HSBC has announced that its 1QFY2025 profit after tax of US$7.6 billion was US$3.3 billion lower than in 1QFY2024, but up manifold from the US$585 million profit after tax in 4QFY2024.

Y-o-y, profit before tax decreased by US$3.2 billion to US$9.5 billion compared with 1QFY2024, primarily due to the non-recurrence of US$3.7 billion in net impacts in 1Q2024 relating to the disposals of the banking business in Canada and Argentina.

Constant currency profit before tax excluding notable items increased by US$1.0 billion to $9.8 billion compared with 1QFY2024, with better performances in wealth, foreign exchange, and debt and equity markets. This was partly offset by higher expected credit losses (ECL) and other credit impairment charges.

Annualised return on average tangible equity (RoTE) in 1QFY2025 was 17.9%, compared with 26.1% in 1QFY2024. Excluding notable items, annualised RoTE in 1QFY2025 was 18.4%, a rise of 2 percentage points compared with 1QFY2024.

Net interest income (NII) fell by US$0.4 billion y-o-y to US$8.3 billion due to business disposals in Canada and Argentina, and an adverse impact of US$0.3 billion from foreign currency translation differences.

The fall in interest rates reduced the funding costs associated with generating revenue that is recognised in “net income from financial instruments held for trading or managed on a fair value basis”, arising from the deployment of the commercial surplus to the trading book. The reduction in funding costs of the trading book and the decrease in NII led to a fall in banking NII of US$0.7 billion, or 6%, compared with 1QFY2024.

NII increased by $0.1 billion q-o-q, as the benefit of the structural hedge, the impact of lower interest rates on funding costs and a favourable movement in the asset mix were partly offset by the disposal of the Argentinian business. The funding costs associated with the trading book decreased by $0.5 billion, which resulted in a fall in banking NII of $0.4 billion.

Net interest margin (NIM) of 1.59% decreased by 4 basis points (bps) compared with 1QFY2024, mainly due to lower interest rates. NIM increased by 5 bps compared with 4QFY2024 as the decrease in funding costs of liabilities was larger than the reduction on asset yields.

ECL of US$0.9 billion were US$0.2 billion higher than in 1QFY2024 due to increased allowances to reflect heightened uncertainty and a deterioration in the forward economic outlook due to geopolitical tensions and higher trade tariffs.

HSBC has a target of the mid-teens return for RoTE for 2025, 2026 and 2027. “We continue to expect banking NII of around $42 billion in 2025 based on our latest modelling, acknowledging the outlook for interest rates has become more volatile and uncertain. We expect ECL charges as a percentage of average gross loans of between 30 bps to 40 bps in 2025 (including loans held for sale balances),” the HSBC results statement says.

Lending is expected to remain muted during 2025 with mid-single digit growth for loans, and double-digit growth in fee and other income. The CET-1 will be managed such that it remains in the 14% to 14.5% range, with a dividend payout ratio target of 50% for 2025.

HSBC’s board has approved a first interim dividend of US$0.10 per share for 2025, and the bank has announced a share buy-back of up to US$3 billion.