Standard Chartered PLC Additional Financial Information

Date : 08/01/2019 @ 7:02AM
Source : UK Regulatory (RNS & others)
Stock : Standard Chartered Plc (STAN)
Quote : 701.4  19.6 (2.87%) @ 4:35PM

Standard Chartered PLC Additional Financial Information

Standard Chartered (LSE:STAN)
Historical Stock Chart

2 Months : From Jul 2019 to Sep 2019

Click Here for more Standard Chartered Charts.

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 
------------------------------------------------------------  --- 
Risk review and Capital review 
  Risk review                                                   7 
  Capital review                                               44 
------------------------------------------------------------  --- 
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 
------------------------------------------------------------  --- 
  Other supplementary information                              99 
------------------------------------------------------------  --- 
Glossary                                                      104 
------------------------------------------------------------  --- 
Shareholder information                                       114 
------------------------------------------------------------  --- 
 

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 
-------  ---------------------------------------------------------- 
         Basis of preparation 
-------  ---------------------------------------------------------- 
         Credit risk overview 
         ---------------------------------------------------------- 
         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 
         ---------------------------------------------------------- 
         Credit risk mitigation 
          *    Collateral 
 
 
           *    Collateral - Corporate & Institutional Banking and 
                Commercial Banking 
 
           *    Collateral - Retail Banking and Private Banking 
          *    Mortgage loan-to-value ratios by geography 
 
         ---------------------------------------------------------- 
 
           *    Industry and Retail products analysis of loans and 
                advances by geographic region 
         ---------------------------------------------------------- 
         IFRS 9 methodology 
         ---------------------------------------------------------- 
         Country risk 
         ---------------------------------------------------------- 
         Traded risk 
         Market risk changes 
         Counterparty Credit Risk 
         Derivative financial instruments Credit 
          Risk mitigation 
         ---------------------------------------------------------- 
         Liquidity and funding risk 
         Liquidity & Funding risk metrics 
         Encumbrance 
         Liquidity analysis of the Group's balance 
          sheet 
         Interest Rate Risk in the Banking Book 
         ---------------------------------------------------------- 
         Operational risk 
         Operational risk profile 
         ---------------------------------------------------------- 
         Other principal risks 
-------  ---------------------------------------------------------- 
Capital  Capital summary 
------- 
          *    Capital ratio 
 
------- 
          *    CRD IV Capital base 
 
          *    Movement in total capital 
 
         ---------------------------------------------------------- 
         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)



Your Recent History
LSE
GKP
Gulf Keyst..
LSE
QPP
Quindell
FTSE
UKX
FTSE 100
LSE
IOF
Iofina
FX
GBPUSD
UK Sterlin..
Stocks you've viewed will appear in this box, letting you easily return to quotes you've seen previously.

Register now to create your own custom streaming stock watchlist.


NYSE, AMEX, and ASX quotes are delayed by at least 20 minutes.
All other quotes are delayed by at least 15 minutes unless otherwise stated.