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Business News/ Companies / Standard Chartered India loss pulls down global performance

Mumbai: UK-based Standard Chartered Plc’s Indian business swung to a loss in the first half this year under the weight of higher provisions to cover mounting non-performing assets (NPAs), providing evidence that foreign lenders are not immune to the bad-loan malaise that has beset local banks.

The bank reported a loss of $276 million for the six months ended June, compared with a profit of $395 million in the year-ago period, after setting aside $483 million for possible losses on loans.

Provisions rose more than eight times from $56 million in year-earlier period and four times from $115 million Standard Chartered’s Indian unit set aside in the six months ended December. A spokesman for the bank said it would not comment on its India results.

Slower economic growth and projects stalled by delays in securing statutory approvals and completing land acquisition have crimped corporate cash flows and made it difficult for borrowers to repay debt in recent years, causing bad loans to pile up in the banking system.

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

“The impact of macroeconomic reforms has been slower than the group’s earlier expectation. This is evidenced in corporate earnings data for the first quarter of 2015, which was the worst in the last 10 quarters, and credit growth that has been the lowest in the past two decades," the statement added.

Figures released by the bank showed that gross non-performing assets (NPAs) in South Asia, of which India is a part, increased to $1.34 billion from $1.15 billion in the six months ended December.

Standard Chartered’s gross global NPAs increased by $1.25 billion, or 17%, since December 2014 to $8.74 billion.

“These increases were primarily driven by a small number of large exposures in Europe and Asean (Association of South-East Asian Nations). The increase in Europe non-performing loans primarily relates to loans to Indian clients and commodities related loans booked in the region," the bank said.

The rising NPAs from India had a direct impact on the bank’s global results. First-half operating income fell 8% to $8.5 billion, missing the $8.8 billion average estimate of eight analysts surveyed by Bloomberg.

Total impairments jumped 70% to $1.7 billion driven by “adverse trends" in India, where losses on loans to corporate, institutional and commercial clients rose $369 million, Bloomberg reported.

Group chief executive officer (CEO) Bill Winters said the higher provisions and increased in NPAs “is a continuation of adverse trends and there are no signs of these reversing".

“The sources of impairment (provisions) have been the same that the group identified previously: commodities, China and India," said Winters, who took over as group CEO at the bank in June after former CEO Peter Sands failed to convince disgruntled investors he was the right person to reverse two years of falling profit amid slower economic growth in Asia.

In the statement, the bank said that total provisions for bad loans had increased 15% to $1.73 billion compared with December 2014, “reflecting recent deterioration in India and continued commodity market weakness as well as an isolated incident in our private banking clients business".

“As a result of these factors, adjusted profit before tax for the year was $1.82 billion down 44%," the bank said.

In India, where the bank has 100 branches, the largest network for any foreign bank, profit before tax was also hit by a year-on-year drop in interest income. The bank made a loss on its trading book.

Net interest income, or the difference between the interest a bank pays on its deposits and that it earns on loans, dropped 8% to $476 million in June 2015 from $520 million in June 2014.

Standard Chartered made a $120 million loss on trading in January-June 2015, compared with an $86 million profit it reported in the same period last year.

Fees and commissions the bank earned in the first six month of this year increased slightly to $111 million in 2015 from $108 million in 2014.

An analyst who used to cover the bank in India because it is listed in Mumbai as well said the bank is suffering the fate of its local peers in the country.

“When local public and private sector banks have seen their NPAs rise, how can foreign banks stay behind?" this analyst said on condition of anonymity because he is no longer covering the bank for his brokerage firm.

Standard Chartered shares were up 1.98% to £971.50 per share on Wednesday on the London Stock Exchange at 7.16pm India time, while the benchmark FTSE100 gained 0.78% to 6738.97 points.

The bank’s locally listed Indian depository receipts gained 0.75% to close at 94.30 per IDR on Wednesday on BSE, while the benchmark Sensex gained 0.54% to close at 28,223.08 points.

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Updated: 06 Aug 2015, 12:44 AM IST
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