Standard Chartered kicks off bank reporting season

The results are for the most part disappointingly light of expectations, says Richard Hunter, and the bank is not yet the finished article. 

Standard Chartered (LSE:STAN) has kicked off the reporting season with generally improved figures, but the results are for the most part disappointingly light of expectations.

The reduction in credit impairments and the amount of the final dividend were the most notable misses as compared to market expectations, partly offset by very slight beats in terms of underlying pre-tax profit and the expected reduction to Net Interest margin.

The company is optimistic on prospects for the coming year, particularly in the fast-growing Asian region where the company has particular focus. It sees the results of decades of investment and presence in the area coming home to roost, with particular emphasis on Affluent and Mass Retail customers, and where the adoption of digital banking – a low-cost expansionary route for the bank – is in the ascendancy. Coupled with additional investment aimed principally at China and an overall focus on costs, such as a planned $1.3 billion of gross cost efficiencies, this should enable a freedom of capital both to boost investment and contribute to the aim of returning $5 billion to shareholders over the next three years.

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In the meantime, however, the key metrics are mixed. Credit impairments for the year showed a marked reduction to $263 million from a previous $2.3 billion, although did not reach the $156 million the market had been expecting due to some further provisions within the Chinese property market. The capital cushion, or CET1 ratio, also declined to 14.1% from the 14.6% reported at the end of September, although within the ban’s targeted range. Elsewhere, Net Interest Income declined by 0.7%, Net Interest Margin reduced from 1.31% to 1.21% and the current cost/income ratio of 76% is significantly above Standard’s target of 60%. Meanwhile, the Return on Capital Employed is also some way off the bank’s aim of 10%, currently standing at 6%.

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More positively, loans increased by 6% over the year and the number of customer accounts by 8%. While the final dividend of 9 cents per share was a way off the 16.8 cents expected, the full-year payment nonetheless showed an increase from 9c to 12c. The dividend yield of 1.6% is not especially punchy and is there is some light between this and the pre-pandemic level of around 4.4%. Even so, the announcement of a share buyback programme totalling $750 million and the increased longer-term aspirations should offer some support to the share price.

There is some momentum coming out of a better second half to the year, but overall Standard is not the finished article. The numbers may prompt some concerns over the pace of growth which has been achieved, notwithstanding the exceptionally difficult environment of the last two years. While the benefits of a rising interest rate environment are yet to wash through, share prices in the sector have nonetheless anticipated a more productive backdrop for the banks. Standard shares have risen by 12% over the last year, largely in line with the gain of 13% for the wider FTSE 100 and, despite some gaps in these numbers, the market consensus of the shares as a buy is likely to remain intact.