HSBC expects a pick up through the next few quarters as higher interest rates become a factor in lending operations. Image Credit: Agency

London: HSBC Holdings skirted a wave of issues facing the global economy to post better-than-estimated earnings in the first three months of the year. The London-based bank reported adjusted pre-tax profits of $4.71 billion, beating a company-compiled consensus of analysts of $4.49 billion for the period. Hits to earnings were offset by a rise in lending volumes and personal banking operations.

The company reported an expected credit loss, or ECL, of $600 million, partly driven by the Russian attack on Ukraine and Chinese commercial real estate, compared with a release in the year-earlier period, which dragged down earnings. “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,” CEO Noel Quinn said in a statement.

HSBC has been expecting a pick up in momentum this year as interest rates rise globally, and it anticipates lending to rise in the ‘mid-single-digit’ range in 2022. Europe’s biggest bank has been pouring billions in fresh cash into Asia, while exiting unprofitable businesses elsewhere, to boost its profitability, bidding to become Asia’s largest wealth manager.

Wealth management

But in its key to growth, China, risks are multiplying amid sliding markets, a private sector crackdown and a growing COVID-19 outbreak. HSBC’s largest market, Hong Kong, has been hobbled by its largest outbreak of the pandemic. The lender said profit in its wealth business slid in the quarter from the end of the year, but that it expects a recovery when Covid restrictions are lifted in Hong Kong.

Through its Chinese fintech venture, Pinnacle, the bank has hired close to 700 financial planners across China. It also purchased of AXA SA’s Singapore unit, effectively doubling the size of its insurance business in the wealthy city-state.

HSBC took a $450 million impairment charge in its 2021 full-year results on its exposure to Chinese commercial real estate, but had said the first three months of 2022 had gotten off to a better start. However, this was before the rise in Covid cases on the Chinese mainland that led to a series of severe lockdowns, including Shanghai.

Expectations had also grown that the lender would need to take mark downs in relation to its Russian business. Bank of America Corp. analysts said this month they saw several potential ‘drags’ on its business and estimated it may need to make a $200 million provision against its Russian exposure.

Unlike some global banks, HSBC has so far refrained from withdrawing from Russia, but has said that it will cease to write any new business in the country and will not take on any new Russian clients. The firm’s Russian unit employed about 250 staff in the country at the end of June 2021, most of whom work on serving foreign companies operating in Russia.