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Aviation loan write-off hits HSBC Bank Canada profit

Vancouver-based bank achieved highest quarterly operating income in a decade
Vancouver-based HSBC Bank Canada is wholly owned by London, England-based HSBC Holdings plc | BIV file photo

Vancouver-based HSBC Bank Canada generated its highest operating income in a decade but profit fell because the bank had to write off a large aviation loan, the bank said today.

Helping the bank's profit was lower operating expenses due to it already having a system in place for employees to have hybrid work arrangements. The bank endured expenses to put that system in place last year, and did not have to incur those costs this year, the wholly owned subsidiary of London-based HSBC Holdings plc said as part of its quarterly earnings report. 

HSBC Bank Canada generated $599 million in total operating income in the quarter ended June 30. That is up from $547 million in operating income in the same quarter a year ago. 

Its quarterly profit before taxes, however, fell to $198 million, down from $259 million one year ago, largely because of what it called an "aviation loan" that it wrote off in the quarter. 

“We reached our highest quarterly total operating income in a decade with increases in three of our four businesses for the quarter and half-year," HSBC Bank Canada president and CEO Linda Seymour said in a statement.

"While central bank rate increases had a positive impact, the more important story is new business and higher transaction volumes across all our business lines. Our long term growth strategy is unchanged while we continue to manage our business prudently and with a careful eye on near-term economic indicators."

Operating income for the first six months of 2022 increased to $1.169 billion, up from $1.076 billion in the first half of 2021, while profit fell slightly in the January through June period, to $490 million, from $491 million in the same six months a year ago. 

The bank's larger balance sheet, and Bank of Canada interest-rate hikes helped drive net interest income higher. Net fee income was relatively flat with increases from higher bank card and transaction activity, the bank said. 

More money under management and higher credit-facility fees helped the bank generate income. 

"These increases were partly offset by lower advisory fees in global banking," the bank said. 

HSBC Bank Canada's outlook included thoughts on the likelihood of an economic slowdown.

"In Canada, a recession is not inevitable," the bank said. "We expect gross domestic product growth of 3.6 per cent in 2022, and 2.2 per cent in 2023. This view does not include any quarters of negative growth, although the response of the housing market and the economy to the 100-basis-point rate hike on 13 July will be closely monitored."

The bank warned that it is concerned that consumer spending growth will slow, given that incomes are squeezed by inflation. 

"Consumer confidence and housing market optimism were already declining quickly even prior to the 13 July rate hike," the bank said.

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