By Sumeet Chatterjee and Lawrence White
HONG KONG/LONDON (Reuters) – Standard Chartered PLC’s first-quarter profit tumbled 12% on increased credit impairment and provisions for future loan losses as the coronavirus crisis hammered its borrowers, even as it expects an economic recovery later this year.
The emerging markets-focussed lender’s more positive tone contrasts with other European lenders that have posted earnings so far, saying it was seeing encouraging signs in China that the recovery could be yet more rapid than that.
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 virus’ 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 bank’s reported profit was boosted by a $358 million increase in its debt valuation adjustment, an accounting measure related to changes in the value of debt it has issued and which can often rise as perception of the lender’s strength falls.
The StanChart announcement came a day after bigger cross-town rival HSBC Holdings PLC said its first-quarter profit nearly halved as bad loan provisions jumped to $3 billion.
StanChart raised its expected credit loss provisions to $6.2 billion in the quarter from $5.8 billion at the end of December last year, while credit impairment during the quarter rose to $956 million from $78 million a year earlier.
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.
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 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.
(Reporting by Sumeet Chatterjee in Hong Kong and Lawrence White in London; Editing by Christopher Cushing)