HSBC's $694 Million Provision Exposes Wider Banking Crisis in Asia

HSBC, the multinational banking group, has announced its largest-ever provision against bad debt, amounting to $694 million, sparking concerns over the extent of the crisis in Asia. The bank's provision for the first half of the year was four times greater than that made at the same time last year, and significantly larger than City analysts had anticipated. This move has sent a warning signal to the market about potential problems in the future, and has raised concerns over the exposure of other major banks in the region.

Key Takeaways:

• HSBC's provision for bad debt was $694 million, four times greater than the same period last year, and significantly larger than expected by City analysts.
• The provision included exposure to Indonesia and Thailand, countries that have received assistance from the International Monetary Fund, accounting for more than 50% of the total.
• HSBC's chief executive, Keith Whitson, expressed caution over the bank's outlook for the next half of the year, warning that the bank may need to make a similar provision in the second half of the year.
• Analysts have reduced profit forecasts for the full year, with some predicting that HSBC may need to make an even larger provision to cover bad debt.
• HSBC's shares fell more than 2% in London following the announcement, despite ending the day above its lows.
• The bank's operating profits rose 13% before the provision for bad debts, but were eaten into by the $694 million provision.
• Sentiment in Hong Kong was further weakened by news that the territory's gross domestic product fell by 2.8% in the first quarter of 1998.
• HSBC's chief executive, Keith Whitson, expressed uncertainty over the extent of the problems in Asia, stating that the bank was not in a position to gauge the impact accurately without a Crystal ball.

Statistics:

• $694 million: The size of HSBC's provision for bad debt.
• 50%: The proportion of the provision allocated to Indonesia and Thailand.
• 14%: The decline in HSBC's profits before tax, falling to $3.67 billion (Pounds 2.24 billion) in the first half.
• 13%: The increase in operating profits before the provision for bad debts.
• 5%: The decline in HSBC's Hong Kong-listed shares following the announcement.

Sources:

• "HSBC £2.24bn profit falls by 14 per cent", The Times, undated
• "HSBC to reveal exposure in Asia", Financial Times, undated
• "Asian markets down despite HSBC results", The Independent, undated
• "HSBC warns of Asia's problems", The Times, undated