Standard Chartered Bank yesterday said it would be able to sustain growth in a volatile interest rate environment after it posted a 12 per cent increase in full-year domestic operating profits to $4.2 billion. Hong Kong operations accounted for 33 per cent of overall group profit, similar to previous levels. However, provisions surged 36 per cent to $330 million. Group executive director for Hong Kong, China and northeast Asia, Mervyn Davies, said these were specific provisions. He said its parent's GBP100 million (about HK$1.27 billion) in general provisions for potential problems would remain at the group level and be used as necessary, he said. The provisions arose mainly from a few commercial and retail banking clients, he said. Mr Davies saw no imminent threat to the bank's asset quality because it would continue to focus on short-term lending and trade finance. The Hong Kong operations recorded a 28 per cent increase in loans. Of that, residential mortgages posted more rapid growth of 32 per cent. Net interest margin fell by 30 basis-points from 3.1 per cent to 2.8 per cent. Head of finance David Cheung was pleased with the performance, citing the narrowing of the spread between the prime and interbank rates from 3.14 per cent in 1996 to 1.64 per cent this year. Regional treasurer Stanley Wong Yuen-fai said he believed the worst of the Asian currency crisis was over and interbank rates were likely to stabilise at 6 per cent to 8 per cent, keeping a spread of about 2.5 per cent below the prime rate of 10.25 per cent. Despite the correction in property prices which will affect the collateral values for its home loans, the average outstanding loan-to-value ratio of the bank's mortgage portfolio still stood at 53 per cent, he said.