3 growth risks HSBC must watch out for

Fear of lower interest rate is one.

According to CCB International, HSBC will report 2Q13 earnings on 5 August 2013 after market close. CCB International forecast headline profit before tax (excluding gains/losses on fair value of own debt) of US$6.6b, which is equivalent to EPS of about US$0.24/share.

In its report, CCB International noted 3 possible risks that may haunt HSBC's outlook.

Here's more:

Exposure to the US and Europe. While the bank is repositioning itself towards the emerging markets, over half of its revenues still come from Europe and the US (representing over 60% of the loan book).

In the event of a recession in developed markets, HSBC still has considerable exposure to these geographies and loan impairments would spike higher in such a scenario. A “double-dip” in US housing could markedly increase provisioning costs for a sustained period of time (i.e. several quarters).

Persistently low interest rate environment. While savings and deposits are valuable in the current funding environment, low interest rates dramatically reduce HSBC’s profitability as liability margins get squeezed.

In addition, low rates and a flatter yield curve will have a negative impact on balance sheet management (BSM) revenues due to lower yield pick-up. In terms of downside interest rate sensitivity, a 25bp decrease in interest rates reduces NII by US$1.6b.

Global slowdown. HSBC’s strategy of capturing growth through exposure to high growth markets and capturing trade flows is predicated in part on global economic growth.

There is a risk that the current debt crisis in periphery Europe could spread and the resulting contagion could act as a catalyst for a global slowdown/recession as liquidity would dry up.

In addition, should we experience financial stresses similar to 2008, a global bank such as HSBC would not be immune to incremental credit costs resulting from increased counterparty risks as the financial strength of counterparties is reduced. This would be a global macro risk impacting all banks.