Standard Chartered forecasts 2020 income growth to be below expectations

Maria Nikolova

Challenges, such as the coronavirus outbreak, will mean that income growth in 2020 is likely to be lower than the anticipated 5-7% medium-term range, Standard Chartered says.

Standard Chartered PLC (LON:STAN) today published its results for the year and quarter ended December 31, 2019.

The Group forecasts that lower interest rates, slower global economic growth, a softer Hong Kong economy and the impact of the recent novel coronavirus outbreak will likely result in income growth in 2020 below the medium-term 5-7% target range. Although these headwinds are expected to be transitory, Standard Chartered now believes it will take longer to achieve its return on tangible equity (RoTE) target of 10% than it previously envisaged.

Bill Winters, Group Chief Executive, commented:

“I want to be clear, though, that we continue to target RoTE above 10 per cent; this remains the minimum hurdle rate we use to run the business and is the least I expect from this franchise. We have improved our RoTE every year since 2015 and we are focused on doing so again this year through maintaining positive -income-to-cost jaws and disciplined capital deployment”.

  • Return on tangible equity rose by 130bps to 6.4% in 2019.
  • Standard Chartered reported underlying profit before tax of $4.2 billion, up 8% from the preceding year, whereas statutory profit before tax increased 46% to $3.7 billion.
  • Income was up 2% to $15.3 billion, with the rise in constant currencies being 4%.
  • The Group reported earnings per share of 75.7c, up 23% from the preceding year.

Charges relating to restructuring, provisions for regulatory matters and other items decreased $850 million to $459 million, mainly due to a reduction in regulatory provisions. The resolution of previously disclosed investigations in the UK and US into historical sanctions and financial crime control issues included monetary penalties of $1,086 million, of which $186 million was provided for in the current year. Including these items, statutory profit before tax increased 46%.

Greater China & North Asia was the largest regional contributor to the overall Group’s profit before tax, and increased profit by 3%. Africa & Middle East was the fastest growing region, with profit up 29%. ASEAN & South Asia generated 6% growth, while profit in Europe & Americas improved 2%. The loss incurred by Central & other items (region) decreased by $42 million to $126 million with higher external debt costs offset by a favourable change in hedge ineffectiveness and increased internal capital charges.

Regarding the Greater China & North Asia region, Standard Chartered notes that, in 2019, it actively participated in the opening of China’s capital markets, helping overseas investors do business through channels such as Bond Connect, Stock Connect and the Qualified Domestic Institutional Investor initiative.

The Group saw continuing good progress in Retail Banking in Hong Kong. It attracted over 50,000 new Priority clients during the year, up 22%, and increased its active qualified Priority clients by 12%.

Let’s recall that Standard Chartered was granted a virtual banking licence from the Hong Kong Monetary Authority in March 2019. Thus, it became one of the first to receive a licence under Hong Kong’s new virtual banking scheme and teamed up with PCCW, HKT and Ctrip Finance.

Standard Chartered continued to optimise the Korea franchise to improve returns and focus on China’s opening.

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