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HSBC has recently announced an increase in provisions for bad loans and a prediction of muted lending for the year ahead. The UK-based bank cited uncertainty, market turmoil, and a deteriorating economic outlook due to higher tariffs and geopolitical tensions as reasons for these adjustments.
In the first quarter of 2025, HSBC raised its expected credit losses by $202 million to $876 million, slightly surpassing analysts’ estimates. This increase included an additional $100 million specifically allocated for its exposure to Hong Kong’s commercial property sector.
Chief executive Georges Elhedery expressed concerns about the current levels of uncertainty and market turmoil, anticipating that global demand for lending will remain subdued throughout 2025. The bank also projected a potential “low single-digit percentage” impact on its revenues and set aside an extra $500 million in bad loan provisions in a scenario involving significantly higher tariffs.
Despite these challenges, HSBC remains confident in its financial strength as it navigates this period of economic uncertainty and market unpredictability. The bank announced a share buyback of up to $3 billion, scheduled to commence after its annual meeting on May 2. Additionally, HSBC declared a first-quarter dividend of $0.10 per share, leading to a 2.3% increase in its Hong Kong-traded stock following the earnings release.
While pre-tax profits declined by 25% to $9.5 billion in the first quarter of the year, surpassing analyst expectations, the bank’s net interest income fell to $8.3 billion from $8.7 billion a year earlier. This decrease was mainly attributed to the sale of its Argentine business. Moreover, HSBC’s net interest margin experienced a decline of 0.04 percentage points, underlining the need for the bank to focus on non-rate-sensitive revenue sources.
Despite these challenges, earnings from the group’s wealth and premier banking segment saw a slight increase year-over-year, driven by a $250 million growth in wealth revenues attributed to increased trading through its brokerage.
Since assuming the role of chief executive in September, Elhedery has initiated a cost-cutting plan aimed at achieving $300 million in savings in 2025 and a total reduction of $1.5 billion from its annual cost base by the end of 2026. This cost-cutting measure is part of a broader restructuring effort that includes reorganizing operations into “eastern” and “western” sections, closing parts of its investment banking business, and eliminating a middle layer of bankers.
Furthermore, HSBC announced a “strategic review” of its Maltese business and confirmed progress in divesting its German private banking, South African, and French life insurance units. The bank also expects its share in Bank of Communications to be diluted from 19% to 16% following the Chinese lender’s announcement of a Rmb120 billion ($16.5 billion) share issuance plan, potentially resulting in a paper loss of up to $1.6 billion for HSBC.
As HSBC continues to navigate through economic challenges and market uncertainties, the bank remains focused on strengthening its financial position and adapting to evolving market conditions.
