A surge in net interest income and fee revenue propelled HSBC Bank Australia to a stronger bottom line in 2022.
According to financial accounts published by the bank last week, HSBC’s Australian banking arm posted a 29 per cent rise in net profit to A$282.2 million for the 12 months to the end of December.
The improved result reverses a recent trend, which had seen the company’s earnings slide from a record $330.4 million in 2019 to $216 million in 2021.
HSBC’s local business model is unique and sits as something of a counterpoint to Judo Bank’s strategy of using retail deposits to fund business lending.
Unlike Judo, HSBC commands a large deposits base sourced from business customers but it consistently directs most of that funding to support its growing presence in the Australian home lending market.
Over the last four years, HSBC has kept total business lending steady at about $3.5 billion and expanded its mortgage book by $10 billion to $27.5 billion.
During the same period the bank increased its holdings of deposits sourced from Australian business customers by almost $5 billion or 60 per cent to $13.1 billion.
HSBC is a leading second tier player in the retail banking market with a total loan asset base of $36 billion and locally-sourced deposits of $32 billion.
This makes it the ninth largest Australian bank on both asset and liability measures, following the merger of Citibank’s retail operation with the NAB business.
Today, HSBC’s lending growth is almost exclusively funded by deposits.
In addition to its domestic deposits base, the bank also holds another $A10 billion of deposits sourced from account holders living outside Australia.
This means the company is sitting on almost $6 billion of surplus funding, which could be tapped to accelerate lending activity in the next few years.
Throughout 2022, HSBC grew aggregate lending by $3.1 billion or 9.2 per cent – well above the average system growth rate.
HSBC entered the new financial year in January with the expectation of economic activity slowing in Australia and most overseas markets as monetary policy was tightened.
Despite this subdued macro-economic outlook, the bank’s expectation of future credit losses and other credit risk provisions actually improved.
The net change in expected credit losses declined to $6.1 million compared to $12.6 million at the end of December 2021.
HSBC’s local board highlighted geopolitical risks in disclosures made in the notes to the accounts.
The directors addressed matters relating to Australia’s delicate relationship with China. “The Australia-China relationship remains complex, with divisions over a number of critical issues,” the board observed.
“However, the recent meeting between government functionaries and heads of states signals an effort to reduce tensions by allowing more working-level discussions and confidence-building measures.”
Directors separately noted that “geopolitical risks also remain significant and include continued difference between the US and other countries with China over a range of economic and strategic defence issues”.
HSBC’s Australian arm declared a 2022 dividend payable to its parent – HSBC PLC - of A$35 million.
The dividend was supplemented by distributions worth $9.9 million on other Tier One instruments.
The total payout to the parent was in line with distributions of $43.8 million in 2021.