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StanChart Q2 Results Offer Scant Cheer

Jackie Bennion, Deputy Editor, 31 July 2020

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The emerging markets lender cautioned on the outlook for the rest of the year as profits fell in the second quarter, again hammered by heavy provisioning due to the pandemic.

Pre-tax profits at Asia-centric Standard Chartered fell 40 per cent year-on-year to $733 million. Healthy inflows were more than offset by credit and other impairments that reached $653 million for the quarter, up from $195 million registered a year ago. The UK/Hong Kong-listed bank beat analysts forecasts in spite of the low-rates and economic-contractions stories that are dominating second quarter earnings among the biggest lenders.

“Low interest rates and depressed oil prices continue to be headwinds and we expect new waves of COVID-19-related challenge in the coming quarters, but I am confident that our resilience and client franchise will see us through,” Bill Winters, group chief executive said in a statement yesterday.

Cost-to-income ratio at the emerging markets lender, which derives most of its income in Asia, was up by 5 per cent to 59 per cent, excluding credit risk adjustments. The bank said growth in the region was not enough to counter effects more globally of the pandemic. Operating income came in at $3.7 billion for the quarter down from $4.3 billion in the first quarter.

The bank said that it remained liquid and well-capitalised to weather the ongoing difficulties, and reported a CET1 ratio of 14.3 per cent, well above its medium-term target. Assets-to-deposits ratio fell to 62.7 per cent and liquidity coverage ratio increased to 149 per cent. The lender indicated a 50-point lift from the sale of its equity interest in the Indonesian-based Permata.

Based on the range of products, geographic diversity and tough cost controls, the bank reported significantly improved operating profits but warned that set asides for future loan losses because of COVID would further drag on profits. In the first six months, the bank reserved $1.5 billion in loan loss provisions but said it expects this to come down in the second half of the year as economies start to recover.

“We continue to believe that some of our larger markets will start to drive the global economy out of recession over the coming quarters but expect economic activity across our footprint in that period to be volatile and uneven,” group chair José Viñals said, as he cautioned that profits are likely to suffer for the rest of 2020. The bank has announced that jobs will go and is working on reskilling staff to move as many as possible internally. Winters has made it known that anyone laid off will recieve their full salary to the end of the year as well as a redundancy package.

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