Analyst Note| Michael Wu, CAIA |
HSBC's third-quarter adjusted profit before tax of USD 6 billion was 36% higher than the same period last year and above the bank’s consensus estimate of USD 4.87 billion. Similar to the previous quarter, this was mainly driven by a reversal in expected credit loss, or credit cost, of USD 700 million. The bank noted coronavirus-related ECL of USD 1.2 billion remains, or 10 basis points on total loans. A small net reversal is possible in the fourth quarter with ECL expected to normalise from second-half fiscal 2022, and overall ECL for full-year fiscal 2022 below the normalised range of 30-40 basis points of total loans. Our fiscal 2021 is adjusted to factor in a reversal of USD 1.5 billion and we continue to assume 25 basis points in credit cost in fiscal 2022 and 35 basis points, at the midrange of guidance, for the remainder of our explicit forecast period. Overall asset quality was stable against last quarter with Stage III loans at 1.8% of total loans. The bank noted its loan exposure to mainland China developers was USD 20 billion or less than 1% of its loan book. There is no exposure to mainland China developers classified as under the "three red lines" policy, and of the USD 20 billion, close to USD 5 billion are to Hong Kong property firms in which the loans were booked in China.