HONG KONG: Paving the way for a potential bumper payout to shareholders, HSBC has agreed to sell its business in Canada to Royal Bank of Canada for $10 billion.

The deal will help RBC consolidate its leading position in the Canadian banking market, where the top six lenders control about 80 percent of all banking assets.

Canadian regulators said they will review the agreement.

Once claiming to be the world's largest bank and possessing global retail banking businesses, HSBC has recently cut back these efforts to maintain profits.

HSBC's exit from the Canadian banking sector is the first major deal in the country since ING sold its local operations to Scotiabank for CAN$3.1 billion in 2012.

Due to pressure from its largest shareholder, Ping An Insurance Group, to split its Asian business to increase returns, HSBC's sell-offs have accelerated.

"We decided to sell following a thorough review of the business, which assessed its relative market position within the Canadian market and its strategic fit within the HSBC portfolio," said Chief Executive Noel Quinn, as quoted by Reuters.

HSBC said after the deal has closed it may return some of the net proceeds of the sale, estimated at $5.7 billion pre-tax, to shareholders via a one-off dividend or buyback from early 2024 onwards.

HSBC's shares closed up 4.4 percent, against a benchmark FTSE 100 index up 0.5 percent. RBC shares recovered after early falls to trade down 0.2 percent by late afternoon, while benchmark Canada share index was up 0.3 percent.

The deal will increase RBC's assets by CAN$134 billion to CAN$2 trillion, and add about 130 branches to its existing network, totaling 1,200.

Joe Dickerson, an analyst at Jefferies in London, said a large payout could appease shareholders angered by HSBC cutting dividends at the suggestion of British regulators in 2020.

However, Carl De Souza, Head of Canadian Banking at DBRS Morningstar, told Reuters, "As part of the regulatory approval, they might have to divest some businesses."

According to Morningstar, RBC and HSBC's combined assets would account for 25 percent of all Canadian banking assets.