HSBC has agreed to sell its business in Canada to Royal Bank of Canada for $13.5 billion Canadian dollars (US$10.04 billion) in cash, paving the way for a potential bumper payout for shareholders later down the line.

HSBC, which once billed itself as the world's local bank and built a global network of retail banking businesses, has in recent years been cutting those back in a bid to improve profits.

The disposals have accelerated amid pressure from its biggest shareholder Ping An Insurance Group, which has urged HSBC to split off its Asian business to boost returns.

"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," Chief Executive Noel Quinn said.

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

Joe Dickerson, an analyst at Jefferies in London, said that could go some way towards appeasing shareholders who were incensed by the bank curtailing dividends in 2020, at the suggestion of British regulators.

HSBC's shares were up 4 percent following the announcement, against a benchmark FTSE 100 index up 0.7 per cent.

"The transaction looks very sensible. In essence, the business is worth more to RBC than it is to HSBC, and the price reflects this," said Ian Gordon, banking analyst at Investec.

The deal also repairs what was an uncharacteristically weak capital position relative to HSBC's peers, Gordon said.

The purchase will enable RBC to take more market share in its home market, adding 130 branches and more than 780,000 retail and commercial customers. If successful it will be the first big banking merger in a decade in Canada. (Reuters)