By Scott Wright
HSBC has become the latest in a string of major banks to release significant amounts of provisions for bad debts arising from the pandemic.
The bank cited the improved economic outlook as it reported a net release of $700 million (£500m) of credit loss provisions, helping it to double profits in the first half of the year.
It had set aside $6.9 billion in anticipation of bad debts at the same stage last year, before the emergence of the Delta variant and subsequent waves of coronavirus infections.
As the banking reporting season drew to a close, HSBC also mirrored peers by announcing plans to resume dividend payments, following a hiatus initiated by the Prudential Regulation Authority early in the pandemic last year. The board announced an interim dividend of $0.07 per ordinary share for the first half.
However, despite releasing credit provisions, and highlighting “emerging signs” of growth in unsecured personal and commercial lending, the bank cautioned that Covid-19 continues to cloud the outlook.
HSBC said in a statement: “Uncertainty remains 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 report profit before tax increased by $6.5bn to $10.8bn, with all regions profitable during the first half. UK profits before tax were booked at more than $2.1bn.
The release of provisions for credit losses helped the bank overcome a fall in revenue that was driven by reductions in interest rates in 2021, and lower revenue from markets and securities services, compared with the first half of 2020. Reported revenue was down 4% at $25.6bn.
Lending increased by $21.5bn, reflecting growth in wealth and personal and commercial banking, HSBC reported, while deposits grew by $26.3bn, amid increases in all global businesses.
Susannah Streeter, senior investment and markets analyst at Hargreaves Lansdown, said HSBC has continued the “banking bounce back”. She said: “The dividend is back but it’s not the bread and butter of better loan margins behind the push up in profits.
“Instead the worse-case scenario of an increase in bad loans hasn’t materialised, so the bank has been confident enough to release over $700 million that had been set aside as a buffer. It is in stark contrast to a year ago when it clocked up $6.9 billion in impairment charges.
“Given the frightening twists the global economy has had to deal with due to the emergence of new variants, the worry is that there could still be monsters lurking under the bed, so the bank is keen to stress it views the recovery as still in the early stages.”
HSBC chief executive Noel Quinn said: “These are good results that reflect the return of growth in our main markets and marked progress in the execution of our strategy. We were profitable in every region in the first half of the year, supported by the release of expected credit loss provisions.
“Our lending pipeline began to translate into business growth in the second quarter and we further strengthened that pipeline during the half. This performance enables us to pay an interim dividend for the first six months of 2021.
“I’m pleased with the momentum generated around our growth and transformation plans, with good delivery against all four pillars of our strategy.
“In particular, we have taken firm steps to define the future of our US and continental Europe businesses, and further enhanced our global wealth capabilities. We are focused on executing the growth and transformation plans we announced in February.”
Shares in HSBC closed down 1.3p, or 0.33%, at 396.15p.
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