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We met the top management team (Asia region) of Standard Chartered
Bank (SCB) for a better understanding of its performance in CY11 and
growth outlook and strategies going forward (particularly India). The bank
delivered PAT growth of 12% (USD4.7bn) despite moderating growth in
Asia, political/economic stress in Euro zone/Middle East and regulatory
changes. While two of its largest markets viz., India (down 33%) and Korea
(down 56%) faltered, the overall performance was offset by surge in Hong
Kong (up 41%) and Singapore (up 40%) earnings. Global NIMs improved
10bps to 2.3% on account of strong liquidity surplus and higher liability
margins; global advances grew ~9% led by wholesale banking.
India: Slipped to third position as earnings dipped 33%
Major disappointment came from India which was the largest contributing geography
in CY10 and slipped to third in CY11 as earnings dipped 33% to USD807mn
(contribution to overall earnings coming off from 20% in CY10 to 12% in CY11). Sharp
decline in profits was led by: (1) 20% decline in non‐interest income; (2) NIMs coming
off 30bps to 3.1%; (3) credit cost being higher at 160bps compared to 70bps in CY10;
and (4) loan book coming off 4% (primarily due to INR depreciation impact).
• Monetary tightening (not entirely passed on due to customer profile) and
increased competition led to pressure on lending margins.
• Despite overall macro issues prevailing in India—higher interest rates, policy
paralysis, moderating economic growth—SCB’s asset quality was stable with
GNPLs in consumer banking being contained at 1.6% and in wholesale banking
business coming off to 4.06% from 4.25% in CY10. However, credit cost was
higher as it took a general provisioning of ~USD50mn and USD50mn towards
specific corporate, which is lying unutilised.
• SCB’s loan book came off 4% largely led by lost traction on mortgages (which
came off 18%) as management deliberately decided to go slow amidst stiff
competition on pricing. However, CRE book grew ~67% YoY due to larger focus of
management on high yielding large‐ticket loans. Exposure to SME and
manufacturing was almost flat. Management is confident of maintaining asset
quality in CRE book of 9%, infra (including power) of 13% and 20% in telecom.
• Management believes draft guidelines on priority sector lending (PSL), requiring
foreign banks to maintain 40% PSL should come hand‐in‐hand with adequate
allowance for branch expansion. Else, it will be a drag on earnings as PSL norms
will have to be met by further investments in RIDF bonds having a negative carry.
Hong Kong, Singapore lead the way; India, Korea key disappoint
In CY11, SCB’s profits (before tax) rose 11% to USD6.77bn primarily driven by profits in Hong
Kong (up 41% YoY) and Singapore (up 40% YoY) which compensated for subdued profits in
Korea (down 56% YoY) and India (down 33% YoY). Besides India, other big market which saw
a huge downside was Korea on account of labour issues resulting in a 10 week strike which
impacted income by ~USD50mn. Also, the bank launched an ERP programme which had a
huge one time impact of USD206mn on Korea’s profit, but will deliver annualized savings of
USD95mn, leading to good growth in the future. On the upside, Singapore and Hong Kong
were star performers growing 40% YoY reaping benefits of sustained investment for growth,
primarily organic, but complemented by select capability acquisitions. Also US, UK and
Europe witnessed high growth of 58%, but that was on account of low base of USD233mn
Global advances growth led by wholesale banking
Advances grew 9% to USD268.8bn in CY11 ‐ diversified exposure across geographies with
Hong Kong constituting 19%, Singapore at 18%, Korea (14%), India (4%) and no direct
exposure to Greece, Ireland, Italy, Portugal or Spain. Strategic repositioning of the consumer
banking (CB) business helped it sustain portfolio growth at 4% (to USD5.1bn). Mortgage
growth has slowed in most markets due to intensified competition and regulatory
restrictions, the proportion of which in CB portfolio has come off to 57% from 60%. On the
other hand, wholesale banking has continued to grow portfolio at consistent rate by 13%
YoY to USD17.3bn while two‐thirds of growth is due to trade finance, corporate finance and
commercial lending as wholesale banking deepens relationship with clients.
Company Description
The company operates through a number of subsidiaries including SCB.SCB particularly
focuses on the markets of Asia, Africa and the Middle East. The group has significant
operations in Asia region which accounted for over 80% of its USD 6.8bn total profit before
taxation in CY11. As at December 31, ’11 the company had consolidated asset of USD 600bn,
consolidated customer advances of USD269bn, consolidated consumer deposits of
USD352bn and total shareholder’s equity of USD41bn. Its capital ratio as at December
31, ’11 was 17.6% with Tier 1 capital ratio at 13.7%.
The company is headquartered in the UK where it is regulated by FSA the group head office
provides guidance on governance and regulatory standards across groups network.
Standard chartered operates two business divisions, consumer banking and wholesale
banking. For CY11, consumer banking and wholesale banking contributed 25% and 75%
respectively, to the banks’ operating profit before taxation and impairment.
Standard Chartered Bank was formed in 1969 through the merger of two separate banks,
the Standard Bank of British South Africa and the Chartered Bank of India, Australia and
China. These banks had capitalised on the expansion of trade between Europe, Asia and
Africa. The chartered bank opened in Mumbai (Bombay), Kolkata and Shanghai in 1858,
followed by Hong Kong and Singapore in 1859 and was given a license to issue Hong Kong
bank notes in 1862.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
We met the top management team (Asia region) of Standard Chartered
Bank (SCB) for a better understanding of its performance in CY11 and
growth outlook and strategies going forward (particularly India). The bank
delivered PAT growth of 12% (USD4.7bn) despite moderating growth in
Asia, political/economic stress in Euro zone/Middle East and regulatory
changes. While two of its largest markets viz., India (down 33%) and Korea
(down 56%) faltered, the overall performance was offset by surge in Hong
Kong (up 41%) and Singapore (up 40%) earnings. Global NIMs improved
10bps to 2.3% on account of strong liquidity surplus and higher liability
margins; global advances grew ~9% led by wholesale banking.
India: Slipped to third position as earnings dipped 33%
Major disappointment came from India which was the largest contributing geography
in CY10 and slipped to third in CY11 as earnings dipped 33% to USD807mn
(contribution to overall earnings coming off from 20% in CY10 to 12% in CY11). Sharp
decline in profits was led by: (1) 20% decline in non‐interest income; (2) NIMs coming
off 30bps to 3.1%; (3) credit cost being higher at 160bps compared to 70bps in CY10;
and (4) loan book coming off 4% (primarily due to INR depreciation impact).
• Monetary tightening (not entirely passed on due to customer profile) and
increased competition led to pressure on lending margins.
• Despite overall macro issues prevailing in India—higher interest rates, policy
paralysis, moderating economic growth—SCB’s asset quality was stable with
GNPLs in consumer banking being contained at 1.6% and in wholesale banking
business coming off to 4.06% from 4.25% in CY10. However, credit cost was
higher as it took a general provisioning of ~USD50mn and USD50mn towards
specific corporate, which is lying unutilised.
• SCB’s loan book came off 4% largely led by lost traction on mortgages (which
came off 18%) as management deliberately decided to go slow amidst stiff
competition on pricing. However, CRE book grew ~67% YoY due to larger focus of
management on high yielding large‐ticket loans. Exposure to SME and
manufacturing was almost flat. Management is confident of maintaining asset
quality in CRE book of 9%, infra (including power) of 13% and 20% in telecom.
• Management believes draft guidelines on priority sector lending (PSL), requiring
foreign banks to maintain 40% PSL should come hand‐in‐hand with adequate
allowance for branch expansion. Else, it will be a drag on earnings as PSL norms
will have to be met by further investments in RIDF bonds having a negative carry.
Hong Kong, Singapore lead the way; India, Korea key disappoint
In CY11, SCB’s profits (before tax) rose 11% to USD6.77bn primarily driven by profits in Hong
Kong (up 41% YoY) and Singapore (up 40% YoY) which compensated for subdued profits in
Korea (down 56% YoY) and India (down 33% YoY). Besides India, other big market which saw
a huge downside was Korea on account of labour issues resulting in a 10 week strike which
impacted income by ~USD50mn. Also, the bank launched an ERP programme which had a
huge one time impact of USD206mn on Korea’s profit, but will deliver annualized savings of
USD95mn, leading to good growth in the future. On the upside, Singapore and Hong Kong
were star performers growing 40% YoY reaping benefits of sustained investment for growth,
primarily organic, but complemented by select capability acquisitions. Also US, UK and
Europe witnessed high growth of 58%, but that was on account of low base of USD233mn
Global advances growth led by wholesale banking
Advances grew 9% to USD268.8bn in CY11 ‐ diversified exposure across geographies with
Hong Kong constituting 19%, Singapore at 18%, Korea (14%), India (4%) and no direct
exposure to Greece, Ireland, Italy, Portugal or Spain. Strategic repositioning of the consumer
banking (CB) business helped it sustain portfolio growth at 4% (to USD5.1bn). Mortgage
growth has slowed in most markets due to intensified competition and regulatory
restrictions, the proportion of which in CB portfolio has come off to 57% from 60%. On the
other hand, wholesale banking has continued to grow portfolio at consistent rate by 13%
YoY to USD17.3bn while two‐thirds of growth is due to trade finance, corporate finance and
commercial lending as wholesale banking deepens relationship with clients.
Company Description
The company operates through a number of subsidiaries including SCB.SCB particularly
focuses on the markets of Asia, Africa and the Middle East. The group has significant
operations in Asia region which accounted for over 80% of its USD 6.8bn total profit before
taxation in CY11. As at December 31, ’11 the company had consolidated asset of USD 600bn,
consolidated customer advances of USD269bn, consolidated consumer deposits of
USD352bn and total shareholder’s equity of USD41bn. Its capital ratio as at December
31, ’11 was 17.6% with Tier 1 capital ratio at 13.7%.
The company is headquartered in the UK where it is regulated by FSA the group head office
provides guidance on governance and regulatory standards across groups network.
Standard chartered operates two business divisions, consumer banking and wholesale
banking. For CY11, consumer banking and wholesale banking contributed 25% and 75%
respectively, to the banks’ operating profit before taxation and impairment.
Standard Chartered Bank was formed in 1969 through the merger of two separate banks,
the Standard Bank of British South Africa and the Chartered Bank of India, Australia and
China. These banks had capitalised on the expansion of trade between Europe, Asia and
Africa. The chartered bank opened in Mumbai (Bombay), Kolkata and Shanghai in 1858,
followed by Hong Kong and Singapore in 1859 and was given a license to issue Hong Kong
bank notes in 1862.
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