HSBC’s profit jumps as pandemic provisions recede
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3 min read . Updated: 02 Aug 2021, 05:56 PM IST - Global lender says it will resume paying dividends
HSBC Holdings PLC’s net profit rose in the second quarter as the London-based lender reduced provisions for bad loans caused by the economic fallout from the coronavirus pandemic.
The banking giant, which is sharpening its focus on lucrative Asian markets, unveiled a forecast-beating quarterly profit of $3.4 billion and said it would resume paying dividends—a key focus for many investors in the sector.
But at the same time, it kept hold of a large buffer against credit losses stemming from the pandemic, and warned of continued uncertainty caused by Covid-19.
“We are seeing some early signs of the investments that we are making in Asia delivering," Chief Executive Noel Quinn said in an interview.
The world economy likely returned to its pre-pandemic size in the spring, according to economists, marking a comeback from the deepest global downturn in decades. Mortgage lending was strong during the first half of the year in Hong Kong and the U.K., HSBC said.
The bank said it would pay a cash dividend of 7 cents a share for the first half of the year. It paused payouts in 2020 in response to a request that the Bank of England made to British banks to conserve capital. The dividend ban particularly displeased Hong Kong-based investors in HSBC, which said last year that it faced lawsuits in connection with dividend cancellations.
HSBC’s chief financial officer, Ewen Stevenson, said in an interview that the bank is reviewing whether to buy back shares, after ruling it out earlier this year. “It has certainly gone from being ‘no’ to being a possibility," he said.
Mr. Quinn is scaling back operations in the West and investing more in Hong Kong and mainland China, where the bank makes most of its profit. This year he agreed to sell unprofitable U.S. and French retail-banking units and announced a plan to pour about $6 billion of investment into Asia in the next five years.
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Mr. Quinn said the bank is rapidly expanding its new Pinnacle wealth management unit in China and assessing three or four potential acquisition targets in the wealth, asset management and insurance sectors in Asia.
The bank’s $3.4 billion net profit for the three months to the end of June compared with $192 million for the same period last year, and analysts’ consensus forecasts for $2.41 billion. Managing money for wealthy individuals, particularly in Asia, is a key component of HSBC’s strategic shift, and the bank touted an 18% year-over-year increase in its wealth balances, to $1.67 trillion.
The bank shrank its provisions against bad loans by $284 million, building on a $435 million decrease in the previous quarter. Still, HSBC has retained about $2.4 billion of the extra provisions it took last year as a precaution against pandemic-related bad debts.
“There remains a high degree of uncertainty as countries emerge from the pandemic at different speeds, government support measures unwind and new virus strains test the efficacy of vaccination programmes," the bank said.
HSBC’s shares have languished as record-low interest rates make it harder for the bank to earn money, and its strategic shift to refocus on Asia has been hampered by geopolitical tensions between China and Western nations. As of Friday’s close, its London-listed stock had risen about 5% this year, underperforming other U.K.-listed banks such as Barclays PLC.
This story has been published from a wire agency feed without modifications to the text
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