Standard Chartered chief plots course amid choppy waters

Standard Chartered was one of two international banks that publicly supported China’s plans to extend its national security law to Hong Kong, which Beijing announced at the end of May. Some shareholders and British politicians have expressed concern over the move by the emerging market specialist bank, which, despite this focus, is headquartered in London. Standard Chartered declined The Banker’s request to comment but, just over two weeks before the announcement, its chairman, José Viñals, spoke to us about Covid-19, bad loan provisions and climate change.

Q: What is your biggest concern for 2020?

A: The main worry now is the economy: the interaction between the health situation and the economic situation. We need to dominate the pandemic. The numbers for the first quarter [of 2020] have reflected an implosion of gross domestic product of a magnitude which I've never seen in my lifetime. And the data from the second quarter is likely to be worse.

The important thing is to make sure that even if the negative impact in 2020 is going to be major, at least we can [build] the basis for a sustainable recovery of economic activity, and that means two things. It means that on the health front, things need to be under control as we exit from the lockdowns [around the world], so that there are no new waves. The exit needs to be sustainable from the health point of view. At the same time, that [economic recovery] is supported by the private sector resuming its [rhythm] while there is significant policy support both by governments and by central banks. So we need to have a sustainable situation from the health point of view, and then make sure that the economic recovery is also sustainable, by providing the right government and central bank support so that the private sector can regain its strength. So I see it as a two-handed approach.

Q: How do you think Covid-19 will affect the way that banks and the regulators work together in the future?

A: Banks can play a very significant role in this co-operation between the private sector and the public sector in dealing with the crisis. Regulators have played the countercyclical game very well. They could also [tell] banks: “The economic future is uncertain and you have to have your buffers to support the economy; it is very important that you conserve as much capital as you can.” And this is [beyond] the requests that the UK regulators and also the European Central Bank (ECB) have made to banks. They have asked banks to suspend final dividends for 2019.

[The Bank of England’s supervisory arm, the Prudential Regulation Authority, has put pressure on banks to suspend dividend payouts, which the UK’s largest lenders announced they would do in April. The ECB requested that no dividends should be paid for the 2020 financial year too, until at least 1 October 2020.] 

Regulators have also been pragmatic and postponed [the application of] a number of regulatory measures, given that banks are all very busy coping with the Covid-19 crisis. I think that the relationship has been very constructive and that regulators have understood what needs to be done. 

Q: This is by no means a banking crisis, but could it turn into one?

A: Hopefully this will not become a banking crisis. But, of course, not all banks are in the same position. It’s critical that banks act in a prudent manner and strike the right balance between supporting their clients and, at the same time, safeguarding their financial integrity.

The longer the crisis lasts, the higher the number of banks that [could] get into some sort of difficulty in terms of loan impairments becoming so high that they eat up most or all of the bank’s income. There may be issues in the future. But all of this is going to depend on the severity of the economic crisis, which is going to depend on how the health situation evolves. 

What I think is very important for a bank like Standard Chartered is that we operate across many emerging markets, particularly in Asia, Africa and the Middle East; 70% of our income comes from Asia. And this is important because our top markets are the ones – particularly Greater China, in northern Asia – which are coming out of the initial crisis more strongly.

If you look at 2020, [according to the International Monetary Fund] the only emerging market area that is growing is emerging Asia: [with] 1% gross domestic product growth. And if you look at 2021, growth rates in emerging markets [are predicted to] outpace developing countries’. Standard Chartered has such a significant footprint in Asia, especially China and Hong Kong, which were at the initial epicentre of the crisis, but which are also the first to come out of it. I think this gives us an advantage. 

Q: Does this mean that Standard Chartered’s non-performing loan (NPL) provisions for the second quarter of this year won’t be as high as those for the first quarter? 

A: It’s too soon to tell what the level of NPL provisions will be in the second, third and fourth quarters of this year. What I can tell you is that in the first quarter we have made provisions that were as much as the provisions made for the whole of 2019. And the reason is that we have been very prudent in trying to anticipate what may come in the future.

I think that now the level of uncertainty is high enough to prevent us from doing any sort of estimate, but let me tell you that we have done as much as we thought we needed to do in the first quarter – not just in terms of the loans that went bad in the first quarter, but also those that could go bad in the future. 

Q: What about other future risks, such as climate change?

A: Sustainability in general, sustainable development and climate change in particular, remain extremely important. In fact, the coronavirus pandemic has made us even more aware of what the implications may be of some of these long-term threats.

Standard Chartered is very committed to the cause of sustainability and the fight [against] climate change, and this is not just a public relation exercise. This is the way that we feel as individuals in the leadership of the bank; we feel that this is very important. This is why, in 2018, we made the decision not to undertake any additional financing for coal-fired power plants; and those commitments that we were entertaining, where we had expressed a prior, initial commitment but where funds were not yet disbursed, at the end, we decided not to go ahead with those either.

[Not-for-profit Rainforest Action Network records a total of $670m and $279m coal power financing for 2018 and 2019, respectively, for Standard Chartered. The bank disputes those figures.]

We have also been looking at the portfolio of our clients. And then, we have made the explicit commitment that by 2030 we will exit clients where over 10% of their revenues depend on coal. Of course, what we need to do in the meantime is to work together with them, so that we can help finance the transition towards lowering their dependence on coal-generated revenues. But if by 2030 they have not achieved that goal, then we will exit.

We have committed significant amounts of money, $75bn, to financing clean technologies and sustainable infrastructures over the next 10 years. We think that making a very explicit bet on sustainability is not just the right thing to do from a moral and ethical point of view, it is also the smart thing to do because [clean technology] is a great investment opportunity and a great business area for the bank. 

This Q&A has been edited for brevity and clarity. To listen to the full interview, go to thebanker.com/podcast.