Standard Chartered PLC: A Solid Play On Asian Economic Growth

Standard Chartered (LSE: STAN) used to be the darling of the banking industry. Until last year, the bank’s growth seemed unstoppable as for more than a decade, Standard’s annual income had consistently expanded at a double-digit clip.  

However, last year, thanks to a rising level of loan impairments, Standard’s management revealed that the bank’s rate of growth was going to slow, averaging between 7% and 9% for the next couple of years. The market did not like this sudden setback.

Troublesome Korea

Standard’s troubles can be traced back to a single region: Korea.

Specifically, StanChart Korea, Standard’s third largest business by assets, reported an operating loss of $162m for 2013, compared to the profit of $164m reported during 2012. Additionally, Standard was forced to write down the value of its South Korean business by $1bn.

As would be expected, the write down and operating losses both dragged on Standard’s income. So, to try and stem the losses, the bank’s management has decided to restructure its Korean division. The restructuring entails the closure of 20% of Standard’s branches within Korea and the instillation of a new management team.

Disappointment becomes opportunity

However, Standard has the opportunity to take over the market within South Korea. You see, South Korea has become a hostile place for banks during the last decade and many of the group’s peers are running away, leaving Standard with plenty of opportunity.

Indeed, according City figures, the South Korean banking sector’s return on equity, a commonly used metric to evaluate how profitable banks are, has slumped from a high of 17.6%, reported during 2005, to a low of 3.6% at present.

These low returns have sent Standard’s peers running for the exit. In particular, HSBC, Goldman Sachs Asset Management and Citigroup have all closed up shop within the region.

With this being the case, Standard’s new Korean regional management team, wants to expand, taking over from peers that have fled the region and this could be a huge opportunity for the bank. 

Wealth management

What’s more, Standard has the opportunity to shine in other Asian markets. One of the area’s where Standard has been focusing its expansion is wealth management. 

The number of millionaires in Southeast Asia is expanding at a faster rate than anywhere in the developed world. Standard has been boosting its presence within the Asian wealth management industry to take advantage of this trend. 

For example, the bank brought Morgan Stanley‘s Indian wealth management assets for an unspecified price last year. Additionally, Standard continues to hunt for opportunities within China, where its income from wealth management is expanding at a double-digit rate.

Foolish summary

So overall, while Standard Chartered has recently fallen out of favour with the City, the bank is perfectly positioned to benefit from Asia’s increasing wealth.