by Selena Li and Lawrence White

HONG KONG/LONDON (Reuters) – HSBC Holdings reported a record annual profit on Wednesday but below analysts’ forecasts, as a $3 billion writedown linked to the group’s stake in a Chinese bank dampened the favorable impact of rising interest rates.

Europe’s largest bank, which has a market value of $160 billion, reported pre-tax profit of $30.3 billion (28.01 billion euros) in 2023, up 78% over one year but lower than analysts’ expectations, whose average estimate was $34.1 billion.

The 2023 financial year was affected by a $3 billion writedown on HSBC’s stake in Chinese bank Bank of Communications (BoCom).

HSBC shares listed on the Hong Kong Stock Exchange fell by more than 3%.

HSBC suffered the biggest writedown to date among its overseas peers due to China’s property crisis, which has impacted international banks exposed to the world’s second-largest economy.

The BoCom stake write-down follows a review of the Chinese bank’s likely future cash flows and prospects for loan growth and interest margins, HSBC said, as China’s economic recovery appears more fragile provided that.

The British bank further remains cautious about the outlook for loan growth in the first half of 2024, amid slowing economic growth in many economies where inflation has persisted.

Its costs increased by 6% in 2023, more than expected, due in part to the impact of larger-than-expected bank levies in the United States and Great Britain. The bank also said it expects costs to increase by another 5% in 2024.

HSBC reported a return on equity (ROE) of 14.6% in 2023, below expectations of 17%, and confirmed its ROTE target of around 10% for 2024 .

The British bank said it is considering a special dividend of $0.21 per share in the first half of 2024 once the sale of its Canadian operations is completed.

(Reporting by Selena Li in Hong Kong and Lawrence White in London; Camille Raynaud and Diana Mandiá, editing by Blandine Hénault)

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