Standard Chartered Bank on Wednesday said its pre-tax profit from India operations in the first six months (January-June) of this calendar year narrowed 39 per cent to $378 million from $624 million a year ago. Higher provisions in the wake of deteriorating asset quality and compressed margins affected the bank’s earnings during this period.
India was the bank’s most profitable market globally at a pre-tax level, and following the decline, it is placed third after Hong Kong and Singapore. This is also the first time the foreign lender reported a drop in earnings under Neeraj Swaroop since he joined the bank as chief executive for India and South Asia in August 2005.
Income from the India business in the first half fell 12 per cent from a year earlier to $893 million. The net interest margin shrank 70 basis points to 3.1 per cent due to an increase in competition and rising interest rates.
“India has had a challenging six months. We remain cautious in the immediate term. However, momentum remains good and we are confident about longer term prospects. We will continue to maintain a very strong competitive position,” Swaroop told reporters in his post-earnings comments.
He expects the bank’s margin to remain in the range of 3.0-3.2 per cent in the coming quarters.
Unlike its rival Hongkong and Shanghai Banking Corporation (HSBC), Standard Chartered Bank failed to grow its revenue from wholesale and consumer banking businesses in the half year ending June 30. HSBC’s operating profit from India in January-June rose 33 per cent on an annual basis, driven by growth in commercial banking and global banking and markets businesses.
For Standard Chartered Bank, income from consumer banking operations fell five per cent from a year ago to $238 million, while operating profit from that business plunged 17 per cent annually to $44 million.
In wholesale banking, income narrowed 14 per cent from a year ago to $655 million, while pre-tax profit declined 42 per cent to $334 million.
“Project and deal flow has slowed as business sentiment is impacted on the back of governance concerns in the market,” Swaroop.
Loan impairment charges surged 67 per cent year on year to $72 million in January-June, including a $50-million charge in the bank’s corporate bond portfolio.
“We are seeing some early stress (on health of assets) in this environment but it has not led to our loans becoming non-performing yet. We have made higher provisions as part of prudent accounting practices because of the general environment and in anticipation that potential non-performing asset formations may happen,” Swaroop said.
He added that the quality of the bank’s unsecured loans comprising of credit cards and personal loans had improved in the first six months of 2011.
The bank’s advances grew 22 per cent, while deposits expanded 12 per cent year on year. The bank expects 18-20 per cent credit growth in this calendar year.
