Investors are bracing for potentially large loan loss provisions at HSBC, Standard Chartered and other big banks in Hong Kong as the coronavirus pandemic weighed heavily on economic activity around the world during the first quarter.
The city’s three currency-issuing lenders – HSBC, Standard Chartered and Bank of China (Hong Kong) – are all expected to report their first-quarter results this week beginning on Tuesday. Rivals DBS and Industrial and Commercial Bank of China (Asia) also are among lenders expected to update investors on their quarterly results this week.
In February, many of the banks operating in the city warned that they expected to set aside additional reserves for bad loans in the first quarter. Still, they added that the risk was short term and manageable. That was before the economic environment worsened as the pandemic’s spread shut down cities from New York to Singapore.
“When banks reported their results for the end of December, none of them had factored in the real impact of Covid-19,” Paul McSheaffrey, a partner at accountancy firm KPMG, said. “We should definitely expect higher loan loss provisions coming through.”
When they reported their first-quarter results earlier this month, the biggest American banks, including Bank of America, Citigroup and JPMorgan Chase, set aside a collective US$25 billion for potential loan losses as they prepared to weather a global downturn not seen since the Great Depression. It was the biggest jump in loss provisions in a decade.
Last week, the China Banking and Insurance Regulatory Commission said the non-performing loan (NPL) ratio for the nation’s banking sector rose to 2.04 per cent at the end of March as the country’s economy shrunk for the first time since 1976. The NPL ratio ended 2019 below 2 per cent.
The coronavirus has infected more than 2.9 million people worldwide and disrupted industries across the board as health officials ordered companies to keep their employees at home. Covid-19, the disease caused by the virus, has killed more than 205,000 people around the globe.