HSBC’s profits rose 74% in the third quarter as improving economic conditions allowed the bank to release hundreds of millions of pounds originally set aside for a potential jump in loan defaults during the pandemic.
The London-headquartered bank said pretax profits rose to $5.4bn (£3.9bn) in the three months to 30 September, up from $3.1bn a year earlier. It easily beat City forecasts for profits of $3.8bn for the quarter.
HSBC credited continued economic stability for helping increase its profits, as improving conditions allowed customers to repay their debts on time. It meant HSBC could release about $700m from the pile of cash it built up during the pandemic to help cushion the blow of a potential surge in defaults.
It nearly offset the $785m loan loss charge that HSBC logged during the same period last year. Analysts had expected a further $236m charge in the third quarter.
The better-than-expected results led HSBC to announce a share buyback programme, which will result in up to $2bn distributed to its investors.
“We had a good third-quarter performance, with strong growth in profits supported by additional credit provision releases,” the chief executive, Noel Quinn, said, adding that the bank’s strategy “remains on track, with good delivery in all areas.”
While the banking boss said that the bank was still cautious about potential risks, he believes that the “lows of recent quarters are behind us”.
Although the bank is expecting some higher costs, partly because of rising inflation and investment throughout the financial year, HSBC said the potential increase in interest rates – which will help increase revenue – would help offset some of the effects. Expectations are growing that the Bank of England could raise rates as early as next month to tackle rising inflation.
The lender’s strong performance comes days after its rival UK bank Barclays revealed that it had nearly doubled its third-quarter profit to £2bn, having been supported by strong mortgage lending and a surge in investment banking activity. NatWest and Lloyds are due to report on their third-quarter results later this week.