StanChart first-half profit falls 33% on higher loan losses; flags cost cuts

StanChart said it expected income to be lower in the second half, reversing its more optimistic note in April.
StanChart said it expected income to be lower in the second half, reversing its more optimistic note in April.ST PHOTO: KUA CHEE SIONG

HONG KONG (REUTERS) - Standard Chartered on Thursday (July 30) posted a 33 per cent fall in first-half profit after credit impairment charges jumped six-fold as a result of the coronavirus pandemic and economic downturn, and it struck a cautious note for rest of the year.

Indicating cuts in headcount at the bank to further reduce costs, StanChart said it was accelerating some elements of existing projects aimed at creating a leaner organisation as well as developing some new expense reduction initiatives.

Pre-tax profit for StanChart, which focuses on Asia, Africa and the Middle East, dropped to US$1.63 billion (S$2.24 billion) in the January-June period from US$2.41 billion in the same period last year, the London-headquartered bank said in a stock exchange filing.

The latest profit compared with the US$1.53 billion average of analyst estimates compiled by Standard Chartered.

StanChart's credit impairment in the first-half rose to US$1.58 billion from US$254 million a year earlier, the statement showed.

The bank also said it expects income, which grew 3 per cent in the first-half, to be lower in the second half as trading activity slows in its financial markets division while interest rates remain low.

"Low interest rates and depressed oil prices continue to be headwinds and we expect new waves of Covid-19 related challenge in the coming quarters," chief executive Bill Winters said in the earnings statement.

The lender struck a more positive tone when it came to further provisions against bad debts, however, saying it expects impairments in the second half to be lower unless economic conditions deteriorate significantly.

It reiterated it would not pay dividends for the time being following a request from Britain's Prudential Regulation Authority, adding it hoped to resume payments "as soon as prudently possible".

The Covid-19 pandemic, which has infected more than 16.5 million people across the world, is hitting businesses - from retail to aviation - globally as governments freeze economies to slow its spread.

StanChart's Hong Kong-listed shares rose as much as 3.6 per cent after the results, reversing its losses in morning trade, while the Hong Kong market index was up 0.8 per cent.

HONG KONG IMPACT

As with fellow British lender Barclays, which reported earnings on Wednesday, StanChart's overall performance was helped by its trading arm which held up much better than its corporate and retail banking businesses.

StanChart's retail, commercial and private banking business all saw profits nearly halve year on year, while its corporate and institutional banking division saw only a 13 per cent decline as frenzied trading in stocks and bonds bolstered income.

The bank's earnings outlook has, however, also been clouded by political unrest in Hong Kong, whose economy contracted 9.0 per cent in April-June, shrinking for the fourth quarter in a row and the second biggest drop on record.

Hong Kong is the single largest market for the bank.

The lender along with its London-headquartered peer HSBC Holdings PLC last month broke from their usual policy of political neutrality to back Beijing's imposition of a controversial national security law on Hong Kong.

The banks, who have faced criticism from UK officials that their actions enabled Beijing to undermine the rule of law in the former British colony, have said they believed the law would restore stability in Hong Kong.

StanChart said on Thursday there was increasing risk due to "the escalation of tensions between the U.S. and China in part due to the growing trade, security, social and political tensions in Hong Kong" and the imposition of the law.