Credit Update: StanChart delivers another strong year of growth with profits at new highs

Standard Chartered plc (StanChart) recently released its FY24 results, showcasing yet another solid year for this issuer. We review its FY24 performance in greater detail while discussing our thoughts on this issuer’s outlook ahead and subsequently conclude with our top bond recommendations.

Financial highlights

(Note: Dollar amounts refer to USD, and growth rates are YoY unless otherwise stated. Results are on an underlying basis for FY24 unless otherwise stated.)

StanChart’s operating income grew strongly (+13%) to $19.7b in FY24 (Chart 1). This was supported by both net interest income (NII) (+9%) and non-NII components (+18%). NII benefited from robust net interest margins (NIMs) (1.94% in FY24 vs 1.67% in FY23; 2.12% in 4Q24) but was mitigated by a -6% decline in average interest-bearing assets. Non-NII accounted for almost half (47%) of operating income and was the primary driver of growth in FY24, as it climbed +18% from $7.8b in FY23 to $9.3b in FY24.

The tailwinds within non-NII were even clearer if we look at a product breakdown of StanChart’s income (Chart 2). Some of the fastest-growing segments included (i) the Capital Markets & Advisory sub-segment (+26%) (under Global Banking) amidst a strong bond issuance backdrop in FY24, (ii) Global Markets (+13%) from higher trading income, and (iii) Wealth Solutions (+28%) amidst strong net new money inflows. Specifically within Wealth Solutions, management highlighted the onboarding of 265k new-to-bank affluent clients with affluent net new money inflows of $44b in 2024, with a strong start in 2025 too.

Operating expenses remained manageable and in line with the company’s growth (Table 1). Operating expenses rose just +6% to $11.8b, translating to positive income-to-cost jaws of +7% (using operating income growth of +13%). StanChart has focused on cost management over the past year, especially through its 3-year Fit For Growth (FFG) programme, and we think the controlled increase in operating expenses demonstrates growing progress towards this 3-year strategic goal.

Despite the broadly positive story, we highlight the higher impairment and restructuring costs below.

1. Costs related to ‘other impairments’ rose from $130m in FY23 to $588m in FY24. This was primarily due to the write-off of various software assets ($561m), including $78m of impairments attributed to software applications no longer in use. The large increase in software impairments arose following a management-led initiative to review software intangibles over the past year. However, investors should note that the review has officially concluded, and we expect no significant software assets write-off in FY25.
2. Restructuring costs rose from $14m in FY23 to $441m in FY24. Higher costs here included an additional $156m required to execute the FFG strategy (e.g. hiring staff to work on this FFG strategy and severance costs for other staff).

StanChart’s profitability improved strongly in FY24. Despite the higher impairment and restructuring costs highlighted above, underlying profit before tax (PBT) grew +20% to $6.8b due to strong operating income growth. Reported profits after tax also climbed by a solid +17% to $4.0b in FY24.

(Note: Underlying profits include impairments but exclude restructuring costs. Reported profits [before and after tax] include impairments and restructuring costs.)

Chart 1: Strong operating income growth in FY24

Chart 2: Operating income growth primarily driven by few non-NII segments

Table 1: Cost growth remained manageable, helping to drive overall profitability

Outlook

We expect operating income to continue growing in FY25 and beyond. This is similar to management guidance for operating income (constant currency terms) – management forecasts 5-7% annualised growth from FY23 to FY26 (Note: already had +7% in FY23 and +12% in FY24) and ‘below the 5-7% range’ in FY25 itself. Non-NII is expected to continue being the primary growth driver for StanChart, with management highlighting a decent start to FY25 (January / February) thus far.

For NII specifically, we expect it to remain resilient in the medium term. The combination of higher-for-longer rates and a solid global macro backdrop should support NII over the next few years. Nonetheless, we acknowledge the particularly measured tone adopted by management regarding the FY25 outlook, as they implied that high 4Q24 NIM figures (2.12%) may result in some sort of high-base effect. We also consider that market expectations today for interest rates look more realistic than in FY23 (when they were pricing too many rate cuts), which could limit upside to FY25 earnings relative to expectations. Hence, we do not rule out near-term headwinds in FY25 itself, though the medium-term outlook (e.g. over 3 years) for NII still looks decent to us.

As for operating expenses, we think they should remain manageable. This is once again in line with management guidance at under $12.3b in FY26 (representing a 3% CAGR from FY24 figures). There could be near-term FY25 headwinds from its FFG program, as the costs to implement FFG could come ahead of the eventual cost savings (Chart 3), but we like the progress on FFG and think it will help StanChart’s cost management over the medium to long-term (beyond FY25).

Taking these together, we think StanChart remains a solid issuer poised to continue its track record of profitability. Notwithstanding some headwinds in FY25 (NIM pressures and higher FFG-related expenses), we think it remains on track to deliver positive profit growth over multiple years.

Chart 3: Cost to achieve Fit For Growth in FY25 may mitigate much of the cost savings

Credit highlights

StanChart’s loan-loss rate remained stable at 19bps (FY23: 18bps) as credit impairments remained manageable at $557m (FY23: $528m). Notably, previous concerns like China Commercial Real Estate and China Bohai Bank ($850m impairment in 3Q23 were not emphasised in FY24, suggesting these issues have not worsened significantly. Instead, a portion of this impairment increase came from the retail segment as the higher interest rate environment affected repayments on cards and loans.

Looking ahead, management has guided credit impairment performance to improve in FY25, especially as the company broadly pivots towards more affluent clients. Loan-loss rates are guided to normalise into a comfortable 30 – 35 bps range in line with historical averages. We think these guidances look achievable (barring major negative events like a severe downturn in China or Hong Kong) and point toward continued stability for StanChart.

StanChart is also working on a very solid capital base. StanChart reported a CET1 ratio of 14.2%, above its target range of 13% - 14%, and the regulatory minimum of 10.5%. After accounting for the newly announced $1.5b share buyback (following up on $2.5b of buybacks in FY24), its pro-forma CET1 ratio of 13.6% would still be at a comfortable level.

Looking ahead, management has reiterated its intention to keep CET1 ‘dynamically’ within the 13% - 14% target range. Risk-weighted assets (RWAs) are only expected to grow at low single-digit percentages in FY25, while the impact of Basel 3.1 (in Jan 2027) is expected to be neutral on RWAs. Considering its healthy buffer today and its track record of generating profits (which would accrete to CET1), we think StanChart’s capital position looks sound moving ahead.

Recommendations

We think StanChart is a solid issuer with a low probability of default in the next few years – we elaborate on our bond recommendations below (Table 2).

For USD, we generally recommend their T2 bonds as they come with higher yields for (in our view) manageable risks. Note that based on UK legislation, T2 capital will have to be amortised in the last 5 years to maturity, and hence, we think that economic incentives generally favour a call on the reset date.

• STANLN 4.300% 19Feb2027 Corp (USD) is a shorter-duration option for investors with just 2 years to maturity (no call), with yields of around 4.75%. These bonds are also available on our Bond Express, and accredited investors can purchase these bonds in odd lots.
• STANLN 3.265% 18Feb2036 Corp (USD) is a longer-duration option with 6 years to reset and an indicative yield-to-reset of 5.57%. We think there is a sufficient yield pickup here for investors who are comfortable with additional duration risks.

Risk-averse investors can consider StanChart’s senior unsecured bonds instead. These can come with calls and resets before maturity (e.g. 1 year before) – while there are no amortisation requirements by UK regulators, in most cases below, we would still expect them to call these bonds on reset as spreads have tightened from their initial margins.

• Our recommendations generally refer to their bonds maturing in 2028 – 2030 (reset dates in 2027 – 2029), as they offer a slight yield pickup over the T2s maturing in 2027. Investors should expect yields of around 4.8% - 5.0%.

For SGD, we recommend a ‘hold’ call on StanChart bonds rather than an outright ‘buy’ call. Spreads have tightened significantly within the SGD bond space, and we broadly prefer T2 bonds for their yield pickup over comparable senior unsecured bonds. As such, instead of StanChart’s 2030 and 2033 senior unsecured bonds yielding around 3.3% and 3.5%, respectively, we would prefer HSBC’s Tier 2 bonds with higher indicative yields closer to the 3.7% to 3.8% handle.

Table 2: StanChart bonds (recommendations bolded)

Declaration: For specific disclosure, at the time of publication of this report, IFPL (via its connected and associated entities) holds a position in STANLN 4.300% 19Feb2027 Corp (USD). The analyst who produced this report holds a NIL position in the abovementioned securities.

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