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How Standard Chartered escaped the global financial crisis — CEO

By Babajide Komolafe

Focus on markets and products with familiar risk parameters, concentration on core banking businesses and focus on basics of banking helped Standard Chartered Bank to escape the negative impact of the global financial crisis, says the bank’s Chief Executive Officer.

Addressing Risk Managers in Lagos, Christopher Knight said, “We have always historically operated in volatile markets across Asia, Africa and the Middle East, we have never lost sight of the basics of banking. And this has given us a very strong standing, given the global financial turmoil over the past 18 months.

“At Group level, Standard Chartered PLC recorded another exceptional performance in 2008 with income rising 28 per cent  to $13.9bn  and operating profit before tax increasing 13 per cent to $4.5bn. Equally, in 2009, the Group has had a strong first quarter, delivering record levels of income and profit, sustaining our good momentum.”

Despite the challenging macroeconomic environment and the continuing difficulties in the global financial markets, the Group remains in very good shape. We continue to grow our businesses.  We remain vigilant and continue to take a highly proactive approach to managing our balance sheet. The Group’s capital and liquidity position remains excellent.

Mirroring what we have achieved at a Group level, Standard Chartered Bank Nigeria Ltd recorded gross earnings in 2008 of N26.1bn, up 51 per cent, and profit before tax up 30 per cent  to N11.2bn.

Standard Chartered is a truly international bank- operating in over 70 markets worldwide. This gives us a unique global financial understanding, capability and the global expertise to comment on the financial crisis. Of the financial factors that contributed to the crisis, I would like to highlight in particular the lack of pricing for risk, as well as the poor liquidity management by banks, particularly under such stressed conditions. I see these as two of the main oversights, which had they not existed, would have certainly tempered the severity of the crisis if not averted it. It is ironic that both of these activities were totally within the control of management.

Another noteworthy element of our “Strategic intent” which has contributed to our ability to weather the crisis, has been our stated intention of “focusing on attractive and growing markets in Asia, Africa and the Middle East where we can leverage our relationships and expertise.”

The important point here is the element of leveraging our expertise, and by extrapolation, dealing only in markets and products whose risk parameters we know well through long experience and successful operation.

Many of the assets that collapsed and which resulted in significant losses for many financial institutions were created through what is termed as ‘off-piste’ strategy- meaning simply, businesses that were not core. Our deliberate strategy of only pursuing ‘core’ interests has paid dividends. We are constantly approached with new offers, but in coming to a decision we always ask ourselves “does that fit our strategy?”
This is the fundamental reason why we were not affected by the “Sub-Prime” assets that precipitated the global crisis.

Rigidly sticking to operating in our strategically chosen markets also helped us. While these markets in Asia, Africa and the Middle East have not proved immune to the crisis, levels of debt have been generally lower than that in the West. Companies in our markets were in better financial shape and the balance sheets of governments had not been wrecked by expensive bank  bail-outs. The real difference, though, is our discipline- we stuck to the business of banking by offering personal and commercial banking services to our clients and didn’t dabble in exotic  derivative products whose risk profiles we did not fully understand.

And central to this disciplined approach has been our unwavering focus And central to this disciplined approach has been our unwavering focus on the basics of banking: liquidity, capital, credit risk, operational risk and cost control. This disciplined approach to the basics of banking is essential given the continued uncertainties in the economic environment.

Moving away from the macro and becoming slightly more granular, I want to highlight some certain balance sheet elements that have contributed to the Standard Chartered Bank Group having successfully navigated our way through the crisis. First and foremost, is the bank’s desire to run a conservative balance sheet with regards capitalization and liquidity.

We have remained well capitalized as a Group, and have taken additional action to remain so. Our core Tier 1 capital ratio is 10.1 per cent , while total capital is at 15 per cent, both above the Group’s target ranges. As to liquidity, we have never taken it for granted. It is no accident that we have ended up with an AD ratio of 75 per cent. It has a cost, but we have very deliberately made a judgment between short-term P&L and the quality of the balance sheet. We have made this judgment on liquidity and on risk. Managing liquidity is a crucial aspect of banking and must be managed actively.

If not, as other banks have found to their detriment, it can be the difference between survival and collapse. And since the crisis started in August 2007, we have put greater emphasis on building long-term liquidity and reducing the maturity profile of our loan book, even if this was at the expense of short term profits.

Consequently, as a Group, we have had little reliance on short term interbank funding for our customer assets. Instead, we have been able to remain a major supplier of liquidity globally to the interbank market and have been able to remain open for business to support our clients and to take advantage of opportunities that are emerging from the turmoil.”


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