First quarter profits at HSBC, Europe’s biggest lender, have almost halved in the midst of the coronavirus pandemic as the bank set aside $3 billion to cover loans unlikely to be paid back.
The bank’s pre-tax profits from January to the end of March fell 48% to $3.2bn, from $6.2 billion in the same period last year.
HSBC, headquartered in London, said it expects the pandemic, which has shut down businesses and seen tens of millions of workers around the world would see a rise in the number of loans unlikely to be repaid.
Last month, pressure from the Bank of England forced HSBC to cancel its dividend for the first time in 74 years, a move that angered its large Asia retail investor base, who are threatening a legal challenge.
The bank had planned to slash 35,000 jobs as part of a $4.5 billion cost-saving drive by 2022, but has put those plans on hold to avoid laying off staff during the pandemic.
HSBC also said it expects a fall in customer activity, alongside a cut in interest rates, and plunging oil and commodity prices to put sustained pressure on its earnings.
The bank’s quarterly profits were also hit by “a significant charge related to a corporate exposure in Singapore,” which is thought to be related to oil trading firm Hin Leong Trading, which is seeking to restructure its debt amid the slump in oil prices, Reuters reported.
Chief executive Noel Quinn said: “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.”
HSBC said it could set aside as much as $11 billion this year to cover bad loans.
HSBC is the latest bank to make provisions for a slump in economic activity because of coronavirus. Last week, Swiss banking firm Credit Suisse set aside $1 billion in reserves to cover anticipated loan losses, while the biggest U.S. lenders, including Bank of America BAC and Wells Fargo WFC, have set aside more than $14 billion in provisions.
In response to calls from the Bank of England to restrict bonuses to banking executives, Quinn and HSBC CFO Ewen Stevenson told staff weeks ago that they would donate a quarter of their base salary to charity, and forgo their annual bonus, while chairman Mark Tucker gave away his $1.8 million salary.