(Alliance News) - Standard Chartered PLC on Thursday reported a sharp drop in third quarter profit but believes its ongoing transformation will allow the bank to weather the pandemic in "good shape".
"The group delivered a resilient performance in challenging conditions in the third quarter of 2020, with lower interest rates partially offset by strong underlying performances in several products and markets, good cost control and an encouraging sequential improvement in credit impairment," StanChart said.
In the three months to September 30, the Asia-focused lender recorded pretax profit of USD435 million, down 61% year on year from USD1.11 billion.
StanChart booked a USD358 million credit impairment in the third quarter, up from USD280 million the year before, but noted it has fallen from the USD611 million credit charge taken in the second quarter.
The lender also recorded a USD231 million goodwill impairment in the third quarter that was not seen the year before. StanChart attributed this to its UAE and Indonesia operations, due to both a worsening GDP growth outlook and lower interest rate environment.
Operating income dipped 11% to USD3.51 billion from USD3.96 billion, as net interest income declined 16% to USD1.62 billion from USD1.94 billion.
The lender's adjusted net interest margin worsened to 1.23% from 1.61% the year before.
StanChart's operating expenses reduced to USD2.52 billion USD2.57 billion, but falling revenue led to a worsened cost-to-income ratio of 71.7% from 64.8%.
The bank ended the third quarter with a customer loan book of USD281.38 billion, up from USD269.70 billion the year before. Deposits grew to USD417.52 billion from USD387.86 billion.
Chief Executive Bill Winters said: "Our transformation is allowing us to weather the macroeconomic storm in good shape. Our Wealth Management and Financial Markets businesses have good momentum, we are controlling costs to fund innovation, and we believe we are well provided against credit impairment."
The lender's CET1 ratio ended the quarter at 14.5% compared to 13.5% the year before, as its risk-weighted assets fell to USD266.66 billion from USD268.67 billion.
Within units, StanChart's Corporate & Institutional Banking business saw profit dip 11% year on year to USD525 million, while Retail Banking profit slipped 14% to USD257 million and Commercial Banking was down 84% at USD19 million. Private Banking improved to a USD17 million profit from a USD3 million loss the year before.
Geographically, StanChart recorded a profit decline in Greater China & North Asia of 6%, Africa & Middle, 94% and Europe & Americas, 50%. Profit was flat, however, in ASEAN & South Asia.
In the nine-month period, pretax profit is down 41% year on year to USD2.06 billion, while net interest income is 12% lower at USD5.12 billion.
"Lower interest rates continue to impact income but we remain well-positioned to meet our financial targets, albeit with some delay. We are further streamlining our organisation to sharpen focus on our retail business, more effectively leverage our unique network, and drive efficiencies," Winters said.
The bank added: "We expect similar fourth quarter seasonality to last year, and anticipate client demand to increase over the course of 2021 as more of the markets in which we operate start to come out of recession. The impact of the significant reduction in interest rates that occurred earlier this year should be fully reflected over the next two quarters with the net interest margin stabilising slightly below the current level in that timeframe."
As a result, StanChart said it will look to focus on fee-based income, particularly in its Financial Markets and Wealth Management businesses - which StanChart noted have "good momentum".
The lender still expects operating expenses for 2020 and 2021 to be below USD10 billion.
Its third quarter credit impairment reinforces the bank's previous view that impairment costs should be lower in the second half of 2020 than in the first half.
"The expected economic recovery next year would support asset quality improvement, although we anticipate some sectors and markets will face continuing challenges," the lender added.
StanChart also noted, owing to its "strong" capital position, it will consider resuming dividends at the start of 2021 - should regulators allow banks to restart shareholder payouts.
By Paul McGowan; paulmcgowan@alliancenews.com
Copyright 2020 Alliance News Limited. All Rights Reserved.
Standard Chartered (STAN)