Standard Chartered PLC profits shrink as income reverses and bad loan provisions

() reported a 33% decline in profits in the first half of the year as it took significantly higher impairment charges to position itself for a “volatile and uneven” outlook from the coronavirus pandemic.

The Asia-focused bank cranked up its bad loan impairments by US$611mln in the second quarter to take its total credit provisions to US$1.6bn for the first half of 2020. 

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Seemingly in contrast to its FTSE 100 banking peers, income rose 5% to US$8.0bn for the half-year, but this masked a 4% decline in the second quarter after a positive start to the year.

StanChart has the lowest net interest margin among its rivals, falling another 24 basis points in the second quarter to 1.28%.

Combined with the credit impairments, this led to statutory profit before tax tumbling 33% to US$1.6bn.

The lender’s capital levels remained strong with a CET1 ratio rising 90 basis points in the second quarter to 14.3%, helped by a 50bps uplift from selling its stake in Permata bank.

“Despite having taken significantly higher impairment charges we remained profitable and enter the next phase of the crisis with our CET1 capital ratio at one of the highest levels for many years,” said chief executive Bill Winters. 

“Low interest rates and depressed oil prices continue to be headwinds and we expect new waves of COVID-19 related challenge in the coming quarters but I am confident that our resilience and client franchise will see us through.”

Further on the outlook, StanChart said it believes some of its larger markets “will start to drive the global economy out of recession over the coming quarters but expect economic activity across our footprint in that period to be volatile and uneven”.

But income in the second half is predicted to be lower than the first, with the benefits of the early stage recovery in some of its Asian markets and its geographic diversity “unlikely to be enough to offset the impact of low interest rates and the probability of less buoyant conditions for our financial markets business”.