Daily Management Review

Focused On Emerging Markets, StanChart Springs Surprise With A 40 per cent Profit Hike; Raises Income Target


Focused On Emerging Markets, StanChart Springs Surprise With A 40 per cent Profit Hike; Raises Income Target
Standard Chartered's third-quarter profit increased by 40 per cent as higher interest rates increased the bank's income and gave it ammunition to raise its revenue forecast despite a weakening global economy.
StanChart increased its income growth forecast for this year to 13 per cent from 10  per cent previously, and CEO Bill Winters stated that the bank was confident of meeting its financial targets for 2024, sending its Hong Kong-listed shares 5 per cent higher in a firm market.
"Our performance this year has been strong, and the pace of economic recovery in many of our footprint markets is encouraging, notwithstanding increasing recessionary pressures in certain Western markets," Winters said.
The results came a day after larger peer HSBC (HSBA.L) reported a 42 per cent drop in quarterly profit due to loan losses and charges from the sale of its French business on Tuesday, souring investor confidence.
StanChart's performance also contrasted with that of US banks, which reported lower profits earlier this month as they increased provisions for expected loan losses and saw market volatility stifle dealmaking.
The London-based lender's profit growth and improved guidance demonstrated how rising interest rates are lifting some banks' profits even as the global economy struggles amid volatile energy costs and the impact of the Russia-Ukraine war.
The bank, which generates the majority of its revenue in Asia, said statutory pre-tax profit increased to $1.39 billion in the three months to Sept. 30 from $996 million the previous year and surpassed the $1.05 billion average estimate of 14 analysts compiled by the bank.
Analysts believe the profit increase was aided by the lender's transaction banking unit, which manages cash for corporate clients and saw income increase 47 per cent. However, the bank's underperforming wealth management business had another poor quarter, with income down 19 per cent due to weak stock markets, which left wealthy clients with little appetite to invest.
After repairing the bank's balance sheet and laying off thousands of employees early in his tenure, Winters has attempted to restore growth while building a portfolio of digital assets in recent years.
StanChart, which operates in 59 markets and employs 85,000 people, is primarily focused on capturing trade flows between its key markets of Asia, Africa, and the Middle East, but it lacks the clout of larger competitors in commercial banking and investment banking.
Nonetheless, the company's London-listed shares have lost about 45 per cent of their value during his tenure, though they have gained about 24 per cent this year and outperformed peers.
StanChart delighted investors in July with increased dividend payouts and a $500 million share buyback.
To combat rising inflation, central banks around the world have tightened monetary policy this year.
Rising interest rates traditionally boost bank profits because they can earn more from lending than they pay to savers, but the current picture is clouded by the threat of an economic downturn, which could result in significant losses for lenders.
In the most recent quarter, StanChart's statutory credit impairment charges more than doubled to $227 million, reflecting weakness in key economies. Among the charges are $130 million for exposure to China commercial real estates.