HSBC both victim and benefactor in virus outbreak

Smaller companies in China, who don’t have economies of scale to cushion setbacks, are struggling during the coronavirus epidemic. Their plight, especially in the epicenter Hubei Province, has drawn the attention of entities like banking giant HSBC.

Frank Fang, executive vice president and head of commercial banking for HSBC China, said small and medium-size companies, which are an “integral part” of China's economy, are facing financial and operating pressures because of the virus outbreak.

“Difficulties in managing capital flows, supply chains, raw material purchases and labour costs are putting their businesses at stake," he said.

The British-based bank has rolled out a program to support such companies in China. It aims to relieve cash flow strains and reduce financial costs by increasing lending quotas, offering preferential lending rates and speeding up transaction approvals.

While endeavoring to assist China in its hour of need, the bank itself is also facing some hard times of its own.

The majority of HSBC’s profits come from Asia, where the coronavirus outbreak to date has hit hardest.

In London last week, Ewan Stevenson, the bank’s chief financial officer, said HSBC may be forced to take US$600 million in additional provisions against loan losses if the epidemic endures into the second half of this year.

A day later, the bank announced that it will eliminate 35,000 jobs, or 15 percent of its global workforce, over three years.

In China, preferential lending rates are being offered, especially to businesses directly involved in the fight against the epidemic. Rates could be reduced by as much as 50 basis points, according to HSBC China.

The bank is stepping up targeted support for specific sectors, such as healthcare companies involved in the epidemic control and those producing daily necessities. Faster payments are being arranged to safeguard their purchases of raw materials.

"As an international financial institution deeply rooted in China, we feel obliged to fully support our clients at this difficult time,” Fang said. “This is also one of the best ways through which we can contribute to the fight against the epidemic and to China's economy."

For businesses in Hubei at the frontline of the battle, the bank is extending more concessional credit. It has automatically extended the term of redemption on its liquidity loans and trade financing, and waived some requirements related to import letters of credit and export transaction fees.

"This is a time when people from all walks of life in Hubei have been pouring in funds and resources to help fight the epidemic," said Li Ning, head of HSBC's branch in the Hubei capital of Wuhan.

Government stopgap measures, including financial and tax policies, are buttressing those efforts.

"Enterprises in Hubei are facing huge pressures as local logistics and transportation have not yet recovered, and the return to workplaces remains delayed," said Liao Yijian, chief executive of HSBC Bank China.

"We have introduced some bailout measures for Hubei enterprises which hopefully can be a useful buffer in time of need and reduce their financial expenditure,” he said. “The liquidity released will also help enterprises prepare for the resumption of work in the future."

HSBC has also initiated what it calls “comprehensive relief measures” for loan clients in Hong Kong, including deferment of principal payments on mortgages.