By Selena Li and Lawrence White

HONG KONG/LONDON (Reuters) -HSBC Holdings reported a record annual profit, that nonetheless came in below analysts' forecasts as the income boost from higher interest rates was offset by a hefty $3 billion charge from its stake in a Chinese bank.

HSBC, which has a market value of $160 billion, reported on Wednesday a pretax profit of $30.3 billion for 2023, up 78% from a year earlier but worse than a $34.1 billion broker estimate.

The British lender rewarded investors with a fresh $2 billion share buyback, and said it would consider a special dividend of $0.21 per share in the first half of 2024 once its Canada disposal is complete.

However, the record-high annual profit was marred by a $3 billion impairment on the bank's stake in China's Bank of Communications.

The bank's Hong Kong-listed shares fell 3.4% in afternoon trade.

China's deepening real estate crisis has had a ripple effect on global banks with exposure to the world's No.2 economy, with HSBC taking the largest writedown so far among foreign peers.

The writedown in the lender's BoCom stake came after a review of the Chinese bank's likely future cash flows and outlook for loan growth and interest margins, HSBC said, amid China's shakier-than-expected economic recovery.

Rival Standard Chartered (OTC:) in October took a nearly $1 billion hit on its own China bank stake, as widening loan losses compress lenders' profits.

"China's recovery after reopening (following the pandemic) was bumpier than expected, but its economy grew in line with its annual target of around 5% in 2023," Chairman Mark Tucker said in a release.

CAUTIOUS OULOOK, COSTS RISE

The biggest European lender said it remains cautious for the loan growth outlook in the first half of 2024, against slowing economic growth in many economies where inflation persisted.

HSBC said costs grew 6% in 2023, more than it had forecast, due to the impact of higher-than-expected bank levies in the U.S. and Britain. It also said costs would grow a further 5% in 2024, as it grapples with inflation while investing in its businesses.

The bank reported a 14.6% return on tangible equity (ROTE), a key performance target, in 2023 which fell behind an estimated 17%. It said it continues to target ROTE in the mid-teens for 2024.

Notably, Chief Executive Noel Quinn saw his total pay double in 2023 to $10.6 million from $5.6 million the year before, as long-term incentives from his appointment in 2020 began to vest, boosting his variable pay.

HSBC said its bonus pool rose to $3.8 billion from $3.4 billion in the prior year, reflecting improved performance, and it would also launch a new variable pay scheme for junior and middle management staff.

The London-headquartered bank announced a fourth interim dividend of $0.31 per share, resulting in a total for 2023 of $0.61 per share.