How SCB outdid its competitors yet again in 2020

In 2020, the year of the pandemic, Standard Chartered logged in profit of Tk1,367.5 crore — the highest yet in its 116 years of operation in Bangladesh and an increase of 6.6% from the year before.

No other bank could count as much profit as the British bank; Dutch-Bangla Bank (DBBL) recorded the second-highest profit but it was less than half that of Standard Chartered.

Among the conventional banks, after DBBL, Standard Chartered’s British counterpart HSBC (Tk540.5 crore), Eastern Bank (Tk418 crore) and Brac Bank (Tk402.6 crore) rounded off the top five spots. 

And it was just not in 2020 that Standard Chartered’s profit towered over its competitors though. In 2019 too, they logged a profit of Tk1,282.6 crore, up 14.3% year-on-year.

This begs the question: has Standard Chartered cracked a magic formula; or is it down to the sheer strength of its brand name?

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Commission is the key

Of the bank’s total operating income of Tk2,740.9 crore last year, a big chunk (Tk725.7 crore) came from commission, exchange and brokerage fees.

The bank earns commission and fee income from a diverse range of services, such as operations, account maintenance, custodial services, credit card renewal, and so on.

In 2020, it made Tk373.07 crore in commission income, which included export income of Tk64.87 crore and custodial service income for stock exchange at Tk7.86 crore, according to its financial statements.

Exchange income includes all gains and losses from foreign currency transactions, and SCB earned Tk352.6 crore from this source last year.

Only Brac Bank came close to matching the London-headquartered bank’s prowess in securing commission, exchange and brokerage fees at Tk684.6 crore. 

DBBL made Tk172.6 crore from commission, exchange and brokerage fees, HSBC made Tk410.6 crore, and Eastern Bank made Tk306.7 crore in 2020. 

“The strength of Standard Chartered’s network, the ability to support clients in multiple countries through trade and investment corridors and the comprehensive product capabilities helped the Asia-focused bank generate substantial foreign exchange and commission income last year from its Bangladesh operations,” said CEO Naser Ezaz Bijoy. 

Standard Chartered operates a network of more than 1,200 branches and outlets, including subsidiaries, associates and joint ventures, across more than 70 countries.

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“Moreover, our continued distinctive role in arranging long-term multi-currency project finance at competitive costs also helped us to earn meaningful fee income, in addition to our traditional sources of fees from retail banking,” Bijoy added.

Retail banking, which is the bread-and-butter of its competitors in Bangladesh, did not let Standard Chartered down either.

The British bank operates 24 branches in Bangladesh through which it provides retail banking services. 

Of its retail banking activities, it made Tk352.7 crore from personal credit, Tk5.1 crore from loans against property, Tk10.97 crore from auto loans, Tk107.6 crore from credit cards, Tk59.3 crore from overdraft, Tk113.56 crore from house building loans, and Tk33.57 crore from Diminishing Musharaka under its Islamic banking window. 

The bank logged Tk1,519.1 crore as net interest income in 2020, down 15.4% from a year earlier. 

In comparison, DBBL, which has 209 branches, registered Tk1,390 crore from net interest income. 

HSBC, which has eight branches in Bangladesh, posted Tk835.9 crore as net interest income, while Eastern Bank posted Tk605.2 crore and Brac Bank made Tk1,352.8 crore. 

Standard Chartered also made significant income from investments, which more than doubled to Tk496.1 crore. 

The bank invested heavily in 91-day Treasury bills last year: from Tk538.7 crore in 2019 to Tk1,629.9 crore.

Minimizing gratuitous spending

The next move for Standard Chartered is to keep its total operating expenses low, which for 2020 was Tk672.4 crore.

“Productivity and efficiency have always been key focus areas for Standard Chartered Bank. In 2020, we utilized the available capacity due to depressed business volumes during the early phase of the pandemic to work on automation, machine learning, data analytics and to accelerate activation of digital channels by incentivising volumes away from bricks and mortars,” Bijoy said.

In comparison, DBBL’s total operating expenses stood at Tk1,610.7 crore, HSBC’s at Tk544.1 crore, Eastern Bank’s at Tk667.2 crore and Brac Bank’s at Tk2,053.3 crore.

Standard Chartered also took an environment-friendly decision in reducing the use of paper and improving energy efficiency, Bijoy said, adding: “Many initiatives helped us to retain the attractive cost to income ratio.” 

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Good governance

At the end of 2020, Standard Chartered Bangladesh’s loans and advances stood at Tk21,622.8 crore, down 13.9% year-on-year.

In 2020, private sector credit growth averaged 8.9% in contrast to 10.4% a year earlier, as jittery businesses went on self-preservation mode, putting their investment plans and businesses on hold indefinitely, according to data from the Bangladesh Bank.

SCB too played it safe with its lending activities.

Its default loans at the end of 2020 accounted for 1.62% of its total outstanding loans, down from 1.67%. At the end of last year, the banking sector’s default loan ratio was 7.7%.

Its loan-deposit ratio came down from 62% to 47.2%, which is way lower than the ceiling of 85%.

The bank’s deposits though swelled: it stood at Tk31,175.9 crore, up 11.2% year-on-year.

It also kept provisioning over and above what was required by the regulatory body in anticipation of the surge in bad loans once the loan moratorium facility is lifted in 2021.

As per the central bank regulations, banks have to keep 0.5% to 5% in provisioning against general category loans, 20% against classified loans of substandard category and 50% against classified loans of doubtful category. It is set at 100% against classified loans in the bad or loss category.

But for 2020, banks could defer the provisioning as no loan was allowed to be classified by the BB with the view to providing borrowers with some breathing room from the abrupt economic challenge brought on by the global coronavirus pandemic.

Standard Chartered kept Tk478.5 crore as provisioning against classified loans in 2020, up 36.1% year-on-year.

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2021 may not be so kind to SCB

“In a year with so much adversity, this is quite a good result for us,” Bijoy told Dhaka Tribune.

But the bank may have a difficult time replicating this success in 2021. 

“In 2020, we got the benefit of some large transactions which originated in 2019 and concluded in 2020. However, clients have been cautious with new investments over the last 18 months due to uncertainties emanating from the pandemic,” the CEO explained. 

He said due to the low demand for credit, significant surplus liquidity, and regulatory headwinds on banking sector’s ability to maintain revenue momentum — which is crucial in an elevated credit risk environment with the prolonged impact of Covid-19 — the ability to repeat the performance of 2020 in 2021 will be largely impaired.