HSBC Holdings PLC (LSE:HSBA) revealed a 25% decline in profits in the first quarter as greater inflationary pressures following Russia’s invasion of Ukraine led it to prepare for higher levels of bad loans.
The lower profits also reflected a 3% decline in revenue for the bank to US$12.5bn, as Covid restrictions in Hong Kong hit its Wealth & Personal Banking arm.
Although all of the bank’s operating regions remained profitable, adjusted profit before tax fell US$1.6bn to US$4.7bn as the Asia-focused lender made a US$0.6bn charge for expected credit losses (ECL) and other credit impairment charges in the quarter due to higher inflation and increased uncertainty.
HSBC’s capital levels fell during the quarter, with its common equity tier 1 (CET1) ratio of 14.1% down 1.7 percentage points from the fourth quarter of 2021 as a result of regulatory changes, a US$3.1bn valuation loss in equity from financial instruments as yield curves steepened and its US$1bn share buy-back.
Although it said the Russia-Ukraine war has exacerbated inflationary pressures and increased economic uncertainty, the bank sees an improved outlook for revenue and net interest income since its full year 2021 results in February.
The FTSE 100-listed lender said it continued to expect mid-single-digit percentage revenue growth in 2022, with adjusted operating expenses in line with last year and more than US$2bn of cost savings to be delivered.
Chief executive Noel Quinn said he was encouraged by the start to the year, saying: “While profits were down on last year's first quarter due to market impacts on Wealth revenue and a more normalised level of ECL, higher lending across all businesses and regions, and good business growth in personal banking, insurance and trade finance bode well for future quarters.
He added: “Although the economic outlook remains uncertain, the continued upward path of interest rates since our full-year results has further strengthened our confidence in delivering a double-digit return on average tangible equity in 2023.”
He said support was being given to colleagues in Ukraine and that HSBC Russia is not accepting new business or customers and is consequently on a declining trend.
“The vast majority of our business in Russia serves multinational corporate clients headquartered in other countries, and as a global bank, HSBC has a responsibility to help them manage these challenging circumstances.”
Quinn said the bank is “making progress on our net zero ambitions”, with a climate transition plan due to be published in 2023 to explain how its net zero ambition will be implemented and what changes are underway, along with a stated commitment to “a science-aligned phase-down of fossil fuel financing, in line with what is required to seek to limit the rise in global temperatures to 1.5°C” and review of wider financing and investment policies seen as critical to achieving net zero by 2050.