StanChart warns on US-China tensions as loan-loss provisions triple


Standard Chartered has warned it faces an increasing risk of being caught in the crossfire of escalating geopolitical tensions between the US and China, as its quarterly loan-loss provisions more than tripled due to the impact of the coronavirus pandemic across Asia.

Executives at the emerging markets-focused lender said they were seeking legal opinions and regulatory guidance on how to deal with the conflict. The US has threatened reprisals in response to Beijing’s imposition of a controversial national security law on the former British colony, which had a longstanding semi-autonomous status.

“Relations between the US and China remain highly charged, driven by both economic and political considerations,” said José Viñals, chairman of StanChart. “We do not expect an easy or quick resolution. We do believe, however, that Hong Kong will continue to play a key role as an international financial hub.”

Benjamin Hung, the lender’s head of Greater China and North Asia, said the risks for banks that straddle east and west, such as StanChart and HSBC, was now more acute: “This is not a new risk, but it has intensified.”

Bill Winters, chief executive, said in media interviews on Thursday that any attempt to undermine Hong Kong as a financial centre would have a “pretty deleterious effect” on the global financial system.

He added that he could not envisage either the US or China pursuing this during a pandemic and that, despite the tensions, Hong Kong had seen “massive inflows” of capital in the second quarter, without specifying where.

Like HSBC, StanChart last month broke with a longstanding policy of neutrality and publicly supported the new national security law. The UK government has condemned the legislation and both banks’ stances have been sharply criticised by British lawmakers.

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The law, which bars banks from complying with foreign sanctions targeting China and Hong Kong, is potentially in conflict with upcoming US restrictions on the city’s officials.

In light of the sanctions and the law, Mary Huen, StanChart’s Hong Kong chief executive, said the bank was seeking legal opinions on how to manage compliance and taking advice from the Hong Kong Monetary Authority.

Like most other international lenders, StanChart suffered another quarter of heavy loan-loss provisions. Coronavirus lockdowns across the lender’s key markets in Asia and Africa caused second-quarter credit impairment charges to surge to $611m, from $176m a year ago.

However, this was down significantly from the $956m recorded in the first three months of the year and Mr Winters said that despite new outbreaks of infection and emerging quarantines, he expected loan-loss provisions to fall in the second half.

The charges meant that second-quarter pre-tax profit fell 40 per cent year on year to $733m, ahead of the $551m forecast by analysts. The bank’s capital level also exceeded expectations.

Ronit Ghose, analyst at Citi, said the results were “considerably ahead of consensus expectations”, but weakness in net interest income was a concern. He said StanChart might be less in the geopolitical line of fire than its much-larger rival HSBC. “It’s less symbolic, it’s slightly flying under the political radar,” he said.

After initially rising in Asian trading, StanChart shares fell almost 4 per cent in London on Thursday, extending their decline this year to about 40 per cent.

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Operating income slipped to $3.7bn in the quarter, down from $3.8bn a year ago, and $4.3bn in the first quarter. The bank said this was due to global economic contraction and reduced interest rates brought about by the pandemic.

The lender warned that operating income could fall further in the second half. The “benefits of the early stage recovery” in markets such as in Asia were unlikely to be enough to combat the impact of ultra-low interest rates, weaker conditions for the bank’s financial markets business and depressed oil prices, Mr Winters said.

StanChart confirmed on Thursday it would push ahead with “a small number” of job cuts, without specifying which parts of the business would be affected. It had previously promised not to make any staff redundant during the pandemic but would continue to pay those affected until the end of the year.



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