Growth in Asian operations shrinks in face of competition
In a sign of the challenges facing ANZ, which is targeting Asia as a key source of growth, British-listed Standard Chartered reported slowing income growth in several key Asian markets, as its 2012 profits edged up less than 1 per cent to $US4.79 billion, compared with 12 per cent growth a year earlier.
Standard Chartered, which is heavily focused on emerging economies, said growth in Hong Kong had slowed to 6 per cent, from 19 per cent in 2011, and income in Singapore rose 5 per cent, from 27 per cent a year earlier. While it had experienced a surge in income from China, it described the previous year as "challenging" and said this would continue into this year.
HSBC, one of the biggest banks in the world with a major presence in Asia, also this week reported that its net interest margin had narrowed in the year to December to 2.32 per cent, from 2.51 per cent.
Group finance director Iain Mackay said HSBC's margins in Asia outside of Hong Kong had been squeezed by the slump in global interest rates, but argued they were holding up "remarkably well".
He made the comments after HSBC handed down a 6 per cent slump in pre-tax profits to $US20.6 billion, after it was hit with fines in relation to money laundering charges in the US and Mexico.
The results come after ANZ last month said its margins had been squeezed by increased competition in Asian markets, which are also a growing focus for Commonwealth Bank, NAB and Westpac.
Although both HSBC and Standard Chartered were upbeat about China's prospects, their results highlighted the challenge created by economic uncertainty and growing competition.
HSBC's chief executive, Stuart Gulliver, said the bank was expecting economic growth of 8.6 per cent in China this year.
"Whilst the operating environment for financial institutions remains difficult, our core business will continue to reap the benefit of recovering economic growth in mainland China," Mr Gulliver said.
Frequently Asked Questions about this Article…
The article says growth is being constrained by slower economic growth in the region, stiffer competition in Asian markets and a slump in global interest rates, all of which squeeze bank margins and limit income growth.
Standard Chartered's 2012 profits edged up by less than 1% to US$4.79 billion (compared with 12% growth the year before). The bank reported slower income growth in key markets such as Hong Kong (6% vs 19% in 2011) and Singapore (income up 5% vs 27% previously), signalling more modest momentum in its Asian franchise.
HSBC said its net interest margin narrowed to 2.32% from 2.51% year‑on‑year and reported a 6% slump in pre‑tax profits to US$20.6 billion. The profit decline was also affected by fines linked to money‑laundering charges in the US and Mexico.
The article notes ANZ said its margins have been squeezed by increased competition in Asian markets. It also highlights that Commonwealth Bank, NAB and Westpac are increasingly focused on Asia, where competition is putting pressure on returns.
Both Standard Chartered and HSBC were upbeat about China's prospects. HSBC's CEO Stuart Gulliver said the bank expects China to grow about 8.6% this year and that recovering mainland China growth should benefit their core business, even as uncertainty and competition remain challenges.
HSBC's group finance director Iain Mackay said margins in Asia outside Hong Kong have been squeezed by the slump in global interest rates. Lower rates can compress net interest margins, reducing the spread banks earn on lending versus funding costs.
The article highlights that HSBC's profits were hit after fines related to money‑laundering charges in the US and Mexico, contributing to a 6% drop in pre‑tax profit. Regulatory fines and compliance problems can materially reduce profits and increase risk for bank investors.
Based on the article, investors should monitor income and margin trends in key Asian markets (Hong Kong, Singapore and China), competitive pressures, exposure of Australian banks targeting Asia, and regulatory or compliance developments that can affect profits.
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