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HSBC profits fall on bad debts, lower revenue

HSBC profits fall on bad debts, lower revenue
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First Published: Thu, Nov 10 2011. 12 41 AM IST

Photo: Bloomberg
Photo: Bloomberg
Updated: Thu, Nov 10 2011. 12 41 AM IST
Mumbai: Hongkong and Shanghai Banking Corp. (HSBC) said Wednesday that its underlying profit before tax in the quarter ended September dropped $1.6 billion, or 35%, to $3 billion because of a decline in global revenue and increase in bad loans in North America.
Photo: Bloomberg
Underlying profit before tax is calculated after adjusting for changes in currency rates in various parts of the world.
In the Asia-Pacific, profit before tax was higher because of a rise in net interest income and improved deposit spreads, especially in mainland China and India, HSBC said.
“We experienced continued underlying loan growth across the region in 3Q11, in particular in Singapore, mainland China and India although, on a reported basis, this was masked by the depreciation of most Asian currencies against the US dollar,” HSBC said in a media statement.
The bank did not specify numbers for the Indian market.
Profit in the Asia-Pacific region improved because the bank had to set aside less money due to the reduction of its unsecured lending portfolio in India and lower loan impairment charges in global banking and markets on a small number of individual accounts.
In India, HSBC expects to turn around its retail operations after three years of losses and plans to rebuild its credit card business, Gannesh Bharadhwaj, head of retail banking and wealth management at HSBC India, said in an interview in October.
HSBC India’s retail losses swelled to $219 million in 2009 from $115 million in 2008.
In 2010, this narrowed to $82 million and stood at $4 million in the first half of 2011.
Profit before tax in the Asia-Pacific region increased to $2 billion from $1.39 billion last year, rising on an increase in revenue to $2.75 billion from $2.27 billion last year.
Provisions fell to $113 million from $173 million, mainly due to reduced provisions in India.
Overall, revenue declined because the European sovereign debt crisis affected financial services and depressed interest rates revenue.
Commercial banking revenue increased, driven by strong growth in customer loan balances, an HSBC statement said.
HSBC’s foreign exchange business also helped in increasing revenue during the quarter, riding on foreign exchange volatility in Asia and the Americas.
“Euro zone uncertainty and an account asymmetry because US interest rates declined and higher loan impairment charges impacted us last quarter, though September was also the best ever month in terms of forex,” said Stuart Gulliver, group chief executive at HSBC, in a global conference with journalists.
Profit before tax from the global banking and markets division fell to $1 billion from $2.14 billion in the same period last year because revenue dropped to $3.49 billion from $4.30 billion and bad-loan provisions increased to $331 million from $83 million last year.
Bad loan provisions for the whole group increased to $3.89 billion from $3.14 billion last year.
The largest rise in provisions for bad loans was from the US market.
Provisions there increased to $2.39 billion from $1.91 billion “as people have stopped paying back loans,” Iain Mackay, group finance director at HSBC, told journalists.
Gulliver said the results reflect the tough times the financial industry is experiencing.
“It’s been difficult for the industry and also us, but we are implementing what we have set out (to do) in May by cutting costs and operating expenses. We still believe China will make a soft landing,” he said.
joel.r@livemint.com
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First Published: Thu, Nov 10 2011. 12 41 AM IST