HSBC has warned a “severe” coronavirus scenario could cost it as much as $11bn this year as it reported a sharp fall in quarterly profit due to the pandemic.
The banking giant saw earnings dip to $3.2bn for the January-March period, down 48% compared to the same period last year.
That was due to an extra $2.4bn charge for “expected credit losses” (ECLs) – a provision for loans going bad – mainly due to the impact of COVID-19 on the global economy.
HSBC also modelled a range of scenarios for including a worst case outlook.
“Our severe ECL scenario… could result in an ECL charge for 2020 in the range of $7bn to $11bn,” the bank said.
HSBC added that it was looking to cut day-to-day costs amid the crisis but is pausing “the vast majority of redundancies” due under a major shake-up announced in February – which will see 35,000 jobs go – in order to “reduce the uncertainty” facing workers.
The bank said it had hiked its provision for loans going bad as the coronavirus took its toll on the economy, notably with knock-on effects for its customers in the oil and gas sector.
“The outlook for world economies in 2020 has substantially worsened in the past two months,” HSBC said.
Factors including lower customer activity, reduced interest rates – which make it harder for lenders to achieve profits – and more bad loans – including “fraudulent activity” – were among those set to squeeze the bank as a result of the crisis, it added.
The bank warned these were likely to result in “materially lower profitability in 2020”.
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