Standard Chartered beats profit forecast after impairment release

Standard Chartered saw its profit grow by nearly half as it became the latest bank to dip into the funds it set aside to deal with bad loans last year.

The company said that it had released money from the rainy day fund, reducing its so-called credit impairments by 47 million dollars (£34 million).

Banks set aside billions of pounds last year in the early days of the pandemic because they were worried that businesses might collapse and struggle to pay back their loans.

But now many have decided that they did not need to set aside quite as much money, and have started dipping back into those pots.

Standard Chartered’s move follows Lloyds, Barclays and NatWest, who released hundreds of millions of pounds last week.

Underlying pre-tax profit rose 37% to 2.7 billion dollars (£1.9 billion), well ahead of the 2.5 billion
dollars (£1.8 billion) that analysts had forecast.

Much of that difference was down to the released impairments.

“I am encouraged by our positive performance in the first half of 2021 despite an uneven recovery from Covid-19,” said chief executive Bill Winters.

“We grew profit before tax 37% year on year, helped by improved loan impairments, strong underlying business momentum and good progress across our strategic priorities.

“We are more confident in achieving our return on tangible equity targets and we are pleased to announce today an additional share buy-back programme together with the resumption of our interim dividend payment.”

The buyback will purchase 250 million dollars’ worth of shares from the market. It will also restart dividends by paying out three cents per share, or 94 million dollars (£67 million) in total.

“Standard Chartered’s results confirm the trends shown over the past week by Barclays, Lloyds, NatWest and HSBC, despite the difference in geographic and business mixes between the big five FTSE lenders,” says AJ Bell investment director Russ Mould.

But he cautioned that the banks still have far to go to win over shareholders.

“Investors are clearly unconvinced that the banks are out of the woods, as the shares of all five trade well below their official, stated net asset – or book – value per share,” he said.

“Either the markets are unsure whether the banks can genuinely make sustainable double-digit returns on equity (owing to regulatory pressure, competition from fintech rivals or the unpromising backdrop presented by a heavily indebted world), or they think the net asset value figures are too optimistic, or the banks are simply screamingly cheap.”