HSBC beats forecasts, flags bad loan provisions

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  • Adjusted profit before tax rose $1bn to $6.5bn (£5.76bn) in the third quarter.
  • Net interest margin rose to 1.57% from 1.19% due to higher interest rates.
  • CFO Ewan Stevenson will leave HSBC in January after three years on the job.

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HSBC opened the banking season with better-than-expected earnings as it benefited from higher interest rates.

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However, the Asia-focused lender has also set aside more cash to cover potential credit losses as it expects more people to default on their loans amid the economic downturn.

The banking giant also announced the departure of its chief financial officer, Ewan Stevenson, who will leave HSBC in January after three years of significant changes.

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Rising interest rates: HSBC profits from higher rates, results beat expectations

Adjusted profit before tax rose $1 billion to $6.5 billion (£5.76 billion) in the three months to the end of September, beating market expectations of $6 billion.

Net interest margin – the difference between how much a bank earns on interest on loans and how much it pays on deposits – increased significantly from 1.19% to 1.57% thanks to higher interest rates.

In 2023, HSBC expects net interest income of $36 billion, higher than previously forecast.

However, the bank has set aside $1.1bn (£972m) to cover expected losses from people not being able to repay their loans, up from $659m (£584m) last year.

The bank said the larger provision reflects “increasing economic uncertainty, inflation, rising interest rates and current developments in mainland China’s commercial real estate sector.”

But he added that loan losses have so far remained stable throughout the year despite the worsening cost-of-living crisis.

The London-based bank, which earns most of its profits in Asia, also reported some large one-time costs that impacted its overall reported earnings.

In anticipation of the sale of its banking operations in France, HSBC set aside a $2.4 billion (£2.1 billion) reserve.

With this charge and a larger provision for bad loans, pre-tax profit fell 42% to $3.15bn (£2.79bn), still beating market expectations.

Group chief executive Noel Quinn said this is a “good set of results” and that the bank remains on track to meet its spending targets for this year and next.

“We are focused on delivering on our plans and achieving our goal of at least 12% returns from 2023 and, as a result, higher payouts to our shareholders,” he added.

But investors weren’t impressed. HSBC shares falling more than 6 percent to 445.60 points in Tuesday morning trading.

Concerns about the impact of the economic slowdown on bad debt and loan portfolio growth are exacerbated at HSBC by the departure of respected CFO Ewan Stevenson and the deteriorating situation in China.

“Concerns about the impact of the economic slowdown on bad debt and loan portfolio growth are exacerbated at HSBC by the departure of respected CFO Ewan Stevenson and the deteriorating situation in China,” said AJ Bell financial analyst Danny Hewson. .

“This explains that HSBC released a better-than-expected set of third-quarter numbers, only for the market to actually tell it to shut up.

“Stevenson had a good track record in his previous job helping to rehabilitate NatWest (the former Royal Bank of Scotland) and shareholders will be disappointed that he did not keep his firm hand at the helm during the current turmoil.”

Stevenson will be replaced early next year by Georges Elhedery, current head of global banking and markets.

Elhederi, 48, joined HSBC in 2010 as head of global markets, the Middle East and North Africa.

Richard Hunter, head of markets at Interactive Investor, said the adjusted results showed “the underlying business remains in a bad state.”

He noted that the bank is taking an “extremely conservative approach to current forecasts,” which “may have some advantages” given its impact on China.

“The group is heavily dependent on its Asian revenues and the current sorry state of the commercial real estate sector in China is a clear concern,” he added.

HSBC is the first major bank to release third-quarter results, with Barclays tomorrow and Lloyds Banking Group on Thursday.

Credit: /

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