Standard Chartered PLC on Thursday reported a sharp drop in profit in the third quarter, taking a hit from its exposure to Chinese banking and real estate, but the firm backed its annual targets.

The Asia-focused lender said operating income rose 4.5% to $4.52 billion from $4.33 billion a year before.

However, pretax profit dropped 54% to $633 million from $1.39 billion, well below the $1.41 billion pencilled in by analysts, according to company-compiled consensus.

Shares in StanChart dropped 6.8% to HK$62.85 each in Hong Kong on Thursday afternoon.

The bottom-line hit came as credit impairments increased to $292 million from UD227 million, which included further charges related to the Chinese commercial real estate sector.

The firm also booked an impairment of around $700 million related to the reduction in the carrying value of its holding in China Bohai Bank. This reflected ‘subdued earnings and a challenging macroeconomic outlook’ at Bohai, StanChart said.

On an underlying basis, pretax profit slipped slightly to $1.32 billion from $1.35 billion. This undershot the $1.44 billion figure expected by company-compiled analyst consensus.

At the end of September, StanChart’s CET1 ratio was 13.9%, up compared to 13.7% a year before, but down from 14.0% at the end of June.

In the third quarter, the cost-to-income ratio rose to 63.5% from 62.3% a year prior.

Looking ahead to all of 2023, StanChart reiterated that it expects income to increase by 12% to 14% at constant currency. It also still expects net interest margin to average about 170 basis points over the full year, and to achieve a return on tangible equity of 10%.

‘Wealth Management has continued its recovery with double digit income growth and the Financial Markets performance has been resilient against a strong comparator period. We remain highly liquid, and well capitalised, with a CET1 ratio towards the top of our target range and confident in the delivery of our 2023 financial targets,’ said Chief Executive Officer Bill Winters.

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