Standard Chartered’s pre-tax profits fell in the first quarter as the emerging markets-focused bank increased its expected loan losses by more than 1,000 per cent due to the economic impact of coronavirus.
However, the London-based lender pointed to “encouraging early signs” of a recovery in China after the world’s second-biggest economy controlled its own outbreak.
Standard Chartered said on Wednesday that pre-tax profits in the first quarter dropped by nearly 12 per cent year-on-year to $1.2bn. However, that performance was above the $828m estimated based on analyst forecasts compiled by the company. Its operating income rose 13 per cent year-on-year to $4.3bn, also topping analysts’ estimates of $3.8bn.
The bank, however, increased its expected credit losses by more than 1,100 per cent to $956m from $78m in the same quarter last year, as it joined other global lenders that have been hit by a succession of bad loans due to the Covid-19 crisis.
The bank said about $245m of this increase was due to exposure to two clients in commodities and healthcare. Standard Chartered faces losses on credit it extended to Singapore oil trader Hin Leong and Abu Dhabi-based hospital operator NMC Health.
Standard Chartered’s Hong Kong-listed shares were 8 per cent higher following the earnings release.
While the bank warned it was “not possible to reliably quantify” the impact of the virus on its future performance, it said it expected “a gradual recovery” from the pandemic. Standard Chartered forecast that the global economy would move out of recession in the latter part of the year, led by emerging markets.
“We are seeing encouraging early signs of that happening in China,” Standard Chartered said in a statement accompanying its results.
The cautiously upbeat outlook contrasted with that of HSBC. On Tuesday the bank flagged a bleaker road ahead as its first-quarter profits plunged by almost half. HSBC chief executive Noel Quinn warned that China “will not be immune” from the ripple effects as coronavirus hits other parts of the global economy
Standard Chartered said its fall in profits was due to “substantially higher” expected loan losses as a result of the virus.
It also said moves by big central banks, such as the US Federal Reserve, to cut interest rates aggressively in response to the crisis would hamper its ability to generate profits in 2020.
Standard Chartered cancelled its 2019 dividend following pressure from UK banking regulators and will also suspend its interim payout as part of measures to preserve capital.
The bank said it had not implemented any redundancies nor furloughed staff as a result of the outbreak but it had paused new hiring.
Citibank analyst Ronit Ghose said Standard Chartered’s results suggested that the bank was in a better position than its current stock valuation implied. The loan losses were “much higher than expected”, but compared to those at other banks they were “not a huge surprise".
Get alerts on Standard Chartered PLC when a new story is published