LONDON (AFP) - Global banking giant HSBC Holdings announced on Monday a 35.5-percent surge in bad debts during 2006 owing to increased defaults on home loans by high-risk US borrowers.
HSBC, the world's third-biggest bank, said that total impairment charges, or loans to customers that were written off, rose to 10.573 billion dollars (8.052 billion euros) last year.
That dented net profit growth in 2006, which rose just 4.7 percent to 15.789 billion dollars year-on-year, compared with growth of 17.0 percent in 2005.
Putting aside its problems in the United States, HSBC announced also on Monday a tie up with Bangalore-based Canara Bank and another Indian lender to set up a life insurance business.
The price of shares in HSBC rose slightly in London trading, as investors welcomed the in-line results and cheered an 11-percent increase to the bank's full-year dividend.
"I guess some people had expected something even worse," said Magnus Matthewson, an analyst at Hichens, Harrison stockbrokers in London.
HSBC meanwhile said in its earnings statement: "The major credit issue affecting the group in 2006 arose in the US."
It added that a slowdown in the rate of growth in US house prices accelerated defaults among higher-risk borrowers.
"Deterioration was marked in the more recent loans, as the absence of equity appreciation reduced customers' options for refinancing," HSBC said.
The group forecast that higher repayment costs over the next few years for borrowers with variable rate mortgages "will lead to further delinquency."
HSBC had warned last month that its 2006 bad debt charge would be 20 percent above market expectations, blaming a surge in defaults among mortgage customers at its troubled US subsidiary HSBC Finance.
The US Federal Reserve, which is responsible for setting interest rates, in August halted a string of 17 consecutive quarter-point rate rises, bringing the key rate to 5.25 percent.
With growth in net profit low, HSBC focused on its pre-tax performance.
"It is a testament to HSBC's strength and diversity that we grew pre-tax profits in 2006 (by 5.0 percent) to 22 billion dollars, despite a major setback in part of our mortgage business in the United States," HSBC chairman Stephen Green said in the statement.
"In the context of HSBC's financial strength and operating profitability, the areas of current weakness are well covered and they will not restrict our ability to develop our business opportunities as planned."
HSBC, which is the biggest British bank, added that pre-tax profits from Asia, the Middle East, Latin America and other emerging markets approached 50 percent of the group's total last year.
In early afternoon trading, the share price of HSBC showed a gain of 0.23 percent to 888.0 pence on London's FTSE 100, outperforming the British capital's leading share index, which was down 1.57 percent to 6,020.30 points.
"The (earnings) figures do not appear to contain any further unpleasant surprises," Teather and Greenwood analyst Ian Poulter said.
"The fact it has increased its dividend by 11 percent shows management is reasonably happy with its position going forward."
HSBC increased its annual dividend to 81 US cents per share.
Regarding its India tie-up meanwhile, HSBC said state-owned Canara Bank would hold a 51 percent stake in the insurance venture, initially capitalised at two billion rupees (44.97 million US dollars). HSBC would take a 26-percent interest and New Delhi-based Oriental Bank of Commerce the rest.
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