Standard Chartered reports a dip in net profits as it writes down its South Korean business by $1 billion, but income from the UAE soars as the local economy strengthened.
Standard Chartered profits fall after Korean bank writedown
The London-based bank, which generates most of its income from emerging markets, reported net profits of $2.1bn during the first half of the year, down 24 per cent compared with the same period last year. It attributed the decline to large one-off writedowns and weakness in own account income, while charges on bad debts also rose by a quarter.
"While we are clearly not tracking to a double-digit income performance for 2013 - and will not compromise our standards to achieve this - we are still expecting to grow our business at a good rate this year and remain confident in the potential of our strategy and in the growth of our markets," said Peter Sands, the bank's chief executive.
Standard Chartered's UAE business, the second-biggest international bank by assets in the Emirates, reported pre-tax profits during the first half of $324 million, a 55.7 per cent jump on a year ago.
HSBC, the bank's emerging market rival, disappointed investors this week as it warned of a slowdown in the business cycle in the Asia-Pacific and Latin America markets as revenues slumped and it reported little growth in lending across the Middle East.
Across the group, StanChart's operating income increased 4 per cent to $9.7bn during the first half, beating analysts' estimates. The bank's shares jumped as much as 3.3 per cent in London after the release of earnings.
"Of the banks I look at, they've had by far the strongest second quarter," said Ian Gordon, an Investec analyst, who rates the stock a "buy".
"I'd expect some correction to the underperformance we've seen of the share price," he added.
Standard Chartered's Dubai-based wholesale lending division reported margin compression across its transaction banking and lending products.
Banks including NBAD and Abu Dhabi Islamic Bank have pointed to falling corporate lending margins as a source of diminishing returns, as Dubai's state-backed companies such as Emaar Properties, Dubai Duty Free, Nakheel and Jebel Ali Free Zone seek to reduce their borrowing costs.
But charges booked for bad debts fell by 86.8 per cent to $17m across the bank's UAE business, as corporate restructurings eased and rising property values in the Emirates helped its mortgage portfolio. Net lending rose 2 per cent to $14.6bn in the UAE during the first half.
At a group level, StanChart wrote off $1bn in goodwill from its purchase of Korea First Bank, which generates just over a quarter of the return on equity it did when acquired in 2005.