HSBC has posted higher-than-expected earnings and claims that the economic outlook is improving. For the January-to-March season, Europe’s largest bank by assets posted a profit of $5.8 billion, an equivalence of £4.2 billion, up from $3.2 billion a year earlier.
More than half of the bank’s income came from Asia, where it does much of its operations. HSBC was able to release some of the cash it had set aside for bad loans as a result of the improved outlook. HSBC set aside $3 billion to cover bad debts last year, but it has now released $400 million of that due to an improvement in the economic outlook, especially in the UK.
Profits were also boosted by strong growth in the company’s mortgage market in the United Kingdom and Hong Kong. The bank claims to be on track with its restructuring plan, which includes the elimination of 35,000 jobs and an emphasis on increasing client fees in Asia.
The increase in profits represents a significant turnaround for HSBC, which previously announced a 34% decrease in profits for 2020, owing in part to the effects of the coronavirus pandemic.
HSBC’s group chief executive, Noel Quinn, said the bank had had a strong start to the year.
“Global banking and markets had a strong quarter,” he said.
“and we saw solid business development in strategic areas such as Asia Wealth and Trade Finance, as well as mortgages in Hong Kong and the United Kingdom.”
The bank’s profits were led by Asia, which brought in $3.8 billion, but it said it was profitable across the board, with $1 billion in profits from its UK operations. Although HSBC predicted improved economic conditions in 2021, it also predicted increased instability as countries recover at different rates from the pandemic and governments reduce support measures.
Although earnings were higher, sales were down 5% to $13 billion due to the effect of interest rate reductions across the board. The bank expects lending to increase in 2021, but this depends on how quickly the world recovers from the pandemic.
“The bank’s underlying ailment, the ultra-low rates plaguing the banking sector, does not appear to have an immediate solution,” Susannah Streeter, senior investment and markets analyst at Hargreaves Lansdown, said.
Also, while HSBC is not alone in feeling the squeeze of net interest margins, which tightened marginally over the quarter, other banks with large investment banking arms have been able to profit from the recent trading surge.
Nevertheless, the bank warns that the future is still bleak with the surging pandemic. More so, as governments have been cutting the arms of protection that have been wrapping around their economies.