HSBC profit almost halves as bad debts surge

(Sharecast News) - HSBC's first-quarter profit almost halved as the bank set aside $3bn (£2.4bn) for credit losses after the Covid-19 crisis took its toll on financial performance.


Pretax profit for the three months to the end of March dropped 48% to $3.2bn from a year earlier as revenue fell 5% to $13.7bn. Expected credit losses jumped by $2.4bn to $3bn.

Europe's biggest bank said the jump in bad debt charges was caused by the economic impact of Covid-19 and lower oil prices. It warned that profits would be "materially lower" for all of 2020.

HSBC is the first of Britain's big banks to report results for the period covered by the Covid-19 outbreak. The Bank of England is reported to have told banks to go easy on credit loss provisions so that they do not eat too far into their capital, impeding their ability to lend to the wider economy.

The BoE forced HSBC to scrap its fourth-quarter dividend and further payouts in 2020 at the end of March to preserve capital. HSBC's common equity tier 1 capital ratio was little changed at 14.6% from 14.7% three months earlier. The bank said it would review its dividend policy at, or before, its 2020 financial results.

HSBC's net interest margin narrowed 2 basis points to 1.54% from the end of December and the bank warned of "material downward pressure" on the margin as profitability is squeezed by central banks' interest rate cuts..

Chief Executive Noel Quinn said: "The economic impact of the Covid-19 pandemic on our customers has been the main driver of the change in our financial performance since the turn of the year. The resultant increase in expected credit losses in the first quarter contributed to a material fall in reported profit before tax."

The bank's credit loss charge included a big provision for a credit exposure in Singapore. This is likely to be the bank's $600m in lending to oil trader Hin Leong, which has filed for bankruptcy.

HSBC's lending increased by $41bn and deposits rose $47bn in the first quarter as corporate customers drew on credit lines and deposited the funds to strengthen their finances during the coronavirus emergency.

Nicholas Hyett, an equity analyst at Hargreaves Lansdown, said: "The fact HSBC has put aside a sizeable lump for coronavirus related loan defaults isn't exactly a surprise. The bank's capital base has been able to absorb the impairment and an increase in the risk profile of the bank's loans without deteriorating significantly - albeit with the help of the suspension of 2019's final dividend.

"That said there are difficult times ahead. The pain from lower interest rates will mount as fixed loans roll-off, and reduced economic activity is also likely to bite in the trade finance and commercial banking businesses. If conditions get worse from here provisions for bad loans will increase, and together with credit downgrades that will eat into capital."

HSBC shares fell 1.5% to 409.95p at 08:38 BST.