Thursday 27 February 2020 1:38 am

StanChart lowers growth target over coronavirus and economic slowdown

Standard Chartered has reported a 46 per cent jump in annual profit, but warned that operating income growth would be lower than expected this year due to the impact of the coronavirus epidemic in key Asian markets. 

The figures

StanChart’s statutory pre-tax profit jumped 46 per cent to $3.7bn (£2.9bn) in 2019, up from $2.6bn the year before. Although the rise was slightly below an average analyst forecast of $3.9bn, it represents the lender’s steepest profit growth since 2017.  

Operating income for 2019 was in line with analysts’ targets, rising four per cent to $15.42bn.

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The Asia-focused bank warned that the impact of the ongoing Covid-19 outbreak, as well as an economic slowdown and months of unrest in Hong Kong, meant it was likely to miss its previous target of five to seven per cent growth in 2020.

StanChart also said it would take longer to achieve its goal of a 10 per cent return on tangible equity (RoTE) previously targeted for 2021. 

The bank had already failed to hit previous goals, despite exiting lower-return businesses such as ship leasing and having boosted its income in markets including India and South Korea.

StanChart said it had approved a buyback of up to $500m shares that would begin shortly, and would review the possibility of further capital returns after completing the sale of its stake in Indonesian lender Permata.

Shares in StanChart were trading 4.46 per cent down in London by lunchtime. In Hong Kong, its shares ended the day 0.59 per cent up. 

Why it’s interesting 

Although it is based in London, Standard Chartered makes the bulk of its revenue in Asia, and its largest market is Hong Kong.

The city’s economy has endured a punishing few months, hit first by anti-government protests and now by the coronavirus outbreak, with tourists avoiding the territory and shops experiencing a slump in business. 

Read more: HSBC: Profit plunges as bank plans 35,000 job cuts

Analysts have warned that lenders which derive much of their earnings from Hong Kong face at least two quarters of worsening asset quality and slower loan growth as the epidemic hits trade and retail banking. 

StanChart said today that its provisions for expected losses from bad loans in Hong Kong rose $46m in the second half of the year, and also warned that the coronavirus outbreak could lead to a rise in bad loans, but did not provide figures on the potential impact. 

StanChart’s warning comes after rival HSBC, which also has substantial Asian operations, warned last week that it could face loan losses of up to $600m if the epidemic continues into the second half of this year.

“Given the current macroeconomic backdrop and the impact of the coronavirus outbreak, we are not surprised that Standard Chartered has become more cautious in its outlook,” said Shore Capital analyst Gary Greenwood.

Greenwood added that while StanChart faces “near-term challenges”, he thinks that “value will be realised in due course for patient investors”.

What StanChart said

“The outbreak of the novel coronavirus comes with unpredictable human and economic consequences,” said chief executive Bill Winters. 

“Had we not had lower interest rates, substantially slower growth and the impact of the coronavirus… we would not have had to push our targets back,” he said.

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“We will continue to invest in areas of our competitive strength in 2020 and will not compromise on the quality of the income we generate,” he added. 

“We have taken significant steps to reshape our business and we are prepared to take further action if the dampening external factors turn out to be more structural or long-lasting. But I believe the factors that are likely to create economic headwinds in 2020 will turn out to be transitory.”