# HSBC on track to deliver higher returns in 2023

- Link: https://www.directorstalkinterviews.com/hsbc-on-track-to-deliver-higher-returns-in-2023/4121107135
- Published: 2023-02-21T07:22:25+00:00
- Author: Amilia Stone

**[HSBC Holdings plc](https://www.directorstalkinterviews.com/ftse-company/hsbc-holdings-plc/hsba.l)**(
[LON:HSBA](https://www.directorstalkinterviews.com/ftse-company/hsbc-holdings-plc/hsba.l))
has announced its 2022 results.

> **Noel Quinn, Group Chief Executive, said:**
> “2022 was another good year for HSBC. We completed the first phase of our transformation
> and our international connectivity is now underpinned by good, broad-based profit
> generation around the world. This contributed to a strong overall financial performance.
> We are on track to deliver higher returns in 2023 and have built a platform for
> further value creation. With the delivery of higher returns, we will have increased
> distribution capacity, and we will also consider a special dividend once the sale
> of HSBC Canada is completed.”
> **2022 financial performance (vs 2021)**

•     **Reported profit before tax fell by $1.4bn to $17.5bn,** including an impairment
on the planned sale of our retail banking operations in France of $2.4bn. **Adjusted
profit before tax increased by $3.4bn to $24.0bn. Reported profit after tax increased
by $2.0bn to $16.7bn,** including a $2.2bn credit arising from the recognition of
a deferred tax asset.

•     **Reported revenue increased by 4% to $51.7bn,** driven by strong growth in
net interest income, with increases in all of our global businesses, and higher 
revenue from Global Foreign Exchange in Global Banking and Markets (‘GBM’). This
was in part offset by a $3.1bn adverse impact of foreign currency translation differences,
the impairment on the planned sale of our retail banking operations in France and
adverse movements in market impacts in insurance manufacturing in Wealth and Personal
Banking (‘WPB’). In addition, fee income fell in both WPB and GBM. **Adjusted revenue
increased by 18% to $55.3bn**.

•     **Net interest margin (‘NIM’) of 1.48% increased by 28** **basis points (‘
bps’),** reflecting interest rate rises.

•     **Reported expected credit losses and other credit impairment charges (‘ECL’)
were $3.6bn,** including allowances to reflect increased economic uncertainty, inflation,
rising interest rates and supply chain risks, as well as the ongoing developments
in mainland China’s commercial real estate sector. These factors were in part offset
by the release of most of our remaining Covid-19-related reserves. This compared
with releases of $0.9bn in 2021. ECL charges were 36bps of average gross loans and
advances to customers.

•     **Reported operating expenses decreased by $1.3bn or 4% to $33.3bn,** reflecting
the favourable impact of foreign currency translation differences of $2.2bn and 
ongoing cost discipline, which were in part offset by higher restructuring and other
related costs, increased investment in technology and inflation. **Adjusted operating
expenses increased by $0.4bn or 1.2% to $30.5bn,** including a $0.2bn adverse impact
from retranslating the 2022 results of hyperinflationary economies at constant currency.

•     **Customer lending balances fell by $121bn on a reported basis. On an adjusted
basis, lending balances fell by $66bn,** reflecting an $81bn reclassification of
loans, primarily relating to the planned sale of our retail banking operations in
France and the planned sale of our banking business in Canada, to assets held for
sale. Growth in mortgage balances in the UK and Hong Kong mitigated a reduction 
in term lending in Commercial Banking (‘CMB’) in Hong Kong.

•     **Common equity tier 1 (‘CET1’) capital ratio of 14.2% reduced by 1.6 percentage
points,** primarily driven by a decrease of a 0.8 percentage point from new regulatory
requirements, a reduction of a 0.7 percentage point from the fall in the fair value
through other comprehensive income (‘FVOCI’) and a 0.3 percentage point fall from
the impairment following the reclassification of our retail banking operations in
France to held for sale. Capital generation was mostly offset by an increase in 
risk-weighted assets (‘RWAs’) net of foreign exchange translation movements.

**•    ** **The Board has approved a second interim dividend of $0.23 per share,
making a total for 2022 of $0.32 per share.**

**4Q22 financial performance (vs 4Q21)**

**•    ** **Reported profit before tax up $2.5bn** **to $5.2bn,** reflecting strong
reported revenue growth and lower reported operating expenses, while reported ECL
increased. **Adjusted profit before tax up 92% to $6.8bn. Reported profit after 
tax up $2.9bn to $4.9bn.**

**•    ** **Reported revenue up 24% to $14.9bn,** due to strong growth in net interest
income and an increase in revenue from Markets and Securities Services (‘MSS’), 
partly offset by the adverse impact of foreign currency translation differences.**
Adjusted revenue up 38% to $15.4bn.**

**•    ** **Reported ECL were $1.4bn in 4Q22** and included stage 3 charges relating
to exposures in the mainland China commercial real estate sector, as well as corporate
exposures in the UK. This compared with charges of $0.5bn in 4Q21.

**•    ** **Reported operating expenses down 6% to $8.9bn** due to the favourable
impact of foreign currency translation differences and ongoing cost discipline, 
which more than offset increases in technology investment and performance-related
pay. **Adjusted operating expenses up 2% to $7.8bn.**

**Outlook**

•     The impact of our growth and transformation programmes, as well as higher 
global interest rates, give us **confidence in achieving our return on average tangible
equity (‘RoTE’) target of at least 12% for 2023 onwards.**

•     Our revenue outlook remains positive. Based on the current market consensus
for global central bank rates, **we expect net interest income of at least $36bn
in 2023** (on an IFRS 4 basis and retranslated for foreign exchange movements). 
We intend to update our net interest income guidance at or before our first quarter
results to incorporate the expected impact of IFRS 17 ‘Insurance Contracts’.

•     While we continue to use a range of 30bps to 40bps of average loans for planning
our ECL charge over the medium to long term, given current macroeconomic headwinds,**
we expect ECL charges to be around 40bps in 2023** (including lending balances transferred
to held for sale). We note recent favourable policy developments in mainland China’s
commercial real estate sector and continue to monitor events closely.

•     We retain our focus on cost discipline and **will target 2023 adjusted cost
growth of approximately 3%** on an IFRS 4 basis. This includes up to $300m of severance
costs in 2023, which we expect to generate further efficiencies into 2024. There
may also be an incremental adverse impact from retranslating the 2022 results of
hyperinflationary economies at constant currency.

•     **We expect to manage the CET1 ratio within our medium-term target range of
14% to 14.5%.** We intend to continue to manage capital efficiently, returning excess
capital to shareholders where appropriate.

•     Given our current returns trajectory, **we are establishing a dividend payout
ratio of 50% for 2023 and 2024,** excluding material significant items, with consideration
of buy-backs brought forward to our first quarter results in May 2023, subject to
appropriate capital levels. We also intend to revert to paying quarterly dividends
from the first quarter of 2023.

•     Subject to the completion of the sale of our banking business in Canada, **
the Board’s intention is to consider the payment of a special dividend of $0.21 
per share as a priority use of the proceeds generated by completion of the transaction.**
A decision in relation to any potential dividend would be made following the completion
of the transaction, currently expected in late 2023, with payment following in early
2024. Further details in relation to record date and other relevant information 
will be published at that time. Any remaining additional surplus capital is expected
to be allocated towards opportunities for organic growth and investment alongside
potential share buy-backs, which would be in addition to any existing share buy-
back programme.

**Key financial metrics**

|  | For the year ended | 
| **Reported results** | **2022** | 2021 | 2020 | 
| Reported profit before tax ($m) | **           17,528 ** |            18,906  |               8,777  | 
| Reported profit after tax ($m) | **           16,670 ** |            14,693  |               6,099  | 
| Cost efficiency ratio (%) | **64.4** |            69.9     |            68.3     | 
| Net interest margin (%) | **1.48** |            1.20     |            1.32     | 
| Basic earnings per share ($) | **                0.75 ** |                  0.62  |                  0.19  | 
| Diluted earnings per share ($) | **                0.74 ** |                  0.62  |                  0.19  | 
| Dividend per ordinary share (in respect of the period) ($) | **0.32** | 0.25 | 0.15 | 
| Dividend payout ratio (%)^(1) | **44** | 40 | 79 | 
| **Alternative performance measures** |  |  |  | 
| Adjusted profit before tax ($m) | **           24,010 ** |            20,603  |            11,695  | 
| Adjusted cost efficiency ratio (%) | **55.0** |            64.0     |            62.3     | 
| Expected credit losses and other credit impairment charges (‘ECL’) as % of average gross loans and advances to customers (%) | **0.36** |                         (0.08) |            0.87     | 
| Expected credit losses and other credit impairment charges (‘ECL’) as % of average gross loans and advances to customers, including held for sale (%)^(2) | **0.35** |                         (0.08) |            0.87     | 
| Return on average ordinary shareholders’ equity (%) | **8.7** |         7.1          |         2.3          | 
| Return on average tangible equity (%) | **9.9** |         8.3          |         3.1          |

| 
At 31 December | 
| **Balance sheet** | **2022** | 2021 | 2020 | 
| Total assets ($m) | **     2,966,530  ** |      2,957,939  |      2,984,164  | 
| Net loans and advances to customers ($m) | **         924,854 ** |      1,045,814  |      1,037,987  | 
| Customer accounts ($m) | **     1,570,303  ** |      1,710,574  |      1,642,780  | 
| Average interest-earning assets ($m) | **     2,203,639  ** |      2,209,513  |      2,092,900  | 
| Loans and advances to customers as % of customer accounts (%) | **58.9** |            61.1     |            63.2     | 
| Total shareholders’ equity ($m) | **         187,484 ** |          198,250  |          196,443  | 
| Tangible ordinary shareholders’ equity ($m) | **         149,355 ** |          158,193  |          156,423  | 
| Net asset value per ordinary share at period end ($) | **                8.50 ** |                  8.76  |                  8.62  | 
| Tangible net asset value per ordinary share at period end ($) | **                7.57 ** |                  7.88  |                  7.75  | 
| **Capital, leverage and liquidity** |  |  |  | 
| Common equity tier 1 capital ratio (%)^(3) | **14.2** |            15.8     |            15.9     | 
| Risk-weighted assets ($m)^(3,4) | **         839,720 ** |          838,263  |          857,520  | 
| Total capital ratio (%)^(3,4) | **19.3** |            21.2     |            21.5     | 
| Leverage ratio (%)^(3,4) | **5.8** |         5.2          |         5.5          | 
| High-quality liquid assets (liquidity value) ($bn)^(4,5) | **                  647 ** |                   688  |                   678  | 
| Liquidity coverage ratio (%)^(4,5) | **          132      ** |          139        |          139        | 
| Net stable funding ratio (%)^(4,5) | **136** | N/A | N/A | 
| **Share count** |  |  |  | 
| Period end basic number of $0.50 ordinary shares outstanding (millions) | **           19,739 ** |            20,073  |            20,184  | 
| Period end basic number of $0.50 ordinary shares outstanding and dilutive potential ordinary shares (millions) | **           19,876 ** |            20,189  |            20,272  | 
| Average basic number of $0.50 ordinary shares outstanding (millions) | **           19,849 ** |            20,197  |            20,169 |

For reconciliations of our reported results to an adjusted basis, including lists
of significant items, see page 109 of the _Annual Report and Accounts 2022_. Definitions
and calculations of other alternative performance measures are included in our ‘
Reconciliation of alternative performance measures’ on page 128 of the _Annual Report
and Accounts 2022._ 

_1     Dividend per share, in respect of the period, as a percentage of earnings
per share adjusted for certain items (recognition of certain deferred tax assets:
$0.11 reduction in EPS; planned sales of the retail banking operations in France
and banking business in Canada: $0.09 increase in EPS). No items were adjusted in
2021 or 2020._

_2     Includes average gross loans and advances to customers reported within ‘assets
held for sale’._

_3     Unless otherwise stated, regulatory capital ratios and requirements are based
on the transitional arrangements of the Capital Requirements Regulation in force
at the time. These include the regulatory transitional arrangements for IFRS 9 ‘
Financial Instruments’, which are explained further on page 208 of the Annual Report
and Accounts 2022. Leverage ratios are reported based on the disclosure rules in
force at that time, and include claims on central banks. Current period leverage
metrics exclude central bank claims in accordance with the UK leverage rules that
were implemented on 1 January 2022. References to EU regulations and directives (
including technical standards) should, as applicable, be read as references to the
UK’s version of such regulation or directive, as onshored into UK law under the 
European Union (Withdrawal) Act 2018, and as may be subsequently amended under UK
law._

_4     Regulatory numbers and ratios are as presented at the date of reporting. 
Small changes may exist between these numbers and ratios and those subsequently 
submitted in regulatory filings. Where differences are significant, we will restate
in subsequent periods._

_5     The liquidity coverage ratio is based on the average value of the preceding
12 months. The net stable funding ratio is based on the average value of four preceding
quarters. December 2021 LCR has been restated for consistency. We have not restated
the prior periods for NSFR as no comparatives are available._

**Statement by Mark E Tucker, Group Chairman**

At the start of 2022, the ongoing impact of Covid-19 was the most dominant factor
within the external environment. While further outbreaks in Hong Kong and mainland
China significantly impacted economic growth, the Russia-Ukraine war and rising 
inflation and interest rates had an even greater impact on the global economy in
2022. They are also likely to continue to have a greater economic impact than the
pandemic in 2023, as we are already seeing with a cost of living crisis affecting
many of our customers and colleagues.

**Strong financial performance and higher capital distributions**

We supported our customers through the challenges that they faced at the same time
as executing our strategic plan. The first phase of our transformation is now complete.
The work that we have done has enabled us to emerge from the pandemic a stronger
bank, better aligned to the international needs of our customers.

The reshaping of our portfolio continued with the announcement of the planned sale
of our banking business in Canada. We continued to develop our Wealth capabilities,
especially in Asia, and this strategy gained traction in 2022. Our increased investment
in technology has improved the customer experience and made our processes more efficient.
Meanwhile, we continued to support our clients to transition to net zero, and also
took further important steps towards our ambition of aligning our financed emissions
to net zero by 2050. Given the urgency of today’s global energy crisis, it is now
even more important that we continue to actively engage our clients on how they 
intend to prepare their businesses for a low-carbon future.

In 2022, reported profit before tax was $17.5bn, a decrease of $1.4bn compared with
2021 due to the $2.4bn impairment on the planned sale of our French retail banking
operations. Adjusted profit before tax was $24.0bn, an increase of $3.4bn on last
year. All of our businesses grew profits in 2022, and we maintained our strong capital,
funding and liquidity positions.

As we signalled at our interim results, we are committed to ensuring our shareholders
share the benefits of our improved performance. The Board approved a second interim
dividend for 2022 of $0.23 per share, bringing the full year dividend for 2022 to
$0.32 per share. We are establishing a dividend payout ratio of 50% of reported 
earnings per share for 2023 and 2024, excluding material significant items, and 
we aim to restore the dividend to pre-Covid-19 levels as soon as possible. We also
intend to return to paying quarterly dividends from the start of 2023.

Subject to completion of the planned sale of our banking business in Canada, the
Board’s intention is to consider the payment of a special dividend of $0.21 per 
share as a priority use of the proceeds generated. A decision in relation to any
potential dividend would be made following the completion of the transaction, currently
expected in late 2023, with payment following in early 2024. Any remaining additional
surplus capital is expected to be allocated towards opportunities for organic growth
and investment alongside share buy-backs, which would be in addition to any existing
share buy-back programme.

**Board operations**

In 2022, the Board met in person in London, Hong Kong, New York and Riyadh – on 
each occasion also undertaking a wide range of engagements with clients, colleagues,
government officials and regulators. The importance of engaging with our teams was
also underlined by the appointment of José (Pepe) Meade as Board member with specific
responsibility for employee liaison. At the same time as holding some in-person 
meetings, the continued use of virtual meetings enabled us to retain the benefits
of greater efficiency and reduced costs.

At the 2022 Annual General Meeting, Irene Lee and Pauline van der Meer Mohr stepped
down from the Board. I am enormously grateful to them for their important and valuable
contributions to the Board, the committees and the subsidiary entities on which 
they have served. Irene remains an independent non-executive Director of The Hongkong
and Shanghai Banking Corporation Limited and independent non-executive chair of 
Hang Seng Bank Limited. Geraldine Buckingham joined the Board as an independent 
non-executive Director on 1 May.

Following Ewen Stevenson’s departure, Georges Elhedery became Group Chief Financial
Officer and joined the Board on 1 January 2023. On behalf of the Board, I would 
like to again thank Ewen for all that he has done for the bank. His leadership, 
financial expertise and operational rigour have been invaluable to HSBC, and he 
leaves with our very best wishes.

We also recently announced some changes to the Board. Kalpana Morparia will join
the Board as an independent non-executive Director on 1 March. Jack Tai will retire
from the Board at the conclusion of the 2023 AGM, and will be succeeded as Chair
of the Group Risk Committee by Jamie Forese. Jack has made a significant and important
contribution during his time on the Board, particularly in the strengthening of 
risk and conduct governance and oversight through a period of major change.  We 
wish him very well in his future endeavours.

Noel and I were delighted to meet face-to-face with our loyal Hong Kong shareholders
at our Informal Shareholders Meeting in August. We have always greatly valued their
feedback and engagement, and this meeting was as well attended as ever. We were 
pleased to discuss how our business has performed, our continued support of Hong
Kong, and our commitment to growing shareholder value. We look forward to continuing
these discussions in person in 2023.

**Our strategy is working**

There were reports over the course of last year about ideas for alternative structures
for HSBC. The Board has been fully engaged in examining these alternatives in depth,
with the benefit of independent third-party financial and legal advice. It has been,
and remains, our judgement that alternative structural options would not deliver
increased value for shareholders. Rather, they would have a material negative impact
on value.

For 157 years, we have followed trade and investment flows to support our customers
as they fulfil their financial ambitions. We have used our experience, expertise
and relationships to help our customers to navigate the world.

Today, we remain steadfastly focused on our core purpose of ‘opening up a world 
of opportunity’. Our model is particularly relevant to individuals and companies
of all sizes whose financial ambitions span multiple countries and regions. Very
few, if any, other banks can rival our ability to connect capital, ideas and people
through a global network that facilitates the international access and collaboration
required to succeed in today’s world.

Our performance in 2022 demonstrates that our current strategy is working and improving
returns. We are also confident that it will deliver good returns for our shareholders
over the coming years. The Board and management team are fully focused on delivering
it.

**An uneven macroeconomic outlook**

We will need to maintain this focus against an uneven macroeconomic outlook. The
pandemic, high inflation and interest rates, and the Russia-Ukraine war all have
implications for the global economy, including volatility in markets, supply chain
disruption, pressure on small and medium-sized business and squeezes on the cost
of living. Different economies also now face different challenges and have different
opportunities in 2023.

China’s reopening and package of measures to stabilise the property market should
provide a significant boost for its economy and the global economy, albeit with 
some near-term volatility. Our economists forecast China’s GDP will grow 5% in 2023.
The reopening of the border means that Hong Kong, and the entire Greater Bay Area,
are likely to be major beneficiaries, and I expect to see a strong recovery.

More broadly, Asia as a whole has proven resilient and there is the prospect of 
a strong rebound later in the year. Virtually all economies in the region have now
recovered the output losses incurred during the pandemic and are above 2019 levels.

The Middle East economies enjoyed a strong 2022, and we expect this momentum to 
continue in 2023 on the back of the important reforms underway to transform, diversify
and grow the region’s economies. We see strong and growing demand to connect clients
in the Middle East with Asia’s economies, and vice versa.

In contrast, Europe, including the UK, face challenges from higher energy prices
fuelling inflation and necessitating higher interest rates, driven in part by the
Russia-Ukraine war. All of these factors are contributing to a cost of living crisis
and more economic uncertainty. We expect that any recession, if there is one at 
all, will be relatively shallow.

The US economy is proving resilient and a hard landing appears unlikely. Some economists
believe that inflation may now have peaked in the US, and there is consensus that
the US will avoid recession. I expect the US to make an important contribution to
global GDP growth in 2023.

Overall, I am optimistic about the global economy in the second half of 2023, but
there is still a high level of uncertainty due to the Russia-Ukraine war and recessionary
fears may yet dominate much of the year ahead.

**Navigating geopolitics remains challenging**

The geopolitical environment remains challenging for our clients to navigate. There
is sadly no end in sight to the Russia-Ukraine war. However, the West’s relationship
with China appears to be relatively stable. The renewed, constructive dialogue between
President Xi and President Biden at the G20 in November was clearly important. While
further US sanctions are expected this year, capital flows between China and the
West increased during the pandemic, even with reciprocal tariffs in place. China
is also taking an active approach to diplomatic engagement with European nations,
including the UK. China’s reopening will also allow for the resumption of face-to-
face visits, which will support greater dialogue between China and important partners
such as Germany, France and the UK. We also naturally continue to engage with governments
around the world.

One of the key trends of the past three years has been supply chain disruption, 
due largely to a combination of geopolitics, pandemic and war-related factors. Businesses
are seeking to build greater resilience into their supply chains, reduce their dependence
on sole suppliers or regions, and take the opportunity to digitise. I expect these
trends all to continue throughout 2023. HSBC’s global network means we are well 
placed to adapt to regional diversification that takes place within supply chains.

**Thank you to my colleagues**

Finally, my colleagues have once again shown great dedication, energy and care in
serving our customers and working together over the past year. They have exemplified
our purpose of ‘opening up a world of opportunity’ and our core values. While we
want to achieve even more in 2023 and beyond, I am very proud of what they achieved
in 2022 – and I am extremely grateful to each of them.

**Mark E Tucker**

Group Chairman

21 February 2023

**Review by Noel Quinn, Group Chief Executive**

We have completed the first phase of our transformation. Our international connectivity
is now underpinned by good, broad-based profit generation around the world. Our 
focus is now on continuing to grow our core business, while also capitalising on
the new sources of value creation that we have built. 

When we embarked on our transformation programme in February 2020, our aim was to
address the fundamental issues that had contributed to a decade of low returns. 
It was clear to me that too much of our capital was being used inefficiently, too
many of our businesses were loss-making and sub-scale, and too many of our clients
were low returning and purely domestic in nature. Over the last three years, while
responding to the challenges of the pandemic, we have structurally repositioned 
our businesses and operating model to achieve higher returns.

The most significant changes to our portfolio have been the exit and wind-down of
non-strategic assets and clients in the Americas and Europe, and the investment 
in technology and in organic and inorganic growth in Asia, especially in Wealth 
and Personal Banking. We have completed the sale of our US mass market retail business,
and announced the planned exit of our French retail banking operations and the planned
sale of our banking business in Canada. We have also announced exits in other smaller
businesses, including Greece and Russia. A key factor in assessing the strategic
value of our businesses has been whether they capitalise on the distinct advantages
that we have, especially those derived from our global network.

Our work to increase capital efficiency resulted in cumulative risk-weighted asset
savings of $128bn by the end of 2022, in excess of our original target as we accelerated
restructuring in the US and Europe. This enabled us to reallocate capital towards
Asia and the Middle East.

Finally, we have transformed our cost base and restored tight cost discipline across
the organisation. Our cost to achieve programme concluded at the end of 2022, but
it enabled us to take multiple layers of inefficiency out of the business and embed
changes that we expect to provide flow-through benefits for years to come.

**Building a good platform for future growth**

At the same time, we have invested in new sources of value creation that provide
a good platform for future growth. Developing our capabilities in Wealth, particularly
in Asia, has been a strategic priority as we have sought to diversify our revenues.
We have done this organically through the build-out of our Pinnacle business in 
mainland China, and inorganically through the purchases of AXA Singapore and L&T
Investment Management in India, by increasing our stake to 90% in HSBC Qianhai Securities,
and by taking full ownership of our HSBC Life China insurance business. The traction
that we are gaining in Wealth is reflected by the $80bn of net new invested assets
that we attracted in 2022, $59bn of which were in Asia.

Our core purpose is ‘opening up a world of opportunity’ and that, in essence, is
what we do by helping our personal and corporate customers to move money between
countries and do business across borders. This is still the best way for us to create
value, and what makes us a world leading bank for international and mid-market customers.
We are the number one trade finance bank, and trade revenue was up 13% in 2022, 
surpassing the good level of growth in the previous year. Trade also increased in
all regions.

We are also one of the leading global foreign exchange houses and a leading payments
company globally, with over $600tn of payments processed in 2022. Our global connectivity
has made international our fastest-growing revenue segment in Wealth and Personal
Banking. Products like Global Money and our Wealth platforms are specifically designed
to meet the international needs of our retail and wealth customers. These customers
also provide around double the average revenue of domestic-only customers.

The difference compared with three years ago is that our international connectivity
is now underpinned by good broad-based profit generation around the world. Already
the leading bank in Hong Kong, we gained market share last year in key products 
including customer deposits, insurance and trade finance. We are also the leading
foreign bank in mainland China by revenue and are pleased to have received seven
main licence approvals since 2020. Our business in India delivered $0.9bn of profit
before tax last year and facilitated the equivalent of around 9% of India’s exports.
In the Middle East, we delivered $1.8bn of profits and were the number one bank 
in capital markets league tables. HSBC UK delivered $5bn of profits and was the 
number one bank for trade finance, while our non-ring-fenced bank in Europe delivered
$2.1bn of profits and around 35% of its client business was booked outside the region.
Our US business has now had nine consecutive quarters of profitability after its
turnaround, while our business in Mexico delivered a return on tangible equity of
18%.

The cost savings that we have made have been reinvested in technology, which has
in turn enabled us to change the way we operate as a business. Technology spending
was 19% higher in 2022 than in 2019. Much of this investment has been used to rebuild
and upgrade platforms, which we have then rolled out globally. Our upgraded mobile
banking app is available in 24 markets and has around 13 million active users, while
our upgraded digital trade finance platform has been rolled out in the UK and Hong
Kong, ensuring that market-leading businesses are well positioned for the next 10
years. In 2022, we launched HSBC Orion, our new proprietary tokenisation platform
using blockchain technology for bond issuances. We’re also partnering with fintechs
around the world to use their capabilities in our products. Finally, we are investing
in greater automation, which we expect to reap the benefits from for years to come.

Empowering our people has underpinned everything that we have achieved over the 
past three years – and it will underpin the next phase of our strategy too. Reducing
management layers has helped to increase our speed and agility. In our last staff
survey, the number of colleagues who report that work processes allow them to work
efficiently was 6 percentage points above the sector benchmark. Confidence within
the organisation has also increased. 77% of colleagues told us they are confident
about our future, which is 3 percentage points up on 2021. We have continued to 
make steady progress against our medium-term targets on gender and ethnicity representation,
while the number of hours that colleagues spent learning about digital and data,
and [sustainability](https://www.directorstalkinterviews.com/sustainability-green-stocks-news)
also increased by 13% last year, underlining the importance of these critical future
skills.

The transition to net zero will offer increasingly significant commercial opportunities
in the future. We have continued to make good progress towards our ambition of providing
and facilitating $750bn to $1tn of sustainable financing and investment by 2030.
At the end of 2022, the cumulative total for sustainable financing and investment
since 2020 had reached more than $210bn. We published an updated energy policy, 
which commits us to no longer provide new finance or advisory services for the specific
purpose of projects pertaining to new oil and gas fields and related infrastructure
whose primary use is in conjunction with new fields. As per our policy, we will 
continue to provide finance to maintain supplies of oil and gas in line with declining
current and future global demand, while accelerating our activities in support of
clean energy. We have also set interim 2030 targets for on-balance sheet financed
emissions for eight sectors. These include six sectors for which we have reported
2019 and 2020 emissions. We recognise that methodologies and data for measuring 
emissions will continue to evolve, and our own disclosures will therefore continue
to develop as a result. In 2023, we will publish our first bank-wide climate transition
plan.

**Strong overall financial performance in 2022**

The progress that we have made transforming HSBC and investing in growth has helped
to drive an improved financial performance in 2022. A strong net interest income
performance reflected higher global interest rates, but there was also good underlying
growth across the business in key areas, particularly those linked to our international
network.

Overall, the Group delivered $17.5bn of reported profit before tax, which was $1.4bn
lower than in 2021. This was due to a net expected credit loss charge of $3.6bn 
compared with a net release of $0.9bn last year, as well as the impairment of $2.4bn
relating to the planned sale of our retail banking operations in France. Adjusted
profit before tax was $24bn, up $3.4bn.

Adjusted revenue was 18% higher than the same period last year, as net interest 
income grew strongly in all of our global businesses. There was also a strong performance
in Global Foreign Exchange. Our reported return on tangible equity for 2022 was 
9.9%. Excluding significant items, we delivered a return on tangible equity of 11.6%.

There was a good performance across our global businesses. In Commercial Banking,
adjusted profit before tax was up by 24% to $7.7bn, driven by revenue increases 
across all products and in all regions, most notably Asia and the UK. Within this,
Global Payments Solutions revenue grew by 104% on the back of higher interest rates,
while trade revenue was up 14% with growth in all regions.

Global Banking and Markets delivered adjusted profit before tax of $5.4bn, up 8%
compared with 2021. Global Payments Solutions was again the main driver, with 119%
growth in net interest income from higher interest rates, and a strong performance
in Global Foreign Exchange. In Wealth and Personal Banking, adjusted profit before
tax of $8.5bn was 27% higher than 2021. Net interest income growth drove a good 
performance in Personal Banking, while there was also balance sheet growth in the
UK, Asia outside Hong Kong, and Mexico.

We restricted adjusted cost growth to 1% in 2022 as a result of the significant 
cost-saving actions that we have taken. This represents a good outcome given the
high inflation environment. After good capital generation in the fourth quarter,
our CET1 ratio at the end of 2022 was 14.2% and back within our target range of 
14% to 14.5%. We are able to pay a second interim dividend of $0.23 per share, bringing
the total 2022 dividend to $0.32 per share.

**Improved returns and substantial distribution capacity**

We are firmly on track to achieve our target of a return on tangible equity of at
least 12% from 2023 onwards. We have built up a good level of expected credit loss
provisions, and we also expect the headwinds associated with macroeconomic uncertainty
and the ongoing challenges within the China commercial real estate sector to subside,
enabling expected credit losses to start to normalise.

There will be no easing off at all on costs. Our cost to achieve programme has now
ended, but we will continue to seek and find opportunities to create efficiencies
that will deliver sustainable cost savings in future years. We are now considering
up to $300m of additional costs for severance in 2023. These costs will need to 
be reported in our costs line. Taking this into account, we will aim for approximately
3% cost growth in 2023. Tight cost discipline will remain a priority for the whole
Group.

As a result of the improving quality of our returns, we are establishing a dividend
payout ratio of 50% of reported earnings per share for 2023 and 2024, excluding 
material significant items. We will aim to restore the dividend to pre-Covid-19 
levels as soon as possible. We also intend to revert to paying quarterly dividends
from the start of 2023. Given the capital generation at the end of 2022, we will
bring forward the consideration of buy-backs to the announcement of our results 
for the first quarter of 2023.

Finally, subject to the completion of the sale of our banking business in Canada,
I am pleased that the Board will consider payment of a special dividend of $0.21
per share in early 2024 as a priority use of the surplus capital generated by the
transaction. We understand the importance of dividends to our shareholders and expect
them to benefit from improved capital distributions ahead.

**My colleagues are getting it done**

I would like to end by thanking my colleagues around the world. Over the last three
years, they have managed a period of substantial change, embraced the opportunities
that our transformation has presented and gone the extra mile to support our customers–
all while living through a global pandemic. More recently, there have also been 
the Russia-Ukraine war, the real-life financial strains caused by high inflation
and the devastating earthquakes in Türkiye for them to deal with. We have only made
the progress that we have because of their efforts. They are exemplifying our value
of getting it done, and I am proud to lead them.

Overall, 2022 was another good year for HSBC. We completed the first phase of our
transformation and our international connectivity is now underpinned by good, broad-
based profit generation around the world. This contributed to a strong overall financial
performance. We are on track to deliver higher returns in 2023 and have built a 
platform for further value creation. With the delivery of higher returns, we will
have increased distribution capacity, and we will also consider a special dividend
once the sale of HSBC Canada is completed.

**Noel Quinn**

Group Chief Executive

21 February 2023

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