Standard Chartered on track to hit 2021 returns target

Singapore

STANDARD Chartered (StanChart) is on track to meet its return targets in Asean and South Asia (ASA) for 2021.

The first-half results from the region were lifted on capital-light income and flows coming through its regional network, said Judy Hsu, the bank's regional chief executive for ASA, to reporters on Monday.

This comes also as StanChart looks to boost results from Indonesia, one of four turnaround markets in Asia for the bank, as it sheds Bank Permata while looking for a large e-commerce partner to expand more deeply into its retail-banking segment in order to improve overall returns there.

For the first six months of the year, StanChart's operating profit was up 28 per cent in Indonesia from a year ago, largely driven by growth in corporate and institutional banking.

The bank now has to find more ways to be relevant to retail customers - and to acquire them affordably - amid fierce competition from Indonesian banks, said Ms Hsu.

That it is taking the digital route is unsurprising: Indonesia's digital economy market is estimated to reach US$100 billion by 2025.

"There are a lot of these big unicorns in Indonesia with a huge e-commerce client base. In partnering with them, we can be the bank that is the engine for (Indonesia's) e-commerce world.

"Just launching a digital bank doesn't mean people will bank with you. It's important to have partnerships," said Ms Hsu.

With Indonesia being a core market, she noted that a stronger performance would more than proportionately help StanChart in its bid to achieve a return on tangible equity (RoTE) of at least 10 per cent by 2021.

The lender has said that its investment in Indonesia's Bank Permata is no longer considered core, which suggests it would look to dispose of its 44.6 per cent stake. Ms Hsu declined to comment when asked if a sale of Bank Permata will close by year-end.

Across the ASA region, the bank is also shifting towards more capital-light businesses such as wealth management, deposits and liquidity management to boost its RoTE.

"If we only focus on lending, the returns will not be as attractive, as risk-weighted assets (RWA) will be very high," she said.

First-half income from capital-light businesses accounted for 60 per cent of StanChart's total income from the ASA region, up from around 55 per cent in the year-ago period, she noted.

Meanwhile, first-half RWA for the ASA region fell by 2 per cent from a year ago to US$93.7 billion.

Ms Hsu said this suggests that the quality of business is better; the topline is growing, and the quality of the portfolio, improving.

Customer deposits - part of capital-light income - for the first half of the year grew 7 per cent from the year-ago period to US$101.6 billion.

With more customer deposits, the bank is then able to lower the cost of borrowing, said Ms Hsu.

StanChart's first-half operating income for the ASA region in 2019 grew 6 per cent from a year ago to US$2.14 billion after stripping out foreign exchange movements.

This first-half growth is in line with the group's overall income growth target of 5 to 7 per cent, said Ms Hsu, with the ASA region generating about a quarter of the bank's global income.

The operating income in Singapore, the Asean hub for the bank, grew 3 per cent while operating profit jumped 43 per cent. (see amendment note)

Notably, client income - that is income from clients as a component under operating income - grew 11 per cent in the ASA region, said Ms Hsu.

Client income includes flows from clients closely leveraging the bank's network of 60 markets, which encompasses all 10 Asean markets.

"Network is a huge focus for us," said Ms Hsu, who noted that its network business is growing at a high single-digit pace.

As StanChart pushes for greater connectivity between its retail and corporate banking segments, the bank saw a first-half growth of 8,000 new-to-bank priority banking clients in the ASA region. In Singapore alone, priority banking clients grew by over 30 per cent from the year-ago period.

"That linkage is something we want to leverage on more ... to bank our clients across personal and corporate (segments)," she said.

With a significant retail presence in Singapore, StanChart also has its eye on applying for a digital banking licence; it is now in talks with potential partners, said Ms Hsu.

"Our market share here is sizeable, the upside is much more than the downside," she noted, adding that the bank can explore both opportunities in the retail market as well as in SME banking.

This comes as the Monetary Authority of Singapore (MAS) opened up applications for up to five digital banking licences in Singapore, comprising up to just two digital full-bank licences, and up to three digital wholesale bank licences.

For StanChart to be eligible for the digital full bank licence - which allows the entity to take retail deposits - the bank will have to tie up with a local partner to set up the proposed digital bank, which must meet the Singaporean-controlled criterion.

The bank's ideal partner has to share the same vision and be willing to invest in this long-term partnership, said Ms Hsu.

"It's more than just meeting the requirements; it's about finding a like-minded partner who can, together with us, create something very special.

"You have to invest capital and invest in technology. It is a big commitment," she added.

Amendment note: An earlier version of this article incorrectly stated that StanChart's operating income in Singapore grew 43 per cent. It is in fact the operating profit. The article above has been revised to reflect this.

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