HSBC profits plummeted for the first half of the year following the Covid-19 pandemic and geopolitical risks like the deteriorating US-China relations.
HSBC Holdings PLC on Monday (August 3) reported net profit fell 65% to $4.3 billion in the first six months of 2020 compared to last year’s $12.41 billion.
The London-headquartered bank also dropped 9% in reported revenue to $26.7 billion, reflecting the impact of interest rate reductions.
HSBC, which has started refocusing most of its business in Asia, announced a net profit of $7.4 billion in the Asian region for the first half of 2020 demonstrating the resilience of operations particularly in China where the Coronavirus pandemic began.
“Our first-half performance was impacted by the Covid-19 pandemic, falling interest rates, increased geopolitical risk and heightened levels of market volatility,” HSBC Group Chief Executive Noel Quinn said.
Covid-19 impacts bank profits
The bank has been also warned of loan losses due to bad credit that could balloon to as much as $13 billion this year.
Lending activities also decreased by $18 billion in the first half of the year.
Bank customers initially drew on new and existing credit lines in the first quarter in response to the Covid-19 outbreak but began to pay these down in the second quarter as circumstances changed.
Deposits, meanwhile, rose by $93 billion in the first six months, as customers increased their cash reserves and reduced their spending during the lockdown.
HSBC is also expecting to face a wide range of potential economic outcomes for the second half of 2020 and into 2021.
This is partly dependent on the extent of any potential impacts from new waves of Covid-19, the path to the development of a possible vaccine, and market and consumer confidence levels.
With Monday’s financial report, HSBC Holdings performed poorly in the FTSE 100, as Europe’s largest bank issued ‘cautious guidance’ due to its hammered profits for the first six months of 2020, reports Market Watch.
HSBC shares dropped as much as 5% on Monday after the latest bank report.
Caught in the middle of US-China tensions
The increasing tensions brought about by the trade war between the United States and China also added volatility to the bank’s future outlook.
“Current tensions between China and the US inevitably create challenging situations for an organization with HSBC’s footprint. We will face any political challenges that arise with a focus on the long-term needs of our customers and the best interests of our investors,” Quinn said.
In recent years, HSBC has been setting its sight on the growing Chinese market expanding capital in the Asian region particularly in Hong Kong where it is drawing the bulk of its earnings.
The bank has also been caught in the middle of the trade wars between the two economic giants as it has been singled out by Washington to be siding with Beijing.
This after the bank has been suspected of supporting China’s recently passed national security law in Hong Kong while also keeping mum of human rights violations among the Uighurs in Xinjiang.
Ironically, HSBC is also accused of providing documents to US officials to allegedly entrap officers of Chinese mobile giant Huawei which is believed to have caused annoyance to Beijing.
Quinn said the bank has to continue and operate despite the difficult geopolitical environment.
“We will face any political challenges that arise with a focus on the long-term needs of our customers and the best interests of our investors,” he said.