Standard Chartered, one of the city’s three currency-issuing banks, said its profit rose 3 per cent on a strong performance in its financial markets business, overcoming a weaker period in Hong Kong as a fifth wave of coronavirus cases hit its largest market.
The emerging markets-focused lender’s net profit rose to US$1.06 billion in the three months ended in March, from US$1.03 billion in the same quarter of 2021. The bank is based in London, but generates much of its revenue in Asia.
On a pre-tax basis, Standard Chartered reported a profit of US$1.49 billion, above a consensus estimate of US$1.04 billion by analysts compiled by the bank.
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“Our first-quarter performance was strong despite the volatile macro environment,” Standard Chartered CEO Bill Winters said in a statement. “We are on track to deliver 10 per cent return on tangible equity by 2024, if not earlier.”
The bank’s business in Hong Kong made a pre-tax profit of US$144 million, three times smaller than the US$448 million it reported a year earlier.
In February, the bank said it would seek to cut its costs by US$1.3 billion over the next three years and invest US$300 million in its China business.
“We’ve never been better positioned in China, the opportunity has never been greater,” Winters said. “That’s despite the current challenges we all see. Those challenges are substantial, but we’re building a business for the medium and long term.”
The bank also raised its 2022 outlook, saying it expected its income growth to “slightly exceed” its previous range of 5 per cent to 7 per cent.
Standard Chartered’s results came just days after its bigger, crosstown rival HSBC reported its profit fell 28 per cent in the quarter as uncertainty in the markets and Covid-19 restrictions hit its wealth revenue and weighed on its Hong Kong business.
The city is slowly opening up after a surge in coronavirus cases forced as many as one in four bank branches to close amid heightened social distancing measures. Standard Chartered and the city’s other big banks reopened all of their branches last week.
In addition to the slowdown in activity in Hong Kong, global growth is expected to slow to 3.6 per cent this year, according to the International Monetary Fund, in part because of uncertainty stemming from Russia’s invasion of Ukraine. The conflict has driven energy, food and commodity prices sharply higher globally.
Shares of Standard Chartered posted their biggest intraday increase in more than a decade, closing 10.4 per cent higher at HK$52.90 in Hong Kong on Thursday after the results came out.
“This is a very strong set of results,” Citi analyst Yafei Tian said in a research note. “The slightly higher revenue guidance implies a 4 per cent+ [profit before tax] upgrade, which would be somewhat offset by slightly higher [operating expenses].”
Standard Chartered said operating income, similar to revenue in US accounting, rose 9 per cent to US$4.3 billion in the first quarter.
The quarter included credit impairments for potential soured loans of US$200 million, including provisions for its China commercial real estate portfolio and a downgrade of Sri Lanka’s sovereign debt.
Net interest margin, an important measure of lending profitability, rose to 1.29 per cent in the quarter, up from 1.22 per cent a year earlier. It increased 10 basis points from 1.19 per cent in the fourth quarter.
Operating income soared by 34 per cent to US$1.72 billion in its financial markets segment as corporate clients sought to hedge rates and currency movements in a volatile and challenging first quarter.
In its wealth management business, operating income fell by 17 per cent to US$530 million and rose by 6 per cent to US$362 million in its trade business.
“The wealth management space is still somewhat sluggish,” Andy Halford, Standard Chartered’s chief financial officer, said. “Hong Kong, which is our major market there, clearly has had a slow first quarter for reasons that we understand. It will take a while for that to come back.”
Its Asia business reported a 26 per cent decline in underlying pre-tax profit to US$907 million.
The results came just over two weeks after Standard Chartered said it planned to fully exit seven markets in Africa and the Middle East and focus solely on corporate and institutional banking in two additional African markets as part of a reshaping of its business in the region.
Profit before tax rose 59 per cent to US$302 million in the Africa and Middle East region in the first quarter, its best quarterly performance in seven years, the bank said.
In Standard Chartered’s corporate, commercial and institutional banking business, underlying pre-tax profit rose 24 per cent to US$1.1 billion. Its consumer, private and business banking segment fell 26 per cent to US$372 million, compared with US$500 million a year earlier.
Its SC Ventures business reported an underlying pre-tax loss of US$77 million, compared with US$39 million in the prior-year period. The Ventures segment includes its majority-owned virtual banks, Mox in Hong Kong and soon-to-be launched Trust in Singapore.
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