When Standard Chartered handed a 634 million pounds loan to a low-profile Indonesian businessman in December, bankers involved in the transaction wondered if they should have first broken it into chunks and shared the risk with other banks.

Other Asia lenders might have done that. StanChart, however, decided it was a risk worth taking in one of the world's hottest emerging markets. It wanted to show a strong commitment to Indonesian coal magnate Samin Tan, who needed the money to finance his new partnership with the colourful Bakrie Brothers, owners of some of Indonesia's biggest coal and mineral deposits.

Now StanChart is struggling to sell down that exposure. Rivals have cited it as an example of the bank over-reaching; if a financial crisis hits Asia hard again as it did in the late 1990s, StanChart may find itself especially vulnerable. Three-quarters of its assets are in Asia.

Yet they will also concede that StanChart is sitting pretty in Asia at the moment, and gutsy lending is simply StanChart doing what it knows and does best.

I've heard so many stories about how aggressive StanChart is for years now, said Daniel Tabbush, head of Asian bank research at brokerage CLSA.

But the important thing is, this is a bank that has been able to consistently deliver top notch earnings, which is what really matters for investors.

StanChart's stock is up 43 percent since October. It has produced nine straight years of record profits, in large part due to its sharp focus on Asia, Africa and the Middle East and despite rising wage costs in these emerging markets. In fact, the bank recently announced plans to hire at least 2,000 more staff.

The size and temerity of some of the deals in these regions is instructive. In March 2010, the bank acted as the lead adviser for 4.7 billion pounds of financing for India's Bharti Airtel's purchase of the African assets of Kuwaiti telecom provider, Zain . It was the largest acquisition loan ever for an Indian borrower.

StanChart is also expected to play a lead role in Tata Communications' 1 billion pounds financing package for its takeover attempt of London-listed Cable & Wireless Worldwide , according to Reuters Basis Point.

Those guys really swing for the fences, said a top investment banker at a Wall Street firm in Asia.

'STILLBORN LOAN'

The 634 million pounds Born loan -- named after Tan's Borneo Lumbing Energi company -- is, however, causing some brows to furrow. In that deal, the bank financed Tan's partial takeover of London-listed Bumi Plc from the politically connected Bakries of Indonesia.

According to sources with knowledge of the matter, StanChart has struggled to sell down portions of the loan to other banks. Reuters Basis Point has also reported that the bank is meeting resistance in syndicating the deal.

First, StanChart tried syndicating the loan in blocks of at least 95 million pounds each. That proved unsuccessful, the sources say, and it is now trying it in smaller parts.

If it doesn't find any other bank, StanChart would have to take on all the risk on the Born loan, which is now referred to disparagingly by some rival bankers as the stillborn loan.

One banker at a major Wall Street bank told Reuters that while his bank would never underwrite such a large loan in Indonesia, he believed Tan's company and his reputation as a businessman had excellent credit.

Peter Kay, head of StanChart's Leveraged Finance Syndicate and the person running the Borneo loan, told Reuters banks generally are finding it is taking longer to process credit in the current lending environment.

Notwithstanding this, the Borneo senior syndication has succeeded in attracting strong interest from a number of domestic and international banks, and we expect to close this initial phase shortly with material commitments from a core group of relationship banks, Kay said.

He added he also expected demand for the loan to be driven by the increasingly positive tone from investors towards the Indonesian economy.

When asked if he was concerned about the Indonesia loan during an interview in February, StanChart's Chief Executive Peter Sands declined to comment on individual deals but said all transactions undergo the same risk management measures.

We look very carefully at what we're originating and what we hold on our balance sheet, Sands said. We're always looking ahead and saying what's the refinancing risk building up in the system.

RISKY BUSINESS

Judging from its loan-loss provisioning, StanChart, the second largest bank in the UK by market value, clearly doesn't see risk building in the system for now.

StanChart set aside 0.28 percent of its outstanding loans as loan-loss provisions at the end of 2011, compared with 1.2 percent at HSBC and 1.2 percent at Barclays , according to company figures and Thomson Reuters Starmine.

Executives at StanChart point to the declining level of souring loans to explain their lower-than-average provisioning, and say strong economic growth in emerging markets will keep non-performing loans levels low.

Non-performing loans are down across both our businesses, so we have reason to believe that the credit portfolio is very good, StanChart's Asia Chief Executive Jaspal Bindra told Reuters at the bank's earnings conference in March, referring to the wholesale and consumer businesses.

StanChart says it is unfair to compare its loan-loss provision numbers to other European banks because of its focus on emerging markets. However, other banks that are strong in Asia don't seem as sure about the future health of their loan book.

For example, Industrial and Commercial Bank of China <1398.HK>, the world's biggest bank by market capitalisation, said on Monday it has loan-loss provisions of 2.5 percent, or over 10 times StanChart's.

The higher loan-loss provisions from the likes of ICBC come as warnings begin to emerge that the near-zero levels in Asian non-performing loans may be coming to an end.

Ratings agency Moody's said on March 5 it expects Asian non-financial corporate default rates to rise in 2012, with high-yield defaults jumping to 2.3 percent by the end of this year from zero in 2011.

UNSECURED LOANS

Standard Chartered, whose origins date to 19th century British colonial rule in Africa and India, earns a majority of its profit from corporate and wholesale banking. With corporate defaults likely to rise, unsecured lending would seem to be a bold move in looking for growth.

However, on the consumer banking front, StanChart has said it will continue to expand into the riskier unsecured lending space, which now makes up a relatively low 17 percent of its total consumer loan book but contributes for an outsized portion of its overall income.

London-based Macquarie analyst Thomas Stoegner points out that unsecured lending contributes 33 percent of the consumer banking unit's income, almost double the proportion of its loan book.

The strategy is to offer existing customers credit cards and other forms of unsecured lending, which would help raise the number of StanChart products used by its customers.

We're not going out there and offering everybody out on the streets a credit card, said Julian Fong, StanChart's Asia CFO. In some markets, there are credit bureaus, and in other markets, we tap on our existing customer base to bundle unsecured lending into a relationship that is already there.

Evidence abounds in Asia that credit quality is expected to soon worsen. In South Korea, one of StanChart's biggest markets, average household debt has already exceeded that of the United States just before the 2008 sub-prime crisis.

Any worsening credit quality will likely hit StanChart first, Stoegner at Macquarie said. It is still a well-run bank, but a slowdown in emerging markets will hit StanChart more badly than its peers because that is the bank's only exposure.

(Additional reporting by Michael Flaherty, Steve Slater and Lawrence White; Editing by Bill Tarrant and Muralikumar Anantharaman)