Positive Momentum Maintained in Standard Chartered's 2Q Result

Standard Chartered maintained its march toward its return on tangible equity, or ROTE, target of at least 10% by 2021 first-half ROTE of 8.4% was solid though operating expense is generally higher in the second half. Still, the bank continues to benefit from its earlier restructuring with operating expense steady on a constant currency basis. Operating income increased 4% and operating leverage within the business propelled underlying profit before tax 13% higher to $2.6 billion. All divisions posted positive jaws, or operating income growth outpacing operating expense. This has seen improved profitability in corporate and institutional banking, and commercial banking, which struggled prior to the restructuring. ROTE for the two divisions are 10% and 9.1%, respectively, and improvement is key to lifting group ROTE above 10%, in our view. Underlying profit also benefited from a benign credit environment. First-half credit cost of 20 basis points, annualised, of total loans was below management guidance of a normalisation to 40 basis points in a three-year timeframe. Our forecast assumes steady increase toward 40 basis points by the back end of our forecast period.