Standard Chartered, a major international bank with a significant presence in Asia, has reported a sharp drop in third-quarter pre-tax profit. The bank revealed that its profit fell by a third, a much worse result than analysts had predicted. This decline is primarily attributed to the bank’s exposure to China’s real estate and banking sectors, which resulted in a nearly US$1 billion hit.
Standard Chartered, which generates most of its revenue in Asia, reported a statutory pre-tax profit of US$633 million for the third quarter of this year. This represents a significant decrease from the US$996 million profit reported during the same period last year, as well as falling short of the US$1.41 billion average of 16 analyst estimates compiled by the bank.
Following the announcement of these disappointing results, Standard Chartered’s shares in Hong Kong fell by 5% during the afternoon trading session.
Credit impairment charges also increased, rising by US$62 million from the previous year to US$294 million. The bank took a US$186 million charge related to China’s troubled commercial real estate market. Additionally, Standard Chartered faced a US$700 million hit from its stake in China Bohai Bank, which it attributed to the lender’s subdued earnings and the challenging economic conditions.
The bank’s significant losses in China, where it has pursued much of its expansion, highlight the difficulties it faces in improving its returns amidst a slowing economic growth and increasing loan losses. Standard Chartered’s total exposure to China’s real estate was reported to be US$2.7 billion, a decrease of US$200 million from the previous quarter.
Despite the Chinese government’s efforts to stabilize the economy through easing measures, the country’s property market crisis continues to deepen, with prominent debt-repayment defaults and a lack of state support. As a result, domestic banking peers have experienced margin squeeze due to downward pressure, while foreign banks, with smaller exposure, are now also feeling the impact as market sentiment worsens and the government pushes lenders to lower mortgage rates.
Standard Chartered stated that the decrease in its investment in China Bohai Bank was due to lower forecasted interest rates and reduced lending margins as reported in the bank’s half-year results. Bohai Bank’s net interest income in the first half of 2023 dropped by 17.8%, contributing to an overall profit decline of nearly 7%.
Despite these challenges, Standard Chartered expressed confidence in achieving its targets for returns on tangible equity, aiming for 10% this year and 11% by 2024. However, the bank did downgrade some of its other performance forecasts for the year. It now expects the net interest margin, a key measure of lending profitability, to “approach” 1.7 percentage points, rather than being “around” that level.
Furthermore, the bank’s Financial Markets trading division experienced an 8% decline in income during the third quarter compared to the same period last year. This decrease is attributed to falling market volatility, which has reduced clients’ appetite for trading in products related to interest rates, commodities, and foreign exchange.
Standard Chartered’s disappointing results reflect the challenges it faces in navigating the Chinese market’s economic headwinds. As the bank continues to pursue its growth strategy in Asia, it must find ways to overcome these obstacles and deliver on its performance targets.
More detail via The Straits Times here… ( Image via The Straits Times )