Economic downturns threaten HSBC profits, restructuring: analysis

Low confidence levels could reduce demand for credit and lending and revenue growth.

Persistent slowdowns in Hong Kong’s economy could put pressure on HSBC’s profitability and complicate strategic restructuring, according to a DBRS Morningstar report.

Low confidence levels could reduce demand for credit and lending and revenue growth. A weakening household income can erode borrowers’ debt servicing capacity and the bank’s asset quality and the cost of risk, analysts Tomasz Walkowicz and Elisabeth Rudman said.

“We note however that the share of Hong Kong in credit exposure is not as high as its share in the Group’s earnings. Hong Kong represents around 30% of the Group’s gross loans and 22% of RWAs in Q3 2019. Furthermore, the quality of the credit exposure benefits from the Group’s high underwriting standards,” they added.

The city’s standing as a long-term international trade and financial centre is also being questioned as a deteriorating outlook on economic performance could lead to cross-border capital outflows, affecting the banking sector’s liquidity and domestic interest rates. Any potential outflow from HSBC’s network in Hong Kong could benefit subsidiaries in countries with a large Chinese immigrant population like Canada or Australia.

“In our opinion, the deterioration in the economic outlook for Asia represents a risk to the re-deployment of capital into faster growing and more profitable Asian businesses.”