Global banks across the board were hit in the first quarter by various China-linked headwinds including poor equity market performance and, most notably, its zero-Covid policy.
Traditionally a key driver of growth and a strong contributor to profits, China has been the cause for worries as of late as global banks’ Asia businesses suffered from profit hits driven by a myriad of troubles in the country.
Global banks that disclosed their financial breakdown for Asia such as UBS, Credit Suisse, HSBC and Standard Chartered, all posted significantly lower regional profits for the first quarter.
China was unanimously named as the top driver for this profit drop and the most commonly cited reasons were property-linked pressures, poor equity market performance and concerns about ongoing Covid-related restrictions.
UBS: «We Remain Watchful»
At UBS, regional pre-tax profit fell 38.5 percent in the first quarter while assets under management dove $82 billion to $494 billion.
The Swiss financial giant made only one significant mention of China which was found in its country risk assessment that said the bank «remains watchful of a range of geopolitical developments and political changes in a number of countries».
«China is facing several challenges, including a slowing economy following the post-pandemic boom, as well as recent COVID-19-related lockdowns,» UBS said. «We expect measures taken by governments and central banks that are intended to support their economies to give rise to increased sovereign risk as the COVID-19 pandemic remains a concern for a number of countries.»
Credit Suisse: China Tech and Property
Credit Suisse saw its Asia profit decrease from around 800 million Swiss francs ($832 million) year-on-year to a loss of 100 million francs in the first quarter.
Sources familiar with the matter told finews.asia that China was a top reason for the loss, underlining its property and tech sector as the source of pressure.
«Significant industry-wide headwinds from softer markets, a slowdown in China equities led by the real estate and technology sectors and geopolitical tensions weighed on client activities in wealth management and investment banking [in Asia],» according to the finews.asia report earlier this week.
HSBC: Covid Dominates Narrative
At HSBC, pre-tax profit in Asia fell more than 25 percent which the bank attributed to a «muted» wealth business in Hong Kong, additional allowances for the commercial real estate sector in mainland China and, in particular, increased expected credit losses (ECL) due to tighter Covid-linked measures in Asia.
In fact, its earnings report is dominated by related language. In a text analysis of HSBC’s first quarter earnings release, the search words «Covid-19» appear a whopping 43 times and «Covid-19-related restrictions» 18 times, likely because of its strong focus in the region which has been impacted by China’s persistent zero-Covid policy stance.
Wealth income was hit not only by lower equity market activity from weaker sentiments but also temporary branch closures due to restrictions in Hong Kong.
StanChart Headlines China
At rival Asia-focused U.K. lender Standard Chartered, pre-tax profit also fell more than a quarter in the region and China was once again headlined as the main driver.
In addition to increased loan provisions from China's commercial real estate sector, alongside Sri Lanka's sovereign rating downgrade, the bank’s lower wealth management income «entirely offset» the financial markets business’ «very strong» performance, though no specific figures were disclosed.
The bank attributed lower wealth income to worsening market conditions as well as the impact of Covid-linked restrictions in North Asia and Greater China, most notably in Hong Kong and mainland China which saw branch closures and negative impact on face-to-face sales.
In Numbers
In the first quarter of 2022, the four banks above registered a total Asia pre-tax profit of $3.9 billion.
This marks a 36.8 percent plunge compared to the $6.16 billion in total regional profit in the same period last year.
