Greater clarity around the impact of international banking regulation helped Standard Chartered Plc to resume dividend payouts after a two-year hiatus, CFO Andy Halford told analysts Feb. 27.
The London-listed, emerging markets-focused bank announced a dividend of 11 U.S. cents per ordinary share for the 2017 full year, after shareholders went for the previous two years without a dividend. The bank swung back into the black in 2017, with a profit attributable to parent company shareholders of $1.22 billion, compared with losses of $247 million in 2016 and $2.19 billion in 2015.
Net interest income increased year over year to $8.18 billion from $7.79 billion as the bank saw "momentum" in its balance sheet, with customer loans and advances increasing to $286 billion from $256 billion.
Along with a return to profitability, greater visibility on the impact of two major pieces of international regulation, IFRS 9 and Basel III, helped the bank to return to paying a dividend, Halford said. IFRS 9, which came into force in January, concerns how banks account for anticipated losses on loans, while the Basel III rules, finalized in December 2017, deal with banks' capital adequacy.
Standard Chartered had expected that IFRS 9 would have an impact of "between 10 and 20 basis points" on the bank's common equity Tier 1 ratio, Halford said, and the actual figure will be "bang in the middle" of that range, at 15 basis points, equal to $1 billion of reserves. But because there is a transition period for banks, the "day one impact" of this will be limited, he added.
The impact of Basel III would be more difficult to pin a figure on, Halford said, but he predicted that the bank would be able to adapt.
"It is manageable; we will work through it," he said. "The regulatory clouds are lifting, hence the dividends are coming back."
The bank now anticipates returning more capital back to shareholders in future, Halford said.
"The policy going forward is that the group will look to increase the dividend as the profitability of the business improves. We have not put it in tight formulas or payout ratios because we think that's a bit too precise," he said.
"But as we go forward, we'll look at the earnings outlook, at the regulatory outlook at the group and local level. We will look for opportunities to grow and invest, and to the extent that there is a good return, we will seek to return a good amount to shareholders."
Standard Chartered shares rose 0.66% in Hong Kong trading to HK$91.40, while as of around 11:40 a.m. in London, shares were up 0.4% at 832.3 pence apiece. The bank briefly traded above its 52-week London high in the early part of the morning.