StanChart defies harsh economy to post profit growth

Standard Chartered Bank has come off the block as the most profitable bank in an environment where its peers have had to settle for muted growth on the back of a soft economy.

Reporting a 43 per cent jump in pre-tax profit to Sh6.7 billion from Sh4.7 billion recorded in 2008, Stanchart has managed to weather the storms of an economy deride of low household and business borrowing.

“Our growth confirms our business strategy of focusing on key market segment, engaging in prudent expansion and leveraging on our information technology to drive business growth,” said Richard Etemesi, the bank’s chief executive officer.

However, analysts are questioning the ability of the bank to take advantage of a thriving economy to up its game given its previous low performance in a robust economy.

“When the economy was booming in the last five years, the bank lagged behind its peers in the market, only to post good performance in a subdued economy, bringing to question the flexibility of its business model in different economic situations,” said Samuel Gichohi, an analyst with Standard Investment Bank.

“The overall recovery of the economy which will trigger further investment and inventory build up is largely dependent on the prevailing political relationship in the government and the outcome of the constitutional review process.”

Financial analysts reckon that going forward, commercial banks will try to balance their outreach drive to new customers by reigning on cost of operations.

In a market characterised by rapid expansion through capital intensive brick and mortar, glass and steel model, the performance of Stanchart Bank is likely to trigger a review of how to reach out for more customers while controlling cost.

With the economy expected to rebound on the back of recovery in the agricultural sector, Mr. Gichohi says other banks are likely to pick up momentum countering the effectiveness of Stanchart model.

Agriculture accounts for an estimated 25 per cent of the country gross domestic product (GDP) hence the performance hinge around which the various sectors of the economy such as manufacturing, trade and tourism spin on.

The onset of rains, expected to last through the April-May season, is likely to lift the sector.

Stanchart Bank performance was boosted by growth in its loan book, ability to cap operational costs and a low non-performing loan portfolio.

The bank loans and advances grew by 31 per cent to Sh56.7 billion from Sh43.2 billion while its deposit rose by 13 per cent to Sh86.8 billion from Sh76.9 billion in 2008.

With stiff competition for funds from the government though issuance of high yield bonds and corporate players through corporate bonds, the bank has had to pay more to attract deposit.