LONDON: HSBC profits slid in the first quarter, the Asia-focused bank announced Tuesday after it was hit by bad debts as Russia’s invasion of Ukraine sent inflation rocketing further.

Net profit dropped more than a quarter to US$2.8 billion from the first three months of 2021, London-headquartered HSBC said in an earnings statement.

Pre-tax profit fell by a similar proportion to $4.2 billion.

HSBC said “the Russia-Ukraine war has exacerbated inflationary pressures, and increased uncertainty on the forward economic outlook, contributing to higher expected credit loss” for the bank in the first quarter.

The lender reported a credit loss of $600 million, which compared with the release of bad debt provisions totalling $400 million one year earlier as the economy began to recover from the pandemic-induced slump.

HSBC said its business in Russia is “on a declining trend”, adding that further restrictions could make its operations in the country “untenable”.

“This could generate additional losses which are not currently provided for in the balance sheet,” the bank warned.

HSBC said its Russia unit principally serves multinational corporate clients headquartered in other countries and is not accepting new business.

Chief executive Noel Quinn added that group profit was hit also by market impacts on wealth management revenue. And the bank pointed to China’s property slowdown being a drag.

“Although the economic outlook remains uncertain, the continued upward path of interest rates since our full-year results has further strengthened our confidence” on future performance, Quinn said.

Banks are benefitting from higher interest rates on loans which they’ve passed onto customers in the wake of tighter borrowing costs from central banks.

Nevertheless, HSBC revenue dropped four percent in the first quarter to $12.5 billion.