HSBC’s Quarterly Profit Drops 28%

Holdings PLC said its profit for the first quarter fell 28% year-over-year, as it made provisions for souring loans in Russia and China, but the banking giant said rising global interest rates would help it hit longer-term targets.

The London-based lender’s profit attributable to ordinary shareholders totaled $2.8 billion in January through March. While earnings had been boosted a year earlier by the release of $435 million of provisions as the global economy recovered from the worst of the Covid-19 pandemic, in the first three months of this year HSBC’s earnings were dented by $642 million of new expected credit losses.

The new expected losses included about $250 million tied to Russian borrowers, and some $160 million linked to China’s property sector—against which it had also taken charges in the previous quarter. Still, HSBC’s profit rose on a quarter-over-quarter basis, and beat analysts’ consensus forecasts, as the credit-loss charges came in below expectations.

Revenue fell 4% from a year ago to $12.5 billion, undershooting expectations. The bank said this figure was reduced by $342 million of “market impacts” in its life-insurance business, due to weak stock markets. HSBC said stringent Covid-19 restrictions and temporary branch closures in Hong Kong also weighed on its revenue for the quarter.

Chief Executive

Noel Quinn

said lending volumes were up across the bank, while its personal banking, insurance and trade finance businesses were showing good growth. “I’m encouraged by our start to the year,” he said in a statement.

Mr. Quinn said despite economic uncertainty, rising interest rates had made the bank more confident of being able to generate a 10%-plus return on tangible equity next year.

Lenders like HSBC can earn higher profit margins on loans when interest rates are higher. In recent months government bond yields and interbank lending rates have surged, as the U.S. Federal Reserve and other central banks have begun tightening monetary policy to combat rapid inflation. The yield on the benchmark 10-year U.S. Treasury note stood at 2.825% Monday, up 1.329 percentage point so far this year.

After unveiling $3 billion of stock buybacks in its last two sets of results, HSBC said it was unlikely to introduce new repurchases in 2022, given pressure on its capital position. The bank said its core equity tier 1 ratio could fall below its targeted minimum of 14%, due to volatility in some financial hedges. It warned that the planned sale of its French retail business, agreed last year, would also cut the ratio by 0.35 percentage point.

HSBC stock has gained this year, beating broader market benchmarks. As of Monday’s close, its Hong Kong-listed shares had risen about 10% so far in 2022, compared with a 15% decline in the city’s flagship Hang Seng Index. By early afternoon Tuesday in Hong Kong, the stock stood 2.6% lower at 50.30 Hong Kong dollars, equivalent to $6.41, per share, underperforming a rising broader market.