HSBC (0005) recorded expected credit losses of US$1.3 billion last quarter, up by 48.5 percent from the prior year, as the lender took a hit from private credit-related loans in the UK and charges related to geopolitical tensions.
The bank booked a US$400 million charge on a fraud-related indirect exposure in the quarter as well as US$300 million allowances on the heightened uncertainty and a deterioration in the economic outlook due to conflict in the Middle East.
Chief financial officer Pam Kaur declined to disclose details of the fraud, but confirmed that the bank has exposure to a private equity firm that has exposure to private credit-related loans.
“We do a broad read across look at all our highest risk concentrations and exposures across the board, and we don't see anything comparable there,” Kaur said at a press conference on Tuesday.
It was reported that the charge was made on the exposure to the failed British mortgage lender Market Financial Solutions.
HSBC has a private credit-related exposure of US$6 billion, she said, stressing the size is “very small” compared to its US$1 trillion balance sheet.
She said the Middle East-related charge was based on a probability of various downside scenarios, which has a probability weightage of 30 percent.
This is similar to what the bank did during the Russia-Ukraine conflict, Kaur said, adding that these reserves could be released over time.
“There have been only very minimal capital flows out” of the Middle East in terms of wealth management for the group, Kaur said, adding that the lender will continue to invest in the business in the region.
𝗗𝗼𝘄𝗻𝗹𝗼𝗮𝗱 𝗧𝗵𝗲 𝗦𝘁𝗮𝗻𝗱𝗮𝗿𝗱 𝗔𝗽𝗽 ↓
