Standard Chartered PLC lately announced about its refreshed strategic priorities with an aim to deliver significant and sustainably higher returns. The 150-year-old group said it would reduce costs by $700 million over the next three years and will seek to double dividend payments. This comes at a time when the bank missed its previous targets in severe market conditions.
According to the new strategy unveiled on Tuesday, the group expects a return on tangible equity (RoTE) of at least 10 per cent by 2021, up from 5.1 per cent last year, generating substantial surplus capital with an intent to distribute it to shareholders. The company targets a growth rate of 5-7 per cent, without losing focus on handling risks. It also expects growth in cost to remain below the inflation rate and, furthermore, seeks a cost reduction of at least $700 million. This will aid in improving operating leverage significantly.
The group also aims to improve its performance from low-returning markets like India, South Korea, the United Arab Emirates and Indonesia, which have been straining the company's financials. These four markets account for 21 per cent of costs but just 13 per cent of profits. It also said that the 45 per cent stake in Indonesia's PT Bank Permata Tbk would no longer be classified as core, giving signals that it may be thinking of selling the sake. By Streamlining performance in low-returns markets, the company seeks to improve its productivity.
The current Chief Executive Bill Winters in a statement said that the management would try to achieve its aim through continuously focusing on the company's distinctive competitive advantage and tackling the reasons for lower returns. Moreover, the company will look to ramp-up its push towards innovation and further improve productivity. He also acknowledged the opportunities technology-driven changes in banking presents to the group.
The group makes the majority of its revenue from Asian markets, which face a growing risk of a slowdown. The negative impact of US-China trade war, coupled with economic uncertainties in its main markets - China and Britain, has resulted in an increased strain on its operations. Although the restructuring initiated under the current Chief Executive helped to repair a balance sheet affected by excessive lending in the previous decade, it also led to downward pressure on the bank's profits.
The banking group on Tuesday reported a 5.5 per cent rise in 2018 pre-tax profit, hit by $900 million in provisions to cover for future regulatory investigation regarding alleged sanctions violations and foreign exchange trades in US and UK. The bank reported a profit of $2.55 billion against $2.42 billion in 2017. Costs were also high and return on tangible equity of 5.1 per cent was still below the approximate cost of capital of 10 per cent.
The company's shares have fallen by about 40 per cent since the current CEO took over in June 2015. In 2018, its shares on the London Stock Exchange fell by 22 per cent, more than 15.6 per cent fall by its local competitor HSBC Holding. Moreover, the market was disappointed by the results posted by the emerging market-focused banking company. Also, the changes announced were not in line with the market's expectations.
The company's shares in London fell by 1.15 per cent on the day of announcement.
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