HSBC raises bad loan reserves to nine-year high, profit misses estimates on credit losses

HSBC Holdings increased its provisions for bad loans to the highest level in nine years and warned that its profit would be lower this year, joining its American and European rivals in preparing for the economic fallout from the coronavirus pandemic that likely pushed the global economy into a recession this year.

The bank, Europe’s biggest by assets, warned that its provisions for credit losses could be between US$7 billion and US$11 billion for the full year in 2020. Most of those provisions are expected in the first half of the year, driven in part by exposure to a collapsed Singaporean oil trader, the bank said.

The grim outlook echoes forecasts from HSBC’s US and European peers as lenders worldwide struggle to cope with borrowers in financial crisis, turmoil in markets and record-low interest rates.

HSBC is cutting deep into operational expenses as the novel coronavirus pandemic delayed parts of its restructuring programme, including as many as 35,000 lay-offs.

“These are clearly unprecedented and challenging times,” chief executive Noel Quinn said on a conference call with analysts. “The Covid-19 pandemic is testing us all in ways we never could have anticipated and is causing huge disruption, stress and uncertainty.”

HSBC raised its reserves for potential loan losses and other credit impairments to US$3.03 billion last quarter, its largest since the first quarter of 2011 when it set aside US$2.38 billion in reserves, according to an exchange filing on Tuesday. The lender set aside US$585 million in the same period a year earlier.