Financial Performance Analysis of HSBC Bank and Brexit's Influence

This report examines the impact of Brexit on HSBC Bank's financial performance. It begins with an introduction to HSBC and the context of Brexit, followed by an analysis of the bank's financial data, including key ratios such as Return on Assets, Return on Equity, Fixed Assets Turnover, and Net Margin. The analysis reveals a decline in these ratios post-Brexit, indicating a negative impact on the bank's overall performance. The report argues that Brexit has led to increased risks and uncertainties, affecting the bank's profit margins and revenue sources, particularly due to changes in regulatory structures and customer base. The conclusion summarizes the significant challenges faced by HSBC, emphasizing the need for strategic adjustments to mitigate the adverse effects of Brexit. References to academic journals and financial data sources support the analysis.

Banking Theory and
Practices

Table of Contents
INTRODUCTION...........................................................................................................................1
Background of HSBC:.................................................................................................................1
Objective of the case study..........................................................................................................1
Collection of financial data of the selected commercial bank of UK..........................................2
Evaluation of financial measures or ratios...................................................................................3
Analysis of financial measures or ratios with support of appropriate diagrams..........................3
Critically argue whether the bank's performance and risk that were affected by Brexit.............3
CONCLUSION................................................................................................................................4
REFERENCES................................................................................................................................5

INTRODUCTION
Bank refer to an institution which accept deposit and advances loan and also provide
financial service (Dow, 2017). Bank provide different services to their customer like advancing
loan, credit card, ATM service, mobile banking and many more. Banking practices include
standard set that a bank need to follow. HSBC is one of the largest organisation providing
banking and financial service globally. It is a UK based bank providing commercial banking,
retail banking, global banking and wealth management. This report include, uncertainty of Brexit
plan on banking and financial services of HSBC bank, performance and risk associated with
HSBC bank. It also include ratio and measure, impact of Brexit on banks performance.
MAIN BODY
Background of HSBC
Brexit include exit of United Kingdom from EU (European Union) after 47 years. It bring
uncertainty as it affect all sector in the economy of UK like import goods from Europe to UK
(Hafez, 2018). It restrict free movement of trade between UK and EU. The economy of UK slow
down due to Brexit because it create impact on job, growth, trade of UK. HSBC bank is one of
the largest bank UK founded in 1865. Brexit impact all sectors including banking sector of both
EU and UK.
Due to Brexit, regulatory structure of UK become more complex in compare to EU and it
also affect the stability in banking sector in UK. Global regulator set different rules for financial
and banking sector. Institution in UK get benefit from low capital need and they also get benefit
from ignoring EU legislation. It increase the regulation of businesses which impact banking of
HSBC bank as its client's business is based in EU.
UK has powerful financial services base in Europe because of time zone and legal
system. Innovation in UK business still attract Europe customers as they want to continue their
business with UK. Brexit create short term risk to financial stability in economy of UK. HSBC
bank provide services to their customer as to mitigate the risk of Brexit and for their customer to
protect then from inconvenience.
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Objective of the case study
Objective of this study is to analyse banking theory and practices of HSBC bank. This
study include the impact of Brexit on the performance of HSBC bank. It include the financial
performance and measure to evaluate the impact of Brexit on bank.
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Collection of financial data of the selected commercial bank of UK
Illustration 1: Financial data of HSBC Plc, 2021
(Source: Financial data of HSBC Plc, 2021)
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Evaluation of financial measures or ratios
Particulars Formula 2018 2019
Return on Assets Net Income/ Total Assets 0.5 0.23
Return on Equity Net Income/ Shareholders Equity 6.7 3.22
Fixed Assets Turnover Revenue / Fixed Assets 6.34 5.5
Net Margin Net Income/ Net sales*100 19.79 8.77
Analysis of financial measures or ratios with support of appropriate diagrams
From the above table this can be stated that bank's overall performance has fall due to
effect of Brexit. As the return of assets ratio of 2019 which is 0.23 has fall in compare to the
year of 2018. Return on Equity ratio has also decrease and reach to 3.22 in 2019 which is less in
compare to 2018. The fixed assets turnover and net margin ratio has also fallen due to effect of
Brexit. Net margin of 2018 is 19.70 which is reduced to 8.77 in 2019 that is a big difference.
Illustration 2: Self Created, 2021
(Source: Self Created, 2021)
Critically argue whether the bank's performance and risk that were affected by Brexit
HSBC bank has faced loss more than expectation due to impact of Brexit and the bank
also face loss of share value below profit level all over the market. The bank has make a team of
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employee who can handle the impact of Brexit in business of bank (Chedrawi, Osta and Osta,
2020). The bank has suffer from Brexit as it depend on UK pass-porting as it allow HSBC bank
to do its business across Europe. The bank also made statement that the impact of Brexit is
limited and is for short term. Other bank has increased their charges after Brexit where HSBC
bank has not increased their bank charges. As the bank has half of his customer base in EU still
they provide best opportunity to their customer.
To evaluate the performance of HSBC , financial measure has chosen. The impact of
Brexit is serious on bank as it decrease the profit and revenues of the bank. The bank's dividend
payout ratio of the year 2019 has also decreased in compare of other year. Different ratio of
HSBC bank like return of assets and return on equity has also decreased which show the impact
on performance of bank. The income sources of bank has also decreased due to Brexit as the
customer base of bank is related to EU (Handajani, Rifai and Husnan, 2019). The company has
related to bad loan in the UK after leaving EU. Risk and uncertainty in UK economy increases as
a result interest rate in the economy also increases. Risk of political uncertainty in UK economy
also decreases their profit level more than their expectation.
CONCLUSION
From the above project report this can be concluded that Brexit affect the economy of
both UK and EU. It also affect business and trade of both country as it cause many barrier and
also cause many changes in economy (Aktar and Pangil 2017). In create risk in the economy
related to many factors and also affect the business of banks. Brexit affect the financial
performance of HSBC bank and also decrease their profit margin. It also results in increasing
interest rate and increasing cost of bank. Although bank has made many changes in their policy
and provision to mitigate effect of Brexit on their business.
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REFERENCES
Books and Journals:
Aktar, A. and Pangil F. (2017),“The Relationship between Employee Engagement, HRM
practices and Perceived Organizational Support: Evidence from Banking Employees”
International Journal of Human Resource Studies. 7(3).
Chedrawi, C., Osta, A. and Osta, S., (2020). CSR in the Lebanese banking sector: A neo-
institutional approach to stakeholders’ legitimacy. Journal of Asia Business Studies.
Dow, S., (2017). Central banking in the twenty-first century. Cambridge Journal of Economics.
Hafez, M., (2018). Measuring the impact of corporate social responsibility practices on brand
equity in the banking industry in Bangladesh. International Journal of Bank Marketing.
Handajani, L., Rifai, A. and Husnan, L. H., (2019). Study of The Initiation of Green Banking
Practices at State-owned Bank. Jurnal Economia. 15(1). pp.1-16.
Online:
Financial data of HSBC Plc, 2021. [Online]. Available through:
<https://www.morningstar.com/stocks/xhkg/00005/performance>
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