Standard Chartered poised for growth

With the banking crisis of late 2008 and early 2009 still fresh in investors' memories, buying shares in UK-listed Standard Chartered might look like a gamble. And such a move would indeed carry some risk - banks' fortunes are linked to wider economic health, and the global economy is still far from being back on its feet. But Standard Chartered, which didn't need to take any bail-out cash from the UK government, is not really comparable with the UK's high-street banks for the simple reason that it hardly lends in the UK at all. The bank generates most of its profits in Asia and those economies look set to lead the world out of recession.

Indeed, at a time when the UK is struggling to bring its recession to an end, the World Bank has forecast that the east Asia and Pacific region could enjoy economic growth of 7.8 per cent in 2010. Significantly, figures released earlier this month reveal that industrial output is rising rapidly in India and China. For example, December's purchasing managers' index for these two countries rose to 56.1 and 55.6, respectively, from 55.7 and 53.0 in November. The construction of the index means that an index of 50 is the cut-off point between rising and falling manufacturing, so the figures recorded mean a chunky increase in manufacturing output.

Reflecting that rosy Asian outlook, and unlike any major UK bank, Standard Chartered is set for robust growth. In fact, broker Charles Stanley estimates that pre-tax profits have grown by 5 per cent during 2009, a period when many banks saw profits slide, or even suffered losses. That pace is set to quicken this year, too, with the broker expecting a 10 per cent rise in pre-tax profits during 2010. "Our markets are returning to growth as economic conditions improve," said Standard's chief executive, Peter Sands, with the bank's trading update last month. "The group is very well-positioned to benefit from the opportunities in our markets as they recover."

That confidence partly reflects the fact that Standard Chartered was better placed than many to cope with the banking crisis and doesn't, therefore, need a long period in convalescence. Take credit quality, for instance. Like many lenders, the bank suffered rising bad debts last year, so its bad debt charge jumped 134 per cent in the year to the end of June to $1.09bn (£683m). But, unlike the UK-focused lenders, the worst seems to be over and credit quality is now improving in both the consumer and wholesale operations.

Also, after raising new capital in 2008 and 2009, Standard Chartered looks well-capitalised - include August's £1bn share placing in the calculations and its core tier-one capital ratio had reached a healthy 8.4 per cent at the end of the first half. What's more, funding isn't a problem. At the half-year stage, the bank reported customer deposits of $230bn, usefully more than its $183bn loan book, so it has no reliance on financing loans with potentially unreliable interbank money. Indeed, with $45.4bn of loans to other banks at the half-year stage, compared to $33.6bn of funding from other banks, Standard is a net lender in the interbank market.

Still, with the US economy struggling to return to decent growth, it remains possible that Asia's recovery could yet falter; after all, the region's fortunes are strongly linked to US demand. That said, with the US Federal Reserve Bank expecting US economic growth to reach 2.7 per cent in 2010, such fears are receding. Standard Chartered could also be tainted by its exposure to Dubai. The struggling property developer, Dubai World - the cause of the collapse in confidence in that Middle East emirate - received $10bn of emergency funding from Abu Dhabi last month, but the situation there retains the capacity to affect sentiment towards Standard Chartered. However, Standard Chartered's bosses don't expect any bad debt losses related to Dubai to be material.