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-19 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 December 31, and Stevenson said 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%.
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 hunt for billions of potential profits in everything from brokering deals, to the wealth
management and insurance.