Stan­dard Char­tered’s In­dia losses at $981m

The Pak Banker - - COMPANIES/BOSS -

Stan­dard Char­tered Plc. on Tues­day re­ported a loss of $981 mil­lion from its In­dia op­er­a­tions as loan im­pair­ments, in­clud­ing re­struc­tured loans, across its In­dia port­fo­lio surged al­most eight­fold to $1.3 bil­lion in 2015 from $171 mil­lion in 2014.

Over­all, the UK-based len­der's loan im­pair­ments surged to $4 bil­lion in 2015 from $2.14 bil­lion in 2014. The bank re­ported a full-year pre­tax loss of $1.5 bil­lion, com­pared with a profit of $4.2 bil­lion in 2014. This missed the av­er­age es­ti­mate for a profit of $1.37 bil­lion by 20 an­a­lysts sur­veyed by Bloomberg.

"Im­pair­ments in­creased sig­nif­i­cantly, pri­mar­ily driven by ex­po­sures to com­modi­ties and In­dia, where cor­po­rates were im­pacted by con­tin­ued stress on their bal­ance sheets, cou­pled with a more chal­leng­ing re­fi­nanc­ing en­vi­ron­ment," the bank said in its earn­ings re­port. Stan­dard Char­tered, which has been among the most ac­tive for­eign banks in lend­ing to In­dian com­pa­nies, has taken a hit due to its large ex­po­sure to cer­tain groups.

"Stan­dard Char­tered Bank's as­set qual­ity is­sue is mainly be­cause of their con­cen­trated ex­po­sure to In­dian cor­po­rates. In that sense, they are more like an In­dian bank rather than a for­eign bank op­er­at­ing in In­dia," said an an­a­lyst at a Euro­pean bank on con­di­tion of anonymity. In an in­ter­view in De­cem­ber, Ajay Kan­wal, re­gional chief ex­ec­u­tive of­fi­cer of Asean (As­so­ci­a­tion of South­East Asian Na­tions) and South Asia at Stan­dard Char­tered, ac­knowl­edged that over-con­cen­tra­tion was an is­sue in the bank's In­dia port­fo­lio and that it was try­ing to cor­rect that.

In Novem­ber, Bloomberg re­ported that about $5 bil­lion in ad­vances Stan­dard Char­tered made to In­dian bor­row­ers had been in­ter­nally clas­si­fied as be­ing at risk of de­fault. This in­cludes the $2.5 bil­lion that Stan­dard Char­tered lent to the Es­sar group. As of March 2015, Stan­dard Char­tered had a gross non-per­form­ing as­sets ra­tio of 8.9%, ac­cord­ing to an­nual dis­clo­sures made by the bank. That may not be the worst of it.

The num­bers mark the con­tin­u­a­tion of a pe­riod of tur­moil and change since Bill Win­ters took over as CEO of the len­der in June 2015. For­mer CEO Peter Sands stepped down in Fe­bru­ary 2015, giv­ing in to pres­sure from in­vestors who wanted changes at the bank to help re­verse two years of fall­ing prof­its. As part of the reshuf­fle, Jaspal Bin­dra, who was head­ing the bank's Asia busi­ness, also left.

Soon af­ter tak­ing over, Win­ters an­nounced a man­age­ment re­struc­tur­ing. The Bri­tish len­der at­trib­uted the changes to "sim­pli­fi­ca­tion" of the or­ga­ni­za­tion struc­ture "that will im­prove ac­count­abil­ity, speed up de­ci­sion mak­ing, re­duce bu­reau­cracy". Fol­low­ing this re­struc­tur­ing, Kan­wal was given charge of the bank's Asean and South Asia busi­ness. Su­nil Kaushal, who was head­ing the In­dia busi­ness, was moved to head the Africa and Middle East busi­ness of the bank.

In a De­cem­ber in­ter­view, Win­ters said that the whole­sale lend­ing mis­takes made by Stan­dard Char­tered in In­dia are well-doc­u­mented and added that the bank was deal­ing with it. "The teething re­al­iza­tion is that we have to deal with the prob­lems that are drag­ging the earn­ings down, even though it is a very small sub­set. We said that of the $320 bil­lion of riskweighted as­sets, we will sell $20 bil­lion… In that $20 bil­lion, there is a chunk of con­cen­trated In­dian ex­po­sures," said Win­ters. "Bulk of our bank­ing busi­ness in In­dia is com­pletely un­af­fected by th­ese small con­cen­tra­tions of lend­ing that has gone bad," he added.

To be sure, Stan­dard Char­tered is not alone in fac­ing pres­sure from stressed as­sets. Pub­licly traded banks in In­dia added nearly Rs.1 tril­lion in bad loans in the quar­ter ended 31 De­cem­ber, amount­ing to a 29% in­crease in the stock of de­te­ri­o­rated debt from endSeptem­ber, as lenders re­sponded to a cen­tral bank call to ac­cel­er­ate recog­ni­tion of stressed as­sets. Raghu­ram Ra­jan, gov­er­nor of the Re­serve Bank of In­dia, set banks a March 2017 dead­line for banks to clean up their bal­ance sheets and has nudged them to treat some trou­bled loan ac­counts as bad and set aside money to cover the risk of de­fault by the end of March.

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