Bad Loan Reserves Increased To $1bn By Standard Chartered

Reserves for bad loans were increased by almost $1 billion by Standard Chartered in the first quarter, the bank said on Wednesday. Standard Chartered was the latest major bank to make huge increases in their provisions in the wake of the coronavirus pandemic hitting economies around the world.

A day ago an announcement of increasing its reserves for bad loans and credit impairments at its highest level in nine years was announced by HSBC, while also warning that it would increase its provisions to as much as $11 billion for the full year.

Credit impairments of $956 million in the first quarter, compared with US$78 million a year ago, was reported by Standard Chartered, which is based in London, but generates much of its revenue in Asia.

“We expect a gradual recovery from the Covid-19 pandemic, with major contraction in economic growth rates across most of the world in the second quarter, before the global economy moves out of recession in the latter part of 2020, most likely led and driven by markets in our footprint,” the bank said in a stock exchange filing.

It is “well prepared” for an extended period of “severe dislocation” globally but was also encouraged by food signs in northern Asia, particularly in China, said the bank that is mostly focused on emerging markets.

In the first quarter, underlying pre-tax profit of $1.2 billion was reported by Standard Chartered which was higher than the market expectations of $828 million.

In the first three months, there was however a drop of 37 per cent in net profits at $517 million reported by the bank while it had reported net profit of $818 million in the same period a year ago. The company that year had taken a goodwill impairment of $249 million in India because of a lower gross domestic product growth outlook.

The bank’s solid underlying performance in the quarter was “helped by good revenue growth and cost control”, said Morgan Stanley analyst Nick Lord in a research note.

More than 3.2 million people have so far been infected by coronavirus across the world since the virus first emerged in China at the end of last year. The pandemic has severely hit most of the major economies because of forced lockdowns and closing of economies in efforts to slow down the spread of the pandemic. According to predictions by most of the major institutions of the world including the Swiss bank Credit Suisse and the International Monetary Fund, the global economy is facing a downturn that will potentially be worse since the Great Depression of the 1930s.

Standard Chartered’s biggest market, Hong Kong has been hit by the economic stress, particularly in the first quarter of the current year. Even before the pandemic hit, Hong Kong’s economy had been battered by the 18-month trade war between the United States and China and street protests that went on in the city for several months.

(Adapted from SCMP.com)

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