Why Standard Chartered Bank Operates Outside UK

Standard Chartered bank  is a UK bank with its  headquarters in London the assumed hob of financial activities in Europe. Standard Chartered bank has little commercial activities in UK compared with the financial activities in Asia, Africa and some part of middle east.

The question that comes to mind is why did Standard Chartered moved? or why don't they have considerable presence in the UK or even EU at large? Our  submission at EcoInshore is that, there  has always been contagion effects in the UK banking sector where the problem with one financial institution affects the other this is because of the exposure of trading of these other banks in the same market, the risk of one will ultimately affect the other.

The British banks that operates and realise more than 60% of their business activities  in the UK like Lloyds banking group , Royal Bank of Scotland (RBS) fell victim of this contagion effect predominantly caused by the Euro crisis which eventually affects their  balance sheet position and profits.  The unwillingness to diversify and enter into the emerging markets in other to hedge their risk exposure to Euro lead them to government bailout. This is evident because the UK government had to use tax payers money to bail out both Lloyds bank and RBS with the government having 43% stake and 83% respectively.

The two British banks Standard Chartered and HSBC have significantly diversify their business operations in Asia, Africa, Latin America and Middle east see their businesses not only grow compared to its other UK banks but with no bail out from government. 

Standard Chartered bank half year result of 2012 shows Income growth of 9%  these growth are based on 2 elements which are not evident in other UK banks  like  RBS and Lloyds bank.

1. Diversification and multiple income engines with growth rates in double digit : UK and America 26% , China 22% , Malaysia  21%, Indonesia 20% , Korea 13%  and Hong Kong 10%.

2. Cost and risk : The Payment Protection Insurance(PPI) provisions have depleted the profits Lloyds and RBS because of their more reliance on the UK increased their cost. Standard Charted have limited exposure to the Euro though but only acts as a bridge to link the Asia ,Africa with Euro

Though some might argue that Standard Chartered bank is not much of a retail bank that is why they do not have much presence in UK, but they understood that doing business in Malaysia, Singapore , china , Indonesia, Africa and middle east has been the best business decision they make because these regions make up 90% of their operating profit in the half year result.  

United Kingdom Flat Growth and The Lending Scheme

Looking at the quarterly inflation report of the Bank of England(BoE) gives indication how dip the euro crisis and lack of willingness of banks to lend money is affecting the economy at large. The BoE in its report reduced the expected growth rate from 0.8% to 0% compared to what it was in the same period a year ago of 2%.

The reasons for this forecast of the growth forecast are obvious to all and sundry which are; the euro crisis , the weather which , the bank holidays as well as government cut in spending.

The Lending Scheme

The new £80bn lending scheme which officially started on 1st of August for drawings is to allow banks and building societies borrow money at a reduced cost from BoE and eventually lend to households and the businesses with the hope that it will stimulate the economy activities in the UK. Banks and building societies will have access to it for a period 18 months and there is no limit on what individual banks can borrow from the scheme but will be able to borrow up to 5% of  their previous lending to the real sector as at the end of June 2012.

The banks are to lend to the real sector of the economy but the concern here is that banks  might take the loan to boost their profit and balance sheet position rather than lending to the businesses that are struggling with funding. On the building societies perspective, instead of allowing the building societies to decide who to give these funds to, I think BoE should have attached some conditions to it by designating some aspect of the loan to first time home buyers who might not have large initial deposits to finance their mortgages.