HSBC shares fell in Hong Kong on Tuesday after Europe’s largest lender posted a small first-quarter profit miss driven by higher-than-expected credit-loss charges.

HSBC said pretax profit for the quarter was $9.37 billion, compared with consensus estimates of about $9.59 billion compiled by the bank. Revenue came in at $18.62 billion, ahead of estimates, helped by stronger wealth fees and other income.

The key pressure point was credit quality. HSBC reported expected credit losses (ECL) of $1.3 billion — roughly $400 million higher than the same period a year earlier. The bank said the higher charge was linked to exposure to a U.K. financial sponsor and to additional provisions reflecting greater uncertainty and a more cautious economic outlook tied to the ongoing Middle East conflict.

CFO Pam Kaur told CNBC the bank believes it is “well provided for” based on current information and plausible downside scenarios. Still, HSBC highlighted the risk that higher oil prices and inflation, combined with weaker growth, could create a mid- to high-single-digit percentage hit to profit before tax if adverse conditions persist.

Management reiterated that it remains on track to deliver $1.5 billion in annualized cost reductions by the end of June 2026. HSBC also pointed to prospective synergies in Hong Kong following the privatization of Hang Seng Bank, which it expects to translate into $0.5 billion of pre-tax revenue and cost synergies by the end of 2028.

Net interest income rose 8% year on year to $8.9 billion, while operating expenses also increased 8%, which the bank attributed to inflation, foreign exchange impacts, higher planned spending and performance-related pay.

HSBC maintained its targeted return on tangible equity (RoTE) at 17% but cautioned that a severe escalation in geopolitical and macroeconomic headwinds could pull RoTE (excluding notable items) below that level in 2026.

For shareholders, the board declared a first interim dividend for 2026 of 10 cents per share.