HSBC wary of bad loans

Investment banking activities expected to slow, but risk management to pick up.

HSBC expects bad loans to "continue to go up" in the Middle East as the global financial crisis stymies economic growth in the region.

HSBC expects bad loans to "continue to go up" in the Middle East as the global financial crisis stymies economic growth in the region, says Youssef Nasr, the regional head of the bank. Delinquent loans were "most visible on the personal side, the unsecured personal loans and credit cards", he told Bloomberg News. Mr Nasr said he was concerned about the continuing exodus of Dubai expatriates, which could add to loan defaults. Still, "recognition in government circles that this is an issue" made him optimistic, he said. In addition, companies in other regions such as Abu Dhabi, Saudi Arabia and Qatar were still recruiting. HSBC's Middle East division posted a 34 per cent increase in pre-tax profits last year to US$1.75 billion (Dh6.42bn), boosted largely by a 65 per cent rise in its investment banking activities. A "notable deterioration of credit quality" last year, combined with "a material increase in loan impairment charges", had resulted in an increase in total non-performing loans in its Middle East operations, Mr Nasr said. Those loans rose to $321 million last year from $274m in 2007. The bank also raised its impairment charges to $378m. On a group level, HSBC on Monday reported a 70 per cent drop in annual net profits as bad debts increased to almost $25bn. To shore up its balance sheet, HSBC launched a £12.5bn (Dh64.72bn) rights issue, the biggest in British corporate history. Mr Nasr said he expected more advisory work for the bank as companies restructured, downsized and disposed of non-core assets in the economic downturn. Business in the bank's capital markets division has dried up as volumes are "way down" in the first two months of this year. "Markets are frozen, spreads are too wide," Mr Nasr said. "We do some [issuances], but a fraction of what it was in previous years." Meanwhile, Standard Chartered, one of HSBC's biggest regional competitors, said it hoped its strong traditional focus on the emerging markets would allow it to capture more market share. "With a history going back more than 88 years across the Middle East, the bank... will continue to perform a critical role supporting investment and trade growth within its emerging markets footprint," said Shayne Nelson, the regional chief executive. Standard Chartered's operating profit in the Middle East and parts of South Asia increased 25 per cent last year to $736m. On a group level, its operating profit rose 13 per cent to $4.57bn on the back of strong regional trade flows in the first half, the bank said. [e-mail] [e-mail] Standard Chartered rallies, b9