Can the HSBC share price keep on rising?

At HSBC The share price (LSE:HSBA) reacted positively this week following the publication of the bank’s 2022 results. It closed 4% higher on the day, and is now 25% higher than at the beginning of the year.

However, the bank’s annual report runs to 432 pages and contains almost 320,000 words. How to interpret all this information?

The important bit

Answer: The first thing I do is pick out the key number. Then, I check to see if they are moving in the right direction.

Sales and profits are usually a good starting point. However, they can be affected by extraordinary things. Although HSBC’s headline profit before tax fell 7%, this included a $2.378bn one-off charge following the board’s decision to exit the French market.

If it is not included, the profit for 2022 will be $ 19.906bn, an increase of 5% compared to 2021.

Measure	2021 ($bn)	2022 ($bn)	Change it (%)
results	49,552	51,727	+4
Operating expenses and disability costs	30,646	34,199	-12
Profit before tax	18,906	17,528	-7
Profit before tax (excluding 2022 exceptional items)	18,906	19,906	+5

Another number

Next, I look for financial information relevant to the industry. Banks have two main measures that reflect income.

Net interest margin (NIM) measures the difference between interest charged on loans and that paid on deposits. During periods of rising global interest rates, HSBC’s NIM should increase. Indeed, it has risen from 1.20% in 2021 to 1.48% in 2022. This may not seem like much, but with over $2trn of interest-bearing assets, small changes can make a big difference.

Another good guide to performance is return on capital employed (ROCE). HSBC calls this real return on equity, but it’s the same thing. The bank has a ROCE of 9.9% in 2022 – a dramatic change from 2020, when it fell to 3.1%. The bank expects to return 12% by 2023.

special bank measures	2021 (%)	2022 (%)
Net interest margin	1.20	1.48
Returns on capital employed	8.30	9.90

bad debt

When reviewing a bank, I also consider the quality of the loan book. If the directors believe that the risk of bad loans is increasing, they will pay a fee (fee) on the account. If the position improves, credit (income) is recorded.

My concern is that HSBC has increased its bad debt provision over the past five quarters. This is something to keep an eye on.

Disability ($m)	Q1 2021	Q2 2021	Q3 2021	Q4 2021	Q1 2022	Q2 2022	Q3 2022	Q4 2022
(Charge)/Credit	435	284	659	(450)	(642)	(448)	(1,075)	(1,427)

Benchmarking

Finally, I like to compare the performance of one bank with another. However, it is not always possible to compare like with like. Fortunately, Standard Chartered also released 2022 result this week. Both banks rely on Asia and the Middle East for the majority of their revenue and earnings, making for a useful comparison.

Standard Chartered recorded a 10% increase in revenue and a 13% increase in pre-tax profit – better than its larger rivals. However, NIM and ROCE were lower, at 1.41% and 8.0%, respectively.

Also, HSBC’s dividend yield is twice that of its rivals. And, there is a promise of additional payments if the Canadian business is sold.

So what do I find after wading through hundreds of pages of financial information produced by these two banks?

Personally, I think HSBC would make a better long-term investment. Economic recovery in Asia could push stock prices higher. However, I wouldn’t invest right now. I have enough exposure to the banking sector through shareholding in it Lloyds Bank.