HSBC, Standard Chartered kick-start third-quarter bank reporting with eyes on margins, loan losses amid interest rate hikes
- Hong Kong’s biggest banks increased their prime rate for the first time in four years in September
- Questions remain about how slowing growth, particularly in China, could affect bank bottom lines
HSBC, the largest of Hong Kong’s three currency-issuing banks, is expected to post a 55 per cent drop in pre-tax profit to US$2.54 billion in the third quarter from a year earlier, based on consensus analyst forecasts compiled by the London-based banking group. The prior year’s quarter included a release of US$659 million in reserves for bad loans.
Rising rates should help fatten net interest margins on loan products, but the potential upside could be partially defeated next year by higher loan losses amid an uncertain economic outlook, according to analysts at Citigroup.
“HSBC and Standard Chartered might see some modest pickup in credit cost this quarter, the former driven by rising global recession risks and the latter affected by several sovereign downgrades” in emerging markets, Citi analyst Yafei Tian said.
HSBC’s shares have declined 15.5 per cent in Hong Kong since March 16 when the Federal Reserve began its policy lift-off, according to Bloomberg data. Standard Chartered’s stock was little changed over the same period, while the Hang Seng Index finance sub-index slumped 18 per cent.
Both UK-based lenders generate much of their revenue in Asia and count Hong Kong as their single-largest market. While China’s economic slowdown presents moderate risks to Asia-Pacific banks, those in Hong Kong are more directly exposed than their rivals elsewhere, Moody’s Investors Service warned last week.
“Banks that have seen faster growth in exposure to China, as well as those with higher exposure to private enterprises and smaller companies, are more at risk,” Moody’s credit officers Eugene Tarzimanov and Srikanth Vadlamani said in a research note on October 19.
HSBC and Standard Chartered, both of which have made big bets on future growth in China, took a combined US$539 million hit in impairments for potential soured loans in their Chinese commercial real estate books in the first half. Both have previously backed the quality of their mainland property portfolios.
UK consumers have been hit by high inflation, with consumer prices reaching a four-decade high of 10.1 per cent in September. Britain is HSBC’s second biggest market.
Top executives at the London-based lender have argued that its international network is its strength and drives much of its business in Asia, but also has been exploring whether there are ways to expand its profitability.