Standard Chartered profit buoyant as it pursues refreshed strategy

Standard Chartered reported an 11% improvement in its underlying profit before tax to $2.6bn in its first-half results on Thursday.

The FTSE 100 emerging markets-focussed banking giant said its statutory profit before tax rose 3% to $2.4bn for the six months ended 30 June, and was stated after provisions for regulatory matters, restructuring and other items.

Operating income was ahead 1% at $7.7bn, or up 4% on a constant currency basis.

The company said it saw positive income-to-cost jaws of 4% on both a reported and constant currency basis, with operating expenses falling 3% to $5.0bn, or flat on a constant currency basis.

Pre-provision operating profit was up 8%, and up 10% on a constant currency basis, with the board saying it expected costs in the second half to be “slightly higher” than in the first half, and full-year costs to grow below the rate of inflation.

Credit impairment was 13% lower year-on-year at $254m, with asset quality overall improved year-on-year.

The firm’s stage three credit impairment was 44% lower, which it said was driven by commercial banking and a $48m release in private banking, with it reporting a stage one and two credit impairment of $80m, compared to a net release of $17m in the first half of 2018.

Taxation for the period of $918m included a $179m charge in relation to corporate entity restructuring.

Standard Chartered said it had an underlying effective tax rate of 28.6%, compared to 26.5% a year earlier.

Earnings per share were up 9% to 49.1 cents, with statutory earnings per share impacted by provisions for regulatory matters and higher taxation.

The board declared an interim dividend of 7 cents per share, which was 17% higher year-on-year.

Looking at the balance sheet, average interest-earning assets and interesting-bearing liabilities compared to the same period in 2018 were up 6% and 5% respectively.

Standard Chartered said growth in loans and advances to customers and trading book assets were primarily within its corporate and institutional banking operation, adding that growth in liabilities was driven by higher customer account balances, offsetting the run-off of repurchase agreements.

Risk-weighted assets were 5% higher since 31 December, and at a similar level to 30 June last year, growing slightly below the equivalent rates for income.

Around two-thirds of that increase in the first half was related to underlying asset growth, and the other third to market risk seasonality and IFRS 16.

Organic and inorganic optimisation initiatives supported the board’s expectation that income growth would exceed risk-weighted asset growth over time, the board explained.

It said its CET1 ratio of 13.5% was in the middle of its 13%-to-14% target range, adding that in the first half, higher risk-weighted assets were funded by underlying profit attributable to ordinary shareholders.

The CET1 ratio was stated after deducting 39 basis points for the full impact of the $1bn share buy-back programme, with regulatory provisions and tax in relation to corporate entity restructuring reducing the ratio by 15 basis points.

On the strategic front, Standard Chartered said its primary performance measure return on tangible equity improved 88 basis points to 8.4%.

The board said it saw “good progress” on its refreshed strategic priorities, with income from corporate and institutional clients using the group's international network rising 9%.

Income from affluent individual clients grew 5%, with the company adding that productivity was improving, with income per full-time employee up 4%.

Its corporate entity restructuring to create capital and liquidity hubs in Hong Kong and Singapore was said to be on track, and the company also had several “innovative digital initiatives” underway, including preparations to launch a Hong Kong virtual bank.

Shares worth around $740m had been bought and cancelled as at 26 July, as part of Standard Chartered’s $1bn buy-back programme.

The board said trade tensions were affecting sentiment, with monetary policy normalisation expected to reverse, though it added that global growth projections were supported by “solid fundamentals”, and were being driven by markets in its footprint.

Standard Chartered said it remained confident its strategy would deliver a full-year return on tangible equity greater than 10% in 2021.

“We made good progress both financially and on our strategic priorities in the first half, growing income 4% and improving profits 13%, at constant currency,” said Standard Chartered group chief executive Bill Winters.

“We have positioned ourselves to develop and scale innovative new business models, as we support and grow with our clients.

“We are investing now to create optionality for the future, and I am excited by the opportunities we are already generating.”