HSBC on Wednesday issued a gloomy outlook for the banking sector as it reported a sharp rise in US bad debt charges while indicating that emerging markets would not escape the credit squeeze.

In a trading update, the world’s second largest bank by market value said it had set aside $3.4bn (€2.3bn) for bad debts in its US consumer finance business, as problems in the subprime mortgage market spilled over into its consumer lending arm.