HSBC on Monday, October 30, announced that the Chinese real estate market has the potential for further deterioration of the situation.
This financial institution, which is one of the largest banks in Europe, recorded a profit before tax of $7.7 billion in the third quarter of this year. This figure is more than twice the result for the same period last year.
The lender’s revenue for the third quarter was fixed at $16.2% billion. This figure is 40% higher than the result of a year ago. The bank reported higher interest income.
At the same time, the profit of the financial institution did not meet initial expectations. This is partly due to a $500 million charge to cover potential losses on commercial real estate loans. Analysts had forecast the lender’s pre-tax profit of about $8.1 billion and revenue of $16.3 billion.
The financial institution’s CEO, Noel Quinn, said the bank had benefited from higher borrowing costs in recent months. Also, according to him, in the last quarter, large-scale growth was recorded in all areas of business and regions, due to the conditions of interest rates.
At the same time, the bank informs about the continuing risks that may become factors of negative impact on its lending business. In this context, the financial institution draws attention to the dependence on China, which last week caused the negative performance of Standard Chartered, another British lender focused on Asia. The value of the mentioned bank’s shares on the London Stock Exchange decreased by more than 10% last week. At the end of the third quarter, this lender recorded a pre-tax profit of $633 million. This figure is 54% lower than the result of a year ago. In this case, the factor of influence was a decrease in the value of investments of the lender in China Bohai Bank by $697 million.
Standard Chartered also reported the recovery of losses from the depreciation of loans for $294 million, including $186 million related to the Chinese commercial real estate sector.
The mentioned bank CFO Andy Halford said that the lender’s overall performance is very high, despite the results in China. In his opinion, the GDP of this country will recover by about 5% over the next two to three years.
In the third quarter, HSBC adjusted the expected lending losses, which are money in case of default on loans. In this case, the bank provides for expenses for $500 million related to commercial real estate in mainland China. The lender records a strengthening in economic uncertainty, an increase in interest rates, and continued inflation.
The real estate crisis in China has become a problem for investors this year. Developers are losing cash and trying to resist a prolonged decline in sales. HSBC said it expects that the support from the Chinese government will contribute to improving sales in some sectors of the market, including in the real estate segment. At the same time, the bank notes that risks are still being observed. In this context, the financial institution draws attention to the persistent stress in the commercial real estate market of mainland China.
HSBC continues to monitor the potential consequences of the prolonged recovery of the real estate sector of the mentioned Asian country and the overall economic prospects of this state. The bank focuses on the likelihood of further deterioration of credit conditions in the last quarter of 2023. This risk is observed against the background of continuing uncertainty regarding liquidity support.
During a telephone conversation with analysts, Noel Quinn said that the industry may still suffer losses, but noted that, in his opinion, the market has reached the peak of the recession. The CEO of the bank believes that adaptation to the new norm is currently taking place.
As a sign of the restoration of confidence, HSBC announced its intention to hold another share buyback worth up to $3 billion. The bank has already made similar statements this year. The financial institution also announced another interim dividend of 10 cents per share, the third since the beginning of 2023.
HSBC shares are currently showing stability in terms of price dynamic.
As we have reported earlier, HSBC Tests Quantum Tech in London to Guard Against Hacks.