The bank said it has had to divert Â£900 million of funds to offset a glut of unpaid personal loans, causing company shares to slump to a nine-month low.
HSBC said its bad debt charge for 2006 would be Â£5.4 billion, which is a fifth more than analysts had previously thought.
Mike Trippitt, an analyst at Oriel Securities, said: “The disturbing fact is that it’s recent loans, it’s not something that’s gone wobbly over time. It’s stuff that they’ve acquired that has gone spectacularly wrong in a short space of time.”
The bank’s misfortune follows a study that shows the number of people who went insolvent in the UK last year topped 107,000, compared to 67,580 in 2005.
According to the governments, the number of individual insolvencies in the final quarter alone totalled 29,804 a 44.1 per cent increase on the same period in 2005.