Standard Chartered 2Q26: Softer momentum but credit fundamentals remain sound

• Operating income rose 3% YoY, while Wealth remained the key growth driver despite softer sequential momentum.
• 2H26 earnings should moderate as non-interest income normalises, costs rise and credit charges trend toward through-cycle levels.
• Liquidity and funding remain strong, with 148% LCR, 137% NSFR and a 50.9% advances-to-deposits ratio.
• Asset quality remains stable, though higher Stage 2 and Early Alert exposures warrant monitoring amid Middle East risks.
• StanChart has bonds in SGD, USD, GBP, and HKD on our platform. We find greater relative value in its Tier 2 (USD) bonds, which offer decent yields without undertaking excessive duration risk.

Standard Chartered plc (StanChart) recently released its 2Q26 results. Earnings moderated sequentially from 1Q26 but remained resilient year-on-year (y/y). In this article, we review StanChart’s financial performance from a credit perspective, assess what the results mean for bondholders, and elaborate on our thoughts on StanChart’s outstanding bonds.

Resilient 2Q26 earnings despite softer sequential momentum

(Unless otherwise stated, results are in US Dollar [$] terms, while year-on-year [y/y] and quarter-on-quarter [q/q] growth rates are on a constant-currency basis.)

Operating income remained resilient y/y but moderated sequentially (Chart 1). 2Q26 operating income rose +3% y/y to $5,702m, though it would have been higher at +8% y/y excluding the $238m Solv India disposal gain recorded in 2Q25. However, operating income fell by -3% q/q from a strong 1Q26 level, as Treasury-related and episodic Global Markets income moderated.

Adjusted net interest income (NII) rose +7% y/y to $2,871m and was relatively unchanged sequentially (+1% q/q). Volume growth and improved balance sheet mix offset the effect of lower interest rates. NIM increased by +5 bps y/y to 2.03% in 2Q26 but fell by -2 bps from 1Q26. Customer lending continued to expand with average interest-earning assets +4% higher y/y and stable q/q. Net asset yields held steady, as lower gross asset yields were mitigated by lower funding costs and disciplined deposit pricing (Chart 2).

Adjusted non-interest income (non-NII) was resilient y/y but declined sequentially. 2Q26 adjusted non-NII was $2,831m, though y/y growth would have been +9% excluding the prior-year Solv India gain. Wealth Solutions remained the main growth driver, rising +43% y/y to $1,064m, led by a +56% y/y increase in Investment Products. Sequentially, adjusted non-NII declined by -6%, mainly as Treasury-related and Global Markets income moderated, though Wealth Solutions was still among the better performers (+3% q/q). Overall, we find that segments which did well y/y tended to derive their operating income from non-interest sources (Chart 3).

Wealth momentum remained strong. StanChart attracted $9b in Wealth net new money (NNM) and added 76,000 new-to-bank affluent clients in 2Q26. Wealth AUM increased by around $25b, including market, FX, and other effects. Furthermore, buoyant Asian equity markets likely supported Investment Products income, though management cautioned against annualising this 1H26 run-rate.

(Note: Adjusted NII and non-NII reflect management’s reclassification of trading book funding costs. This does not change total operating income or profit.)

Chart 1: Resilient operating income, growing y/y despite moderating q/q

Chart 2: Lower funding costs helped to offset lower gross yields

Chart 3: Wealth and Global Banking drove growth

Costs remained well-controlled, though underlying expenses increased

2Q26 operating expenses were roughly flat y/y at $3,196m (2Q25: $3,201m), but would have increased +3% y/y excluding a $74m Korea ELS provision release. Reported cost-to-income improved from 57.9% a year earlier to 56.1% in 2Q26 (Chart 4). However, 2Q26 cost-to-income would be higher at 57.3% excluding this provision release, reflecting efficiency savings offset by ongoing growth investments and strategic hiring.

Fit for Growth (FFG), StanChart’s 3-year business transformation programme, remained integral to absorbing cost pressures (Chart 5). Business growth and inflation added $286m to the y/y cost base, while FFG savings and other efficiency measures offset $238m. StanChart incurred $128m of FFG cost-to-achieve in 2Q26 and $248m in 1H26, and estimates FFFG has delivered approximately $1.1b of annualised exit run-rate savings since inception.

2Q26 credit impairments fell to $150m, from $296m in 1Q26. Stage 1 & 2 charges fell from $210m to $24m from 1Q26 to 2Q26, while Stage 3 charges increased from $86m to $126m. We note that StanChart had already recognised $190m in Middle East-related overlays in 1Q26, and added a further $44m in 2Q26, focused on petrochemicals and potential sovereign downgrades. The skew toward Stage 3 charges in 2Q26, however, may warrant continued monitoring in future quarters.

Profit before impairment and tax rose +7% y/y but declined -9% q/q to $2,506m. Profit after tax rose +1% y/y but fell -7% q/q. Both figures mirrored top-line trends discussed above. Overall, 2Q26 demonstrated StanChart’s ability to sustain high profitability rather than a further acceleration from the already-strong 1Q26 level.

Chart 4: Cost-to-income ratio rose from 1Q26, but remained below 2025 levels

Chart 5: Fit for Growth savings helped to significantly offset business growth and inflation costs

Expect a softer 2H26, though full-year figures should still be resilient

Management upgraded its nearer-term FY26 guidance while maintaining its medium to long-term outlook (Table 1). In particular, management raised FY26 NII and income guidance. However, expense guidance also increased marginally from $13.2b to $13.3b, while FY26 ROTE target remained at ‘above 12%’.

Adjusted NII should remain supported by balance sheet growth, though significant NIM expansion appears unlikely. Management’s low-single-digit NII guidance implies that 2H26 NII would be broadly flat to slightly higher (+1%) than 1H26. Loan and deposit growth should remain supportive, but this is likely to be offset by lower benchmark rates and continued migration from lower-cost CASA (current and savings account) into higher-cost term deposits.

Wealth should remain StanChart’s main structural growth driver, though the exceptional 1H26 run-rate may not be repeated. Strong NNM inflows, client acquisition, and higher AUM all help to support fee income. However, management cautioned that buoyant equity markets (especially in Asia) contributed to this strong 1H26 result. Based on management’s FY26 income and NII guidance, we infer that they expect adjusted non-NII to decline by -16% to -18% from 1H26 to 2H26, suggesting a normalisation across non-NII.

Expenses should increase in 2H26 even as FFG continues to restrain underlying cost growth. The FY26 expense guidance ($13.3b) implies a pickup in operating expenses from 1H26 to 2H26, which then implies a possible pickup in cost-to-income ratio in 2H26. This suggests that FFG-related efficiency gains might become more visible from FY27, especially if StanChart can reap its benefits without the relevant cost-to-achieve each quarter. Credit costs should also normalise toward the 30 bps – 35 bps through-the-cycle range, although prolonged Middle East stress could require additional overlays.

Overall, we expect FY26 profits to exceed FY25 levels, though second-half earnings may moderate versus an already-strong first-half.

Table 1: Management guidance (changes are in colour)

Strong liquidity & funding supported by key-market deposit franchises

StanChart’s liquidity and funding remain clear credit strengths, supported by large deposit franchises which reduce reliance on wholesale funding.

Its liquidity coverage ratio (LCR) declined to 148% at end-June 2026, compared to 155% at end-2025. The decline reflected higher modelled stress outflows rather than depletion of liquid assets. Management did not provide details beyond ‘balance sheet growth’, but the ratio remains comfortably above the 100% regulatory minimum and does not indicate material funding stress.

Longer-term funding remained strong. Net stable funding ratio (NSFR) was broadly stable at 137% at end-June 2026, compared to 139% at end-2025 and 138% at end-March 2026, as higher deposits and term funding were offset by growth in commercial assets. Meanwhile, advances-to-deposits ratio improved to 50.9%, from 51.4% at end-2025, indicating that customer loans remain comfortably funded by deposits.

Asset quality remains stable, but Stage 2 migrations warrant monitoring

StanChart’s underlying asset quality remained stable. Gross customer loans rose +4% from end-2025. Stage 2 loans increased +40% to $13,757m, mainly reflecting Middle East-related stage transfers and additional exposures in non-purely precautionary Early Alerts. Early Alert balances rose +36% from end-2025 to $5,839m. However, CG12 balances were comparatively stable (+4%) at $1,160m, while Stage 3 exposures fell -4% to $5,705m. These trends indicate increased precautionary monitoring amid the Middle East conflict, rather than a broad rise in current defaults, but nonetheless still warrant monitoring for any eventual migration into Stage 3 (Table 2).

Stage 2 coverage fell from 4.5% at end-2025 to 3.6% at end-June 2026, as its gross exposures rose faster than provisions. By contrast, Stage 3 coverage improved to 55% before collateral, or 72% after collateral. Total provisioning coverage remained stable at 1.4% (Table 3). The lower Stage 2 coverage is not a major concern today, as the stage migration appears more precautionary and pre-emptive in nature. However, this would again depend on whether the Middle East conflict is prolonged, and whether Stage 2 coverage declines further.

The Middle East conflict remains the key source of uncertainty, as it accounts for 6% of group exposures. StanChart has already recognised $234m ($190m + $44m) of Middle East-related impairment charges in 1H26 and increased the weighting of its downside scenarios. While StanChart is not facing broad-based borrower stress in that region, further overlays may be required if the conflict persists and/or sovereign creditworthiness deteriorates.

Overall, asset quality today remains stable, but the forward-looking risk profile has become more cautious. Stage 3 loans remain contained with strengthened coverage, while the rise in Stage 2 and Early Alert exposures reflects forward-looking geopolitical concerns. The key watchpoint is whether these exposures remain performing or migrate into Stage 3.

Table 2: Balance sheet continued to grow; higher Stage 2 but fewer Stage 3 exposures

Table 3: Coverage remained adequate, falling for Stage 2 but rising for Stage 3

Capital buffers remain comfortable

StanChart remains well-capitalised with CET1 comfortably above regulatory requirements. CET1 increased to 14.2%, compared to 14.1% at end-2025. Retained profits helped to offset capital distributions, including various buybacks and dividends across 1H26. This puts CET1 above the 10.3% regulatory requirement, and around the top of management’s 13% - 14% target range. Management has since announced a $1.0b imminent share buyback, which is expected to impact CET1 by 38 bps, implying a pro-forma estimate of 13.8%.

Risk-weighted assets (RWA) increased by $8,155m in 1Q26, before declining by $4,735m in 2Q26. Management expects the 2Q26 decline to reverse in 2H26, alongside the annual 4Q recalculation of operational-risk RWAs. This should place some downward pressure on CET1, though we reiterate that StanChart has significant buffer to work around.

(Note: Basel 3.1 is expected to be broadly CET1-neutral after management actions.)

StanChart’s broader capital stack also remains solid. Its Tier 1 ratio stood at 17.6%, total capital ratio was 21.1%, and MREL ratio came in at 35.2% (requirement: 28.3%). While StanChart does not explicitly reveal its requirements for the former two ratios, we estimate these requirements at 12.4% and 15.2%, respectively, based on disclosed capital buffers – these estimates are also broadly unchanged from FY25 and 1Q26.

Looking ahead, we expect CET1 to settle within management’s target range of 13% - 14%. Profit accretion should help offset RWA growth over time, though capital distributions (buybacks and dividends) will likely cap any increase in CET1. Nonetheless, StanChart’s CET1 buffer remains solid again, including versus its peers (Chart 6).

Chart 6: StanChart retains sizeable CET1 headroom relative to peers

Bond comparison

Overall, StanChart’s resilient earnings and comfortable liquidity and capital buffers remain supportive for its bonds.

SGD bonds and perpetuals – fairly priced

We find StanChart’s senior bonds fairly priced relative to other bank papers (Table 4). While we generally prefer Tier 2 over senior bonds in the banking sector today, StanChart does not have any Tier 2 SGD bonds outstanding, leaving only its higher-rated senior bonds.

We also find StanChart’s SGD perpetuals fairly priced (Table 5). StanChart perpetuals appear to offer relatively lower yields (4+% yield-to-worst) compared to perpetuals by HSBC and Barclays, despite their broadly comparable credit ratings. Investors here should also be aware of perpetuals-related risks (especially non-call and loss-absorption risks).

(Note: Higher reset spreads can increase an issuer’s economic incentive to call. However, calls remain discretionary and depend on prevailing funding conditions, regulatory considerations, and broader call economics. Nonetheless, even in a non-call scenario, higher spreads result in higher reset rates.)

Table 4: SGD bond comparison (senior unsecured)

Table 5: SGD bond comparison (perpetuals only)

USD bonds and perpetuals

For USD non-perpetuals, we generally prefer StanChart’s Tier 2 bonds, especially its 2036 bonds (STANLN 3.265% 18Feb2036 Corp (USD)) (bolded in Table 6), which offer a decent yield without taking on too much duration. Meanwhile, their senior unsecured bonds will generally offer lower yields compared to their Tier 2s, and are better suited for more conservative investors. We provide a list of senior and Tier 2 bonds in Table 6 below – this list is non-exhaustive, and investors may find more options in our bond selector.

For USD perpetuals, we highlight several options which offer decent yields (>6%), while having larger reset spreads compared to StanChart’s other perpetuals. These higher reset spreads could help incentivise a call eventually. Investors who are comfortable with perpetuals-related risks mentioned above can generally expect yields of 6+%.

Table 6: USD bond comparison (non-perpetuals) (2036 T2 recommendation bolded)

Table 7: USD bond comparison (perpetuals) (higher reset spreads bolded)

Other currencies

We also offer StanChart bonds in other currencies, including GBP and HKD. Global investors with different currency preferences may wish to check these out below (Table 8).

Table 8: GBP & HKD bonds by StanChart

Declaration: For specific disclosure, at the time of publication of this report, IFPL (via its connected and associated entities) holds positions in STANLN 4.300% Perpetual Corp (SGD), HSBC 5.250% Perpetual Corp (SGD), BACR 4.650% Perpetual Corp (SGD), STANLN 5.400% 12Aug2036 Corp (USD), and STANLN 7.000% Perpetual Corp (USD). The analyst who produced this report holds NIL positions in the abovementioned securities. This research report was prepared with the assistance of artificial intelligence (AI) tools. iFAST Financial Pte Ltd does not rely exclusively on AI for content generation; the content of this report – including all investment theses, ratings, price targets and conclusions – has been independently reviewed and verified by the research analyst(s) to ensure accuracy and professional integrity.