HONG KONG — HSBC Holdings on Tuesday posted a 48% fall in first-quarter pretax profit, as the funds it set aside for loan losses surged in anticipation of coronavirus-induced defaults.
The bank, which draws 95% of its profit from Asia, reported pretax profit of $3.23 billion in the three months ending March 31. That compares with $6.21 billion in the same period a year earlier and the $3.67 billion average based on brokerage firm estimates compiled by the bank.
Its profit after tax declined 49% to $2.51 billion.
Provisions for loan losses climbed to $3.03 billion from $585 million a year earlier, the London-headquartered bank said in a statement. The pandemic has resulted in a sharp deterioration in creditworthiness of borrowers worldwide, with consequent knock-on effects on lenders.
“The economic impact of the COVID-19 pandemic on our customers has been the main driver of the change in our financial performance since the turn of the year,” HSBC Chief Executive Noel Quinn, who took over the position full time on March 18, said in a statement.
“The resultant increase in expected credit losses in the first quarter contributed to a material fall in reported profit before tax compared with the same period last year,” he said.
HSBC joins other major international banks in ramping up provisions to prepare for a global recession, which is threatening corporate profits and has already led to millions of job losses.
Quinn has already put on hold a plan he unveiled in February as interim CEO to eliminate 35,000 jobs in three years in order to slash costs. The bank also suspended its dividend for the first time in 74 years under pressure from the U.K. financial regulator.
HSBC, which is estimated to have $600 million in outstanding loans to Singapore oil trader Hin Leong, said the higher provisions also reflected a “significant charge” to a corporate exposure in Singapore without naming the company.
The oil trader, which was caught off guard by the recent plunge in oil prices and wrong-way bets on the commodity, owes banks $4 billion, and a company presentation to creditors put the expected loan recovery at just 18 cents on the dollar.
HSBC, which expects mid-to-high single-digit percentage growth in assets in 2020, said it will continue to assess the impact of the coronavirus outbreak and review the appropriateness of its medium-term financial targets and dividend policy at or before full-year results.
The lender expects higher provisions and lower customer activity during the year. It plans to offset the pressure on revenue and profits by cutting operating expenses
HSBC shares have dropped 31% since the start of the year through Monday’s close in Hong Kong, compared with a 14% decline for the benchmark Hang Seng Index and a 49% slump for Standard Chartered.