Thursday 30 July 2020 10:27 am

Standard Chartered profit slumps as credit impairments mount

Standard Chartered suffered a 33 per cent drop in pre-tax profit in the first half of the year as it braced itself for loans to go bad amid the coronavirus pandemic.

The bank’s shares dropped 3.9 per cent after it said it expects “expect new waves of Covid-19 related challenge in the coming quarters”.

Read more: Lloyds swings to loss as it sets aside extra £2.4bn for bad loans

The figures

The developing markets-focused bank’s pre-tax profit dropped 33 per cent in the six months to 30 June. That took it to $1.63bn (£1.26bn) from $2.41bn in the same period a year earlier.

Statutory earnings per share fell 13 per cent to 25.8 cents from 38 cents in the first half of 2019.

Stanchart’s credit impairments – its expected losses on loans – rose to $1.58bn in the first half of the year from just $254m a year earlier. That more than wiped out a slight rise in income.

However, credit impairments of $611m in the second quarter were down from $956m in the previous three months.

The bank was helped by activity in its trading arm amid the first half’s market chaos. Profit fell just 13 per cent in its corporate and institutional banking division to $1.13bn

But profit in its retail banking section dropped by 48 per cent to $326m in the first half.

Why it’s interesting

Like all banks, Standard Chartered has been hit hard by the worst economic slowdown in modern history. It noted that its profit had been squeezed by lower interest rates and bad loans.

But Stanchart is particularly exposed to Hong Kong, which had a harsh security law imposed on it by China last month. The lender broke from its politically neutral stance and backed the law, drawing criticism.

In its results, the bank said there were risks from “the escalation of tensions between the US and China in part due to the growing trade, security, social and political tensions in Hong Kong”.

Standard Chartered also said it would keep costs down as it faced an uncertain remainder of the year. It confirmed a “small number” of jobs cuts.

What Standard Chartered said

“We are feeling the acute impact of the Covid-19 pandemic across our markets and in our business,” said chief executive Bill Winters. 

This and the related fall in both interest rates and oil prices created extremely challenging operating conditions in the first half of the year.

But he added: “We came through that period with a clean bill of operational health and with higher income [and] lower costs.”

Read more: Deutsche Bank boosted by bond trading amid pandemic

Standard Chartered said that its income “is likely to be lower both half-on-half and year-on-year in the second half of 2020”.

“The benefits of the early stage recovery in some of our markets and our geographic and product diversity are unlikely to be enough to offset the impact of low interest rates and the probability of less buoyant conditions.”