The half year 2020 report indicates Standard Chartered PLC has registered tremendous progress despite the outbreak of #Covid-19 in all major business areas in the world.
This is alluded to a number of management actions since the start of the year, including enhancing our monitoring of facility drawdowns, improving the Group’s position through reducing exposures where required or strengthening its collateral positions in the Commercial Banking and Corporate and Institutional Banking portfolios.
Total deposits increased driven by growth in stable and current savings account balances which was offset by a decrease in term deposits, as they sought to manage liquidity more efficiently. While asset growth has slowed, the Group continues to focus on improving the quality of its funding mix and remains committed to supporting its clients during these uncertain times. The increase in overall deposits also drove a decrease in the Group’s advances-to-deposits ratio which reduced to 62.7 per cent (2019: 64.2 per cent).
The loans and advances increased by $11.9 billion compared to 31 December 2019, largely driven by an $8 billion increase in lending to Governments, with $1.9 billion increase in Commercial real estate and $1.5 billion increase in Financing, insurance and non-banking. Retail Products fell by $3.4 billion primarily within CCPL and unsecured lending as #Covid-19 related lockdowns suppressed card spending and in Secured wealth products.
Bill Winters, Group Chief Executive Said; “We are feeling the acute impact of the #Covid-19 pandemic across our markets and in our business. This and the related fall in both interest rates and oil prices created extremely challenging operating conditions in the first half of the year. I am pleased we came through that period with a clean bill of operational health and with higher income, lower costs and therefore significantly better pre-provision operating profit compared with last year.”
“We remained profitable despite higher impairments, which together with our strengthened capital position enabled us to build substantial reserves in the face of the heightened uncertainty and tougher conditions. I am encouraged by how well my colleagues are coping in the crisis and that many clients in some of our larger markets are recovering strongly and already operating at close to their pre-pandemic capacity.” He said
Andy Halford, thru Group Chief Financial Officer said there was a significant impact from the economic environment on the Group’s loan portfolio in the first half of 2020, primarily reflecting the impact of #Covid-19.
“There is a weaker outlook in many of the markets in which the Group operates, with negative global growth expected for 2020 and what is likely to be a volatile and uneven economic recovery. In the second quarter of 2020 the credit quality of the portfolio remained under stress with a further deterioration in short-term macroeconomic forecasts, albeit the pace of deterioration slowed compared to the first quarter.” He said
Since the outbreak of covid-19, the Group continued to support client’s in crude oil markets, such as our Aviation and Oil and Gas exposures who they believed are experiencing temporary issues due to #Covid-19.This has led to a $9.1 billion increase in early alerts in the first half of the year.
As of 30 June 2020, approximately 8 per cent of total Retail exposure has had relief measures approved, of which 71 per cent is compulsory and 79 per cent is fully secured. The bank made longer-term improvements in Retail Banking through tightening its underwriting standards and rolling out enhanced digital capabilities across our footprint.
Credit grade 12 balances have decreased slightly to $1.5 billion (2019: $1.6 billion) due to outflows to non-performing loans which were partially offset by inflows from early alerts, half of which were due to the impact of #Covid-19. Gross stage three loans and advances to customers were up 19 per cent to $8.8 billion (2019: $7.4 billion), primarily in Corporate and Institutional Banking.
According to the report, retail banking portfolios have remained stable and resilient, with 96 per cent of loans in stage one, the same proportion as the previous year. The majority of Retail products continue to be fully secured loans which are stable at 85 per cent. The overall average loan-to-value of the mortgage portfolio remains low at 45 per cent.
The macro-economic environment remains challenging for the majority of the markets in our footprint and we are cognizant of the potential longer-term impact, especially once relief measures are eased. The group continues to assess these situations on an ongoing basis, utilising our stress testing framework and portfolio reviews to analyse the potential impact and appropriate risk management actions.
Average Group value at risk (VaR) in the first half of 2020 was 157 per cent higher than the previous six months at $82 million (H2 2019: $32 million), driven by the extreme #Covid-19 market volatility which particularly impacted the Treasury Markets portfolio. Trading activities remain primarily client driven. There were three regulatory VaR backtesting exceptions in the first half of 2020, all of which occurred in March as a result of #Covid-19 volatility.
The Group has remained resilient and kept a strong liquidity position. The Group liquidity coverage ratio increased to 149 per cent (2019: 144 per cent) driven by a reduction in net outflows due to a change in our funding mix.
Total net exposure to vulnerable sectors reduced by $5.1 billion compared to 31 December 2019 and represents 29 per cent of the total net exposure in Corporate & Institutional Banking and Commercial Banking. The reductions were largely due to increased levels of collateral and reduced undrawn commitments, particularly in the Aviation, Commercial Real Estate and Oil & Gas sectors.