Standard Chartered PLC And HSBC Holdings plc Struggle In Asia

Standard Chartered (LSE: STAN) (NASDAQOTH: SCBFF.US) and HSBC (LSE: HSBA) (NYSE: HSBC.US) are generally considered to be Asian banks and as such, barometers of the Asian economy.

Indeed, Standard Chartered generates around three quarters of its income within Asia, despite being headquartered in London.

This exposure to Asia and other emerging markets helped both Standard and HSBC avoid the worst of the financial crisis. However, it would appear that, over the past year or so, Asia’s economy has started to slow. Now, it seems as if HSBC and Standard’s exposure to the region is more of a liability than an asset.

Profits falling

Unfortunately, during the first half of this year, Standard’s woes, which started during the third quarter of last year, have only got worse. Firs- half profits dropped 24%, while impairments jumped by 39% to more than $1bn. The bank blamed deteriorating credit conditions in China as the reason for this rise.  

And it would appear as if deteriorating credit conditions are going to be Standard’s main risk going forward. City analysts pointed out that during the first half of the year the value of loans Standard considered to be of poor credit quality exploded to $5.1bn, up massively from the previously reported figure of only $1.7bn.   

In the first-half Standard’s troublesome Korean division reported a loss of $127m, despite the disposal of some unwanted consumer banking operations.

Some bright spots

Nevertheless, there were some bright spots in Standard’s first-half report. The bank reported, as did HSBC, that sales within Hong Kong rose. HSBC reported pre-tax profit growth of 12% within Hong Kong. That said, like Standard, HSBC is struggling to grow within Asia.

Hidden in HSBC’s interim management statement the bank reported a geographical breakdown of income. During the first half of this year Asian income dropped 15% year on year. What’s more, HSBC was hit by a slowdown within Latin America as well. Net profit from HSBC’s operations within the region dropped nearly 20% year on year.

Still, HSBC is a more geographically diversified bank than Standard. Active within 74 markets around the world HSBC’s global presence and dominance is nothing to be sniffed at. Additionally, this global presence insulates that bank against any sudden shocks within individual markets.