Insights into HSBC Bank Canada's Third Quarter 2023 Performance

30 Oct, 2023

Insights into HSBC Bank Canada's Third Quarter 2023 Performance

In the third quarter, the performance of HSBC Bank Canada remained robust, with continued strength in core business activities, reflected in increased average loan and deposit balances. However, total operating income experienced a slight dip compared to the same period in 2022. This decrease was attributed to the impact of higher cost of liabilities resulting from rising interest rates and more challenging market conditions. Nevertheless, the year-to-date total operating income demonstrated a healthy 10% increase.

Despite the moderating inflation and expectations of a soft economic landing, there are growing financial challenges on the horizon. HSBC Bank Canada is committed to providing unwavering support to its clients, upholding a tradition of over 40 years of resilience in both favorable and challenging times.

The bank reported a strong profit before income tax expense of $893 million, marking a 13% increase. Operating income also saw a significant rise of $184 million, representing a 10% increase, accompanied by a lower Expected Credit Loss (ECL) charge. Total operating expenses, however, increased by $120 million or 12%, primarily due to costs associated with the planned sale of HSBC Bank Canada, offset in part by reduced investment spending in 2023.

All business segments proved profitable, with increases in profit before tax expenses and total operating income recorded in three out of four segments.In the context of net fee income, the third quarter reported $187 million, a decrease of $7 million or 3.6%. The challenging market conditions played a role in the reduction, primarily impacting credit facility fees and brokerage volumes in the Global Banking business. Nevertheless, this decrease was partly offset by increased remittances and card-related activity.

For the year-to-date, net fee income amounted to $570 million, showing a decrease of $17 million or 2.9%. Similar market challenges resulted in lower fees related to investment funds under management in Wealth and Personal Banking. Additionally, credit facility fees, underwriting fees, and brokerage commissions in the Global Banking business faced reductions. Nevertheless, these declines were partially offset by increased card activity and higher credit facility fees in Commercial Banking due to increased bankers' acceptance volumes.

Net income from financial instruments held for trading reported significant growth, with the third quarter showing $37 million, an increase of $22 million or 147%. This increase was primarily driven by favorable changes in cash flow hedge instruments and increased income from trading activities.

In terms of income tax expense, the effective tax rate for the third quarter of 2023 was 28.0%, slightly exceeding the statutory tax rate of 27.8% due to additional taxes on banks and life insurance groups.

Profit before income tax expense for the quarter amounted to $185 million, reflecting a decrease of $10 million or 5.1%. This decline was primarily attributed to increased charges in Expected Credit Loss (ECL) compared to the previous year and a decrease in net interest income. For the year-to-date, profit before income tax expense reached $587 million, showing an increase of $59 million or 11%, primarily due to higher operating income and lower ECL charges compared to the previous year.

Total operating income for the quarter amounted to $304 million, showing a decrease of $4 million or 1.3%. For the year-to-date, total operating income reached $925 million, reflecting an increase of $44 million or 5%.

In summary, HSBC Bank Canada's third quarter results reflect resilience and strength in core business activities, despite the challenges posed by evolving financial landscapes. The bank remains committed to providing unwavering support to its clients and is positioned to face the growing headwinds with determination.