HSBC warns loan losses could hit US$13b as profit plunges 65%

LONDON: HSBC Holdings PLC warned its bad debt charges could blow past a previous estimate to US$13 billion (RM55.1 billion) this year and said its profit more than halved, as the coronavirus pandemic hammered the bank’s retail and corporate customers worldwide.

The lender warned its capital reserves could deteriorate, its revenues would come under pressure and it faced heightened geopolitical risk as Europe’s biggest bank set out a gloomier than expected outlook for the second half of the year.

HSBC increased its estimate of the total bad debt charges it could take this year to between US$8 billion and US$13 billion from US$7-11 billion, reflecting worse-than-expected actual losses in the second quarter and expectations of a steeper decline in the economy.

“What we have seen this quarter is quite a sharp shift in economic outlook for the global economy, the famous ‘V’ has got a lot sharper and as a result we have materially increased our provisions,” chief financial officer Ewen Stevenson told Reuters.

HSBC’s shares fell 4.6% to a nearly 12-year low as investors digested the scale of the challenge facing HSBC, as it grapples with a global pandemic, political unrest in its core Hong Kong market, and low interest rates on its lending worldwide.

The bank reported a pre-tax profit of US$4.32 billion for the first six months this year, lower than the US$5.67 billion average of analysts’ forecasts.

HSBC’s business in the UK has been hit really hard, Stevenson said, as it took a US$1.5 billion charge against expected credit losses.

HSBC’s results reinforced the trend of lenders across the world increasing their buffers to absorb souring loans at a time when companies - from aviation to retail and hospitality sectors are reeling from the impact of Covid-19.

The bank’s credit impairment provisions in the first-half soared to US$6.9 billion, compared to US$1 billion in the same period a year earlier.

Impairment charges included a US$1.2 billion writedown on the value of software it owns, mainly in Europe, it said.

While HSBC’s core capital ratio, a key measure of financial strength, rose to 15% at the end of June, the bank warned the metric would likely decline later this year as falling credit ratings hit its risk-weighted asset ratio.