Analysis of Financial Challenges: Standard Chartered HK Cost-to-Income

This report analyzes the financial problems faced by Standard Chartered Bank (SBC) Hong Kong Limited, focusing on its cost-to-income (C/I) ratio. The report highlights that, despite being a major subsidiary, SBC HK has a high C/I ratio compared to other licensed banks in the region, indicating inefficiency in managing costs relative to income. It explains the C/I ratio, its calculation, and why it's a problem for SBC HK, referencing reports and data from KPMG. The report outlines strategies the bank is employing to reduce the ratio, including centralization, digital solutions, and risk management. Finally, the report explains the research process and sources used. The report is written to provide insights into the financial challenges and performance of Standard Chartered Bank in Hong Kong.

Standard Chartered Bank (Hong Kong) Financial Problem
Introduction
Standard Chartered Bank (SBC) is one of the largest bank in the world in terms of their assets,
operations and presence all across the world. Today, SBC operates in more than 70 countries
with more than 1200 branches. More than 87000 people are working under this multi-national
financial corporation. Although it is a UK company but 90% of the profit comes from Asia, Africa
and Middle-East region.
SBC Hong Kong Limited is one of the major subsidiary of the group which got licensed bank
status in Hong Kong (HK) in 2004. Since then, it has been among the top 5 licensed banks in HK
regions. Although having name and wide operation in HK region over 14 years, it has been
facing financial problems in this region. [SCB Team , 2017]
As we are supposed to discuss one of such problem, I am taking Cost to Income Ratio as the
current problematic area for SBC HK limited.
What is Cost to Income Ratio?
In finance, Cost to Income ratio (Also called as C/I ratio) is the measurement of the cost of
running an organization in comparison to the operating income. It is important from bank’s
perspective.
It is an important performance indicator (PI) because the ratio expresses how efficiently the
organization is managing its cost and revenue.
 “The lower the C/I, the better it is.” Normally, less than 50% is taken as the standard norm
for this ratio. . [Borio, C.,et.al2017]
This ratio is calculated as-
Operating Expense/Operating Income

Where Operating Expense includes employee cost + other operating expenses and Operating
Income includes Net Interest (NI) + other operating income. [KPMG Team Hong Kong , 2017.]
Why is it a problem for SBC?
According to the KPMG HK Team (2017) “Banking Survey in HK” report, it was found that SBC
HK Limited found to have the highest C/I ratio among the top 10 locally licensed banks in this
region.
The report brought us the fact that the bank faced an increment of a significantly higher rate of
5.2% within a year in this ratio where rest banks reported a decline or a sight increment.
This showed that SCB HK limited is not able to control its cost especially overheads in
comparison to others. This we can also find in the recent annual report where they reported
17.2% decline in total return to shareholders. [Buch, C.M.,et.al2016]
If it continues for the organization, it will make loss in future.
Use of finance principles for C/I by SCB HK
Here are the 5set strategies that the bank is following to reduce it- [Raj Chakraborty-2017]
 Clarify accountability ad centralization of functions all across the organization where there
are benefits of scale.
 Eliminate duplication of task, roles and functions
 Introduction of digital solutions more and more where manual process is taking time and
errors are more.
 Optimization of levels of management
 Risk assessment and reward mechanism
Apart from that focus is given on impaired loans and advances to reduce Non-Performing
Assets (NPAs) of the organization.
Reflective part

Where do I get to know about the problem?- I searched current banking issues where I find
many current challenges in including this. I checked the problems with SCB through literature
reviews and that led me to select this as problem. This problem was quite vivid and clear from
literature I took under study.
References
KPMG Team Hong Kong , 2017. assets.kpmg.com. [Online]
Available at: https://assets.kpmg.com/content/dam/kpmg/cn/pdf/en/2017/06/hong-kong-banking-
survey-2017.pdf
[Accessed 28 June 2018].
Raj Chakraborty, R. F. a. D. A., 2017. www.accenture.com. [Online]
Available at: https://www.accenture.com/t20160504T064623__w__/cn-en/_acnmedia/PDF-15/
Accenture-Strategy-Banking-Strategic-Cost-Reduction.pdf
[Accessed 28 June 2018].
SCB Team , 2017. www.sc.com. [Online]
Available at: https://www.sc.com/annual-report/2017/media/doc/standard-chartered-annual-report-
2017.pdf
[Accessed 18 June 2018].
Borio, C., Gambacorta, L. and Hofmann, B., 2017. The influence of monetary policy on bank
profitability. International Finance, 20(1), pp.48-63.
Buch, C.M., Koetter, M. and Ohls, J., 2016. Banks and sovereign risk: A granular view. Journal of Financial
Stability, 25, pp.1-15.