax figure.
Outlook, management commentary and key risks
- 2024 outlook: Mid-teens RoTE, excluding notable items; banking NII of at least $41bn based on market-implied rates as of mid-February 2024; ECL around 40 bps of average gross loans; target-basis cost growth of approximately 5%; CET1 managed within a 14%–14.5% medium-term range; and a 50% dividend payout ratio target basis.
- The Board approved a total 2023 dividend of $0.61 per share and announced a further share buy-back of up to $2.0bn, expected to complete by the Q1 2024 results. HSBC also intends to consider a special dividend of $0.21 per share as a priority use of proceeds from the planned Canadian banking business sale. Completion and distributions remain subject to the transaction and appropriate capital levels; the sale was expected in Q1 2024.
- Management described the 2023 performance as supported by higher interest rates, a strong balance sheet and execution of its international, wealth, digital and cost-discipline priorities. It cautioned that loan growth may be subdued in the first half of 2024, while maintaining a medium- to long-term customer lending growth expectation in the mid-single digits.
- Principal risks include geopolitical escalation and sanctions, inflation and interest-rate changes, weak CRE conditions in mainland China, borrower credit deterioration, market and liquidity disruption, cyber and data risks, model and AI risks, regulatory and litigation exposure, and execution risks from acquisitions and disposals.
- Climate and ESG targets, emissions measures and transition plans carry additional uncertainty because data, methodologies, scenarios and reporting standards are evolving. HSBC notes gaps in available data and does not fully disclose some climate-related financial impacts, physical-risk metrics or climate-opportunity measures. It published its first Group-wide net zero transition plan in January 2024.
Important facts for investors to verify
- Reconcile reported profit and RoTE with the effects of the France disposal, SVB UK acquisition, BoCom impairment and other notable items; note that HSBC plans to change its RoTE adjustments from 2024.
- Assess the assumptions behind the $3.0bn BoCom impairment and the continuing credit exposure and ECL in mainland China CRE.
- Track the Canadian sale’s completion, expected CET1 benefit of approximately 1.2 percentage points, and any special dividend or subsequent buy-backs.
- Compare 2024 banking NII, ECL and cost outcomes with guidance, including the effects of deposit pricing, customer behaviour, interest-rate changes and disposals.
- Review capital and liquidity ratios alongside distributions, regulatory changes and the impact of the planned Basel 3.1 implementation.
- Distinguish IFRS-reported figures from management’s alternative performance measures and verify any future revisions to ESG data, methodologies or targets.
Audit and controls: PricewaterhouseCoopers LLP issued an unqualified opinion on the consolidated financial statements and concluded that internal control over financial reporting was effective as of December 31, 2023. The auditors highlighted ECL measurement and the BoCom impairment assessment as critical audit matters.