Contraction in the financial sector has continued as Standard Chartered Bank reported a 6% reduction in revenue following a 21% decrease in Non-funded income despite the 5% increase in banks’ core value-generating source – net interest income.
“H1 2019 performance for the Bank compared to H1 2018 has dropped on account of decrease in Non-funded Income by 21% which was mitigated by a 5% increase in net interest income after provision for impairment, operating expenses also increased by 11%”, read a statement in the bank’s half-year financial report to shareholders published on 12 September 2019 on SENS.
The reduction in the top line meant the bank reported a profit after tax that was 27% weaker when compared to the same time in the previous financial year. Curtailment of non-funded income (which comprises bank charges among others) would no doubt be the elephant in the room during the Standard Chartered Bank management team’s half-year performance review.
Increasing yields from Government Securities have been the “saving grace” as treasury departments continue to be the “kings of banking” as they hedge using fixed income. “Increased yields from government securities on the back of increased balance sheet holdings”.
The bank also identified interest from interbank transactions, which have seen a sharp increase during the period under review, as another source of value creation. “Increase in Interest from inter-bank placements year-on-year mainly due to increased utilization”. However, another ‘Achilles heel’ identified as a reduction in Non-Funded Income (NFI) on account of a drop in volumes coupled with a decrease in mark-to-market income.
Whilst some players in the market opted to reduce on marketing spend on the back of austerity measures and escalating service fees, the bank saw an increase its marketing spend as brand visibility became more costly no doubt due to inflation and currency depreciation. “Operating expenses increased on account of rise in various Group project recharges and increase in advertising and media costs following the new CDI campaign”.
The bank’s pride, “Balance Sheet” (Total Assets), increased by 28% thanks to interbank loan placements in forex denomination (USD and GBP) and an 8% increase in loans and advances. Furthermore, retail banking aggressively increased customer deposits by 32% thanks to the premium advertising campaigns adopted during the first half of the year.