Standard Chartered (STAN.L) on Thursday announced that its pre-tax profit falls in Q3 by 33% amid real-estate and banking losses in China. The profit numbers in the third quarter are far below the analysts expectations, after it took nearly a billion dollar hit from exposure to China’s troubled real-estate and banking sectors.
StanChart usually earns majority of its revenue from Asian markets, but was only able to make a pre-tax profit of $633 million in Q3. Lower by nearly a third from a year earlier profit of $996 million and far lower than the estimated profit of $1.41 billion forecasted by 16 analysts.
The bank’s Hong Kong listed shares were down by 5.5% to HK$63.70, the largest single-day drop since March. Moreover, the credit impairment charges on the bank increased by $62 million to $294 million after it took charge of the Chinese commercial real-estate valued at $186 million.
Additionally Standard Chartered reported that its profit from its stake in China Bohai Bank falls by $700 million in Q3, reflecting the depressed state of earnings at the lender amid economic woes in China.
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How is the situation unfolding?
Standard Chartered has traditionally based much of its expansion in China, and heavy losses in their primary market highlights challenges the bank is facing to improve its returns. Its exposure in China’s real estate sector has gone down by $200 million to $2.7 billion from the previous quarter, still it remains high for an economy that is witnessing a slump in growth and widening of losses.
Despite a series of easing measures undertaken by the government, little has been done to ease China’s economic woes as the crisis in its property sector is worsening on the back of debt repayment defaults and weak government intervention.
The domestic banks in China are reporting thinner margins while foreign banks having low exposure are also reporting bigger losses as market sentiments worsens. The condition gets even more worse when the government has demanded banks to lower the mortgage rates.
Standard Chartered in its statement mentioned that the hit on its investment in China Bohai Bank was due to lower expected interest rate and reduced lending rates reported in the half-yearly results. The China Bohai Bank reported a massive drop of 17% in its net profit for the half-year, leading to an almost 7% decline in its overall profits.
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“Solid Show” in other businesses
Despite facing huge losses in the real estate and banking sectors, Standard Chartered is confident in achieving its return-on-tangible-equity targets of 10% in by the end of this year and 11% in 2024.
Analysts are of the view that, “investors were expecting a clean set of third quarter numbers, and we do not have those sort of numbers today.” However, he mentioned that the solid performance in other businesses is a silver lining for the investors.
The bank also said that the Net Interest Margin will be increasing by 1.7% and the income from cash management services has increased massively by 42% in the third quarter. Additionally, the income from the retail segment had gone up by 17%, supported by an increase of 50% in deposits.
