StanChart PLC eyes quick recovery as profit falls 12% on coronavirus crisis

Standard Chartered PLC (STAN.L) on Wednesday said it expects virus-battered economies to recover later this year, striking an optimistic note after increased credit impairment and provisions for future loan losses pushed first-quarter profit down 12%.

The emerging markets-focused lender’s tone contrasts with other European lenders that have posted earnings so far, saying it was seeing encouraging signs in China that the recovery could come even sooner.

“We expect a gradual recovery from the COVID-19 pandemic ... before the global economy moves out of recession in the latter part of 2020, most likely led and driven by markets in our footprint,” it said in a statement.

“The pace at which individual markets recover will be heavily dependent on the efficacy of government stimulus initiatives and policies to ease restrictions, as well as the resilience of the COVID-19 virus itself,” it said.

As a British-based lender focused on Asia, Africa and the Middle East, StanChart’s profit slump, however, showed how the pandemic is hitting businesses worldwide as governments freeze their economies to slow the new coronavirus’ spread.

Pretax profit for January-March was $1.22 billion, versus $1.38 billion in the same period a year earlier, the London-headquartered bank said in a stock exchange filing.

The figure was boosted by a $358 million increase in debt valuation adjustment - an accounting measure related to changes in the value of issued debt and which often rises as perception of the lender’s strength falls.

The result comes a day after bigger cross-town rival HSBC Holdings PLC (HSBA.L) said its first-quarter profit nearly halved as bad loan provisions jumped to $3 billion.

But StanChart's outlook cheered investors, with its Hong Kong-listed shares (2888.HK) rising as much as 8% in afternoon trade, while the broader market .HSI was only 0.1% higher.

The bank saw its credit impairment in the quarter rising to $956 million from $78 million a year earlier, while “high risk assets” on the balance sheet rose by a hefty $6.2 billion from three months prior.

A large portion of the quarter’s credit impairment was accounted for by two corporate and institutional banking clients - one in commodity trading and another in healthcare, it said, without identifying the clients.

CUTTING COSTS

The bank said it is targeting costs of below $10 billion for the full year, which it will achieve by reducing staff bonuses, pausing new hiring and slashing discretionary spending. In the first quarter, expenses fell 2%.

StanChart said its core capital level was 13.4%, down from 13.8% at the end of December, but expects it to be boosted by 40 basis points when it completes the disposal of its 45% stake in Indonesia’s PT Bank Permata Tbk (BNLI.JK) in the second quarter.

The lender on April 1 said it was scrapping dividend payouts in line with other British banks, as the Bank of England urged them to conserve capital amid the pandemic.

Regulators hope the move to scrap the distribution of excess capital to shareholders will free up capital that banks can lend to businesses, as Britain braces for what will likely be the worst recession in recent memory.

The European Union is likely to offer lenders further relief by easing rules on how they calculate leverage ratios, echoing a move in the United States, Reuters reported last week.