StanChart sees further interest margin pain

PUBLISHED : Thursday, 06 August, 2009, 12:00am
UPDATED : Thursday, 06 August, 2009, 12:00am

Standard Chartered Bank (Hong Kong) said yesterday it expected net interest margin to remain under pressure in the second half because of the low interest rate environment.

However, chief executive Benjamin Hung Pi-cheng (right) said he hoped healthy growth in non-interest income would lessen the impact.

'Interest rates are unlikely to rise in the near future or in the first half of next year,' he said, adding that most countries wanted to see their economies recover before raising rates.

He said banks with abundant deposits would face greater pressure on margins because of the low interbank rate - the interest rate banks charge each other.

In its Hong Kong operations, the bank's pre-tax profit fell 12.2 per cent to HK$4.49 billion for the first six months. The operating profit of its consumer banking segment fell 29.72 per cent from a year earlier, partly owing to margin compression.

The bank's net interest margin declined to 1.8 per cent from 2.3 per cent a year earlier and 2 per cent in the second half of last year.

Mr Hung said the bank could benefit from its strong deposit base when interest rates rose, hopefully by the second half of next year. But when interest rates would rise would depend on inflation and the economy.

He said healthy growth in non-interest income, particularly from its wholesale banking business, where loan growth was better than the industry average, could help ease the impact of the deposit margin pressure. The bank's deposits grew 38 per cent in the first half, while loans grew 11 per cent.

Meanwhile, the bank would continue to expand its wealth management business even though it was affected by weak consumer sentiment in the short term. It plans to hire 100 relationship managers in the second half.

'There is ample liquidity inflow, partly from the mainland, [and people] have to look for investments,' he said.

Separately, Mr Hung reiterated that Standard Chartered's GBP1.02 billion (HK$13.41 billion) share placement on Tuesday was a forward-looking move. It would enable the bank to capture opportunities, particularly in Asia, with its superior growth prospects.

JP Morgan upgraded its target price for Standard Chartered to HK$190 from HK$185.

Macquarie also raised its target price for the bank, to HK$195 from HK$190, on increased earnings expectations.

Meanwhile, Credit Suisse raised its target price on the bank to HK$180 from HK$135 and adjusted the earnings forecast for this year and next year upwards because of the better than expected first-half result.