HSBC’s profits rose 74% in the third quarter as improving economic conditions allowed the bank to release hundreds of millions of pounds originally set aside for a potential jump in loan defaults during the pandemic.
The London-headquartered bank said pretax profits rose to $5.4bn (£3.9bn) in the three months to 30 September, up from $3.1bn a year earlier. It easily beat City forecasts for profits of $3.8bn for the quarter.
HSBC credited continued economic stability for helping increase its profits, as improving conditions allowed customers to repay their debts on time. It meant HSBC could release about $700m from the pile of cash it built up after the pandemic started to help cushion the blow of a potential surge in defaults.
The money nearly offset the $785m loan loss charge that HSBC logged during the same period last year. Analysts had expected a further $236m charge in the third quarter.
The majority of the provisions released in the third quarter – about $563m – were linked to HSBC’s UK business, where the economic outlook has improved over the past 12 months. The chief financial officer, Ewen Stevenson, explained that the loan loss provisions built up in the UK in 2020 reflected fears around the impact of Brexit and Covid, at a time when experts could not predict the success of the country’s vaccination programme.
“We have been progressively releasing a lot of those UK provisions,” Stevenson said. However, HSBC is retaining some cash to cover potential defaults. “We’ve still got …[to] understand the impact of the roll-off of the furlough scheme,” he said.
Despite growing Covid case numbers in the UK, the bank was not adjusting its economic outlook just yet, said the chief executive, Noel Quinn. “We’re assuming that the vaccination that’s already taken place, plus the booster programme, will provide good protection and protect the economy. If circumstances change then we will adjust, but we’re not adjusting at this point in time.”
The better-than-expected results led HSBC to announce a share buyback programme, which will result in up to $2bn distributed to its investors.
“We had a good third-quarter performance, with strong growth in profits supported by additional credit provision releases,” said Quinn, adding that the bank’s strategy “remains on track, with good delivery in all areas”.
While the banking boss said the bank was still cautious about potential risks, he believes that the “lows of recent quarters are behind us”.
Although the bank is expecting some higher costs, partly because of rising inflation and investment throughout the financial year, HSBC said the potential increase in interest rates – which will help increase revenue – would help offset some of the effects. Expectations are growing that the Bank of England could raise rates as early as next month to tackle rising inflation.
The lender’s strong performance comes days after its rival Barclays revealed it had nearly doubled its third-quarter profit to £2bn, having been supported by strong mortgage lending and a surge in investment banking activity. NatWest and Lloyds are due to report on their third-quarter results later this week.