Good morning in London, and good afternoon in Hong Kong. I've got Ewen with me today. I wanted to start by sharing on screen our purpose, ambition, and our four strategic pillars. To focus on our strengths, to digitize at scale, to energize for growth, and to lead the transition to net zero. I will return to these in a moment. First I'll run through some highlights before Ewen takes you through our financial performance. We've had a good start to the year. I've seen excellent energy within the business, strong collaboration, and a determination to get things done for our customers. I'm very grateful to all of my colleagues for the way they've managed growing demand since the turn of the year, and for the single-minded way they've helped our customers to capture both present and future opportunities.
There are many parts of the world where the pandemic remains a very real part of people's lives. Our thoughts are with the people of India in particular, and we're working hard to support our colleagues and customers in India through this very tough time. In terms of our financial performance, our good business performance, supported by a net release of Expected Credit Losses, delivered reported pre-tax profits of $5.8 billion, which were up 79% on last year's first quarter. We strengthened our lending pipelines across our personal and commercial banking businesses, which bodes well for our future revenue. Our cost and RWA programs remain on track with $443 million of quarterly cost program savings and $9 billion of gross RWA savings in the quarter. We retained a strong capital ratio of 15.9% with further growth in both deposits and lending. Calling out a few highlights on slide three.
The combination of our digital campaigns and growing customer confidence saw strong credit card sales growth in Hong Kong. We saw good mortgage growth with drawdowns up 60% in the U.K. and 37% in Hong Kong. Our wealth strategy got off to a strong start with 23% growth in overall wealth balances. We attracted $13 billion of net new money into private banking in the quarter and $11 billion of net new money into asset management. We saw good loan volume growth in Commercial Banking and month-by-month increases in lending approvals. With nearly double the approvals in March of any one month in 2020. Global Banking and Markets had a good quarter, supported by strong customer activity in capital markets.
We led more than $567 billion of capital markets financing across global debt and equity markets and syndicated loans, including around $40 billion of social and COVID-19 response bonds, which is around 29% of the total market. This was a global performance with good profitability in all regions. Growth of $3.2 billion in profits booked outside of Asia compared with last year's first quarter. Moving to slide four. I said in February that our growth and transformation plans were already in motion, and you can see the evidence of that here. Under focusing on our strengths, we've already grown wealth balances in Asia by 18% year on year. We've grown our Asia wealth FTEs by more than 600, including around 100 new client-facing wealth planners in mainland China. We've grown trade finance lending in Asia by around $3 billion, mainly in China and Hong Kong.
Under digitize at scale, we started to integrate our market-leading PayMe app in Hong Kong into merchant checkouts and officially launched HSBC Kinetic for SMEs in the U.K. with around 6,000 customers already signed up. Under energize for growth, we're applying all that we've learned through lockdown, combined with our digital investment to improve the way we work. We're moving to a hybrid model wherever possible, giving our people the flexibility to work in a way that suits both them and their customers. We will need less office space as a result, and we have a plan to reduce our global office footprint by more than 3.6 million sq ft or around 20% by the end of 2021. We're also relocating three of our global business CEOs to Asia on a permanent basis, taking them closer to our customers and to the core of our business.
On the transition to net zero, we've published details of the climate resolution that we'll put to shareholders at our AGM in May. We are one of the founder members of the Global Net Zero Banking Alliance that launched last week. We maintained our leadership position in sustainable finance following a record quarter for global ESG bond issuance, and we're piloting a new tool in the U.K. to help SMEs better understand their ESG performance and to prepare to take action. It's early days, but we're carrying good momentum into the second quarter. Ewen will now take you through our results.
Thanks, Noel. Good morning or afternoon all. We had a good quarter against the backdrop of ultra-low rates, reported post-tax profits to $4.6 billion. That's up 82% on last year's first quarter, and an annualized return on tangible equity of 10.2%. Adjusted revenues were down 3% on last year's first quarter, largely due to the impact of ultra-low interest rates, but there were notably good performances in some segments, including Asia Wealth in Wealth and Personal Banking, Asia Trade Finance in Commercial Banking, and Capital Markets and Advisory, Debt Trading, and Equities in Global Banking and Markets. Relative to the first quarter of 2020, adjusted revenues also benefited from the reversal of negative insurance market impacts and Global Banking and Markets valuation adjustments. Expected credit losses had a $435 million net release.
This reflects both an improved economic outlook for our central scenarios, and in the U.K. and the U.S., lower probabilities attached to downside scenarios. Operating expenses were up 3%. This was due to a shift in variable pay accruals to reflect quarterly profitability. We remain on track to deliver our target of broadly stable costs for the year, ex the bank levy, subject to final decisions on the variable pay pool later in the year. Lending and deposit balances were both up 1%, with confidence in higher loan growth in the remainder of the year. Our core Tier 1 ratio remains stable at 15.9%, and our tangible net asset value per share of $7.78 was up $0.03 on the fourth quarter, with retained profits more than offsetting negative reserve movements. Turning to slide six and looking at first quarter adjusted revenues across the three global businesses.
In Wealth and Personal Banking, revenues were down 1% on a year ago. Wealth management revenues grew by just under $1 billion due to the turnaround in insurance market impacts from a big loss last year, and a good performance in equity and mutual fund sales in Hong Kong. Personal banking revenues fell by $890 million due to the impact of low interest rates on deposit margins. Commercial Banking revenues were 14% lower, due mainly to the impact of low interest rates on global liquidity and cash management, but with a good bounce back in trade balances in the quarter and growing confidence in the lending pipeline for the coming quarters. In Global Banking and Markets, revenues were up 10%, with strong performances in global debt markets and equities up 52% and 55% respectively, and in capital markets and advisory up more than 100%.
Just to remind you, we've no significant exposure to SPACs where some peer banks benefited from exceptionally high activity levels in the first quarter. On slide seven, net interest income was $6.5 billion, down 14% against the first quarter of 2020 on a reported basis. On rates, the net interest margin was 121 basis points, down 1 basis point on the fourth quarter, primarily reflecting the fall in HIBOR during the first quarter. On volumes, we saw continued good volume growth in mortgages in both Hong Kong and the U.K., and strong commercial applications that we expect to translate into volumes in the coming quarters. Looking forward to the remainder of the year, despite some continuing rolling impact of last year's shift in interest rates, we expect volume growth to support net interest income at levels broadly in line with the first quarter.
On the next slide, net interest income was $6.8 billion, up 15% against last year's first quarter, but noting last year was negatively impacted by volatile items due to COVID-19. Overall, net interest income stabilized in the quarter compared with falls over the previous three quarters. Wealth and Personal Banking and Global Banking and Markets benefited from higher volumes, better equity and mutual fund sales, and stronger capital market activity. FX revenues were down year-on-year, but this was still a good performance against an exceptional first quarter of 2020. Commercial Banking was down slightly, reflecting lower trade and payment volumes due to the continuing impact of COVID-19 on activity levels. Looking forward, we expect customer activity and fee income to continue to recover as economic activity recovers.
This obviously remains subject to the impact of new COVID-19 variants and the continuing success we've seen to date in the rollout of the global vaccination program. On the next slide, we had a net release of $435 million of Expected Credit Losses in the quarter. This compares with a $3.1 billion charge in the first quarter of 2020. The net release was across all global businesses and reflected an improvement in the economic outlook, notably in the U.K., including a reduction in downside probabilities. Last year's first quarter included a large charge related to one single name corporate exposure in Singapore, but this year's first quarter was still very benign for stage 3 charges, particularly on the wholesale side. We've retained ECL uncertainty overlays of $1.5 billion, broadly the same as the fourth quarter, recognizing the risks that still exist from the pandemic.
Based on the current economic outlook, we now expect the ECL charge for the full year to be below our medium-term through-the-cycle planning range of 30 basis points-40 basis points. Turning to slide 10, first quarter adjusted operating costs were $220 million higher than the same period last year. This was driven by higher performance-related pay accrual of $474 million, primarily due to a shift in accruing a higher percentage of variable pay this quarter relative to the first quarter of 2020. We made a further $443 million of cost program savings in the quarter, with an associated cost to achieve of $319 million. To date, our cost programs have achieved annualized saves of some $2.2 billion against our target of $5 billion-$5.5 billion, with cumulative cost to achieve spend of $2.2 billion. We're not softening our vigorous approach on costs.
We continue to expect our 2021 costs to be broadly in line with 2020, excluding the benefit from a reduced bank levy. This is subject to final decisions on our variable pay pool later in the year, which will be primarily driven by the pre-tax profitability of the group. Turning to capital on slide 11. The impact of profit generation in the quarter was offset by fair value movements and other deductions, including around 10 basis points for foreseeable dividends. As a result, our core Tier 1 ratio was unchanged at 15.9%. In line with our shift to a payout ratio approach going forward, the deduction for foreseeable dividends was based on one quarter of the 2020 $0.15 dividend. We expect to make the same capital deduction in the next two quarters based on the same trailing dividend assumption.
To be clear, we're not signaling with this our 2021 dividend intentions. Excluding FX movements, risk-weighted assets fell by $6 billion in the first quarter due to changes to our portfolio mix and methodology and model updates. To remind you, we do expect some core Tier 1 headwinds going forward from regulatory changes. These haven't changed from the full year. In summary, against the backdrop of ultra-low interest rates, this was a strong quarter for us. Our best in reported profits since the onset of COVID-19, and an annualized return on tangible equity of 10.2%. While the results were flattered by a net release of ECLs, we saw strong performances across various parts of the bank, with continued strength in Asia, despite the impact of a very low HIBOR and a material recovery and profitability outside of Asia.
As we look out, there remains heightened levels of uncertainty, particularly driven by the continuing emergence of COVID-19 variants. Expect us to retain a conservative position on capital funding and liquidity for the time being. Based on the first quarter performance and the strengthened economic outlook, Noel and I are more optimistic about this year, albeit cautiously, than we were at our full-year results in mid-February. With that, Sharon, if we could please open up for questions.
Thank you, Mr. Stevenson. If you would like to ask a question today, please press star one on your telephone keypad. Please limit yourself to two questions only. Please ensure that the mute function on your telephone is switched off. If you find your question has been answered, you may remove yourself from the queue by pressing star and two. Once again to ask a question press star and one. Please limit yourself to two questions only. Please ensure that the mute function on your telephone is switched off. Your first question today comes from the line of Ed Firth, KBW. Please go ahead. Your line is open.
Hi, Ed.
Yeah, good morning, everybody.
Morning
I guess one, well, two questions, actually, if that's okay. I didn't expect to get on first. It was a bit of a surprise. You caught me out. The first question was on capital. I was sort of surprised that the capital ratio wasn't stronger given the earnings beat and risk-weighted assets falling. I just wondered if you could give us some more color around, I think there's a -40 basis points hit in the chart exactly what's driving that and how we might expect that to progress going forward. I guess that was the first question. The second question was, restructuring charges seem to be running some way lower than you were, perhaps informally guiding to anyway at the full year. Should we expect those to pick up during the rest of the year?
Can you give us any color on how that might end up? Thanks.
Look, on the restructuring charges, we're not changing our full-year guidance we gave at full-year results. You're right, Q1 was unusually low. Yes, you should expect those to pick up as the year progresses. On capital, a few things. There were deductions for fair value reserve movements. On cash flow and negative FX movements, there was a higher deduction for BoCom as its profits increased. Again, note that we talk about a 10 basis point deduction for the foreseeable dividend, which is new for us.
Represents a change in policy because we've shifted to a payout ratio policy.
Okay. Based on what we can see, the bulk of those sound to me like they're peculiar to this quarter.
Yes. They are peculiar to this quarter.
Perfect. Okay. Thanks so much.
Thank you. Your next question comes from the line of Fahad Kunwar from Redburn. Please go ahead. Your line is open.
Good morning.
Hi. Morning. Just a couple of questions. The first one is on margins. You gave a color on this during the call. They drifted down really in all your major regions. Just to understand, how much of that is kind of lower rates feeding through previously lower rates and slightly lower HIBOR? Is there anything on competitive pressure that's drifting those margins down, or is it all about the background yield curve and rates? The second question is just on the write back, actually. It does look like a lot of the write backs are in the U.K., particularly U.K. Commercial. A, is that right? Were they mainly U.K. Commercial? B, what did you see that was driving that? Was it an outlook on the vaccine rollout?
Was it specific data points that you were seeing on the U.K. corporates or U.K. personal, if that was the case? Thank you.
Yeah. On NIM, it was, I think, almost exclusively driven by the shift in yield curves. What we're actually seeing, yeah, we've broadly repriced all of our liabilities now. On the asset side, actually, we're seeing some opportunity for margin expansion. For example, in the U.K., we increased margins to try and slow down some of the inflow that we were seeing. We have, for several quarters, seen some opportunity to reprice in Asia on the commercial side. We do think that we are now close to troughing on NIM. Obviously HIBOR slipped a little bit further in Q1. As you know, that translates very rapidly into the books, given the short dated nature of assets and liabilities in Hong Kong.
For net interest income, loan growth in Q1 was sort of mid-2%s, and we are signaling that we expect mid-single digit growth over the full year. That does imply much higher growth rates and lending volumes in the remaining three quarters, which we have got confidence in given the pipelines that we can see, which should help support net interest income over the remainder of the year, even if there is still some residual NIM pressure coming from the roll-off of books as a result of last year's interest rate shift. On write backs, you are right. There was a larger write back in commercial, particularly in U.K. commercial. I think in part that reflected the very large reserve build-up that we had last year. Overall, there were sort of various things going on, which made this an unusual quarter for us.
Firstly, we had very low stage 3 losses, around about $300 million or so in the quarter, which was unusually low, we think. Secondly, on stage 1 and stage 2, two things really, an improvement in economic forecasts for central scenarios in most places that we do business, coupled with, as you know, we went into the full year with very large probabilities, particularly in the U.K., against downside scenarios, which we have reduced on the back of a very successful vaccination program here. We're also seeing that in the U.S., and we would expect to see that in other markets as the vaccine programs ramp up elsewhere.
That's great. Thank you.
Thank you. Your next question comes from the line of Omar Keenan from Credit Suisse. Please go ahead. Your line is open.
Good morning.
Morning.
Can you hear me okay?
Yes.
Great. Thank you for the questions. My question is that with the Wealth and Personal Banking rationalization in France and the U.S., I was just wondering what the appetite might be to use released risk-weighted assets and potentially excess capital to add portfolios in your other markets where it might make sense. I'm noting here that a large global bank has put up consumer balances for sale in about 30 markets. I was just wondering where your view is of where your markets might overlap in those geographies where HSBC might think it makes sense to be bigger rather than smaller. Thank you.
Thank you. As you know, our primary focus in the WPB business is to grow our wealth part of that business. Therefore, we are looking at opportunities for both organic and bolt-on inorganic opportunities, but it's primarily focused on wealth businesses, either acquiring product or distribution capability in wealth management, insurance, in private banking. That's the primary focus rather than just the geographic expansion of retail banking capability. We're more focused on that for opportunity. It will be Asia-based, largely.
Great, thanks. Essentially, the way that we should read that is that there's going to be no balance sheet bolt-on M&A that would consume any excess capital. It's really just you're focused on organic strategy.
We would use capital to do an M&A deal, but what we're buying is less retail banking assets, more wealth management capabilities. We will use freed-up capital if we see bolt-on acquisition opportunities. As I say, it's more around wealth management capabilities than it is retail banking capabilities. We will look at opportunities as they emerge.
Yeah, no. I would make sure you listen to the word bolt-on. We're not planning anything substantive. Will it eat into some of the excess capital? Yes. It will be relatively modest if we choose to do anything.
Can I maybe just ask a quick follow-up on that? Having said that, and just bearing in mind your comments from last quarter around not to expect buybacks this year, could you perhaps paint the path for us towards returning excess capital, which HSBC is clearly building?
Ewen?
I think we've been clear on our distribution policy, certainly our dividend policy. We said we're going to shift to a 40%-55% payout ratio from next year. That's going to be all cash. This year, we're going to transition towards that. We were close to an 80% payout ratio last year. We do expect, subject to seeing how the second quarter goes, to be in a position to pay an interim dividend in the middle of the year, and then reevaluate whether or not we'll shift to quarterly dividends at the end of this year. On buybacks, look, we continue to have no current intention to do buybacks this year. You know that we've used buybacks in the past, so they're certainly something that we do and do actively consider as a tool of capital management. We are committed to active capital management.
We do think at the moment that when we look at consensus versus where we are, we do see RWA growth probably being a tad higher than is in most people's models. We see loan growth being fuller than I think all of you currently are modeling. That's on the back, I think, of very strong growth that we continue to see in mortgages across the U.K. and Hong Kong. A commercial pipeline that is building nicely. Just in context, in one of the slides, you'll see that our commercial pipeline is running close to 50% higher than it was in Q4, in Q1. We do think other segments, like consumer credit, will bounce back as we recover out of COVID-19. There are about $20 billion of regulatory headwinds that we see this year.
Offsetting that is the sort of $30 billion or so of RWA rundown that we expect. We're making good progress on that. We did about $9 billion in the first quarter. The last thing is we're still cautious on credit rating migration. Particularly as some of the government support packages roll off, for here in the U.K., for example, as furlough rolls off and what impact that has on credit later in the year. We are probably slightly more cautious on capital and excess capital than would be in your numbers at the moment.
That's wonderful. Thank you very much.
Thank you. Your next question comes from the line of Tom Rayner, Numis. Please go ahead. Your line is open.
Yes, sir. Good morning, both.
Good morning, Tom.
Just two questions, please. First on credit quality. You obviously released $0.7 billion from stage 1 to reserves in Q1. I think you flagged $6.8 billion still left on balance sheet. Your guidance, if I take the bottom of your range, I know you're saying it could be below, would suggest a sort of full-year charge of somewhere around $3 billion or lower. I just wonder, that guidance in itself, what does that imply in terms of further stage 1, 2 releases for the rest of 2020-2021. I know you've already touched on this. I was going to ask you to then just expand on your thoughts about when the government programs actually do end. What's your thoughts on sort of releases over a two to three year period? That was the first question, the second one on costs, please.
Look on ECLs, I said in my opening remarks that we've retained uncertainty overlays of about $1.5 billion. We think we're retaining currently about 70% of the reserve build-up in stage 1 and stage 2. If we were to stick to the central economic scenario, I would think you would see some of that get released this year, maybe some of it get released in the first half of next year. I think we're going to continue to be pretty cautious about how we do release. We're not expecting a repeat of Q1, in terms of further ECL performance during the remainder of the year. There still is a pretty broad array of outcomes, I think, depending on how we progress out of COVID. Obviously there are a few risks on the horizon, particularly around new variants and whether any of those become vaccine resistant.
Where we land below 30 basis points, we'll see. You should assume that within that we're confident that we will end up below 30 basis points.
Is it-
I think it's important. You know as well, it's important that we adopt a cautiously optimistic approach to reserves and the way the economy will develop. We're optimistic. We're seeing good signs. It's still relatively early days for the vaccination program. That's why we've wanted to retain around 70% of the provisions that we created last year. We've had a very good stage 3 quarter in Q1, with only $300 million of stage 3 charges. That's below the normal trend line that one would expect. I think it's right to be cautiously optimistic and continue to position the balance sheet cautiously.
Yeah, I think I was possibly leaning to are you being too cautious now, but, I completely get the point about the uncertainty over government programs and vaccines.
I think we can adjust. As the year develops, we'll adjust on a quarterly basis, our view of what the future holds.
Okay. Lovely. Thanks. Just on costs. Your comments on broadly stable for the full year barring further performance related issues. If I looked at last year and I just took Q1, it was very neat, 25% of the full year total x the levy. If I annualize Q1 this year, I'm looking at sort of 3% growth. I'm just trying to get a feel for where your confidence is coming from that? Is this just incremental cost savings or are you really building in an expectation that this performance related pay is going to push us away from that broadly stable? If it is performance related, that's not a bad thing either necessarily, I'm just trying to get a feel for how confident you are really on that broadly stable target. Thanks.
Yeah. Look, in the first quarter, there was about a $300 million-$400 million adjustment due to us taking a higher accrual for variable pay compared to Q1 last year. I think if you back that number out, what you will see is that we are broadly flat costs in the quarter and you would expect the variable pay accrual, other things being equal, to be a few hundred million dollars lower for the remaining quarters of the year, which I think gives you confidence in that statement. All we are signaling on the variable pay accrual, I think what we saw as part of the full year results, as you will all know, there was a very different approach across the sector in terms of performance pay. We took our pool down by close to 20% for the full year.
We saw some peers, particularly U.S. peers, and particularly some European peers who were concentrated on the wealth and investment banking space, pay in very different places. We're just cognizant of the fact that for competitive reasons, we may need to top up our current pool assumptions as the year progresses, but that would only be done in the context of improved profitability. Absent that change, and again, in context, we paid about $2.8 billion in variable pay last year. You can do your own math and size what that risk is. Absent that, we're very confident that we're on track to deliver broadly flat costs this year. I would stress there's no change at all in the internal management focus on the cost program.
Okay, lovely. Thanks a lot.
Thank you. Your next question comes from the line of Guy Stebbings, Exane. Please go ahead. Your line is open.
Morning. Afternoon, everyone.
Hello.
Thanks for taking the questions. Two. Firstly, on RWAs, and then just briefly to come back on costs. I just wanted to check on the RWAs, your commentary that you see RWAs being higher than consensus. Is that a reference beyond 2021? Just as we look at Q1, quite an encouraging quarter, even taking the FX and gross save. Given where we start Q2, further growth stage 2 to come. It didn't strike me the consensus looks particularly behind 2021. Perhaps you're more cautious in terms of credit migration and the volume growth. I just want to check if it's a 2021 or beyond sort of story there. Second question is on costs, come back to your commentary on performance record. I think initially you said it would be driven by PBT.
I was interested, was that more weighted to pre-provision profit or if the impairments were materially low below medium-term cost of risk? That could be a factor or is it more competitive pressures that you just talked to that would drive that? Thank you.
Yeah. Variable pay is set largely on bottom line profitability. We do take some in. For example, last year, I think profits fell by around a third, and we took the variable pay pool down by 20%. If we saw the reverse go this year, and it was largely driven by ECL outperformance, I don't think we would take all of that outperformance into a change in variable pay.
Correct. You've got to remember, what we're managing to is leaving VP to one side. We're on track and confident of our ability to deliver the transformation cost savings that we talked about in February and the February before that. The underlying cost position in the bank is well positioned and on track to meet those expectations. We've had a strong profit performance in Q1, and therefore, we've topped up the VP for the Q1 performance. We'll have to see what happens in Q2, Q3, and Q4. The most important message for you is we're on track for our underlying transformation cost savings.
Yeah. The question on RWAs, just in terms of 2022, again, I think that we would be confident of achieving mid-single-digit loan growth. We've probably got another $20 billion to go on our RWA reduction program next year. You will have Basel III reform coming through, which will probably lead to a 4%-5% uplift in RWAs next year. I don't know how that compares with consensus, but broadly, that's what's in our head at the moment.
Okay. Thank you.
Thank you. Your next question comes from the line of Manus Costello from Autonomous. Please go ahead. Your line is open.
Hi, Manus.
Hi, Manus.
Morning. I just wanted to come back on the point on cost, please. I just wanted to understand more how it will evolve going forward. From what you're saying, it sounds as if to the extent that revenues are being led by areas like wealth and markets, that will drive potentially higher variable compensation and therefore higher expenses than you've been guiding for. Am I right to say if revenue growth hands off to more balance sheets led type NII and Commercial Banking, we wouldn't see that?
Yeah. Look, Manus, there's always going to be a mix of our internal metrics of what we think we can afford based on the profitability of the group, but we can never be uncognizant of what's going on on the market. If we are seeing competitive pressure in areas like Asia wealth and investment banking more broadly, we have to be in a position to respond to those competitive pressures. I think your statement is right to the extent that what you see is a rebalancing of profitability being driven out of the commercial bank and the retail bank. That won't necessarily drive the same competitive pressure on performance pay.
Manus, the only other thing I'd say is when we talked about our future growth plans in February, we assumed a growth in revenue tracking back to 10% RoTCE+ , we had a rebound in ECLs, we had further performance on cost takeout, and we had a reboot of revenue from a reboot of the economy and incremental activity that we're investing in. We had assumed revenue growth going forward in 2021 and 2022 and beyond. Therefore, we had assumed a growth in profit, and therefore, we had assumed a growth in variable pay to match that path. That was all inherent in the cost statements we made back in February. We have put into our future forecasts a growth in VP to match the growth in the P&L that we expect to see.
What I think you saw in Q1 is a particularly strong performance in Q1 that was over and above that underlying curve that gets us to that 10% RoTCE. If that overperformance continues in future quarters, then maybe that assumed growth in VP will be higher in the future than was in that original assumption. So too would be the PBT, and so too would be the revenue. I don't assume there isn't a growth in VP inherent in the plans that underpinned the journey to a 10% RoTCE. Does that make sense?
It does. Yes. Thank you. That's clear. Thank you very much.
Thank you. Your next question comes from the line of Yafei Tian from Citigroup. Please go ahead. Your line is open.
Thank you for taking the question. I have a question related to the top line, really trying to understand the beat for non-interest income. I see that Wealth is particularly strong. On the slide four, you mentioned that the net new money for Private Banking, you see a very strong growth in this quarter as well. Just trying to separate some of the internal changes as well as growth that you have done from a sustainable basis from this more volatile market trends. Would you be able to give us some more detailed guidance in terms of how much Wealth related revenue growth you are expecting for this year and probably for the coming years based on your internal planning? Thank you.
Yeah. It was hard to hear you, but I think what you were looking for was more of an indication of where the growth in wealth is coming from. Let me also be clear. We started that journey of investing in our wealth businesses last year. That was investing in a build-out of our product capability to make sure we had a good product capability on the shelf in Asia, and an investment in distribution. We launched the Pinnacle initiative in China as an example. We were also investing in private banking in our insurance business. We were investing in both physical manpower to drive that growth and wealth managers. We were also investing in digital infrastructure. Our insurance business in Hong Kong particularly launched a lot of new initiatives last year, new products, digital-based, supported by extra salespeople.
That's what's been driving the growth of our wealth revenues, in Asia. It's not just market sentiment or market valuations that are driving that growth. It's actual underlying growth that's coming through. We still have more to do. We recruited an extra 600 wealth managers in Asia in the first quarter alone, 100 of those in China as part of an expansion of our P innacle opportunities. Where are we getting the business? How are we sourcing that wealth opportunity? I'm pleased to say we're sourcing a lot of it from our existing client base. Around about 60% of the net new money that goes into our private bank comes from Commercial Banking clients and Global Banking and Markets clients. The owners of those businesses are putting their personal wealth with us. The same is true of asset management.
Around 75% of the net new money for asset management is coming from internal HSBC clients. It's true organic growth at an underlying level, not just growth in assets as a consequence of market revaluation of those assets. There is an element of that in Q1 as markets revalued, but there's a lot of it coming from underlying growth.
Thank you. Would it be possible to give us some guidance in terms of the wealth revenue growth outlook in percentage?
We talked about our revenue growth outlook in February. For Asian wealth, we're assuming close to double-digit growth in assets, as we said in February, and mid-single digit growth in other regions outside of Asia. That would result in probably Asia wealth revenues to grow at around about 10% CAGR over the next few years.
Thank you.
If I remember correctly, I think if you look at market sentiment and market stats, you're probably looking at the underlying market in Asia, probably growing 6%, 7%, 8%. We're trying to outperform the market by the organic investment program that we're putting in place.
Very clear. Thank you.
Thank you. Your next question comes from the line of Rahul Sinha, JP Morgan. Please go ahead. Your line is open.
Hi, Rahul.
Good morning, Noel. Good morning, Ewan.
Good morning.
Thanks so much for taking my questions. The first one is just on loan book, loan demand. I was trying to understand a couple of points. Firstly, how sustainable do you think this current activity spike in the U.K. mortgage market is? Obviously, you along with all of the U.K. banks have benefited from very strong mortgage pipelines and pricing. Just wondering, tying that into your overall comments on loan demand as to what you're assuming happens to that for the rest of the year. Just related to that, I suspect there's an element of pent-up demand in other areas of loans in the U.K. as well as probably across your footprint as well. To balance that out, if you could talk a little bit about where you see pent-up demand in loan growth. Thanks.
Yeah. Let me deal with the consumer book first, the retail banking business first. I think in the U.K., it's true that there is strong activity at the moment. There will undoubtedly be an element of that which is driven by the stamp duty holidays that were put in place that are likely to come to an end shortly. I also believe there is some structural changes taking place in the U.K. in that the housing market in the U.K., I think will remain active for quite a period of time, as the housing stock has continued to be built out. I think there's an underlying growth curve there and there's a potential temporary growth curve as a consequence of the stamp duty holiday.
I think we'll see a pickup in activity on consumer lending, unsecured lending, credit card activity in the second half of the year, not just in the U.K., but across the world. If you just take our own balance sheet, we grew last year our deposit balances by around about $170 billion last year. An element of that $170 billion will turn into cash spend by consumers and businesses in the second half of this year, already started, but will continue to pick up. I think you're going to see traditional unsecured lending, credit card activity, see an increase in the second half of this year. Hong Kong remains strong demand on mortgage growth, and we're pleased on that.
More broadly into the wholesale business, what I saw at the end of last year, particularly in Q4, was a lot of activity from corporate borrowers seeking facility renewals or facility extensions to get their balance sheet ready for the upturn in the economy as they started to see vaccines come on stream. I didn't see that translate into loan drawdowns in Q4 of last year. I have started to see that take place in Q1 of this year. For example, the trade balance sheet in Asia grew by $3 billion in the first quarter of this year. That's an indication of underlying economic growth. If the vaccine programs continue as they currently are, you could assume that that trend will continue and could well pick up.
More generally, there was a starting to see a drawdown in those facilities that were negotiated at the end of last year, taking place in Q1. Overall, our Commercial Banking balance sheet grew by GBP 2 billion in Q1 of this year. Our personal banking loan book grew as well. I think it's early stage of growth, and I could expect the trend to pick up as over the next three quarters.
Thanks very much. That's really helpful. I was wondering if I can have one more on capital, just a very quick clarification. I was wondering if you have any further thoughts on the stress testing timeline this year, and if there's any scope for regulatory restrictions in the U.K. to come off earlier, for yourselves.
Well, I think you know that there's a sort of current mini stress test being done by the Bank of England and the PRA. That was in the absence of them having done an annual cyclical scenario at the back end of last year. As we sit here today, I guess we're not expecting any surprises out of that given, we've been extensively stress testing our books through the pandemic, and in recent months, obviously outlook has improved. Yeah, we're not expecting the Bank of England at this point. We're expecting us to be the driver of our distribution policy, I guess, is the better way of describing it.
Got it. Thank you.
Thank you. We will now take our last question. The question comes from the line of Martin Leitgeb from Goldman Sachs. Please go ahead. Your line is open.
Hi, Martin.
Hi, Martin.
Yeah. Hey, Ewan. Hey, Noel. Thank you for taking my question. I just had a follow-up on earlier comments on margin outlook from here. I was just wondering if you could maybe shed a little bit of light on how we should think of NIM progression here for the main business lines. HBAP, The Hongkong and Shanghai Banking Corporation, and in particular the U.K. ring-fenced bank. I was just wondering if it's fair to assume that the Bank of England rate cut impact has by now fed through in Hong Kong, and from here we should see stability and if anything, at some point, some gradual growth, and that if anything, some of the remaining margin pressures coming through from structural hedge roll over, in particular in the U.K.
I was just wondering, should we assume margins to remain broadly flat in terms of 1Q level, what we have seen? Is your guidance of, I think you said earlier that 1Q NII is broadly representative of the full year, if I understand right, does that imply that combined with loan growth, you would expect some further margin compression heading into 2021? Just a follow-up on capital. I was just wondering if you could update us on how much progress you have made in addressing capital inefficiencies within the group? Whether you could let us know how big the principal investment book is at this stage and what portion of transfers into Asia has occurred so far? Thank you.
Okay. On the NIM question. You know Martin, that not all of our interest rate sensitivity is in the first year. There is a degree we talked about previously about $1 billion of interest rate pressure coming from lower rates into 2021. Obviously HIBOR did drop meaningfully in the first quarter, has remained broadly stable in the second quarter at the levels of the first quarter so far. We do think we are getting towards the trough of NIM pressure. It would be a big call to say that Q1 was the trough. I still think there will be an element of pressure into the second quarter, and then obviously volume growth then provides us confidence that the impact on net interest income is negligible.
The other thing I would say about the growth that will be back-end loaded as we go progressively through the year and as confidence builds during the year. Therefore, you won't get as much of that benefit into 2021, but you will get all of that benefit into 2022. I talked about earlier, assuming that the Q1 net interest income was a good guide to the annualized net interest income for the full year. You should take away from that, therefore, that we're also confident about decent net interest income growth into 2022. On Hong Kong, most of the impact of lower HIBOR gets translated into our books within three months. Equally, the reverse is true. If we were to get back to a better short-term HIBOR curves, we would see that very rapidly translate into improved net interest income in Hong Kong.
Sorry, I didn't quite catch the second question.
Yeah, I was just wondering on capital inefficiencies. Previously you spoke about capital inefficiencies coming from the non return-
I think you should assume that that is a multi-year program of work. We've got, for example, probably $5 billion plus of excess capital in the U.S. that will come out, we expect, over several CCAR cycles. There's various capital optimization opportunities that we're working on in Asia, which will take a few years to effect. I would say it's a sort of multi-year program of work. We know what that program of work is, and we're just progressively working on it. Some of it is driven by sort of ongoing discussions with regulators. I think the confidence in regulators to see capital release coming out of places will obviously improve as we see a stronger path out of COVID.
Very clear. Thank you very much.
Thank you. I will now hand the call back over to Noel for any closing remarks.
Thanks, Sharon. To summarize, we've had a good start to the year with good business growth and an improved lending pipeline moving into the rest of 2021. We're making good progress on our growth and transformation plans and remain on track to deliver what we promised in February. We remain absolutely committed to our cost transformation plans. We're feeling more optimistic about the rest of the year than we did in February, but we remain cautious around the uncertainties that remain. If you have any further questions, please do pick them up with Richard and the team. Thank you once again for joining us today.