By Kelvin Soh
HONG KONG, Oct 30 (Reuters) - Rising bad loans in some of
Asia-focused Standard Chartered's main markets such as
India could take some of the shine off an otherwise strong
quarterly trading update on Tuesday - which is likely to say the
bank is on track for a 10th straight year of record profits.
The increase in bad loans - as well as a run-in with the New
York regulator over allegations it hid transactions with Iran, a
slowdown in China, and a $1 billion loan to an Indonesian
businessman that has raised questions about lending practices -
have dented investor confidence in the bank.
Its Hong Kong-listed shares, valued at around $58 billion,
are up 10 percent this year, half the benchmark Hang Seng
Index's near-20 percent gain, and analysts polled by
Thomson Reuters I/B/E/S have downgraded forecasts for pretax
profit to $7.2 billion from $7.4 billion in June - still a rise
of almost 10 percent.
The non-performing loan ratio in India has more than doubled
to 10 percent, a potential cause for concern when coupled with
declining provisions for bad loans, said Barclays analyst
"Our India banks team remains cautious on corporate credit
quality and we do not expect significant improvement in 2013,"
Wong said. "The industrial sector, which accounts for around 45
percent of bank credit at the system level, is particularly
Standard Chartered, though, is likely to set aside more of
its profits to cover rising bad debts, with impairment charges -
where companies write off goodwill - having risen about 40
percent in the first half. This comes as bad debt levels begin
to rise from near record lows across Asia.
In South Korea, bad household debt has increased to a near
6-year high, while Australian lenders such as Australia and New
Zealand Banking Corp are setting aside more in reserves
to prepare for a rise in sour loans.
"As an emerging markets bank, asset quality at StanChart
deserves careful attention, particularly if Asian economies are
headed for a longer-term slowdown," Nomura analyst Chintan Joshi
wrote in a research note.
Run by CEO Peter Sands, Standard Chartered grew at a rapid
pace for much of the last decade, riding on Asia's rise and
reporting a ninth straight year of record earnings in 2011 on
the back of buoyant growth in markets such as Hong Kong and
The bank is performing better relative to most peers of its
size, many of which are cutting jobs and rolling back on plans
to expand in Asia and other emerging markets as they look to
Shares in UBS soared on Monday on media reports
the Swiss bank would announce up to 10,000 job cuts along with
its third-quarter earnings on Tuesday, as it takes the knife to
its investment banking operations. And Deutsche
Bank, Germany's flagship lender which also reports on
Tuesday, expects to axe more than the 1,900 positions already
announced, also mainly in investment banking.
By contrast, Standard Chartered said in August it plans to
add 1,500 jobs in the second half of this year.
Standard Chartered expects to double profit in its core
wholesale banking business - which houses investment banking and
includes trade financing, corporate lending, foreign exchange
and M&A advisory - to more than $10 billion in the next 4-5
years as Asian markets grow faster than the West. The unit made
a $5.2 billion profit last year.
"Given StanChart's management commentary that trading was
good in both July and August, we believe the market may be
under-estimating the group's underlying momentum," Cormac Leech,
an analyst at Liberum Capital, wrote in a client note.