HSBC Says Virus Outbreak May Expand Loan Losses, Lower Revenue

HSBC Holdings Plc said the full impact of the coronavirus outbreak hasn’t fully been accounted for in its report, signaling it may need to raise its expected loan losses further.

The lender said on Tuesday its expected loan losses sank to $733 million in the last three months of 2019, sliding to 0.28% of gross loans and advances. That followed a jump in the third quarter, when the bank ratcheted up anticipated losses as Hong Kong sank into recession following months of pro-democracy protests.

In its report on Tuesday, the bank said the loan loss expectations are based on forecasts from the end of Dec. 31.

“Depending on how the situation develops, there is the potential for any associated economic slowdown to impact our expected credit losses in Hong Kong and mainland China,” HSBC said. “Longer term, it is also possible that we may see revenue reductions from lower lending and transaction volumes, and further credit losses stemming from disruption to customer supply chains. We continue to monitor the situation closely.”

HSBC, which counts Hong Kong as its biggest market, is among lenders reeling from the virus crisis as many businesses in the Asian financial hub struggle and deal making grinds to halt because of travel restrictions. Banks in the city have implemented flexible working arrangement and temporarily shut nearly 30% of their branches amid the outbreak that has claimed more than 1,800 lives and infected over 72,000 in China. The city reported its first death earlier this month.

A Hong Kong-based employee has been placed under government quarantine after suspected contact with the virus, but later tested negative, HSBC said in an internal memo Monday. The lender, when including its Hang Seng Bank subsidiary, has about 30,000 employees in the city.

Along with other banks, HSBC is rolling out measures to help the city as its important retail and tourism industries struggle. Europe’s biggest finance company by market value is providing more than HK$30 billion ($3.9 billion) in liquidity relief to its business customers and later announced other measures to ease the financial burden on personal customers.

Hong Kong is facing “tsunami-like” shocks, and may suffer a record budget deficit in the next fiscal year as the coronavirus adds to costs after months of social unrest, according to the city’s Financial Secretary Paul Chan.

The epidemic’s impact is spreading beyond retail, food and beverage and tourism, Chan said in a blog post Sunday. The short-term economic outlook is “cautious,” while these shocks can cause unemployment to “deteriorate rapidly,” Chan said.

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