HSBC Holdings PLC on Tuesday reported a slump in profit in the first quarter but the expected rise in central bank interest rates in the coming months gives the bank confidence for future income generation.

In the three months to March 31, the Asia-focused lender recorded $4.17 billion in pretax profit, down 28% from $5.78 billion in the same period the year prior.

HSBC blamed this on a net charge for expected credit losses and other credit impairment charges in the first quarter, compared with a net release the year before.

The bank booked a $642 million ECL charge versus a $435 million release last year.

Total revenue in the first quarter dropped 4.1% to $12.46 billion from $12.99 billion.

Net interest income improved to $7.00 billion from $6.51 billion, as its net interest margin rose to 1.26% from 1.21%.

While net fee income slipped to $3.13 billion from $3.46 billion. Where the bank faltered, however, was booking a $1.25 billion expense from assets & liabilities of insurance businesses compared to $1.16 billion in income the year before.

Chief Executive Noel Quinn said he was ‘encouraged’ by HSBC’s start to 2022.

‘Our strategy is on track, with organic growth and good momentum across most parts of the group. While profits were down on last year’s first quarter due to market impacts on Wealth revenue and a more normalised level of ECL, higher lending across all businesses and regions, and good business growth in personal banking, insurance and trade finance bode well for future quarters,’ he continued.

‘We have further reduced costs while maintaining high levels of technology investment, and remain on track to achieve our cost and risk-weighted assets reduction targets for 2022. Although the economic outlook remains uncertain, the continued upward path of interest rates since our full year results has further strengthened our confidence in delivering a double-digit return on average tangible equity in 2023.’

HSBC’s RoTE in the first quarter was 6.8%, dropping from 10.2% the year before.

Quinn noted HSBC Russia is not accepting any new business or customers at the moment, so is experiencing ‘a declining trend’.

‘The vast majority of our business in Russia serves multinational corporate clients headquartered in other countries, and as a global bank, HSBC has a responsibility to help them manage these challenging circumstances,’ he added.

The bank also pointed put the Russian invasion of Ukraine has ‘exacerbated inflationary pressures,’ which has led HSBC to up its ECL charges in the first quarter.

Across regions, HSBC’s pretax profit from its European operations slumped to $253 million in the first quarter from $997 million the year before.

In Asia, profit dropped to $2.80 billion from $3.76 billion, while North America profit was up to $553 million from $484 million. In Middle East & North Africa, profit was up to $385 million from $337 million, but in Latin America, it dropped to $171 million from $203 million.

Within units, only HSBC’s Commercial Banking business was able to record a rise in revenue. Commercial Banking adjusted revenue increased to $3.53 billion from $3.25 billion. Wealth & Personal Banking revenue was down to $5.23 billion from $5.57 billion and Global Banking & Markets fell to $4.01 billion from $4.18 billion.

HSBC added: ‘The revenue outlook remains positive, with growth in net interest income expected to continue as implied market consensus policy rate movements have improved since our full year 2021 results. This is expected to be supported by mid-single-digit percentage lending growth for 2022.

‘While Covid-19-related restrictions in Hong Kong resulted in a comparatively muted 1Q22 for our Wealth business, we expect a recovery when restrictions are lifted. We continue to expect mid-single-digit percentage revenue growth in 2022.’

The bank ended the first quarter with a CET1 ratio of 14.1%, down from 15.9% at the same point the year prior.

HSBC noted it is currently not intending to pay quarterly dividends during 2022.

Shares in HSBC Holdings were down 1.3% in Hong Kong on Tuesday at HK$51.00 each. They closed at 514.60 pence each in London on Monday.

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