TIDMSTAN
RNS Number : 5165H
Standard Chartered PLC
01 August 2019
Standard Chartered PLC - Additional Financial information
Highlights
Standard Chartered PLC (the Group) today releases its results
for the year ended 30 June 2019. The following pages provide
additional information related to the announcement.
Table of contents
Group Strategy
Our strategy 2
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Risk review and Capital review
Risk review 7
Capital review 44
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Financial statements and notes
Statement of directors' responsibilities 50
Independent review report 51
Condensed consolidated interim income statement 52
Condensed consolidated interim statement of comprehensive
income 53
Condensed consolidated interim balance sheet 54
Condensed consolidated interim statement of changes
in equity 55
Condensed consolidated interim cash flow statement 56
Notes to the financial statements 57
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Other supplementary information 99
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Glossary 104
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Shareholder information 114
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Standard Chartered PLC - Our strategy
Taking Standard Chartered to the next level
The strategic objectives we committed to in 2015 have stabilised
the Group. We have learned a lot about where we are differentiated,
what our clients want from us, and what we need to do to become a
simpler, faster and better bank with sustainable growth and
returns.
While we have made significant progress against the objectives
we set out in 2015, we know that we are capable of much more. We
remain focused on delivering our strategy by improving our service,
delivering a differentiated proposition to our clients and
stakeholders, and becoming a future-ready bank. Building on our
purpose of driving commerce and prosperity through our unique
diversity, we will have a particular focus on the following areas
for the next three years to improve our growth and financial
returns.
OUR STRATEGIC PRIORITIES
"Our refreshed strategic priorities build on our purpose and
earlier areas of focus, but mark a sharp change in the way we
operate as we go from turnaround to transformation."
Bill Winters Group Chief Executive
Our strategic priorities
Purpose and People
Understand our responsibilities
We will increasingly collaborate with clients and suppliers to
improve social and environmental standards. We continue to partner
with regulators and other stakeholders to fight financial crime,
and aim to make our risk and control approach a competitive
advantage for us.
Lead sustainable financing across emerging markets
We are maintaining our focus on supporting sustainable economic
growth, expanding renewables financing and investing in sustainable
infrastructure where it matters most. We will continue to
facilitate the movement of capital to drive positive social and
economic impact in our markets.
Support the communities where we live and work
We promote economic inclusion in our markets through community
programmes aimed at tackling inequality. We provide disadvantaged
young people with opportunities to learn new skills, get job-ready
and start their own business. We will continue to support the
visually impaired through our community programmes.
Maximise return from investment in our people
We want to deliver a client-centric environment with an
inclusive culture that capitalises on the experience and unique
diversity of our people. We are building a future-ready workforce,
embedding digital, agile and people leadership skills. We aim to
amplify the impact of our people by deploying them in markets
that
fit their capabilities and career aspirations.
Progress in H1 2019
Employee net promoter score1: 11.5 (+1.9 points YoY)
H1 2018: 9.6
1 Employee net promoter score measures the number of promoters
who would recommend the Group as a great place to work compared
with detractors on a scale from -100 to +100
Deliver our network
Leverage our unique footprint
Our unique network is a long-term source of growth and
sustainably higher returns. We will continue to deepen
relationships with our clients to fully realise the revenue
potential of our network. We will place a particular focus on
multinational corporates operating extensively in Asia, Africa and
the Middle East, as well as investors and financial institutions
that are seeking emerging market solutions.
Build on our strength in China
We will continue connecting our clients both within and beyond
China. We will increasingly capture growth opportunities arising
from capital market opening, renminbi (RMB) internationalisation,
Belt & Road corporate clients, offshore mainland Chinese wealth
and the Greater Bay Area.
Grow with Africa
We will continue to grow with our clients in Africa, focusing on
capturing inbound flows of financial institutions, multinational
corporations, and Belt & Road clients. Meanwhile, we aim to
accelerate our Retail Banking client growth in Africa with our
cost-efficient digital bank capabilities.
Progress in H1 2019
Corporate & Institutional Banking network income2:$2.4bn
(+9% YoY)
H1 2018: $2.2bn
2 Corporate & Institutional Banking income generated outside
of a client group's headquarter country
Grow our affluent business
Meet the wealth needs of the affluent and emerging affluent
By continuously enhancing our offering for affluent and emerging
affluent clients in markets where we have a Retail Banking
presence, we aspire to be increasingly relevant for our clients and
drive growth in these segments. To that end, we are investing in
digitally delivered wealth propositions that excite our
clients.
Enhance client experience with data and technology
We will increase our investment in data and analytics
capabilities to generate a unique understanding of our clients and
their needs, and in turn improve our offerings, deliver a
personalised experience and increase client engagement.
Scale the non-affluent segment in a targeted manner
The rise of the middle class is an important growth opportunity
for our Retail Banking business across our footprint. To profitably
capture this opportunity, we will implement new business models,
harness technology and work with non-bank partners to acquire and
serve non-affluent clients with our target profile in a
cost-efficient manner.
Progress in H1 2019
Affluent client income3: $1.8bn (+5% YoY)
H1 2018: $1.7bn
3 Income from Retail Banking Priority, Retail Banking Premium
and Private Banking clients
Optimise low-returning markets
Improve returns in markets where we are an international bank
with trusted local capabilities
In markets where we can utilise our local and international
capabilities, we will aim to improve returns through our sharpened
participation in Corporate & Institutional Banking and
selectively in Commercial Banking and/or Retail Banking. In
particular, we will focus on optimising the performance of four
high-potential markets, namely India, Indonesia, Korea and the
UAE.
Accelerate growth in our largest and most profitable markets
In markets where we are a top local universal bank and have
attractive returns, we will participate in all of our business
segments and invest to grow our market share.
Focus on Corporate & Institutional Banking in other
markets
In markets where our capabilities are geared towards
international business, we will reinforce our primary focus on
originating and facilitating cross-border business with our
Corporate & Institutional Banking presence.
Progress in H1 2019
Profit before taxation of India, Indonesia, Korea and the UAE4:
$380m (+14% YoY)
H1 2018: $333m
4 Aggregate underlying profit before taxation of the four
markets; excluding Permata
Improve productivity
Continue investing in productivity
Our investment in digitisation will continue to support
productivity improvements and enhance client experience. For
example, we refreshed our client digital platform with unified
trade and FX capabilities in Corporate & Institutional Banking.
In Retail Banking we launched real-time client onboarding on
digital channels and refreshed wealth and FX platforms with full
mobile access.
Organise around client journeys
We are shaping our organisation around the journeys of our
clients, to better align our processes and way of working with the
needs of our clients and partners. This will enable us to drive
operational improvements to scale revenue growth through improved
client acquisition, conversion and retention while also delivering
enhanced efficiency. This will be guided by our principles of
positioning ourselves as a digital solutions partner, focusing on
end-to-end digital client experience, transparent and real-time
service delivery, and effective and efficient decision-making.
Unlock capital and liquidity efficiency
We are establishing a Hong Kong hub entity structure to further
enhance capital and liquidity utilisation across the Group.
Progress in H1 2019
Income per FTE5: $177,000 (+4% YoY)
H1 2018: $170,000
5 Underlying operating income over the past 12 months divided by
the 12-month rolling average full-time equivalent (FTE)
employees
Transform and disrupt with digital
Transform our Retail Banking business with digital
We have continued our strong momentum in digitising our Retail
Banking business. For example, we have rolled out a full-service,
cost-efficient digital bank in a number of markets in Africa, and
we have obtained a virtual bank licence in Hong Kong. Going
forward, we aim to adapt and replicate these capabilities as
appropriate across our footprint to enhance client experience,
improve efficiency, gain market share, disrupt and build a
future-proof retail bank.
Consolidate strong position with corporate clients
We have been leading disruptive innovations in corporate
banking. In 2018 we launched cross-border remittance services with
Ant Financial, and started the first blockchain-based smart
guarantees service in the trade finance industry. We will continue
to invest in cutting-edge digital tools and new corporate banking
models, with a particular focus on blockchain and distributed
ledger technology, platforms and ecosystems, as well as artificial
intelligence and machine learning.
Progress in H1 2019
Retail Banking digital adoption6: 52% (+423 bps YoY)
H1 2018: 47%
Corporate & Institutional Banking digital volumes(7) : +11%
YoY
Commercial Banking digital adoption8: 67% (+277 bps YoY)
H1 2018: 64%
6 Mobile and online adoption by active clients
7 Financial Markets sales income originated via E-platforms
8 Percentage of Commercial Banking clients active on the
Straight2Bank application
Standard Chartered PLC - Risk review and Capital review
Risk Credit Risk
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Basis of preparation
------- ----------------------------------------------------------
Credit risk overview
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IFRS 9 methodology
Maximum exposure to credit risk
Analysis of financial instrument by stage
----------------------------------------------------------
Credit quality analysis
* Credit quality by client segment
* Credit quality by geographic region
* Credit quality by industry
----------------------------------------------------------
Movement in gross exposures and credit
impairment for loans and advances, debt
securities, undrawn commitments and financial
guarantees
Movement of debt securities, alternative
tier one and other eligible bills
----------------------------------------------------------
Credit impairment charge
Problem credit management and provisioning
* Forborne and other modified loans by client segment
* Forborne and other modified loans by region
* Credit-impaired (stage 3) loans and advances by
client segment
* Credit-impaired (stage 3) loans and advances by
geographic region
* Movement of credit-impaired (stage 3) loans and
advances provisions by client segment
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Credit risk mitigation
* Collateral
* Collateral - Corporate & Institutional Banking and
Commercial Banking
* Collateral - Retail Banking and Private Banking
* Mortgage loan-to-value ratios by geography
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* Industry and Retail products analysis of loans and
advances by geographic region
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IFRS 9 methodology
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Country risk
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Traded risk
Market risk changes
Counterparty Credit Risk
Derivative financial instruments Credit
Risk mitigation
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Liquidity and funding risk
Liquidity & Funding risk metrics
Encumbrance
Liquidity analysis of the Group's balance
sheet
Interest Rate Risk in the Banking Book
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Operational risk
Operational risk profile
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Other principal risks
------- ----------------------------------------------------------
Capital Capital summary
-------
* Capital ratio
-------
* CRD IV Capital base
* Movement in total capital
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Risk-weighted assets
----------------------------------------------------------
UK Leverage ratio
------- ----------------------------------------------------------
The following parts of the Risk review and Capital review form
part of the financial statements and are reviewed by the external
auditors:
-- From the start of the 'Credit risk review' section to the end
of 'Other principal risks' in the same section, excluding:
Risk section
----------------------------------------------------------
Credit Quality by geographic region
Credit Quality by industry
Forborne and other modified loans by region
Credit-impaired (stage 3) loans and advances by geographic
region
Industry and Retail Products analysis by geographic region
Country risk
Risks not in VaR
Backtesting
Liquidity coverage ratio (LCR)
Stressed coverage
Net stable funding ratio (NSFR)
Liquidity pool
Encumbrance
Interest Rate Risk in the Banking Book
Operational risk
Other principal risks
----------------------------------------------------------
-- From the start of 'CRD IV capital base' to the end of
'Movement in total capital' excluding capital ratios and
risk-weighted assets (RWA)
Standard Chartered PLC - Risk review
Credit Risk
Basis of preparation
Unless otherwise stated, the balance sheet and income statement
information presented within this section is based on the Group's
management view. This is principally the location from which a
client relationship is managed, which may differ from where it is
financially booked and may be shared between businesses and/or
regions. This view reflects how the client segments and regions are
managed internally.
Loans and advances to customers and banks held at amortised cost
in this Risk profile section include reverse repurchase agreement
balances held at amortised cost, per the notes to the financial
statements in the Half Year Report Reverse repurchase and
repurchase agreements including other similar secured lending and
borrowing.
Credit Risk overview
Credit Risk is the potential for loss due to the failure of a
counterparty to meet its obligations to pay the Group. Credit
exposures arise from both the banking and trading books.
IFRS 9 methodology
Impairment model
IFRS 9 requires an impairment model that requires the
recognition of expected credit losses (ECL) on all financial debt
instruments held at amortised cost, fair value through other
comprehensive income (FVOCI), undrawn loan commitments and
financial guarantees.
Staging of financial instruments
Financial instruments that are not already credit-impaired are
originated into stage 1 and a 12-month expected credit loss
provision is recognised.
Instruments will remain in stage 1 until they are repaid, unless
they experience significant credit deterioration (stage 2) or they
become credit-impaired (stage 3).
Instruments will transfer to stage 2 and a lifetime expected
credit loss provision recognised when there has been a significant
increase in the credit risk compared to what was expected at
origination.
The framework used to determine a significant change in credit
risk is set out below.
Stage 1
-- 12-month ECL
-- Performing
Stage 2
-- Lifetime ECL
-- Performing but has exhibited significant increase in credit
risk (SICR)
Stage 3
-- Credit-impaired
-- Non-performing
IFRS 9 methodology
The main methodology principles and approach adopted by the
Group are set out in the following table.
Title Description
------------------- ---------------------------------------------------------------------
Approach to For material loan portfolios, the Group has adopted a
determining statistical modelling approach for determining expected
expected credit credit losses that makes extensive use of credit modelling.
losses Where available, the Group has leveraged existing advanced
internal ratings based (IRB) regulatory models that have
been used to determine regulatory expected loss.
For portfolios that follow a standardised regulatory approach,
the Group has developed new models where these are material.
------------------- ---------------------------------------------------------------------
Incorporation The determination of expected credit loss includes various
of forward-looking assumptions and judgements in respect of forward-looking
information macroeconomic information. Refer to the Half Year Report
for incorporation of forward-looking information, forecast
of key macroeconomic variables underlying the expected
credit loss calculation and the impact on non-linearity
and sensitivity of expected credit loss calculation to
macroeconomic variables.
------------------- ---------------------------------------------------------------------
Significant Expected credit loss for financial assets will transfer
increase in from a 12-month basis to a lifetime basis when there is
credit risk a significant increase in credit risk (SICR) relative
to that which was expected at the time of origination,
or when the asset becomes credit-impaired. On transfer
to a lifetime basis, the expected credit loss for those
assets will reflect the impact of a default event expected
to occur over the remaining lifetime of the instrument
rather than just over the 12 months from the reporting
date.
SICR is assessed by comparing the risk of default of an
exposure at the reporting date with the risk of default
at origination (after considering the passage of time).
'Significant' does not mean statistically significant
nor is it reflective of the extent of
the impact on the Group's financial statements. Whether
a change in the risk of default is significant or not
is assessed using quantitative and qualitative criteria,
the weight of which will depend on the type of product
and counterparty.
------------------- ---------------------------------------------------------------------
Assessment Credit-impaired financial assets comprise those assets
of credit-impaired that have experienced an observed credit event and are
financial assets in default. Default represents those assets that are at
least 90 days past due in respect of principal and interest
payments and/or where the assets are otherwise considered
unlikely to pay. This definition is consistent with internal
Credit Risk management and the regulatory definition of
default.
Unlikely to pay factors include objective conditions such
as bankruptcy, debt restructuring, fraud or death. It
also includes credit-related modifications of contractual
cashflows due to significant financial difficulty (forbearance)
where the Group has granted concessions that it would
not ordinarily consider.
------------------- ---------------------------------------------------------------------
Modified financial Where the contractual terms of a financial instrument
assets have been modified, and this does not result in the instrument
being derecognised, a modification gain or loss is recognised
in the income statement representing the difference between
the original cashflows and the modified cashflows, discounted
at the effective interest rate. The modification gain/loss
is directly applied to the gross carrying amount of the
instrument.
If the modification is credit-related, such as forbearance
or where the Group has granted concessions that it would
not ordinarily consider, then it will be considered credit-impaired.
Modifications that are not credit related will be subject
to an assessment of whether the asset's credit risk has
increased significantly since origination by comparing
the remaining lifetime probability of default (PD) based
on the modified terms to the remaining lifetime PD based
on the original contractual terms.
------------------- ---------------------------------------------------------------------
Transfers between Assets will transfer from stage 3 to stage 2 when they
stages are no longer considered to be credit-impaired. Assets
will not be considered credit-impaired only if the customer
makes payments such that they are paid to current in line
with the original contractual terms. In addition:
* Loans that were subject to forbearance measures must
remain current for 12 months before they can be
transferred to stage 2
* Retail loans that were not subject to forbearance
measures must remain current for 180 days before they
can be transferred to stage 2 or stage 1
Assets may transfer to stage 1 if they are no longer considered
to have experienced a significant increase in credit risk.
This will be immediate when the original PD-based transfer
criteria are no longer met (and as long as none of the
other transfer criteria apply). Where assets were transferred
using other measures, the assets will only transfer back
to stage 1 when the condition that caused the significant
increase in credit risk no longer applies (and as long
as none of the other transfer criteria apply).
------------------- ---------------------------------------------------------------------
Governance The determination of expected credit losses requires a
and application significant degree of management judgement which had an
of expert credit impact on governance processes, with the output of the
judgement in expected credit models assessed by the IFRS 9 Impairment
respect of Committee.
expected credit
losses
------------------- ---------------------------------------------------------------------
Maximum exposure to credit risk
The table below presents the Group's maximum exposure to credit
risk for its on-balance sheet and off-balance sheet financial
instruments as at 30 June 2019, before and after taking into
account any collateral held or other credit risk mitigation.
The Group's on-balance sheet maximum exposure to credit risk
increased by $22 billion to $689 billion (31 December 2018: $667
billion). This was driven by an $8 billion increase in investment
securities (including those held at fair value through profit or
loss), as the Group further increased its portfolio of high-quality
liquid assets and increased exposures to financial
institutions.
Other assets increased by $3.6 billion mainly driven by
unsettled trades due to settlement timing differences.
Off-balance sheet credit risk exposures increased by $1.0
billion compared to 31 December 2018, as a decrease in contingent
liabilities was offset by increases in documentary credits and
short-term trade-related transactions.
Maximum exposure to credit risk
30.06.19 31.12.18
----------------- ------------------------------------------------ -------------------------------------------------
Credit risk management Credit risk management
--------- ------------------------ ----------- --------- ------------------------ ------------
Master Master
Maximum netting Net Maximum netting
exposure Collateral agreements exposure exposure Collateral agreements Net exposure
$million $million $million $million $million $million $million $million
----------------- --------- ----------- ----------- ----------- --------- ----------- ----------- ------------
On-balance sheet
Cash and balances
at
central banks 58,822 58,822 57,511 57,511
Loans and
advances to
banks1,8 59,210 1,145 58,065 61,414 3,815 57,599
--------- ----------- ----------- ----------- --------- ----------- ----------- ------------
Of which -
reverse
repurchase
agreements and
other
similar
secured
lending7 1,145 1,145 - 3,815 3,815 -
--------- ----------- ----------- ----------- --------- ----------- ----------- ------------
Loans and
advances to
customers1,8 263,595 117,114 146,481 256,557 109,326 147,231
--------- ----------- ----------- ----------- --------- ----------- ----------- ------------
Of which -
reverse
repurchase
agreements and
other
similar
secured
lending7 2,704 2,704 - 3,151 3,151 -
--------- ----------- ----------- ----------- --------- ----------- ----------- ------------
Investment
securities
- Debt
securities,
alternative
Tier 1 and other
eligible
bills2 127,753 127,753 125,638 125,638
Fair value
through profit
or loss3,7 91,843 54,065 - 37,778 85,441 54,769 30,672
--------- ----------- ----------- ----------- --------- ----------- ----------- ------------
Loans and
advances to
banks 3,653 3,653 3,768 3,768
Loans and
advances to
customers 6,190 6,190 4,928 4,928
Reverse
repurchase
agreements
and other
similar
lending7 54,065 54,065 - 54,769 54,769 -
Investment
securities
- Debt
securities,
alternative
Tier 1 and
other eligible
bills2 27,935 27,935 21,976 21,976
--------- ----------- ----------- ----------- --------- ----------- ----------- ------------
Derivative
financial
instruments4,7 49,237 8,105 29,546 11,586 45,621 9,259 32,283 4,079
Accrued income 2,355 2,355 2,228 2,228
Assets held for
sale 146 146 23 23
Other assets5 36,234 36,234 32,678 32,678
----------------- --------- ----------- ----------- ----------- --------- ----------- ----------- ------------
Total balance
sheet 689,195 180,429 29,546 479,220 667,111 177,169 32,283 457,659
----------------- --------- ----------- ----------- ----------- --------- ----------- ----------- ------------
Off-balance sheet
Contingent
liabilities6 41,267 - - 41,267 41,952 - - 41,952
Undrawn
irrevocable
standby
facilities,
credit lines and
other
commitments to
lend6 148,291 - - 148,291 147,728 - - 147,728
Documentary
credits
and short-term
trade-related
transactions6 5,073 - - 5,073 3,982 - - 3,982
----------------- --------- ----------- ----------- ----------- --------- ----------- ----------- ------------
Total off-balance
sheet 194,631 - - 194,631 193,662 - - 193,662
----------------- --------- ----------- ----------- ----------- --------- ----------- ----------- ------------
Total 883,826 180,429 29,546 673,851 860,773 177,169 32,283 651,321
----------------- --------- ----------- ----------- ----------- --------- ----------- ----------- ------------
1 An analysis of credit quality is set out in the credit quality
analysis section. Further details of collateral held by client
segment and stage are set out in the collateral analysis
section
2 Excludes equity and other investments of $283 million (31
December 2018: $263 million). Further details are set out in the
notes to the financial statements in the Half Year Report
3 Excludes equity and other investments of $1,559 million (31
December 2018: $1,691 million). Further details are set out in the
notes to the financial statements in the Half Year Report
4 The Group enters into master netting agreements, which in the
event of default result in a single amount owed by or to the
counterparty through netting the sum of the positive and negative
mark-to-market values of applicable derivative transactions
5 Other assets include Hong Kong certificates of indebtedness,
cash collateral, and acceptances, in addition to unsettled trades
and other financial assets
6 Excludes ECL allowances which are reported under Provisions
for liabilities and charges
7 Collateral capped at maximum exposure
(over-collateralised)
8 Adjusted for over-collateralisation, which has been determined
with reference to the drawn and undrawn component as this best
reflects the effect on the amount arising from expected credit
losses
Analysis of financial instrument by stage
This table shows financial instruments and off-balance sheet
commitments by stage, along with total credit impairment loss
provision against each class of financial instrument.
The proportion of financial instruments held within stage 1
remained broadly stable compared to 31 December 2018 at 94 per
cent. Within loans and advances to customers, Corporate &
Institutional Banking stage 1 loans rated as strong increased to 64
per cent from 62 per cent, reflecting the continued focus on
investment grade lending.
Stage 2 financial instruments were broadly stable at 5 per cent
(31 December 2018: 6 per cent). Within this, the proportion of
stage 2 debt securities declined to 4 per cent compared to 5 per
cent at 31 December 2018 reflecting changes in the approach for
stage allocations.
Stage 3 financial instruments were also stable at 1 per cent of
the Group total. Stage 3 loans and advances to customers fell $706
million due to a combination of write-offs and repayments. The
stage 3 cover ratio (excluding collateral) was slightly higher at
60 per cent.
30.06.19
--------------- ----------------------------------------------------------------------------------------------------------------------------------------------------------
Stage 1 Stage 2 Stage 3 Total
---------------------------------- ---------------------------------- ---------------------------------- ----------------------------------
Total Net Total Net Total Net Total Net
Gross credit carrying Gross credit carrying Gross credit carrying Gross credit carrying
balance(1) impairment value balance(1) impairment value balance(1) impairment value balance(1) impairment value
$million $million $million $million $million $million $million $million $million $million $million $million
--------------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Loans and
advances
to banks
(amortised
cost) 58,664 (5) 58,659 552 (1) 551 - - - 59,216 (6) 59,210
Loans and
advances
to customers
(amortised
cost) 245,747 (407) 245,340 16,090 (350) 15,740 6,218 (3,703) 2,515 268,055 (4,460) 263,595
Debt
securities,
alternative
Tier 1 and
other eligible
bills 122,271 (32) 5,470 (23) 234 (207) 127,975 (262)
---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Amortised
cost 11,420 (7) 11,413 718 (8) 710 234 (207) 27 12,372 (222) 12,150
FVOCI(2) 110,851 (25) 4,752 (15) - - 115,603 (40)
---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Cash and
balances
at central
banks 58,822 - - - - - 58,822 -
Accrued income
(amortised
cost) 2,355 - - - - - 2,355 -
Assets held
for sale 146 - - - - - 146 -
Other assets 36,234 - - - 155 (155) 36,389 (155) 36,234
Undrawn
commitments(3) 139,647 (54) 13,646 (46) 71 - 153,364 (100)
Financial
guarantees(3) 37,268 (5) 3,540 (6) 459 (161) 41,267 (172)
--------------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Total 701,154 (503) 39,298 (426) 7,137 (4,226) 747,589 (5,155)
--------------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
1 Gross carrying amount for off-balance sheet refers to notional
values
2 These instruments are held at fair value on the balance sheet.
The ECL provision in respect of debt securities measured at FVOCI
is held within reserves
3 These are off-balance sheet instruments. Only the ECL is
recorded on-balance sheet as a financial liability and therefore
there is no "net carrying amount". ECL allowances on off-balance
sheet instruments are held as liability provisions to the extent
that the drawn and undrawn components of loan exposures can be
separately identified. Otherwise they will be reported against the
drawn component
31.12.18
------------- ---------------------------------------------------------------------------------------------------------------------------------------------
Stage 1 Stage 2 Stage 3 Total
--------------------------------- --------------------------------- --------------------------------- ---------------------------------
Total Net Total Net Total Net Total Net
Gross credit carrying Gross credit carrying Gross credit carrying Gross credit carrying
balance1 impairment value balance1 impairment value balance1 impairment value balance1 impairment value
$million $million $million $million $million $million $million $million $million $million $million $million
------------- --------- ---------- ---------- --------- ---------- ---------- --------- ---------- ---------- --------- ---------- ----------
Loans and
advances
to banks
(amortised
cost) 60,350 (5) 60,345 1,070 (1) 1,069 - - - 61,420 (6) 61,414
Loans and
advances
to customers
(amortised
cost) 237,103 (426) 236,677 17,428 (416) 17,012 6,924 (4,056) 2,868 261,455 (4,898) 256,557
Debt
securities,
alternative
Tier 1
and other
eligible
bills 118,713 (27) 6,909 (31) 232 (206) 125,854 (264)
--------- ---------- ---------- --------- ---------- ---------- --------- ---------- ---------- --------- ---------- ----------
Amortised
cost 8,225 (7) 8,218 1,062 (3) 1,059 232 (206) 26 9,519 (216) 9,303
FVOCI2 110,488 (20) 5,847 (28) - - 116,335 (48)
--------- ---------- ---------- --------- ---------- ---------- --------- ---------- ---------- --------- ---------- ----------
Cash and
balances
at central
banks 57,511 - - - - - 57,511 -
Accrued
income
(amortised
cost) 2,228 - - - - - 2,228 -
Assets
held for
sale 23 - - - - - 23 -
Other assets 32,678 - 32,678 - - - 155 (155) - 32,833 (155) 32,678
Undrawn
commitments3 137,783 (69) 13,864 (39) 63 - 151,710 (108)
Financial
guarantees3 38,532 (4) 3,053 (13) 367 (156) 41,952 (173)
------------- --------- ---------- ---------- --------- ---------- ---------- --------- ---------- ---------- --------- ---------- ----------
Total 684,921 (531) 42,324 (500) 7,741 (4,573) 734,986 (5,604)
------------- --------- ---------- ---------- --------- ---------- ---------- --------- ---------- ---------- --------- ---------- ----------
1 Gross carrying amount for off-balance sheet refers to notional
values
2 These instruments are held at fair value on the balance sheet.
The ECL provision in respect of debt securities measured at FVOCI
is held within reserves
3 These are off-balance sheet instruments. Only the ECL is
recorded on-balance sheet as a financial liability and therefore
there is no "net carrying amount". ECL allowances on off-balance
sheet instruments are held as liability provisions to the extent
that the drawn and undrawn components of loan exposures can be
separately identified. Otherwise they will be reported against the
drawn component
Credit quality analysis
Credit quality by client segment
For the Corporate & Institutional Banking and Commercial
Banking portfolios, exposures are analysed by credit grade (CG),
which plays a central role in the quality assessment and monitoring
of risk. All loans are assigned a CG, which is reviewed
periodically and amended in light of changes in the borrower's
circumstances or behaviour. CGs 1 to 12 are assigned to stage 1 and
stage 2 (performing) clients or accounts, while CGs 13 and 14 are
assigned to stage 3 (non-performing or defaulted) clients. The
mapping of credit quality is as follows.
Mapping of credit quality
The Group uses the following internal risk mapping to determine
the credit quality for loans.
Corporate & Institutional Banking
and Commercial Banking Private Banking1 Retail Banking
-------------- ------------------------------------------------- ---------------- --------------
Number of
Credit quality Default Grade S&P external Regulatory days past
description mapping ratings equivalent PD range (%) Internal ratings due
-------------- ------------- ------------------- ------------- ---------------- --------------
Strong Grades 1-5 AAA/AA+ to 0.000-0.425 Class I and Current loans
BBB-/BB+ Class IV (no past dues
nor impaired)
-------------- ------------- ------------------- ------------- ---------------- --------------
Satisfactory Grades 6-8 BB+/BB to 0.426-2.350 Class II and Loans past
B+ Class III due till 29
days
--------------
Grades 9-11 B+/B to B-/CCC/C 2.351-15.750
-------------- ------------- ------------------- ------------- ---------------- --------------
Higher risk Grade 12 CCC/C 15.751-99.999 GSAM-managed Past due loans
30 days and
over till
90 days
-------------- ------------- ------------------- ------------- ---------------- --------------
1 For Private Banking, classes of risk represent the type of
collateral held. Class I represents facilities with liquid
collateral, such as cash and marketable securities. Class II
represents unsecured/partially secured facilities and those with
illiquid collateral, such as equity in private enterprises. Class
III represents facilities with residential or commercial real
estate collateral. Class IV covers margin trading facilities
The table overleaf sets out the gross loans and advances held at
amortised cost, expected credit loss provisions and expected credit
loss coverage by business segment and stage. Expected credit loss
coverage represents the expected credit loss reported for each
segment and stage as a proportion of the gross loan balance.
Stage 1
Stage 1 loans and advances to customers increased by $8.6
billion, or 4 per cent compared to 31 December 2018 and now
represent 92 per cent of loans and advances to customers (31
December 2018: 91 per cent). The stage 1 coverage ratio remained at
0.2 per cent and was stable across all segments compared to year
end. Most of the growth was concentrated in the Greater China &
North Asia and ASEAN & South Asia regions, up $4.6 billion and
$3.3 billion respectively.
87 per cent (31 December 2018: 85 per cent) of loans in
Corporate & Institutional Banking and Commercial Banking are
held in stage 1, with those rated as strong increasing to 57 per
cent from 55 per cent as the Group continues to focus on the
origination of investment grade lending. Within Corporate &
Institutional Banking and Commercial Banking, overall stage 1 loans
grew by $8.2 billion, primarily in the transport, telecom and
utilities and mining and quarrying sectors, reflecting the overall
increase in the portfolio since 31 December 2018.
Retail Banking stage 1 loans remained stable at 96 per cent with
the proportion rated as strong maintained at 98 per cent. Stage 1
secured wealth products increased by $2.3 billion, primarily in
Greater China & North Asia and ASEAN & South Asia.
Stage 2
Loans and advances to customer balances decreased by $1.3
billion compared to 31 December 2018, reducing the proportion of
loans in stage 2 from 7 per cent to 6 per cent. The decrease was
primarily due to lower levels of early alert exposures, outflows to
stage 3 and slightly lower 'Higher risk' exposures. Stage 2
coverage dropped slightly to 2.2 per cent from 2.4 per cent at 31
December 2018.
In Corporate & Institutional Banking, stage 2 balances
decreased by $241 million, with 74 per cent of loans rated as
'Satisfactory' compared to 73 per cent at 31 December 2018.
Provisions also fell by $69 million, leading to a drop in coverage
from 2.1 per cent to 1.3 per cent. This was largely due to lower
levels of provisions held against 'Higher risk' accounts as a small
number of loans with relatively high levels of provisions
transferred into stage 3 during the first half of 2019.
Commercial Banking stage 2 loans decreased by $1 billion
primarily due to repayments during the period with the majority of
loans continuing to be rated as 'Satisfactory'. Provisions rose by
$7 million, which together with the decrease in balances, drove
coverage higher to 2.9 per cent compared to 2.1 per cent at 31
December 2018.
Across Corporate & Institutional Banking and Commercial
Banking, an increase in manufacturing gross exposures was more than
offset by reductions in the transport, telecoms and utilities and
energy sectors.
Retail Banking stage 2 loans reduced slightly compared to 31
December 2018 with the proportion rated as 'Strong' increasing from
69 per cent to 73 per cent. Coverage dropped slightly to 4.5 per
cent mainly due to the increased proportion of mortgages within
stage 2.
Stage 3
Stage 3 loans and advances to customers fell by $0.7 billion, or
10 per cent, compared with 31 December 2018, with overall stage 3
provisions declining by $0.4 billion to $3.7 billion. The stage 3
cover ratio (excluding collateral) increased slightly to 60 per
cent, largely driven by the impact of write-offs and repayments in
the period.
In Corporate & Institutional Banking and Commercial Banking,
gross stage 3 loans fell by $0.7 billion compared with 31 December
2018 due to write-offs, upgrades and repayments. Provisions against
Corporate & Institutional Banking and Commercial Banking loans
also fell by $0.3 billion from $3.6 billion to $3.3 billion.
Inflows into stage 3 for Corporate & Institutional Banking
and Commercial Banking in the first half of 2019 were 28 per cent
lower compared to the second half of 2018, driven by the Africa
& Middle East region reflecting continued improvement in the
portfolio.
The majority of new stage 3 provisions in Corporate &
Institutional Banking and Commercial Banking are on counterparties
that were already impaired, and as such the loan book does not
indicate any new areas of stress.
Retail stage 3 loans were broadly stable at $0.8 billion.
Private Banking stage 3 loans are broadly stable, although there
was a release in provisions on a stage 3 client in the first half
of 2019.
Loans and advances by client segment
30.06.19
---------------- -----------------------------------------------------------------------------------------------------
Customers
-------- ------------------------------------------------------------------ ----------- ----------
Corporate
& Central
Institutional Retail Commercial Private & other Customer Undrawn Financial
Banks Banking Banking Banking Banking items Total commitments guarantees
Amortised cost $million $million $million $million $million $million $million $million $million
---------------- -------- ------------- -------- ---------- -------- -------- --------- ----------- ----------
Stage 1 58,664 100,309 98,123 23,632 14,551 9,132 245,747 139,647 37,268
-------- ------------- -------- ---------- -------- -------- --------- ----------- ----------
- Strong 46,225 63,941 95,917 6,818 10,907 8,976 186,559 113,762 25,591
- Satisfactory 12,439 36,368 2,206 16,814 3,644 156 59,188 25,885 11,677
-------- ------------- -------- ---------- -------- -------- --------- ----------- ----------
Stage 2 552 9,116 2,818 3,440 715 1 16,090 13,646 3,540
-------- ------------- -------- ---------- -------- -------- --------- ----------- ----------
- Strong 534 1,411 2,057 245 644 - 4,357 7,099 1,040
- Satisfactory 17 6,706 385 2,778 4 1 9,874 5,280 2,234
- Higher risk 1 999 376 417 67 - 1,859 1,267 266
-------- ------------- -------- ---------- -------- -------- --------- ----------- ----------
Of which
(stage 2):
- Less than
30 days
past due 54 145 385 63 5 - 598
- More than
30 days
past due - 64 376 75 47 - 562
Stage 3,
credit-impaired
financial
assets - 3,541 827 1,624 226 - 6,218 71 459
---------------- -------- ------------- -------- ---------- -------- -------- --------- ----------- ----------
Gross balance(1) 59,216 112,966 101,768 28,696 15,492 9,133 268,055 153,364 41,267
---------------- -------- ------------- -------- ---------- -------- -------- --------- ----------- ----------
Stage 1 (5) (81) (283) (35) (8) - (407) (54) (5)
-------- ------------- -------- ---------- -------- -------- --------- ----------- ----------
- Strong (3) (33) (159) (3) (7) - (202) (23) (2)
- Satisfactory (2) (48) (124) (32) (1) - (205) (31) (3)
-------- ------------- -------- ---------- -------- -------- --------- ----------- ----------
Stage 2 (1) (123) (127) (99) (1) - (350) (46) (6)
-------- ------------- -------- ---------- -------- -------- --------- ----------- ----------
- Strong (1) (4) (41) - (1) - (46) (3) -
- Satisfactory - (50) (52) (55) - - (157) (16) (4)
- Higher risk - (69) (34) (44) - - (147) (27) (2)
-------- ------------- -------- ---------- -------- -------- --------- ----------- ----------
Of which
(stage 2):
- Less than
30 days
past due - (27) (52) (8) - - (87)
- More than
30 days
past due - - (34) (7) - - (41)
Stage 3,
credit-impaired
financial
assets - (2,123) (392) (1,138) (50) - (3,703) - (161)
---------------- -------- ------------- -------- ---------- -------- -------- --------- ----------- ----------
Total credit
impairment (6) (2,327) (802) (1,272) (59) - (4,460) (100) (172)
---------------- -------- ------------- -------- ---------- -------- -------- --------- ----------- ----------
Net carrying
value 59,210 110,639 100,966 27,424 15,433 9,133 263,595
---------------- -------- ------------- -------- ---------- -------- -------- --------- ----------- ----------
Stage 1 0.0% 0.1% 0.3% 0.1% 0.1% 0.0% 0.2% 0.0% 0.0%
-------- ------------- -------- ---------- -------- -------- --------- ----------- ----------
- Strong 0.0% 0.1% 0.2% 0.0% 0.1% 0.0% 0.1% 0.0% 0.0%
- Satisfactory 0.0% 0.1% 5.6% 0.2% 0.0% 0.0% 0.3% 0.1% 0.0%
-------- ------------- -------- ---------- -------- -------- --------- ----------- ----------
Stage 2 0.2% 1.3% 4.5% 2.9% 0.1% 0.0% 2.2% 0.3% 0.2%
-------- ------------- -------- ---------- -------- -------- --------- ----------- ----------
- Strong 0.2% 0.3% 2.0% 0.0% 0.2% - 1.1% 0.0% 0.0%
- Satisfactory 0.0% 0.7% 13.5% 2.0% - 0.0% 1.6% 0.3% 0.2%
- Higher risk 0.0% 6.9% 9.0% 10.6% 0.0% - 7.9% 2.1% 0.8%
-------- ------------- -------- ---------- -------- -------- --------- ----------- ----------
Of which
(stage 2):
-------- ------------- -------- ---------- -------- -------- --------- ----------- ----------
- Less than
30 days
past due 0.0% 18.6% 13.5% 12.7% - - 14.5%
- More than
30 days
past due - 0.0% 9.0% 9.3% 0.0% - 7.3%
-------- ------------- -------- ---------- -------- -------- --------- ----------- ----------
Stage 3,
credit-impaired
financial
assets (S3) - 60.0% 47.4% 70.1% 22.1% 0.0% 59.6% 0.0% 35.1%
---------------- -------- ------------- -------- ---------- -------- -------- --------- ----------- ----------
Cover ratio 0.0% 2.1% 0.8% 4.4% 0.4% 0.0% 1.7% 0.1% 0.4%
---------------- -------- ------------- -------- ---------- -------- -------- --------- ----------- ----------
Fair value
through profit
or loss
---------------- -------- ------------- -------- ---------- -------- -------- --------- ----------- ----------
Performing 20,861 41,859 303 812 - 3 42,977 - -
-------- ------------- -------- ---------- -------- -------- --------- ----------- ----------
- Strong 18,603 20,398 303 344 - 1 21,046 - -
- Satisfactory 2,258 21,452 - 468 - 2 21,922 - -
- Higher risk - 9 - - - - 9 - -
-------- ------------- -------- ---------- -------- -------- --------- ----------- ----------
Impaired(3) - 41 - 29 - - 70 - -
Gross balance(2) 20,861 41,900 303 841 - 3 43,047 - -
---------------- -------- ------------- -------- ---------- -------- -------- --------- ----------- ----------
Net carrying
value (incl
FVTPL) 80,071 152,539 101,269 28,265 15,433 9,136 306,642 153,264 41,095
---------------- -------- ------------- -------- ---------- -------- -------- --------- ----------- ----------
1 Loans and advances includes reverse repurchase agreements and
other similar secured lending of $2,704 million under Customers and
of $1,145 million under Banks, held at amortised cost
2 Loans and advances includes reverse repurchase agreements and
other similar secured lending of $36,857 million under Customers
and of $17,208 million under Banks, held at fair value through
profit and loss
3 Refers to credit grade 13 and 14
31.12.18
---------------- -----------------------------------------------------------------------------------------------------
Customers
-------- ------------------------------------------------------------------
Corporate
& Central
Institutional Retail Commercial Private & other Customer Undrawn Financial
Banks Banking Banking Banking Banking items Total commitments guarantees
Amortised cost $million $million $million $million $million $million $million $million $million
---------------- -------- ------------- -------- ---------- -------- -------- --------- ----------- ----------
Stage 1 60,350 93,848 98,393 21,913 12,705 10,244 237,103 137,783 38,532
-------- ------------- -------- ---------- -------- -------- --------- ----------- ----------
- Strong 47,860 58,167 96,506 5,527 9,447 10,193 179,840 114,402 30,211
- Satisfactory 12,490 35,681 1,887 16,386 3,258 51 57,263 23,381 8,321
-------- ------------- -------- ---------- -------- -------- --------- ----------- ----------
Stage 2 1,070 9,357 2,837 4,423 785 26 17,428 13,864 3,053
-------- ------------- -------- ---------- -------- -------- --------- ----------- ----------
- Strong 403 1,430 1,956 270 713 - 4,369 6,996 682
- Satisfactory 665 6,827 500 3,732 - 26 11,085 5,485 1,948
- Higher risk 2 1,100 381 421 72 - 1,974 1,383 423
-------- ------------- -------- ---------- -------- -------- --------- ----------- ----------
Of which
(stage 2):
- Less than
30 days
past due 27 232 500 198 - - 930
- More than
30 days
past due - 190 381 99 3 - 673
Stage 3,
credit-impaired
financial
assets - 4,084 832 1,773 235 - 6,924 63 367
---------------- -------- ------------- -------- ---------- -------- -------- --------- ----------- ----------
Gross balance1 61,420 107,289 102,062 28,109 13,725 10,270 261,455 151,710 41,952
---------------- -------- ------------- -------- ---------- -------- -------- --------- ----------- ----------
Stage 1 (5) (94) (299) (24) (9) - (426) (69) (4)
-------- ------------- -------- ---------- -------- -------- --------- ----------- ----------
- Strong (2) (32) (149) (1) (9) - (191) (35) (2)
- Satisfactory (3) (62) (150) (23) - - (235) (34) (2)
-------- ------------- -------- ---------- -------- -------- --------- ----------- ----------
Stage 2 (1) (192) (132) (92) - - (416) (39) (13)
-------- ------------- -------- ---------- -------- -------- --------- ----------- ----------
- Strong - (11) (42) (5) - - (58) 3 -
- Satisfactory (1) (66) (50) (45) - - (161) (19) (3)
- Higher risk - (115) (40) (42) - - (197) (23) (10)
-------- ------------- -------- ---------- -------- -------- --------- ----------- ----------
Of which
(stage 2):
- Less than
30 days
past due - (34) (50) (9) - - (93)
- More than
30 days
past due - (2) (40) (4) - - (46)
Stage 3,
credit-impaired
financial
assets - (2,326) (396) (1,234) (100) - (4,056) - (156)
---------------- -------- ------------- -------- ---------- -------- -------- --------- ----------- ----------
Total credit
impairment (6) (2,612) (827) (1,350) (109) - (4,898) (108) (173)
---------------- -------- ------------- -------- ---------- -------- -------- --------- ----------- ----------
Net carrying
value 61,414 104,677 101,235 26,759 13,616 10,270 256,557
---------------- -------- ------------- -------- ---------- -------- -------- --------- ----------- ----------
Stage 1 0.0% 0.1% 0.3% 0.1% 0.1% 0.0% 0.2% 0.1% 0.0%
-------- ------------- -------- ---------- -------- -------- --------- ----------- ----------
- Strong 0.0% 0.1% 0.2% 0.0% 0.1% 0.0% 0.1% 0.0% 0.0%
- Satisfactory 0.0% 0.2% 7.9% 0.1% 0.0% 0.0% 0.4% 0.1% 0.0%
-------- ------------- -------- ---------- -------- -------- --------- ----------- ----------
Stage 2 0.1% 2.1% 4.7% 2.1% 0.0% 0.0% 2.4% 0.3% 0.4%
-------- ------------- -------- ---------- -------- -------- --------- ----------- ----------
- Strong 0.0% 0.8% 2.1% 1.9% 0.0% - 1.3% 0.0% 0.0%
- Satisfactory 0.2% 1.0% 10.0% 1.2% - 0.0% 1.5% 0.3% 0.2%
- Higher risk 0.0% 10.5% 10.5% 10.0% 0.0% - 10.0% 1.7% 2.4%
-------- ------------- -------- ---------- -------- -------- --------- ----------- ----------
Of which
(stage 2):
- Less than
30 days
past due 0.0% 14.7% 10.0% 4.5% - - 10.0%
- More than
30 days
past due - 1.1% 10.5% 4.0% 0.0% - 6.8%
Stage 3,
credit-impaired
financial
assets (S3) - 57.0% 47.6% 69.6% 42.6% 0.0% 58.6% - 42.5%
---------------- -------- ------------- -------- ---------- -------- -------- --------- ----------- ----------
Cover ratio 0.0% 2.4% 0.8% 4.8% 0.8% 0.0% 1.9% 0.1% 0.4%
---------------- -------- ------------- -------- ---------- -------- -------- --------- ----------- ----------
Fair value
through
profit or loss
---------------- -------- ------------- -------- ---------- -------- -------- --------- ----------- ----------
Performing 20,651 41,886 400 479 - 4 42,769 - -
-------- ------------- -------- ---------- -------- -------- --------- ----------- ----------
- Strong 19,515 33,178 395 247 - 3 33,823 - -
- Satisfactory 1,136 8,700 4 232 - 1 8,937 - -
- Higher-risk - 8 1 - - - 9 - -
-------- ------------- -------- ---------- -------- -------- --------- ----------- ----------
Impaired3 - 12 - 33 - - 45 - -
---------------- -------- ------------- -------- ---------- -------- -------- --------- ----------- ----------
Gross balance2 20,651 41,898 400 512 - 4 42,814 - -
---------------- -------- ------------- -------- ---------- -------- -------- --------- ----------- ----------
Net carrying
value
(incl FVTPL) 82,065 146,575 101,635 27,271 13,616 10,274 299,371 151,602 41,779
---------------- -------- ------------- -------- ---------- -------- -------- --------- ----------- ----------
1 Loans and advances includes reverse repurchase agreements and
other similar secured lending of $3,151 million under Customers and
of $3,815 million under Banks, held at amortised cost
2 Loans and advances includes reverse repurchase agreements and
other similar secured lending of $37,886 million under Customers
and of $16,883 million under Banks, held at fair value through
profit and loss
3 Refers to credit grade 13 and 14
Credit quality by geographic region
The following table sets out the credit quality for gross loans
and advances to customers and banks, held at amortised cost, by
geographic region and stage.
Loans and advances to customers
30.06.19
----------------------------------- ----------------------------------------------------------------
Greater China ASEAN & South Africa & Europe &
& North Asia Asia Middle East Americas Total
Amortised cost $million $million $million $million $million
----------------------------------- ------------- ------------- ------------ --------- ---------
Stage 1 123,018 74,427 24,899 23,403 245,747
Stage 2 4,490 5,663 3,994 1,943 16,090
----------------------------------- ------------- ------------- ------------ --------- ---------
Gross stage 1 and stage 2 balance 127,508 80,090 28,893 25,346 261,837
----------------------------------- ------------- ------------- ------------ --------- ---------
Stage 3, credit-impaired financial
assets2 719 2,489 2,022 988 6,218
----------------------------------- ------------- ------------- ------------ --------- ---------
Gross loans1 128,227 82,579 30,915 26,334 268,055
----------------------------------- ------------- ------------- ------------ --------- ---------
1 Amounts gross of expected credit losses. Includes reverse
repurchase agreements and other similar secured lending
2 Amounts do not include those purchased or originated
credit-impaired financial assets
31.12.18
----------------------------------- ----------------------------------------------------------------
Greater China ASEAN & South Africa & Europe &
& North Asia Asia Middle East Americas Total
Amortised cost $million $million $million $million $million
----------------------------------- ------------- ------------- ------------ --------- ---------
Stage 1 118,422 71,169 23,598 23,914 237,103
Stage 2 4,139 7,628 5,112 549 17,428
----------------------------------- ------------- ------------- ------------ --------- ---------
Gross stage 1 and stage 2 balance 122,561 78,797 28,710 24,463 254,531
----------------------------------- ------------- ------------- ------------ --------- ---------
Stage 3, credit-impaired financial
assets2 777 2,730 2,573 844 6,924
----------------------------------- ------------- ------------- ------------ --------- ---------
Gross loans1 123,338 81,527 31,283 25,307 261,455
----------------------------------- ------------- ------------- ------------ --------- ---------
1 Amounts gross of expected credit losses. Includes reverse
repurchase agreements and other similar secured lending
2 Amounts do not include those purchased or originated
credit-impaired financial assets
Loans and advances to banks
30.06.19
----------------------------------- ----------------------------------------------------------------
Greater China ASEAN & South Africa & Europe &
& North Asia Asia Middle East Americas Total
$million $million $million $million $million
----------------------------------- ------------- ------------- ------------ --------- ---------
Stage 1 24,580 14,311 6,195 13,578 58,664
Stage 2 - 384 8 160 552
----------------------------------- ------------- ------------- ------------ --------- ---------
Gross stage 1 and stage 2 balance 24,580 14,695 6,203 13,738 59,216
----------------------------------- ------------- ------------- ------------ --------- ---------
Stage 3, credit-impaired financial
assets2 - - - - -
----------------------------------- ------------- ------------- ------------ --------- ---------
Gross loans1 24,580 14,695 6,203 13,738 59,216
----------------------------------- ------------- ------------- ------------ --------- ---------
1 Amounts gross of expected credit losses. Includes reverse
repurchase agreements and other similar secured lending
2 Amounts do not include those purchased or originated
credit-impaired financial assets
31.12.18
----------------------------------- ----------------------------------------------------------------
Greater China ASEAN & South Africa & Europe &
& North Asia Asia Middle East Americas Total
$million $million $million $million $million
----------------------------------- ------------- ------------- ------------ --------- ---------
Stage 1 27,801 11,095 5,374 16,080 60,350
Stage 2 59 582 199 230 1,070
----------------------------------- ------------- ------------- ------------ --------- ---------
Gross stage 1 and stage 2 balance 27,860 11,677 5,573 16,310 61,420
----------------------------------- ------------- ------------- ------------ --------- ---------
Stage 3, credit-impaired financial
assets2 - - - - -
----------------------------------- ------------- ------------- ------------ --------- ---------
Gross loans1 27,860 11,677 5,573 16,310 61,420
----------------------------------- ------------- ------------- ------------ --------- ---------
1 Amounts gross of expected credit losses. Includes reverse
repurchase agreements and other similar secured lending
2 Amounts do not include those purchased or originated
credit-impaired financial assets
Credit quality by industry
Loans and advances
This section provides an analysis of the Group's amortised cost
portfolio by industry on a gross, total credit impairment and net
basis.
From an industry perspective, loans and advances increased by
$5.1 billion, largely driven by four sectors namely mining and
quarrying, commercial real estate, manufacturing, and financing
insurance and non-banking, with each sector contributing an
increase of $1 billion or more. Retail Products increased by $1.5
billion primarily within secured wealth products in ASEAN &
South Asia and Greater China & North Asia offset by lower
mortgages in ASEAN & South Asia and Greater China & North
Asia. Stage 1 loans increased by $8.6 billion compared to 31
December 2018, representing 92 per cent of loans and advances.
30.06.19
--------------- ------------------------------------------------------------------------------------------------------------------------------
Stage 1 Stage 2 Stage 3 Total
------------------------------ ------------------------------ ------------------------------ ------------------------------
Total Net Total Net Total Net Total Net
Gross credit carrying Gross credit carrying Gross credit carrying Gross credit carrying
Amortised balance impairment amount balance impairment amount balance impairment amount balance impairment amount
cost $million $million $million $million $million $million $million $million $million $million $million $million
--------------- -------- ---------- -------- -------- ---------- -------- -------- ---------- -------- -------- ---------- --------
Industry:
Energy 15,718 (21) 15,697 1,588 (37) 1,551 783 (570) 213 18,089 (628) 17,461
Manufacturing 22,111 (22) 22,089 2,508 (57) 2,451 733 (490) 243 25,352 (569) 24,783
Financing,
insurance
and
non-banking 20,921 (7) 20,914 912 (11) 901 243 (139) 104 22,076 (157) 21,919
Transport,
telecom
and utilities 14,286 (16) 14,270 1,423 (21) 1,402 634 (428) 206 16,343 (465) 15,878
Food and
household
products 8,612 (5) 8,607 1,451 (14) 1,437 647 (342) 305 10,710 (361) 10,349
Commercial
real estate 14,501 (15) 14,486 1,541 (34) 1,507 191 (41) 150 16,233 (90) 16,143
Mining and
quarrying 6,648 (7) 6,641 606 (17) 589 448 (324) 124 7,702 (348) 7,354
Consumer
durables 7,157 (7) 7,150 789 (11) 778 534 (321) 213 8,480 (339) 8,141
Construction 3,058 (5) 3,053 320 (7) 313 547 (337) 210 3,925 (349) 3,576
Trading
companies
& distributors 1,340 (1) 1,339 719 (2) 717 226 (113) 113 2,285 (116) 2,169
Government 14,099 (3) 14,096 164 (1) 163 - - - 14,263 (4) 14,259
Other 4,623 (7) 4,616 539 (10) 529 175 (156) 19 5,337 (173) 5,164
Retail
Products:
Mortgage 72,292 (9) 72,283 2,128 (8) 2,120 334 (111) 223 74,754 (128) 74,626
CCPL and
other
unsecured
lending 16,639 (259) 16,380 571 (114) 457 408 (249) 159 17,618 (622) 16,996
Auto 624 (1) 623 2 - 2 1 - 1 627 (1) 626
Secured
wealth
products 19,382 (19) 19,363 719 (6) 713 260 (62) 198 20,361 (87) 20,274
Other 3,736 (3) 3,733 110 - 110 54 (20) 34 3,900 (23) 3,877
--------------- -------- ---------- -------- -------- ---------- -------- -------- ---------- -------- -------- ---------- --------
Net carrying
value
(customers)(1) 245,747 (407) 245,340 16,090 (350) 15,740 6,218 (3,703) 2,515 268,055 (4,460) 263,595
--------------- -------- ---------- -------- -------- ---------- -------- -------- ---------- -------- -------- ---------- --------
1 Includes reverse repurchase agreements and other similar
secured lending held at amortised cost of $2,704 million
31.12.18
--------------- ------------------------------------------------------------------------------------------------------------------------------
Stage 1 Stage 2 Stage 3 Total
------------------------------ ------------------------------ ------------------------------ ------------------------------
Total Net Total Net Total Net Total Net
Gross credit carrying Gross credit carrying Gross credit carrying Gross credit carrying
Amortised balance impairment amount balance impairment amount balance impairment amount balance impairment amount
cost $million $million $million $million $million $million $million $million $million $million $million $million
--------------- -------- ---------- -------- -------- ---------- -------- -------- ---------- -------- -------- ---------- --------
Industry:
Energy 14,530 (18) 14,512 2,198 (46) 2,152 890 (554) 336 17,618 (618) 17,000
Manufacturing 21,627 (23) 21,604 1,932 (86) 1,846 719 (530) 189 24,278 (639) 23,639
Financing,
insurance
and
non-banking 20,419 (7) 20,412 379 (10) 369 225 (119) 106 21,023 (136) 20,887
Transport,
telecom and
utilities 12,977 (21) 12,956 2,495 (25) 2,470 818 (474) 344 16,290 (520) 15,770
Food and
household
products 7,558 (7) 7,551 1,851 (15) 1,836 718 (376) 342 10,127 (398) 9,729
Commercial
real estate 13,516 (16) 13,500 1,299 (27) 1,272 342 (79) 263 15,157 (122) 15,035
Mining and
quarrying 4,845 (7) 4,838 1,047 (29) 1,018 439 (309) 130 6,331 (345) 5,986
Consumer
durables 7,328 (5) 7,323 906 (13) 893 534 (348) 186 8,768 (366) 8,402
Construction 2,565 (4) 2,561 512 (22) 490 636 (385) 251 3,713 (411) 3,302
Trading
companies
& distributors 2,512 (2) 2,510 385 (2) 383 353 (239) 114 3,250 (243) 3,007
Government 13,488 (1) 13,487 250 - 250 - - - 13,738 (1) 13,737
Other 4,639 (7) 4,632 552 (8) 544 183 (147) 36 5,374 (162) 5,212
Retail
Products:
Mortgage 73,437 (9) 73,428 1,936 (9) 1,927 343 (98) 245 75,716 (116) 75,600
CCPL and
other
unsecured
lending 16,622 (277) 16,345 560 (117) 443 437 (263) 174 17,619 (657) 16,962
Auto 670 (2) 668 4 - 4 1 - 1 675 (2) 673
Secured wealth
products 17,074 (18) 17,056 825 (5) 820 236 (112) 124 18,135 (135) 18,000
Other 3,296 (2) 3,294 297 (2) 295 50 (23) 27 3,643 (27) 3,616
--------------- -------- ---------- -------- -------- ---------- -------- -------- ---------- -------- -------- ---------- --------
Net carrying
value
(customers)(1) 237,103 (426) 236,677 17,428 (416) 17,012 6,924 (4,056) 2,868 261,455 (4,898) 256,557
--------------- -------- ---------- -------- -------- ---------- -------- -------- ---------- -------- -------- ---------- --------
1 Includes reverse repurchase agreements and other similar
secured lending held at amortised cost of $3,151 million
Movement in gross exposures and credit impairment for loans and
advances, debt securities, undrawn commitments and financial
guarantees
The tables overleaf set out the movement in gross exposures and
credit impairment by stage in respect of amortised cost loans to
banks and customers, undrawn committed facilities, undrawn
cancellable facilities, debt securities classified at amortised
cost and FVOCI and financial guarantees. The tables are presented
for the Group, and the Corporate & Institutional Banking,
Commercial Banking and Retail Banking segments.
Methodology
The movement lines within the tables are an aggregation of
monthly movements over the year and will therefore reflect the
accumulation of multiple trades during the year. The credit
impairment charge in the income statement comprises the amounts
within the boxes in the table below less recoveries of amounts
previously written off.
The approach for determining the key line items in the tables is
set out below.
-- Transfers - transfers between stages are deemed to occur at
the beginning of a month based on prior month closing balances
-- Net remeasurement from stage changes - the remeasurement of
credit impairment provisions arising from a change in stage is
reported within the stage that the assets are transferred to. For
example, assets transferred into stage 2 are remeasured from a 12
month to a lifetime expected credit loss, with the effect of
remeasurement reported in stage 2. For stage 3, this represents the
initial remeasurement from specific provisions recognised on
individual assets transferred into stage 3 in the year
-- Net changes in exposures - new business written less
repayments in the year. Within stage 1, new business written will
attract up to 12 months of expected credit loss charges. Repayments
of non-amortising loans (primarily within Corporate &
Institutional Banking and Commercial Banking) will have low amounts
of expected credit loss provisions attributed to them, due to the
release of provisions over the term to maturity. In stages 2 and 3,
the amounts principally reflect repayments although stage 2 may
include new business written where clients are on non-purely
precautionary early alert, credit grade 12, or when non-investment
grade debt securities are acquired
-- Changes in risk parameters - for stages 1 and 2, this
reflects changes in the probability of default (PD), loss given
default (LGD) and exposure at default (EAD) of assets during the
year, which includes the impact of releasing provisions over the
term to maturity. It also includes the effect of changes in
forecasts of macroeconomic variables during the year. In stage 3,
this line represents additional specific provisions recognised on
exposures held within stage 3
Movements during the year
Stage 1 gross exposures increased by $11.1 billion, or 2 per
cent, from 1 January 2019, largely reflecting the impact of new
business booked offset by a net transfer out to stage 2. The
increase was largely driven by Corporate & Institutional
Banking and Commercial Banking, up $7.6 billion, together with an
increase of $2.5 billion of debt securities within the 'Central
& other items' segment, primarily related to debt securities.
Stage 1 provisions decreased by $28 million, or 5 per cent, as the
impact of provisions transferred in from stage 2, primarily in
Retail Banking was more than offset by the benefit from
improvements in portfolio quality, and the unwind of
provisions.
Stage 2 gross exposures declined by $3.0 billion, or 7 per cent,
largely due to repayments which more than offset the net impact of
stage transfers. Within Commercial Banking, stage 2 exposures fell
by $1.3 billion, with the amount of loans on non-purely
precautionary early alert decreasing over the period. Stage 2
provisions overall fell by $74 million, or 15 per cent, largely due
to outflows to stage 3 in Corporate & Institutional Banking and
transfers to stage 1 in Retail Banking, which were partly offset by
increases from 'Changes in risk parameters' primarily driven by
normal Retail Banking lifecycle flows.
Across both stage 1 and 2 for all segments, the impact of
changes to macroeconomic forecasts during the period increased
stage 1 and 2 provisions by $6 million.
Across all segments, approximately 50 per cent of the stage 2
provisions at 30 June 2019 arose on exposures that primarily meet
the PD significant increase in credit risk thresholds,
approximately 20 per cent are as a result of having 'Higher risk'
credit quality or being on non-purely precautionary early alert and
approximately 7 per cent for being more than 30 days past due. The
remainder largely relates to debt security exposures allocated to
stage 2 on initial transition to IFRS 9.
Stage 3 exposures fell from $7.6 billion at 1 January 2019 to
$7.0 billion at 30 June 2019, primarily due to repayments and
write-offs within Corporate & Institutional Banking and
Commercial Banking. This was also reflected in lower stage 3
provisions, which fell from $4.4 billion at 1 January 2019 to $4.1
billion at 30 June 2019.
All segments
Stage 1 Stage 2 Stage 3 Total
-------------------- ------------------------------ ------------------------------ ------------------------------ ------------------------------
Total Total Total Total
Gross credit Gross credit Gross credit Gross credit
Amortised balance impairment Net balance impairment Net balance impairment Net balance impairment Net
cost and FVOCI $million $million $million $million $million $million $million $million $million $million $million $million
-------------------- -------- ---------- -------- -------- ---------- -------- -------- ---------- -------- -------- ---------- --------
As at 1 January
2018 565,815 (576) 565,239 52,387 (742) 51,645 9,198 (5,576) 3,622 627,400 (6,894) 620,506
Transfers
to stage 1 59,776 (627) 59,149 (59,776) 627 (59,149) - - - - - -
Transfers
to stage 2 (73,589) 136 (73,453) 73,809 (136) 73,673 (220) - (220) - - -
Transfers
to stage 3 (293) 7 (286) (2,338) 264 (2,074) 2,631 (271) 2,360 - - -
---------- ---------- ---------- ----------
Net change
in exposures 50,249 (282) 49,967 (20,341) 94 (20,247) (1,836) 527 (1,309) 28,072 339 28,411
Net remeasurement
from stage
changes - 139 139 - (136) (136) - (529) (529) - (526) (526)
Changes in
risk parameters - 468 468 - (275) (275) - (971) (971) - (778) (778)
---------- ---------- ---------- ----------
Write-offs - - - - - - (2,075) 2,075 - (2,075) 2,075 -
Exchange
translation
differences
and other
movements(1) (9,477) 204 (9,273) (1,417) (196) (1,613) (112) 327 215 (11,006) 335 (10,671)
-------------------- -------- ---------- -------- -------- ---------- -------- -------- ---------- -------- -------- ---------- --------
As at 31 December
2018(3) 592,481 (531) 591,950 42,324 (500) 41,824 7,586 (4,418) 3,168 642,391 (5,449) 636,942
-------------------- -------- ---------- -------- -------- ---------- -------- -------- ---------- -------- -------- ---------- --------
Income statement
ECL
(charge)/release(2) 325 (317) (973) (965)
Recoveries
of amounts
previously
written off 312 312
-------------------- -------- ---------- -------- -------- ---------- -------- -------- ---------- -------- -------- ---------- --------
Total credit
impairment
(charge)/release 325 (317) (661) (653)
-------------------- -------- ---------- -------- -------- ---------- -------- -------- ---------- -------- -------- ---------- --------
of which:
for the six
month ended
30 June 2018 130 (113) (231) (214)
of which:
for the six
month ended
31 December
2018 195 (204) (430) (439)
As at 1 January
2019 592,481 (531) 591,950 42,324 (500) 41,824 7,586 (4,418) 3,168 642,391 (5,449) 636,942
Transfers
to stage 1 14,610 (298) 14,312 (14,610) 298 (14,312) - - - - - -
Transfers
to stage 2 (34,063) 70 (33,993) 34,128 (75) 34,053 (65) 5 (60) - - -
Transfers
to stage 3 (55) 4 (51) (820) 145 (675) 875 (149) 726 - - -
---------- ---------- ---------- ----------
Net change
in exposures 32,756 (88) 32,668 (21,201) (48) (21,249) (689) 87 (602) 10,866 (49) 10,817
Net remeasurement
from stage
changes - 77 77 - (94) (94) - (63) (63) - (80) (80)
Changes in
risk parameters - 208 208 - (135) (135) - (333) (333) - (260) (260)
---------- ---------- ---------- ----------
Write-offs - - - - - - (815) 815 - (815) 815 -
Exchange
translation
differences
and other
movements(1) (2,132) 55 (2,077) (523) (17) (540) 90 (15) 75 (2,565) 23 (2,542)
-------------------- -------- ---------- -------- -------- ---------- -------- -------- ---------- -------- -------- ---------- --------
As at 30 June
2019(3) 603,597 (503) 603,094 39,298 (426) 38,872 6,982 (4,071) 2,911 649,877 (5,000) 644,877
-------------------- -------- ---------- -------- -------- ---------- -------- -------- ---------- -------- -------- ---------- --------
Income statement
ECL
(charge)/release 197 (277) (309) (389)
Recoveries
of amounts
previously
written off 135 135
Total credit
impairment
(charge)/release 197 (277) (174) (254)
-------------------- -------- ---------- -------- -------- ---------- -------- -------- ---------- -------- -------- ---------- --------
1 Includes fair value adjustments and amortisation on debt
securities
2 Total credit impairment for 12 months ended 31 December
2018
3 Excludes Cash and balances at central banks, Accrued income,
Assets held for sale and Other assets
Corporate & Institutional
Stage 1 Stage 2 Stage 3 Total
-------------------- ------------------------------ ------------------------------ ------------------------------ ------------------------------
Total Total Total Total
Amortised Gross credit Gross credit Gross credit Gross credit
cost and balance impairment Net balance impairment Net balance impairment Net balance impairment Net
FVOCI $million $million $million $million $million $million $million $million $million $million $million $million
-------------------- -------- ---------- -------- -------- ---------- -------- -------- ---------- -------- -------- ---------- --------
As at 1 January
2018 263,079 (114) 262,965 29,576 (409) 29,167 5,951 (3,504) 2,447 298,606 (4,027) 294,579
Transfers
to stage
1 40,196 (156) 40,040 (40,196) 156 (40,040) - - - - - -
Transfers
to stage
2 (39,490) 30 (39,460) 39,692 (30) 39,662 (202) - (202) - - -
Transfers
to stage
3 - - - (1,129) 85 (1,044) 1,129 (85) 1,044 - - -
---------- ---------- ---------- ----------
Net change
in exposures 12,869 (183) 12,686 (8,639) 10 (8,629) (1,064) 377 (687) 3,166 204 3,370
Net remeasurement
from stage
changes - 46 46 - (30) (30) - (277) (277) - (261) (261)
Changes in
risk parameters - 101 101 - 140 140 - (394) (394) - (153) (153)
---------- ---------- ---------- ----------
Write-offs - - - - - - (1,208) 1,208 - (1,208) 1,208 -
Exchange
translation
differences
and other
movements (3,418) 131 (3,287) (252) (157) (409) (133) 209 76 (3,803) 183 (3,620)
-------------------- -------- ---------- -------- -------- ---------- -------- -------- ---------- -------- -------- ---------- --------
As at 31
December
2018 273,236 (145) 273,091 19,052 (235) 18,817 4,473 (2,466) 2,007 296,761 (2,846) 293,915
-------------------- -------- ---------- -------- -------- ---------- -------- -------- ---------- -------- -------- ---------- --------
Income statement
ECL
(charge)/release(1) (36) 120 (294) (210)
Recoveries
of amounts
previously
written off 77 77
-------------------- -------- ---------- -------- -------- ---------- -------- -------- ---------- -------- -------- ---------- --------
Total credit
impairment
(charge)/release (36) 120 (217) (133)
-------------------- -------- ---------- -------- -------- ---------- -------- -------- ---------- -------- -------- ---------- --------
As at 1 January
2019 273,235 (145) 273,090 19,052 (235) 18,817 4,473 (2,466) 2,007 296,760 (2,846) 293,914
Transfers
to stage
1 7,667 (69) 7,598 (7,667) 69 (7,598) - - - - - -
Transfers
to stage
2 (19,977) 13 (19,964) 20,034 (16) 20,018 (57) 3 (54) - - -
Transfers
to stage
3 - - - (370) 53 (317) 370 (53) 317 - - -
---------- ---------- ---------- ----------
Net change
in exposures 17,064 (52) 17,012 (12,813) (11) (12,824) (430) 48 (382) 3,821 (15) 3,806
Net remeasurement
from stage
changes - 23 23 - (57) (57) - 6 6 - (28) (28)
Changes in
risk parameters - 91 91 - 14 14 - (173) (173) - (68) (68)
---------- ---------- ---------- ----------
Write-offs - - - - - - (361) 361 - (361) 361 -
Exchange
translation
differences
and other
movements (1,832) 24 (1,808) 225 15 240 14 8 22 (1,593) 47 (1,546)
-------------------- -------- ---------- -------- -------- ---------- -------- -------- ---------- -------- -------- ---------- --------
As at 30
June 2019 276,157 (115) 276,042 18,461 (168) 18,293 4,009 (2,266) 1,743 298,627 (2,549) 296,078
-------------------- -------- ---------- -------- -------- ---------- -------- -------- ---------- -------- -------- ---------- --------
Income statement
ECL
(charge)/release 62 (54) (119) (111)
Recoveries
of amounts
previously
written off 1 1
-------------------- -------- ---------- -------- -------- ---------- -------- -------- ---------- -------- -------- ---------- --------
Total credit
impairment
(charge)/release 62 (54) (118) (110)
-------------------- -------- ---------- -------- -------- ---------- -------- -------- ---------- -------- -------- ---------- --------
1 Total credit impairment for 12 months ended 31 December
2018
Commercial
Stage 1 Stage 2 Stage 3 Total
-------------------- ------------------------------ ------------------------------ ------------------------------ ------------------------------
Total Total Total Total
Gross credit Gross credit Gross credit Gross credit
Amortised balance impairment Net balance impairment Net balance impairment Net balance impairment Net
cost and FVOCI $million $million $million $million $million $million $million $million $million $million $million $million
-------------------- -------- ---------- -------- -------- ---------- -------- -------- ---------- -------- -------- ---------- --------
As at 1 January
2018 28,792 (40) 28,752 5,382 (95) 5,287 2,000 (1,379) 621 36,174 (1,514) 34,660
Transfers
to stage 1 12,675 (64) 12,611 (12,675) 64 (12,611) - - - - - -
Transfers
to stage 2 (11,152) 26 (11,126) 11,171 (26) 11,145 (19) - (19) - - -
Transfers
to stage 3 (11) - (11) (606) 14 (592) 617 (14) 603 - - -
---------- ---------- ---------- ----------
Net change
in exposures 2,163 (65) 2,098 3,660 9 3,669 (337) 138 (199) 5,486 82 5,568
Net remeasurement
from stage
changes - 12 12 - (13) (13) - (217) (217) - (218) (218)
Changes in
risk parameters - 67 67 - (33) (33) - (162) (162) - (128) (128)
---------- ---------- ---------- ----------
Write-offs - - - - - - (293) 293 - (293) 293 -
Exchange
translation
differences
and other
movements (1,047) 29 (1,018) (223) (20) (243) (155) 93 (62) (1,425) 102 (1,323)
-------------------- -------- ---------- -------- -------- ---------- -------- -------- ---------- -------- -------- ---------- --------
As at 31 December
2018 31,420 (35) 31,385 6,709 (100) 6,609 1,813 (1,248) 565 39,942 (1,383) 38,559
-------------------- -------- ---------- -------- -------- ---------- -------- -------- ---------- -------- -------- ---------- --------
Income statement
ECL
(charge)/release(1) 14 (37) (241) (264)
Recoveries
of amounts
previously
written off 21 21
-------------------- -------- ---------- -------- -------- ---------- -------- -------- ---------- -------- -------- ---------- --------
Total credit
impairment
(charge)/release 14 (37) (220) (243)
-------------------- -------- ---------- -------- -------- ---------- -------- -------- ---------- -------- -------- ---------- --------
As at 1 January
2019 31,420 (35) 31,385 6,709 (100) 6,609 1,813 (1,248) 565 39,942 (1,383) 38,559
Transfers
to stage 1 1,694 (18) 1,676 (1,694) 18 (1,676) - - - - - -
Transfers
to stage 2 (6,269) 12 (6,257) 6,277 (14) 6,263 (8) 2 (6) - - -
Transfers
to stage 3 - - - (132) 11 (121) 132 (11) 121 - - -
---------- ---------- ---------- ----------
Net change
in exposures 8,578 (47) 8,531 (5,529) (22) (5,551) (129) 39 (90) 2,920 (30) 2,890
Net remeasurement
from stage
changes - 3 3 - (6) (6) - (30) (30) - (33) (33)
Changes in
risk parameters - 19 19 - 53 53 - (45) (45) - 27 27
---------- ---------- ---------- ----------
Write-offs - - - - - - (161) 161 - (161) 161 -
Exchange
translation
differences
and other
movements 654 20 674 (216) (43) (259) 37 (21) 16 475 (44) 431
-------------------- -------- ---------- -------- -------- ---------- -------- -------- ---------- -------- -------- ---------- --------
As at 30 June
2019 36,077 (46) 36,031 5,415 (103) 5,312 1,684 (1,153) 531 43,176 (1,302) 41,874
-------------------- -------- ---------- -------- -------- ---------- -------- -------- ---------- -------- -------- ---------- --------
Income statement
ECL
(charge)/release (25) 25 (36) (36)
Recoveries
of amounts
previously
written off 1 1
-------------------- -------- ---------- -------- -------- ---------- -------- -------- ---------- -------- -------- ---------- --------
Total credit
impairment
(charge)/release (25) 25 (35) (35)
-------------------- -------- ---------- -------- -------- ---------- -------- -------- ---------- -------- -------- ---------- --------
1 Total credit impairment for 12 months ended 31 December
2018
Retail Banking
Stage 1 Stage 2 Stage 3 Total
-------------------- ------------------------------ ------------------------------ ------------------------------ ------------------------------
Total Total Total Total
Gross credit Gross credit Gross credit Gross credit
Amortised balance impairment Net balance impairment Net balance impairment Net balance impairment Net
cost and FVOCI $million $million $million $million $million $million $million $million $million $million $million $million
-------------------- -------- ---------- -------- -------- ---------- -------- -------- ---------- -------- -------- ---------- --------
As at 1 January
2018 131,280 (381) 130,899 7,964 (178) 7,786 818 (389) 429 140,062 (948) 139,114
Transfers
to stage 1 5,570 (388) 5,182 (5,570) 388 (5,182) - - - - - -
Transfers
to stage 2 (9,954) 74 (9,880) 9,954 (74) 9,880 - - - - - -
Transfers
to stage 3 (281) 8 (273) (511) 164 (347) 792 (172) 620 - - -
---------- ---------- ---------- ----------
Net change
in exposures 9,858 (17) 9,841 (2,628) 78 (2,550) (398) - (398) 6,832 61 6,893
Net remeasurement
from stage
changes - 72 72 - (90) (90) - (12) (12) - (30) (30)
Changes in
risk parameters - 264 264 - (373) (373) - (402) (402) - (511) (511)
---------- ---------- ---------- ----------
Write-offs - - - - - - (575) 575 - (575) 575 -
Exchange
translation
differences
and other
movements (2,989) 55 (2,934) (322) (47) (369) 195 6 201 (3,116) 14 (3,102)
-------------------- -------- ---------- -------- -------- ---------- -------- -------- ---------- -------- -------- ---------- --------
As at 31 December
2018 133,484 (313) 133,171 8,887 (132) 8,755 832 (394) 438 143,203 (839) 142,364
-------------------- -------- ---------- -------- -------- ---------- -------- -------- ---------- -------- -------- ---------- --------
Income statement
ECL
(charge)/release(1) 319 (385) (414) (480)
Recoveries
of amounts
previously
written off 214 214
-------------------- -------- ---------- -------- -------- ---------- -------- -------- ---------- -------- -------- ---------- --------
Total credit
impairment
(charge)/release 319 (385) (200) (266)
-------------------- -------- ---------- -------- -------- ---------- -------- -------- ---------- -------- -------- ---------- --------
As at 1 January
2019 133,484 (313) 133,171 8,887 (132) 8,755 832 (394) 438 143,203 (839) 142,364
Transfers
to stage 1 3,059 (184) 2,875 (3,059) 184 (2,875) - - - - - -
Transfers
to stage 2 (5,048) 38 (5,010) 5,048 (38) 5,010 - - - - - -
Transfers
to stage 3 (55) 4 (51) (295) 81 (214) 350 (85) 265 - - -
---------- ---------- ---------- ----------
Net change
in exposures 1,978 18 1,996 (1,438) 11 (1,427) (102) - (102) 438 29 467
Net remeasurement
from stage
changes - 52 52 - (31) (31) - (39) (39) - (18) (18)
Changes in
risk parameters - 62 62 - (197) (197) - (163) (163) - (298) (298)
---------- ---------- ---------- ----------
Write-offs - - - - - - (293) 293 - (293) 293 -
Exchange
translation
differences
and other
movements (729) 23 (706) 94 (4) 90 43 (3) 40 (592) 16 (576)
-------------------- -------- ---------- -------- -------- ---------- -------- -------- ---------- -------- -------- ---------- --------
As at 30 June
2019 132,689 (300) 132,389 9,237 (126) 9,111 830 (391) 439 142,756 (817) 141,939
-------------------- -------- ---------- -------- -------- ---------- -------- -------- ---------- -------- -------- ---------- --------
Income statement
ECL
(charge)/release 132 (217) (202) (287)
Recoveries
of amounts
previously
written off 133 133
-------------------- -------- ---------- -------- -------- ---------- -------- -------- ---------- -------- -------- ---------- --------
Total credit
impairment
(charge)/release 132 (217) (69) (154)
-------------------- -------- ---------- -------- -------- ---------- -------- -------- ---------- -------- -------- ---------- --------
1 Total credit impairment for 12 months ended 31 December
2018
Movement of debt securities, alternative tier one and other
eligible bills
30.06.19 31.12.182
Net Net
Amortised cost and FVOCI $million $million
------------------------------------------------------- --------- ---------
Opening balance 125,638 115,597
Exchange translation differences and other movements (2,043) (2,790)
Additions 135,493 276,394
Maturities and disposals (132,404) (264,014)
Transfers to assets held for sale - -
Impairment, net of recoveries on disposal (6) (8)
Changes in fair value (including the effect of fair
value hedging) 747 84
Amortisation of discounts and premiums 328 375
------------------------------------------------------- --------- ---------
Closing balance1 127,753 125,638
------------------------------------------------------- --------- ---------
1 The FVOCI amount is not net of impairment
2 2018 comparative has been adjusted to exclude impairment on
FVOCI
Credit impairment charge
The total credit impairment charge for the first half of 2019 is
$254 million (H1 2018: $293 million), down 13 per cent primarily
due to lower stage 3 impairments offset by an increase in stage 1
and 2 impairments.
The Corporate & Institutional Banking credit impairment
charge of $110 million is $29 million higher than the equivalent
period in 2018. This was due to lower gross stage 3 recoveries and
stage 1 and 2 releases. H1 2018 benefitted from upgrades in high
risk accounts and releases from the quarterly update of
macroeconomic variables. Stage 3 impairments in 2019 were driven by
Europe & Americas.
Retail Banking credit impairment charge increased 29 per cent to
$154 million (H1 2018: $119 million) due to non-recurring items in
the first half of 2018: releases in higher-risk unsecured segments
in Indonesia, United Arab Emirates and Malaysia as well as
restructured portfolio releases in Korea. Excluding these, the
underlying impairment remains comparable.
Commercial Banking total credit impairment charge decreased 67
per cent (H1 2018: $106 million) to $35 million driven by lower
gross Stage 3 provisions and recoveries in the period. Africa &
Middle East is the largest contributor to stage 3 impairments.
Private Banking had a net provision release of $47 million
driven primarily by a Stage 3 client in ASEAN & South Asia.
6 months 6 months 6 months
ended 30.06.191 ended 31.12.18 ended 30.06.18
$million $million $million
---------------------------------- ---------------- --------------- ---------------
Ongoing business portfolio
Corporate & Institutional Banking 110 161 81
Retail Banking 154 148 119
Commercial Banking 35 138 106
Central & other items 2 1 (14)
Private Banking (47) (1) 1
---------------------------------- ---------------- --------------- ---------------
Credit impairment charge 254 447 293
Restructuring business portfolio
Liquidation portfolio - (9) (70)
Others - 1 (9)
---------------------------------- ---------------- --------------- ---------------
Credit impairment charge - (8) (79)
Total credit impairment charge 254 439 214
---------------------------------- ---------------- --------------- ---------------
1 In 2019 the Liquidation Portfolio has been included in ongoing
business. Prior periods have not been restated
Problem credit management and provisioning
Forborne and other modified loans by client segment
A forborne loan arises when a concession has been made to the
contractual terms of a loan in response to a customer's financial
difficulties.
The table below presents loans with forbearance measures by
segment.
30.06.19
---------------------------- -----------------------------------------------------------------------------------
Corporate Central
Loans & Institutional Retail Commercial Private & other
to banks Banking Banking Banking Banking items Total
Amortised cost $million $million $million $million $million $million $million
---------------------------- --------- ---------------- --------- ---------- --------- --------- ---------
All loans with forbearance
measures - 1,405 355 700 - - 2,460
Credit impairment (stage 3) - (582) (173) (445) - - (1,200)
---------------------------- --------- ---------------- --------- ---------- --------- --------- ---------
Net carrying value - 823 182 255 - - 1,260
---------------------------- --------- ---------------- --------- ---------- --------- --------- ---------
31.12.18
---------------------------- -----------------------------------------------------------------------------------
Corporate Central
Loans & Institutional Retail Commercial Private & other
to banks Banking Banking Banking Banking items Total
Amortised cost $million $million $million $million $million $million $million
---------------------------- --------- ---------------- --------- ---------- --------- --------- ---------
All loans with forbearance
measures - 1,445 376 709 - - 2,530
Credit impairment (stage 3) - (517) (174) (427) - - (1,118)
---------------------------- --------- ---------------- --------- ---------- --------- --------- ---------
Net carrying value - 928 202 282 - - 1,412
---------------------------- --------- ---------------- --------- ---------- --------- --------- ---------
Forborne and other modified loans by region
30.06.19
--------------------- ----------------------------------------------------------------
Greater China ASEAN & South Africa & Europe &
& North Asia Asia Middle East Americas Total
Amortised cost $million $million $million $million $million
--------------------- ------------- ------------- ------------ --------- ---------
Not impaired 98 105 124 23 350
Impaired 229 293 178 210 910
--------------------- ------------- ------------- ------------ --------- ---------
Total forborne loans 327 398 302 233 1,260
--------------------- ------------- ------------- ------------ --------- ---------
31.12.18
--------------------- ----------------------------------------------------------------
Greater China ASEAN & South Africa & Europe &
& North Asia Asia Middle East Americas Total
Amortised cost $million $million $million $million $million
--------------------- ------------- ------------- ------------ --------- ---------
Not impaired 114 109 113 44 380
Impaired 233 344 179 276 1,032
--------------------- ------------- ------------- ------------ --------- ---------
Total forborne loans 347 453 292 320 1,412
--------------------- ------------- ------------- ------------ --------- ---------
Credit-impaired (stage 3) loans and advances by client
segment
With effect from 1 January 2019, the liquidation portfolio has
been included within the ongoing portfolio. Gross credit-impaired
(stage 3) loans for the Group are down 10 per cent in the period to
$6.2 billion (31 December 2018: $6.9 billion), driven by
repayments, write-offs and transfers to stage 2 in Corporate &
Institutional Banking.
The inflows of stage 3 loans in Corporate & Institutional
Banking continued to be low at $0.2 billion (H2 2018: $0.3
billion). The low inflows of stage 3 loans reflect the continued
improvement in the credit portfolio. Stage 3 inflows in Commercial
Banking reduced from $0.2 billion in H2 2018 to $0.1 billion. Stage
3 loans in Retail Banking were broadly stable at $0.8 billion.
Stage 3 cover ratio
The stage 3 cover ratio measures the proportion of stage 3
impairment provisions to gross stage 3 loans, and is a metric
commonly used in considering impairment trends. This metric does
not allow for variations in the composition of stage 3 loans and
should be used in conjunction with other credit risk information
provided, including the level of collateral cover.
The balance of stage 3 loans not covered by stage 3 impairment
provisions represents the adjusted value of collateral held and the
net outcome of any workout or recovery strategies.
Collateral provides risk mitigation to some degree in all client
segments and supports the credit quality and cover ratio
assessments post impairment provisions. Further information on
collateral is provided in the credit risk mitigation section.
The cover ratio before collateral for Corporate &
Institutional Banking increased to 60 per cent from 57 per cent (31
December 2018) due to repayments and upgrades to performing loans.
The cover ratio for Retail was broadly stable at 47 per cent
although the cover ratio including collateral improved to 90 per
cent (31 December 2018: 87 per cent).
The Private Banking cover ratio before collateral decreased to
22 per cent (31 December 2018: 43 per cent) following a provision
release during the first half of the year. The Private Banking
segment remains fully covered taking into account the collateral
held.
30.06.191
------------------------------ --------------------------------------------------------------------------------------
Corporate
& Institutional Commercial Central &
Banking Retail Banking Banking Private Banking other items Total
Amortised cost $million $million $million $million $million $million
------------------------------ ---------------- -------------- ---------- --------------- ------------ ---------
Gross credit-impaired 3,541 827 1,624 226 - 6,218
Credit-impaired provisions (2,123) (392) (1,138) (50) - (3,703)
------------------------------ ---------------- -------------- ---------- --------------- ------------ ---------
Net credit-impaired 1,418 435 486 176 - 2,515
------------------------------ ---------------- -------------- ---------- --------------- ------------ ---------
Cover ratio 60% 47% 70% 22% - 60%
Collateral ($million) 568 354 265 175 - 1,362
Cover ratio (after collateral) 76% 90% 86% 100% - 81%
------------------------------ ---------------- -------------- ---------- --------------- ------------ ---------
1 The remaining portfolio of loans and advances to customers
previously separately identified in the liquidation portfolio are
now included in the ongoing business
31.12.18
------------------------------ --------------------------------------------------------------------------------------
Corporate
& Institutional Commercial Central &
Banking Retail Banking Banking Private Banking other items Total
Amortised cost $million $million $million $million $million $million
------------------------------ ---------------- -------------- ---------- --------------- ------------ ---------
Gross credit-impaired 4,084 832 1,773 235 - 6,924
Credit-impaired provisions (2,326) (396) (1,234) (100) - (4,056)
------------------------------ ---------------- -------------- ---------- --------------- ------------ ---------
Net credit-impaired 1,758 436 539 135 - 2,868
------------------------------ ---------------- -------------- ---------- --------------- ------------ ---------
Cover ratio 57% 48% 70% 43% - 59%
Collateral ($million) 802 324 302 135 - 1,563
Cover ratio (after collateral) 77% 87% 87% 100% - 81%
------------------------------ ---------------- -------------- ---------- --------------- ------------ ---------
Of the above, included
in the liquidation portfolio:
Gross credit impaired 1,029 - 89 157 - 1,275
Credit impaired provisions (780) - (89) (93) - (962)
------------------------------ ---------------- -------------- ---------- --------------- ------------ ---------
Net credit impaired 249 - - 64 - 313
------------------------------ ---------------- -------------- ---------- --------------- ------------ ---------
Cover ratio 76% - 100% 59% - 75%
Collateral ($million) 159 - - 64 - 223
Cover ratio (after collateral) 91% - 100% 100% - 93%
------------------------------ ---------------- -------------- ---------- --------------- ------------ ---------
Credit-impaired (stage 3) loans and advances by geographic
region
Stage 3 loans decreased by $0.7 billion or 10 per cent compared
with 31 December 2018. The largest decrease was in the Africa &
Middle East region, primarily due to settlements and
write-offs.
30.06.19
----------------------------- ----------------------------------------------------------------
Greater China ASEAN & South Africa & Europe &
& North Asia Asia Middle East Americas Total
Amortised cost $million $million $million $million $million
----------------------------- ------------- ------------- ------------ --------- ---------
Gross credit-impaired 719 2,489 2,022 988 6,218
Credit-impairment provisions (197) (1,541) (1,428) (537) (3,703)
----------------------------- ------------- ------------- ------------ --------- ---------
Net credit-impaired 522 948 594 451 2,515
----------------------------- ------------- ------------- ------------ --------- ---------
Cover ratio 27% 62% 71% 54% 60%
----------------------------- ------------- ------------- ------------ --------- ---------
31.12.18
----------------------------- ----------------------------------------------------------------
Greater China ASEAN & South Africa & Europe &
& North Asia Asia Middle East Americas Total
Amortised cost $million $million $million $million $million
----------------------------- ------------- ------------- ------------ --------- ---------
Gross credit-impaired 777 2,730 2,573 844 6,924
Credit-impairment provisions (282) (1,705) (1,726) (343) (4,056)
----------------------------- ------------- ------------- ------------ --------- ---------
Net credit-impaired 495 1,025 847 501 2,868
----------------------------- ------------- ------------- ------------ --------- ---------
Cover ratio 36% 62% 67% 41% 59%
----------------------------- ------------- ------------- ------------ --------- ---------
Movement of credit-impaired (stage 3) loans and advances
provisions by client segment
Credit impairment provisions as at 30 June 2019 were $3,703
million, compared with $4,056 million at 31 December 2018. The
decrease was largely due to write-offs in Corporate &
Institutional Banking. Private Banking provisions fell by $50m
primarily due to a provision release during the period.
The following table shows the movement of credit-impaired (stage
3) provisions for each client segment.
30.06.19
-------------------------------- ------------------------------------------------------------------------------------
Corporate
& Institutional Commercial Central &
Banking Retail Banking Banking Private Banking others Total2
Amortised cost $million $million $million $million $million $million
-------------------------------- ---------------- -------------- ---------- --------------- ---------- ---------
Gross credit-impaired
loans at 30 June 3,541 827 1,624 226 - 6,218
-------------------------------- ---------------- -------------- ---------- --------------- ---------- ---------
Credit impairment allowances
at 1 January 2,326 396 1,234 100 - 4,056
Exchange translation
difference 5 13 33 - - 51
Amounts written off (361) (293) (161) - - (815)
Discount unwind (17) (11) (7) (2) - (37)
New provisions charge/(release)1 (4) 39 24 - - 59
Recoveries/derecognition
(repayment)1 (42) - (39) - - (81)
Net transfers into and
out of stage 3 50 85 9 - - 144
Changes due to risk
parameters1 166 163 45 (48) - 326
-------------------------------- ---------------- -------------- ---------- --------------- ---------- ---------
Credit impairment allowances
at 30 June 2,123 392 1,138 50 - 3,703
-------------------------------- ---------------- -------------- ---------- --------------- ---------- ---------
Net credit impairment 1,418 435 486 176 - 2,515
-------------------------------- ---------------- -------------- ---------- --------------- ---------- ---------
Income statement
charge/(release) 119 203 31 (48) - 305
Recoveries of amounts
previously written off (1) (133) (1) - - (135)
Total income statement
charge 118 70 30 (48) - 170
-------------------------------- ---------------- -------------- ---------- --------------- ---------- ---------
31.12.18
-------------------------------- ------------------------------------------------------------------------------------
Corporate
& Institutional
Commercial Central &
Banking Retail Banking Banking Private Banking others Total2
Amortised cost $million $million $million $million $million $million
-------------------------------- ---------------- -------------- ---------- --------------- ---------- ---------
Gross credit-impaired
loans at 31 December 4,084 832 1,773 235 - 6,924
-------------------------------- ---------------- -------------- ---------- --------------- ---------- ---------
Credit impairment allowances
at 1 January 3,437 389 1,369 91 - 5,286
Exchange translation
difference (188) 16 (86) 3 - (255)
Amounts written off (1,179) (575) (291) - - (2,045)
Discount unwind (39) (20) (16) (5) - (80)
New provisions charge/(release)1 189 12 218 3 - 422
Recoveries/derecognition
(repayment)1 (379) - (136) (5) - (520)
Net transfers into and
out of stage 3 85 172 14 - - 271
Changes due to risk
parameters1 400 402 162 13 - 977
-------------------------------- ---------------- -------------- ---------- --------------- ---------- ---------
Credit impairment allowances
at 31 December 2,326 396 1,234 100 - 4,056
-------------------------------- ---------------- -------------- ---------- --------------- ---------- ---------
Net credit impairment 1,758 436 539 135 - 2,868
-------------------------------- ---------------- -------------- ---------- --------------- ---------- ---------
Income statement
charge/(release) 210 414 244 11 - 879
Recoveries of amounts
previously written off (77) (214) (21) - - (312)
Total income statement
charge 133 200 223 11 - 567
-------------------------------- ---------------- -------------- ---------- --------------- ---------- ---------
1 Components of the income statement charge/(release)
2 Excludes credit impairment relating to loan commitments and
financial guarantees
Credit Risk mitigation
Potential credit losses from any given account, customer or
portfolio are mitigated using a range of tools such as collateral,
netting arrangements, credit insurance and credit derivatives,
taking into account expected volatility and guarantees.
The reliance that can be placed on these mitigants is carefully
assessed in light of issues such as legal certainty and
enforceability, market valuation correlation and counterparty risk
of the guarantor.
Collateral
The requirement for collateral is not a substitute for the
ability to repay, which is the primary consideration for any
lending decisions.
The unadjusted market value of collateral across all asset
types, in respect of Corporate & Institutional Banking and
Commercial Banking, without adjusting for over-collateralisation,
was $254 billion (2018: $265 billion).
The collateral values in the table below are adjusted where
appropriate in accordance with our risk mitigation policy and for
the effect of over-collateralisation. The extent of
over-collateralisation has been determined with reference to both
the drawn and undrawn components of exposure as this best reflects
the effect of collateral and other credit enhancements on the
amounts arising from expected credit losses.
We have remained prudent in the way we assess the value of
collateral, which is calibrated for a severe downturn and
backtested against our prior experience. On average, across all
types of non-cash collateral, the value ascribed is approximately
half of its current market value.
In the Retail Banking and Private Banking segments, a secured
loan is one where the borrower pledges an asset as collateral of
which the Group is able to take possession in the event that the
borrower defaults. The collateral level for Retail Banking is
stable at $74.5 billion. Private Banking collateral is $1.1 billion
higher compared to 2018 in line with the overall movement of the
secured portfolio.
For loans and advances to customers and banks (excluding those
held at fair value through profit or loss), the table below sets
out the fair value of collateral held by the Group, adjusted where
appropriate in accordance with the risk mitigation policy and for
the effect of over-collateralisation.
Collateral held on loans and advances
The table below details collateral held against exposures,
separately disclosing stage 3 exposure and corresponding
collateral.
30.06.19
--------------- --------------------------------------------------------------------------------------------------------------
Amount outstanding Collateral Net exposure
----------------------------------- ---------------------------------- -----------------------------------
Credit Credit Credit
impaired impaired impaired
financial financial financial
Stage assets Stage assets Stage assets
2 financial (Stage 2 financial (Stage 2 financial (Stage
Total assets 3) Total3 assets 3) Total assets 3)
Amortised cost $million $million $million $million $million $million $million $million $million
--------------- ---------- ----------- ---------- --------- ----------- ---------- ---------- ----------- ----------
Corporate &
Institutional
Banking1 169,849 9,544 1,418 21,900 2,159 568 147,949 7,385 850
Retail Banking 100,966 2,691 435 74,539 2,042 354 26,427 649 81
Commercial
Banking 27,424 3,341 486 7,098 1,252 265 20,326 2,089 221
Private Banking 15,433 714 176 10,873 622 175 4,560 92 1
Central and
other
items 9,133 1 - 3,849 - - 5,284 1 -
--------------- ---------- ----------- ---------- --------- ----------- ---------- ---------- ----------- ----------
Total2 322,805 16,291 2,515 118,259 6,075 1,362 204,546 10,216 1,153
--------------- ---------- ----------- ---------- --------- ----------- ---------- ---------- ----------- ----------
31.12.18
--------------- -----------------------------------------------------------------------------------------------------------------------------------
Maximum exposure Collateral Net exposure
------------------------------------------ ----------------------------------------- ------------------------------------------
Past Past Past
due but due but due but
not individually Individually not individually Individually not individually Individually
impaired impaired impaired impaired impaired impaired
Total loans loans Total3 loans loans Total loans loans
Amortised cost $million $million $million $million $million $million $million $million $million
--------------- ---------- ---------------- ------------ --------- ---------------- ------------ ---------- ---------------- ------------
Corporate &
Institutional
Banking1 166,091 10,234 1,758 15,882 1,314 802 150,209 8,920 956
Retail Banking 101,235 2,705 436 74,485 2,092 324 26,750 613 112
Commercial
Banking 26,759 4,331 539 6,767 3,966 302 19,992 365 237
Private Banking 13,616 785 135 9,729 783 135 3,887 2 -
Central and
other
items 10,270 26 - 6,278 - - 3,992 26 -
--------------- ---------- ---------------- ------------ --------- ---------------- ------------ ---------- ---------------- ------------
Total2 317,971 18,081 2,868 113,141 8,155 1,563 204,830 9,926 1,305
--------------- ---------- ---------------- ------------ --------- ---------------- ------------ ---------- ---------------- ------------
1 Includes loans and advances to banks
2 Excludes FVTPL
3 Excludes collateral held against FVTPL exposures, and is
adjusted for over-collateralisation based on the drawn and undrawn
components of exposures
Collateral - Corporate & Institutional Banking and
Commercial Banking
Collateral held against Corporate & Institutional Banking
and Commercial Banking exposures amounted to $29 billion.
Collateral taken for longer-term and sub-investment grade
corporate loans continues to be high at 47 per cent.
Our underwriting standards encourage taking specific charges on
assets and we consistently seek high-quality, investment grade
collateral. 76 per cent of tangible collateral held comprises
physical assets or is property based, with the remainder largely in
cash and investment securities.
Non-tangible collateral such as guarantees and standby letters
of credit is also held against corporate exposures, although the
financial effect of this type of collateral is less significant in
terms of recoveries. However, this is considered when determining
probability of default and other credit-related factors. Collateral
is also held against off-balance sheet exposures, including undrawn
commitments and trade-related instruments.
The following table provides an analysis of the types of
collateral held against Corporate & Institutional Banking and
Commercial Banking loan exposures.
Corporate & Institutional Banking
30.06.19 31.12.18
Amortised cost $million $million
----------------------------------- ---------- ----------
Maximum exposure 169,849 166,091
----------------------------------- ---------- ----------
Property 6,239 5,557
Plant, machinery and other stock 859 1,067
Cash 3,733 2,019
Reverse repos 712 528
AAA - -
A- to AA+ 437 321
BBB- to BBB+ 36 207
Lower than BBB- 89 -
Unrated 150 -
Financial guarantees and insurance 7,165 3,697
Commodities 121 90
Ships and aircraft 3,071 2,924
----------------------------------- ---------- ----------
Total value of collateral 21,900 15,882
----------------------------------- ---------- ----------
Net exposure1 147,949 150,209
----------------------------------- ---------- ----------
1 Excludes collateral held against FVTPL exposures, and is
adjusted for over-collateralisation based on the drawn and undrawn
components of exposures
Commercial Banking
30.06.19 31.12.18
Amortised cost $million $million
----------------------------------- ---------- ----------
Maximum exposure 27,424 26,759
----------------------------------- ---------- ----------
Property 4,762 4,557
Plant, machinery and other stock 880 992
Cash 713 486
Reverse repos 64 72
A- to AA+ 17 1
BBB- to BBB+ 47 71
Financial guarantees and insurance 469 502
Commodities 32 11
Ships and aircraft 178 147
----------------------------------- ---------- ----------
Total value of collateral 7,098 6,767
----------------------------------- ---------- ----------
Net exposure1 20,326 19,992
----------------------------------- ---------- ----------
1 Excludes collateral held against FVTPL exposures, and is
adjusted for over-collateralisation based on the drawn and undrawn
components of exposures
Collateral - Retail Banking and Private Banking
In Retail Banking and Private Banking, 85 per cent of the
portfolio is fully secured. The proportion of unsecured loans
remains broadly stable at 14 per cent and the remaining 1 per cent
is partially secured.
The following table presents an analysis of loans to individuals
by product; split between fully secured, partially secured and
unsecured:
30.06.19 31.12.18
------------------------ ------------------------------------------ ------------------------------------------
Fully Partially Fully Partially
secured secured Unsecured Total secured secured Unsecured Total
Amortised cost $million $million $million $million $million $million $million $million
------------------------ --------- --------- --------- --------- --------- ---------
Maximum exposure 98,891 631 16,877 116,399 96,534 1,383 16,934 114,851
------------------------ --------- --------- --------- --------- --------- --------- --------- ---------
Loans to individuals
Mortgages 74,510 116 - 74,626 75,386 191 23 75,600
CCPL 154 56 16,786 16,996 168 102 16,692 16,962
Auto 620 - 6 626 671 - 2 673
Secured wealth products 20,165 109 - 20,274 17,721 107 172 18,000
Other 3,442 350 85 3,877 2,588 983 45 3,616
------------------------ --------- --------- --------- --------- --------- --------- --------- ---------
Total collateral1 85,412 84,214
------------------------ --------- --------- --------- --------- --------- --------- --------- ---------
Net exposure2 30,987 30,637
------------------------ --------- --------- --------- --------- --------- --------- --------- ---------
Percentage of total
loans 85% 1% 14% 84% 1% 15%
------------------------ --------- --------- --------- --------- --------- --------- --------- ---------
1 Collateral values are adjusted where appropriate in accordance
with our risk mitigation policy and for the effect of
over-collateralisation
2 Amounts net of ECL/individual impairment provisions and
excludes FVTPL
Mortgage loan-to-value ratios by geography
Loan-to-value (LTV) ratios measure the ratio of the current
mortgage outstanding to the current fair value of the properties on
which they are secured.
In mortgages, the value of property held as security
significantly exceeds the value of mortgage loans. The average LTV
of the overall mortgage portfolio is low at 44 per cent. Hong Kong,
which represents 33 per cent of the Retail Banking mortgage
portfolio has an average LTV of 36.5 per cent. All of our other key
markets continue to have low portfolio LTVs, (Korea, Singapore and
Taiwan at 44.0 per cent, 54.9 per cent and 51.9 per cent
respectively).
An analysis of LTV ratios by geography for the mortgage
portfolio is presented in the mortgage LTV ratios by geography
table below.
30.06.19
--------------------------------- -------------------------------------------------------------
Greater China ASEAN & South Africa & Europe &
& North Asia Asia Middle East Americas Total
Amortised cost % % % % %
--------------------------------- ------------- ------------- ------------ --------- ------
Less than 50 per cent 70.1 40.8 19.9 16.9 59.9
50 per cent to 59 per cent 13.9 18.6 13.9 10.8 15.0
60 per cent to 69 per cent 9.0 22.4 18.6 35.6 13.4
70 per cent to 79 per cent 5.8 15.9 21.0 32.0 9.5
80 per cent to 89 per cent 1.0 1.8 14.3 4.2 1.7
90 per cent to 99 per cent 0.1 0.2 7.0 - 0.3
100 per cent and greater 0.1 0.2 5.4 0.5 0.3
--------------------------------- ------------- ------------- ------------ --------- ------
Average portfolio loan-to-value 41.0 51.9 67.5 54.9 44.3
--------------------------------- ------------- ------------- ------------ --------- ------
Loans to individuals - mortgages
($million) 51,614 18,904 2,059 2,049 74,626
--------------------------------- ------------- ------------- ------------ --------- ------
31.12.18
--------------------------------- -------------------------------------------------------------
Greater China ASEAN & South Africa & Europe &
& North Asia Asia Middle East Americas Total
Amortised cost % % % % %
--------------------------------- ------------- ------------- ------------ --------- ------
Less than 50 per cent 67.7 41.5 20.9 19.6 58.5
50 per cent to 59 per cent 14.9 18.8 15.3 21.0 16.0
60 per cent to 69 per cent 10.7 22.0 21.8 30.2 14.4
70 per cent to 79 per cent 5.0 16.0 21.6 26.8 8.8
80 per cent to 89 per cent 1.3 1.5 12.0 2.4 1.7
90 per cent to 99 per cent 0.3 0.1 4.7 - 0.3
100 per cent and greater 0.1 0.1 3.8 - 0.2
--------------------------------- ------------- ------------- ------------ --------- ------
Average portfolio loan-to-value 42.0 51.5 65.2 54.2 44.8
--------------------------------- ------------- ------------- ------------ --------- ------
Loans to individuals - mortgages
($million) 52,434 19,156 2,126 1,884 75,600
--------------------------------- ------------- ------------- ------------ --------- ------
Industry and Retail Products analysis of loans and advances by
geographic region
This section provides an analysis of the Group's amortised cost
loan portfolio, net of provisions, by industry and region.
In the Corporate & Institutional Banking and Commercial
Banking segments our largest industry exposure remains
manufacturing, which constitutes 17 per cent of Corporate &
Institutional Banking and Commercial Banking loans and advances to
customers (31 December 2018: 17 per cent). The manufacturing sector
group is spread across a diverse range of industries, including
automobiles and components, capital goods, pharmaceuticals, biotech
and life sciences, technology hardware and equipment, chemicals,
paper products and packaging, with lending spread over 4,602
clients.
The financing, insurance and non-banking industry group
constitutes 15 per cent of Corporate & Institutional Banking
and Commercial Banking loans and advances to customers. Clients are
mostly investment grade institutions and this lending forms part of
the liquidity management of the Group.
Loans and advances to the energy sector remained at 12 per cent
of total loans and advances to Corporate & Institutional
Banking and Commercial Banking. The energy sector lending is spread
across five subsectors and over 396 clients.
The Group provides loans to commercial real estate
counterparties of $16 billion, which represents 6 per cent of total
customer loans and advances. In total, $7.1 billion of this lending
is to counterparties where the source of repayment is substantially
derived from rental or sale of real estate and is secured by real
estate collateral. The remaining commercial real estate loans
comprise working capital loans to real estate corporates, loans
with non-property collateral, unsecured loans and loans to real
estate entities of diversified conglomerates. The average LTV ratio
of the commercial real estate portfolio has increased to 46 per
cent, compared with 43 per cent in 2018. The proportion of loans
with an LTV greater than 80 per cent has remained at less than 1
per cent during the same period.
The Mortgage portfolio continues to be the largest portion of
the Retail Products portfolio, at 64 per cent. Credit cards and
personal loans (CCPL) and other unsecured lending remains at 15 per
cent of total Retail Products loans and advances.
Industry and Retail Products analysis by geographic region
30.06.19
------------------------------------- ----------------------------------------------------------------
Greater China ASEAN & South Africa & Europe &
& North Asia Asia Middle East Americas Total
Amortised cost $million $million $million $million $million
------------------------------------- ------------- ------------- ------------ --------- ---------
Industry:
Energy 3,560 5,042 3,209 5,650 17,461
Manufacturing 11,803 6,242 3,100 3,638 24,783
Financing, insurance and non-banking 8,748 4,914 1,312 6,945 21,919
Transport, telecom and utilities 6,028 4,077 4,480 1,293 15,878
Food and household products 2,203 4,375 2,588 1,183 10,349
Commercial real estate 9,145 4,945 1,762 291 16,143
Mining and quarrying 2,467 2,624 1,222 1,041 7,354
Consumer durables 4,771 2,153 638 579 8,141
Construction 1,077 1,211 1,153 135 3,576
Trading companies and distributors 1,279 493 246 151 2,169
Government 2,096 8,753 3,410 - 14,259
Other 1,675 1,830 677 982 5,164
Retail Products:
Mortgages 51,614 18,904 2,059 2,049 74,626
CCPL and other unsecured lending 10,326 4,266 2,291 113 16,996
Auto - 511 114 1 626
Secured wealth products 8,087 10,116 358 1,713 20,274
Other 2,890 313 670 4 3,877
------------------------------------- ------------- ------------- ------------ --------- ---------
Net loans and advances to customers 127,769 80,769 29,289 25,768 263,595
------------------------------------- ------------- ------------- ------------ --------- ---------
Net loans and advances to banks 24,580 14,693 6,202 13,735 59,210
------------------------------------- ------------- ------------- ------------ --------- ---------
31.12.18
------------------------------------- ----------------------------------------------------------------
Greater China ASEAN & South Africa & Europe &
& North Asia Asia Middle East Americas Total
Amortised cost $million $million $million $million $million
------------------------------------- ------------- ------------- ------------ --------- ---------
Industry:
Energy 2,778 5,279 2,793 6,150 17,000
Manufacturing 10,531 6,298 3,209 3,601 23,639
Financing, insurance and non-banking 8,657 4,653 915 6,662 20,887
Transport, telecom and utilities 5,712 4,177 4,703 1,178 15,770
Food and household products 1,945 4,011 2,798 975 9,729
Commercial real estate 8,148 4,865 1,854 168 15,035
Mining and quarrying 1,683 2,283 1,088 932 5,986
Consumer durables 4,892 2,255 731 524 8,402
Construction 831 1,094 1,225 152 3,302
Trading companies and distributors 1,976 624 391 16 3,007
Government 1,726 8,815 3,113 83 13,737
Other 1,686 1,899 803 824 5,212
Retail Products:
Mortgages 52,434 19,156 2,126 1,884 75,600
CCPL and other unsecured lending 10,269 4,234 2,459 - 16,962
Auto - 522 150 1 673
Secured wealth products 6,912 9,055 310 1,723 18,000
Other 2,616 320 679 1 3,616
------------------------------------- ------------- ------------- ------------ --------- ---------
Net loans and advances to customers 122,796 79,540 29,347 24,874 256,557
------------------------------------- ------------- ------------- ------------ --------- ---------
Net loans and advances to banks 27,858 11,676 5,573 16,307 61,414
------------------------------------- ------------- ------------- ------------ --------- ---------
IFRS 9 methodology
Key assumptions and judgements in determining expected credit
loss
Incorporation of forward-looking information
The evolving economic environment is a key determinant of the
ability of a bank's clients to meet their obligations as they fall
due. It is a fundamental principle of IFRS 9 that the provisions
banks hold against potential future credit risk losses should
depend not just on the health of the economy today, but should also
take into account potential changes to the economic environment.
For example, if a bank were to anticipate a sharp slowdown in the
world economy over the coming year, it should hold more provisions
today to absorb the credit losses likely to occur in the near
future.
To capture the effect of changes to the economic environment,
the PDs and LGDs used to calculate expected credit loss incorporate
forward-looking information in the form of forecasts of the values
of economic variables and asset prices that are likely to have an
effect on the repayment ability of the Group's clients.
The 'Base Forecast' of the economic variables and asset prices
is based on management's view, supported by projections from the
Group's in-house research team and outputs from models that project
specific economic variables and asset prices.
Forecast of key macroeconomic variables underlying the expected
credit loss calculation and the impact on non-linearity
The Base Forecast - management's view of the most likely outcome
- is that the global economic expansion is expected to decelerate
following a synchronised upswing in the last few years. In
particular, the pace of US economic expansion is expected to ease
below trend in the next few years.
While this Base Forecast is the premise for the Group's
strategic plan, one of the key requirements of IFRS 9 is that the
assessment of provisions should be based on a range of potential
outcomes for the future economic environment. For example, the
global economy may grow more quickly or more slowly than the Base
Forecast, and these variations would have different implications
for the provisions that the Group should hold today. As the
negative impact of an economic downturn on credit losses tends to
be greater than the positive impact of an economic upturn, if the
Group sets provisions only on the expected credit loss under the
Base Forecast, it might not end up with a level of provisions that
appropriately considers the range of potential outcomes. To address
this skewness (or non-linearity) in expected credit loss, IFRS 9
requires the ECL to be the probability-weighted amount calculated
for a range of possible outcomes.
To take account of the potential non-linearity in expected
credit loss, the Group simulates a set of 50 scenarios around the
Base Forecast and calculates the expected credit loss under each of
them. These scenarios are generated by a Monte Carlo simulation,
which considers the degree of uncertainty (or volatility) around
economic outcomes and how these outcomes have tended to move in
relation to one another (or correlation). The use of Monte Carlo
simulation is motivated by the number and spread of countries in
which the Group operates. This implies that the number of
countries' macroeconomic variables to forecast is large, but more
importantly the observation that a downturn in one part of the
world is never perfectly synchronised with downturns everywhere
else means that the Group may be challenged to capture a full range
of scenarios with a handful of manually tuned scenarios.
While the 50 scenarios do not each have a specific narrative,
they reflect a range of plausible hypothetical alternative outcomes
for the global economy. Some imply an unwinding of the current
shocks and uncertainty leading to higher global economic activity
and higher asset prices, while others represent an intensification
of current shocks or introduction of new shocks that raise
uncertainty, leading to lower global economic activity and lower
asset prices.
The table overleaf provides a summary of the Group's Base
Forecast, representing the average over five years, alongside the
corresponding range seen across the multiple scenarios.
Over the medium term - five years ahead - there has been
relatively little change in the forecast level of activity compared
to the end of last year, however, with the global industrial cycle
slowing there have been some marginal downward revisions to GDP
growth over the medium term. China's economy, for example, is
expected to grow by an average of around 5.9 per cent over the next
five years, compared to 6 per cent previously. Fiscal support by
the government in the form of both higher government spending and
tax cuts will help offset the effects from any weakness in external
demand. Similarly, marginal downward adjustments to economic
activity have also been made to trade dependent economies such as
Hong Kong and Korea.
With the US economic expansion expected to weaken in the near
term, the US Federal Reserve has ended its monetary tightening
cycle and the prospects for interest rate cuts in the near term
have increased. This has led to downward revisions to interest rate
forecasts in countries where central bank policy is tied to US
monetary policy. This includes Singapore and Hong Kong where the
average for the inter-bank rates over five years have been revised
down by at least 40 basis points relative to the forecast level at
the end of last year.
The monetary easing stance by the US Federal Reserve and
anchored inflation also provide the scope (by limiting capital
outflows) for other countries, such as Korea and India, to cut
interest rates to support growth. Lower interest rates will provide
support to the housing market in Hong Kong, where the market has
recently proven to be resilient despite economic pressure from
US-China trade tensions. This is reflected in the upward revision
to house prices in Hong Kong from previous price expectations.
However, country specific factors have weighed on property markets
in other countries. Recent government measures to curb prices have
led to downward revisions to house price forecasts for both Korea
and Singapore.
With the global economic expansion decelerating there has been a
marginal downward revision to the price of oil to a five year
average $84 from $85 previously.
China Hong Kong Korea Singapore India
------------- --------------------- ---------------------- --------------------- ---------------------- ------------------------
Base Base Base Base Base
30.06.19 forecast Low2 High3 forecast Low2 High3 forecast Low2 High3 forecast Low2 High3 forecast Low2 High3
------------- -------- ---- ----- -------- ----- ----- -------- ---- ----- -------- ----- ----- -------- ------ ------
GDP growth
(YoY%) 5.9 4.5 7.4 2.9 0.3 5.2 2.8 0.8 5.0 2.6 (1.1) 6.3 7.6 5.5 9.6
Unemployment
(%) 3.8 3.7 3.9 3.4 2.6 4.1 3.3 2.8 3.8 3.0 2.3 3.7 N/A(1) N/A(1) N/A(1)
3-month
interest
rates (%) 2.9 2.1 3.9 2.1 0.8 3.8 2.1 1.3 3.0 2.0 1.2 2.9 6.0 5.1 7.1
House prices
(YoY%) 5.5 2.6 8.2 3.1 (6.8) 12.7 2.4 0.1 4.8 2.6 (4.3) 10.0 8.4 2.5 13.7
------------- -------- ---- ----- -------- ----- ----- -------- ---- ----- -------- ----- ----- -------- ------ ------
China Hong Kong Korea Singapore India
------------- --------------------- ---------------------- --------------------- ---------------------- ------------------------
Base Base Base Base Base
31.12.18 forecast Low2 High3 forecast Low2 High3 forecast Low2 High3 forecast Low2 High3 forecast Low2 High3
------------- -------- ---- ----- -------- ----- ----- -------- ---- ----- -------- ----- ----- -------- ------ ------
GDP growth
(YoY%) 6.0 4.3 7.7 3.0 0.6 5.6 2.9 0.4 5.3 2.4 (1.7) 6.4 7.7 5.6 10.1
Unemployment
(%) 4.0 3.8 4.2 3.4 2.4 4.6 3.2 2.4 4.0 3.0 2.3 3.7 N/A(1) N/A(1) N/A(1)
3-month
interest
rates (%) 3.1 2.0 4.3 3.0 1.8 4.2 2.6 1.4 4.0 2.4 1.3 3.8 6.9 5.1 8.9
House prices
(YoY%) 5.8 3.4 8.5 2.3 (8.1) 12.1 3.5 1.3 6.1 4.4 (1.5) 10.6 8.4 1.4 15.1
------------- -------- ---- ----- -------- ----- ----- -------- ---- ----- -------- ----- ----- -------- ------ ------
Base
30.06.19 forecast Low2 High3
------------------------ --------- ---- -----
Crude price Brent, $ pb 84 46 124
------------------------ --------- ---- -----
Base
31.12.18 forecast Low2 High3
------------------------ --------- ---- -----
Crude price Brent, $ pb 85 40 118
------------------------ --------- ---- -----
1 Not available
2 Represents the 10th percentile in the range used to determine
non-linearity
3 Represents the 90th percentile in the range used to determine
non-linearity
The final expected credit loss reported by the Group is a simple
average of the expected credit loss for each of the 50 scenarios.
The impact of non-linearity on expected credit loss is set out in
the table below:
Including Excluding
non-linearity non-linearity Difference
$m $m %
------------------------------------------------ -------------- -------------- ----------
Total expected credit loss at 30 June 20191 1,042 1,026 1.6
------------------------------------------------ -------------- -------------- ----------
Total expected credit loss at 31 December 20181 1,163 1,139 2.1
------------------------------------------------ -------------- -------------- ----------
1 Total modelled expected credit loss comprises stage 1 and
stage 2 balances of $907 million (31 December 2018: $1,031 million)
and $135 million (31 December 2018: $132 million) of modelled
expected credit loss on stage 3 loans
The average expected credit loss under multiple scenarios is 1.6
per cent higher than the expected credit loss calculated using only
the most likely scenario (the Base Forecast). Portfolios that are
more sensitive to non-linearity include those with greater leverage
and/or a longer tenor, such as Project and Shipping Finance and
credit card portfolios. Other portfolios display minimal
non-linearity owing to their limited responsiveness to
macroeconomic impacts for structural reasons such as significant
collateralisation, as with the Retail Banking mortgage
portfolios.
Credit-impaired assets managed by Group Special Assets
Management (GSAM) incorporate forward-looking economic assumptions
in respect of the recovery outcomes identified and are assigned
individual probability weightings. These assumptions are not based
on a Monte Carlo simulation but are informed by the Base
Forecast.
Sensitivity of expected credit loss calculation to macroeconomic
variables
The expected credit loss calculation relies on multiple
variables and is inherently non-linear and portfolio-dependent,
which implies that no single analysis can fully demonstrate the
sensitivity of the expected credit loss to changes in the
macroeconomic variables. The Group has conducted a series of
analyses with the aim of identifying the macroeconomic variables
which might have the greatest impact on overall expected credit
loss. These encompassed single variable and multi-variable
exercises, using simple up/down variation and extracts from actual
calculation data, as well as bespoke scenario design and
assessment.
The primary conclusion of these exercises is that no individual
macroeconomic variable is materially influential - that is, likely
to result in an impact of at least 1 per cent of the Group's
expected credit loss. The Group believes this is plausible, because
the number of variables used in the expected credit loss
calculation is large. This does not mean that macroeconomic
variables are uninfluential; rather, that the Group believes that
consideration of macroeconomics should involve whole scenarios, as
this aligns with the multi-variable nature of the calculation.
As the Group has two principal uncertainties related to the
macroeconomic outlook, a sensitivity analysis of ECL was undertaken
to explore the combined effect of these: extended trade tensions
that could lead to a China slowdown with spillovers to emerging
markets. In this scenario, current trade policy tensions between
the US and China increase dramatically. The US targets trading
partners with which it has a material trade deficit and pushes
through highly protectionist measures, initiating trade tensions
with Asia focused on China. Indirectly, economies reliant on global
trade flows are vulnerable to the trade shock. The escalating trade
tensions create uncertainty which reduces risk appetite, leading to
a decline in asset prices and lower consumption and investment
across developed and emerging markets. This leads to a global
slowdown and a sharp fall in commodity prices. As an indication,
China annual real GDP growth troughs at circa. 4 per cent,
representing a marked divergence from the base forecast growth of
around 6 per cent, while China exports growth dips negative for the
first time since 2009. US GDP slows from a trend rate of about 2
per cent down to 1 per cent. Crude oil prices fall, and residential
property indices in China and Hong Kong dip negative. To
contextualise this scenario relative to the Monte Carlo generated
scenarios, the China and US GDP dips approach the lowest growth
boundary of the 50 scenarios in 2019, crude oil remains closer to
the middle than to the bottom edge, but the China property price
index falls well below the simulated lower bound over a period of
years.
Applying this scenario, modelled stage 1 and 2 expected credit
loss provisions would be approximately $338 million higher than the
reported base case expected credit loss provision (excluding the
impact of non-linearity). This includes the impact of exposures
transferring to stage 2 from stage 1 but does not consider an
increase in stage 3 defaults. The proportion of exposures in stage
2 would increase from 6 per cent to 9 per cent. As expected, this
has an impact on our corporate exposures in China, Hong Kong and
Singapore. Within Retail Banking, the Group's credit card
portfolios in Hong Kong and Singapore were impacted. There was no
impact on modelled stage 3 provisions as these primarily relate to
unsecured Retail Banking exposures for which the LGD is not
sensitive to changes in macroeconomic variables. Note that the
actual outcome of any scenario may be materially different due to,
amongst other factors, the effect of management actions to mitigate
potential increases in risk and changes in the underlying
portfolio.
Country Risk
Country cross-border risk is the risk that the Group will be
unable to obtain payment from counterparties on their contractual
obligations as a result of certain actions taken by foreign
governments, chiefly relating to convertibility and transferability
of foreign currency.
The profile of the Group's country cross-border exposures as at
30 June 2019 remained consistent with its strategic focus on core
franchise countries. Changes in the pace of economic activity and
portfolio management activity had an impact on the growth of
cross-border exposure for certain markets.
Country cross-border exposure to China remains predominantly
short term with 82 per cent of exposure having a tenor of less than
one year. During the first half of 2019, the Group's cross-border
exposure to China increased, primarily driven by the medium-term
treasury market portfolio.
The increase in cross-border exposure to Hong Kong during the
first half of 2019 was primarily driven by short-term trade finance
facilities; reflecting a more cautious approach given the subdued
global trade environment and domestic economic headwinds.
Singapore's cross-border exposure rose during the first half of
2019 due to an increase in trade finance and lending activities.
This was partly offset by reductions in sovereign exposures and
amounts outstanding from financial institutions.
India's cross-border exposure increased significantly, primarily
driven by a sizeable increase in the corporate loan book,
specifically to Indian conglomerates, and a rise in Issuer Risk,
trade activity and marketable securities.
The significant increase in cross-border exposure to South Korea
reflects a rise in trade finance related exposures and marketable
securities held.
The decrease in United Arab Emirates cross-border exposure
reflects a reduction in the medium-term loan book. This was partly
offset by an increase in trade finance activities and marketable
securities held.
Cross-border exposure to developed countries in which the Group
does not have a major presence predominantly relates to treasury
and liquidity management activities, which can change significantly
from period to period. Exposure to such markets also represents
global corporate business for customers with interests in our
footprint. The movement in exposures to the United States, Germany,
Australia and France are all largely attributed to Group liquidity
management operations during the year.
The table below, which is based on the Group's internal country
cross-border risk reporting requirements, shows cross-border
exposures that exceed 1 per cent of total assets.
30.06.19 31.12.18
--------------------- ------------------------------- -------------------------------
Less than More than Less than More than
one year one year Total one year one year Total
$million $million $million $million $million $million
--------------------- --------- --------- --------- --------- --------- ---------
China 38,533 8,383 46,916 37,039 6,458 43,497
United States 8,900 12,878 21,778 15,369 8,986 24,355
Hong Kong 13,271 8,235 21,506 11,451 8,819 20,270
Singapore 13,431 6,361 19,792 12,799 5,921 18,720
India 12,663 7,101 19,764 10,536 5,674 16,210
South Korea 16,303 3,409 19,712 12,210 4,550 16,760
United Arab Emirates 8,243 8,806 17,049 8,531 9,139 17,670
Germany 3,642 7,983 11,625 3,236 7,080 10,316
Australia 2,573 5,848 8,421 2,495 5,335 7,830
France 2,673 5,530 8,203 1,870 4,378 6,248
--------------------- --------- --------- --------- --------- --------- ---------
Traded Risk
Traded Risk is the potential for loss resulting from activities
undertaken by the bank in financial markets. Under the Enterprise
Risk Management Framework, the introduction of the Traded Risk
Framework in 2018 sought to bring together all risk types
exhibiting risk features common to Traded Risk.
These risk types include Market Risk, Counterparty Credit Risk,
Issuer Risk, XVA, Algorithmic Trading and Pension Risk. Traded Risk
Management (TRM) is the core risk management function supporting
market-facing businesses, specifically Financial Markets and
Treasury Markets.
Market Risk
Market Risk is the potential for loss of economic value due to
adverse changes in financial market rates or prices. The Group's
exposure to Market Risk arises predominantly from the following
sources:
-- Trading book: the Group provides clients access to financial
markets, facilitation of which entails the Group taking moderate
Market Risk positions. All trading teams support client activity;
there are no proprietary trading teams. Hence, income earned from
Market Risk-related activities is primarily driven by the volume of
client activity rather than risk-taking.
-- Non-trading book:
- The Treasury Markets desk is required to hold a liquid assets
buffer, much of which is held in high-quality marketable debt
securities
- The Group has capital invested and related income streams
denominated in currencies other than US dollars. To the extent that
these are not hedged, the Group is subject to structural Foreign
Exchange Risk which is reflected in reserves
A summary of our current policies and practices regarding Market
Risk management is provided in the Principal Risks section of our
2018 Annual Report.
The primary categories of Market Risk for the Group are:
-- Interest Rate Risk: arising from changes in yield curves,
credit spreads and implied volatilities on interest rate
options
-- Foreign Exchange Rate Risk: arising from changes in currency
exchange rates and implied volatilities on foreign exchange
options
-- Commodity Risk: arising from changes in commodity prices and
implied volatilities on commodity options; covering energy,
precious metals, base metals and agriculture
-- Equity Risk: arising from changes in the prices of equities,
equity indices, equity baskets and implied volatilities on related
options
Market Risk changes
The average level of total trading and non-trading VaR in the
first half of 2019 was $28.2 million, 36 per cent higher than the
second half of 2018 ($20.8 million) and 38 per cent higher than the
first half of 2018 ($20.4 million). The actual level of total
trading and non-trading VaR as at the end of the first half of 2019
was $31.0 million, 21 per cent higher than in the second half of
2018 ($25.5 million) and 58 per cent higher than the first half of
2018 ($19.6 million). The increase in total average VaR was driven
by the non-trading book, which has seen an increase in the bond
inventory size in high-quality assets from Treasury Markets and
reduced portfolio diversification since the fourth quarter of
2018.
For the trading book, the average level of VaR in the first half
of 2019 was $11.1 million, 19 per cent higher than in the second
half of 2018 ($9.3 million), and 7 per cent higher than in the
first half of 2018 ($10.4 million). Trading activities have
remained relatively unchanged and client-driven.
Daily value at risk (VaR at 97.5 per cent, one day)
6 months ended 6 months ended
30.06.19 31.12.18 6 months ended 30.06.18
------------------------ ------------------------------------------- ------------------------------------------- -------------------------------------------
Average High1 Low1 Actual2 Average High1 Low1 Actual2 Average High1 Low1 Actual2
Trading and non-trading $million $million $million $million $million $million $million $million $million $million $million $million
------------------------ ---------- --------- --------- --------- ---------- --------- --------- --------- ---------- --------- --------- ---------
Interest Rate Risk3 26.8 29.5 24.1 26.7 19.4 25.9 16.6 25.9 19.1 22.8 16.9 17.7
Foreign Exchange Risk 4.6 8.5 2.7 3.7 3.8 7.7 2.5 7.7 4.9 8.6 3.1 3.9
Commodity Risk 1.2 2.2 0.8 1.2 1.4 2.1 0.8 1.2 1.2 1.8 0.9 1.8
Equity Risk 3.3 4.6 2.5 4.5 3.4 5.5 2.6 2.7 6.2 6.8 4.1 4.7
------------------------ ---------- --------- --------- --------- ---------- --------- --------- --------- ---------- --------- --------- ---------
Total4 28.2 31.4 24.1 31.0 20.8 26.1 16.4 25.5 20.4 24.4 17.5 19.6
------------------------ ---------- --------- --------- --------- ---------- --------- --------- --------- ---------- --------- --------- ---------
6 months ended 6 months ended
30.06.19 31.12.18 6 months ended 30.06.18
---------- ------------------------------------------- ------------------------------------------ -------------------------------------------
Average High1 Low1 Actual2 Average High1 Actual2 Average High1 Low1 Actual2
Low1
Trading5 $million $million $million $million $million $million $million $million $million $million $million $million
---------- ---------- --------- --------- --------- ---------- --------- -------- --------- ---------- --------- --------- ---------
Interest
Rate
Risk3 8.6 11.8 6.3 7.3 7.4 9.1 6.0 7.9 8.6 11.7 6.4 6.8
Foreign
Exchange
Risk 4.6 8.5 2.7 3.7 3.8 7.7 2.5 7.7 4.9 8.6 3.1 3.9
Commodity
Risk 1.2 2.2 0.8 1.2 1.4 2.1 0.8 1.2 1.2 1.8 0.9 1.8
Equity
Risk - 0.1 - - 0.1 0.1 - - 0.1 0.1 - 0.1
---------- ---------- --------- --------- --------- ---------- --------- -------- --------- ---------- --------- --------- ---------
Total4 11.1 14.0 9.2 11.0 9.3 13.6 7.5 13.6 10.4 13.8 7.5 8.1
---------- ---------- --------- --------- --------- ---------- --------- -------- --------- ---------- --------- --------- ---------
6 months ended 6 months ended
30.06.19 31.12.18 6 months ended 30.06.18
------------ ------------------------------------------- ------------------------------------------- -------------------------------------------
Average High1 Low1 Actual2 Average High1 Low1 Actual2 Average High1 Low1 Actual2
Non-trading $million $million $million $million $million $million $million $million $million $million $million $million
------------ ---------- --------- --------- --------- ---------- --------- --------- --------- ---------- --------- --------- ---------
Interest
rate risk3 23.6 25.0 21.2 23.3 17.8 20.7 15.1 20.7 15.8 17.7 14.1 15.1
Equity risk6 3.3 4.6 2.5 4.5 3.3 5.4 2.6 2.7 6.2 6.8 4.1 4.6
------------ ---------- --------- --------- --------- ---------- --------- --------- --------- ---------- --------- --------- ---------
Total4 23.7 27.4 20.6 26.5 17.7 21.3 9.2 21.3 16.6 18.8 15.3 16.0
------------ ---------- --------- --------- --------- ---------- --------- --------- --------- ---------- --------- --------- ---------
1 Highest and lowest VaR for each risk factor are independent
and usually occur on different days
2 Actual one-day VaR at year end date
3 Interest rate risk VaR includes Credit Spread Risk arising
from securities accounted for as fair value through profit or loss
(FVTPL) or fair value other comprehensive income (FVOCI)
4 The total VaR shown in the tables above is not equal to the
sum of the component risks due to offsets between them
5 Trading book for Market Risk is defined in accordance with the
EU Capital Requirements Regulation (CRD IV/CRR) Part 3 Title I
Chapter 3, which restricts the positions permitted in the trading
book
6 Non-trading Equity Risk VaR includes only listed equities
Risks not in VaR
In the first half of 2019, the main Market Risk not reflected in
VaR was currency risk where the exchange rate is currently pegged
or managed. The historical one-year VaR observation period does not
reflect the future possibility of a change in the currency regime
such as sudden depegging. The other material Market Risk not
reflected in VaR was associated with basis risks where historical
market price data for VaR is sometimes more limited and therefore
proxied, generating a potential basis risk. Additional capital is
set aside to cover such 'risks not in VaR'. For further details on
Market Risk capital see the section on Market Risk in the Standard
Chartered PLC Pillar 3 Disclosures for 30 June 2019.
Backtesting
In the first half of 2019, there were three regulatory
backtesting exceptions at Group level (in the second half of 2018,
there were two regulatory backtesting exceptions at Group
level).
A Group exception occurred on 1 April 2019 when markets rallied
following the release of strong Chinese manufacturing data. There
was also an exception on 30 May 2019 driven by a reduction in USD
yields and implied volatility which reversed an increase of the
previous day. Additionally, a Group exception occurred on 10 June
2019 when US Treasury yields rallied following reports that
proposed tariffs on goods from Mexico to the USA would not be
implemented.
In total there have been five Group exceptions in the previous
250 business days which is within the 'amber zone' applied
internationally to internal models by bank supervisors (Basel
Committee on Banking Supervision, Supervisory framework for the use
of backtesting in conjunction with the internal models approach to
market risk capital requirements, January 1996).
6 months 6 months 6 months
ended ended ended
30.06.19 31.12.18 30.06.18
Average daily income earned from market risk
related activities(1) $million $million $million
--------------------------------------------- ---------- ---------- ----------
Trading
Interest Rate Risk 3.5 1.9 4.3
Foreign Exchange Risk 4.9 4.0 3.8
Commodity Risk 0.7 0.8 0.8
Equity Risk - - -
--------------------------------------------- ---------- ---------- ----------
Total 9.1 6.7 8.9
--------------------------------------------- ---------- ---------- ----------
Non-trading
Interest Rate Risk 1.6 1.9 2.9
Equity Risk (0.2) 1.0 (0.3)
--------------------------------------------- ---------- ---------- ----------
Total 1.4 3.0 2.6
--------------------------------------------- ---------- ---------- ----------
1 Reflects total product income which is the sum of client
income and own account income. Includes elements of trading income,
interest income and other income which are generated from Market
Risk-related activities. XVA income is included under Interest Rate
Risk
Counterparty Credit Risk
Counterparty Credit Risk is the potential for loss in the event
of the default of a derivative counterparty, after taking into
account the value of eligible collaterals and risk mitigation
techniques. The Group's counterparty credit exposures are included
in the Credit Risk section.
Derivative financial instruments Credit Risk mitigation
The Group enters into master netting agreements, which in the
event of default result in a single amount owed by or to the
counterparty through netting the sum of the positive and negative
mark-to-market values of applicable derivative transactions.
In addition, the Group enters into credit support annexes (CSAs)
with counterparties where collateral is deemed a necessary or
desirable mitigant to the exposure. Cash collateral includes
collateral called under a variation margin process from
counterparties if total uncollateralised mark-to-market exposure
exceeds the threshold and minimum transfer amount specified in the
CSA. With certain counterparties, the CSA is reciprocal and
requires us to post collateral if the overall mark-to-market values
of positions are in the counterparty's favour and exceed an agreed
threshold.
Liquidity and Funding Risk
Liquidity and Funding Risk is the risk that we may not have
sufficient stable or diverse sources of funding to meet our
obligations as they fall due.
The Group's Liquidity and Funding Risk framework requires each
country to ensure that it operates within predefined liquidity
limits and remains in compliance with Group liquidity policies and
practices, as well as local regulatory requirements.
The Group achieves this through a combination of setting risk
appetite and associated limits, policy formation, risk measurement
and monitoring, prudential and internal stress testing, governance
and review.
Since the beginning of the year there were no significant
changes in treasury policies as disclosed in the 2018 Annual Report
and Accounts.
In April 2019, the Group resolved the previously disclosed
investigations by the US Authorities and the Financial Conduct
Authority related to historical sanctions compliance and financial
crime controls. These legacy investigation issues were the main
regulatory uncertainties facing the Group. We will continue to
maintain a strong liquidity position and would continue to optimise
this where possible subject to a number of factors including market
conditions and current and future regulatory requirements.
The Group has relatively low levels of sterling and euro funding
and exposures within the context of the overall Group balance
sheet. The result of the UK referendum to leave the EU has
therefore not had a material first order liquidity impact to date.
A new subsidiary has been established in Germany (Standard
Chartered Bank AG) to grow our continental Europe franchise.
Liquidity and Funding Risk metrics
We monitor key liquidity metrics regularly, both on a country
basis and in aggregate across the Group.
The following liquidity and funding Board Risk Appetite metrics
define the maximum amount and type of risk that the Group is
willing to assume in pursuit of its strategy: liquidity coverage
ratio (LCR), liquidity stress survival horizons, external wholesale
borrowing, and advances-to-deposits ratio.
Liquidity coverage ratio (LCR)
The LCR is a regulatory requirement set to ensure that the Group
has sufficient unencumbered high-quality liquid assets to meet its
liquidity needs in a 30-calendar-day liquidity stress scenario.
The Group monitors and reports its liquidity position under
European Commission Delegated Regulation 2015/61 and has maintained
its liquidity position above the prudential requirement.
At the reporting date, the Group LCR was 139 per cent (2018: 154
per cent) with a prudent surplus to both Board-approved risk
appetite and regulatory requirements. The ratio decreased 15 per
cent year-to-date due to period end cashflows and a shift in
liability mix at the end of the period which led to higher outflows
and a smaller increase in our liquidity buffer. We also held
adequate liquidity across our footprint to meet all local
prudential LCR requirements where applicable.
30.06.19 31.12.18
$million $million
------------------------- ---------- ----------
Liquidity buffer 154,897 149,602
Total net cash outflows 111,336 97,443
Liquidity coverage ratio 139% 154%
------------------------- ---------- ----------
Stressed coverage
The Group intends to maintain a prudent and sustainable funding
and liquidity position, in all countries and currencies, such that
it can withstand a severe but plausible liquidity stress.
Our approach to managing liquidity and funding is reflected in
the following Board-level Risk Appetite Statement:
"The Group should hold an adequate buffer of high-quality liquid
assets to survive extreme but plausible liquidity stress scenarios
for at least 60 days without recourse to extraordinary central bank
support."
The Group's internal liquidity stress testing framework covers
the following stress scenarios:
Standard Chartered-specific - This scenario captures the
liquidity impact from an idiosyncratic event affecting Standard
Chartered only i.e. the rest of the market is assumed to operate
normally.
Market wide - This scenario captures the liquidity impact from a
market wide crisis affecting all participants in a country, region
or globally.
Combined - This scenario assumes both Standard
Chartered-specific and Market-wide events affecting the Group
simultaneously and hence is the most severe scenario.
All scenarios include, but are not limited to, modelled outflows
for retail and wholesale funding, off-balance sheet funding risk,
cross currency funding risk, intraday risk, franchise risk and
risks associated with a deterioration of a firm's credit
rating.
Stress testing results show that a positive surplus was
maintained under all scenarios at 30 June 2019, i.e. respective
countries are able to survive for a period of time as defined under
each scenario. The combined scenario at 30 June 2019 showed the
Group maintained liquidity resources to survive greater than 60
days, as per our Board Risk Appetite. The results take into account
currency convertibility and portability constraints across all
major presence countries.
Standard Chartered Bank's credit ratings as at 30 June 2019 were
A+ with stable outlook (Fitch), A with stable outlook (S&P) and
A1 with stable outlook (Moody's). A downgrade in the Group's
long-term credit ratings would increase derivative collateral
requirements and outflows due to rating-linked liabilities. At 30
June 2019, the estimated contractual outflow of a two-notch
long-term ratings downgrade is $1.1 billion.
External wholesale borrowing
The Board sets a risk limit to prevent excessive reliance on
wholesale borrowing. Limits are applied to all branches and
operating subsidiaries in the Group and as at the reporting date
the Group remained within Board Risk Appetite.
Advances-to-deposits ratio
This is defined as the ratio of total loans and advances to
customers relative to total customer accounts. An
advances-to-deposits ratio of below 100 per cent demonstrates that
customer deposits exceed customer loans as a result of the emphasis
placed on generating a high level of funding from customers.
The advances-to-deposits ratio remained broadly unchanged at
63.7 per cent over the first half of 2019 (2018: 63.1 per
cent).
30.06.19 31.12.18
$million $million
----------------------------------------- ---------- ----------
Total loans and advances to customers1,2 260,246 250,922
Total customer accounts3 408,487 397,764
Advances-to-deposits ratio 63.7% 63.1%
----------------------------------------- ---------- ----------
1 Excludes reverse repurchase agreement and other similar
secured lending of $2,704 million and includes loans and advances
to customers held at fair value through profit and loss of $6,190
million
2 Loans and advances to customers for the purpose of the
advances-to-deposits ratio excludes $6,835 million of approved
balances held with central banks, confirmed as repayable at the
point of stress. The loans and advances to customers balance at 31
December 2018 used in the advances-to-deposits ratio at 31 Decmber
2018 has decreased by $7,412 million from $258,334 million to
$250,922 million to exclude approved balances held with central
banks. The advances-to-deposits ratio has been restated from 64.9
per cent to 63.1 per cent as a result
3 Includes customer accounts held at fair value through profit
or loss of $6,889 million
Net stable funding ratio (NSFR)
On 23 November 2016, the European Commission, as part of a
package of risk-reducing measures, proposed a binding requirement
for stable funding (net stable funding ratio (NSFR)) at European
Union level. The proposal aims to implement the European Banking
Authority's interpretation of the Basel standard on NSFR (BCBS295).
The NSFR is due to become a binding regulatory requirement in June
2021 with a minimum of 100 per cent. Pending implementation of the
final rules, the Group continues to monitor NSFR in line with the
BCBS' final recommendation (BCBS295).
The NSFR is a balance sheet metric which requires institutions
to maintain a stable funding profile in relation to the
characteristics of their assets and off-balance sheet activities
over a one-year horizon. It is the ratio between the amount of
available stable funding (ASF) and the amount of required stable
funding (RSF). ASF factors are applied to balance sheet liabilities
and capital, based on their perceived stability and the amount of
stable funding they provide. Likewise, RSF factors are applied to
assets and off-balance sheet exposures according to the amount of
stable funding they require. At the last reporting date, the Group
NSFR remained above 100 per cent.
Liquidity pool
The liquidity value of the Group's LCR eligible liquidity pool
at the reporting date was $155 billion. The figures in the below
table account for haircuts, currency convertibility and portability
constraints, and therefore are not directly comparable with the
consolidated balance sheet. The pool is held to offset stress
outflows as defined in European Commission Delegated Regulation
2015/61. Cash and balances at central banks at 30 June 2019 in the
table below has increased compared to year end as a result of the
inclusion of approved term amounts confirmed as repayable at the
point of stress.
30.06.19
---------------------------------- ----------------------------------------------------------------
Greater China ASEAN & South Africa & Europe &
& North Asia Asia Middle East Americas Total
$million $million $million $million $million
---------------------------------- ------------- ------------- ------------ --------- ---------
Level 1 securities
Cash and balances at central
banks 19,065 9,300 1,072 28,401 57,838
Central banks, governments/public
sector entities 24,368 10,661 1,561 33,366 69,956
Multilateral development banks
and international organisations 2,171 1,280 165 7,123 10,739
Other - - - 1,172 1,172
---------------------------------- ------------- ------------- ------------ --------- ---------
Total Level 1 securities 45,604 21,241 2,798 70,062 139,705
---------------------------------- ------------- ------------- ------------ --------- ---------
Level 2A securities 7,776 1,940 61 2,768 12,545
Level 2B securities - 516 - 2,131 2,647
---------------------------------- ------------- ------------- ------------ --------- ---------
Total LCR eligible assets 53,380 23,697 2,859 74,961 154,897
---------------------------------- ------------- ------------- ------------ --------- ---------
31.12.18
---------------------------------- ----------------------------------------------------------------
Greater China ASEAN & South Africa & Europe &
& North Asia Asia Middle East Americas Total
$million $million $million $million $million
---------------------------------- ------------- ------------- ------------ --------- ---------
Level 1 securities
Cash and balances at central
banks 16,267 2,645 1,416 28,232 48,560
Central banks, governments/public
sector entities 33,462 9,900 1,540 30,166 75,068
Multilateral development banks
and international organisations 1,543 1,451 195 8,487 11,676
Other - - - 1,125 1,125
---------------------------------- ------------- ------------- ------------ --------- ---------
Total Level 1 securities 51,272 13,996 3,151 68,010 136,429
---------------------------------- ------------- ------------- ------------ --------- ---------
Level 2A securities 3,943 1,083 60 5,296 10,382
Level 2B securities - 1,264 - 1,527 2,791
---------------------------------- ------------- ------------- ------------ --------- ---------
Total LCR eligible assets 55,215 16,343 3,211 74,833 149,602
---------------------------------- ------------- ------------- ------------ --------- ---------
Encumbrance
Encumbered assets
Encumbered assets represent on-balance sheet assets pledged or
subject to any form of arrangement to secure, collateralise or
credit enhance a transaction from which it cannot be freely
withdrawn. Cash collateral pledged against derivatives and Hong
Kong government certificates of indebtedness, which secure the
equivalent amount of Hong Kong currency notes in circulation, are
included within Other assets.
Unencumbered - readily available for encumbrance
Unencumbered assets that are considered by the Group to be
readily available in the normal course of business to secure
funding, meet collateral needs, or be sold to reduce potential
future funding requirements and are not subject to any restrictions
on their use for these purposes.
Unencumbered - other assets capable of being encumbered
Unencumbered assets that, in their current form, are not
considered by the Group to be readily realisable in the normal
course of business to secure funding, meet collateral needs, or be
sold to reduce potential future funding requirements and are not
subject to any restrictions on their use for these purposes.
Included within this category are loans and advances which would be
suitable for use in secured funding structures such as
securitisations.
Unencumbered - cannot be encumbered
Unencumbered assets that have not been pledged and cannot be
used to secure funding, meet collateral needs, or be sold to reduce
potential future funding requirements, as assessed by the
Group.
Derivatives, reverse repurchase assets and stock lending
These assets are shown separately as these on-balance sheet
amounts cannot be pledged. However, these assets can give rise to
off-balance sheet collateral which can be used to raise secured
funding or meet additional funding requirements.
The following table provides a reconciliation of the Group's
encumbered assets to total assets.
30.06.19
------------ -------- ----------------------------------------------------------------------------------------------------------------
Assets encumbered
as a result of
transactions with
counterparties Other assets (comprising assets encumbered
other than central at the central bank and unencumbered
banks assets)
------------------------------------ --------------------------------------------------------------------------
Assets not positioned at
the central bank
--------------- -------- --------- -------------- ------------------------------------------------ --------
Assets
positioned
at the Other
central assets
bank (ie Readily that are Derivatives
As a result pre-positioned available capable and reverse Cannot
of plus for of being repo/stock be
Assets securitisations Other Total encumbered) encumbrance encumbered lending encumbered Total
$million $million $million $million $million $million $million $million $million $million
------------ -------- --------------- -------- --------- -------------- ----------- ---------- ----------- ---------- --------
Cash and
balances
at central
banks 58,822 - - - 9,305 49,517 - - - 58,822
Derivative
financial
instruments 49,237 - - - - - - 49,237 - 49,237
Loans and
advances
to banks 80,071 344 148 492 - 46,085 14,175 18,353 966 79,579
Loans and
advances
to
customers 306,642 407 1,299 1,706 - - 242,332 39,561 23,043 304,936
Investment
securities 157,530 - 11,369 11,369 3,064 98,097 39,178 - 5,822 146,161
Other assets 39,338 - 15,324 15,324 - - 14,857 - 9,157 24,014
Current tax
assets 507 - - - - - - - 507 507
Prepayments
and accrued
income 2,797 - - - - - 1,481 - 1,316 2,797
Interests
in
associates
and joint
ventures 2,512 - - - - - - - 2,512 2,512
Goodwill
and
intangible
assets 5,111 - - - - - - - 5,111 5,111
Property,
plant and
equipment 7,750 - - - - - 516 - 7,234 7,750
Deferred
tax assets 924 - - - - - - - 924 924
Assets
classified
as held for
sale 1,263 - - - - - - - 1,263 1,263
------------ -------- --------------- -------- --------- -------------- ----------- ---------- ----------- ---------- --------
Total 712,504 751 28,140 28,891 12,369 193,699 312,539 107,151 57,855 683,613
------------ -------- --------------- -------- --------- -------------- ----------- ---------- ----------- ---------- --------
31.12.18
------------ -------- -------------------------------------------------------------------------------------------------------------
Assets encumbered
as a result of
transactions with
counterparties Other assets (comprising assets encumbered
other than central at the central bank and unencumbered
banks assets)
------------------------------------ -----------------------------------------------------------------------
Assets not positioned at
the central bank
------------------------------------------------
Assets
positioned
at
the central Other
bank (ie assets
pre- Readily that are Derivatives
As a result positioned available capable and reverse Cannot
of plus for of being repo/stock be
Assets securitisations Other Total encumbered) encumbrance encumbered lending encumbered Total
$million $million $million $million $million $million $million $million $million $million
------------ -------- ----------- ---------- ----------- ----------
Cash and
balances
at central
banks 57,511 - - - 8,152 49,359 - - - 57,511
Derivative
financial
instruments 45,621 - - - - - - 45,621 - 45,621
Loans and
advances
to banks 82,065 447 - 447 - 45,623 13,918 20,698 1,379 81,618
Loans and
advances
to
customers 299,371 497 7 504 - - 243,802 41,037 14,028 298,867
Investment
securities 149,568 - 7,521 7,521 - 95,523 40,591 - 5,933 142,047
Other assets 35,401 - 16,287 16,287 - - 11,440 - 7,674 19,114
Current tax
assets 492 - - - - - - - 492 492
Prepayments
and accrued
income 2,505 - - - - - 1,356 - 1,149 2,505
Interests
in
associates
and joint
ventures 2,307 - - - - - - - 2,307 2,307
Goodwill
and
intangible
assets 5,056 - - - - - - - 5,056 5,056
Property,
plant and
equipment 6,490 - - - - - 400 - 6,090 6,490
Deferred
tax assets 1,047 - - - - - - - 1,047 1,047
Assets
classified
as held for
sale 1,328 - - - - - - - 1,328 1,328
------------ -------- --------------- -------- --------- ----------- ----------- ---------- ----------- ---------- --------
Total 688,762 944 23,815 24,759 8,152 190,505 311,507 107,356 46,483 664,003
------------ -------- --------------- -------- --------- ----------- ----------- ---------- ----------- ---------- --------
The Group received $77,246 million (31 December 2018: $82,534
million) as collateral under reverse repurchase agreements that was
eligible for repledging; of this the Group sold or repledged
$36,169 million (31 December 2018: $40,552 million) under
repurchase agreements.
Liquidity analysis of the Group's balance sheet
Contractual maturity of assets and liabilities
The following table presents assets and liabilities by maturity
groupings based on the remaining period to the contractual maturity
date as at the balance sheet date on a discounted basis.
Contractual maturities do not necessarily reflect actual repayments
or cashflow.
Within the tables below, cash and balances with central banks,
interbank placements and investment securities that are fair value
through other comprehensive income are used by the Group
principally for liquidity management purposes.
As at the reporting date, assets remain predominantly
short-dated, with 57 per cent maturing in under one year. Our less
than three-month cumulative net funding gap increased from the
previous year, largely due to an increase in customer accounts as
the Group focused on improving the quality of its deposit base. In
practice, these deposits are recognised as stable and have
behavioural profiles that extend beyond their contractual
maturities.
30.06.19
--------------- -----------------------------------------------------------------------------------------------------
More
Between Between than
Between three Between nine Between Between five
one month months six months months one year two years years
One month and three and six and nine and one and two and five and
or less months months months year years years undated Total
$million $million $million $million $million $million $million $million $million
--------------- --------- ---------- --------- ---------- --------- --------- ---------- ---------- ---------
Assets
Cash and
balances
at central
banks 49,517 - - - - - - 9,305 58,822
Derivative
financial
instruments 5,853 5,771 4,787 3,781 2,091 4,241 9,508 13,205 49,237
Loans and
advances
to banks(1,2) 34,904 19,484 12,073 4,366 4,559 2,206 1,987 492 80,071
Loans and
advances
to
customers(1,2) 86,104 37,351 20,710 9,850 9,398 18,524 40,864 83,841 306,642
Of which
classified
as:
Investment
securities 12,574 15,072 10,276 9,804 15,176 28,839 41,797 23,992 157,530
Other assets 16,107 15,904 1,876 133 114 188 184 25,696 60,202
--------------- --------- ---------- --------- ---------- --------- --------- ---------- ---------- ---------
Total assets 205,059 93,582 49,722 27,934 31,338 53,998 94,340 156,531 712,504
--------------- --------- ---------- --------- ---------- --------- --------- ---------- ---------- ---------
Liabilities
Deposits by
banks(1,3) 35,032 2,679 1,643 625 221 112 506 51 40,869
Customer
accounts(1,4) 332,905 52,154 28,361 12,393 12,031 2,902 1,397 2,768 444,911
Derivative
financial
instruments 5,670 6,227 4,663 4,079 2,583 5,154 10,647 11,330 50,353
Senior debt 291 3,890 605 867 2,891 2,942 6,259 12,713 30,458
Other debt
securities
in issue(1) 4,500 9,229 7,220 1,452 1,114 460 123 1,388 25,486
Other
liabilities 16,378 18,197 3,777 1,107 946 1,027 993 12,318 54,743
Subordinated
liabilities
and other
borrowed
funds - 17 - - 758 - 4,961 9,509 15,245
--------------- --------- ---------- --------- ---------- --------- --------- ---------- ---------- ---------
Total
liabilities 394,776 92,393 46,269 20,523 20,544 12,597 24,886 50,077 662,065
--------------- --------- ---------- --------- ---------- --------- --------- ---------- ---------- ---------
Net liquidity
gap (189,717) 1,189 3,453 7,411 10,794 41,401 69,454 106,454 50,439
--------------- --------- ---------- --------- ---------- --------- --------- ---------- ---------- ---------
1 Loans and advances, investment securities, deposits by banks,
customer accounts and debt securities in issue include financial
instruments held at fair value through profit or loss, see the
notes to the financial statements in the Half Year Report
2 Loans and advances include reverse repurchase agreements and
other similar secured lending of $57.9 billion
3 Deposits by banks include repurchase agreements and other
similar secured borrowing of $9.3 billion
4 Customer accounts include repurchase agreements and other
similar secured borrowing of $36.4 billion
31.12.18
------------------ --------------------------------------------------------------------------------------------------
Between More
Between Between Between Between Between two than
one three six nine one years five
month months months months year and years
One month and three and six and nine and one and two five and
or less months months months year years years undated Total
$million $million $million $million $million $million $million $million $million
------------------ --------- ---------- --------- --------- --------- --------- --------- --------- ---------
Assets
Cash and balances
at central banks 49,359 - - - - - - 8,152 57,511
Derivative
financial
instruments 6,902 5,861 5,827 3,509 2,333 4,458 8,079 8,652 45,621
Loans and advances
to banks1,2 38,331 20,549 11,209 5,214 2,835 2,584 1,064 279 82,065
Loans and advances
to customers1,2 84,846 33,756 18,133 11,641 10,321 17,519 39,306 83,849 299,371
Of which
classified
as
Investment
securities 15,297 13,589 14,131 14,300 17,402 25,695 31,303 17,851 149,568
Other assets 21,155 8,909 2,385 224 135 96 155 21,567 54,626
------------------ --------- ---------- --------- --------- --------- --------- --------- --------- ---------
Total assets 215,890 82,664 51,685 34,888 33,026 50,352 79,907 140,350 688,762
------------------ --------- ---------- --------- --------- --------- --------- --------- --------- ---------
Liabilities
Deposits by
banks1,3 30,368 2,593 572 553 397 244 230 60 35,017
Customer
accounts1,4 331,633 51,553 23,643 10,966 11,634 3,631 1,154 2,967 437,181
Derivative
financial
instruments 7,467 6,072 6,136 3,544 2,140 5,257 8,886 7,707 47,209
Senior debt 1,259 959 509 5,087 667 2,878 6,327 10,093 27,779
Other debt
securities
in issue1 4,893 9,792 8,062 177 715 1,030 16 1,395 26,080
Other liabilities 22,835 8,698 4,130 852 536 868 401 11,823 50,143
------------------ --------- ---------- --------- --------- --------- --------- --------- --------- ---------
Subordinated
liabilities
and other
borrowed
funds 23 17 - - - 2,522 4,421 8,018 15,001
------------------ --------- ---------- --------- --------- --------- --------- --------- --------- ---------
Total liabilities 398,478 79,684 43,052 21,179 16,089 16,430 21,435 42,063 638,410
------------------ --------- ---------- --------- --------- --------- --------- --------- --------- ---------
Net liquidity
gap (182,588) 2,980 8,633 13,709 16,937 33,922 58,472 98,287 50,352
------------------ --------- ---------- --------- --------- --------- --------- --------- --------- ---------
1 Loans and advances, investment securities, deposits by banks,
customer accounts and debt securities in issue include financial
instruments held at fair value through profit or loss, see the
notes to the financial statements in the Half Year Report
2 Loans and advances include reverse repurchase agreements and
other similar secured lending of $61.7 billion
3 Deposits by banks include repurchase agreements and other
similar secured borrowing of $5.0 billion
4 Customer accounts include repurchase agreements and other
similar secured borrowing of $39.4 billion
Behavioural maturity of financial assets and liabilities
The cashflows presented in the previous section reflect the
cashflows that will be contractually payable over the residual
maturity of the instruments. However, contractual maturities do not
necessarily reflect the timing of actual repayments or cashflow. In
practice, certain assets and liabilities behave differently from
their contractual terms, especially for short-term customer
accounts, credit card balances and overdrafts, which extend to a
longer period than their contractual maturity. On the other hand,
mortgage balances tend to have a shorter repayment period than
their contractual maturity date. Expected customer behaviour is
assessed and managed on a country basis using qualitative and
quantitative techniques, including analysis of observed customer
behaviour over time.
Maturity of financial liabilities on an undiscounted basis
The following table analyses the contractual cashflows payable
for the Group's financial liabilities by remaining contractual
maturities on an undiscounted basis. The financial liability
balances in the table below will not agree to the balances reported
in the consolidated balance sheet as the table incorporates all
contractual cashflows, on an undiscounted basis, relating to both
principal and interest payments. Derivatives not treated as hedging
derivatives are included in the 'On demand' time bucket and not by
contractual maturity.
Within the 'More than five years and undated' maturity band are
undated financial liabilities, all of which relate to subordinated
debt, on which interest payments are not included as this
information would not be meaningful, given the instruments are
undated. Interest payments on these instruments are included within
the relevant maturities up to five years.
30.06.19
-------------- ------------------------------------------------------------------------------------------------------
Between Between Between More
Between three six nine Between Between than
one month months months months one year two years five
One month and three and six and nine and one and two and five years
or less months months months year years years and undated Total
$million $million $million $million $million $million $million $million $million
-------------- --------- ---------- --------- --------- --------- --------- ---------- ------------ ---------
Deposits by
banks 35,157 2,705 1,660 631 241 126 525 51 41,096
Customer
accounts 333,549 52,683 29,319 12,561 12,196 3,301 1,478 3,298 448,385
Derivative
financial
instruments1 48,522 6 7 71 - 722 738 287 50,353
Debt
securities
in issue 4,809 13,612 8,023 2,333 3,576 3,810 7,495 16,256 59,914
Subordinated
liabilities
and other
borrowed
funds - - 255 - 1,153 606 6,569 15,233 23,816
Other
liabilities 15,047 18,432 3,951 1,241 948 1,027 995 13,369 55,010
-------------- --------- ---------- --------- --------- --------- --------- ---------- ------------ ---------
Total
liabilities 437,084 87,438 43,215 16,837 18,114 9,592 17,800 48,494 678,574
-------------- --------- ---------- --------- --------- --------- --------- ---------- ------------ ---------
31.12.18
------------------ --------------------------------------------------------------------------------------------------
Between More
Between Between Between Between Between two than
one three six nine one years five
month months months months year and years
One month and three and six and nine and one and two five and
or less months months months year years years undated Total
$million $million $million $million $million $million $million $million $million
------------------ --------- ---------- --------- --------- --------- --------- --------- --------- ---------
Deposits by banks 30,467 2,609 593 569 409 267 250 62 35,226
Customer accounts 332,115 51,845 24,686 11,094 11,780 3,700 1,226 3,552 439,998
Derivative
financial
instruments1 45,665 137 141 9 91 31 679 456 47,209
Debt securities
in issue 6,169 11,345 8,786 5,310 1,628 3,685 7,104 13,000 57,027
Subordinated
liabilities
and other
borrowed
funds 23 - 255 - 414 3,169 6,154 13,865 23,880
Other liabilities 19,746 8,757 4,129 892 520 885 407 12,302 47,638
------------------ --------- ---------- --------- --------- --------- --------- --------- --------- ---------
Total liabilities 434,185 74,693 38,590 17,874 14,842 11,737 15,820 43,237 650,978
------------------ --------- ---------- --------- --------- --------- --------- --------- --------- ---------
1 Derivatives are on a discounted basis
Interest Rate Risk in the Banking Book
The following table provides the estimated impact on the Group's
earnings of a 50 basis point parallel shock (up and down) across
all yield curves. The sensitivities shown represent the estimated
change in base case projected net interest income (NII), plus the
change in interest rate implied income and expense from FX swaps
used to manage banking book currency positions, under the two
interest rate shock scenarios.
The interest rate sensitivities are indicative and based on
simplified scenarios, estimating the aggregate impact of an
instantaneous 50 basis point parallel shock across all yield curves
over a one-year horizon, including the time taken to implement
changes to pricing before becoming effective. The assessment
assumes that non-interest rate sensitive aspects of the size and
mix of the balance sheet remain constant and that there are no
specific management actions in response to the change in rates. No
assumptions are made in relation to the impact on credit spreads in
a changing rate environment.
Significant modelling and behavioural assumptions are made
regarding scenario simplification, market competition, pass-through
rates, asset and liability re-pricing tenors, and price flooring.
In particular, the assumption that interest rates of all currencies
and maturities shift by the same amount concurrently, and that no
actions are taken to mitigate the impacts arising from this are
considered unlikely. Reported sensitivities will vary over time due
to a number of factors including changes in balance sheet
composition, market conditions, customer behaviour and risk
management strategy and should therefore not be considered an
income or profit forecast.
30.06.19
--------------------------------------- -------------------------------------------------
Estimated one-year impact to earnings HKD, SGD Other currency
from a parallel shift in yield curves USD bloc & KRW bloc bloc Total
at the beginning of the period of: $million $million $million $million
--------------------------------------- --------- ----------- -------------- ---------
+ 50 basis points 20 90 100 210
- 50 basis points (10) (70) (100) (180)
--------------------------------------- --------- ----------- -------------- ---------
31.12.18
--------------------------------------- -------------------------------------------------
Estimated one-year impact to earnings HKD, SGD Other currency
from a parallel shift in yield curves USD bloc & KRW bloc bloc Total
at the beginning of the period of: $million $million $million $million
--------------------------------------- --------- ----------- -------------- ---------
+ 50 basis points 10 110 90 210
- 50 basis points (20) (70) (90) (180)
--------------------------------------- --------- ----------- -------------- ---------
As at 30 June 2019, the Group estimates the one-year impact of
an instantaneous, parallel increase across all yield curves of 50
basis points to be an earnings benefit of $210 million. The
corresponding impact from a parallel decrease of 50 basis points
would result in an earnings reduction of $180 million.
The benefit from rising interest rates is primarily from
reinvesting at higher yields and from assets re-pricing faster and
to a greater extent than deposits. NII sensitivity under both the
up and down shock remained broadly unchanged since December
2018.
The US dollar sensitivity is impacted by the dampening effect
due to the asymmetry of funding trading book assets with banking
book liabilities. The sensitivities include the cost of banking
book liabilities used to fund the trading book, however the revenue
associated with the trading book positions is recognised in trading
book income. This asymmetry in both the up and down scenarios
should be broadly offset within total operating income.
Operational Risk
Operational Risks arise from the processes executed within the
Group. Risks associated with these processes are mapped into a
Group Process Universe where the standardised Control Assessment
Standards are applied. The Standards are benchmarked against
regulatory requirements.
Operational risk profile
The Operational Risk profile is the Group's overall exposure to
non-financial risk, at a given point in time, covering all
Principal Risk Types. The Operational Risk profile comprises both
Operational Risk events (including losses) and the current
exposures to non-financial risks.
Other principal risks
Losses arising from operational failures for other principal
risks (for example: Compliance, Conduct, Reputational, Information
and Cyber Security, and Financial Crime Risk are reported as
operational losses). Operational losses do not include Operational
Risk-related credit impairments.
Standard Chartered PLC - Capital review
The Capital review provides an analysis of the Group's capital
and leverage position and requirements.
Capital summary
The Group's capital and leverage position is managed within the
Board-approved risk appetite. The Group is well capitalised with
low leverage and high levels of loss-absorbing capacity.
Capital, leverage and
RWA 30.06.19 31.12.18
---------------------- -------- --------
CET1 capital 13.5% 14.2%
Tier 1 capital 15.9% 16.8%
Total capital 20.3% 21.6%
UK leverage 5.3% 5.6%
Risk-weighted assets
(RWA) $million 270,739 258,297
---------------------- -------- --------
The Group's Common Equity Tier 1 (CET1) capital and Tier 1
leverage position were well above current requirements. For further
detail see the Capital section in the Standard Chartered PLC Pillar
3 Disclosures for H1 2019.
The Group's current Pillar 2A requirement is 2.9 per cent of
RWA, of which at least 1.6 per cent must be held in CET1. This
requirement can vary over time.
The Group's fully phased minimum requirement for own funds and
eligible liabilities (MREL) is 21.8 per cent of RWA from 1 January
2022. The Group's combined buffer (the capital conservation, global
systemically important institution (G-SII) and countercyclical
buffers) is additive to the minimum requirement, resulting in a
total MREL requirement of 25.7 per cent of RWA from 1 January 2022.
The Group's MREL position was 26.2 per cent of RWA and 9.1 per cent
of leverage exposure at 30 June 2019.
The Group has continued its programme of MREL issuance from its
holding company in 2019, issuing around $2.8 billion of MREL
eligible securities during the period including the Group's
inaugural issuance of Australian dollar senior notes. The Group
also priced an inaugural SGD750 million Additional Tier 1 (AT1) and
its first emerging-markets focused sustainability bond of EUR500
million in the period. As both securities settled after 30 June
2019, they are not included in any regulatory metrics in the
period.
In the period, the Group commenced a buy-back of $1 billion of
its ordinary share capital with the purpose of reducing the Group's
outstanding ordinary shares. The impact of the $1 billion buy-back
on the Group's CET1 ratio is a reduction of around 39 basis points,
which has been reflected in the capital base..
The Group is a G-SII, with a 1.0 per cent G-SII CET1 buffer. The
Standard Chartered PLC 2018 G-SII disclosure is published at:
sc.com/fullyearresults.
Capital ratios
30.06.19 31.12.18
--------------- -------- --------
CET1 13.5% 14.2%
Tier 1 capital 15.9% 16.8%
Total capital 20.3% 21.6%
--------------- -------- --------
CRD IV capital base1
30.06.19 31.12.18
$million $million
---------------------------------------------------------- ---------- ----------
CET1 instruments and reserves
Capital instruments and the related share premium
accounts 5,615 5,617
---------- ----------
Of which: share premium accounts 3,989 3,965
---------- ----------
Retained earnings(2) 24,603 25,377
Accumulated other comprehensive income (and other
reserves) 11,640 11,878
Non-controlling interests (amount allowed in consolidated
CET1) 693 686
Independently reviewed interim and year-end profits 1,481 1,072
Foreseeable dividends net of scrip (449) (527)
---------------------------------------------------------- ---------- ----------
CET1 capital before regulatory adjustments 43,583 44,103
---------------------------------------------------------- ---------- ----------
CET1 regulatory adjustments
Additional value adjustments (prudential valuation
adjustments) (677) (564)
Intangible assets (net of related tax liability) (5,201) (5,146)
Deferred tax assets that rely on future profitability
(excludes those arising from temporary differences) (92) (115)
Fair value reserves related to net losses on cashflow
hedges 68 10
Deduction of amounts resulting from the calculation
of excess expected loss (930) (875)
Net gains on liabilities at fair value resulting from
changes in own Credit Risk (68) (412)
Defined-benefit pension fund assets (10) (34)
Fair value gains arising from the institution's own
Credit Risk related to derivative liabilities (90) (127)
Exposure amounts which could qualify for risk-weighting
of 1250% (72) (123)
---------------------------------------------------------- ---------- ----------
Total regulatory adjustments to CET1 (7,072) (7,386)
---------------------------------------------------------- ---------- ----------
CET1 capital 36,511 36,717
---------------------------------------------------------- ---------- ----------
AT1 capital instruments 6,632 6,704
---------------------------------------------------------- ---------- ----------
AT1 regulatory adjustments (20) (20)
---------------------------------------------------------- ---------- ----------
Tier 1 capital 43,123 43,401
---------------------------------------------------------- ---------- ----------
Tier 2 capital instruments 11,864 12,325
Tier 2 regulatory adjustments (30) (30)
---------- ----------
Tier 2 capital 11,834 12,295
---------------------------------------------------------- ---------- ----------
Total capital 54,957 55,696
---------------------------------------------------------- ---------- ----------
Total risk-weighted assets 270,739 258,297
---------------------------------------------------------- ---------- ----------
1 CRD IV capital is prepared on the regulatory scope of
consolidation
2 Retained earnings have been reduced to reflect the full $1
billion pro forma impact of the share buy-back programme announced
in April 2019
Movement in total capital
6 months 6 months
ended ended
30.06.19 31.12.18
$million $million
---------------------------------------------------------- ---------- ----------
CET1 at 1 January/1 July 36,717 38,512
Ordinary shares issued in the period and share premium 25 10
Share buy-back (1,000) -
Profit for the period 1,481 (485)
Foreseeable dividends net of scrip deducted from CET1 (449) (527)
Difference between dividends paid and foreseeable
dividends (190) 43
Movement in goodwill and other intangible assets (55) (155)
Foreign currency translation differences (82) (380)
Non-controlling interests 7 (9)
Movement in eligible other comprehensive income 170 (75)
Deferred tax assets that rely on future profitability 23 14
Decrease/(increase) in excess expected loss (55) (192)
Additional value adjustments (prudential valuation
adjustment) (113) (68)
IFRS 9 day one transitional impact on regulatory reserves (43) -
Exposure amounts which could qualify for risk-weighting 51 (1)
Other 24 30
---------------------------------------------------------- ---------- ----------
CET1 at 30 June/31 December 36,511 36,717
---------------------------------------------------------- ---------- ----------
AT1 at 1 January/1 July 6,684 6,692
Issuances net of redemptions - -
Foreign currency translation difference (1) (8)
Excess on AT1 grandfathered limit (ineligible) (71) -
---------------------------------------------------------- ---------- ----------
AT1 at 30 June/31 December 6,612 6,684
---------------------------------------------------------- ---------- ----------
Tier 2 capital at 1 January/1 July 12,295 12,815
Regulatory amortisation (572) (461)
Issuances net of redemptions - -
Foreign currency translation difference (15) (93)
Tier 2 ineligible minority interest 51 29
Recognition of ineligible AT1 71 -
Other 4 5
---------------------------------------------------------- ---------- ----------
Tier 2 capital at 30 June/31 December 11,834 12,295
---------------------------------------------------------- ---------- ----------
Total capital at 30 June/31 December 54,957 55,696
---------------------------------------------------------- ---------- ----------
The main movements in capital in the period were:
-- The CET1 ratio decreased from 14.2 per cent to 13.5 per cent
predominantly because of the impact of the share buy-back, other
distributions and higher RWA in the period partly offset by H1
profit
-- CET1 capital decreased by $0.2 billion, due to the share
buy-back of $1 billion, other distributions during the period of
$0.6 billion, partly offset by profit after tax of $1.5 billion
-- AT1 decreased slightly to $ 6.6 billion due to the amount
above the AT1 grandfathered limit which is ineligible as AT1
-- Tier 2 capital was $0.5 billion lower at $11.8 billion mainly
due to the impact of regulatory amortisation, partly offset by the
recognition of ineligible AT1 as Tier 2
Risk-weighted assets by business
30.06.19
---------------------------------- -------------------------------------------------
Operational
Credit Risk Risk Market Risk Total risk
$million $million $million $million
---------------------------------- ----------- ----------- ----------- ----------
Corporate & Institutional Banking 101,744 13,261 22,981 137,986
Retail Banking 35,458 7,314 - 42,772
Commercial Banking 28,948 2,626 - 31,574
Private Banking 5,887 728 - 6,615
Central & other items 47,973 3,691 128 51,792
---------------------------------- ----------- ----------- ----------- ----------
Total risk-weighted assets 220,010 27,620 23,109 270,739
---------------------------------- ----------- ----------- ----------- ----------
31.12.18
---------------------------------- -------------------------------------------------
Operational
Credit Risk Risk Market Risk Total risk
$million $million $million $million
---------------------------------- ----------- ----------- ----------- ----------
Corporate & Institutional Banking 96,954 13,029 19,008 128,991
Retail Banking 35,545 7,358 - 42,903
Commercial Banking 27,711 2,770 - 30,481
Private Banking 5,103 758 - 5,861
Central & other items 45,825 4,135 101 50,061
---------------------------------- ----------- ----------- ----------- ----------
Total risk-weighted assets 211,138 28,050 19,109 258,297
---------------------------------- ----------- ----------- ----------- ----------
Risk-weighted assets by geographic region
30.06.19 31.12.18
$million $million
--------------------------- ---------- ----------
Greater China & North Asia 84,881 81,023
ASEAN & South Asia 93,737 87,935
Africa & Middle East 51,705 53,072
Europe & Americas 42,809 40,789
Central & other items (2,393) (4,522)
--------------------------- ---------- ----------
Total risk-weighted assets 270,739 258,297
--------------------------- ---------- ----------
Movement in risk-weighted assets
Credit Risk
----------------- ----------------------------------------------------------------------- ----------- -------- --------
Corporate
& Central
Institutional Retail Commercial &other Operational Market Total
Banking Banking Banking PrivateBanking items Total Risk Risk risk
$million $million $million $million $million $million $million $million $million
----------------- ------------- -------- ---------- -------------- -------- -------- ----------- -------- --------
At 1 January 2018 109,368 36,345 29,712 5,134 45,671 226,230 30,478 23,040 279,748
Assets
(decline)/growth 1,473 557 1,019 426 2,573 6,048 - - 6,048
Net credit
migration (2,317) (191) 321 - 244 (1,943) - - (1,943)
Risk-weighted
assets
efficiencies (325) - - - - (325) - - (325)
Model,
methodology
and policy
changes (1,769) (591) 6 - 76 (2,278) - (1,138) (3,416)
Disposals - - - - (626) (626) - - (626)
Foreign currency
translation (1,240) (759) (567) (50) (1,292) (3,908) - - (3,908)
Other non-Credit
Risk movements - - - - - - (2,428) (1,283) (3,711)
----------------- ------------- -------- ---------- -------------- -------- -------- ----------- -------- --------
At 30 June 2018 105,190 35,361 30,491 5,510 46,646 223,198 28,050 20,619 271,867
Assets
(decline)/growth (3,000) 909 (2,366) (370) 323 (4,504) - - (4,504)
Net credit
migration 197 216 (84) - 250 579 - - 579
Risk-weighted
assets
efficiencies (3,215) (597) - - (748) (4,560) - - (4,560)
Model,
methodology
and policy
changes (1,569) (80) 60 - 1 (1,588) - (810) (2,398)
Disposals - - - - - - - - -
Foreign currency
translation (649) (264) (390) (37) (647) (1,987) - - (1,987)
Other non-Credit
Risk movements - - - - - - - (700) (700)
----------------- ------------- -------- ---------- -------------- -------- -------- ----------- -------- --------
At 31 December
2018 96,954 35,545 27,711 5,103 45,825 211,138 28,050 19,109 258,297
Assets
(decline)/growth 5,808 1,650 1,405 771 3,021 12,655 - - 12,655
Net credit
migration (320) (831) (51) 10 45 (1,147) - - (1,147)
Risk-weighted
assets
efficiencies (672) - - - (2,056) (2,728) - - (2,728)
Model,
methodology
and policy
changes - (698) - - 1,400 702 - 500 1,202
Disposals - - - - - - - - -
Foreign currency
translation (26) (208) (117) 3 (262) (610) - - (610)
Other non-Credit
Risk movements - - - - - - (430) 3,500 3,070
----------------- ------------- -------- ---------- -------------- -------- -------- ----------- -------- --------
At 30 June 2019 101,744 35,458 28,948 5,887 47,973 220,010 27,620 23,109 270,739
----------------- ------------- -------- ---------- -------------- -------- -------- ----------- -------- --------
Movements in risk-weighted assets
RWA increased by $12.4 billion, or 4.8 per cent from 31 December
2018 to $270.7 billion. This was mainly due to increases in Credit
Risk RWA of $8.9 billion, Market Risk RWA $4.0 billion partly
offset by a decrease of $0.4 billion in Operational Risk RWA.
Corporate & Institutional Banking
Credit Risk RWA increased by $4.8 billion to $101.7 billion
mainly due to:
-- $5.8 billion increase due to asset balance growth in
Financial Markets, Corporate Finance and Lending
-- $0.7 billion decrease due to RWA efficiencies relating to
credit risk mitigation
-- $0.3 billion decrease due to net credit migration principally
in Corporate Finance, Transaction Banking, and Lending
Retail Banking
Credit Risk RWA decreased by $0.1 billion to $35.5 billion
mainly due to:
-- $1.7 billion asset balance growth in ASEAN & South Asia
and Africa & Middle East
-- $0.7 billion RWA reduction following regulatory approval of
changes to Korean Personal Loans models
-- $0.8 billion decrease from net credit migration primarily in
Greater China & North Asia
-- $0.2 billion decrease from foreign currency translation
mainly due to depreciation of currencies in Greater China &
North Asia against the US dollar
Commercial Banking
Credit Risk RWA increased by $1.2 billion to $28.9 billion
mainly due to:
-- $1.4 billion RWA asset balance growth mainly due to Corporate
Finance and Lending
-- $0.1 billion decrease from net credit migration
-- $0.1 billion decrease from foreign currency translation
mainly due to depreciation of currencies in Pakistan and Korea
against the US dollar
Private Banking
Credit Risk RWA increased by $0.8 billion to $5.9 billion
principally due to asset balance growth in wealth management
products.
Central & other items
Central and other items RWA mainly relates to the Treasury
Markets liquidity portfolio, the Group's principal joint venture
investment, PT Bank Permata Tbk, equity investments and
deferred/current tax assets
Credit Risk RWA increased by $2.1 billion to $48.0 billion
mainly due to:
-- $3.0 billion increase in Credit Risk RWA is principally due
to higher investment securities balance in Treasury
-- $1.4 billion increase from the implementation of the IFRS 16
standard relating to leases on property
-- $0.3 billion decrease from foreign currency translation
mainly due to depreciation of currencies in Pakistan and Korea
against the US dollar
-- $2.1 billion of benefit from RWA efficiency initiatives on
Treasury Markets' exposures
Market Risk
Total market risk RWA (MRWA) increased by $4.0 billion, or 21
per cent from 31 December 2018 to $23.1 billion. This change was
due mainly to increased trading book debt security holdings and to
internal models approach (IMA) RWA following an increase in
regulatory backtesting exceptions.
Operational Risk
Operational Risk RWA reduced by $0.4 billion to $27.6 billion,
comprising a decrease in the average income over a rolling
three-year time horizon, as lower 2018 income replaced higher 2015
income, and a reduced average beta factor, due to a shift towards
lower beta businesses. This represents a 1.5 per cent year-on-year
reduction in Operational Risk RWA.
UK leverage ratio
The Group's UK leverage ratio, which excludes qualifying claims
on central banks in accordance with a PRA waiver, was 5.3 per cent,
which is above the current minimum requirement of 3.7 per cent. The
lower UK leverage ratio in the period was due to the combined
impact of an increased exposure measure and slightly lower Tier 1
capital (end point).
UK leverage ratio
30.06.19 31.12.18
$million $million
----------------------------------------------------- ---------- ----------
Tier 1 capital (transitional) 43,123 43,401
AT1 capital subject to phase out (1,671) (1,743)
----------------------------------------------------- ---------- ----------
Tier 1 capital (end point) 41,452 41,658
----------------------------------------------------- ---------- ----------
Derivative financial instruments 49,237 45,621
Derivative cash collateral 8,826 10,323
Securities financing transactions (SFTs) 57,914 61,735
Loans and advances and other assets 596,527 571,083
----------------------------------------------------- ---------- ----------
Total on-balance sheet assets 712,504 688,762
Regulatory consolidation adjustments(1) (37,066) (45,521)
Derivatives adjustments
---------- ----------
Derivatives netting (35,463) (34,300)
Adjustments to cash collateral (11,038) (14,827)
Net written credit protection 1,359 1,221
Potential future exposure on derivatives 31,298 28,498
---------- ----------
Total derivatives adjustments (13,844) (19,408)
Counterparty Risk leverage exposure measure for SFTs 7,913 8,281
Off-balance sheet items 119,047 115,335
Regulatory deductions from Tier 1 capital (6,914) (6,847)
----------------------------------------------------- ---------- ----------
UK leverage exposure (end point) 781,640 740,602
UK leverage ratio (end point) 5.3% 5.6%
----------------------------------------------------- ---------- ----------
UK leverage exposure quarterly average 788,148 734,976
UK leverage ratio quarterly average 5.2% 5.8%
----------------------------------------------------- ---------- ----------
Countercyclical leverage ratio buffer 0.1% 0.1%
G-SII additional leverage ratio buffer 0.4% 0.3%
----------------------------------------------------- ---------- ----------
1 Includes adjustment for qualifying central bank claims
Standard Chartered PLC - Statement of directors'
responsibilities
We confirm that to the best of our knowledge:
-- The condensed consolidated interim financial statements have
been prepared in accordance with IAS 34 Interim Financial Reporting
as adopted by the EU
-- The interim management report includes a fair review of the
information required by:
(a) DTR 4.2.7R of the Disclosure Guidance and Transparency
Rules, being an indication of important events that have occurred
during the six months ended 30 June 2019 and their impact on the
condensed consolidated interim financial statements; and a
description of the principal risks and uncertainties for the
remaining six months of the year
(b) DTR 4.2.8R of the Disclosure Guidance and Transparency
Rules, being related party transactions that have taken place
during the six months ended 30 June 2019 that have materially
affected the financial position or performance of the entity during
that period; and any changes in the related party transactions
described in the last annual report that could have materially
affected the financial position or performance of the entity during
that period
By order of the Board
Andy Halford
Group Chief Financial Officer
1 August 2019
Standard Chartered PLC - Independent review report
to Standard Chartered PLC
Conclusion
We have been engaged by Standard Chartered PLC (the Company)
including its subsidiaries (together the Group) to review the
condensed consolidated interim set of financial statements in the
half-yearly financial report for the six months ended 30 June 2019
which comprises the condensed consolidated interim balance sheet,
the condensed consolidated interim income statement, the condensed
consolidated interim statement of comprehensive income, the
condensed consolidated interim statement of changes in equity, the
condensed consolidated interim cashflow statement, and the related
explanatory notes.
Based on our review, nothing has come to our attention that
causes us to believe that the condensed consolidated set of
financial statements in the half-yearly financial report for the
six months ended 30 June 2019 is not prepared, in all material
respects, in accordance with IAS 34 Interim Financial Reporting as
adopted by the EU and the Disclosure Guidance and Transparency
Rules (the DTR) of the UK's Financial Conduct Authority (the UK
FCA).
Scope of review
We conducted our review in accordance with International
Standard on Review Engagements (UK and Ireland) 2410 Review of
Interim Financial Information Performed by the Independent Auditor
of the Entity issued by the Auditing Practices Board for use in the
UK. A review of interim financial information consists of making
enquiries, primarily of persons responsible for financial and
accounting matters, and applying analytical and other review
procedures. We read the other information contained in the
half-yearly financial report and consider whether it contains any
apparent misstatements or material inconsistencies with the
information in the condensed set of financial statements.
A review is substantially less in scope than an audit conducted
in accordance with International Standards on Auditing (UK) and
consequently does not enable us to obtain assurance that we would
become aware of all significant matters that might be identified in
an audit. Accordingly, we do not express an audit opinion.
Directors' responsibilities
The half-yearly financial report is the responsibility of, and
has been approved by, the directors. The directors are responsible
for preparing the half-yearly financial report in accordance with
the DTR of the UK FCA.
As disclosed in the notes to the financial statements in the
Half Year Report, the annual financial statements of the Group are
prepared in accordance with International Financial Reporting
Standards as adopted by the EU. The directors are responsible for
preparing the condensed set of financial statements included in the
half-yearly financial report in accordance with IAS 34 as adopted
by the EU.
Our responsibility
Our responsibility is to express to the Group a conclusion on
the condensed consolidated set of financial statements in the
half-yearly financial report based on our review.
The purpose of our review work and to whom we owe our
responsibilities
This report is made solely to the Group in accordance with the
terms of our engagement to assist the Group in meeting the
requirements of the DTR of the UK FCA. Our review has been
undertaken so that we might state to the Group those matters we are
required to state to it in this report and for no other purpose. To
the fullest extent permitted by law, we do not accept or assume
responsibility to anyone other than the Group for our review work,
for this report, or for the conclusions we have reached.
Paul Furneaux
for and on behalf of KPMG LLP
Chartered Accountants
15 Canada Square
London E14 5GL
1 August 2019
Standard Chartered PLC - Condensed consolidated interim income
statement
For the six months ended 30 June 2019
6 months 6 months 6 months
ended 30.06.19 ended 31.12.18 ended 30.06.18
Notes $million $million $million
------------------------------------------ ----- --------------- --------------- ---------------
Interest income 9,843 9,037 8,227
Interest expense (5,225) (4,605) (3,866)
------------------------------------------ ----- --------------- --------------- ---------------
Net interest income 4,618 4,432 4,361
--------------- --------------- ---------------
Fees and commission income 3 2,120 1,915 2,114
Fees and commission expense 3 (282) (292) (245)
--------------- --------------- ---------------
Net trading income 4 994 717 966
Other operating income 5 380 390 431
------------------------------------------ ----- --------------- --------------- ---------------
Operating income 7,830 7,162 7,627
--------------- --------------- ---------------
Staff costs (3,577) (3,496) (3,578)
Premises costs (191) (417) (373)
General administrative expenses (953) (2,118) (808)
Depreciation and amortisation (577) (431) (426)
--------------- --------------- ---------------
Operating expenses 6 (5,298) (6,462) (5,185)
------------------------------------------ ----- --------------- --------------- ---------------
Operating profit before impairment
losses and taxation 2,532 700 2,442
Credit impairment 7 (254) (439) (214)
Other impairment 8 (44) (132) (50)
Profit from associates and joint ventures 180 73 168
------------------------------------------ ----- --------------- --------------- ---------------
Profit before taxation 2,414 202 2,346
Taxation 9 (918) (686) (753)
------------------------------------------ ----- --------------- --------------- ---------------
Profit/(loss) for the period 1,496 (484) 1,593
------------------------------------------ ----- --------------- --------------- ---------------
Profit/(loss) attributable to:
Non-controlling interests 19 22 33
Parent company shareholders 1,477 (506) 1,560
------------------------------------------ ----- --------------- --------------- ---------------
Profit/(loss) for the period 1,496 (484) 1,593
------------------------------------------ ----- --------------- --------------- ---------------
cents cents cents
------------------------------------- ----- ------ -----
Earnings per share:
Basic earnings/(loss) per ordinary
share 11 38.0 (21.9) 40.7
Diluted earnings/(loss) per ordinary
share 11 37.5 (21.7) 40.2
------------------------------------- ----- ------ -----
The notes form an integral part of these financial
statements.
Standard Chartered PLC - Condensed consolidated interim
statement of comprehensive income
For the six months ended 30 June 2019
6 months 6 months 6 months
ended ended ended
30.06.19 31.12.18 30.06.18
Notes $million $million $million
--------------------------------------------------- ----- ---------- ---------- ----------
Profit/(loss) for the period 1,496 (484) 1,593
Other comprehensive income/(loss)
Items that will not be reclassified to
income statement: (384) 129 253
---------- ---------- ----------
Own credit (losses)/gains on financial
liabilities designated at fair value through
profit or loss (392) 258 136
Equity instruments at fair value through
other comprehensive income 13 17 19
Actuarial (losses)/gains on retirement
benefit obligations 23 (49) (124) 105
Taxation relating to components of other
comprehensive income 44 (22) (7)
---------- ---------- ----------
Items that may be reclassified subsequently
to income statement: 65 (363) (826)
Exchange differences on translation of
foreign operations:
---------- ---------- ----------
Net losses taken to equity (159) (454) (1,008)
Net gains on net investment hedges 73 66 216
Share of other comprehensive income from
associates and joint ventures 3 17 16
Debt instruments at fair value through
other comprehensive income:
Net valuation gains/(losses) taken to equity 291 (9) (119)
Reclassified to income statement (58) 18 13
Net impact of expected credit losses 3 8 (8)
Cashflow hedges:
Net (losses)/gains taken to equity (79) (15) 49
Reclassified to income statement 7 2 5
Taxation relating to components of other
comprehensive income (16) 4 10
---------- ---------- ----------
Other comprehensive loss for the period,
net of taxation (319) (234) (573)
--------------------------------------------------- ----- ---------- ---------- ----------
Total comprehensive income/(loss) for the
period 1,177 (718) 1,020
--------------------------------------------------- ----- ---------- ---------- ----------
Total comprehensive income/(loss) attributable
to:
Non-controlling interests 11 9 25
Parent company shareholders 1,166 (727) 995
--------------------------------------------------- ----- ---------- ---------- ----------
Total comprehensive income/(loss) for the
period 1,177 (718) 1,020
--------------------------------------------------- ----- ---------- ---------- ----------
Standard Chartered PLC - Condensed consolidated interim balance
sheet
As at 30 June 2019
30.06.19 31.12.18
Notes $million $million
------------------------------------------------- ----- ---------- ----------
Assets
Cash and balances at central banks 58,822 57,511
Financial assets held at fair value through
profit or loss 12 93,402 87,132
Derivative financial instruments 12,13 49,237 45,621
Loans and advances to banks1 12 59,210 61,414
Loans and advances to customers2 12 263,595 256,557
Investment securities 12 128,036 125,901
Other assets 16 39,338 35,401
Current tax assets 507 492
Prepayments and accrued income 2,797 2,505
Interests in associates and joint ventures 2,512 2,307
Goodwill and intangible assets 15 5,111 5,056
Property, plant and equipment 7,750 6,490
Deferred tax assets 924 1,047
Assets classified as held for sale 17 1,263 1,328
------------------------------------------------- ----- ---------- ----------
Total assets 712,504 688,762
------------------------------------------------- ----- ---------- ----------
Liabilities
Deposits by banks 12 30,783 29,715
Customer accounts 12 401,597 391,013
Repurchase agreements and other similar secured
borrowing 12,14 5,920 1,401
Financial liabilities held at fair value through
profit or loss 12 61,781 60,700
Derivative financial instruments 12,13 50,353 47,209
Debt securities in issue 12 46,672 46,454
Other liabilities 18 42,752 38,309
Current tax liabilities 550 676
Accruals and deferred income 4,893 5,393
Subordinated liabilities and other borrowed
funds 12,21 15,245 15,001
Deferred tax liabilities 549 563
Provisions for liabilities and charges 393 1,330
Retirement benefit obligations 23 473 399
Liabilities included in disposal groups held
for sale 17 104 247
------------------------------------------------- ----- ---------- ----------
Total liabilities 662,065 638,410
------------------------------------------------- ----- ---------- ----------
Equity
Share capital and share premium account 22 7,109 7,111
Other reserves 11,640 11,878
Retained earnings 26,318 26,129
------------------------------------------------- ----- ---------- ----------
Total parent company shareholders' equity 45,067 45,118
Other equity instruments 22 4,961 4,961
------------------------------------------------- ----- ---------- ----------
Total equity excluding non-controlling interests 50,028 50,079
Non-controlling interests 411 273
------------------------------------------------- ----- ---------- ----------
Total equity 50,439 50,352
------------------------------------------------- ----- ---------- ----------
Total equity and liabilities 712,504 688,762
------------------------------------------------- ----- ---------- ----------
1 Reverse repurchase agreements and other similar secured
lending balances held at amortised cost of $1,145 million (31
December 2018: $3,815 million) have been included with loans and
advances to banks
2 Reverse repurchase agreements and other similar secured
lending balances held at amortised cost of $2,704 million (31
December 2018: $3,151 million) have been included with loans and
advances to customers
The notes form an integral part of these financial
statements.
Standard Chartered PLC - Condensed consolidated interim
statement of changes in equity
For the six months ended 30 June 2019
Fair value Fair value
Share through through
capital other other
and Capital Own comprehensive comprehensive Cash Parent
share and credit income income flow company Other
premium merger adjustment reserve reserve hedge Translation Retained shareholders' equity Non-controlling
account reserves reserve - debt - equity reserve reserve earnings equity instruments interests Total
$million $million $million $million $million $million $million $million $million $million $million $million
-------------- -------- -------- ---------- ------------- ------------- -------- ----------- -------- ------------- ----------- --------------- --------
As at 1
January
2018 7,097 17,1291 54 (77) 53 (45) (4,454) 25,895 45,652 4,961 333 50,946
Profit for the
period - - - - - - - 1,560 1,560 - 33 1,593
Other
comprehensive
income/(loss) - - 132 (103) 37 46 (783) 1062 (565) - (8) (573)
Distributions - - - - - - - - - - (27) (27)
Shares issued,
net of
expenses3 4 - - - - - - - 4 - - 4
Net own shares
adjustment4 - - - - - - - 7 7 - - 7
Share option
expense, net
of taxation - - - - - - - 97 97 - - 97
Dividends5 - - - - - - - (564) (564) - - (564)
Other
movements - - - - - - - 5 5 - - 5
-------------- -------- -------- ---------- ------------- ------------- -------- ----------- -------- ------------- ----------- --------------- --------
As at 30 June
2018 7,101 17,129 186 (180) 90 1 (5,237) 27,106 46,196 4,961 331 51,488
(Loss)/profit
for the
period - - - - - - - (506) (506) - 22 (484)
Other
comprehensive
income/(loss) - - 226 19 30 (11) (375) (110)2 (221) - (13) (234)
Distributions - - - - - - - - - - (70) (70)
Shares issued,
net of
expenses3 10 - - - - - - - 10 - - 10
Net own shares
adjustment4 - - - - - - - (6) (6) - - (6)
Share option
expense, net
of taxation - - - - - - - 61 61 - - 61
Dividends5 - - - - - - - (411) (411) - - (411)
Other
movements - - - - - - - (5) (5) - 36 (2)
-------------- -------- -------- ---------- ------------- ------------- -------- ----------- -------- ------------- ----------- --------------- --------
As at 31
December
2018 7,111 17,129 412 (161) 120 (10) (5,612) 26,129 45,118 4,961 273 50,352
Profit for the
period - - - - - - - 1,477 1,477 - 19 1,496
Other
comprehensive
(loss)/income - - (344) 212 3 (58) (78) (46)2 (311) - (8) (319)
Distributions - - - - - - - - - - (26) (26)
Shares issued,
net of
expenses3 25 - - - - - - - 25 - - 25
Net own shares
adjustment4 - - - - - - - (132) (132) - - (132)
Share option
expense, net
of taxation - - - - - - - 97 97 - - 97
Dividends5 - - - - - - - (716) (716) - - (716)
Cancellation
of shares
including
share
buy-back7 (27) 27 - - - - - (486) (486) - - (486)
Other
movements - - - - - - - (5)8 (5) - 1536 148
-------------- -------- -------- ---------- ------------- ------------- -------- ----------- -------- ------------- ----------- --------------- --------
As at 30 June
2019 7,109 17,156 68 51 123 (68) (5,690) 26,318 45,067 4,961 411 50,439
-------------- -------- -------- ---------- ------------- ------------- -------- ----------- -------- ------------- ----------- --------------- --------
1 Includes capital reserve of $5 million, capital redemption
reserve of $13 million and merger reserve of $17,111 million
2 Comprises actuarial (loss)/gain, net of taxation and share
from associates and joint ventures $(46) million ($(110) million
for the six months ended 31 December 2018 and $106 million for the
six months ended 30 June 2018)
3 Comprises share capital of shares issued to fulfil
discretionary awards $1 million ($2 million for the six months
ended 31 December 2018 and $3 million for the six months ended 30
June 2018), share capital of shares issued to fulfil employee share
save options exercised $1 million (nil for the six months ended 31
December 2018 and nil for the six months ended 30 June 2018) and
share premium of shares issued to fulfil employee share save
options exercised $23 million ($8 million for the six months ended
31 December 2018 and $1 million for the six months ended 30 June
2018)
4 Comprises treasury shares purchased to fulfil discretionary
award plans $136 million ( $8 million for the six months ended 31
December 2018 and nil for the six months ended 30 June 2018) offset
by treasury shares issued to fulfil discretionary award plans $4
million ($2 million for the six months ended 31 December 2018 and
$7 million for the six months ended 30 June 2018)
5 Comprises dividends paid net of scrip $495 million ($192
million for the six months ended 31 December 2018 and $347 million
for the six months ended 30 June 2018) and dividends on preference
shares classified as equity and Additional Tier 1 securities $221
million ($219 million for the six months ended 31 December 2018 and
$217 million for the six months ended 30 June 2018). (refer to the
notes to the financial statements in the Half Year Report)
6 Other movements $81 million relates to the Principal Finance
business and $72 million relates to the non-controlling interests
of our partners in SC Digital Solutions. For the six months ended
31 December 2018, the movement is mainly due to additional share
capital issued by Angola subscribed by its non-controlling
interests without change in shareholding percentage
7 On 1 May 2019, the Group commenced a share buy-back of its
ordinary shares of $0.50 each up to a maximum consideration of $1
billion. At 30 June 2019, the total number of shares purchased was
54,885,156, representing 1.66% of the ordinary shares in issue. The
nominal value of ordinary shares purchased at 30 June 2019 was $27
million and the aggregate consideration paid by the Group was $486
million. The nominal value of the shares was transferred from the
share capital to the capital redemption reserve account (refer to
the notes to the financial statements in the Half Year Report)
8 Withholding tax on capitalisation of revenue reserves $4
million
Notes to the financial statements in the Half Year Report
includes a description of each reserve.
The notes form an integral part of these financial
statements.
Standard Chartered PLC - Condensed consolidated interim cashflow
statement
For the six months ended 30 June 2019
6 months 6 months 6 months
ended 30.06.19 ended 31.12.18 ended 30.06.18
$million $million $million
-------------------------------------------------------- --------------- --------------- ---------------
Cashflows from operating activities:
Profit before taxation 2,414 202 2,346
Adjustments for non-cash items and other adjustments
included within income statement 1,092 1,452 1,183
Change in operating assets (22,546) 16,006 (28,843)
Change in operating liabilities 23,187 (6,135) 39,994
Contributions to defined benefit schemes (27) (105) (38)
UK and overseas taxes paid (929) (440) (330)
-------------------------------------------------------- --------------- --------------- ---------------
Net cash from operating activities 3,191 10,980 14,312
-------------------------------------------------------- --------------- --------------- ---------------
Cashflows from investing activities:
Purchase of property, plant and equipment (135) (107) (64)
Disposal of property, plant and equipment 21 82 3
Dividends received from subsidiaries, associates
and joint ventures 1 64 3
Disposal of subsidiaries 3 7 -
Purchase of investment securities (135,488) (132,485) (143,903)
Disposal and maturity of investment securities 132,444 129,136 134,847
-------------------------------------------------------- --------------- --------------- ---------------
Net cash used in investing activities (3,154) (3,303) (9,114)
-------------------------------------------------------- --------------- --------------- ---------------
Cashflows from financing activities:
Issue of ordinary and preference share capital,
net of expenses 25 10 4
Treasury share issuance 4 2 7
Treasury share purchase (136) (8) -
Cancellation of shares including share buy-back (486) - -
Gross proceeds from issue of subordinated liabilities - - 500
Interest paid on subordinated liabilities (265) (360) (242)
Repayment of subordinated liabilities (23) 145 (2,242)
Proceeds from issue of senior debts 3,589 7,845 1,921
Repayment of senior debts (2,289) (4,566) (2,464)
Interest paid on senior debts (271) (285) (222)
Investment from non-controlling interests 153 - -
Dividends paid to non-controlling interests
and preference shareholders (247) (290) (243)
Dividends paid to ordinary shareholders (495) (191) (348)
-------------------------------------------------------- --------------- --------------- ---------------
Net cash (used in)/from financing activities (441) 2,302 (3,329)
-------------------------------------------------------- --------------- --------------- ---------------
Net (decrease)/increase in cash and cash equivalents (404) 9,979 1,869
Cash and cash equivalents at beginning of the
period 97,500 88,315 87,231
Effect of exchange rate movements on cash and
cash equivalents (140) (794) (785)
-------------------------------------------------------- --------------- --------------- ---------------
Cash and cash equivalents at end of the period 96,956 97,500 88,315
-------------------------------------------------------- --------------- --------------- ---------------
Contents - Notes to the financial statements
Section Note Note title
------------------------------ ---- --------------------------------------------
Basis of preparation 1 Accounting policies
------------------------------ ---- --------------------------------------------
Performance/return 2 Segmental information
------------------------------
3 Net fees and commission
------------------------------
4 Net trading income
5 Other operating income
6 Operating expenses
7 Credit impairment
8 Other impairment
9 Taxation
10 Dividends
11 Earnings per ordinary share
------------------------------ ---- --------------------------------------------
Assets and liabilities held
at fair value 12 Financial instruments
------------------------------
13 Derivative financial instruments
------------------------------ ---- --------------------------------------------
Financial instruments held Reverse repurchase and repurchase agreements
at amortised cost including other similar lending and
14 borrowing
------------------------------ ---- --------------------------------------------
Other assets and investments 15 Goodwill and intangible assets
------------------------------
16 Other assets
------------------------------
Assets held for sale and associated
17 liabilities
------------------------------ ---- --------------------------------------------
Funding, accruals, provisions,
contingent liabilities and
legal proceedings 18 Other liabilities
------------------------------
19 Contingent liabilities and commitments
------------------------------
20 Legal and regulatory matters
------------------------------ ---- --------------------------------------------
Capital instruments, equity Subordinated liabilities and other borrowed
and reserves 21 funds
------------------------------
Share capital, other equity instruments
22 and reserves
------------------------------ ---- --------------------------------------------
Employee benefits 23 Retirement benefit obligations
------------------------------ ---- --------------------------------------------
Other disclosure matters 24 Related party transactions
------------------------------
25 Post balance sheet events
------------------------------
26 Corporate governance
27 Statutory accounts
28 Transition to IFRS 16 Leases
Dealings in Standard Chartered PLC listed
29 securities
------------------------------ ---- --------------------------------------------
Standard Chartered PLC - Notes to the financial statements
1. Accounting policies
Statement of compliance
The Group's condensed consolidated interim financial statements
consolidate those of Standard Chartered PLC (the Company) and its
subsidiaries (together referred to as the Group) and equity account
the Group's interest in associates and jointly controlled entities.
These interim financial statements have been prepared in accordance
with the Disclosure Guidance and Transparency Rules of the
Financial Conduct Authority (FCA) and with IAS 34 Interim Financial
Reporting as issued by the International Accounting Standards Board
(IASB) and adopted by the European Union (EU).
They should be read in conjunction with the annual consolidated
financial statements of the Group for the year ended 31 December
2018, which were prepared in accordance with International
Financial Reporting Standards (IFRS) and IFRS Interpretations
Committee (IFRIC) interpretations as issued by the IASB and
endorsed by the EU. At 30 June 2019, there was no difference
between IFRS endorsed by the EU and the IFRS issued by the IASB in
terms of their application to the Group.
The following form part of these interim financial
statements:
a) From the start of Risk profile section to the end of other
principal risks in the same section excluding:
-- Credit quality by geographic region
-- Credit quality by industry
-- Forborne and other modified loans by region
-- Credit-impaired (stage 3) loans and advances by geographic
region
-- Industry and retail products analysis of loans and advances
by geographic region
-- Country Risk
-- Risks not in VaR
-- Backtesting
-- Liquidity coverage ratio (LCR)
-- Stressed coverage
-- Net stable funding ratio (NSFR)
-- Liquidity pool
-- Encumbrance
-- Interest Rate Risk in the banking book
-- Operational Risk
-- Other principal risks
b) Capital review: from the start of 'Capital Requirements
Directive (CRD) IV capital base' to the end of 'Movement in total
capital' excluding capital ratios and risk-weighted assets
(RWA)
Accounting policies
The accounting policies applied by the Group in the Interim
Financial Information are the same as those applied by the Group in
the 2018 annual consolidated financial statements, except for the
recognition and measurement of applicable leases under IFRS 16
Leases, effective from 1 January 2019. The Interim Financial
Information has been prepared in accordance with the "Recognition
and measurement" requirements of IAS 34.
Basis of preparation
The consolidated and Company financial statements have been
prepared on a going concern basis and under the historical cost
convention, as modified by the revaluation of cash-settled
share-based payments, assets held for sale, fair value through
other comprehensive income, and financial assets and liabilities
(including derivatives) at fair value through profit or loss.
Significant accounting estimates and judgements
The preparation of interim financial statements requires
management to make judgements, estimates and assumptions that
affect the application of accounting policies and the reported
amounts of assets and liabilities, income and expense. Actual
results may differ from these estimates. The significant judgements
made by management in applying the Group's accounting policies and
key sources of uncertainty were the same as those applied to the
consolidated financial statements as at, and for, the year ended 31
December 2018. Summaries of the Group's significant accounting
policies are included throughout the 2018 Annual Report.
IFRS and Hong Kong accounting requirements
As required by the Hong Kong Listing Rules, an explanation of
the differences in accounting practices between EU-endorsed IFRS
and Hong Kong Financial Reporting Standards is required to be
disclosed. There would be no significant differences had these
accounts been prepared in accordance with Hong Kong Financial
Reporting Standards.
New accounting standards adopted by the Group
IFRS 16 Leases
On 1 January 2019, the Group adopted IFRS 16 Leases, which has
been endorsed by the EU. IFRS 16 replaces IAS17 Leases.
IFRS 16 introduces a single lessee accounting model and requires
a lessee to recognise assets and liabilities for all leases with a
term of more than 12 months, unless the underlying asset is of low
value. A lessee is required to recognise a right-of-use asset
representing its right to use the underlying leased asset and a
lease liability representing its obligation to make lease payments.
IFRS 16 substantially carries forward the lessor accounting
requirements in IAS 17 Leases. Accordingly, a lessor continues to
classify its leases as operating leases or finance leases, and to
account for those two types of leases differently.
The significant judgements in the implementation were
determining if a contract contained a lease, and the determination
of whether the Group is reasonably certain that it will exercise
extension options present in lease contracts. The significant
estimates were the determination of incremental borrowing rates in
the respective economic environments. The weighted average discount
rate applied to lease liabilities on the transition date 1 January
2019 was 5.0 per cent.
The impact of IFRS 16 on the Group is primarily where the Group
is a lessee in property lease contracts. The Group has elected to
adopt the simplified approach of transition and has not restated
comparative information. On 1 January 2019, the Group recognised a
lease liability, being the remaining lease payments, including
extensions options where renewal is reasonably certain, discounted
using the Group's incremental borrowing rate at the date of initial
application in the economic environment of the lease. The
corresponding right-of-use asset recognised is the amount of the
lease liability adjusted by prepaid or accrued lease payments
related to those leases. The balance sheet increase as a result of
recognition of the lease liability and right-of-use asset as of 1
January 2019 was approximately $1.4 billion, with no adjustment to
retained earnings. The asset is presented in 'Property, plant and
equipment' and the liability is presented in 'Other liabilities'.
These balances are shown in the notes to the financial statements
in the Half Year Report.
IFRIC 23 Uncertainty over Income Tax Treatments
IFRIC 23 was adopted by the Group on 1 January 2019 and has been
endorsed by the EU. It clarifies the accounting for uncertainties
in income taxes and did not result in a material impact to the
Group's interim report.
Other amendments and clarifications made to existing standards
that are not yet effective are not expected.
Going concern
These interim financial statements were approved by the Board of
directors on 1 August 2019. The directors made an assessment of the
Group's ability to continue as a going concern and confirm they are
satisfied that the Group has adequate resources to continue in
business for a period of at least 12 months from the date of
approval of these interim financial statements. For this reason,
the Group continues to adopt the going concern basis of accounting
for preparing the financial statements.
2. Segmental information
Basis of preparation
The analysis reflects how the client segments and geographic
regions are managed internally. This is described as the Management
View and is principally the location from which a client
relationship is managed, which may differ from where it is
financially booked and may be shared between businesses and/or
regions. In certain instances this approach is not appropriate and
a Financial View is disclosed, that is, the location in which the
transaction or balance was booked. Typically the Financial View is
used in areas such as the Market and Liquidity risk reviews where
actual booking location is more important for an assessment.
Segmental information is therefore on a Management View unless
otherwise stated.
Restructuring and other items excluded from underlying
results
The Group's statutory performance is adjusted for profits or
losses of a capital nature, amounts consequent to investment
transactions driven by strategic intent, other infrequent and/or
exceptional transactions that are significant or material in the
context of the Group's normal business earnings for the period and
items which management and investors would ordinarily identify
separately when assessing performance period-by period. These
adjustments are set out below.
The Group made a provision for regulatory matters of $204
million mostly relating to the resolution of legacy conduct and
control issues. Revaluations of Principal Finance exposures
together with profits related to the Group's discontinued ship
leasing business contributed the majority of the $14 million net
restructuring charges in the first half of 2019.
As previously communicated the Group's joint venture investment
in Indonesia is no longer considered core and the related profits
of $23 million in 2019 are excluded from underlying and reported in
other items.
6 months ended 30.06.19
-------------------------- ----------------------------------------------------------------------------------------
Share of
Gains arising profits
on repurchase of PT Bank
Provision of senior Permata
for regulatory and subordinated Tbk
Underlying matters Restructuring liabilities joint venture Statutory
$million $million $million $million $million $million
-------------------------- ---------- --------------- ------------- ----------------- -------------- ---------
Operating income 7,696 - 134 - - 7,830
Operating expenses (4,969) (204) (125) - - (5,298)
-------------------------- ---------- --------------- ------------- ----------------- -------------- ---------
Operating profit/(loss)
before impairment losses
and taxation 2,727 (204) 9 - - 2,532
Credit impairment (254) - - - - (254)
Other impairment (21) - (23) - - (44)
Profit from associates
and joint ventures 157 - - - 23 180
-------------------------- ---------- --------------- ------------- ----------------- -------------- ---------
Profit/(loss) before
taxation 2,609 (204) (14) - 23 2,414
-------------------------- ---------- --------------- ------------- ----------------- -------------- ---------
6 months ended 31.12.18
-------------------------- ----------------------------------------------------------------------------------------
Share of
Gains arising profits
on repurchase of PT Bank
Provision of senior Permata
for regulatory and subordinated Tbk
Underlying matters Restructuring liabilities joint venture Statutory
$million $million $million $million $million $million
-------------------------- ---------- --------------- ------------- ----------------- -------------- ---------
Operating income 7,319 - (157) - - 7,162
Operating expenses (5,347) (900) (215) - - (6,462)
-------------------------- ---------- --------------- ------------- ----------------- -------------- ---------
Operating profit/(loss)
before impairment losses
and taxation 1,972 (900) (372) - - 700
Credit impairment (447) - 8 - - (439)
Other impairment (97) - (35) - - (132)
Profit from associates
and joint ventures 73 - - - - 73
-------------------------- ---------- --------------- ------------- ----------------- -------------- ---------
Profit/(loss) before
taxation 1,501 (900) (399) - - 202
-------------------------- ---------- --------------- ------------- ----------------- -------------- ---------
6 months ended 30.06.18
-------------------------- ----------------------------------------------------------------------------------------
Share of
Gains arising profits
on repurchase of PT Bank
Provision of senior Permata
for regulatory and subordinated Tbk
Underlying matters Restructuring liabilities joint venture Statutory
$million $million $million $million $million $million
-------------------------- ---------- --------------- ------------- ----------------- -------------- ---------
Operating income 7,649 - (91) 69 - 7,627
Operating expenses (5,117) - (68) - - (5,185)
-------------------------- ---------- --------------- ------------- ----------------- -------------- ---------
Operating profit/(loss)
before impairment losses
and taxation 2,532 - (159) 69 - 2,442
Credit impairment (293) - 79 - - (214)
Other impairment (51) - 1 - - (50)
Profit from associates
and joint ventures 168 - - - - 168
-------------------------- ---------- --------------- ------------- ----------------- -------------- ---------
Profit/(loss) before
taxation 2,356 - (79) 69 - 2,346
-------------------------- ---------- --------------- ------------- ----------------- -------------- ---------
Underlying performance by client segment
6 months ended 30.06.19
------------------------------ ---------------------------------------------------------------------------
Corporate
& Institutional Retail Commercial Private Central &
Banking Banking Banking Banking other items Total
$million $million $million $million $million $million
------------------------------ ---------------- --------- ---------- --------- ------------ ---------
Operating income 3,607 2,595 746 306 442 7,696
---------------- --------- ---------- --------- ------------ ---------
External 3,703 2,134 799 171 889 7,696
Inter-segment (96) 461 (53) 135 (447) -
---------------- --------- ---------- --------- ------------ ---------
Operating expenses (2,124) (1,823) (425) (253) (344) (4,969)
------------------------------ ---------------- --------- ---------- --------- ------------ ---------
Operating profit before
impairment losses and
taxation 1,483 772 321 53 98 2,727
Credit impairment (110) (154) (35) 47 (2) (254)
Other impairment (19) - - - (2) (21)
Profit from associates
and joint ventures - - - - 157 157
------------------------------ ---------------- --------- ---------- --------- ------------ ---------
Underlying profit before
taxation 1,354 618 286 100 251 2,609
Provision for regulatory
matters - - - - (204) (204)
Restructuring 23 (1) - (1) (35) (14)
Share of profits of
PT Bank Permata Tbk
joint venture - - - - 23 23
------------------------------ ---------------- --------- ---------- --------- ------------ ---------
Statutory profit before
taxation 1,377 617 286 99 35 2,414
------------------------------ ---------------- --------- ---------- --------- ------------ ---------
Total assets 332,599 103,320 32,821 15,654 228,110 712,504
Of which: loans and
advances to customers
including FVTPL 152,577 101,195 28,229 15,521 9,120 306,642
---------------- --------- ---------- --------- ------------ ---------
loans and advances to
customers 110,677 100,892 27,388 15,521 9,117 263,595
loans held at fair value
through profit or loss 41,900 303 841 - 3 43,047
---------------- --------- ---------- --------- ------------ ---------
Total liabilities 386,223 142,655 34,773 18,616 79,798 662,065
Of which: customer accounts 239,816 139,256 31,876 18,473 15,490 444,911
------------------------------ ---------------- --------- ---------- --------- ------------ ---------
6 months ended 31.12.18
------------------------------ ---------------------------------------------------------------------------
Corporate
& Institutional Retail Commercial Private Central &
Banking Banking Banking Banking other items Total
$million $million $million $million $million $million
------------------------------ ---------------- --------- ---------- --------- ------------ ---------
Operating income 3,409 2,421 685 245 559 7,319
---------------- --------- ---------- --------- ------------ ---------
External 3,495 2,080 771 115 858 7,319
Inter-segment (86) 341 (86) 130 (299) -
---------------- --------- ---------- --------- ------------ ---------
Operating expenses (2,178) (1,852) (463) (255) (599) (5,347)
------------------------------ ---------------- --------- ---------- --------- ------------ ---------
Operating profit/(loss)
before impairment losses
and taxation 1,231 569 222 (10) (40) 1,972
Credit impairment (161) (148) (138) 1 (1) (447)
Other impairment (91) (5) - - (1) (97)
Profit from associates
and joint ventures - - - - 73 73
------------------------------ ---------------- --------- ---------- --------- ------------ ---------
Underlying profit/(loss)
before taxation 979 416 84 (9) 31 1,501
Provision for regulatory
matters (50) - - - (850) (900)
Restructuring (274) (64) (11) (18) (32) (399)
------------------------------ ---------------- --------- ---------- --------- ------------ ---------
Statutory profit/(loss)
before taxation 655 352 73 (27) (851) 202
------------------------------ ---------------- --------- ---------- --------- ------------ ---------
Total assets 308,496 103,780 31,379 13,673 231,434 688,762
Of which: loans and
advances to customers
including FVTPL 146,575 101,635 27,271 13,616 10,274 299,371
---------------- --------- ---------- --------- ------------ ---------
loans and advances to
customers 104,677 101,235 26,759 13,616 10,270 256,557
loans held at fair value
through profit or loss 41,898 400 512 - 4 42,814
---------------- --------- ---------- --------- ------------ ---------
Total liabilities 369,316 140,328 37,260 19,733 71,773 638,410
Of which: customer accounts 243,019 136,691 34,860 19,622 2,989 437,181
------------------------------ ---------------- --------- ---------- --------- ------------ ---------
6 months ended 30.06.18
------------------------------ ---------------------------------------------------------------------------
Corporate
& Institutional Retail Commercial Private Central &
Banking Banking Banking Banking other items Total
$million $million $million $million $million $million
------------------------------ ---------------- --------- ---------- --------- ------------ ---------
Operating income 3,451 2,620 706 271 601 7,649
---------------- --------- ---------- --------- ------------ ---------
External 3,560 2,413 799 155 722 7,649
Inter-segment (109) 207 (93) 116 (121) -
---------------- --------- ---------- --------- ------------ ---------
Operating expenses (2,218) (1,884) (460) (275) (280) (5,117)
------------------------------ ---------------- --------- ---------- --------- ------------ ---------
Operating profit/(loss)
before impairment losses
and taxation 1,233 736 246 (4) 321 2,532
Credit impairment (81) (119) (106) (1) 14 (293)
Other impairment (59) - - - 8 (51)
Profit from associates
and joint ventures - - - - 168 168
------------------------------ ---------------- --------- ---------- --------- ------------ ---------
Underlying profit/(loss)
before taxation 1,093 617 140 (5) 511 2,356
Restructuring (76) (4) (1) (6) 8 (79)
Gains arising on repurchase
of senior and subordinated
liabilities 3 - - - 66 69
------------------------------ ---------------- --------- ---------- --------- ------------ ---------
Statutory profit/(loss)
before taxation 1,020 613 139 (11) 585 2,346
------------------------------ ---------------- --------- ---------- --------- ------------ ---------
Total assets 310,487 103,581 32,347 13,616 234,843 694,874
Of which: loans and
advances to customers
including FVTPL 143,297 101,530 28,571 13,565 9,756 296,719
---------------- --------- ---------- --------- ------------ ---------
loans and advances to
customers 106,780 101,017 28,213 13,565 9,756 259,331
loans held at fair value
through profit or loss 36,517 513 358 - - 37,388
---------------- --------- ---------- --------- ------------ ---------
Total liabilities 384,593 135,384 35,024 19,938 68,447 643,386
Of which: customer accounts 246,667 132,254 32,696 19,830 3,567 435,014
------------------------------ ---------------- --------- ---------- --------- ------------ ---------
Underlying performance by region
6 months ended 30.06.19
------------------------------ -----------------------------------------------------------------------------
Greater China ASEAN & Africa & Europe & Central &
& North Asia South Asia Middle East Americas other items Total
$million $million $million $million $million $million
------------------------------ ------------- ----------- ------------- --------- ------------ ---------
Operating income 3,080 2,136 1,340 794 346 7,696
Operating expenses (1,826) (1,292) (850) (715) (286) (4,969)
------------------------------ ------------- ----------- ------------- --------- ------------ ---------
Operating profit before
impairment losses and
taxation 1,254 844 490 79 60 2,727
Credit impairment (70) (84) (49) (66) 15 (254)
Other impairment (8) - - - (13) (21)
Profit from associates
and joint ventures 153 - - - 4 157
------------------------------ ------------- ----------- ------------- --------- ------------ ---------
Underlying profit before
taxation 1,329 760 441 13 66 2,609
Provision for regulatory
matters - - - - (204) (204)
Restructuring (3) (16) (2) (15) 22 (14)
Share of profits of
PT Bank Permata Tbk
joint venture - 23 - - - 23
------------------------------ ------------- ----------- ------------- --------- ------------ ---------
Statutory profit/(loss)
before taxation 1,326 767 439 (2) (116) 2,414
------------------------------ ------------- ----------- ------------- --------- ------------ ---------
Net interest margin 1.48% 1.96% 3.10% 0.55% 1.59%
Total assets 275,414 151,714 59,189 214,126 12,061 712,504
Of which: loans and
advances to customers
including FVTPL 134,440 82,826 30,161 59,215 - 306,642
------------- ----------- ------------- --------- ------------ ---------
loans and advances to
customers 127,769 80,769 29,289 25,768 - 263,595
loans held at fair value
through profit or loss 6,671 2,057 872 33,447 - 43,047
------------- ----------- ------------- --------- ------------ ---------
Total liabilities 240,802 132,763 37,000 215,504 35,996 662,065
Of which: customer accounts 196,994 101,594 29,621 116,702 - 444,911
------------------------------ ------------- ----------- ------------- --------- ------------ ---------
6 months ended 31.12.18
------------------------------ -----------------------------------------------------------------------------
Greater China ASEAN & Africa & Europe & Central &
& North Asia South Asia Middle East Americas other items Total
$million $million $million $million $million $million
------------------------------ ------------- ----------- ------------- --------- ------------ ---------
Operating income 3,060 1,898 1,228 800 333 7,319
Operating expenses (1,909) (1,351) (891) (717) (479) (5,347)
------------------------------ ------------- ----------- ------------- --------- ------------ ---------
Operating profit/(loss)
before impairment losses
and taxation 1,151 547 337 83 (146) 1,972
Credit impairment (54) (184) (192) (15) (2) (447)
Other impairment (66) (1) - - (30) (97)
Profit from associates
and joint ventures 49 19 - - 5 73
------------------------------ ------------- ----------- ------------- --------- ------------ ---------
Underlying profit/(loss)
before taxation 1,080 381 145 68 (173) 1,501
Provision for regulatory
matters - - - (50) (850) (900)
Restructuring (80) 17 (59) (3) (274) (399)
------------------------------ ------------- ----------- ------------- --------- ------------ ---------
Statutory profit/(loss)
before taxation 1,000 398 86 15 (1,297) 202
------------------------------ ------------- ----------- ------------- --------- ------------ ---------
Net interest margin 1.42% 2.09% 2.94% 0.50% 1.56%
Total assets 269,765 147,049 57,800 201,912 12,236 688,762
Of which: loans and
advances to customers
including FVTPL 130,669 81,905 29,870 56,927 - 299,371
Total liabilities 238,249 127,478 36,733 198,853 37,097 638,410
Of which: customer accounts 196,870 96,896 29,916 113,499 - 437,181
------------------------------ ------------- ----------- ------------- --------- ------------ ---------
6 months ended 30.06.18
------------------------------ -----------------------------------------------------------------------------
Greater China ASEAN & Africa & Europe & Central &
& North Asia South Asia Middle East Americas other items Total
$million $million $million $million $million $million
------------------------------ ------------- ----------- ------------- --------- ------------ ---------
Operating income 3,097 2,073 1,376 870 233 7,649
Operating expenses (1,903) (1,360) (919) (736) (199) (5,117)
------------------------------ ------------- ----------- ------------- --------- ------------ ---------
Operating profit before
impairment losses and
taxation 1,194 713 457 134 34 2,532
Credit impairment (17) (138) (70) (68) - (293)
Other impairment (44) 7 - 17 (31) (51)
Profit from associates
and joint ventures 156 7 - 3 2 168
------------------------------ ------------- ----------- ------------- --------- ------------ ---------
Underlying profit before
taxation 1,289 589 387 86 5 2,356
Restructuring (26) 88 (41) (5) (95) (79)
Gains arising on repurchase
of senior and subordinated
liabilities - - - 3 66 69
------------------------------ ------------- ----------- ------------- --------- ------------ ---------
Statutory profit/(loss)
before taxation 1,263 677 346 84 (24) 2,346
------------------------------ ------------- ----------- ------------- --------- ------------ ---------
Net interest margins 1.46% 2.03% 3.12% 0.44% 1.59%
Total assets 268,294 147,017 58,343 208,599 12,621 694,874
Of which: loans and
advances to customers
including FVTPL 132,679 82,078 30,967 50,995 - 296,719
Total liabilities 235,214 126,815 38,493 210,002 32,862 643,386
Of which: customer accounts 190,305 95,228 31,540 117,941 - 435,014
------------------------------ ------------- ----------- ------------- --------- ------------ ---------
Additional segmental information (statutory)
6 months ended 30.06.19
------------------------ ---------------------------------------------------------------------------
Corporate
& Institutional Retail Commercial Private Central &
Banking Banking Banking Banking other items Total
$million $million $million $million $million $million
------------------------ ---------------- --------- ---------- --------- ------------ ---------
Net interest income 2,093 1,638 464 159 264 4,618
Net fees and commission
income 810 777 146 123 (18) 1,838
Other income 835 180 138 25 196 1,374
------------------------ ---------------- --------- ---------- --------- ------------ ---------
Operating income 3,738 2,595 748 307 442 7,830
------------------------ ---------------- --------- ---------- --------- ------------ ---------
6 months ended 31.12.18
------------------------ ---------------------------------------------------------------------------
Corporate
& Institutional Retail Commercial Private Central &
Banking Banking Banking Banking other items Total
$million $million $million $million $million $million
------------------------ ---------------- --------- ---------- --------- ------------ ---------
Net interest income 1,779 1,587 436 150 480 4,432
Net fees and commission
income 733 695 133 82 (20) 1,623
Other income 736 140 115 13 103 1,107
------------------------ ---------------- --------- ---------- --------- ------------ ---------
Operating income 3,248 2,422 684 245 563 7,162
------------------------ ---------------- --------- ---------- --------- ------------ ---------
6 months ended 30.06.18
------------------------ ---------------------------------------------------------------------------
Corporate
& Institutional Retail Commercial Private Central &
Banking Banking Banking Banking other items Total
$million $million $million $million $million $million
------------------------ ---------------- --------- ---------- --------- ------------ ---------
Net interest income 1,691 1,577 427 147 519 4,361
Net fees and commission
income 763 884 151 110 (39) 1,869
Other income 904 158 128 16 191 1,397
------------------------ ---------------- --------- ---------- --------- ------------ ---------
Operating income 3,358 2,619 706 273 671 7,627
------------------------ ---------------- --------- ---------- --------- ------------ ---------
6 months ended 30.06.19
-------------------- ----------------------------------------------------------------------------
Greater China ASEAN & Africa & Europe & Central &
& North Asia South Asia Middle East Americas other items Total
$million $million $million $million $million $million
-------------------- ------------- ----------- ------------ --------- ------------ ---------
Net interest income 1,736 1,257 760 455 410 4,618
Other income 1,391 878 580 339 24 3,212
-------------------- ------------- ----------- ------------ --------- ------------ ---------
Operating income 3,127 2,135 1,340 794 434 7,830
-------------------- ------------- ----------- ------------ --------- ------------ ---------
6 months ended 31.12.18
-------------------- ----------------------------------------------------------------------------
Greater China ASEAN & Africa & Europe & Central &
& North Asia South Asia Middle East Americas other items Total
$million $million $million $million $million $million
-------------------- ------------- ----------- ------------ --------- ------------ ---------
Net interest income 1,674 1,286 726 381 365 4,432
Other income 1,381 620 502 425 (198) 2,730
-------------------- ------------- ----------- ------------ --------- ------------ ---------
Operating income 3,055 1,906 1,228 806 167 7,162
-------------------- ------------- ----------- ------------ --------- ------------ ---------
6 months ended 30.06.18
-------------------- ----------------------------------------------------------------------------
Greater China ASEAN & Africa & Europe & Central &
& North Asia South Asia Middle East Americas other items Total
$million $million $million $million $million $million
-------------------- ------------- ----------- ------------ --------- ------------ ---------
Net interest income 1,677 1,275 767 311 331 4,361
Other income 1,418 811 610 562 (135) 3,266
-------------------- ------------- ----------- ------------ --------- ------------ ---------
Operating income 3,095 2,086 1,377 873 196 7,627
-------------------- ------------- ----------- ------------ --------- ------------ ---------
6 months ended 30.06.19
-------------------- --------------------------------------------------------------------------------------
Hong
Kong Korea China Singapore India UAE UK US
$million $million $million $million $million $million $million $million
-------------------- --------- --------- --------- --------- --------- --------- --------- ---------
Net interest income 1,019 329 316 523 301 199 266 129
Other income 881 176 129 347 201 128 64 236
-------------------- --------- --------- --------- --------- --------- --------- --------- ---------
Operating income 1,900 505 445 870 502 327 330 365
-------------------- --------- --------- --------- --------- --------- --------- --------- ---------
6 months ended 31.12.18
-------------------- --------------------------------------------------------------------------------------
Hong
Kong Korea China Singapore India UAE UK US
$million $million $million $million $million $million $million $million
-------------------- --------- --------- --------- --------- --------- --------- --------- ---------
Net interest income 951 331 311 518 336 183 157 123
Other income 948 144 88 180 125 97 227 211
-------------------- --------- --------- --------- --------- --------- --------- --------- ---------
Operating income 1,899 475 399 698 461 280 384 334
-------------------- --------- --------- --------- --------- --------- --------- --------- ---------
6 months ended 30.06.18
-------------------- --------------------------------------------------------------------------------------
Hong
Kong Korea China Singapore India UAE UK US
$million $million $million $million $million $million $million $million
-------------------- --------- --------- --------- --------- --------- --------- --------- ---------
Net interest income 903 341 337 531 310 182 137 120
Other income 945 193 83 319 165 175 307 213
-------------------- --------- --------- --------- --------- --------- --------- --------- ---------
Operating income 1,848 534 420 850 475 357 444 333
-------------------- --------- --------- --------- --------- --------- --------- --------- ---------
3. Net fees and commission
6 months 6 months 6 months
ended ended ended
30.06.19 31.12.18 30.06.18
$million $million $million
----------------------------- ---------- ---------- ----------
Fees and commissions income 2,120 1,915 2,114
Fees and commissions expense (282) (292) (245)
----------------------------- ---------- ---------- ----------
Net fees and commission 1,838 1,623 1,869
----------------------------- ---------- ---------- ----------
Total fee income arising from financial instruments that are not
fair valued through profit or loss is $777 million (31 December
2018: $779 million and 30 June 2018: $699 million) and arising from
trust and other fiduciary activities is $79 million (31 December
2018: $66 million and 30 June 2018: $78 million).
Total fee expense arising from financial instruments that are
not fair valued through profit or loss is $69 million (31 December
2018: $88 million and 30 June 2018: $55 million) and arising from
trust and other fiduciary activities is $14 million (31 December
2018: $13 million and 30 June 2018: $14 million).
6 months ended 30.06.19
------------------------ ---------------------------------------------------------------------------
Corporate
& Institutional Retail Commercial Private Central &
Banking Banking Banking Banking other items Total
$million $million $million $million $million $million
------------------------ ---------------- --------- ---------- --------- ------------ ---------
Transaction Banking 530 5 111 - - 646
---------------- --------- ---------- --------- ------------ ---------
Trade 222 5 82 - - 309
Cash Management 216 - 29 - - 245
Securities Services 92 - - - - 92
---------------- --------- ---------- --------- ------------ ---------
Financial Markets 133 - 12 - - 145
Corporate Finance 104 - 13 2 - 119
Lending and Portfolio
Management 39 - 9 - - 48
Principal Finance 4 - - - - 4
Wealth Management - 591 1 119 - 711
Retail Products - 181 - 2 - 183
Treasury - - - - (11) (11)
Others - - - - (7) (7)
------------------------ ---------------- --------- ---------- --------- ------------ ---------
Net fees and commission 810 777 146 123 (18) 1,838
------------------------ ---------------- --------- ---------- --------- ------------ ---------
6 months ended 31.12.18
------------------------ ---------------------------------------------------------------------------
Corporate
& Institutional Retail Commercial Private Central &
Banking Banking Banking Banking other items Total
$million $million $million $million $million $million
------------------------ ---------------- --------- ---------- --------- ------------ ---------
Transaction Banking 511 6 105 - - 622
Trade 212 6 77 - - 295
Cash Management 213 - 28 - - 241
Securities Services 86 - - - - 86
Financial Markets 105 - 12 - - 117
Corporate Finance 103 - 10 - - 113
Lending and Portfolio
Management 34 - 5 - - 39
Principal Finance (20) - - - - (20)
Wealth Management - 515 1 81 - 597
Retail Products - 174 - 1 - 175
Treasury - - - - (10) (10)
Others - - - - (10) (10)
------------------------ ---------------- --------- ---------- --------- ------------ ---------
Net fees and commission 733 695 133 82 (20) 1,623
------------------------ ---------------- --------- ---------- --------- ------------ ---------
6 months ended 30.06.18
------------------------ ---------------------------------------------------------------------------
Corporate
& Institutional Retail Commercial Private Central &
Banking Banking Banking Banking other items Total
$million $million $million $million $million $million
------------------------ ---------------- --------- ---------- --------- ------------ ---------
Transaction Banking 555 6 118 - - 679
---------------- --------- ---------- --------- ------------ ---------
Trade 236 6 86 - - 328
Cash Management 216 - 32 - - 248
Securities Services 103 - - - - 103
---------------- --------- ---------- --------- ------------ ---------
Financial Markets 101 - 13 - - 114
Corporate Finance 78 - 11 - - 89
Lending and Portfolio
Management 23 - 8 - - 31
Principal Finance 6 - - - - 6
Wealth Management - 652 1 109 - 762
Retail Products - 229 - 1 - 230
Treasury - - - - (12) (12)
Others - (3) - - (27) (30)
------------------------ ---------------- --------- ---------- --------- ------------ ---------
Net fees and commission 763 884 151 110 (39) 1,869
------------------------ ---------------- --------- ---------- --------- ------------ ---------
4. Net trading income
6 months 6 months 6 months
ended ended ended
30.06.19 31.12.18 30.06.18
$million $million $million
--------------------------------------------------- ---------- ---------- ----------
Net trading income 994 717 966
--------------------------------------------------- ---------- ---------- ----------
Significant items within net trading income
include:
Gains on instruments held for trading 1,111 812 944
Gains/(losses) on financial assets mandatorily
at fair value through profit or loss 56 (27) (77)
Gains/(losses) on financial assets designated
at fair value through profit or loss 12 24 (13)
(Losses)/gains on financial liabilities designated
at fair value through profit or loss (297) (135) 165
--------------------------------------------------- ---------- ---------- ----------
5. Other operating income
6 months 6 months 6 months
ended ended ended
30.06.19 31.12.18 30.06.18
$million $million $million
------------------------------------------------------- ---------- ---------- ----------
Other operating income includes:
Rental income from operating lease assets 265 285 288
Net gains/(losses) on disposal of fair value
through other comprehensive income investments 58 (18) (13)
Losses on disposal of investment securities (17) - -
Net gain on sale of businesses - 9 -
Dividend income 6 16 9
Gains arising on repurchase of senior and subordinated
liabilities - - 691
Other 68 98 78
------------------------------------------------------- ---------- ---------- ----------
380 390 431
------------------------------------------------------- ---------- ---------- ----------
1 On 14 June 2018, Standard Chartered PLC repurchased in part,
GBP245.7 million of its GBP750 million 4.375 per cent senior debt
2038 and GBP372.5 million of its GBP900 million 5.125 per cent
subordinated debt 2034. On the same date, Standard Chartered Bank
repurchased in part, GBP95.1 million of its GBP200 million 7.75 per
cent subordinated notes (callable 2022). This activity resulted in
an overall gain of GBP69 million for the Group
6. Operating expenses
6 months 6 months 6 months
ended ended ended
30.06.19 31.12.18 30.06.18
$million $million $million
---------------------------------------------- ---------- ---------- ----------
Staff costs:
Wages and salaries 2,729 2,694 2,745
Social security costs 98 75 96
Other pension costs (notes to the financial
statements in the Half Year Report) 199 178 187
Share-based payment costs 107 62 104
Other staff costs 444 487 446
---------------------------------------------- ---------- ---------- ----------
3,577 3,496 3,578
---------------------------------------------- ---------- ---------- ----------
6 months 6 months 6 months
ended ended ended
30.06.19 31.12.18 30.06.18
$million $million $million
---------------------------------------------- ---------- ---------- ----------
Premises and equipment expenses:
Rental of premises1 19 188 186
Other premises and equipment costs 164 218 177
Rental of computers and equipment 8 11 10
---------------------------------------------- ---------- ---------- ----------
191 417 373
---------------------------------------------- ---------- ---------- ----------
General administrative expenses:
UK bank levy - 324 -
Provision for regulatory matters 204 900 -
Other general administrative expenses 749 894 808
---------------------------------------------- ---------- ---------- ----------
953 2,118 808
---------------------------------------------- ---------- ---------- ----------
Depreciation and amortisation:
Property, plant and equipment:
---------- ---------- ----------
Premises1 179 42 44
Equipment 52 47 47
Operating lease assets 129 156 148
---------- ---------- ----------
360 245 239
Intangibles:
Software 213 181 182
Acquired on business combinations 4 5 5
---------------------------------------------- ---------- ---------- ----------
577 431 426
---------------------------------------------- ---------- ---------- ----------
Total operating expenses 5,298 6,462 5,185
---------------------------------------------- ---------- ---------- ----------
1 As a result of IFRS 16, rental expenses of premises has
decreased and has been replaced by depreciation on premises (being
the right-of-use asset) and interest expenses (on the lease
liability)
7. Credit impairment
6 months 6 months 6 months
ended ended ended
30.06.19 31.12.18 30.06.18
$million $million $million
----------------------------------------------- ---------- ---------- ----------
Net credit impairment against profit on loans
and advances to banks and customers 259 413 194
Net credit impairment against profit or loss
during the period relating to debt securities 9 11 (4)
Net credit impairment relating to financial
guarantees and loan commitments (14) 15 24
----------------------------------------------- ---------- ---------- ----------
Credit impairment1 254 439 214
----------------------------------------------- ---------- ---------- ----------
1 No material purchased or originated credit-impaired (POCI)
assets
8. Other impairment
6 months 6 months 6 months
ended ended ended
30.06.19 31.12.18 30.06.18
$million $million $million
-------------------------------------- ---------- ---------- ----------
Impairment of fixed assets 36 103 47
Impairment of other intangible assets 6 25 21
Other 2 4 (18)
-------------------------------------- ---------- ---------- ----------
Other impairment 44 132 50
-------------------------------------- ---------- ---------- ----------
9. Taxation
The following table provides analysis of taxation charge in the
period.
6 months 6 months 6 months
ended ended ended
30.06.19 31.12.18 30.06.18
$million $million $million
----------------------------------------------------- ---------- ---------- ----------
The charge for taxation based upon the profit
for the period comprises:
Current tax:
United Kingdom corporation tax at 19 per cent
(31 December 2018 and 30 June 2018: 19 per
cent):
---------- ---------- ----------
Current tax charge on income for the period 10 (2) 3
Adjustments in respect of prior periods (including
double tax relief) (1) 3 46
Foreign tax:
Current tax charge on income for the period 829 391 718
Adjustments in respect of prior periods (54) (17) (88)
---------- ---------- ----------
784 375 679
Deferred tax:
---------- ---------- ----------
Origination/reversal of temporary differences 139 274 (20)
Adjustments in respect of prior periods (5) 37 94
---------- ---------- ----------
134 311 74
----------------------------------------------------- ---------- ---------- ----------
Tax on profits on ordinary activities 918 686 753
----------------------------------------------------- ---------- ---------- ----------
Effective tax rate 38.0% nm1 32.1%
----------------------------------------------------- ---------- ---------- ----------
1 Not meaningful
The tax charge for the period of $918 million (31 December 2018:
$686 million and 30 June 2018: $753 million) on a profit before tax
of $2,414 million (31 December 2018: $202 million and 30 June 2018:
$2,346 million) reflects the impact of capital gains tax arising on
internal restructuring to establish the Hong Kong hub,
non-deductible expenses and the impact of countries with tax rates
higher or lower than the UK, the most significant of which is
India.
Foreign tax includes current tax of $117 million (31 December
2018: $66 million and 30 June 2018: $103 million) on the profits
assessable in Hong Kong.
Deferred tax includes origination or reversal of temporary
differences of $(4) million (31 December 2018: $20 million and 30
June 2018: $(3) million) provided at a rate of 16.5 per cent (31
December 2018: 16.5 per cent) on the profits assessable in Hong
Kong.
10. Dividends
The Board has decided to adopt a formulaic approach to setting
the interim dividend for 2019, being one-third of the prior year
full-year dividend per share.
Ordinary equity shares
30.06.19 31.12.18(1) 30.06.18(1)
-------------------------- ------------------- ------------------- -------------------
Cents per Cents per Cents per
share $million share $million share $million
-------------------------- --------- -------- --------- -------- --------- --------
2018/2017 final dividend
declared and paid during
the period 15 495 - - 11 363
2018 interim dividend
declared and paid during
the period - - 6 198 - -
-------------------------- --------- -------- --------- -------- --------- --------
1 The amounts are gross of scrip adjustments
The 2018 final dividend of 15 cents per ordinary share ($495
million) was paid to eligible shareholders on 16 May 2019, and is
recognised in these interim accounts.
Interim dividends on ordinary equity shares are recorded in the
period in which they are declared and, in respect of the final
dividend, have been approved by the shareholders.
Accordingly, the final ordinary equity share dividends as stated
above relate to the prior year and the 2018 interim dividend of 6
cents per ordinary share ($198 million) was paid to eligible
shareholders on 22 October 2018.
2019 recommended interim dividend
The 2019 interim dividend of 7 cents per ordinary share will be
paid in pounds sterling, Hong Kong dollars or US dollars on 21
October 2019 to shareholders on the UK register of members at the
close of business in the UK on 9 August 2019. The 2019 interim
dividend will be paid in Indian rupees on 21 October 2019 to Indian
Depository Receipt holders on the Indian register at the close of
business in India on 9 August 2019.
Preference shares and Additional Tier 1 securities
Dividends on these preference shares and securities classified
as equity are recorded in the period in which they are
declared.
30.06.19 31.12.18 30.06.18
$million $million $million
------------------------------------- -------------------------- ---------- ---------- ----------
Non-cumulative redeemable preference 7.014 per cent preference
shares: shares of $5 each 26 27 26
6.409 per cent preference
shares of $5 each 16 14 12
---------------------------------------------------------------- ---------- ---------- ----------
42 41 38
Additional Tier 1 securities: $5 billion fixed
rate resetting perpetual subordinated contingent
convertible securities 179 178 179
----------------------------------------------------------------- ---------- ---------- ----------
221 219 217
---------------------------------------------------------------- ---------- ---------- ----------
Dividends on these preference shares are treated
as interest expense and accrued accordingly.
Non-cumulative irredeemable 7 3/8 per cent preference
preference shares: shares of GBP1 each 5 4 5
8 1/4 per cent preference
shares of GBP1 each 5 5 5
10 9 10
---------------------------------------------------------------- ---------- ---------- ----------
11. Earnings per ordinary share
6 months 6 months 6 months
ended ended ended
30.06.19 31.12.18 30.06.18
$million $million $million
----------------------------------------------------- ---------- ---------- ----------
Profit/(loss) for the period attributable to
equity holders 1,496 (484) 1,593
----------------------------------------------------- ---------- ---------- ----------
Non-controlling interests (19) (22) (33)
Dividend payable on preference shares and AT1
classified as equity (221) (219) (217)
----------------------------------------------------- ---------- ---------- ----------
Profit/(loss) for the period attributable to
ordinary shareholders 1,256 (725) 1,343
----------------------------------------------------- ---------- ---------- ----------
Items normalised:
Provision for regulatory matters 204 900 -
Restructuring 14 399 79
Profit from associates and joint ventures (23) - -
Gains arising on repurchase of subordinated
liabilities - - (69)
Tax on normalised items 172 (27) 131
----------------------------------------------------- ---------- ---------- ----------
Underlying profit 1,623 547 1,484
----------------------------------------------------- ---------- ---------- ----------
Basic - Weighted average number of shares (millions) 3,304 3,306 3,303
Diluted - Weighted average number of shares
(millions) 3,348 3,340 3,337
Basic earnings/(loss) per ordinary share (cents) 38.0 (21.9) 40.7
----------------------------------------------------- ---------- ---------- ----------
Diluted earnings/(loss) per ordinary share
(cents) 37.5 (21.7) 40.2
----------------------------------------------------- ---------- ---------- ----------
Underlying basic earnings per ordinary share
(cents) 49.1 16.5 44.9
----------------------------------------------------- ---------- ---------- ----------
Underlying diluted earnings per ordinary share
(cents) 48.5 16.4 44.5
----------------------------------------------------- ---------- ---------- ----------
12. Financial instruments
The Group's classification of its financial assets and
liabilities is summarised in the following tables.
Assets at fair value
-------------- ----- ------------------------------------------------------------------------- --------- ---------
Non-trading
mandatorily Designated Total
at fair at fair Fair value financial Assets
value value through assets held
Derivatives through through other at at
held profit profit comprehensive fair amortised
Trading for hedging or loss or loss income value cost Total
Assets Notes $million $million $million $million $million $million $million $million
-------------- ----- --------- ----------- ----------- ---------- ------------- --------- --------- ---------
Cash and
balances
at central
banks - - - - - - 58,822 58,822
Financial
assets
held at fair
value
through profit
or
loss
--------- ----------- ----------- ---------- ------------- --------- --------- ---------
Loans and
advances
to banks1 152 - 3,501 - - 3,653 - 3,653
Loans and
advances
to
customers1 1,619 - 4,571 - - 6,190 - 6,190
Reverse
repurchase
agreements
and other
similar
secured
lending 14 - - 54,065 - - 54,065 - 54,065
Debt
securities,
alternative
Tier
1 and other
eligible
bills 26,889 - 739 307 - 27,935 - 27,935
Equity
shares 1,094 - 357 108 - 1,559 - 1,559
--------- ----------- ----------- ---------- ------------- --------- --------- ---------
29,754 - 63,233 415 - 93,402 - 93,402
Derivative
financial
instruments 13 48,413 824 - - - 49,237 - 49,237
Loans and
advances
to banks1 - - - - - - 59,210 59,210
--------- ----------- ----------- ---------- ------------- --------- --------- ---------
Of which:
reverse
repurchase
agreements
and other
similar
secured
lending 14 - - - - - - 1,145 1,145
--------- ----------- ----------- ---------- ------------- --------- --------- ---------
Loans and
advances
to customers1 - - - - - - 263,595 263,595
--------- ----------- ----------- ---------- ------------- --------- --------- ---------
Of which:
reverse
repurchase
agreements
and other
similar
secured
lending 14 - - - - - - 2,704 2,704
--------- ----------- ----------- ---------- ------------- --------- --------- ---------
Investment
securities
--------- ----------- ----------- ---------- ------------- --------- --------- ---------
Debt
securities,
alternative
Tier
1 and other
eligible
bills - - - - 115,603 115,603 12,150 127,753
Equity
shares - - - - 283 283 - 283
--------- ----------- ----------- ---------- ------------- --------- --------- ---------
- - - - 115,886 115,886 12,150 128,036
Other assets 16 - - - - - - 36,234 36,234
Assets held
for sale 17 72 - 293 526 - 891 141 1,032
-------------- ----- --------- ----------- ----------- ---------- ------------- --------- --------- ---------
Total at 30
June
2019 78,239 824 63,526 941 115,886 259,416 430,152 689,568
-------------- ----- --------- ----------- ----------- ---------- ------------- --------- --------- ---------
1 Further analysed in Risk review and Capital review
Assets at fair value
-------------- ----- ------------------------------------------------------------------------- --------- ---------
Non-trading
mandatorily Designated Total
at fair at fair Fair value financial Assets
value value through assets held
Derivatives through through other at at
held profit profit comprehensive fair amortised
Trading for hedging or loss or loss income value cost Total
Assets Notes $million $million $million $million $million $million $million $million
-------------- ----- --------- ----------- ----------- ---------- ------------- --------- --------- ---------
Cash and
balances
at central
banks - - - - - - 57,511 57,511
Financial
assets
held at fair
value
through profit
or
loss
--------- ----------- ----------- ---------- ------------- --------- --------- ---------
Loans and
advances
to banks1 146 - 3,622 - - 3,768 - 3,768
Loans and
advances
to
customers1 1,074 - 3,854 - - 4,928 - 4,928
Reverse
repurchase
agreements
and other
similar
secured
lending 14 - - 54,769 - - 54,769 - 54,769
Debt
securities,
alternative
Tier
1 and other
eligible
bills 21,246 - 393 337 - 21,976 - 21,976
Equity
shares 1,347 - 233 111 - 1,691 - 1,691
--------- ----------- ----------- ---------- ------------- --------- --------- ---------
23,813 - 62,871 448 - 87,132 - 87,132
Derivative
financial
instruments 13 45,108 513 - - - 45,621 - 45,621
Loans and
advances
to banks1 - - - - - - 61,414 61,414
--------- ----------- ----------- ---------- ------------- --------- --------- ---------
Of which:
reverse
repurchase
agreements
and other
similar
secured
lending 14 - - - - - - 3,815 3,815
--------- ----------- ----------- ---------- ------------- --------- --------- ---------
Loans and
advances
to customers1 - - - - - - 256,557 256,557
--------- ----------- ----------- ---------- ------------- --------- --------- ---------
Of which:
reverse
repurchase
agreements
and other
similar
secured
lending 14 - - - - - - 3,151 3,151
--------- ----------- ----------- ---------- ------------- --------- --------- ---------
Investment
securities
--------- ----------- ----------- ---------- ------------- --------- --------- ---------
Debt
securities,
alternative
Tier
1 and other
eligible
bills - - - - 116,335 116,335 9,303 125,638
Equity
shares - - - - 263 263 - 263
--------- ----------- ----------- ---------- ------------- --------- --------- ---------
- - - - 116,598 116,598 9,303 125,901
Other assets 16 - - - - - - 32,678 32,678
Assets held
for sale 17 78 - 358 451 - 887 135 1,022
-------------- ----- --------- ----------- ----------- ---------- ------------- --------- --------- ---------
Total at 31
December
2018 68,999 513 63,229 899 116,598 250,238 417,598 667,836
-------------- ----- --------- ----------- ----------- ---------- ------------- --------- --------- ---------
1 Further analysed in Risk review and Capital review
Liabilities at fair value
---------------------------------- ----- ------------------------------------------------- --------- ---------
Designated Total
at fair financial
value liabilities
Derivatives through at
held profit fair Amortised
Trading for hedging or loss value cost Total
Liabilities Notes $million $million $million $million $million $million
---------------------------------- ----- --------- ------------ ---------- ------------ --------- ---------
Financial liabilities held at
fair value through profit or
loss
--------- ------------ ---------- ------------ --------- ---------
Deposits by banks - - 757 757 - 757
Customer accounts - - 6,889 6,889 - 6,889
Repurchase agreements and other
similar secured borrowing 14 - - 39,834 39,834 - 39,834
Debt securities in issue - - 9,272 9,272 - 9,272
Short positions 5,029 - - 5,029 - 5,029
--------- ------------ ---------- ------------ --------- ---------
5,029 - 56,752 61,781 - 61,781
Derivative financial instruments 13 48,491 1,862 - 50,353 - 50,353
Deposits by banks - - - - 30,783 30,783
Customer accounts - - - - 401,597 401,597
Repurchase agreements and other
similar secured borrowing 14 - - - - 5,920 5,920
Debt securities in issue - - - - 46,672 46,672
Other liabilities 18 - - - - 41,083 41,083
Subordinated liabilities and
other borrowed funds 21 - - - - 15,245 15,245
Liabilities included in disposal
groups held for sale 17 40 - - 40 - 40
---------------------------------- ----- --------- ------------ ---------- ------------ --------- ---------
Total at 30 June 2019 53,560 1,862 56,752 112,174 541,300 653,474
---------------------------------- ----- --------- ------------ ---------- ------------ --------- ---------
Liabilities at fair value
---------------------------------- ----- ------------------------------------------------- --------- ---------
Designated Total
at fair financial
value liabilities
Derivatives through at
held profit fair Amortised
Trading for hedging or loss value cost Total
Liabilities Notes $million $million $million $million $million $million
---------------------------------- ----- --------- ------------ ---------- ------------ --------- ---------
Financial liabilities held at
fair value through profit or
loss
--------- ------------ ---------- ------------ --------- ---------
Deposits by banks - - 318 318 - 318
Customer accounts - - 6,751 6,751 - 6,751
Repurchase agreements and other
similar secured borrowing 14 - - 43,000 43,000 - 43,000
Debt securities in issue - - 7,405 7,405 - 7,405
Short positions 3,226 - - 3,226 - 3,226
--------- ------------ ---------- ------------ --------- ---------
3,226 - 57,474 60,700 - 60,700
Derivative financial instruments 13 45,580 1,629 - 47,209 - 47,209
Deposits by banks - - - - 29,715 29,715
Customer accounts - - - - 391,013 391,013
Repurchase agreements and other
similar secured borrowing 14 - - - - 1,401 1,401
Debt securities in issue - - - - 46,454 46,454
Other liabilities 18 - - - - 37,945 37,945
Subordinated liabilities and
other borrowed funds 21 - - - - 15,001 15,001
Liabilities included in disposal
groups held for sale 17 198 - - 198 - 198
---------------------------------- ----- --------- ------------ ---------- ------------ --------- ---------
Total at 31 December 2018 49,004 1,629 57,474 108,107 521,529 629,636
---------------------------------- ----- --------- ------------ ---------- ------------ --------- ---------
Financial liabilities designated at fair value through profit or
loss
30.06.19 31.12.18
$million $million
---------------------------------------------------------- ---------- ----------
Carrying balance aggregate fair value 56,752 57,474
Amount contractually obliged to repay at maturity 56,708 57,974
Difference between aggregate fair value and contractually
obliged to repay at maturity 44 (500)
Cumulative change in fair value accredited to Credit
risk difference 84 476
---------------------------------------------------------- ---------- ----------
The net fair value loss on financial liabilities designated at
fair value through profit or loss was $297 million for the period
(31 December 2018: net gain of $30 million). Further details of the
Group's own credit adjustment (OCA) valuation technique is
described later in this note.
Valuation of financial instruments
Fair value is the price that would be received to sell an asset
or paid to transfer a liability in an orderly transaction between
market participants at the measurement date in the principal market
or, in the absence of this, the most advantageous market to which
the Group has access at that date. The fair value of a liability
reflects the Group's non-performance risk. The fair value of
financial instruments is generally measured on the basis of the
individual financial instrument. However, when a group of financial
assets and financial liabilities is managed on the basis of its net
exposure to either Market Risks or Credit Risk, the fair value of
the group of financial instruments is measured on a net basis.
The fair values of quoted financial assets and liabilities in
active markets are based on current prices. A market is regarded as
active if transactions for the asset or liability take place with
sufficient frequency and volume to provide pricing information on
an ongoing basis. Wherever possible, fair values have been
calculated using unadjusted quoted market prices in active markets
for identical instruments held by the Group. Where quoted market
prices are not available, or are unreliable because of poor
liquidity, fair values have been determined using valuation
techniques which, to the extent possible, use market observable
inputs, but in some cases use non-market observable inputs.
Valuation techniques used include discounted cashflow analysis and
pricing models and, where appropriate, comparison with instruments
that have characteristics similar to those of the instruments held
by the Group.
The Valuation Control function is responsible for independent
price verification, oversight of fair value and appropriate value
adjustments and escalation of valuation issues. Independent price
verification is the process of determining that the valuations
incorporated into the financial statements are validated
independent of the business area responsible for the product. The
Valuation Control function has oversight of the fair value
adjustments to ensure the financial instruments are priced to exit.
These are key controls in ensuring the material accuracy of the
valuations incorporated in the financial statements. The market
data used for price verification may include data sourced from
recent trade data involving external counterparties or third
parties such as Bloomberg, Reuters, brokers and consensus pricing
providers. Valuation Control performs a semi-annual review of the
suitability of the market data used for price testing. Price
verification uses independently sourced data that is deemed most
representative of the market the instruments trade in. To determine
the quality of the market data inputs, factors such as
independence, relevance, reliability, availability of multiple data
sources and methodology employed by the pricing provider are taken
into consideration.
The Valuation and Benchmarks Committee (VBC) is the valuation
governance forum consisting of representatives from Group Market
Risk, Product Control, Valuation Control and the business, which
meets monthly to discuss and approve the independent valuations of
the inventory. For Principal Finance, the Investment Committee
meeting is held on a quarterly basis to review investments and
valuations.
Significant accounting estimates and judgements
The Group evaluates the significance of financial instruments
and material accuracy of the valuations incorporated in the
financial statements as they involve a high degree of judgement and
estimation uncertainty in determining the carrying values of
financial assets and liabilities at the balance sheet date.
-- Fair value of financial instruments is determined using
valuation techniques and estimates (see below) which, to the extent
possible, use market observable inputs, but in some cases use
non-market observable inputs. Changes in the observability of
significant valuation inputs can materially affect the fair values
of financial instruments
-- When establishing the exit price of a financial instrument
using a valuation technique, the Group estimates valuation
adjustments in determining the fair value
-- In determining the valuation of financial instruments, the
Group makes judgements on the amounts reserved to cater for model
and valuation risks, which cover both Level 2 and Level 3 assets,
and the significant valuation judgements in respect of Level 3
instruments
-- Where the estimated measurement of fair value is more
judgemental in respect of Level 3 assets, these are valued based on
models that use a significant degree of non-market-based
unobservable inputs
Valuation techniques
Refer to the fair value hierarchy explanation - Level 1, 2 and
3
-- Financial instruments held at fair value
- Debt securities - asset-backed securities: Asset-backed
securities are valued based on external prices obtained from
consensus pricing providers, broker quotes, recent trades,
arrangers' quotes, etc. Where an observable price is available for
a given security, it is classified as Level 2. In instances where
third-party prices are not available or reliable, the security is
classified as Level 3. The fair value of Level 3 securities is
estimated using market standard cash flow models with input
parameter assumptions which include prepayment speeds, default
rates, discount margins derived from comparable securities with
similar vintage, collateral type, and credit ratings
- Debt securities in issue: These debt securities relate to
structured notes issued by the Group. Where independent market data
is available through pricing vendors and broker sources, these
positions are classified as Level 2. Where such liquid external
prices are not available, valuations of these debt securities are
implied using input parameters such as bond spreads and credit
spreads, and are classified as Level 3. These input parameters are
determined with reference to the same issuer (if available) or
proxies from comparable issuers or assets
- Derivatives: Derivative products are classified as Level 2 if
the valuation of the product is based upon input parameters which
are observable from independent and reliable market data sources.
Derivative products are classified as Level 3 if there are
significant valuation input parameters which are unobservable in
the market, such as products where the performance is linked to
more than one underlying variable. Examples are foreign exchange
basket options, equity options based on the performance of two or
more underlying indices and interest rate products with quanto
payouts. In most cases, these unobservable correlation parameters
cannot be implied from the market, and methods such as historical
analysis and comparison with historical levels or other benchmark
data must be employed
- Equity shares - private equity: The majority of private equity
unlisted investments are valued based on earning multiples -
Price-to-Earnings (P/E) or enterprise value to earnings before
income tax, depreciation and amortisation (EV/EBITDA) ratios - of
comparable listed companies. The two primary inputs for the
valuation of these investments are the actual or forecast earnings
of the investee companies and earning multiples for the comparable
listed companies. To ensure comparability between these unquoted
investments and the comparable listed companies, appropriate
adjustments are also applied (for example, liquidity and size) in
the valuation. In circumstances where an investment does not have
direct comparables or where the multiples for the comparable
companies cannot be sourced from reliable external sources,
alternative valuation techniques (for example, discounted cashflow
models), which use predominantly unobservable inputs or Level 3
inputs, may be applied. Even though earning multiples for the
comparable listed companies can be sourced from third-party sources
(for example, Bloomberg), and those inputs can be deemed Level 2
inputs, all unlisted investments (excluding those where observable
inputs are available, for example, Over-the-counter (OTC) prices)
are classified as Level 3 on the basis that the valuation methods
involve judgements ranging from determining comparable companies to
discount rates where the discounted cashflow method is applied
- Loans and advances: These primarily include loans in the
global syndications business which were not syndicated as of the
balance sheet date and other financing transactions within
Financial Markets and loans and advances including reverse
repurchase agreements that do not have SPPI cashflows or are
managed on a fair value basis. These loans are generally bilateral
in nature and, where available, their valuation is based on
observable clean sales transactions prices or market observable
credit spreads. If observable credit spreads are not available,
proxy spreads based on comparable loans with similar credit grade,
sector and region, are used. Where observable credit spreads and
market standard proxy methods are available, these loans are
classified as Level 2. Where there are no recent transactions or
comparable loans, these loans are classified as Level 3
- Other debt securities: These debt securities include
convertible bonds, corporate bonds, credit and structured notes.
Where quoted prices are available through pricing vendors, brokers
or observable trading activities from liquid markets, these are
classified as Level 2 and valued using such quotes. Where there are
significant valuation inputs which are unobservable in the market,
due to illiquid trading or the complexity of the product, these are
classified as Level 3. The valuations of these debt securities are
implied using input parameters such as bond spreads and credit
spreads. These input parameters are determined with reference to
the same issuer (if available) or proxied from comparable issuers
or assets
-- Financial instruments held at amortised cost
The following sets out the Group's basis for establishing fair
values of amortised cost financial instruments and their
classification between Levels 1, 2 and 3. As certain categories of
financial instruments are not actively traded, there is a
significant level of management judgement involved in calculating
the fair values:
- Cash and balances at central banks: The fair value of cash and
balances at central banks is their carrying amounts
- Debt securities in issue, subordinated liabilities and other
borrowed funds: The aggregate fair values are calculated based on
quoted market prices. For those notes where quoted market prices
are not available, a discounted cashflow model is used based on a
current market related yield curve appropriate for the remaining
term to maturity
- Deposits and borrowings: The estimated fair value of deposits
with no stated maturity is the amount repayable on demand. The
estimated fair value of fixed interest-bearing deposits and other
borrowings without quoted market prices is based on discounted
cashflows using the prevailing market rates for debts with a
similar Credit Risk and remaining maturity
- Investment securities: For investment securities that do not
have directly observable market values, the Group utilises a number
of valuation techniques to determine fair value. Where available,
securities are valued using input proxies from the same or closely
related underlying (for example, bond spreads from the same or
closely related issuer) or input proxies from a different
underlying (for example, a similar bond but using spreads for a
particular sector and rating). Certain instruments cannot be
proxies as set out above, and in such cases the positions are
valued using non-market observable inputs. This includes those
instruments held at amortised cost and predominantly relates to
asset-backed securities. The fair value for such instruments is
usually proxies from internal assessments of the underlying
cashflows
- Loans and advances to banks and customers: For loans and
advances to banks, the fair value of floating rate placements and
overnight deposits is their carrying amounts. The estimated fair
value of fixed interest-bearing deposits is based on discounted
cashflows using the prevailing money market rates for debts with a
similar Credit Risk and remaining maturity. The Group's loans and
advances to customers' portfolio is well diversified by geography
and industry. Approximately a quarter of the portfolio reprices
within one month, and approximately half reprices within 12 months.
Loans and advances are presented net of provisions for impairment.
The fair value of loans and advances to customers with a residual
maturity of less than one year generally approximates the carrying
value. The estimated fair value of loans and advances with a
residual maturity of more than one year represents the discounted
amount of future cashflows expected to be received, including
assumptions relating to prepayment rates and Credit Risk. Expected
cashflows are discounted at current market rates to determine fair
value. The Group has a wide range of individual instruments within
its loans and advances portfolio and as a result providing
quantification of the key assumptions used to value such
instruments is impractical
- Other assets: Other assets consist primarily of cash
collateral and trades pending settlement. The carrying amount of
these financial instruments is considered to be a reasonable
approximation of fair value as they are either short term in nature
or reprice to current market rates frequently
Fair value adjustments
When establishing the exit price of a financial instrument using
a valuation technique, the Group considers adjustments to the
modelled price which market participants would make when pricing
that instrument. The main valuation adjustments (described further
below) in determining fair value for financial assets and financial
liabilities are as follows.
Movement Movement
during the during the
01.01.19 period 30.06.19 01.01.18 year 31.12.18
$million $million $million $million $million $million
----------------------------- ---------- ------------ ---------- ---------- ------------ ----------
Bid-offer valuation
adjustment 67 10 77 82 (15) 67
CVA 196 (12) 184 229 (33) 196
DVA (143) 42 (101) (66) (77) (143)
Model valuation adjustment 6 - 6 6 - 6
FVA 60 (26) 34 79 (19) 60
Other fair value adjustments 59 1 60 65 (6) 59
----------------------------- ---------- ------------ ---------- ---------- ------------ ----------
Total 245 15 260 395 (150) 245
----------------------------- ---------- ------------ ---------- ---------- ------------ ----------
Income Deferrals
Day 1 and other deferrals 100 (4) 96 83 17 100
----------------------------- ---------- ------------ ---------- ---------- ------------ ----------
Total 100 (4) 96 83 17 100
----------------------------- ---------- ------------ ---------- ---------- ------------ ----------
Note: Bracket represents an asset and credit to the income
statement
-- Bid-offer valuation adjustment: Where market parameters are
marked on a mid-market basis in the revaluation systems, a
bid-offer valuation adjustment is required to quantify the expected
cost of neutralising the business' positions through dealing away
in the market, thereby bringing long positions to bid and short
positions to offer. The methodology to calculate the bid-offer
adjustment for a derivative portfolio involves netting between long
and short positions and the grouping of risk by strike and tenor
based on the hedging strategy where long positions are marked to
bid and short positions marked to offer in the systems
-- Credit valuation adjustment (CVA): The Group makes CVA
adjustment against the fair value of derivative products. CVA is an
adjustment to the fair value of the transactions to reflect the
possibility that our counterparties may default and we may not
receive the full market value of the outstanding transactions. It
represents an estimate of the adjustment a market participant would
include when deriving a purchase price to acquire our exposures.
CVA is calculated for each subsidiary, and within each entity for
each counterparty to which the entity has exposure and takes
account of any collateral we may hold. The Group calculates the CVA
by using estimates of future positive exposure, market-implied
probability of default (PD) and recovery rates. Where
market-implied data is not readily available, we use market-based
proxies to estimate the PD. Wrong-way risk occurs when the exposure
to a counterparty is adversely correlated with the credit quality
of that counterparty, and the Group has implemented a model to
capture this impact for certain key wrong-way exposures. The Group
also captures the uncertainties associated with wrong-way risk in
its Prudential Valuation Adjustments
-- Debit valuation adjustment (DVA): The Group calculates DVA
adjustments on its derivative liabilities to reflect changes in its
own credit standing. The Group's DVA adjustments will increase if
its credit standing worsens and conversely, decrease if its credit
standing improves. For derivative liabilities, a DVA adjustment is
determined by applying the Group's probability of default to the
Group's negative expected exposure against the counterparty. The
Group's probability of default and loss expected in the event of
default is derived based on bond and CDS spreads associated with
the Group's issuances and market standard recovery levels. The
expected exposure is modelled based on the simulation of the
underlying risk factors over the life of the deal booked against
the particular counterparty. This simulation methodology
incorporates the collateral posted by the Group and the effects of
master netting agreements
-- Model valuation adjustment: Valuation models may have pricing
deficiencies or limitations that require a valuation adjustment.
These pricing deficiencies or limitations arise due to the choice,
implementation and calibration of the pricing model
-- Funding valuation adjustment (FVA): The Group makes FVA
adjustments against derivative products. FVA reflects an estimate
of the adjustment to its fair value that a market participant would
make to incorporate funding costs that could arise in relation to
the exposure. FVA is calculated by determining the net expected
exposure at a counterparty level and then applying a funding rate
to those exposures that reflect the market cost of funding. The FVA
for collateralised derivatives is based on discounting the expected
future cashflows at the relevant overnight indexed swap (OIS) rate
after taking into consideration the terms of the underlying
collateral agreement with the counterparty. The FVA for
uncollateralised (including partially collateralised) derivatives
incorporates the estimated present value of the market funding cost
or benefit associated with funding these transactions
-- Other fair value adjustments: The Group calculates the fair
value on the interest rate callable products by calibrating to a
set of market prices with differing maturity, expiry and strike of
the trades
-- Day one and other deferrals: In certain circumstances, the
initial fair value may be based on a valuation technique which may
lead to the recognition of profits or losses at the time of initial
recognition. However, these profits or losses can only be
recognised when the valuation technique used is based primarily on
observable market data. In those cases where the initially
recognised fair value is based on a valuation model that uses
inputs which are not observable in the market, the difference
between the transaction price and the valuation model is not
recognised immediately in the income statement. The difference is
amortised to the income statement until the inputs become
observable, or the transaction matures or is terminated. Other
deferrals primarily represent adjustments taken to reflect the
specific terms and conditions of certain derivative contracts which
affect the termination value at the measurement date
In addition, the Group calculates OCA on its issued debt
designated at fair value, including structured notes, in order to
reflect changes in its own credit standing. The Group's OCA
adjustments will increase if its credit standing worsens and
conversely, decrease if its credit standing improves. The Group's
OCA adjustments will reverse over time as its liabilities mature.
For issued debt and structured notes designated at fair value, an
OCA adjustment is determined by discounting the contractual
cashflows using a yield curve adjusted for market observed
secondary senior unsecured credit spreads. The OCA at 30 June 2019
is $84 million, other comprehensive income loss $392 million (31
December 2018: $476 million, other comprehensive income gain $394
million).
Fair value hierarchy - financial instruments held at fair
value
Assets and liabilities carried at fair value or for which fair
values are disclosed have been classified into three levels
according to the observability of the significant inputs used to
determine the fair values. Changes in the observability of
significant valuation inputs during the reporting period may result
in a transfer of assets and liabilities within the fair value
hierarchy. The Group recognises transfers between levels of the
fair value hierarchy when there is a significant change in either
its principal market or the level of observability of the inputs to
the valuation techniques as at the end of the reporting period.
-- Level 1: Fair value measurements are those derived from
unadjusted quoted prices in active markets for identical assets or
liabilities
-- Level 2: Fair value measurements are those with quoted prices
for similar instruments in active markets or quoted prices for
identical or similar instruments in inactive markets and financial
instruments valued using models where all significant inputs are
observable
-- Level 3: Fair value measurements are those where at least one
input which could have a significant effect on the instrument's
valuation is not based on observable market data
The following tables show the classification of financial
instruments held at fair value into the valuation hierarchy:
Level 1 Level 2 Level 3 Total
Assets $million $million $million $million
----------------------------------------------- ---------- ---------- ---------- ----------
Financial instruments held at fair
value through profit or loss
Loans and advances to banks - 3,653 - 3,653
Loans and advances to customers - 5,720 470 6,190
Reverse repurchase agreements and other
similar secured lending - 54,065 - 54,065
Debt securities, alternative Tier 1
and other eligible bills 9,571 18,215 149 27,935
Of which:
---------- ---------- ---------- ----------
Government bonds and treasury bills 7,850 8,217 - 16,067
Issued by corporates other than financial
institutions(2) 64 5,538 149 5,751
Issued by financial institutions(2) 1,657 4,460 - 6,117
---------- ---------- ---------- ----------
Equity shares 1,190 - 369 1,559
Derivative financial instruments 552 48,637 48 49,237
Of which:
---------- ---------- ---------- ----------
Foreign exchange 58 27,488 39 27,585
Interest rate 17 20,274 9 20,300
Credit - 555 - 555
Equity and stock index options - 28 - 28
Commodity 477 292 - 769
---------- ---------- ---------- ----------
Investment securities
Debt securities, alternative Tier 1
and other eligible bills 61,929 53,515 159 115,603
Of which:
---------- ---------- ---------- ----------
Government bonds and treasury bills 43,889 19,360 109 63,358
Issued by corporates other than financial
institutions(2) 6,353 12,170 50 18,573
Issued by financial institutions(2) 11,687 21,985 - 33,672
---------- ---------- ---------- ----------
Equity shares 30 - 253 283
----------------------------------------------- ---------- ---------- ---------- ----------
Total financial instruments at 30 June
20191 73,272 183,805 1,448 258,525
----------------------------------------------- ---------- ---------- ---------- ----------
Liabilities
Financial instruments held at fair
value through profit or loss
Deposits by banks - 721 36 757
Customer accounts - 6,889 - 6,889
Repurchase agreements and other similar
secured borrowing - 39,834 - 39,834
Debt securities in issue - 8,810 462 9,272
Short positions 2,986 2,043 - 5,029
Derivative financial instruments 625 49,068 660 50,353
Of which:
---------- ---------- ---------- ----------
Foreign exchange 51 28,284 15 28,350
Interest rate 49 19,318 391 19,758
Credit - 1,268 29 1,297
Equity and stock index options - 64 225 289
Commodity 525 134 - 659
---------- ---------- ---------- ----------
Total financial instruments at 30 June
20191 3,611 107,365 1,158 112,134
----------------------------------------------- ---------- ---------- ---------- ----------
1 The above table does not include held for sale assets of $891
million and liabilities of $40 million. These are reported in the
notes to the financial statements in the Half Year Report together
with their fair value hierarchy
2 Include covered bonds of $3,170 million, securities issued by
Multilateral Development Banks/International Organisations of
$11,238 million and State-owned agencies and development banks of
$18,223 million
There were no significant changes to valuation or levelling
approaches in 2019.
There were no significant transfers of financial assets and
liabilities measured at fair value between Level 1 and Level 2
during the year.
Level 1 Level 2 Level 3 Total
Assets $million $million $million $million
----------------------------------------------- ---------- ---------- ---------- ----------
Financial instruments held at fair
value through profit or loss
Loans and advances to banks - 3,768 - 3,768
Loans and advances to customers - 4,436 492 4,928
Reverse repurchase agreements and other
similar secured lending - 54,769 - 54,769
Debt securities, alternative Tier 1
and other eligible bills 8,097 13,562 317 21,976
Of which:
---------- ---------- ---------- ----------
Government bonds and treasury bills 6,699 6,851 - 13,550
Issued by corporates other than financial
institutions(2) 178 3,241 317 3,736
Issued by financial institutions(2) 1,220 3,470 - 4,690
---------- ---------- ---------- ----------
Equity shares 1,364 - 327 1,691
Derivative financial instruments 907 44,702 12 45,621
Of which:
---------- ---------- ---------- ----------
Foreign exchange 149 31,242 7 31,398
Interest rate 4 12,237 5 12,246
Credit - 252 - 252
Equity and stock index options - 89 - 89
Commodity 754 882 - 1,636
---------- ---------- ---------- ----------
Investment securities
Debt securities, alternative Tier 1
and other eligible bills 67,624 48,299 412 116,335
Of which:
---------- ---------- ---------- ----------
Government bonds and treasury bills 52,329 17,928 412 70,669
Issued by corporates other than financial
institutions(2) 8,366 9,839 - 18,205
Issued by financial institutions(2) 6,929 20,532 - 27,461
---------- ---------- ---------- ----------
Equity shares 29 4 230 263
----------------------------------------------- ---------- ---------- ---------- ----------
Total financial instruments at 31 December
2018(1) 78,021 169,540 1,790 249,351
----------------------------------------------- ---------- ---------- ---------- ----------
Liabilities
Financial instruments held at fair
value through profit or loss
Deposits by banks - 314 4 318
Customer accounts - 6,751 - 6,751
Repurchase agreements and other similar
secured borrowing - 43,000 - 43,000
Debt securities in issue - 6,966 439 7,405
Short positions 1,999 1,227 - 3,226
Derivative financial instruments 809 45,995 405 47,209
Of which:
---------- ---------- ---------- ----------
Foreign exchange 137 32,655 7 32,799
Interest rate 15 12,583 355 12,953
Credit - 273 8 281
Equity and stock index options - 32 35 67
Commodity 657 452 - 1,109
---------- ---------- ---------- ----------
Total financial instruments at 31 December
2018(1) 2,808 104,253 848 107,909
----------------------------------------------- ---------- ---------- ---------- ----------
1 The above table does not include held for sale assets of $887
million and liabilities of $198 million. These are reported in the
notes to the financial statements in the Half Year Report together
with their fair value hierarchy
2 Include covered bonds of $5,466 million, securities issued by
Multilateral Development Banks/International Organisations $7,432
million and State-owned agencies and development banks of $7,549
million
There were no significant changes to valuation or levelling
approaches in 2018.
There were no significant transfers of financial assets and
liabilities measured at fair value between Level 1 and Level 2
during the period.
Fair value hierarchy - financial instruments measured at
amortised cost
The following table shows the carrying amounts and incorporates
the Group's estimate of fair values of those financial assets and
liabilities not presented on the Group's balance sheet at fair
value. These fair values may be different from the actual amount
that will be received or paid on the settlement or maturity of the
financial instrument. For certain instruments, the fair value may
be determined using assumptions for which no observable prices are
available.
Fair value
-------------------------------- ---------- ----------------------------------------------
Carrying
value Level 1 Level 2 Level 3 Total
$million $million $million $million $million
-------------------------------- ---------- ---------- ---------- ---------- ----------
Assets
Cash and balances at central
banks1 58,822 - 58,822 - 58,822
Loans and advances to banks 59,210 - 59,121 - 59,121
---------- ---------- ---------- ---------- ----------
Of which: reverse repurchase
agreements and other similar
secured lending 1,145 - 1,155 - 1,155
---------- ---------- ---------- ---------- ----------
Loans and advances to customers 263,595 - 22,883 241,028 263,911
---------- ---------- ---------- ---------- ----------
Of which: reverse repurchase
agreements and other similar
secured lending 2,704 - 1,673 1,033 2,706
---------- ---------- ---------- ---------- ----------
Investment securities(2) 12,150 - 11,647 25 11,672
Other assets1 36,234 - 36,234 - 36,234
Assets held for sale 141 - 40 101 141
-------------------------------- ---------- ---------- ---------- ---------- ----------
At 30 June 2019 430,152 - 188,747 241,154 429,901
-------------------------------- ---------- ---------- ---------- ---------- ----------
Liabilities
Deposits by banks 30,783 - 30,776 - 30,776
Customer accounts 401,597 - 401,734 - 401,734
Repurchase agreements and other
similar secured borrowing 5,920 - 5,920 - 5,920
Debt securities in issue 46,672 19,239 27,383 - 46,622
Subordinated liabilities and
other borrowed funds 15,245 15,422 69 - 15,491
Other liabilities1 41,083 - 41,083 - 41,083
-------------------------------- ---------- ---------- ---------- ---------- ----------
At 30 June 2019 541,300 34,661 506,965 - 541,626
-------------------------------- ---------- ---------- ---------- ---------- ----------
Fair value
-------------------------------- ---------- ----------------------------------------------
Carrying
value Level 1 Level 2 Level 3 Total
$million $million $million $million $million
-------------------------------- ---------- ---------- ---------- ---------- ----------
Assets
Cash and balances at central
banks1 57,511 - 57,511 - 57,511
Loans and advances to banks 61,414 - 61,357 - 61,357
---------- ---------- ---------- ---------- ----------
Of which: reverse repurchase
agreements and other similar
secured lending 3,815 - 3,842 - 3,842
---------- ---------- ---------- ---------- ----------
Loans and advances to customers 256,557 - 18,514 238,797 257,311
---------- ---------- ---------- ---------- ----------
Of which: reverse repurchase
agreements and other similar
secured lending 3,151 - 2,409 744 3,153
---------- ---------- ---------- ---------- ----------
Investment securities(2) 9,303 - 8,953 8 8,961
Other assets1 32,678 - 32,673 - 32,673
Assets held for sale 135 - 135 - 135
-------------------------------- ---------- ---------- ---------- ---------- ----------
At 31 December 2018 417,598 - 179,143 238,805 417,948
-------------------------------- ---------- ---------- ---------- ---------- ----------
Liabilities
Deposits by banks 29,715 - 29,715 - 29,715
Customer accounts 391,013 - 391,018 - 391,018
Repurchase agreements and other
similar secured borrowing 1,401 - 1,401 - 1,401
Debt securities in issue 46,454 17,009 29,195 - 46,204
Subordinated liabilities and
other borrowed funds 15,001 14,505 23 - 14,528
Other liabilities1 37,945 - 37,945 - 37,945
-------------------------------- ---------- ---------- ---------- ---------- ----------
At 31 December 2018 521,529 31,514 489,297 - 520,811
-------------------------------- ---------- ---------- ---------- ---------- ----------
1 The carrying amount of these financial instruments is
considered to be a reasonable approximation of fair value as they
are short term in nature or reprice to current market rates
frequently
2 Includes Government bonds and Treasury bills of $5,488 million
at H1 2019 and $4,716 million at FY 2018
Level 3 summary and significant unobservable inputs
The following table presents the Group's primary Level 3
financial instruments which are held at fair value. The table also
presents the valuation techniques used to measure the fair value of
those financial instruments, the significant unobservable inputs,
the range of values for those inputs and the weighted average of
those inputs.
Value at 30 June
2019
---------------------- ---------------------- -------------------- --------------------- ------------ ---------
Significant
Assets Liabilities Principal valuation unobservable Weighted
Instrument $million $million technique inputs Range1 average2
---------------------- --------- ----------- -------------------- --------------------- ------------ ---------
Loans and advances Comparable
to customers 470 pricing/yield Price/yield NA NA
----------------------
25.5% -
Discounted cashflows Recovery rates 100% 95.2%
---------------------- --------- ----------- -------------------- --------------------- ------------ ---------
Debt securities,
alternative Tier
1 and other eligible
securities 51 Discounted cashflows Recovery rates 44.2% 44.2%
---------------------- --------- ----------- -------------------- --------------------- ------------ ---------
Government bonds
and treasury bills 109 Discounted cashflows Price/yield 0.0% - 11.0% 6.7%
---------------------- --------- ----------- -------------------- --------------------- ------------ ---------
Asset-backed
securities 148 Discounted cashflows Price/yield 0.0% - 5.0% 4.0%
---------------------- --------- ----------- -------------------- --------------------- ------------ ---------
Equity shares
(includes
private Comparable
equity investments)3 622 pricing/yield EV/EBITDA multiples 3.3x - 9.2x 4.8x
----------------------
P/E multiples 16.5x 16.5x
----------------------
P/B multiples 0.6x - 1.0x 1.0x
P/S multiples N/A N/A
10.0% -
Liquidity discount 20.0% 16.5%
Discounted cashflows Discount rates 9.1% - 16.3% 9.9%
---------------------- --------- ----------- -------------------- --------------------- ------------ ---------
Derivative financial
instruments Of which:
Foreign exchange
Option pricing option implied
Foreign exchange 39 15 model volatility 1.2% - 7.4% 5.0%
Foreign exchange
Discounted cashflows curves 6.5% - 7.2% 6.9%
Interest rate
Interest rate 9 391 Discounted cashflows curves 2.4% - 16.6% 10.7%
Discounted cashflows Credit spreads 1.0% - 3.6% 1.0%
Credit - 29 Discounted cashflows Credit spreads 0.6% - 1.5% 1.0%
Equity and stock Internal pricing -70.0% -
index - 225 model Equity correlation 85.0% N/A
-80.0% -
Equity-FX correlation 82.3% N/A
---------------------- --------- ----------- -------------------- --------------------- ------------ ---------
Deposits by banks 36 Discounted cashflows Credit spreads 1.0% 1.0%
---------------------- --------- ----------- -------------------- --------------------- ------------ ---------
Debt securities
in issue 462 Discounted cashflows Credit spreads 0.2% - 4.0% 1.2%
----------------------
Internal pricing -70.0% -
- model Equity correlation 85.0% N/A
----------------------
-80.0% -
- Equity-FX correlation 82.3% N/A
---------------------- --------- ----------- -------------------- --------------------- ------------ ---------
Total 1,448 1,158
---------------------- --------- ----------- -------------------- --------------------- ------------ ---------
1 The ranges of values shown in the above table represent the
highest and lowest levels used in the valuation of the Group's
Level 3 financial instruments as at 30 June 2019. The ranges of
values used are reflective of the underlying characteristics of
these Level 3 financial instruments based on the market conditions
at the balance sheet date. However, these ranges of values may not
represent the uncertainty in fair value measurements of the Group's
Level 3 financial instruments
2 Weighted average for non-derivative financial instruments has
been calculated by weighting inputs by the relative fair value.
Weighted average for derivatives has been provided by weighting
inputs by the risk relevant to that variable. N/A has been entered
for the cases where weighted average is not a meaningful
indicator
3 The Group has an equity investment in the Series B preferred
shares of Ripple Labs, Inc., which owns a digital currency (XRP)
and is being carried at a fair value based on the shares' initial
offering price. The shares will continue to be valued at the
initial offering price until such time as a reliable means of
valuing the cashflows and underlying assets is possible or
additional sales are observable
The following section describes the significant unobservable
inputs identified in the valuation technique table:
-- Comparable price/yield is a valuation methodology in which
the price of a comparable instrument is used to estimate the fair
value where there are no direct observable prices. Yield is the
interest rate that is used to discount the future cashflows in a
discounted cashflow model. Valuation using comparable instruments
can be done by calculating an implied yield (or spread over a
liquid benchmark) from the price of a comparable instrument, then
adjusting that yield (or spread) to derive a value for the
instrument. The adjustment should account for relevant differences
in the financial instruments such as maturity and/or credit
quality. Alternatively, a price-to-price basis can be assumed
between the comparable instrument and the instrument being valued
in order to establish the value of the instrument (for example,
deriving a fair value for a junior unsecured bond from the price of
a senior secured bond). An increase in price, in isolation, would
result in a favourable movement in the fair value of the asset. An
increase in yield, in isolation, would result in an unfavourable
movement in the fair value of the asset
-- Recovery rates are the expectation of the rate of return
resulting from the liquidation of a particular loan. As the
probability of default increases for a given instrument, the
valuation of that instrument will increasingly reflect its expected
recovery level assuming default. An increase in the recovery rate,
in isolation, would result in a favourable movement in the fair
value of the loan
-- EV/EBITDA ratio multiples This is the ratio of Enterprise
Value (EV) to Earnings Before Interest, Taxes, Depreciation and
Amortisation (EBITDA). EV is the aggregate market capitalisation
and debt minus the cash and cash equivalents. An increase in
EV/EBITDA multiples in isolation, will result in a favourable
movement in the fair value of the unlisted firm
-- Price-Earnings (P/E) multiples This is the ratio of the
Market Capitalisation to the net income after tax. The multiples
are determined from multiples of listed comparables, which are
observable. An increase in P/E multiple will result in a favourable
movement in the fair value of the unlisted firm
-- Price-Book (P/B) multiple This is the ratio of the market
value of equity to the book value of equity. An increase in P/B
multiple will result in a favourable movement in the fair value of
the unlisted firm
-- Price-Sales (P/S) multiple This is the ratio of the market
value of equity to sales. An increase in P/S multiple will result
in a favourable movement in the fair value of the unlisted firm
-- Liquidity discounts in the valuation of unlisted investments
primarily applied to the valuation of unlisted firms' investments
to reflect the fact that these stocks are not actively traded. An
increase in liquidity discount will result in unfavourable movement
in the fair value of the unlisted firm
-- Discount rate refers to the rate of return used to convert
expected cashflows into present value
-- Volatility represents an estimate of how much a particular
instrument, parameter or index will change in value over time.
Generally, the higher the volatility, the more expensive the option
will be
-- Foreign exchange curves is the term structure for the forward
rates and swap rates between currency pairs over a specified
period
-- Interest rate curves is the term structure of interest rates
and measure of future interest rates at a particular point in
time
-- Credit spread represents the additional yield that a market
participant would demand for taking exposure to the Credit Risk of
an instrument
-- Correlation is the measure of how movement in one variable
influences the movement in another variable. An equity correlation
is the correlation between two equity instruments while an interest
rate correlation refers to the correlation between two swap
rates
-- Commodities correlation: This refers to the correlation
between two commodity underlyings over a specified time
Level 3 movement tables - financial assets
The table below analyses movements in Level 3 financial assets
carried at fair value.
Held at fair value
through profit or
loss Investment securities
---------------------------- -------------------------------------- ------------ ----------------------------------
Debt
securities, Debt
alternative securities,
Tier alternative
1 Tier
and 1
Loans other Derivative and other
and advances eligible Equity financial eligible Equity
to customers bills shares instruments bills shares Total
Assets $million $million $million $million $million $million $million
---------------------------- ------------- ------------ --------- ------------ ------------ --------- ---------
At 1 January 2019 492 317 327 12 412 230 1,790
Total gains/(losses)
recognised
in income statement (3) (23) (16) 1 3 - (38)
------------- ------------ --------- ------------ ------------ --------- ---------
Net trading income (3) (23) (16) 1 - - (41)
Other operating income - - - - 3 - 3
------------- ------------ --------- ------------ ------------ --------- ---------
Total (losses)/gains
recognised
in other comprehensive
income
(OCI) - - - - (327) 4 (323)
------------- ------------ --------- ------------ ------------ --------- ---------
Fair value through OCI
reserve - - - - - 12 12
Exchange difference - - - - (327) (8) (335)
------------- ------------ --------- ------------ ------------ --------- ---------
Purchases 29 46 69 58 202 16 420
Sales (8) (155) (12) (20) - - (195)
Settlements (121) (3) - (2) (58) - (184)
Transfers out1 - (86) (74) (3) (73) - (236)
Transfers in2 81 53 75 2 - 3 214
---------------------------- ------------- ------------ --------- ------------ ------------ --------- ---------
At 30 June 2019 470 149 369 48 159 253 1,448
---------------------------- ------------- ------------ --------- ------------ ------------ --------- ---------
Total unrealised gains
recognised
in the income statement,
within
net trading income,
relating
to change in fair value of
assets held at 30 June 2019 1 - - 3 - - 4
---------------------------- ------------- ------------ --------- ------------ ------------ --------- ---------
1 Transfers out include debt securities, alternative Tier 1 and
other eligible bills, equity shares and derivative financial
instruments where the valuation parameters became observable during
the period and were transferred to Level 1 and Level 2
2 Transfers in primarily relate to loans and advances, debt
securities, alternative Tier 1 and other eligible bills, equity
shares and derivative financial instruments where the valuation
parameters become unobservable during the period
Level 3 movement tables - financial assets
The table below analyses movements in Level 3 financial assets
carried at fair value.
Held at fair value through profit
or loss Investment securities
--------------- ------------------------------------------------------ ----------- --------------------------------
Debt
securities, Debt
alternative securities,
Reverse Tier alternative
Loans repurchase 1 Tier
Loans and agreements and 1
and advances and other other Derivative and other
advances to similar eligible Equity financial eligible Equity
to banks customers secured bills shares instruments bills shares Total
Assets $million $million lending $million $million $million $million $million $million
--------------- -------- --------- ---------- ----------- -------- ----------- ----------- -------- ---------
At 1 January
2018 71 717 - 431 1,100 40 318 150 2,827
Total
gains/(losses)
recognised in
income
statement 2 13 - (44) (10) (3) 22 - (20)
-------- --------- ---------- ----------- -------- ----------- ----------- -------- ---------
Net trading
income 2 13 - (44) (10) (3) - - (42)
Other
operating
income - - - - - - 22 - 22
-------- --------- ---------- ----------- -------- ----------- ----------- -------- ---------
Total
(losses)/gains
recognised in
other
comprehensive
income - - - - - - (2) 40 38
-------- --------- ---------- ----------- -------- ----------- ----------- -------- ---------
Fair value
through
OCI reserve - - - - - - - 41 41
Exchange
difference - - - - - - (2) (1) (3)
-------- --------- ---------- ----------- -------- ----------- ----------- -------- ---------
Purchases - 328 55 120 143 70 445 38 1,199
Sales - (254) - (215) (176) (40) - (5) (690)
Settlements (71) (261) - (6) - (14) (210) - (562)
Transfers out1 (101) (112) (55) (8) (743) (43) (161) (1) (1,224)
Transfers in2 99 61 - 39 13 2 - 8 222
--------------- -------- --------- ---------- ----------- -------- ----------- ----------- -------- ---------
At 31 December
2018 - 492 - 317 327 12 412 230 1,790
--------------- -------- --------- ---------- ----------- -------- ----------- ----------- -------- ---------
Total
unrealised
(losses)/gains
recognised in
the income
statement,
within net
trading
income,
relating
to change in
fair
value of
assets
held at 31
December
2018 - (2) - - 22 (3) - - 17
--------------- -------- --------- ---------- ----------- -------- ----------- ----------- -------- ---------
1 Transfers out include loans and advances, reverse repurchase
agreements, debt securities, alternative Tier 1 and other eligible
bills, equity shares and derivative financial instruments where the
valuation parameters became observable during the year, and were
transferred to Level 1 and Level 2. Transfers out further relates
to $743 million equity shares held for sale
2 Transfers in primarily relate to loans and advances, debt
securities, alternative Tier 1 and other eligible bills, equity
shares and derivative financial instruments where the valuation
parameters become unobservable during the year
Level 3 movement tables - financial liabilities
30.06.19
-------------------------------------------- -----------------------------------------------
Debt Derivative
Deposits securities financial
by banks in issue instruments Total
$million $million $million $million
-------------------------------------------- --------- ----------- ------------ ---------
At 1 January 2019 4 439 405 848
Total losses recognised in income statement
- net trading income - 23 51 74
--------- ----------- ------------ ---------
Net trading income - 23 51 74
--------- ----------- ------------ ---------
Issues 32 240 197 469
Settlements - (240) (190) (430)
Transfers out1 - - (9) (9)
Transfers in2 - - 206 206
-------------------------------------------- --------- ----------- ------------ ---------
At 30 June 2019 36 462 660 1,158
-------------------------------------------- --------- ----------- ------------ ---------
Total unrealised losses/(gains) recognised
in the income statement, within net
trading income, relating to change
in fair value of liabilities held at
30 June 2019 - 14 (6) 8
-------------------------------------------- --------- ----------- ------------ ---------
31.12.18
------------------------------------------- -----------------------------------------------
Debt Derivative
Deposits securities financial
by banks in issue instruments Total
$million $million $million $million
------------------------------------------- --------- ----------- ------------ ---------
At 1 January 2018 69 442 25 536
Total losses/(gains) recognised in
income statement - net trading income 1 (22) 30 9
Issues 4 167 439 610
Settlements (70) (148) (103) (321)
Transfers out1 - - (2) (2)
Transfers in2 - - 16 16
------------------------------------------- --------- ----------- ------------ ---------
At 31 December 2018 4 439 405 848
------------------------------------------- --------- ----------- ------------ ---------
Total unrealised (gains)/losses recognised
in the income statement, within net
trading income, relating to change
in fair value of liabilities held at
31 December 2018 - (5) 8 3
------------------------------------------- --------- ----------- ------------ ---------
1 Transfers out during the period/year primarily relate to
derivative financial instruments where the valuation parameters
became observable during the period/year and were transferred to
Level 2 financial liabilities
2 Transfers in during the period/year primarily relate to
derivative financial instruments where the valuation parameters
become unobservable during the period/year
Sensitivities in respect of the fair values of Level 3 assets
and liabilities
Sensitivity analysis is performed on products with significant
unobservable inputs. The Group applies a 10 per cent increase or
decrease on the values of these unobservable inputs, to generate a
range of reasonably possible alternative valuations. The percentage
shift is determined by statistical analyses performed on a set of
reference prices based on the composition of our Level 3 assets.
Favourable and unfavourable changes are determined on the basis of
changes in the value of the instrument as a result of varying the
levels of the unobservable parameters. This Level 3 sensitivity
analysis assumes a one-way market move and does not consider
offsets for hedges.
Held at fair value through Fair value through other comprehensive
profit or loss income
----------------------------- -------------------------------------- ------------------------------------------
Favourable Unfavourable Favourable Unfavourable
Net exposure changes changes Net exposure changes changes
$million $million $million $million $million $million
----------------------------- ------------ ---------- ------------ -------------- ----------- -------------
Financial instruments
held at fair value
Loans and advances 470 477 452 - - -
Debt securities, alternative
Tier 1 and other eligible
bills 149 150 148 159 159 159
Equity shares 369 406 332 253 278 228
Derivative financial
instruments (612) (579) (645) - - -
Deposits by banks (36) (35) (37) - - -
Debt securities in
issue (462) (436) (488) - - -
----------------------------- ------------ ---------- ------------ -------------- ----------- -------------
At 30 June 2019 (122) (17) (238) 412 437 387
----------------------------- ------------ ---------- ------------ -------------- ----------- -------------
Financial instruments
held at fair value
Loans and advances 492 498 481 - - -
Debt securities, alternative
Tier 1 and other eligible
bills 317 339 295 412 415 409
Equity shares 327 360 294 230 253 207
Derivative financial
instruments (393) (376) (410) - - -
Deposits by banks (4) (4) (4) - - -
Debt securities in
issue (439) (417) (461) - - -
----------------------------- ------------ ---------- ------------ -------------- ----------- -------------
At 31 December 2018 300 400 195 642 668 616
----------------------------- ------------ ---------- ------------ -------------- ----------- -------------
The reasonably possible alternatives could have increased or
decreased the fair values of financial instruments held at fair
value through profit or loss and those classified as fair value
through other comprehensive income by the amounts disclosed
below.
30.06.19 31.12.18
Financial instruments Fair value changes $million $million
--------------------------------------- ------------------- ---------- ----------
Held at fair value through profit
or loss Possible increase 105 100
---------------------------------------
Possible decrease (116) (105)
----------------------------------------------------------- ---------- ----------
Fair value through other comprehensive
income Possible increase 25 26
---------------------------------------
Possible decrease (25) (26)
----------------------------------------------------------- ---------- ----------
13. Derivative financial instruments
The tables below analyse the notional principal amounts and the
positive and negative fair values of derivative financial
instruments. Notional principal amounts are the amounts of
principal underlying the contract at the reporting date.
30.06.19 31.12.18
---------------------------- ---------------------------------- ----------------------------------
Notional Notional
principal principal
amounts Assets Liabilities amounts Assets Liabilities
Derivatives $million $million $million $million $million $million
---------------------------- ---------- --------- ----------- ---------- --------- -----------
Foreign exchange derivative
contracts:
Forward foreign exchange
contracts 996,234 11,399 11,474 2,080,513 16,457 17,264
Currency swaps and
options 1,549,950 16,186 16,876 856,660 14,941 15,535
---------------------------- ---------- --------- ----------- ---------- --------- -----------
2,546,184 27,585 28,350 2,937,173 31,398 32,799
---------------------------- ---------- --------- ----------- ---------- --------- -----------
Interest rate derivative
contracts:
Swaps 4,089,329 34,184 33,427 3,693,897 20,378 20,909
Forward rate agreements
and options 420,988 2,103 2,305 489,943 1,400 1,586
Exchange traded futures
and options 843,532 156 169 775,518 121 111
---------------------------- ---------- --------- ----------- ---------- --------- -----------
5,353,849 36,443 35,901 4,959,358 21,899 22,606
---------------------------- ---------- --------- ----------- ---------- --------- -----------
Credit derivative contracts 52,245 555 1,297 39,343 252 281
---------------------------- ---------- --------- ----------- ---------- --------- -----------
Equity and stock index
options 2,469 28 289 2,960 89 67
---------------------------- ---------- --------- ----------- ---------- --------- -----------
Commodity derivative
contracts 94,114 769 659 69,601 1,636 1,109
---------------------------- ---------- --------- ----------- ---------- --------- -----------
Gross total derivatives 8,048,861 65,380 66,496 8,008,435 55,274 56,862
---------------------------- ---------- --------- ----------- ---------- --------- -----------
Offset - (16,143) (16,143) - (9,653) (9,653)
---------------------------- ---------- --------- ----------- ---------- --------- -----------
Net total derivatives 8,048,861 49,237 50,353 8,008,435 45,621 47,209
---------------------------- ---------- --------- ----------- ---------- --------- -----------
The notional amounts of the contract are not offset and do not
represent the Group's actual exposure to Credit Risk. This Credit
Risk is limited to the current cost of replacing contracts with a
positive mark to market to the Group should the counterparty
default.
The Group limits exposure to credit losses in the event of
default by entering into master netting agreements with certain
market counterparties. As required by IAS 32, exposures are only
presented net in these accounts where they are subject to legal
right of offset and intended to be settled net in the ordinary
course of business.
Derivatives held for hedging
Included in the table above are derivatives held for hedging
purposes as follows:
30.06.19 31.12.18
--------------------------- ---------------------------------- ----------------------------------
Notional Notional
principal principal
amounts Assets Liabilities amounts Assets Liabilities
$million $million $million $million $million $million
--------------------------- ---------- --------- ----------- ---------- --------- -----------
Derivatives designated
as fair value hedges:
Interest rate swaps 64,599 579 907 63,675 306 573
Currency swaps 9,337 35 781 8,963 30 942
--------------------------- ---------- --------- ----------- ---------- --------- -----------
73,936 614 1,688 72,638 336 1,515
--------------------------- ---------- --------- ----------- ---------- --------- -----------
Derivatives designated
as cashflow hedges:
Interest rate swaps 9,682 36 112 10,733 59 67
Forward foreign exchange
contracts 187 - 23 184 - 18
Currency swaps 3,416 50 8 2,701 57 22
--------------------------- ---------- --------- ----------- ---------- --------- -----------
13,285 86 143 13,618 116 107
--------------------------- ---------- --------- ----------- ---------- --------- -----------
Derivatives designated
as net investment hedges:
Forward foreign exchange
contracts 5,129 124 31 5,200 61 7
--------------------------- ---------- --------- ----------- ---------- --------- -----------
Total derivatives held
for hedging 92,350 824 1,862 91,456 513 1,629
--------------------------- ---------- --------- ----------- ---------- --------- -----------
14. Reverse repurchase and repurchase agreements including other
similar secured lending and borrowing
Reverse repurchase agreements and other similar secured
lending
30.06.19 31.12.18
$million $million
---------------------------------- ---------- ----------
Banks 18,353 20,698
Customers 39,561 41,037
---------------------------------- ---------- ----------
57,914 61,735
---------------------------------- ---------- ----------
Of which:
Fair value through profit or loss 54,065 54,769
---------- ----------
Banks 17,208 16,883
Customers 36,857 37,886
---------- ----------
Held at amortised cost 3,849 6,966
---------- ----------
Banks 1,145 3,815
Customers 2,704 3,151
---------- ----------
Under reverse repurchase and securities borrowing arrangements,
the Group obtains securities on terms which permit it to repledge
or resell the securities to others. Amounts on such terms are:
30.06.19 31.12.18
$million $million
Securities and collateral received (at fair value) 78,961 84,557
------------------------------------------------------ ---------- ----------
Securities and collateral which can be repledged or
sold (at fair value) 77,246 82,534
------------------------------------------------------ ---------- ----------
Amounts repledged/transferred to others for financing
activities, to satisfy liabilities under sale and
repurchase agreements (at fair value) 36,169 40,552
------------------------------------------------------ ---------- ----------
Repurchase agreements and other similar secured borrowing
30.06.19 31.12.18
$million $million
---------------------------------- ---------- ----------
Banks 9,329 4,984
Customers 36,425 39,417
---------------------------------- ---------- ----------
45,754 44,401
---------------------------------- ---------- ----------
Of which:
Fair value through profit or loss 39,834 43,000
Banks 7,931 4,777
Customers 31,903 38,223
Held at amortised cost 5,920 1,401
---------- ----------
Banks 1,398 207
Customers 4,522 1,194
---------- ----------
The tables below set out the financial assets provided as
collateral for repurchase and other secured borrowing
transactions.
30.06.19
-------------------------------------- -------------------------------------------------------------
Fair value Fair value
through through other
profit or comprehensive Amortised Off-balance
Collateral pledged against repurchase loss income cost sheet Total
agreements $million $million $million $million $million
-------------------------------------- ---------- -------------- --------- ----------- ---------
On-balance sheet
Debt securities, alternative
Tier 1 and other eligible bills 3,282 6,409 324 - 10,015
Off-balance sheet
Repledged collateral received - - - 36,169 36,169
-------------------------------------- ---------- -------------- --------- ----------- ---------
At 30 June 2019 3,282 6,409 324 36,169 46,184
-------------------------------------- ---------- -------------- --------- ----------- ---------
31.12.18
-------------------------------------- -------------------------------------------------------------------
Fair value Fair value
through through
profit or other comprehensive Amortised Off-balance
Collateral pledged against repurchase loss income cost sheet Total
agreements $million $million $million $million $million
-------------------------------------- ---------- -------------------- --------- ----------- ---------
On-balance sheet
Debt securities, alternative
Tier 1 and other eligible bills 2,060 1,974 49 - 4,083
Off-balance sheet
Repledged collateral received - - - 40,552 40,552
-------------------------------------- ---------- -------------------- --------- ----------- ---------
At 31 December 2018 2,060 1,974 49 40,552 44,635
-------------------------------------- ---------- -------------------- --------- ----------- ---------
15. Goodwill and intangible assets
30.06.19 31.12.18
---------------------- --------------------------------------------- ---------------------------------------------
Acquired Computer Acquired Computer
Goodwill intangibles software Total Goodwill intangibles software Total
$million $million $million $million $million $million $million $million
---------------------- --------- ------------ --------- --------- --------- ------------ --------- ---------
Cost 3,089 483 3,000 6,572 3,116 510 2,835 6,461
Provision for
amortisation - 450 1,011 1,461 - 458 947 1,405
---------------------- --------- ------------ --------- --------- --------- ------------ --------- ---------
Net book value 3,089 33 1,989 5,111 3,116 52 1,888 5,056
---------------------- --------- ------------ --------- --------- --------- ------------ --------- ---------
30.06.18
--------------------------- ---------------------------------------------
Acquired Computer
Goodwill intangibles software Total
$million $million $million $million
--------------------------- --------- ------------ --------- ---------
Cost 3,187 559 2,616 6,362
Provision for amortisation - 461 927 1,388
--------------------------- --------- ------------ --------- ---------
Net book value 3,187 98 1,689 4,974
--------------------------- --------- ------------ --------- ---------
At 30 June 2019, accumulated goodwill impairment losses incurred
from 1 January 2005 amounted to $2,801 million (31 December 2018:
$2,801 million), of which nil was recognised in 2019 (31 December
2018: nil).
Outcome of impairment assessment
At 30 June 2019, the Group performed a review of the goodwill
that has been assigned to the Group's cash-generating units for
indicators of impairment, considering whether there were any
reduced expectations for future cashflows and/or fluctuations in
the discount rate or the assumptions. The results of this review
indicated that there is no goodwill impairment to be
recognised.
It continues to be possible that certain scenarios could be
constructed where a combination of a material change in the
discount rate coupled with a reduction in current business plan
forecasts or the GDP growth rate would potentially result in the
carrying amount of goodwill exceeding the recoverable amount in the
future. Refer to the notes to the financial statements in the Half
Year Report, Goodwill and intangible assets, in the 2018 Annual
Report.
16. Other assets
30.06.19 31.12.18
$million $million
-------------------------------------------------------- ---------- ----------
Financial assets held at amortised cost (notes to
the financial statements in the Half Year Report):
Hong Kong SAR Government certificates of indebtedness
(notes to the financial statements in the Half Year
Report)1 6,498 5,964
Cash collateral 8,826 10,323
Acceptances and endorsements 5,291 4,923
Unsettled trades and other financial assets 15,619 11,468
-------------------------------------------------------- ---------- ----------
36,234 32,678
Non-financial assets:
Commodities2 2,773 2,488
Other assets 331 235
-------------------------------------------------------- ---------- ----------
39,338 35,401
-------------------------------------------------------- ---------- ----------
1 The Hong Kong SAR Government certificates of indebtedness are
subordinated to the claims of other parties in respect of bank
notes issued
2 Commodities are carried at fair value and classified as Level
2
17. Assets held for sale and associated liabilities
30.06.19 31.12.18
Assets held for sale $million $million
--------------------------------------------------- ---------- ----------
Debt securities 5 14
Equity shares 886 873
--------------------------------------------------- ---------- ----------
Financial assets held at fair value through profit
or loss1 891 887
--------------------------------------------------- ---------- ----------
Loans and advances to banks - 112
Loans and advances to customers 141 23
--------------------------------------------------- ---------- ----------
Financial assets held at amortised cost 141 135
--------------------------------------------------- ---------- ----------
Goodwill and intangible assets 69 71
Property, plant and equipment2 117 170
Others 45 65
--------------------------------------------------- ---------- ----------
1,263 1,328
--------------------------------------------------- ---------- ----------
1 Principal Finance assets of $891 million (31 December 2018:
$887 million), classified as financial assets held at fair value
through profit or loss comprising debt securities ($5 million) and
equity shares ($886 million), is expected to be disposed of by the
end of 2019
2 Aircraft classified as held for sale by Pembroke Air Leasing
Finance for $111 million (31 December 2018: $162 million) is
included within property, plant and equipment
Reported below are the associated financial liabilities held for
sale of the Principal Finance business amounting to $40 million (31
December 2018: $198 million), all of which are classified under
Level 3. The transactions are expected to complete in 2019.
30.06.19 31.12.18
Liabilities held for sale $million $million
-------------------------------------------------------- ---------- ----------
Derivative financial instruments1 40 198
-------------------------------------------------------- ---------- ----------
Financial liabilities held at fair value through profit
or loss 40 198
-------------------------------------------------------- ---------- ----------
Other liabilities 61 48
Accruals and deferred income 3 -
Provisions for liabilities and charges - 1
-------------------------------------------------------- ---------- ----------
104 247
-------------------------------------------------------- ---------- ----------
1 The derivative liability is a fixed price forward sale
contract to sell the Principal Finance assets
18. Other liabilities
30.06.19 31.12.18
$million $million
------------------------------------------------------ ---------- ----------
Financial liabilities held at amortised cost (notes
to the financial statements in the Half Year Report)
Notes in circulation1 6,498 5,964
Acceptances and endorsements 5,291 4,923
Cash collateral 8,105 9,259
Unsettled trades and other financial liabilities 21,189 17,799
41,083 37,945
------------------------------------------------------ ---------- ----------
Non-financial liabilities
Cash-settled share-based payments 37 32
Property leases2 1,334 -
Equipment leases2 18 -
Other liabilities 280 332
42,752 38,309
1 Hong Kong currency notes in circulation of $6,498 million (31
December 2018: $5,964 million) that are secured by the Government
of Hong Kong SAR certificates of indebtedness of the same amount
included in other assets (notes to the financial statements in the
Half Year Report)
2 Other non-financial liabilities now includes the present value
of lease liabilities, as required by IFRS 16 from 1 January
2019
19. Contingent liabilities and commitments
The table below shows the contract or underlying principal
amounts and risk-weighted amounts of unmatured off-balance sheet
transactions at the balance sheet date. The contract or underlying
principal amounts indicate the volume of business outstanding and
do not represent amounts at risk.
30.06.19 31.12.18
$million $million
-------------------------------------------------------------- ---------- ----------
Contingent liabilities
Guarantees and irrevocable letters of credit 35,922 36,511
Other contingent liabilities 5,345 5,441
-------------------------------------------------------------- ---------- ----------
41,267 41,952
-------------------------------------------------------------- ---------- ----------
Commitments
Documentary credits and short-term trade-related transactions 5,073 3,982
Undrawn formal standby facilities, credit lines and
other commitments to lend
One year and over 71,606 71,467
Less than one year 36,279 37,041
Unconditionally cancellable 40,406 39,220
-------------------------------------------------------------- ---------- ----------
153,364 151,710
-------------------------------------------------------------- ---------- ----------
Capital commitments
Contracted capital expenditure approved by the directors
but not provided for in these accounts1 37 450
-------------------------------------------------------------- ---------- ----------
1 Of which: the Group has commitments totalling $25 million to
purchase aircraft for delivery in 2019 (31 December 2018: $439
million).
The Group's share of contingent liabilities and commitments
relating to joint ventures is $nil billion (31 December 2018: $0.2
billion). As set out in the notes to the financial statements in
the Half Year Report, the Group has contingent liabilities in
respect of certain legal and regulatory matters for which it is not
practicable to estimate the financial impact as there are many
factors that may affect the range of possible outcomes.
20. Legal and regulatory matters
Claims and other proceedings
The Group receives legal claims against it in a number of
jurisdictions and is subject to regulatory and enforcement
investigations and proceedings from time to time.
Apart from the matters described below, the Group currently
considers none of these claims, investigations or proceedings to be
material. However, in light of the uncertainties involved in such
matters there can be no assurance that the outcome of a particular
matter or matters currently not considered to be material may not
ultimately be material to the Group's results in a particular
reporting period depending on, among other things, the amount of
the loss resulting from the matter(s) and the results otherwise
reported for such period.
Investigations into, and resolutions with respect to, historical
sanctions and financial crime control issues
In April 2019, the Group announced that it had resolved the
previously disclosed investigations by (i) the New York Department
of Financial Services (NYDFS), the Board of Governors of the
Federal Reserve System, the Department of Justice (DOJ), the New
York County District Attorney's Office (DANY) and the Office of
Foreign Assets Control (together, the US Authorities) concerning
historical violations of US sanctions laws and regulations from
2007 through to 2014 and (ii) the Financial Conduct Authority (FCA)
concerning the effectiveness and governance of historical financial
crime controls in the Group's UK correspondent banking business and
in its UAE branches (the 2019 Resolutions). Under the terms of the
2019 Resolutions, the Group agreed to pay a total of $947 million
in monetary penalties to the US Authorities and GBP102 million to
the FCA. The Group took a $900 million provision, which included
these matters, in its 2018 financial statements and took a further
and final charge of $186 million in the first quarter of 2019. As
part of the 2019 Resolutions, the Group's Deferred Prosecution
Agreements, which were originally entered into with the DOJ and
DANY (and subsequently extended) as part of settlements in 2012
with the US Authorities relating to US sanctions compliance, were
also further extended to 9 April 2021. The monitorship previously
imposed by the DOJ expired on 31 March 2019.
Settlement relating to FX trading
In January 2019, the Group reached a settlement with the NYDFS
regarding past control failures and improper conduct related to the
Group's FX trading and sales business between 2007 and 2013. As
part of this settlement, the Group agreed to pay a civil monetary
penalty of $40 million to the NYDFS. A provision was made in the
Group's 2018 financial statements relating to this settlement.
Other proceedings
Since November 2014, a number of lawsuits have been filed in the
United States District Courts for the Southern and Eastern
Districts of New York against a number of banks (including Standard
Chartered Bank) on behalf of plaintiffs who are, or are relatives
of, victims of various terrorist attacks in Iraq. Five of the
lawsuits were filed in late December 2018. The plaintiffs allege
that the defendant banks aided and abetted the unlawful conduct of
US sanctioned parties in breach of the US Anti-Terrorism Act. Based
on the facts currently known, it is not possible for the Group to
predict the outcome of these lawsuits.
The Director of Public Prosecutions (DPP) and related agencies
in Kenya are investigating Standard Chartered Kenya Limited (SCBK)
and other banks in connection with the alleged theft of funds from
Kenya's State Department of Public Service, Youth and Gender
Affairs. This investigation follows fines being imposed on those
banks, including SCBK, by the Central Bank of Kenya regarding
adequacy of controls related to the processing of the allegedly
stolen funds. The DPP has announced that it has received
recommendations from the Kenyan Directorate of Criminal
Investigations that charges should be brought against a number of
banks, including SCBK, bank officials and other individuals. There
may be penalties or other financial consequences for SCBK in
connection with this investigation.
21. Subordinated liabilities and other borrowed funds
30.06.19
-------------------------------- -----------------------------------------------------
USD GBP EUR Others Total
$million $million $million $million $million
-------------------------------- --------- --------- --------- --------- ---------
Fixed rate subordinated debt 10,140 1,443 2,965 521 15,069
Floating rate subordinated debt 161 15 - - 176
-------------------------------- --------- --------- --------- --------- ---------
Total 10,301 1,458 2,965 521 15,245
-------------------------------- --------- --------- --------- --------- ---------
31.12.18
-------------------------------- -----------------------------------------------------
USD GBP EUR Others Total
$million $million $million $million $million
-------------------------------- --------- --------- --------- --------- ---------
Fixed rate subordinated debt 9,905 1,414 2,966 528 14,813
Floating rate subordinated debt 161 15 - 12 188
-------------------------------- --------- --------- --------- --------- ---------
Total 10,066 1,429 2,966 540 15,001
-------------------------------- --------- --------- --------- --------- ---------
Redemptions and repurchases during the period
On 27 June 2019, Standard Chartered Bank Botswana Limited
exercised its right to redeem BWP 127.26 million 8.2 per cent
subordinated notes 2022 (callable 2017).
On 27 March 2019, Standard Chartered Bank Botswana Limited
exercised its right to redeem BWP 50 million floating rate notes
2022 (callable 2017).
On 12 February 2019, Standard Chartered Bank Botswana Limited
exercised its right to redeem BWP 70 million floating rate
subordinated notes 2021 (callable 2016).
22. Share capital, other equity and reserves
Group and Company
Number of Ordinary Share Total
ordinary share capital Other equity
shares share capital1 premium2 & share premium instruments
millions $million $million $million $million
--------------------------------- ---------- ---------------- ---------- ----------------- ------------
At 1 January 2018 3,296 1,648 5,449 7,097 4,961
Capitalised on scrip dividend 2 1 (1) - -
Shares issued 6 3 1 4 -
--------------------------------- ---------- ---------------- ---------- ----------------- ------------
At 30 June 2018 3,304 1,652 5,449 7,101 4,961
Shares issued 4 2 8 10 -
--------------------------------- ---------- ---------------- ---------- ----------------- ------------
At 31 December 2018 3,308 1,654 5,457 7,111 4,961
Capitalised on scrip dividend - - - - -
Shares issued 4 2 23 25 -
Cancellation of shares including
share buy-back (54) (27) - (27) -
At 30 June 2019 3,258 1,629 5,480 7,109 4,961
--------------------------------- ---------- ---------------- ---------- ----------------- ------------
1 Issued and fully paid ordinary shares of 50 cents each
2 Includes $1,494 million of share premium relating to
preference capital
Share buy-back
On 1 May 2019, the Group commenced a share buy-back of its
ordinary shares of $0.50 each up to a maximum consideration of $1
billion. The buy-back will reduce the number of outstanding
ordinary shares and will be debited against the Group's retained
earnings. Further the nominal value of the shares will be
transferred from the share capital to the Capital Redemption
Reserve account within equity. The nominal value of ordinary shares
purchased at 30 June 2019 was $27 million and the aggregate
consideration paid by the Group was $486 million. The table below
outlines the details of the ordinary shares purchased from 1 May
2019 to 30 June 2019. At 30 June 2019, the total number of shares
purchased was 54,885,156, representing 1.66 per cent of the
ordinary shares in issue. All shares purchased were subsequently
cancelled.
Average price
Number of paid per Aggregate Aggregate
ordinary share price paid price paid
shares GBP GBP $
---------- ------------- ----------- -----------
54,885,156 6.9479 381,336,010 486,231,013
---------- ------------- ----------- -----------
Ordinary share capital
In accordance with the Companies Act 2006 the Company does not
have authorised share capital. The nominal value of each ordinary
share is 50 cents.
During the period 3,368,576 shares were issued under employee
share plans at prices between nil and 620 pence.
Preference share capital
At 30 June 2019, the Company has 15,000 $5 non-cumulative
redeemable preference shares in issue, with a premium of $99,995
making a paid up amount per preference share of $100,000. The
preference shares are redeemable at the option of the Company and
are classified in equity.
The available profits of the Company are distributed to the
holders of the issued preference shares in priority to payments
made to holders of the ordinary shares and in priority to, or pari
passu with, any payments to the holders of any other class of
shares in issue. On a winding up, the assets of the Company are
applied to the holders of the preference shares in priority to any
payment to the ordinary shareholders and in priority to, or pari
passu with, the holders of any other shares in issue, for an amount
equal to any dividends accrued and/or payable and the nominal value
of the shares together with any premium as determined by the Board.
The redeemable preference shares are redeemable at the paid up
amount (which includes premium) at the option of the Company in
accordance with the terms of the shares. The holders of the
preference shares are not entitled to attend or vote at any general
meeting except where any relevant dividend due is not paid in full
or where a resolution is proposed varying the rights of the
preference shares.
Other equity instruments
On 2 April 2015, Standard Chartered PLC issued $2,000 million
fixed rate resetting perpetual subordinated contingent convertible
securities as Additional Tier 1 (AT1) securities, raising $1,987
million after issue costs. On 18 August 2016, Standard Chartered
PLC issued a further $2,000 million fixed rate resetting perpetual
subordinated contingent convertible securities as AT1 securities,
raising $1,982 million after issue costs. On 18 January 2017,
Standard Chartered PLC issued a further $1,000 million fixed rate
resetting perpetual subordinated contingent convertible securities
as AT1 securities, raising $992 million after issue costs. All the
issuances were made for general business purposes and to increase
the regulatory capital base of the Group.
The principal terms of the AT1 securities are described
below:
-- The securities are perpetual and redeemable, at the option of
Standard Chartered PLC in whole but not in part, on the first
interest reset date and each date falling five years after the
first reset date
-- The securities are also redeemable for certain regulatory or
tax reasons on any date at 100 per cent of their principal amount
together with any accrued but unpaid interest up to (but excluding)
the date fixed for redemption. Any redemption is subject to
Standard Chartered PLC giving notice to the relevant regulator and
the regulator granting permission to redeem
-- The interest rate in respect of the securities issued on 2
April 2015 for the period from (and including) the issue date to
(but excluding) 2 April 2020 is a fixed rate of 6.50 per cent per
annum. The first reset date for the interest rate is 2 April 2020
and each date falling five, or an integral multiple of five years
after the first reset date
-- The interest rate in respect of the securities issued on 18
August 2016 for the period from (and including) the issue date to
(but excluding) 2 April 2022 is a fixed rate of 7.50 per cent per
annum. The first reset date for the interest rate is 2 April 2022
and each date falling five years, or an integral multiple of five
years, after the first reset date
-- The interest rate in respect of the securities issued on 18
January 2017 for the period from (and including) the issue date to
(but excluding) 2 April 2023 is a fixed rate of 7.75 per cent per
annum. The first reset date for the interest rate is 2 April 2023
and each date falling five years, or an integral multiple of five
years, after the first reset date
-- The interest on each of the securities will be payable
semi-annually in arrears on 2 April and 2 October in each year,
accounted for as a dividend
-- Interest on the securities is due and payable only at the
sole and absolute discretion of Standard Chartered PLC, subject to
certain additional restrictions set out in the terms and
conditions. Accordingly, Standard Chartered PLC may at any time
elect to cancel any interest payment (or part thereof) which would
otherwise be payable on any interest payment date
-- The securities convert into ordinary shares of Standard
Chartered PLC, at a pre-determined price, should the fully loaded
Common Equity Tier 1 (CET1) ratio of the Group fall below 7.0 per
cent. Approximately 572 million ordinary shares would be required
to satisfy the conversion of all the securities mentioned above
The securities rank behind the claims against Standard Chartered
PLC of: (a) unsubordinated creditors; (b) which are expressed to be
subordinated to the claims of unsubordinated creditors of Standard
Chartered PLC but not further or otherwise; or (c) which are, or
are expressed to be, junior to the claims of other creditors of
Standard Chartered PLC, whether subordinated or unsubordinated,
other than claims which rank, or are expressed to rank, pari passu
with, or junior to, the claims of holders of the AT1 securities in
a winding-up occurring prior to the conversion trigger.
Reserves
The constituents of the reserves are summarised as follows:
-- The capital reserve represents the exchange difference on
redenomination of share capital and share premium from sterling to
US dollars in 2001. The capital redemption reserve represents the
nominal value of preference shares redeemed
-- Merger reserve represents the premium arising on shares
issued using a cash box financing structure, which required the
Company to create a merger reserve under section 612 of the
Companies Act 2006. Shares were issued using this structure in 2005
and 2006 to assist in the funding of certain acquisitions, in 2008,
2010 and 2015 for the shares issued by way of a rights issue, and
for the shares issued in 2009 in the placing. The funding raised by
the 2008 and 2010 rights issues and 2009 share issue was fully
retained within the Company
-- Own credit adjustment (OCA) reserve represents the cumulative
gains and losses on financial liabilities designated at fair value
through profit or loss relating to own credit. Following the
Group's decision to early apply this IFRS 9 requirement, the
cumulative OCA component of financial liabilities designated at
fair value through profit or loss has been transferred from opening
retained earnings to the OCA reserve. Gains and losses on financial
liabilities designated at fair value through profit or loss
relating to own credit in the year have been taken through other
comprehensive income (OCI) into this reserve. On derecognition of
applicable instruments the balance of any OCA will not be recycled
to the income statement, but will be transferred within equity to
retained earnings
-- Fair value through OCI debt reserve represents the unrealised
fair value gains and losses in respect of financial assets
classified as fair value through OCI, net of expected credit losses
and taxation. Gains and losses are deferred in this reserve and are
reclassified to the income statement when the underlying asset is
sold, matures or becomes impaired. Fair value through OCI equity
reserve represents unrealised fair value gains and losses in
respect of financial assets classified as fair value through OCI,
net of taxation. Gains and losses are recorded in this reserve and
never recycled to the income statement
-- Cashflow hedge reserve represents the effective portion of
the gains and losses on derivatives that meet the criteria for
these types of hedges. Gains and losses are deferred in this
reserve and are reclassified to the income statement when the
underlying hedged item affects profit and loss or when a forecast
transaction is no longer expected to occur
-- Translation reserve represents the cumulative foreign
exchange gains and losses on translation of the net investment of
the Group in foreign operations. Since 1 January 2004, gains and
losses are deferred to this reserve and are reclassified to the
income statement when the underlying foreign operation is disposed.
Gains and losses arising from derivatives used as hedges of net
investments are netted against the foreign exchange gains and
losses on translation of the net investment of the foreign
operations
-- Retained earnings represents profits and other comprehensive
income earned by the Group and Company in the current and prior
periods, together with the after tax increase relating to
equity-settled share options, less dividend distributions, own
shares held (treasury shares) and share buy-backs
A substantial part of the Group's reserves are held in overseas
subsidiary undertakings and branches, principally to support local
operations or to comply with local regulations. The maintenance of
local regulatory capital ratios could potentially restrict the
amount of reserves which can be remitted. In addition, if these
overseas reserves were to be remitted, further unprovided taxation
liabilities might arise.
As at 30 June 2019, the distributable reserves of Standard
Chartered PLC (the Company) were $14.6 billion (31 December 2018:
$15.1 billion). These comprised retained earnings and $12.5 billion
of the merger reserve account. Distribution of reserves is subject
to maintaining minimum capital requirements.
23. Retirement benefit obligations
Retirement benefit obligations comprise:
30.06.19 31.12.18 30.06.18
$million $million $million
--------------------------------------- ---------- ---------- ----------
Total market value of assets 2,464 2,410 2,506
Present value of the plans liabilities (2,917) (2,796) (2,838)
--------------------------------------- ---------- ---------- ----------
Defined benefit plans obligation (453) (386) (332)
Defined contribution plans obligation (20) (13) (16)
--------------------------------------- ---------- ---------- ----------
Net obligation (473) (399) (348)
--------------------------------------- ---------- ---------- ----------
Retirement benefit charge comprises:
6 months 6 months 6 months
ended ended ended
30.06.19 31.12.18 30.06.18
$million $million $million
--------------------------------------------------- ---------- ---------- ----------
Defined benefit plans 40 40 41
Defined contribution plans 159 138 146
--------------------------------------------------- ---------- ---------- ----------
Charge against profit (notes to the financial
statements in the Half Year Report) 199 178 187
--------------------------------------------------- ---------- ---------- ----------
The pension cost for defined benefit plans
was:
--------------------------------------------------- ---------- ---------- ----------
Current service cost 31 32 35
Past service cost and curtailments 3 2 -
Gain on settlements - 1 -
Interest income on pension plan assets (34) (33) (35)
Interest on pension plan liabilities 40 38 41
--------------------------------------------------- ---------- ---------- ----------
Total charge to profit before deduction of
tax 40 40 41
--------------------------------------------------- ---------- ---------- ----------
(Returns)/losses on plan assets excluding interest
income (132) 82 31
Losses/(gains) on liabilities 181 42 (136)
--------------------------------------------------- ---------- ---------- ----------
Total losses/(gains) recognised directly in
statement of comprehensive income before tax 49 124 (105)
Deferred taxation (4) (12) 6
--------------------------------------------------- ---------- ---------- ----------
Total losses/(gains) after tax 45 112 (99)
--------------------------------------------------- ---------- ---------- ----------
24. Related party transactions
Directors and officers
As at 30 June 2019, Standard Chartered Bank had in place a
charge over $83 million (31 December 2018: $83 million, 30 June
2018: $73 million) of cash assets in favour of the independent
trustee of its employer-financed retirement benefit scheme.
There were no changes in the related party transactions
described in the Annual Report 2018 that have had a material effect
on the financial position or performance of the Group in the period
ended 30 June 2019. All related party transactions that have taken
place in the period ended 30 June 2019 were similar in nature to
those disclosed in the Annual Report 2018.
Associate and joint ventures
The following transactions with related parties are on an
arm's-length basis.
30.06.19 31.12.18
------------------ ----------------------------------------------- -----------------------------------------------
Seychelles Seychelles
International International
Mercantile Mercantile
China Banking China Banking
Bohai Clifford PT Bank Corporation Bohai Clifford PT Bank Corporation
Bank Capital Permata Limited Bank Capital Permata Limited
$million $million $million $million $million $million $million $million
------------------ --------- --------- --------- -------------- --------- --------- --------- --------------
Assets
Loans and advances - - 65 - - 22 58 -
Derivative assets 1 - - - 2 - - -
------------------ --------- --------- --------- -------------- --------- --------- --------- --------------
Total assets 1 - 65 - 2 22 58 -
------------------ --------- --------- --------- -------------- --------- --------- --------- --------------
Liabilities
Deposits 345 - 27 11 266 - 35 11
------------------ --------- --------- --------- -------------- --------- --------- --------- --------------
Total liabilities 345 - 27 11 266 - 35 11
------------------ --------- --------- --------- -------------- --------- --------- --------- --------------
Loan commitments
and
other guarantees - 50 - - - - - -
------------------ --------- --------- --------- -------------- --------- --------- --------- --------------
Total net income 4 - 2 - 6 - 6 -
------------------ --------- --------- --------- -------------- --------- --------- --------- --------------
25. Post balance sheet events
An interim dividend for half year 2019 of 7 cents per ordinary
share was declared by the directors on 1 August 2019.
26. Corporate governance
The directors confirm that, throughout the period, the Company
has complied with the code provisions set out in the Corporate
Governance Code contained in Appendix 14 of the Hong Kong Listing
Rules. The directors also confirm that the announcement of these
results has been reviewed by the Company's Audit Committee. The
Company confirms that it has adopted a code of conduct regarding
securities transactions by directors on terms no less exacting than
the required standard set out in Appendix 10 of the Hong Kong
Listing Rules and that having made specific enquiry of all
directors, the directors of the Company have complied with the
required standards of the adopted code of conduct throughout the
period.
As previously announced, since 31 December 2018 the following
changes to the composition of the Board have taken place. Carlson
Tong was appointed to the Board as an independent non-executive
director and as a member of the Audit Committee, the Board Risk
Committee and the Board Financial Crime Risk Committee on 21
February 2019. Dr Han Seung-soo, an independent non-executive
director, retired from the Board and as a member of the Brand,
Values and Conduct Committee on 23 February 2019. Om Bhatt, an
independent non-executive director, stepped down from the Board and
as a member of the Board Risk Committee and Brand, Values and
Conduct Committee on 23 February 2019. David Tang was appointed to
the Board as an independent non-executive director and a member of
the Brand, Values and Conduct Committee on 12 June 2019.
Biographies for each of the directors and a list of the committees'
membership can be found at sc.com. Members of the Audit and Board
Risk Committees receive a fee of GBP 35,000 per committee, per
year. Members of the Board Financial Crime Risk Committee and
Brand, Values and Conduct Committee receive a fee of GBP 30,000 per
committee, per year.
In compliance with Rule 13.51B (1) of the Hong Kong Listing
Rules the Company confirms that on 10 May 2019 it was announced
that Gay Huey Evans, independent non-executive director was elected
as Chair of the Board of The London Metal Exchange, to take effect
from December 2019.
27. Statutory accounts
The information in this half year report is unaudited and does
not constitute statutory accounts within the meaning of section 434
of the Companies Act 2006. This document was approved by the Board
on 1 August 2019. The statutory accounts for the year ended 31
December 2018 have been audited by the Company's auditors and
delivered to the Registrar of Companies in England and Wales. The
report of the auditors was: (i) unqualified; (ii) did not include a
reference to any matters to which the auditors drew attention by
way of emphasis without qualifying their report; and (iii) did not
contain a statement under section 498 of the Companies Act
2006.
28. Transition to IFRS 16 Leases
On 1 January 2019, the Group adopted IFRS 16 Leases, which has
been endorsed by the EU. IFRS 16 replaces IAS 17 Leases. The key
accounting policies, significant judgements and significant
estimates are detailed in the notes to the financial statements in
the Half Year Report.
As of 30 June 2019, the right-of-use assets in respect of
property leases and equipment leases were $1,288 million and $19
million respectively. Right-of-use assets are presented in
'Property, plant equipment' on the Group's balance sheet.
The corresponding property lease liabilities and equipment lease
liabilities were $1,334 million and $18 million respectively. Lease
liabilities are presented in 'Other liabilities' on the Group's
balance sheet.
The total charge to the income statement for the six months
ended 30 June 2019 was $175 million. Of this, $34 million was
recognised as 'Interest expense' on lease liabilities and $141
million was recognised as 'Depreciation and amortisation' on the
right-of-use assets.
The difference between right-of-use assets and lease liabilities
recognised on 1 January 2019 is due existing prepayments and
accruals recognised under IAS 17 as of 31 December 2018 being
included in the measurement of the right-of-use assets.
The difference between operating lease commitments as disclosed
in the Group's 2018 Annual Report and the newly recognised lease
liabilities is a result of dissimilar recognition basis between the
old and new standards. IFRS 16 requires preparers to assess the
lease term used to measure assets and liabilities to include
"reasonably certain" renewal or termination options, whereas
previously IAS 17 required disclosure of "non-cancellable" lease
commitments. The consequences of this are:
-- Under IFRS 16, for some leases the Group includes lease
renewal options which it is reasonably certain will be exercised in
the measurement of right-of-use assets and lease liabilities. These
renewal options would not have been included in the previous
operating lease commitment disclosure
-- In certain jurisdictions, the Group has a unilateral right to
cancel building leases with notice of 3 months or less and without
incurring a significant financial penalty. In previous disclosures,
the Group would exclude cashflows beyond the non-cancellable period
as permitted under IAS 17, but under IFRS 16 the Group would only
exclude these cashflows from lease measurement if it was reasonably
certain the termination clause would be exercised
29. Dealings in Standard Chartered PLC listed securities
This is also disclosed as part of Note 22 Share capital, other
equity and reserves.
Except as disclosed, neither the Company nor any of its
subsidiaries has bought, sold or redeemed any securities of the
Company listed on The Stock Exchange of Hong Kong Limited during
the period. Details of the shares purchased and held by the trusts
are set out below.
1995 Trust 2004 Trust Total
---------------- ------------------------------ ------------------------------ --------------------------------
Number of shares 30.06.19 31.12.18 30.06.18 30.06.19 31.12.18 30.06.18 30.06.19 31.12.18 30.06.18
---------------- -------- --------- --------- ---------- -------- -------- ---------- --------- ---------
Shares purchased
during the
period 646,283 1,017,941 - 15,703,928 - - 16,350,211 1,017,941 -
---------------- -------- --------- --------- ---------- -------- -------- ---------- --------- ---------
Market price
of shares
purchased
($million) 5 8 - 131 - - 136 8 -
---------------- -------- --------- --------- ---------- -------- -------- ---------- --------- ---------
Shares held at
the end of the
period - 2,354,820 1,336,879 2,370,743 16,755 16,755 2,370,743 2,371,575 1,353,634
---------------- -------- --------- --------- ---------- -------- -------- ---------- --------- ---------
Maximum number
of shares held
during the
period 14,424,640 2,371,575 3,787,015
---------------- -------- --------- --------- ---------- -------- -------- ---------- --------- ---------
Standard Chartered PLC - Other supplementary information
A. Our Fair Pay Charter
The Group's Fair Pay Charter sets out the principles we use to
determine and deliver pay for all employees globally. In 2019 we
published our first Fair Pay Report internally to all colleagues to
explain how our performance and reward approach meets the
principles of the Charter, and to provide an update on areas we are
working on to enhance our approach. Our Fair Pay Charter is set out
in the Group's 2018 Annual Report and Accounts together with a
summary of how we apply the principles.
B. Group Share Plans
2011 Standard Chartered Share Plan (the 2011 Plan)
The 2011 Plan was approved by shareholders in May 2011 and is
the Group's main share plan. Since approval, it has been used to
deliver various types of share awards:
-- Long Term Incentive Plan ('LTIP') awards: granted with
vesting subject to performance measures. Performance measures
attached to awards granted previously include: total shareholder
return ('TSR'); return on equity ('RoE') with a common equity tier
1 ('CET1') underpin; strategic measures; earnings per share ('EPS')
growth; and return on risk-weighted assets ('RoRWA'). Each measure
is assessed independently over a three-year period. Awards granted
from 2016 have an individual conduct gateway requirement that
results in the award lapsing if not met
-- Deferred awards are used to deliver the deferred portion of
variable remuneration, in line with both market practice and
regulatory requirements. These awards vest in instalments on
anniversaries of the award date specified at the time of grant.
Deferred awards are not subject to any plan limit. This enables the
Group to meet regulatory requirements relating to deferral levels,
and is in line with market practice
-- Restricted share awards, made outside of the annual
performance process as replacement buy-out awards to new joiners
who forfeit awards on leaving their previous employers, vest in
instalments on the anniversaries of the award date specified at the
time of grant. This enables the Group to meet regulatory
requirements relating to buy-outs, and is in line with market
practice. In line with similar plans operated by our competitors,
restricted share awards are not subject to an annual limit and do
not have any performance measures
Under the 2011 Plan, no grant price is payable to receive an
award. The remaining life of the 2011 Plan during which new awards
can be made is two years.
2001 Performance Share Plan (2001 PSP) - closed
The Group's previous plan for delivering performance shares was
the 2001 PSP. There are no outstanding vested awards under this
plan. This plan is closed and no further awards will be granted
under this plan.
2006 Restricted Share Scheme (2006 RSS)/2007 Supplementary
Restricted Share Scheme (2007 SRSS) - closed
The Group's previous plans for delivering restricted shares were
the 2006 RSS and 2007 SRSS both now replaced by the 2011 Plan.
There are no outstanding vested awards under these plans. These
plans are closed and no further awards will be granted under these
plans.
All Employee Sharesave Plans
2013 Sharesave Plan
The 2013 Sharesave Plan was approved by shareholders in May
2013. Under the 2013 Sharesave Plan, employees may open a savings
contract. Within a maturity period of six months after the third
anniversary, employees may purchase ordinary shares in the Company
at a discount of up to 20 per cent on the share price at the date
of invitation (this is known as the 'option exercise price'). There
are no performance measures attached to options granted under the
2013 Sharesave Plan and no grant price is payable to receive an
option. In some countries in which the Group operates, it is not
possible to deliver shares under the 2013 Sharesave Plan, typically
due to securities law and regulatory restrictions. In these
countries, where possible, the Group offers an equivalent
cash-based plan to its employees. The remaining life of the 2013
Sharesave Plan is three years.
Valuation of share awards
The valuation models used in determining the fair values of
share awards granted under the Group's share plans are detailed in
the Group's 2018 Annual Report and Accounts.
Reconciliation of share award movements for the period to 30
June 2019
2011 Plan1
---------------------------------- ------------------------
Weighted
average Sharesave
Deferred/ exercise
restricted price
LTIP shares PSP1 Sharesave (GBP)
---------------------------------- ----------- -----------
Outstanding at 1 January 2019 27,003,333 26,612,980 4,270 13,724,361 5.48
Granted(2) 2,763,220 14,812,688 - - -
Lapsed (2,989,541) (1,032,940) - (1,217,746) 5.51
Exercised (4,579,973) (9,352,168) (4,270) (2,879,471) 5.58
---------------------------------- ----------- ----------- ------- ----------- ------------------
Outstanding at 30 June 2019 22,197,039 31,040,560 - 9,627,144 5.45
---------------------------------- ----------- ----------- ------- ----------- ------------------
Exercisable as at 30 June 2019 46,123 2,986,102 - 32,532 5.60
---------------------------------- ----------- ----------- ------- ----------- ------------------
Range of exercise prices (GBP) - - - 5.13-6.20
---------------------------------- ----------- ----------- ------- ----------- ------------------
Intrinsic value of vested but
not exercised options ($million) 0.42 27.11 - 0.06
---------------------------------- ----------- ----------- ------- ----------- ------------------
Weighted average contractual
remaining life (years) 7.31 8.6 - 2.09
---------------------------------- ----------- ----------- ------- ----------- ------------------
Weighted average share price
for awards exercised during
the period (GBP) 6.22 6.19 6.95 6.56
---------------------------------- ----------- ----------- ------- ----------- ------------------
1 Employees do not contribute towards the cost of these
awards
2 114,346,920 (DRSA/RSA) granted on 11 March 2019, 186,955
(DRSA/RSA) granted as notional dividend on 08 March 2019, 2,530,325
(LTIP) granted on 11 March 2019, 232,895 (LTIP) granted as notional
dividend on 08 March 2019, 278,813 (DRSA/RSA) granted on 24 June
2019
C. Group Chairman and independent non-executive directors'
interests in ordinary shares as at 30 June 20191,2
Shares
Shares beneficially beneficially
held as held as
at at
30 June 31 December
2019 2018
------------------------------------ ------------------- -------------
Chairman
J Viñals 18,500 18,500
------------------------------------ ------------------- -------------
Independent non-executive directors
N Kheraj 40,571 40,571
O P Bhatt(3) - 2,000
Dr L Cheung 2,571 2,571
Mr D P Conner 10,000 10,000
Dr B E Grote 60,041 60,041
Dr Han Seung-soo, KBE(4) - 3,474
C M Hodgson 2,571 2,571
G Huey Evans, OBE 2,615 2,615
Dr N Okonjo-Iweala 2,034 2,034
D Tang5 2,000 -
C Tong6 2,000 -
J M Whitbread 3,615 3,615
------------------------------------ ------------------- -------------
1 Independent non-executive directors are required to hold
shares with a nominal value of $1,000. All the directors have met
this requirement
2 The beneficial interests of the Chairman and independent
non-executive directors and their related parties in the ordinary
shares of the Company are set out above. The directors do not have
any non-beneficial interests in the Company's shares. None of the
directors used ordinary shares as collateral for any loans. No
director had either i) an interest in the Company's preference
shares or loan stocks of any subsidiary or associated undertaking
of the Group or ii) any corporate interests in the Company's
ordinary shares
3 Om Bhatt stepped down from the Board on 23 February 2019
4 Dr Han Seung-soo retired from the Board on 23 February
2019
5 David Tang was appointed to the Board on 12 June 2019
6 Carlson Tong was appointed to the Board on 21 February
2019
D. Executive directors' interests in ordinary shares as at 30
June 2019
Scheme interests awarded, exercised and lapsed during the
period
The following table shows the changes in share interests.
Employees, including executive directors, are not permitted to
engage in any personal hedging strategies with regards to their
Standard Chartered PLC shares, including hedging against the share
price of Standard Chartered PLC shares.
Changes in interests during the period 1 January to 30
June 2019
------------------ -----------------------------------------------------------------------------------------
As at Dividends As at Performance
1 January Awarded1 awarded2 Exercised3 Lapsed 30 June period end Vesting date
------------------ ---------- -------- --------- ---------- ------- -------- ----------- ------------
W T Winters4
Restricted
shares (buy-out) 314,916 - - - - 314,916 - 22 Sep 2019
496,390 - 4,710 138,735 362,365 - 11 Mar 2019 4 May 2019
124,097 - - - 90,591 33,506 11 Mar 2019 4 May 2020
124,097 - - - 90,591 33,506 11 Mar 2019 4 May 2021
124,097 - - - 90,591 33,506 11 Mar 2019 4 May 2022
LTIP 2016-18 124,100 - - - 90,593 33,507 11 Mar 2019 4 May 2023
118,550 - - - - 118,550 13 Mar 2020 13 Mar 2020
118,550 - - - - 118,550 13 Mar 2020 13 Mar 2021
118,550 - - - - 118,550 13 Mar 2020 13 Mar 2022
118,550 - - - - 118,550 13 Mar 2020 13 Mar 2023
LTIP 2017-19 118,551 - - - - 118,551 13 Mar 2020 13 Mar 2024
108,378 - - - - 108,378 9 Mar 2021 9 Mar 2021
108,378 - - - - 108,378 9 Mar 2021 9 Mar 2022
108,378 - - - - 108,378 9 Mar 2021 9 Mar 2023
108,378 - - - - 108,378 9 Mar 2021 9 Mar 2024
LTIP 2018-20 108,379 - - - - 108,379 9 Mar 2021 9 Mar 2025
- 133,065 - - - 133,065 11 Mar 2022 11 Mar 2022
------------------
- 133,065 - - - 133,065 11 Mar 2022 11 Mar 2023
- 133,065 - - - 133,065 11 Mar 2022 11 Mar 2024
- 133,065 - - - 133,065 11 Mar 2022 11 Mar 2025
LTIP 2019-21 - 133,067 - - - 133,067 11 Mar 2022 11 Mar 2026
------------------ ---------- -------- --------- ---------- ------- -------- ----------- ------------
A N Halford(5)
296,417 - 2,812 82,844 216,385 - 11 Mar 2019 4 May 2019
74,104 - - - 54,096 20,008 11 Mar 2019 4 May 2020
74,104 - - - 54,096 20,008 11 Mar 2019 4 May 2021
74,104 - - - 54,096 20,008 11 Mar 2019 4 May 2022
LTIP 2016-18 74,105 - - - 54,096 20,009 11 Mar 2019 4 May 2023
73,390 - - - - 73,390 13 Mar 2020 13 Mar 2020
73,390 - - - - 73,390 13 Mar 2020 13 Mar 2021
73,390 - - - - 73,390 13 Mar 2020 13 Mar 2022
73,390 - - - - 73,390 13 Mar 2020 13 Mar 2023
LTIP 2017-19 73,394 - - - - 73,394 13 Mar 2020 13 Mar 2024
67,108 - - - - 67,108 9 Mar 2021 9 Mar 2021
67,108 - - - - 67,108 9 Mar 2021 9 Mar 2022
67,108 - - - - 67,108 9 Mar 2021 9 Mar 2023
67,108 - - - - 67,108 9 Mar 2021 9 Mar 2024
LTIP 2018-20 67,108 - - - - 67,108 9 Mar 2021 9 Mar 2025
- 85,094 - - - 85,094 11 Mar 2022 11 Mar 2022
- 85,094 - - - 85,094 11 Mar 2022 11 Mar 2023
- 85,094 - - - 85,094 11 Mar 2022 11 Mar 2024
- 85,094 - - - 85,094 11 Mar 2022 11 Mar 2025
LTIP 2019-21 - 85,096 - - - 85,096 11 Mar 2022 11 Mar 2026
Sharesave 1,612 - - 1,612 - - - 1 Dec 2018
------------------ ---------- -------- --------- ---------- ------- -------- ----------- ------------
1 For the LTIP 2019-21 awards granted to Bill Winters and Andy
Halford on 11 March 2019, the values granted were: Bill Winters:
GBP3.3 million; Andy Halford: GBP2.1 million. The number of shares
awarded in respect of the LTIP took into account the lack of
dividend equivalents (calculated by reference to market consensus
dividend yield) such that the overall value of the award was
maintained. Performance measures apply to 2019-21 LTIP awards. The
share price at grant was the closing price on the day before the
grant date
2 Dividend equivalent shares may be awarded on vesting for
awards granted prior to 1 January 2018
3 On 7 May 2019, Bill Winters exercised the 2016-18 LTIP award
over a total of 138,735 shares. The closing share price on the day
before exercise was GBP6.91. On 7 May 2019, Andy Halford exercised
the 2016-18 LTIP award over a total of 82,844 shares. The closing
share price on the day before exercise was GBP6.91. On 1 March
2019, Andy Halford exercised a Sharesave option under the 2013
Sharesave Plan at an exercise price of GBP5.5776 per share
4 The unvested share awards held by Bill Winters are conditional
rights under the 2011 Plan. Bill does not have to pay towards these
awards
5 The unvested share awards held by Andy Halford are conditional
rights under the 2011 Plan. Andy does not have to pay towards these
awards
Further details relating to the above awards and individual
shareholding requirements can be found in the 2018 Annual Report
and Accounts.
Shareholdings and share interests
The following table summarises the executive directors'
shareholdings and share interests(1) .
Shareholdings Share awards
------------ ---------------------------------- --------------------------------
Unvested Unvested
Vested share awards share awards
but unexercised not subject subject
Shares held share to performance to performance
beneficially2,3 awards measures4 measures
------------ ---------------- ---------------- --------------- ---------------
W T Winters 1,388,163 - 448,941 1,799,969
A N Halford 600,006 - 80,033 1,127,966
------------ ---------------- ---------------- --------------- ---------------
1 All figures are as at 30 June 2019 unless stated otherwise. No
director had either (i) an interest in Standard Chartered PLC's
preference shares or loan stocks of any subsidiary or associated
undertaking of the Group or (ii) any corporate interests in
Standard Chartered PLC's ordinary shares
2 The beneficial interests of directors and connected persons in
the ordinary shares of the Company are set out above. The executive
directors do not have any non-beneficial interests in the Company's
shares. None of the executive directors used ordinary shares as
collateral for any loans
3 The shares held beneficially include shares awarded to deliver
the executive directors' salary shares
4 27 per cent of the 2016-18 LTIP award is no longer subject to
performance measures due to achievement against 2016-18 strategic
measures
E. Share price information
The middle market price of an ordinary share at the close of
business on 30 June 2019 was 714.2 pence. The share price range
during the first half of 2019 was 575.7 pence to 714.2 pence (based
on the closing middle market prices).
F. Substantial shareholders
The Company and its shareholders have been granted partial
exemption from the disclosure requirements under Part XV of the
Securities and Futures Ordinance (SFO).
As a result of this exemption, shareholders no longer have an
obligation under Part XV of the SFO (other than Divisions 5,11 and
12 thereof) to notify the Company of substantial shareholding
interests, and the Company is no longer required to maintain a
register of interests of substantial shareholders under section 336
of the SFO. The Company is, however, required to file with The
Stock Exchange of Hong Kong Limited any disclosure of interests
made in the UK.
G. Code for Financial Reporting Disclosure
The UK Finance Code for Financial Reporting Disclosure sets out
five disclosure principles together with supporting guidance. The
principles are that UK banks will: provide high-quality, meaningful
and decision useful disclosures; review and enhance their financial
instrument disclosures for key areas of interest; assess the
applicability and relevance of good practice recommendations to
their disclosures, acknowledging the importance of such guidance;
seek to enhance the comparability of financial statement
disclosures across the UK banking sector; and clearly differentiate
in their annual reports between information that is audited and
information that is unaudited. The Group's interim financial
statements for the six months ended 30 June 2019 have been prepared
in accordance with the Code's principles.
Standard Chartered PLC - Alternative performance measures
An alternative performance measure is a financial measure of
historical or future financial performance, financial position, or
cash flows, other than a financial measure defined or specified in
the applicable financial reporting framework. The following are key
alternative performance measures used by the Group to assess
financial performance and financial position.
Measure Definition
---------------------------------- ----------------------------------------------------------------
Constant currency basis A performance measure on a constant currency
basis is presented such that comparative periods
are adjusted for the current year's functional
currency rate. The following balances are presented
on a constant currency basis when described
as such:
* Operating income
* Operating expenses
* Profit before tax
* RWAs or Risk-weighted assets
---------------------------------- ----------------------------------------------------------------
Underlying A performance measure is described as underlying
if the statutory result has been adjusted for
restructuring and other items representing profits
or losses of a capital nature; amounts consequent
to investment transactions driven by strategic
intent; and other infrequent and/or exceptional
transactions that are significant or material
in the context of the Group's normal business
earnings for the period, and items which management
and investors would ordinarily identify separately
when assessing performance period-by-period.
A reconciliation between underlying and statutory
performance is contained in the notes to the
financial statements in the Half Year Report.
The following balances and measures are presented
on an underlying basis when described as such:
* Operating income
* Operating expense
* Profit before tax
* Earnings per share
* Cost to income ratio
* Jaws
* RoE or Return on equity
* RoTE or Return on tangible equity
Advances-to-deposits/customer The ratio of total loans and advances to customers
advances-to-deposits relative to total customer accounts, excluding
(ADR) ratio approved balances held with central banks, confirmed
as repayable at the point of stress. A low advances-to-deposits
ratio demonstrates that customer accounts exceed
customer loans resulting from emphasis placed
on generating a high level of stable funding
from customers.
---------------------------------- ----------------------------------------------------------------
Cost to income ratio The proportion of total operating expenses to
total operating income.
---------------------------------- ----------------------------------------------------------------
Cover ratio The ratio of impairment provisions for each
stage to the gross loan exposure for each stage.
---------------------------------- ----------------------------------------------------------------
Cover ratio after collateral/cover The ratio of impairment provisions for Stage
ratio including collateral 3 loans and realisable value of collateral held
against these non-performing loan exposures
to the gross loan exposure of Stage 3 loans.
---------------------------------- ----------------------------------------------------------------
Jaws The difference between the rates of change in
revenue and operating expenses. Positive jaws
occurs when the percentage change in revenue
is higher than, or less negative than, the corresponding
rate for operating expenses.
---------------------------------- ----------------------------------------------------------------
Loan loss rate Total credit impairment for loans and advances
to customers over average loans and advances
to customers.
---------------------------------- ----------------------------------------------------------------
Net tangible asset value Ratio of net tangible assets (total tangible
per share assets less total liabilities) to the number
of ordinary shares outstanding at the end of
a reporting period.
---------------------------------- ----------------------------------------------------------------
NIM or Net interest Net interest income divided by average interest-earning
margin assets.
---------------------------------- ----------------------------------------------------------------
RAR per FTE or Risk Risk adjusted revenue (RAR) is defined as underlying
adjusted revenue per operating income less underlying impairment
full-time equivalent over the past 12 months. RAR is then divided
by the 12 month rolling average full-time equivalent
(FTE) to determine RAR per FTE.
---------------------------------- ----------------------------------------------------------------
RoE or Return on equity The ratio of the current year's profit available
for distribution to ordinary shareholders to
the weighted average ordinary shareholders'
equity for the reporting period.
---------------------------------- ----------------------------------------------------------------
RoTE or Return on ordinary The ratio of the current year's profit available
shareholders tangible for distribution to ordinary shareholders, to
equity the weighted average ordinary shareholders'
equity less the average goodwill and intangible
assets for the reporting period.
---------------------------------- ----------------------------------------------------------------
TSR or Total shareholder The total return of the Group's equity (share
return price growth and dividends) to investors.
---------------------------------- ----------------------------------------------------------------
Standard Chartered PLC - Glossary
AT1 or Additional Tier 1 capital
Additional Tier 1 capital consists of instruments other than
Common Equity Tier 1 that meet the Capital Requirements Regulation
(CRR) criteria for inclusion in Tier 1 capital.
Additional value adjustment
See Prudent valuation adjustment.
Advanced Internal Rating Based (AIRB) approach
The AIRB approach under the Basel framework is used to calculate
credit risk capital based on the Group's own estimates of
prudential parameters.
ASEAN
Association of South East Asian Nations (ASEAN) which includes
the Group's operations in Brunei, Indonesia, Malaysia, Philippines,
Singapore, Thailand and Vietnam.
AUM or Assets under management
Total market value of assets such as deposits, securities and
funds held by the Group on behalf of the clients.
Basel II
The capital adequacy framework issued by the Basel Committee on
Banking Supervision (BCBS) in June 2006 in the form of the
International Convergence of Capital Measurement and Capital
Standards.
Basel III
The global regulatory standards on bank capital adequacy and
liquidity, originally issued in December 2010 and updated in June
2011. In December 2017, the BCBS published a document setting out
the finalisation of the Basel III framework. The latest
requirements issued in December 2017 will be implemented from
2022.
BCBS or Basel Committee on Banking Supervision
A forum on banking supervisory matters which develops global
supervisory standards for the banking industry. Its members are
officials from 45 central banks or prudential supervisors from 28
countries and territories.
Basic underlying earnings per share (EPS)
Represents the underlying earnings divided by the basic weighted
average number of shares.
Basis point (bps)
One hundredth of a per cent (0.01 per cent); 100 basis points is
1 per cent.
CRD IV or Capital Requirements Directive IV
A capital adequacy legislative package adopted by EU member
states. CRD IV comprises the recast Capital Requirements Directive
and the Capital Requirements Regulation (CRR). The package
implements the Basel III framework together with transitional
arrangements for some of its requirements. CRD IV came into force
on 1 January 2014.
Capital-lite income
Income derived from products with low RWA consumption or
products which are non-funding in nature.
Capital resources
Sum of Tier 1 and Tier 2 capital after regulatory
adjustments.
CGU or Cash-generating unit
The smallest identifiable group of assets that generates cash
inflows that are largely independent of the cash inflows from other
assets or groups of assets.
Cash shortfall
The difference between the cash flows that are due in accordance
with the contractual terms of the instrument and the cash flows
that the Group expects to receive over the contractual life of the
instrument.
Clawback
An amount an individual is required to pay back to the Group,
which has to be returned to the Group under certain
circumstances.
CRE or Commercial real estate
Includes office buildings, industrial property, medical centres,
hotels, malls, retail stores, shopping centres, farm land,
multi-family housing buildings, warehouses, garages, and industrial
properties. Commercial real estate loans are those backed by a
package of commercial real estate assets.
CET1 or Common Equity Tier 1 capital
Common Equity Tier 1 capital consists of the common shares
issued by the Group and related share premium, retained earnings,
accumulated other comprehensive income and other disclosed
reserves, eligible non-controlling interests and regulatory
adjustments required in the calculation of Common Equity Tier
1.
CET1 ratio
A measure of the Group's CET1 capital as a percentage of
risk-weighted assets.
Contractual maturity
Contractual maturity refers to the final payment date of a loan
or other financial instrument, at which point all the remaining
outstanding principal and interest is due to be paid.
Countercyclical capital buffer
The countercyclical capital buffer (CCyB) is part of a set of
macroprudential instruments, designed to help counter
procyclicality in the financial system. CCyB as defined in the
Basel III standard provides for an additional capital requirement
of up to 2.5 per cent of risk-weighted assets in a given
jurisdiction. The Bank of England's Financial Policy Committee has
the power to set the CCyB rate for the United Kingdom. Each bank
must calculate its 'institution-specific' CCyB rate, defined as the
weighted average of the CCyB rates in effect across the
jurisdictions in which it has credit exposures. The
institution-specific CCyB rate is then applied to a bank's total
risk-weighted assets.
Counterparty credit risk
The risk that a counterparty defaults before satisfying its
obligations under a derivative, a securities financing transaction
(SFT) or a similar contract.
CCF or Credit conversion factor
An estimate of the amount the Group expects a customer to have
drawn further on a facility limit at the point of default. This is
either prescribed by CRR or modelled by the bank.
CDS or Credit default swaps
A credit derivative is an arrangement whereby the credit risk of
an asset (the reference asset) is transferred from the buyer to the
seller of protection. A credit default swap is a contract where the
protection seller receives premium or interest-related payments in
return for contracting to make payments to the protection buyer
upon a defined credit event. Credit events normally include
bankruptcy, payment default on a reference asset or assets, or
downgrades by a rating agency.
Credit institutions
An institution whose business is to receive deposits or other
repayable funds from the public and to grant credits for its own
account.
Credit risk mitigation
Credit risk mitigation is a process to mitigate potential credit
losses from any given account, customer or portfolio by using a
range of tools such as collateral, netting agreements, credit
insurance, credit derivatives and guarantees.
CVA or Credit valuation adjustments
An adjustment to the fair value of derivative contracts that
reflects the possibility that the counterparty may default such
that the Group would not receive the full market value of the
contracts.
Customer accounts
Money deposited by all individuals and companies which are not
credit institutions including securities sold under repurchase
agreement (see repo/reverse repo). Such funds are recorded as
liabilities in the Group's balance sheet under customer
accounts.
Days past due
One or more days that interest and/or principal payments are
overdue based on the contractual terms.
DVA or Debit valuation adjustment
An adjustment to the fair value of derivative contracts that
reflects the possibility that the Group may default and not pay the
full market value of contracts.
Debt securities
Debt securities are assets on the Group's balance sheet and
represent certificates of indebtedness of credit institutions,
public bodies or other undertakings excluding those issued by
central banks.
Debt securities in issue
Debt securities in issue are transferrable certificates of
indebtedness of the Group to the bearer of the certificate. These
are liabilities of the Group and include certificates of
deposits.
DTA or Deferred tax asset
Income taxes recoverable in future periods in respect of
deductible temporary differences between the accounting and tax
base of an asset or liability that will result in tax deductible
amounts in future periods, the carry-forward of tax losses or the
carry-forward of unused tax credits.
DTL or Deferred tax liability
Income taxes payable in future periods in respect of taxable
temporary differences between the accounting and tax base of an
asset or liability that will result in taxable amounts in future
periods.
Default
Financial assets in default represent those that are at least 90
days past due in respect of principal or interest and/or where the
assets are otherwise considered to be unlikely to pay, including
those that are credit-impaired.
Defined benefit obligation
The present value of expected future payments required to settle
the obligations of a defined benefit scheme resulting from employee
service.
Defined benefit scheme
Pension or other post-retirement benefit scheme other than a
defined contribution scheme.
Defined contribution scheme
A pension or other post-retirement benefit scheme where the
employer's obligation is limited to its contributions to the
fund.
Delinquency
A debt or other financial obligation is considered to be in a
state of delinquency when payments are overdue. Loans and advances
are considered to be delinquent when consecutive payments are
missed. Also known as arrears.
Deposits by banks
Deposits by banks comprise amounts owed to other domestic or
foreign credit institutions by the Group including securities sold
under repo.
Diluted underlying earnings per share (EPS)
Represents the underlying earnings divided by the diluted
weighted average number of shares.
Dividend per share
Represents the entitlement of each shareholder in the share of
the profits of the Company. Calculated in the lowest unit of
currency in which the shares are quoted.
Early alert, purely and non-purely precautionary
A borrower's account which exhibits risks or potential
weaknesses of a material nature requiring closer monitoring,
supervision, or attention by management. Weaknesses in such a
borrower's account, if left uncorrected, could result in
deterioration of repayment prospects and the likelihood of being
downgraded to credit grade 12 or worse. When an account is on early
alert, it is classified as either purely precautionary or
non-purely precautionary. A purely precautionary account is one
that exhibits early alert characteristics but these do not present
any imminent credit concern. If the symptoms present an imminent
credit concern, an account will be considered for classification as
non-purely precautionary.
Effective tax rate
The tax on profit/(losses) on ordinary activities as a
percentage of profit/(loss) on ordinary activities before
taxation.
Encumbered assets
On-balance sheet assets pledged or used as collateral in respect
of certain of the Group's liabilities.
EU or European Union
The European Union (EU) is a political and economic union of 28
member states that are located primarily in Europe.
Eurozone
Represents the 19 EU countries that have adopted the euro as
their common currency.
ECL or Expected credit loss
Represents the present value of expected cash shortfalls over
the residual term of a financial asset, undrawn commitment or
financial guarantee.
Expected loss
The Group measure of anticipated loss for exposures captured
under an internal ratings-based credit risk approach for capital
adequacy calculations. It is measured as the Group-modelled view of
anticipated loss based on probability of default, loss given
default and exposure at default, with a one-year time horizon.
Exposures
Credit exposures represent the amount lent to a customer,
together with any undrawn commitments.
EAD or Exposure at default
The estimation of the extent to which the Group may be exposed
to a customer or counterparty in the event of, and at the time of,
that counterparty's default. At default, the customer may not have
drawn the loan fully or may already have repaid some of the
principal, so that exposure is typically less than the approved
loan limit.
ECAI or External Credit Assessment Institution
External credit ratings are used to assign risk-weights under
the standardised approach for sovereigns, corporates and
institutions. The external ratings are from credit rating agencies
that are registered or certified in accordance with the credit
rating agencies regulation or from a central bank issuing credit
ratings which is exempt from the application of this
regulation.
FCA or Financial Conduct Authority
The Financial Conduct Authority regulates the conduct of
financial firms and, for certain firms, prudential standards in the
UK. It has a strategic objective to ensure that the relevant
markets function well.
Forbearance
Forbearance takes place when a concession is made to the
contractual terms of a loan in response to an obligor's financial
difficulties. The Group classifies such modified loans as either
'Forborne - not impaired loans' or 'Loans subject to forbearance -
impaired'. Once a loan is categorised as either of these, it will
remain in one of these two categories until the loan matures or
satisfies the 'curing' conditions.
Forborne - not impaired loans
Loans where the contractual terms have been modified due to
financial difficulties of the borrower, but the loan is not
considered to be impaired. See 'Forbearance'.
Free deliveries
A transaction where a bank takes receipt of a debt or equity
security, a commodity or foreign exchange without making immediate
payment, or where a bank delivers a debt or equity security, a
commodity or foreign exchange without receiving immediate
payment.
Free funds
Free funds include equity capital, retained reserves, current
year unremitted profits and capital injections net of proposed
dividends. It does not include debt capital instruments, unrealised
profits or losses or any non-cash items.
Funded/unfunded exposures
Exposures where the notional amount of the transaction is funded
or unfunded. Represents exposures where a commitment to provide
future funding is made but funds have been released/not
released.
FVA or Funding valuation adjustments
FVA reflects an adjustment to fair value in respect of
derivative contracts that reflects the funding costs that the
market participant would incorporate when determining an exit
price.
G-SIBs or Global Systemically Important Banks
Global banking financial institutions whose size, complexity and
systemic interconnectedness mean that their distress or failure
would cause significant disruption to the wider financial system
and economic activity. The list of G-SIBs is assessed under a
framework established by the FSB and the BCBS. In the EU, the G-SIB
framework is implemented via CRD IV and G-SIBs are referred to as
Global Systemically Important Institutions (G-SIIs).
G-SIB buffer
A CET1 capital buffer which results from designation as a G-SIB.
The G-SIB buffer is between 1 per cent and 3.5 per cent, depending
on the allocation to one of five buckets based on the annual
scoring. The G-SIB buffer is being phased in by 1 January 2019. In
the EU, the G-SIB buffer is implemented via CRD IV as Global
Systemically Important Institutions (G-SII) buffer requirement.
Interest rate risk
The risk of an adverse impact on the Group's income statement
due to changes in interest rates.
IRB or internal ratings-based approach
Risk-weighting methodology in accordance with the Basel Capital
Accord where capital requirements are based on a firm's own
estimates of prudential parameters.
IMA approach or internal model approach
The approach used to calculate market risk capital and RWA with
an internal market risk model approved by the PRA under the terms
of CRD IV/CRR.
IAS or International Accounting Standard
A standard that forms part of the International Financial
Reporting Standards framework.
IASB or International Accounting Standards Board
An independent standard-setting body responsible for the
development and publication of IFRS, and approving interpretations
of IFRS standards that are recommended by the IFRS Interpretations
Committee (IFRIC).
IFRS or International Financial Reporting Standards
A set of international accounting standards developed and issued
by the International Accounting Standards Board, consisting of
principles-based guidance contained within IFRSs and IASs. All
companies that have issued publicly traded securities in the EU are
required to prepare annual and interim reports under IFRS and IAS
standards that have been endorsed by the EU.
IFRIC
The IFRS Interpretations Committee supports the IASB in
providing authoritative guidance on the accounting treatment of
issues not specifically dealt with by existing IFRSs and IASs.
Investment grade
A debt security, treasury bill or similar instrument with a
credit rating measured by external agencies of AAA to BBB.
Leverage ratio
A ratio introduced under CRD IV that compares Tier 1 capital to
total exposures, including certain exposures held off-balance sheet
as adjusted by stipulated credit conversion factors. Intended to be
a simple, non-risk-based backstop measure.
Liquid asset ratio
Ratio of total liquid assets to total assets. Liquid assets
comprise cash (less restricted balances), net interbank, treasury
bills and debt securities less illiquid securities.
Liquidation portfolio
A portfolio of assets which is beyond our current risk appetite
metrics and is held for liquidation.
LCR or Liquidity coverage ratio
The ratio of the stock of high-quality liquid assets to expected
net cash outflows over the following 30 days. High-quality liquid
assets should be unencumbered, liquid in markets during a time of
stress and, ideally, be central bank eligible.
Loan exposure
Loans and advances to customers reported on the balance sheet
held at amortised cost or FVOCI, non-cancellable credit commitments
and cancellable credit commitments for credit cards and overdraft
facilities.
Loans and advances
This represents lending made under bilateral agreements with
customers entered into in the normal course of business and is
based on the legal form of the instrument.
Loans to banks
Amounts loaned to credit institutions including securities
bought under Reverse repo.
LTV or loan-to-value ratio
A calculation which expresses the amount of a first mortgage
lien as a percentage of the total appraised value of real property.
The loan-to-value ratio is used in determining the appropriate
level of risk for the loan and therefore the correct price of the
loan to the borrower.
Loans past due
Loans on which payments have been due for up to a maximum of 90
days including those on which partial payments are being made.
Loans subject to forbearance - impaired
Loans where the terms have been renegotiated on terms not
consistent with current market levels due to financial difficulties
of the borrower. Loans in this category are necessarily impaired.
See 'Forbearance'.
Loss rate
Uses an adjusted gross charge-off rate, developed using monthly
write-off and recoveries over the preceding 12 months and total
outstanding balances.
LGD or Loss given default
The percentage of an exposure that a lender expects to lose in
the event of obligor default.
Low returning clients
See 'Perennial sub-optimal clients'.
Malus
An arrangement that permits the Group to prevent vesting of all
or part of the amount of an unvested variable remuneration award,
due to a specific crystallised risk, behaviour, conduct or adverse
performance outcome.
Master netting agreement
An agreement between two counterparties that have multiple
derivative contracts with each other that provides for the net
settlement of all contracts through a single payment, in a single
currency, in the event of default on, or termination of, any one
contract.
Mezzanine capital
Financing that combines debt and equity characteristics. For
example, a loan that also confers some profit participation to the
lender.
MREL or minimum requirement for own funds and eligible
liabilities
A requirement under the Bank Recovery and Resolution Directive
for EU resolution authorities to set a minimum requirement for own
funds and eligible liabilities for banks, implementing the FSB's
Total Loss Absorbing Capacity (TLAC) standard. MREL is intended to
ensure that there is sufficient equity and specific types of
liabilities to facilitate an orderly resolution that minimises any
impact on financial stability and ensures the continuity of
critical functions and avoids exposing taxpayers to loss.
Net asset value (NAV) per share
Ratio of net assets (total assets less total liabilities) to the
number of ordinary shares outstanding at the end of a reporting
period.
Net exposure
The aggregate of loans and advances to customers/loans and
advances to banks after impairment provisions, restricted balances
with central banks, derivatives (net of master netting agreements),
investment debt and equity securities, and letters of credit and
guarantees.
NII or Net interest income
The difference between interest received on assets and interest
paid on liabilities.
NSFR or Net stable funding ratio
The ratio of available stable funding to required stable funding
over a one-year time horizon, assuming a stressed scenario. It is a
longer-term liquidity measure designed to restrain the amount of
wholesale borrowing and encourage stable funding over a one-year
time horizon.
NPLs or non-performing loans
An NPL is any loan that is more than 90 days past due or is
otherwise individually impaired. This excludes Retail loans
renegotiated at or after 90 days past due, but on which there has
been no default in interest or principal payments for more than 180
days since renegotiation, and against which no loss of principal is
expected.
Non-linearity
Non-linearity of expected credit loss occurs when the average of
expected credit loss for a portfolio is higher than the base case
(median) due to the fact that bad economic environment could have a
larger impact on ECL calculation than good economic
environment.
Normalised items
See 'Underlying earnings'.
Operating expenses
Staff and premises costs, general and administrative expenses,
depreciation and amortisation. Underlying operating expenses
exclude expenses as described in 'Underlying earnings'. A
reconciliation between underlying and statutory earnings is
contained in the notes to the financial statements in the Half Year
Report.
Operating income or operating profit
Net interest, net fee and net trading income, as well as other
operating income. Underlying operating income represents the income
line items above, on an underlying basis. See 'Underlying
earnings'.
OTC or Over-the-counter derivatives
A bilateral transaction (e.g. derivatives) that is not exchange
traded and that is valued using valuation models.
OCA or Own credit adjustment
An adjustment to the Group's issued debt designated at fair
value through profit or loss that reflects the possibility that the
Group may default and not pay the full market value of the
contracts.
Perennial sub-optimal clients
Clients that have returned below 3% return on risk-weighted
assets for the last three years.
Physical risks
The risk of increased extreme weather events including flood,
drought and sea level rise.
Pillar 1
The first pillar of the three pillars of the Basel framework
which provides the approach to calculation of the minimum capital
requirements for credit, market and operational risk. Minimum
capital requirements are 8 per cent of the Group's risk-weighted
assets.
Pillar 2
The second pillar of the three pillars of the Basel framework
which requires banks to undertake a comprehensive assessment of
their risks and to determine the appropriate amounts of capital to
be held against these risks where other suitable mitigants are not
available.
Pillar 3
The third pillar of the three pillars of the Basel framework
which aims to provide a consistent and comprehensive disclosure
framework that enhances comparability between banks and further
promotes improvements in risk practices.
Priority Banking
Priority Banking customers are individuals who have met certain
criteria for deposits, AUM, mortgage loans or monthly payroll.
Criteria varies by country.
Private equity investments
Equity securities in operating companies generally not quoted on
a public exchange. Investment in private equity often involves the
investment of capital in private companies. Capital for private
equity investment is raised by retail or institutional investors
and used to fund investment strategies such as leveraged buyouts,
venture capital, growth capital, distressed investments and
mezzanine capital.
PD or Probability of default
PD is an internal estimate for each borrower grade of the
likelihood that an obligor will default on an obligation over a
given time horizon.
Probability weighted
Obtained by considering the values the metric can assume,
weighted by the probability of each value occurring.
Profit (loss) attributable to ordinary shareholders
Profit (loss) for the year after non-controlling interests and
dividends declared in respect of preference shares classified as
equity.
PVA or Prudent valuation adjustment
An adjustment to CET1 capital to reflect the difference between
fair value and prudent value positions, where the application of
prudence results in a lower absolute carrying value than recognised
in the financial statements.
PRA or Prudential Regulation Authority
The Prudential Regulation Authority is the statutory body
responsible for the prudential supervision of banks, building
societies, credit unions, insurers and a small number of
significant investment firms in the UK. The PRA is a part of the
Bank of England.
Repo/reverse repo
A repurchase agreement or repo is a short-term funding
agreement, which allows a borrower to sell a financial asset, such
as asset-backed securities or government bonds as collateral for
cash. As part of the agreement the borrower agrees to repurchase
the security at some later date, usually less than 30 days,
repaying the proceeds of the loan. For the party on the other end
of the transaction (buying the security and agreeing to sell in the
future), it is a reverse repurchase agreement or reverse repo.
Residential mortgage
A loan to purchase a residential property which is then used as
collateral to guarantee repayment of the loan. The borrower gives
the lender a lien against the property, and the lender can
foreclose on the property if the borrower does not repay the loan
per the agreed terms. Also known as a home loan.
RoRWA or Return on risk-weighted assets
Profit before tax for year as a percentage of RWA. Profit may be
statutory or underlying and is specified where used. See 'RWA' and
'Underlying earnings'.
RWA or Risk-weighted assets
A measure of a bank's assets adjusted for their associated
risks, expressed as a percentage of an exposure value in accordance
with the applicable standardised or IRB approach provisions.
Risks-not-in-VaR (RNIV)
A framework for identifying and quantifying marginal types of
market risk that are not captured in the Value at Risk (VaR)
measure for any reason, such as being a far-tail risk or the
necessary historical market data not being available.
Roll rate
Uses a matrix that gives average loan migration rate from
delinquency states from period to period. A matrix multiplication
is then performed to generate the final PDs by delinquency bucket
over different time horizons.
Secured (fully and partially)
A secured loan is a loan in which the borrower pledges an asset
as collateral for a loan which, in the event that the borrower
defaults, the Group is able to take possession of. All secured
loans are considered fully secured if the fair value of the
collateral is equal to or greater than the loan at the time of
origination. All other secured loans are considered to be partly
secured.
Securitisation
Securitisation is a process by which credit exposures are
aggregated into a pool, which is used to back new securities. Under
traditional securitisation transactions, assets are sold to a
structured entity (SE) which then issues new securities to
investors at different levels of seniority (credit tranching). This
allows the credit quality of the assets to be separated from the
credit rating of the originating institution and transfers risk to
external investors in a way that meets their risk appetite. Under
synthetic securitisation transactions, the transfer of risk is
achieved by the use of credit derivatives or guarantees, and the
exposures being securitised remain exposures of the originating
institution.
Senior debt
Debt that takes priority over other unsecured or otherwise more
'junior' debt owed by the issuer. Senior debt has greater seniority
in the issuer's capital structure after subordinated debt. In the
event the issuer goes bankrupt, senior debt theoretically must be
repaid before other creditors receive any payment.
SICR or Significant increase in credit risk
Assessed by comparing the risk of default of an exposure at the
reporting date to the risk of default at origination (after
considering the passage of time).
Sovereign exposures
Exposures to central governments and central government
departments, central banks and entities owned or guaranteed by the
aforementioned. Sovereign exposures, as defined by the European
Banking Authority, include only exposures to central
governments.
Stage 1
Assets have not experienced a significant increase in credit
risk since origination and impairment recognised on the basis of 12
months expected credit losses.
Stage 2
Assets have experienced a significant increase in credit risk
since origination and impairment is recognised on the basis of
lifetime expected credit losses.
Stage 3
Assets that are in default and considered credit-impaired
(non-performing loans).
Standardised approach
In relation to credit risk, a method for calculating credit risk
capital requirements using External Credit Assessment Institutions
(ECAI) ratings and supervisory risk weights. In relation to
operational risk, a method of calculating the operational capital
requirement by the application of a supervisory defined percentage
charge to the gross income of eight specified business lines.
Structured note
An investment tool which pays a return linked to the value or
level of a specified asset or index and sometimes offers capital
protection if the value declines. Structured notes can be linked to
equities, interest rates, funds, commodities and foreign
currency.
Subordinated liabilities
Liabilities which, in the event of insolvency or liquidation of
the issuer, are subordinated to the claims of depositors and other
creditors of the issuer.
Tier 1 capital
The sum of Common Equity Tier 1 capital and Additional Tier 1
capital.
Tier 1 capital ratio
Tier 1 capital as a percentage of risk-weighted assets.
Tier 2 capital
Tier 2 capital comprises qualifying subordinated liabilities and
related share premium accounts.
TLAC or Total loss absorbing capacity
An international standard for TLAC issued by the FSB, which
requires G-SIBs to have sufficient loss-absorbing and
recapitalisation capacity available in resolution, to minimise
impacts on financial stability, maintain the continuity of critical
functions and avoid exposing public funds to loss.
Transition risks
The risk of changes to market dynamics or sectoral economics due
to governments' response to climate change.
UK bank levy
A levy that applies to certain UK banks and the UK operations of
foreign banks. The levy is payable each year based on a percentage
of the chargeable equities and liabilities on the Group's
consolidated balance sheet date. Key exclusions from chargeable
equities and liabilities include Tier 1 capital, insured or
guaranteed retail deposits, repos secured on certain sovereign debt
and liabilities subject to netting.
Unbiased
Not overly optimistic or pessimistic, represents information
that is not slanted, weighted, emphasised, de-emphasised or
otherwise manipulated to increase the probability that the
financial information will be received favourably or unfavourably
by users.
Unlikely to pay
Indications of unlikeliness to pay shall include placing the
credit obligation on non-accrued status; the recognition of a
specific credit adjustment resulting from a significant perceived
decline in credit quality subsequent to the Group taking on the
exposure; selling the credit obligation at a material
credit-related economic loss; the Group consenting to a distressed
restructuring of the credit obligation where this is likely to
result in a diminished financial obligation caused by the material
forgiveness, or postponement, of principal, interest or, where
relevant fees; filing for the obligor's bankruptcy or a similar
order in respect of an obligor's credit obligation to the Group;
the obligor has sought or has been placed in bankruptcy or similar
protection where this would avoid or delay repayment of a credit
obligation to the Group.
VaR or Value at Risk
A quantitative measure of market risk estimating the potential
loss that will not be exceeded in a set time period at a set
statistical confidence level.
ViU or Value-in-Use
The present value of the future expected cash flows expected to
be derived from an asset or CGU.
Write-downs
After an advance has been identified as impaired and is subject
to an impairment provision, the stage may be reached whereby it is
concluded that there is no realistic prospect of further recovery.
Write-downs will occur when, and to the extent that, the whole or
part of a debt is considered irrecoverable.
XVA
The term used to incorporate credit, debit and funding valuation
adjustments to the fair value of derivative financial instruments.
See 'CVA', 'DVA' and 'FVA'.
Standard Chartered PLC - Shareholder information
Forward-looking statements
This document may contain 'forward-looking statements' that are
based on current expectations or beliefs, as well as assumptions
about future events. These forward-looking statements can be
identified by the fact that they do not relate only to historical
or current facts. Forward-looking statements often use words such
as 'may', 'could', 'will', expect', 'intend', 'estimate',
'anticipate', 'believe', 'plan', 'seek', 'continue' or other words
of similar meaning. By their very nature, such statements are
subject to known and unknown risks and uncertainties and can be
affected by other factors that could cause actual results, and the
Group's plans and objectives, to differ materially from those
expressed or implied in the forward-looking statements.
Recipients should not place reliance on, and are cautioned about
relying on, any forward-looking statements. There are several
factors which could cause actual results to differ materially from
those expressed or implied in forward-looking statements. The
factors that could cause actual results to differ materially from
those described in the forward-looking statements include (but are
not limited to) changes in global, political, economic, business,
competitive, market and
regulatory forces or conditions, future exchange and interest
rates, changes in tax rates, future business combinations or
dispositions and other factors specific to the Group. Any
forward-looking statement contained in this document is based on
past or current trends and/or activities of the Group and should
not be taken as a representation that such trends or activities
will continue in the future.
No statement in this document is intended to be a profit
forecast or to imply that the earnings of the Group for the current
year or future years will necessarily match or exceed the
historical or published earnings of the Group. Each forward-looking
statement speaks only as of the date of the particular statement.
Except as required by any applicable laws or regulations, the Group
expressly disclaims any obligation to revise or update any
forward-looking statement contained within this document,
regardless of whether those statements are affected as a result of
new information, future events or otherwise.
Nothing in this document shall constitute, in any jurisdiction,
an offer or solicitation to sell or purchase any securities or
other financial instruments, nor shall it constitute a
recommendation or advice in respect of any securities or other
financial instruments or any other matter.
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
MSCUAUORKSAWRRR
(END) Dow Jones Newswires
August 01, 2019 02:02 ET (06:02 GMT)
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