StanChart Joins Bad Loan Surge With $956 Million Provision

(Bloomberg) -- Standard Chartered Plc put aside $956 million against potential losses as souring loans spike during the coronavirus pandemic, even as a trading boom lifted first-quarter revenue.

The emerging markets-focused lender reported the biggest provisions since 2015 as clients across Asia, Africa and the Middle East got into difficulty because of lockdowns and travel restrictions. That reflects similar warnings from other global banks, which have allocated billions of dollars to deal with the crisis.

“While pressure on credit quality has increased recently, we delivered good underlying income growth of 6% in the first quarter and maintained strong cost discipline,” Bill Winters, the bank’s chief executive officer, said in a statement on Wednesday.

Besides the virus impact, Standard Chartered has found itself plagued by a string of corporate scandals, Bloomberg reported earlier this month. They include NMC Health Plc, a hospital operator that’s uncovered evidence of fraud, and Hin Leong Trading (Pte.), the Singaporean oil trader under investigation, according to public filings.

The bank said two unidentified clients in unrelated sectors accounted for almost half of its $490 million increase in so-called stage three impairments.

“The markets that were most impacted earlier are those ones in North Asia and we are now seeing that move across into Southeast Asia and particularly now into Europe,” said Chief Financial Officer Andy Halford on Bloomberg Television. “The hope we have is that the North Asia markets will equally be the first one to recover from this, which given that they are our most profitable market.”

The worsening economic backdrop led Standard Chartered to add $6.2 billion to its pool of high-risk assets as it triggered a series of “early alerts” on businesses in sectors most likely to suffer during the crisis. The bank said that two-thirds of the increase in alerts came from concerns about the aviation industry.

Speaking to reporters, Halford said there were “too many moving parts” to give an estimate on the size of the bank’s full-year impairment. “Interest rates are going to be the big theme for our top line,” he said, adding that state support for troubled sectors, as well as oil prices, would be key to determining future impairments.

First-quarter underlying earnings slid 12% to $1.22 billion, beating consensus estimates. A day earlier, HSBC Holdings Plc posted a 51% slump in earnings as Standard Chartered’s larger rival warned its bad loan provisions could reach $11 billion this year.

Operating income rose 13%, boosted by a jump in trading income amid turbulent markets.

Like other U.K. banks, Standard Chartered has canceled share buybacks and dividends after demands from regulators. It has also agreed to lower the price it gets for selling a stake in an Indonesian bank, further weighing on its prospects for handing cash back to investors.

Shares in Standard Chartered rose as much as 7% in London, mirroring their earlier jump on the Hong Kong market. Analysts at Jefferies International Limited said the bank had delivered a resilient performance and that investors would be cheered by the better-than-expected earnings.

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