In this Feb 1, 2010 photo, a man walks past a branch of HSBC in Beijing. Investment bank Credit Suisse predicts a rally of between 30 and 40 percent in the Hong Kong-listed Chinese mainland bank sector next year. (FREDERIC J BROWN / AFP)

HONG KONG / LONDON - HSBC Holdings PLC on Tuesday warned of more earnings pain ahead after first-quarter profit nearly halved as it set aside a hefty US$3 billion in bad loan provisions due to the coronavirus pandemic.

Europe’s biggest bank said the outbreak would mean sustained pressure on its revenues as customer activity declined and lower interest rates squeezed margins, while noting increased fraudulent activity could lead to “potentially significant” credit losses.

HSBC’s new Chief Executive Officer Noel Quinn faces additional hurdles as plans to cut costs through layoffs - part of a wider restructuring unveiled in February - have been put on hold due to the pandemic

The bleak outlook, shared by many lenders reporting earnings this season, underscored the scale of the problems facing the sector as it grapples with corporate borrowers in crisis, plunging stock and oil prices, as well as low interest rates.

HSBC’s new Chief Executive Officer Noel Quinn faces additional hurdles as plans to cut costs through layoffs - part of a wider restructuring unveiled in February - have been put on hold due to the pandemic.

The bank increased its expected credit impairment charges for January-March by US$2.4 billion to US$3 billion - its highest quarterly level in nine years - and said total provisions for the year could range from US$7 billion to US$11 billion.

“No one really knows how the coronavirus will develop over the next three to six months and what scenarios will play out. It’s most important for us to be prepared for all scenarios - the optimistic and the less optimistic,” Quinn told Reuters.

“Only time will tell where in that range we will fall.”

Profit before tax for the quarter tumbled 48% to US$3.2 billion, below an average analyst forecast of US$3.7 billion compiled by the bank. Revenue dropped 5% to US$13.7 billion.

The results were also hit by the slide in oil prices as well as “a significant charge related to a corporate exposure in Singapore”, it said.

HSBC did not name the company, but the lender is among leading creditors to Singapore oil trader Hin Leong Trading (Pte) Ltd, which sources have said is under court-appointed supervision to restructure billions of dollars in debt following the collapse in the price of oil.

Hin Leong has declined to comment on its debt restructuring.

READ MORE: HSBC to slash investment bank, 35,000 jobs in strategy overhaul

HSBC's shares in London fell 1.4% on Tuesday morning, after its Hong Kong-listed shares earlier rose 0.4%, lagging a climb of more than 1% in the benchmark Hang Seng Index.

HSBC's shares in London fell 1.4% on Tuesday morning, after its Hong Kong-listed shares earlier rose 0.4%, lagging a climb of more than 1% in the benchmark Hang Seng Index

“I think the management team are doing OK in the circumstances, said Hugh Young, managing director at Aberdeen Asset Management Asia, one of HSBC’s 20 biggest shareholders.

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The London-headquartered bank, which generates the bulk of its profits in Asia, said it plans to reduce its operating costs to mitigate the fall in revenue which is set to lead to “materially lower” profitability in 2020 than last year.

In February, HSBC laid out plans to cut 35,000 jobs. While many of those redundancies have been paused to avoid disruption and leaving staff unable to find work elsewhere, Quinn has cut some top level jobs and reshuffled others as he tries to prune HSBC’s complicated management structure.

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The bank reiterated, however, that it will press ahead with plans to shift capital from underperforming businesses and reduce other costs.

HSBC’s sharply higher loan loss provisions follows similar moves by US lenders this month. The top four US banks set aside US$14.2 billion in loan loss provisions, with sales and trading revenue from investment banking the only silver lining as frenzied markets worldwide drove up commissions.

Rival UBS was one of those benefitting most from that silver lining, and on Tuesday it posted a 40% increase in profits as ultra-rich clients shuffled portfolios to cope with the virus outbreak.