HSBC says fall in bad loans behind profit

LONDON - HSBC has kicked off what is set to be another contentious banking reporting season by unveiling a doubling of profits to US$11.1 billion ($15.1 billion) from US$5.02 billion a year ago.

The bank reported the soaring earnings at a time of continuing controversy over bonuses and lending to small businesses.

Over the weekend the British Chancellor, George Osborne, called on banks to do more, while calls for pay restraint have come from the Financial Services Authority, politicians and the Bank of England.

HSBC's booming profits were primarily driven by a sharp fall in bad loans, with provisions falling by US$6.4 billion to US$7.5 billion in the first half of the year.

Its revenues actually fell slightly, by 3.8 per cent to US$19.8 billion. But all the bank's regions and business segments made money, with the exception of the US, which lost US$80 million as HSBC continues the run off of its disastrous foray into sub-prime lending.

Personal financial services - the retail business - showed a marked improvement, turning a US$1.25 billion loss into a US$1.17 billion profit.

The bank's Hong Kong-based chief executive, Michael Geoghegan, said emerging markets in Asia would continue to be crucial to the growth of the operation and would remain its chief focus. But he warned that overall the outlook remained "uncertain".

The banking sector's critics argue that sustaining growth in the West will in part depend on banks' willingness to lend to businesses, but HSBC, which lends only just over 80 per cent of what it has on deposit, said it was keen to advance money to "viable businesses" and consumers.

However, it said, many of its customers were concentrating on paying money back.

While HSBC's new lending to small and medium-sized businesses (SMEs) in Britain grew by 38 per cent to £1.4 billion ($3 billion) when compared with the first half of last year, net new loans fell.

But the bank argued that low interest rates meant the rates being paid by SME customers were often lower than before the financial crisis and, even where credit was being made available, businesses were focusing on paying loans back. It's an argument the British Bankers' Association backs.

"Many larger companies are going direct to the markets for funding and, as is common in the downturn, smaller businesses repay borrowing and will finance through other money such as personal savings or the business' on-going capital," said chief executive Angela Knight.

The global banking and markets division at HSBC slowed slightly, with profits down 13 per cent to US$5.6 billion, in common with investment banks around the world.

Despite the fall in profit, the cost of paying bankers at the division increased to US$2.52 billion against US$2.49 billion in the first half of last year.

Stuart Gulliver, the head of global banking and markets, put that down to the bank paying the previous Government's bonus tax.

- INDEPENDENT