HSBC's 2018 profit misses estimates; China weakness poses growth risks

London: HSBC Holdings Plc posted on Tuesday a 15.9 per cent rise in 2018 profit, supported by business growth in its core markets of Asia and Britain, but market weakness in the fourth quarter resulted in the bank missing street estimates.

An economic slowdown in China, the world’s second-largest economy, poses a challenge to the bank’s strategy of pouring more resources into Asia where it already makes over three quarters of its profits.

HSBC reported a profit before tax of USD 19.9 billion for 2018 compared with USD 17.2 billion the year before. The profit for the year, however, was below an average estimate of USD 22 billion, according to Refinitiv data based on forecasts from 17 analysts.

Europe’s biggest bank by market capitalisation said it would pay a full-year dividend of $0.51 per share, roughly in line with analysts’ expectations. The bank was confident of maintaining the dividend at this level, it said.

“Despite more challenging market conditions at the end of the year and a weaker global economic outlook, we are committed to the targets we announced in June,” HSBC CEO John Flint said in the statement.

In the first public outlining of his strategy at the helm of HSBC, Flint had said in June that HSBC would invest USD 15-$17 billion in the next three years in areas including technology and China, while keeping profitability and dividend targets little changed.

“We will be proactive in managing costs and investment to meet the risks to revenue growth where necessary, but we will not take short-term decisions that harm the long-term interests of the business.”

China’s economic growth slowed to 6.6 percent in 2018, the weakest in 28 years, weighed down by rising borrowing costs and a clampdown on riskier lending that starved smaller, private companies of capital and stifled investment.

Flint, who completed his first year in charge of the lender, said that the bank remained alert to the downside risks of the current economic environment, global trade tensions and the future path of interest rates.

The lender’s core capital ratio, a key measure of financial strength, fell to 14 per cent at end-December from 14.5 per cent at the end of 2017, mainly due to adverse foreign exchange movements, it said in the statement.