HSBC sees big gains in the Middle East in spite of the recent unrest, but cost-cutting measures worldwide are still looming for the bank after its layoffs in the region earlier this year.
Profit at HSBC almost doubles
Job cuts and improved lending conditions in Dubai helped HSBC to nearly double first-quarter profit in the Middle East compared with the same period last year.
However, the banking group's chief executive warned that further cost-cutting was on the horizon.
The bank, the largest in Europe by market capitalisation, reported profits before tax of US$335 million (Dh1.23 billion) in the first quarter for its Middle East operations, up 91.4 per cent on the same period a year ago.
The gains were driven by "earlier actions to reposition certain portfolios, and improved credit conditions in Dubai", the bank said.
Business in the Emirates was among the brightest spots in the region as political unrest elsewhere dented fortunes in countries such as Egypt, Tunisia and Algeria.
"While the UAE and Saudi Arabian economies continued to recover, political unrest in parts of the region contributed to a general reduction in customer activity," the bank said.
The improved profit comes as HSBC plans wide-ranging measures to control costs. The bank has cut about 3 per cent of its workforce of 12,000 in the Middle East and North Africa.
On a global level, the bank posted a 52.2 per cent rise in net profit to $4.4bn.
The Middle East generated the biggest percentage increase in HSBC profit of any part of the world, although in absolute terms it accounted for the smallest slice of HSBC's total profit outside North America.
The fastest growth during the quarter was in corporate lending. Net loans and advances for the Middle East region rose 1.7 per cent to $26.7bn, driven by a 4.6 per cent increase in corporate and commercial lending compared with the same period last year.
But the increase masked a 2.7 per cent decrease in retail lending and a 23.1 per cent drop in lending to financial institutions.
Costs for the Middle East were 19 per cent higher than in the same quarter a year ago, as a result of investments intended to expand the bank's business.
The plans for HSBC's future will be revealed at an investor meeting tomorrow. The bank recently pulled out of retail operations in Russia and has begun restructuring its Latin American business.
"There are a lot of places where we need to look at higher expenses before we ever get to Hong Kong," said Stuart Gulliver, the HSBC chief executive, when asked whether the bank's Asian operations would be subject to the same kind of cost-cutting as in other parts of the world.
Many international banks are weighing what cuts can be made in the Middle East to counteract a slowdown in their more profitable markets, according to Murad Ansari, a financial analyst at EFG-Hermes.
"One of the pressing concerns is to reduce cost ratios for their global operations. They're looking to individual countries and individual regions and seeing where they can cut costs," he said.
A slowdown in banking activity in the UAE more generally could force local lenders to consider similar moves, he added.
On Sunday, Barclays Bank said it was moving the headquarters of Barclays Africa from Dubai to Johannesburg, giving 123 employees based in the emirate the option to relocate or leave their jobs. The office's closure was the result of a restructuring of the bank's emerging-markets operations in late 2009.
Royal Bank of Scotland, which was partially nationalised by the British government during the global financial crisis, sold its UAE retail banking activities to Abu Dhabi Commercial Bank last summer.