HSBC crushes 1H profit estimates and slashes bad-loan buffer as the global economy recovers from COVID-19

HSBC Branch in Kowloon, Hong Kong, January 2021
  • HSBC’s $US5.1 ($AU7) billion net profit in Q2 topped forecasts of $US3.7 ($AU5) billion as the bank cut provisions for bad loans.
  • Pretax profit of $US10.84 ($AU15) billion in the first half almost doubled on a year ago, Monday’s earnings report showed.
  • The UK-based bank cut a further $US300 ($AU409) million in provision for bad debts as economies recovered from COVID-19.
  • Sign up here for our daily newsletter, 10 Things Before the Opening Bell.

HSBC pretax profit almost doubled in the first half of the year, beating analyst expectations, as the London-based bank cut the funds set aside against pandemic-related bad loans.

In a financial update Monday, Europe’s biggest lender said profit before tax came in at $US10.84 ($AU15) billion in the six months to the end of June, compared with forecasts for $US9.45 ($AU13) billion and with $US4.32 ($AU6) billion posted a year ago. First-half revenue was $US25.6 ($AU35) billion, roughly in line with expectations of $US25.2 ($AU34) billion.

The Asia-focused bank also reported net profit of $US5.1 ($AU7) billion in the second quarter, topping consensus views for $US3.7 ($AU5) billion. Revenue for the quarter came in at $US12.6 ($AU17) billion, slightly below the $US13.1 ($AU18) billion posted in the same period last year.

HSBC attributed an improved economic outlook as the “main driver” of its profitability as the global economy rebounded from the depths of the COVID-19 pandemic.

“These are good results that reflect the return of growth in our main markets and marked progress in the execution of our strategy,” CEO Noel Quinn said in a statement. “We were profitable in every region in the first half of the year, supported by the release of expected credit-loss provisions.”

HSBC reduced provision against bad loans by another $US300 ($AU409) million, as it takes a more positive view of growth as economics recover from the impact of the coronavirus. It has now cut the provision by $US700 ($AU953) million overall, taking the total buffer down to about $US2.4 ($AU3) billion.

HSBC’s Hong Kong-listed shares rose more than 3% after the earnings release, while US-listed stocks remained flat.

Susannah Streeter, a senior investment and markets analyst at Hargreaves Lansdown, said on top of expanding its overall wealth business, HSBC has focused more on Asia to find higher returns, moving capital investment and staff from Europe and the US.

“Although recovery in the region has so far been good news for HSBC’s profits, it has faced reputational headwinds over accusations it was too close to Chinese authorities which have cracked down on pro-democracy protestors in Hong Kong,” she said.

HSBC’s performance in the first half enabled it to reinstate dividend payments of $US0.07 ($AU0) per ordinary share.

Read More: Goldman Sachs lays out the 6 reasons investors should own Chinese stocks despite the nation’s biggest sell-off since 2018