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Fundamental View
AS OF 30 Oct 2024Standard Chartered has been making good progress in the past few years, improving its asset quality and profitability and dealing with legacy litigation issues. Capital, funding and liquidity look solid.
However, tension between China and the West, and global economic headwinds continue to cloud the near term outlook.
Its unusual business mix – headquartered and regulated in the UK but operating primarily in Asia, Africa and the Middle East – means it is well diversified but sensitive to geopolitical developments and emerging market volatility.
Business Description
AS OF 30 Oct 2024- Standard Chartered PLC is the holding company and listed entity of the group, in which Standard Chartered Bank is the main operating company.
- Although Standard Chartered is headquartered in London and therefore subject to UK banking regulation, its operations are mainly in Asia (Hong Kong is its biggest single market, as part of its Greater China & North Asia region), Africa and the Middle East. It is present in over 60 markets.
- It has the usual variety of businesses across these regions, including corporate and institutional banking, retail banking, commercial banking and private banking. It specialises in trade finance and cross-border cash management.
- The group announced a revised strategy in 2019 aimed at improving profitability after several years of de-risking, with a targeted return on tangible equity of 10%.
- It is classified as a G-SIB, with a regulatory capital buffer of 1%.
Risk & Catalysts
AS OF 30 Oct 2024Anti-government protests in Hong Kong, a slowing economy in China and a weak commercial real estate sector, and US/China trade tensions have threatened the growth and stability of some of Standard Chartered’s key markets.
A number of Standard Chartered’s markets have underperformed in the past and have therefore been seen as turnaround stories, including India, Korea, Indonesia and the UAE.
The group has had to improve its AML and sanctions controls. In April 2019, it paid a $947 mn fine to US authorities over breaches of US sanctions and a £102 mn fine to the UK FCA for AML weaknesses.
Key Metric
AS OF 30 Oct 2024| $ mn | 3Q24 | Y23 | Y22 | Y21 | Y20 |
|---|---|---|---|---|---|
| Return on Equity | 8.8% | 7.0% | 5.7% | 4.5% | 1.4% |
| Total Revenues Margin | 2.3% | 2.2% | 2.0% | 1.8% | 2.0% |
| Cost/Income | 60.0% | 64.1% | 66.9% | 74.3% | 70.4% |
| CET1 Ratio (Transitional) | 14.2% | 14.1% | 14.0% | 14.1% | 14.4% |
| CET1 Ratio (Fully-Loaded) | 14.2% | 14.1% | 13.9% | 14.1% | 14.3% |
| Leverage Ratio (Fully-Loaded) | 4.7% | 4.7% | 4.8% | 4.9% | 5.2% |
| Loan Impairment Charge | 0.2% | 0.2% | 0.3% | 0.1% | 0.8% |
| Impaired Loans (Gross)/Total Loans | 2.2% | 2.5% | 2.5% | 2.7% | 3.2% |
CreditSight View Comment
AS OF 30 Oct 2024We revised our recommendation on Standard Chartered HoldCo senior from Underperform to Market perform on 26 April 2023, but we changed our recommendations on Tier 2 and AT1 from Fair to Rich on 10 January 2024. The changes reflect StanChart’s recent resilient performance, with no impact on its deposit base from recent stresses in the banking system, while taking into account that the Chinese real estate market, a source of credit impairments in recent periods, remains weak (but has stabilised). Capital and liquidity ratios are robust, and profitability has improved significantly, but the bank continues to face geopolitical tensions inherent in its extensive operations in Hong Kong, China and the rest of Asia.
Recommendation Reviewed: October 30, 2024
Recommendation Changed: April 26, 2023
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