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HSBC could be the first major UK lender to charge customers for checking accounts as it tries to offset the record low interest rates that have reduced bank profits during the Covid crisis.
The bank’s chief executive, Noel Quinn, said HSBC did not expect to charge fees on basic accounts in the UK, simple accounts provided to more vulnerable customers with low credit scores that often place restrictions on daily cash withdrawals.
However, free banking could end soon for most of the bank’s customers in the UK, who have standard bank accounts offering overdraft services.
HSBC owns about 14%, or more than 9.8 million, of the roughly 70 million UK checking accounts, according to figures released by the bank last year.
Quinn said basic accounts would remain free to operate, but added: “We will search all of our markets for the right pricing strategy for fees and loans by customer segment to ensure we have a sustainable profitable business going forward.”
It would be a controversial decision in the UK, where most banks don’t charge for checking accounts. HSBC already charges for most bank accounts in other countries, including Canada, the United States and France, where customers are used to paying for banking services.
Quinn said the rate revision was directly related to low interest rates in countries like the UK, where rates fell to record lows of 0.1% in March. It has affected how much the bank can earn with interest on loans and mortgages, compared to how much it pays on deposits.
“What we have to do as an institution is look for ways that we can continue to increase our revenues in a low interest rate environment,” he said.
The Bank of England is also reviewing the possible use of negative interest rates and has told lenders to prepare for them. This could further reduce HSBC’s revenue. Banking experts have warned that regular bank charges could be the consequence of a negative interest rate policy.
However, the consumer group What? He warned that it would be a “huge and risky move” if HSBC started charging for the accounts, as customers could simply switch banks.
“The danger for consumers is that if one of the big banks opens the door to charge fees, the others can do the same, but competition for customers will hopefully dictate that there will be a variety of attractive free accounts available for the foreseeable future. “said Gareth Shaw, head of money at Which?
HSBC also announced it would make deeper cost cuts within months after unveiling plans to cut roughly 35,000 employees worldwide. “We expect to reduce the group’s annual cost base in 2022 beyond our original $ 31 billion. [£24bn] objective, while maintaining investment in our focus areas, ”the bank said.
The lender has already cut more than 6,300 jobs this year and expects that number to reach 10,000 by the end of 2020.
The announcement came as HSBC’s pre-tax earnings fell to $ 3.1 billion in the three months through September, down 36% from $ 4.8 billion during the same period last year. However, that easily beat analysts’ forecasts of $ 2.1 billion.
Europe’s largest bank reported lower-than-expected provisions to cover a possible increase in defaults linked to the economic consequences of the pandemic. HSBC set aside $ 785 million in the third quarter, less than half the $ 2 billion forecast by analysts.
It brings the bank’s total impairment charge to $ 7.6 billion for the year to date, after booking $ 3 billion and $ 3.8 billion in the first and second quarters, respectively.
HSBC said it expected credit loss charges for all of 2020 to be at the lower end of the $ 8 billion to $ 13 billion range it described earlier this year, citing the likelihood of a major economic downturn was ” low”.
However, CFO Ewen Stevenson warned that a no-deal Brexit would force him to set aside more cash for bad debt. “It would put a big health warning around Brexit. Currently, it is within our planning assumptions that there will be a trade agreement. If that changes, we could see further material progress in sourcing in [the] fourth trimester “.
Quinn said he was willing to restart shareholder dividends, after the Bank of England forced lenders to cancel payments due to the Covid outbreak. He said it would depend on economic conditions in early 2021, as well as consultations with regulators. “We will try to pay a conservative dividend if circumstances permit,” he said.
HSBC shares rose nearly 4% to 330 pence apiece in afternoon trading, but are down more than 40% since February.
