Good morning in London and good afternoon in Hong Kong. I've got Ewan with me today. And I wanted to start by sharing on screen our purpose, ambition and our 4 strategic pillars: to focus on our strengths, to digitize our scale, to energize for growth and to lead the transition to net 0. I will return to these in a moment. But first, I'll run through some highlights before Ewan 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, 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 pretax profits of $5,800,000,000 which were up 79% on last year's Q1. We strengthened our lending pipelines across our personal for banking businesses, which bodes well for our future revenue. Our cost and RWA programs remain on track with $443,000,000 of quarterly cost program savings and $9,000,000,000 of gross RWA savings in the quarter. And we retained a strong capital ratio of 15.9% with further growth in both deposits and lending. Pulling out a few highlights on Slide 3.
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 UK and 30 7% in Hong Kong. Our wealth strategy got off to a strong start with 23% growth in overall wealth balances. We attracted $13,000,000,000 of net new money into private banking in the quarter and $11,000,000,000 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 1 month in 2020.
Global Banking and Markets had a good quarter, supported by strong customer activity in Capital Markets. We led more than $567,000,000,000 of capital markets financing across Global Debt and Equity, Markets and Syndicated Loans, including around $40,000,000,000 of social and COVID-nineteen response bonds, which is around 29% of the total market. This was a global performance with good profitability in all regions and growth of $3,200,000,000 in profits booked outside of Asia compared with last year's Q1. Moving to Slide 4. 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. And we've grown trade finance lending in Asia by around $3,000,000,000 mainly in China and Hong Kong. Under digitize our 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 UK with around 6,000 customers already signed up. Under energized 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 of 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 3,600,000 square feet or around 20% by the end of 2021. We're also relocating 3 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 0, We 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 UK 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 Q2. Ewan will now take you through our results.
Thanks, Noel, and good morning or afternoon, all. We had a good quarter against the backdrop of ultra low rates, reported post tax profits of 4 point $6,000,000,000 that's up 82% on last year's Q1 and an annualized return on tangible equity of 10.2%. Adjusted revenues were down 3% on last year's Q1, largely due to the impact of ultra low interest rates, but there were notably good performances in some segments, including Asia Wealth and Wealth and Personal Banking, Asia Trade Finance and Commercial Banking and Capital Markets and Advisory Debt Trading and Equities and Global Banking and Markets. Relative to the Q1 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 $435,000,000 net release.
This reflects both an improved economic outlook for our central scenarios and in the UK and the US 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 remained stable at 15.9 percent and our tangible net asset value per share of $7.78 was up $0.03 on the 4th quarter with retained profits more than offsetting negative reserve movements. Turning to Slide 6 and looking at 1st quarter adjusted revenues across the 3 global businesses. In Wealth and Personal Banking, revenues were down 1% on a year ago. Wealth Management revenues grew by just under $1,000,000,000 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 $890,000,000 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 specs where some peer banks benefited from exceptionally high activity levels in the Q1. On Slide 7, net interest income was 6 point dollars 5,000,000,000 down 14% against the Q1 of 2020 on a reported basis. On rates, the net interest margin was 121 basis points, down 1 basis point on the 4th quarter, primarily reflecting the fall in HIBOR during the Q1.
On volumes, we saw continued good volume growth in mortgages in both Hong Kong and the UK and strong commercial applications that we 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 Q1. On the next slide, net interest income was $6,800,000,000 up 15% against last year's Q1, but noting last year was negatively impacted by volatile items due to COVID-nineteen. Overall, net interest income stabilized in the quarter compared with falls over the previous 3 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 and our Q1 of 2020. Commercial Banking was down slightly reflecting lower trade and payment volumes due to the continuing impact of COVID-nineteen on activity levels. Looking forward, we expect from our activity and fee income to continue to recover as economic activity recovers. Although this We remain subject to the impact of new COVID-nineteen 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 $435,000,000 of expected credit losses in the quarter.
This compares with a $3,100,000,000 charge in the Q1 of 2020. The net release was across all global businesses and reflecting an improvement in the economic outlook, notably in the UK, including a reduction in downside probabilities. Last year's Q1 included a large charge related to 1 single name corporate exposure in Singapore, that this year's Q1 was still very benign for Stage 3 charges, particularly on the wholesale side. We've retained ECL uncertainty overlays of $1,500,000,000 broadly the same as the 4th quarter, recognizing the risks that still exist from the pandemic. But based on the current economic outlook, We now expect the ECL charge for the full year to be below medium term through the cycle planning range of 30 basis points to 40 basis points.
Turning to Slide 10. 1st quarter adjusted operating costs were $220,000,000 higher than the same period last year. This was driven by higher performance related pay accrual of $474,000,000 primarily due to a shift in accruing a higher percentage of variable pay this quarter relative to the Q1 of 2020. We made a further $443,000,000 of cost program savings in the quarter with an associated cost to achieve of $319,000,000 To date, our cost programs have achieved annualized saves of some $2,200,000,000 against our target of $5,000,000,000 to $5,500,000,000 with cumulative cost to achieve spend of $2,200,000,000 We're not softening our vigorous approach on costs. We continue to expect our 20 '21 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 percent. In line with our shift to a payout ratio approach going forward, the deduction for foreseeable dividends was based on one quarter of the $20.20 dividend.
We expect to make the same capital deduction in the next two quarters based on the same trailing dividend assumption. But to be clear, we're not signaling with this our 2021 dividend intentions. Excluding FX movements, risk weighted assets fell by $6,000,000,000 in the 1st 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.
So 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-nineteen 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 high ball and a material recovery in profitability outside of Asia. As we look out, there remains heightened levels of uncertainty, particularly driven by the continuing emergence of COVID-nineteen variance, so expect us to retain a conservative position on capital funding and liquidity for the time being. However, based on the Q1 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.
To
Your first question today comes from the line of Ed Firth, KBW. Please go ahead. Your line is open.
Hi, Ed. Yes. Good morning, everybody. I just had, I guess one well, 2 questions actually, if that's okay. I didn't expect to get on first.
It was a bit of a surprise, 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. And I wondering if you could give us some more color around it was a minus 40 basis points hitting the chart, exactly what's driving that and how we might expect that to progress going forward. I guess that was the first question.
And then 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 And can you give us any color on how that might end up?
Yes. Look, on the restructuring charges, We're not changing our full year guidance. We gave full year results. You're right. Q1 was unusually low.
So yes, you should expect for those to pick up as the year progresses. On capital, yes, a few things. There were deductions For fair value reserve movements, on cash flow and negative FX movements, There was a high deduction for VOCOM as its profits increased. And again, note that we took about a 10 basis Point deduction for the foreseeable dividend, which is new for us, but represents change in policy because we've shifted to a payout ratio policy.
Okay. So Based on what we can see, the bulk of those sound to me like they're peculiar to this quarter. That's not
there's not a sort of underlying Yes,
they are peculiar to this quarter.
Perfect. Okay. Thanks so much.
Thank you. Your next question comes from the line of Fahed Kunwar from Redburn, please go ahead. Your line is open.
Hi, good
morning. Just a couple of questions. The first one is on margins and you gave any color on You and during the call, but maybe just to down really in all your major regions, just to understand how much of that is and kind of lower rates feeding through previously lower rates and slightly lower high vol. And is there anything on competitive pressure that's drifting Those margins down, is it all about the background yield covering rates? The second question is just on the write back.
So it does look like a lot of the write backs were in the UK, particularly UK commercial. A, is that right? Were they mainly UK commercial? And 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 UK corporates or UK personal if that was the case?
Thank you.
Yes. On NIM, it was I think almost exclusively driven by the shift in yield curves. I mean what we're actually Yes, we've broadly repriced all of our liabilities now. And on the asset side, actually, we're seeing some opportunity for margin expansion. So for example, in the UK, we increased margins to try and slow down some of the inflow that we were seeing.
And we have for several quarters seen some opportunity to reprice in Asia on the commercial side. So we do think that we are now close to troughing on NIM. I mean, obviously, HIBOR slipped a little bit further in Q1. But as you know, that translates very rapidly to the books given the short dated nature of assets and liabilities in Hong Kong. And then for net interest income, Yes, loan growth in Q1 was sort of mid-2s percent and we're signaling that we expect Mid single digit growth over the full year.
So that does imply much higher growth rates in Lending volumes in the remaining three quarters, which we've 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're right. There was A larger write back in commercial, particularly in UK commercial, I think in part that reflected the very large reserve build up that we had last year. Look, 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, Yes, around about $300,000,000 or so in the quarter, which was unusually low, we think.
And secondly, on stage 1 and stage 2, two things really, an improvement in economic forecast The 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 Very successful vaccination program here. And we would expect we're also seeing that in the U. S.
And we would expect to see that in of the markets as the vaccine programs ramp up elsewhere.
That's great. Thank you.
Thank you. Your next question comes from the line of Omar Kinan from Credit Suisse. Please go ahead. Your line is open.
Good morning. Can you hear me okay?
Yes.
Great. My question is 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 to say I'm in about 13 markets. So I was just wondering where your view is of where markets might overlap in those geographies where HSBC might think it makes It tends to be bigger rather than smaller. Thank you.
Omar, thank you. As you know, our primary focus in the WPB business is to grow our wealth part of that business. And 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. So we're more focused on that for opportunity.
And it will be Asia based largely.
Great. So essentially, The way that we should read that is that there's going to be no balance sheet bolt on M and A that would consume any excess capital. It's really just You're focused on organic strategy.
Well, we would use capital to do an M and A deal, but it would be what we're buying is less retail banking assets, more wealth management capabilities. So we will use freed up capital if we see bolt on acquisition opportunities. But as I say, it's more around wealth management capabilities than it is retail banking capabilities. We will look at opportunities as they emerge.
Yes. And I would use make sure you listen to the word bolt on. We're not sort of Planning anything substantive. So, yeah, will it eaten some of the excess capital? Yes, but it will be relatively modest if we choose to do
Can I maybe just ask
a quick follow-up on that? So having said that And just bear in mind your comments from last quarter for analysts not to expect buybacks this year. Could you perhaps Paint the path for us towards returning excess capital, which HSBC is clearly building.
Ewan? Yes.
So I mean, I think we've been clear on our distribution policy, certainly our dividend policy. We said we're going to shift to a 40% to 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 Yes, subject to seeing how the Q2 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 the quarterly dividends from 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 there's certainly something that we do and do actively consider as a to all of capital management and we are committed to active capital management. Yes, we do think at the moment that Yes. 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 modeling. Yes, that's on the back I think of very strong growth that we continue to see in mortgages across the U. Okay. In Hong Kong, a commercial pipeline that is building nicely. And 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.
And we do think other segments like consumer credit We'll bounce back as we recover out of COVID. Yes, there are about $20,000,000,000 of regulatory headwinds that we this year. Offsetting that, there's the sort of $30,000,000,000 or so of RWA rundown that we expect. We're making good progress on that. We did about $9,000,000,000 in the Q1.
And the last thing is we're still cautious on credit rating migration, Yes, particularly as some of the government support packages roll off for here in the UK, for example, as furlough rolls off and what impact that has on credit later in the year. So, yes, we are probably slightly more cautious on capital and excess capital that 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 Reiner, Numis.
Yes, good morning both.
Good morning.
Just two questions please. First on credit quality. You obviously released $700,000,000 from Stage 1 to reserves in Q1. I think you flagged 6 $8,000,000,000 still left on balance sheet. And your guidance, if I take the bottom of your range, I know you're saying you to be below would suggest a sort of full year charge of somewhere around $3,000,000,000 or lower.
Just wondered that guidance in itself, what does that imply in terms of further Stage 1, 2 releases for the rest of 2021. And then 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 2 to 3 year Piyush, that was the first question. And then the second one on cost, please.
Okay. Well, look, on ECLs, I mean, I Said in my opening remarks that we've retained uncertainty overlays of about $1,500,000,000 So we think we're retaining currently about 70% of the reserve buildup 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.
And there still is A pretty broad array of outcomes, I think, depending on how we progress out of COVID. And obviously, there are a Few risks on the horizon, particularly around new variants and whether any of those become vaccine resistant. So Yes, where we land below 30 basis points, we'll see. But you should assume within that, that we're confident that we will end up below 30 basis
points. I think it's important I mean, 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, but it's still relatively early days for the vaccination program. That's why we wanted to retain around 70 and to the provisions that we created last year.
We've had a very good Stage 3 quarter in Q1 with only 300,000,000 of Stage 3 charges. That's below the normal trend line that one would expect. So I think it's right to be cautiously optimistic and the Mystic and continue to position the balance sheet cautiously.
Yes. I mean, I think I was possibly leaning to are you being too cautious now, but I completely get the point about the uncertainty over government.
And 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. And just on costs, Your comments on broadly stable for the full year barring further performance related issues. I mean,
If I
looked at last year and I just took Q1, it was very neat, 25% of the full year total ex 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. Is this just incremental cost savings or are you really building in an expectation that this performance related pay is going to push pushes away from that broadly stable. I mean, if it is performance related, that's not a bad thing either necessarily, but I'm just trying to get a feel for how confident you are really on that broadly stable target.
Thanks.
Yes. So look, in the Q1,
the
There was about a $300,000,000 to $400,000,000 adjustment due to the Us taking a higher accrual for variable pay compared to Q1 last year. So I think if you Back that number out, what you'll see is that we were broadly flat costs in the quarter. And you would expect the variable pay accrual other than being equal to be a few $100,000,000 lower for the remaining quarters of the year, which I think gives you confidence in that statement. We're always signaling on the variable pay accrual. I think what we saw in as part of the full year results, as you will all No.
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, but 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. So 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 on the context of improved profitability.
But absent that change, and again, in context, we paid about $2,800,000,000 in variable pay last year. So you can do your own math and size what that risk is. But absent that, we're very confident that we're on track to deliver broadly flat cost this year. And 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. And your next question comes from the line of Guy Stebbings, Exane.
Good morning, afternoon, everyone. Thanks for taking the questions. I So firstly on other ways and then just briefly to come back on costs. I just want to check on the other ways, your commentary that you see other ways being Higher than consensus, is that a reference beyond 2021? Just as we look at Q1, quite encouraging quarter, even taking the FX and gross saves.
So Given where we start Q2, further growth stage to come, it didn't strike me the consensus looks particularly high in 2021, but perhaps you're more cautious in terms of Credit migration and then the volume growth. I just want to check if it's a 2021 or beyond sort of story there. And then second question is on costs, sort of Come back to your commentary on performance call. I think the ratio you said it would be driven by PBT, so I was interested. Was that more weighted to pre provision profit or if impairments were Materially low, medium term cost of risk, that could be a factor?
Or is it more sort of competitive pressures that you just talked to that would drive that? Thank you.
Yes. I mean, variable pay is set on largely on bottom line profitability, but we do take some We have, 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 It reversed 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. And You got to remember, what we're managing to is leaving BP to one side. We're on track and confidence of our ability to deliver the transformation cost savings that we talked about in February and the February before that. So 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 Q3 and Q4. But the most important message for you is we're on track for our underlying transformation cost savings.
Yes. And on the question on RWAs, yes, just in terms of 2022, again, I think, Yes, we would be confident of achieving, yes, mid single digit loan growth. We've probably got another $20,000,000,000 or so to go on our RWA reduction program next year, but then you will have Basel Free reform coming through, which will probably lead to a 4% to 5% uplift in RWAs next year. So If you 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 Casella from Autonomous. Please go ahead. Your line is open.
By Manus. Good morning. I might just want to
come back on the point on cost, please. I just wanted to understand more how it will evolve going forward. Because 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. But am I right to say if revenue growth hands off to more balance sheet led type NII and Commercial Banking, we wouldn't see that. Banking, we wouldn't see that.
Yes. Look, Manus, there's always going to be a mix of our internal metrics of what we think Yes, we can afford based on the profitability of the group, but we can never be uncognizant of what's going on in the market. So if we are seeing competitive pressure in areas like Asia Wealth and Investment Banking more broadly, Yes, we have to be in a position to respond to those competitive pressures. But I think your statement is right to the extent that what we 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 by.
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 coming in tracking back to 10% ROTEE plus 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. So we had assumed revenue growth going forward in 2021 2022 beyond. And therefore, we had assumed a growth in profit and wherefore we had assumed the growth in variable pay to match that path. And that was all inherent in the cost statements we made back in February.
So we have put into our future forecast a growth in VP to match the growth in the P and 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% ROCE. Now if that Overperformance continues in future quarters, then maybe that assumes growth in VP will be higher in the future than was in that original assumption, but so too would be the PBT and so too would be the revenue. So I don't assume there isn't a growth in VP inherent in the plans that underpinned the journey to a 10 scent roti. 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 Yafai Tien 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 think that wealth is particularly strong. And on the Slide 4, 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.
Yes. It was hard to hear you, but I think what you are looking for was more of an indication of where the growth in wealth is coming from. And let me also be clear, we started that journey of investing in our wealth businesses last year. And that was investing in a build out of our product capability to make sure we had good product capability on the shelf in Asia and an investment in distribution. So we launched the Pinnacle initiative in China as an example.
But 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, but we're also investing in digital infrastructure. So our insurance business in Hong Kong particularly launched a lot of new initiatives last year, new products, digital based, supported by extra salespeople. And that's what's been driving the growth of our wealth revenues in Asia. I would it's not just market sentiment or market valuations that are driving that growth.
It's actual underlying growth that's coming through. Now we still have more to do. We recruited an extra 600 wealth managers in Asia in the Q1 alone, 100 of those in China as part of an expansion of our Pinnacle opportunities. The conversion where are we getting the business? Where how are we sourcing that wealth opportunity.
Well, 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 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.
So 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 to that in Q1 as markets revalued, but it's 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 into the
We talked about our revenue growth outlook at the in February. We're assuming 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. And that would result in probably Asia wealth revenues to grow at around about 10% CAGR over the next few years.
Thank you.
And 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%. So we're trying to for 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 Raul Sinha at JPMorgan. Please go ahead. Your line is open.
Good morning, Noah. Good morning, guys.
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 UK mortgage market is. Obviously, you along with all of the UK banks have benefited from very strong mortgage pipelines and pricing.
So just wondering tying that into your overall comments on loan demand, So what you're assuming
happens to that for the rest of
the year? And then just related to that, I suspect there's an element of pent up demand in other areas of loans in the UK as well as probably across your footprint as well. So to balance that out, if you could talk a little bit about where you see pent up demand And on the growth. Thanks.
Yes. Let me deal with the consumer book first, the retail banking business first. I think in the UK, 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 we'll put in place that are likely to come to an end shortly. But 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. So I think there's an underlying growth curve there and there's a potential temporary growth curve as a consequence of the stamp to the holiday. We 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 UK, but across the world.
If you just take our own balance sheet, we grew last year our deposit balances by around about 170 €1,000,000,000 last year. Now an element of that €170,000,000,000 will turn into cash spend by consumers and businesses in the second half of this year or already started, but will continue to pick up. So I think you're going to see traditional unsecured lending, credit card activity being increased 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 ready to get their balance sheet ready for the upturn in the economy as they started to see vaccines come on stream.
But 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. So for example, the trade balance sheet in Asia grew by $3,000,000,000 in the Q1 of this year. That's an indication of underlying economic growth. And If the vaccine programs continue as they currently are, you could assume that that trend will continue and could well pick up.
And then 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. So overall, our commercial banking balance sheet grew by $2,000,000,000 in Q1 of this year. And our personal banking loan book grew as well. So 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 UK to come off Yes, for yourselves.
Well, I mean, I think you know
that there's a sort of
current mini stress test being done by the Bank of England and the PRA. And that was in the absence of them having done an annual cyclical scenario at the back As we sit here today, I guess we're not expecting any surprises out of that given Yes, we've been extensively stress testing our books through the pandemic. And in recent months, Obviously, outlook has improved. So yes, we're not expecting The Bank of England at this point to be 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. And the question comes from the line of Martin Leitgeb from Goldman Sachs. Please go ahead. Your line is
open. Hi, Martin.
Yes. Hi, Eun.
Thank you for taking my question. I just had a follow-up on earlier comments on margin outlook from here. And I was just wondering
if you could maybe shed a little bit of light on how we should think of Here for the main business line, so HBAP, so Hong Kong, Shanghai Banking Corporation and in particular the U. K. Ring fenced bank. I was just wondering if it's fair to assume that the bulk of 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 guide will grow and that if anything some of the remaining margin pressures coming through from Structural hedge rollover in particular in the U. K.
And I was just wondering, should we assume margins to remain broadly flat in terms of 1Q level what We have seen it. Or is there is your guidance of I think you said earlier That won't you and I is broadly representative of the full year, if I understood right. Does that imply that combined with loan growth, you would expect some further margin Compression heading into 2021. And then 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, I mean, you know, Martin, that not all of our Interest rate sensitivity is in the 1st year. I mean, there is a degree we talked about previously about $1,000,000,000 of Interest rate pressure coming from lower rates into 2021. And then obviously, HIBOR, Yeah, it did drop meaningfully in the Q1, has remained broadly stable in the Q2 at the levels of the Q1 so far. So we do think we are getting towards the trough of NIM pressure, but 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 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 is that we'll be back end loaded as we go progressively through the year and as confidence builds during the year. And therefore, you won't get much as much of that benefit into 2021, but you will get all of that benefit into to. So, yes, I talked about earlier assuming that the Q1 net interest Interest income growth into 2022. On Hong Kong, most of the impact of lower HIBOR gets translated into our books within in 3 months.
So equally, the reverse is true. If we were to get back to a better short term high vol because we would see that very rapidly translate into improved net interest income in Hong Kong. I'm sorry, I didn't quite catch the second question.
Yes, I was just wondering on capital inefficiencies. So previously you spoke about
the capital inefficiencies. I think that as a Multi year program of work. Yes, we've got, for example, probably $5,000,000,000 plus of excess capital in the U. S. That will come out.
We expect over several CCAR cycles, there's various capital optimization opportunities We're working on in Asia, which will take a few years to effect. So I would say it's a sort of multiyear program of work. We know what that program of work is and we're just progressively working on it. And some of it is driven by sort of ongoing discussions with regulators. And 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, Sharap. So 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