HSBC profits slid in the first quarter, the Asia-focused bank announced Tuesday after it was hit by bad debts as Russia's invasion of Ukraine sent inflation rocketing further.
|HSBC profits slide as Ukraine war worsens inflation, illustration photo / ISAAC LAWRENCE / AFP
Net profit dropped more than a quarter to US$2.8 billion from the first three months of 2021, London-headquartered HSBC said in an earnings statement.
Pre-tax profit fell by a similar proportion to $4.2 billion.
HSBC said "the Russia-Ukraine war has exacerbated inflationary pressures, and increased uncertainty on the forward economic outlook, contributing to higher expected credit loss" for the bank in the first quarter.
The lender reported a credit loss of $600 million, which compared with the release of bad debt provisions totalling $400 million one year earlier as the economy began to recover from the pandemic-induced slump.
HSBC said its business in Russia is "on a declining trend", adding that further restrictions could make its operations in the country "untenable".
"This could generate additional losses which are not currently provided for in the balance sheet," the bank warned.
HSBC said its Russia unit principally serves multinational corporate clients headquartered in other countries and is not accepting new business.
Chief executive Noel Quinn added that group profit was hit also by market impacts on wealth management revenue. And the bank pointed to China's property slowdown being a drag.
"Although the economic outlook remains uncertain, the continued upward path of interest rates since our full-year results has further strengthened our confidence" on future performance, Quinn said.
Banks are benefitting from higher interest rates on loans which they've passed onto customers in the wake of tighter borrowing costs from central banks.
Nevertheless, HSBC revenue dropped four percent in the first quarter to $12.5 billion.
"Despite a tougher set of operating conditions this quarter, the fundamentals of our strategy are unchanged -- revenues driven by growing volumes and higher rates and tight cost discipline," chief financial officer, Ewen Stevenson, told a conference call.
HSBC has carried out a massive restructuring programme during the pandemic, slashing 35,000 jobs to refocus on its most profitable areas in Asia and the Middle East.
On Tuesday, the bank noted that renewed lockdowns in key markets China and Hong Kong have "further aggravated global supply chain disruptions".
- 'Inflation risk' -
HSBC said "inflation, driven in part by supply chain constraints caused by the pandemic, risks being made worse by higher commodity prices as a result of the war in Ukraine".
It added that "higher inflation presents risks to growth as real incomes are squeezed by rising costs.
"This will present an additional risk as central banks tighten policy to bring inflation back towards target."
HSBC's share price was down 3.6 percent on London's rising FTSE 100 index in reaction to the earnings update.
Richard Hunter, head of markets at Interactive Investor, described the return of loss provisions as "an unfortunate highlight".
"Overall, the group has been hampered by and inevitably subject to wider geopolitical and economic pressures," he added.