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HSBC profits halve as coronavirus increases loan impairments

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  • 28/04/2020
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HSBC profits halve as coronavirus increases loan impairments
HSBC reported a 48 per cent slump in first quarter profits and a substantial increase in expected credit losses and impairments as the coronavirus hit its operations.

 

However, the lender said it had “robust levels of capital, funding and liquidity” to tackle the crisis and so it was pausing the vast majority of redundancies due to take place as part of its restructuring.

It also noted that actions taken by governments and central banks indicated the potential severity of the downturn and post-recovery environment, “which from a commercial, regulatory and risk perspective could be significantly different to past crises and persist for a prolonged period”.

 

$3bn impairments

Profit before tax in the first three months of 2020 was down 48 per cent to $3.2bn from higher expected credit losses and impairment charges and lower revenue, primarily reflecting the Covid-19 outbreak and weakening oil prices.

As a result, credit impairment charges were increased by $2.4bn to $3.0bn while revenue was down five per cent.

The lender also warned that it would see a significant hit on its net interest margin in future quarters as it felt the full force of the interest rate reductions.

For Q1 the net interest margin dipped two basis points to 1.54 per cent from the end of 2019, continuing the slide from 1.59 per cent a year ago.

The lender did not publish the volume of its UK mortgage lending in the quarter but said its UK mortgage loan book had grown by $1bn, approximately £800m.

It added that mortgage portfolios showed resilience under current and historical stress testing.

 

Robust capital and liquidity

Group chief executive Noel Quinn explained that the economic impact of the Covid-19 pandemic on customers had been the main driver of the change in financial performance since the turn of the year.

“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 has always been there for our customers in times of crisis, and we are working hard to support them during this unprecedented period of disruption. We do so from a position of strength, with robust levels of capital, funding and liquidity.”

Quinn noted that support measures had seen strong take-up, while it was also working closely with governments.

“I take the wellbeing of our people extremely seriously. We have therefore paused the vast majority of redundancies related to the transformation we announced in February to reduce the uncertainty they are facing at this difficult time,” he continued.

“We continue to press forward with the other areas of our transformation with the aim of delivering a stronger and leaner business that is better equipped to help our customers prosper in the recovery still to come.”

 

 

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