HSBC Holdings (00005.HK): 2026 net interest income guidance for banking business raised

$HSBC HOLDINGS(00005.HK)  delivered solid performance in the first quarter of 2026. Its reported profit before tax was $9.4 billion, down 1% year-on-year due to losses from business disposals and increased provisions. However, excluding one-off items, profit before tax at constant exchange rates reached $10.1 billion, meeting market expectations. Benefiting from strong wealth management business and higher net interest income, the Group's quarterly revenue increased 6% year-on-year to $18.6 billion. The average return on tangible equity (RoTE) was impressive, reaching 18.7% excluding one-off items, far exceeding the medium-term target.

In terms of business segments, Hong Kong operations remained the core profit driver, with a RoTE as high as 44.7%. Wealth management became a growth highlight, with related fee income growing 15% year-on-year, attracting net new money of $39 billion in a single quarter. However, cost and provision pressures increased this quarter. Operating expenses rose to $8.5 billion due to higher performance-linked compensation. Expected credit losses (ECL) increased to $1.3 billion, mainly reflecting a $400 million fraud-related loss involving a UK financial sponsor and an additional $300 million provision for Middle East conflicts. Furthermore, the Group completed the privatization of Hang Seng Bank during the quarter, which is expected to bring significant operational synergies.

Looking ahead, the Group has raised its 2026 net interest income guidance for the banking business to approximately $46 billion, reflecting improved interest rate prospects. At the same time, it has slightly adjusted its full-year loan loss rate forecast to about 45 basis points to address macro uncertainties. The Group reaffirmed its long-term target of maintaining RoTE at 17% or above from 2026 to 2028, and continues to drive organizational simplification and AI technology investment. In summary, despite specific credit losses putting pressure on short-term performance, strong non-interest income and a robust capital level (CET1 14.0%) continue to support its long-term growth momentum.

Source: KGI Securities