HSBC Holdings PLC (HSBA.L) on Tuesday reported a significantly better-than-expected 79% rise in first quarter profit, as an improved economic outlook allowed the bank to release cash set aside against bad loans because of the coronavirus pandemic.
Europe's biggest bank by assets posted profit before tax of $5.78 billion for the three months ended on March 30, up from $3.21 billion a year ago and well above an average analyst forecast of $3.35 billion compiled by the bank.
The bank released $400 million of provisions for bad debts, which it said "reflected an improvement in the economic outlook, notably in the UK". HSBC had set aside an additional $3 billion a year earlier as the impact of the pandemic began to hit.
HSBC, which makes the bulk of its profits in Asia, said its credit losses for 2021 were likely to be below the medium-term range of 30-40 basis points it forecast in February.
Still, the improved outlook and profits paled in comparison to U.S. rival JPMorgan (JPM.N), which earlier this month reported a 400% increase in quarterly profit and released more than $5 billion in bad loan provisions.
HSBC's fortunes are heavily tied to global interest rates. Revenue fell 5% in the quarter from a year ago as low-interest rates in its main markets constrained the bank's ability to generate large revenues from lending.
Hibor, the benchmark lending rate in HSBC's most profitable market of Kong Kong, was near ten-year lows for much of the quarter.
HSBC in February announced a revised strategy to focus mainly on wealth management in Asia, aiming to earn more revenue from client fees rather than the difference between the interest rates the bank offers savers and charges borrowers.
HSBC said on Tuesday it was continuing negotiations for the sale of its French retail banking business, but no final decision has been taken. Reuters reported last month that HSBC had entered final negotiations to sell the business, which has 270 branches, to private equity firm Cerberus.
HSBC is the first of Britain's big banks to announce first-quarter earnings. Lloyds Banking Group (LLOY.L) is due to report on Wednesday, Standard Chartered (STAN.L) and NatWest Group (NWG.L) on Thursday, and Barclays (BARC.L) on Friday.