HSBC warns of risks in China’s property sector, allocates funds for losses

HSBC Holdings Plc has issued a warning about the potential for further trouble in China’s property market, as per a Bloomberg report. The bank has allocated additional funds to cover possible losses linked to its investments in China’s commercial real estate sector.

Credit Loss Charges in Focus

In their recent third-quarter earnings report, HSBC revealed an expectation of $1.1 billion in credit loss charges. Approximately $500 million of these charges are associated with the commercial real estate sector in mainland China.

This year, HSBC has already set aside a total of $800 million to cover potential losses in its China property portfolio, the report added.

Also Read: HSBC to boost start-up funding across sectors

HSBC expressed concerns about the future credit conditions in the coming months. They cited ongoing uncertainty regarding liquidity support for state-owned enterprises and the persisting weakness in property market fundamentals, as per the report. The statement from HSBC highlighted the high degree of uncertainty surrounding borrower performance and offshore refinancing risk.

In an effort to mitigate risks, HSBC has reduced its reliance on the commercial real estate sector in mainland China. Their total exposure in this sector now stands at $13.6 billion, which is approximately $600 million lower than in the second quarter. This reduction is attributed primarily to write-offs.

Wider Market Concerns

Investors are growing increasingly concerned about banks’ exposure to China’s property market, given the recent developer defaults and the relatively sluggish economic growth in the region, Bloomberg reported.

This concern was further highlighted by Standard Chartered Plc’s shares plummeting last week, as their profits fell short of expectations due to charges related to their investments in China.

Results

HSBC Holdings reported a 240 percent increase in third-quarter pre-tax profit on Monday as higher interest rates boosted profitability, although it missed market estimates.

Europe’s largest bank with a market value of $118.6 billion posted a pre-tax profit of $7.7 billion for the July to September quarter, versus $3.2 billion a year earlier, trailing the $8.1 billion mean average estimate of brokers compiled by HSBC.