HSBC Warns of China Headwinds, More Real Estate Loan Losses

(Bloomberg) -- HSBC Holdings Plc, the largest foreign bank in China, warned of further potential hits from the nation’s battered real estate market as defaults continue to climb amid a worsening Covid outbreak.  

“It’s a big call to say that we’ve seen the worst,” Ewen Stevenson, HSBC’s chief financial officer, said in an interview with Bloomberg News. “Do I think that there could be further provisions this year? Yes, it’s possible.”

The London-based bank took a $160 million provision against China commercial real estate in the first quarter, on top of a $450 million charge in the previous quarter. HSBC had $21.3 billion of exposure to China’s property sector as of Dec. 31, and Stevenson said that the portfolio is under control for the time being.

China’s real estate industry has been hit by a liquidity crunch, with a slump in property sales weighing on the world’s second-largest economy. At least 17 firms have defaulted on offshore bonds since authorities began cracking down on excessive borrowing and speculation in the housing market in 2020. 

The slowdown in housing market continued last month despite additional measures rolled out by local governments, and may exacerbate as spreading Covid lockdowns and a sharp sell-off in Chinese stocks threaten to sap consumer confidence and further erode property sales.

China’s economic outlook has deteriorated in recent weeks. Economists estimate growth to slow to 5% in 2022, below the government’s target of about 5.5%.

“We do think that the current lockdowns will inevitably have an impact on growth in China,” said Stevenson. “It’s for each country to figure out what’s in the best interests of their people and how to deal with Covid.”

China is crucial to the HSBC’s global strategy of pivoting more resources to Asia. Along with other major banks, HSBC has ramped up investments and hirings in the hunt for billions of potential profits in everything from brokering deals, to wealth management and insurance as the nation opens its financial markets.

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