HSBC profits slide 28% amid war in Ukraine and inflation worries

HSBC, Britain’s biggest bank, has seen first-quarter profits slide by more than a quarter after taking a hit on expected bad debts due to the Ukrainian conflict and surging inflation.

The group posted a 28 per cent drop in pre-tax profits to $4.2 billion (£3.3bn) for the first three months of 2022, largely due to a $642 million (£504m) charge set aside for loan losses as it warned over the economic impact of Russia’s invasion of Ukraine.

It said a slowdown in China’s property market was also behind the bad debt impact, which sees a return to credit impairments after HSBC and rivals spent the past year releasing cash set aside for Covid loan losses.

HSBC, which has a large exposure to Asian markets, had released $400m a year ago.

Group chief executive Noel Quinn said: “The Russia-Ukraine war continues to have devastating consequences both within Ukraine and beyond.

“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.”

Sophie Lund-Yates, lead equity analyst at financial platform Hargreaves Lansdown, said: “As the first out the gate for the major UK-listed banks to report this week, HSBC’s results have been long awaited and seen as a bellwether for the global economy.

HSBC recently announced plans to close more of its UK branches though it retains one of the biggest networks in the country. Picture: Kirsty O'Connor/PA Wire

“The macro environment has been factored into a positive outlook for interest income, but the raising of interest rates is only one consideration. While this helps interest income rise, the wider global economic outlook is much harder to predict.”

Richard Hunter, head of markets at Interactive Investor, noted: “HSBC has opened the banks’ reporting season in unspectacular fashion, with the return of loss provisions an unfortunate highlight. Although largely expected, the news that credit impairment provisions are back is the major drag on profits.

“The charge largely relates to deteriorating economic situations in both Russia and China, with general inflationary pressures leading the bank to caution on the likelihood of defaults.

“There are other patches of disappointment within the numbers, which led to the share price drifting in Asian trade, such as a revenue reduction in the wealth and personal banking unit.”

HSBC’s figures come after its US counterparts recently set the tone with a slew of loan loss provisions.

But quarterly results also out from Spanish rival Santander showed it bucked the trend thanks to rising interest rates boosting its retail operations, with UK underlying first-quarter profits surging to £495m from £175m a year earlier.

HSBC’s profits were also better than expected as it benefited from higher lending across its global operations, although revenues came in short of forecasts - down 4 per cent at $12.5 billion.

The group warned over the inflationary pressures caused by the Ukraine crisis, which it said has cast uncertainty over the economic outlook. It also saw its wealth management business knocked by strict Covid restrictions in Hong Kong - its largest market.