Europe’s largest lender, HSBC, announced on Monday, that its net profit plunged to 96% in the second quarter of this year as a result of the coronavirus pandemic.
The bank suffered an almost seven-fold jump in reserves for bad loans, with a steep drop in the profit for the second quarter. The potential loan losses have accumulated to $3.8 billion, which is about $1 billion more than what the analysts had expected.
HSBC’s net profit took a drop from $4.37 billion last year to $192 million this year
For the second quarter, the bank reported a net profit of $192 million, down from $4.37 billion reported in the same quarter last year. The net profit in the first quarter was $1.79 billion.
The bank has forecasted an expected credit loss of $8 billion – $13 billion in 2020. HSBC also said that it’s lending in the last quarter fell 3% to $29 billion while deposits increased 6$ to $85 billion as customers saved more and spent less.
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HSBC’s chief financial officer Ewen Stevenson said that the bank expects a sharper recession
Chief financial officer Ewen Stevenson stated that the bank is expected a much sharper recession, with any recovery pushed further to 2021. He further stated that the deepening pessimism was driven by the COVID pandemic, the path to its effective vaccine, the Brexit outlook, and other big events for which any clarity can be expected only in the next six months, which will have a meaningful impact.
HSBC has most of its business from Asia, where the pandemic originally started, first emerging from Central China. In the last few years, it had sought to reduce its investment in the US and Europe and redeploy assets in mainland China.
Earlier this year, the bank had said that it will let go of 35,000 jobs as part of an overhaul to focus on emerging markets in Asia, also coping with global uncertainties, from Brexit to the pandemic.
HSBC to take a break from the restructuring efforts and focus on supporting customers
Noel Quinn, HSBC’s chief executive, said that the HSBC has taken a break from restructuring efforts in the last quarter to focus on supporting its customers. He also said that their first-half performance was affected by the coronavirus pandemic, falling interest rates, rising geopolitical risk, and greater market volatility.
Quinn further stated that they are now looking at additional actions that would need to be taken in light of the new economic environment to make HSBC a strong and sustainable in business.
The bleak picture of HSBC only reflects those of its European peers in the banking industry. Many European banks are still dealing with the problems from the financial crisis, giving in to the deteriorating economic outlook.