HONG KONG/LONDON – Standard Chartered on Thursday said third-quarter pre-tax profit fell by a third, much worse than analysts had expected, as it took a nearly US$1 billion (S$1.37 billion) hit from its exposure to China’s banking and troubled real estate sectors.
StanChart, which earns most of its revenue in Asia, said statutory pre-tax profit for the third quarter of 2023 fell to US$633 million.
That compared with US$996 million a year earlier and the US$1.41 billion average of 16 analyst estimates compiled by the bank.
Its Hong Kong-listed shares plunged 5.5 per cent to HK$63.70, their biggest one-day percentage drop since March 27.
Credit impairment charges rose by US$62 million from the same period a year prior to US$294 million, as the bank took a US$186 million charge related to China’s troubled commercial real estate market.
The bank also took a US$700 million hit from its stake in China Bohai Bank, which it said reflected subdued earnings at the lender and the challenging economic backdrop.
The hefty loss in China, where StanChart has based much of its expansion effort, underlines the challenge the lender faces to improve returns via exposure to the world’s second-largest economy at a time when growth is slowing and loan loss is on the rise.
Its Chinese real estate exposure totalled US$2.7 billion, down US$200 million from the previous quarter.
The Chinese economy, despite a raft of government easing measures, remains fragile as crisis in its property market deepens with high-profile debt-repayment defaults and the absence of state support.
Domestic banking peers have reported margin squeeze amid downward pressure while foreign banks, with smaller exposure, now have started to take an increased blow as sentiment worsens and the government guides lenders to lower mortgage rates.
StanChart said the hit on its investment in China Bohai, a lender in the eastern coastal city Tianjin, was due to lower forecasted interest rates and decreased lending margins reported in the bank’s half-year results.
Bohai bank reported net interest income in the first half of 2023 slumped 17.8 per cent, leading to a nearly 7 per cent decline in its overall profit.
StanChart said it remains confident of hitting its returns on tangible equity targets of 10 per cent in 2023 and 11 per cent in 2024, but downgraded some of its other performance forecasts for the year.
“Investors were expecting a clean set of third-quarter numbers, and we do not have that today,” said Jefferies analyst Joe Dickerson.
The silver lining for investors was that the bank’s underlying business performance – excluding impairment charges – remained solid, he said in a note to clients.
Net interest margin, a measure of return on lending, will now “approach” 1.7 percentage points rather than be “around” that level, it said. REUTERS
