HSBC (NYSE:HSBC), Europe's largest bank by to assets, said in its first-quarter earnings report that it was adding $3 billion to its provisions for losses in light of the COVID-19 pandemic, which is wreaking havoc on the world's economies and on companies' and individuals' finances.

"The resultant increase in expected credit losses in the first quarter contributed to a material fall in reported profit," said CEO Neil Quinn. Net profit dropped 57% to $1.79 billion.

In recent weeks, many banks and lending companies have made similar moves to set aside additional funds to cover their anticipated losses, as the pandemic and the economic downturn it has caused raise the likelihood that borrowers will be unable to repay their loans.

Person handing over money.

Image source: Getty images.

Pandemic panic

The sum HSBC set aside for loss provisions was five times what the bank said it would need to dedicate to that purpose when it gave an update in February, at a time when the pandemic was still primarily impacting China. In the first quarter of 2019, its provisions for losses were $585 million. 

HSBC also disclosed that it took a heavy hit from an energy trading company in Singapore that owes the bank $600 million. That company is currently being investigated for fraud.

Quinn also warned that second-quarter profits could be strongly impacted as well. He estimated that the bank may need to set aside up to $11 billion in provisions for losses this year. Last year's loss provision was for $2.76 billion.  

Chief Financial Officer Ewen Stevenson noted that the bank is already seeing a recovery in Asia. "We expect the second quarter to be tough in Western Europe, the U.K. and U.S.," he said.

HSBC said that it planned to concentrate its business in Hong Kong, where it has its roots, and reduce operations in the U.S. and Europe. The bank also said that it was suspending its plan, announced in February, to lay off 35,000 employees over the next three years.