Standard Chartered HK to maintain good loan quality, profitability

The non-performing loan (NPL) ratio will likely increase as well, however.

Modest economic recovery in Mainland China and Hong Kong will support the soundness of Standard Chartered Hong Kong’s asset quality.

In a commentary, Moody’s Investors Service said that it expects the bank to maintain not just a good loan quality over the next 12 to 18 months, but also solid capitalization and sound liquidity. These should serve as a buffer against an expected “mild” deterioration in its asset quality, the ratings agency said.

The non-performing loan (NPL) ratio will likely increase slightly over the next 12-18 months, driven by its China portfolio and the prolonged property market downturn. 

“Moody's anticipates the bank will resume loan growth at a low single-digit percentage, and that its CET1 ratio will stay above 15% over the next 12-18 months,” Moody’s wrote, adding that this will be supported by its modest internal capital generation.

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However, the growth will be partially offset by the bank's annual dividend to support the share buyback and capital return plan of its parent, Standard Chartered PLC.

Profitability will improve, with return on average assets at around 0.6% over the next 12-18 months. Net interest margin (NIM) will widen, and its non-interest income will record stronger growth.

“Increased retail and wealth management activities, as well as structural shifts in the region's supply chain will support the non-interest income growth,” the ratings agency wrote in its latest ratings commentary of Standard Chartered Hong Kong.

The bank will maintain an adequate funding profile and good liquidity, thanks to its diversified deposit base and a strong deposit franchise in Hong Kong.

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Low-cost current and savings deposits (CASA) accounted for a significant 63% of its overall deposits at the end of the second quarter of 2023, and its liquidity coverage ratio was 225% for the period ending 30 June, Moody’s said.