Standard Chartered says restructuring is paying off as costs, and income, decline in 2017

In 2015, Standard Chartered Bank Uganda Limited set out on a strategy to “reposition our business for success” by securing its foundations, getting lean and focused, and investing in digital technology and innovating.

Today, according to a statement by Albert Saltson, the bank’s chief executive, Standard Chartered has “made significant progress on executing our strategy”. It has improved cost efficiencies, tightened risk controls, and focussed on its core advantages on its journey to “improved financial performance”.

The statement was released alongside the bank’s audited summary financial statements for 2017, which show a narrowing in profitability and revenue, following strong growths in 2016. Still, in keeping with the chief executive’s statement – which makes very little direct reference to the lender’s financial performance – total expenses fell for the second straight year.

Revenue in 2017 fell 17.9% to Shs395.6bn, compared to a 17% increase in 2016. A fall in interest income from loans and foreign exchange operations were the chief reasons revenue slumped last year.

Mr Saltson blamed the lower performance of Standard Chartered’s performance on a “subdued economic environment” and “compression on some product margins.” These include interest margins, with interest income falling 11.9% to Shs325.9bn – most likely due to a drop in lending rates in reaction to the central bank’s sustained easing cycle. Interest income from loans and advances fell by Shs47.7bn to Shs213.3bn. Standard Chartered’s lending also fell slightly, by nearly 1%, to Shs1,221.9bn in 2017.

Non-interest revenue also slumped by 37.8% to come in at Shs69.7bn following declines in foreign exchange income and in dues from fees and commissions. Foreign exchange income fell by Shs29.4bn while income from fees and commissions was down by Shs13.3bn.

The results also show that Standard Chartered is delivering on its plans to “get lean” through eliminating costs. Operating expenses – which exclude staff costs – reduced by 5.9% last year to Shs126bn, compared to an increase of 14.8% in 2016. Total expenses continued declining, falling by 19.2% compared to a 7% reduction in 2016.

The biggest reductions in expenses were the provisions for bad and doubtful loans which declined by Shs41.7bn to Shs25.2bn. Interest expenses also fell 26.9%, led by a Shs12.5bn reduction in interest paid on customer deposits. The bank also paid nothing in borrowing costs in 2017 compared to the Shs4.8bn it paid the previous year. Only personnel expenses increased, by 6.6%, as well as depreciation.

With Standard Chartered’s revenue for 2017 declining at a higher rate than expenses, it’s profit for the year fell. Profit before tax reduced by Shs18.4bn following a 2.7% rise in income tax. The bank’s net profits after tax reduced by 16.9% to come in at Shs93bn.

Standard Chartered’s “lean and focussed” business strategy also seems to have frizzled its assets as well. Lending growth was negative, while the interest accrued from invested funds and loans reduced by 24.2% to Shs101bn. Investment securities fell 12.7%, while balances due from group companies were reduced by Shs392.3bn, the biggest decline under assets. Altogether, assets fell 4.5% to Shs2,813bn – a slower decline than in 2016 when they reduced by 9.7%.

The bank also took in less customer deposits – classified under liabilities – which declined 4% to Shs1,903bn. Deposits from other banks and amounts owed to group companies also reduced in 2017. Interest owed to lenders that had not been paid at the close of the year reduced from Shs207.8bn in 2016 to Shs149bn. Liabilities totalled to Shs2,204.5bn, declining by 8.2% from the previous year.