Europe’s biggest bank by assets, HSBC (HSBA), believes rising interest rates are acting as a growth lever. The banking giant cites a rate rise as one important reason behind the robust performance of its retail banking division (its largest), which posted first quarter operating profits of $1.8bn.
The global bank’s share price rose by more than 3% to 665.1p on Thursday 4 May. The bank beat market expectations with its adjusted pre-tax profit, coming in at $5.9bn which is a 12% improvement on the same time last year.
This will come as great news for investors still reeling from the banks horror show 2016 which saw a 62% year-on-year decline in profits.
However, its results were not all positive. HSBC’s overall revenue is down by 13% although management attributes that to the sale of its Brazilian business and adverse currency movements.
HSBC’s chief executive Stuart Gulliver says that the increase in adjusted profit was driven by a strong performance in its global banking and markets unit as well its retail banking and wealth management businesses. He adds that the bank completed its $1bn share buy-back last month, another move aimed at appeasing disgruntled investors.
The business has also shored up its capital strength, its common tier one (CET1) capital rising to 14.3% from 13.6% in the final quarter of 2016. This represents a significant buffer to any financial downturn which could impact the sector.
The CET1 ratio measures the size of a bank’s capital against its assets. It takes into account the risk profile of customers’ loans.
Investors seeking income may be attracted by HSBC's relatively safe dividend. The stock is currently offering a 6% payout yield based on this year's rough 40p per share dividend. That compares with Barclays' (BARC) 1.5% yield, the 5.6% on offer at Lloyds (LLOY), while Royal Bank of Scotland (RBS) has yet to return to the dividend list.