StanChart eyes quick recovery as profit falls 12% on coronavirus crisis

[LONDON] Standard Chartered (StanChart) on Wednesday said it expects virus-battered economies to recover later this year, striking an optimistic note after increased credit impairment and provisions for future loan losses pushed first-quarter profit down 12 per cent.

The emerging markets-focused lender's tone contrasts with other European lenders that have posted earnings so far, saying it was seeing encouraging signs in China that the recovery could come even sooner.

"We expect a gradual recovery from the Covid-19 pandemic ... before the global economy moves out of recession in the latter part of 2020, most likely led and driven by markets in our footprint," it said in a statement.

"The pace at which individual markets recover will be heavily dependent on the efficacy of government stimulus initiatives and policies to ease restrictions, as well as the resilience of the Covid-19 virus itself," it said.

As a British-based lender focused on Asia, Africa and the Middle East, StanChart's profit slump, however, showed how the pandemic is hitting businesses worldwide as governments freeze their economies to slow the new coronavirus' spread.

Pretax profit for January-March was US$1.22 billion, versus US$1.38 billion in the same period a year earlier, the London-headquartered bank said in a stock exchange filing.

The figure was boosted by a US$358 million increase in debt valuation adjustment - an accounting measure related to changes in the value of issued debt and which often rises as perception of the lender's strength falls.

The result comes a day after bigger cross-town rival HSBC Holdings said its first-quarter profit nearly halved as bad loan provisions jumped to US$3 billion.

But StanChart's outlook cheered investors, with its Hong Kong-listed shares rising as much as 8 per cent in afternoon trade, while the broader market was only 0.1 per cent higher.

The bank saw its credit impairment in the quarter spiking to US$956 million from US$78 million a year earlier, while "high risk assets" on the balance sheet rose by a hefty US$6.2 billion from three months prior.

"While pressure on credit quality has increased recently, we delivered good underlying income growth of 6 per cent in the first quarter and maintained strong cost discipline," said Bill Winters, the bank's chief executive officer, in a statement on Wednesday.

Besides the virus impact, StanChart has also found itself plagued by a string of corporate scandals, Bloomberg reported earlier this month. They include NMC Health a hospital operator that's uncovered evidence of fraud, and Hin Leong Trading, the Singaporean oil trader under investigation, according to public filings.

The bank said two unidentified clients in unrelated sectors accounted for almost half of its US$490 million increase in so-called stage three impairments.

CUTTING COSTS

The bank said it is targeting costs of below US$10 billion for the full year, which it will achieve by reducing staff bonuses, pausing new hiring and slashing discretionary spending. In the first quarter, expenses fell 2 per cent.

StanChart said its core capital level was 13.4 per cent, down from 13.8 per cent at the end of December, but expects it to be boosted by 40 basis points when it completes the disposal of its 45 per cent stake in Indonesia's PT Bank Permata in the second quarter.

The lender on April 1 said it was scrapping dividend payouts in line with other British banks, as the Bank of England urged them to conserve capital amid the pandemic.

Regulators hope the move to scrap the distribution of excess capital to shareholders will free up capital that banks can lend to businesses, as Britain braces for what will likely be the worst recession in recent memory.

The European Union is likely to offer lenders further relief by easing rules on how they calculate leverage ratios, echoing a move in the US, Reuters reported last week.

REUTERS, BLOOMBERG