- Net fee and commission income rising
- Solid common equity tier 1 (CET1) ratio
The general feeling is that central bank rate increases have already peaked. Banks have profited to an uncommon degree through the accumulation of lending-based income, at least by comparison to the 12-year period that preceded December 2021. But as rates begin to retrace, those banks that derive a reasonable proportion of their revenue from fee income will be in a better position than those who rely to a larger extent on interest payments.
Standard Chartered (STAN) certainly falls within that category. And the value of non-interest income streams was apparent in the Asia-focused bank’s latest quarterly update. Although net interest income fell by 22 per cent to $1.57bn (£1.26bn), net fee and commission income was up 15 per cent to $968mn as the bank pulled in more wealthy clients, leading to improved trading activity across all its business segments. Another point worth considering is that related expenses are much higher on a proportional basis in the former revenue stream than the latter.
In total, the bank booked operating income of $5.13bn against $4.56bn during the corresponding period in 2023. On an underlying basis, operating income was up by 17 per cent, while the return on tangible equity ticked up 330 basis points to 15.2 per cent. Even though group chief executive Bill Winters concedes that the bank continues to trade in an “uncertain environment”, risk-weighted assets have crept up by 3 per cent since the end of last year to $252bn, with an accompanying reduction in higher-risk positions.
The bank’s capital position remains solid. Following the announcement of a $1bn share buyback in February, its common equity tier 1 (CET1) ratio, which compares a bank's capital with its assets, remained “broadly stable” at 13.6 per cent, while its liquidity coverage ratio was also largely unchanged at 146 per cent (under Basel III, the minimum CET1 ratio increased to 4.5 per cent).
Last IC view: Hold, 656p, 23 Feb 2024
