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Standard Chartered brushes off China fears after stronger quarter

A woman walks past a Standard Chartered bank in London October 13, 2010. REUTERS/Stefan Wermuth
A woman walks past a Standard Chartered bank in London October 13, 2010. REUTERS/Stefan Wermuth

By Matt Scuffham

LONDON (Reuters) - Standard Chartered brushed off fears that a slowdown in China's economy would hit the Asia-focused lender hard and said it would meet analysts' expectations for the full-year following an improved second-quarter.

The bank, which makes about four-fifths of its earnings in Asia and the Middle East, said it was on track to meet forecasts for full-year operating profit of about $8 billion but would miss its usual target of 10 percent profit and revenue growth.

U.S. activist investor group Muddy Waters has bet against the bank, saying that a slowdown in China would lead to "considerable stress" at the London-based lender. A cash crunch in China's money market over the last three weeks and consequent sharp rise in borrowing costs, has sent Chinese stocks to four-year lows and spilled over into global markets.

Standard Chartered's finance chief Richard Meddings said on Wednesday actions being taken by the government in China were appropriate and its interventions in the inter-bank lending market would not materially affect the bank's ability to borrow there.

"We think these are very good reforms that are being introduced. I think what it points to is perhaps slower growth but on a more sustainable level," Meddings told reporters on a conference call.

The profitability of banks in Asia has been squeezed by ultra-easy monetary policy in the West, which has created a flood of cheap money that has pressured margins for banks competing to lend to fast-growing emerging markets.

Standard Chartered, which has been one of the most consistent performers during the financial crisis, said revenue for the first six months of 2013 was expected to rise by about 5 percent following an acceleration in the second quarter.

Chief Executive Peter Sands said second quarter growth was up on the previous quarter and the same period the year before.

"Growth has remained resilient across our footprint markets of Asia, Africa and the Middle East with high levels of client activity," he said. The bank said it had benefited from the diversity of its markets and products, with strong performances in Hong Kong and Africa helping offset weak growth in Korea and Singapore.

The bank was also cutting costs to offset its inability to meet 10 percent profits growth and has eased back on hiring to rein in rising wage costs, Meddings said.

"At the top line level we are now tracking to below double digit. We expect that to be the case (for the full year). To the extent that we don't make that in any one year, we manage the business, the costs and so on, to protect and manage returns, he said.

Net interest margin is expected to be down from 2012 by about 20 basis points with margins coming under pressure from high levels of liquidity in its markets while charges on bad loans were expected to be up on the first half of 2012 by about 15 percent, mostly from its consumer banking unit.

Shares in Standard Chartered were up 0.6 percent by 1210 GMT, underperforming a 2.1 percent rise in the European Banking Index <.SX7P>.

JP Morgan analyst Raul Sinha said the update was "likely to reassure concerns over near term earnings with an improved performance in the second quarter".

Meddings, who has been linked with the vacant chief executive job at Royal Bank of Scotland , said he was "very happy" at Standard Chartered but declined to confirm whether he had been approached by RBS.

(Editing by Louise Ireland)

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