HSBC PLC (LSE:HSBA) said profits more than doubled in 2021, driven by a release of credit losses and supported by a recovery in the global economy.
The bank said it would hit its target of 10% return on equity in 2023, a year earlier than anticipated, if central bank interest rates rise in line with market expectations.
It also unveiled plans to for a US$1bn extension to its current US$2bn share buyback programme.
Pre-tax profits increased by US$10.1bn to US$18.9bn in the year to 31 December 2021, with the fourth quarter of the year showing a US$1.3bn rise in pre-tax profit US$2.7bn, HSBC said in its earnings release.
Like so many other banks, its profits were boosted by a net release of expected credit losses (ECL) of US$900mln, compared with a charge of US$8.8bn charge in 2020, reflecting better economic conditions and higher-than-expected levels of credit performance.
However, it saw a net ECL charge of US$500mln in the fourth quarter, following an increase in allowances to reflect recent developments in China's commercial real estate sector.
All the bank’s regions reported a profitable year, with HSBC UK Bank PLC announcing a rise in pre-tax profits of US$4.5bn to $4.8bn, while the Asian operations contributed US$12.2bn.
Revenue declined by 2% to US$49.6bn, mainly due to lower global interest rates and a fall in revenue in Markets and Securities Services against a strong comparative period.
However, revenue from the Wealth business grew due to favourable market impacts in life insurance manufacturing.
Fourth-quarter revenue rose by 2% to US$12bn, mainly in commercial banking from growth in credit and lending and the Global Trade and Receivables Finance business.
The net interest margin for the year was down by 12 basis points at 1.20% but stabilised in the second half of 2021.
Growth in mortgage lending, primarily in the UK and Hong Kong, drove a rise in customer lending of US$8bn on a reported basis and US$23bn on a constant currency basis.
HSBC proposed a second interim dividend of $0.18 per share, taking the total payout for 2021 to $0.25 per share.
“"We made good progress against our strategy in 2021, which contributed to a strong financial performance that was supported by the global economic recovery. All of our regions were profitable and we saw growth in the fourth quarter of 2021 in many of our business lines,” commented chief executive Noel Quinn.
The bank said the good business momentum has carried on into 2022 in most areas, with the net interest income outlook “significantly more positive”.
It forecast mid-single-digit lending growth in the current year, although the Wealth division is expected to report a weaker performance in Asia in the first quarter.
The bank predicted that credit losses will normalise towards 30 basis points of average loans in 2022, noting that it retained US$600mln of COVID-19-related allowances at the end of 2021.
HSBC pointed out that uncertainty still remains given recent developments in China's commercial real estate sector, where property developer Evergrande is struggling to service its US$300bn debts.
In addition, inflationary pressures persist in many of the bank’s markets.
“The roll-out of vaccines around the world and a robust global economic recovery mean we entered 2022 in a better state than we might have expected a year ago,” said HSBC chairman Mark E Tucker.
“There are clearly still significant challenges ahead, foremost among which is the uncertainty caused by the spread of the Omicron variant, and potentially other variants in the future. Supply chain bottlenecks, high energy and food prices, surging consumer demand and higher wages have combined to drive up inflation. Central banks have already begun to respond by tightening monetary policy and this is likely to continue in 2022.”
Shares were down 2.45% at 533.40p in early trade.