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Standard Chartered faces $1.6 billion loss due to China exposure

Pan-Asian bank Standard Chartered has revealed significant financial damage due to exposure to Chinese banks and the slumping property sector. On Thursday, the London-based Asian operating bank witnessed a 17% collapse in its shares on the London Stock Exchange, prompting a trading limit to be imposed. This drop followed the announcement of a nearly $US1 billion (almost $A1.6 billion) loss stemming from its exposure to China’s real estate and banking sectors in the September quarter.

By the end of the trading day on Thursday, Standard Chartered’s market value had plummeted to $US17.3 billion (approximately $A27 billion), making it a fraction of the size of Australia’s big four banks. The bank reported a 54% year-over-year decrease in pretax profit for the September quarter, falling from $US1.39 billion in the previous year to $US633 million, primarily due to significantly higher impairment charges.

Credit impairment charges surged to $US292 million in the third quarter, up from $US227 million in the same period in 2022, including a $US186 million charge related to the China commercial real estate sector. This brings the bank’s total provision for losses in that sector to $US1.1 billion over the past two years.

While Standard Chartered’s exposure to Chinese real estate decreased to $US2.7 billion by the end of the quarter (down $US200 million from the previous quarter), other impairment charges increased dramatically. These charges rose 25-fold to $US734 million during the quarter, compared to just $US31 million in the September quarter of the previous year. This increase was driven by the bank’s decision to devalue its 16% stake in China Bohai Bank by $US697 million due to weak earnings at the Chinese lender and the poor economic outlook in the region. China Bohai Bank reported a 17.8% decline in net interest income for January-June, resulting in an almost 7% decrease in overall profit.

Despite these challenges, Standard Bank Chief Financial Officer Andy Halford emphasised that the bank’s overall performance remains strong. He acknowledged the issues in China’s commercial real estate sector but expressed optimism about the country’s GDP rebounding by around 5% within the next two to three years.

Halford stated, “What we’re seeing is probably a slower recovery post-Covid than in some countries. But it’s a huge population to mobilise after such a big event,” adding, “Most countries would be more than happy to have that kind of growth level. So we are very, very much of the view that this is a period that we need to go through. We’ll stick with it [and] as the economy gets going, then that should be good with us and should be good for others.”

Reuters reported that the share price slump could reignite takeover interest in StanChart, following First Abu Dhabi Bank’s consideration of a bid in January of this year, which was ultimately abandoned.

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