Pedestrians wearing face masks following the coronavirus disease (COVID-19) outbreak, walk past a HSBC bank branch in Hong Kong, China February 22, 2022.
Pedestrians wearing face masks following the coronavirus disease (COVID-19) outbreak, walk past a HSBC bank branch in Hong Kong, China February 22, 2022. Reuters / LAM YIK

HSBC Holdings posted a 27% drop in quarterly profit on Tuesday and nixed the possibility of more buybacks this year, while it blamed rising inflation and economic uncertainty due to the Russia-Ukraine conflict for denting its prospects.

Europe's largest bank with a market value of $130 billion posted a pretax profit of $4.2 billion for the first quarter ended March, versus $5.78 billion a year earlier.

The results, however, beat the $3.72 billion average estimate of 16 analysts compiled by HSBC, which earns about two-thirds of its reported pretax profit from Asia.

The London-headquartered lender said expected credit losses (ECL) were at $600 million versus the year-ago quarter when it unlocked $400 million of reserves as the outlook improved.

The increased ECL primarily reflects the direct and broader economic impacts of the Russia-Ukraine conflict and inflationary pressures on the forward economic outlook, it added.

"While profits were down on last year's first quarter due to market impacts on wealth revenue and a more normalised level of ECL, higher lending across all businesses and regions, and good business growth in personal banking, insurance and trade finance bode well for future quarters," Chief Executive Noel Quinn said in the results statement.

The lender, however, dealt a blow to shareholders by saying further buybacks, which it has in recent years used as a means of returning excess capital to investors, would be unlikely this year. It blamed volatility in the value of some investments it holds as hedges against dips in interest income.

Rising energy prices and supply-chain disruptions, partly due to the Russia-Ukraine conflict, are also tempering the outlook for banks' performances at a time when surging inflation and potential rapid rate hikes threaten to scupper a nascent global economic recovery from the pandemic.

HSBC's London-listed shares have gained 12% this year, outperforming many British banks and the FTSE index.