Copy of 2023-10-26T044054Z_643511908_RC2MJV98GHLJ_RTRMADP_3_STANCHART-RESULTS-1698300469825
Standard Chartered is planning to hand back more than $5 billion to investors and in July announced a $1 billion buyback alongside increased guidance for income growth for the year. Image Credit: REUTERS

Hong Kong: Standard Chartered (StanChart) on Thursday said third-quarter pre-tax profit fell by a third, much worse than analysts had expected, as it took a nearly $1 billion hit from its exposure to China’s real estate and banking sectors.

StanChart, which earns most of its revenue in Asia, said statutory pretax profit for the third quarter of this year fell to $633 million.

That compared with $996 million a year earlier and the $1.41 billion average of 16 analyst estimates compiled by the bank.

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The bank’s Hong Kong shares were down 5 per cent on the weaker earnings after resuming trade in the afternoon session.

Credit impairment charges rose by $62 million from the same period a year prior to $294 million, as the bank took a $186 million charge related to China’s troubled commercial real estate market.

The bank also took a $ 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 losses 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 total China real estate exposure stood at $2.7 billion, down $200 million from the previous quarter.

The Chinese economy remains fragile as crisis in its property market deepens with high-profile debt-repayment defaults and the absence of state support.

Bill Winters
"We remain highly liquid, and well capitalised," CEO Bill Winters said in a statement. The lender is "confident in the delivery of our 2023 financial targets, including a return on tangible equity of 10%."

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 this year and 11 per cent in 2024, but downgraded some of its other performance forecasts for the year.

Net interest margin, a measure of return on lending, will now “approach” 1.7 percentage points rather than be “around” that level, it said.

Income in the bank’s Financial Markets trading division fell 8 per cent in the third quarter compared to the same period a year earlier, as falling market volatility reduced clients’ appetite for trading in products related to interest rates, commodities and foreign exchange in particular.