Bad assets from India operations hurt StanC profits globally

British lender Standard Chartered has reported a pre-tax loss of USD 276 million for the January-June period as against a profit of USD 395 million a year ago due to a spike in bad assets, which has also dented its profits globally.

From being one of the top performing geographies for Standard Chartered globally, India has now slipped to the bottom on the basis of profitability among the seven regions it operates in.

"The impact of macro-economic reforms has been slower than the Group's earlier expectation," it said in a statement, adding that this is evident in corporate earnings for March which came in at 10-quarter worst and slowest credit growth in two decades.

Domestic lenders have been grappling with a high incidence of asset quality stress for the last three years and the same being reported by a foreign bank may surprise some quarters.

At the group level, the bank's pre-tax profit fell to USD 2.10 billion from the USD 3.25 billion in the year-ago period, due to a surge in loan impairment losses at USD 1.65 billion as against the USD 864 million in the year-ago period.

The bank identified the reverses in India, where its impairment losses surged to USD 483 million from the USD 56 million in year-ago period, as one of the prime reasons along with pressure on the commodities front due to a decline in prices, as the major reasons for the setback at group level.

"Continued adverse loan impairment trends in India and commodities more than offset improvement in Retail Clients' loan impairment," its newly appointed group chief executive Bill Winters said.

He added that the increase in non-performing loans is a continuation of adverse trends, and there are "no signs of these reversing."

Its group chief financial officer Andy Halford said the bank saw a number of changes in regulation early in the year and also in the attitude of local banks to refinancing that has "reduced the likelihood for success of certain of our corporate debt recoveries."

"India has faced a slowdown in economic growth since 2012, relative to the higher rates of previous years, combined with high indebtedness in some corporate sectors and lower appetite for refinancing, reducing the success of corporate debt restructurings and distribution efforts," the statement said.

Indian corporates are being hurt due to depressed demand, regulatory changes, lack of deleveraging and increase in refinancing risk, it added.

Just like the domestic lenders, it identified the infrastructure sector as one of the problem areas and added that much of it was identified by the bank earlier.

"Approximately 80 per cent of the loan impairment in India relates to the existing NPLs (non performing loans). A significant part of this impairment is due to the restructuring of a small number of the most vulnerable accounts in the telecom, infrastructure related and commodity sectors," it said.

The under-performance was attributed by the bank to "macroeconomic or structural issues resulting in delays in refinancing through the sale of assets or through access to capital markets."

The bank said it has become selective in lending because of the setback.
The problems with Indian clients also impacted the bank's earnings in Europe, where the increase in non-performing loans was primarily due to loans to Indian clients.

For the January-June period, its net interest income from the India operations dipped to USD 476 million from the USD 520 million a year ago, while the income from fees and commission also came down to USD 111 million from USD 120 million.

On the trading front, the bank suffered a loss of USD 120 million as against a profit of USD 86 million in the year ago period.

The bank's IDR was trading 1.75 per cent down at Rs 92.65 a piece on the BSE at 1503 hrs, as against the 0.22 per cent gains in the Sensex.