Despite the recent setbacks, Standard Chartered had been on an upward trajectory before the China-related issues came to the forefront.
Shares of UK-based banking giant Standard Chartered Plc (LON: STAN) plummeted by as much as 17% during early trading, leading to a temporary halt in trade, and by 11:15 a.m. London time, the stock remained approximately 10% lower. At the time of writing, the stock is pegged at GBX 643.60.
The turmoil in the markets reflected the concerns of investors, who had once pinned their hopes on the bank’s China strategy.
Standard Chartered’s Q3 2023 Profit Woes
This sudden decline was exacerbated when the bank reported a pre-tax profit of $633 million for the third quarter, representing a 54% drop from the same period the previous year. The major contributor to this decline was the bank’s decision to slash the value of its investment in China Bohai Bank by $697 million.
Additionally, Standard Chartered announced a credit impairment charge of $294 million, which included a $186 million charge related to the Chinese commercial real estate sector. These developments raised concerns about the bank’s position, but Standard Bank’s Chief Financial Officer, Andy Halford, provided a different perspective.
Halford acknowledged the challenges in China’s commercial real estate sector but remained optimistic about China’s future, noting that the country’s GDP is forecast to rebound by approximately 5% within the next two to three years. He attributed China’s slower recovery post-Covid to the enormity of mobilizing such a massive population after a significant event, emphasizing that many countries would be envious of this level of growth.
China’s Economic Recovery
China’s economic recovery has indeed been a subject of concern, but there are signs of hope. While the bank’s performance was impacted by the credit impairment provisions, Richard Hunter, Head of Markets at Interactive Investor, noted that, on an underlying basis, the performance is less concerning.
“China remains both a blessing and a curse for Standard, with the country’s faltering economic recovery weighing heavily on these results,” Hunter observed. He pointed out that the impairment provisions have affected earnings significantly but underlined that Standard Chartered is adequately capitalized to withstand these challenges.
Despite the recent setbacks, Standard Chartered had been on an upward trajectory before the China-related issues came to the forefront. The bank’s shares had risen by 29% over the last year, in stark contrast to the struggles faced by many of its UK competitors.
This recent episode serves as a reminder of the complexities of doing business in the Chinese market and the potential risks involved. However, the bank’s resilience and the positive outlook for China’s future growth offer hope that Standard Chartered can weather the storm and regain its footing in the Asian financial landscape.
Standard Chartered’s journey in China is a testament to the opportunities and challenges presented by one of the world’s most dynamic and expansive economies.