HSBC (NYSE:HBC) said Friday its profit so far this year is “well ahead” of a year ago on lower US delinquencies and increased lending, however the company highlighted the slower-than-anticipated economic recovery and warned that outlook for home prices “remained uncertain,” representing a potential threat to bad loans.

The London-based company said improvements in personal financial services gained ahead of expectations on lower loan impairment charges, while commercial banking grew on “strong levels of economic activity centered on emerging markets” and lower impairment charges.

Global banking and markets posted a stronger performance, however trading activity was lower as a reflection of seasonal factors and subdued market sentiment, the company said.

The bank attributed gains to its improving credit portfolio, with quarterly loan impairment charges falling to their lowest level since early 2007, down in all regions and customer groups compared with the earlier-year period.

The US continued to account for the largest credit improvement, with delinquency rates declining amid better managed loan balances. The company reduced gross lending balance by another $7.5 billion to $61.3 billion, ahead of its expectations.

“The global economy is in better shape than many expected a year ago, and I am pleased to report that HSBC’s performance in October was in line with third quarter trends,” said Michael Geoghegan, group chief executive. “But, while fears of a double-dip in the west may be overplayed, the passage from downturn to upturn is clearly taking longer than previous cycles.”

Given data from its emerging markets segment, it appears, Geoghegan said, that there is a “slowdown in the rate of recovery” and “likelihood of some bumps in the road ahead,” however the company believes long-term fundamentals for emerging economies are “as compelling as ever.”

The nationwide mortgage freeze in the US did not impact HSBC, which found “no systemic concerns with” its processes, and, as a result, did not suspend foreclosures.

However the company warned that if suspensions continue generally in the US, there could be an “extended delay in the processing of foreclosures,” which could adversely impact housing prices, leading to “increase in loan impairment charges and losses on foreclosed properties.”

For the period ended Sept. 30, the company's US division posted a net loss of $751 million, up from a loss of $1.181 billion in the same quarter last year, while net interest income fell slightly to $1.1 billion from $1.36 billion a year ago. 

Earnings in its principal US operations were cushioned by flat operating expenses at $852 million.

For the first nine months of the year, the Mettawa, Ill-based company's loss was $1.88 billion, much narrower than a loss of $6.6 billion in the year-earlier period. 

Since 2007, when UK-based HSBC began writing off parts of its US mortgage services and consumer lending business, balances have halved to $64.2 billion, the company said.

Geoghegan said policymakers need to focus on making banks “less systemically damaging should they fail,” without shrinking them. To do so, he suggests, capital requirements must be proportionate to the riskiness of an intuition’s business model, and transparency of risks and supervision must be enhanced.

“Policymakers should consider the likely long-term consequences of changes to the competitive landscape as they finalize legislation,” he said.

As evidenced in HSBC’s sustained profitability through the downturn, the chief executive said banks must be “broad enough” and “strong enough” to cope, which will benefit the overall financial system.

“Diverse business models enable banks to remain open for business during a crisis while generating appropriate risk-adjusted returns for shareholders over the cycle, reducing systemic risk,” he said.