This article first appeared in The Edge Malaysia Weekly on April 24, 2023 - April 30, 2023

BRITISH lender HSBC Holdings plc is looking to the wealth and personal banking segment in the Asia-Pacific market, including Malaysia, for further growth as rising interest rates have a positive impact on net interest income.

“We have quite a deep and strong footprint in this segment and we want to continue to grow and invest in it,” Surendra Rosha, co-chief executive of Asia-Pacific at HSBC, tells The Edge in an interview.

Intiatives taken in recent years to build the wealth and personal banking segment include the acquisition of AXA Insurance Pte Ltd in Singapore for US$529 million in 2021. Last year, it purchased L&T Investment Management Ltd for US$425 million.

“We have launched onshore private banking in Taiwan and China. We are planning to launch onshore private banking in India later this year. This is all part of our investment in the wealth space, which we believe is a big opportunity,” says Rosha.

HSBC’s Annual Report 2022 shows that wealth and personal banking contributed US$8.5 billion (RM37.7 billion), or 36% to the group’s profit before tax (PBT), followed by commercial banking at US$7.7 billion (32%), global banking and markets at US$5.4 billion (23%), and corporate centre at US$2.3 billion (9%).

The banking group has been allocating more capital and investment to Asia-Pacific since it announced its pivot to the region in late-2020.

“We see a substantial portion of global growth coming from Asia and a substantial amount of wealth creation in Asia relative to the rest of the world,” Rosha says.

Despite the ongoing bank turmoil, he stresses that the underlying growth story in Asia remains strong in terms of investment and consumption, with financial institutions well capitalised.

“The recent events in the global financial institutions space should not impact our strategy. If anything, it reinforces our long-term strategy of investing more in Asia,” he adds.

On foreign banks losing their market share to local banks in Malaysia, Rosha says: “Beyond Malaysia, there is a role to be played by a global, universal bank. In any economy that is trading with the world — that is both deploying and accessing global capital — there is a need for an institution like us. So, it is not really about whether market share is going to local banks or not.”

Meanwhile, HSBC Malaysia CEO Datuk Omar Siddiq says the group is ready to facilitate bringing foreign direct investments (FDIs) from China, as Prime Minister Datuk Seri Anwar Ibrahim announced in early April that some RM170 billion worth of investment commitments had been made by Chinese firms.

“We will stand ready to facilitate with our Chinese counterparts to pave the way forward. However, it doesn’t just stop with China; wherever there is interest in Malaysia and Malaysian companies, HSBC will be a key player,” he adds.

Omar sees upside in Malaysia’s economy in view of investor-friendly policies and FDI flows.

HSBC Malaysia recorded a PBT of US$383 million for 2022, with global banking and markets coming in as the key contributor at US$219 million, while wealth and personal banking, and commercial banking made up US$110 million and US$89 million respectively.

Apart from the US$250 million investment in its Malaysian headquarters in Tun Razak Exchange in Kuala Lumpur, the group has also budgeted some US$40 million to equip its branches with enhanced digital capabilities and new technology between 2021 and 2023.

With a presence in over 60 markets globally, and US$3 trillion worth of assets, HSBC Group recorded a net profit of US$16.7 billion in 2022, up US$2 billion or 13.6% from US$14.7 billion in 2021.

Net interest income increased 23.1% to US$32.6 billion in 2022, from US$26.5 billion, with net interest margin expanding 28 basis points (bps) to 1.48% in 2022.

Reflecting the strength of the underlying economies, Rosha says that asset quality across Asia-Pacific remained strong in 2022, except for the concern over China’s commercial real estate. “I would say loan growth across the sector has been around the median sort of level; it is not high or low. Broadly across Asia’s financial system, we’re very comfortable with the quality of assets.”

In 2022, the group’s total loans and advances amounted to US$1.03 trillion, compared with US$1.13 trillion in 2021. Common equity Tier-1 capital ratio stood at 14.2%, down 1.6 percentage points from a year earlier.

On Malaysia’s monetary policy, Omar is of the view that it should be data-driven, as well as balance growth and inflation.

In a March 9 note, HSBC Global Research says it expects Bank Negara Malaysia to take a long pause, holding its policy rate steady at 2.75% until at least the end of 2024. This is contrary to its previous expectation that the central bank would raise the policy rate to 3%, as upcoming inflation prints are important to watch as indicators of Bank Negara’s next move.

“The MPC [Monetary Policy Committee] has expressed more concerns over inflation rather than growth. We do not preclude the risk of a 25bps rate hike in 2023, but the timing remains highly uncertain — it will be ‘data-dependent’,” it said.

The policy rate has been kept at 2.75% since the last upward revision of 25bps in November 2022. The next MPC meeting is scheduled for May 3.

In less than a month, HSBC will be holding its annual general meeting (AGM) in Birmingham, the UK, on May 5. Among the most eye-catching resolutions on the table is activist investor Ken Lui Yu Kin’s proposal for the 158-year-old banking group to consider spinning off its Asia businesses.

HSBC’s board of directors has recommended shareholders to vote against Lui’s resolution, saying that such a restructuring would “destroy” the value for shareholders, according to the AGM circular.

Rosha echoes the board’s view. “We have done a review; we validated our strategy. And we think that is the way that best serves our customers and our shareholders. And we continue to do that.  We think that from a cost and return standpoint to our shareholders, that will be sub-optimal. Our current operating model as a global institution, with a presence in both the West and East, is what serves our customers the best.”

Rosha also rules out any possibility of moving HSBC’s headquarters from London to Asia, the region that contributes the most to the group in terms of net interest income and PBT.

“We have done that review in the past, and we believe that for the nature of the organisation, being headquartered in London is the right thing, and we will continue with that,” he says.

Calls for HSBC to spin off its Asia businesses started last year, led by its largest shareholder Ping An Insurance (Group) Co of China Ltd amid growing tension between the US and China, particularly after the legal saga involving Huawei Technologies Co Ltd’s chief financial officer Meng Wanzhou.

To Rosha, the divide between West and the East makes HSBC, as a banking institution that understands both worlds, ever more relevant to its customers.

“To some extent, institutions like HSBC that operate in multiple markets become much more important to our customers, to link everyone, to help them understand as they look to enter new markets or deal with new customers in other markets.

“We always operate within the rules that are set by the regulators and the government in each of the markets that we operate in. And so that is our core operating principle, which we will continue to work with,” he says.

As the day of the shareholders’ meeting draws close, it would be interesting to watch how investors will decide on the future path of this global banking behemoth. 

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