StanChart battles high HK operating costs
Standard Chartered Bank, which reported a 5 per cent drop in operating profit at its Hong Kong arm last year, expects a tough year ahead as a result of the surging costs of running its business in the city.
The Hong Kong unit's operating profit last year amounted to HK$8.93 billion, down 5 per cent from 2009. Operating expenses rose 16 per cent to HK$10.6 billion.
Benjamin Hung Pi-cheng, chief executive of Standard Chartered's Hong Kong operation, attributed the higher costs last year to compensation paid to bank customers who bought Lehman Brothers-issued structured products, and the bank's recruitment drive in areas such as premium and private banking.
The bank, which sold more than HK$5 billion of equity-linked notes issued and guaranteed by Lehman Brothers between August 2006 and June 2008, this week announced that it had agreed to partially repay its customers. That cost the company HK$1.48 billion.
Hung said Standard Chartered, along with the rest of the banking industry, had improved its sales procedure for derivative products and hoped to 'slowly' win back consumer confidence.
He said he was wary about operating costs in Hong Kong and declined to estimate headcount growth in the city this year.
Globally, Standard Chartered plans to hire 1,000 people this year.
'There are some challenges in the Hong Kong market [in controlling costs],' said Hung. 'For example, in hiring talented individuals, rents and inflationary pressure. So we have to be careful.'
Hung was also cautious about the outlook for the bank's loans business, in particular its mortgage operation. He said mortgage lending could slow this year, adding the bank had no plans to raise rates.
The British bank, which focuses on Asia, reduced its 2010 losses for bad loans by 70 per cent year on year to HK$335 million.
Hung said the quality of loans and debt were sound. 'Broadly speaking, Hong Kong companies don't leverage very much. So we are not that worried. We are happy with our customers' credit in general.'