Bad debt provisions rise 62% at HSBC

HSBC, one of the Big Four banks, yesterday unveiled a 62 per cent increase in provisions for bad and doubtful debts compared with this time last year, and warned that the outlook for the global economy continued to be gloomy.

The announcement was received well by the City, which had feared a sharp decline in the bank's profits and an even larger increase in bad debt provisions due to the bank's exposure to Argentina.

In fact pre-tax profits only dipped 7 per cent to $5.4bn (£3.7bn) in the six months to 30 June. HSBC shares closed down 2p, or 0.3 per cent, at 702p.

Provisions for bad debts stood at $715m (£490m) as of 30 June this year, up $274m from mid-2001.

Sir Keith Whitson, HSBC's chief executive, said: "An awful lot of bullets are flying around" which has made it "almost impossible" for banks to escape from bad debts. HSBC said that among defaults so far were several UK telecoms companies.

But Sir Keith added that, apart from heavy losses in Argentina last year, HSBC has avoided most of the crossfire in world markets. Having made a $1.1bn provision against Argentina's losses last year, HSBC said its outlook for the country's troubled economy had not deteriorated any further.

The reasonably stable results come after a number of rivals, including Lloyds TSB and Barclays, disappointed the market by announcing unexpected increases in bad debt provisions.

Sir John Bond, the chairman of HSBC, said the results "showed once again the resilience of HSBC in difficult market conditions".

HSBC has nevertheless had to deal with a series of difficulties in the past few months, including a defection of some of its star employees in its investment banking division and a disappointing performance by its service for the "mass affluent" that was a joint venture with Merrill Lynch.

The joint venture created operating losses of $23m for HSBC in the first half of the year. The bank has also been forced to reverse its policy of freezing analysts' bonuses in order to stop more defections.

Amid the general feeling of mistrust of company accounts HSBC said it took the role of its audit committee "very seriously". Douglas Flint, HSBC's finance director, said he would probably also comply with proposals to make company accounts more transparent by treating share options as an expense before the change is enforced in 2004.