China reopening ‘pushing activity levels higher’, Standard Chartered CEO says as bank reports 9 per cent jump in first-quarter profit
- Activity in Asia ‘robust despite the recent banking sector concerns in the US and Europe’, CEO Bill Winters says
- Pre-tax profit was US$1.81 billion in the first quarter, beating a consensus estimate of US$1.43 billion
Standard Chartered, one of Hong Kong’s three currency-issuing banks, reported a better-than-expected profit for the first quarter, driven by strong growth in its cash management and Asia businesses.
The emerging markets-focused lender’s net profit rose by 9.4 per cent to US$1.16 billion in the three months ended in March, from US$1.06 billion a year earlier. The London-based bank, which generates much of its pre-tax profit in Asia, reported US$1.81 billion in pre-tax profit, ahead of the US$1.43 billion expected by analysts.
“Activity in Asia and the Middle East remains robust despite the recent banking sector concerns in the US and Europe,” Standard Chartered CEO Bill Winters said on an analyst call. “The recent reopening of China is pushing activity levels higher. This is continuing to show in our numbers, with China offshore income up 67 per cent so far this year.
“The leading indicators of China reopening, such as new client acquisition, support our optimism for performance over the rest of the year. We expect the China recovery to continue, which should help offset the impact of a Western slowdown on Asia economies – should that occur.”
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Standard Chartered took credit impairment charges of US$20 million during the quarter. During the three-month period, the bank also released prior provisions of US$23 million for earlier downgraded sovereign debt exposures and US$2 million related to its China commercial real estate business.
The prior-year quarter included credit impairments for potential soured loans of US$197 million, including provisions for its China commercial real estate portfolio and a downgrade of Sri Lanka’s sovereign debt.
Standard Chartered is the first of Hong Kong’s three currency-issuing banks to report quarterly results, with Bank of China (Hong Kong) expected to report on Friday and HSBC on Tuesday.
Shares of Standard Chartered declined about 1 per cent to close at HK$60.55 on Wednesday in Hong Kong following the announcement.
The bank’s operating income, similar to revenue in US accounting terms, rose 6 per cent to US$4.56 billion in the first quarter. Net interest income increased by 12 per cent to US$2 billion.
Standard Chartered’s Asia business made an underlying pre-tax profit of US$1.4 billion, 63 per cent higher than the US$858 million it reported a year earlier. Underlying pre-tax profit in Hong Kong, its largest market, quadrupled to US$529 million in the quarter.
Standard Chartered said that its customer deposits remained stable during the first quarter at US$462 billion.
“We’ve not seen any impact on Asian financial systems from events in the West, nor do we expect to do so,” Winters said. “The recent banking sector turmoil feels different to the global financial crisis. Post-GFC regulation means banks are carrying much greater capital and liquidity levels. The bank failures suggest this is a crisis of confidence in a few institutions, not a broader solvency issue.”
On Tuesday, US regional lender First Republic further spooked markets after it reported a worse-than-expected withdrawal of US$100 billion in deposits during the turmoil. The lender’s shares lost 49 per cent of their value on Tuesday.
Standard Chartered’s net interest margin, an important measure of lending profitability, rose to 1.63 per cent in the quarter, up from 1.29 per cent a year earlier. It increased five basis points from 1.58 per cent in the fourth quarter of last year.
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Operating income rose by 92 per cent to US$1.4 billion in its transaction banking business, including a near tripling in its cash management operations, and declined by 9 per cent to US$1.41 billion in its financial markets business.
Wealth management reported a 3 per cent decline in operating income to US$511 million.
The bank’s corporate, commercial and institutional banking segment reported a 49 per cent gain in underlying pre-tax profit to US$1.49 billion, while its consumer, private and business banking segment saw its underlying pre-tax profit jump by 84 per cent to US$677 million.
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Its SC Ventures business reported an underlying pre-tax loss of US$103 million, compared with US$77 million in the prior-year period. The ventures segment includes its majority-owned virtual banks, Mox in Hong Kong and Trust in Singapore.
