StanChart Sees Key Markets Lead Rapid Economic Recovery After First Quarter Loan Losses


HONG KONG / LONDON (Reuters) – Standard Chartered PLC (STAN.L) said on Wednesday it expects its major markets to lead the global economic recovery from the COVID-19 crisis as early as the end of the year, adopting an optimistic note after the increase in bad debt provisions crushed quarterly profit.

FILE PHOTO: A Standard Chartered logo is displayed at its main branch in Hong Kong, China August 1, 2017. REUTERS / Bobby Yip

The emerging markets-focused lender’s tone contrasts with that of other European lenders who posted their first profits since the novel coronavirus depressed economic activity around the world, saying it saw signs of a possible recovery fast in China.

“We expect a gradual recovery from the COVID-19 pandemic (…) before the global economy comes out of recession at the end of 2020, most likely pulled and pulled by the markets of our imprint,” said said the UK-based lender.

With StanChart’s focus on Asia, Africa and the Middle East, however, its fall in profits showed how the pandemic is hitting businesses around the world as governments freeze economies to slow the spread of ‘a coronavirus that has claimed more than 200,000 deaths.

Rising credit write-downs and provisions for an expected increase in loan losses pushed January-March profit before tax down 12% from same period a year earlier to $ 1.22 billion the London-based bank said in a stock market file.

The figure was nonetheless boosted by a $ 358 million increase in the debt valuation adjustment – an accounting measure related to the change in the value of debt issued and which often increases as the perception of debt. a lender’s strength diminishes.

The result came a day after the city’s biggest rival HSBC Holdings PLC (HSBA.L) said its first-quarter profit nearly halved as bad debt provisions jumped to $ 3 billion, while Barclays PLC (BARC.L) Wednesday set aside $ 2.6 billion for the same.

StanChart’s outlook has encouraged investors, with its London-listed shares rising nearly 7% at the start of trading after its Hong Kong-listed shares (2888.HK) gained up to 8%.

Profit results were “reassuring in the face of a difficult quarter,” and the loan losses, while much higher than expected, were not a huge surprise in the context of what peers reported, a Citigroup said in a research note.

Its credit write-down in the quarter climbed to $ 956 million from $ 78 million a year earlier, while “high-risk assets” on the balance sheet rose $ 6.2 billion from three months ago. previous ones.

Much of the credit depreciation was blamed on two clients – in commodities trading and healthcare – the bank said, without identifying the clients.

The fall in crude oil prices in recent days has raised concerns about the impact on asset quality as companies in the sector and commodities traders grapple with declining revenues. StanChart said its exposure to the oil and gas sector has fallen 18% since the first half of 2015.

LOWER THE COSTS

The bank said it was targeting costs of less than $ 10 billion for the full year, achieved by cutting staff bonuses, suspending hiring and cutting discretionary spending. In the first quarter, spending fell 2%.

Its net interest margin fell 14 basis points and is expected to remain under pressure due to central bank interest rate cuts aimed at supporting economies. The cuts in March alone are likely to cut annual revenues by $ 600 million, StanChart said.

The bank said its core capital level was 13.4%, up from 13.8% at the end of December, but expects a 40 basis point increase when it completes the divestiture of its stake in 45% in Indonesian PT Bank Permata Tbk (BNLI.JK) in the second trimester.

On April 1, the lender said it would cut dividend payments in line with other UK banks after the Bank of England urged them to conserve capital during the pandemic.

Regulators hope that removing the distribution of excess capital to shareholders will free up capital for corporate loans, as Britain braces for what will likely be its worst recession in recent memory.

The European Union is likely to offer further relief to lenders by relaxing the rules for calculating leverage ratios, echoing a decision taken in the United States, Reuters reported last week.

Reporting by Sumeet Chatterjee in Hong Kong and Lawrence White in London; Editing by Christopher Cushing

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