Why Have Shrinking Net Interest Margins Not Dragged Down HSBC’s Revenues?

by Trefis Team
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HSBC’s (NYSE: HSBC) net interest income has remained flat over the first nine months of 2019 compared to the same period last year despite falling a notable reduction in its net interest margin figure. Trefis answers the question Why Is HSBC’s Net Interest Income Stable Despite Declining Net Interest Margin? in an interactive dashboard, parts of which are summarized below.


What Happened?

Net Interest Income represents the interest earned by a bank through loans and other assets net of any interest it pays to deposit holders.

  • Net interest income is HSBC’s single-largest revenue driver, accounting for more than 55% of the total revenues.
  • HSBC’s net interest income has remained at $22.8 billion for YTD 2019 – the same level as what was seen in YTD 2018 – despite net interest margins shrinking from 1.67% last year to 1.59% now.


The primary reason behind HSBC’s stable net interest income has been stronger growth in the bank’s Interest-Earning Assets compared to its Interest-Bearing Liabilities. Interest-earnings assets have increased by $88 billion in the last year, whereas interest-bearing liabilities only increased $54 billion.

Additional details about the factors responsible for the difference in growth rate for interest-earnings assets and interest-bearing deposits are available in our interactive dashboard.


So What?

  • Net Interest Income is the most important revenue driver for HSBC and accounts for more than half of the bank’s total revenues.
  • A decline in the division’s revenues adversely impacts the entire bank’s performance, as it will also have a prominent impact on the bottom line
  • The bank’s interest margin is currently at the lowest level since 2016, and is likely to go down further over coming quarters primarily due to expected rate cuts in key economies globally.
  • However, if HSBC’s interest-earning assets can grow at a faster rate than its interest-bearing liabilities, HSBC can potentially keep its largest revenue driver stable.


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