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StanChart warns coronavirus, economic slowdown to hit growth

By Sumeet Chatterjee and Lawrence White
FILE PHOTO: A logo of Standard Chartered is displayed at the financial Central district in Hong Kong

By Sumeet Chatterjee and Lawrence White

HONG KONG/LONDON (Reuters) - Standard Chartered on Thursday warned a major earnings target would take longer to meet and asset quality would worsen in the near-term as the coronavirus epidemic adds to the bank's woes in its main markets of China and Hong Kong.

StanChart's warning about the coronavirus impact comes after rival HSBC Holdings said last week it could face loan losses of up to $600 million if the virus outbreak persists into the second half of the year.

Without providing specific guidance on the potential impact, StanChart said the epidemic could lead to a rise in bad loans.

"Had we not had lower interest rates, substantially slower growth and the impact of the coronavirus... we would not have had to push our targets back," Chief Executive Bill Winters said.

The bank has already failed to hit its previous goals, even after getting out of low-returning businesses such as ship leasing and private equity and despite boosting income in markets such as India and Korea as part of a wide-ranging strategy overhaul.

Governments ramped up measures on Thursday to battle the spread of coronavirus as the number of infections outside China, the source of the outbreak, surpassed those appearing inside the country for the first time.

Noting that lower interest rates were also putting pressure on net interest income, StanChart said it would take longer to achieve its goal of a 10% return on tangible equity (RoTE) previously targeted for 2021.

The bank, which makes the bulk of its revenue in Asia, said its pretax profit rose 46% to $3.7 billion in 2019. Although that was below an average forecast of $3.9 billion, it marked the strongest profit growth since 2017.

The group's profit benefited from a lower base in 2018 when it had to take a $900 million provision for regulatory matters.

StanChart also said it had approved a share buyback of up to $500 million and could do more on completion of the sale of a stake in Indonesian lender Permata.

The bank's shares fell 5% in London, in line with a wider selloff in bank stocks in response to fears about the coronavirus outbreak.


MAJOR CHALLENGE

Winters has won plaudits from bank investors for his first three years at the helm when he patched up the bank's battered balance sheet and tackled an internal risk culture that had grown reckless.

Winters' pay fell 6% last year to 5.93 million pounds, after he and Chief Financial Officer Andy Halford agreed to a cut in their pension allowance following pressure from investors who criticised them for having greater pension benefits than the wider workforce.

On Thursday, the former JPMorgan investment banking boss said he planned to stay at StanChart amid ongoing and expected changes at the top management in some European banks including HSBC, Barclays, and Credit Suisse.

"My task now is to get us through a bumpy period in global markets, I have no plans to do anything else," he said.

As an Asia, Africa and Middle-East focused bank that aims to capitalise on trade between those regions, StanChart is more exposed than most lenders to Sino-US trade tensions that have hit businesses in recent months.

Analysts and bankers have warned that banks which derive a large part of their earnings from Hong Kong face at least two quarters of worsening asset quality and slowing loan growth as the virus outbreak hits trade and consumer banking.

Hong Kong's economy has been hit hard, first by anti-government protests and now by the virus as tourist arrivals slump and residents steer clear of shops. Many employees, including those at StanChart, are working from home.

The bank said its provisions for expected losses from bad loans in Hong Kong, its largest market, rose by $46 million in the second half of last year. Hong Kong CEO Mary Huen said the first quarter would be "very challenging".


(Reporting by Sumeet Chatterjee in Hong Kong and Lawrence White in London; Editing by Edwina Gibbs and Jane Merriman)