Profits at HSBC fell in the first quarter due partly to higher expected credit losses from the ongoing Russia-Ukraine war.
HSBC posted $4.2 billion in pre-tax profit, according to its latest first-quarter results, declining by 27.9 percent year-on-year.
While net interest income was up from rising rates, reported revenue fell 4 percent to $12.5 billion. That was primarily due to lower wealth revenues that were driven by unfavorable market impacts in life insurance manufacturing and lower investment distribution revenue in Hong Kong.
Operating expenses were down 3 percent as continued tech investment growth and higher inflation were offset by the bank’s cost-saving initiatives and lower performance-related pay accruals.
Russia-Ukraine War
Another notable impact on profit came from the increase in expected credit losses (ECL). There was a net release of $400 million in the first quarter of 2021 and a charge of $600 million in this, the latest quarter.
According to HSBC, the ECL increase «primarily reflected the direct and broader economic impacts of the Russia-Ukraine war and inflationary pressures on the forward economic outlook,» although they were also partially offset by the release of remaining Covid reserves.
«The Russia-Ukraine war has exacerbated inflationary pressures, and increased uncertainty on the forward economic outlook, contributing to higher ECL charges for 1Q22,» the bank said. «We are monitoring developments closely, although we continue to expect ECL charges to normalize towards 30 [basis points] of average loans in 2022, based on current consensus economic forecasts and default experience» the bank indicated.
HSBC's pre-tax profit beat the $3.7 billion average estimate from 16 analysts compiled by the bank.
