25th Feb 2021 05:37
(Alliance News) - Standard Chartered PLC on Thursday reported a sharp drop in profit for 2020, with both profit and income unable to match market consensus, but believes it is well placed to capture the benefits from a global economy returning to growth.
Chief Executive Bill Winters said: "We are weathering the health crisis and geopolitical tensions very well. We remain strong and profitable, although clearly impacted by credit challenges and low interest rates. Our strategic transformation continues to progress well, and our outlook is bright."
For 2020, the London-headquartered but Asia-focused bank recorded pretax profit of USD1.61 billion, down 57% from the USD3.71 billion reported in 2019.
StanChart's profit mark came in below market consensus of USD1.85 billion.
The bank upped its credit impairments in 2020 to USD2.29 billion from USD906 million, but was able to come under the consensus mark of USD2.40 billion.
Operating income slipped 4% year on year to USD14.75 billion from USD15.42 billion, as net interest income dropped 11% to USD6.88 billion from USD7.70 billion.
Operating income was forecast to fall to USD14.80 billion.
The lender's net interest margin worsened to 1.31% in 2020 from 1.62% in 2019.
Chair Jose Vinals said: "Our profit reduced despite lower costs due to a combination of lower interest rates that affected income and higher impairments driven in part by the reserves that we built to absorb possible future credit losses as the pandemic unfolds. But we remained highly liquid and our capital position actually strengthened further, which means that with better visibility over the near-term economic outlook the board is recommending the payment of a full-year ordinary dividend of USD284 million or 9 cents per share."
StanChart's CET1 ratio ended 2020 at 14.4% from 13.8% the year before.
"And with our common equity tier 1 capital ratio above the top end of our 13% to 14% per cent target range, even after accruing for the recommended ordinary dividend, we have decided to complete the share buy-back programme that was suspended in April 2020, meaning we will shortly start purchasing and then cancelling up to USD254 million worth of ordinary shares," Vinals added.
Vinals noted the proposed 9 cent dividend is the maximum allowed under current regulatory guidance.
StanChart's loan book ended the year at USD281.70 billion, up from USD268.52 billion the year before and customer deposits rose to USD439.34 billion from USD405.36 billion.
Within units, StanChart's Corporate & Institutional Banking business saw underlying pretax profit drop 18% year on year to USD1.84 billion, while Retail Banking profit slumped 46% to USD587 million and Commercial Banking cratered 57% to USD214 million. Private Banking profit fell 34% to USD62 million.
Geographically, StanChart recorded a profit decline in Greater China & North Asia of 16% to USD2.04 billion, while its ASEAN & South Asia operations saw profit slump 24% to USD779 million, and its Africa & Middle East operations saw its profit almost wiped out, falling 98% to USD13 million. The lone silver lining, however, was its Europe & Americas unit with profit almost tripling to USD386 million.
Driving the European performance, and containing the group's drop in profit, was a surging Financial Markets division - which recorded 18% operating income growth to USD3.85 billion.
StanChart's Wealth Management business seen income grow 5% to USD1.97 billion and its Lending & Portfolio Management team increased income by 8% to USD848 million.
The rest of the bank, however, were not so lucky. Transaction Banking income was down 19% at USD2.84 billion, Corporate Finance down 2% at USD1.12 billion and Retail Products down 8% to USD3.57 billion.
Winters continued: "Our strategic progress continues apace despite the challenges related to Covid-19. Our returns have suffered though as the resulting severe economic dislocations and low interest rates impacted our financial performance. The progress we made up to the onset of the pandemic, however, in every key financial and strategic metric, gives us confidence that we can return to that trajectory as economies recover over the coming year."
Looking ahead, StanChart is confident on improving its 3% return on tangible equity in 2020, targeting 7% by 2023 and will "progressively advance" the target to more than 10%. The short term target could increase, StanChart said, if interest rates normalise earlier than anticipated.
The lender also believes its increased investment "in the transformation of its business" will allow it to "disproportionately benefit" from the global economy returning to growth, not least, StanCahrt noted, because it will most likely be led by large markets in Asia where it generates two-thirds of its income.
Winter also noted the bank will be "doubling down" on its differentiation, focusing on its operations in Asia, Africa and the Middle East.
Chief Financial Officer Andy Halford added: "Overall income in 2021 is expected to be similar to that achieved in 2020 at constant currency given the full-year impact of the global interest rate cuts that occurred in the first half of 2020, which will likely cause income in the first half of 2021 to be lower than last year.
"The 2021 net interest margin should stabilise at marginally below the the fourth quarter of 2020 level of 1.24%. Our performance in the opening weeks of this year gives us the confidence that we are on the right track with strong performances in our less interest rate-sensitive Financial Markets and Wealth Management businesses. We expect income to return to 5% to 7% growth per annum from 2022."
By Paul McGowan; [email protected]
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