Bad loans at HSBC's Middle-Eastern arm more than doubled to US$921 million (Dh3.38bn) in the 12 months to June, the British banking giant reported on Monday. The increase mirrors a global trend in which banks are writing off losses in the financial crisis and setting aside cash to provide for further defaults. Local banks have so far reported about $1.3bn in provisioning for bad loans for the first half of the year. Collectively, those banks have seen second-quarter profits decline by almost 27 per cent compared with a year before.
HSBC said the rise in bad loans in the Middle East was "largely due to a small number of large corporate and commercial counterparties affected by the slowdown in economic activity and lower equity market values". The bank also blamed a rise in delinquencies on credit cards and personal loans "as credit quality in the region deteriorated, and construction and infrastructure development contracted sharply reducing employment".
Impaired loans, or loans that the bank does not expect to be paid back in full, rose by almost $650m to $921m in the 12 months to June, the bank said. HSBC deducted $393m of that amount from its profits, well above the $41m in charges it recorded in the first half of last year. Globally, the bank charged $13.3bn in impairments in the first half, less than analysts were expecting. It posted a 57 per cent decline in profits from the first half of last year, beating analysts' forecasts of a loss.
Profits in the Middle East were better. The $643m in first-half, pre-tax profits were down 35 per cent compared with last year. In North America, where HSBC has taken its hardest hit during the crisis, the bank lost $3.7bn before taxes in the 12 months to June. Despite the global pullback on lending, HSBC also posted a slight rise in overall lending in the UAE, which accounts for the lion's share of its business in the region. Residential mortgage loans increased by 32.5 per cent.
But property-related loans, such as commercial loans to developers and construction companies, declined by 23 per cent in the year to June. Barclays, the British bank that Gulf investors helped rescue last year, also reported a sharp rise in bad loans as it revealed a 10 per cent increase in first-half profits yesterday. Bad loan provisions at Barclays increased by 73 per cent to £3.9bn (Dh24.11bn) compared with the first half of last year, the bank said yesterday. Provisioning for loans to retail bank customers doubled from last year as credit card defaults increased.
Despite these weaker than expected results, Barclays appears to be on an increasingly solid financial footing after investors from Abu Dhabi and Qatar put £5.8bn into the firm, helping it avoid a government lifeline. Abu Dhabi's investment, made by the International Petroleum Investment Company, netted a profit of more than £2bn in June when it sold some of the bonds Barclays issued as part of the rescue. The emirate could still own about 5 per cent of the bank if it exercises options connected to Barclays debt.
Barclays recorded its half-year profit of £1.89bn thanks largely to strong revenues from its investment banking business. It also booked profits from its acquisition of the operations of Lehman Brothers, the major US investment bank that went bankrupt last year. "The investments we have made, particularly in our international businesses, are driving very strong income performance and allowing us to absorb the consequences of the economic downturn," said John Varley, Barclays' chief executive.
Shares in HSBC and Barclays climbed yesterday after the results were announced. HSBC stock rose 5.08 per cent and Barclays stock rose 6.73 per cent in early trading in London. @Email:afitch@thenational.ae
