Standard Chartered booms but Middle East political turmoil has an effect

Standard Chartered's earnings impress, but the Middle East and South Asia region fails to keep up with rapid growth in emerging markets as high provisions encumber the British bank's profits.

Standard Chartered reported a near 20 per cent rise in profits worldwide but growth in the Middle East and South Asia was held back by a rise in provisions for bad debts and the effects of the Arab Spring.

The London-based banking group, which operates predominantly in emerging markets, beat analysts' estimates with net profits of US$2.5 billion (Dh9.18bn) for the first half of the year, the bank's fifth consecutive six-month period of earnings growth.

Profits for the Middle East and South Asia rose 7.25 per cent to $429 million, slower than other emerging markets such as India, Hong Kong and the Asia-Pacific region.

V Shankar, the bank's chief executive of its non-Asia business, said he was pleased that the bank's Middle Eastern business had been able to absorb the effect of the region's political turmoil while capitalising on higher growth elsewhere.

"There are parts of the Middle East which are doing very well economically … and others which, due to the Arab Spring, are soft," he said. "That's the benefit of having a diversified business. Not all cylinders fire at the same time."

The bank's growth in the region, which also includes Pakistan, Bangladesh and Sri Lanka, was restricted by a 24.1 per cent increase in provisions for bad debts to $144m. Mr Shankar said there was "nothing significant" behind the increase in provisions, given a variety of difficulties experienced. The region nevertheless accounted for the largest share of provisions on the bank's books.

Unlike rival lenders HSBC and Barclays, which have announced thousands of job cuts worldwide this week, Standard Chartered was also likely to lift staffing levels globally by about 1,000 by the end of the year, Mr Shankar said. The bank employed 84,061 staff at the end of June.

The bank's management was pleased that its results had continued the bank's streak of higher profits, said the chairman, Sir John Peace. "Our costs are tightly controlled and we have many diverse sources of good income growth," he said. "We have increased our support to our customers, with loans and deposits up, and our capital and liquidity remain strong."

During the first half, Standard Chartered reported difficult trading conditions in some markets affected by the Middle East's political turmoil. Wholesale banking in "Bahrain continued to see a drop in income as a weaker credit environment impacted risk appetite and business flow", the bank said.

"Exposures in Bahrain, Syria, Egypt, Libya and Tunisia represent less than 0.5 per cent of our total assets."

Published: August 4, 2011 04:00 AM


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