Sir William Purves, group chairman, said Asia had seen "a deterioration in credit quality, the full impact of which is only to beginning to emerge". But, speaking to reporters in Hong Kong, Sir William insisted the bank's "long term view" of Asia was positive. "Our business in Asia is paramount", he added.
The Asian turmoil hit profits at the group's investment banking division, where profits dropped by 42 per cent to pounds 132m, largely because of losses on debt securities and equities. But John Bond, group chief executive, was yesterday keen to stress HSBC's commitment to its investment banking activities.
Overall, the group saw profits rise to pounds 4.97bn from pounds 4.52bn in 1996.
The crisis also took its toll on the Hongkong Bank, the group's largest subsidiary, which delivered a profit rise of just 3 per cent, much lower than expected.
The strength of sterling also knocked down profits for the second year on the row. But HSBC yesterday took steps to avoid future sterling hits. From next year, the bank will report in US dollars. Sir William said: "The US dollar and currencies linked to it form the main currency bloc in which the Group's business is transacted".
Unlike a number of his UK counterparts, Mr Bond yesterday signalled the bank was unlikely to participate in consolidation of the European banking sector, at least in the short term.
Speaking at a press conference in London, Mr Bond said: "We have nothing on our agenda for acquisitions at present". But he added: "If the right opportunity came along at the right price we would a look at it". Meanwhile in Hong Kong, Sir William told reporters that, with bank assets at record low prices in some parts of Asia, HSBC was keeping its "eyes open to opportunities".
HSBC's bad debt provisions - which included a pounds 175m special provision reflecting the "unusual level of uncertainty" in Asia - were welcomed by the City yesterday. "They have taken quite a large provision for bad debt, which has been taken very well," one dealer said. "The general pervasion was precaution", said John Leonard, banking analyst at Salomon Smith Barney.
Mr Bond said he hoped the special provision, the bulk of which will be absorbed by the Hongkong Bank group, would be sufficient to cover for the fall-out from Asia. Midland Bank had a strong year, with pre-tax profits up 28 per cent to pounds 1.6bn. First Direct, the telephone banking division, also made money, although Mr Bond refused to provide details of profits.