HSBC Q1 2025 Earnings Call Transcript

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Provided by Quartr
April 29, 2025

Key Takeaways

  • Strong Q1 performance: Excluding notable items, profit before tax rose 11% and RoTE hit 18.4%, driven by double‐digit wealth growth and $22 bn of net new invested assets.
  • Cost discipline: On track to deliver $1.5 bn of organizational simplification and strategic cost reallocations with a target of ~3% cost growth in 2025 and $300 m in P&L savings.
  • Tariff impact modeling: A plausible downside tariff scenario would trim group revenues by a low single‐digit percentage and add ~$500 m of incremental ECLs, but management remains confident in targets.
  • Guidance reaffirmed: Reaffirming mid‐teens RoTE for 2025–2027 and ~US$42 bn Banking NII for 2025 based on mid-April rate curves and a strong deposit franchise.
  • Capital return: Announced up to US$3 bn share buyback and US$0.10 interim dividend, with a CET1 ratio of 14.7% and continued preference for buybacks.
AI Generated. May Contain Errors.
Earnings Conference Call
HSBC Q1 2025
00:00 / 00:00

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Operator

Welcome, ladies and gentlemen, gentlemen, to the analyst and investor webinar on the first quarter results for HSBC Holdings plc. For your information, this webinar is being recorded.

Operator

I will now hand over to Georges El Haderi, Group CEO.

Georges Elhedery
Georges Elhedery
Group CEO at HSBC

Welcome all to today's call. I'm joined here in London by Pam. Before Pam takes you through the numbers, I would like to begin with some opening remarks. Overall, it was a strong quarter marked by three key drivers: momentum in our earnings, discipline in our execution and confidence in our ability to deliver our targets. First, we have strong momentum in our business.

Georges Elhedery
Georges Elhedery
Group CEO at HSBC

We had a strong first quarter with profit before tax up 11% and an annualized return on tangible equity of 18.4%, both excluding notable items. We had our fifth consecutive quarter of double digit growth in wealth and attracted net new invested assets of $22,000,000,000 as well as another 300,000 new to bank customers in Hong Kong, continuing the trend from last year. We also had a strong performance in transaction banking, in particular in FX, and in our equities and debt trading businesses benefiting from higher client activity on the back of higher volatility. Second, we remain focused executing our strategy with discipline and are on track to deliver the cost actions we set out in February. We are progressing at pace to deliver on the simplification related cost saves as well as the strategic cost reallocations.

Georges Elhedery
Georges Elhedery
Group CEO at HSBC

We also continue to take a disciplined approach to our investments and capital allocation to drive growth across our four businesses. We will provide you with a full update on this at the half year results in July. Third, the external macroeconomic environment is less favorable and more uncertain than it was in February. As the uncertainty around trade policy dampens business confidence and constrains investment. However, we remain confident in our ability to deliver our targets.

Georges Elhedery
Georges Elhedery
Group CEO at HSBC

Our balance sheet is strong. This is reflected in the deposit surpluses we hold in every major currency in each of our four businesses in every geography in which we operate. This is why our clients place their trust in us during times of predictability and even more so during times of unpredictability. These provide us with a steady recurring income stream and underpin the lion's share of our banking NII. Growing our structural hedge has reduced the sensitivity of these revenues to interest rate cuts.

Georges Elhedery
Georges Elhedery
Group CEO at HSBC

Our balance sheet is also underpinned by a strong capital position and a high quality credit portfolio. We also have resilient recurring fee income from stable flow based activities in transaction banking and in wealth, with a much smaller contribution from investment banking event driven business. I encourage you to keep the diversity and quality of our earnings in mind when considering how changes in trade policy will affect our business. Our wholesale transaction banking business covers much broader activities than those related to cross border trade. And within our trade finance business, we have diverse products and cover all major global and intraregional corridors.

Georges Elhedery
Georges Elhedery
Group CEO at HSBC

To assess the impact higher tariffs could have on our business, we modeled scenarios that contemplate significant but plausible increases in tariffs by the world's largest trading blocs, resulting in a notable slowdown in global trade as well as a slowdown in global GDP growth. In a plausible downside tariff scenario, we estimate that there would be a low single digit percentage impact on the group's revenues. Separately, our consensus downside scenario models a slowdown in global trade and GDP growth as a result of an increase in tariffs. The impact of this scenario would be incremental ECLs of $500,000,000 On this basis, we remain confident in delivering a mid teens return on tangible equity for 2025, '20 '20 '6 and 2027 and are reaffirming all of the guidance that we gave in February. We recognize, though, that the broader impacts of the current conditions are more difficult to quantify, and we will continue to monitor these as we formulate our ongoing outlook.

Georges Elhedery
Georges Elhedery
Group CEO at HSBC

Importantly, in the current environment, customers look for the strength, stability and expertise of a trusted partner. We are extremely well positioned to support all of our customers wherever they are, however their needs evolve and whatever the market conditions. Finally, we're also pleased to announce an up to $3,000,000,000 share buyback and a $0.10 per share interim dividend, reflecting our continued focus on capital return to our investors. With that, let me hand over to Pam.

Pam Kaur
Pam Kaur
Group CFO at HSBC

Thank you, George. Thank you, everyone, for joining. The momentum in our business has enabled us to deliver a strong first quarter performance, headlined by an annualized return on tangible equity of 18.4%, excluding notable items. We had very good underlying profit and revenue performances. Credit remained stable, and we maintained a disciplined approach to cost management.

Pam Kaur
Pam Kaur
Group CFO at HSBC

We are pleased to announce a first interim dividend of $0.10 per share and a share buyback of up to $3,000,000,000 The buybacks we completed over the last twelve months have helped take us closer to our target range of 14% to 14.5% CET1. We will continue to return surplus capital to shareholders with buybacks remaining our preferred method. As always, a decision on any share buyback will be made on a quarterly basis. It will depend on organic capital generation and the capital needs of the business. Unpacking the revenue story, excluding notable items, revenue of $17,700,000,000 was up $1,100,000,000 on the first quarter of last year, driven by fee and other income.

Pam Kaur
Pam Kaur
Group CFO at HSBC

It also included a $300,000,000 increase in debt and equity markets, driven by higher volatility and a favorable impact of $200,000,000 in the quarter from the disposal of Argentina, which we completed at the end of last year. On Banking NII, excluding the impact of Argentina and other notable items, the Banking NII run rate remained broadly stable on the fourth quarter. The impact of interest rate cuts and two fewer days in the quarter were offset by the repricing of liabilities and structural hedge assets and some favorable changes in asset mix. We continue to expect Banking NII of around $42,000,000,000 in 2025. As previously stated, this is not an underpin.

Pam Kaur
Pam Kaur
Group CFO at HSBC

It remains our expectation at the present time based on the current market rates outlook and our own projections. Moving to fee and other income. Wholesale Transaction Banking was up 13% on last year's first quarter. This was driven by a strong FX performance as elevated volatility drove substantial volumes of client hedging activity. Excluding the impact of disposals, Global Payment Solutions was up 3% year on year and Global Trade Solutions was up 6%.

Pam Kaur
Pam Kaur
Group CFO at HSBC

In Wealth, the strong momentum from the fourth quarter continued as we delivered our fifth consecutive quarter of double digit year on year growth. High client activity levels in Asia, primarily Hong Kong, were the key driver and there was broad based growth. We are pleased that the investment we are making in our Wealth products, distribution channels and customer journeys is translating into results. A record new business CSM, three hundred and one thousand new to bank customers in Hong Kong and $22,000,000,000 of net new invested assets, dollars 16,000,000,000 of which was in Asia. The CSM balance, which is a store of future value, was up again this quarter.

Pam Kaur
Pam Kaur
Group CFO at HSBC

As you know, the CSM balance is subject to market fluctuations, and sensitivities to key indices are in the earning release. On credit, our first quarter ECL charge of $900,000,000 equivalent to an annualized charge of 37 basis points as a percentage of loans and advances. This included a $150,000,000 provision to reflect heightened economic uncertainty. Excluding this, the first quarter charge was broadly the same as in the first quarter of twenty twenty four. The credit risk metrics that we track remain stable, and we continue to monitor them closely.

Pam Kaur
Pam Kaur
Group CFO at HSBC

Thinking about the potential impact of tariffs on credit performance, ECLs will be sensitive to macroeconomic performance, the outlook for which remains uncertain. We consider a variety of scenarios as part of our ECL calculation. One of these is the consensus downside scenario, in which an increase in tariffs results in a global economic slowdown. In this scenario, there would be an incremental ECL charge of around $500,000,000 On costs, we are taking a disciplined approach to cost management and are on target 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 $300,000,000 of simplification savings into the P and L in 2025.

Pam Kaur
Pam Kaur
Group CFO at HSBC

On loans and deposits, loan balances were broadly stable quarter on quarter, as growth in Corporate and Institutional Banking was offset by the reclassification of our retained French home loan portfolio. Deposits were also broadly stable quarter on quarter with a partial reversal of some of the seasonal inflows we saw in Q4. Year on year, deposits were up 6% with growth in all entities and businesses. Our CET1 ratio was 14.7%. The reclassification of our retained French home loan portfolio led to a $1,300,000,000 pretax loss in the quarter recognized in fair value through other comprehensive income.

Pam Kaur
Pam Kaur
Group CFO at HSBC

This had a capital impact of around 0.2 percentage points of CET1. Looking ahead, we expect the buyback we announced today to have an impact of around 0.4 percentage points in the second quarter. You will have seen that BoCom has announced that it has approved a share issuance of up to billion. Upon completion, we expect to recognize an accounting impact dilution loss of between $1,200,000,000 and $1,600,000,000 on our stake. This will be treated as a material notable item and will have no material impact on CET1 and no impact on the dividend.

Pam Kaur
Pam Kaur
Group CFO at HSBC

Let me end by summarizing. First, we have momentum in our earnings. We had a strong first quarter performance with an annualized return on tangible equity of 18.4%, excluding notable items. We have also continued to perform well in the quarter to date. Second, we have discipline in our execution.

Pam Kaur
Pam Kaur
Group CFO at HSBC

We are on track to deliver the cost actions we set out in February. Third, although the external environment is more uncertain, we are confident in our ability to deliver. And we are reaffirming our existing targets and guidance. This includes a mid teens return on tangible equity in 2025, '20 '20 '6, and 2027. Louise, can we go to q and a, please?

Operator

Thank you, Pam. As a reminder, 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. And if you find your question has been answered, you may remove yourself from the queue by lowering your hand in Zoom.

Operator

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

Benjamin Toms
Benjamin Toms
Director - Equities at RBC Capital Markets

Good morning, both, and thank you for taking my questions. Firstly, you mentioned in the release that you've launched a strategic review of Malta, full year results. We were relatively early in the strategic refresh process. Are there other geographies that you're also strategically reviewing? In the full year results, you talked about £1,500,000,000 of gross cost saves.

Benjamin Toms
Benjamin Toms
Director - Equities at RBC Capital Markets

Now you're deeper into that process. Have you seen any potential to be able to achieve cost saves in excess of that target? And then secondly, one of the features of your Q1 results was the strength in fees and other income. Can you provide some color on how sustainable that print is and how much is driven by the augmented volatility? Thank you.

Georges Elhedery
Georges Elhedery
Group CEO at HSBC

Thank you very much, Ben. So we've announced at the in February '1 point '5 billion dollars of cost saves from the organizational simplification, which we expect to take to the bottom line. And as Pam shared earlier, we are on track to deliver those and we're moving at pace. We separately announced 1,500,000,000 from strategic reallocation of costs from activities that are low non strategic or low returning into our core strategy where areas of our competitive strength. We continue to progress at pace on those.

Georges Elhedery
Georges Elhedery
Group CEO at HSBC

And we've made a number of announcements, we've shared, including the investment banking in Europe and The U. S, including the French insurance, the private bank in Germany, etcetera. And we're progressing with those at pace. And again, on both items, we continue the execution with discipline and pace, and we're not phased we remain unfazed with the external environment for the execution of those. This is our primary focus now.

Georges Elhedery
Georges Elhedery
Group CEO at HSBC

It's just focusing on delivering those. A matter of kind of cost efficiencies is a matter of BAU. If you identify cost efficiencies, we will, of course, be taking them as a matter of BAU, but our primary focus is to deliver on those commitments. With regards fees and other income, look, we've talked to the plausible downside scenario, which may put some that it's an adverse scenario, but it is a plausible scenario and it will slow down parts of our business I mean trade flows, but also the implication it has on other aspects of our business, including the volumes in general. But outside, I would say, this adverse scenario, we continue to see strength in the Wealth business, five quarters double digit growth, which we expect to continue in the medium term, at least for the medium term.

Georges Elhedery
Georges Elhedery
Group CEO at HSBC

And we continue to invest in this space. And we continue investing in a number of areas, as we called out in February, because we believe in the growth potential that we can exhibit in these areas. Thank you, Ben.

Pam Kaur
Pam Kaur
Group CFO at HSBC

So Ben, just to add. I mean, for the quarter there's been good performance and there's been high level of client activity, which has benefited FX, debt, equities, markets and wealth. Also I want to just remind that one benefit was also the Argentina headwind that we had of $200,000,000 in Q1 of twenty twenty four, which obviously didn't repeat in this quarter because of the sale. But the key franchise factors are wealth, it's a structural growth and those dynamics will persist. They are driven by our brand, they're driven by the range of products we have to offer, the improvements we've made in terms of technology and that investment is going to pay.

Pam Kaur
Pam Kaur
Group CFO at HSBC

And as George said, we stay confident in terms of double digit growth in the medium term. On Wholesale Transaction Banking, it remains an area of competitive advantage. We will continue to grow there, but it's going to be hard to predict quarter to quarter, especially in the current environment. Volatility has definitely benefited us in this quarter, so it may not repeat at the very high levels that we've seen in this quarter, but we are still continuing to see underlying growth as we have progressed through in Q2.

Operator

You very much, Pam. Our next question today comes from Joseph Dickerson at Jefferies. Please accept the prompt to unmute your line.

Joseph Dickerson
Joseph Dickerson
Stock Analyst at Jefferies

Hi. Thank you for taking my question. Congrats on the strong set of numbers and some clarity on your thinking on the path forward. Can I just ask on the plausible downside scenarios for the low single digit impact on revenue? I guess, what was the point of undertaking that exercise?

Joseph Dickerson
Joseph Dickerson
Stock Analyst at Jefferies

Was it to basically show that the perception of the bank as a global trade bank, in some ways, may be exaggerated about how you're not basically, you're not overly reliant on any particular corridors. And I guess what kind of elements went into that scenario in terms of magnitude of of drawdown on trade? And then secondly, just on that, could you opine on any opportunities that you're seeing, or that you foresee, as a result of, what's happening? Not that what's happening is necessarily certain at the moment, but just any opportunities that you can see based on any initial discussions. And then I would presume that the you had very strong new to bank customers in Hong Kong.

Joseph Dickerson
Joseph Dickerson
Stock Analyst at Jefferies

I presume can you make any comment on April trends there? I would presume that, that would have continued from last quarter if what we're picking up on the ground in Hong Kong is accurate? Thanks.

Georges Elhedery
Georges Elhedery
Group CEO at HSBC

Thank you very much, Joseph. I'll take your question about the positioning of our trade business and our bank as well as the opportunities. And I'll ask Pam to take you through the elements of this analysis. So we are the world's trade bank. We have been ranked the number one trade bank for eight consecutive years.

Georges Elhedery
Georges Elhedery
Group CEO at HSBC

But our trade covers a variety of products as well as we cover all the large corridors of trade, including intra regional corridors, which have been growing quite fast over the last few years. The exercise that we've conducted has is meant to basically evaluate the impact of plausible downside scenarios on our overall activities, obviously, including trade. But just to add on trade. Number one, we have more than 5,000 trade specialists in 50 more than 50 markets. We're in a unique position to be able to support our customers with our expertise in trade as the business environment shifts, the business outlook shifts, their trading pattern shifts and they our customers need to reconfigure some of their supply chains.

Georges Elhedery
Georges Elhedery
Group CEO at HSBC

And we expect to be able to deepen our relationships with existing clients, but also thanks to our strength, stability and expertise to attract more clients and to continue building market share in the trade business among other of the kind of robust business proposition and service proposition we have for our customers. Pam?

Pam Kaur
Pam Kaur
Group CFO at HSBC

Yes. Thanks, Joseph, for the question. So firstly, broadly in terms of context setting, every quarter we do a range of scenario analysis. This quarter we looked at the significant but plausible downside scenario resulting from increase in tariffs. We homed in on one scenario after looking at a range of possible outcomes, which we as know are uncertain and remain very wide.

Pam Kaur
Pam Kaur
Group CFO at HSBC

So the specific scenario which we homed into was based on significant increase in tariffs, as well as retaliatory tariffs. We also took a holistic approach. We considered different businesses, different geographies, as well as customer segments. And this scenario resulted in significant decline in trade and significant slowdown in global GDP growth. The impact of this we looked at both in terms of revenue through lower balances, but also on flow based income.

Pam Kaur
Pam Kaur
Group CFO at HSBC

In addition, just like we took a reserve of $150,000,000 in this quarter from a downside scenario, we further looked at the downside scenario on a 100% probability basis and came up with a number, which is the 500,000,000 provision best estimate in terms of the tariffs.

Georges Elhedery
Georges Elhedery
Group CEO at HSBC

Ben, with regard to your new to bank customers in Hong Kong, we were pleased to announce that we acquired 300,000 new to bank customers in Q1. This is after we acquired 800,000 new to bank customers in the full year 2024, and we continue to see that trend ongoing. Thank you very much, Joseph.

Operator

Thank you, both. Our next question today comes from Kung Peng Ma at China Securities. Please accept the prompt to unmute your line.

Kunpeng Ma
Managing Director at China Securities

Hi, George. Hi, Pam. This is Kung Peng of China Securities. Thank you for taking my question. I have two questions.

Kunpeng Ma
Managing Director at China Securities

The first is also some follow ups on the plausible downside trade scenario. If we compare the you know, you you have two scenario tests, one for trade, one for ECL. But and we got your set of assumptions for those ECL tests from your your your your your annual report. So if we compare those two tests, are the assumptions for the trade test better or worse than the I mean, the downside the downside scenario, better or worse than the than than the those set of assumptions used in the ECL test. And, also, is the low single digit revenue impact just for some one year revenue or for every year's revenue thereafter?

Kunpeng Ma
Managing Director at China Securities

Yes, that's the first question. The second question is, could you please give us some color on the latest trend on compound CRE? Thank you.

Georges Elhedery
Georges Elhedery
Group CEO at HSBC

Thank you very much, Kunpeng. I'm going to ask Pam to address both your questions. Kunpeng?

Pam Kaur
Pam Kaur
Group CFO at HSBC

Thanks, Kunpeng. So we're not going to get into the detail, but the underpinning of the scenarios, whether it's ECLs or indeed on revenue has the same starting point. And we are comfortable based on the work we have done to reaffirm our guidance on RoTE. I just want to be clear that the scenario does not include the secondary impact of any change in policy rates in terms of the revenue related scenario. Secondly, none of these two scenarios have what you call an extreme downside to scenario with like a double digit contraction of GDP like we saw in the COVID period, so just to give you some guardrails.

Pam Kaur
Pam Kaur
Group CFO at HSBC

So in terms of Hong Kong Cree, this was a relatively quiet quarter. We did have one specific name, which in the performing book there was a credit downgrade. Otherwise, there's really nothing more significant. We continue to look at our book in detail and there may be a few names up or down on the credit curve with very modest impact on RWAs, but no significant impact on ECLs.

Georges Elhedery
Georges Elhedery
Group CEO at HSBC

Thank you, Kumpur.

Operator

Thank you both. Our next question today comes from Aman Rakal at Barclays.

Aman Rakkar
Director - Banks Equity Research at Barclays Investment Bank

Hey, George. Hey, Pam. Thanks very much for the various updates and sensitivities that you've given us. I had two questions just around customer behavior. So I just wondered if you'd observed any material shift in the way that your customers are transacting with you.

Aman Rakkar
Director - Banks Equity Research at Barclays Investment Bank

Have you seen any forward indicators around sentiment? Any signs of derisking or deleveraging? Any shift in particularly your kind of corporate customers that might be on the receiving end of trade tariffs? Any insights there would be really helpful. And then the second is definitely get the message around continuing to execute on the existing strategy.

Aman Rakkar
Director - Banks Equity Research at Barclays Investment Bank

I guess just two kind of related points to that, one around capital returns. I mean, it's obviously great that you've announced a $3,000,000,000 buyback. You're talking about a more subdued outlook for lending and by extension RWA. So presumably, you might be quite capital generative this year. So it seems like you're committed to distributions despite the uncertainty, right?

Aman Rakkar
Director - Banks Equity Research at Barclays Investment Bank

It's an uncertain backdrop, but the pace of distributions that you're kind of executing on it, it feels like you're committed to that. Is that the right reach? Should we be confident around things like the buyback sustainability from here? And just the related part of that question then is just around you talk about divestiture on track, the 1,500,000,000 But in terms of the redeploy, because I think you talked about, yes, some potential revenue opportunities from the redeploy or cost savings if it doesn't come through. Are you minded to delay any of this redeploy basically given the volatile backdrop? Thank you.

Georges Elhedery
Georges Elhedery
Group CEO at HSBC

Very good. Thank you very much, Aman. I'm going to take your first question about customer behavior, and I'll ask Wam to address both our capital return strategy as well as the cost redeployment from the reallocations. So in terms of customer behavior, I think nothing that would really surprise you. Corporate customers essentially are in a wait and see mode.

Georges Elhedery
Georges Elhedery
Group CEO at HSBC

So some of the CapEx or large investments are on hold. Certainly, some of the shipments from China specifically to The U. S. Have slowed down, but we've seen no panic. So there's been no significant drawdowns.

Georges Elhedery
Georges Elhedery
Group CEO at HSBC

There's deposit behavior has remained normal. So nothing really to call out beyond the wait and see. In terms of personal banking and wealth customers' activity, actually, this has been quite strong. Remember, we have a diversified product offering, so we've seen customers rebalance their investments between various offerings and be it various geographic equity exposure or other assets such as mutual funds or structured products. And when customers want to take a risk off approach, we see the money flow into our deposit base.

Georges Elhedery
Georges Elhedery
Group CEO at HSBC

So we kind of capture the customer assets either in invested assets or in deposits. But when we look at our NNIA for the first three months of the year, it remained positive, strong. So we remain positive on the outlook of the growth in this business. Remember also we're investing in this business, so we're capturing the underlying growth in the market, but we're also capturing market share in the way we're investing in this business. Pam?

Pam Kaur
Pam Kaur
Group CFO at HSBC

Thanks, Amand. So just one point to add on the wealth customer behaviors. Our strength really lies in our very broad product proposition. So as we see the mix shift between U. S.

Pam Kaur
Pam Kaur
Group CFO at HSBC

Equities or Asian equities or indeed into short term fixed income products, we are there to support our customers as well as in terms of insurance protection and savings related products. So given that gives us confidence that this double digit growth continues. And we have seen the same trend even through April and the same trend also no panic, no drawdowns and deposit behavior normal through April. So that's just to said that. So coming down to distribution.

Pam Kaur
Pam Kaur
Group CFO at HSBC

So just as a starting point, we have our policy on ordinary dividends. I'm assuming your question is much more on share buybacks, but let me see overall on the process we follow. Every quarter, we look at where we are in terms of our CET1. And you know our CET1 operating range is between 14% to 14.5%. We also look at our capital generation, less the capital needs or capital deployment that we want to do.

Pam Kaur
Pam Kaur
Group CFO at HSBC

And what's very important is routinely we look at a range of scenarios in terms of the macroeconomic environment. And then based on that, we look at the quantum on share buybacks. And clearly, if we have excess capital, share buybacks continues to be our preferred method to return capital. We have not changed our view on capital redeployment. But as I've said, we look at opportunities, we look at the generative capability quarter on quarter and that's how we make the decision on the quantum of share buybacks.

Georges Elhedery
Georges Elhedery
Group CEO at HSBC

And on the redeployment of

Pam Kaur
Pam Kaur
Group CFO at HSBC

Yes, the redeployment of costs, yes, absolutely. So far, we have not made any change to the timeline of what we said we would do. That redeployment is going to be through the midterm period, so between 2025, '20 '20 '6 and 2027. Clearly in terms of the macroeconomic uncertainty, we are very mindful in this current environment that there may be some delays, but overall it doesn't shift the trajectory or indeed the transactions that we have both announced and are working on, they are progressing as we expected.

Georges Elhedery
Georges Elhedery
Group CEO at HSBC

Perfect. Thank you very much, Haman.

Operator

Thank you both. Our next question today comes from Jason Napier at UBS. Please accept the prompt to unmute your line.

Jason Napier
Jason Napier
Head of European Banks Research at UBS Group

Good morning. Can you hear me okay?

Georges Elhedery
Georges Elhedery
Group CEO at HSBC

We can hear you, Jason.

Jason Napier
Jason Napier
Head of European Banks Research at UBS Group

Perfect. Thank you. So two questions, please. The first, George, HSBC is a signatory to a letter suggesting to The UK regulators that ring fencing is something that should go. I think that's the right view, but we've got a lot of investor demand for a sense from you as to the motivation for that.

Jason Napier
Jason Napier
Head of European Banks Research at UBS Group

What is it that you'd say in terms of OpEx, funding costs and what restructuring charges may go with that? So when you made that motivation, what was the maths behind it? And then secondly, very strong performance in costs in Q1, but guidance held constant for the year ahead. I guess that implies potentially some slippage in efficiency ratios in the quarters to come, notwithstanding the cost saving actions that are underway. Could you talk a little bit about sort of the moving parts, just quarter to quarter volatility?

Jason Napier
Jason Napier
Head of European Banks Research at UBS Group

Is there anything we should be thinking about in the upcoming quarters as far as cost inflation is concerned? Thanks very much.

Georges Elhedery
Georges Elhedery
Group CEO at HSBC

Thank you, Jason. Let me address your first question on ring fencing, and Pam will take your second question on the cost. So our view on ring fencing is that we've taken major I mean, there's been major enhancement to the prudential regulations for banks in The U. K, in particular, the broader regimes of capital, of loss absorbency through MREL, liquidity, recovery and resolution, etcetera. All these measures have basically put the bank in a much better, safer prudential space that have made ring fencing effectively redundant.

Georges Elhedery
Georges Elhedery
Group CEO at HSBC

The second thing to say is that The U. K. Is the only major economy that has applied ring fencing, so it's quite unique to The U. K. So as an outcome, it's increased the cost to operate as a bank.

Georges Elhedery
Georges Elhedery
Group CEO at HSBC

It created capital inefficiencies. It trapped liquidity. It effectively exposed our customers, including businesses and SMEs, to higher costs. It did somewhat also stifle competition. The bar to be able to compete in The U.

Georges Elhedery
Georges Elhedery
Group CEO at HSBC

K. For banks has become stiffer and more difficult. So therefore, we believe that removing ring fencing or at least scaling back on some of the ring fencing considerations will improve the outcome for customers and ultimately, therefore, will support growth in The U. K. Now just to reiterate, we are very supportive of the government's growth agenda, and we will play our role in The U.

Georges Elhedery
Georges Elhedery
Group CEO at HSBC

K. For that. And as regards the financial impact of the removal or the scaling down of ring fencing, look, we haven't done the full analysis, but we believe this will be positive for both capital cost and ability to compete and support the growth of The U. K. Economy and our customers. Pam?

Pam Kaur
Pam Kaur
Group CFO at HSBC

Yeah. Thanks, Jason. So firstly, we managed costs to a full year number. And quarter on quarter you can see some volatility. But just to clarify, our full year 2025 guidance of plus 3% is on a base of $31,900,000,000 which is the full year 2024 restated to the average FX for Q1 twenty twenty five.

Pam Kaur
Pam Kaur
Group CFO at HSBC

So just unbundling that, the 3%, the dependencies on the 4% inflation investment spend and the benefit of $300,000,000 so the 1% from the P and L saves from the simplification as we guided on the Q4. And the actions that are going to realize that 300,000,000 in the year have been already broadly taken, though the P and L will come through in subsequent months.

Georges Elhedery
Georges Elhedery
Group CEO at HSBC

Thank you, Jason.

Operator

Thank you both. Our next question today comes from Kian Abouhossein from JPMorgan.

Kian Abouhossein
Kian Abouhossein
Analyst at JP Morgan

Great results, but clearly, the focus is on the on the new tariff world. And I wanna try to understand, first of all, your target and guidance around interest rates in particular, but also GDP assumptions. You mentioned mid April, but, clearly, a lot happened in April. So I'm just trying to understand what date or what week we should use as a guidance in terms of interest rate assumption, if you could give maybe GDP assumptions. And secondly, coming to your sensitivities or your analysis around tariff impact, if you could discuss, again, interest rate assumptions, in particular, in GDP, but also your assumptions about China as a trading counterparty in terms of your revenues versus the corridors you talk about?

Kian Abouhossein
Kian Abouhossein
Analyst at JP Morgan

Because clearly, really, in the new world, the corridors seem to be impacted as well. So are you assuming corridors can grow, or do you assume corridors would also be negatively impacted in a new tariff world? And lastly, in that context, can you just talk about cost flexibility as you didn't discuss it?

Georges Elhedery
Georges Elhedery
Group CEO at HSBC

Thank you, Kian. Kian, I'm going to make some broad comments on the view of corridors and overall our business. And I will ask Pam to give you additional information on the tariff scenarios as well as in the cost implications, okay? So a couple of things to note. The first one is, as we did say, the lion's share of our banking NII is driven by our deposit franchise.

Georges Elhedery
Georges Elhedery
Group CEO at HSBC

This deposit franchise is a hallmark of our balance sheet. We run 50s loan to deposit ratio in three of our four businesses. And in The U. K, we run 80s, which is the lowest. Therefore, we have deposit surpluses in every currency, every geography, every business line.

Georges Elhedery
Georges Elhedery
Group CEO at HSBC

And this franchise is very robust and is a driver of a very important lion's share for banking NII, very important revenue stream. The second, when you look at our fee income, wealth so far has continued to grow at double digit returns, and we do expect it to continue to grow at double digit returns in the medium term, given the underlying market opportunities and market growth as well as our own investment to continue gaining market share. So Transaction Banking is the one really we really are diving into. Remember first, transaction banking is a wide set of products that cover various areas outside trade. And remember, a lot of our businesses, let's say, with multinational customers operating in Asia or China, a lot of their business is in China for China or in Asia for Asia, where they produce and manufacture locally and distribute locally with limited impact on tariffs, albeit some may be impacted by tariffs.

Georges Elhedery
Georges Elhedery
Group CEO at HSBC

But even within trade, we have seen growth of trade corridors Intra Asia or within Asia, Middle East at a very fast pace. And a number of these corridors have become structurally resilient and on a growth trajectory. Now some of the China plus one trade patterns that are still meant to ultimately distribute or export to The U. S. Will be affected for insofar that there's Intra Asia trade flows for that ultimate purpose.

Georges Elhedery
Georges Elhedery
Group CEO at HSBC

But there is a much bigger Intra Asia, Intra Asia and Middle East trade flows that are two way and that are related to domestic manufacturing for the purposes of domestic consumption, which we continue to see as structurally growing. Our scenarios have really looked at differentiation between the areas of structural growth and the areas that will be widely impacted by tariffs, which Pam can talk to.

Pam Kaur
Pam Kaur
Group CFO at HSBC

So thank you, Kian. So firstly, just to reiterate, the EUR 40,000,000,000 banking NII continues to be our best estimate for full year 2025. Now we've looked at a range of reasonable upside downside assumptions including rates, but we are not immune to all scenarios despite the stress work that we have done. Our Q1 run rate of 10,600,000,000 puts us on a good trajectory given that range of scenarios we have looked at all plausible upsides and downsides. Now as always, there are four key drivers.

Pam Kaur
Pam Kaur
Group CFO at HSBC

The rates that we have included are based on the mid April curves. The structural hedge will be a tailwind to this headwind of rates. We have $75,000,000,000 maturities in the remainder of the year and they are on 2.8% yield at the moment, so there'll be an upside to that. The other two elements are harder to forecast, particularly in terms of balance sheet growth as we've said before. And the loans stay muted.

Pam Kaur
Pam Kaur
Group CFO at HSBC

Having said that, loans and advances were slightly up in the first quarter of this year, primarily because Hong Kong loans and advances were stable compared to Q4 last year where they had contracted. Now the deposit migration trend from Hong Kong has stayed stable over last year into this year at 39% and that is continuing even through April. So if I look at in the round in terms of deposit behaviors of our customers, both from a corporate side and as well as from a retail side, we stay quite comfortable. So on tariffs, just in terms of the broad piece, what we have looked at from a tariff perspective is, and it's all in terms of seeing the various scenarios in terms of delivering the mid teens ROCE. I mean, we looked at our income stream beyond Banking and I, which is Wholesale Transaction Banking and it has many more products beyond trade finance.

Pam Kaur
Pam Kaur
Group CFO at HSBC

It also is in diverse products within trade finance and their diverse global and intra regional corridors. Now when we have looked at the downside scenario, we've looked at higher tariffs. We have looked at impact on GDP. We have looked more broadly on policy rates, inflation, the big picture. But again to say, we have not looked at GDP to the stress level of a downside to scenario that we have called out in our release, which is like a double digit contraction of GDP as we saw in the COVID period.

Pam Kaur
Pam Kaur
Group CFO at HSBC

So if you look at all that, we come to a low single digit percentage impact on revenues. And within that and within the incremental $500,000,000 ECLs, we stay very confident for our mid teens RoTE for the next three years. Now the broader impacts are going to be hard to quantify. These are your second, third order impacts, but we'll continue to monitor them through our various scenarios and review them quarter on quarter. On costs, our cost trajectory is on track.

Pam Kaur
Pam Kaur
Group CFO at HSBC

And given this, there's no shift on that. And we will still continue through our envelope to be able to invest in the areas which we have been, as George has said, because we can see the direct benefit coming very quickly in those areas even in the current environment and continuing through April, and that's primarily on the wealth side.

Georges Elhedery
Georges Elhedery
Group CEO at HSBC

Perfect. Kian, thank you very much.

Operator

Thank you both. Our next question today comes from Amit Gol at Mediobanca.

Amit Goel
Managing Director at Mediobanca

Hi. Thank you. So potentially follow-up, actually to to to Kean's question. But, so thank you, and I understand. So, essentially, the plausible tariff downside scenario is pretty similar or closer to the ECL downside one rather than the downside two type type case.

Amit Goel
Managing Director at Mediobanca

Again, just coming back in terms of the broader profitability mid teens, kind of target. So essentially, you're saying that if we were to see that plausible downside scenario, you still believe you can achieve that mid teens profitability level, and that's before factoring in any further kind of cost actions, or would that be with any kind of rejigging or additional cost action taken by the group to mitigate some of that impact? And then secondly, I just wanted to check. When I look at the downside one EDCL scenario now versus a full year, it seems like the the China and Hong Kong drawdown is not quite as severe. I see The US is maybe a little bit 30 bps more severe.

Amit Goel
Managing Director at Mediobanca

So I was also just kinda curious why that downside scenario is not quite as negative perhaps as what you assessed at the full year stage? Thank you.

Georges Elhedery
Georges Elhedery
Group CEO at HSBC

Okay. Thank you, Amit. Amit, on your so I'm going to ask Pam to comment on your second question. But on your first question, look, we're not going to give more details than what we shared. But I think your analogy to say that it's a downside one like scenario in the sense that it is adverse but plausible is correct.

Georges Elhedery
Georges Elhedery
Group CEO at HSBC

And within that scenario, without additional cost actions than the one that we have set out to do and are on track of for doing and obviously committed to do, we are confident we can achieve our targets, in particular, our targets of mid teen returns for 2025, '20 '20 '6 and 2027. Pam?

Pam Kaur
Pam Kaur
Group CFO at HSBC

Thanks. So just in terms of the scenarios, just to confirm, they are not identical scenarios, but in terms of severity and plausibility, you're right in the ballpark because the ECL scenario stresses a lot of things on interest rates, inflation, etcetera, from a range of factors and this one on tariffs is quite specific on the revenue line. And to clarify on ECLs, we had to build our reserve for this quarter, change the weightings of the downside one from 15% to 30%. And when we look at the 500,000,000 potential impact, that is if you change that downside one scenario weighting to 100%. So just to say that's a 500,000,000 additional to the 150,000,000 Now in terms of Hong Kong and China Cree, absolutely.

Pam Kaur
Pam Kaur
Group CFO at HSBC

In terms of both from an individual customer level as well on the forward economic guidance given the starting point, there is a lesser impact. And overall, there has been very little noise from a Hong Kong Cree and a China Cree other than isolated names in this quarter. There can be credit downgrades over a period of time. We saw a few now, but the impact from an RWA perspective is very modest. If you look from a U.

Pam Kaur
Pam Kaur
Group CFO at HSBC

S. Perspective, also there was a specific name. And then when we look at the credit downgrades, so that's also in the quarter. I wouldn't really build any trend from this quarter into a full year. And all these factors, bottom line, are part of the scenario analysis, which we do on upside and downsides before we reaffirm our RoTE guidance and Perfect.

Georges Elhedery
Georges Elhedery
Group CEO at HSBC

Okay. Thank you, Amit.

Operator

Thank you, both. Our next question today comes from Gurpreet Singhsar from Goldman Sachs. Please accept the prompt to unmute your line.

Gurpreet Sahi
Gurpreet Sahi
Executive Director at Goldman Sachs

Thank you for taking my question, George and Pam. Good morning. So really on banking NII, a couple, if I may, please. First is Q on Q. Banking NII held up pretty much flat, whereas interest rates would have added a headwind of, as per my calculation, 170,000,000.

Gurpreet Sahi
Gurpreet Sahi
Executive Director at Goldman Sachs

So can you please double quick and tell us on how much was the benefit from the deposit pass through being not that high and then improved asset mix and then the hedge structural hedge. That's one. And second, in the 42,000,000,000, again on banking and I, 42,000,000,000 around 42,000,000,000 guidance, how much are we, assuming for average interest earning assets growth? Because that has, if I see deposit growth has been consistent, but that somehow on a y o y basis is now showing up as 4% growth. But then q on q, there's no growth and previously on y o y also we could not show any growth.

Gurpreet Sahi
Gurpreet Sahi
Executive Director at Goldman Sachs

And then what is the around? Is 41.5 outcome around 42? Does that tick the box and help us meet the target? Thank you.

Georges Elhedery
Georges Elhedery
Group CEO at HSBC

I am going to ask Pam to address both your questions on banking NII.

Pam Kaur
Pam Kaur
Group CFO at HSBC

Thank you, Gurupreet. So firstly, banking NII was flat on a quarter on quarter on a constant currency basis excluding notable items in Argentina. Now we don't split out the dollar impact of every moving part, but let me just unbundle. So the headwinds were two fewer days in the quarter as well as lower interest rates. But the tailwinds was reinvestment of maturing hedge assets at higher yields, a bit of change in the mix of our market treasury assets as well as the benefit of deposit pass throughs, particularly in The UK, which come through with a delay of ninety days.

Pam Kaur
Pam Kaur
Group CFO at HSBC

So the interest rate cuts which we saw in August came in through for a full quarter in this quarter. And then we saw a bit of a tail of the November cuts as well. So that's how is the impact there. In terms of your other question, of course, we look at various upside and downsides in that $42,000,000,000 And I just want to reiterate that $42,000,000,000 is not an underpin. It is just around $42,000,000,000 our current best estimate based upon what we see in terms of deposit betas, based upon what we see in terms of actual deposit flows coming through, updated not just for the quarter, but also considering the trend we've seen through April.

Georges Elhedery
Georges Elhedery
Group CEO at HSBC

Thank you very much, Gupparit.

Operator

Thank you both. Our next question today comes from Andrew Coombs at Citigroup. Please accept the prompt to unmute your line.

Andrew Coombs
Andrew Coombs
Equity Research Analyst at Citi

Good morning. If I could have a couple on the organizational simplification, and then also just one clarification on Well. On the organizational simplification, you previously guided to $1,800,000,000 of restructuring costs, and you said the majority of that is expected to be booked in 2025. I think you only took $141,000,000 in Q1. So presumably, we should expect a big step up in the restructuring charges from Q2 onwards to the rest of this year.

Andrew Coombs
Andrew Coombs
Equity Research Analyst at Citi

And then the second question kind of attached to this is you've said that the actions you've taken to date will already translate to 300,000,000 of annualized savings. I appreciate in q one, you've had very little of that, but nonetheless, you're still guiding to 300,000,000 for the full year '25 when you've already achieved 300,000,000 annualized, and there's presumably more to come over the remainder of the year with the additional restructuring. So can you just clarify a bit there on on why more of their savings are not flowing into full year '25 compared to '26? And then on wealth, the clarification, given given a new segmental split, is it possible to get the split of the Asian invested asset and the 16,000,000,000 Asian net new invested assets this quarter that's attributable to Hong Kong? Thank you.

Georges Elhedery
Georges Elhedery
Group CEO at HSBC

Okay. Thank you, Andrew. Andrew, I'm going to ask Pam to address your the first two questions with regard to the organizational simplification. Just saying that we will give as I said earlier, we will give a more thorough update at the interim results. And on your final question, let us take it forward and see what we can communicate.

Georges Elhedery
Georges Elhedery
Group CEO at HSBC

16,000,000,000 of net new invested assets in Asia with the majority in Hong Kong, but we will take it forward to see what additional granularity we're likely to share. Pam?

Pam Kaur
Pam Kaur
Group CFO at HSBC

Okay. Thanks, Andy. So firstly, in terms of the actions taken and the P and L being coming through for the year, the actions taken typically is when you have colleagues put through at risk and decisions made communicated. There is always a time lag typically between that and colleagues leaving the platform. Typically it tends to be about a quarter ninety days. So when you say an action has been taken, you know it saving is going to come through, but there is going to be a time lag between that decision and the savings feeding into the P and L. So when we said the majority of the actions have already been taken, the annualized savings that we calculated, it's for the full year. So it's not as though these actions are already banked in and there's going to be further.

Pam Kaur
Pam Kaur
Group CFO at HSBC

So that's sort of the main piece. Now on restructuring costs, you're absolutely right that there is going to be the majority of restructuring costs taken in 2025 rather than 2026. And I would expect most of that to come through Q2, Q3 and then some Q4 and then tapering down as we go into 2026.

Georges Elhedery
Georges Elhedery
Group CEO at HSBC

Very good. Thank you, Andy.

Operator

Thank you very much. Our next question today comes from Ed Firth at KBW.

Edward Firth
Managing Director at Keefe, Bruyette & Woods (KBW)

Good morning, everybody. Thanks very much for the for taking the questions. Yeah. I just had a couple. The first one, I noticed that your your cost guidance is based on an average exchange rate in q one.

Edward Firth
Managing Director at Keefe, Bruyette & Woods (KBW)

But the US dollar, I think, is what off about 6% since then. So I assume that if we were actually to do that at today's exchange rate, your cost number will be somewhat higher than that. And I'm just trying to check, is your revenue guidance also based on those exchange rates? So should is is it effectively like both rev we should both gear up both revenue and cost for for for for the weaker dollar in terms of our in terms of our expectations? That's the first point.

Edward Firth
Managing Director at Keefe, Bruyette & Woods (KBW)

And then I guess, sort of partly related to that, are we actually in the plausible downside scenario now? I mean, if I'm looking at, you know, trade flows China to The US are down, what, 45% booking, something like that. I mean, that that feels to me like a pretty downside scenario. So should we assume that as we go through q two and q three, we are actually in that scenario now? Is that is that effectively where where we are assuming nothing changes?

Edward Firth
Managing Director at Keefe, Bruyette & Woods (KBW)

And I guess nobody has any idea what will happen in terms of the changes, but assuming we stay where we are today. And then I I guess my second question was just about BoCom. I'm just can't really understand the accounting because you you're still running with a valuation that's, what, $10,000,000,000 above the market value. But you didn't subscribe for new shares with the capital raise, which I sort of assume you would have done if you had thought it really was worth that much more. So so so should we be expecting you to actually correct that down down to what would be like a market price rather than just the €1.6 Should we be revisiting how you do the sort of, I think, you call it value in use, don't you, something like that?

Georges Elhedery
Georges Elhedery
Group CEO at HSBC

Thank you very much, Ed. Let me take your plausible downside scenario, and I'll ask Pam to address your cost the cost question as well as the BOCOM accounting question. Sort of the adverse plausible downside scenario is a scenario that is further adverse from where we are today with significantly higher global tariffs on major trading blocks on an aggregate basis. And we've looked at their impact across obviously our trade business, but more importantly, across overall our volumes and the economic outlook of our businesses on the whole.

Georges Elhedery
Georges Elhedery
Group CEO at HSBC

We do recognize that there is uncertainty and it's very difficult to understand how much downside or upside there is in the future outlook for this. But we believe this plausible downside scenario is not the expected scenario as in it is a lower probability downside than the expected scenario. Dan?

Pam Kaur
Pam Kaur
Group CFO at HSBC

Yeah. Thank you, Ed. So, agree the downside scenario is not something where we are now because the downside scenario clearly has broader impact in terms of GDP and other areas, which then gives the significant impacts that we talked about. So just to make that clear. And you're absolutely right, the target cost base of $31,900,000,000 equivalent to full year 2024 costs was rebased on first quarter's average exchange rates.

Pam Kaur
Pam Kaur
Group CFO at HSBC

All things being equal, U. S. Depreciation would put an upward pressure on an absolute cost. But in the same way, it will put an upward pressure, I. Except some benefit on the revenues.

Pam Kaur
Pam Kaur
Group CFO at HSBC

And we will do that on the same principle quarter on quarter as we progress. Now FX rates have been volatile. We'll continue to update you quarter on quarter. So in terms of BOCOM, just in sort of simple terms, at this point of time, we continue to say that BoCom is an associate. We have done the assessment as we do every year in terms of further impairment.

Pam Kaur
Pam Kaur
Group CFO at HSBC

And there has been no impact for this quarter. The dilution impact into P and L, we will have an accounting impact on the completion of the share issuance and that's where that will be taken. But I just want to reiterate all said and done, there is an insignificant impact from this dilution on our CET1. And because it's a material notable item, there is no impact on dividend or distribution.

Georges Elhedery
Georges Elhedery
Group CEO at HSBC

Thank sorry, Ed, you're on mute.

Pam Kaur
Pam Kaur
Group CFO at HSBC

Sorry. You're muted. Sorry.

Georges Elhedery
Georges Elhedery
Group CEO at HSBC

Please go ahead.

Pam Kaur
Pam Kaur
Group CFO at HSBC

Sorry, were saying something. Yes.

Edward Firth
Managing Director at Keefe, Bruyette & Woods (KBW)

Keen to yes, sorry about that. No. I just I don't understand the the logic of why you didn't subscribe for this for more capital in the sense that that that if it is worth that much more, it it would seem to me that that it was an opportunity to to put more capital in and and to value the opportunity to get the upside in due course.

Georges Elhedery
Georges Elhedery
Group CEO at HSBC

Ed, the was a the share issuance was subscribed by government or government related entities in China. We were happy with our holding as it is. And therefore, we're happy with the outcome. And with regards to the actual accounting value, I'd probably kind of point you to the Investor Relations team, which can take you through some of the specificities of this equity accounting principles, which are quite unique in the way we treat the associate accounting of But I just want to reemphasize, we're happy with our holding in BoCom. We're happy with our strategic relationship with BoCom and the fact that they give us exposure to the domestic economy in China, be it retail, SME and outlook, which is not something our organic business is involved in.

Georges Elhedery
Georges Elhedery
Group CEO at HSBC

And very importantly, what Pam said, the valuation in our NAV is deducted from CET1, which means these impairments do not have a or have a very minimal second order impact on our CET1 ratio and therefore, also do not impact our distribution capability.

Pam Kaur
Pam Kaur
Group CFO at HSBC

And Ed, very happy to offline go through with you on the equity accounting treatment and the rest in detail, if you so wish.

Georges Elhedery
Georges Elhedery
Group CEO at HSBC

Thank you very much, Ed.

Edward Firth
Managing Director at Keefe, Bruyette & Woods (KBW)

Thanks very much.

Operator

Thank you, Bo. Our next question today comes from Catherine Lei at JPMorgan. Please accept the prompt to unmute your line.

Katherine Lei
Katherine Lei
Analyst at JP Morgan

Hey. Thank you. I have two questions. The first one, I still want to ask about the tariff scenario because I think, for, analysts, at least investors in this part of the world, I think it's partly, it it's widely expected that the Chinese government will have more stimulus policy, because of the tariff. So in your downside scenario analysis, have you incorporated some of the positive impact, from the stimulus policies which could potentially be benefiting, the Hong Kong China market?

Katherine Lei
Katherine Lei
Analyst at JP Morgan

So I think this is number one. Number two, I still want to ask about the loan growth because now the guidance that there will be muted loan demands in 2025. So what sorts of tariff scenarios that we are like, when we're giving this type of guidance, what sort of tariff environments are we incorporating? And also that is there any guidance on, say, example, like deposit growth and also banking asset or interest generating asset growth? Like, how should we look at this whole thing? Thank you.

Georges Elhedery
Georges Elhedery
Group CEO at HSBC

Thank you, Catherine. Catherine, I'm going to make some comments on your first question, and I'll ask Pam then to take it forward as well as the loan growth question, which gives you an overlook. So firstly, we recognize indeed the there's a lot of potential for China to take policy measures and other measures to stimulate the economy, and we would be very encouraged by that. We're confident about the outlook for China. We're optimistic that these measures as they are taken and they will be taken will have a positive impact on the economy.

Georges Elhedery
Georges Elhedery
Group CEO at HSBC

We believe in the foundational strength of the Chinese economy, and we're very encouraged to see the pickup in retail sales and therefore the pickup in domestic consumption also. So on the whole, our main scenario is that we are confident in the medium to long term outlook in China. This being said, in the plausible adverse downside scenario, we have not taken into account some of these potential positive impacts, which may be or not likely to come. Pat?

Pam Kaur
Pam Kaur
Group CFO at HSBC

Yeah. Thanks, Catherine. So absolutely being a stress downside scenario plausible but severe, we typically take the downside. We don't take the upside of the mitigating actions or any other policy measures. It's purely tariffs and retaliatory tariffs in a plausible range.

Pam Kaur
Pam Kaur
Group CFO at HSBC

So all said and done, just want to reaffirm, it was all calculated as part of the target ROTE guidance that we are giving. On loan growths, the situation is in some ways similar to where we were at the end of Q4 because macroeconomic uncertainty delays decision making. So we are not seeing any of those CapEx decisions being brought forward or delayed. They were delayed. They will continue to be delayed.

Pam Kaur
Pam Kaur
Group CFO at HSBC

Hopefully, at some stage when some certainty remains there will be loan growth. We are also monitoring very closely to see if there is any increase in drawdowns. Just like we had observed in Q2 of twenty twenty, at this point of time, there's no increase in drawdowns. So overall from a loan growth perspective, would say still muted in terms of what we are seeing. The only thing I would say is that if there is sort of continued tariff uncertainty, you will see maybe a little bit pickup from a OpEx perspective on working capital because when you have to pay import duties upfront and there's some delays and some of the money is coming and so on, so that's going to will have an impact.

Pam Kaur
Pam Kaur
Group CFO at HSBC

But from a materiality perspective, the real driver for our banking NII guidance of $42,000,000,000 Israeli deposits, for which we have a very strong franchise. We are in a privileged position to be a trusted partner for our customers and we expect that to grow. Of course, there'll be a bit of seasonal fluctuation quarter on quarter, But overall, that trend has continued.

Georges Elhedery
Georges Elhedery
Group CEO at HSBC

Thank you very much, Catherine.

Operator

Thank you both. Our final question today comes from Lan Jahyun from CICC.

Jia Hui Yan
Equity Analyst at China International Capital Corporation (CICC)

Thanks for taking my questions. My question is also about tariffs. Could you please give an example of how our major clients react to tariff policy in April? Are they facing a sharp decline in business demand, or are they actively seeking the solutions to, reduce the the the effect of tariffs or just cut their business? And how HSBC helped them, navigate through the challenge from tariffs?

Jia Hui Yan
Equity Analyst at China International Capital Corporation (CICC)

And beyond risks, have we seen any new business opportunities for HSBC in this context? Thank you.

Georges Elhedery
Georges Elhedery
Group CEO at HSBC

Thank you very much, Yan, for your questions. So, yes, indeed customer I mean, look, first, the customers aren't taking any decisions in panic. Customers essentially are wait and see mode. Number of CapEx or large investments have been slowed down. And certainly trade between China and The U.

Georges Elhedery
Georges Elhedery
Group CEO at HSBC

S, we've seen a major slowdown. But on the whole, customers are looking at their business models. They are looking at their supply chains. They are looking at ways to create more resilience in their business. And we're definitely here to help them.

Georges Elhedery
Georges Elhedery
Group CEO at HSBC

As I said earlier, we are our customers' trusted banking partner. They trust the strength of our financial strength, the strength of our balance sheet and our proposition. They trust the stability of our commitments to support them through their needs and through all predictable and unpredictable times. And very importantly, they trust our expertise. We have more than 5,000 trade experts in more than 50 jurisdictions working with clients to help them think through what this means for their business model and now how they can help them adapt and adjust and create resilience.

Georges Elhedery
Georges Elhedery
Group CEO at HSBC

So therefore, in an environment like this one, we expect to deepen relationships with clients. We expect to acquire new clients and to consolidate our position as a leading trade bank. And we expect to make hopefully difference for our customers in navigating these uncertainties. Thank you very much, Jan. I think we addressed all the questions.

Georges Elhedery
Georges Elhedery
Group CEO at HSBC

So I want to take this opportunity to thank all of you for your questions. So look, in closing, we had a strong quarter marked by momentum in our earnings, discipline in our execution and confidence in our ability to deliver our targets. Neil and the team are available for any follow-up questions with our Investor Relations experts. Meanwhile, Pam and I look forward to speaking with you again soon. Enjoy the rest of the day. Thank you.

Operator

Thank you very much, ladies and gentlemen, for joining today's webinar. You may now disconnect your line

Executives
    • Georges Elhedery
      Georges Elhedery
      Group CEO
    • Pam Kaur
      Pam Kaur
      Group CFO
Analysts
    • Benjamin Toms
      Director - Equities at RBC Capital Markets
    • Joseph Dickerson
      Stock Analyst at Jefferies
    • Kunpeng Ma
      Managing Director at China Securities
    • Aman Rakkar
      Director - Banks Equity Research at Barclays Investment Bank
    • Jason Napier
      Head of European Banks Research at UBS Group
    • Kian Abouhossein
      Analyst at JP Morgan
    • Amit Goel
      Managing Director at Mediobanca
    • Gurpreet Sahi
      Executive Director at Goldman Sachs
    • Andrew Coombs
      Equity Research Analyst at Citi
    • Edward Firth
      Managing Director at Keefe, Bruyette & Woods (KBW)
    • Katherine Lei
      Analyst at JP Morgan
    • Jia Hui Yan
      Equity Analyst at China International Capital Corporation (CICC)
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