StanChart poised for slowing growth
Restructuring plans may boost momentum this year after pre-tax profit is forecast to fall 2.4pc
Standard Chartered's decade of rising earnings is expected to come to an end when the emerging-markets-focused British bank delivers its results for last year on Wednesday.
The analysts are looking to stronger growth momentum as the bank benefits from a restructuring that started this year, but remain concerned about its capital strength.
Standard Chartered, with its reliance on earnings from emerging markets, has suffered as a result of the United States Federal Reserve's tapering of its quantitative easing programme, which prompted an outflow of capital from these high-growth regions. The shifts in capital to developed markets had led to higher impairment charges for the second half, the bank said in December.
The London-based bank, which generates more than 75 per cent of its profit from Asia, the Middle East and Africa, expects slower growth and plans to reduce costs in a bid to raise profitability. It made a pre-tax profit of US$3.3 billion in the first half of last year, down 15.3 per cent from 2012.
"The bank should report a concrete plan on cost savings [in the results announcement]," said Dominic Chan, an analyst at BNP Paribas. "This is the fastest way for the bank to reap benefits."
The lender had previously targeted a neutral jaws ratio - with income growing in line with increases in costs - but is now aiming for higher income growth.
Investec analyst Ian Gordon said he expected the cost cuts to help restore revenue growth at Standard Chartered this year.
The lender was considering the sales of its Hong Kong consumer finance business, PrimeCredit, for US$500 million to US$700 million and its Swiss private bank, according to Reuters reports.
"I expect high single-digit revenue growth in 2014, driven by a strong volume of trade flow and stabilising net interest margin," Gordon said.
However, some analysts said the muted capital growth would limit the room for Standard Chartered's business growth.
"Their capital has not been growing in the past three years," said Mark Phin, an analyst at Keefe, Bruyette & Woods.
Phin remains concerned about the bank's ability to grow its capital in order to meet the increasing capital requirements of the British banking regulator, although the Prudential Regulation Authority has not yet imposed a target.
Morgan Stanley said in a report that the lender might cut its dividend payout to preserve more capital.
Standard Chartered's core tier-1 capital adequacy ratio stood at 11.7 per cent at the end of 2012. The ratio was 11.8 per cent in 2010 and 2011.
Over the past year, the bank's Hong Kong-listed shares have slumped 22.05 per cent, compared with a 0.8 per cent decline in the benchmark Hang Seng Index.
In a pre-close trading update in December, Standard Chartered chief executive Peter Sands warned of a deteriorating fourth quarter amid a decline in its financial markets arm and the higher second-half impairment charges, resulting in the forecast of flat income growth for last year.
The South Korean consumer banking business made an operating loss of up to US$200 million because of a deterioration in credit quality, the lender said on January 9.
The bank also announced on that day that it would merge its wholesale and consumer banking arms from April under its restructuring plans.