Earnings call transcript: HSBC Holdings Q2 2025 sees growth and strategic focus

HSBC Holdings, with a market capitalization of $214.3 billion, reported its second-quarter earnings for 2025, highlighting a solid financial performance with significant revenue growth and strategic advancements. Revenue for the first half of the year increased by 6% to $35.4 billion, while profit before tax rose by 5% to $18.9 billion. The bank also announced a $0.10 per share dividend, contributing to an attractive 5.16% dividend yield, and a $3 billion share buyback program. According to InvestingPro analysis, HSBC appears slightly overvalued at current levels, though the stock has delivered impressive year-to-date returns of 28.39%.

Key Takeaways

• HSBC’s revenue grew by 6% in the first half of 2025, reaching $35.4 billion.
• Profit before tax increased by 5% to $18.9 billion.
• The company announced a $3 billion share buyback program.
• HSBC is expanding its digital transformation and AI capabilities.
• The stock price experienced a minor decrease, reflecting broader market trends.

Company Performance

HSBC Holdings demonstrated strong financial performance in Q2 2025, with significant revenue and profit growth. Trading at a P/E ratio of 11.42 and maintaining a conservative beta of 0.49, the bank’s focus on strategic initiatives, such as digital transformation and AI integration, has positioned it well in the competitive financial services industry. The company’s robust performance in key markets, particularly in Asia, underscores its competitive edge. InvestingPro rates HSBC’s overall financial health as GOOD, with particularly strong scores in price momentum.

Financial Highlights

• Revenue: $35.4 billion, up 6% year-over-year.
• Profit before tax: $18.9 billion, a 5% increase from the previous year.
• Annualized return on tangible equity: 18.2%, up 1.2% year-on-year.
• Second interim dividend: $0.10 per share.

Outlook & Guidance

HSBC reaffirmed its mid-teens return on tangible equity guidance for 2025-2027 and maintained its banking net interest income guidance at approximately $42 billion. The bank expects an expected credit loss charge of around 40 basis points for 2025, and it continues to invest in growth areas and digital transformation. For deeper insights into HSBC’s valuation and growth prospects, investors can access the comprehensive Pro Research Report available exclusively on InvestingPro, which includes detailed analysis of the bank’s financial health metrics and growth potential.

Executive Commentary

• CEO George stated, "We enter this uncertain macroeconomic environment from a position of distinctive strength."
• CFO Pam highlighted, "Our second quarter results show discipline, performance and delivery."

Risks and Challenges

• Macroeconomic uncertainty may affect capital expenditure decisions.
• The Hong Kong commercial real estate market shows mixed signals.
• Potential impacts of tariffs and interest rate changes could pose challenges.

Q&A

During the earnings call, analysts raised questions about HSBC’s strategy in the Hong Kong commercial real estate market and its approach to tokenized deposits and stablecoins. The management addressed these concerns, emphasizing their strategic focus and adaptability in navigating market challenges.

Full transcript - HSBC Holdings PLC (HSBA) Q2 2025:

Moderator, HSBC: Welcome, ladies and gentlemen, to the analyst and investor webinar on the 2025 interim results for HSBC Holdings plc.

For your information, this webinar is being recorded. First twenty twenty twenty The The

George, CEO/Senior Executive, HSBC: items: our first half performance, the external environment and the progress we’re making against the targets we set out. Turning to our performance. The momentum we saw in the first quarter continued into the second quarter. Our half year performance was strong. Excluding notable items, revenue in the first half grew 6% to $35,400,000,000 Profit before tax was 5% higher at $18,900,000,000 On the same basis, annualized return on tangible equity was 18.2%, up 1.2% year on year.

Our four businesses sustained momentum in their earnings. In our Hong Kong home market business, we attracted 100,000 new to bank customers every month this average, reflecting strong customer growth and solid deposit inflows. In our U. K. Home market business, our loan book grew by $6,000,000,000 over the quarter on a constant currency basis.

We were particularly encouraged by signs of recovery in lending growth in Commercial Banking, with loans growing by $3,500,000,000 on the same basis. We grew fees and other income in both wealth and wholesale transaction banking. For the second quarter, we announced a $0.10 dividend per share alongside a share buyback of up to $3,000,000,000 This brings total shareholder distributions in respect of the half year to 9,500,000,000 Turning to the external environment. We enter this period of uncertainty from a position of strength. In this complex environment, customers are looking for a trusted financial partner.

Our differentiated strengths are clear. First, our hallmark financial strength, underpinned by a strong balance sheet and high quality credit portfolio, has helped us deepen our customer relationships and grow deposits by $83,000,000,000 from the same period last year. This is after adding back balances balances held for sale. Our $1,700,000,000,000 deposit base drives the lion’s share of our banking NII. Despite high bar headwinds, other tailwinds have allowed us to reiterate our full year banking NII guidance of around $42,000,000,000 In Hong Kong commercial real estate, while some short term challenges remain, we are confident in the overall credit quality of the book.

Second, our long standing experience of facilitating financial flows globally and our international network, especially across the world’s fastest growing trade and investment routes. We delivered 5% growth in wholesale transaction banking, fee and other income, in the second quarter. Our trade fees and other income grew by 4%, reflecting our leading position across fast growing intraregional trade corridors as well as our continued investments in services trade sector. We have 5,000 trade specialists in more than 50 markets operating on both side of trade flows. They bring significant expertise and real time insight customers.

And third, we are seeing continued momentum in our wealth business. We are ideally placed to capture the increasing number of affluent and high net worth customers in the fastest growing wealth markets in Asia and The Middle East, where we are investing at scale. Turning next to the progress we are making against our organizational simplification targets. As set out in February, this initiative is meant to make the group simple and more agile. Cost efficiency is one of the benefits.

We are on track to deliver the circa $1,500,000,000 of simplification saves by the 2026. To remind you, these are primarily through the deduplication of roles and will have no meaningful impact on revenue. The saves will be taken straight to the bottom line, dollars 400,000,000.0 of which will be in the P and L in 2025, revised upwards from 300,000,000 And the full $1,500,000,000 will be fully realized in 2027. Pam will go into more details. Turning to the progress we’re making in our exit of nonstrategic activities.

We are progressing at pace. We have rigorously reviewed our portfolio against our strategic priorities. Since the first quarter results, we have announced the sale of our business in Uruguay, U. K. Life insurance subsidiary, German custody business and German fund administration business, our stake in Grupo Galicia and our French portfolio of home and other loans retained following the disposal of our retail operations in France.

While Asia is at the heart of our growth strategy, we want to provide clarity on our footprint in Asia. Earlier this year, we commenced a targeted strategic review of our retail business in four markets in Asia. Three of these reviews, Australia, Indonesia and Sri

Moderator, HSBC: the

COVID-nineteen will continue COVID-nineteen

George, CEO/Senior Executive, HSBC: We COVID-nineteen business, our Corporate and Institutional Banking business, is unaffected by these COVID-nineteen reviews, and all four markets remain critical to our international network for CIB customers. Costs released from the exits of our nonstrategic activities will be invested in our priority growth areas. These are areas where we have clear competitive advantage and can generate accretive returns. Let’s turn to them now. We are investing with intent.

In our home markets, we said we would expand the number of wealth centers and enhance our wealth capabilities. In Hong Kong, which is set to become the world’s leading cross border wealth hub, we have opened one new state of the art wealth center with two more opening in the coming months. In The U. K, we have opened our first wealth center in London and reduced the threshold for wealth investments. We have also relaunched our premier wealth brand targeting mass affluent customers.

In The U. K. Also, our improved coverage model for SME banking is bringing our relationship managers closer to customers. This is reflected in our Trustpilot score, which has improved to a four star ranking. In CIB, we launched HSBC TradePay for import duties, a targeted financing solution for our U.

S. Customers, which simplifies the payment of import duties whilst helping them optimize working capital. We have also launched HSBC tokenized deposit services in Hong Kong and Singapore, with The U. K. And Luxembourg expected to launch in September and The U.

S, UAE and other markets in 2026. These next generation programmable cross border payments move money in real time, always on, way across our network. They are a step towards our ambition of delivering global instant cross border payments. We have also enhanced our payment tracking solution, which now provides a global view of payment status, improving our client experience. In IWPB, we have opened 13 dedicated wealth centers, including in Mainland China, Singapore and Malaysia.

We have also refreshed our premier banking proposition, which will launch in The UAE, India, Malaysia and The U. S. In the second half of this year. In The UAE, which is home to more than 200 nationalities, we have simplified our onboarding process for certain customers to open a bank account before they relocate into The UAE. Each of these will drive customer acquisition, deepen wealth penetration, grow our share of mandates and enable us to capture greater share of corridor flows.

Finally, we are modernizing the bank through AI, Gen automation. We are improving our technology productivity with coding assistance. Today, more than 20,000 engineers are 15% more efficient in coding because of our new tools. Gen AI is being used across five CIB markets to bring process efficiency to our credit analysis write ups. We’re also focused on improving customer service through AI supported mobile apps and strengthened contact center capabilities.

The key message is we have continued ramping up investments in these areas. Further momentum will build as our exits complete, releasing investment capacity to redeploy into our priority growth areas in line with our disciplined cost and capital allocation framework. In summary, we enter this uncertain macroeconomic environment from a position of distinctive strength, underpinned by our hallmark financial strength, our global connectivity and our expertise. We remain well positioned to support our customers as their trusted financial partner. We have strong momentum in our business and are well positioned for growth.

We are investing for growth and we are delivering growth. And we are executing our strategy with discipline and at pace. The positive progress we’re making gives us confidence in our ability to deliver our targets. We reaffirm our mid teens return on tangible equity guidance, excluding notable items for each of 2025, ’twenty six and ’twenty seven. Let me now hand over to Pat.

Thank you.

Pam, CFO/Finance Executive, HSBC: Thank you, George. Thank you, everyone, for joining. At full year, I said we would focus on three things: discipline in the way we prioritize and maintain strong cost control while ensuring investment rigor for growth Performance in the way we gear our financial strategy towards achieving our mid teens returns target delivery in the way we enhance operating leverage and support our customers. The second quarter numbers show discipline, performance and delivery across the bank. Let’s turn to the details.

First, the income statement. I’ll be excluding notable items of $2,800,000,000 this quarter from my performance commentary. Of the $2,800,000,000 $2,100,000,000 are related to Bank of Communications. Dollars 1,100,000,000.0 of this results from its share issuance, which diluted our interest to 16%. It is booked in Other Operating Income as flagged in the first quarter.

The balance, a $1,000,000,000 impairment is booked in associates. A separate $700,000,000 relates to restructuring and other charges, which are in the cost line. Slide 22 sets these figures out. Annualized return on tangible equity, ROTE, was 17.7 percent in the second quarter. Revenue grew 5% year on year to $17,700,000,000 This was driven by fee and other income.

Profit before tax was $9,200,000,000 stable year on year. We have revised our full year ECL guidance to around 40 basis points from 30 to 40 basis points. The increase in the second quarter ECL partly relates to Hong Kong commercial real estate, which I will discuss further. We remain on track to achieve our target of around 3% cost growth in 2025 compared to 2024 Looking at Capital and Distributions, our CET1 capital ratio was 14.6%.

We have announced a second interim dividend of $0.10 per share alongside a new share buyback of up to $3,000,000,000 We have now reduced our share count by 13% since the 2023. As always, a decision on future share buybacks will be made on a quarterly basis and depends on organic capital generation and the capital needs of the business. The 50% dividend payout is at the top of our capital use hierarchy. Then we look to grow the business where we see significant opportunities over time. We then absorb other capital demands that emerge.

The buyback is the flexible residual means of capital distribution. Let’s now turn to our business segment performance. Our four businesses performed strongly with revenue growing in each. Each one is making mid teens RoTE or better. In Hong Kong, we attracted a further 300,000 new to bank customers in the second quarter, representing 600,000 for the first half.

We also grew deposits by 9% over the last twelve months on a constant currency basis. In our UK business, our loan book grew by 4% year on year on the same basis, with mortgages and commercial lending standing out. Since we relaunched our UK Premier proposition earlier this year, we have seen our average weekly customer acquisition more than double. In IWPB, fee and other income grew 21% year on year. Across our Wealth businesses, fee and other income grew in the second quarter by 22%.

Across these Wealth businesses, we attracted net new invested assets of $22,000,000,000 in the quarter, with $11,000,000,000 booked in Asia. For the last twelve months, net new invested assets was $75,000,000,000 In Wholesale Transaction Banking, we grew fee and other income by 5% on a constant currency basis year on year given market volatility. Moving to the Group revenue story. Revenue grew 5% year on year to $17,700,000,000 This was driven by fee and other income, which I’ll discuss further in a moment. On Banking NII.

Banking NII remained broadly stable on the first quarter, reflecting lower interest rates, partly offset by the repricing of the Structural Hedge. Our Structural Hedge, now $578,000,000,000 has reduced the sensitivity of our revenues to interest rate cuts. Regarding HIBOR, as a reminder, under System, the Hong Kong Dollar is maintained within a trading band via the HQMS commitment to buy or sell Hong Kong Dollars when the exchange rate hits either the strong side or weak side of the band. During the second quarter, we saw market driven interventions after the Hong Kong dollar appreciated to the strong side, which added liquidity to the market and led to a notable drop in HIBOR rates. Forward market indicators suggest that the one month HIBOR is expected to rise gradually back above 2% during the third quarter.

We remain confident in the prospects for our business and in the outlook for Hong Kong. Slide 24 in the appendix sets out more detail around Hong Kong dollar sensitivity. We still expect Banking NII of around $42,000,000,000 in 2025. Within this, lower HIBOR is a headwind, a weaker dollar is a tailwind, there are many other moving parts. Moving to fee and other income.

As I mentioned, Wholesale Transaction Banking grew 5% year on year. This reflects how closely we have been working with our customers to adapt to a changing operating environment. We are pleased this translated into strong revenue. Growth was driven by a strong FX performance, up 7%, capturing elevated client activity due to market volatility and geopolitical events. Global Trade Solutions increased 4% driven by guarantees as we supported customers to build out infrastructure and expand production facilities.

Security Services was up 3% due to higher asset balances as a result of improved valuations and new customer mandates, particularly in Asia and The Middle East. Global Payment Solutions increased 1%, including higher volumes in cross border and real time payments. In Wealth, fee and other income increased 22% year on year with growth across all products. This represents our sixth consecutive quarter of double digit fee growth as the strong momentum from the first quarter continued in the second quarter. We also benefited from higher customer activity levels in Asia, particularly in Hong Kong, where the stronger stock market drove activity.

The investments we are making in our Wealth business are translating into results: $22,000,000,000 of net new invested assets, dollars 11,000,000,000 of which were in Asia. Dollars 13,500,000,000.0 CSM balance, a new record. Wealth invested assets are now $1,400,000,000,000 up 12% year on year. Our $75,000,000,000 of net new invested assets over the last twelve months show that while an element of our second quarter performance was transactional, there are many positive drivers of our business. On credit, our second quarter ECL charge was $1,100,000,000 This includes some corporate impairments in The UK and U.

S, Mexico retail and an ECL charge for Hong Kong commercial real estate. A part of this quarter’s Hong Kong ECL reflects commercial real estate model updates and adjustments. The balance reflects what is still a weak commercial real estate market. Office rents are still declining somewhat. Office and retail values are softening.

Slide 25 in the appendix provides more detail on the portfolio. Challenges are concentrated in the secured portfolio, particularly with retail and office property collateral. Credit migration in the first half was predominantly in this book. We are now guiding to a group ECL charge of around 40 basis points for the full year 2025. This new guidance includes our updated outlook on Hong Kong Commercial Real Estate.

On costs, we are taking a disciplined approach to cost management and are on track to achieve our target of around 3% cost growth in 2025 compared to 2024 on a target basis. We are also on track to deliver $400,000,000 of simplification savings into the P and L in 2025. This is an improvement compared to our previous expectation of $300,000,000 Overall, in the first half, we have taken actions that deliver $700,000,000 of future cost saves. In 2025, we expect to have taken actions that will result in saves of $1,000,000,000 In 2027, the full $1,500,000,000 of cost saves will be in the P and L. As George highlighted, we are also making positive progress in our reallocation efforts.

We have announced seven exits since the first quarter. As we exit nonstrategic activities, we will be accelerating investment into our four businesses. George set out earlier the progress we are already making. On loans and deposits, the loan book was broadly stable with growth in The UK. Deposits, a structural source of strength for us, were up 5% or $83,000,000,000 over the last twelve months, adjusting for the balances we have reclassified to held for sale, notably relating to our custody business in Germany in the second quarter.

When combined with the $75,000,000,000 of net new invested assets over the same period, these show potential drivers of future income. Turning to capital. Our CET1 ratio was 14.6%. Overall, we have delivered a good capital number this quarter even with the capital consumption. We have accrued $0.39 of dividends per share in the first half against the $0.20 per share announced year to date.

We expect the $3,000,000,000 buyback we announced today to have an impact of around 0.4 percentage points. In summary, our second quarter results show discipline, performance and delivery discipline in the way we are applying strong cost control. We are on track to achieve our target of around 3% cost growth in 2025 compared to 2024 on a target basis. Our simplification saves are ahead of our previous expectation. We are also progressing at pace with our exit of non strategic activities and are redeploying into priority growth areas.

Performance in our earnings: Each of our four businesses is growing revenue and each one is making mid teens RoTE or better. Delivery. These second quarter results show the way in which we are supporting our customers. Our 5% revenue growth and 17.7% RoTE show we are delivering against the targets we set out to you. Louise, can we go to Q and A please?

Moderator, HSBC: Thank you, Pam. If you would like to ask a question today, please use the raise hand function in Zoom. Please also ensure your camera is turned on. If you’re invited to ask a question, please accept the prompt to unmute your line. If you find your question has been answered, you may remove yourself from the queue by lowering your hand in Zoom.

Our first question today comes from Benjamin Toms at RBC. Please accept the prompt to unmute your line.

Benjamin Toms, Analyst, RBC: Morning, both. Thank you for taking my questions. The first one is on your banking NII guidance of £42,000,000,000 You’ve also provided some useful guidance on one month HIBOR sensitivity at 1%. Can you just give some more color on the assumption that you’ve made within your banking NII guidance in relation to the time it will take HIBOR to return to normalized levels? And then secondly, on cost of risk, the guidance range is 30 to 40 basis points, and you’ve been at the top end of that range now for a couple of years.

Is it a sensible assumption really to think that you’ll remain in the top half of this range for at least FY 2026? Thank you.

George, CEO/Senior Executive, HSBC: Benjamin, thank you very much for your question. I’m going to ask Pam to address both your Banking NII and your ECL guidance.

Pam, CFO/Finance Executive, HSBC: Thank you, Benjamin. The €42,000,000,000 guidance includes market expectations of HIBOR implied above 2% in third quarter. So we’ve already said that HIBOR at 1% impacts us by $100,000,000 per month. So if you look overall, our HIBOR expectations as well as the impact of the €100,000,000 all these are included when we look at our overall confidence in the B and I guidance for the year. The B and I guidance is not just based on the forward curves.

As we know in Q2, a very low, however impacted us for around six to seven weeks. We have given more detail of it in the appendix. But a couple of things have moved around. The time deposits are now four points lower and you look at those factors. And as we look for the rest of the year, there will be some upside and downside obviously also in terms of the timing of when the hybrid shifts happen as well as the dollar depreciation, how long it continues.

In Q2, it was a tailwind for us. In terms of ECLs, so from an ECL perspective, we only give you the 25 number. It’s fair to say that we have always in the last few years stayed between the 30 to 40 basis points, sometimes a bit to the upper end. So we’re not giving any guidance beyond 2025 at this stage.

George, CEO/Senior Executive, HSBC: Ben, thank you very much for the question.

Moderator, HSBC: Thank you both. Next question today comes from Kian Abhusain at JPMorgan. Please accept the prompt to unmute your line.

Kian Abhusain, Analyst, JPMorgan: Yes. Thank you very much for taking my questions. Two questions. The first one is related to tariffs. You gave a guidance of 5% impact on revenues, and just wanted to see how we should think about that going forward as you don’t see anything in the numbers today.

And the second question is related to stage one and stage two movements. So clearly, stage two has deteriorated. You discussed PDs, which have been adjusted. And I was just trying to understand a little bit more detail around your movements, in particular, in the corporate and commercial bank in terms of potential realized losses, but also model adjustments versus environment. Thank you.

George, CEO/Senior Executive, HSBC: Kian, thank you very much for the question. I’m going to make some comments on your tariff question, and we’ll ask Pam to talk to the scenarios. And I’ll ask Pam to address your stage one and stage two questions. So on tariffs, first, tariff has never been a new feature of global trade. It’s always been there.

Although we’ve seen recently a more significant shift in The U. S. Tariff policy, That’s created more uncertainty. But at the same time, now as we’re encouraged to see that more agreements are being concluded and this giving us more ideally, more certainty as we look in the future. But the important things to call out.

One, as you did see from our Q2 results, our trade fees and other income has grown by 4%. And the reason is multiple. First, we are positioned across some of the fastest growing trade corridors on the planet, specifically the ones within Asia or between Asia and The Middle East and various parts of the world, where trade continues to grow significantly higher trends than some of the more traditional trade corridors and where we have a leadership position across these intra Asia, Asia, Middle East corridors. Second one is we kept investing at pace in our services trade sector. And now we have capabilities there, and we’re able to capture a much faster growth in services trade sector than what has been the growth exhibited in the goods trade sector.

And that’s another area of strength for HSBC. And third, even in trade in so far that The U. S. Is involved and imports into The U. S, some of the unique propositions we’ve put forward, such as trade pay, has given unique support to U.

S. Importers in helping them manage their working capital facilities and helping them meet their duty the duties they’re due to pay on for tariffs in a way that allowed us to continue growing our business and gaining share. You put all of this together, you put the expertise we have with more than 5,000 trade specialists across our 50 more than 50 markets where we operate. And you can see the resilience of our business to uncertainty. Actually, it is a period where we can differentiate, continue gaining market share, deepening customer relationships, acquiring more customers.

And this is what we envisage for the expertise we have and the strength we have in our trade business. Now with regard to scenarios, I would like Pam to take you through it. But remember, some of these scenarios are including extreme market movements such as interest rates at 1%, which have a material impact beyond what is the pure trade impact in our business, Pam.

Pam, CFO/Finance Executive, HSBC: Yes. Thank you, George. So firstly, in terms of our scenarios, we continue to update them on a quarterly basis. I just want to reiterate, we are still comfortable that the impact on revenue that we highlighted in the first quarter of a low single digit from tariffs is still the same. When you look at scenarios more broadly and you look at the lower interest rates, then whether you’re a trade bank or not, it would affect us like any other bank if interest rates go well below 2% in the 1% territory.

So that’s the kind of broader piece in terms of the downside scenarios. I also want to share with you that when we look at our customers and our portfolios so far, the customers who are impacted by tariffs, From a credit perspective they’re holding well. We are seeing no early warning signs or triggers of either lower deposits or additional drawdowns. Now coming on to the ECLs in terms of the model update. So the model update was looking at really PDs and looking at them in a more calibrated way across our portfolio.

And in Hong Kong, it increased the the allowance number going to stage two as we have already disclosed. But on the other hand, in The UK, it was a release. So models when the calibration happens, some markets goes up, some down. So just wanted to share that with you overall. And the vast majority of the model changes was actually due to PD migration.

And then you can imagine how it varies from market to market.

George, CEO/Senior Executive, HSBC: You very much, Kian.

Moderator, HSBC: Thank you. Our next question today comes from Panpen Ma at China Securities. Please accept the prompt to unmute your line.

Panpen Ma, Analyst, China Securities: Good morning. Good George. Good morning, Pam. I have two questions on impairments. The first one is related to the outcome impairment, especially those that one with the, you know, via with the VIU test.

You know, it seems that you you conduct VIU test every quarter. So you but you don’t charge impairments every quarter. You know, you it seems that, you know, the the impairment charge always come together with other bad news. You know? You you when you first charge the impair the the the value impairment in the ’23, you got, you know, French disposal loss.

You got, you know, a slight miss on the cost control. So you charged the first time. And in this quarter, you got, you know, the BoCom dilution impairment. So, you know, I I always you know, I also cover Chinese banks. You know, their fundamentals are weak, but, you know, there were no sudden drops in fundamentals in the second quarter.

So it seems that, you know, that that VIU impairment charge always come together with with, with other So can you please share us a little bit some more color on the on the factors triggering that kind of in VIU impairment charge? Yeah. That’s the first question. The the second question is that, you know, can you share us some views on, you know, a little bit longer term on the Hong CRE outlook?

You increased the credit cost assumption going forward due to the Hong Kong CRE pressure. Is there any chance that the Hong Kong CRE pressure will further increase your ECL assumptions going forward? Yes. I have those two questions. You.

George, CEO/Senior Executive, HSBC: Kung Peng, thank you very much. I’m going to take your second question first and give you some outlook on the Hong Kong CRE. Pan can then give you additional details on ECL and can address your first question about BoCom. I’ll make one comment on BoCom.

Panpen Ma, Analyst, China Securities: Thank you.

George, CEO/Senior Executive, HSBC: So with Hong Kong CRE, firstly, company, as you may expect, we know this market very well. We’ve been in Hong Kong for one hundred and sixty years involved in this sector, and we’re comfortable with the position in this market. That’s very important to call out. Specifically, as regards residential development, this has stabilized. This has stabilized, and we’re encouraged by that.

It stabilized mostly because of policy support measures that have been taken as well as because of robust rental market more recently. But when we look wider in the CRE space, specifically around the office CRE space in Hong Kong, we’re still struggling because of some oversupply in this space. Now we are encouraged by some additional government action taken to restrict land sales and office CRE, and this should work its way into the medium term by restricting supply and supporting, if you want, the recovery of pricing in this space, but there will be some short term pressure. Now of the exposure we have on Hong Kong CRE, we basically called out less than 5% of it, around $1,500,000,000 of that exposure, where we continue to look with focus and attention. That $1,500,000,000 is to the weaker lenders that are either space can be.

And that is the segment we’re looking at. Across the wider spectrum on Hong Kong CRE, what I can say is our mission, obviously, to continue to support our customers as they work through some of the short term challenges they’re going through. But that in the medium to long term, we remain confident in the supply demand dynamic in Hong Kong and the appeal of the Hong Kong real estate at large and therefore, remain constructive and optimistic about the medium to long term. On the comment I want to make on BOCOM is purely coincidental. There is no correlation whatsoever between an accounting process related to the VIU process versus any other information.

But remember, the BOCOM impairment have no CET1 impact. They have no CET1 ratio impact. They have, therefore, also no distribution impact in terms of dividend or share buyback. So I really encourage you to look at it as a pure accounting, but no actual economic impact to the bank.

Pam, CFO/Finance Executive, HSBC: Thank you. I’ll take the question on Hong Kong Cree first and then on BOCOM. So in Hong Kong Cree, our book is down $1,000,000,000 to $32,000,000,000 and it’s mainly because of repayments done at the unsecured end of the book where the exposure is mainly to very strong diverse conglomerates, which are nearly 95% rated strong or good and have had very little impairment. That’s 42% of our limits. So the increase that we have seen in the impaired book, you’re right, it’s $100,000,000 is largely to the secured side of the portfolio and the ECL Stage two allowance increase is entirely due to models.

So out of that, the charge we’ve taken of $400,000,000 the quarter $100,000,000 is due to the modeling charges. As George has said, the area we are most focused on is the substandard and the credit impaired side of the book where the exposure is $1,400,000,000 There is already an existing ECL charge of $500,000,000 So you can see further down what it means from an outlook perspective. Overall, when we have refreshed our ECL guidance, we obviously stress it with upside, downside and some fairly stringent requirements and we continuously monitor our book and we think that overall guidance that we have given in terms of around 40 basis points captures the entirety of the risk in the Hong Kong pre book as we look at it now. So on BOCOM and as George said, of course, we don’t link impairment timing to anything else. It’s a routine quarterly accounting process.

Again, we use our models. It’s a value in use model. It is very sensitive to input factors, so even a small shift in basis points can make it move up or down. And when we make an impairment, it’s because the fair value from the model is below the carrying value. We have already given you details on the model sensitivity to the various inputs in our annual report and nothing has changed in that process.

Just to reiterate, we don’t expect any impact on CET1 from any further impairments. We also have no impact of this on our distribution or dividend policy. And the model will do what the model does. Every quarter we look at it and make changes accordingly.

George, CEO/Senior Executive, HSBC: Compeng, thank Thank you very

Moderator, HSBC: you both. Our next question today comes from Aman Rakar at Barclays. Please accept the prompt to unmute your line.

Aman Rakar, Analyst, Barclays: Morning, George. Good morning, Pam. I had a couple of questions, please, on one on net interest income and one on costs. So sorry. Two part question on NII.

So just just the face value, your banking NII guide at circa 42 for the year, given that you’re kind of annualizing at 43 at H1, does actually imply a pretty marked step off in net interest income in H2. I kind of just want to query whether you’ve really mean that or not. There’s obviously lots of moving parts at play here, But it implies a run rate for net interest income in H2, which I guess people will carry over into ’26. So yes, I don’t know. Is there any amount of conservatism in that 40 ’2?

Is there just too much uncertainty around highball? The kind of second part of that first question, if I may, is just can you help me understand the levers that you’re pulling and able to continue pulling from here to offset this highball decline? So I’m specifically thinking about deposit pass throughs. The second question is around cost, please. So I’m just interested in how hard you are running you’re pushing the organization right now to realize the cost savings because outside in, I think you’re kind of leading a bit of a quiet revolution across the firm to the extent that you can.

And I’m hopeful that you can realize additional cost saves over time. So George, I’m really interested in your reflections on how is this are you running at max capacity now in terms of what you’re trying to do? And just a modeling point to me, next year, I think, it should be flattish cost next year. I don’t think consensus has got that, but, you know, a 3.5% inflation rate on costs and the 1,100,000,000 of gross saves tells me it should be flat next year. So if you can comment on that as well, that would be great.

Okay.

George, CEO/Senior Executive, HSBC: Aman, thank you very much for the questions. Let me I’ll deal with your cost question first since you’ve called this one out clearly to me. And then I’ll give some comments on banking NII, but Pan can give you can elaborate better on the movers and shakers of our banking NII. So first, cost discipline in grading the firm quarter after quarter, year after year. It’s a commitment we have to this discipline.

It’s our confidence in our ability to meet the commitments we have. And it’s the fact that we are on track on all the cost items, be it our underlying cost or the cost saves. So that one doesn’t change. In terms of the cost takeout, the cost takeout that’s taking place now that we’re calling out is a cost takeout related to organization simplification. Remember, it is intention to simplify the organization, make us simple and agile.

But there is obviously an ancillary benefit, which is a cost reduction from deduplication of roles with limited impact on our revenue generation capabilities. That one is moving at pace, and we just revised upwards the saves we can achieve this year towards the target of $1,500,000,000 which we will take to the bottom line and we expect to achieve by the full year 2026. There is another cost takeout, which is exiting of nonstrategic activities. We announced seven exits since the Q1 results. These, in total, will add up to about $1,500,000,000 of cost takeout, about onethree has already been announced, onethree has been worked on.

And we intend, once these cost saves are achieved, to reinvest this into our core revenues growth areas, strategic areas where we have competitive advantage and can generate accretive returns. But this is not the only levers we have on cost. We continue working at our operating leverage and cost. As you know, efficiency and productivity drives, including through Gen AI, automation and other modernization of our capabilities, will continue as a matter of regular course of business, and these improvements will continue helping us manage our costs. I’m not going to comment on 2026.

We have not guided to it, but just given the amount of saves we expect to achieve from ’26. Look, on banking NII, the one comment I’d like to make is that we continue growing our deposit base and continue being extremely liquid to support growth in loan as and when our customer starts investing again. We called out $83,000,000,000 growth in our deposits over the last twelve months. That’s a 5% growth in our deposit base. And our deposits drive the lion’s share of our banking NII, and that’s a very important lever in the growth potential we can achieve in banking NII in terms of volume growth.

Pam, CFO/Finance Executive, HSBC: Pat? Thank you. So I mean just quick comment on cost. The cost discipline will very much continue not just into 2026, but further on as well. And we also said earlier, we will continue to invest in ways of increasing our productivity and that will be something which will be a priority for us and that’s something we can control and we have shown you a good track record in the first few quarters and we continue to focus on that.

Now coming down to banking NII, you’re right around $42,000,000,000 you may deem it to be conservative if you just do the simple arithmetic in terms of what the run rate takes us to. And this quarter in we had obviously the headwind from a high bar, but it was offset to some extent by a weaker U. S. Dollar. So the timing of how long the U.

S. Dollar depreciation continues and on HIBOR also is important. We are assuming that there will be a sharp normalization of HIBOR within this quarter to around the 2% mark. Obviously any delay even this delay of July month costs $100,000,000 at a 1% high vol. What we will have as a benefit still coming in the rest of the year is the structural hedge which is a tailwind.

We’ve got a reinvestment of $55,000,000,000 in the second half at 2.8%. We have to reinvest and if there’s an improvement of 2% on that in terms of the reinvestment rates as they stand so that obviously is a tailwind. Now the balance sheet growth has been a real positive and it’s mainly driven by deposits. Our Hong Kong time deposit migration in a lower interest rate was sort of four points into Q2, but obviously this can move up or down. Now in terms of levers to offset the high board pressures, the Hong Kong time deposits were repriced.

We also saw some balance sheet growth happening because part of the weakness of the HIBOR was because of the strong South Bond Connect inflows into Hong Kong and that immediately gave us the benefit into our deposit line. We have been also active in markets treasury. The benefit of that goes into fee and other income. So all in all there are a number of areas which we can pull levers to be very confident on our around €42,000,000,000 guidance for banking NII. But as always we will be conservative, realistic and if we outperform, we outperform.

George, CEO/Senior Executive, HSBC: Okay. Aman, thank you very much for your question.

Moderator, HSBC: Thank you both. Our next question today comes from Kendra Yan at CICC. Please accept the prompt to mute your line.

Kendra Yan, Analyst, CICC: Thanks for taking my questions. I have two questions. The first is about the noninterest income. I’ve seen that HSBC delivered quite strong noninterest income in both quarter one and quarter two, primary driven by the wealth management, FX, and the capital markets related business. So I wonder how you see the sustainability of this momentum going forward.

And the second question is about the stablecoin because there are several countries and areas have introduced the stablecoin related regulations. How does HSBC view the crypto currency this area? Have you, like the have some initiations in this area, or we will maintain a cautious approach on this area? That’s my two questions. Thanks.

George, CEO/Senior Executive, HSBC: Thank you very much, Kendra. Let me start with the stablecoin question, and then I’ll give you some of my kind of comments on non NII, wealth effects, etcetera. And Pam can elaborate further on that part of ’19. Expect to to the will be live in September in The UK and in The Eurozone. And then early in ’26, it will be live in a number of other countries, including The US, The UAE and other.

This will allow our wholesale customers customers and and is already allowing our wholesale customers to do cross border transactions between with their suppliers or, you know, the other kind of counterparties on a real time basis and on an always on as in 20 fourseven basis. So that service is live and is developing and we continue investing in it. It’s programmable and it, you know, it basically leverages the, the blockchain technology. So we’re very pleased with this development. Now beyond what we already offer in terms of tokenized deposits, we’re watching very closely the regulatory developments around stablecoin.

Very encouraged about S. With the Genius Bill is publishing regulation there. So what we will monitor, one, is that the regulation addresses all our regulatory related concerns, such as financial crime, prudential and other risks. We will also monitor the issuers of stablecoin and their compliance with this regulation. And then subject to those, we will evaluate all potential banking services we can do with them or customers involved with these issuers, so that we expect to move at pace.

With regards other crypto, at this stage, we have no appetite to involve in other, kind of, algorithmic or other non pegged cryptocurrencies as an asset class, we still do not have risk appetite to be involved in that space. Okay. Now with regards to our non NII, the few comments I want to make and I’ll hand over to Pal, is it’s a very important area for us. It’s a very important investment area for us. Let me talk about first transaction banking.

We have a leadership position. We’re a top two player in global transaction banking, in payments and FX and trade. We’re the trade bank for seven or eight consecutive years, the largest trade bank. It’s an area of unique strength, unique percent growth in Q2, of which 4% growth within trade itself. That resilient underlying growth is due to the fact that we continue deepening customer relationships, gaining market share and acquiring new customers through all our expertise and our investment.

The second one I want to talk to is Wealth. Six consecutive quarters of double digit growth. Our target there is to grow in the medium term at double digit rates, but that could be volatile from a quarter to quarter, right, based on market conditions. But this is also an area of active investment with intent. Our footprint, our brand, our heritage in Asia and The Middle East, in particular, give us unique strength to be able to accelerate this growth and continue gaining market share and benefiting from the underlying growth in the market.

And we’ve demonstrated a number of initiatives that we’ve already rolled out, be it in wealth centers, relationship managers or technology capabilities, digital capabilities we’ve been rolling out to our we’re the we’re we’re

Moderator, HSBC: made in

George, CEO/Senior Executive, HSBC: and deliver growth as we did also in the Q2. Pat?

Pam, CFO/Finance Executive, HSBC: Thank you, George. Thank you, Kendra. So we have been focusing on growing our fee and other income. As George has said, it’s been a focus area and we’ve seen strong performance now albeit in the last two quarters there has been the tailwind of market conditions and it’s hard to predict when these sort of transactional tailwinds will fade away. But nevertheless if you look at the various parts that build up to this fee and other income, FX was up 7%, a very strong position in FX.

There’s a baseline that will always be a growth engine. Investment distribution was up 24%. Private banking was up 12%. And there are also other annuity revenues, which are like our net new invested assets, which are up €75,000,000,000 over the last four quarters, so not really helping just by tailwinds and also the insurance CSM balance is at record levels and that’ll just drip into the P and L over time, so that’s also like an annuity. Now there’s just one or two items which I would call one offs or specifically volatile beyond the sort of transactional tailwinds.

One is the Argentina hyperinflation which was the $200,000,000 impact in 2024 obviously was not a repeat in 2025 but with Argentina gone and thus that sort of is not going to be again coming into the comparison. And the other was a $100,000,000 related to markets treasury activity and that will be volatile. It will change from quarter to quarter. So overall, comfortable with the core of the growth with some moves from quarter to quarter.

George, CEO/Senior Executive, HSBC: Kendra, thank you very much for your questions.

Moderator, HSBC: Thank you both. Our next question today comes from Joseph Dickerson at Jefferies. Please accept the prompt to unmute your line.

Joseph Dickerson, Analyst, Jefferies: Hi. Thank you for taking my question. Is this a simple follow on the Hong Kong CRE, which I think you’ve done a pretty good job of addressing? I guess what drove the timing of this charge? Because some of the dynamics that you point out in the interim report you could have easily argued were there in Q4.

So I guess what drove the timing of today versus Q4? And then is there any way to gauge what you think the appropriate coverage level is? Because clearly, I think you also had about 20 bps of credit risk migration in last year’s CET1 from this. So I guess I’m just trying to walk through the moving parts to dimension any further charges.

George, CEO/Senior Executive, HSBC: Thank you, Joe, for the question. I’m going to make a couple of comments, but ask Pam to address your question. The first one is to reiterate the fact that we are comfortable with our position in Hong Kong CRE. We’ve explained the area of specific focus and we’ve captured the outlook for 2025 in our revised ECL target. Pam, you may want to elaborate on that one?

Pam, CFO/Finance Executive, HSBC: Yes. Thanks, Joe. Really good question. So firstly, part of the charge we said is a model change and the model changes happen periodically and that comes with that’s only 100,000,000 The key thing that we look at every quarter and we looked at the last year end as well is we look at obviously valuations. Now valuations is an ongoing process.

You see the valuations in terms of orderly valuations but the valuations also get impacted even on the performing book when you see some distressed valuations and already we had started considering distressed valuations as part of ECL charge for the year end by giving some probability for those distressed valuation and this lag on a performing book because the book is still performing on the valuations as it comes as part of our credit process sees we do a read across to the book. Now generally the LTVs have remained strong. So just to say the LTVs which have gone higher than 70% is still a very small portion of the book. But while we have focused on this, we are as in every quarter looking at the rest of the book. The real challenge is it continues with the oversupply in the office space.

Now it’s not across everywhere the same. It depends upon the location of the office space, it depends upon the quality of the building, has it been new, refurbished or otherwise. So that’s the piece that we also then bear in mind when we look at the valuation shift to say is there any greater calibration or divergence of from the kind of property, the use of property. And the overall liquidity in the market in terms of actual transactions has been relatively low.

Joseph Dickerson, Analyst, Jefferies: Makes sense. Thank you.

Moderator, HSBC: Thank you, Ben.

George, CEO/Senior Executive, HSBC: Thank you, Joe.

Moderator, HSBC: Our next question today comes from Gurpreet Singhsai from Goldman Sachs. Please accept the prompt to unmute your line.

Gurpreet Singhsai, Analyst, Goldman Sachs: Thank you for taking my question. I have two, please. First is on FX. Good to see strong growth all across non banking NII. But on FX, you called out good growth.

But I wonder, we’ve seen some unusual currency volatility in the quarter. Did that not lead us to generate like above normal FX growth? And at 7%, would you call it above normal? So what we’re just thinking out, what were our clients’ feedback? Were they churning portfolios more, hedging, etcetera, during the quarter on FX?

And then because I see it’s Q on Q also, it’s down. And then on loan growth is the second part. We see some pickup in The U. K. Book.

But then in Hong Kong China region with the lowered interest rates, are we seeing client demand come back in for loan growth? How do we see the outlook there? You.

George, CEO/Senior Executive, HSBC: Gurpreet, thank you for your two questions. I’ll take the first question and make a comment on loan growth, Pan can explain a little bit the outlook in the various segments of the world. So yes, FX has benefited from increased customer activity due to higher volatility. This is something that is difficult to forecast. But what is important to note is that it remains one of our core capabilities transaction banking.

And we remain one of the top players, I would say, two global players in the space. And therefore, do have a leadership market share in the space and capture client activity. It’s difficult to forecast what kind of volatility we may see going forward in foreign exchange, but we will continue being one of the main counterparties to support our customers’ hedging activities. So on loan growth, I was actually particularly encouraged with The U. K.

Commercial banking corporate loan growth. It’s early to call it a trend, 3,500,000,000.0 growth, but it is definitely a green shoot in the space it has been subdued for many quarters now. So we have seen The UK credit book remain very resilient through the last few years, but we haven’t seen it grown. And hopefully, with more clarity about The U. K.

And the tariffs related to The U. K, we can see more investments taking through. The additional comment I would like to make about The U. K. Specifically and then hand over to Pam is that we’re very encouraged by The U.

K. Having also moved at pace in their trade negotiations with trade agreements now concluded with The U. S, with the EU since Brexit and then more recently with India, which is a historic trade deal, where we have a very vibrant business corridor going on between The U. K. And India.

And we’re frankly very, very excited about supporting our customers along this corridor kind of realize the benefits in their businesses.

Pam, CFO/Finance Executive, HSBC: Thank you, Gurupri for the question. So just to make a comment on FX, of course there’s a transactional nature to FX, but we are very engaged with our customers and we have been capturing flows well and at the back of that we are accelerating our investment in this business to grow medium term so that we can best be best positioned to support our customers. From a loan growth perspective, so in Q1 we saw growth in Asia ex Hong Kong, China and that’s been stable but it’s sort of moving along and obviously Q2 given some of the tariffs news people were slower in terms of making their decisions. In The UK, our growth was good but also our focus was very much across sectors which infrastructure space and so on. So we were well focused and that held us well.

We are doing the same engagement level on our customers across the globe. And from a growth perspective at the back of the interest rates coming down, the other factor which is very important and we’ve called it out before is macro uncertainty. So when this macro uncertainty continues, the CapEx decisions are delayed. However, from a working capital we see some early engagement where people are looking at how they shift and change some of their business models and so on. What I do want to say is that overall where we have good benefits still coming through from an NII line is our deposit base which is as I’ve called out up sort of 83,000,000,000 year on year.

So that stays a very strong component as part of our NII business. And I would say from a FX perspective, the other thing to bear in mind is we’re seeing strong flows into Hong Kong through the depressed Thai borough. So that is another factor to balance overall in our outlook.

George, CEO/Senior Executive, HSBC: Very good. Gupri, thank you very much for your question.

Moderator, HSBC: Thank you both. Our last question today comes from Catherine Lay at JPMorgan. Please accept the prompt to unmute your line.

George, CEO/Senior Executive, HSBC0: Hi. Good morning. I have three questions. The first two is for Penn. I think it’s just for, housekeeping for our model update.

The first is that I want to, ask about what’s the threshold deduction, like, the outstanding of, like, what is the what is the, like, outstanding parts of the threshold deduction related to the BOCOM? If there is further impairments on BOCOM, let me ask this one. If there’s further impairment on BOCOM, what would the amount be in order for that future impairment to have a impact on your CET one ratios and share buyback and EPS and and so forth? So this is number one. Number two is related to the 600,000,000.0 of restructuring related cost, like, what portion of it is in the notable is in the material notable items?

I I mean is that what portion of the 600,000,000.0 have no impact have no impact on DPS, and what portion of it may have a impact on DPS? And then the last question is for George. I think it’s due on the tokenized deposit part. So may I know, like, for this tokenized deposit, is it only for HSBC clients are also available for HSBC’s clients’ clients? Is that on public chains, I e, does it mean that can client basically use this tokenized deposit to transact our crypto assets?

So say for example, if they want to trade Become or other crypto assets, can they use this tokenized deposit to facilitate that? Thank you.

George, CEO/Senior Executive, HSBC: Thank you, Catherine. So let me then ask you a third question. I’ll ask Pam to address the first two. So today, this is available to HSBC’s clients and any whitelisted clients’ clients or clients’ counterparties. But ultimately, they need to go through the HSBC standards for know your client financial crime checks among other kind of checks.

So the capabilities will be extended, but will be expanded to who in a way where we remain very comfortable with the KYC considerations to be able to onboard them as clients or future clients. We are looking, obviously, on stablecoin developments. We believe it is still early to understand how some of these stablecoin issuers are able to KYC the wider client base. Some of them are, but obviously, the regulations is going to dictate for those who will be effectively whitelisted what these requirements are, and we will evaluate accordingly over the next few weeks and months as this is develops. Your first question is related to BoCom and your second question is related to the restructuring related costs and whether they will be treated as notable or materially notable.

Pam will address both, but let me say one thing about BoCom is we have ample room for any potential future impairment, whether they happen or not before this even comes near affecting CET1 or CET1 ratio or our distribution capabilities. Dan can talk through that.

Pam, CFO/Finance Executive, HSBC: Yes. Thank you, Catherine. So we have EUR 14,000,000,000 of threshold deductions, Slide 33 of the deck. And on Slide 28, we give you more details on BOCOM, including the market value in the footnote, which is at $13,000,000,000 So as George says, even if there was an impairment to market value, it will have no material impact on CET1. And in terms of restructuring costs, they are a notable item, but they’re not a material notable item for the dividend.

Moderator, HSBC: Thank you both. That ends today’s Q and A. And now I will hand back to Georges for closing remarks.

George, CEO/Senior Executive, HSBC: Well, thank you, everyone. I really want to take this opportunity to thank you for your questions. Alastair and the Investor Relations teams are available for any follow-up questions. Meanwhile, Pam and I look forward to speaking with you again soon. Please enjoy the rest of the day.

Thank you very much.

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