TIDMSTAN

RNS Number : 5481U

Standard Chartered PLC

30 July 2020

Standard Chartered PLC - Table of contents

 
Performance highlights                                  2 
Statement of results                                    4 
Group Chairman's statement                              5 
Group Chief Executive's review                          7 
Group Chief Financial Officer's review                  9 
Supplementary financial information                    17 
Underlying versus statutory results reconciliations    33 
Alternative performance measures                       37 
Group Chief Risk Officer's review                      38 
Risk review                                            46 
Capital review                                        101 
Financial statements                                  110 
Other supplementary information                       160 
Glossary                                              183 
 

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, forward-looking 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.

Please refer to the Group's 2019 Annual Report and this Half-Year Report for a discussion of certain risks and 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.

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.

Unless another currency is specified, the word 'dollar' or symbol '$' in this document means US dollar and the word 'cent' or symbol 'c' means one-hundredth of one US dollar.

The information within this report is unaudited.

Unless the context requires, within this document, 'China' refers to the People's Republic of China and, for the purposes of this document only, excludes Hong Kong Special Administrative Region (Hong Kong), Macau Special Administrative Region (Macau) and Taiwan. 'Korea' or 'South Korea' refers to the Republic of Korea. Greater China & North Asia (GCNA) includes China, Hong Kong, Japan, Korea, Macau and Taiwan; ASEAN & South Asia (ASA) includes Australia, Bangladesh, Brunei, Cambodia, India, Indonesia, Laos, Malaysia, Myanmar, Nepal, Philippines, Singapore, Sri Lanka, Thailand and Vietnam; and Africa & Middle East (AME) includes Bahrain, Egypt, Iraq, Jordan, Lebanon, Oman, Pakistan, Qatar, Saudi Arabia and the United Arab Emirates (UAE).

Within the tables in this report, blank spaces indicate that the number is not disclosed, dashes indicate that the number is zero and nm stands for not meaningful.

Standard Chartered PLC is incorporated in England and Wales with limited liability. Standard Chartered PLC is headquartered in London. The Group's head office provides guidance on governance and regulatory standards. Standard Chartered PLC stock codes are: HKSE 02888 and LSE STAN.LN.

Standard Chartered PLC - Results for the first half and second quarter ending 30 June 2020

All figures are presented on an underlying basis and comparisons are made to 2019 on a reported currency basis, unless otherwise stated. A reconciliation of restructuring and other items excluded from underlying results is set out on page 33.

"I am pleased we have come through the extremely challenging early stage of the COVID-19 crisis with a clean bill of operational health, higher income and lower costs. Despite having taken significantly higher impairment charges we remained profitable and enter the next phase of the crisis with our CET1 capital ratio at one of the highest levels for many years. Low interest rates and depressed oil prices continue to be headwinds and we expect new waves of COVID-19 related challenge in the coming quarters but I am confident that our resilience and client franchise will see us through. I am encouraged by how well my colleagues are coping and that many clients in some of our larger markets are recovering strongly and already operating at close to their pre-pandemic capacity."

Bill Winters, Group Chief Executive

Update on strategic priorities

-- Deliver our network and grow affluent: our differentiated strengths enable us to support our clients through the crisis

-- Improve productivity: cost-to-income ratio improved 5%pts to 59% excluding Debit Valuation Adjustment (DVA)

-- Optimise low-returning markets: operating profit improved 7% in aggregate from four of our largest markets

-- Transform and disrupt with digital: client digital engagement up 12%pts to 36%; HK virtual bank launching very soon

-- Drive sustainability: stimulus measures targeting sustainable recovery play to our leading strengths in sustainable finance

Selected information concerning financial performance (1H'20 unless otherwise stated)

-- Income up 5% to $8.0bn; up 7% constant currency (ccy)

- Excluding $146m positive movement in DVA, income was up 5% ccy

- 2Q'20: income down 4%; down 2% ccy and up 4% excluding $212m negative movement in DVA

-- Expenses 5% lower to $4.7bn; 2% lower ccy

- Positive jaws of 7% ccy ex-DVA

-- Net interest margin down 26bps from 1H'19 to 1.40%. Down 24bps in 2Q'20 to 1.28%

-- Credit impairment lower QoQ but up significantly YoY, driven primarily by the impact of COVID-19

- Stage 1 and 2 impairment up $586m in the first half to $668m

- Approximately one-half due to management overlay

- Stage 3 impairment up $727m in the first half to $899m, with no significant new exposures in 2Q'20

- Net stage 3 plus credit grade 12 exposures up 22% in 2Q'20 to $5.1bn; early alerts increased $2.9bn to $14.4bn

-- Return on tangible equity down 240bps to 6.0%

- Pre-provision operating profit up 22% to $3.3bn; up 17% ccy and ex-DVA

- Underlying profit before tax down 25% to $2.0bn driven by higher credit impairment; down 30% ccy and ex-DVA

- Statutory profit before tax down 33% to $1.6bn, includes $249m goodwill impairment in India in 1Q'20

-- Risk-weighted assets of $263bn down $2bn since 31 December 2019

- Down $10bn QoQ in 2Q'20 including $9bn reduction from completion of Permata sale

-- The Group remains strongly capitalised and highly liquid

- Common equity tier 1 ratio up 90bps in 2Q'20 to 14.3%, above the top of the 13-14% medium-term target range

- 50bps uplift from Permata sale with remainder from profits and other comprehensive income gains

- Aiming to remain highly liquid to support clients through the crisis

- Asset-to-deposit ratio 62.7% (1Q'20: 61.9%); liquidity coverage ratio 149% (1Q'20: 142%)

- Continue to target higher quality deposits: Retail CASA up 9% and TB OPAC up 20% since 31 December 2019

- $14bn or 4% of loans and advances subject to some form of relief measure

-- Earnings per share down 13.2c or 27% to 35.9c; 40m shares bought back and cancelled in 1Q'20

Outlook

We continue to believe that some of our larger markets will start to drive the global economy out of recession over the coming quarters but expect economic activity across our footprint in that period to be volatile and uneven.

Income is likely to be lower both half-on-half and year-on-year in the second half of 2020. The benefits of the early stage recovery in some of our markets and our geographic and product diversity are unlikely to be enough to offset the impact of low interest rates and the probability of less buoyant conditions for our Financial Markets business.

Expenses excluding the UK bank levy are usually higher in the second half, but we continue to target being below $10bn in 2020. Given the more challenging external environment we have started to implement new sustainable efficiency initiatives with the intent to stay below $10bn in 2021 as well.

Given the extreme economic pressures relating to the persistence of COVID-19, partially addressed through the efficacy of government support measures, it is not possible to reliably predict the quantum or timing of future impairments. However, if economic conditions in our markets do not materially deteriorate in the coming months then, given the substantial provisions we have taken already, we anticipate that impairments in the second half will be lower than those recorded in the first half.

Standard Chartered PLC - Statement of results

For the six months ended 30 June 2020

 
                                                                6 months         6 months 
                                                          ended 30.06.20   ended 30.06.19   Change1 
                                                                $million         $million         % 
-------------------------------------------------------  ---------------  ---------------  -------- 
Underlying performance 
Operating income                                                   8,047            7,696         5 
Operating expenses                                               (4,713)          (4,969)         5 
Credit impairment                                                (1,567)            (254)        nm 
Other impairment                                                     112             (21)        nm 
Profit from associates and joint ventures                             76              157      (52) 
Profit before taxation                                             1,955            2,609      (25) 
Profit attributable to ordinary shareholders2                      1,138            1,623      (30) 
Return on ordinary shareholders' tangible equity 
 (%)                                                                 6.0              8.4  (240)bps 
Cost-to-income ratio (%)                                            58.6             64.6    600bps 
-------------------------------------------------------  ---------------  ---------------  -------- 
Statutory performance 
Operating income                                                   8,099            7,830         3 
Operating expenses                                               (4,748)          (5,298)        10 
Credit impairment                                                (1,576)            (254)     (520) 
Goodwill impairment                                                (258)                -        nm 
Other impairment                                                      35             (44)       180 
Profit from associates and joint ventures                             75              180      (58) 
Profit before taxation                                             1,627            2,414      (33) 
Taxation                                                           (561)            (918)        39 
Profit for the period                                              1,066            1,496      (29) 
Profit attributable to parent company shareholders                 1,048            1,477      (29) 
Profit attributable to ordinary shareholders2                        816            1,256      (35) 
Return on ordinary shareholders' tangible equity 
 (%)                                                                 4.3              6.5  (220)bps 
Cost-to-income ratio (%)                                            58.6             67.7    904bps 
-------------------------------------------------------  ---------------  ---------------  -------- 
Balance sheet and capital 
Total assets                                                     741,585          712,504         4 
Total equity                                                      49,897           50,439       (1) 
Tangible equity attributable to ordinary shareholders2            38,048           38,871       (2) 
Loans and advances to customers                                  276,313          263,595         5 
Customer accounts                                                421,153          401,597         5 
Risk weighted assets                                             262,552          270,739       (3) 
Total capital                                                     56,468           54,957         3 
Net interest margin (%) (adjusted)                                  1.40             1.66   (26)bps 
Advances-to-deposits ratio (%)3                                     62.7             63.7     (1.0) 
Liquidity coverage ratio (%)                                         149              139        10 
Common Equity Tier 1 ratio (%)                                      14.3             13.5     80bps 
Total capital (%)                                                   21.5             20.3    120bps 
UK leverage ratio (%)                                                5.2              5.3   (10)bps 
-------------------------------------------------------  ---------------  ---------------  -------- 
Information per ordinary share                                     Cents            Cents     Cents 
Earnings per share - underlying4                                    35.9             49.1    (13.2) 
   - statutory4                                                     25.8             38.0    (12.2) 
Net asset value per share5                                         1,384            1,339        45 
Tangible net asset value per share5                                1,224            1,182        42 
Number of ordinary shares at period end (m)                        3,148            3,255       (3) 
 

1 Variance is better/(worse) other than assets, liabilities and risk weighted assets

2 Profit attributable to ordinary shareholders is after the deduction of dividends payable to the holders of non-cumulative redeemable preference shares and Additional Tier 1 securities classified as equity

3 When calculating this ratio, total loans and advances to customers excludes reverse repurchase agreements and other similar secured lending, excludes approved balances held with central banks, confirmed as repayable at the point of stress and includes loans and advances to customers held at fair value through profit and loss. Total customer accounts includes customer accounts held at fair value through profit or loss

4 Represents the underlying or statutory earnings divided by the basic weighted average number of shares

5 Calculated on period end net asset value, tangible net asset value and number of shares

Standard Chartered PLC - Group Chairman's statement

"Staying the course with resilience, agility and humanity"

In the most recent Annual Report, I said that instability and rapid change are becoming the new normal. That observation was made in February when the COVID-19 outbreak was impacting only a few of our markets. Since then, the pandemic has spread to affect all our markets and cause massive disruption to the global economy leading to a deep recession.

I could not be prouder of the tremendous efforts of my colleagues who have shown extraordinary agility and resilience during this crisis. What has really stood out for me is how their actions have been tempered with humanity - truly embodying our brand promise of being Here for good.

At one stage in April we had three-quarters of our people working from home. Despite this unprecedented level of extended disruption, our transaction processing capabilities and risk controls held up remarkably well, a testament to the agility of our people in adapting to the crisis and a tribute to the operational and technological resilience of the franchise.

Financial resilience

We made solid progress on our strategic priorities in the first half, which together with the benefits of our product and geographic diversity and firm cost control meant pre-provision operating profit improved significantly. Impairments increased in the period as the pandemic took hold and we have taken substantial provisions against possible future loan losses resulting from the crisis, which meant underlying profit was lower in the first half. Our capital position remains strong, bolstered by completion of the sale of our equity interest in Permata in Indonesia, and we have ensured that our balance sheet is very liquid. Overall, our franchise remains fundamentally healthy, which underpins my belief that we can endure the crisis caused by COVID-19 and come out on the other side stronger, with our financial resilience to external shocks tested like it has never been before.

We can't reliably predict how long the effects of the pandemic will last, nor quantify the resulting impact on our future financial performance. We are therefore focusing intently on the things we can control. The management team is taking action to manage expenses very carefully to preserve our key long-term investment projects and continue the transformation to take advantage of future opportunities.

Our response to the COVID-19 crisis

We have prioritised the wellbeing, safety and security of our colleagues, supporting our clients and showing solidarity with our communities. We believe this approach protects and advances the interests of our shareholders.

For personal customers, our response has included the following actions:

-- Our retail banking branches had to be retrofitted at speed to adhere to social distancing guidelines. In some cases, they were closed entirely as part of lockdown measures meaning customers migrated to online platforms, many for the first time, while staff had to be set up to work from home in large numbers

-- We have put in place a comprehensive support scheme for individuals and smaller businesses including loan repayment holidays, fee waivers or cancellations and loan extension facilities. We have approved nearly 300,000 applications already, over half of which arose from mandatory schemes in some of our markets. The approval percentage of applications received under voluntary schemes is close to 98 per cent, demonstrating our determination to support customers within this particularly vulnerable segment of our communities that are seeking help

On the corporate and institutional side:

-- We helped our clients navigate an extremely volatile period, with strong demand for our currency, commodities and interest rate risk management capabilities. While some larger 'new economy' clients have flourished in recent months, most businesses - particularly the smaller ones - are being negatively impacted by the economic situation and will need our support for some time to come

-- We launched a $1 billion financing programme that is being offered on favourable terms for companies providing critical goods and services in the fight against COVID-19, and those planning to switch to making products that are in high demand. We have approved applications for nearly half the commitment so far, and have already started disbursing funds to several corporate clients. Most of those clients are in the Commercial Banking segment and they are evenly split across our three largest regions in Asia, Africa and

the Middle East

To support the communities that we operate in, we launched a $50 million global charitable fund to provide immediate relief to those affected by COVID-19 and to contribute to localised long-term economic rebuilding efforts. I'm delighted to say that around half of this has already been distributed in 52 markets across our network, with the rest expected to be allocated within a matter of months.

Looking ahead

Before the crisis it had become clear that greater international cooperation is needed to reap the full benefits of globalisation and make markets more inclusive both within and across nations. The hard road ahead may prove a temptation to governments and regulators to retreat within their borders. But we believe that would be taking exactly the wrong lesson from the astonishing accomplishments of recent months, which to my mind provide concrete evidence of how much we stand to gain by staying agile, resilient and humane - together.

Relations between the US and China remain highly charged, driven by both economic and political considerations. We have seen some markets including the US introduce laws or policies relating to Hong Kong and China, the full implications of which are not yet known. We are convinced that more collaboration - not less - is the best way to find a sustainable equilibrium in these complex situations, but we do not expect an easy or quick resolution. We do believe, however, that Hong Kong will continue to play a key role as an international financial hub and we are fully committed to contributing to its continued success.

Governance matters and the dividend

I am delighted to welcome Phil Rivett to the Board. His more than 40 years of professional accountancy and audit experience in the financial services sector across many of our markets will, I am sure, prove valuable in the years ahead. Louis Cheung stepped down as a director in March after seven years on the Board. I would like to thank Louis for his important contributions to the Group.

We announced on 31 March that in response to a request from the Prudential Regulation Authority, the Board had decided after careful consideration that no interim dividend on ordinary shares will be accrued, recommended or paid in 2020. This difficult decision is allowing us to provide the support for individuals, businesses and the communities in which we operate that I described above, while at the same time strengthening further our capital ratios and enabling us to invest to transform the business for the long term.

The Board fully recognises the importance of dividends to its owners and we hope to reinstate them as soon as prudently possible.

Conclusion

In my first Annual Report as Chairman of the Group in 2017, I said that the requirements for success in previous crises impacting the financial services sector were to have a clear strategy, a sensible business plan and exceptionally talented people who are determined to execute that plan with discipline and pace. I believe we have shown in recent years and most recently during this crisis that we have all those ingredients.

We are monitoring the situation very carefully and are committed to deploying our strong capital and liquidity to support our clients and the communities we operate in through this exceptionally challenging period.

I would like to again thank all my colleagues across our footprint for their tremendous efforts to maintain our operational resilience, and ensure that we continue to deliver on our promise to be Here for good.

José Viñals

Group Chairman

30 July 2020

Standard Chartered PLC - Group Chief Executive's review

"Strong operating performance in severe conditions"

We are feeling the acute impact of the COVID-19 pandemic across our markets and in our business. This and the related fall in both interest rates and oil prices created extremely challenging operating conditions in the first half of the year. We, like nearly all businesses, have had to cope with those conditions with most of our people working remotely to ensure their safety and that of our customers.

I am pleased we came through that period with a clean bill of operational health and with higher income, lower costs and therefore significantly better pre-provision operating profit compared with last year. We remained profitable despite higher impairments, which together with our strengthened capital position enabled us to build substantial reserves in the face of the heightened uncertainty and tougher conditions. I am encouraged by how well my colleagues are coping in the crisis and that many clients in some of our larger markets are recovering strongly and already operating at close to their pre-pandemic capacity.

Strategic progress

The COVID-19 crisis has reinforced the relevance of our strategic priorities:

-- The sharp global economic contraction has had an inevitable impact on income that we generate from our international network. But our unique geographic diversity means that we are ideally placed to help our clients manage their risks across borders in volatile conditions

-- Heightened geopolitical tensions add to the pressure on our network business. We are focused on staying close to our clients as any re-configuration of their trade and investment flows often plays to our strengths: we are the only global bank present in every ASEAN market and across South Asia, the Middle East and Africa

-- Social isolation meant that we could not interact face-to-face with most of our affluent customers, leading to lower commissions from that segment. Our substantially improved digital channels, though, have helped us stay close and will enable us to address their needs through every stage of the crisis

-- The crisis has put our existing focus on productivity into a whole new light. We are accelerating some elements of existing projects targeted at creating a leaner and more agile organisation. We are also developing new expense reduction initiatives to ensure that whatever cost savings we realise in 2020 as a direct result of the crisis are reinforced by more enduring efficiencies into 2021 and beyond

-- Our significantly higher investment into our core digital capabilities in recent years has borne fruit during this initial phase of the pandemic, with up to three-quarters of my colleagues operating remotely across 60 markets and many more corporate, institutional and personal clients now engaging with us through digital channels. All of this was achieved with no interruption to data or transaction processing. Meanwhile, we continue to develop exciting new initiatives such as Mox, our majority-owned virtual bank in Hong Kong, which is in advanced testing and is due to launch shortly

-- We continue to make good progress, despite the crisis, in our businesses in India, Korea, the UAE and Indonesia, where we are focused on optimising returns. Our team in the UAE is also having to cope with the impact of suppressed oil prices, but solid profit growth in the three other markets fuelled by strong demand for our Financial Markets risk management capabilities led to a 7 per cent improvement in operating profit overall

Capital and liquidity allocation

We remain financially strong and very liquid. Our immediate priority is to use the resulting funding capacity to support our clients through the crisis. We have approved over 90 per cent of relief applications that we have received so far under a combination of mandatory and voluntary schemes. Only around 4 per cent of our total loans and advances has been subjected to relief. Most of this is secured and some has been repaid already, likely reflecting our strategic focus on multinational businesses and affluent personal customers.

Our long-term priorities for deployment of surplus capital, however, have not changed: first support growth, then fund dividends and finally return what's left to shareholders. We were the only large UK bank to have an active stock buy-back programme at the time of the PRA's request to suspend distributions, but our equity story is grounded in the ability to offer long-term and sustainable growth. I believe that we will find many such opportunities as markets in our footprint drive the global economic recovery.

We will invest where we can make acceptable levels of return above our cost of capital. We are currently carrying capital in excess of the amount we will require in more normal times, reflecting the uncertainty in our earnings outlook as the global economy adjusts to the crisis, and starts to recover. As we develop confidence in the macro environment, we expect to return to our stated target CET1 capital range of 13-14 per cent and will return capital to shareholders to the extent we have exhausted attractive investment opportunities. While the current external conditions mean it will take longer to achieve a return on tangible equity above 10 per cent, we believe our franchise can deliver these returns and remain committed to delivering them.

Sustainability

Although the priority of most governments currently is quite rightly on minimising the damage to health and the economies in their markets caused by COVID-19, I am delighted to see how many are thinking ahead to consider pathways to delivering a more sustainable and resilient future. Stimulus measures will be vital; we hope priority will be given to those that more tangibly promote the many facets of the UN's Sustainable Development Goals, which we support wholeheartedly. That is why we will continue to deliver on the $75 billion commitment we announced earlier this year to finance sustainable infrastructure, renewables and clean technology to support the transition to a low-carbon economy, and why we are aiming to achieve net zero emissions from our own operations by 2030.

This focus on sustainability is particularly relevant in the markets across Asia, Africa and the Middle East that have been our home for 160 years, where the opportunity to drive positive fundamental change is arguably greatest. They are among the most dynamic economies in the world and the rate of progress on climate action, human rights, diversity and inclusion varies considerably.

We are faced every day with difficult decisions operating in those markets, but I am convinced that sticking resolutely to our purpose and showing through our actions that we are Here for good will help bring about positive change. We aim to contribute to their growth and prosperity when they thrive, but we also stay to assist when they are challenged - for example, through providing $1 billion of financing to support businesses who are tackling the pandemic and our $50 million COVID-19 Charitable Fund.

Concluding remarks

Governments and policymakers around the world are facing an extremely complex set of economic and societal challenges. Navigating the resulting geopolitical tensions and assessing the possible impact on our business will be challenging at times. It is vital that we remain calm in this environment and continue to focus on what we can control, on supporting our colleagues as they return to the workplace and on developing differentiated capabilities to serve the needs of our clients and the communities in which we operate.

Bill Winters

Group Chief Executive

30 July 2020

Standard Chartered PLC - Group Chief Financial Officer's review

The Group delivered a resilient performance overall in the first half in conditions that became extremely challenging

Summary of financial performance

 
                                                             Constant                                   Constant 
                                                             currency                                   currency 
                                 1H'20       1H'19  Change    change1       2Q'20       2Q'19  Change    change1 
                              $million    $million       %          %    $million    $million       %          % 
--------------------------  ----------  ----------  ------             ----------  ----------  ------  --------- 
  Net interest income            3,502       3,862     (9)        (7)       1,660       1,942    (15)       (12) 
  Other income                   4,545       3,834      19         20       2,060       1,941       6          8 
--------------------------  ----------  ----------  ------  ---------  ----------  ----------  ------  --------- 
Underlying operating 
 income                          8,047       7,696       5          7       3,720       3,883     (4)        (2) 
Underlying operating 
 expenses                      (4,713)     (4,969)       5          2     (2,355)     (2,554)       8          4 
--------------------------  ----------  ----------  ------  ---------  ----------  ----------  ------  --------- 
Underlying operating 
 profit before impairment 
 and taxation                    3,334       2,727      22         23       1,365       1,329       3          3 
Credit impairment              (1,567)       (254)     nm2        nm2       (611)       (176)     nm2        nm2 
Other impairment                   112        (21)     nm2        nm2        (42)        (19)   (121)      (133) 
Profit from associates 
 and joint ventures                 76         157    (52)       (52)          21          91    (77)       (78) 
--------------------------  ----------  ----------  ------  ---------  ----------  ----------  ------  --------- 
Underlying profit before 
 taxation                        1,955       2,609    (25)       (25)         733       1,225    (40)       (41) 
Restructuring                     (90)        (14)     nm2        nm2           2        (46)     104        107 
Other items                      (238)       (181)    (31)       (31)           6         (7)     186        186 
--------------------------  ----------  ----------  ------  ---------  ----------  ----------  ------  --------- 
Statutory profit before 
 taxation                        1,627       2,414    (33)       (33)         741       1,172    (37)       (37) 
Taxation                         (561)       (918)      39         37       (192)       (494)      61         59 
--------------------------  ----------  ----------  ------  ---------  ----------  ----------  ------  --------- 
Profit for the period            1,066       1,496    (29)       (30)         549         678    (19)       (22) 
--------------------------  ----------  ----------  ------  ---------  ----------  ----------  ------  --------- 
 
Net interest margin 
 (%)                              1.40        1.66                           1.28        1.67 
Underlying return on 
 tangible equity (%)               6.0         8.4                            3.5         7.3 
Underlying earnings 
 per share (cents)                35.9        49.1                           10.4        21.4 
Statutory return on 
 tangible equity (%)               4.3         6.5                            3.6         5.0 
Statutory earnings per 
 share (cents)                    25.8        38.0                           10.8        14.6 
--------------------------  ----------  ----------  ------  ---------  ----------  ----------  ------  --------- 
 

1 Comparisons presented on the basis of the current period's transactional currency rate, ensuring like-for-like currency rates between the two periods

2 Not meaningful

The Group delivered a resilient performance in the first half in conditions that became extremely challenging. Strong and broad-based growth in the initial months of the year was followed by lower income in the second quarter driven by negative movements in the debit valuation adjustment (DVA) and the effects of COVID-19 which led to severe global economic contraction and substantially reduced interest rates. Pre-provision operating profit improved significantly with income growing at a faster rate than expenses. Underlying profit fell due to substantially higher credit impairments booked particularly in the first quarter driven by the deterioration in the macroeconomic outlook.

The Group is committed to deploying its strong capital and surplus liquidity to support its clients and the communities it operates in through the crisis. The Group's CET1 ratio has risen to 14.3 per cent - above the top end of its medium-term target range - while its assets-to-deposits ratio has reduced to 62.7 per cent and its liquidity coverage ratio has increased to 149 per cent.

All commentary that follows is on an underlying basis and comparisons are made to the equivalent period in 2019 on a reported currency basis, unless otherwise stated.

-- Operating income grew 5 per cent in the first half including a $146 million positive movement in the debit valuation adjustment (DVA). Income was also up 5 per cent on a constant currency basis and excluding DVA as the impact of lower interest rates was more than offset by a double-digit increase in Financial Markets income

-- Net interest income decreased 9 per cent with increased volumes more than offset by the compressive impact of a significantly lower interest rate environment on net interest margin

-- Other income increased 19 per cent, or 15 per cent excluding the positive impact of movements in DVA, with a particularly strong underlying performance in Financial Markets and realisation gains in Treasury

-- Operating expenses were 5 per cent lower and 2 per cent lower on a constant currency basis, with tight control of costs generating positive income-to-cost jaws of 10 per cent on a reported basis, or 7 per cent on a constant currency basis excluding DVA. The cost-to-income ratio improved 5 percentage points to 59 per cent excluding DVA

-- Credit impairment increased by $1.3 billion to $1.6 billion. Stage 1 and 2 impairments increased by $586 million, of which around one-half was attributable to a management overlay to reflect deterioration in the macroeconomic outlook not captured in the modelled outcome and the estimated impact of payment relief measures on delinquencies and flow rates. Impairments of Stage 3 assets increased $727 million, the majority of which were recorded in the first quarter

-- Other impairment was a $112 million credit, primarily driven by a reversal of previously impaired assets partially offset by impairment charges relating to aircraft

-- Profit from associates and joint ventures was down 52 per cent to $76 million. The Group could only recognise its share of the profits of its associate China Bohai Bank for four rather than six months due to the timing of its recently completed initial public offering in July 2020, which has resulted in the requisite financial information not yet being publicly available

-- Underlying profit before tax decreased 25 per cent. Charges relating to restructuring, provisions for regulatory matters and other items increased $133 million to $328 million, primarily relating to $249 million of goodwill impairment in India due to a lower GDP growth outlook

-- Taxation was $561 million on a statutory basis with an underlying effective tax rate of 29.0 per cent broadly in-line with the prior year rate of 28.6 per cent

-- Underlying return on tangible equity declined by 240 basis points to 6.0 per cent, with the impact of reduced profits partly offset by lower tangible equity reflecting the dividends paid and share buy-back programmes completed since 1H'19

Operating income by product

 
                                                                Constant                                   Constant 
                                                                currency                                   currency 
                                    1H'20       1H'19  Change    change1       2Q'20       2Q'19  Change    change1 
                                 $million    $million       %          %    $million    $million       %          % 
-----------------------------  ----------  ----------  ------  ---------  ----------  ----------  ------  --------- 
Transaction Banking2                1,521       1,778    (14)       (13)         721         901    (20)       (18) 
                               ----------  ----------  ------  ---------  ----------  ----------  ------  --------- 
  Trade                               490         559    (12)       (11)         230         282    (18)       (17) 
  Cash Management                   1,031       1,219    (15)       (14)         491         619    (21)       (19) 
                               ----------  ----------  ------  ---------  ----------  ----------  ------  --------- 
Financial Markets2                  2,248       1,665      35         38         970         834      16         20 
                               ----------  ----------  ------  ---------  ----------  ----------  ------  --------- 
  Foreign Exchange                    758         602      26         29         343         304      13         18 
  Rates                               717         357     101        106         339         136     149        155 
  Commodities                         126          89      42         42          82          44      86         86 
  Credit and Capital Markets          276         285     (3)        (2)         250         145      72         76 
  Capital Structuring 
   Distribution Group                 113         156    (28)       (25)          52          74    (30)       (28) 
  DVA                                 104        (42)     nm3        nm3       (201)          11     nm3        nm3 
  Security Services2                  163         170     (4)        (1)          79          87     (9)        (7) 
  Other Financial Markets             (9)          48   (119)      (119)          26          33    (21)       (18) 
                               ----------  ----------  ------  ---------  ----------  ----------  ------  --------- 
Corporate Finance                     547         534       2          5         269         272     (1)          2 
Lending and Portfolio 
 Management                           427         384      11         14         232         197      18         22 
Wealth Management                     964         976     (1)          -         434         511    (15)       (14) 
Retail Products                     1,859       1,927     (4)        (1)         913         976     (6)        (4) 
                               ----------  ----------  ------  ---------  ----------  ----------  ------  --------- 
  CCPL and other unsecured 
   lending                            599         625     (4)        (1)         295         320     (8)        (5) 
  Deposits                            885         995    (11)        (9)         413         501    (18)       (15) 
  Mortgage and Auto                   305         258      18         22         169         129      31         36 
  Other Retail Products                70          49      43         41          36          26      38         35 
                               ----------  ----------  ------  ---------  ----------  ----------  ------  --------- 
Treasury                              503         559    (10)        (8)         178         251    (29)       (27) 
Other                                (22)       (127)      83         82           3        (59)     105        109 
-----------------------------  ----------  ----------  ------  ---------  ----------  ----------  ------  --------- 
Total underlying operating 
 income                             8,047       7,696       5          7       3,720       3,883     (4)        (2) 
-----------------------------  ----------  ----------  ------  ---------  ----------  ----------  ------  --------- 
 

1 Comparisons presented on the basis of the current period's transactional currency rate, ensuring like-for-like currency rates between the two periods

2 Following a reorganisation, there has been a reclassification of balances relating to Securities services from Transaction Banking to Financial Markets including prior period numbers. There is no change in the total income

3 Not meaningful

Transaction Banking income was down 14 per cent. Cash Management declined 15 per cent with strong liability growth being more than offset by declining margins given the lower interest rate environment. Trade declined 12 per cent from lower balances.

Financial Markets income grew 35 per cent or 26 per cent excluding DVA. The business benefited from heightened market volatility, wider spreads and increased hedging and investment activity by clients. Income from Rates doubled and there was strong double-digit growth in Foreign Exchange and Commodities. Credit and Capital Markets recovered momentum in the second quarter but was down 3 per cent in the first half. Income from Securities Services, which is now managed within Financial Markets having previously been reported as part of Transaction Banking, declined 4 per cent.

Corporate Finance income was up 2 per cent due to increased balances from drawdowns on revolving credit facilities.

Lending and Portfolio Management income increased 11 per cent with improved margins and increased volumes in Corporate Lending.

Wealth Management income was down 1 per cent, despite significantly more challenging market conditions, with lower bancassurance sales resulting from reduced branch walk-ins due to COVID-19, partially offset by clients increasingly using digital channels. There was a particularly strong sales performance in FX, fixed income and equities.

Retail Products income reduced 4 per cent on a reported basis and was down 1 per cent on a constant currency basis. A lower interest rate environment has compressed Deposit margins but boosted margins across asset products by reducing funding costs. Deposits income declined 11 per cent as margin compression more than offset increased volumes. Increases in volumes and margins led to double-digit income growth across Mortgages & Auto and Business Banking within Other Retail Products. Credit Cards & Personal Loans income was down 4 per cent as COVID-19 impacted new sales.

Treasury income declined 10 per cent with reduced interest income on deployed assets within Treasury Markets and a $25 million unfavourable movement in hedge ineffectiveness partly offset by a $280 million increase in realisation gains from the sale of longer-dated securities as bond yields declined.

Profit before tax by client segment and geographic region

 
                                                             Constant                                   Constant 
                                                             currency                                   currency 
                                 1H'20       1H'19  Change    change1       2Q'20       2Q'19  Change    change1 
                              $million    $million       %          %    $million    $million       %          % 
--------------------------  ----------  ----------  ------             ----------  ----------  ------  --------- 
Corporate & Institutional 
 Banking                         1,132       1,297    (13)       (12)         476         617    (23)       (21) 
Retail Banking                     326         624    (48)       (47)          93         334    (72)       (73) 
Commercial Banking                 182         337    (46)       (46)          80         150    (47)       (49) 
Private Banking                     56         100    (44)       (46)          19          28    (32)       (32) 
Central & other items 
 (segment)                         259         251       3        (4)          65          96    (32)       (45) 
--------------------------  ----------  ----------  ------  ---------  ----------  ----------  ------  --------- 
Underlying profit before 
 taxation                        1,955       2,609    (25)       (25)         733       1,225    (40)       (41) 
--------------------------  ----------  ----------  ------  ---------  ----------  ----------  ------  --------- 
Greater China & North 
 Asia                            1,134       1,329    (15)       (14)         484         672    (28)       (28) 
ASEAN & South Asia                 456         760    (40)       (40)          89         371    (76)       (74) 
Africa & Middle East                90         441    (80)       (78)          43         162    (73)       (72) 
Europe & Americas                  356          13     nm2        nm2         255          45     nm2        nm2 
Central & other items 
 (region)                         (81)          66     nm2      (198)       (138)        (25)     nm2        nm2 
--------------------------  ----------  ----------  ------  ---------  ----------  ----------  ------  --------- 
Underlying profit before 
 taxation                        1,955       2,609    (25)       (25)         733       1,225    (40)       (41) 
--------------------------  ----------  ----------  ------  ---------  ----------  ----------  ------  --------- 
 

1 Comparisons presented on the basis of the current period's transactional currency rate, ensuring like-for-like currency rates between the two periods

2 Not meaningful

Corporate & Institutional Banking income grew 13 per cent with a 41 per cent increase in Financial Markets including a $146 million positive movement in DVA. This was more than offset by increased impairments resulting in profits down 13 per cent or 23 per cent excluding DVA. It remains the largest contributor to the overall Group's profit before tax from a client segment perspective. Retail Banking income declined 3 per cent but was flat on a constant currency basis. Higher impairments were the primary driver of a 48 per cent reduction in profit. Commercial Banking experienced a 9 per cent reduction in income, higher impairments and profit declining 46 per cent. A non-repeat of a prior-year impairment release meant Private Banking profit was down 44 per cent. Central & other items income increased 9 per cent with one-off gains in income offsetting lower Treasury income. Profit increased 3 per cent as the higher income was partly offset by a reduction in the Group's share of Bohai profits due to a change in timing of profit recognition.

Greater China & North Asia income grew 2 per cent despite the disruption caused by the early imposition of lockdowns. An increase in impairments meant profits were down 15 per cent but it remains the largest regional contributor to the overall Group's profit before tax. ASEAN & South Asia achieved double-digit income growth and lower expenses, but this was offset by increased impairments resulting in a 40 per cent reduction in profits. Africa & Middle East experienced difficult conditions that included the effect of sharply lower oil prices in the period, which led to a 6 per cent reduction in income, higher impairments and profit declining 80 per cent. Europe & Americas income increased 38 per cent with strong Financial Markets performance including a $80 million positive movement in DVA. Lower costs offset increased impairments and profits increased to $356 million, up from a $13 million profit in the same period last year. Central & other items income halved mainly due to lower returns paid to Treasury on the equity provided to the regions from a falling interest rate environment partly offset by lower expenses resulting in a $81 million operating loss in the first half.

Adjusted net interest income and margin

 
                                1H'20      1H'191  Change2       2Q'20      2Q'191  Change2       1Q'20  Change2 
                             $million    $million        %    $million    $million        %    $million        % 
-------------------------  ----------  ----------           ----------  ----------  -------  ----------  ------- 
Adjusted net interest 
 income3                        3,619       4,004     (10)       1,688       2,011     (16)       1,931     (13) 
Average interest-earning 
 assets                       520,902     485,737        7     531,131     484,066       10     510,672        4 
Average interest-bearing 
 liabilities                  471,801     434,530        9     479,053     432,223       11     464,549        3 
-------------------------  ----------  ----------  -------  ----------  ----------  -------  ----------  ------- 
 
Gross yield (%)4                 2.65        3.45     (80)        2.37        3.46    (109)        2.95     (58) 
Rate paid (%)4                   1.39        2.00     (61)        1.21        2.01     (80)        1.57     (36) 
Net yield (%)4                   1.26        1.45     (19)        1.16        1.45     (29)        1.38     (22) 
Net interest margin 
 (%)4,5                          1.40        1.66     (26)        1.28        1.67     (39)        1.52     (24) 
-------------------------  ----------  ----------  -------  ----------  ----------  -------  ----------  ------- 
 

1 The Group in 2019 changed its accounting policy for net interest income and the basis of preparation of its net interest margin to better reflect the underlying performance of its banking book. See notes to the financial statements in the 2019 Annual Report for further details.

2 Variance is better/(worse) other than assets and liabilities which is increase/(decrease)

3 Adjusted net interest income is statutory net interest income less funding costs for the trading book

4 Change is the basis points (bps) difference between the two periods rather than the percentage change

5 Adjusted net interest income divided by average interest-earning assets, annualised

Adjusted net interest income was down 10 per cent with a 26 basis points reduction in net interest margin which averaged 140 basis points for the half. The net interest margin in the second quarter of 2020 averaged 128 basis points and was down 24 basis points versus the prior quarter:

-- Average interest-earning assets increased 4 per cent in the quarter, driven by an increase in Treasury Market assets. Gross yields declined 58 basis points compared with the average in the prior quarter and predominantly reflected the flow-through of declining interest rates in the second half of 2019 and those that occurred in the first quarter of 2020

-- Average interest-bearing liabilities increased 3 per cent in the quarter, driven by growth in customer accounts. The rate paid on liabilities decreased 36 basis points compared with the average in the prior quarter reflecting interest rate movements

Credit Risk summary

Income statement

 
                               1H'20       1H'19  Change1       2Q'20       2Q'19  Change1       1Q'20  Change1 
                            $million    $million        %    $million    $million        %    $million        % 
------------------------  ----------  ----------           ----------  ----------  -------  ----------  ------- 
Total credit impairment        1,567         254      517         611         176      247         956     (36) 
                          ----------  ----------  -------  ----------  ----------  -------  ----------  ------- 
  Of which stage 1 and 
   2                             668          82      715         217          19    1,044         451     (52) 
  Of which stage 3               899         172      423         394         157      151         505     (22) 
------------------------  ----------  ----------  -------  ----------  ----------  -------  ----------  ------- 
 

1 Variance is increase/(decrease) comparing current reporting period to prior reporting periods

Balance sheet

 
                                          30.06.201    31.03.20  Change2    31.12.19  Change2   30.06.193  Change2 
                                           $million    $million        %    $million        %    $million        % 
---------------------------------------  ----------  ----------  -------  ----------  -------  ----------  ------- 
Gross loans and advances to customers4      282,826     277,444        2     274,306        3     269,633        5 
                                         ----------  ----------  -------  ----------  -------  ----------  ------- 
  Of which stage 1                          250,278     247,696        1     246,149        2     245,747        2 
  Of which stage 2                           23,739      21,979        8      20,759       14      16,090       48 
  Of which stage 3                            8,809       7,769       13       7,398       19       7,796       13 
                                         ----------  ----------  -------  ----------  -------  ----------  ------- 
 
Expected credit loss provisions             (6,513)     (6,210)        5     (5,783)       13     (6,038)        8 
                                         ----------  ----------  -------  ----------  -------  ----------  ------- 
  Of which stage 1                            (476)       (416)       14       (402)       18       (407)       17 
  Of which stage 2                            (780)       (713)        9       (377)      107       (350)      123 
  Of which stage 3                          (5,257)     (5,081)        3     (5,004)        5     (5,281)        - 
                                         ----------  ----------  -------  ----------  -------  ----------  ------- 
 
Net loans and advances to customers         276,313     271,234        2     268,523        3     263,595        5 
                                         ----------  ----------  -------  ----------  -------  ----------  ------- 
  Of which stage 1                          249,802     247,280        1     245,747        2     245,340        2 
  Of which stage 2                           22,959      21,266        8      20,382       13      15,740       46 
  Of which stage 3                            3,552       2,688       32       2,394       48       2,515       41 
                                         ----------  ----------  -------  ----------  -------  ----------  ------- 
 
Cover ratio of stage 3 before/after            60 /        65 /    (5) /        68 /    (8) /        68 /    (8) / 
 collateral (%)5                                 80          85      (5)          85      (5)          85      (5) 
Credit grade 12 accounts ($million)           1,519       1,453        5       1,605      (5)       1,416        7 
Early alerts ($million)                      14,406      11,461       26       5,271      173       4,068      254 
Investment grade corporate exposures 
 (%)5                                            57          62      (5)          61      (4)          57        - 
---------------------------------------  ----------  ----------  -------  ----------  -------  ----------  ------- 
 

1 Stage 3 Gross Loans and Advances to Banks of $13 million is not included in the table above

2 Variance is increase/(decrease) comparing current reporting period to prior reporting periods

3 2Q 2019 Stage 3 balances, provisions and cover ratios have been restated to include interest due but unpaid together with equivalent credit impairment charge

4 Includes reverse repurchase agreements and other similar secured lending held at amortised cost of $4,383 million at 30 June 2020, $2,903 million at 31 March 2020, $1,469 million at 31 December 2019 and $2,704 million at 30 June 2019

5 Change is the percentage points difference between the two points rather than the percentage change

There was a significant impact from the economic environment on the Group's loan portfolio in the first half of 2020, primarily reflecting the impact of COVID-19. There is a weaker outlook in many of the markets in which the Group operates, with negative global growth expected for 2020 and what is likely to be a volatile and uneven economic recovery. In the second quarter of 2020 the credit quality of the portfolio remained under stress with a further deterioration in short-term macroeconomic forecasts, albeit the pace of deterioration slowed compared to the first quarter.

The Group has taken a number of steps to mitigate the effect on its portfolios and risk profile, informed by stress-testing of various COVID-19 related scenarios, voice of the customer surveys and deep-dives on specific portfolios, and it remains vigilant in the light of the developing situation.

Credit impairment increased by $1,313 million to $1,567 million compared to 1H'19 but was $345 million lower in 2Q'20 than in 1Q'20.

Stage 1 and 2 impairments increased by $586 million, of which around one-half was attributable to modelled outcomes split broadly equally between the impact of deteriorating macroeconomic variables and the net change in exposures and portfolio movements. The remaining half is due to a management overlay, to reflect the deterioration in the macroeconomic outlook not captured in the modelled outcome and the impact of lockdowns and payment relief measures on delinquencies and flow rates within Retail Banking.

Stage 3 impairments increased $727 million across all client segments with over half of the increase due to impairments relating to three unconnected Corporate & Institutional Banking client exposures that were highlighted in 1Q'20.

Gross Stage 3 loans and advances to customers of $8.8 billion were up 19 per cent compared with 31 December 2019 primarily due to increased inflows in Corporate & Institutional Banking. These credit-impaired loans represented 3.1 per cent of gross loans and advances, an increase of 40 basis points compared with 31 December 2019.

The Stage 3 cover ratio reduced to 60 per cent from 68 per cent as at 31 December 2019 due to write-offs of fully-provided balances as well as new downgrades which incurred lower levels of provisions but were partially covered by tangible collateral. The cover ratio after collateral declined to 80 per cent from 85 per cent as some of the new inflows are also covered by non-tangible collateral such as guarantees and insurance, which are not captured in the cover ratio after collateral metric.

Credit grade 12 balances have decreased 5 per cent since 31 December 2019 with new inflows from Early Alert accounts including the impact of sovereign downgrades more than offset by outflows to stage 3 and repayments.

Early Alert accounts more than doubled to $14.4 billion with just under half of the increase driven by the Aviation sector. Early alerts increased $2.9 billion in the second quarter of 2020, as detailed reviews continued on a wide range of sectors and clients but declined in June. The Group is monitoring its exposures in the Aviation, Metals & Mining and Oil & Gas sectors particularly carefully, given the unusual stresses caused by the effects of COVID-19 including low oil prices.

The proportion of investment grade corporate exposures has reduced since 31 December 2019 by 4 percentage points to 57 per cent reflecting a reduction in repo balances and downgrades in the Aviation and Oil & Gas sectors.

Restructuring and others

 
                                            1H'20                                        1H'19 
-----------------------  -------------------------------------------  ------------------------------------------- 
                               Provision                                    Provision 
                          for regulatory                               for regulatory 
                                 matters  Restructuring  Other items          matters  Restructuring  Other items 
                                $million       $million     $million         $million       $million     $million 
-----------------------  ---------------  -------------  -----------  ---------------  -------------  ----------- 
Operating income                       -             46            6                -            134            - 
Operating expenses                    14           (49)            -            (204)          (125)            - 
Credit impairment                      -            (9)            -                -              -            - 
Goodwill impairment                    -              -        (258)                -              -            - 
Other impairment                       -           (77)            -                -           (23)            - 
Profit from associates 
 and joint ventures                    -            (1)            -                -              -           23 
-----------------------  ---------------  -------------  -----------  ---------------  -------------  ----------- 
Profit/(loss) before 
 taxation                             14           (90)        (252)            (204)           (14)           23 
-----------------------  ---------------  -------------  -----------  ---------------  -------------  ----------- 
 

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 underlying performance period-by-period.

Restructuring charges of $90 million primarily reflect impairments from the Group's discontinued ship leasing and principal finance businesses. Other items of $252 million relates mainly to a goodwill impairment on the Group's branch in India that was taken in 1Q'20 due to a lower economic growth forecast and increases to the discount rate.

Balance sheet and liquidity

 
                                    30.06.20    31.03.20  Change1    31.12.19  Change1    30.06.19  Change1 
                                    $million    $million        %    $million        %    $million        % 
--------------------------------  ----------  ----------  -------  ----------  -------  ----------  ------- 
Assets 
Loans and advances to banks           50,499      61,323     (18)      53,549      (6)      59,210     (15) 
Loans and advances to customers      276,313     271,234        2     268,523        3     263,595        5 
Other assets                         414,773     432,359      (4)     398,326        4     389,699        6 
--------------------------------  ----------  ----------  -------  ----------  -------  ----------  ------- 
Total assets                         741,585     764,916      (3)     720,398        3     712,504        4 
--------------------------------  ----------  ----------  -------  ----------  -------  ----------  ------- 
Liabilities 
Deposits by banks                     28,986      25,519       14      28,562        1      30,783      (6) 
Customer accounts                    421,153     422,192        -     405,357        4     401,597        5 
Other liabilities                    241,549     267,201     (10)     235,818        2     229,685        5 
--------------------------------  ----------  ----------  -------  ----------  -------  ----------  ------- 
Total liabilities                    691,688     714,912      (3)     669,737        3     662,065        4 
--------------------------------  ----------  ----------  -------  ----------  -------  ----------  ------- 
Equity                                49,897      50,004        -      50,661      (2)      50,439      (1) 
--------------------------------  ----------  ----------  -------  ----------  -------  ----------  ------- 
Total equity and liabilities         741,585     764,916      (3)     720,398        3     712,504        4 
--------------------------------  ----------  ----------  -------  ----------  -------  ----------  ------- 
 
Advances-to-deposits ratio (%)2        62.7%       61.9%                64.2%                63.7% 
--------------------------------  ----------  ----------  -------  ----------  -------  ----------  ------- 
Liquidity coverage ratio (%)            149%        142%                 144%                 139% 
--------------------------------  ----------  ----------  -------  ----------  -------  ----------  ------- 
 

1 Variance is increase/(decrease)comparing current reporting period to prior reporting periods

2 The Group now excludes $13,595 million held with central banks (31.03.20: $9,947 million, 31.12.19: $9,109 million, 30.06.19: $6,835 million) that has been confirmed as repayable at the point of stress

The Group's balance sheet remains strong, liquid and well diversified:

-- Loans and advances to customers increased 3 per cent since 31 December 2019 to $276 billion driven mainly by growth in Financial Markets, Corporate Lending and Corporate Finance. The increase in Corporate Lending and Corporate Finance reflects increased draw-downs on revolving credit facilities that coincided with the global spread of COVID-19 in March and April

-- Customer accounts of $421 billion increased 4 per cent since 31 December 2019 with an increase in operating account balances within Cash Management and Retail Banking current accounts partly offset by a reduction in Corporate and Retail Banking time deposits

-- Other assets increased 4 per cent since 31 December 2019 driven by increased derivative assets and reverse repurchase agreements to support the strong growth in Financial Markets. Other liabilities increased 2 per cent from increased trading book liabilities and derivative liabilities

The advances-to-deposits ratio reduced slightly to 62.7 per cent from 64.2 per cent at 31 December 2019. The liquidity coverage ratio strengthened, increasing from 144 per cent to 149 per cent due to improved funding mix and supported by the Group's term debt issuance activity notwithstanding challenging market conditions and remains well above the minimum regulatory requirement of 100 per cent.

Risk-weighted assets

 
                     30.06.20    31.03.20  Change1    31.12.19  Change1    30.06.19  Change1 
                     $million    $million        %    $million        %    $million        % 
-----------------  ----------  ----------  -------  ----------  -------  ----------  ------- 
By risk type 
Credit Risk           213,136     223,003      (4)     215,664      (1)     220,010      (3) 
Operational Risk       26,800      27,803      (4)      27,620      (3)      27,620      (3) 
Market Risk            22,616      21,847        4      20,806        9      23,109      (2) 
-----------------  ----------  ----------  -------  ----------  -------  ----------  ------- 
Total RWAs            262,552     272,653      (4)     264,090      (1)     270,739      (3) 
-----------------  ----------  ----------  -------  ----------  -------  ----------  ------- 
 

1 Variance is increase/(decrease) comparing current reporting period to prior reporting periods

Total risk-weighted assets (RWA) decreased 1 per cent or $2 billion since 31 December 2019 to $263 billion and have reduced by $10 billion since 31 March 2020, reflecting the completion of the sale of the Group's interest in PT Bank Permata Tbk (Permata) in Indonesia which reduced RWAs by $9 billion in total:

-- Credit Risk RWA reduced by $3 billion in the first half to $213 billion with a $8 billion reduction from Permata partly offset by the impact of economic disruption related to COVID-19 on asset growth and credit migration. Negative credit migration totalled $7 billion in the first half and was partly mitigated by $4 billion of favourable FX movements. Asset growth increased RWAs by $1 billion with increased balance sheet volumes broadly offset by improvements in RWA density

-- Operational Risk RWA declined 3 per cent reflecting a $1 billion reduction relating to Permata

-- Market Risk RWA increased by $2 billion to $23 billion due to higher levels of Financial Markets activity with increased value-at-risk from elevated market volatility partly offset by regulatory mitigation for back-testing exceptions

Capital base and ratios

 
                                      30.06.20    31.03.20  Change1    31.12.19  Change1    30.06.19  Change1 
                                      $million    $million       `%    $million        %    $million        % 
----------------------------------  ----------  ----------  -------  ----------  -------  ----------  ------- 
CET1 capital                            37,625      36,467        3      36,513        3      36,511        3 
Additional Tier 1 capital (AT1)          5,612       4,620       21       7,164     (22)       6,612     (15) 
----------------------------------  ----------  ----------  -------  ----------  -------  ----------  ------- 
Tier 1 capital                          43,237      41,087        5      43,677      (1)      43,123        - 
Tier 2 capital                          13,231      12,371        7      12,288        8      11,834       12 
----------------------------------  ----------  ----------  -------  ----------  -------  ----------  ------- 
Total capital                           56,468      53,458        6      55,965        1      54,957        3 
----------------------------------  ----------  ----------  -------  ----------  -------  ----------  ------- 
CET1 capital ratio end point (%)2         14.3        13.4      0.9        13.8      0.5        13.5      0.8 
Total capital ratio transitional 
 (%)2                                     21.5        19.6      1.9        21.2      0.3        20.3      1.2 
UK leverage ratio (%)2                     5.2         4.9      0.3         5.2        -         5.3    (0.1) 
----------------------------------  ----------  ----------  -------  ----------  -------  ----------  ------- 
 

1 Variance is increase/(decrease) comparing current reporting period to prior reporting periods

2 Change is percentage points difference between two points rather than percentage change

The Group is well capitalised with low leverage and high levels of loss-absorbing capacity. Its capital and liquidity metrics remain well above regulatory thresholds.

The Group announced on 31 March 2020 that in response to a request from the Prudential Regulation Authority and as a consequence of the unprecedented challenges facing the world due to the COVID-19 pandemic, its board had decided after careful consideration to withdraw the recommendation to pay a final dividend for 2019 of 20 cents per ordinary share and to suspend the buy-back programme announced on 28 February 2020. Furthermore, no interim dividend on ordinary shares will be accrued, recommended or paid in 2020.

The board fully recognises the importance of dividends to the Group's owners. However, suspending ordinary shareholder distributions is allowing the Group to maximise its support for individuals, businesses and the communities in which it operates whilst at the same time preserving strong capital ratios and investing to transform the business for the long term.

The Group had purchased 40 million ordinary shares for $242 million through the buy-back programme announced on 28 February 2020. These shares were subsequently cancelled reducing total issued share capital by 1.3 per cent.

The Group's minimum Common Equity Tier 1 (CET1) requirement has reduced from 10.2 per cent to 10.0 per cent reflecting the reductions in counter-cyclical buffer rates in the UK and Hong Kong.

The Group's CET1 ratio of 14.3 per cent was 50 basis points higher than as at 31 December 2019, over four percentage points above the Group's latest regulatory minimum of 10.0 per cent and above the top of the 13-14 per cent medium-term target range.

The Group on 20 May 2020 announced the completion of the sale of its stake in PT Bank Permata Tbk, which generated an increase in the Group's CET1 ratio of approximately 50 basis points.

The impact on credit RWAs from asset growth and negative credit migration was a 50 basis point reduction in the CET1 ratio. The $242 million share buy-back also reduced the CET1 ratio by 10 basis points. This was partly offset by an aggregate 60 basis point impact from profit accretion and the cancellation of the 2019 final dividend.

The Group's UK leverage ratio of 5.2 per cent was in line with the ratio at 31 December 2019. The Group's leverage ratio remains significantly above its minimum requirement of 3.6 per cent.

The Group continues to target a CET1 ratio of 13-14 per cent in the medium-term.

Outlook

We continue to believe that some of our larger markets will start to drive the global economy out of recession over the coming quarters but expect economic activity across our footprint in that period to be volatile and uneven.

Income is likely to be lower both half-on-half and year-on-year in the second half of 2020. The benefits of the early stage recovery in some of our markets and our geographic and product diversity are unlikely to be enough to offset the impact of low interest rates and the probability of less buoyant conditions for our Financial Markets business.

Expenses excluding the UK bank levy are usually higher in the second half, but we continue to target being below $10 billion in 2020. Given the more challenging external environment we have started to implement new sustainable efficiency initiatives with the intent to stay below $10 billion in 2021 as well.

Given the extreme economic pressures relating to the persistence of COVID-19, partially addressed through the efficacy of government support measures, it is not possible to reliably predict the quantum or timing of future impairments. However, if economic conditions in our markets do not materially deteriorate in the coming months then, given the substantial provisions we have taken already, we anticipate that impairments in the second half will be lower than those recorded in the first half.

Andy Halford

Group Chief Financial Officer

30 July 2020

Standard Chartered PLC - Supplementary financial information

Underlying performance by client segment

 
                                                                   1H'20 
------------------------------  --------------------------------------------------------------------------- 
                                       Corporate 
                                 & Institutional     Retail  Commercial    Private     Central & 
                                         Banking    Banking     Banking    Banking   other items      Total 
                                        $million   $million    $million   $million      $million   $million 
------------------------------  ----------------  ---------  ----------  ---------  ------------  --------- 
Operating income                           3,987      2,537         740        300           483      8,047 
                                ----------------  ---------  ----------  ---------  ------------  --------- 
  External                                 4,012      2,103         700        202         1,030      8,047 
  Inter-segment                             (25)        434          40         98         (547)          - 
                                ----------------  ---------  ----------  ---------  ------------  --------- 
Operating expenses                       (1,985)    (1,780)       (421)      (239)         (288)    (4,713) 
------------------------------  ----------------  ---------  ----------  ---------  ------------  --------- 
Operating profit before 
 impairment losses and 
 taxation                                  2,002        757         319         61           195      3,334 
Credit impairment                          (985)      (430)       (137)        (5)          (10)    (1,567) 
Other impairment                             115        (1)           -          -           (2)        112 
Profit from associates 
 and joint ventures                            -          -           -          -            76         76 
------------------------------  ----------------  ---------  ----------  ---------  ------------  --------- 
Underlying profit before 
 taxation                                  1,132        326         182         56           259      1,955 
Provision for regulatory 
 matters                                       -          -           -          -            14         14 
Restructuring                               (56)        (3)        (18)        (3)          (10)       (90) 
Net gain on businesses 
 disposed/held for sale                        -          -           -          -             6          6 
Goodwill impairment                            -          -           -          -         (258)      (258) 
------------------------------  ----------------  ---------  ----------  ---------  ------------  --------- 
Statutory profit before 
 taxation                                  1,076        323         164         53            11      1,627 
------------------------------  ----------------  ---------  ----------  ---------  ------------  --------- 
Total assets                             336,623    107,327      33,158     13,202       251,275    741,585 
  Of which: loans and 
   advances to customers 
   including FVTPL                       164,392    105,085      28,151     13,097        17,440    328,165 
Total liabilities                        402,920    149,422      43,578     18,842        76,926    691,688 
  Of which: customer accounts 
   including FVTPL and 
   repurchase agreements                 257,512    146,088      40,507     18,725         6,632    469,464 
------------------------------  ----------------  ---------  ----------  ---------  ------------  --------- 
 
 
                                                                   1H'19 
------------------------------  --------------------------------------------------------------------------- 
                                       Corporate 
                                 & Institutional     Retail  Commercial    Private     Central & 
                                         Banking    Banking     Banking    Banking   other items      Total 
                                        $million   $million    $million   $million      $million   $million 
------------------------------  ----------------  ---------  ----------  ---------  ------------  --------- 
Operating income                           3,534      2,603         811        306           442      7,696 
                                ----------------  ---------  ----------  ---------  ------------  --------- 
  External                                 3,633      2,140         863        171           889      7,696 
  Inter-segment                             (99)        463        (52)        135         (447)          - 
                                ----------------  ---------  ----------  ---------  ------------  --------- 
Operating expenses                       (2,102)    (1,825)       (445)      (253)         (344)    (4,969) 
------------------------------  ----------------  ---------  ----------  ---------  ------------  --------- 
Operating profit before 
 impairment losses and 
 taxation                                  1,432        778         366         53            98      2,727 
Credit impairment                          (116)      (154)        (29)         47           (2)      (254) 
Other impairment                            (19)          -           -          -           (2)       (21) 
Profit from associates 
 and joint ventures                            -          -           -          -           157        157 
------------------------------  ----------------  ---------  ----------  ---------  ------------  --------- 
Underlying profit before 
 taxation                                  1,297        624         337        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                                  1,320        623         337         99            35      2,414 
------------------------------  ----------------  ---------  ----------  ---------  ------------  --------- 
Total assets                             329,113    103,909      35,718     15,654       228,110    712,504 
  Of which: loans and 
   advances to customers 
   including FVTPL1                      149,752    101,784      30,465     15,521         9,120    306,642 
Total liabilities                        380,549    143,297      39,805     18,616        79,798    662,065 
  Of which: customer accounts 
   including FVTPL and 
   repurchase agreements                 234,142    139,898      36,908     18,473        15,490    444,911 
------------------------------  ----------------  ---------  ----------  ---------  ------------  --------- 
 

1 Following a reorganisation of certain clients, there has been a reclassification of balances across client segments. Prior periods have been restated

Corporate & Institutional Banking

 
                                                                 Constant                                     Constant 
                                                                 currency                                     currency 
                                   1H'20       1H'19   Change4    change1       2Q'20       2Q'19   Change4    change1 
                                $million    $million         %          %    $million    $million         %          % 
----------------------------  ----------  ----------  --------             ----------  ----------  --------  --------- 
Operating income                   3,987       3,534        13         15       1,833       1,776         3          6 
  Transaction Banking3             1,120       1,323      (15)       (14)         531         672      (21)       (20) 
                              ----------  ----------  --------  ---------  ----------  ----------  --------  --------- 
     Trade                           310         352      (12)       (11)         146         179      (18)       (18) 
     Cash Management                 810         971      (17)       (15)         385         493      (22)       (20) 
                              ----------  ----------  --------  ---------  ----------  ----------  --------  --------- 
  Financial Markets3               2,081       1,479        41         44         897         740        21         25 
                              ----------  ----------  --------  ---------  ----------  ----------  --------  --------- 
     Foreign Exchange                664         503        32         35         302         256        18         23 
     Rates                           695         338       106        111         328         128       156        163 
     Commodities                     111          73        52         52          76          37       105        105 
     Credit and Capital 
      Markets                        260         263       (1)          -         245         130        88         92 
     Capital Structuring 
      Distribution Group             104         141      (26)       (24)          47          66      (29)       (25) 
     DVA                             104        (42)       nm7        nm7       (201)          11       nm7        nm7 
     Security Services3              163         170       (4)        (1)          79          87       (9)        (7) 
     Other Financial Markets        (20)          33     (161)      (154)          21          25      (16)       (22) 
                              ----------  ----------  --------  ---------  ----------  ----------  --------  --------- 
  Corporate Finance                  496         478         4          6         245         240         2          5 
  Lending and Portfolio 
   Management                        304         265        15         18         168         138        22         26 
  Other                             (14)        (11)      (27)       (56)         (8)        (14)        43         43 
Operating expenses               (1,985)     (2,102)         6          3     (1,004)     (1,070)         6          3 
----------------------------  ----------  ----------  --------  ---------  ----------  ----------  --------  --------- 
Operating profit before 
 impairment losses and 
 taxation                          2,002       1,432        40         41         829         706        17         20 
Credit impairment                  (985)       (116)       nm7        nm7       (315)        (73)       nm7        nm7 
Other impairment                     115        (19)       nm7        nm7        (38)        (16)     (138)      (138) 
----------------------------  ----------  ----------  --------  ---------  ----------  ----------  --------  --------- 
Underlying profit before 
 taxation                          1,132       1,297      (13)       (12)         476         617      (23)       (21) 
Restructuring                       (56)          23       nm7        nm7           6        (21)       129        137 
----------------------------  ----------  ----------  --------  ---------  ----------  ----------  --------  --------- 
Statutory profit before 
 taxation                          1,076       1,320      (18)       (18)         482         596      (19)       (17) 
----------------------------  ----------  ----------  --------  ---------  ----------  ----------  --------  --------- 
Total assets                     336,623     329,113         2          3     336,623     329,113         2          3 
  Of which: loans and 
   advances to customers 
   including FVTPL2              164,392     149,752        10         11     164,392     149,752        10         11 
Total liabilities                402,920     380,549         6          7     402,920     380,549         6          7 
  Of which: customer 
   accounts 
   including FVTPL and 
   repurchase agreements         257,512     234,142        10         11     257,512     234,142        10         11 
Risk-weighted assets             137,150     134,938         2                137,150     134,938         2 
Underlying return on 
 risk-weighted assets 
 (%)5                                1.7         2.0   (30)bps                    1.4         1.8   (40)bps 
Underlying return on 
 tangible equity (%)5                8.3         9.8  (150)bps                    6.8         9.2  (240)bps 
Cost-to-income ratio 
 (%)6                               49.8        59.5       9.7        9.3        54.8        60.2       5.4        5.3 
----------------------------  ----------  ----------  --------  ---------  ----------  ----------  --------  --------- 
 

1 Comparisons presented on the basis of the current period's transactional currency rate, ensuring like-for-like currency rates between the two periods

2 Following a reorganisation of certain clients, there has been a reclassification of balances across client segments. Prior periods have been restated

3 Following a reorganisation, there has been a reclassification of balances relating to Securities Services from Transaction Banking to Financial Markets including prior-period numbers. There is no change in the total income

4 Variance is better/(worse) other than risk-weighted assets, assets and liabilities which is increase/(decrease)

5 Change is the basis points (bps) difference between the two periods rather than the percentage change

6 Change is the percentage points difference between the two periods rather than the percentage change

7 Not meaningful

Performance highlights

-- Underlying operating profit before taxation of $1,132 million was down 13 per cent (12 per cent on a constant currency basis) driven by increased credit impairments relating to three unconnected Corporate & Institutional Banking client exposures that were highlighted in 1Q'20, despite higher income and lower costs

-- Underlying operating income of $3,987 million was up 13 per cent (9 per cent excluding a positive movement in the debit valuation adjustment) primarily driven by Financial Markets income off the back of heightened volatility and increased client demand, partially offset by Cash Management income due to the margin impact of rate cuts

-- Good balance sheet momentum with loans and advances to customers up 7 per cent since 31 December 2019

-- Risk-weighted assets up $8 billion year-to-date mainly as a result of increased Credit RWA

-- RoTE reduced from 9.8 per cent to 8.3 per cent

Retail Banking

 
                                                               Constant                                       Constant 
                                                               currency                                       currency 
                                 1H'20       1H'19   Change3    change1       2Q'20       2Q'19     Change3    change1 
                              $million    $million         %          %    $million    $million           %          % 
--------------------------  ----------  ----------  --------             ----------  ----------  ----------  --------- 
Operating income                 2,537       2,603       (3)          -       1,216       1,334         (9)        (7) 
  Transaction Banking                9           9         -          -           4           5        (20)          - 
                            ----------  ----------  --------  ---------  ----------  ----------  ----------  --------- 
     Trade                           9           9         -          -           4           5        (20)          - 
                            ----------  ----------  --------  ---------  ----------  ----------  ----------  --------- 
  Wealth Management                760         780       (3)        (2)         346         410        (16)       (15) 
  Retail Products                1,760       1,815       (3)        (1)         862         920         (6)        (3) 
                            ----------  ----------  --------  ---------  ----------  ----------  ----------  --------- 
     CCPL and other 
      unsecured 
      lending                      599         625       (4)        (1)         295         320         (8)        (5) 
     Deposits                      803         900      (11)        (8)         372         454        (18)       (15) 
     Mortgage and Auto             288         241        20         23         159         120          33         38 
     Other Retail Products          70          49        43         41          36          26          38         30 
                            ----------  ----------  --------  ---------  ----------  ----------  ----------  --------- 
  Other                              8         (1)       nm6        nm6           4         (1)         nm6        nm6 
Operating expenses             (1,780)     (1,825)         2          -       (889)       (928)           4          1 
--------------------------  ----------  ----------  --------  ---------  ----------  ----------  ----------  --------- 
Operating profit before 
 impairment losses and 
 taxation                          757         778       (3)        (2)         327         406        (19)       (19) 
Credit impairment                (430)       (154)     (179)      (187)       (233)        (72)         nm6        nm6 
Other impairment                   (1)           -       nm6        nm6         (1)           -         nm6        nm6 
--------------------------  ----------  ----------  --------  ---------  ----------  ----------  ----------  --------- 
Underlying profit before 
 taxation                          326         624      (48)       (47)          93         334        (72)       (73) 
Restructuring                      (3)         (1)     (200)      (200)           -         (1)         100        100 
--------------------------  ----------  ----------  --------  ---------  ----------  ----------  ----------  --------- 
Statutory profit before 
 taxation                          323         623      (48)       (48)          93         333        (72)       (72) 
--------------------------  ----------  ----------  --------  ---------  ----------  ----------  ----------  --------- 
Total assets                   107,327     103,909         3          5     107,327     103,909           3          5 
  Of which: loans and 
   advances to customers 
   including FVTPL2            105,085     101,784         3          5     105,085     101,784           3          5 
Total liabilities              149,422     143,297         4          6     149,422     143,297           4          6 
  Of which: customer 
   accounts 
   including FVTPL and 
   repurchase agreements       146,088     139,898         4          6     146,088     139,898           4          6 
Risk-weighted assets            44,186      42,839         3                 44,186      42,839           3 
Underlying return on 
 risk-weighted assets 
 (%)4                              1.5         3.0  (150)bps                    0.8         3.2    (240)bps 
Underlying return on 
 tangible equity (%)4              7.3        14.8  (750)bps                    4.2        15.8  (1,160)bps 
Cost-to-income ratio 
 (%)5                             70.2        70.1     (0.1)      (0.4)        73.1        69.6       (3.5)      (4.1) 
--------------------------  ----------  ----------  --------  ---------  ----------  ----------  ----------  --------- 
 

1 Comparisons presented on the basis of the current period's transactional currency rate, ensuring like-for-like currency rates between the two periods

2 Following a reorganisation of certain clients, there has been a reclassification of balances across client segments. Prior periods have been restated

3 Variance is better/(worse) other than risk-weighted assets, assets and liabilities which is increase/(decrease)

4 Change is the basis points (bps) difference between the two periods rather than the percentage change

5 Change is the percentage points difference between the two periods rather than the percentage change

6 Not meaningful

Performance highlights

-- Underlying operating profit before taxation of $326 million was down year-on-year due to lower income and increased credit impairment due to a worsening credit environment with the impact of COVID-19

-- Underlying operating income of $2,537 million was down 3 per cent (flat on a constant currency basis), predominantly driven by a 8 per cent decline (down 2 per cent on a constant currency basis) in Africa & Middle East, a 4 per cent decline (down 1 per cent on a constant currency basis) in ASEAN & South Asia and a 1 per cent decline (flat on a constant currency basis) in Greater China & North Asia

-- All regions have been impacted by the more challenging current environment with lower income and higher loan impairment, but Greater China & North Asia is showing early signs of recovery

-- RoTE decreased from 14.8 per cent to 7.3 per cent

Commercial Banking

 
                                                                 Constant                                     Constant 
                                                                 currency                                     currency 
                                   1H'20       1H'19   Change3    change1       2Q'20       2Q'19   Change3    change1 
                                $million    $million         %          %    $million    $million         %          % 
----------------------------  ----------  ----------  --------             ----------  ----------  --------  --------- 
Operating income                     740         811       (9)        (7)         350         412      (15)       (13) 
  Transaction Banking                392         446      (12)       (11)         186         224      (17)       (15) 
                              ----------  ----------  --------  ---------  ----------  ----------  --------  --------- 
     Trade                           171         198      (14)       (13)          80          98      (18)       (17) 
                              ----------  ----------  --------  ---------  ----------  ----------  --------  --------- 
     Cash Management                 221         248      (11)        (9)         106         126      (16)       (14) 
  Financial Markets                  167         186      (10)        (8)          73          94      (22)       (20) 
                              ----------  ----------  --------  ---------  ----------  ----------  --------  --------- 
     Foreign Exchange                 94          99       (5)        (2)          41          48      (15)       (11) 
     Rates                            22          19        16         16          11           8        38         25 
     Commodities                      15          16       (6)        (6)           6           7      (14)       (14) 
     Credit and Capital 
      Markets                         16          22      (27)       (27)           5          15      (67)       (67) 
     Capital Structuring 
      Distribution Group               9          15      (40)       (40)           5           8      (38)       (50) 
     Other Financial Markets          11          15      (27)       (23)           5           8      (38)          - 
                              ----------  ----------  --------  ---------  ----------  ----------  --------  --------- 
  Corporate Finance                   51          54       (6)          -          24          30      (20)       (17) 
  Lending and Portfolio 
   Management                        123         119         3          5          64          59         8         12 
  Wealth Management                    -           1     (100)      (100)           -           -       nm6      (100) 
  Retail Products                      3           3         -          -           1           2      (50)          - 
                              ----------  ----------  --------  ---------  ----------  ----------  --------  --------- 
     Deposits                          3           3         -          -           1           2      (50)       (50) 
                              ----------  ----------  --------  ---------  ----------  ----------  --------  --------- 
  Other                                4           2       100        nm6           2           3      (33)       (33) 
Operating expenses                 (421)       (445)         5          3       (212)       (227)         7          2 
----------------------------  ----------  ----------  --------  ---------  ----------  ----------  --------  --------- 
Operating profit before 
 impairment losses and 
 taxation                            319         366      (13)       (11)         138         185      (25)       (26) 
Credit impairment                  (137)        (29)       nm6        nm6        (58)        (35)      (66)       (79) 
----------------------------  ----------  ----------  --------  ---------  ----------  ----------  --------  --------- 
Underlying profit before 
 taxation                            182         337      (46)       (46)          80         150      (47)       (49) 
Restructuring                       (18)           -       nm6        nm6         (4)         (1)       nm6        nm6 
----------------------------  ----------  ----------  --------  ---------  ----------  ----------  --------  --------- 
Statutory profit before 
 taxation                            164         337      (51)       (51)          76         149      (49)       (52) 
----------------------------  ----------  ----------  --------  ---------  ----------  ----------  --------  --------- 
Total assets                      33,158      35,718       (7)        (5)      33,158      35,718       (7)        (5) 
  Of which: loans and 
   advances to customers 
   including FVTPL2               28,151      30,465       (8)        (5)      28,151      30,465       (8)        (5) 
Total liabilities                 43,578      39,805         9         10      43,578      39,805         9         10 
  Of which: customer 
   accounts 
   including FVTPL and 
   repurchase agreements          40,507      36,908        10         11      40,507      36,908        10         11 
Risk-weighted assets              30,856      34,555      (11)                 30,856      34,555      (11) 
Underlying return on 
 risk-weighted assets 
 (%)4                                1.2         2.0   (80)bps                    1.0         1.7   (70)bps 
Underlying return on 
 tangible equity (%)4                5.8         9.7  (390)bps                    5.1         8.7  (360)bps 
Cost-to-income ratio 
 (%)5                               56.9        54.9     (2.0)      (2.2)        60.6        55.1     (5.5)      (6.7) 
----------------------------  ----------  ----------  --------  ---------  ----------  ----------  --------  --------- 
 

1 Comparisons presented on the basis of the current period's transactional currency rate, ensuring like-for-like currency rates between the two periods

2 Following a reorganisation of certain clients, there has been a reclassification of balances across client segments. Prior periods have been restated

3 Variance is better/(worse) other than risk-weighted assets, assets and liabilities which is increase/(decrease)

4 Change is the basis points (bps) difference between the two periods rather than the percentage change

5 Change is the percentage points difference between the two periods rather than the percentage change

6 Not meaningful

Performance highlights

-- Underlying operating profit before taxation of $182 million was down 46 per cent mainly due to higher impairments and lower income, partially offset by lower costs

-- Underlying operating income of $740 million was down 9 per cent predominantly driven by Transaction Banking which was negatively impacted by interest rate cuts and a slowdown in Trade. Income was down 13 per cent in Greater China & North Asia, down 5 per cent in ASEAN & South Asia and down 9 per cent in Africa & Middle East

-- RoTE decreased from 9.7 per cent to 5.8 per cent

Private Banking

 
                                                                 Constant                                     Constant 
                                                                 currency                                     currency 
                                   1H'20       1H'19   Change2    change1       2Q'20       2Q'19   Change2    change1 
                                $million    $million         %          %    $million    $million         %          % 
----------------------------  ----------  ----------  --------             ----------  ----------  --------  --------- 
Operating income                     300         306       (2)        (2)         138         157      (12)       (11) 
  Corporate Finance                    -           2     (100)      (100)           -           2     (100)      (100) 
  Wealth Management                  204         195         5          5          88         101      (13)       (12) 
  Retail Products                     96         109      (12)       (11)          50          54       (7)        (7) 
                              ----------  ----------  --------  ---------  ----------  ----------  --------  --------- 
     Deposits                         79          92      (14)       (13)          40          45      (11)       (11) 
     Mortgage and Auto                17          17         -          -          10           9        11         11 
                              ----------  ----------  --------  ---------  ----------  ----------  --------  --------- 
Operating expenses                 (239)       (253)         6          4       (115)       (129)        11          9 
----------------------------  ----------  ----------  --------  ---------  ----------  ----------  --------  --------- 
Operating profit before 
 impairment losses and 
 taxation                             61          53        15          9          23          28      (18)       (18) 
Credit impairment                    (5)          47     (111)      (111)         (4)           -       nm5        nm5 
----------------------------  ----------  ----------  --------  ---------  ----------  ----------  --------  --------- 
Underlying profit before 
 taxation                             56         100      (44)       (46)          19          28      (32)       (32) 
Restructuring                        (3)         (1)     (200)        nm5         (1)           1     (200)      (200) 
----------------------------  ----------  ----------  --------  ---------  ----------  ----------  --------  --------- 
Statutory profit before 
 taxation                             53          99      (46)       (50)          18          29      (38)       (43) 
----------------------------  ----------  ----------  --------  ---------  ----------  ----------  --------  --------- 
Total assets                      13,202      15,654      (16)       (15)      13,202      15,654      (16)       (15) 
  Of which: loans and 
   advances to customers 
   including FVTPL                13,097      15,521      (16)       (15)      13,097      15,521      (16)       (15) 
Total liabilities                 18,842      18,616         1          2      18,842      18,616         1          2 
  Of which: customer 
   accounts 
   including FVTPL and 
   repurchase agreements          18,725      18,473         1          2      18,725      18,473         1          2 
Risk-weighted assets               6,128       6,615       (7)                  6,128       6,615       (7) 
Underlying return on 
 risk-weighted assets 
 (%)3                                1.7         3.1  (140)bps                    1.2         1.7   (50)bps 
Underlying return on 
 tangible equity (%)3                8.5        15.7  (720)bps                    5.9         8.4  (250)bps 
Cost-to-income ratio 
 (%)4                               79.7        82.7       3.0        2.0        83.3        82.2     (1.1)      (1.4) 
----------------------------  ----------  ----------  --------  ---------  ----------  ----------  --------  --------- 
 

1 Comparisons presented on the basis of the current period's transactional currency rate, ensuring like-for-like currency rates between the two periods

2 Variance is better/(worse) other than risk-weighted assets, assets and liabilities which is increase/(decrease)

3 Change is the basis points (bps) difference between the two periods rather than the percentage change

4 Change is the percentage points difference between the two periods rather than the percentage change

5 Not meaningful

Performance highlights

-- Underlying operating profit of $56 million was down 44 per cent, as lower expenses were more than offset by a non-repeat of an impairment release in the prior year

-- Underlying operating income of $300 million was down 2 per cent, primarily due to a decline in Retail Products (mainly Deposits), mitigated by continued resilient performance from Wealth Management

-- Assets under management at $63 billion was down 4 per cent mainly from negative market valuation of $1.4 billion

-- RoTE decreased from 15.7 per cent to 8.5 per cent mainly due to a one-off credit impairment release included in the

previous year

Central & other items (segment)

 
                                                                 Constant                                     Constant 
                                                                 currency                                     currency 
                                    1H'20       1H'19  Change2    change1       2Q'20       2Q'19   Change2    change1 
                                 $million    $million        %          %    $million    $million         %          % 
-----------------------------  ----------  ----------  -------             ----------  ----------  --------  --------- 
Operating income                      483         442        9         12         183         204      (10)        (7) 
  Treasury                            503         559     (10)        (8)         178         251      (29)       (27) 
  Other                              (20)       (117)       83         83           5        (47)       111        115 
Operating expenses                  (288)       (344)       16          9       (135)       (200)        33         22 
-----------------------------  ----------  ----------  -------  ---------  ----------  ----------  --------  --------- 
Operating profit before 
 impairment losses and 
 taxation                             195          98       99         71          48           4       nm5        187 
Credit impairment                    (10)         (2)      nm5        nm5         (1)           4     (125)      (125) 
Other impairment                      (2)         (2)        -          -         (3)         (3)         -          - 
Profit from associates 
 and joint ventures                    76         157     (52)       (52)          21          91      (77)       (78) 
-----------------------------  ----------  ----------  -------  ---------  ----------  ----------  --------  --------- 
Underlying profit before 
 taxation                             259         251        3        (4)          65          96      (32)       (45) 
Provision for regulatory 
 matters                               14       (204)      107        107           -        (18)       100        100 
Restructuring                        (10)        (35)       71         71           1        (24)       104        108 
Net gain on businesses 
 disposed/held for sale                 6           -      nm5        nm5           6           -       nm5        nm5 
Goodwill impairment                 (258)           -      nm5        nm5           -           -       nm5        nm5 
Share of profits of 
 PT Bank Permata Tbk 
 joint venture                          -          23    (100)      (100)           -          11     (100)      (100) 
-----------------------------  ----------  ----------  -------  ---------  ----------  ----------  --------  --------- 
Statutory profit before 
 taxation                              11          35     (69)       (86)          72          65        11       (12) 
-----------------------------  ----------  ----------  -------  ---------  ----------  ----------  --------  --------- 
Total assets                      251,275     228,110       10         11     251,275     228,110        10         11 
  Of which: loans and 
   advances to customers 
   including FVTPL                 17,440       9,120       91         97      17,440       9,120        91         97 
Total liabilities                  76,926      79,798      (4)        (3)      76,926      79,798       (4)        (3) 
  Of which: customer accounts 
   including FVTPL and 
   repurchase agreements            6,632      15,490     (57)       (57)       6,632      15,490      (57)       (57) 
Risk-weighted assets               44,232      51,792     (15)                 44,232      51,792      (15) 
Underlying return on 
 risk-weighted assets 
 (%)3                                 1.0         1.0     0bps                    0.6         0.7   (10)bps 
Underlying return on 
 tangible equity (%)3               (2.7)       (2.0)  (70)bps                  (9.9)       (5.9)  (400)bps 
Cost-to-income ratio 
 (%) (excluding UK bank 
 levy)4                              59.6        77.8     18.2       13.6        73.8        98.0      24.2       15.5 
-----------------------------  ----------  ----------  -------  ---------  ----------  ----------  --------  --------- 
 

1 Comparisons presented on the basis of the current period's transactional currency rate, ensuring like-for-like currency rates between the two periods

2 Variance is better/(worse) other than risk-weighted assets, assets and liabilities which is increase/(decrease)

3 Change is the basis points (bps) difference between the two periods rather than the percentage change

4 Change is the percentage points difference between the two periods rather than the percentage change

5 Not meaningful

Performance highlights

-- Underlying operating profit negatively impacted from a change in timing of revenue recognition (from a 1-month to 3-month lag) of profit from associates (Bohai)

-- Lower Treasury net interest income as rates declined offset by realisation gains on sale of securities

Underlying performance by region

 
                                                                   1H'20 
------------------------------  --------------------------------------------------------------------------- 
                                    Greater 
                                    China &      ASEAN &       Africa &   Europe &     Central & 
                                 North Asia   South Asia    Middle East   Americas   other items      Total 
                                   $million     $million       $million   $million      $million   $million 
------------------------------  -----------  -----------  -------------  ---------  ------------  --------- 
Operating income                      3,144        2,376          1,255      1,095           177      8,047 
Operating expenses                  (1,780)      (1,247)          (793)      (661)         (232)    (4,713) 
------------------------------  -----------  -----------  -------------  ---------  ------------  --------- 
Operating profit/(loss) 
 before impairment losses 
 and taxation                         1,364        1,129            462        434          (55)      3,334 
Credit impairment                     (289)        (838)          (370)       (80)            10    (1,567) 
Other impairment                       (15)          165            (2)          2          (38)        112 
Profit from associates 
 and joint ventures                      74            -              -          -             2         76 
------------------------------  -----------  -----------  -------------  ---------  ------------  --------- 
Underlying profit/(loss) 
 before taxation                      1,134          456             90        356          (81)      1,955 
Provision for regulatory 
 matters                                  -            -              -          -            14         14 
Restructuring                          (43)          (7)            (9)       (10)          (21)       (90) 
Net gain on businesses 
 disposed/held for sale                   -            -              -          -             6          6 
Goodwill impairment                       -            -              -          -         (258)      (258) 
------------------------------  -----------  -----------  -------------  ---------  ------------  --------- 
Statutory profit/(loss) 
 before taxation                      1,091          449             81        346         (340)      1,627 
------------------------------  -----------  -----------  -------------  ---------  ------------  --------- 
Total assets                        289,352      154,508         63,927    223,226        10,572    741,585 
  Of which: loans and 
   advances to customers 
   including FVTPL                  144,794       84,949         33,083     65,339             -    328,165 
Total liabilities                   258,322      131,993         40,740    217,300        43,333    691,688 
  Of which: customer accounts 
   including FVTPL and 
   repurchase agreements            214,586      100,324         32,530    122,024             -    469,464 
------------------------------  -----------  -----------  -------------  ---------  ------------  --------- 
 
 
                                                                   1H'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 
------------------------------  -----------  -----------  -------------  ---------  ------------  --------- 
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 
Total liabilities                   240,802      132,763         37,000    215,504        35,996    662,065 
  Of which: customer accounts 
   including FVTPL and 
   repurchase agreements            196,994      101,594         29,621    116,702             -    444,911 
------------------------------  -----------  -----------  -------------  ---------  ------------  --------- 
 

Greater China & North Asia

 
                                                                  Constant                                    Constant 
                                                                  currency                                    currency 
                                     1H'20       1H'19  Change2    change1       2Q'20       2Q'19  Change2    change1 
                                  $million    $million        %          %    $million    $million        %          % 
------------------------------  ----------  ----------  -------             ----------  ----------  -------  --------- 
Operating income                     3,144       3,080        2          3       1,448       1,553      (7)        (6) 
Operating expenses                 (1,780)     (1,826)        3          2       (880)       (921)        4          4 
------------------------------  ----------  ----------  -------  ---------  ----------  ----------  -------  --------- 
Operating profit before 
 impairment losses and 
 taxation                            1,364       1,254        9         10         568         632     (10)        (9) 
Credit impairment                    (289)        (70)      nm4        nm4        (91)        (40)    (128)      (136) 
Other impairment                      (15)         (8)     (88)       (88)        (14)         (8)     (75)       (75) 
Profit from associates 
 and joint ventures                     74         153     (52)       (52)          21          88     (76)       (78) 
------------------------------  ----------  ----------  -------  ---------  ----------  ----------  -------  --------- 
Underlying profit before 
 taxation                            1,134       1,329     (15)       (14)         484         672     (28)       (28) 
Restructuring                         (43)         (3)      nm4        nm4           7           9     (22)       (40) 
------------------------------  ----------  ----------  -------  ---------  ----------  ----------  -------  --------- 
Statutory profit before 
 taxation                            1,091       1,326     (18)       (17)         491         681     (28)       (28) 
------------------------------  ----------  ----------  -------  ---------  ----------  ----------  -------  --------- 
Total assets                       289,352     275,414        5          5     289,352     275,414        5          5 
  Of which: loans and 
   advances to customers 
   including FVTPL                 144,794     134,440        8          8     144,794     134,440        8          8 
Total liabilities                  258,322     240,802        7          8     258,322     240,802        7          8 
  Of which: customer accounts 
   including FVTPL and 
   repurchase agreements           214,586     196,994        9         10     214,586     196,994        9         10 
Risk-weighted assets                89,139      84,881        5                 89,139      84,881        5 
Cost-to-income ratio 
 (%)3                                 56.6        59.3      2.7        2.8        60.8        59.3    (1.5)      (1.3) 
------------------------------  ----------  ----------  -------  ---------  ----------  ----------  -------  --------- 
 

1 Comparisons presented on the basis of the current period's transactional currency rate, ensuring like-for-like currency rates between the two periods

2 Variance is better/(worse) other than risk-weighted assets, assets and liabilities which is increase/(decrease)

3 Change is the percentage points difference between the two periods rather than the percentage change

4 Not meaningful

Performance highlights

-- Underlying operating profit before taxation of $1,134 million was down 15 per cent, driven by increased impairment levels and a decline in profits from associates (Bohai) income due to recognition timing changes (change from a 1-month to 3-month lag)

-- Underlying operating income of $3,144 million was up 2 per cent (up 3 per cent on a constant currency basis), with strong Financial Markets growth offsetting a weaker performance in Cash Management and Retail Deposits, which were negatively impacted by interest rate cuts

-- Loans and advances to customers were up 3 per cent year-to-date and customer accounts grew 5 per cent, which was predominantly driven by Cash Management and Retail current and savings accounts, partly offset by a decline in Retail Time Deposits

-- Risk-weighted assets were up $3 billion year-to-date, driven by Credit RWA (predominantly CIB) and Market RWA

ASEAN & South Asia

 
                                                                  Constant                                    Constant 
                                                                  currency                                    currency 
                                     1H'20       1H'19  Change2    change1       2Q'20       2Q'19  Change2    change1 
                                  $million    $million        %          %    $million    $million        %          % 
------------------------------  ----------  ----------  -------             ----------  ----------  -------  --------- 
Operating income                     2,376       2,136       11         14       1,099       1,090        1          5 
Operating expenses                 (1,247)     (1,292)        3          -       (622)       (651)        4          - 
------------------------------  ----------  ----------  -------  ---------  ----------  ----------  -------  --------- 
Operating profit before 
 impairment losses and 
 taxation                            1,129         844       34         35         477         439        9         12 
Credit impairment                    (838)        (84)      nm4        nm4       (387)        (68)      nm4        nm4 
Other impairment                       165           -      nm4        nm4         (1)           -      nm4        nm4 
------------------------------  ----------  ----------  -------  ---------  ----------  ----------  -------  --------- 
Underlying profit before 
 taxation                              456         760     (40)       (40)          89         371     (76)       (74) 
Restructuring                          (7)        (16)       56         56         (7)        (10)       30         30 
Share of profits of 
 PT Bank Permata Tbk 
 joint venture                           -          23    (100)      (100)           -          11    (100)      (100) 
------------------------------  ----------  ----------  -------  ---------  ----------  ----------  -------  --------- 
Statutory profit before 
 taxation                              449         767     (41)       (41)          82         372     (78)       (76) 
------------------------------  ----------  ----------  -------  ---------  ----------  ----------  -------  --------- 
Total assets                       154,508     151,714        2          5     154,508     151,714        2          5 
  Of which: loans and 
   advances to customers 
   including FVTPL                  84,949      82,826        3          6      84,949      82,826        3          6 
Total liabilities                  131,993     132,763      (1)          2     131,993     132,763      (1)          2 
  Of which: customer accounts 
   including FVTPL and 
   repurchase agreements           100,324     101,594      (1)          1     100,324     101,594      (1)          1 
Risk-weighted assets                80,040      93,737     (15)                 80,040      93,737     (15) 
Cost-to-income ratio 
 (%)3                                 52.5        60.5      8.0        7.5        56.6        59.7      3.1        2.8 
------------------------------  ----------  ----------  -------  ---------  ----------  ----------  -------  --------- 
 

1 Comparisons presented on the basis of the current period's transactional currency rate, ensuring like-for-like currency rates between the two periods

2 Variance is better/(worse) other than risk-weighted assets, assets and liabilities which is increase/(decrease)

3 Change is the percentage points difference between the two periods rather than the percentage change

4 Not meaningful

Performance highlights

-- Underlying operating profit before taxation decreased 40 per cent to $456 million driven by higher credit impairment which more than offset the 11 per cent income growth

-- Underlying operating income of $2,376 million is 11 per cent higher (12 per cent on a constant currency basis excluding a positive movement in the debit valuation adjustment), driven by income growth in Corporate & Institutional Banking, predominantly due to strong performance in Financial Markets and Corporate Finance. Commercial Banking, Retail Banking and Private Banking declined impacted by margin compression (down 5, 4 and 4 per cent respectively)

-- Customer accounts were up 3 per cent year-to-date, with double-digit growth in Retail and Corporate current and savings accounts offset by reduction of high-priced Corporate and Retail Time Deposits. Loans and advances to customers were up 5 per cent year-to-date but risk-weighted assets declined by 10 per cent driven by the sale of Permata

Africa & Middle East

 
                                                                  Constant                                    Constant 
                                                                  currency                                    currency 
                                     1H'20       1H'19  Change2    change1       2Q'20       2Q'19  Change2    change1 
                                  $million    $million        %          %    $million    $million        %          % 
------------------------------  ----------  ----------  -------             ----------  ----------  -------  --------- 
Operating income                     1,255       1,340      (6)        (2)         594         632      (6)          1 
Operating expenses                   (793)       (850)        7          1       (390)       (427)        9          1 
------------------------------  ----------  ----------  -------  ---------  ----------  ----------  -------  --------- 
Operating profit before 
 impairment losses and 
 taxation                              462         490      (6)        (2)         204         205        -          4 
Credit impairment                    (370)        (49)      nm4        nm4       (159)        (43)      nm4        nm4 
Other impairment                       (2)           -      nm4        nm4         (2)           -      nm4        nm4 
------------------------------  ----------  ----------  -------  ---------  ----------  ----------  -------  --------- 
Underlying profit before 
 taxation                               90         441     (80)       (78)          43         162     (73)       (72) 
Restructuring                          (9)         (2)      nm4        nm4         (2)         (1)    (100)          - 
------------------------------  ----------  ----------  -------  ---------  ----------  ----------  -------  --------- 
Statutory profit before 
 taxation                               81         439     (82)       (80)          41         161     (75)       (72) 
------------------------------  ----------  ----------  -------  ---------  ----------  ----------  -------  --------- 
Total assets                        63,927      59,189        8         13      63,927      59,189        8         13 
  Of which: loans and 
   advances to customers 
   including FVTPL                  33,083      30,161       10         16      33,083      30,161       10         16 
Total liabilities                   40,740      37,000       10         14      40,740      37,000       10         14 
  Of which: customer accounts 
   including FVTPL and 
   repurchase agreements            32,530      29,621       10         14      32,530      29,621       10         14 
Risk-weighted assets                52,009      51,705        1                 52,009      51,705        1 
Cost-to-income ratio 
 (%)3                                 63.2        63.4      0.2      (0.2)        65.7        67.6      1.9        1.1 
------------------------------  ----------  ----------  -------  ---------  ----------  ----------  -------  --------- 
 

1 Comparisons presented on the basis of the current period's transactional currency rate, ensuring like-for-like currency rates between the two periods

2 Variance is better/(worse) other than risk-weighted assets, assets and liabilities which is increase/(decrease)

3 Change is the percentage points difference between the two periods rather than the percentage change

4 Not meaningful

Performance highlights

-- Underlying operating profit before taxation of $90 million was down 80 per cent primarily due to higher credit impairment

-- Underlying operating income of $1,255 million was down 6 per cent (or down 2 per cent on a constant currency basis) despite strong performance in Financial Markets. Cash Management was impacted by a drop in interest rates and Retail Banking was negatively impacted by a debt relief program in Bahrain

-- Loans and advances to customers were up 5 per cent year-to-date and customer accounts grew 11 per cent

Europe & Americas

 
                                                                  Constant                                    Constant 
                                                                  currency                                    currency 
                                     1H'20       1H'19  Change2    change1       2Q'20       2Q'19  Change2    change1 
                                  $million    $million        %          %    $million    $million        %          % 
------------------------------  ----------  ----------  -------             ----------  ----------  -------  --------- 
Operating income                     1,095         794       38         39         549         435       26         27 
Operating expenses                   (661)       (715)        8          6       (318)       (352)       10          8 
------------------------------  ----------  ----------  -------  ---------  ----------  ----------  -------  --------- 
Operating profit before 
 impairment losses and 
 taxation                              434          79      nm4        nm4         231          83      178        168 
Credit impairment                     (80)        (66)     (21)       (23)          22        (38)      158        161 
Other impairment                         2           -      nm4        nm4           2           -      nm4        nm4 
------------------------------  ----------  ----------  -------  ---------  ----------  ----------  -------  --------- 
Underlying profit before 
 taxation                              356          13      nm4        nm4         255          45      nm4        nm4 
Restructuring                         (10)        (15)       33         36           4        (11)      136        156 
------------------------------  ----------  ----------  -------  ---------  ----------  ----------  -------  --------- 
Statutory profit/(loss) 
 before taxation                       346         (2)      nm4        nm4         259          34      nm4        nm4 
------------------------------  ----------  ----------  -------  ---------  ----------  ----------  -------  --------- 
Total assets                       223,226     214,126        4          5     223,226     214,126        4          5 
  Of which: loans and 
   advances to customers 
   including FVTPL                  65,339      59,215       10         11      65,339      59,215       10         11 
Total liabilities                  217,300     215,504        1          1     217,300     215,504        1          1 
  Of which: customer accounts 
   including FVTPL and 
   repurchase agreements           122,024     116,702        5          5     122,024     116,702        5          5 
Risk-weighted assets                44,326      42,809        4                 44,326      42,809        4 
Cost-to-income ratio 
 (%)3                                 60.4        90.1     29.7       28.9        57.9        80.9     23.0       21.9 
------------------------------  ----------  ----------  -------  ---------  ----------  ----------  -------  --------- 
 

1 Comparisons presented on the basis of the current period's transactional currency rate, ensuring like-for-like currency rates between the two periods

2 Variance is better/(worse) other than risk-weighted assets, assets and liabilities which is increase/(decrease)

3 Change is the percentage points difference between the two periods rather than the percentage change

4 Not meaningful

Performance highlights

-- Underlying operating profit before taxation of $356 million was up $343 million predominantly driven by income growth and lower costs

-- Underlying operating income of $1,095 million was up 38 per cent (27 per cent excluding DVA) driven by strong Financial Markets sales and trading performance, and Treasury Markets realisation gains from bond sales as yields fell significantly

-- There was no significant impact to credit impairment despite the recent economic deterioration, demonstrating the strong credit quality of the portfolio

Central & other items (region)

 
                                                              Constant                                    Constant 
                                                              currency                                    currency 
                                 1H'20       1H'19  Change2    change1       2Q'20       2Q'19  Change2    change1 
                              $million    $million        %          %    $million    $million        %          % 
--------------------------  ----------  ----------  -------             ----------  ----------  -------  --------- 
Operating income                   177         346     (49)       (49)          30         173     (83)       (83) 
Operating expenses               (232)       (286)       19         10       (145)       (203)       29         19 
--------------------------  ----------  ----------  -------  ---------  ----------  ----------  -------  --------- 
Operating profit/(loss) 
 before impairment losses 
 and taxation                     (55)          60    (192)      (172)       (115)        (30)      nm4        nm4 
Credit impairment                   10          15     (33)       (33)           4          13     (69)       (69) 
Other impairment                  (38)        (13)    (192)      (192)        (27)        (11)    (145)      (170) 
Profit from associates 
 and joint ventures                  2           4     (50)       (33)           -           3    (100)      (100) 
--------------------------  ----------  ----------  -------  ---------  ----------  ----------  -------  --------- 
Underlying profit/(loss) 
 before taxation                  (81)          66      nm4      (198)       (138)        (25)      nm4        nm4 
Provision for regulatory 
 matters                            14       (204)      107        107           -        (18)      100        100 
Restructuring                     (21)          22    (195)      (191)           -        (33)      100        100 
Net gain on businesses 
 disposed/held for sale              6           -      nm4        nm4           6           -      nm4        nm4 
Goodwill impairment              (258)           -      nm4        nm4           -           -      nm4        nm4 
--------------------------  ----------  ----------  -------  ---------  ----------  ----------  -------  --------- 
Statutory profit/(loss) 
 before taxation                 (340)       (116)    (193)        nm4       (132)        (76)     (74)      (122) 
--------------------------  ----------  ----------  -------  ---------  ----------  ----------  -------  --------- 
Total assets                    10,572      12,061     (12)       (12)      10,572      12,061     (12)       (12) 
Total liabilities               43,333      35,996       20         20      43,333      35,996       20         20 
Risk-weighted assets           (2,962)     (2,393)     (24)                (2,962)     (2,393)     (24) 
Cost-to-income ratio 
 (%) (excluding UK bank 
 levy)3                          131.1        82.7   (48.4)     (57.8)       483.3       117.3  (366.0)    (400.8) 
--------------------------  ----------  ----------  -------  ---------  ----------  ----------  -------  --------- 
 

1 Comparisons presented on the basis of the current period's transactional currency rate, ensuring like-for-like currency rates between the two periods

2 Variance is better/(worse) other than risk-weighted assets, assets and liabilities which is increase/(decrease)

3 Change is the percentage points difference between the two periods rather than the percentage change

4 Not meaningful

Performance highlights

-- Lower income and profit mainly due to lower net interest income in Treasury Capital as rates declined

Retail Banking

 
                                                                 1H'20 
-----------------------------------  -------------------------------------------------------------- 
                                     Greater China      ASEAN &      Africa &   Europe & 
                                      & North Asia   South Asia   Middle East   Americas      Total 
                                          $million     $million      $million   $million   $million 
-----------------------------------  -------------  -----------  ------------  ---------  --------- 
Operating income                             1,517          680           323         17      2,537 
Operating expenses                           (968)        (514)         (287)       (11)    (1,780) 
-----------------------------------  -------------  -----------  ------------  ---------  --------- 
Operating profit before impairment 
 losses and taxation                           549          166            36          6        757 
Credit impairment                            (128)        (236)          (66)          -      (430) 
Other impairment                                 -            -           (1)          -        (1) 
-----------------------------------  -------------  -----------  ------------  ---------  --------- 
Underlying profit/(loss) before 
 taxation                                      421         (70)          (31)          6        326 
Restructuring                                  (1)          (2)             -          -        (3) 
-----------------------------------  -------------  -----------  ------------  ---------  --------- 
Statutory profit/(loss) before 
 taxation                                      420         (72)          (31)          6        323 
-----------------------------------  -------------  -----------  ------------  ---------  --------- 
Loans and advances to customers 
 including FVTPL                            73,751       26,071         4,759        504    105,085 
Customer accounts including 
 FVTPL and repurchase agreements            99,696       36,326         9,074        992    146,088 
-----------------------------------  -------------  -----------  ------------  ---------  --------- 
 
 
                                                                 1H'19 
-----------------------------------  -------------------------------------------------------------- 
                                     Greater China      ASEAN &      Africa &   Europe & 
                                      & North Asia   South Asia   Middle East   Americas      Total 
                                          $million     $million      $million   $million   $million 
-----------------------------------  -------------  -----------  ------------  ---------  --------- 
Operating income                             1,527          707           350         19      2,603 
Operating expenses                           (982)        (530)         (302)       (11)    (1,825) 
-----------------------------------  -------------  -----------  ------------  ---------  --------- 
Operating profit before impairment 
 losses and taxation                           545          177            48          8        778 
Credit impairment                             (65)         (63)          (26)          -      (154) 
-----------------------------------  -------------  -----------  ------------  ---------  --------- 
Underlying profit before taxation              480          114            22          8        624 
Restructuring                                    -          (1)             -          -        (1) 
-----------------------------------  -------------  -----------  ------------  ---------  --------- 
Statutory profit before taxation               480          113            22          8        623 
-----------------------------------  -------------  -----------  ------------  ---------  --------- 
Loans and advances to customers 
 including FVTPL                            67,781       28,103         5,371        529    101,784 
Customer accounts including 
 FVTPL and repurchase agreements            96,240       34,152         8,440      1,066    139,898 
-----------------------------------  -------------  -----------  ------------  ---------  --------- 
 

Commercial Banking

 
                                                                   1H'20 
------------------------------------------  --------------------------------------------------- 
                                            Greater China      ASEAN &      Africa & 
                                             & North Asia   South Asia   Middle East      Total 
                                                 $million     $million      $million   $million 
------------------------------------------  -------------  -----------  ------------  --------- 
Operating income                                      246          333           161        740 
Operating expenses                                  (158)        (165)          (98)      (421) 
------------------------------------------  -------------  -----------  ------------  --------- 
Operating profit before impairment 
 losses and taxation                                   88          168            63        319 
Credit impairment                                    (38)         (91)           (8)      (137) 
------------------------------------------  -------------  -----------  ------------  --------- 
Underlying profit before taxation                      50           77            55        182 
Restructuring                                         (8)          (2)           (8)       (18) 
------------------------------------------  -------------  -----------  ------------  --------- 
Statutory profit before taxation                       42           75            47        164 
------------------------------------------  -------------  -----------  ------------  --------- 
Loans and advances to customers including 
 FVTPL                                             13,168       10,348         4,635     28,151 
Customer accounts including FVTPL and 
 repurchase agreements                             24,092       12,514         3,901     40,507 
------------------------------------------  -------------  -----------  ------------  --------- 
 
 
                                                                   1H'19 
------------------------------------------  --------------------------------------------------- 
                                            Greater China      ASEAN &      Africa & 
                                             & North Asia   South Asia   Middle East      Total 
                                                 $million     $million      $million   $million 
------------------------------------------  -------------  -----------  ------------  --------- 
Operating income                                      284          350           177        811 
Operating expenses                                  (175)        (162)         (108)      (445) 
------------------------------------------  -------------  -----------  ------------  --------- 
Operating profit before impairment 
 losses and taxation                                  109          188            69        366 
Credit impairment                                     (8)          (9)          (12)       (29) 
------------------------------------------  -------------  -----------  ------------  --------- 
Underlying profit before taxation                     101          179            57        337 
Restructuring                                           -            -             -          - 
------------------------------------------  -------------  -----------  ------------  --------- 
Statutory profit before taxation                      101          179            57        337 
------------------------------------------  -------------  -----------  ------------  --------- 
Loans and advances to customers including 
 FVTPL1                                            13,974       11,289         5,202     30,465 
Customer accounts including FVTPL and 
 repurchase agreements                             21,165       12,511         3,232     36,908 
------------------------------------------  -------------  -----------  ------------  --------- 
 

1 Following a reorganisation of certain clients, there has been a reclassification of balances across client segments. Prior periods have been restated

Underlying performance by key market

 
                                                                   1H'20 
-------------------  ------------------------------------------------------------------------------------------------- 
                          Hong 
                          Kong      Korea      China  Singapore      India  Indonesia        UAE         UK         US 
                      $million   $million   $million   $million   $million   $million   $million   $million   $million 
-------------------  ---------  ---------  ---------  ---------  ---------  ---------  ---------  ---------  --------- 
Operating income         1,830        549        474        790        724        196        318        567        431 
Operating expenses       (948)      (343)      (309)      (475)      (318)       (85)      (198)      (324)      (260) 
-------------------  ---------  ---------  ---------  ---------  ---------  ---------  ---------  ---------  --------- 
Operating profit 
 before 
 impairment losses 
 and taxation              882        206        165        315        406        111        120        243        171 
Credit impairment        (162)       (15)      (102)      (438)      (167)       (64)      (192)       (65)       (13) 
Other impairment          (15)          -          -          -          -          -          -          2          - 
Profit from 
 associates 
 and joint ventures          -          -         74          -          -          -          -          -          - 
-------------------  ---------  ---------  ---------  ---------  ---------  ---------  ---------  ---------  --------- 
Underlying 
 profit/(loss) 
 before taxation           705        191        137      (123)        239         47       (72)        180        158 
-------------------  ---------  ---------  ---------  ---------  ---------  ---------  ---------  ---------  --------- 
Total assets 
 employed              161,959     59,516     35,142     86,599     28,907      5,154     23,331    149,632     62,010 
  Of which: loans 
   and 
   advances to 
   customers 
   including FVTPL      77,549     37,347     16,240     49,959     15,057      2,398     11,737     41,611     19,270 
Total liabilities 
 employed              150,645     52,033     29,938     82,231     19,631      3,537     15,835    142,100     65,853 
  Of which: 
   customer 
   accounts 
   including 
   FVTPL and 
   repurchase 
   agreements          126,463     42,937     23,125     62,667     13,906      2,324     12,223     81,179     36,043 
Cost-to-income 
 ratio 
 (%)                      51.8       62.5       65.2       60.1       43.9       43.4       62.3       57.1       60.3 
-------------------  ---------  ---------  ---------  ---------  ---------  ---------  ---------  ---------  --------- 
 
 
                                                                   1H'19 
-------------------  ------------------------------------------------------------------------------------------------- 
                          Hong 
                          Kong      Korea      China  Singapore      India  Indonesia        UAE         UK         US 
                      $million   $million   $million   $million   $million   $million   $million   $million   $million 
-------------------  ---------  ---------  ---------  ---------  ---------  ---------  ---------  ---------  --------- 
Operating income         1,854        505        445        871        502        143        327        330        365 
Operating expenses       (938)      (390)      (323)      (484)      (328)       (86)      (210)      (342)      (296) 
-------------------  ---------  ---------  ---------  ---------  ---------  ---------  ---------  ---------  --------- 
Operating 
 profit/(loss) 
 before impairment 
 losses and 
 taxation                  916        115        122        387        174         57        117       (12)         69 
Credit impairment         (36)          7       (43)        (7)       (41)       (23)       (26)       (15)       (50) 
Other impairment           (8)          -          -          -          -          -          -          -          - 
Profit from 
 associates 
 and joint ventures          -          -        153          -          -          -          -          -          - 
-------------------  ---------  ---------  ---------  ---------  ---------  ---------  ---------  ---------  --------- 
Underlying 
 profit/(loss) 
 before taxation           872        122        232        380        133         34         91       (27)         19 
-------------------  ---------  ---------  ---------  ---------  ---------  ---------  ---------  ---------  --------- 
Total assets 
 employed              158,434     50,832     31,702     84,532     31,036      5,047     20,934    150,284     53,320 
  Of which: loans 
   and 
   advances to 
   customers 
   including FVTPL      73,924     32,059     15,725     46,953     16,154      2,522     10,673     41,903     15,008 
Total liabilities 
 employed              142,036     44,965     27,523     83,526     21,188      3,136     14,467    154,052     53,447 
  Of which: 
   customer 
   accounts 
   including 
   FVTPL and 
   repurchase 
   agreements          118,556     36,132     20,513     63,702     15,808      2,116     10,702     86,514     26,335 
Cost-to-income 
 ratio 
 (%)                      50.6       77.2       72.6       55.6       65.3       60.1       64.2      103.6       81.1 
-------------------  ---------  ---------  ---------  ---------  ---------  ---------  ---------  ---------  --------- 
 

Quarterly underlying operating income by product

 
                             2Q'20       1Q'20      4Q'191      3Q'191      2Q'191      1Q'191       4Q'18       3Q'18 
                          $million    $million    $million    $million    $million    $million    $million    $million 
----------------------  ----------  ----------  ----------  ----------  ----------  ----------  ----------  ---------- 
Transaction Banking2           721         800         834         887         901         877         861         854 
                        ----------  ----------  ----------  ----------  ----------  ----------  ----------  ---------- 
  Trade                        230         260         259         282         282         277         257         277 
  Cash Management              491         540         575         605         619         600         604         577 
                        ----------  ----------  ----------  ----------  ----------  ----------  ----------  ---------- 
Financial Markets2             970       1,278         716         877         834         831         661         713 
                        ----------  ----------  ----------  ----------  ----------  ----------  ----------  ---------- 
  Foreign Exchange             343         415         264         261         304         298         232         239 
  Rates                        339         378         163         176         136         221          63         194 
  Commodities                   82          44          37          39          44          45          50          38 
  Credit and Capital 
   Markets                     250          26         125         167         145         140          83          48 
  Capital Structuring 
   Distribution Group           52          61          86          87          74          82          91          71 
  DVA                        (201)         305        (72)          14          11        (53)          46           3 
  Security Services2            79          84          85          88          87          83          81          82 
  Other Financial 
   Markets                      26        (35)          28          45          33          15          15          38 
                        ----------  ----------  ----------  ----------  ----------  ----------  ----------  ---------- 
Corporate Finance3             269         278         328         281         272         262         370         268 
Lending and Portfolio 
 Management                    232         195         201         201         197         187         181         179 
Wealth Management              434         530         415         488         511         465         343         465 
Retail Products                913         946         960         975         976         951         925         929 
                        ----------  ----------  ----------  ----------  ----------  ----------  ----------  ---------- 
  CCPL and other 
   unsecured 
   lending                     295         304         311         315         320         305         294         320 
  Deposits                     413         472         484         510         501         494         481         476 
  Mortgage and Auto            169         136         130         123         129         129         127         114 
  Other Retail 
   Products                     36          34          35          27          26          23          23          19 
                        ----------  ----------  ----------  ----------  ----------  ----------  ----------  ---------- 
Treasury                       178         325         196         335         251         308         253         342 
Other                            3        (25)        (53)        (66)        (59)        (68)           1        (26) 
----------------------  ----------  ----------  ----------  ----------  ----------  ----------  ----------  ---------- 
Total underlying 
 operating 
 income                      3,720       4,327       3,597       3,978       3,883       3,813       3,595       3,724 
----------------------  ----------  ----------  ----------  ----------  ----------  ----------  ----------  ---------- 
 

1 Following a reorganisation of certain clients, there has been a reclassification of balances across products. Prior periods have been restated from 1Q'19

2 Following a reorganisation, there has been a reclassification of balances relating to Securities Services from Transaction Banking to Financial Markets including prior-period numbers. There is no change in the total income

3 In Dec 2018, it was decided to discontinue the ship operating lease business. Any future profits and losses will be reported as restructuring. Prior periods have not been restated

Earnings per ordinary share

 
                               1H'20  1H'19  Change  2Q'20  2Q'19  Change  1Q'20  Change 
                                  $m     $m       %     $m     $m       %     $m       % 
-----------------------------  -----  -----          -----  -----  ------  -----  ------ 
Profit for the period 
 attributable to equity 
 holders                       1,066  1,496    (29)    549    678    (19)    517       6 
-----------------------------  -----  -----  ------  -----  -----  ------  -----  ------ 
Non-controlling interests       (18)   (19)       5   (11)    (9)    (22)    (7)    (57) 
Dividend payable on 
 preference shares and 
 AT1 classified as equity      (232)  (221)     (5)  (199)  (187)     (6)   (33)     nm1 
-----------------------------  -----  -----  ------  -----  -----  ------  -----  ------ 
Profit for the period 
 attributable to 
 ordinary shareholders           816  1,256    (35)    339    482    (30)    477    (29) 
-----------------------------  -----  -----  ------  -----  -----  ------  -----  ------ 
 
Items normalised: 
Provision for regulatory 
 matters                        (14)    204     nm1      -     18     nm1   (14)     nm1 
Restructuring                     90     14     nm1    (2)     46     nm1     92     nm1 
Profit from associates 
 and joint ventures                -   (23)     nm1      -   (11)     nm1      -     nm1 
Net gain on sale of 
 businesses                      (6)      -     nm1    (6)      -     nm1      -     nm1 
Goodwill impairment              258      -     nm1      -      -     nm1    258     nm1 
Tax on normalised items          (6)    172     nm1    (3)    171     nm1    (3)       - 
-----------------------------  -----  -----  ------  -----  -----  ------  -----  ------ 
Underlying profit              1,138  1,623    (30)    328    706    (54)    810    (60) 
-----------------------------  -----  -----  ------  -----  -----  ------  -----  ------ 
 
Basic - Weighted average 
 number of shares (millions)   3,168  3,304     nm1  3,150  3,296     nm1  3,186     nm1 
Diluted - Weighted average 
 number of shares (millions)   3,204  3,348     nm1  3,190  3,351     nm1  3,218     nm1 
 
Basic earnings per ordinary 
 share (cents)                  25.8   38.0  (12.2)   10.8   14.6   (3.8)   15.0   (4.2) 
-----------------------------  -----  -----  ------  -----  -----  ------  -----  ------ 
Diluted earnings per 
 ordinary share (cents)         25.5   37.5  (12.0)   10.6   14.4   (3.8)   14.8   (4.2) 
-----------------------------  -----  -----  ------  -----  -----  ------  -----  ------ 
Underlying basic earnings 
 per ordinary share (cents)     35.9   49.1  (13.2)   10.4   21.4  (11.0)   25.4  (15.0) 
-----------------------------  -----  -----  ------  -----  -----  ------  -----  ------ 
Underlying diluted earnings 
 per ordinary share (cents)     35.5   48.5  (12.9)   10.3   21.1  (10.8)   25.2  (14.9) 
-----------------------------  -----  -----  ------  -----  -----  ------  -----  ------ 
 

1 Not meaningful

Return on tangible equity

 
                                   1H'20    1H'19  Change    2Q'20    2Q'19  Change    1Q'20  Change 
                                      $m       $m       %       $m       $m       %       $m       % 
-------------------------------  -------  -------          -------  -------  ------  -------  ------ 
Average parent company 
 shareholders' equity             44,567   45,462     (2)   44,623   45,450     (2)   44,511       - 
Less Preference share 
 premium                         (1,494)  (1,494)       -  (1,494)  (1,494)       -  (1,494)       - 
Less Average intangible 
 assets                          (5,025)  (5,097)       1  (4,960)  (5,111)       3  (5,090)       3 
-------------------------------  -------  -------  ------  -------  -------  ------  -------  ------ 
Average ordinary shareholders' 
 tangible equity                  38,048   38,871     (2)   38,169   38,845     (2)   37,927       1 
-------------------------------  -------  -------  ------  -------  -------  ------  -------  ------ 
 
 
Profit for the period 
 attributable to equity 
 holders                           1,066    1,496    (29)      549      678    (19)      517       6 
-------------------------------  -------  -------  ------  -------  -------  ------  -------  ------ 
Non-controlling interests           (18)     (19)       5     (11)      (9)    (22)      (7)    (57) 
-------------------------------  -------  -------  ------  -------  -------  ------  -------  ------ 
Dividend payable on 
 preference shares and 
 AT1 classified as equity          (232)    (221)     (5)    (199)    (187)     (6)     (33)     nm1 
-------------------------------  -------  -------  ------  -------  -------  ------  -------  ------ 
Profit for the period 
 attributable to 
 ordinary shareholders               816    1,256    (35)      339      482    (30)      477    (29) 
-------------------------------  -------  -------  ------  -------  -------  ------  -------  ------ 
 
Items normalised: 
Provision for regulatory 
 matters                            (14)      204     nm1        -       18     nm1     (14)     nm1 
Restructuring                         90       14     nm1      (2)       46     nm1       92     nm1 
Profit from associates 
 and joint ventures                    -     (23)     nm1        -     (11)     nm1        -     nm1 
Goodwill impairment                  258        -     nm1        -        -     nm1      258     nm1 
Net gain on sale of 
 businesses                          (6)        -     nm1      (6)        -     nm1        -     nm1 
Tax on normalised items              (6)      172     nm1      (3)      171     nm1      (3)       - 
-------------------------------  -------  -------  ------  -------  -------  ------  -------  ------ 
Underlying profit for 
 the period attributable 
 to ordinary shareholders          1,138    1,623    (30)      328      706    (54)      810    (60) 
-------------------------------  -------  -------  ------  -------  -------  ------  -------  ------ 
 
Underlying return on                                (240)                     (380)            (510) 
 tangible equity                    6.0%     8.4%     bps     3.5%     7.3%     bps     8.6%     bps 
-------------------------------  -------  -------  ------  -------  -------  ------  -------  ------ 
Statutory return on                                 (220)                     (140)            (150) 
 tangible equity                    4.3%     6.5%     bps     3.6%     5.0%     bps     5.1%     bps 
-------------------------------  -------  -------  ------  -------  -------  ------  -------  ------ 
 

1 Not meaningful

Net tangible asset value per share

 
                                      30.06.2020  30.06.2019  Change  31.12.2019  Change  31.03.2020  Change 
                                              $m          $m       %          $m       %          $m       % 
------------------------------------  ----------  ----------  ------  ----------  ------  ----------  ------ 
Parent company shareholders' equity       45,058      45,067       -      44,835       -      44,185       2 
Less Preference share premium            (1,494)     (1,494)       -     (1,494)       -     (1,494)       - 
Less Intangible assets                   (5,029)     (5,111)       2     (5,290)       5     (4,890)     (3) 
------------------------------------  ----------  ----------  ------  ----------  ------  ----------  ------ 
Net shareholders tangible equity          38,535      38,462       -      38,051       1      37,801       2 
------------------------------------  ----------  ----------  ------  ----------  ------  ----------  ------ 
 
Ordinary shares in issue, excluding 
 own shares ('m)                           3,148       3,255     (3)       3,191     (1)       3,147       - 
------------------------------------  ----------  ----------  ------  ----------  ------  ----------  ------ 
Net tangible asset value per share 
 (c)                                       1,224       1,182    42.0       1,192    32.0       1,201       2 
------------------------------------  ----------  ----------  ------  ----------  ------  ----------  ------ 
 

Standard Chartered PLC - Underlying versus statutory results reconciliations

Reconciliations between underlying and statutory results are set out in the tables below:

Operating income by client segment

 
                                                             1H'20 
------------------------  --------------------------------------------------------------------------- 
                                 Corporate 
                           & Institutional     Retail  Commercial    Private     Central & 
                                   Banking    Banking     Banking    Banking   other items      Total 
                                  $million   $million    $million   $million      $million   $million 
------------------------  ----------------  ---------  ----------  ---------  ------------  --------- 
Underlying operating 
 income                              3,987      2,537         740        300           483      8,047 
Restructuring1                          31          -          16          -           (1)         46 
Net gain on businesses 
 disposed/held for sale                  -          -           -          -             6          6 
------------------------  ----------------  ---------  ----------  ---------  ------------  --------- 
Statutory operating 
 income                              4,018      2,537         756        300           488      8,099 
------------------------  ----------------  ---------  ----------  ---------  ------------  --------- 
 

1 Refer Note 2 for further details

 
                                                          1H'19 
---------------------  --------------------------------------------------------------------------- 
                              Corporate 
                        & Institutional     Retail  Commercial    Private     Central & 
                                Banking    Banking     Banking    Banking   other items      Total 
                               $million   $million    $million   $million      $million   $million 
---------------------  ----------------  ---------  ----------  ---------  ------------  --------- 
Underlying operating 
 income                           3,534      2,603         811        306           442      7,696 
Restructuring1                      131          -           2          1             -        134 
---------------------  ----------------  ---------  ----------  ---------  ------------  --------- 
Statutory operating 
 income                           3,665      2,603         813        307           442      7,830 
---------------------  ----------------  ---------  ----------  ---------  ------------  --------- 
 

1 Refer Note 2 for further details

Operating income by region

 
                                                             1H'20 
------------------------  --------------------------------------------------------------------------- 
                              Greater 
                              China &      ASEAN &       Africa &   Europe &     Central & 
                           North Asia   South Asia    Middle East   Americas   other items      Total 
                             $million     $million       $million   $million      $million   $million 
------------------------  -----------  -----------  -------------  ---------  ------------  --------- 
Underlying operating 
 income                         3,144        2,376          1,255      1,095           177      8,047 
Restructuring1                     52            -              6          -          (12)         46 
Net gain on businesses 
 disposed/held for sale             -            -              -          -             6          6 
------------------------  -----------  -----------  -------------  ---------  ------------  --------- 
Statutory operating 
 income                         3,196        2,376          1,261      1,095           171      8,099 
------------------------  -----------  -----------  -------------  ---------  ------------  --------- 
 

1 Refer Note 2 for further details

 
                                                          1H'19 
---------------------  --------------------------------------------------------------------------- 
                           Greater 
                           China &      ASEAN &       Africa &   Europe &     Central & 
                        North Asia   South Asia    Middle East   Americas   other items      Total 
                          $million     $million       $million   $million      $million   $million 
---------------------  -----------  -----------  -------------  ---------  ------------  --------- 
Underlying operating 
 income                      3,080        2,136          1,340        794           346      7,696 
Restructuring1                  47          (1)              -          -            88        134 
---------------------  -----------  -----------  -------------  ---------  ------------  --------- 
Statutory operating 
 income                      3,127        2,135          1,340        794           434      7,830 
---------------------  -----------  -----------  -------------  ---------  ------------  --------- 
 

1 Refer Note 2 for further details

Profit before taxation (PBT)

 
                                                                    1H'20 
---------------------  ----------------------------------------------------------------------------------------------- 
                                                                                                      Share 
                                                                                                 of profits 
                                                                         Net gain                        of 
                                                                    on businesses                   PT Bank 
                                         Provision                      disposed/                   Permata 
                                    for regulatory                           held     Goodwill    Tbk joint 
                       Underlying          matters  Restructuring        for sale   impairment      venture  Statutory 
                         $million         $million       $million        $million     $million     $million   $million 
---------------------  ----------  ---------------  -------------  --------------  -----------  -----------  --------- 
Operating income            8,047                -             46               6            -            -      8,099 
Operating expenses        (4,713)               14           (49)               -            -            -    (4,748) 
---------------------  ----------  ---------------  -------------  --------------  -----------  -----------  --------- 
Operating 
 profit/(loss) before 
 impairment losses 
 and taxation               3,334               14            (3)               6            -            -      3,351 
Credit impairment         (1,567)                -            (9)               -            -            -    (1,576) 
Other impairment              112                -           (77)               -        (258)            -      (223) 
Profit from 
 associates and 
 joint ventures                76                -            (1)               -            -            -         75 
---------------------  ----------  ---------------  -------------  --------------  -----------  -----------  --------- 
Profit/(loss) before 
 taxation                   1,955               14           (90)               6        (258)            -      1,627 
---------------------  ----------  ---------------  -------------  --------------  -----------  -----------  --------- 
 
 
                                                                      1H'19 
-------------------------  ------------------------------------------------------------------------------------------- 
                                                                                                      Share 
                                                                                                 of profits 
                                                                                                         of 
                                         Provision                       Net gain                   PT Bank 
                                               for                  on businesses                   Permata 
                                        regulatory                  disposed/held     Goodwill    Tbk joint 
                           Underlying      matters  Restructuring        for sale   impairment      venture  Statutory 
                             $million     $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 
-------------------------  ----------  -----------  -------------  --------------  -----------  -----------  --------- 
 

Profit before taxation (PBT) by client segment

 
                                                              1H'20 
-------------------------  --------------------------------------------------------------------------- 
                                  Corporate 
                            & Institutional     Retail  Commercial    Private     Central & 
                                    Banking    Banking     Banking    Banking   other items      Total 
                                   $million   $million    $million   $million      $million   $million 
-------------------------  ----------------  ---------  ----------  ---------  ------------  --------- 
Operating income                      3,987      2,537         740        300           483      8,047 
                           ----------------  ---------  ----------  ---------  ------------  --------- 
  External                            4,012      2,103         700        202         1,030      8,047 
  Inter-segment                        (25)        434          40         98         (547)          - 
                           ----------------  ---------  ----------  ---------  ------------  --------- 
Operating expenses                  (1,985)    (1,780)       (421)      (239)         (288)    (4,713) 
-------------------------  ----------------  ---------  ----------  ---------  ------------  --------- 
Operating profit before 
 impairment losses and 
 taxation                             2,002        757         319         61           195      3,334 
Credit impairment                     (985)      (430)       (137)        (5)          (10)    (1,567) 
Other impairment                        115        (1)           -          -           (2)        112 
Profit from associates 
 and joint ventures                       -          -           -          -            76         76 
-------------------------  ----------------  ---------  ----------  ---------  ------------  --------- 
Underlying profit before 
 taxation                             1,132        326         182         56           259      1,955 
Provision for regulatory 
 matters                                  -          -           -          -            14         14 
Restructuring                          (56)        (3)        (18)        (3)          (10)       (90) 
Net gain on businesses 
 disposed/held for sale                   -          -           -          -             6          6 
Goodwill impairment                       -          -           -          -         (258)      (258) 
-------------------------  ----------------  ---------  ----------  ---------  ------------  --------- 
Statutory profit before 
 taxation                             1,076        323         164         53            11      1,627 
-------------------------  ----------------  ---------  ----------  ---------  ------------  --------- 
 
 
                                                              1H'19 
-------------------------  --------------------------------------------------------------------------- 
                                  Corporate 
                            & Institutional     Retail  Commercial    Private     Central & 
                                    Banking    Banking     Banking    Banking   other items      Total 
                                   $million   $million    $million   $million      $million   $million 
-------------------------  ----------------  ---------  ----------  ---------  ------------  --------- 
Operating income                      3,534      2,603         811        306           442      7,696 
                           ----------------  ---------  ----------  ---------  ------------  --------- 
  External                            3,633      2,140         863        171           889      7,696 
  Inter-segment                        (99)        463        (52)        135         (447)          - 
                           ----------------  ---------  ----------  ---------  ------------  --------- 
Operating expenses                  (2,102)    (1,825)       (445)      (253)         (344)    (4,969) 
-------------------------  ----------------  ---------  ----------  ---------  ------------  --------- 
Operating profit before 
 impairment losses and 
 taxation                             1,432        778         366         53            98      2,727 
Credit impairment                     (116)      (154)        (29)         47           (2)      (254) 
Other impairment                       (19)          -           -          -           (2)       (21) 
Profit from associates 
 and joint ventures                       -          -           -          -           157        157 
-------------------------  ----------------  ---------  ----------  ---------  ------------  --------- 
Underlying profit before 
 taxation                             1,297        624         337        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                             1,320        623         337         99            35      2,414 
-------------------------  ----------------  ---------  ----------  ---------  ------------  --------- 
 

Profit before taxation (PBT) by region

 
                                                               1H'20 
--------------------------  --------------------------------------------------------------------------- 
                                Greater 
                                China &      ASEAN &       Africa &   Europe &     Central & 
                             North Asia   South Asia    Middle East   Americas   other items      Total 
                               $million     $million       $million   $million      $million   $million 
--------------------------  -----------  -----------  -------------  ---------  ------------  --------- 
Operating income                  3,144        2,376          1,255      1,095           177      8,047 
Operating expenses              (1,780)      (1,247)          (793)      (661)         (232)    (4,713) 
--------------------------  -----------  -----------  -------------  ---------  ------------  --------- 
Operating profit/(loss) 
 before impairment losses 
 and taxation                     1,364        1,129            462        434          (55)      3,334 
Credit impairment                 (289)        (838)          (370)       (80)            10    (1,567) 
Other impairment                   (15)          165            (2)          2          (38)        112 
Profit from associates 
 and joint ventures                  74            -              -          -             2         76 
--------------------------  -----------  -----------  -------------  ---------  ------------  --------- 
Underlying profit/(loss) 
 before taxation                  1,134          456             90        356          (81)      1,955 
Provision for regulatory 
 matters                              -            -              -          -            14         14 
Restructuring                      (43)          (7)            (9)       (10)          (21)       (90) 
Net gain on businesses 
 disposed/held for sale               -            -              -          -             6          6 
Goodwill impairment                   -            -              -          -         (258)      (258) 
--------------------------  -----------  -----------  -------------  ---------  ------------  --------- 
Statutory profit/(loss) 
 before taxation                  1,091          449             81        346         (340)      1,627 
--------------------------  -----------  -----------  -------------  ---------  ------------  --------- 
 
 
                                                              1H'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 
-------------------------  -----------  -----------  -------------  ---------  ------------  --------- 
 

Return on tangible equity (RoTE)

 
                                                                   1H'20 
---------------------------------  --------------------------------------------------------------------- 
                                          Corporate 
                                    & Institutional    Retail  Commercial   Private     Central & 
                                            Banking   Banking     Banking   Banking   other items  Total 
                                                  %         %           %         %             %      % 
---------------------------------  ----------------  --------  ----------  --------  ------------  ----- 
Underlying RoTE                                 8.3       7.3         5.8       8.5         (2.7)    6.0 
  Provision for regulatory 
   matters                                        -         -           -         -           0.5    0.1 
  Restructuring 
     Of which: Income                           0.3         -         0.7         -             -    0.2 
     Of which: Expenses                       (0.2)     (0.1)       (0.7)     (0.6)         (0.3)  (0.3) 
     Of which: Credit impairment                  -         -       (0.5)         -             -      - 
     Of which: Other impairment               (0.7)         -       (0.3)         -             -  (0.4) 
  Net gain on businesses 
   disposed /held for sale                        -         -           -         -           0.2      - 
  Goodwill impairment                             -         -           -         -         (8.3)  (1.4) 
  Tax on normalised items                       0.1       0.1         0.2       0.2         (0.6)    0.1 
---------------------------------  ----------------  --------  ----------  --------  ------------  ----- 
Statutory RoTE                                  7.8       7.3         5.2       8.1        (11.2)    4.3 
---------------------------------  ----------------  --------  ----------  --------  ------------  ----- 
 
 
                                                                 1H'191 
--------------------------------  --------------------------------------------------------------------- 
                                         Corporate 
                                   & Institutional    Retail  Commercial   Private     Central & 
                                           Banking   Banking     Banking   Banking   other items  Total 
                                                 %         %           %         %             %      % 
--------------------------------  ----------------  --------  ----------  --------  ------------  ----- 
Underlying RoTE                                9.8      14.8         9.7      15.7         (2.0)    8.4 
  Provision for regulatory 
   matters                                       -         -           -         -         (5.4)  (1.1) 
  Restructuring 
     Of which: Income                          1.4         -         0.1         -             -    0.7 
     Of which: Expenses                      (0.9)         -       (0.1)     (0.2)         (0.9)  (0.6) 
     Of which: Other impairment              (0.2)         -           -         -             -  (0.1) 
  Goodwill impairment                            -         -           -         -             -      - 
  Share of profits of 
   PT Bank Permata Tbk 
   joint venture                                 -         -           -         -           0.6    0.1 
  Tax on normalised items                    (0.1)     (0.1)           -       0.1         (4.4)  (0.9) 
--------------------------------  ----------------  --------  ----------  --------  ------------  ----- 
Statutory RoTE                                10.0      14.7         9.7      15.6        (12.1)    6.5 
--------------------------------  ----------------  --------  ----------  --------  ------------  ----- 
 

1 Following a reorganisation of certain clients, there has been a reclassification of balances across client segments

Earnings per ordinary share (EPS)

 
                                                                1H'20 
-------------  ------------------------------------------------------------------------------------------------------- 
                               Provision                    Profit 
                                     for                      from       Net gain                    Tax on 
                              regulatory                     joint        on sale     Goodwill   normalised 
               Underlying        matters  Restructuring    venture  of businesses   impairment        items  Statutory 
                 $million       $million       $million   $million       $million     $million     $million   $million 
-------------  ----------  -------------  -------------  ---------  -------------  -----------  -----------  --------- 
Profit for 
 the year 
 attributable 
 to ordinary 
 shareholders       1,138             14           (90)          -              6        (258)            6        816 
Basic - 
 Weighted 
 average 
 number of 
 shares 
 (millions)         3,168                                                                                        3,168 
Basic 
 earnings per 
 ordinary 
 share 
 (cents)             35.9                                                                                         25.8 
-------------  ----------  -------------  -------------  ---------  -------------  -----------  -----------  --------- 
 
 
                                                                1H'19 
-------------  ------------------------------------------------------------------------------------------------------- 
                               Provision                    Profit 
                                     for                      from       Net gain                    Tax on 
                              regulatory                     joint        on sale     Goodwill   normalised 
               Underlying        matters  Restructuring    venture  of businesses   impairment        items  Statutory 
                 $million       $million       $million   $million       $million     $million     $million   $million 
-------------  ----------  -------------  -------------  ---------  -------------  -----------  -----------  --------- 
Profit for 
 the year 
 attributable 
 to ordinary 
 shareholders       1,623          (204)           (14)         23              -            -        (172)      1,256 
Basic - 
 Weighted 
 average 
 number of 
 shares 
 (millions)         3,304                                                                                        3,304 
Basic 
 earnings per 
 ordinary 
 share 
 (cents)             49.1                                                                                         38.0 
-------------  ----------  -------------  -------------  ---------  -------------  -----------  -----------  --------- 
 

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              A performance measure on a constant currency basis 
 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 Note 
                                2 to the financial statements. 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 (basic and diluted) 
 
 
                                 *    Cost-to-income ratio 
 
 
                                 *    Jaws 
 
 
                                 *    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              The ratio of impairment provisions for stage 3 
 collateral /                   loans and realisable value of collateral held against 
 cover ratio including          these non-performing loan exposures to the gross 
 collateral                     loan exposure of stage 3 loans. 
-----------------------------  ---------------------------------------------------------------- 
Gross yield                    Statutory interest income divided by average interest 
                                earning assets. 
-----------------------------  ---------------------------------------------------------------- 
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             Ratio of net tangible assets (total tangible assets 
 value per share                less total liabilities) to the number of ordinary 
                                shares outstanding at the end of a reporting period. 
-----------------------------  ---------------------------------------------------------------- 
Net yield                      Gross yield less rate paid. 
-----------------------------  ---------------------------------------------------------------- 
NIM or Net interest            Net interest income adjusted for interest expense 
 margin                         incurred on amortised cost liabilities used to 
                                fund the Financial Markets business, divided by 
                                average interest-earning assets excluding financial 
                                assets measured 
                                at fair value through profit or loss. 
-----------------------------  ---------------------------------------------------------------- 
RAR per FTE or Risk            Risk adjusted revenue (RAR) is defined as underlying 
 adjusted revenue per           operating income less underlying impairment over 
 full-time equivalent           the past 12 months. RAR is then divided by the 
                                12 month rolling average full-time equivalent (FTE) 
                                to determine RAR per FTE. 
-----------------------------  ---------------------------------------------------------------- 
Rate paid                      Statutory interest expense adjusted for interest 
                                expense incurred on amortised cost liabilities 
                                used to fund financial instruments held at fair 
                                value through profit or loss, divided by average 
                                interest bearing liabilities. 
-----------------------------  ---------------------------------------------------------------- 
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              The ratio of the current year's profit available 
 ordinary shareholders'         for distribution to ordinary shareholders to the 
 tangible equity                weighted average tangible equity, being ordinary 
                                shareholders' equity less the average goodwill 
                                and intangible assets 
                                for the reporting period. Where a target RoTE 
                                is stated, this is based on profit and equity expectations 
                                for future periods. 
-----------------------------  ---------------------------------------------------------------- 
TSR or Total shareholder       The total return of the Group's equity (share price 
 return                         growth and dividends) to investors. 
-----------------------------  ---------------------------------------------------------------- 
 

Standard Chartered PLC - Group Chief Risk Officer's review

Demonstrating resilience in extraordinary times

We operate across a uniquely diverse footprint, and global disruption driven by the COVID-19 pandemic has created an unprecedented set of challenges for the Group, including the possibility of the deepest global recession in decades despite extraordinary levels of fiscal and monetary policy support by governments. Pandemic-related movement, travel and business restrictions have impacted multiple sectors of the global economy and highlighted the vulnerability of global supply chains, although the longer-term impact to the real economy remains to be seen. With negative global growth expected for 2020 and what is likely to be a difficult and uneven economic recovery, there is a heightened level of risk in the environment. We have also seen increased geopolitical turbulence, particularly the escalation of tensions between the US and other countries with China including the reaction to the recently passed National Security Law in Hong Kong, the full implications of which are not yet known.

Much work has been done over the last five years to better manage our risks, including introducing a more granular Risk Appetite, reducing exposure to single names and high-risk sectors and increasing the proportion of investment grade assets. Asset quality has nevertheless come under pressure in the first half of 2020, with elevated levels of credit impairment reflecting the weakening macroeconomic environment. The strong capital and liquidity positions we have built up over recent years mean that we are well positioned to continue to support our clients through this difficult period, including committing $1 billion of financing on preferential terms to companies that are providing goods and services to help in the fight against COVID-19. We continue to actively monitor and assess the evolution of events, drawing on our stress testing capabilities and portfolio and sector reviews.

In the first half of the year we refreshed our Operational Risk and Information and Cyber Security Risk Type Frameworks, and have actively engaged with partnerships and initiatives to build our understanding of new and evolving risks. The crisis has required us to re-examine our systems and processes as we adapt to new ways of working, and we have taken steps to maintain stable operations by investing significantly in expanding our remote working capabilities and operational resilience. We recognise that the risks of the new ways of working extend beyond technology, and we remain committed to supporting and educating our people in maintaining the highest standards of conduct as we progress through 2020 and beyond. Our continued investment and focus on our risk management capabilities will help the Group to navigate these headwinds and ensure that we remain a sustainable, innovative, resilient and client-centric bank.

Our key risk priorities

We face these challenges from a fundamentally strong position. However, the banking industry is rapidly changing and we must continue to evolve to stay relevant in the markets in which we operate. As well as managing the impact of the COVID-19 pandemic, we remain focused on the following key priorities for 2020.

Continuing to strengthen the Group's risk culture: Embedding a healthy risk culture is a core objective across all areas of the Group. It underpins an enterprise-level ability to identify and assess, openly discuss, and take prompt action to address all existing and emerging risks. Our Enterprise Risk Management Framework (ERMF) has been embedded and rolled out to all countries. It sets out the guiding principles for our people, enabling us to have integrated and holistic risk conversations across the Group and the three lines of defence. Senior management promote a healthy risk culture by demonstrably valuing and rewarding risk-based thinking across each line of defence, encouraging risk awareness, challenging the status quo and creating a transparent, safe and open environment for employees to communicate risk concerns.

Enhancing Information and Cyber Security (ICS) capabilities: We continue to implement enhanced ICS capabilities across all businesses and functions. Our recently refreshed ICS Risk Type Framework includes a threat-led methodology that allows us to assess proactively the risk from cyber threats and attack methods, and to deploy prioritised controls to remain cyber resilient. We evaluate the evolving cyber threat landscape and ensure that protecting our clients and their assets remains at the centre of our thinking. We recognise the elevated ICS risk resulting from the COVID-19 pandemic, particularly from large-scale remote working across the organisation. To reduce this impact, we have taken mitigating actions including reprioritising key controls deployment to focus on our most critical assets, re-allocating resources to focus on the highest risk reduction projects and maintaining high priority status in the change management process for new ICS requirements.

Managing Climate Risk: Managing financial and non-financial risks arising from climate change remains one of our core priorities. We have continued to forge partnerships to enhance our understanding of physical and transition risks and develop our approach to measure and manage climate risk. Following on from the 2019 Taskforce for Climate-related Financial Disclosures report, we have established a partnership with Munich Re to conduct physical risk assessments for our own operations and clients across segments and markets. In addition, we are supporting Imperial College London to undertake research and solution development, which will advance understanding of climate risks both internally and across the industry, including their integration in macroeconomic and climate scenarios. We are preparing for the Bank of England's 2021 Biennial Exploratory Scenario, and actively engaging to provide thought leadership, including contributing to open source solutions such as the 2 Degrees Investing Initiative through feedback from early pilots, as well as investing in capabilities to quantify the financial risks to clients from a low-carbon transition. Over the course of 2020 and 2021, we will engage with our clients to improve awareness of climate risk across our footprint and understand their adaptation and mitigation plans so we can help them in their transition to a low carbon future. Our sustainable finance business will ensure that we can play our part in supporting a sustainable recovery from COVID-19.

+ More details on the Group's approach to Climate Risk can be found on sc.com/sustainability

Manage financial crime risks: We continue to deliver against our mission of 'partnering to lead in the fight against financial crime' through our ongoing deployment of upgraded systems for anti-money laundering, sanctions, fraud and customer due diligence and by continuing to de-risk through education via our Correspondent Banking Academies. We are also delivering on our plan to be data-driven and improve effectiveness through optimisation using tools such as Quantexa for automated transactional analysis. Our Financial Crime and Compliance team contributes to industry thinking on reform and information-sharing partnerships in several markets, as well as working with international fora such as the Wolfsberg Group. The COVID-19 pandemic has presented new risks as well as heightening existing threats, as criminals look to exploit the uncertainty and instability created by the virus. Collaboration is a key focus and we are participating in intelligence-sharing partnerships with law enforcement agencies, as well as peer banking institutions, to build collective understanding of COVID-19 related financial crime threats. We are also actively engaging with groups such as the Cyber Defence Alliance and the National Cyber-Forensics and Training Alliance, as well as collaborating internally across our global teams to investigate our potential exposure, share operational and strategic intelligence and raise staff awareness to help protect clients and customers. An increase in the number of vulnerable individuals and companies will expand the potential for fraud, money laundering and corruption. Our teams continue to identify and address new risks, implement new control measures and share lessons learned across our footprint.

+ More information about the Group's commitment to fighting financial crime can be found at sc.com/fightingfinancialcrime

Strengthen our conduct environment: We continue in 2020 to enhance Conduct Risk management and build out approaches to risk identification. A set of assessment questions has been developed to guide and standardise the analysis and enhance the quality of Conduct Risk management through Conduct Plans, with a focus on key conduct areas such as product governance, strategy and governance. Conduct Plans are a key part of our framework as they document the identified Conduct Risks along with the action plans in place to mitigate them. Ownership of Conduct Plans is with the first line of defence, with review and challenge from the Conduct, Financial Crime and Compliance (CFCC) function. We have had a particular focus on identifying and mitigating potential Conduct Risk arising from the impact of COVID-19. Where appropriate, Conduct Plans have been updated to include such action plans. Given the expected difficult and uneven nature of the COVID-19 recovery, the Group will remain vigilant to risks as we progress through the economic cycle.

Enhance our Risk and CFCC infrastructure: Improved risk aggregation, centralised data and advanced analytical capabilities are allowing an agile response to the changing external environment. The integration of our risk aggregation tools with front office data has enabled near real-time bespoke exposure reporting and we have enhanced our regular stress testing scenarios to include the impact of COVID-19. With the use of agile delivery methods and collaboration tools, these changes have been implemented quickly and by remote teams. Our control capability has continued to strengthen, partnering with fintechs to implement next-generation tools for trade communications surveillance and financial crime monitoring. By using natural language processing and machine learning, we generate higher-quality alerts, reduce false positives and conduct more targeted human investigations, creating a safer environment for our clients. We have also developed capabilities in areas such as Anti Money Laundering, identity verification, credit modelling and digital signatures through partnerships developed by our internal innovation centre, SC Ventures. In Retail Banking, the use of more sophisticated data mining and predictive analytics tools with automated machine learning capabilities has accelerated development and deployment of risk and forecasting models. New offshore hubs have been established to centralise specialist knowledge in data engineering and visualisation, model development, validation, stress testing and governance.

Enhance our Model Risk management: Along with the elevation of Model Risk to a Principal Risk Type, we have simplified and strengthened our Model Risk Policy and published a framework which introduces Model Risk Appetite metrics, establishes the Group Model Inventory and sets out clear roles and responsibilities across the first and second lines of defence. There are plans in place to further strengthen several areas including Model Risk standards, risk reporting and training. The Model Risk Management Strategic Enhancement Programme was launched in 2019 and represents a substantial investment in the target operating model, data and infrastructure, model delivery, and policy and governance. The focus is on delivering a sustainable risk management framework with clear success criteria, and the subsequent transition to day-to-day business operations.

Our risk profile and performance

The first half of 2020 has seen a significant impact from the economic environment on our loan portfolio, primarily reflecting the impact of COVID-19 on the global economy. There is a weaker outlook in many of the markets in which we operate; however, we have taken a number of steps to mitigate the effect on our portfolios and risk profile, informed by stress testing of various COVID-19 related scenarios, and deep-dives on specific portfolios.

Actions taken over the past few years mean that the quality of our asset portfolios has improved significantly since 2015. As a result, key measures such as early alerts, non-performing loans and credit impairment were significantly better as of 31 December 2019, prior to the impact of COVID-19. The proportion of investment grade corporate exposures has also seen a marked improvement in that period, although it has reduced from 61 per cent to 57 per cent in the first half of the year due to a reduction in repos and downgrades in the Aviation and Oil & Gas sectors. While some of these metrics have seen reversals over the last six months, the work done in previous years has ensured that we are well positioned to absorb some deterioration in our portfolios.

Our stress testing results have shown that the Group has adequate capital and liquidity to withstand a deep macro-financial stress. The peak to trough fall in the Group's Common Equity Tier 1 (CET1) capital ratio for the Bank of England's Annual Cyclical Scenario stress test (ACS) has improved in recent years: from 600bps in 2017 to 520bps in 2019. This is despite an increase in the severity of the scenario and reflects our consistent and concerted actions to improve the quality of the balance sheet and our risk profile to ensure sustainable growth. In the first half of 2020 the resilience to stress has been underlined by internal stress testing that explores downside risks related to the COVID-19 outlook. These have demonstrated that the Group has ample capital and liquidity.

The Group has taken a number of management actions since the start of the year, including enhancing our monitoring of facility drawdowns, improving the Group's position through reducing exposures where required or strengthening our collateral positions in the Commercial Banking and Corporate & Institutional Banking portfolios. The Group has continued to support clients we believe are experiencing temporary issues due to COVID-19. We have placed selected clients on our watchlist categories for close monitoring, and have conducted extensive portfolio and sector reviews, particularly for areas with higher vulnerability to COVID-19 and volatile crude oil markets, such as our Aviation and Oil & Gas exposures. This has led to a $9.1 billion increase in early alerts in the first half of the year.

In Retail Banking, various short-term relief measures have been implemented and we have increased engagement with our customers to find alternative financing options where available. As of 30 June 2020, approximately 8 per cent of total Retail exposure has had relief measures approved, of which 71 per cent is compulsory (regulatory approved) and 79 per cent is fully secured. Through the use of customer surveys and analysis of the COVID-19 impact and delinquency trends, we have identified a higher risk cohort of Business Banking customers which are being actively managed. 80 per cent of the Business Banking portfolio is fully secured by property or government guarantees. We have also made longer-term improvements in Retail Banking through tightening our underwriting standards and rolling out enhanced digital capabilities across our footprint.

There has been an increase in exposure to our Top 20 corporate clients as a percentage of Tier 1 Capital to 61 per cent (2019: 56 per cent). This is primarily driven by an increase in exposure to a few investment grade clients. The Group's portfolios remain predominantly short-tenor and continue to be diversified across industry sectors, products, and geographies.

Credit grade 12 balances have decreased slightly to $1.5 billion (2019: $1.6 billion) due to outflows to non-performing loans which were partially offset by inflows from early alerts, half of which were due to the impact of COVID-19. Gross stage 3 loans and advances to customers were up 19 per cent to $8.8 billion (2019: $7.4 billion), primarily in Corporate & Institutional Banking. This was driven by three new downgrades in the ASEAN & South Asia and Africa & Middle East regions. These credit-impaired loans represent 3.1 per cent of gross loans and advances, an increase of 40 basis points compared with 31 December 2019.

The stage 3 cover ratio decreased to 60 per cent (2019: 68 per cent) due to write-offs of fully provided balances, as well as new downgrades which incurred lower levels of provisions but were partially covered by tangible collateral. The cover ratio after collateral decreased to 80 per cent (2019: 85 per cent) as some of the new inflows were also covered by non-tangible collateral such as guarantees and insurance, which are not captured in this metric.

Our Retail Banking portfolio remains stable and resilient, with 96 per cent of loans in stage 1, the same proportion as the previous year. The majority of Retail products continue to be fully secured loans which are stable at 85 per cent. The overall average loan-to-value of the mortgage portfolio remains low at 45 per cent. The unsecured portfolio continues to make up a small proportion of total Retail exposure.

Credit impairment

 
                                       6 months    6 months    6 months 
                                          ended       ended       ended 
                                       30.06.20    31.12.19    30.06.19 
                                      $million1    $million    $million 
----------------------------------  -----------  ----------  ---------- 
Corporate & Institutional Banking           991         358         117 
Commercial Banking                          137          94          28 
Retail Banking                              431         182         154 
Private Banking                               5          16        (47) 
Central & Others                              3           2           2 
----------------------------------  -----------  ----------  ---------- 
Credit impairment charge                  1,567         652         254 
Restructuring charge/(credit)                 9           2           0 
Total credit impairment charge            1,576         654         254 
----------------------------------  -----------  ----------  ---------- 
 

1 Credit impairment of $7 million in Central and other items is included in Corporate & Institutional Banking

The Group took a total underlying credit impairment charge of $1,567 million in the first half of 2020, a significant increase compared with the same period in the previous year (H1 2019: $254 million). This included $668 million of stage 1 and 2 impairments, of which approximately half was attributable to the modelled outcomes, and the remainder due to a management overlay to reflect deterioration in the macroeconomic outlook not captured in the model, and the impact of country lock-downs and relief measures in Retail Banking. Stage 3 impairments were $727 million higher, with increases observed across all segments. Corporate & Institutional Banking accounted for three-quarters of stage 3 impairment, which was driven by three clients.

The macro-economic environment remains challenging for the majority of the markets in our footprint and we are cognisant of the potential longer-term impact, especially once relief measures are eased. We continue to assess these situations on an ongoing basis, utilising our stress testing framework and portfolio reviews to analyse the potential impact and appropriate risk management actions.

Average Group value at risk (VaR) in the first half of 2020 was 157 per cent higher than the previous six months at $82 million (H2 2019: $32 million), driven by the extreme COVID-19 market volatility which particularly impacted the Treasury Markets portfolio. Trading activities remain primarily client driven. There were three regulatory VaR backtesting exceptions in the first half of 2020, all of which occurred in March as a result of COVID-19 volatility. This takes the rolling 12-month total to five Group level IMA exceptions which is in the 'amber zone'. However the PRA has granted approval to entirely offset the increase in IMA capital requirement due to COVID-19 backtesting exceptions against IMA RNIV capital requirements through to the third quarter of 2020.

Despite challenges brought by COVID-19, the Group has remained resilient and kept a strong liquidity position. The Group liquidity coverage ratio increased to 149 per cent (2019: 144 per cent) driven by a reduction in net outflows due to a change in our funding mix. Total deposits increased driven by growth in stable current and savings account balances which was offset by a decrease in term deposits, as we sought to manage liquidity more efficiently. While asset growth has slowed, the Group continues to focus on improving the quality of its funding mix and remains committed to supporting its clients during these uncertain times. The increase in overall deposits also drove a decrease in the Group's advances-to-deposits ratio which reduced to 62.7 per cent (2019: 64.2 per cent).

The Group's Common Equity Tier 1 ratio increased by 50 basis points to 14.3 per cent as profits, distribution restrictions and the sale of its equity interest in Permata more than offset COVID-19 related RWA impacts from increased credit migration, higher derivative activity and the drawdown of revolving credit facilities.

> Further details of the risk performance for the first six months of 2020 are set out in the Risk profile section

Key indicators

 
                                                      30.06.20    31.12.19   30.06.192 
                                                      $million    $million    $million 
--------------------------------------------------  ----------  ----------  ---------- 
Group total business1 
Stage 1 loans ($ billion)                                250.3       246.1       245.7 
Stage 2 loans ($ billion)                                 23.7        20.8        16.1 
Stage 3 loans, credit-impaired ($ billion)                 8.8         7.4         7.8 
Stage 3 cover ratio                                        60%         68%         68% 
Stage 3 cover ratio (after collateral)                     80%         85%         85% 
--------------------------------------------------  ----------  ----------  ---------- 
Corporate & Institutional Banking and Commercial 
 Banking 
Investment grade corporate net exposures as 
 a percentage of total corporate net exposures             57%         61%         57% 
Loans and advances maturing in one year or 
 less as a percentage of total loans and advances 
 to customers                                              63%         62%         61% 
Early alert portfolio net exposures ($ billion)           14.4         5.3         4.1 
Credit grade 12 net exposures ($ billion)                  1.5         1.6         1.4 
Aggregate top 20 corporate net exposures as 
 a percentage of Tier 1 capital                            61%         56%         62% 
Collateralisation of sub-investment grade net 
 exposures maturing in more than 1 year                    46%         45%         47% 
--------------------------------------------------  ----------  ----------  ---------- 
Retail Banking 
Loan-to-value ratio of retail mortgages                    45%         45%         44% 
--------------------------------------------------  ----------  ----------  ---------- 
 

1 These numbers represent total loans and advances to customers

2 Stage 3 balance, provision and cover ratios have been restated to reflect interest due but unpaid together with equivalent credit impairment charge

Our risk management approach

We continue to focus on embedding the ERMF across the organisation and we have made progress on the overall effectiveness. This allows us to identify and manage risks holistically, as well as strengthening our ability to understand, articulate and control the nature and level of the risks we take while still effectively serving our clients.

Principal and cross-cutting risks

Principal risks are those risks that are inherent in our strategy and business model. These are formally defined in our ERMF which provides a structure for monitoring and control of these risks through the Board-approved Risk Appetite. We will not compromise adherence to our Risk Appetite in order to pursue revenue growth or higher returns. The table below provides an overview of the Group's principal risks and cross-cutting risks and how these are managed. The principal risks have not changed since the time of publication of our 2019 Annual Report and further details can be found on pages 212 to 227 of our 2019 Annual Report.

 
Principal Risk Types1,  How these are managed 
 2 
----------------------  ------------------------------------------------------------- 
Credit Risk             The Group manages its credit exposures following 
                         the principle of diversification across products, 
                         geographies, client segments and industry sectors 
----------------------  ------------------------------------------------------------- 
Country Risk            The Group manages its Country Risk exposures following 
                         the principle of diversification across geographies 
                         and controls the business activities in line with 
                         the level of Jurisdiction Risk 
----------------------  ------------------------------------------------------------- 
Traded Risk             The Group should control its trading portfolio and 
                         activities to ensure that Traded Risk losses (financial 
                         or reputational) do not cause material damage to 
                         the Group's franchise 
----------------------  ------------------------------------------------------------- 
Capital and Liquidity   The Group should maintain a strong capital position 
 Risk                    including the maintenance of management buffers sufficient 
                         to support its strategic aims and 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 
----------------------  ------------------------------------------------------------- 
Operational Risk        The Group aims to control operational risks to ensure 
                         that operational losses (financial or reputational), 
                         including any related to conduct of business matters, 
                         do not cause material damage to the Group's franchise 
----------------------  ------------------------------------------------------------- 
Reputational Risk       The Group aims to protect the franchise from material 
                         damage to its reputation by ensuring that any 
                         business activity is satisfactorily assessed and 
                         managed by the appropriate level of management and 
                         governance oversight 
----------------------  ------------------------------------------------------------- 
Compliance Risk         The Group has no appetite for breaches in laws and 
                         regulations, while recognising that regulatory noncompliance 
                         cannot be entirely avoided the Group strives to reduce 
                         this to an absolute minimum 
----------------------  ------------------------------------------------------------- 
Conduct Risk            The Group has no appetite for negative Conduct Risk 
                         outcomes arising from negligent or wilful actions 
                         by 
                         the Group or individuals recognising that while 
                         incidents are unwanted, they cannot be entirely avoided 
----------------------  ------------------------------------------------------------- 
Information and Cyber   The Group seeks to avoid risk and uncertainty for 
 Security Risk           our critical information assets and systems and has 
                         a 
                         low appetite for material incidents affecting these 
                         or the wider operations and reputation of the bank 
----------------------  ------------------------------------------------------------- 
Financial Crime Risk    The Group has no appetite for breaches in laws and 
                         regulations related to Financial Crime, recognising 
                         that whilst incidents are unwanted, they cannot be 
                         entirely avoided 
----------------------  ------------------------------------------------------------- 
Model Risk2             The Group has no appetite for material adverse implications 
                         arising from misuse of models or errors in the development 
                         or implementation of models, whilst accepting model 
                         uncertainty. 
----------------------  ------------------------------------------------------------- 
Climate Risk2,3         The Group aims to measure and manage financial and 
                         non-financial risks from climate change, and reduce 
                         emissions related to our own activities and those 
                         related to the financing of clients in alignment 
                         with the 
                         Paris Agreement 
----------------------  ------------------------------------------------------------- 
 

1 Risks arising from execution capability, governance, reporting, operational resilience (including third party vendor services, and system availability) are managed by the Operational Risk Type Framework. For further details please refer to page 221 of the 2019 Annual Report

2 Details about our approach to Model Risk and Climate Risk are not found on pages 212 to 227 of our 2019 Annual Report. Summaries of Model Risk and Climate Risk can instead

be found primarily on pages 94 and 231 of our 2019 Annual Report respectively. Further details about our risk management approach to these risks will be included in our 2020 Annual Report

3 In addition to principal risks, the Group also recognises Climate Risk as a cross-cutting risk that manifests through other principal risks

Our emerging risks

Emerging risks refer to unpredictable and uncontrollable outcomes from certain events and circumstances which may have the potential to have a material impact on our business. As part of our continuous risk identification process, we have updated the Group's emerging risks from those disclosed in the 2019 Annual Report.

The following items have been removed as emerging risks:

-- 'Regulatory changes' and 'Regulatory reviews and investigations, legal proceedings' - These are intrinsic risks for operating in the banking industry and have been removed

-- 'Japan-Korea diplomatic dispute' - The risk has been removed due to the manageable immediate impact to the Group's portfolio

The following items have been amended or added as new emerging risks:

-- 'Rise of populism and nationalism' - The recent rise in populism and nationalism is being exacerbated by the COVID-19 pandemic and related supply chain challenges. There is a risk that shared global problems will become more difficult to resolve

-- 'Rising sovereign default risk' - The combination of economic downturns, capital flight, commodity price collapses, political instability resulting from the social consequences of COVID-19 and a pervasive 'risk off' sentiment in the markets may make it difficult for some countries to refinance their debts

The table below summarises our current list of emerging risks, outlining the risk trend changes since the end of 2019, the reasons for the changes and the mitigating actions we are taking based on our current knowledge and assumptions. This reflects the latest internal assessment of material risks that the Group faces as identified by senior management. This list is not designed to be exhaustive and there may be additional risks which materialise or have an adverse effect on the Group. Our mitigation approach for these risks may not be successful in eliminating them, but rather shows the Group's attempt to reduce or manage the risk. As certain risks develop and materialise over time, management will take appropriate incremental steps based on the materiality of the impact of the risk to the operations of the Group.

 
                        Risk trend 
                           since 
                         December   Key risk trend 
Emerging risks             20191    drivers                How these are mitigated 
----------------------  ----------  ---------------------  ----------------------------------------------------------- 
Novel coronavirus         ñ    COVID-19 has spread 
 and the emergence                  globally. Measures      *    Exposures that could result in material credit 
 of new diseases                    to contain the virus,        impairment charges and risk-weighted assets inflation 
                                    such as travel bans          under stress tests are regularly reviewed and 
                                    and restrictions,            actively managed 
                                    curfews, quarantines 
                                    and shut-downs, have 
                                    led to increased        *    To support our clients the Group has enacted 
                                    volatility in                comprehensive support schemes for retail and 
                                    financial                    corporate customers, including loan and interest 
                                    markets and commodity        repayment holidays, covenant relief, fee waivers or 
                                    prices and severe            cancellations, loan extensions and new facilities 
                                    economic downturns 
                                    in many countries 
                                                            *    The Group's priority remains the health and safety of 
                                                                 our clients and employees and the continuation of 
                                                                 normal operations by leveraging our robust Business 
                                                                 Continuity Plans which include enabling the vast 
                                                                 majority of our staff to work remotely where possible 
----------------------  ----------  ---------------------  ----------------------------------------------------------- 
Extended tensions         ñ    There is increasing 
 between the US                     risk due to the         *    A sharp slowdown in US-China and, more broadly, world 
 and China driven                   escalation                   trade and global growth is a feature of the Group 
 by geopolitical                    of tensions between          stress scenarios including the Internal Capital 
 and trade concerns                 the US and China             Adequacy Assessment Process (ICAAP) and the annual 
 and differences                    in part due to the           Bank of England (BoE) stress testing exercise 
 over Hong Kong                     growing trade, 
                                    security, 
                                    social and political    *    Detailed portfolio reviews are conducted on an 
                                    tensions in Hong             ongoing basis and action is taken where necessary 
                                    Kong and the passing 
                                    of the Hong Kong 
                                    National Security 
                                    Law 
----------------------  ----------  ---------------------  ----------------------------------------------------------- 
Geopolitical              ñ    There are increasing 
events, in particular:              concerns on global      *    We monitor and assess geopolitical events and act as 
the rise of populism                geopolitical                 appropriate to ensure that we minimise the impact to 
and nationalism,                    implications                 the Group and our clients 
Middle East                         following the rise 
geopolitical                        of populism and 
tensions and                        nationalism.            *    There is continuous monitoring at a country, regional 
negotiations                        The risk relating            and Group level to identify emerging risks and 
on future EU-UK                     to negotiations on           evaluate their management 
relations                           the future 
                                    relationship 
                                    between the EU and      *    We conduct stress tests and portfolio reviews at a 
                                    the UK has also              Group, country and business level to assess the 
                                    increased.                   impact of extreme but plausible geopolitical events 
                                    The risk in the 
                                    Middle 
                                    East has reduced        *    These stress tests provide visibility to key 
                                    as Saudi Arabia              vulnerabilities so that management can implement 
                                    attempts                     timely interventions 
                                    to exit the conflict 
                                    in Yemen and the 
                                    region manages 
                                    reduced 
                                    oil prices and the 
                                    COVID-19 outbreak 
----------------------  ----------  ---------------------  ----------------------------------------------------------- 
 
 
                       Risk trend 
                          since 
                        December 
Emerging risks            20191    Key risk trend drivers  How these are mitigated 
---------------------  ----------  ----------------------  ----------------------------------------------------------- 
Rising sovereign         ñ    COVID-19 has 
 default risk                      exacerbated              *    Exposures that may result in material credit 
                                   already deteriorating         impairment and increased risk-weighted assets are 
                                   market conditions             closely monitored and actively managed 
                                   causing liquidity 
                                   and potentially 
                                   solvency                 *    We conduct stress tests and portfolio reviews at a 
                                   issues for a number           country and business level to assess the impact of 
                                   of the world's poorest        extreme but plausible events and manage the portfolio 
                                   countries                     accordingly 
 
 
                                                            *    We actively utilise Credit Risk mitigation techniques 
                                                                 including credit insurance and collateral 
 
 
                                                            *    We actively track the participation of our footprint 
                                                                 countries in the Debt Service Suspension Initiative 
                                                                 and the associated exposure 
---------------------  ----------  ----------------------  ----------------------------------------------------------- 
Climate related          ó    The risk remains 
 transition and                     at similar levels       *    We have developed a Climate Risk framework to deliver 
 physical risks2                    as at the end of             a consistent Group-wide approach to Climate Risk 
                                    2019                         management. We are also a member of the Risk 
                                                                 Management Working Group under the Bank of England's 
                                                                 Climate Financial Risk Forum 
 
 
                                                            *    The Group announced that it will only support clients 
                                                                 who actively transition their business to generate 
                                                                 less than 10 per cent of earnings from thermal coal 
                                                                 by 2030 
 
 
                                                            *    The Group has a public target to provide $75 billion 
                                                                 by 2024 to finance sustainable infrastructure, 
                                                                 renewables and clean technology to support the 
                                                                 transition to a low carbon transition, and becoming 
                                                                 net zero emission from our own operations by 2030 
---------------------  ----------  ----------------------  ----------------------------------------------------------- 
Interbank Offered        ó    The risk remains 
Rate (IBOR)                         at similar levels       *    The Group has set up a global IBOR Transition 
discontinuation                     as at the end of             Programme to consider all aspects of the transition 
and transition                      2019                         and how risks from the transition can be mitigated. A 
                                                                 Management Team member is the Senior Manager 
                                                                 responsible for the IBOR Transition Programme 
 
 
                                                            *    From an industry and regulatory perspective, the 
                                                                 Group is actively participating in and contributing 
                                                                 to different risk-free rates (RFR) working groups, 
                                                                 industry associations and business forums focusing on 
                                                                 different aspects of the IBOR to RFR transition 
---------------------  ----------  ----------------------  ----------------------------------------------------------- 
New technologies         ó    The risk remains 
 and digitisation                  at similar levels        *    We monitor emerging trends, opportunities and risk 
 (including business               as at the end of              developments in the technology space which may have 
 disruption risk,                  2019. Client                  implications on the banking sector 
 responsible use                   expectations 
 of Artificial                     and the way they 
 Intelligence                      interact with the        *    We have rolled out enhanced digital capabilities in 
 and Obsolescence                  Group may change              Retail Banking, particularly around onboarding, sales 
 Risk)                             as a result of                and marketing 
                                   COVID-19, 
                                   potentially 
                                   accelerating             *    We are engaged in building our capabilities to ensure 
                                   the adoption of               that we remain relevant and are able to capitalise 
                                   digital                       rapidly on technology trends 
                                   solutions 
 
                                                            *    We continue to make headway in harnessing new 
                                                                 technologies, and we are investing in 
                                                                 machine-learning solutions that rapidly analyse large 
                                                                 datasets and fine-tune the accuracy of our financial 
                                                                 crime tools 
 
 
                                                            *    We are actively targeting the reduction of 
                                                                 obsolescent/end-of-support technology following a 
                                                                 technology and innovation-led approach 
 
 
                                                            *    Our SC Ventures business continues to invest in new 
                                                                 technology channels, creating new ways of engaging 
                                                                 with clients 
---------------------  ----------  ----------------------  ----------------------------------------------------------- 
Increased data           ñ    Regulatory 
 privacy and security              requirements             *    We actively monitor regulatory developments in 
 risks from strategic              and client                    relation to data management, data protection and 
 and wider use                     expectations                  privacy 
 of data                           relating to data 
                                   management and privacy 
                                   are increasing across    *    We have established a dedicated Data and Privacy team 
                                   our markets, including        to build data management and privacy expertise across 
                                   the ethical use of            the Group 
                                   data. 
                                   There is a risk of 
                                   increased cyber          *    A Data and Privacy programme has been implemented to 
                                   threats                       enhance the data management and privacy controls 
                                   associated with a             including the ethical use of data 
                                   largely remote 
                                   workforce 
                                   in response to the       *    We actively monitor cyber threats and risks, and have 
                                   COVID-19 outbreak             implemented heightened technical and organisational 
                                                                 measures designed to prevent, detect and respond to 
                                                                 threats while ensuring compliance with data ownership 
                                                                 and consent requirements 
---------------------  ----------  ----------------------  ----------------------------------------------------------- 
 

1 The risk trend refers to the overall risk score trend which is a combination of potential impact, likelihood and velocity of change

2 Physical risks refer to the risk of increasingly extreme weather events while transition risks refer to the risk of changes to market dynamics due to governments' response to climate change

Summary

2020 has seen unprecedented global upheaval, with the vast majority of the world's markets experiencing historic shocks to their economic, health and social landscapes. This has created distinct challenges in terms of risk management as we support our clients, colleagues and communities while ensuring our portfolios remain robust and resilient in the face of widespread volatility. While idiosyncratic risk is unavoidable, particularly in the current economic climate, enabling sustainable and responsible business remains at the top of our agenda.

Mark Smith

Group Chief Risk Officer

30 July 2020

Standard Chartered PLC - Risk review

 
Risk 
 Index 
-------  -------------------------------------------------------------------------- 
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 analysis 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 
         Analysis of stage 2 balances 
         -------------------------------------------------------------------------- 
         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 
         -------------------------------------------------------------------------- 
         Vulnerable sectors 
         -------------------------------------------------------------------------- 
         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 asset 
         -------------------------------------------------------------------------- 
         UK Leverage ratio 
         -------------------------------------------------------------------------- 
 

The Group also discloses additional regulatory disclosures prepared in accordance with EBA guidelines under Part Eight of the CRR (see Standard Chartered PLC Pillar3 Half Year 2020 Report, due to be published on 6 August 2020 and which will be available at https://www.sc.com/en/investors/financial-results/).

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 risk' in the same section, excluding:

 
Risk section 
----------------------------------------------------------------- 
Loans and advances by client segment credit quality analysis 
Credit Quality by geographic region 
Analysis of stage 2 balances 
Forborne and other modified loans by region 
Credit-impaired (stage 3) loans and advances by geographic region 
Credit Quality by industry 
Industry and Retail Products analysis by geographic region 
Vulnerable sectors 
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)

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 Note 15 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.

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 change in the Credit Risk compared to what was expected at origination.

The framework used to determine a significant increase in Credit risk is set out below.

Stage 1

-- 12-month ECL

-- Performing

Stage 2

-- Lifetime expected credit loss

-- Performing but has exhibited significant increase in Credit Risk (SICR)

Stage 3

-- Credit-impaired

-- Non-performing

IFRS 9 principles and approaches

The main methodology principles and approach adopted by the Group are set out in the following table.

 
Title                    Description                                          Supplementary Information 
-----------------------  ---------------------------------------------------  -------------------------------- 
Approach to determining  For material loan portfolios, the Group 
 expected credit          has adopted a statistical modelling approach 
 losses                   for determining expected credit losses 
                          that makes extensive use of credit modelling. 
                          While these models leveraged existing advanced 
                          Internal Ratings Based (IRB) models, for 
                          determining regulatory expected losses 
                          where these were available, there are significant 
                          differences between the two approaches. 
                          Details of significant post model adjustments 
                          are set out. 
-----------------------  ---------------------------------------------------  -------------------------------- 
Incorporation            The determination of expected credit loss            Incorporation of forward-looking 
 of forward-looking       includes various assumptions and judgements          information and impact 
 information              in respect of forward-looking macroeconomic          of non-linearity 
                          information. Refer to incorporation of               Forecast of key macroeconomic 
                          forward-looking information, forecast of             variables underlying 
                          key macroeconomic variables underlying               the expected 
                          the expected credit loss calculation and             credit loss calculation 
                          the impact on non-linearity and sensitivity          Management overlay 
                          of expected credit loss calculation to               and sensitivity to 
                          macroeconomic variables.                             macroeconomic variables 
-----------------------  ---------------------------------------------------  -------------------------------- 
Significant increase     Expected credit loss for financial assets 
 in Credit risk           will transfer from a 12-month basis (stage 
 (SICR)                   1) to a lifetime basis (stage 2) when there 
                          is a 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 of            Credit-impaired (stage 3) financial assets 
 credit-impaired          comprise those assets that have experienced 
 financial assets         an observed credit event and are 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. 
                          Following a clarification issued by IFRIC 
                          in March 2019, when financial assets are 
                          transferred from stage 3 to stage 2, any 
                          contractual interest earned while the asset 
                          was in stage 3 is recognised within the 
                          credit impairment line. Although this differs 
                          from the Group's previous approach of recognising 
                          a residual amount of this within interest 
                          income, there is no material impact on 
                          the classification of amounts reported 
                          in the income statement in the current 
                          or prior period. Further, the gross asset 
                          balances for stage 3 financial instruments 
                          have been increased to reflect contractual 
                          interest due but not paid with a corresponding 
                          increase in credit impairment provisions. 
                          These changes have been disclosed within 
                          the Credit Risk section. There has been 
                          no net impact on the balance sheet or on 
                          shareholders' equity. 
-----------------------  ---------------------------------------------------  -------------------------------- 
Transfers between        Assets will transfer from stage 3 to stage           Movement in loan exposures 
 stages                   2 when they are no longer considered to              and expected credit 
                          be credit-impaired. Assets will not be               losses 
                          considered credit-impaired only if the 
                          customer makes payments such that they 
                          are paid to current in line with the original 
                          contractual terms. 
                          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). 
-----------------------  ---------------------------------------------------  -------------------------------- 
 
 
Title                 Description                                          Supplementary Information 
--------------------  ---------------------------------------------------  ------------------------- 
Modified financial    Where the contractual terms of a financial           Forbearance and other 
 assets                instrument have been modified, and this              modified loans 
                       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 PD based on the modified terms 
                       to the remaining lifetime PD, based on 
                       the original contractual terms. 
--------------------  ---------------------------------------------------  ------------------------- 
Governance and        The models used in determining ECL are 
 application of        reviewed and approved by the Group Credit 
 expert credit         Model Assessment Committee and have been 
 judgement in          validated by Group Model Validation, which 
 respect of expected   is independent of the business. 
 credit losses         A quarterly model monitoring process is 
                       in place that uses recent data to compare 
                       the differences between model predictions 
                       and actual outcomes against approved thresholds. 
                       Where a model's performance breaches the 
                       monitoring thresholds, then an assessment 
                       of whether an ECL adjustment is required 
                       to correct for the identified model issue 
                       is completed. 
                       The determination of expected credit losses 
                       requires a significant degree of management 
                       judgement which had an impact on governance 
                       processes, with the output of the expected 
                       credit models assessed by the IFRS 9 Impairment 
                       Committee. 
--------------------  ---------------------------------------------------  ------------------------- 
 

Maximum exposure to credit risk (within EY review scope)

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 2020, 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 $23 billion to $717 billion (31 December 2019: $694 billion). The Group's off balance sheet maximum exposure had reduced slightly to $186 billion (31 December 2019: $188 billion).

This was spread across several products, with other assets up $6 billion driven by unsettled trades due to normal settlement timing differences. Fair value instruments increased $5.5 billion and derivatives were up $5 billion. Loans and advances to banks and customers increased $4.7 billion, $3.5 billion of which related to reverse repurchase agreements.

 
                                          30.06.20                                         31.12.19 
--------------------  -------------------------------------------------  --------------------------------------------- 
                                                                                          Credit risk 
                                  Credit risk management                                   management 
                      ---------  ------------------------  ------------  ---------  -----------------------  --------- 
                                                   Master                                            Master 
                        Maximum                   netting                  Maximum                  netting        Net 
                       exposure   Collateral   agreements  Net exposure   exposure  Collateral   agreements   exposure 
                       $million     $million     $million      $million   $million    $million     $million   $million 
--------------------  ---------  -----------  -----------  ------------  ---------  ----------  -----------  --------- 
On-balance sheet 
Cash and balances at 
 central banks           52,925                                  52,925     52,728                              52,728 
Loans and advances 
 to 
 banks1, 8               50,499        1,893                     48,606     53,549       1,341                  52,208 
                      ---------  -----------  -----------  ------------  ---------  ----------  -----------  --------- 
  of which - reverse 
   repurchase 
   agreements 
   and other similar 
   secured 
   lending7               1,893        1,893                          -      1,341       1,341                       - 
                      ---------  -----------  -----------  ------------  ---------  ----------  -----------  --------- 
Loans and advances 
 to 
 customers1, 8          276,313      126,671                    149,642    268,523     122,115                 146,408 
                      ---------  -----------  -----------  ------------  ---------  ----------  -----------  --------- 
  of which - reverse 
   repurchase 
   agreements 
   and other similar 
   secured 
   lending7               4,383        4,383                          -      1,469       1,469                       - 
                      ---------  -----------  -----------  ------------  ---------  ----------  -----------  --------- 
Investment 
 securities 
 - Debt securities, 
 alternative Tier 1 
 and other eligible 
 bills2                 145,327                                 145,327    143,440                             143,440 
Fair value through 
 profit 
 or loss3, 7             95,807       59,002            -        36,805     90,349      57,604                  32,745 
                      ---------  -----------  -----------  ------------  ---------  ----------  -----------  --------- 
  Loans and advances 
   to 
   banks                  2,336                                   2,336      3,528                               3,528 
  Loans and advances 
   to 
   customers             10,453                                  10,453      6,896                               6,896 
  Reverse repurchase 
   agreements 
   and 
   other similar 
   lending7              59,002       59,002                          -     57,604      57,604                       - 
  Investment 
   securities 
   - Debt 
   securities, 
   alternative 
   Tier 1 and other 
   eligible 
   bills2                24,016                                  24,016     22,321                              22,321 
                      ---------  -----------  -----------  ------------  ---------  ----------  -----------  --------- 
Derivative financial 
 instruments4, 7         52,227        9,565       37,441         5,221     47,212       7,824       28,659     10,729 
Accrued income            1,949                                   1,949      2,358                               2,358 
Assets held for sale        157                                     157         90                                  90 
Other assets5            42,183                                  42,183     36,161                              36,161 
--------------------  ---------  -----------  -----------  ------------  ---------  ----------  -----------  --------- 
Total balance sheet     717,387      197,131       37,441       482,815    694,410     188,884       28,659    476,867 
--------------------  ---------  -----------  -----------  ------------  ---------  ----------  -----------  --------- 
Off-balance sheet6 
Contingent 
 liabilities             42,234            -            -        42,234     42,432           -            -     42,432 
Undrawn irrevocable 
 standby facilities, 
 credit 
 lines and other 
 commitments 
 to lend                140,120            -            -       140,120    141,194           -            -    141,194 
Documentary credits 
 and short-term 
 trade- 
 related 
 transactions             3,793            -            -         3,793      4,282           -            -      4,282 
--------------------  ---------  -----------  -----------  ------------  ---------  ----------  -----------  --------- 
Total off-balance 
 sheet                  186,147            -            -       186,147    187,908           -            -    187,908 
--------------------  ---------  -----------  -----------  ------------  ---------  ----------  -----------  --------- 
Total                   903,534      197,131       37,441       668,962    882,318     188,884       28,659    664,775 
--------------------  ---------  -----------  -----------  ------------  ---------  ----------  -----------  --------- 
 

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 $407 million (31 December 2019: $291 million). Further details are set out in Note 13 Financial Instruments

3 Excludes equity and other investments of $2,552 million (31 December 2019: $2,469 million). Further details are set out in Note 13 Financial Instruments

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 (within EY review scope)

This table shows financial instruments and off-balance sheet commitments by stage, along with the total credit impairment loss provision against each class of financial instrument.

The proportion of financial instruments held within stage 1 fell to 93 per cent (31 December 2019: 94 per cent). Stage 2 financial instruments overall were stable at 5 per cent (2019: 5 per cent) but stage 2 loans and advances to customers increased to 8.4 per cent (2019: 7.6 per cent) reflecting the increase in loans classified as non-purely precautionary early alert and the impact of the deteriorating macroeconomic environment. This was partly offset by a decline in stage 2 debt securities, which fell to 2 per cent compared with 3 per cent as at 31 December 2019.

Stage 3 financial instruments were stable at 1 per cent of the Group total. Stage 3 loans and advances to customers increased by $1.4 billion primarily relating to three clients in ASEAN & South Asia and Africa & Middle East regions. The stage 3 cover ratio (excluding collateral) fell to 60 per cent (31 December 2019: 68 per cent).

 
                                                                                  30.06.20 
-------------  ---------------------------------------------------------------------------------------------------------------------------------------------- 
                            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 
-------------  ----------  ----------  ----------  ----------  ----------  ----------  ----------  ----------  ----------  ----------  ----------  ---------- 
Cash and 
 balances 
 at central 
 banks             52,925           -      52,925           -           -           -           -           -           -      52,925           -      52,925 
Loans and 
 advances 
 to banks 
 (amortised 
 cost)             50,146         (3)      50,143         349         (2)         347          13         (4)           9      50,508         (9)      50,499 
Loans and 
 advances 
 to customers 
 (amortised 
 cost)            250,278       (476)     249,802      23,739       (780)      22,959       8,809     (5,257)       3,552     282,826     (6,513)     276,313 
Debt 
 securities, 
 alternative 
 Tier 1 and 
 other 
 eligible 
 bills            142,617        (49)                   2,707        (37)                      53        (30)                 145,377       (116) 
               ----------  ----------  ----------  ----------  ----------  ----------  ----------  ----------  ----------  ----------  ----------  ---------- 
  Amortised 
   cost            15,888        (16)      15,872         248         (4)         244          53        (30)          23      16,189        (50)      16,139 
  FVOCI2          126,729        (33)                   2,459        (33)                       -           -                 129,188        (66) 
               ----------  ----------  ----------  ----------  ----------  ----------  ----------  ----------  ----------  ----------  ----------  ---------- 
Accrued 
 income 
 (amortised 
 cost)4             1,949           -       1,949           -           -           -           -           -           -       1,949           -       1,949 
Assets held 
 for sale4            157           -         157           -           -           -           -           -           -         157           -         157 
Other assets       42,184         (1)      42,183           -           -           -           7         (7)           -      42,191         (8)      42,183 
Undrawn 
 commitments3     134,605        (44)                   9,280        (72)                      28         (1)                 143,913       (117) 
Financial 
 guarantees3       37,408        (16)                   4,205        (39)                     621       (182)                  42,234       (237) 
-------------  ----------  ----------  ----------  ----------  ----------  ----------  ----------  ----------  ----------  ----------  ----------  ---------- 
Total             712,269       (589)                  40,280       (930)                   9,531     (5,481)                 762,080     (7,000) 
-------------  ----------  ----------  ----------  ----------  ----------  ----------  ----------  ----------  ----------  ----------  ----------  ---------- 
 

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 the OCI reserve

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

4 Stage 1 ECL is not material

 
                                                                                  31.12.19 
-------------  ---------------------------------------------------------------------------------------------------------------------------------------------- 
                            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 
                 balance1  impairment       value    balance1  impairment       value    balance1  impairment       value    balance1  impairment       value 
                 $million    $million    $million    $million    $million    $million    $million    $million    $million    $million    $million    $million 
-------------  ----------  ----------  ----------  ----------  ----------  ----------  ----------  ----------  ----------  ----------  ----------  ---------- 
Cash and 
 balances 
 at central 
 banks             52,728           -      52,728           -           -           -           -           -           -      52,728           -      52,728 
Loans and 
 advances to 
 banks 
 (amortised 
 cost)             52,634         (5)      52,629         924         (4)         920           -           -           -      53,558         (9)      53,549 
Loans and 
 advances 
 to customers 
 (amortised 
 cost)            246,149       (402)     245,747      20,759       (377)      20,382       7,398     (5,004)       2,394     274,306     (5,783)     268,523 
Debt 
 securities, 
 alternative 
 Tier 1 and 
 other 
 eligible 
 bills            138,782        (50)                   4,644        (23)                      75        (45)                 143,501       (118) 
               ----------  ----------  ----------  ----------  ----------  ----------  ----------  ----------  ----------  ----------  ----------  ---------- 
  Amortised 
   cost            13,678        (10)      13,668         277         (6)         271          75        (45)          30      14,030        (61)      13,969 
  FVOCI2          125,104        (40)                   4,367        (17)                       -           -                 129,471        (57) 
               ----------  ----------  ----------  ----------  ----------  ----------  ----------  ----------  ----------  ----------  ----------  ---------- 
Accrued 
 income 
 (amortised 
 cost)4             2,358           -       2,358           -           -           -           -           -           -       2,358           -       2,358 
Assets held 
 for sale4             90           -          90           -           -           -           -           -           -          90           -          90 
Other assets4      36,161         (3)      36,158           -           -           -         164       (161)           3      36,325       (164)      36,161 
Undrawn 
 commitments3     136,179        (43)                   9,277        (38)                      20           -                 145,476        (81) 
Financial 
 guarantees3       38,660        (14)                   3,183        (16)                     589       (206)                  42,432       (236) 
-------------  ----------  ----------  ----------  ----------  ----------  ----------  ----------  ----------  ----------  ----------  ----------  ---------- 
Total             703,741       (517)                  38,787       (458)                   8,246     (5,416)                 750,774     (6,391) 
-------------  ----------  ----------  ----------  ----------  ----------  ----------  ----------  ----------  ----------  ----------  ----------  ---------- 
 

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 the OCI reserve

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

4 Stage 1 ECL is not material

Credit quality analysis

Credit quality by client segment (within EY review scope)

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 (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 
---------------  ------------------------------------------  ----------------  ---------------------- 
                 Internal                        Regulatory 
Credit quality    grade     S&P external          PD range   Internal          Number of days past 
 description      mapping    ratings equivalent   (%)         ratings           due 
---------------  ---------  -------------------  ----------  ----------------  ---------------------- 
                                                             Class I and       Current loans (no past 
Strong           1A to 5B   AAA to BB+           0 to 0.425   Class IV          dues nor impaired) 
---------------  ---------  -------------------  ----------  ----------------  ---------------------- 
                                                             Class II 
                                                 0.425 to     and Class        Loans past due till 
Satisfactory     6A to 11C  BB to B-/CCC          15.75       III               29 days 
---------------  ---------  -------------------  ----------  ----------------  ---------------------- 
                                                 15.751 to                     Past due loans 30 days 
Higher risk      Grade 12   CCC/C                 100.00     GSAM managed       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 for each segment and stage.

Stage 1 (within EY review scope)

Stage 1 gross loans and advances to customers increased by $4.1 billion, or 2 per cent compared with 31 December 2019 and represents 88 per cent of loans and advances to customers (31 December 2019: 90 per cent). Most of the growth was concentrated in the ASEAN & South Asia region. The stage 1 coverage ratio remained at 0.2 per cent compared with 31 December 2019.

81 per cent (31 December 2019: 83 per cent) of loans in Corporate & Institutional Banking and Commercial Banking were held in stage 1, with those rated as strong increasing marginally to 57 per cent (31 December 2019: 56 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 $0.8 billion, with an $8 billion increase in lending to governments offset by reductions across several sectors as clients were placed on non-purely precautionary early alert and transferred to stage 2.

Retail Banking stage 1 loans remains stable at 96 per cent (2019: 96 per cent).

Stage 2 (within EY review scope)

Stage 2 loans and advances to customers gross balances increased by $3.0 billion, compared with 31 December 2019, with the proportion of stage 2 loans remaining at 8 per cent. Coverage increased to 3.3 per cent compared with 1.8 per cent as at 31 December 2019, as provisions increased as a result of the deteriorating macroeconomic environment and continuing uncertainties as to the timing and pace of economic recovery.

Corporate & Institutional Banking and Commercial Banking loans increased by $2.6 billion, compared with 31 December 2019, due to increased levels of non-purely precautionary early alerts, primarily in industries that have been adversely impacted by the COVID-19 pandemic and falls in the oil price. Coverage increased to 2.7 per cent from 1.3 per cent.

Retail Banking stage 2 loans remains stable at 3 per cent of total Retail portfolio.

Retail Banking stage 2 cover ratio increased to 6.9 per cent compared to 5.7 per cent in 2019 due to increased provisions in unsecured portfolios and heightened risks for portfolios covered by moratoria schemes.

Stage 2 loans to banks classified as 'Higher risk' decreased by $0.2 billion due to repayments.

Stage 2 undrawn commitments were stable at $9.3 billion, although the proportion rated as 'Strong' reduced from 43 per cent to 40 per cent.

Stage 3 (within EY review scope)

Stage 3 loans and advances to customers increased by $1.4 billion, or 19 per cent, to $8.8 billion compared to 31 December 2019, with overall stage 3 provisions increasing by $0.3 billion. The stage 3 cover ratio has decreased to 60 per cent (2019: 68 per cent) due to write offs in Corporate & Institutional Banking, as well as downgrades which incurred lower levels of provisions but were partially covered by tangible collateral, guarantees and credit insurance.

In Corporate & Institutional Banking and Commercial Banking, gross stage 3 loans increased by $1.2 billion compared with 31 December 2019. Provisions increased by $0.1 billion from $4.5 billion to $4.6 billion.

Inflows into stage 3 for Corporate & Institutional Banking and Commercial Banking in the first half of 2020 were significantly higher compared with the second half of 2019, primarily due to three clients in ASEAN & South Asia and Africa & Middle East.

Retail stage 3 loans increased by $0.2 billion to $1.1 billion as COVID-19 related lockdowns impacted collections and recoveries activities, particularly in ASEAN & South Asia.

Loans and advances by client segment (within EY review scope)

 
                                                                 30.06.20 
----------------  ------------------------------------------------------------------------------------------------------ 
                                                        Customers 
                  --------  ------------------------------------------------------------------  ------------  ---------- 
                                Corporate 
                                        &                                   Central 
                            Institutional    Retail  Commercial   Private   & other   Customer       Undrawn   Financial 
                     Banks        Banking   Banking     Banking   Banking     items      Total  commit-ments  Guarantees 
Amortised cost    $million       $million  $million    $million  $million  $million   $million      $million    $million 
----------------  --------  -------------  --------  ----------  --------  --------  ---------  ------------  ---------- 
Stage 1             50,146         97,794   101,523      20,916    12,599    17,446    250,278       134,605      37,408 
                  --------  -------------  --------  ----------  --------  --------  ---------  ------------  ---------- 
  - Strong          41,317         61,090   100,456       6,097     9,232    17,213    194,088       115,218      25,727 
  - Satisfactory     8,829         36,704     1,067      14,819     3,367       233     56,190        19,387      11,681 
                  --------  -------------  --------  ----------  --------  --------  ---------  ------------  ---------- 
Stage 2                349         15,765     3,515       4,256       199         4     23,739         9,280       4,205 
                  --------  -------------  --------  ----------  --------  --------  ---------  ------------  ---------- 
  - Strong              31          4,347     2,630         307       195         -      7,479         3,682       1,065 
  - Satisfactory       301         10,469       406       3,400         4         -     14,279         5,255       2,845 
  - Higher risk         17            949       479         549         -         4      1,981           343         295 
                  --------  -------------  --------  ----------  --------  --------  ---------  ------------  ---------- 
Of which (stage 
2): 
  - Less than 30 
   days 
   past due              -            272       406         119         -         -        797 
  - More than 30 
   days 
   past due             35             58       479          34         4         -        575 
Stage 3, 
 credit-impaired 
 financial 
 assets                 13          5,364     1,067       2,004       372         2      8,809            28         621 
----------------  --------  -------------  --------  ----------  --------  --------  ---------  ------------  ---------- 
Gross balance1      50,508        118,923   106,105      27,176    13,170    17,452    282,826       143,913      42,234 
----------------  --------  -------------  --------  ----------  --------  --------  ---------  ------------  ---------- 
Stage 1                (3)           (62)     (371)        (31)      (11)       (1)      (476)          (44)        (16) 
                  --------  -------------  --------  ----------  --------  --------  ---------  ------------  ---------- 
  - Strong               -           (37)     (228)         (4)       (8)         -      (277)          (22)         (9) 
  - Satisfactory       (3)           (25)     (143)        (27)       (3)       (1)      (199)          (22)         (7) 
                  --------  -------------  --------  ----------  --------  --------  ---------  ------------  ---------- 
Stage 2                (2)          (424)     (242)       (114)         -         -      (780)          (72)        (39) 
  - Strong               -           (74)      (99)         (8)         -         -      (181)          (24)         (7) 
  - Satisfactory       (2)          (312)      (74)        (83)         -         -      (469)          (41)        (27) 
  - Higher risk          -           (38)      (69)        (23)         -         -      (130)           (7)         (5) 
Of which (stage 
2): 
  - Less than 30 
   days 
   past due              -           (13)      (74)         (8)         -         -       (95) 
  - More than 30 
   days 
   past due              -           (22)      (69)        (16)         -         -      (107) 
Stage 3, 
 credit-impaired 
 financial 
 assets                (4)        (3,129)     (492)     (1,476)     (158)       (2)    (5,257)           (1)       (182) 
----------------  --------  -------------  --------  ----------  --------  --------  ---------  ------------  ---------- 
Total credit 
 impairment            (9)        (3,615)   (1,105)     (1,621)     (169)       (3)    (6,513)         (117)       (237) 
----------------  --------  -------------  --------  ----------  --------  --------  ---------  ------------  ---------- 
Net carrying 
 value              50,499        115,308   105,000      25,555    13,001    17,449    276,313 
----------------  --------  -------------  --------  ----------  --------  --------  ---------  ------------  ---------- 
Stage 1               0.0%           0.1%      0.4%        0.1%      0.1%      0.0%       0.2%          0.0%        0.0% 
                  --------  -------------  --------  ----------  --------  --------  ---------  ------------  ---------- 
  - Strong            0.0%           0.1%      0.2%        0.1%      0.1%      0.0%       0.1%          0.0%        0.0% 
  - Satisfactory      0.0%           0.1%     13.4%        0.2%      0.1%      0.4%       0.4%          0.1%        0.1% 
                  --------  -------------  --------  ----------  --------  --------  ---------  ------------  ---------- 
Stage 2               0.6%           2.7%      6.9%        2.7%      0.0%      0.0%       3.3%          0.8%        0.9% 
                  --------  -------------  --------  ----------  --------  --------  ---------  ------------  ---------- 
  - Strong            0.0%           1.7%      3.8%        2.6%      0.0%      0.0%       2.4%          0.6%        0.7% 
  - Satisfactory      0.7%           3.0%     18.2%        2.4%      0.0%      0.0%       3.3%          0.8%        0.9% 
  - Higher risk       0.0%           4.0%     14.4%        4.2%      0.0%      0.0%       6.6%          2.0%        1.7% 
                  --------  -------------  --------  ----------  --------  --------  ---------  ------------  ---------- 
Of which (stage 
2): 
  - Less than 30 
   days 
   past due           0.0%           4.8%     18.2%        6.7%      0.0%      0.0%      11.9% 
  - More than 30 
   days 
   past due           0.0%          37.9%     14.4%       47.1%      0.0%      0.0%      18.6% 
Stage 3, 
 credit-impaired 
 financial 
 assets              30.8%          58.3%     46.1%       73.7%     42.5%    100.0%      59.7%          3.6%       29.3% 
----------------  --------  -------------  --------  ----------  --------  --------  ---------  ------------  ---------- 
Cover ratio           0.0%           3.0%      1.0%        6.0%      1.3%      0.0%       2.3%          0.1%        0.6% 
----------------  --------  -------------  --------  ----------  --------  --------  ---------  ------------  ---------- 
Fair value 
through 
profit or loss 
----------------  --------  -------------  --------  ----------  --------  --------  ---------  ------------  ---------- 
Performing          19,939         48,951       182       2,650         -        15     51,798             -           - 
                  --------  -------------  --------  ----------  --------  --------  ---------  ------------  ---------- 
  - Strong          16,807         26,961       179       2,008         -         9     29,157             -           - 
  - Satisfactory     3,132         21,988         2         615         -         6     22,611             -           - 
  - Higher risk          -              2         1          27         -         -         30             -           - 
                  --------  -------------  --------  ----------  --------  --------  ---------  ------------  ---------- 
Defaulted 
 (CG13-14)               -             45         -           9         -         -         54             -           - 
----------------  --------  -------------  --------  ----------  --------  --------  ---------  ------------  ---------- 
Gross balance 
 (FVTPL)2           19,939         48,996       182       2,659         -        15     51,852             -           - 
----------------  --------  -------------  --------  ----------  --------  --------  ---------  ------------  ---------- 
Net carrying 
 value 
 (incl FVTPL)       70,438        164,304   105,182      28,214    13,001    17,464    328,165 
----------------  --------  -------------  --------  ----------  --------  --------  ---------  ------------  ---------- 
 

1 Loans and advances includes reverse repurchase agreements and other similar secured lending of $4,383 million under Customers and of $1,893 million under Banks, held at amortised cost

2 Loans and advances includes reverse repurchase agreements and other similar secured lending of $41,399 million under Customers and of $17,603 million under Banks, held at

fair value through profit or loss

 
                                                                 31.12.19 
----------------  ------------------------------------------------------------------------------------------------------ 
                                                        Customers3 
                  --------  ------------------------------------------------------------------  ------------  ---------- 
                                Corporate 
                                        &                                   Central 
                            Institutional    Retail  Commercial   Private   & other   Customer       Undrawn   Financial 
                     Banks        Banking   Banking     Banking   Banking     items      Total  commit-ments  Guarantees 
Amortised cost    $million       $million  $million    $million  $million  $million   $million      $million    $million 
----------------  --------  -------------  --------  ----------  --------  --------  ---------  ------------  ---------- 
Stage 1             52,634         94,226   103,899      23,683    14,249    10,092    246,149       136,179      38,660 
                  --------  -------------  --------  ----------  --------  --------  ---------  ------------  ---------- 
  - Strong          41,053         58,623   101,246       6,941    10,145     9,961    186,916       114,981      25,631 
  - Satisfactory    11,581         35,603     2,653      16,742     4,104       131     59,233        21,198      13,029 
                  --------  -------------  --------  ----------  --------  --------  ---------  ------------  ---------- 
Stage 2                924         13,454     3,029       3,985       284         7     20,759         9,277       3,183 
                  --------  -------------  --------  ----------  --------  --------  ---------  ------------  ---------- 
  - Strong             225          2,711     2,231         208       280         -      5,430         4,012       1,025 
  - Satisfactory       476          9,652       462       3,493         4         -     13,611         4,898       1,951 
  - Higher risk        223          1,091       336         284         -         7      1,718           367         207 
                  --------  -------------  --------  ----------  --------  --------  ---------  ------------  ---------- 
Of which (stage 
2): 
  - Less than 30 
   days 
   past due              2            145       462          58         -         -        665 
  - More than 30 
   days 
   past due             23            175       336          86         4         -        601 
Stage 3, 
 credit-impaired 
 financial 
 assets                  -          4,173       846       2,013       366         -      7,398            20         589 
----------------  --------  -------------  --------  ----------  --------  --------  ---------  ------------  ---------- 
Gross balance1      53,558        111,853   107,774      29,681    14,899    10,099    274,306       145,476      42,432 
----------------  --------  -------------  --------  ----------  --------  --------  ---------  ------------  ---------- 
Stage 1                (5)           (78)     (289)        (24)      (10)       (1)      (402)          (43)        (14) 
                  --------  -------------  --------  ----------  --------  --------  ---------  ------------  ---------- 
  - Strong               -           (29)     (182)         (1)       (8)         -      (220)          (22)         (8) 
  - Satisfactory       (5)           (49)     (107)        (23)       (2)       (1)      (182)          (21)         (6) 
                  --------  -------------  --------  ----------  --------  --------  ---------  ------------  ---------- 
Stage 2                (4)          (143)     (173)        (60)       (1)         -      (377)          (38)        (16) 
                  --------  -------------  --------  ----------  --------  --------  ---------  ------------  ---------- 
  - Strong             (2)           (33)      (88)         (5)       (1)         -      (127)           (7)         (3) 
  - Satisfactory       (2)           (51)      (45)        (40)         -         -      (136)          (14)         (8) 
  - Higher risk          -           (59)      (40)        (15)         -         -      (114)          (17)         (5) 
                  --------  -------------  --------  ----------  --------  --------  ---------  ------------  ---------- 
Of which (stage 
2): 
  - Less than 30 
   days 
   past due              -            (3)      (45)         (2)         -         -       (50) 
  - More than 30 
   days 
   past due              -            (4)      (40)         (5)         -         -       (49) 
Stage 3, 
 credit-impaired 
 financial 
 assets                  -        (2,980)     (374)     (1,503)     (147)         -    (5,004)             -       (206) 
----------------  --------  -------------  --------  ----------  --------  --------  ---------  ------------  ---------- 
Total credit 
 impairment            (9)        (3,201)     (836)     (1,587)     (158)       (1)    (5,783)          (81)       (236) 
----------------  --------  -------------  --------  ----------  --------  --------  ---------  ------------  ---------- 
Net carrying 
 value              53,549        108,652   106,938      28,094    14,741    10,098    268,523 
----------------  --------  -------------  --------  ----------  --------  --------  ---------  ------------  ---------- 
Stage 1               0.0%           0.1%      0.3%        0.1%      0.1%      0.0%       0.2%          0.0%        0.0% 
                  --------  -------------  --------  ----------  --------  --------  ---------  ------------  ---------- 
  - Strong            0.0%           0.0%      0.2%        0.0%      0.1%      0.0%       0.1%          0.0%        0.0% 
  - Satisfactory      0.0%           0.1%      4.0%        0.1%      0.0%      0.8%       0.3%          0.1%        0.0% 
                  --------  -------------  --------  ----------  --------  --------  ---------  ------------  ---------- 
Stage 2               0.4%           1.1%      5.7%        1.5%      0.4%      0.0%       1.8%          0.4%        0.5% 
                  --------  -------------  --------  ----------  --------  --------  ---------  ------------  ---------- 
  - Strong            0.9%           1.2%      3.9%        2.4%      0.4%      0.0%       2.3%          0.2%        0.3% 
  - Satisfactory      0.4%           0.5%      9.7%        1.1%      0.0%      0.0%       1.0%          0.3%        0.4% 
  - Higher risk       0.0%           5.4%     11.9%        5.3%      0.0%      0.0%       6.6%          4.7%        2.4% 
                  --------  -------------  --------  ----------  --------  --------  ---------  ------------  ---------- 
Of which (stage 
2): 
  - Less than 30 
   days 
   past due           0.0%           2.1%      9.7%        3.4%      0.0%      0.0%       7.5% 
  - More than 30 
   days 
   past due           0.0%           2.3%     11.9%        5.8%      0.0%      0.0%       8.2% 
Stage 3, 
 credit-impaired 
 financial 
 assets               0.0%          71.4%     44.2%       74.7%     40.2%      0.0%      67.6%          0.0%       35.0% 
----------------  --------  -------------  --------  ----------  --------  --------  ---------  ------------  ---------- 
Cover ratio           0.0%           2.9%      0.8%        5.3%      1.1%      0.0%       2.1%          0.1%        0.6% 
----------------  --------  -------------  --------  ----------  --------  --------  ---------  ------------  ---------- 
Fair value 
through 
profit or loss 
----------------  --------  -------------  --------  ----------  --------  --------  ---------  ------------  ---------- 
Performing          21,797         45,104       238         845         -         2     46,189             -           - 
                  --------  -------------  --------  ----------  --------  --------  ---------  ------------  ---------- 
  - Strong          19,217         26,511       236         253         -         1     27,001             -           - 
  - Satisfactory     2,580         18,584         1         592         -         1     19,178             -           - 
  - Higher risk          -              9         1           -         -         -         10             -           - 
                  --------  -------------  --------  ----------  --------  --------  ---------  ------------  ---------- 
Defaulted 
 (CG13-14)               -             34         -           8         -         -         42             -           - 
----------------  --------  -------------  --------  ----------  --------  --------  ---------  ------------  ---------- 
Gross balance 
 (FVTPL)2           21,797         45,138       238         853         -         2     46,231             -           - 
----------------  --------  -------------  --------  ----------  --------  --------  ---------  ------------  ---------- 
Net carrying 
 value 
 (incl FVTPL)       75,346        153,790   107,176      28,947    14,741    10,100    314,754 
----------------  --------  -------------  --------  ----------  --------  --------  ---------  ------------  ---------- 
 

1 Loans and advances includes reverse repurchase agreements and other similar secured lending of $1,469 million under Customers and of $1,341 million under Banks, held at amortised cost

2 Loans and advances includes reverse repurchase agreements and other similar secured lending of $39,335 million under Customers and of $18,269 million under Banks, held at fair value through profit or loss

3 Corporate & Institutional Banking, Commercial Banking and Retail Banking Gross and ECL numbers have been restated to reflect client transfers between the segments. The changes are in stage 1 and stage 2 only. In the Fair value through profit or loss section, the swap is between Corporate & Institutional Banking and Commercial Banking

Loans and advances by client segment credit quality analysis

 
                                                                Corporate & Institutional Banking 
------------  -------------  -------------------  -------------------------------------------------------------- 
                                                                             30.06.20 
                                                  -------------------------------------------------------------- 
                                                              Gross                     Credit impairment 
                                                  ------------------------------  ------------------------------ 
              Regulatory 
               1 year PD     S&P external          Stage   Stage  Stage           Stage  Stage    Stage 
Credit grade   range (%)      ratings equivalent       1       2      3    Total      1      2        3    Total 
------------  -------------  -------------------  ------  ------  -----  -------  -----  -----  -------  ------- 
Strong                                            61,090   4,347      -   65,437   (37)   (74)        -    (111) 
  1A-2B       0 - 0.045      AA- and above         8,596     257      -    8,853      -   (11)        -     (11) 
  3A-4A       0.046 - 0.110  A+ to A-             14,802   1,209      -   16,011    (4)   (20)        -     (24) 
  4B-5B       0.111 - 0.425  BBB+ to BBB-/BB+     37,692   2,881      -   40,573   (33)   (43)        -     (76) 
Satisfactory                                      36,704  10,469      -   47,173   (25)  (312)        -    (337) 
                             BB+/BB to 
  6A-7B       0.426 - 1.350   BB-                 26,769   4,597      -   31,366   (16)  (118)        -    (134) 
                             BB-/B+ to 
  8A-9B       1.351 - 4.000   B+/B                 6,936   3,771      -   10,707    (9)   (96)        -    (105) 
  10A-11C     4.001 - 15.75  B to B-/CCC           2,999   2,101      -    5,100      -   (98)        -     (98) 
Higher risk                                            -     949      -      949      -   (38)        -     (38) 
              15.751 - 
  12           99.999        CCC/C                     -     949      -      949      -   (38)        -     (38) 
Defaulted                                              -       -  5,364    5,364      -      -  (3,129)  (3,129) 
  13-14       100            Defaulted                 -       -  5,364    5,364      -      -  (3,129)  (3,129) 
------------  -------------  -------------------  ------  ------  -----  -------  -----  -----  -------  ------- 
Total                                             97,794  15,765  5,364  118,923   (62)  (424)  (3,129)  (3,615) 
------------  -------------  -------------------  ------  ------  -----  -------  -----  -----  -------  ------- 
 
 
                                                                            31.12.191 
------------  -------------  -------------------  -------------------------------------------------------------- 
                                                              Gross                     Credit impairment 
                                                  ------------------------------  ------------------------------ 
              Regulatory 
               1 year PD     S&P external          Stage   Stage  Stage           Stage  Stage    Stage 
Credit grade   range (%)      ratings equivalent       1       2      3    Total      1      2        3    Total 
------------  -------------  -------------------  ------  ------  -----  -------  -----  -----  -------  ------- 
Strong                                            58,623   2,711      -   61,334   (29)   (33)        -     (62) 
  1A-2B       0 - 0.045      AA- and above         6,638      80      -    6,718    (2)      -        -      (2) 
  3A-4A       0.046 - 0.110  A+ to A-             18,659     912      -   19,571    (4)    (7)        -     (11) 
  4B-5B       0.111 - 0.425  BBB+ to BBB-/BB+     33,326   1,719      -   35,045   (23)   (26)        -     (49) 
Satisfactory                                      35,603   9,652      -   45,255   (49)   (51)        -    (100) 
                             BB+/BB to 
  6A-7B       0.426 - 1.350   BB-                 24,000   5,955      -   29,955   (26)   (18)        -     (44) 
                             BB-/B+ to 
  8A-9B       1.351 - 4.000   B+/B                 8,000   2,633      -   10,633   (15)   (21)        -     (36) 
  10A-11C     4.001 - 15.75  B to B-/CCC           3,603   1,064      -    4,667    (8)   (12)        -     (20) 
Higher risk                                            -   1,091      -    1,091      -   (59)        -     (59) 
              15.751 - 
  12           99.999        CCC/C                     -   1,091      -    1,091      -   (59)        -     (59) 
Defaulted                                              -       -  4,173    4,173      -      -  (2,980)  (2,980) 
  13-14       100            Defaulted                 -       -  4,173    4,173      -      -  (2,980)  (2,980) 
------------  -------------  -------------------  ------  ------  -----  -------  -----  -----  -------  ------- 
Total                                             94,226  13,454  4,173  111,853   (78)  (143)  (2,980)  (3,201) 
------------  -------------  -------------------  ------  ------  -----  -------  -----  -----  -------  ------- 
 

1 Stage 1 and Stage 2 Gross and ECL numbers have been restated to reflect client transfers to and from Commercial Banking

 
                                                                       Commercial Banking 
------------  -------------  -------------------  ------------------------------------------------------------ 
                                                                            30.06.20 
                                                  ------------------------------------------------------------ 
                                                             Gross                    Credit impairment 
                                                  ----------------------------  ------------------------------ 
              Regulatory 
               1 year PD     S&P external          Stage  Stage  Stage          Stage  Stage    Stage 
Credit grade   range (%)      ratings equivalent       1      2      3   Total      1      2        3    Total 
------------  -------------  -------------------  ------  -----  -----  ------  -----  -----  -------  ------- 
Strong                                             6,097    307      -   6,404    (4)    (8)        -     (12) 
  1A-2B       0 - 0.045      AA- and above            20      2      -      22      -      -        -        - 
  3A-4A       0.046 - 0.110  A+ to A-              1,755    105      -   1,860      -    (3)        -      (3) 
  4B-5B       0.111 - 0.425  BBB+ to BBB-/BB+      4,322    200      -   4,522    (4)    (5)        -      (9) 
Satisfactory                                      14,819  3,400      -  18,219   (27)   (83)        -    (110) 
                             BB+/BB to 
  6A-7B       0.426 - 1.350   BB-                  6,681    503      -   7,184   (10)    (8)        -     (18) 
                             BB-/B+ to 
  8A-9B       1.351 - 4.000   B+/B                 5,863  1,250      -   7,113   (11)   (34)        -     (45) 
  10A-11C     4.001 - 15.75  B to B-/CCC           2,275  1,647      -   3,922    (6)   (41)        -     (47) 
Higher risk                                            -    549      -     549      -   (23)        -     (23) 
              15.751 - 
  12           99.999        CCC/C                     -    549      -     549      -   (23)        -     (23) 
Defaulted                                              -      -  2,004   2,004      -      -  (1,476)  (1,476) 
  13-14       100            Defaulted                 -      -  2,004   2,004      -      -  (1,476)  (1,476) 
------------  -------------  -------------------  ------  -----  -----  ------  -----  -----  -------  ------- 
Total                                             20,916  4,256  2,004  27,176   (31)  (114)  (1,476)  (1,621) 
------------  -------------  -------------------  ------  -----  -----  ------  -----  -----  -------  ------- 
 
 
                                                                           31.12.191 
------------  -------------  -------------------  ------------------------------------------------------------ 
                                                             Gross                    Credit impairment 
                                                  ----------------------------  ------------------------------ 
              Regulatory 
               1 year PD     S&P external          Stage  Stage  Stage          Stage  Stage    Stage 
Credit grade   range (%)      ratings equivalent       1      2      3   Total      1      2        3    Total 
------------  -------------  -------------------  ------  -----  -----  ------  -----  -----  -------  ------- 
Strong                                             6,941    208      -   7,149    (1)    (5)        -      (6) 
  1A-2B       0 - 0.045      AA- and above           285      -      -     285      -      -        -        - 
  3A-4A       0.046 - 0.110  A+ to A-              2,500     10      -   2,510      -      -        -        - 
  4B-5B       0.111 - 0.425  BBB+ to BBB-/BB+      4,156    198      -   4,354    (1)    (5)        -      (6) 
Satisfactory                                      16,742  3,493      -  20,235   (23)   (40)        -     (63) 
                             BB+/BB to 
  6A-7B       0.426 - 1.350   BB-                  7,030    840      -   7,870    (5)    (1)        -      (6) 
                             BB-/B+ to 
  8A-9B       1.351 - 4.000   B+/B                 7,032  1,355      -   8,387   (11)   (13)        -     (24) 
  10A-11C     4.001 - 15.75  B to B-/CCC           2,680  1,298      -   3,978    (7)   (26)        -     (33) 
Higher risk                                            -    284      -     284      -   (15)        -     (15) 
              15.751 - 
  12           99.999        CCC/C                     -    284      -     284      -   (15)        -     (15) 
Defaulted                                              -      -  2,013   2,013      -      -  (1,503)  (1,503) 
  13-14       100            Defaulted                 -      -  2,013   2,013      -      -  (1,503)  (1,503) 
------------  -------------  -------------------  ------  -----  -----  ------  -----  -----  -------  ------- 
Total                                             23,683  3,985  2,013  29,681   (24)   (60)  (1,503)  (1,587) 
------------  -------------  -------------------  ------  -----  -----  ------  -----  -----  -------  ------- 
 

1 Stage 1 and stage 2 Gross and ECL numbers have been restated to reflect client transfers to and from Corporate & Institutional Banking and to Retail Banking

 
                                      Retail Banking 
-------------  ------------------------------------------------------------ 
                                         30.06.20 
               ------------------------------------------------------------ 
                           Gross                    Credit impairment 
               ------------------------------  ---------------------------- 
                 Stage  Stage  Stage           Stage  Stage  Stage 
Credit grade         1      2      3    Total      1      2      3    Total 
-------------  -------  -----  -----  -------  -----  -----  -----  ------- 
Strong         100,456  2,630      -  103,086  (228)   (99)      -    (327) 
  Secured       85,027  2,226      -   87,253   (34)   (24)      -     (58) 
  Unsecured     15,429    404      -   15,833  (194)   (75)      -    (269) 
Satisfactory     1,067    406      -    1,473  (143)   (74)      -    (217) 
  Secured          711    314      -    1,025      -      -      -        - 
  Unsecured        356     92      -      448  (143)   (74)      -    (217) 
Higher risk          -    479      -      479      -   (69)      -     (69) 
  Secured            -    314      -      314      -    (7)      -      (7) 
  Unsecured          -    165      -      165      -   (62)      -     (62) 
Defaulted            -      -  1,067    1,067      -      -  (492)    (492) 
  Secured            -      -    590      590      -      -  (235)    (235) 
  Unsecured          -      -    477      477      -      -  (257)    (257) 
-------------  -------  -----  -----  -------  -----  -----  -----  ------- 
Total          101,523  3,515  1,067  106,105  (371)  (242)  (492)  (1,105) 
-------------  -------  -----  -----  -------  -----  -----  -----  ------- 
 
 
                                        31.12.19 
-------------  ---------------------------------------------------------- 
                           Gross                   Credit impairment 
               ------------------------------  -------------------------- 
                 Stage  Stage  Stage           Stage  Stage  Stage 
Credit grade         1      2      3    Total      1      2      3  Total 
-------------  -------  -----  -----  -------  -----  -----  -----  ----- 
Strong         101,246  2,231      -  103,477  (182)   (88)      -  (270) 
  Secured       85,301  1,923      -   87,224   (11)   (12)      -   (23) 
  Unsecured     15,945    308      -   16,253  (171)   (76)      -  (247) 
Satisfactory     2,653    462      -    3,115  (107)   (45)      -  (152) 
  Secured        1,691    358      -    2,049    (1)    (3)      -    (4) 
  Unsecured        962    104      -    1,066  (106)   (42)      -  (148) 
Higher risk          -    336      -      336      -   (40)      -   (40) 
  Secured            -    193      -      193      -    (3)      -    (3) 
  Unsecured          -    143      -      143      -   (37)      -   (37) 
Defaulted            -      -    846      846      -      -  (374)  (374) 
  Secured            -      -    413      413      -      -  (143)  (143) 
  Unsecured          -      -    433      433      -      -  (231)  (231) 
-------------  -------  -----  -----  -------  -----  -----  -----  ----- 
Total          103,899  3,029    846  107,774  (289)  (173)  (374)  (836) 
-------------  -------  -----  -----  -------  -----  -----  -----  ----- 
 

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

 
                                                 30.06.20 
--------------------  -------------------------------------------------------------- 
                      Greater China      ASEAN &      Africa &   Europe & 
                       & North Asia   South Asia   Middle East   Americas      Total 
Amortised cost             $million     $million      $million   $million   $million 
--------------------  -------------  -----------  ------------  ---------  --------- 
Gross (stage 1)             127,194       74,189        23,677     25,218    250,278 
Provision (stage 1)           (189)        (187)          (89)       (11)      (476) 
Gross (stage 2)               8,164        7,013         5,799      2,763     23,739 
Provision (stage 2)           (184)        (302)         (233)       (61)      (780) 
Gross (stage 3)2                864        3,767         3,192        986      8,809 
Provision (stage 3)           (346)      (2,195)       (2,093)      (623)    (5,257) 
--------------------  -------------  -----------  ------------  ---------  --------- 
Net loans1                  135,503       82,285        30,253     28,272    276,313 
--------------------  -------------  -----------  ------------  ---------  --------- 
 
 
                                                  31.12.19 
---------------------  -------------------------------------------------------------- 
                       Greater China      ASEAN &      Africa &   Europe & 
                        & North Asia   South Asia   Middle East   Americas      Total 
Amortised cost              $million     $million      $million   $million   $million 
---------------------  -------------  -----------  ------------  ---------  --------- 
Gross (stage 1)              126,438       71,045        23,906     24,760    246,149 
Provision (stage 1)            (165)        (146)          (79)       (12)      (402) 
Gross (stage 2)                7,547        6,461         5,541      1,210     20,759 
Provision (stage 2)            (115)        (127)         (117)       (18)      (377) 
Gross (stage 3)                  716        3,084         2,585      1,013      7,398 
Provision (stage 3)2           (360)      (2,087)       (1,899)      (658)    (5,004) 
---------------------  -------------  -----------  ------------  ---------  --------- 
Net loans1                   134,061       78,230        29,937     26,295    268,523 
---------------------  -------------  -----------  ------------  ---------  --------- 
 

1 Amounts net 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

 
                                                 30.06.20 
--------------------  -------------------------------------------------------------- 
                      Greater China      ASEAN &      Africa &   Europe & 
                       & North Asia   South Asia   Middle East   Americas      Total 
Amortised cost             $million     $million      $million   $million   $million 
--------------------  -------------  -----------  ------------  ---------  --------- 
Gross (stage 1)              21,220       14,640         5,907      8,379     50,146 
Provision (stage 1)               -          (2)             -        (1)        (3) 
Gross (stage 2)                  28           34            34        253        349 
Provision (stage 2)               -          (1)             -        (1)        (2) 
Gross (stage 3)2                  -            -             6          7         13 
Provision (stage 3)               -            -           (2)        (2)        (4) 
--------------------  -------------  -----------  ------------  ---------  --------- 
Net loans1                   21,248       14,671         5,945      8,635     50,499 
--------------------  -------------  -----------  ------------  ---------  --------- 
 
 
                                                 31.12.19 
--------------------  -------------------------------------------------------------- 
                      Greater China      ASEAN &      Africa &   Europe & 
                       & North Asia   South Asia   Middle East   Americas      Total 
Amortised cost             $million     $million      $million   $million   $million 
--------------------  -------------  -----------  ------------  ---------  --------- 
Gross (stage 1)              19,181       15,458         5,039     12,956     52,634 
Provision (stage 1)             (1)          (2)           (1)        (1)        (5) 
Gross (stage 2)                 136          300           312        176        924 
Provision (stage 2)             (2)          (1)           (1)          -        (4) 
Gross (stage 3)2                  -            -             -          -          - 
Provision (stage 3)               -            -             -          -          - 
--------------------  -------------  -----------  ------------  ---------  --------- 
Net loans1                   19,314       15,755         5,349     13,131     53,549 
--------------------  -------------  -----------  ------------  ---------  --------- 
 

1 Amounts net 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

Movement in gross exposures and credit impairment for loans and advances, debt securities, undrawn commitments and financial guarantees (within EY review scope)

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. Discount unwind is reported in net interest income and related to stage 3 financial instruments only.

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, are 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

-- Interest due but not paid - change in contractual amount of interest due in stage 3 financial instruments but not paid, being the net of accruals, repayments and write-offs, together with the corresponding change in credit impairment

Changes to ECL models, which incorporates changes to model approaches and methodologies, is not reported as a separate line item as it has an impact over a number of lines and stages.

Movements during the period

Stage 1 gross exposures increased by $2.7 billion to $615 billion when compared with 31 December 2019. This was largely due to higher holdings of debt securities which increased by $3.8 billion, which was partly offset by a reduction in Corporate & Institutional Banking and Commercial Banking balances, down $8.0 billion, as result of a net outflow to stage 2 reflecting the deteriorating economic conditions and an increase in customers placed on non-purely precautionary early alert. Retail Banking stage 1 gross exposures increased by $1 billion as a net outflow to stage 2 was offset by new business and foreign exchange and other movements.

Total stage 1 provisions increased by $74 million, primarily in Retail Banking, in part due to a management overlay for the impact of COVID-19 payment reliefs and lockdowns in the ASEAN & South Asia and Africa & Middle East regions.

Stage 2 gross exposures rose by $1.5 billion, or 4 per cent, primarily driven by net inflows into stage 2 in Corporate & Institutional Banking as clients were placed on non-purely precautionary early alert where they were impacted by COVID-19. In Corporate & Institutional Banking, stage 2 exposures increased by $3.4 billion. Commercial Banking was flat as net inflows were offset by repayments. Retail Banking loans were marginally higher. These increases were partly offset by lower levels of stage 2 debt securities, which fell $1.9 billion as securities transferred back to stage 1 or were repaid.

Stage 2 provisions rose $472 million compared to 31 December 2019, $393 million of which was in Corporate & Institutional Banking and Commercial Banking as a result of net transfers into stage 2 as the macroeconomic environment deteriorated, non-purely precautionary balances increased and a $198 million management overlay that was recognised in 'Changes in risk parameters' in respect of COVID-19 related uncertainties. Retail Banking increased by $70 million as a result of net transfers into stage 2 due to deteriorating macroeconomic conditions and a management overlay for the impact of COVID-19 payment related reliefs in the ASEAN & South Asia and Africa & Middle East regions.

Across both stage 1 and 2 for all segments, the significant deterioration in macroeconomic forecasts across all markets increased provisions by $174 million in the six months to 30 June 2020, $96 million of which related to the impact of exposures transferring from stage 1 to stage 2.

There was an immaterial impact from model changes in the six months to 30 June 2020.

Stage 3 exposures increased by $1.4 billion from $8.1 billion as at 31 December 2019 to $9.5 billion as at 30 June 2020, driven by an increase of $1.2 billion in Corporate & Institutional Banking mainly pertaining to three clients in ASEAN & South Asia and Africa & Middle East regions.

All segments (within EY review scope)

 
                                Stage 1                          Stage 2                          Stage 3                           Total 
------------------  -------------------------------  -------------------------------  -------------------------------  ------------------------------- 
                                    Total                            Total                            Total                            Total 
                       Gross       credit               Gross       credit               Gross       credit               Gross       credit 
Amortised cost       balance  impair-ment       Net   balance  impair-ment       Net   balance  impair-ment       Net   balance  impair-ment       Net 
 and FVOCI          $million     $million  $million  $million     $million  $million  $million     $million  $million  $million     $million  $million 
------------------  --------  -----------  --------  --------  -----------  --------  --------  -----------  --------  --------  -----------  -------- 
As at 1 January 
 2019                592,481        (531)   591,950    42,324        (500)    41,824     9,382      (6,214)     3,168   644,187      (7,245)   636,942 
Transfers to 
 stage 1              28,552        (582)    27,970  (28,552)          582  (27,970)         -            -         -         -            -         - 
Transfers to 
 stage 2            (67,790)          157  (67,633)    67,983        (171)    67,812     (193)           14     (179)         -            -         - 
Transfers to 
 stage 3               (121)            -     (121)   (2,179)          314   (1,865)     2,300        (314)     1,986         -            -         - 
                              -----------                      -----------                      -----------                      ----------- 
Net change 
 in exposures         60,374        (256)    60,118  (40,499)           24  (40,475)   (1,434)          307   (1,127)    18,441           75    18,516 
Net remeasurement 
 from stage 
 changes                   -          196       196         -        (171)     (171)         -        (406)     (406)         -        (381)     (381) 
Changes in 
 risk parameters           -          434       434         -        (489)     (489)         -        (787)     (787)         -        (842)     (842) 
                              -----------                      -----------                      -----------                      ----------- 
Write-offs                 -            -         -         -            -         -   (1,795)        1,795         -   (1,795)        1,795         - 
Interest due 
 but unpaid                -            -         -         -            -         -     (365)          365         -     (365)          365         - 
Discount unwind            -            -         -         -            -         -         -           82        82         -           82        82 
Exchange 
 translation 
 differences 
 and other 
 movements1          (1,092)           68   (1,024)     (290)         (47)     (337)       187         (97)        90   (1,195)         (76)   (1,271) 
------------------  --------  -----------  --------  --------  -----------  --------  --------  -----------  --------  --------  -----------  -------- 
As at 31 December 
 20192               612,404        (514)   611,890    38,787        (458)    38,329     8,082      (5,255)     2,827   659,273      (6,227)   653,046 
------------------  --------  -----------  --------  --------  -----------  --------  --------  -----------  --------  --------  -----------  -------- 
Income statement 
 ECL 
 (charge)/release3                    374                            (636)                            (886)                          (1,148) 
Recoveries 
 of amounts 
 previously 
 written off                                                                                            248                              248 
------------------  --------  -----------  --------  --------  -----------  --------  --------  -----------  --------  --------  -----------  -------- 
Total credit 
 impairment 
 (charge)/release                     374                            (636)                            (638)                            (900) 
------------------  --------  -----------  --------  --------  -----------  --------  --------  -----------  --------  --------  -----------  -------- 
As at 1 January 
 2020                612,404        (514)   611,890    38,787        (458)    38,329     8,082      (5,255)     2,827   659,273      (6,227)   653,046 
Transfers to 
 stage 1              21,141        (336)    20,805  (21,141)          336  (20,805)         -            -         -         -            -         - 
Transfers to 
 stage 2            (43,764)          148  (43,616)    43,799        (148)    43,651      (35)            -      (35)         -            -         - 
Transfers to 
 stage 3               (419)            -     (419)   (2,625)          134   (2,491)     3,044        (134)     2,910         -            -         - 
                              -----------                      -----------                      -----------                      ----------- 
Net change 
 in exposures         31,029         (35)    30,994  (17,914)           87  (17,827)     (712)           95     (617)    12,403          147    12,550 
Net remeasurement 
 from stage 
 changes                   -          112       112         -        (305)     (305)         -        (539)     (539)         -        (732)     (732) 
Changes in 
 risk parameters           -         (53)      (53)         -        (475)     (475)         -        (575)     (575)         -      (1,103)   (1,103) 
                              -----------                      -----------                      -----------                      ----------- 
Write-offs                 -            -         -         -            -         -     (950)          950         -     (950)          950         - 
Interest due 
 but unpaid                -            -         -         -            -         -       154        (154)         -       154        (154)         - 
Discount unwind            -            -         -         -            -         -         -           37        37         -           37        37 
Exchange 
 translation 
 differences 
 and other 
 movements1          (5,337)           90   (5,247)     (626)        (101)     (727)      (59)          101        42   (6,022)           90   (5,932) 
------------------  --------  -----------  --------  --------  -----------  --------  --------  -----------  --------  --------  -----------  -------- 
As at 30 June 
 20202               615,054        (588)   614,466    40,280        (930)    39,350     9,524      (5,474)     4,050   664,858      (6,992)   657,866 
------------------  --------  -----------  --------  --------  -----------  --------  --------  -----------  --------  --------  -----------  -------- 
Income statement 
 ECL 
 (charge)/release3                     24                            (693)                          (1,019)                          (1,688) 
Recoveries 
 of amounts 
 previously 
 written off                                                                                            110                              110 
------------------  --------  -----------  --------  --------  -----------  --------  --------  -----------  --------  --------  -----------  -------- 
Total credit 
 impairment 
 (charge)/release4                     24                            (693)                            (909)                          (1,578) 
------------------  --------  -----------  --------  --------  -----------  --------  --------  -----------  --------  --------  -----------  -------- 
 

1 Includes fair value adjustments and amortisation on debt securities

2 Excludes Cash and balances at central banks, Accrued income, Assets held for sale and Other assets

3 Does not include $2 million release (31 December 2019: $8 million provision) relating to Other assets

4 Statutory basis

Of which - movement of debt securities, alternative tier one and other eligible bills (within EY review scope)

 
                               Stage 1                          Stage 2                          Stage 3                           Total 
-----------------  -------------------------------  -------------------------------  -------------------------------  ------------------------------- 
                                   Total                            Total                            Total                            Total 
                      Gross       credit               Gross       credit               Gross       credit               Gross       credit 
Amortised cost      balance  impair-ment       Net   balance  impair-ment       Net   balance  impair-ment       Net   balance  impair-ment       Net 
 and FVOCI         $million     $million  $million  $million     $million  $million  $million     $million  $million  $million     $million  $million 
-----------------  --------  -----------  --------  --------  -----------  --------  --------  -----------  --------  --------  -----------  -------- 
As at 1 January 
 2019               118,713         (27)   118,686     6,909         (31)     6,878       498        (472)        26   126,120        (530)   125,590 
Transfers to 
 stage 1              2,747         (38)     2,709   (2,747)           38   (2,709)         -            -         -         -            -         - 
Transfers to 
 stage 2            (2,359)           16   (2,343)     2,359         (16)     2,343         -            -         -         -            -         - 
Transfers to 
 stage 3                  -            -         -       (1)            -       (1)         1            -         1         -            -         - 
                             -----------                      -----------                      -----------                      ----------- 
Net change 
 in exposures        19,314         (52)    19,262   (1,237)          (9)   (1,246)         -            -         -    18,077         (61)    18,016 
Net remeasurement 
 from stage 
 changes                  -           27        27         -          (4)       (4)         -            -         -         -           23        23 
Changes in 
 risk parameters          -           27        27         -          (5)       (5)         -            7         7         -           29        29 
                             -----------                      -----------                      -----------                      ----------- 
Write-offs                -            -         -         -            -         -     (170)          170         -     (170)          170         - 
Interest due 
 but unpaid               -            -         -         -            -         -     (247)          247         -     (247)          247         - 
Exchange 
 translation 
 differences 
 and other 
 movements1             367          (3)       364     (639)            4     (635)       (7)            3       (4)     (279)            4     (275) 
-----------------  --------  -----------  --------  --------  -----------  --------  --------  -----------  --------  --------  -----------  -------- 
As at 31 December 
 2019               138,782         (50)   138,732     4,644         (23)     4,621        75         (45)        30   143,501        (118)   143,383 
-----------------  --------  -----------  --------  --------  -----------  --------  --------  -----------  --------  --------  -----------  -------- 
Income statement 
 ECL 
 (charge)/release                      2                             (18)                                7                              (9) 
Recoveries 
 of amounts 
 previously 
 written off                                                                                             -                                - 
-----------------  --------  -----------  --------  --------  -----------  --------  --------  -----------  --------  --------  -----------  -------- 
Total credit 
 impairment 
 (charge)/release                      2                             (18)                                7                              (9) 
-----------------  --------  -----------  --------  --------  -----------  --------  --------  -----------  --------  --------  -----------  -------- 
As at 1 January 
 2020               138,782         (50)   138,732     4,644         (23)     4,621        75         (45)        30   143,501        (118)   143,383 
Transfers to 
 stage 1              1,600         (14)     1,586   (1,600)           14   (1,586)         -            -         -         -            -         - 
Transfers to 
 stage 2              (420)           11     (409)       420         (11)       409         -            -         -         -            -         - 
Transfers to 
 stage 3                  -            -         -         -            -         -         -            -         -         -            -         - 
                             -----------                      -----------                      -----------                      ----------- 
Net change 
 in exposures         2,422         (26)     2,396     (662)          (9)     (671)         -            -         -     1,760         (35)     1,725 
Net remeasurement 
 from stage 
 changes                  -           30        30         -         (10)      (10)         -            -         -         -           20        20 
Changes in 
 risk parameters          -            7         7         -          (5)       (5)         -          (6)       (6)         -          (4)       (4) 
                             -----------                      -----------                      -----------                      ----------- 
Write-offs                -            -         -         -            -         -         -            -         -         -            -         - 
Interest due 
 but unpaid               -            -         -         -            -         -         -            -         -         -            -         - 
Exchange 
 translation 
 differences 
 and other 
 movements1             233          (7)       226      (95)            7      (88)      (22)           21       (1)       116           21       137 
-----------------  --------  -----------  --------  --------  -----------  --------  --------  -----------  --------  --------  -----------  -------- 
As at 30June 
 2020               142,617         (49)   142,568     2,707         (37)     2,670        53         (30)        23   145,377        (116)   145,261 
-----------------  --------  -----------  --------  --------  -----------  --------  --------  -----------  --------  --------  -----------  -------- 
Income statement 
 ECL 
 (charge)/release                     11                             (24)                              (6)                             (19) 
Recoveries 
 of amounts 
 previously 
 written off 
-----------------  --------  -----------  --------  --------  -----------  --------  --------  -----------  --------  --------  -----------  -------- 
Total credit 
 impairment 
 (charge)/release                     11                             (24)                              (6)                             (19) 
-----------------  --------  -----------  --------  --------  -----------  --------  --------  -----------  --------  --------  -----------  -------- 
 

1 Includes fair value adjustments and amortisation on debt securities

Corporate & Institutional Banking (within EY review scope)

 
                                Stage 1                          Stage 2                          Stage 3                           Total 
------------------  -------------------------------  -------------------------------  -------------------------------  ------------------------------- 
                                    Total                            Total                            Total                            Total 
                       Gross       credit               Gross       credit               Gross       credit               Gross       credit 
Amortised cost       balance  impair-ment       Net   balance  impair-ment       Net   balance  impair-ment       Net   balance  impair-ment       Net 
 and FVOCI          $million     $million  $million  $million     $million  $million  $million     $million  $million  $million     $million  $million 
------------------  --------  -----------  --------  --------  -----------  --------  --------  -----------  --------  --------  -----------  -------- 
As at 1 January 
 20192               269,648        (141)   269,507    18,431        (226)    18,205     5,385      (3,378)     2,007   293,464      (3,745)   289,719 
Transfers to 
 stage 1              16,555        (145)    16,410  (16,555)          145  (16,410)         -            -         -         -            -         - 
Transfers to 
 stage 2            (43,141)           39  (43,102)    43,326         (51)    43,275     (185)           12     (173)         -            -         - 
Transfers to 
 stage 3                   -            -         -   (1,095)          122     (973)     1,095        (122)       973         -            -         - 
                              -----------                      -----------                      -----------                      ----------- 
Net change 
 in exposures         18,368        (124)    18,244  (22,387)           25  (22,362)     (840)          205     (635)   (4,859)          106   (4,753) 
Net remeasurement 
 from stage 
 changes                   -           41        41         -         (70)      (70)         -        (219)     (219)         -        (248)     (248) 
Changes in 
 risk parameters           -          187       187         -        (145)     (145)         -        (368)     (368)         -        (326)     (326) 
                              -----------                      -----------                      -----------                      ----------- 
Write-offs                 -            -         -         -            -         -     (658)          658         -     (658)          658         - 
Interest due 
 but unpaid                -            -         -         -            -         -      (48)           48         -      (48)           48         - 
Discount unwind            -            -         -         -            -         -         -           38        38         -           38        38 
Exchange 
 translation 
 differences 
 and other 
 movements2              115           23       138       764           14       778      (16)         (45)      (61)       863          (8)       855 
------------------  --------  -----------  --------  --------  -----------  --------  --------  -----------  --------  --------  -----------  -------- 
As at 31 December 
 2019                261,545        (120)   261,425    22,484        (186)    22,298     4,733      (3,171)     1,562   288,762      (3,477)   285,285 
------------------  --------  -----------  --------  --------  -----------  --------  --------  -----------  --------  --------  -----------  -------- 
Income statement 
 ECL 
 (charge)/release1                    104                            (190)                            (382)                            (468) 
Recoveries 
 of amounts 
 previously 
 written off                                                                                              -                                - 
------------------  --------  -----------  --------  --------  -----------  --------  --------  -----------  --------  --------  -----------  -------- 
Total credit 
 impairment 
 (charge)/release                     104                            (190)                            (382)                            (468) 
------------------  --------  -----------  --------  --------  -----------  --------  --------  -----------  --------  --------  -----------  -------- 
As at 1 January 
 2020                261,545        (120)   261,425    22,484        (186)    22,298     4,733      (3,171)     1,562   288,762      (3,477)   285,285 
Transfers to 
 stage 1              12,021         (69)    11,952  (12,021)           69  (11,952)         -            -         -         -            -         - 
Transfers to 
 stage 2            (29,094)           61  (29,033)    29,126         (61)    29,065      (32)            -      (32)         -            -         - 
Transfers to 
 stage 3               (330)            -     (330)   (1,876)           42   (1,834)     2,206         (42)     2,164         -            -         - 
                              -----------                      -----------                      -----------                      ----------- 
Net change 
 in exposures         14,498          (7)    14,491  (11,350)           57  (11,293)     (363)           61     (302)     2,785          111     2,896 
Net remeasurement 
 from stage 
 changes                   -           18        18         -        (128)     (128)         -        (447)     (447)         -        (557)     (557) 
Changes in 
 risk parameters           -            1         1         -        (261)     (261)         -        (283)     (283)         -        (543)     (543) 
                              -----------                      -----------                      -----------                      ----------- 
Write-offs                 -            -         -         -            -         -     (472)          472         -     (472)          472         - 
Interest due 
 but unpaid                -            -         -         -            -         -      (18)           18         -      (18)           18         - 
Discount unwind            -            -         -         -            -         -         -           18        18         -           18        18 
Exchange 
 translation 
 differences 
 and other 
 movements           (2,122)           18   (2,104)     (475)         (33)     (508)      (81)           66      (15)   (2,678)           51   (2,627) 
------------------  --------  -----------  --------  --------  -----------  --------  --------  -----------  --------  --------  -----------  -------- 
As at 30 June 
 2020                256,518         (98)   256,420    25,888        (501)    25,387     5,973      (3,308)     2,665   288,379      (3,907)   284,472 
------------------  --------  -----------  --------  --------  -----------  --------  --------  -----------  --------  --------  -----------  -------- 
Income statement 
 ECL 
 (charge)/release1                     12                            (332)                            (669)                            (989) 
Recoveries 
 of amounts 
 previously 
 written off                                                                                              5                                5 
------------------  --------  -----------  --------  --------  -----------  --------  --------  -----------  --------  --------  -----------  -------- 
Total credit 
 impairment 
 (charge)/release                      12                            (332)                            (664)                            (984) 
------------------  --------  -----------  --------  --------  -----------  --------  --------  -----------  --------  --------  -----------  -------- 
 

1 Does not include $2 million release (31 December 2019: $6 million provision) relating to Other assets

2 Stage 1 and stage 2 Gross and ECL numbers have been restated to reflect client transfers to and from Commercial Banking

Retail Banking (within EY review scope)

 
                               Stage 1                          Stage 2                          Stage 3                           Total 
-----------------  -------------------------------  -------------------------------  -------------------------------  ------------------------------- 
                                   Total                            Total                            Total                            Total 
                      Gross       credit               Gross       credit               Gross       credit               Gross       credit 
Amortised cost      balance  impair-ment       Net   balance  impair-ment       Net   balance  impair-ment       Net   balance  impair-ment       Net 
 and FVOCI         $million     $million  $million  $million     $million  $million  $million     $million  $million  $million     $million  $million 
-----------------  --------  -----------  --------  --------  -----------  --------  --------  -----------  --------  --------  -----------  -------- 
As at 1 January 
 20191              134,154        (313)   133,841     8,963        (132)     8,831       832        (394)       438   143,949        (839)   143,110 
Transfers to 
 stage 1              5,301        (355)     4,946   (5,301)          355   (4,946)         -            -         -         -            -         - 
Transfers to 
 stage 2            (8,279)           82   (8,197)     8,279         (82)     8,197         -            -         -         -            -         - 
Transfers to 
 stage 3              (117)            1     (116)     (517)          165     (352)       634        (166)       468         -            -         - 
                             -----------                      -----------                      -----------                      ----------- 
Net change 
 in exposures         9,303         (15)     9,288   (6,020)           49   (5,971)     (290)            -     (290)     2,993           34     3,027 
Net remeasurement 
 from stage 
 changes                  -          122       122         -         (86)      (86)         -         (81)      (81)         -         (45)      (45) 
Changes in 
 risk parameters          -          153       153         -        (398)     (398)         -        (327)     (327)         -        (572)     (572) 
                             -----------                      -----------                      -----------                      ----------- 
Write-offs                -            -         -         -            -         -     (586)          586         -     (586)          586         - 
Interest due 
 but unpaid               -            -         -         -            -         -         -            -         -         -            -         - 
Discount unwind           -            -         -         -            -         -         -           28        28         -           28        28 
Exchange 
 translation 
 differences 
 and other 
 movements1           (566)           26     (540)      (79)         (50)     (129)       256         (20)       236     (389)         (44)     (433) 
-----------------  --------  -----------  --------  --------  -----------  --------  --------  -----------  --------  --------  -----------  -------- 
As at 31 December 
 2019               139,796        (299)   139,497     5,325        (179)     5,146       846        (374)       472   145,967        (852)   145,115 
-----------------  --------  -----------  --------  --------  -----------  --------  --------  -----------  --------  --------  -----------  -------- 
Income statement 
 ECL 
 (charge)/release                    260                            (435)                            (408)                            (583) 
Recoveries 
 of amounts 
 previously 
 written off                                                                                           247                              247 
-----------------  --------  -----------  --------  --------  -----------  --------  --------  -----------  --------  --------  -----------  -------- 
Total credit 
 impairment 
 (charge)/release                    260                            (435)                            (161)                            (336) 
-----------------  --------  -----------  --------  --------  -----------  --------  --------  -----------  --------  --------  -----------  -------- 
As at 1 January 
 2020               139,796        (299)   139,497     5,325        (179)     5,146       846        (374)       472   145,967        (852)   145,115 
Transfers to 
 stage 1              4,063        (204)     3,859   (4,063)          204   (3,859)         -            -         -         -            -         - 
Transfers to 
 stage 2            (5,675)           60   (5,615)     5,675         (60)     5,615         -            -         -         -            -         - 
Transfers to 
 stage 3               (88)            -      (88)     (435)           86     (349)       523         (86)       437         -            -         - 
                             -----------                      -----------                      -----------                      ----------- 
Net change 
 in exposures         5,085          (3)     5,082     (887)           25     (862)     (172)            -     (172)     4,026           22     4,048 
Net remeasurement 
 from stage 
 changes                  -           54        54         -        (127)     (127)         -         (52)      (52)         -        (125)     (125) 
Changes in 
 risk parameters          -         (59)      (59)         -        (163)     (163)         -        (209)     (209)         -        (431)     (431) 
                             -----------                      -----------                      -----------                      ----------- 
Write-offs                -            -         -         -            -         -     (330)          330         -     (330)          330         - 
Interest due 
 but unpaid               -            -         -         -            -         -        94         (94)         -        94         (94)         - 
Discount unwind           -            -         -         -            -         -         -           10        10         -           10        10 
Exchange 
 translation 
 differences 
 and other 
 movements          (2,388)           66   (2,322)     (160)         (35)     (195)       106         (18)        88   (2,442)           13   (2,429) 
-----------------  --------  -----------  --------  --------  -----------  --------  --------  -----------  --------  --------  -----------  -------- 
As at 30 June 
 2020               140,793        (385)   140,408     5,455        (249)     5,206     1,067        (493)       574   147,315      (1,127)   146,188 
-----------------  --------  -----------  --------  --------  -----------  --------  --------  -----------  --------  --------  -----------  -------- 
Income statement 
 ECL 
 (charge)/release                    (8)                            (265)                            (261)                            (534) 
Recoveries 
 of amounts 
 previously 
 written off                                                                                           103                              103 
-----------------  --------  -----------  --------  --------  -----------  --------  --------  -----------  --------  --------  -----------  -------- 
Total credit 
 impairment 
 (charge)/release                    (8)                            (265)                            (158)                            (431) 
-----------------  --------  -----------  --------  --------  -----------  --------  --------  -----------  --------  --------  -----------  -------- 
 

1 Stage 1 and stage 2 Gross and ECL numbers have been restated to reflect client transfers from Commercial Banking

Commercial Banking (within EY review scope)

 
                               Stage 1                          Stage 2                          Stage 3                           Total 
-----------------  -------------------------------  -------------------------------  -------------------------------  ------------------------------- 
                                   Total                            Total                            Total                            Total 
                      Gross       credit               Gross       credit               Gross       credit               Gross       credit 
Amortised cost      balance  impair-ment       Net   balance  impair-ment       Net   balance  impair-ment       Net   balance  impair-ment       Net 
 and FVOCI         $million     $million  $million  $million     $million  $million  $million     $million  $million  $million     $million  $million 
-----------------  --------  -----------  --------  --------  -----------  --------  --------  -----------  --------  --------  -----------  -------- 
As at 1 January 
 20191               34,338         (39)    34,299     7,255        (109)     7,146     2,368      (1,803)       565    43,961      (1,951)    42,010 
Transfers to 
 stage 1              3,082         (42)     3,040   (3,082)           42   (3,040)         -            -         -         -            -         - 
Transfers to 
 stage 2           (11,878)           20  (11,858)    11,886         (22)    11,864       (8)            2       (6)         -            -         - 
Transfers to 
 stage 3                (4)            -       (4)     (465)           26     (439)       469         (26)       443         -            -         - 
                             -----------                      -----------                      -----------                      ----------- 
Net change 
 in exposures         9,186         (70)     9,116   (8,864)         (38)   (8,902)     (263)           96     (167)        59         (12)        47 
Net remeasurement 
 from stage 
 changes                  -            5         5         -         (11)      (11)         -        (107)     (107)         -        (113)     (113) 
Changes in 
 risk parameters          -           69        69         -           58        58         -        (124)     (124)         -            3         3 
                             -----------                      -----------                      -----------                      ----------- 
Write-offs                -            -         -         -            -         -     (380)          380         -     (380)          380         - 
Interest due 
 but unpaid               -            -         -         -            -         -      (87)           87         -      (87)           87         - 
Discount unwind           -            -         -         -            -         -         -           13        13         -           13        13 
Exchange 
 translation 
 differences 
 and other 
 movements1           (886)           19     (867)     (689)         (13)     (702)      (37)         (35)      (72)   (1,612)         (29)   (1,641) 
-----------------  --------  -----------  --------  --------  -----------  --------  --------  -----------  --------  --------  -----------  -------- 
As at 31 December 
 2019                33,838         (38)    33,800     6,041         (67)     5,974     2,062      (1,517)       545    41,941      (1,622)    40,319 
-----------------  --------  -----------  --------  --------  -----------  --------  --------  -----------  --------  --------  -----------  -------- 
Income statement 
 ECL 
 (charge)/release                      4                                9                            (135)                            (122) 
Recoveries 
 of amounts 
 previously 
 written off                                                                                             1                                1 
-----------------  --------  -----------  --------  --------  -----------  --------  --------  -----------  --------  --------  -----------  -------- 
Total credit 
 impairment 
 (charge)/release                      4                                9                            (134)                            (121) 
-----------------  --------  -----------  --------  --------  -----------  --------  --------  -----------  --------  --------  -----------  -------- 
As at 1 January 
 2020                33,838         (38)    33,800     6,041         (67)     5,974     2,062      (1,517)       545    41,941      (1,622)    40,319 
Transfers to 
 stage 1              3,400         (49)     3,351   (3,400)           49   (3,351)         -            -         -         -            -         - 
Transfers to 
 stage 2            (7,959)           15   (7,944)     7,962         (15)     7,947       (3)            -       (3)         -            -         - 
Transfers to 
 stage 3                (1)            -       (1)     (232)            5     (227)       233          (5)       228         -            -         - 
                             -----------                      -----------                      -----------                      ----------- 
Net change 
 in exposures         1,932          (2)     1,930   (4,227)           14   (4,213)     (105)           33      (72)   (2,400)           45   (2,355) 
Net remeasurement 
 from stage 
 changes                  -           10        10         -         (40)      (40)         -         (40)      (40)         -         (70)      (70) 
Changes in 
 risk parameters          -          (5)       (5)         -         (46)      (46)         -         (72)      (72)         -        (123)     (123) 
                             -----------                      -----------                      -----------                      ----------- 
Write-offs                -            -         -         -            -         -     (149)          149         -     (149)          149         - 
Interest due 
 but unpaid               -            -         -         -            -         -        70         (70)         -        70         (70)         - 
Discount unwind           -            -         -         -            -         -         -            7         7         -            7         7 
Exchange 
 translation 
 differences 
 and other 
 movements            (376)           23     (353)     (113)         (45)     (158)      (50)           30      (20)     (539)            8     (531) 
-----------------  --------  -----------  --------  --------  -----------  --------  --------  -----------  --------  --------  -----------  -------- 
As at 30 June 
 2020                30,834         (46)    30,788     6,031        (145)     5,886     2,058      (1,485)       573    38,923      (1,676)    37,247 
-----------------  --------  -----------  --------  --------  -----------  --------  --------  -----------  --------  --------  -----------  -------- 
Income statement 
 ECL 
 (charge)/release                      3                             (72)                             (79)                            (148) 
Recoveries 
 of amounts 
 previously 
 written off                                                                                             2                                2 
-----------------  --------  -----------  --------  --------  -----------  --------  --------  -----------  --------  --------  -----------  -------- 
Total credit 
 impairment 
 (charge)/release                      3                             (72)                             (77)                            (146) 
-----------------  --------  -----------  --------  --------  -----------  --------  --------  -----------  --------  --------  -----------  -------- 
 

1 Stage 1 and stage 2 Gross and ECL numbers have been restated to reflect client transfers to and from Corporate & Institutional Banking and to Retail Banking

Analysis of stage 2 balances

The table below analyses stage 2 gross exposures and associated expected credit provisions by the key driver that caused the exposures to be classified as stage 2 as at 30 June 2020. This may not be the same driver that caused the initial transfer into stage 2. Where multiple drivers apply, the exposure is allocated based on the table order. For example, a loan may have breached the PD thresholds and could also be on non-purely precautionary early alert; in this instance, the exposure is reported under 'Increase in PD'.

 
                                                            30.06.20 
---------------  ----------------------------------------------------------------------------------------------- 
                     Corporate 
                   & Institutional                      Commercial                       Central & 
                       Banking        Retail Banking      Banking     Private Banking      Other        Total 
                 ------------------  ----------------  ------------  -----------------  -----------  ----------- 
                     Gross      ECL     Gross     ECL   Gross   ECL      Gross     ECL  Gross   ECL  Gross   ECL 
                         %        %         %       %       %     %          %       %      %     %      %     % 
---------------  ---------  -------  --------  ------  ------  ----  ---------  ------  -----  ----  -----  ---- 
Increase in 
 PD                    47%      60%       90%     73%     59%   61%          -       -    85%   50%    55%   63% 
Non-purely 
 precautionary 
 early alert           32%      23%         -       -     25%   20%          -       -      -     -    25%   14% 
Higher risk 
 (CG12)                 3%      13%         -       -      6%   17%          -       -    10%   50%     3%   11% 
Sub-investment 
 grade                  2%       1%         -       -      1%    0%          -       -     0%    0%     2%    1% 
30 days past 
 due                     -        -        8%     26%       -     -          -       -      -     -     1%    9% 
Others                 16%       3%        2%      1%      9%    2%       100%    100%     5%    0%    14%    2% 
---------------  ---------  -------  --------  ------  ------  ----  ---------  ------  -----  ----  -----  ---- 
Total stage 
 2                    100%     100%      100%    100%    100%  100%       100%    100%   100%  100%   100%  100% 
---------------  ---------  -------  --------  ------  ------  ----  ---------  ------  -----  ----  -----  ---- 
 
 
                                                            31.12.19 
---------------  --------------------------------------------------------------------------------------------- 
                    Corporate 
                         & 
                   Institutional                      Commercial                       Central & 
                      Banking       Retail Banking      Banking     Private Banking      Other        Total 
                 ----------------  ----------------  ------------  -----------------  -----------  ----------- 
                    Gross     ECL     Gross     ECL   Gross   ECL      Gross     ECL  Gross   ECL  Gross   ECL 
                        %       %         %       %       %     %          %       %      %     %      %     % 
---------------  --------  ------  --------  ------  ------  ----  ---------  ------  -----  ----  -----  ---- 
Increase in 
 PD                   49%     52%       94%     76%     67%   57%          -       -    43%   31%    60%   62% 
Non-purely 
 precautionary 
 early alert          22%     12%         -       -      9%    8%          -       -      -     -    14%    6% 
Higher risk 
 (CG12)                6%     28%         -       -      5%   26%          -       -      -     -     3%   15% 
Sub-investment 
 grade                 1%      3%         -       -      4%    2%          -       -    53%   63%     5%    4% 
30 days past 
 due                    -       -        4%     22%       -     -          -       -      -     -     1%    9% 
Others                22%      5%        2%      2%     15%    7%       100%    100%     4%    6%    17%    4% 
---------------  --------  ------  --------  ------  ------  ----  ---------  ------  -----  ----  -----  ---- 
Total stage 
 2                   100%    100%      100%    100%    100%  100%       100%    100%   100%  100%   100%  100% 
---------------  --------  ------  --------  ------  ------  ----  ---------  ------  -----  ----  -----  ---- 
 

The majority of exposures and the associated expected credit loss provisions are in stage 2 due to increases in the probability of default, although this is lower in Corporate & Institutional Banking and Commercial Banking than as at 31 December 2019 as more clients were placed on non-purely precautionary early alert in 2020. 26 per cent of the provisions held against stage 2 Retail Banking exposures arise from the application of the 30 days past due backstop, although this represents only 8 per cent of exposures.

For debt securities originated prior to 1 January 2018, those with a sub-investment grade rating were allocated into stage 2. For debt securities originated after 1 January 2018, significant increase in credit risk is assessed based on the relative and absolute increases in PD.

'Others' incorporates exposures where origination data is incomplete and the exposures are allocated into stage 2. Significant increase in credit risk for Private Banking clients is assessed by referencing the nature and level of collateral against which credit is extended.

Credit impairment charge (within EY review scope)

The total underlying credit impairment charge increased by $1,313 million to $1,567 million (H1 2019: $254 million). Stage 1 and 2 impairments increased by $586 million. Around half of the increase was attributable to modelled outcomes, which included $174 million relating to the deterioration in macroeconomic forecasts. The remainder of the increase was due to a management overlay to reflect deterioration in the macroeconomic outlook not captured in the modelled outcome and the impact of moratoria schemes in Retail Banking. Impairments of stage 3 assets increased by $727 million, three-quarters of which was in Corporate & Institutional Banking and primarily from three clients. Stage 3 impairments in Retail Banking increased by $89 million as COVID-19 related lockdowns impacted collection and recovery activities, particularly in the unsecured portfolios in ASEAN & South Asia.

Corporate & Institutional Banking credit impairment was $874 million higher at $991 million (H1 2019: $117 million) due to increased stage 1 and 2 impairments as a result of the deterioration in macroeconomic forecasts and increased transfers into stage 2 from a significant increase in non-purely precautionary early alerts. Accounts graded as 'Higher risk' were $0.3 billion lower as compared to 31 December 2019 due to outflows to stage 3. Stage 3 provisions were also significantly higher due to charges on three clients in ASEAN & South Asia and Africa & Middle East.

Commercial Banking credit impairment increased to $137 million (H1 2019: $28 million). This is mainly due to higher stage 3 impairments during the period from ASEAN & South Asia and higher stage 1 and 2 impairments as a result of the deterioration of macroeconomic forecasts.

Retail Banking impairment was $277 million higher at $431 million, with increased stage 1 and 2 ECL provisions due to the deteriorating macroeconomic environment and a management overlay to take account of the increased credit risks which may arise after the moratoria schemes expire, particularly in ASEAN & South Asia.

Private Banking impairment is at $5 million, with an increase of $52 million as compared to H1 2019. This is due to a significant provision release on a stage 3 client in ASEAN & South Asia in H1 2019.

Central & Other segment impairments was a charge of $3 million (H1 2019: charge of $2 million) mainly driven by debt security instruments managed by Treasury.

Restructuring (within EY review scope)

There was a net $9 million impairment from the Group's discontinued businesses.

 
                                  6 months ended 30.06.20             6 months ended 30.06.19 
---------------------------  ----------------------------------  ---------------------------------- 
                                Stage 1                           Stage 1 & 
                                    & 2     Stage 3       Total           2     Stage 3      Total1 
                               $million    $million    $million    $million    $million    $million 
---------------------------  ----------  ----------  ----------  ----------  ----------  ---------- 
Ongoing business portfolio 
Corporate & Institutional 
 Banking1                           319         672         991           1         116         117 
Retail Banking                      273         158         431          85          69         154 
Commercial Banking                   72          65         137         (7)          35          28 
Private Banking                       -           5           5           1        (48)        (47) 
Central & Others                      4         (1)           3           2           -           2 
---------------------------  ----------  ----------  ----------  ----------  ----------  ---------- 
Credit impairment charge            668         899       1,567          82         172         254 
Restructuring business 
 portfolio 
Liquidation portfolio                 -           -           -           -           -           - 
Others                              (1)          10           9           -           -           - 
---------------------------  ----------  ----------  ----------  ----------  ----------  ---------- 
Credit impairment charge            (1)          10           9           -           -           - 
---------------------------  ----------  ----------  ----------  ----------  ----------  ---------- 
Total credit impairment 
 charge                             667         909       1,576          82         172         254 
---------------------------  ----------  ----------  ----------  ----------  ----------  ---------- 
 

1 P&L for period ending 30.06.20 Credit impairment of $7 million in Central and other items is included in Corporate & Institutional Banking

COVID-19 relief measures

COVID-19 payment-related relief measures are in place across most of our markets, particularly focused on Retail and Business Banking customers. These schemes are generally initiated by country regulators and governments. These measures include principal and/or interest moratoria and term extensions and are generally available to eligible borrowers (those that are current or less than 30 days past due, unless local regulators have specified different criteria). Certain schemes may be restricted to those in industries significantly impacted by COVID-19, such as aviation or consumer services, but are not borrower-specific in nature.

Relief measures are generally mandated or supported by regulators and governments and are available to all eligible customers who request it. However in a number of countries, particularly in ASEAN & South Asia and Africa & Middle East, compulsory (regulatory approved) moratoria reliefs are applied to all eligible loans unless a customer has specifically asked to opt out.

In most major Retail Banking markets, the period of relief provided is between 6 and 12 months. In some smaller markets, reliefs are in place for 3 months.

COVID-19 related tenor extensions have also been made available to Corporate & Institutional Banking and Commercial Banking clients, primarily for periods between 3 to 9 months, if they are expected to return to normal payments within 12 months.

Assessment for expected credit losses

COVID-19 payment reliefs that are generally available to a market or industry as a whole and are not borrower-specific in nature have not, on their own, resulted in an automatic change in stage (that is, individual customers are not considered to have experienced a significant increase in credit risk or an improvement in credit risk) nor have they been considered to be forborne.

A customer's stage and past due status reflects their status immediately prior to the granting of the relief, with past due amounts assessed based on the new terms as set out in the temporary payment reliefs.

If a customer requires additional support after the expiry of the initial payment relief period, these will be considered at a borrower level, after taking into account their individual circumstances. Depending on the type of subsequent support provided, these customers may be classified within stage 2 or stage 3.

Where client level government guarantees are in place, these do not affect staging but are taken into account when determining the level of credit impairment.

Impact from temporary changes to loan contractual terms

Approximately $14 billion of outstanding loan balances have been subject to payment relief measures. This represents 4 per cent of the Group's gross loans and advances to banks and customers.

The granting of COVID-19 payment-related relief measures may cause a time value of money loss for the Group where interest is not permitted to be compounded (that is, interest charged on interest) or where interest is not permitted to be charged or accrued during the relief period. As set out above, such reliefs do not impact a customer's stage and are not considered to be forborne even though a time value of money loss arises. As the relief periods are relatively short-term in nature, and a small percentage of the total loans outstanding, this has not resulted in a material impact for the Group.

The table below sets out the extent to which payment reliefs are in place across the Group's loan portfolio based on the gross carrying amount of loan applications received and approved up to 30 June 2020.

For Retail Banking, around 71 per cent of approved loans are in markets where compulsory (regulatory approved) relief measures are granted, the majority of which are in ASEAN & South Asia where the reliefs are due to expire in Q3 2020. One third of customers chose to opt-out from the payment holidays (which primarily accounts for the difference between applications received and applications approved) or decided to pay despite being on moratoria. 79 per cent of relief measures are fully secured, of which greater than two thirds are from Mortgages which is highly collateralised with average LTV of 37 per cent. 32 per cent of the total amounts approved are to Business Banking customers, concentrated in industries that have been materially disrupted, of which 71 per cent is collateralised by commercial immovable property. 87 per cent of the total amounts approved are in stage 1 and 11 per cent in stage 2, the latter mainly in Malaysia where compulsory (regulatory mandated) relief measures are in place. 69 per cent of stage 2 accounts under relief measures are collateralised by immovable property.

In Corporate & Institutional Banking and Commercial Banking, around 60 per cent of the amounts approved are for tenor extensions of 90 days or less. Around 20 per cent of the reliefs granted are to clients in vulnerable sectors. $1.2 billion of the approved amounts have been repaid at 30 June 2020.

 
                                                       Greater China          ASEAN & South         Africa & Middle 
                          Applications                  & North Asia               Asia                   East 
--------------  ---------------------------------  ---------------------  ---------------------  --------------------- 
                 Received   Approved         % of   Approved        % of   Approved        % of   Approved        % of 
Segment          $million   $million   portfolio2   $million  portfolio2   $million  portfolio2   $million  portfolio2 
--------------  ---------  ---------  -----------  ---------  ----------  ---------  ----------  ---------  ---------- 
Credit card           114        106           2%          1          0%         76          4%         29         12% 
Personal loans        961        905          10%         16          0%        499         45%        390         22% 
Mortgages & 
 auto               6,719      5,056           6%        462          1%      4,143         25%        451         19% 
Business 
 Banking            3,369      2,807          36%        105          3%      2,663         67%         39         27% 
Wealth 
 management             5          5           0%          -           -          5          0%          -           - 
--------------  ---------  ---------  -----------  ---------  ----------  ---------  ----------  ---------  ---------- 
Total Retail 
 Banking           11,168      8,879           8%        584          1%      7,386         28%        909         17% 
--------------  ---------  ---------  -----------  ---------  ----------  ---------  ----------  ---------  ---------- 
Corporate & 
 Institutional 
 Banking1                      1,802           1%        389                    991                    155 
Commercial 
 Banking1                      3,804          14%      1,573                  1,601                    542 
--------------  ---------  ---------  -----------  ---------  ----------  ---------  ----------  ---------  ---------- 
Total                         14,485           4%      2,546                  9,978                  1,606 
--------------  ---------  ---------  -----------  ---------  ----------  ---------  ----------  ---------  ---------- 
 

1 In Corporate & Institutional Banking $268 million of approved reliefs relate to Europe & Americas and $88 million in Commercial Banking

2 Percentage of portfolio represents the approved amounts as a percentage of the gross loans and advances to banks and customers by product and segment and total loans and advances to banks and customers at 30 June 2020

Problem credit management and provisioning

Forborne and other modified loans by client segment (within EY review scope)

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.

 
                                                             30.06.20 
--------------------------------------  -------------------------------------------------- 
                                               Corporate 
                                         & Institutional     Retail  Commercial 
                                                 Banking    Banking     Banking      Total 
Amortised cost                                  $million   $million    $million   $million 
--------------------------------------  ----------------  ---------  ----------  --------- 
All loans with forbearance measures                1,335        332         759      2,426 
Credit impairment (stage 1 and 2)                    (2)          -         (1)        (3) 
Credit impairment (stage 3)                        (693)      (160)       (525)    (1,378) 
--------------------------------------  ----------------  ---------  ----------  --------- 
Net carrying value                                   640        172         233      1,045 
--------------------------------------  ----------------  ---------  ----------  --------- 
Included within the above table 
Gross performing forborne loans                      102         24          84        210 
                                        ----------------  ---------  ----------  --------- 
Modification of terms and conditions1                 29         24          84        137 
Refinancing2                                          73          -           -         73 
                                        ----------------  ---------  ----------  --------- 
Impairment provisions                                (2)          -         (1)        (3) 
                                        ----------------  ---------  ----------  --------- 
Modification of terms and conditions1                (1)          -         (1)        (2) 
Refinancing2                                         (1)          -           -        (1) 
                                        ----------------  ---------  ----------  --------- 
Net performing forborne loans                        100         24          83        207 
Collateral                                            19         16          13         48 
--------------------------------------  ----------------  ---------  ----------  --------- 
Gross non-performing forborne loans                1,233        308         675      2,216 
                                        ----------------  ---------  ----------  --------- 
Modification of terms and conditions1              1,126        308         619      2,053 
Refinancing2                                         107          -          56        163 
                                        ----------------  ---------  ----------  --------- 
Impairment provisions                              (693)      (160)       (525)    (1,378) 
                                        ----------------  ---------  ----------  --------- 
Modification of terms and conditions1              (635)      (160)       (474)    (1,269) 
Refinancing2                                        (58)          -        (51)      (109) 
                                        ----------------  ---------  ----------  --------- 
Net non-performing forborne loans                    540        148         150        838 
Collateral                                           187         25          81        293 
--------------------------------------  ----------------  ---------  ----------  --------- 
 
 
                                                             31.12.19 
-------------------------------------- 
                                               Corporate 
                                         & Institutional     Retail  Commercial 
                                                 Banking    Banking     Banking      Total 
Amortised cost                                  $million   $million    $million   $million 
--------------------------------------  ----------------  ---------  ----------  --------- 
All loans with forbearance measures                1,533        344         767      2,644 
Credit impairment (stage 1 and 2)                   (13)          -         (4)       (17) 
Credit impairment (stage 3)                        (748)      (169)       (558)    (1,475) 
--------------------------------------  ----------------  ---------  ----------  --------- 
Net carrying value                                   772        175         205      1,152 
--------------------------------------  ----------------  ---------  ----------  --------- 
Included within the above table 
Gross performing forborne loans                      421         19          49        489 
                                        ----------------  ---------  ----------  --------- 
Modification of terms and conditions1                421         19          44        484 
Refinancing2                                           -          -           5          5 
                                        ----------------  ---------  ----------  --------- 
Impairment provisions                               (13)          -         (4)       (17) 
                                        ----------------  ---------  ----------  --------- 
Modification of terms and conditions1               (13)          -         (4)       (17) 
Refinancing2                                           -          -           -          - 
                                        ----------------  ---------  ----------  --------- 
Net performing forborne loans                        408         19          45        472 
Collateral                                            62         19          22        103 
--------------------------------------  ----------------  ---------  ----------  --------- 
Gross non-performing forborne loans                1,112        325         718      2,155 
                                        ----------------  ---------  ----------  --------- 
Modification of terms and conditions1              1,071        325         696      2,092 
Refinancing2                                          41          -          22         63 
                                        ----------------  ---------  ----------  --------- 
Impairment provisions                              (748)      (169)       (558)    (1,475) 
                                        ----------------  ---------  ----------  --------- 
Modification of terms and conditions1              (717)      (169)       (544)    (1,430) 
Refinancing2                                        (31)          -        (14)       (45) 
                                        ----------------  ---------  ----------  --------- 
Net non-performing forborne loans                    364        156         160        680 
Collateral                                           190        156          99        445 
--------------------------------------  ----------------  ---------  ----------  --------- 
 

1 Modification of terms is any contractual change apart from refinancing, as a result of credit stress of the counterparty, i.e. interest reductions, loan covenant waivers

2 Refinancing is a new contract to a lender in credit stress, such that they are refinanced and can pay other debt contracts that they were unable to honour

Forborne and other modified loans by region

 
                                                       30.06.20 
--------------------------  -------------------------------------------------------------- 
                            Greater China      ASEAN &      Africa &   Europe & 
                             & North Asia   South Asia   Middle East   Americas      Total 
Amortised cost                   $million     $million      $million   $million   $million 
--------------------------  -------------  -----------  ------------  ---------  --------- 
Performing forborne loans              67          100            40          -        207 
Stage 3 forborne loans                247          264           147        180        838 
--------------------------  -------------  -----------  ------------  ---------  --------- 
Net forborne loans                    314          364           187        180      1,045 
--------------------------  -------------  -----------  ------------  ---------  --------- 
 
 
                                                       31.12.19 
--------------------------  -------------------------------------------------------------- 
                            Greater China      ASEAN &      Africa &   Europe & 
                             & North Asia   South Asia   Middle East   Americas      Total 
Amortised cost                   $million     $million      $million   $million   $million 
--------------------------  -------------  -----------  ------------  ---------  --------- 
Performing forborne loans             100          251           110         11        472 
Stage 3 forborne loans                177          173           148        182        680 
--------------------------  -------------  -----------  ------------  ---------  --------- 
Net forborne loans                    277          424           258        193      1,152 
--------------------------  -------------  -----------  ------------  ---------  --------- 
 

Credit-impaired (stage 3) loans and advances by client segment (within EY review scope)

Gross stage 3 loans for the Group are up 19 per cent in the period to $8.8 billion (31 December 2019: $7.4 billion), driven by an increase of $1.2 billion Corporate & Institutional Banking mainly pertaining to three clients in the ASEAN & South Asia and Africa & Middle East regions.

Stage 3 inflows in Commercial Banking reduced by 32 per cent to $0.2 billion compared to the second half of 2019 in the Africa & Middle East and Greater China & North Asia regions.

Gross stage 3 loans in Retail Banking increased by $0.2 billion to $1.1 billion (31 December 2019: $0.8 billion) as COVID-19 related lockdowns impacted collections and recoveries activities, particularly in ASEAN & South Asia.

Gross stage 3 loans in Private Banking remained stable at $0.4 billion.

Stage 3 cover ratio (within EY review scope)

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.

Corporate & Institutional Banking cover ratio decreased to 58 per cent (31 December 2019: 71 per cent). This was due to three downgrades in ASEAN & South Asia and Africa & Middle East regions that had low levels of coverage, but they are partially covered by tangible collateral. Collateral increased by $0.4 billion during the period. Although the cover ratio after collateral decreased by 9 per cent to 74 per cent, some of the new inflows are covered by non-tangible collateral such as guarantees and insurance, which are not captured in this metric.

The Commercial Banking cover ratio reduced to 74 per cent from 75 per cent. The cover ratio after collateral remained stable at 88 per cent.

The Private Banking cover ratio increased to 42 per cent from 40 per cent, mainly due to incremental provisions on existing clients. Private Banking clients remain highly collateralised and cover ratio after collateral increased marginally from 98 per cent to 99 per cent.

The Retail Banking cover ratio remains broadly stable at 46 per cent. The cover ratio after collateral increased to 88 per cent from 78 per cent due to the increase in mortgages.

 
                                                           30.06.20 
-------------------------------  ------------------------------------------------------------- 
                                        Corporate 
                                  & Institutional     Retail  Commercial    Private 
                                          Banking    Banking     Banking    Banking      Total 
Amortised cost                           $million   $million    $million   $million   $million 
-------------------------------  ----------------  ---------  ----------  ---------  --------- 
Gross credit-impaired                       5,379      1,067       2,004        372      8,822 
Credit impairment provisions              (3,135)      (492)     (1,476)      (158)    (5,261) 
-------------------------------  ----------------  ---------  ----------  ---------  --------- 
Net credit-impaired                         2,244        575         528        214      3,561 
-------------------------------  ----------------  ---------  ----------  ---------  --------- 
Cover ratio                                   58%        46%         74%        42%        60% 
Collateral ($ million)                        862        450         282        209      1,803 
Cover ratio (after collateral)                74%        88%         88%        99%        80% 
-------------------------------  ----------------  ---------  ----------  ---------  --------- 
 
 
                                                           31.12.19 
-------------------------------  ------------------------------------------------------------- 
                                        Corporate 
                                  & Institutional     Retail  Commercial    Private 
                                          Banking    Banking     Banking    Banking      Total 
Amortised cost                           $million   $million    $million   $million   $million 
-------------------------------  ----------------  ---------  ----------  ---------  --------- 
Gross credit-impaired                       4,173        846       2,013        366      7,398 
Credit impairment provisions              (2,980)      (374)     (1,503)      (147)    (5,004) 
-------------------------------  ----------------  ---------  ----------  ---------  --------- 
Net credit-impaired                         1,193        472         510        219      2,394 
-------------------------------  ----------------  ---------  ----------  ---------  --------- 
Cover ratio                                   71%        44%         75%        40%        68% 
Collateral ($ million)                        497        286         263        211      1,257 
Cover ratio (after collateral)                83%        78%         88%        98%        85% 
-------------------------------  ----------------  ---------  ----------  ---------  --------- 
 

Credit-impaired (stage 3) loans and advances by geographic region

Stage 3 loans increased by $1.4 billion or 19 per cent compared with 31 December 2019. The increase was primarily driven by three clients in ASEAN & South Asia and Africa & Middle East.

 
                                                          30.06.20 
-----------------------------  -------------------------------------------------------------- 
                               Greater China      ASEAN &      Africa &   Europe & 
                                & North Asia   South Asia   Middle East   Americas      Total 
Amortised cost                      $million     $million      $million   $million   $million 
-----------------------------  -------------  -----------  ------------  ---------  --------- 
Gross credit-impaired                    864        3,767         3,198        993      8,822 
Credit impairment provisions           (346)      (2,195)       (2,095)      (625)    (5,261) 
-----------------------------  -------------  -----------  ------------  ---------  --------- 
Net credit-impaired                      518        1,572         1,103        368      3,561 
-----------------------------  -------------  -----------  ------------  ---------  --------- 
Cover ratio                              40%          58%           66%        63%        60% 
-----------------------------  -------------  -----------  ------------  ---------  --------- 
 
 
                                                          31.12.19 
-----------------------------  -------------------------------------------------------------- 
                               Greater China      ASEAN &      Africa &   Europe & 
                                & North Asia   South Asia   Middle East   Americas      Total 
Amortised cost                      $million     $million      $million   $million   $million 
-----------------------------  -------------  -----------  ------------  ---------  --------- 
Gross credit-impaired                    716        3,084         2,585      1,013      7,398 
Credit impairment provisions           (360)      (2,087)       (1,899)      (658)    (5,004) 
-----------------------------  -------------  -----------  ------------  ---------  --------- 
Net credit-impaired                      356          997           686        355      2,394 
-----------------------------  -------------  -----------  ------------  ---------  --------- 
Cover ratio                              50%          68%           73%        65%        68% 
-----------------------------  -------------  -----------  ------------  ---------  --------- 
 

Movement of credit-impaired (stage 3) loans and advances provisions by client segment (within EY review scope)

Credit impairment provisions as at 30 June was $5.3 billion, compared with $5.0 billion as at 31 December 2019, with more than half of the increase from Corporate & Institutional Banking due to new inflows and the rest from Retail Banking mainly in mortgages.

The following table shows the movement of credit-impaired (stage 3) provisions for each client segment.

 
                                                                 30.06.20 
-----------------------------------  ---------------------------------------------------------------- 
                                                           Retail                 Private 
                                            Corporate 
                                      & Institutional              Commercial 
                                              Banking     Banking     Banking     Banking      Total2 
Amortised cost                               $million    $million    $million    $million    $million 
-----------------------------------  ----------------  ----------  ----------  ----------  ---------- 
Gross credit-impaired loans 
 at 30 June                                     5,379       1,067       2,004         372       8,822 
-----------------------------------  ----------------  ----------  ----------  ----------  ---------- 
Credit impairment allowances 
 at 1 January                                   2,980         374       1,503         146       5,003 
Net transfers into and out of 
 stage 3                                           42          86           5           -         133 
                                     ----------------  ----------  ----------  ----------  ---------- 
New provisions charge/(release)1                  447          52          39           1         539 
Changes due to risk parameters1                   249         209          72           5         535 
Net change in exposures1                         (28)           -        (30)         (1)        (59) 
                                     ----------------  ----------  ----------  ----------  ---------- 
Amounts written off                             (449)       (330)       (149)           -       (928) 
Interest due but unpaid                          (18)          94          70           8         154 
Discount unwind                                  (18)        (10)         (7)         (2)        (37) 
Exchange translation difference                  (70)          17        (27)           1        (79) 
-----------------------------------  ----------------  ----------  ----------  ----------  ---------- 
Credit impairment allowances 
 at 30 June                                     3,135         492       1,476         158       5,261 
-----------------------------------  ----------------  ----------  ----------  ----------  ---------- 
Net carrying value                              2,244         575         528         214       3,561 
-----------------------------------  ----------------  ----------  ----------  ----------  ---------- 
 
Income statement charge/(release)1                667         261          82           5       1,015 
Recoveries of amounts previously 
 written off                                      (5)       (103)         (2)           -       (110) 
Total income statement charge                     662         158          80           5         905 
-----------------------------------  ----------------  ----------  ----------  ----------  ---------- 
 
 
                                                                 31.12.19 
-----------------------------------  ---------------------------------------------------------------- 
                                            Corporate 
                                      & Institutional      Retail                 Private 
                                                                   Commercial 
                                              Banking     Banking     Banking     Banking      Total2 
Amortised cost                               $million    $million    $million    $million    $million 
-----------------------------------  ----------------  ----------  ----------  ----------  ---------- 
Gross credit-impaired loans 
 at 31 December                                 4,173         846       2,013         366       7,398 
-----------------------------------  ----------------  ----------  ----------  ----------  ---------- 
Credit impairment allowances 
 at 1 January                                   3,238         396       1,789         163       5,586 
Net transfers into and out of 
 stage 3                                          111         166          24           -         301 
                                     ----------------  ----------  ----------  ----------  ---------- 
New provisions charge/(release)1                  177          81         107           -         365 
Changes due to risk parameters1                   335         327         122        (26)         758 
Net change in exposures1                        (170)           -        (96)         (6)       (272) 
                                     ----------------  ----------  ----------  ----------  ---------- 
Amounts written off                             (658)       (585)       (380)         (2)     (1,625) 
Interest due but unpaid                          (48)           -        (87)          17       (118) 
Discount unwind                                  (38)        (28)        (13)         (4)        (83) 
Exchange translation difference                    33          17          37           5          92 
-----------------------------------  ----------------  ----------  ----------  ----------  ---------- 
Credit impairment allowances 
 at 31 December                                 2,980         374       1,503         147       5,004 
-----------------------------------  ----------------  ----------  ----------  ----------  ---------- 
Net carrying value                              1,193         472         510         219       2,394 
-----------------------------------  ----------------  ----------  ----------  ----------  ---------- 
 
Income statement charge/(release)1                342         408         133        (32)         851 
Recoveries of amounts previously 
 written off                                        -       (247)         (1)           -       (248) 
Total income statement charge                     342         161         132        (32)         603 
-----------------------------------  ----------------  ----------  ----------  ----------  ---------- 
 

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 (within EY review scope)

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 $289 billion (2019: $280 billion).

The collateral values in the table below (which covers loans and advances to banks and customers, excluding those held at fair value through profit or loss) 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.

The value of collateral reflects management's best estimate and is back tested 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.

Private Banking collateral is $8.5 billion, down 18 per cent compared with 2019, in line with the overall movement of the secured portfolio.

Collateral held on loans and advances (within EY review scope)

The table below details collateral held against exposures, separately disclosing stage 2 and stage 3 exposure and corresponding collateral.

 
                                                                           30.06.20 
---------------  ---------------------------------------------------------------------------------------------------------------------------- 
                          Net amount outstanding                          Collateral                               Net exposure 
                 ----------------------------------------  ----------------------------------------  ---------------------------------------- 
                                          Credit-impaired                           Credit-impaired                           Credit-impaired 
                                   Stage        financial                    Stage        financial                    Stage        financial 
                             2 financial           assets              2 financial           assets              2 financial           assets 
                      Total       assets             (S3)      Total2       assets             (S3)       Total       assets             (S3) 
Amortised cost     $million     $million         $million    $million     $million         $million    $million     $million         $million 
---------------  ----------  -----------  ---------------  ----------  -----------  ---------------  ----------  -----------  --------------- 
Corporate & 
 Institutional 
 Banking1           165,807       15,688            2,244      24,983        3,089              862     140,824       12,599            1,382 
Retail Banking      105,000        3,273              575      84,585        2,706              450      20,415          567              125 
Commercial 
 Banking             25,555        4,142              528       7,273        1,608              282      18,282        2,534              246 
Private Banking      13,001          199              214       8,481          150              209       4,520           49                5 
Central & other 
 items               17,449            4                -       3,242            -                -      14,207            4                - 
---------------  ----------  -----------  ---------------  ----------  -----------  ---------------  ----------  -----------  --------------- 
Total               326,812       23,306            3,561     128,564        7,553            1,803     198,248       15,753            1,758 
---------------  ----------  -----------  ---------------  ----------  -----------  ---------------  ----------  -----------  --------------- 
 
 
                                                                          31.12.193 
---------------  --------------------------------------------------------------------------------------------------------------------------- 
                          Net amount outstanding                         Collateral                               Net exposure 
                 ----------------------------------------  ---------------------------------------  ---------------------------------------- 
                                          Credit-impaired                          Credit-impaired                           Credit-impaired 
                                   Stage        financial                   Stage        financial                    Stage        financial 
                             2 financial           assets             2 financial           assets              2 financial           assets 
                      Total       assets             (S3)     Total2       assets             (S3)       Total       assets             (S3) 
Amortised cost     $million     $million         $million   $million     $million         $million    $million     $million         $million 
---------------  ----------  -----------  ---------------  ---------  -----------  ---------------  ----------  -----------  --------------- 
Corporate & 
 Institutional 
 Banking1           162,201       14,231            1,193     23,652        2,724              497     138,549       11,507              696 
Retail Banking      106,938        2,856              472     81,700        2,355              286      25,238          501              186 
Commercial 
 Banking             28,094        3,925              510      6,996        1,801              263      21,098        2,124              247 
Private Banking      14,741          283              219     10,306          188              211       4,435           95                8 
Central & other 
 items               10,098            7                -        802            -                -       9,296            7                - 
---------------  ----------  -----------  ---------------  ---------  -----------  ---------------  ----------  -----------  --------------- 
Total               322,072       21,302            2,394    123,456        7,068            1,257     198,616       14,234            1,137 
---------------  ----------  -----------  ---------------  ---------  -----------  ---------------  ----------  -----------  --------------- 
 

1 Includes loans and advances to banks

2 Adjusted for over-collateralisation based on the drawn and undrawn components of exposures

3 Corporate & Institutional Banking, Retail Banking and Commercial Banking net amount outstanding, collateral and net exposure numbers have been restated to reflect client transfers between the three segments

Collateral - Corporate & Institutional Banking and Commercial Banking (within EY review scope)

Collateral held against Corporate & Institutional Banking and Commercial Banking exposures amounted to $32 billion.

Collateral taken for longer-term and sub-investment grade corporate loans remains high at 46 per cent. Our underwriting standards encourage taking specific charges on assets and we consistently seek high-quality, investment-grade collateral.

74 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 the 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 (within EY review scope)

 
                                       30.06.20   31.12.192 
Amortised cost                         $million    $million 
-----------------------------------  ----------  ---------- 
Maximum exposure                        165,807     162,201 
-----------------------------------  ----------  ---------- 
Property                                  8,328       7,218 
Plant, machinery and other stock            843         947 
Cash                                      2,994       2,931 
Reverse repos                             3,040       2,000 
                                     ----------  ---------- 
  A- to AA+                               1,072         756 
  BBB- to BBB+                              569         439 
  Unrated                                 1,399         805 
                                     ----------  ---------- 
Financial guarantees and insurance        5,358       7,374 
Commodities                                 235         141 
Ships and aircraft                        4,185       3,041 
-----------------------------------  ----------  ---------- 
Total value of collateral                24,983      23,652 
-----------------------------------  ----------  ---------- 
Net exposure1                           140,824     138,549 
-----------------------------------  ----------  ---------- 
 

Commercial Banking (within EY review scope)

 
                                       30.06.20   31.12.192 
Amortised cost                         $million    $million 
-----------------------------------  ----------  ---------- 
Maximum exposure                         25,555      28,094 
-----------------------------------  ----------  ---------- 
Property                                  4,514       4,225 
Plant, machinery and other stock          1,158       1,281 
Cash                                        761         654 
Reverse repos                                12           8 
                                     ----------  ---------- 
  A- to AA+                                   -           - 
  BBB- to BBB+                                4           1 
  Unrated                                     8           7 
                                     ----------  ---------- 
Financial guarantees and insurance          598         573 
Commodities                                  49          21 
Ships and aircraft                          181         234 
-----------------------------------  ----------  ---------- 
Total value of collateral                 7,273       6,996 
-----------------------------------  ----------  ---------- 
Net exposure1                            18,282      21,098 
-----------------------------------  ----------  ---------- 
 

1 Adjusted for over-collateralisation based on the drawn and undrawn components of exposures

2 Maximum exposure, collateral and net exposure balances have been restated to reflect client transfers between Corporate & Institutional Banking and Commercial Banking

Collateral - Retail Banking and Private Banking (within EY review scope)

In Retail Banking and Private Banking, 85 per cent of the portfolio is fully secured. The proportion of unsecured loans remains 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.

 
                                           30.06.20                                   31.12.193 
------------------------  ------------------------------------------  ------------------------------------------ 
                              Fully  Partially                            Fully  Partially 
                            secured    secured  Unsecured      Total    secured    secured  Unsecured      Total 
Amortised cost             $million   $million   $million   $million   $million   $million   $million   $million 
------------------------  ---------  ---------  ---------  ---------  ---------  ---------  ---------  --------- 
Maximum exposure            101,149        738     16,114    118,001    103,182      1,257     17,240    121,679 
Loans to individuals 
  Mortgages                  77,824          -          -     77,824     78,560        109          5     78,674 
  CCPL                          139          -     15,974     16,113        123          8     17,092     17,223 
  Auto                          500          -          -        500        562          -         10        572 
Secured wealth products      18,646          -          -     18,646     20,275        127          -     20,402 
Other                         4,040        738        140      4,918      3,662      1,013        133      4,808 
------------------------  ---------  ---------  ---------  ---------  ---------  ---------  ---------  --------- 
Total collateral1                                             93,066                                      92,006 
------------------------  ---------  ---------  ---------  ---------  ---------  ---------  ---------  --------- 
Net exposure2                                                 24,935                                      29,673 
------------------------  ---------  ---------  ---------  ---------  ---------  ---------  ---------  --------- 
Percentage of total 
 loans                          85%         1%        14%                   85%         1%        14% 
------------------------  ---------  ---------  ---------  ---------  ---------  ---------  ---------  --------- 
 

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

3 Maximum exposure, collateral and net exposure balances have been restated to reflect client transfers from Commercial Banking to Retail Banking

Mortgage loan-to-value ratios by geography (within EY review scope)

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 45 per cent. Hong Kong, which represents 39 per cent of the Retail Banking mortgage portfolio has an average LTV of 41.1 per cent. All of our other key markets continue to have low portfolio LTVs, (Korea, Singapore and Taiwan at 42.6 per cent, 53.8 per cent and 52.3 per cent respectively).

An analysis of LTV ratios by geography for the mortgage portfolio is presented in the table below.

 
                                                            30.06.20 
---------------------------------  ----------------------------------------------------------- 
                                   Greater China      ASEAN &      Africa &   Europe & 
                                    & North Asia   South Asia   Middle East   Americas   Total 
                                               %            %             %          %       % 
Amortised cost                             Gross        Gross         Gross      Gross   Gross 
---------------------------------  -------------  -----------  ------------  ---------  ------ 
Less than 50 per cent                       67.2         42.7          15.8       19.4    59.3 
50 per cent to 59 per cent                  14.6         18.5          22.7       20.6    15.8 
60 per cent to 69 per cent                   8.8         22.1          20.4       40.5    12.9 
70 per cent to 79 per cent                   6.8         14.1          20.3       16.2     9.0 
80 per cent to 89 per cent                   2.0          1.9          10.1        1.3     2.1 
90 per cent to 99 per cent                   0.5          0.5           5.1        0.4     0.7 
100 per cent and greater                     0.1          0.2           5.6        1.6     0.3 
---------------------------------  -------------  -----------  ------------  ---------  ------ 
Average portfolio loan-to-value             42.5         51.3          66.4       58.7    45.2 
---------------------------------  -------------  -----------  ------------  ---------  ------ 
Loans to individuals - mortgages 
 ($million)                               56,603       17,268         1,999      1,954  77,824 
---------------------------------  -------------  -----------  ------------  ---------  ------ 
 
 
                                                            31.12.19 
---------------------------------  ----------------------------------------------------------- 
                                   Greater China      ASEAN &      Africa &   Europe & 
                                    & North Asia   South Asia   Middle East   Americas   Total 
                                               %            %             %          %       % 
Amortised cost                             Gross        Gross         Gross      Gross   Gross 
---------------------------------  -------------  -----------  ------------  ---------  ------ 
Less than 50 per cent                       67.8         43.4          21.6       10.8    59.3 
50 per cent to 59 per cent                  14.4         19.4          14.2       26.3    15.9 
60 per cent to 69 per cent                   9.2         22.5          21.0       29.4    13.2 
70 per cent to 79 per cent                   6.7         12.5          19.1       28.0     9.0 
80 per cent to 89 per cent                   1.6          1.7          11.5        4.5     2.0 
90 per cent to 99 per cent                   0.2          0.3           6.5        0.4     0.4 
100 per cent and greater                     0.1          0.2           6.2        0.6     0.3 
---------------------------------  -------------  -----------  ------------  ---------  ------ 
Average portfolio loan-to-value             42.1         50.7          66.6       62.2    44.9 
---------------------------------  -------------  -----------  ------------  ---------  ------ 
Loans to individuals - mortgages 
 ($million)1                              56,067       18,301         2,047      2,259  78,674 
---------------------------------  -------------  -----------  ------------  ---------  ------ 
 

1 Greater China & North Asia number has been restated to reflect client transfers from Commercial Banking to Retail Banking

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 $11.9 billion compared to 31 December 2019, largely driven by an $8 billion increase in lending to Governments, with $1.9 billion increase in Commercial real estate and $1.5 billion increase in Financing, insurance and non-banking. Retail Products fell by $3.4 billion primarily within CCPL and unsecured lending as COVID-19 related lockdowns suppressed card spending and in Secured wealth products. Total stage 1 loans increased by $4.1 billion compared with 31 December 2019, and total stage 2 loans increased by $3.0 billion in total loans advances due to a significant increase in loans placed on non-purely precautionary early alert and transfers from stage 1.

 
                                                                             30.06.20 
--------------  ---------------------------------------------------------------------------------------------------------------------------------- 
                            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  impair-ment    amount   balance  impair-ment    amount   balance  impair-ment    amount   balance  impair-ment    amount 
Amortised cost  $million     $million  $million  $million     $million  $million  $million     $million  $million  $million     $million  $million 
--------------  --------  -----------  --------  --------  -----------  --------  --------  -----------  --------  --------  -----------  -------- 
Industry: 
Energy            12,525          (6)    12,519     2,377        (119)     2,258     1,256        (846)       410    16,158        (971)    15,187 
Manufacturing     19,363         (15)    19,348     3,447         (92)     3,355     1,316        (918)       398    24,126      (1,025)    23,101 
Financing, 
 insurance 
 and 
 non-banking      22,516          (8)    22,508     1,106          (4)     1,102       311        (205)       106    23,933        (217)    23,716 
Transport, 
 telecom 
 and utilities    12,286          (9)    12,277     4,682         (98)     4,584     1,096        (467)       629    18,064        (574)    17,490 
Food and 
 household 
 products          9,183         (11)     9,172       655         (14)       641       588        (397)       191    10,426        (422)    10,004 
Commercial 
 real estate      16,154         (22)    16,132     1,932         (40)     1,892       397        (156)       241    18,483        (218)    18,265 
Mining and 
 quarrying         5,775          (8)     5,767     1,333         (36)     1,297       254        (186)        68     7,362        (230)     7,132 
Consumer 
 durables          6,064          (4)     6,060     1,226         (27)     1,199       581        (452)       129     7,871        (483)     7,388 
Construction       3,246          (7)     3,239       720         (19)       701       680        (510)       170     4,646        (536)     4,110 
Trading 
 companies 
 & 
 distributors      1,174          (1)     1,173       847          (3)       844       311        (235)        76     2,332        (239)     2,093 
Government        22,773          (1)    22,772       361          (2)       359       235          (4)       231    23,369          (7)    23,362 
Other              5,095          (3)     5,092     1,341         (83)     1,258       344        (230)       114     6,780        (316)     6,464 
Retail 
Products: 
Mortgage          74,910         (21)    74,889     2,618         (21)     2,597       515        (177)       338    78,043        (219)    77,824 
CCPL and other 
 unsecured 
 lending          15,734        (334)    15,400       739        (215)       524       441        (252)       189    16,914        (801)    16,113 
Auto                 496            -       496         4            -         4         -            -         -       500            -       500 
Secured wealth 
 products         18,138         (22)    18,116       296          (6)       290       441        (201)       240    18,875        (229)    18,646 
Other              4,846          (4)     4,842        55          (1)        54        43         (21)        22     4,944         (26)     4,918 
--------------  --------  -----------  --------  --------  -----------  --------  --------  -----------  --------  --------  -----------  -------- 
Total value 
 (customers)1    250,278        (476)   249,802    23,739        (780)    22,959     8,809      (5,257)     3,552   282,826      (6,513)   276,313 
--------------  --------  -----------  --------  --------  -----------  --------  --------  -----------  --------  --------  -----------  -------- 
 

1 Includes reverse repurchase agreements and other similar secured lending held at amortised cost of $4,383 million

 
                                                                             31.12.192 
--------------  ----------------------------------------------------------------------------------------------------------------------------------- 
                            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  impair-ment    amount   balance  impair-ment    amount   balance  impair-ment    amount   balance  impair-ment     amount 
Amortised cost  $million     $million  $million  $million     $million  $million  $million     $million  $million  $million     $million   $million 
--------------  --------  -----------  --------  --------  -----------  --------  --------  -----------  --------  --------  -----------  --------- 
Industry: 
Energy            13,223         (17)    13,206     1,562         (22)     1,540       894        (758)       136    15,679        (797)     14,882 
Manufacturing     20,070         (15)    20,055     3,498         (29)     3,469       970        (695)       275    24,538        (739)     23,799 
Financing, 
 insurance 
 and 
 non-banking      20,972          (8)    20,964     1,193         (17)     1,176       292        (183)       109    22,457        (208)     22,249 
Transport, 
 telecom 
 and utilities    14,874         (10)    14,864     1,873         (35)     1,838       841        (599)       242    17,588        (644)     16,944 
Food and 
 household 
 products          8,321          (8)     8,313     1,551         (18)     1,533       585        (429)       156    10,457        (455)     10,002 
Commercial 
 real estate      14,244         (18)    14,226     2,092         (33)     2,059       293        (102)       191    16,629        (153)     16,476 
Mining and 
 quarrying         6,134          (8)     6,126     1,067         (12)     1,055       320        (232)        88     7,521        (252)      7,269 
Consumer 
 durables          6,366          (5)     6,361     1,094         (15)     1,079       651        (443)       208     8,111        (463)      7,648 
Construction       3,082          (5)     3,077       332          (8)       324       774        (607)       167     4,188        (620)      3,568 
Trading 
 companies 
 & 
 distributors      1,202          (1)     1,201     1,928          (1)     1,927       307        (218)        89     3,437        (220)      3,217 
Government        14,698          (1)    14,697       702          (3)       699         -            -         -    15,400          (4)     15,396 
Other              4,815          (8)     4,807       554         (10)       544       261        (218)        43     5,630        (236)      5,394 
Retail 
Products: 
Mortgage          76,123         (10)    76,113     2,290         (12)     2,278       406        (123)       283    78,819        (145)     78,674 
CCPL and other 
 unsecured 
 lending          16,834        (268)    16,566       620        (158)       462       404        (209)       195    17,858        (635)     17,223 
Auto                 570          (1)       569         2            -         2         1            -         1       573          (1)        572 
Secured wealth 
 products         19,895         (19)    19,876       336          (3)       333       354        (161)       193    20,585        (183)     20,402 
Other              4,726            -     4,726        65          (1)        64        45         (27)        18     4,836         (28)      4,808 
--------------  --------  -----------  --------  --------  -----------  --------  --------  -----------  --------  --------  -----------  --------- 
Total value 
 (customers)1    246,149        (402)   245,747    20,759        (377)    20,382     7,398      (5,004)     2,394   274,306      (5,783)    268,523 
--------------  --------  -----------  --------  --------  -----------  --------  --------  -----------  --------  --------  -----------  --------- 
 

1 Includes reverse repurchase agreements and other similar secured lending held at amortised cost of $1,469 million

2 Stage 1 and stage 2 Gross and ECL balances have been restated to reflect client transfers from Commercial Banking to Retail Banking

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 exposures are to Financing, insurance and non-banking, Government and Manufacturing, with each constituting 15 per cent of Corporate & Institutional Banking and Commercial Banking loans and advances to customers.

Financing, insurance and non-banking industry clients are mostly investment-grade institutions and this lending forms part of the liquidity management of the Group. 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 4,300 clients.

Loans and advances to the energy sector remained at 10 per cent of total loans and advances to Corporate & Institutional Banking and Commercial Banking. The Energy sector lending is spread across five sub-sectors and over 350 clients.

The Group provides loans to commercial real estate counterparties of $18.3 billion, which represents 7 per cent of total customer loans and advances. In total, $8.5 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 47 per cent, compared with 46 per cent in 2019. 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 66 per cent (31 December 2019: 65 per cent). CCPL and other unsecured lending is stable at 14 per cent of total Retail Products loans and advances.

 
                                                                  30.06.20 
-------------------------------------  -------------------------------------------------------------- 
                                       Greater China      ASEAN &      Africa &   Europe & 
                                        & North Asia   South Asia   Middle East   Americas      Total 
Amortisecd cost                             $million     $million      $million   $million   $million 
-------------------------------------  -------------  -----------  ------------  ---------  --------- 
Industry: 
Energy                                         1,382        3,913         4,183      5,709     15,187 
Manufacturing                                 10,751        5,775         2,732      3,843     23,101 
Financing, insurance and non-banking          11,615        3,994           935      7,172     23,716 
Transport, telecom and utilities               6,069        4,752         5,069      1,600     17,490 
Food and household products                    2,438        3,996         2,463      1,107     10,004 
Commercial real estate                        10,262        4,862         1,886      1,255     18,265 
Mining and quarrying                           2,432        2,249           814      1,637      7,132 
Consumer durables                              3,865        2,283           638        602      7,388 
Construction                                   1,407        1,447           973        283      4,110 
Trading companies and distributors             1,300          500           215         78      2,093 
Government                                     2,959       15,720         4,637         46     23,362 
Other                                          2,243        1,738           838      1,645      6,464 
Retail Products: 
Mortgages                                     56,603       17,268         1,999      1,954     77,824 
CCPL and other unsecured lending              10,449        3,609         1,968         87     16,113 
Auto                                               -          434            66          -        500 
Secured wealth products                        7,435        9,641           321      1,249     18,646 
Other                                          4,295          105           518          -      4,918 
-------------------------------------  -------------  -----------  ------------  ---------  --------- 
Net loans and advances to customers          135,505       82,286        30,255     28,267    276,313 
-------------------------------------  -------------  -----------  ------------  ---------  --------- 
Net loans and advances to banks               21,249       14,671         5,943      8,636     50,499 
-------------------------------------  -------------  -----------  ------------  ---------  --------- 
 
 
                                                                    31.12.19 
-------------------------------------  ------------------------------------------------------------------- 
                                                            ASEAN &       Africa &    Europe & 
                                        Greater China 
                                        & North Asia1    South Asia    Middle East    Americas       Total 
Amortisecd cost                              $million      $million       $million    $million    $million 
-------------------------------------  --------------  ------------  -------------  ----------  ---------- 
Industry: 
Energy                                          2,578         3,769          2,946       5,589      14,882 
Manufacturing                                  11,320         6,127          3,211       3,141      23,799 
Financing, insurance and non-banking            9,365         4,314            988       7,582      22,249 
Transport, telecom and utilities                6,268         4,014          5,349       1,313      16,944 
Food and household products                     2,777         3,651          2,478       1,096      10,002 
Commercial real estate                          9,377         4,954          1,783         362      16,476 
Mining and quarrying                            2,142         2,469            965       1,693       7,269 
Consumer durables                               4,497         2,019            699         433       7,648 
Construction                                    1,088         1,220          1,126         134       3,568 
Trading companies and distributors              2,602           296            198         121       3,217 
Government                                      1,490         9,907          3,926          73      15,396 
Other                                           1,722         1,870            836         966       5,394 
Retail Products: 
Mortgages                                      56,067        18,301          2,047       2,259      78,674 
CCPL and other unsecured lending               10,633         4,239          2,258          93      17,223 
Auto                                                -           485             87           -         572 
Secured wealth products                         8,159        10,473            338       1,432      20,402 
Other                                           3,981           121            705           1       4,808 
-------------------------------------  --------------  ------------  -------------  ----------  ---------- 
Net loans and advances to customers           134,066        78,229         29,940      26,288     268,523 
-------------------------------------  --------------  ------------  -------------  ----------  ---------- 
Net loans and advances to banks                19,313        15,756          5,350      13,130      53,549 
-------------------------------------  --------------  ------------  -------------  ----------  ---------- 
 

1 Greater China & North Asia numbers have been restated to reflect client transfers from Commercial Banking to Retail Banking

Vulnerable sectors

Total net exposure to vulnerable sectors reduced by $5.1 billion compared to 31 December 2019 and represents 29 per cent (31 December 2019: 30 per cent) of the total net exposure in Corporate & Institutional Banking and Commercial Banking. The reductions were largely due to increased levels of collateral and reduced undrawn commitments, particularly in the Aviation, Commercial Real Estate and Oil & Gas sectors. Stage 2 loans increased by 32 per cent compared to 31 December 2019, with 16 per cent (31 December 2019: 13 per cent) of loans to vulnerable sectors in stage 2. This was primarily driven by the increase in client placed on non-purely precautionary early alert and 46 per cent of the Aviation sector is now in stage 2. Stage 3 loans increased by $0.9 billion compared to 31 December 2019 primarily due to exposures in the Commodity Traders sector and Aviation.

Maximum Exposure

 
                                                                    30.06.20 
-------------------------  ------------------------------------------------------------------------------------------- 
                                Maximum 
                             On Balance 
                                  Sheet                                Undrawn     Financial        Net          Total 
                               Exposure                      Net   Commitments    Guarantees        Off           On & 
                                   (net               On Balance       (net of          (net    Balance    Off Balance 
                              of credit                    Sheet        credit     of credit      Sheet          Sheet 
                            impairment)  Collateral     Exposure   impairment)   impairment)   Exposure   Net Exposure 
Amortised cost                 $million    $million     $million      $million      $million   $million       $million 
-------------------------  ------------  ----------  -----------  ------------  ------------  ---------  ------------- 
Industry: 
Aviation                          4,509       2,213        2,296           602           509      1,111          3,407 
Commodity Traders                 9,610         631        8,979         2,963         3,132      6,095         15,074 
Metals & Mining                   5,260         831        4,429         2,529           632      3,161          7,590 
Commercial Real Estate           18,265       7,413       10,852         5,911           384      6,295         17,147 
Hotels & Tourism                  2,873       1,738        1,738         1,550           146      1,696          3,434 
Oil & Gas                         8,782       2,794        5,988         8,044         5,642     13,686         19,674 
-------------------------  ------------  ----------  -----------  ------------  ------------  ---------  ------------- 
Total                            49,299      15,017       34,282        21,599        10,445     32,044         66,326 
-------------------------  ------------  ----------  -----------  ------------  ------------  ---------  ------------- 
Total Corporate & 
 Institutional 
 Banking and 
 Commercial Banking             140,863      29,789      111,074        85,112        35,679    120,791        231,865 
-------------------------  ------------  ----------  -----------  ------------  ------------  ---------  ------------- 
Total Retail, Private 
 Banking 
 and other segments             185,949      98,775       87,174        58,684         6,318     65,002        152,176 
-------------------------  ------------  ----------  -----------  ------------  ------------  ---------  ------------- 
Total Group                     326,812     128,564      198,248       143,796        41,997    185,793        384,041 
-------------------------  ------------  ----------  -----------  ------------  ------------  ---------  ------------- 
 
 
                                                                    31.12.19 
-------------------------  ------------------------------------------------------------------------------------------- 
                                Maximum 
                             On Balance 
                                  Sheet                                Undrawn     Financial        Net          Total 
                               Exposure                      Net   Commitments    Guarantees        Off           On & 
                                   (net               On Balance       (net of          (net    Balance    Off Balance 
                              of credit                    Sheet        credit     of credit      Sheet          Sheet 
                            impairment)  Collateral     Exposure   impairment)   impairment)   Exposure   Net Exposure 
Amortised cost                 $million    $million     $million      $million      $million   $million       $million 
-------------------------  ------------  ----------  -----------  ------------  ------------  ---------  ------------- 
Industry: 
Aviation                          3,659       1,186        2,473         1,131           556      1,687          4,160 
Commodity Traders                10,386         326       10,060         3,942         2,869      6,811         16,871 
Metals & Mining                   5,436         381        5,055         3,002           374      3,376          8,431 
Commercial Real Estate           16,476       5,892       10,584         6,773           388      7,161         17,745 
Hotels & Tourism                  2,397         800        1,597         1,634           146      1,780          3,377 
Oil & Gas                         8,041       1,241        6,800         8,301         5,760     14,061         20,861 
-------------------------  ------------  ----------  -----------  ------------  ------------  ---------  ------------- 
Total                            46,395       9,826       36,569        24,783        10,093     34,876         71,445 
-------------------------  ------------  ----------  -----------  ------------  ------------  ---------  ------------- 
Total Corporate & 
 Institutional 
 Banking and 
 Commercial Banking             136,746      26,352      110,394        90,340        36,591    126,931        237,325 
-------------------------  ------------  ----------  -----------  ------------  ------------  ---------  ------------- 
Total Retail, Private 
 Banking 
 and other segments             185,326      97,104       88,222        55,055         5,605     60,660        148,882 
-------------------------  ------------  ----------  -----------  ------------  ------------  ---------  ------------- 
Total Group                     322,072     123,456      198,616       145,395        42,196    187,591        386,207 
-------------------------  ------------  ----------  -----------  ------------  ------------  ---------  ------------- 
 

Loans and advances by stage

 
                                                                             30.06.20 
--------------  ---------------------------------------------------------------------------------------------------------------------------------- 
                            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  impair-ment    amount   Balance  impair-ment    amount   Balance  impair-ment    amount   Balance  impair-ment    amount 
Amortised Cost  $million     $million  $million  $million     $million  $million  $million     $million  $million  $million     $million  $million 
--------------  --------  -----------  --------  --------  -----------  --------  --------  -----------  --------  --------  -----------  -------- 
Industry: 
Aviation           2,216                  2,216     2,100         (25)     2,075       256         (38)       218     4,572         (63)     4,509 
Commodity 
 Traders           8,890         (14)     8,876       525         (11)       514       760        (540)       220    10,175        (565)     9,610 
Metals & 
 Mining            4,193          (4)     4,189     1,003         (31)       972       240        (141)        99     5,436        (176)     5,260 
Commercial 
 Real Estate      16,154         (22)    16,132     1,932         (40)     1,892       397        (156)       241    18,483        (218)    18,265 
Hotels & 
 Tourism           1,926          (2)     1,924       927         (45)       882        92         (25)        67     2,945         (72)     2,873 
Oil & Gas          6,750          (5)     6,745     1,773         (80)     1,693       574        (230)       344     9,097        (315)     8,782 
--------------  --------  -----------  --------  --------  -----------  --------  --------  -----------  --------  --------  -----------  -------- 
Total             40,129         (47)    40,082     8,260        (232)     8,028     2,319      (1,130)     1,189    50,708      (1,409)    49,299 
--------------  --------  -----------  --------  --------  -----------  --------  --------  -----------  --------  --------  -----------  -------- 
Total 
 Corporate 
 & 
 Institutional 
 Banking and 
 Commercial 
 Banking         118,710         (93)   118,617    20,021        (538)    19,483     7,368      (4,605)     2,763   146,099      (5,236)   140,863 
--------------  --------  -----------  --------  --------  -----------  --------  --------  -----------  --------  --------  -----------  -------- 
Total Retail, 
 Private 
 Banking 
 and other 
 segments        181,714        (386)   181,328     4,067        (244)     3,823     1,454        (656)       798   187,235      (1,286)   185,949 
--------------  --------  -----------  --------  --------  -----------  --------  --------  -----------  --------  --------  -----------  -------- 
Total Group      300,424        (479)   299,945    24,088        (782)    23,306     8,822      (5,261)     3,561   333,334      (6,522)   326,812 
--------------  --------  -----------  --------  --------  -----------  --------  --------  -----------  --------  --------  -----------  -------- 
 
 
                                                                             31.12.19 
--------------  ---------------------------------------------------------------------------------------------------------------------------------- 
                            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  impair-ment    amount   Balance  impair-ment    amount   Balance  impair-ment    amount   Balance  impair-ment    amount 
Amortised Cost  $million     $million  $million  $million     $million  $million  $million     $million  $million  $million     $million  $million 
--------------  --------  -----------  --------  --------  -----------  --------  --------  -----------  --------  --------  -----------  -------- 
Industry: 
Aviation           3,426          (1)     3,425       236          (8)       228         6                      6     3,668          (9)     3,659 
Commodity 
 Traders           8,693         (10)     8,683     1,663          (6)     1,657       401        (355)        46    10,757        (371)    10,386 
Metals & 
 Mining            4,422          (5)     4,417       875         (10)       865       292        (138)       154     5,589        (153)     5,436 
Commercial 
 Real Estate      14,244         (18)    14,226     2,092         (33)     2,059       293        (102)       191    16,629        (153)    16,476 
Hotels & 
 Tourism           2,012          (4)     2,008       384          (2)       382        35         (28)         7     2,431         (34)     2,397 
Oil & Gas          6,854         (10)     6,844     1,031         (15)     1,016       441        (260)       181     8,326        (285)     8,041 
--------------  --------  -----------  --------  --------  -----------  --------  --------  -----------  --------  --------  -----------  -------- 
Total             39,651         (48)    39,603     6,281         (74)     6,207     1,468        (883)       585    47,400      (1,005)    48,395 
--------------  --------  -----------  --------  --------  -----------  --------  --------  -----------  --------  --------  -----------  -------- 
Total 
 Corporate 
 & 
 Institutional 
 Banking and 
 Commercial 
 Banking         117,909        (102)   117,807    17,439        (203)    17,236     6,186      (4,483)     1,703   141,534      (4,788)   136,746 
--------------  --------  -----------  --------  --------  -----------  --------  --------  -----------  --------  --------  -----------  -------- 
Total Retail, 
 Private 
 Banking 
 and other 
 segments        180,874        (305)   180,569     4,244        (178)     4,066     1,212        (521)       691   186,330      (1,004)   185,326 
--------------  --------  -----------  --------  --------  -----------  --------  --------  -----------  --------  --------  -----------  -------- 
Total Group      298,783        (407)   298,376    21,683        (381)    21,302     7,398      (5,004)     2,394   327,864      (5,792)   322,072 
--------------  --------  -----------  --------  --------  -----------  --------  --------  -----------  --------  --------  -----------  -------- 
 

Credit quality - loans and advances

 
                                                            30.06.20 
------------------------  ----------------------------------------------------------------------------- 
                                                           Commercial 
                                     Commodity     Metals        Real       Hotel      Oil & 
                           Aviation    Traders   & Mining      Estate   & Tourism        Gas      Total 
                              Gross      Gross      Gross       Gross       Gross      Gross      Gross 
Credit Grade               $million   $million   $million    $million    $million   $million   $million 
------------------------  ---------  ---------  ---------  ----------  ----------  ---------  --------- 
Strong                        1,512      5,128      1,559       8,554         996      4,816     22,565 
Satisfactory                  2,670      4,167      3,488       9,528       1,854      3,531     25,238 
Higher risk                     134        120        149          11           3        176        593 
Defaulted                       256        760        240         390          92        574      2,312 
------------------------  ---------  ---------  ---------  ----------  ----------  ---------  --------- 
Total Gross Balance           4,572     10,175      5,436      18,483       2,945      9,097     50,708 
------------------------  ---------  ---------  ---------  ----------  ----------  ---------  --------- 
Strong                          (7)       (12)          -        (25)         (3)        (5)       (52) 
Satisfactory                   (11)       (12)       (21)        (33)        (44)       (68)      (189) 
Higher risk                     (7)        (1)       (14)           -           -        (4)       (26) 
Defaulted                      (38)      (540)      (141)       (160)        (25)      (238)    (1,142) 
------------------------  ---------  ---------  ---------  ----------  ----------  ---------  --------- 
Total Credit Impairment        (63)      (565)      (176)       (218)        (72)      (315)    (1,409) 
------------------------  ---------  ---------  ---------  ----------  ----------  ---------  --------- 
Strong                         0.5%       0.2%       0.0%        0.3%        0.3%       0.1%       0.2% 
Satisfactory                   0.4%       0.3%       0.6%        0.3%        2.4%       1.9%       0.7% 
Higher risk                    5.2%       0.8%       9.4%        0.0%        0.0%       2.3%       4.4% 
Defaulted                     14.8%      71.1%      58.8%       41.0%       27.2%      41.5%      49.4% 
------------------------  ---------  ---------  ---------  ----------  ----------  ---------  --------- 
Cover Ratio                    1.4%       5.6%       3.2%        1.2%        2.4%       3.5%       2.8% 
------------------------  ---------  ---------  ---------  ----------  ----------  ---------  --------- 
 
 
                                                            31.12.19 
------------------------  ----------------------------------------------------------------------------- 
                                                           Commercial 
                                     Commodity     Metals        Real       Hotel      Oil & 
                           Aviation    Traders   & Mining      Estate   & Tourism        Gas      Total 
                              Gross      Gross      Gross       Gross       Gross      Gross      Gross 
Credit Grade               $million   $million   $million    $million    $million   $million   $million 
------------------------  ---------  ---------  ---------  ----------  ----------  ---------  --------- 
Strong                        2,635      5,104      1,270       8,338         983      3,706     22,036 
Satisfactory                    967      5,217      3,853       7,929       1,411      4,040     23,417 
Higher risk                      60         35        174         121           2        139        531 
Defaulted                         6        401        292         241          35        441      1,416 
------------------------  ---------  ---------  ---------  ----------  ----------  ---------  --------- 
Total Gross Balance           3,668     10,757      5,589      16,629       2,431      8,326     47,400 
------------------------  ---------  ---------  ---------  ----------  ----------  ---------  --------- 
Strong                            -        (6)          -        (47)         (1)        (2)       (56) 
Satisfactory                    (3)       (10)        (8)        (23)         (5)       (22)       (71) 
Higher risk                     (6)          -        (7)        (16)           -        (1)       (30) 
Defaulted                         -      (355)      (138)        (67)        (28)      (260)      (848) 
------------------------  ---------  ---------  ---------  ----------  ----------  ---------  --------- 
Total Credit Impairment         (9)      (371)      (153)       (153)        (34)      (285)    (1,005) 
------------------------  ---------  ---------  ---------  ----------  ----------  ---------  --------- 
Strong                         0.0%       0.1%       0.0%        0.6%        0.1%       0.1%       0.3% 
Satisfactory                   0.3%       0.2%       0.2%        0.3%        0.4%       0.5%       0.3% 
Higher risk                   10.0%       0.0%       4.0%       13.2%        0.0%       0.7%       5.6% 
Defaulted                      0.0%      88.5%      47.3%       27.8%       80.0%      59.0%      59.9% 
------------------------  ---------  ---------  ---------  ----------  ----------  ---------  --------- 
Cover Ratio                    0.2%       3.4%       2.7%        0.9%        1.4%       3.4%       2.1% 
------------------------  ---------  ---------  ---------  ----------  ----------  ---------  --------- 
 

Loans and Advances by Region (net of credit impairment)

 
                                                    30.06.20 
-----------------------  -------------------------------------------------------------- 
                         Greater China      ASEAN &      Africa &   Europe & 
                          & North Asia   South Asia   Middle East   Americas      Total 
Amortised cost                $million     $million      $million   $million   $million 
-----------------------  -------------  -----------  ------------  ---------  --------- 
Industry: 
Aviation                         1,449          497         1,559      1,004      4,509 
Commodity Traders                1,855        3,222           973      3,560      9,610 
Metals & Mining                  1,318        2,026           913      1,003      5,260 
Commercial Real Estate          10,262        4,862         1,886      1,255     18,265 
Hotels & Tourism                   790        1,082           561        440      2,873 
Oil & Gas                        1,020        2,576         2,370      2,816      8,782 
-----------------------  -------------  -----------  ------------  ---------  --------- 
Total                           16,694       14,265         8,262     10,078     49,299 
-----------------------  -------------  -----------  ------------  ---------  --------- 
 
 
                                                    31.12.19 
-----------------------  -------------------------------------------------------------- 
                         Greater China      ASEAN &      Africa &   Europe & 
                          & North Asia   South Asia   Middle East   Americas      Total 
Amortised cost                $million     $million      $million   $million   $million 
-----------------------  -------------  -----------  ------------  ---------  --------- 
Industry: 
Aviation                         1,392          224         1,373        670      3,659 
Commodity Traders                2,082        3,513         1,276      3,515     10,386 
Metals & Mining                  1,366        1,950           837      1,283      5,436 
Commercial Real Estate           9,377        4,954         1,783        362     16,476 
Hotels & Tourism                   543        1,092           547        215      2,397 
Oil & Gas                        1,123        2,130         2,022      2,766      8,041 
-----------------------  -------------  -----------  ------------  ---------  --------- 
Total                           15,883       13,863         7,838      8,811     46,395 
-----------------------  -------------  -----------  ------------  ---------  --------- 
 

IFRS 9 methodology

Refer to pages 182 and 183 in the 2019 Annual Report for the 'Approach for determining expected credit losses', 'Application of lifetime' and pages 187 - 189 for 'Significant increase in credit risk (SICR)', 'Assessment of credit impaired assets' and 'Governance and application of export credit judgement in respect of expected credit losses'. There have been no changes to the Group's approach in determining SICR compared to 31 December 2019.

Post model adjustments

Where a model's performance breaches the monitoring thresholds or validation standards, then an assessment is completed to determine whether an ECL Post Model Adjustment (PMA) is required to correct for the identified model issue. As at 30 June 2020, PMAs for these model performance issues have been applied for 14 models out of the 181 in total. In aggregate, the PMAs decrease the Group's impairment provisions by $87 million (5 per cent of modelled provisions).

The unprecedented volatility in the macroeconomic forecasts seen in the first half of 2020 has meant that a number of the Group's IFRS9 ECL models are now operating outside the boundaries to which they were calibrated. As a result, the Group has made a number of adjustments to the modelled output to ensure the resulting modelled ECL remains unbiased and appropriately reflects the Group's credit risks in the current environment. The adjustments are based on a combination of portfolio level credit risk analysis (retail) and an evaluation of ECL coverage at an exposure level (wholesale).

Key assumptions and judgements in determining expected credit loss (within EY review scope)

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 ECL 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 on the five-year outlook, supported by projections from the Group's in-house research team and outputs from a third-party model that project specific economic variables and asset prices. The research team takes consensus views into consideration and senior management review projections for some core country variables against consensus when forming their view of the outlook. For the period beyond five years, management utilises the in-house research view and third-party model outputs, which allow for a reversion to long-term growth rates or norms. All projections are updated on a quarterly basis.

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 in 2020 the global economy will experience its worst performance since the Great Depression of 1929-31. The COVID-19 pandemic has triggered severe economic downturns with all regions of the world affected. Global economic activity is expected to trough in the second quarter of 2020, recovering thereafter. Against this backdrop, governments and central banks have put in place wide-ranging policies to limit the impact to people and businesses from the material decline in activity. These include large fiscal stimulus measures and exceptional monetary support, including lower interest rates and also expansion of Central Bank balance sheets through quantitative easing measures.

Once the recovery is underway, economies are expected to be close to their forward-looking long-term - or future potential - growth levels within the next two to five years, as the effects of current economic shocks dissipate. However, material downside risks remain to the base forecasts including the extent and duration of lockdowns and the efficacy of the policy response.

While the quarterly base forecasts inform the Group's strategic plan, one key requirement of IFRS 9 is that the assessment of provisions should consider multiple future economic environments. 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 ECL under the Base Forecast it might maintain a level of provisions that does not appropriately capture the range of potential outcomes. To address this property of skewness (or non-linearity), IFRS 9 requires reported ECL to be a probability-weighted ECL calculated over a range of possible outcomes.

To assess the range of possible outcomes, the Group simulates a set of 50 scenarios around the Base Forecast, calculates the ECL under each of them and assigns an equal weight of 2 per cent to each scenario outcome. These scenarios are generated by a Monte Carlo simulation, which addresses the challenges of crafting many realistic alternative scenarios in the many countries in which the group operates by means of a model that produces these alternative scenarios while considering the degree of uncertainty (or volatility) historically observed around economic outcomes and how these outcomes have tended to move in relation to one another (or correlation). This naturally means that the 50 scenarios do not each have a specific narrative, although collectively they explore a range of hypothetical alternative outcomes for the global economy, including scenarios that turn out better than expected and scenarios that amplify anticipated stresses.

The table on the next page provides a summary of the Group's Base Forecast for key footprint markets, alongside the corresponding range seen across the multiple scenarios. The peak/trough amounts in the table show the highest and lowest points within the Base Forecast, and the GDP graphs illustrate the shape of the Base Forecast in relation to prior periods actuals and the long-term growth rates.

Despite the synchronised global downturn there are significant variances across countries, reflecting the differences in the evolution of the pandemic and strategies to contain it. In China, supported by policy stimulus, the recovery from the sharp contraction from earlier in the year is underway and growth is projected at 2.5 per cent in 2020 (this includes the 6.8 per cent contraction in the first quarter). India's economy is projected to contract by more than 4 per cent following a longer period of lockdown than initially expected and slow recovery. More open economies have been additionally impacted by the decline in world trade and demand. For example, Singapore GDP is expected to decline by 6 per cent and Hong Kong by 7.2 per cent. Korea was one of the first countries to be affected by the COVID-19 pandemic and effective strategies by the government there to contain the spread of the virus have limited the economic decline compared to other advanced economies.

Weak global economic activity will continue to limit commodity price gains. Oil prices are expected to average $34 in 2020, with only a gradual recovery to $44 in 2021.

Long-term growth = forward-looking future GDP growth potential

 
                     China      Hong Kong       Korea       Singapore      India1 
-----------------  ----------  ------------  ------------  -----------  ------------ 
                   2020  2021    2020  2021    2020  2021   2020  2021   2020   2021 
-----------------  ----  ----  ------  ----  ------  ----  -----  ----  -----  ----- 
GDP growth 
 (YoY%)             2.5   7.5   (7.2)   6.0   (0.6)   2.2  (6.0)   8.2  (4.1)   13.1 
Unemployment 
 (%)                4.2   3.7     5.3   5.3     4.2   4.0    4.7   3.9    N/A    N/A 
3 month interest 
 rates (%)          1.5   1.9     1.4   0.8     1.1   1.1    0.9   0.8    3.5    3.3 
Housing prices 
 (YoY%)             5.3   5.7   (2.9)   4.8     0.7   1.9  (5.6)   5.7  (0.7)    7.5 
-----------------  ----  ----  ------  ----  ------  ----  -----  ----  -----  ----- 
 

1 India GDP follows the Fiscal Year beginning in Q2. All other variables are on a calendar year basis

20205

 
                             China                          Hong Kong                           Korea                           Singapore                          India 
-------------  --------------------------------  --------------------------------  --------------------------------  -------------------------------  -------------------------------- 
                   5 yr      Base                    5 yr       Base                   5 yr       Base                   5 yr      Base                   5 yr       Base 
                average  forecast                 average   forecast                average   forecast                average  forecast                average   forecast 
                   base     peak/     Low  High      base      peak/    Low  High      base      peak/    Low  High      base     peak/    Low  High      base      peak/    Low  High 
               forecast    trough       2     3  forecast     trough      2     3  forecast     trough      2     3  forecast    trough      2     3  forecast     trough      2     3 
-------------  --------  --------  ------  ----  --------  ---------  -----  ----  --------  ---------  -----  ----  --------  --------  -----  ----  --------  ---------  -----  ---- 
GDP growth                                                      7.7/                                                              18.1/                             30.0/ 
 (YoY%)             5.9  17.3/3.5     3.8   7.5       1.9     (10.4)  (1.8)   6.8       2.0  3.4/(1.9)  (0.4)   4.9       2.1    (14.5)  (2.7)   8.9       6.0     (35.0)    3.8  11.2 
Unemployment 
 (%)                3.8   4.3/3.7     3.6   3.8       4.1    6.1/3.2    2.7   5.9       3.9    4.8/3.6    3.3   4.5       3.5   5.5/3.0    2.4   4.8       N/A        N/A    N/A   N/A 
3 month 
 interest 
 rates 
 (%)                2.4   2.8/1.4     1.4   3.4       2.1    3.5/0.8    0.5   4.3       1.6    2.5/1.1    0.8   2.8       1.7   2.9/0.7    0.6   5.7       4.4    5.7/3.2    3.0   6.2 
House 
 prices                                                                                                                           14.8/ 
 (YoY%)             6.4   7.6/4.8  (32.6)  32.5       3.9  8.5/(4.9)  (5.5)  14.3       2.3    2.8/0.3  (0.0)   4.8       3.8    (13.0)  (8.6)  13.6       6.0  9.4/(2.6)  (0.1)  12.7 
-------------  --------  --------  ------  ----  --------  ---------  -----  ----  --------  ---------  -----  ----  --------  --------  -----  ----  --------  ---------  -----  ---- 
 

2019

 
                           China                         Hong Kong                          Korea                         Singapore                         India 
-------------  -----------------------------  --------------------------------  -----------------------------  -------------------------------  ----------------------------- 
                   5 yr      Base                 5 yr       Base                   5 yr      Base                 5 yr      Base                   5 yr      Base 
                average  forecast              average   forecast                average  forecast              average  forecast                average  forecast 
                   base     peak/  Low  High      base      peak/    Low  High      base     peak/  Low  High      base     peak/    Low  High      base     peak/  Low  High 
               forecast    trough    2     3  forecast     trough      2     3  forecast    trough    2     3  forecast    trough      2     3  forecast    trough    2     3 
-------------  --------  --------  ---  ----  --------  ---------  -----  ----  --------  --------  ---  ----  --------  --------  -----  ----  --------  --------  ---  ---- 
GDP growth                                                         (2.7) 
 (YoY%)             5.8   6.3/5.5  4.4   7.4       1.6  2.5/(4.8)      4   4.4       2.6   2.9/2.1  0.6   4.8       2.1   2.5/0.9  (1.4)   5.9       6.9   7.2/6.1  5.0   9.0 
Unemployment 
 (%)                3.6   3.6/3.6  3.6   3.7       3.5    3.6/3.1    2.7   4.3       3.6   4.0/3.2  3.0   4.2       3.0   3.2/3.0    2.3   3.8       N/A       N/A  N/A   N/A 
3 month 
 interest 
 rates 
 (%)                2.6   2.8/2.3  1.8   3.6       2.4    3.5/1.2    0.9   4.3       1.7   2.5/1.2  0.8   2.9       2.0   2.9/1.3    1.1   3.1       5.2   5.6/4.8  4.3   6.1 
House 
 prices 
 (YoY%)             6.3   7.6/4.2  4.2   8.3       3.6  5.7/(5.1)  (6.5)  14.6       2.6   2.8/0.7  0.5   4.8       3.4   4.4/0.4  (2.7)   9.7       7.8   8.1/6.9  2.4  13.2 
-------------  --------  --------  ---  ----  --------  ---------  -----  ----  --------  --------  ---  ----  --------  --------  -----  ----  --------  --------  ---  ---- 
 
 
                                     20205                              2019 
---------------------  ---------------------------------  --------------------------------- 
                            5 yr       Base                    5 yr       Base 
                         average   forecast                 average   forecast 
                            base      peak/                    base      peak/ 
                        forecast     trough  Low2  High3   forecast     trough  Low2  High3 
---------------------  ---------  ---------  ----  -----  ---------  ---------  ----  ----- 
Crude price Brent, $ 
 pb                         49.9  61.5/23.0  27.9   80.7         71      76/66    42    102 
---------------------  ---------  ---------  ----  -----  ---------  ---------  ----  ----- 
 

1 N/A - Not available

2 Represents the 10th percentile in the range of economic scenarios used to determine non-linearity

3 Represents the 90th percentile in the range of economic scenarios used to determine non-linearity

4 This value is higher than the trough in the base case forecast because it is measured over the five-year range; if the 10(th) percentile had been read off the first half of 2020, it would have been -5.7.

5 Base forecasts are evaluated from Q2 2020 to Q2 2025. The forward-looking simulation starts from Q3 2020. Accordingly, if the base forecast registers an extreme value in Q2 2020 from which it recovers by Q3 2020, it is possible for the base forecasts to exhibit a more extreme value than the simulated range

The final probability-weighted ECL reported by the Group is a simple average of the ECL for each of the 50 scenarios, together with the ECL from the base forecast. The impact of these scenarios and the management overlay (together referred to as non-linearity) is set out in the table below.

 
                                                       Including 
                                                   non-linearity  Base forecast  Difference 
                                                        $million       $million           % 
------------------------------------------------  --------------  -------------  ---------- 
Total expected credit loss at 30 June 20201                1,686          1,349        25.0 
------------------------------------------------  --------------  -------------  ---------- 
Total expected credit loss at 31 December 20191            1,108          1,079         2.7 
------------------------------------------------  --------------  -------------  ---------- 
 

1 Total modelled ECL comprises stage 1 and stage 2 balances of $1,519 million (31 December 2019: $975 million) and $167 million (31 December 2019: $133 million) of modelled ECL on stage 3 loans

The average expected credit loss under multiple scenarios (which incorporates the management overlay below) is 25.0 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 limited responsiveness to macroeconomic impacts for structural reasons such as significant collateralisation as with the Retail Banking mortgage portfolios.

Management overlay - COVID-19

As at 30 June 2020, the Group held a $316 million management overlay relating to uncertainties as a result of the COVID-19 pandemic, $198 million of which relates to Corporate & Institutional Banking and Commercial Banking and $118 million to Retail Banking.

Corporate & Institutional Banking and Commercial Banking

The amount of loans placed on non-purely precautionary early alert increased significantly over the first half of 2020 as the impact of COVID-19 was evaluated on the Group's portfolio. However, the impact of the rapid deterioration in the economic environment in the first six months of 2020 has not yet been fully observed in customers' financial performance and there has not been a significant increase in the level of stage 3 loans relating to COVID-19 as at 30 June 2020. To take account of the heightened credit risk and the continuing uncertainties in the pace and timing of economic recovery, a judgemental overlay has been taken by estimating the impact of further deterioration to the non-purely precautionary early alert portfolio.

Retail Banking

A number of components contribute to the judgemental overlay for Retail Banking. Within Business Banking, the Group has evaluated those sectors that have been adversely impacted by COVID-19, both through internal credit processes as well as through a 'Voice of Customer' survey to understand how customers have been affected. The Group has also considered the extent to which lockdowns have impacted collections and recoveries, and the extent to which payment reliefs may mask underlying credit risks, particularly in those markets in ASEAN & South Asia where blanket moratoria are in place. For those markets, the Group has estimated the impact of increased delinquencies and flows to defaults when the moratoria are lifted as well, as the extent to which customers in stage 1 may have experienced a significant increase in credit risk if not for the moratoria. The Group assessment also considered employee banking relationships with high-impact sectors, such as airlines, and the impact on Mortgages in Africa & the Middle East which generally have high LTVs.

Stage 3

Credit-impaired assets managed by Group Special Assets Management 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 (within EY review scope)

The ECL 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 ECL 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 ECL. 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 assessments.

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 ECL. The Group believes this is plausible as the number of variables used in the ECL 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.

The Group faces downside risks in the operating environment related to the uncertainties surrounding the effect of COVID-19 on the macroeconomic outlook. To explore this, a sensitivity analysis of ECL was undertaken to explore the effect of slower economic recoveries across the Group's footprint markets. Two variants were considered - one with moderately slower recovery than the baseline and a second more severe scenario. In these scenarios the assumption is that the measures taken in the first half of the year to stem the spread of the coronavirus are insufficient as economies exhibit increasing numbers of cases. As a result, lockdown measures are implemented or re-introduced in all footprint countries. Economic activity is restricted to covering basic needs and smaller businesses continue to suffer, with unemployment figures rising. Cross-border trade is significantly reduced or halted. Government debt jumps in an effort to stimulate the economy and keep cash flowing to the private sector. Taken together, it takes longer for fiscal and monetary stimulus to bring activity and employment back to the levels prevailing prior to the onset of COVID-19.

 
                                   Baseline           Moderate scenario        Severe scenario 
--------------------------  ----------------------  ----------------------  ---------------------- 
                            Five year               Five year               Five year 
                              average  Peak/Trough    average  Peak/Trough    average  Peak/Trough 
--------------------------  ---------  -----------  ---------  -----------  ---------  ----------- 
China GDP                         5.9     17.3/3.5        4.6   10.2/(2.3)        3.3    6.6/(9.0) 
China unemployment                3.8      4.3/3.7        4.4      5.9/3.7        5.1      8.0/3.7 
China property prices             6.4      7.6/4.8        4.5   7.9/(11.2)        2.6  10.0/(27.4) 
--------------------------  ---------  -----------  ---------  -----------  ---------  ----------- 
Hong Kong GDP                     1.9   7.7/(10.4)        1.3   5.1/(10.7)        0.8   3.2/(11.0) 
Hong Kong unemployment            4.1      6.1/3.2        4.4      6.4/3.2        4.6      7.1/3.2 
Hong Kong property prices         3.9    8.5/(4.9)        2.8  11.7/(17.5)        2.2  16.1/(30.8) 
--------------------------  ---------  -----------  ---------  -----------  ---------  ----------- 
US GDP                            1.2  17.8/(15.8)        0.1  12.1/(18.6)      (0.8)  11.2/(21.9) 
--------------------------  ---------  -----------  ---------  -----------  ---------  ----------- 
Singapore GDP                     2.1  18.1/(14.5)        1.8  14.6/(14.5)        1.6  11.1/(14.5) 
--------------------------  ---------  -----------  ---------  -----------  ---------  ----------- 
India GDP                         6.0  30.0/(35.0)        4.8  33.1/(35.0)        3.6  36.1/(35.0) 
--------------------------  ---------  -----------  ---------  -----------  ---------  ----------- 
World GDP                         3.1    9.6/(8.1)        1.9   8.2/(10.5)        1.2   6.9/(15.2) 
--------------------------  ---------  -----------  ---------  -----------  ---------  ----------- 
Crude Oil                        49.9    61.5/23.0       47.4    61.5/20.2       44.9    61.5/17.4 
--------------------------  ---------  -----------  ---------  -----------  ---------  ----------- 
 

The modelled ECL provisions would be approximately $740 million higher under the moderate scenario and $2.4 billion higher under the severe scenario than the baseline ECL provisions (which excluded the impact of multiple economic scenarios and management overlays which may already capture some of the risks in these scenarios). The proportion of stage 2 assets would increase from 6 per cent to 12 per cent under the severe downside scenario. This includes the impact of exposures transferring to stage 2 from stage 1 but does not consider an increase in stage 3 defaults. There was no material change in modelled stage 3 provisions as these primarily relate to unsecured Retail Banking exposures for which the LGD is not sensitive to changes in the macroeconomic forecasts. Under the severe scenario the majority of the increase was in Corporate & Institutional Banking and Commercial Banking with the main corporate portfolios in China, Hong Kong and Singapore impacted. Around 20 per cent of the increase was in Retail Banking, with the main portfolios impacted being the Group's credit card portfolios in Hong Kong and Singapore. Note that these scenarios are not incorporated into the Group's determination of ECL provisions and 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.

Modelled provisions (within EY review scope)

 
                                     Moderate     Severe 
                                     downside   downside 
                                     increase   increase 
                                           $m         $m 
----------------------------------  ---------  --------- 
Corporate & Institutional Banking         300      1,366 
Retail Banking                            220        493 
Commercial Banking                        196        520 
Private Banking                             1         34 
Central & other items                      23         34 
----------------------------------  ---------  --------- 
Total                                     740      2,447 
----------------------------------  ---------  --------- 
 

Proportion of assets in stage 21 (within EY review scope)

 
                                         Base   Moderate     Severe 
                                     Forecast   downside   downside 
                                     scenario   scenario   scenario 
                                            %          %          % 
----------------------------------  ---------  ---------  --------- 
Corporate & Institutional Banking        9.0%      15.1%      19.7% 
Retail Banking                           3.7%       4.0%       5.6% 
Commercial Banking                      15.5%      35.1%      42.9% 
Private Banking                          1.5%       6.0%       6.0% 
Central & other items                    1.7%       1.8%       5.6% 
----------------------------------  ---------  ---------  --------- 
Total                                    6.2%       9.4%      12.2% 
----------------------------------  ---------  ---------  --------- 
 

1 Excludes cash and balances at central banks, accrued income, assets held for sale and other assets

Country Risk

The Group monitors Gross Country Risk (GCR), which is an aggregate of two distinct risk types:

-- Transfer and Convertibility Risk (TCR), which is the potential for losses on cross-border or foreign currency obligations arising from the possibility that a government is unable or unwilling to make foreign currency available for remittance out of the country

-- Local Currency Risk (LCR), which is the potential for losses on local currency obligations arising from operating in a volatile domestic economic and political environment

The profile of the Group's largest Gross Country Risk exposures as at 30 June 2020 is 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 Country Risk exposure for certain markets.

There has been a significant increase in exposure to the United States, due to increased purchases of US government bonds, and higher lending, particularly to non-financial corporates.

There has been a reduction in exposure to Hong Kong, primarily due to lower holdings of domestic government securities. This was partially offset by increases in nostros balances with the central bank and growth in the lending portfolio.

The significant increase in exposure to South Korea is on account of higher nostros balances with the central bank and increased holding of domestic government bonds.

The significant increase in exposure to Singapore is due to higher nostros balances kept with the Monetary Authority of Singapore and increased cross-border lending. This was partially offset by reductions in retail exposure and trade finance.

Exposure to China increased slightly due to the increase in nostros balances offsetting the reduction in trade finance and retail exposure.

There was a significant decrease in exposure to the United Kingdom during the first half of the year due to reductions in cross-border trade finance, particularly with financial institutions, and lower nostros balances.

Exposure to India increased slightly, with increases in lending to non-financial corporates offsetting the reductions across trade finance and the retail portfolio.

Exposure to the United Arab Emirates increased due to higher cross-border lending and increased trade finance volumes. This was partially offset by a reduction in domestic government securities.

There has been a slight increase in exposure to Japan due to higher purchases of domestic government securities, particularly in offshore booking centres. This was partially offset by a lower nostros balance kept with the central bank.

Overall exposure to Taiwan increased during the first half of the year due to an increase in money market deposits kept with domestic banks, offsetting the reduction in trade finance.

The table below, which is based on the Group's internal Country Risk reporting requirements, shows the 10 largest country/market exposures across the Group.

 
                                  30.06.20                         31.12.19 
---------------------  -------------------------------  ------------------------------- 
                             TCR        LCR        GCR        TCR        LCR        GCR 
                        $million   $million   $million   $million   $million   $million 
---------------------  ---------  ---------  ---------  ---------  ---------  --------- 
United States             33,310     58,241     91,551     25,966     58,930     84,896 
Hong Kong                 21,141     62,581     83,722     21,361     63,214     84,575 
South Korea               15,797     57,350     73,147     17,809     49,351     67,160 
Singapore                 21,470     37,737     59,207     18,304     34,046     52,350 
China                     37,767     20,550     58,317     36,469     20,977     57,446 
United Kingdom            22,906     16,802     39,708     27,563     16,782     44,345 
India                     15,146     20,628     35,774     14,008     20,305     34,313 
United Arab Emirates      18,577      5,700     24,277     16,461      6,145     22,606 
Japan                     14,126      6,847     20,973      9,341     10,393     19,734 
Taiwan                     5,553     15,198     20,751      2,733     14,827     17,560 
---------------------  ---------  ---------  ---------  ---------  ---------  --------- 
 

Traded Risk

Traded Risk is the potential for loss resulting from activities undertaken by the Group in financial markets. Under the Enterprise Risk Management Framework, the Traded Risk Framework brings together Market Risk, Counterparty Credit Risk, Issuer Risk, XVA, Algorithmic Trading and Pension Risk. Traded Risk Management is the core risk management function supporting market-facing businesses, predominantly Financial Markets and Treasury Markets.

Market Risk (within EY review scope)

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 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 2019 Annual Report (page 215).

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 as well as commodity baskets

-- Equity Risk: arising from changes in the prices of equities, equity indices, equity baskets and implied volatilities on related options

Market Risk changes (within EY review scope)

The average level of total trading and non-trading value at risk (VaR) in the first half of 2020 was $82.4 million, 157 per cent higher than the second half of 2019 ($32.1 million) and 192 per cent higher than the first half of 2019 ($28.2 million). The actual level of total trading and non-trading VaR as at the end of the first half of 2020 was $124.6 million, 262 per cent higher than in the second half of 2019 ($34.4 million) and 302 per cent higher than the first half of 2019 ($31.0 million). The increase in total average VaR was driven by the extreme market volatility following the outbreak of COVID-19 and the collapse in oil prices. The main contributor to the increase in VaR was the widening of credit spreads observed in March 2020 which impacted the non-trading book. The historical scenarios driving VaR are all from March 2020, hence VaR is expected to remain elevated until at least March 2021.

For the trading book, the average level of VaR in the first half of 2020 was $13.0 million, 19 per cent higher than in the second half of 2019 ($10.9 million), and 17 per cent higher than in the first half of 2019 ($11.1 million). Trading activities have remained relatively unchanged and client-driven.

Daily value at risk (VaR at 97.5%, one day) (within EY review scope)

 
                         6 months ended 30.06.20                         6 months ended 31.12.19                         6 months ended 30.06.19 
------------  ----------------------------------------------  ----------------------------------------------  ---------------------------------------------- 
                 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              75.7       117.9        29.0       115.0        30.9        35.2        24.8        34.2        26.8        29.5        24.1        26.7 
Foreign 
 Exchange 
 Risk                4.5         7.2         3.0         6.6         3.9         7.5         2.3         5.1         4.6         8.5         2.7         3.7 
Commodity 
 Risk                1.5         2.6         0.7         1.6         1.4         2.1         1.0         1.4         1.2         2.2         0.8         1.2 
Equity Risk          2.4         2.7         1.9         2.0         3.7         4.6         2.5         2.5         3.3         4.6         2.5         4.5 
------------  ----------  ----------  ----------  ----------  ----------  ----------  ----------  ----------  ----------  ----------  ----------  ---------- 
Total4              82.4       132.7        28.8       124.6        32.1        37.1        27.9        34.4        28.2        31.4        24.1        31.0 
------------  ----------  ----------  ----------  ----------  ----------  ----------  ----------  ----------  ----------  ----------  ----------  ---------- 
 
 
                       6 months ended 30.06.20                         6 months ended 31.12.19                         6 months ended 30.06.19 
----------  ----------------------------------------------  ----------------------------------------------  ---------------------------------------------- 
               Average       High1        Low1     Actual2     Average       High1        Low1     Actual2     Average       High1        Low1     Actual2 
Trading5      $million    $million    $million    $million    $million    $million    $million    $million    $million    $million    $million    $million 
----------  ----------  ----------  ----------  ----------  ----------  ----------  ----------  ----------  ----------  ----------  ----------  ---------- 
Interest 
 Rate 
 Risk3             9.4        13.9         6.5        11.6         7.5         9.1         6.3         7.0         8.6        11.8         6.3         7.3 
Foreign 
 Exchange 
 Risk              4.5         7.2         3.0         6.6         3.9         7.5         2.3         5.1         4.6         8.5         2.7         3.7 
Commodity 
 Risk              1.5         2.6         0.7         1.6         1.4         2.1         1.0         1.4         1.2         2.2         0.8         1.2 
Equity 
 Risk                -           -           -           -           -           -           -           -           -         0.1           -           - 
----------  ----------  ----------  ----------  ----------  ----------  ----------  ----------  ----------  ----------  ----------  ----------  ---------- 
Total4            13.0        21.3         8.3        17.4        10.9        13.0         8.8        10.0        11.1        14.0         9.2        11.0 
----------  ----------  ----------  ----------  ----------  ----------  ----------  ----------  ----------  ----------  ----------  ----------  ---------- 
 
 
                         6 months ended 30.06.20                         6 months ended 31.12.19                         6 months ended 30.06.19 
------------  ----------------------------------------------  ----------------------------------------------  ---------------------------------------------- 
                 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              68.0       109.6        27.3        87.3        28.7        33.3        23.1        33.3        23.6        25.0        21.2        23.3 
Equity Risk6         2.4         2.7         1.9         2.1         3.7         4.6         2.5         2.5         3.3         4.6         2.5         4.5 
------------  ----------  ----------  ----------  ----------  ----------  ----------  ----------  ----------  ----------  ----------  ----------  ---------- 
Total4              68.8       109.7        27.7        89.1        29.6        33.4        25.6        32.0        23.7        27.4        20.6        26.5 
------------  ----------  ----------  ----------  ----------  ----------  ----------  ----------  ----------  ----------  ----------  ----------  ---------- 
 

1 Highest and lowest VaR for each risk factor are independent and usually occur on different days

2 Actual one-day VaR at period-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 through 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 2020, the main Market Risk not reflected in VaR was the potential depeg risk from currencies 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. 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 Standard Chartered PLC Pillar 3 Disclosures for 30 June 2020.

Backtesting

In the first half of 2020, there were three regulatory backtesting exceptions at Group level (in the second half of 2019, there were two regulatory backtesting exceptions at Group level). All three exceptions occurred in the period of extreme market volatility triggered by the COVID-19 pandemic.

-- 10 March: When markets rallied following the announcement of measures to stimulate the US economy

-- 13 March: When markets rallied as the Federal Reserve provided details of US Treasury purchases, and cut interest rates

-- 24 March: When markets rallied as US Congress finalised a $2 trillion package to stimulate the economy, also impacting gold prices

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).

Average daily income earned from Market Risk-related activities1 (within EY review scope)

The average level of total trading daily income in the first half of 2020 was $14.0 million, 65 per cent higher than the second half of 2019 ($8.5 million) and 54 per cent higher than the first half of 2019 ($9.1 million), driven by extreme market volatility following the outbreak of COVID-19 and the resulting increase in trading activity and wider spreads.

 
                          6 months    6 months    6 months 
                             ended       ended       ended 
                          30.06.20    31.12.19    30.06.19 
Trading                   $million    $million    $million 
----------------------  ----------  ----------  ---------- 
Interest Rate Risk             7.0         3.7         3.5 
Foreign Exchange Risk          6.0         4.0         4.9 
Commodity Risk                 1.0         0.8         0.7 
Equity Risk                      -           -           - 
----------------------  ----------  ----------  ---------- 
Total                         14.0         8.5         9.1 
----------------------  ----------  ----------  ---------- 
 
Non-trading 
Interest Rate Risk             1.8         1.9         1.6 
Equity Risk                  (0.1)         1.0       (0.2) 
----------------------  ----------  ----------  ---------- 
Total                          1.7         2.9         1.4 
----------------------  ----------  ----------  ---------- 
 

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 2019 Annual Report.

Despite the challenges brought by COVID-19, the Group has been resilient and kept a strong liquidity position. Overall the Group has increased its level of deposits, in particular good-quality current and savings account balances. The Group continues to focus on improving the quality of its funding mix and remains committed to supporting its clients during these uncertain times.

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 subsequent amendments) and has maintained its liquidity position above the prudential requirement.

At the reporting date, the Group LCR was 149 per cent (2019: 144 per cent) with a prudent surplus to both Board-approved risk appetite and regulatory requirements. The ratio increased 5 per cent year-to-date due to a reduction in net outflows, caused mainly by a change in the funding mix, with an increase in stable current and saving accounts balances and a decrease in term deposits, as we sought to manage liquidity more efficiently. We also held adequate liquidity across our footprint to meet all local prudential LCR requirements where applicable.

 
                             30.06.20    31.12.19 
                             $million    $million 
-------------------------  ----------  ---------- 
Liquidity buffer              156,842     158,415 
Total net cash outflows       105,165     110,269 
Liquidity coverage ratio         149%        144% 
-------------------------  ----------  ---------- 
 

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 as at 30 June 2020, i.e. respective countries are able to survive for a period of time as defined under each scenario. The combined scenario as at 30 June 2020 showed that 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 2020 were A+ with negative 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. As at 30 June 2020, the estimated contractual outflow of a two-notch long-term ratings downgrade is $1.3 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 (within EY review scope)

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 decreased slightly to 62.7 per cent over the first half of 2020 (2019: 64.2 per cent).

Loans and advances to customers increased to $269 billion driven mainly by growth in Financial Markets, Corporate Lending and Corporate Finance. The increase in Corporate Lending and Corporate Finance reflects increased draw-downs on revolving credit facilities that coincided with the global spread of COVID-19 in March and April.

Customer deposits increased to $429 billion, with an increase in operating account balances within Cash Management and Retail Banking current accounts, partly offset by a reduction in Retail Banking time deposits. The strong growth in current and saving account balances allowed us to run down some term deposits to manage liquidity more efficiently.

 
                                             30.06.20    31.12.19 
                                             $million    $million 
-----------------------------------------  ----------  ---------- 
Total loans and advances to customers1,2      268,788     264,841 
Total customer accounts3                      428,849     412,303 
Advances-to-deposits ratio                      62.7%       64.2% 
-----------------------------------------  ----------  ---------- 
 

1 Excludes reverse repurchase agreement and other similar secured lending of $4,383 million and includes loans and advances to customers held at fair value through profit and loss of $10,453 million

2 Loans and advances to customers for the purpose of the advances-to-deposits ratio excludes $13,595 million of approved balances held with central banks, confirmed as repayable at the point of stress (31 December 2019: $9,109 million)

3 Includes customer accounts held at fair value through profit or loss of $7,696 million (31 December 2019: $6,947 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 (the 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 Basel Committee on Banking Supervision's 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 $157 billion. The figures in the table below 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. The liquidity pool in Greater China and North Asia decreased by $2 billion (3 per cent) during the first half of the year. The amount that can be ported from the region to the group reduced compared to December 2019 due to changes to lending limits by the Chinese regulator (Large Exposures Regime).

 
                                                               30.06.20 
----------------------------------  -------------------------------------------------------------- 
                                    Greater China 
                                     & North East      ASEAN &      Africa &   Europe & 
                                             Asia   South Asia   Middle East   Americas      Total 
                                         $million     $million      $million   $million   $million 
----------------------------------  -------------  -----------  ------------  ---------  --------- 
Level 1 securities 
Cash and balances at central 
 banks                                     10,795       15,700         1,024     29,112     56,631 
Central banks, governments/public 
 sector entities                           27,752        8,686         1,977     39,760     78,175 
Multilateral development banks 
 and international organisations            4,903          723           498      6,697     12,821 
Other                                           -            -            14      1,652      1,666 
----------------------------------  -------------  -----------  ------------  ---------  --------- 
Total Level 1 securities                   43,450       25,109         3,513     77,221    149,293 
----------------------------------  -------------  -----------  ------------  ---------  --------- 
Level 2A securities                         2,144        2,167            52      2,637      7,000 
Level 2B securities                             -          243             -        306        549 
----------------------------------  -------------  -----------  ------------  ---------  --------- 
Total LCR eligible assets                  45,594       27,519         3,565     80,164    156,842 
----------------------------------  -------------  -----------  ------------  ---------  --------- 
 
 
                                                               31.12.19 
----------------------------------  -------------------------------------------------------------- 
                                    Greater China 
                                     & North East      ASEAN &      Africa &   Europe & 
                                             Asia   South Asia   Middle East   Americas      Total 
                                         $million     $million      $million   $million   $million 
----------------------------------  -------------  -----------  ------------  ---------  --------- 
Level 1 securities 
Cash and balances at central 
 banks                                     15,109       11,535         1,265     24,326     52,235 
Central banks, governments/public 
 sector entities                           31,735        7,952         2,201     39,136     81,024 
Multilateral Development Banks 
 and international organisations            2,761        1,183           160      7,448     11,552 
Other                                           -            -            14      1,104      1,118 
----------------------------------  -------------  -----------  ------------  ---------  --------- 
Total Level 1 securities                   49,605       20,670         3,640     72,014    145,929 
----------------------------------  -------------  -----------  ------------  ---------  --------- 
Level 2 A securities                        4,824        1,928            63      3,217     10,032 
Level 2 B securities                            -          343             -      2,111      2,454 
----------------------------------  -------------  -----------  ------------  ---------  --------- 
Total LCR eligible assets                  54,429       22,941         3,703     77,342    158,415 
----------------------------------  -------------  -----------  ------------  ---------  --------- 
 

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.

 
                                                                           30.06.20 
------------  --------  -------------------------------------------------------------------------------------------------------------- 
                                  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 (i.e.                   assets 
                                    As a                              pre-      Readily    that are  Derivatives 
                                  result                        positioned    available     capable  and reverse      Cannot 
                                      of                              plus          for    of being   repo/stock          be 
                Assets  securiti-sations     Other      Total  encumbered)  encumbrance  encumbered      lending  encumbered     Total 
              $million          $million  $million   $million     $million     $million    $million     $million    $million  $million 
------------  --------  ----------------  --------  ---------  -----------  -----------  ----------  -----------  ----------  -------- 
Cash and 
 balances 
 at central 
 banks          52,925                 -         -          -        8,652       44,273           -            -           -    52,925 
Derivative 
 financial 
 instruments    52,227                 -         -          -            -            -           -       52,227           -    52,227 
Loans and 
 advances 
 to banks       70,438                 -         -          -            -       40,387       9,716       19,496         839    70,438 
Loans and 
 advances 
 to 
 customers     328,165                 -     1,227      1,227            -            -     267,792       45,782      13,364   326,938 
Investment 
 securities    172,302                 -    11,470     11,470        1,601      109,526      45,752            -       3,953   160,832 
Other assets    46,925                 -    16,789     16,789            -            -      18,990            -      11,146    30,136 
Current tax 
 assets            737                 -         -          -            -            -           -            -         737       737 
Prepayments 
 and accrued 
 income          2,354                 -         -          -            -            -       1,160            -       1,194     2,354 
Interests in 
 associates 
 and joint 
 ventures        2,000                 -         -          -            -            -           -            -       2,000     2,000 
Goodwill and 
 intangible 
 assets          5,029                 -         -          -            -            -           -            -       5,029     5,029 
Property, 
 plant 
 and 
 equipment       6,747                 -         -          -            -            -         436            -       6,311     6,747 
Deferred tax 
 assets            822                 -         -          -            -            -           -            -         822       822 
Assets 
 classified 
 as held for 
 sale              914                 -         -          -            -            -           -            -         914       914 
------------  --------  ----------------  --------  ---------  -----------  -----------  ----------  -----------  ----------  -------- 
Total          741,585                 -    29,486     29,486       10,253      194,186     343,846      117,505      46,309   712,099 
------------  --------  ----------------  --------  ---------  -----------  -----------  ----------  -----------  ----------  -------- 
 
 
                                                                           31.12.19 
------------  --------  -------------------------------------------------------------------------------------------------------------- 
                                  Assets encumbered 
                                    as a result of 
                                     transactions 
                                 with counterparties                         Other assets (comprising assets encumbered 
                                  other than central                                   at the central bank and 
                                        banks                                            unencumbered assets) 
                        -------------------------------------  ----------------------------------------------------------------------- 
                                                                                        Assets not positioned at 
                                                                                            the central bank 
                        ----------------  --------  ---------  -----------  ------------------------------------------------  -------- 
                                                                    Assets 
                                                                positioned 
                                                                    at the 
                                                                   central 
                                                                      bank                    Other 
                                                                     (i.e.                   assets 
                                    As a                              pre-      Readily    that are  Derivatives 
                                  result                        positioned    available     capable  and reverse      Cannot 
                                      of                              plus          for    of being   repo/stock          be 
                Assets  securiti-sations     Other      Total  encumbered)  encumbrance  encumbered      lending  encumbered     Total 
              $million          $million  $million   $million     $million     $million    $million     $million    $million  $million 
------------  --------  ----------------  --------  ---------  -----------  -----------  ----------  -----------  ----------  -------- 
Cash and 
 balances 
 at central 
 banks          52,728                 -         -          -        9,843       42,885           -            -           -    52,728 
Derivative 
 financial 
 instruments    47,212                 -         -          -            -            -           -       47,212           -    47,212 
Loans and 
 advances 
 to banks       75,346               326        73        399            -       40,600      13,341       19,610       1,396    74,947 
Loans and 
 advances 
 to 
 customers     314,754               298     1,082      1,380            -            -     259,061       40,804      13,509   313,374 
Investment 
 securities    168,521                 -     7,919      7,919        1,284      108,209      47,399            -       3,710   160,602 
Other assets    42,022                 -    16,080     16,080            -            -      14,516            -      11,426    25,942 
Current tax 
 assets            539                 -         -          -            -            -           -            -         539       539 
Prepayments 
 and accrued 
 income          2,700                 -         -          -            -            -       1,530            -       1,170     2,700 
Interests in 
 associates 
 and joint 
 ventures        1,908                 -         -          -            -            -           -            -       1,908     1,908 
Goodwill and 
 intangible 
 assets          5,290                 -         -          -            -            -           -            -       5,290     5,290 
Property, 
 plant 
 and 
 equipment       6,220                 -         -          -            -            -         444            -       5,776     6,220 
Deferred tax 
 assets          1,105                 -         -          -            -            -           -            -       1,105     1,105 
Assets 
 classified 
 as held for 
 sale            2,053                 -         -          -            -            -           -            -       2,053     2,053 
------------  --------  ----------------  --------  ---------  -----------  -----------  ----------  -----------  ----------  -------- 
Total          720,398               624    25,154     25,778       11,127      191,694     336,291      107,626      47,882   694,620 
------------  --------  ----------------  --------  ---------  -----------  -----------  ----------  -----------  ----------  -------- 
 

The Group received $85,713 million (31 December 2019: $85,415 million) as collateral under reverse repurchase agreements that was eligible for repledging; of this, the Group sold or repledged $43,193 million (31 December 2019: $44,530 million) under repurchase agreements.

Liquidity analysis of the Group's balance sheet

Contractual maturity of assets and liabilities (within EY review scope)

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 cashflows.

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 58 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.

 
                                                               30.06.20 
--------------  ------------------------------------------------------------------------------------------------------ 
                                                               Between 
                              Between    Between    Between       nine    Between     Between          More 
                                  one      three        six     months   one year   two years          than 
                                month     months     months        and        and         and          five 
                One month   and three    and six   and nine        one        two        five         years 
                  or less      months     months     months       year      years       years   and undated      Total 
                 $million    $million   $million   $million   $million   $million    $million      $million   $million 
--------------  ---------  ----------  ---------  ---------  ---------  ---------  ----------  ------------  --------- 
Assets 
Cash and 
 balances 
 at central 
 banks             44,273           -          -          -          -          -           -         8,652     52,925 
Derivative 
 financial 
 instruments        8,211       4,334      5,993      5,911      2,619      5,348      10,501         9,310     52,227 
Loans and 
 advances 
 to banks1,2       33,570      16,111     10,855      3,998      3,344      1,488         953           119     70,438 
Loans and 
 advances 
 to 
 customers1,2      87,673      40,216     24,537     16,321     13,559     18,526      39,391        87,942    328,165 
Investment 
 securities        11,713      13,915     12,611     15,224     10,433     32,352      47,337        28,717    172,302 
Other assets       24,974      16,262      1,295        168        665        142          61        21,961     65,528 
--------------  ---------  ----------  ---------  ---------  ---------  ---------  ----------  ------------  --------- 
Total assets      210,414      90,838     55,291     41,622     30,620     57,856      98,243       156,701    741,585 
--------------  ---------  ----------  ---------  ---------  ---------  ---------  ----------  ------------  --------- 
 
Liabilities 
Deposits by 
 banks1,3          32,054       1,628      2,624        379        443        162         423             1     37,714 
Customer 
 accounts1,4      374,720      46,102     25,703      9,645      7,539      2,027       1,625         2,103    469,464 
Derivative 
 financial 
 instruments        7,675       4,253      5,673      5,597      3,072      5,966      11,750         6,840     50,826 
Senior debt           671         110        610      2,177      1,900        707      14,510        12,226     32,911 
Other debt 
 securities 
 in issue1          1,695      11,160      7,689      1,538        934        361          29           497     23,903 
Other 
 liabilities       23,170      19,560      2,376        701        720        939         636        11,942     60,044 
Subordinated 
 liabilities 
 and other 
 borrowed 
 funds                  -          17          -          -          -      1,002       4,664        11,143     16,826 
--------------  ---------  ----------  ---------  ---------  ---------  ---------  ----------  ------------  --------- 
Total 
 liabilities      439,985      82,830     44,675     20,037     14,608     11,164      33,637        44,752    691,688 
--------------  ---------  ----------  ---------  ---------  ---------  ---------  ----------  ------------  --------- 
Net liquidity 
 gap            (229,571)       8,008     10,616     21,585     16,012     46,692      64,606       111,949     49,897 
--------------  ---------  ----------  ---------  ---------  ---------  ---------  ----------  ------------  --------- 
 

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 Note 13 Financial instruments

2 Loans and advances include reverse repurchase agreements and other similar secured lending of $65.3 billion

3 Deposits by banks include repurchase agreements and other similar secured borrowing of $7.5 billion

4 Customer accounts include repurchase agreements and other similar secured borrowing of $40.6 billion

 
                                                                 31.12.19 
------------------  -------------------------------------------------------------------------------------------------- 
                                                                   Between               Between       More 
                                  Between    Between    Between       nine    Between        two       than 
                                      one      three        six     months   one year      years       five 
                                    month     months     months        and        and        and      years 
                    One month   and three    and six   and nine        one        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      42,885           -          -          -          -          -          -      9,843     52,728 
Derivative 
 financial 
 instruments            6,643       5,751      3,835      2,714      1,860      3,955      9,439     13,015     47,212 
Loans and advances 
 to banks1,2           33,133      19,030     11,069      5,150      3,464      1,701      1,366        433     75,346 
Loans and advances 
 to customers1,2       86,927      37,322     20,849     10,088     12,640     21,517     38,624     86,787    314,754 
Investment 
 securities            11,968      11,837     17,180     11,789      7,070     34,859     44,488     29,330    168,521 
Other assets           20,689      18,223      1,433        105         75        264        133     20,915     61,837 
------------------  ---------  ----------  ---------  ---------  ---------  ---------  ---------  ---------  --------- 
Total assets          202,245      92,163     54,366     29,846     25,109     62,296     94,050    160,323    720,398 
------------------  ---------  ----------  ---------  ---------  ---------  ---------  ---------  ---------  --------- 
 
Liabilities 
Deposits by 
 banks1,3              31,873       2,931      1,079        361        528        174        486          -     37,432 
Customer 
 accounts1,4          349,992      50,546     25,552     10,270      9,545      2,622      1,553      2,653    452,733 
Derivative 
 financial 
 instruments            7,086       5,922      4,249      2,990      2,031      5,007     10,069     11,130     48,484 
Senior debt               325       1,373      2,870        607        495      3,083     11,248     11,318     31,319 
Other debt 
 securities 
 in issue1              5,612      12,234      8,766        895      1,449        280         56        924     30,216 
Other liabilities      17,701      17,206      3,039        600        908      1,866        835     11,191     53,346 
Subordinated 
 liabilities 
 and other 
 borrowed 
 funds                      -          17        754          -          -          -      5,523      9,913     16,207 
------------------  ---------  ----------  ---------  ---------  ---------  ---------  ---------  ---------  --------- 
Total liabilities     412,589      90,229     46,309     15,723     14,956     13,032     29,770     47,129    669,737 
------------------  ---------  ----------  ---------  ---------  ---------  ---------  ---------  ---------  --------- 
Net liquidity gap   (210,344)       1,934      8,057     14,123     10,153     49,264     64,280    113,194     50,661 
------------------  ---------  ----------  ---------  ---------  ---------  ---------  ---------  ---------  --------- 
 

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 Note 13 Financial instruments

2 Loans and advances include reverse repurchase agreements and other similar secured lending of $60.4 billion

3 Deposits by banks include repurchase agreements and other similar secured borrowing of $7.8 billion

4 Customer accounts include repurchase agreements and other similar secured borrowing of $40.4 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 (within EY review scope)

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 with 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, the majority of which relate to subordinated debt, on which interest payments are not included as this information would not be meaningful, given that the instruments are undated. Interest payments on these instruments are included within the relevant maturities up to five years.

 
                                                               30.06.20 
---------------  ----------------------------------------------------------------------------------------------------- 
                                                                Between    Between    Between 
                                          Between    Between       nine        one        two          More 
                               Between      three        six     months       year      years          than 
                             one month     months     months        and        and        and          five 
                 One month   and three    and six   and nine        one        two       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              31,996       1,644      2,635        386        480        170        427             1     37,739 
Customer 
 accounts          374,994      46,315     26,093      9,750      7,703      2,114      1,672         2,408    471,049 
Derivative 
 financial 
 instruments1       48,850           9        279         71        253        265        901           198     50,826 
Debt securities 
 in issue            2,376      11,256      8,389      3,740      3,136      1,677     15,965        14,717     61,256 
Subordinated 
 liabilities 
 and other 
 borrowed 
 funds                   -           -        233         26        371      1,668      6,234        16,232     24,764 
Other 
 liabilities        21,331      19,438      2,244        703        809        940        641        11,993     58,099 
---------------  ---------  ----------  ---------  ---------  ---------  ---------  ---------  ------------  --------- 
Total 
 liabilities       479,547      78,662     39,873     14,676     12,752      6,834     25,840        45,549    703,733 
---------------  ---------  ----------  ---------  ---------  ---------  ---------  ---------  ------------  --------- 
 
 
                                                                31.12.19 
-----------------  --------------------------------------------------------------------------------------------------- 
                                                                  Between                              More 
                                            Between    Between       nine    Between     Between       than 
                                 Between      three        six     months   one year   two years       five 
                               one month     months     months        and        and         and      years 
                   One month   and three    and six   and nine        one        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     33,034       2,977      1,112        381        588        189         502          -     38,783 
Customer accounts    350,679      50,908     26,552     10,415      9,839      2,694       1,625      3,127    455,839 
Derivative 
 financial 
 instruments1         47,000           5         18        170        314        355         512        110     48,484 
Debt securities 
 in 
 issue                 5,951      13,615     11,886      1,559      2,210      3,882      12,431     13,557     65,091 
Subordinated 
 liabilities 
 and other 
 borrowed 
 funds                     -           -      1,009         26        395        641       7,140     15,124     24,335 
Other liabilities     15,341      16,870      3,046        601        865      1,876         885     12,376     51,860 
-----------------  ---------  ----------  ---------  ---------  ---------  ---------  ----------  ---------  --------- 
Total liabilities    452,005      84,375     43,623     13,152     14,211      9,637      23,095     44,294    684,392 
-----------------  ---------  ----------  ---------  ---------  ---------  ---------  ----------  ---------  --------- 
 

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 interest rate shock scenario (up and down) to the current market-implied path of rates, across all yield curves. These interest rate shock scenarios assume that all other economic variables remain constant. The sensitivities shown represent the estimated change to a hypothetical 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. Furthermore, revenue associated with trading book positions is recognised in trading book income, and is therefore excluded from the reported sensitivities. 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.

 
                                                            30.06.20 
---------------------------------------  ----------------------------------------------- 
                                                     HKD, SGD 
Estimated one-year impact to earnings                       &  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                               35         95              50        180 
- 50 basis points                             (90)      (180)            (65)      (335) 
---------------------------------------  ---------  ---------  --------------  --------- 
 
 
                                                            31.12.19 
---------------------------------------  ----------------------------------------------- 
                                                     HKD, SGD 
Estimated one-year impact to earnings                       &  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)         60              90        140 
- 50 basis points                               10       (40)            (90)      (120) 
---------------------------------------  ---------  ---------  --------------  --------- 
 

As at 30 June 2020, the Group estimates the one-year impact of an instantaneous, parallel increase across all yield curves of 50 basis points to increase projected NII by $180 million. The equivalent impact from a parallel decrease of 50 basis points would result in a reduction in projected NII of $335 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. Overall NII sensitivity under both the up and down shock has increased versus 31 December 2019, driven by Treasury Markets risk management activity as rates fell during March 2020, and changes in modelling assumptions.

The asymmetry between the up and down shock has widened primarily due to the low level of interest rates, which may constrain the Group's ability to reprice liabilities should rates fall by a further 50 basis points, as well as differing behavioural assumptions, which are scenario-specific. The decision to pass on changes in interest rates is highly speculative and depends on a range of factors, including market environment and competitor behaviour.

The US dollar sensitivity is dampened further by the exclusion of trading book revenue. The reported sensitivities include the cost of banking book liabilities used to fund the trading book, however, the income associated with the corresponding trading book assets is excluded and recognised in trading book income. Further information on the impact of changes in interest rates on trading book is set out in the Market Risk section.

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 Risk and Control Self-Assessment methodology is 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        30.06.20  31.12.19 
------------------------------  ---------  -------- 
CET1 capital                        14.3%    13.8 % 
Tier 1 capital                      16.5%    16.5 % 
Total capital                       21.5%    21.2 % 
UK leverage                          5.2%     5.2 % 
MREL ratio                          30.7%     28.6% 
Risk-weighted assets $million     262,552   264,090 
------------------------------  ---------  -------- 
 

The Group's CET1 capital and Tier 1 leverage position were well above current requirements. Further detail will be published in due course in the Capital section of the Standard Chartered PLC Pillar 3 Disclosures for the first half of 2020.

The Group's CET1 ratio increased 50 basis points to 14.3 per cent as profits, distribution restrictions and the sale of its equity interest in Permata more than offset COVID-19 related RWA impacts from increased credit migration, higher derivative activity and the draw-down of revolving credit facilities.

In the period, the PRA set the Group's current Pillar 2A requirement as a nominal value instead of a percentage of RWA. At the first half of 2020, this nominal value equated to 3.3 per cent of RWA, of which at least 1.9 per cent must be held in CET1. This requirement will vary over time with movements in RWA and as Pillar 2A remains subject to regular PRA review. The Group's countercyclical buffer reduced by 21 basis points to 14 basis points mainly due to reductions in countercyclical buffer rates in Hong Kong and the UK in response to the COVID-19 pandemic. As a result of these changes the Group's minimum CET1 requirement reduced by 23bps to 10.0% at 30 June 2020.

On 30 June, the PRA published a statement on various amendments to the Capital Requirements Regulation (CRR) including revisions to IFRS 9 transitional arrangements. In the period, certain changes were made to the calculation of PVA and Market RWA add-ons for IMA back-testing exceptions with the intention of offsetting some of the impacts of COVID related volatility. In total, the Group estimates these regulatory changes provided a CET1 benefit of around 15 basis points in the period. The PRA has also published Policy Statement 15/20 relating to Pillar 2A reductions to offset future changes to the UK countercyclical buffer rates which the Group currently expects to be implemented later this year. The Group's current view is that these changes will only have a negligible impact on the Group as the UK countercyclical buffer rate is not a material driver of the Group's CET1 requirement.

The Group's fully phased minimum requirement for own funds and eligible liabilities (MREL) will be 22.7 per cent of RWA from 1 January 2022 based on RWA and leverage exposure at the first half of 20201. The Group's combined buffer (comprising the capital conservation buffer, the GSII buffer and the countercyclical buffer) is additive to the minimum MREL, resulting in a total MREL of 26.3 per cent of 1H'20 RWA from 1 January 2022. The Group's MREL position was 30.7 per cent of RWA and 10.0 per cent of leverage exposure at 30 June 2020.

The Group made good progress in the period in delivering on its 2020 issuance plans despite challenging market conditions; successfully raising around $7.4 billion of MREL eligible debt from its holding company. Issuance was across the capital structure including $1 billion of Additional Tier 1, EUR1 billion of Tier 2 and around $5.3 billion of callable senior debt.

In response to a request from the PRA and as a consequence of the unprecedented challenges from the COVID-19 pandemic, the Board decided to cancel the 2019 final dividend of 20 cents per ordinary share and to suspend the $0.5 billion share buy-back programme announced in February 2020. Additionally, no interim dividend on ordinary shares will be accrued, recommended or paid in 2020.

The Group is a G-SII, with a 1.0 per cent G-SII CET1 buffer. The Standard Chartered PLC 2019 G-SII disclosure is published at: sc.com/fullyearresults.

1 Potential future offset to Pillar 2A requirements from changes to the countercyclical buffer in PS 15/20 are not considered here

Capital ratios

 
                 30.06.20  31.12.19 
---------------  --------  -------- 
CET1                14.3%     13.8% 
Tier 1 capital      16.5%     16.5% 
Total capital       21.5%     21.2% 
---------------  --------  -------- 
 

CRD IV Capital base1 (within EY review scope)

 
                                                                30.06.20    31.12.19 
                                                                $million    $million 
------------------------------------------------------------  ----------  ---------- 
CET1 instruments and reserves 
Capital instruments and the related share premium accounts         5,564       5,584 
                                                              ----------  ---------- 
Of which: share premium accounts                                   3,989       3,989 
                                                              ----------  ---------- 
Retained earnings2                                                25,798      24,044 
Accumulated other comprehensive income (and other reserves)       11,431      11,685 
Non-controlling interests (amount allowed in consolidated 
 CET1)                                                               170         723 
Independently reviewed interim and year-end profits                1,050       2,301 
Foreseeable dividends                                              (163)       (871) 
------------------------------------------------------------  ----------  ---------- 
CET1 capital before regulatory adjustments                        43,850      43,466 
------------------------------------------------------------  ----------  ---------- 
CET1 regulatory adjustments 
Additional value adjustments (prudential valuation 
 adjustments)                                                      (527)       (615) 
Intangible assets (net of related tax liability)                 (4,938)     (5,318) 
Deferred tax assets that rely on future profitability 
 (excludes those arising from temporary differences)               (129)       (129) 
Fair value reserves related to net losses on cashflow 
 hedges                                                              121          59 
Deduction of amounts resulting from the calculation 
 of excess expected loss                                           (572)       (822) 
Net gains on liabilities at fair value resulting from 
 changes in own Credit Risk                                         (15)         (2) 
Defined-benefit pension fund assets                                  (7)        (26) 
Fair value gains arising from the institution's own 
 Credit Risk related to derivative liabilities                     (128)        (38) 
Exposure amounts which could qualify for risk weighting 
 of 1,250%                                                          (30)        (62) 
------------------------------------------------------------  ----------  ---------- 
Total regulatory adjustments to CET1                             (6,225)     (6,953) 
------------------------------------------------------------  ----------  ---------- 
CET1 capital                                                      37,625      36,513 
------------------------------------------------------------  ----------  ---------- 
AT1 capital instruments                                            5,632       7,184 
------------------------------------------------------------  ----------  ---------- 
AT1 regulatory adjustments                                          (20)        (20) 
------------------------------------------------------------  ----------  ---------- 
Tier 1 capital                                                    43,237      43,677 
------------------------------------------------------------  ----------  ---------- 
 
Tier 2 capital instruments                                        13,261      12,318 
Tier 2 regulatory adjustments                                       (30)        (30) 
                                                              ----------  ---------- 
Tier 2 capital                                                    13,231      12,288 
------------------------------------------------------------  ----------  ---------- 
Total capital                                                     56,468      55,965 
------------------------------------------------------------  ----------  ---------- 
Total risk-weighted assets (not within EY review scope)          262,552     264,090 
------------------------------------------------------------  ----------  ---------- 
 

1 CRD IV capital is prepared on the regulatory scope of consolidation

2 Retained earnings includes IFRS9 dynamic capital relief (Transitional) of $69 million

Movement in total capital

 
                                                                6 months    6 months 
                                                                   ended       ended 
                                                                30.06.20    31.12.19 
                                                                $million    $million 
------------------------------------------------------------  ----------  ---------- 
CET1 at 1 January/1 July                                          36,513      36,511 
Ordinary shares issued in the period and share premium                 -           - 
Share buy-back                                                     (242)         (6) 
Profit for the period                                              1,050         820 
Foreseeable dividends deducted from CET1                           (163)       (871) 
Difference between dividends paid and foreseeable dividends          639         (2) 
Movement in goodwill and other intangible assets                     380       (117) 
Foreign currency translation differences                           (456)        (98) 
Non-controlling interests                                          (553)          30 
Movement in eligible other comprehensive income                      157          62 
Deferred tax assets that rely on future profitability                  -        (37) 
Decrease/(increase) in excess expected loss                          250         108 
Additional value adjustments (prudential valuation 
 adjustment)                                                          88          62 
IFRS9 transitional impact on regulatory reserves including 
 day one                                                               6           - 
Exposure amounts which could qualify for risk weighting               32          10 
Fair value gains arising from the institution's own 
 Credit Risk related to derivative liabilities                      (90)          52 
Other                                                                 14        (11) 
------------------------------------------------------------  ----------  ---------- 
CET1 at 30 June/31 December                                       37,625      36,513 
------------------------------------------------------------  ----------  ---------- 
 
AT1 at 1 January/1 July                                            7,164       6,612 
Issuances net of redemptions                                       (995)         552 
Foreign currency translation difference                             (16)          10 
Excess on AT1 grandfathered limit (ineligible)                     (541)        (10) 
------------------------------------------------------------  ----------  ---------- 
AT1 at 30 June/31 December                                         5,612       7,164 
------------------------------------------------------------  ----------  ---------- 
 
Tier 2 capital at 1 January/1 July                                12,288      11,834 
Regulatory amortisation                                              137       (539) 
Issuances net of redemptions                                         375       1,000 
Foreign currency translation difference                             (76)           3 
Tier 2 ineligible minority interest                                 (34)        (20) 
Recognition of ineligible AT1                                        541          10 
Other                                                                  -           - 
------------------------------------------------------------  ----------  ---------- 
Tier 2 capital at 30 June/31 December                             13,231      12,288 
------------------------------------------------------------  ----------  ---------- 
Total capital at 30 June/31 December                              56,468      55,965 
------------------------------------------------------------  ----------  ---------- 
 

The main movements in capital in the period were:

-- The CET1 ratio increased from 13.8 per cent to 14.3 per cent as profits, distribution restrictions and the sale of Permata offset the COVID-19 related increase in RWA

-- CET1 capital increased by $1.1 billion, as retained profits of $1.1 billion and the reduction in dividends paid and foreseen of $0.5 billion, was offset by foreign exchange of $0.5 billion and the partly completed share buy-back

$0.2 billion

-- AT1 decreased to $5.6 billion as the call of $2 billion of existing 6.5 per cent AT1 securities and the ongoing derecognition of legacy Tier 1 capital was partly offset by the issuance of $1 billion of new 6.0 per cent AT1 securities, increasing the efficiency of the Group's AT1 stock

-- Tier 2 capital was $0.9 billion higher at $13.2 billion as EUR 1 billion of new issuance and the recognition of ineligible AT1 was partly offset by redemptions.

Risk-weighted assets by business

 
                                                      30.06.20 
----------------------------------  -------------------------------------------- 
                                       Credit  Operational     Market      Total 
                                         Risk         Risk       Risk       risk 
                                     $million     $million   $million   $million 
----------------------------------  ---------  -----------  ---------  --------- 
Corporate & Institutional Banking     101,651       13,153     22,346    137,150 
Retail Banking                         36,611        7,575          -     44,186 
Commercial Banking                     28,046        2,810          -     30,856 
Private Banking                         5,365          763          -      6,128 
Central & other items                  41,463        2,499        270     44,232 
----------------------------------  ---------  -----------  ---------  --------- 
Total risk-weighted assets            213,136       26,800     22,616    262,552 
----------------------------------  ---------  -----------  ---------  --------- 
 
 
                                                       31.12.19 
----------------------------------  ----------------------------------------------- 
                                        Credit  Operational      Market       Total 
                                         Risk1         Risk        Risk        risk 
                                      $million     $million    $million    $million 
----------------------------------  ----------  -----------  ----------  ---------- 
Corporate & Institutional Banking       95,261       13,261      20,562     129,084 
Retail Banking                          37,194        7,314           -      44,508 
Commercial Banking                      28,350        2,626           -      30,976 
Private Banking                          5,681          728           -       6,409 
Central & other items                   49,178        3,691         244      53,113 
----------------------------------  ----------  -----------  ----------  ---------- 
Total risk-weighted assets             215,664       27,620      20,806     264,090 
----------------------------------  ----------  -----------  ----------  ---------- 
 

1 Following a reorganisation of certain clients, there has been a reclassification of balances across client segments, prior periods have been restated.

Risk-weighted assets by geographic region

 
                               30.06.20    31.12.19 
                               $million    $million 
---------------------------  ----------  ---------- 
Greater China & North Asia       89,139      85,695 
ASEAN & South Asia               80,040      88,942 
Africa & Middle East             52,009      49,244 
Europe & Americas                44,326      43,945 
Central & other items           (2,962)     (3,736) 
---------------------------  ----------  ---------- 
Total risk-weighted assets      262,552     264,090 
---------------------------  ----------  ---------- 
 

Movement in risk-weighted assets

 
                                              Credit Risk 
-----------------  -----------------------------------------------------------------  -----------  --------  --------- 
                       Corporate 
                               &                                   Central 
                   Institutional    Retail  Commercial   Private   & other            Operational    Market      Total 
                         Banking   Banking     Banking   Banking     items     Total         Risk      Risk       risk 
                        $million  $million    $million  $million  $million  $million     $million  $million   $million 
-----------------  -------------  --------  ----------  --------  --------  --------  -----------  --------  --------- 
At 1 January 2019         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 
Asset quality              (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 
Assets 
 (decline)/growth        (4,505)     (630)     (1,962)     (243)     1,072   (6,268)            -         -    (6,268) 
Asset quality              2,885     1,663       (591)       (2)       562     4,517            -         -      4,517 
Risk-weighted 
 assets 
 efficiencies              (440)      (33)       (403)         -     (348)   (1,224)            -         -    (1,224) 
Model, 
 methodology 
 and policy 
 changes                   (904)       691           -         -         -     (213)            -         -      (213) 
Disposals                  (397)         -       (441)         -         -     (838)            -         -      (838) 
Foreign currency 
 translation               (156)      (11)       (111)        39      (81)     (320)            -         -      (320) 
Other non-Credit 
 Risk 
 movements                     -         -           -         -         -         -            -   (2,303)    (2,303) 
-----------------  -------------  --------  ----------  --------  --------  --------  -----------  --------  --------- 
At 31 December 
 2019                     98,227    37,138      25,440     5,681    49,178   215,664       27,620    20,806    264,090 
At 1 January 
 20201                    95,261    37,194      28,350     5,681    49,178   215,664       27,620    20,806    264,090 
Assets 
 (decline)/growth            758      (89)       (505)     (235)       813       742            -         -        742 
Asset quality              5,970        34         563       (1)       399     6,965            -         -      6,965 
Risk-weighted 
 assets 
 efficiencies                158         -          69         -         -       227            -         -        227 
Model, 
 methodology 
 and policy 
 changes                     667       298           -         -         -       965            -   (1,400)      (435) 
Disposals                      -         -           -         -   (7,859)   (7,859)      (1,003)     (159)    (9,021) 
Foreign currency 
 translation             (1,163)     (826)       (431)      (80)   (1,068)   (3,568)            -         -    (3,568) 
Other non-Credit 
 Risk 
 movements                     -         -           -         -         -         -          183     3,369      3,552 
-----------------  -------------  --------  ----------  --------  --------  --------  -----------  --------  --------- 
At 30 June 2020          101,651    36,611      28,046     5,365    41,463   213,136       26,800    22,616    262,552 
-----------------  -------------  --------  ----------  --------  --------  --------  -----------  --------  --------- 
 

1 Following a reorganisation of certain clients, there has been a reclassification of balances across client segments. 1 January 2020 balances have been restated.

Movements in risk-weighted assets

RWA decreased by $1.5 billion, or 0.6 per cent, from 31 December 2019 to $262.6 billion. This was mainly due to decreases in Credit Risk RWA of $2.5 billion, and $0.8 billion in Operational Risk RWA partly offset by an increase of $1.8 billion in Market Risk RWA.

Corporate & Institutional Banking

Credit Risk RWA increased by $6.4 billion to $101.7 billion mainly due to:

-- $6.0 billion increase due to deterioration in asset quality due to counterparty downgrades across all regions and several industry sectors

-- $1.2 billion decrease from foreign currency translation mainly due to depreciation of currencies in India and the UK against the US dollar

-- $0.8 billion increase due to asset balance growth in Financial Markets and Lending, reflecting increased counterparty Credit Risk on derivatives and drawdowns on revolving facilities primarily in Europe & Americas

-- $0.7 billion increase due to methodology and policy changes relating to the Revised Securitisation Framework

-- $0.2 billion increase due to booking changes relating to certain Transaction Banking facilities.

Retail Banking

Credit Risk RWA decreased by $0.6 billion to $36.6 billion mainly due to:

-- $0.8 billion decrease from foreign currency translation mainly due to depreciation of currencies in Korea, India and Singapore against the US dollar

-- $0.3 billion increase due to several model updates across several countries and portfolios

-- $0.1 billion asset balance decline in Africa & Middle East offset by asset balance growth in Greater China & North Asia

Commercial Banking

Credit risk RWA decreased by $0.3 billion to $28 billion mainly due to:

-- $0.6 billion increase due to deterioration in asset quality principally due to credit migration in ASEAN & South Asia and Africa & Middle East

-- $0.5 billion decline due to lower asset balances in Greater China & North Asia

-- $0.4 billion decrease from foreign currency translation mainly due to depreciation of currencies in India and Pakistan against the US dollar

-- $0.1 billion increase due to booking changes relating to certain Transaction Banking facilities

Private Banking

Credit Risk RWA decreased by $0.3 billion to $5.4 billion principally due to asset balance decline in Wealth Management and Retail products, primarily in ASEAN & South Asia and Europe & Americas, partly offset by Greater China & North Asia.

Central & other items

Central & other items RWA mainly relates to the Treasury Markets liquidity portfolio, equity investments and deferred/current tax assets.

Credit Risk RWA decreased by $7.7 billion to $41.5 billion mainly due to:

-- $7.9 billion decrease principally due to the sale of the Group's principal joint venture investment, PT Bank Permata Tbk

-- $1.1 billion decrease from foreign currency translation mainly due to depreciation of currencies in India, Pakistan and South Africa against the US dollar

-- $0.8 billion increase from asset balance growth, primarily in Greater China & North Asia and Africa & Middle East

-- $0.4 billion increase due to deterioration in asset quality, primarily in Africa & Middle East

Market Risk

Total Market Risk RWA (MRWA) increased by $1.8 billion, or 9 per cent from 31 December 2019 to $22.6 billion. This change was due mainly to IMA RWA changes in positions and increased volatility, partly offset by the new IMA RNiV temporary mitigant for backtesting exceptions.

Operational Risk

Operational Risk RWA reduced by $0.8 billion, or 3 per cent from 31 December 2019 to $26.8 billion. This was mainly due to the sale of our shareholding in the Group's principal joint venture investment, PT Bank Permata Tbk.

UK leverage ratio

The Group's UK leverage ratio, which excludes qualifying claims on central banks in accordance with a PRA waiver, was 5.2 per cent, which is above the current minimum requirement of 3.6 per cent. The UK leverage ratio was flat in the period following a small increase in end point Tier 1 (as profits and $1 billion of new AT1 offset a $2 billion AT1 call) and a small increase in the exposure measure (as increased benefit from regulatory consolidation adjustments mainly due to the Permata sale partly offset growth in on-balance sheet assets).

UK leverage ratio

 
                                                         30.06.20    31.12.19 
                                                         $million    $million 
-----------------------------------------------------  ----------  ---------- 
Tier 1 capital (transitional)                              43,237      43,677 
Additional Tier 1 capital subject to phase out            (1,114)     (1,671) 
-----------------------------------------------------  ----------  ---------- 
Tier 1 capital (end point)                                 42,123      42,006 
-----------------------------------------------------  ----------  ---------- 
Derivative financial instruments                           52,227      47,212 
Derivative cash collateral                                  9,716       9,169 
Securities financing transactions (SFTs)                   65,278      60,414 
Loans and advances and other assets                       614,364     603,603 
-----------------------------------------------------  ----------  ---------- 
Total on-balance sheet assets                             741,585     720,398 
Regulatory consolidation adjustments1                    (47,271)    (31,485) 
Derivatives adjustments 
                                                       ----------  ---------- 
Derivatives netting                                      (29,949)    (32,852) 
Adjustments to cash collateral                           (18,212)    (11,853) 
Net written credit protection                               1,711       1,650 
Potential future exposure on derivatives                   37,606      32,961 
                                                       ----------  ---------- 
Total derivatives adjustments                             (8,844)    (10,094) 
Counterparty risk leverage exposure measure for SFTs        6,414       7,005 
Off-balance sheet items                                   120,725     122,341 
Regulatory deductions from Tier 1 capital                 (6,013)     (6,913) 
-----------------------------------------------------  ----------  ---------- 
UK leverage exposure (end point)                          806,596     801,252 
UK leverage ratio (end point)                                5.2%        5.2% 
-----------------------------------------------------  ----------  ---------- 
UK leverage exposure quarterly average                    810,591     816,244 
UK leverage ratio quarterly average                          5.0%        5.1% 
-----------------------------------------------------  ----------  ---------- 
Countercyclical leverage ratio buffer                        0.0%        0.1% 
G-SII additional leverage ratio buffer                       0.4%        0.4% 
-----------------------------------------------------  ----------  ---------- 
 

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 and Transparency Rules, being an indication of important events that have occurred during the

six months ended 30 June 2020 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 and Transparency Rules, being related party transactions that have taken place during the six months ended 30 June 2020 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

30 July 2020

Independent review report to Standard Chartered PLC

Introduction

We have been engaged by Standard Chartered PLC (the 'Company' or the 'Group') to review the condensed set of financial statements in the half-yearly financial report for the six months ended 30 June 2020 which comprises the condensed consolidated interim income statement, the condensed consolidated interim statement of comprehensive income, the condensed consolidated interim balance sheet, the condensed consolidated interim statement of changes in equity, the condensed consolidated interim cash flow statement, related notes 1 to 29, and the risk and capital disclosures, except those being stated as excluded in note 1 (together the 'condensed consolidated interim financial statements'). We have read the other information contained in the half-yearly financial report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed consolidated interim financial statements.

This report is made solely to the Company in accordance with guidance contained in International Standard on Review Engagements 2410 (UK and Ireland) "Review of Interim Financial Information Performed by the Independent Auditor of the Entity" issued by the Auditing Practices Board. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company, for our work, for this report, or for the conclusions we have formed.

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 Disclosure Guidance and Transparency Rules of the United Kingdom's Financial Conduct Authority.

As disclosed in note 1, the annual financial statements of the Group are prepared in accordance with International Financial Reporting Standards as adopted by the European Union. The condensed set of financial statements included in this half-yearly financial report has been prepared in accordance with International Accounting Standard 34 "Interim Financial Reporting" ('IAS 34'), as adopted by the European Union.

Our Responsibility

Our responsibility is to express to the Company a conclusion on the condensed set of financial statements in the half-yearly financial report based on our review.

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 United Kingdom. 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. 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.

Conclusion

Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial statements in the half-yearly financial report for the six months ended 30 June 2020 is not prepared, in all material respects, in accordance with IAS 34 as adopted by the European Union and the Disclosure Guidance and Transparency Rules of the United Kingdom's Financial Conduct Authority.

Ernst & Young LLP

London

30 July 2020

Notes:

-- The maintenance and integrity of the Standard Chartered PLC web site is the responsibility of the directors; the work carried out by the auditors does not involve consideration of these matters and, accordingly, the auditors accept no responsibility for any changes that may have occurred to the financial information since it was initially presented on the website.

-- Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

Condensed consolidated interim income statement

For the six months ended 30 June 2020

 
                                                                    restated1 
                                                         6 months    6 months 
                                                            ended       ended 
                                                         30.06.20    30.06.19 
                                                Notes    $million    $million 
----------------------------------------------  -----  ----------  ---------- 
Interest income                                             6,875       8,313 
Interest expense                                          (3,377)     (4,475) 
----------------------------------------------  -----  ----------  ---------- 
Net interest income                                 3       3,498       3,838 
                                                       ----------  ---------- 
Fees and commission income                                  1,870       2,120 
Fees and commission expense                                 (312)       (282) 
                                                       ----------  ---------- 
Net fee and commission income                       4       1,558       1,838 
Net trading income                                  5       2,154       1,774 
Other operating income                              6         889         380 
----------------------------------------------  -----  ----------  ---------- 
Operating income                                            8,099       7,830 
                                                       ----------  ---------- 
Staff costs                                               (3,330)     (3,577) 
Premises costs                                              (178)       (191) 
General administrative expenses                             (642)       (953) 
Depreciation and amortisation                               (598)       (577) 
                                                       ----------  ---------- 
Operating expenses                                  7     (4,748)     (5,298) 
----------------------------------------------  -----  ----------  ---------- 
Operating profit before impairment losses and 
 taxation                                                   3,351       2,532 
Credit impairment                                   8     (1,576)       (254) 
Goodwill impairment                                 9       (258)           - 
Other impairment                                    9          35        (44) 
Profit from associates and joint ventures                      75         180 
----------------------------------------------  -----  ----------  ---------- 
Profit before taxation                                      1,627       2,414 
Taxation                                           10       (561)       (918) 
----------------------------------------------  -----  ----------  ---------- 
Profit for the period                                       1,066       1,496 
----------------------------------------------  -----  ----------  ---------- 
 
Profit attributable to: 
Non-controlling interests                                      18          19 
Parent company shareholders                                 1,048       1,477 
----------------------------------------------  -----  ----------  ---------- 
Profit for the period                                       1,066       1,496 
----------------------------------------------  -----  ----------  ---------- 
 
 
Earnings per share:                       cents  cents 
------------------------------------      -----  ----- 
Basic earnings per ordinary share     12   25.8   38.0 
Diluted earnings per ordinary share   12   25.5   37.5 
------------------------------------      -----  ----- 
 

1 Comparatives have been restated due to the Group changing its accounting policies for net interest income and net trading income for the year ended 31 December 2019.

Refer to Note 1 in the Group's 2019 Annual Report

The notes form an integral part of these financial statements.

Condensed consolidated interim statement of comprehensive income

For the six months ended 30 June 2020

 
                                                                    6 months    6 months 
                                                                       ended       ended 
                                                                    30.06.20    30.06.19 
                                                           Notes    $million    $million 
---------------------------------------------------------  -----  ----------  ---------- 
Profit for the period                                                  1,066       1,496 
Other comprehensive (loss)/income 
  Items that will not be reclassified to income 
   statement:                                                           (24)       (384) 
                                                                  ----------  ---------- 
  Own credit gains/(losses) on financial liabilities 
   designated at fair value through profit or 
   loss                                                                   22       (392) 
  Equity instruments at fair value through other 
   comprehensive income                                                   38          13 
  Actuarial losses on retirement benefit obligations          25        (65)        (49) 
  Taxation relating to components of other comprehensive 
   income                                                               (19)          44 
                                                                  ----------  ---------- 
 
  Items that may be reclassified subsequently 
   to income statement:                                                (314)          65 
  Exchange differences on translation of foreign 
   operations: 
                                                                  ----------  ---------- 
     Net losses taken to equity                                        (841)       (159) 
     Net gains on net investment hedges                                  125          73 
     Reclassified to income statement on sale of 
      joint venture                                                      246           - 
  Share of other comprehensive income from associates 
   and joint ventures                                                      4           3 
  Debt instruments at fair value through other 
   comprehensive income: 
     Net valuation gains taken to equity                                 756         291 
     Reclassified to income statement                                  (513)        (58) 
  Net impact of expected credit losses                                    16           3 
  Cashflow hedges: 
     Net losses taken to equity                                         (99)        (79) 
     Reclassified to income statement                                      9           7 
  Taxation relating to components of other comprehensive 
   income                                                               (17)        (16) 
                                                                  ----------  ---------- 
Other comprehensive loss for the period, net 
 of taxation                                                           (338)       (319) 
---------------------------------------------------------  -----  ----------  ---------- 
Total comprehensive income for the period                                728       1,177 
---------------------------------------------------------  -----  ----------  ---------- 
 
Total comprehensive income attributable to: 
Non-controlling interests                                                 10          11 
Parent company shareholders                                              718       1,166 
---------------------------------------------------------  -----  ----------  ---------- 
Total comprehensive income for the period                                728       1,177 
---------------------------------------------------------  -----  ----------  ---------- 
 

Condensed consolidated interim balance sheet

As at 30 June 2020

 
                                                            30.06.20    31.12.19 
                                                   Notes    $million    $million 
-------------------------------------------------  -----  ----------  ---------- 
Assets 
Cash and balances at central banks                            52,925      52,728 
Financial assets held at fair value through 
 profit or loss                                       13      98,359      92,818 
Derivative financial instruments                   13,14      52,227      47,212 
Loans and advances to banks1                          13      50,499      53,549 
Loans and advances to customers2                      13     276,313     268,523 
Investment securities                                 13     145,734     143,731 
Other assets                                          18      46,925      42,022 
Current tax assets                                               737         539 
Prepayments and accrued income                                 2,354       2,700 
Interests in associates and joint ventures                     2,000       1,908 
Goodwill and intangible assets                        16       5,029       5,290 
Property, plant and equipment                         17       6,747       6,220 
Deferred tax assets                                              822       1,105 
Assets classified as held for sale                    19         914       2,053 
-------------------------------------------------  -----  ----------  ---------- 
Total assets                                                 741,585     720,398 
-------------------------------------------------  -----  ----------  ---------- 
 
Liabilities 
Deposits by banks                                     13      28,986      28,562 
Customer accounts                                     13     421,153     405,357 
Repurchase agreements and other similar secured 
 borrowing                                         13,15       2,811       1,935 
Financial liabilities held at fair value through 
 profit or loss                                       13      64,383      66,974 
Derivative financial instruments                   13,14      50,826      48,484 
Debt securities in issue                              13      51,086      53,025 
Other liabilities                                     20      49,243      41,583 
Current tax liabilities                                          607         703 
Accruals and deferred income                                   4,129       5,369 
Subordinated liabilities and other borrowed 
 funds                                             13,23      16,826      16,207 
Deferred tax liabilities                                         655         611 
Provisions for liabilities and charges                           432         449 
Retirement benefit obligations                        25         543         469 
Liabilities included in disposal groups held 
 for sale                                             19           8           9 
-------------------------------------------------  -----  ----------  ---------- 
Total liabilities                                            691,688     669,737 
-------------------------------------------------  -----  ----------  ---------- 
 
Equity 
Share capital and share premium account               24       7,058       7,078 
Other reserves                                                11,431      11,685 
Retained earnings                                             26,569      26,072 
-------------------------------------------------  -----  ----------  ---------- 
Total parent company shareholders' equity                     45,058      44,835 
Other equity instruments                              24       4,518       5,513 
-------------------------------------------------  -----  ----------  ---------- 
Total equity excluding non-controlling interests              49,576      50,348 
Non-controlling interests                                        321         313 
-------------------------------------------------  -----  ----------  ---------- 
Total equity                                                  49,897      50,661 
-------------------------------------------------  -----  ----------  ---------- 
Total equity and liabilities                                 741,585     720,398 
-------------------------------------------------  -----  ----------  ---------- 
 

1 Reverse repurchase agreements and other similar secured lending balances held at amortised cost of $1,893 million (31 December 2019: $1,341 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 $4,383 million (31 December 2019: $1,469 million) have been included with loans and advances to customers

The notes form an integral part of these financial statements.

These financial statements were approved by the Board of directors and authorised for issue on 30 July 2020 and signed on its behalf by:

Andy Halford

Group Chief Financial Officer

30 July 2020

Condensed consolidated interim statement of changes in equity

For the six months ended 30 June 2020

 
                                                                       Fair            Fair 
                Ordinary  Preference                                  value           value 
                   share       share                                through         through 
                 capital     capital                                  other           other 
                     and         and   Capital          Own  compre-hensive  compre-hensive      Cash                                 Parent 
                   share       share       and       credit          income          income      flow                                company        Other 
                 premium     premium    merger  adjust-ment         reserve         reserve     hedge  Translation  Retained  share-holders'       equity  Non-controlling 
                 account     account  reserves      reserve          - debt        - equity   reserve      reserve  earnings          equity  instruments        interests     Total 
                $million    $million  $million     $million        $million        $million  $million     $million  $million        $million     $million         $million  $million 
--------------  --------  ----------  --------  -----------  --------------  --------------  --------  -----------  --------  --------------  -----------  ---------------  -------- 
As at 1 
 January 
 2019              5,617       1,494   17,1291          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 
 expenses            253           -         -            -               -               -         -            -         -              25            -                -        25 
Treasury 
 shares 
 net movement          -           -         -            -               -               -         -            -     (132)           (132)            -                -     (132) 
Share option 
 expense, 
 net of 
 taxation              -           -         -            -               -               -         -            -        97              97            -                -        97 
Dividends 
 on ordinary 
 shares                -           -         -            -               -               -         -            -     (495)           (495)            -                -     (495) 
Dividends 
 on preference 
 shares and 
 AT1 
 securities            -           -         -            -               -               -         -            -     (221)           (221)            -                -     (221) 
Share 
 buy-back4          (27)           -        27            -               -               -         -            -     (486)           (486)            -                -     (486) 
Other 
 movements             -           -         -            -               -               -         -            -      (5)5             (5)            -             1536       148 
--------------  --------  ----------  --------  -----------  --------------  --------------  --------  -----------  --------  --------------  -----------  ---------------  -------- 
As at 30 June 
 2019              5,615       1,494    17,156           68              51             123      (68)      (5,690)    26,318          45,067        4,961              411    50,439 
Profit for 
 the period            -           -         -            -               -               -         -            -       826             826            -               18       844 
Other 
 comprehensive 
 (loss)/income         -           -         -         (66)             146              27         9        (102)     (86)2            (72)            -              (7)      (79) 
Distributions          -           -         -            -               -               -         -            -         -               -            -              (9)       (9) 
Other equity 
 instruments 
 issued, net 
 of expenses           -           -         -            -               -               -         -            -         -               -          552                -       552 
Treasury 
 shares 
 net movement          -           -         -            -               -               -         -            -      (67)            (67)            -                -      (67) 
Share option 
 expense, 
 net of 
 taxation              -           -         -            -               -               -         -            -        42              42            -                -        42 
Dividends 
 on ordinary 
 shares                -           -         -            -               -               -         -            -     (225)           (225)            -                -     (225) 
Dividends 
 on preference 
 shares and 
 AT1 
 securities            -           -         -            -               -               -         -            -     (227)           (227)            -                -     (227) 
Share 
 buy-back4          (31)           -        31            -               -               -         -            -     (520)           (520)            -                -     (520) 
Other 
 movements             -           -         -            -               -               -         -            -       117              11            -           (100)8      (89) 
--------------  --------  ----------  --------  -----------  --------------  --------------  --------  -----------  --------  --------------  -----------  ---------------  -------- 
As at 31 
 December 
 2019              5,584       1,494    17,187            2             197             150      (59)      (5,792)    26,072          44,835        5,513              313    50,661 
Profit for 
 the period            -           -         -            -               -               -         -            -     1,048           1,048            -               18     1,066 
Other 
 comprehensive 
 income/(loss)         -           -         -           13             209              22      (62)        (456)     (56)2           (330)            -              (8)     (338) 
Distributions          -           -         -            -               -               -         -            -         -               -            -              (2)       (2) 
Other equity 
 instruments 
 issued, net 
 of expenses           -           -         -            -               -               -         -            -         -               -          992                -       992 
Redemption 
 of other 
 equity 
 instruments           -           -         -            -               -               -         -            -      (13)            (13)      (1,987)                -   (2,000) 
Treasury 
 shares 
 net movement          -           -         -            -               -               -         -            -      (91)            (91)            -                -      (91) 
Share option 
 expense, 
 net of 
 taxation              -           -         -            -               -               -         -            -        74              74            -                -        74 
Dividends 
 on preference 
 shares and 
 AT1 
 securities            -           -         -            -               -               -         -            -     (232)           (232)            -                -     (232) 
Share 
 buy-back9          (20)           -        20            -               -               -         -            -     (242)           (242)            -                -     (242) 
Other 
 movements             -           -         -            -               -               -         -            -       910               9            -                -         9 
--------------  --------  ----------  --------  -----------  --------------  --------------  --------  -----------  --------  --------------  -----------  ---------------  -------- 
As at 30 June 
 2020              5,564       1,494    17,207           15             406             172     (121)      (6,248)    26,569          45,058        4,518              321    49,897 
--------------  --------  ----------  --------  -----------  --------------  --------------  --------  -----------  --------  --------------  -----------  ---------------  -------- 
 

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 $(56) million ($(86) million for the six months ended 31 December 2019 and $(46) million

for the six months ended 30 June 2019)

3 Comprises share capital of shares issued to fulfil discretionary awards $1 million, share capital of shares issued to fulfil employee Sharesave options $1 million and share premium of shares issued to fulfil employee Sharesave options exercised $23 million (nil for six months ended 30 June 2020)

4 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 per cent 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. During the second half of 2019 the total number of shares purchased was 61,218, 327 representing 1.85 per cent

of the ordinary shares in issue. The nominal value of ordinary shares purchased during the second half of 2019 was $31 million and the aggregate consideration paid by the Group was $520 million. The nominal value of the shares was transferred from the share capital to the capital redemption reserve account

5 Comprises withholding tax on capitalisation of revenue reserves $4 million

6 Due to consolidation of a subsidiary with non-controlling interest $81 million and non-controlling interest in SC Digital Solutions $72 million

7 Disposal of Phoon Huat Pte Ltd $10 million

8 Due to deconsolidation of a subsidiary with non-controlling interest $83 million and disposal of non-controlling interest in Phoon Huat Pte Ltd, Sirat Holdings Limited and Ori Private Limited $17 million

9 On 28 February 2020, the Group announced the buy-back programme for a share buy-back of its ordinary shares of $0.50 each. Nominal value of share purchases was $20 million, and the total consideration paid was $242 million. The total number of shares purchased was 40,029,585 representing 1.25 per cent of the ordinary shares in issue. The nominal value of the shares was transferred from the share capital to the capital redemption reserve account. On the 1 April 2020, the Group announced that in response to a request from the Prudential Regulation Authority and as a consequence of the unprecedented challenges facing the world due to the COVID-19 pandemic, its board had decided after careful consideration to withdraw the recommendation to pay a final dividend for 2019 of 20 cents per ordinary share and to suspend the buy-back programme

   10   Comprises revenue reserves of PT Bank Permata Tbk $9 million 

Note 24 includes a description of each reserve.

The notes form an integral part of these financial statements.

Condensed consolidated interim cash flow statement

For the six months ended 30 June 2020

 
                                                                 6 months     6 months 
                                                                    ended        ended 
                                                                 30.06.20     30.06.19 
                                                                 $million     $million 
-------------------------------------------------------------  ----------  ----------- 
Cash flows from operating activities: 
Profit before taxation                                              1,627        2,414 
Adjustments for non-cash items and other adjustments 
 included within income statement                                   2,473        1,092 
Change in operating assets                                       (20,525)  (22,324)(1) 
Change in operating liabilities                                    23,177       23,369 
Contributions to defined benefit schemes                             (19)         (27) 
UK and overseas taxes paid                                          (596)        (929) 
-------------------------------------------------------------  ----------  ----------- 
Net cash from operating activities                                  6,137     3,595(1) 
-------------------------------------------------------------  ----------  ----------- 
Cash flows from investing activities: 
  Purchase of property, plant and equipment                       (1,095)     (404)(1) 
  Disposal of property, plant and equipment                           109        68(1) 
  Acquisition of investment in subsidiaries, associates 
   and joint ventures, net of cash acquired                          (20)            - 
  Dividends received from subsidiaries, associates and 
   joint ventures                                                       -            1 
  Disposal of joint ventures, net of cash acquired                  1,067            - 
  Disposal of subsidiaries                                              -            3 
  Purchase of investment securities                             (164,633)    (135,488) 
  Disposal and maturity of investment securities                  163,399      132,444 
-------------------------------------------------------------  ----------  ----------- 
Net cash used in investing activities                             (1,173)   (3,376)(1) 
-------------------------------------------------------------  ----------  ----------- 
Cash flows from financing activities: 
  Issue of ordinary and preference share capital, net 
   of expenses                                                          -           25 
  Issue of AT1 securities, net of expenses                            992            - 
  Treasury shares net movement                                       (91)        (132) 
  Cancellation of shares including share buy-back                   (242)        (486) 
  Redemption of AT1 securities                                    (2,000)            - 
  Premises and equipment lease liability principal payment          (301)        (182) 
  Gross proceeds from issue of subordinated liabilities             1,125            - 
  Interest paid on subordinated liabilities                         (288)        (265) 
  Repayment of subordinated liabilities                             (752)         (23) 
  Proceeds from issue of senior debts                               6,679        3,589 
  Repayment of senior debts                                       (3,156)      (2,289) 
  Interest paid on senior debts                                     (272)        (271) 
  Investment from non-controlling interests                             -          153 
  Dividends paid to non-controlling interests and preference 
   shareholders                                                     (234)        (247) 
  Dividends paid to ordinary shareholders                               -        (495) 
-------------------------------------------------------------  ----------  ----------- 
Net cash from/(used in) financing activities                        1,460        (623) 
-------------------------------------------------------------  ----------  ----------- 
Net increase/(decrease) in cash and cash equivalents                6,424        (404) 
Cash and cash equivalents at beginning of the period               77,454       97,500 
Effect of exchange rate movements on cash and cash 
 equivalents                                                        (445)        (140) 
-------------------------------------------------------------  ----------  ----------- 
Cash and cash equivalents at end of the period(2)                  83,433       96,956 
-------------------------------------------------------------  ----------  ----------- 
 

1 Aircraft and shipping purchases and disposals re-presented as cash flows from investing activities

2 Comprises cash and balances at central banks $52,925 million (30 June 2019: $58,822 million), treasury bills and other eligible bills $7,483 million (30 June 2019: $12,042 million), loans and advances to banks $29,102 million (30 June 2019: $31,256 million), trading securities $2,575 million (30 June 2019: $4,142 million) less restricted balances $8,652 million

(30 June 2019: $9,306 million)

Contents - Notes to the financial statements

 
Section                         Note 
------------------------------  ----  ----------------------------------------------- 
Basis of preparation            1     Accounting policies 
Performance/return              2     Segmental information 
                                3     Net interest income 
                                4     Net fees and commission 
                                5     Net trading income 
                                6     Other operating income 
                                7     Operating expenses 
                                8     Credit impairment 
                                9     Other impairment 
                                10    Taxation 
                                11    Dividends 
                                12    Earnings per ordinary share 
------------------------------  ----  ----------------------------------------------- 
Assets and liabilities held     13 
 at fair value                        Financial instruments 
                                14    Derivative financial instruments 
------------------------------  ----  ----------------------------------------------- 
Financial instruments held      15    Reverse repurchase and repurchase agreements 
 at amortised cost                     including other similar secured lending 
                                       and borrowing 
------------------------------  ----  ----------------------------------------------- 
Other assets and investments    16    Goodwill and intangible assets 
                                17    Property, plant and equipment 
                                18    Other assets 
                                19    Assets held for sale and associated liabilities 
------------------------------  ----  ----------------------------------------------- 
Funding, accruals, provisions,  20 
 contingent liabilities and 
 legal proceedings                    Other liabilities 
------------------------------ 
                                21    Contingent liabilities and commitments 
------------------------------ 
                                22    Legal and regulatory matters 
------------------------------  ----  ----------------------------------------------- 
Capital instruments, equity     23    Subordinated liabilities and other borrowed 
 and reserves                          funds 
                                24    Share capital, other equity instruments 
                                       and reserves 
------------------------------  ----  ----------------------------------------------- 
Employee benefits               25    Retirement benefit obligations 
------------------------------  ----  ----------------------------------------------- 
Other disclosure matters        26    Related party transactions 
                                27    Post balance sheet events 
                                28    Corporate governance 
                                29    Statutory accounts 
------------------------------  ----  ----------------------------------------------- 
 

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 United Kingdom's 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 2019 (the 2019 Annual Report), 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 2020, 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:

-- Loans and advances by client segment credit quality analysis

-- Credit quality by geographic region

-- Analysis of stage 2 balances

-- Forborne and other modified loans by region

-- Credit-impaired (stage 3) loans and advances by geographic region

-- Credit quality by industry

-- 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)

The information in this release does not constitute the unaudited interim consolidated financial statements which are contained in the Interim Report 2020. The Interim Report 2020 was approved by the Committee of the Board on 30 July 2020. The unaudited interim consolidated financial statements have been reviewed by the Groups auditor, EY, in accordance with the guidance contained in the International Standard on review Engagements (UK and Ireland) 2410: Review of Interim Financial Information Performed by the Independent Auditor of the Entity.

Accounting policies

The accounting policies applied by the Group in the interim financial statements are the same as those applied by the Group in the 2019 Annual Report. The interim financial statements have been prepared in accordance with the requirements of IAS 34.

Basis of preparation

The consolidated 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. In the interim financial statements, estimates which are often based on future economic conditions, and sensitive to changes in those conditions, have been impacted by COVID-19. This estimation impact has primarily been in the measurement of ECL, assessing the recoverability of deferred tax balances and testing goodwill balances for impairment. Actual results may differ materially 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 2019.Summaries of the Group's significant accounting policies are included throughout the 2019 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.

Apart from the transactions as disclosed in note 24 - Share capital, other equity instruments and reserves, the Group did not purchase, sell or redeem any listed securities during the half year 2020 or 2019.

Comparatives

Certain comparatives have been represented in line with current period disclosures. Details of these changes are set out in the relevant sections and notes below:

-- Note 2 Segmental information

-- Note 3 Net interest income

-- Note 5 Net trading income

-- Note 13 Financial instruments

-- Note 21 Contingent liabilities and commitments

New accounting standards adopted by the Group

Amendments to IFRS 3: Definition of a Business

In October 2018, the IASB issued amendments to the definition of a business in IFRS 3 Business Combinations, which were endorsed by the EU in April 2020. The amendments are effective for annual reporting periods beginning on or after 1 January 2020 and apply prospectively. The amendments:

-- clarify the minimum requirements for a business;

-- remove the assessment of whether market participants are capable of replacing any missing elements;

-- add guidance to help entities assess whether an acquired process is substantive;

-- narrow the definitions of a business and of outputs; and

-- introduce an optional fair value concentration test

These amendments do not have a material affect on these interim financial statements as no transactions in scope of IFRS 3 have occurred during the interim period, and there is no adjustment to opening retained earnings as the amendments apply prospectively.

Conceptual Framework for Financial Reporting

In March 2018 the IASB published a revised Conceptual Framework for Financial Reporting, often referred to as the "Conceptual Framework", applicable to IFRS preparers for annual periods beginning on or after 1 January 2020. The Conceptual Framework provides guidance to preparers on determining accounting policies where no specific IFRS or IAS Standard applies to a particular transaction or where a Standard allows for an accounting policy choice. It includes limited revisions of definitions of an asset and a liability, as well as new guidance on measurement and recognition, presentation and disclosure. The concept of prudence has been reintroduced with the statement that prudence supports neutrality. The Conceptual Framework is not an IFRS Standard and does not replace any specific Standards. The changes in the Conceptual Framework are not considered material to the Group, since all of the Group's significant accounting policies are derived from specific IFRS or IAS standards.

Amendments to IAS 1 and IAS 8: Definition of Material

In October 2018 the IASB issued amendments to IAS 1 Presentation of Financial Statements and IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors ('the amendments'), applicable to IFRS preparers for annual periods beginning on or after 1 January 2020. The purpose is to align the definition of 'material' across the Standards and to clarify certain aspects of the definition. Information is 'material' if omitting, misstating or obscuring it could reasonably be expected to influence decisions that the primary users of general-purpose financial statements make on the basis of those financial statements, which provide financial information about a specific reporting entity. The revised definition is already aligned to how the Group assesses whether the effect of a change in accounting policy, change in accounting estimate or error would be considered 'material' to the primary users of the Group's financial statements, hence these amendments have no specific effect on the preparation of these interim financial statements and are not expected to affect the preparation of future financial statements.

New accounting standards in issue but not yet effective

Interest Rate Benchmark Reform - Phase 2 amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16

In April 2020 the IASB published an Exposure Draft for the second phase of its proposed amendments to IFRS concerning the global initiative to replace or reform interbank offered rates (IBORs) that are used to determine interest cash flows on financial instruments such as loans to customers, debt securities and derivatives. The first phase of amendments have already been early adopted for the year ended 31 December 2019 (refer to pages 263 to 264 in the 2019 Annual Report). Phase 2 focuses on issues expected to affect financial reporting when an existing IBOR is replaced with an alternative risk-free rate (RFR). The Exposure Draft proposes that amendments will be effective for annual reporting periods beginning on or after 1 January 2021, with earlier adoption permitted, and are to be applied retrospectively.

The Exposure Draft recommends a practical expedient to account for the change in benchmark interest rate in a financial instrument to be treated as a change in floating interest rate, provided the re-papered instrument denominated in the alternative RFR is on an economically equivalent basis to the original IBOR-linked instrument. This includes the addition of a fixed spread to compensate for a basis difference between the existing IBOR benchmark and alternative RFR, changes to reset period, reset dates or number of days between coupon payment dates that are necessary to effect reform of an IBOR benchmark and the addition of any fall-back provision to the contractual terms of a financial instrument that allow any of the above changes to be made. Any other change to contractual terms would be assessed under the Group's accounting policies for loan modifications.

The Exposure Draft also proposes relief from discontinuing hedge relationships and would allow entities to determine that the risk component associated with an alternative RFR is separately identifiable - and therefore be able to apply fair value hedge accounting - if the entity reasonably expects the alternative RFR risk component will become separately identifiable within the next 24 months. Additional disclosures are proposed for annual reports.

The IASB plans to issue final amendments by 30 September 2020. The Group will wait for this publication before commencing a detailed assessment on how Phase 2 amendments will affect the Group's financial statements.

Amendments to IFRS 16: Covid-19-Related Rent Concessions

In May 2020 the IASB issued amendments to IFRS 16 Leases. These were recommended for endorsement by the European Financial Reporting Advisory Group on 3 June 2020, and the European Commission's Accounting Regulatory Committee voted unanimously in favour of the amendments on 2 July 2020, but final endorsement by the European Union is not expected until later in 2020. The amendments will be effective for annual reporting periods beginning on or after 1 June 2020, with earlier adoption permitted. It is the Group's intention to early adopt these amendments for the financial year ending 31 December 2020 provided the EU endorses them in 2020 as expected.

The amendments will provide lessees of premises and equipment a practical expedient that permits them not to assess whether a rent concession granted as a direct consequence of the Covid-19 pandemic is accounted for as a lease modification. Entities applying the practical expedient will therefore account for these rent concessions by recalculating the lease liability based on the revised cash flows using the existing discount rate applied to that lease, with a corresponding gain or loss recorded in other income. A rent concession will only be deemed to be a direct consequence of Covid-19 if all the following criteria are met:

-- A change in lease payments results in revised consideration for the lease that is substantially the same as, or less than, the consideration for the lease immediately preceding the change;

-- Any reduction in lease payments affects only payments originally due in 2020 (this includes the case where the change results in reduced lease payments in 2020 and increased lease payments beyond 2020); and

-- There is no substantive change to other terms and conditions of the lease

The amendments are not expected to have a material effect on the Group's financial statements, and will not result in any adjustment to opening retained earnings as of 1 January 2020 since the amendments only apply to rent concessions granted in 2020.

Going concern

These interim financial statements were approved by the Board of directors on 30 July 2020. The directors have made an assessment of the Group's ability to continue as a going concern. This assessment has been made having considered the impact of COVID-19, macroeconomic and geopolitical headwinds, and has included:

-- A review of the Group Strategy and Corporate plan, including a review of the actual performance to date, loan book quality, legal and regulatory matters and the updated revised budget;

-- Consideration of stress testing performed, including a COVID-19 stress scenario; and

-- Analysis of the capital, funding and liquidity position of the Group, including a review of the Group's emerging risks, to which COVID-19 has been added

Based on the analysis performed, the directors 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.

Restructuring charges of $90 million primarily reflect impairments from the Group's discontinued ship leasing and principal finance businesses. Other items of $252 million relates mainly to a goodwill impairment on the Group's subsidiary in India that was taken in 1Q'20 due to a lower economic growth forecast and increases to the discount rate.

A reconciliation between underlying and statutory results is set out in the table below:

 
                                                           6 months ended 30.06.20 
---------------------  ----------------------------------------------------------------------------------------------- 
                                                                                                      Share 
                                                                                                 of profits 
                                                                         Net gain                        of 
                                                                    on businesses                   PT Bank 
                                         Provision                      disposed/                   Permata 
                                    for regulatory                           held     Goodwill    Tbk joint 
                       Underlying          matters  Restructuring        for sale   impairment      venture  Statutory 
                         $million         $million       $million        $million     $million     $million   $million 
---------------------  ----------  ---------------  -------------  --------------  -----------  -----------  --------- 
Operating income            8,047                -             46               6            -            -      8,099 
Operating expenses        (4,713)               14           (49)               -            -            -    (4,748) 
---------------------  ----------  ---------------  -------------  --------------  -----------  -----------  --------- 
Operating 
 profit/(loss) before 
 impairment losses 
 and taxation               3,334               14            (3)               6            -            -      3,351 
Credit impairment         (1,567)                -            (9)               -            -            -    (1,576) 
Other impairment              112                -           (77)               -        (258)            -      (223) 
Profit from 
 associates and 
 joint ventures                76                -            (1)               -            -            -         75 
---------------------  ----------  ---------------  -------------  --------------  -----------  -----------  --------- 
Profit/(loss) before 
 taxation                   1,955               14           (90)               6        (258)            -      1,627 
---------------------  ----------  ---------------  -------------  --------------  -----------  -----------  --------- 
 
 
                                                             6 months ended 30.06.19 
-------------------------  ------------------------------------------------------------------------------------------- 
                                                                                                      Share 
                                                                                                 of profits 
                                                                                                         of 
                                         Provision                       Net gain                   PT Bank 
                                               for                  on businesses                   Permata 
                                        regulatory                  disposed/held     Goodwill    Tbk joint 
                           Underlying      matters  Restructuring        for sale   impairment      venture  Statutory 
                             $million     $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 
-------------------------  ----------  -----------  -------------  --------------  -----------  -----------  --------- 
 

Underlying performance by client segment

 
                                                          6 months ended 30.06.20 
------------------------------  --------------------------------------------------------------------------- 
                                       Corporate 
                                 & Institutional     Retail  Commercial    Private     Central & 
                                         Banking    Banking     Banking    Banking   other items      Total 
                                        $million   $million    $million   $million      $million   $million 
------------------------------  ----------------  ---------  ----------  ---------  ------------  --------- 
Operating income                           3,987      2,537         740        300           483      8,047 
                                ----------------  ---------  ----------  ---------  ------------  --------- 
  External                                 4,012      2,103         700        202         1,030      8,047 
  Inter-segment                             (25)        434          40         98         (547)          - 
                                ----------------  ---------  ----------  ---------  ------------  --------- 
Operating expenses                       (1,985)    (1,780)       (421)      (239)         (288)    (4,713) 
------------------------------  ----------------  ---------  ----------  ---------  ------------  --------- 
Operating profit before 
 impairment losses and 
 taxation                                  2,002        757         319         61           195      3,334 
Credit impairment                          (985)      (430)       (137)        (5)          (10)    (1,567) 
Other impairment                             115        (1)           -          -           (2)        112 
Profit from associates 
 and joint ventures                            -          -           -          -            76         76 
------------------------------  ----------------  ---------  ----------  ---------  ------------  --------- 
Underlying profit before 
 taxation                                  1,132        326         182         56           259      1,955 
Provision for regulatory 
 matters                                       -          -           -          -            14         14 
Restructuring                               (56)        (3)        (18)        (3)          (10)       (90) 
Net gain on businesses 
 disposed/held for sale                        -          -           -          -             6          6 
Goodwill impairment                            -          -           -          -         (258)      (258) 
------------------------------  ----------------  ---------  ----------  ---------  ------------  --------- 
Statutory profit before 
 taxation                                  1,076        323         164         53            11      1,627 
------------------------------  ----------------  ---------  ----------  ---------  ------------  --------- 
Total assets                             336,623    107,327      33,158     13,202       251,275    741,585 
  Of which: loans and 
   advances to customers 
   including FVTPL                       164,392    105,085      28,151     13,097        17,440    328,165 
Total liabilities                        402,920    149,422      43,578     18,842        76,926    691,688 
  Of which: customer accounts 
   including FVTPL and 
   repurchase agreements                 257,512    146,088      40,507     18,725         6,632    469,464 
------------------------------  ----------------  ---------  ----------  ---------  ------------  --------- 
 
 
                                                          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                           3,534      2,603         811        306           442      7,696 
                                ----------------  ---------  ----------  ---------  ------------  --------- 
  External                                 3,633      2,140         863        171           889      7,696 
  Inter-segment                             (99)        463        (52)        135         (447)          - 
                                ----------------  ---------  ----------  ---------  ------------  --------- 
Operating expenses                       (2,102)    (1,825)       (445)      (253)         (344)    (4,969) 
------------------------------  ----------------  ---------  ----------  ---------  ------------  --------- 
Operating profit before 
 impairment losses and 
 taxation                                  1,432        778         366         53            98      2,727 
Credit impairment                          (116)      (154)        (29)         47           (2)      (254) 
Other impairment                            (19)          -           -          -           (2)       (21) 
Profit from associates 
 and joint ventures                            -          -           -          -           157        157 
------------------------------  ----------------  ---------  ----------  ---------  ------------  --------- 
Underlying profit before 
 taxation                                  1,297        624         337        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                                  1,320        623         337         99            35      2,414 
------------------------------  ----------------  ---------  ----------  ---------  ------------  --------- 
Total assets                             329,113    103,909      35,718     15,654       228,110    712,504 
  Of which: loans and 
   advances to customers 
   including FVTPL1                      149,752    101,784      30,465     15,521         9,120    306,642 
Total liabilities                        380,549    143,297      39,805     18,616        79,798    662,065 
  Of which: customer accounts 
   including FVTPL and 
   repurchase agreements                 234,142    139,898      36,908     18,473        15,490    444,911 
------------------------------  ----------------  ---------  ----------  ---------  ------------  --------- 
 

1 Following a reorganisation of certain clients, there has been a reclassification of balances across client segments. Prior periods have been restated

Underlying performance by region

 
                                                          6 months ended 30.06.20 
------------------------------  --------------------------------------------------------------------------- 
                                    Greater 
                                    China &      ASEAN &       Africa &   Europe &     Central & 
                                 North Asia   South Asia    Middle East   Americas   other items      Total 
                                   $million     $million       $million   $million      $million   $million 
------------------------------  -----------  -----------  -------------  ---------  ------------  --------- 
Operating income                      3,144        2,376          1,255      1,095           177      8,047 
Operating expenses                  (1,780)      (1,247)          (793)      (661)         (232)    (4,713) 
------------------------------  -----------  -----------  -------------  ---------  ------------  --------- 
Operating profit/(loss) 
 before impairment losses 
 and taxation                         1,364        1,129            462        434          (55)      3,334 
Credit impairment                     (289)        (838)          (370)       (80)            10    (1,567) 
Other impairment                       (15)          165            (2)          2          (38)        112 
Profit from associates 
 and joint ventures                      74            -              -          -             2         76 
------------------------------  -----------  -----------  -------------  ---------  ------------  --------- 
Underlying profit/(loss) 
 before taxation                      1,134          456             90        356          (81)      1,955 
Provision for regulatory 
 matters                                  -            -              -          -            14         14 
Restructuring                          (43)          (7)            (9)       (10)          (21)       (90) 
Net gain on businesses 
 disposed/held for sale                   -            -              -          -             6          6 
Goodwill impairment                       -            -              -          -         (258)      (258) 
------------------------------  -----------  -----------  -------------  ---------  ------------  --------- 
Statutory profit/(loss) 
 before taxation                      1,091          449             81        346         (340)      1,627 
------------------------------  -----------  -----------  -------------  ---------  ------------  --------- 
Total assets                        289,352      154,508         63,927    223,226        10,572    741,585 
  Of which: loans and 
   advances to customers 
   including FVTPL                  144,794       84,949         33,083     65,339             -    328,165 
Total liabilities                   258,322      131,993         40,740    217,300        43,333    691,688 
  Of which: customer accounts 
   including FVTPL and 
   repurchase agreements            214,586      100,324         32,530    122,024             -    469,464 
------------------------------  -----------  -----------  -------------  ---------  ------------  --------- 
 
 
                                                          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 
------------------------------  -----------  -----------  -------------  ---------  ------------  --------- 
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 
Total liabilities                   240,802      132,763         37,000    215,504        35,996    662,065 
  Of which: customer accounts 
   including FVTPL and 
   repurchase agreements            196,994      101,594         29,621    116,702             -    444,911 
------------------------------  -----------  -----------  -------------  ---------  ------------  --------- 
 

Additional segmental information (statutory)

 
                                                    6 months ended 30.06.20 
------------------------  --------------------------------------------------------------------------- 
                                 Corporate 
                           & Institutional     Retail  Commercial    Private     Central & 
                                   Banking    Banking     Banking    Banking   other items      Total 
                                  $million   $million    $million   $million      $million   $million 
------------------------  ----------------  ---------  ----------  ---------  ------------  --------- 
Net interest income                  1,272      1,619         471        146          (10)      3,498 
Net fees and commission 
 income                                615        703         134        132          (26)      1,558 
Net trading and other 
 income                              2,131        215         151         22           524      3,043 
------------------------  ----------------  ---------  ----------  ---------  ------------  --------- 
Operating income                     4,018      2,537         756        300           488      8,099 
------------------------  ----------------  ---------  ----------  ---------  ------------  --------- 
 
 
                                               restated 6 months ended 30.06.191 
------------------------  --------------------------------------------------------------------------- 
                                 Corporate 
                           & Institutional     Retail  Commercial    Private     Central & 
                                   Banking    Banking     Banking    Banking   other items      Total 
                                  $million   $million    $million   $million      $million   $million 
------------------------  ----------------  ---------  ----------  ---------  ------------  --------- 
Net interest income                  1,287      1,636         492        159           264      3,838 
Net fees and commission 
 income                                810        777         146        123          (18)      1,838 
Net trading and other 
 income                              1,568        190         175         25           196      2,154 
------------------------  ----------------  ---------  ----------  ---------  ------------  --------- 
Operating income                     3,665      2,603         813        307           442      7,830 
------------------------  ----------------  ---------  ----------  ---------  ------------  --------- 
 
 
                                                   6 months ended 30.06.20 
------------------------  -------------------------------------------------------------------------- 
                              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             1,510        1,054           641         95           198      3,498 
Net fees and commission 
 income                           635          498           267        237          (79)      1,558 
Net trading and other 
 income                         1,051          824           353        763            52      3,043 
------------------------  -----------  -----------  ------------  ---------  ------------  --------- 
Operating income                3,196        2,376         1,261      1,095           171      8,099 
------------------------  -----------  -----------  ------------  ---------  ------------  --------- 
 
 
                                              restated 6 months ended 30.06.191 
------------------------  -------------------------------------------------------------------------- 
                              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             1,653        1,003           766          6           410      3,838 
Net fees and commission 
 income                           732          572           330        238          (34)      1,838 
Net trading and other 
 income                           742          560           244        550            58      2,154 
------------------------  -----------  -----------  ------------  ---------  ------------  --------- 
Operating income                3,127        2,135         1,340        794           434      7,830 
------------------------  -----------  -----------  ------------  ---------  ------------  --------- 
 
 
                                                         6 months ended 30.06.20 
------------------------  -------------------------------------------------------------------------------------- 
                               Hong 
                               Kong      Korea      China  Singapore      India        UAE         UK         US 
                           $million   $million   $million   $million   $million   $million   $million   $million 
------------------------  ---------  ---------  ---------  ---------  ---------  ---------  ---------  --------- 
Net interest income             843        312        265        329        345        150       (41)         92 
Net fees and commission 
 income                         372         83         68        249        115         57          6        191 
Net trading and other 
 income                         659        162        141        212        265        110        601        149 
------------------------  ---------  ---------  ---------  ---------  ---------  ---------  ---------  --------- 
Operating income              1,874        557        474        790        725        317        566        432 
------------------------  ---------  ---------  ---------  ---------  ---------  ---------  ---------  --------- 
 
 
                                                    restated 6 months ended 30.06.191 
------------------------  -------------------------------------------------------------------------------------- 
                               Hong 
                               Kong      Korea      China  Singapore      India        UAE         UK         US 
                           $million   $million   $million   $million   $million   $million   $million   $million 
------------------------  ---------  ---------  ---------  ---------  ---------  ---------  ---------  --------- 
Net interest income             958        336        288        374        243        197      (176)        122 
Net fees and commission 
 income                         454         89         75        280        134         78         30        168 
Net trading and other 
 income                         488         80         82        216        125         52        476         75 
------------------------  ---------  ---------  ---------  ---------  ---------  ---------  ---------  --------- 
Operating income              1,900        505        445        870        502        327        330        365 
------------------------  ---------  ---------  ---------  ---------  ---------  ---------  ---------  --------- 
 

1 Comparatives have been restated due to the Group changing its accounting policies for net interest income and net trading income for the year ended 31 December 2019.

Refer to Note 1 in the Group's 2019 Annual Report

3. Net interest income

 
                                                         6 months 
                                                            ended           restated 
                                                                            6 months 
                                                         30.06.20    ended 30.06.191 
                                                         $million           $million 
-----------------------------------------------------  ----------  ----------------- 
Balances at central banks                                      77                189 
Loans and advances to banks                                   479              1,016 
Loans and advances to customers                             4,738              5,331 
Listed debt securities                                        817              1,024 
Unlisted debt securities                                      443                337 
Other eligible bills                                          304                379 
Accrued on impaired assets (discount unwind)                   17                 37 
-----------------------------------------------------  ----------  ----------------- 
Interest income                                             6,875              8,313 
-----------------------------------------------------  ----------  ----------------- 
  Of which: financial instruments held at fair value 
   through other comprehensive income                       1,332              1,597 
 
Deposits by banks                                             235                401 
Customer accounts                                           2,276              3,083 
Debt securities in issue                                      485                567 
Subordinated liabilities and other borrowed funds             350                390 
Interest expense on IFRS 16 Lease liabilities                  31                 34 
-----------------------------------------------------  ----------  ----------------- 
Interest expense                                            3,377              4,475 
-----------------------------------------------------  ----------  ----------------- 
Net interest income                                         3,498              3,838 
-----------------------------------------------------  ----------  ----------------- 
 

1 For the six months ended 30 June 2019 the Group reported net interest income of $4,618 million, consisting of interest income of $9,843 million and interest expense of $5,225 million. The difference between this and restated six months ended 30 June 2019 net interest income of $3,838 million is $780 million of net contractual interest receivable on financial instruments measured at fair value through profit or loss being reclassified to net trading income

4. Net fees and commission

 
                                                             6 months    6 months 
                                                                ended       ended 
                                                             30.06.20    30.06.19 
                                                             $million    $million 
---------------------------------------------------------  ----------  ---------- 
Fees and commissions income                                     1,870       2,120 
  Of which: 
                                                           ----------  ---------- 
  Financial instruments that are not fair valued through 
   profit or loss                                                 512         777 
  Trust and other fiduciary activities                             51          79 
                                                           ----------  ---------- 
 
Fees and commissions expense                                    (312)       (282) 
  Of which: 
                                                           ----------  ---------- 
  Financial instruments that are not fair valued through 
   profit or loss                                                (56)        (69) 
  Trust and other fiduciary activities                            (3)        (14) 
---------------------------------------------------------  ----------  ---------- 
Net fees and commission                                         1,558       1,838 
---------------------------------------------------------  ----------  ---------- 
 
 
                                                    6 months ended 30.06.20 
------------------------  --------------------------------------------------------------------------- 
                                 Corporate 
                           & Institutional     Retail  Commercial    Private     Central & 
                                   Banking    Banking     Banking    Banking   other items      Total 
                                  $million   $million    $million   $million      $million   $million 
------------------------  ----------------  ---------  ----------  ---------  ------------  --------- 
Transaction Banking1                   381          5         102          -             -        488 
                          ----------------  ---------  ----------  ---------  ------------  --------- 
  Trade                                194          5          74          -             -        273 
  Cash Management                      187          -          28          -             -        215 
                          ----------------  ---------  ----------  ---------  ------------  --------- 
Financial Markets1                     130          -          14          -             -        144 
Corporate Finance                       71          -          13          -             -         84 
Lending and Portfolio 
 Management                             33          -           4          -             -         37 
Wealth Management                        -        540           1        129             -        670 
Retail Products                          -        159           -          3             -        162 
Treasury                                 -          -           -          -          (14)       (14) 
Others                                   -        (1)           -          -          (12)       (13) 
------------------------  ----------------  ---------  ----------  ---------  ------------  --------- 
Net fees and commission                615        703         134        132          (26)      1,558 
------------------------  ----------------  ---------  ----------  ---------  ------------  --------- 
 
 
                                                    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 Banking1                   438          5         111          -             -        554 
                          ----------------  ---------  ----------  ---------  ------------  --------- 
  Trade                                222          5          82          -             -        309 
  Cash Management                      216          -          29          -             -        245 
                          ----------------  ---------  ----------  ---------  ------------  --------- 
Financial Markets1                     225          -          12          -             -        237 
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 
------------------------  ----------------  ---------  ----------  ---------  ------------  --------- 
 

1 Following a reorganisation, there has been a reclassification of balances relating to Securities Services from Transaction Banking to Financial Markets included in prior period numbers. There is no change in the total income

Upfront bancassurance consideration amounts are amortised on a straight-line basis over the contractual period to which the consideration relates. Deferred income on the balance sheet in respect of these activities is $760 million (30 June 2019: $844 million). The income will be earned evenly over the next 9 years (30 June 2019: 10 years). For the six months ended 30 June 2020, $42 million of fee income was released from deferred income (30 June 2019: $42 million).

5. Net trading income

 
                                                                       restated 
                                                          6 months     6 months 
                                                             ended        ended 
                                                          30.06.20    30.06.191 
                                                          $million     $million 
------------------------------------------------------  ----------  ----------- 
Net trading income                                           2,154        1,774 
------------------------------------------------------  ----------  ----------- 
Significant items within net trading income include: 
Gains on instruments held for trading                        1,966        1,783 
Gains on financial assets mandatorily at fair value 
 through profit or loss                                        384          825 
(Losses)/Gains on financial assets designated at fair 
 value through profit or loss                                  (6)           12 
Losses on financial liabilities designated at fair 
 value through profit or loss                                (166)        (958) 
------------------------------------------------------  ----------  ----------- 
 

1 For the six months ended 30 June 2019, the Group reported net trading income of $994 million. The difference between this and restated six months ended 30 June 2019 net

trading income of $1,774 million is $780 million of net contractual interest receivable on financial instruments measured at fair value through profit or loss being reclassified to net

trading income

6. Other operating income

 
                                                        6 months    6 months 
                                                           ended       ended 
                                                        30.06.20    30.06.19 
                                                        $million    $million 
----------------------------------------------------  ----------  ---------- 
Other operating income includes: 
Rental income from operating lease assets                    242         265 
Gains less losses on disposal of fair value through 
 other comprehensive income debt investments                 511          58 
Gains less loss on amortised cost financial assets            13        (17) 
Net gain on sale of businesses                                 6           - 
Dividend income                                               30           6 
Gain on sale of aircraft                                       5          14 
Other                                                         82          54 
----------------------------------------------------  ----------  ---------- 
                                                             889         380 
----------------------------------------------------  ----------  ---------- 
 

7. Operating expenses

 
                                    6 months    6 months 
                                       ended       ended 
                                    30.06.20    30.06.19 
                                    $million    $million 
--------------------------------  ----------  ---------- 
Staff costs: 
  Wages and salaries                   2,564       2,729 
  Social security costs                   80          98 
  Other pension costs (Note 25)          172         199 
  Share-based payment costs               65         107 
  Other staff costs                      449         444 
--------------------------------  ----------  ---------- 
                                       3,330       3,577 
--------------------------------  ----------  ---------- 
 

The following table summarises the number of employees (headcount) within the Group:

 
                       Business  Support services   Total 
---------------------  --------  ----------------  ------ 
At 30 June 2020          36,903            48,486  85,389 
At 31 December 20191     37,117            47,281  84,398 
---------------------  --------  ----------------  ------ 
 

1 Prior year headcount has been re-presented due to a change in management view of segments

 
                                            6 months    6 months 
                                               ended       ended 
                                            30.06.20    30.06.19 
                                            $million    $million 
----------------------------------------  ----------  ---------- 
Premises and equipment expenses: 
  Rental of premises                             (2)          19 
  Other premises and equipment costs             174         164 
  Rental of computers and equipment                6           8 
----------------------------------------  ----------  ---------- 
                                                 178         191 
----------------------------------------  ----------  ---------- 
 
General administrative expenses: 
  Provision for regulatory matters                14         204 
  Other general administrative expenses          628         749 
----------------------------------------  ----------  ---------- 
                                                 642         953 
----------------------------------------  ----------  ---------- 
 
Depreciation and amortisation: 
Property, plant and equipment: 
                                          ----------  ---------- 
  Premises                                       188         179 
  Equipment                                       60          52 
  Operating lease assets                         107         129 
                                          ----------  ---------- 
                                                 355         360 
Intangibles: 
  Software                                       241         213 
  Acquired on business combinations                2           4 
----------------------------------------  ----------  ---------- 
                                                 598         577 
----------------------------------------  ----------  ---------- 
Total operating expenses                       4,748       5,298 
----------------------------------------  ----------  ---------- 
 

8. Credit impairment1

 
                                                               6 months    6 months 
                                                                  ended       ended 
                                                               30.06.20    30.06.19 
                                                               $million    $million 
-----------------------------------------------------------  ----------  ---------- 
Net credit impairment against profit on loans and advances 
 to banks and customers                                           1,496         259 
Net credit impairment against profit or loss during 
 the period relating to debt securities                              19           9 
Net credit impairment relating to financial guarantees 
 and loan commitments                                                63        (14) 
Net credit impairment relating to other financial assets            (2)           - 
-----------------------------------------------------------  ----------  ---------- 
Credit impairment2                                                1,576         254 
-----------------------------------------------------------  ----------  ---------- 
 

1 Refer credit risk section for more detail

2 No material purchased or originated credit-impaired (POCI) assets

9. Other impairment

 
                                                    6 months    6 months 
                                                       ended       ended 
                                                    30.06.20    30.06.19 
                                                    $million    $million 
------------------------------------------------  ----------  ---------- 
Impairment of goodwill (Note 16)                         258           - 
------------------------------------------------  ----------  ---------- 
 
Impairment of fixed assets (Note 17)                      51          36 
Impairment of other intangible assets (Note 16)            2           6 
Other                                                  (88)1           2 
------------------------------------------------  ----------  ---------- 
Other impairment                                        (35)          44 
------------------------------------------------  ----------  ---------- 
                                                         223          44 
------------------------------------------------  ----------  ---------- 
 

1 Includes a reversal of $165 million as a result of a recovery on a disputed derivative receivable, following a favourable court ruling

10. Taxation

The following table provides analysis of taxation charge in the period:

 
                                                               6 months    6 months 
                                                                  ended       ended 
                                                               30.06.20    30.06.19 
                                                               $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 
 2019 and 30 June 2019:19 per cent): 
                                                             ----------  ---------- 
  Current tax charge on income for the period                         -          10 
  Adjustments in respect of prior periods (including 
   double tax relief)                                                 -         (1) 
Foreign tax: 
  Current tax charge on income for the period                       613         829 
  Adjustments in respect of prior periods                         (334)        (54) 
                                                             ----------  ---------- 
                                                                    279         784 
Deferred tax: 
                                                             ----------  ---------- 
  Origination/reversal of temporary differences                    (54)         139 
  Adjustments in respect of prior periods                           336         (5) 
                                                             ----------  ---------- 
                                                                    282         134 
-----------------------------------------------------------  ----------  ---------- 
Tax on profits on ordinary activities                               561         918 
-----------------------------------------------------------  ----------  ---------- 
Effective tax rate                                                34.5%       38.0% 
-----------------------------------------------------------  ----------  ---------- 
 

The tax charge for the period of $561 million (31 December 2019: $455 million and 30 June 2019: $918 million) on a profit before tax of $1,627 million (31 December 2019: $1,299 million and 30 June 2019: $2,414 million) reflects the impact of countries with tax rates higher or lower than the UK, the most significant of which is India, non-deductible expenses, non-creditable withholding taxes and non-deductible goodwill impairment. The prior period adjustment includes $277 million adjustment between current and deferred tax, relating to the treatment of loan impairments in India as deductible in the period they are impaired.

Foreign tax includes current tax of $118 million (31 December 2019: $89 million and 30 June 2019: $117 million) on the profits assessable in Hong Kong.

Deferred tax includes origination or reversal of temporary differences of $(39) million (31 December 2019: $1 million and 30 June 2019: $(4) million) provided at a rate of 16.5 per cent (31 December 2018: 16.5 per cent) on the profits assessable in Hong Kong.

11. Dividends

On the 1 April 2020, the Group announced that in response to a request from the Prudential Regulation Authority and as a consequence of the unprecedented challenges facing the world due to the COVID-19 pandemic, its board had decided after careful consideration to withdraw the recommendation to pay a final dividend for 2019 of 20 cents per ordinary share.

Ordinary equity shares

 
                              6 months ended       6 months ended       6 months ended 
                                  30.06.20             31.12.19             30.06.19 
--------------------------  -------------------  -------------------  ------------------- 
                            Cents per            Cents per            Cents per 
                                share  $million      share  $million      share  $million 
--------------------------  ---------  --------  ---------  --------  ---------  -------- 
2019/2018 final dividend 
 declared and paid during 
 the period                         -         -          -         -         15       495 
2019 interim dividend 
 declared and paid during 
 the period                         -         -          7       225          -         - 
--------------------------  ---------  --------  ---------  --------  ---------  -------- 
 

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 and interim ordinary equity share dividends as stated above relate to the 2018 final dividend of 15 cents per ordinary share ($495 million) paid to eligible shareholders on 16 May 2019 and the 2019 interim dividend of 7 cents per ordinary share ($225 million) paid to eligible shareholders on 21 October 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.

 
                                                                                      6 months    6 months 
                                                                                         ended       ended 
                                                                          6 months 
                                                                    ended 30.06.20    31.12.19    30.06.19 
                                                                          $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                                                             13          14          16 
 ----------------------------------------------------------------  ---------------  ----------  ---------- 
                                                                                39          41          42 
Additional Tier 1 securities: $5.5 billion 
 fixed rate resetting perpetual subordinated 
 contingent convertible securities                                             193         186         179 
-----------------------------------------------------------------  ---------------  ----------  ---------- 
                                                                               232         227         221 
 ----------------------------------------------------------------  ---------------  ----------  ---------- 
 

12. Earnings per ordinary share

 
                                                                6 months    6 months 
                                                                   ended       ended 
                                                                30.06.20    30.06.19 
                                                                $million    $million 
------------------------------------------------------------  ----------  ---------- 
Profit for the period attributable to equity holders               1,066       1,496 
------------------------------------------------------------  ----------  ---------- 
Non-controlling interest                                            (18)        (19) 
Dividend payable on preference shares and AT1 classified 
 as equity                                                         (232)       (221) 
------------------------------------------------------------  ----------  ---------- 
Profit for the period attributable to ordinary shareholders          816       1,256 
------------------------------------------------------------  ----------  ---------- 
 
Items normalised: 
  Provision for regulatory matters                                  (14)         204 
  Restructuring                                                       90          14 
  Profit from associates and joint ventures                            -        (23) 
  Goodwill impairment (Note 9)                                       258           - 
  Net gain on businesses (Note 6)                                    (6)           - 
  Tax on normalised items                                            (6)         172 
------------------------------------------------------------  ----------  ---------- 
Underlying profit                                                  1,138       1,623 
------------------------------------------------------------  ----------  ---------- 
 
Basic - Weighted average number of shares (millions)               3,168       3,304 
Diluted - Weighted average number of shares (millions)             3,204       3,348 
 
Basic earnings per ordinary share (cents)                           25.8        38.0 
------------------------------------------------------------  ----------  ---------- 
Diluted earnings per ordinary share (cents)                         25.5        37.5 
------------------------------------------------------------  ----------  ---------- 
Underlying basic earnings per ordinary share (cents)                35.9        49.1 
------------------------------------------------------------  ----------  ---------- 
Underlying diluted earnings per ordinary share (cents)              35.5        48.5 
------------------------------------------------------------  ----------  ---------- 
 

13. 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                         -            -            -           -              -          -     52,925     52,925 
Financial 
assets 
held at fair 
value through 
profit or loss 
                       ---------  -----------  -----------  ----------  -------------  ---------  ---------  --------- 
  Loans and 
   advances 
   to banks1               1,313            -        1,023           -              -      2,336          -      2,336 
  Loans and 
   advances 
   to 
   customers1              4,711            -        5,701          41              -     10,453          -     10,453 
  Reverse 
   repurchase 
   agreements 
   and 
   other 
   similar 
   secured 
   lending         15          -            -       59,002           -              -     59,002          -     59,002 
  Debt 
   securities, 
   alternative 
   tier 
   one and 
   other 
   eligible 
   bills                  23,556            -          190         270              -     24,016          -     24,016 
  Equity 
   shares                  2,260            -          292           -              -      2,552          -      2,552 
                       ---------  -----------  -----------  ----------  -------------  ---------  ---------  --------- 
                          31,840            -       66,208         311              -     98,359          -     98,359 
Derivative 
 financial 
 instruments       14     50,186        2,041            -           -              -     52,227          -     52,227 
Loans and 
 advances 
 to banks1                     -            -            -           -              -          -     50,499     50,499 
                       ---------  -----------  -----------  ----------  -------------  ---------  ---------  --------- 
  of which: 
   reverse 
   repurchase 
   agreements 
   and other 
   similar 
   secured 
   lending         15          -            -            -           -              -          -      1,893      1,893 
                       ---------  -----------  -----------  ----------  -------------  ---------  ---------  --------- 
Loans and 
 advances 
 to customers1                 -            -            -           -              -          -    276,313    276,313 
                       ---------  -----------  -----------  ----------  -------------  ---------  ---------  --------- 
  of which: 
   reverse 
   repurchase 
   agreements 
   and other 
   similar 
   secured 
   lending         15          -            -            -           -              -          -      4,383      4,383 
                       ---------  -----------  -----------  ----------  -------------  ---------  ---------  --------- 
Investment 
securities 
                       ---------  -----------  -----------  ----------  -------------  ---------  ---------  --------- 
  Debt 
   securities, 
   alternative 
   tier 
   one and 
   other 
   eligible 
   bills                       -            -            -           -        129,188    129,188     16,139    145,327 
  Equity 
   shares                      -            -            -           -            407        407          -        407 
                       ---------  -----------  -----------  ----------  -------------  ---------  ---------  --------- 
                               -            -            -           -        129,595    129,595     16,139    145,734 
Other assets       18          -            -            -           -              -          -     42,183     42,183 
Assets held 
 for 
 sale              19          -            -           39         136              -        175        157        332 
--------------  -----  ---------  -----------  -----------  ----------  -------------  ---------  ---------  --------- 
Total at 30 
 June 
 2020                     82,026        2,041       66,247         447        129,595    280,356    438,216    718,572 
--------------  -----  ---------  -----------  -----------  ----------  -------------  ---------  ---------  --------- 
 

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                         -            -            -           -              -          -     52,728     52,728 
Financial 
assets 
held at fair 
value through 
profit or loss 
                       ---------  -----------  -----------  ----------  -------------  ---------  ---------  --------- 
  Loans and 
   advances 
   to banks1                 198            -        3,330           -              -      3,528          -      3,528 
  Loans and 
   advances 
   to 
   customers1              2,886            -        4,010           -              -      6,896          -      6,896 
  Reverse 
   repurchase 
   agreements 
   and 
   other 
   similar 
   secured 
   lending         15          -            -       57,604           -              -     57,604          -     57,604 
  Debt 
   securities, 
   alternative 
   tier 
   one and 
   other 
   eligible 
   bills                  21,877            -          166         278              -     22,321          -     22,321 
  Equity 
   shares2                 2,208            -          261           -              -      2,469          -      2,469 
                       ---------  -----------  -----------  ----------  -------------  ---------  ---------  --------- 
                          27,169            -       65,371         278              -     92,818          -     92,818 
Derivative 
 financial 
 instruments       14     46,424          788            -           -              -     47,212          -     47,212 
Loans and 
 advances 
 to banks1                     -            -            -           -              -          -     53,549     53,549 
                       ---------  -----------  -----------  ----------  -------------  ---------  ---------  --------- 
  of which: 
   reverse 
   repurchase 
   agreements 
   and other 
   similar 
   secured 
   lending         15          -            -            -           -              -          -      1,341      1,341 
                       ---------  -----------  -----------  ----------  -------------  ---------  ---------  --------- 
Loans and 
 advances 
 to customers1                 -            -            -           -              -          -    268,523    268,523 
                       ---------  -----------  -----------  ----------  -------------  ---------  ---------  --------- 
  of which: 
   reverse 
   repurchase 
   agreements 
   and other 
   similar 
   secured 
   lending         15          -            -            -           -              -          -      1,469      1,469 
                       ---------  -----------  -----------  ----------  -------------  ---------  ---------  --------- 
Investment 
securities 
                       ---------  -----------  -----------  ----------  -------------  ---------  ---------  --------- 
  Debt 
   securities, 
   alternative 
   tier 
   one and 
   other 
   eligible 
   bills                       -            -            -           -        129,471    129,471     13,969    143,440 
  Equity 
   shares                      -            -            -           -            291        291          -        291 
                       ---------  -----------  -----------  ----------  -------------  ---------  ---------  --------- 
                               -            -            -           -        129,762    129,762     13,969    143,731 
Other assets       18          -            -            -           -              -          -     36,161     36,161 
Assets held 
 for 
 sale              19          -            -           87         243              -        330         90        420 
--------------  -----  ---------  -----------  -----------  ----------  -------------  ---------  ---------  --------- 
Total at 31 
 December 
 2019                     73,593          788       65,458         521        129,762    270,122    425,020    695,142 
--------------  -----  ---------  -----------  -----------  ----------  -------------  ---------  ---------  --------- 
 

1 Further analysed in Risk review and Capital review

2 Prior year figures have been restated as the investments in Private Equity has been reclassified from designated at fair value to Non Trading FVTPL category to reflect correct classification of portfolio

 
                                                        Liabilities at fair value 
-----------------------------------  -----  -------------------------------------------------  ---------  --------- 
                                                                     Designated 
                                                                        at fair         Total 
                                                                          value     financial 
                                                        Derivatives     through   liabilities 
                                                               held      profit       at 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                                 -             -       1,258         1,258          -      1,258 
  Customer accounts                                 -             -       7,696         7,696          -      7,696 
  Repurchase agreements and other 
   similar secured borrowing            15          -             -      45,274        45,274          -     45,274 
  Debt securities in issue                          -             -       5,728         5,728          -      5,728 
  Short positions                               4,427             -           -         4,427          -      4,427 
                                            ---------  ------------  ----------  ------------  ---------  --------- 
                                                4,427             -      59,956        64,383          -     64,383 
 
Derivative financial instruments        14     48,723         2,103           -        50,826          -     50,826 
Deposits by banks                                   -             -           -             -     28,986     28,986 
Customer accounts                                   -             -           -             -    421,153    421,153 
Repurchase agreements and other 
 similar secured borrowing              15          -             -           -             -      2,811      2,811 
Debt securities in issue                            -             -           -             -     51,086     51,086 
Other liabilities                       20          -             -           -             -     48,663     48,663 
Subordinated liabilities and other 
 borrowed funds                         23          -             -           -             -     16,826     16,826 
-----------------------------------  -----  ---------  ------------  ----------  ------------  ---------  --------- 
Total at 30 June 2020                          53,150         2,103      59,956       115,209    569,525    684,734 
-----------------------------------  -----  ---------  ------------  ----------  ------------  ---------  --------- 
 
 
                                                        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                                 -             -       1,081         1,081          -      1,081 
  Customer accounts                                 -             -       6,947         6,947          -      6,947 
  Repurchase agreements and other 
   similar secured borrowing            15          -             -      46,283        46,283          -     46,283 
  Debt securities in issue                          -             -       8,510         8,510          -      8,510 
  Short positions                               4,153             -           -         4,153          -      4,153 
                                            ---------  ------------  ----------  ------------  ---------  --------- 
                                                4,153             -      62,821        66,974          -     66,974 
 
Derivative financial instruments        14     46,906         1,578           -        48,484          -     48,484 
Deposits by banks                                   -             -           -             -     28,562     28,562 
Customer accounts                                   -             -           -             -    405,357    405,357 
Repurchase agreements and other 
 similar secured borrowing              15          -             -           -             -      1,935      1,935 
Debt securities in issue                            -             -           -             -     53,025     53,025 
Other liabilities                       20          -             -           -             -     41,149     41,149 
Subordinated liabilities and other 
 borrowed funds                         23          -             -           -             -     16,207     16,207 
-----------------------------------  -----  ---------  ------------  ----------  ------------  ---------  --------- 
Total at 31 December 2019                      51,059         1,578      62,821       115,458    546,235    661,693 
-----------------------------------  -----  ---------  ------------  ----------  ------------  ---------  --------- 
 

Financial liabilities designated at fair value through profit or loss

 
                                                              30.06.20    31.12.19 
                                                              $million    $million 
----------------------------------------------------------  ----------  ---------- 
Carrying balance aggregate fair value                           59,956      62,821 
Amount contractually obliged to repay at maturity               59,701      62,505 
Difference between aggregate fair value and contractually 
 obliged to repay at maturity                                      255         316 
Cumulative change in fair value accredited to credit 
 risk difference                                                    35          17 
----------------------------------------------------------  ----------  ---------- 
 

The net fair value loss on financial liabilities designated at fair value through profit or loss was $166 million for the period (31 December 2019: net loss of $1,602 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 cash flow 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 cash flow 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 cash flow 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 cash flows 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 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 cash flow 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 cash flows 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 cash flows

- 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 cash flows 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 re-prices within one month, and approximately half re-prices 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 cash flows expected to be received, including assumptions relating to prepayment rates and Credit Risk. Expected cash flows 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 comprise 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 re-price 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                              during 
                                 01.01.20    the period    30.06.20    01.01.19    the year    31.12.19 
                                 $million      $million    $million    $million    $million    $million 
-----------------------------  ----------  ------------  ----------  ----------  ----------  ---------- 
Bid-offer valuation 
 adjustment                            79            34         113          67          12          79 
CVA                                   136           202         338         196        (60)         136 
DVA                                  (43)         (103)       (146)       (143)         100        (43) 
Model valuation adjustment              7           (2)           5           6           1           7 
FVA                                    26             8          34          60        (34)          26 
Other fair value adjustments           45           (8)          37          59        (14)          45 
-----------------------------  ----------  ------------  ----------  ----------  ----------  ---------- 
Total                                 250           131         381         245           5         250 
-----------------------------  ----------  ------------  ----------  ----------  ----------  ---------- 
 
Income deferrals 
Day 1 and other deferrals             103            38         141         100           3         103 
-----------------------------  ----------  ------------  ----------  ----------  ----------  ---------- 
Total                                 103            38         141         100           3         103 
-----------------------------  ----------  ------------  ----------  ----------  ----------  ---------- 
 

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 cash flows 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 own credit adjustment (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 cash flows using a yield curve adjusted for market observed secondary senior unsecured credit spreads. The OCA at 30 June 2020 is $35 million, other comprehensive income loss $22 million (31 December 2019: $17 million, other comprehensive income gain $462 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                             -       2,136         200       2,336 
  Loans and advances to customers                         -       9,915         538      10,453 
  Reverse repurchase agreements and other 
   similar secured lending                               83      58,165         754      59,002 
  Debt securities, alternative tier one 
   and other eligible bills                           7,657      16,139         220      24,016 
  Of which: 
                                                 ----------  ----------  ----------  ---------- 
     Government bonds and treasury bills              7,211       8,948           -      16,159 
     Issued by corporates other than financial 
      institutions1                                       8       4,189         201       4,398 
     Issued by financial institutions1                  438       3,002          19       3,459 
                                                 ----------  ----------  ----------  ---------- 
 
  Equity shares                                       2,290           -         262       2,552 
 
Derivative financial instruments                        610      51,571          46      52,227 
  Of which: 
                                                 ----------  ----------  ----------  ---------- 
     Foreign exchange                                    21      34,747          33      34,801 
     Interest rate                                       55      14,003           4      14,062 
     Credit                                               -       1,259           3       1,262 
     Equity and stock index options                       -         105           6         111 
     Commodity                                          534       1,457           -       1,991 
                                                 ----------  ----------  ----------  ---------- 
 
Investment securities 
  Debt securities, alternative tier one 
   and other eligible bills                          71,945      57,174          69     129,188 
  Of which: 
                                                 ----------  ----------  ----------  ---------- 
     Government bonds and treasury bills             53,671      21,813          33      75,517 
     Issued by corporates other than financial 
      institutions1                                   6,416      10,521          36      16,973 
     Issued by financial institutions1               11,858      24,840           -      36,698 
                                                 ----------  ----------  ----------  ---------- 
 
  Equity shares                                          34           8         365         407 
-----------------------------------------------  ----------  ----------  ----------  ---------- 
Total financial instruments at 30 June 
 20202                                               82,619     195,108       2,454     280,181 
-----------------------------------------------  ----------  ----------  ----------  ---------- 
 
Liabilities 
Financial instruments held at fair 
 value through profit or loss 
                                                 ----------  ----------  ----------  ---------- 
  Deposits by banks                                       -       1,189          69       1,258 
  Customer accounts                                       -       7,667          29       7,696 
  Repurchase agreements and other similar 
   secured borrowing                                      -      45,274           -      45,274 
  Debt securities in issue                                -       5,272         456       5,728 
  Short positions                                     3,057       1,370           -       4,427 
                                                 ----------  ----------  ----------  ---------- 
 
Derivative financial instruments                        625      50,092         109      50,826 
  Of which: 
                                                 ----------  ----------  ----------  ---------- 
     Foreign exchange                                    82      34,723          31      34,836 
     Interest rate                                       41      12,441          30      12,512 
     Credit                                               -       2,093          22       2,115 
     Equity and stock index options                       -          84          26         110 
     Commodity                                          502         751           -       1,253 
                                                 ----------  ----------  ----------  ---------- 
 
Total financial instruments at 30 June 
 20202                                                3,682     110,864         663     115,209 
-----------------------------------------------  ----------  ----------  ----------  ---------- 
 

1 Includes covered bonds of $6,680 million, securities issued by Multilateral Development Banks/International Organisations of $11,699 million and State-owned agencies and development banks of $16,269 million

2 The above table does not include held for sale assets of $175 million and liabilities of $nil. These are reported in Note 19 together with their fair value hierarchy

There were no significant changes to valuation or levelling approaches in 2020.

There were no significant transfers of financial assets and liabilities measured at fair value between Level 1 and Level 2 during the period.

 
                                                    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                             -       3,163         365       3,528 
  Loans and advances to customers                         -       6,453         443       6,896 
  Reverse repurchase agreements and other 
   similar secured lending                                -      57,604           -      57,604 
  Debt securities, alternative tier one 
   and other eligible bills                           5,963      16,158         200      22,321 
  Of which: 
                                                 ----------  ----------  ----------  ---------- 
     Government bonds and treasury bills1             5,656       7,898           -      13,554 
     Issued by corporates other than financial 
      institutions1                                       7       5,090         200       5,297 
     Issued by financial institutions                   300       3,170           -       3,470 
                                                 ----------  ----------  ----------  ---------- 
 
  Equity shares                                       2,241           -         228       2,469 
 
Derivative financial instruments                        466      46,729          17      47,212 
  Of which: 
                                                 ----------  ----------  ----------  ---------- 
     Foreign exchange                                    69      25,929           8      26,006 
     Interest rate                                       28      19,342           4      19,374 
     Credit                                               -       1,231           1       1,232 
     Equity and stock index options                       -          23           4          27 
     Commodity                                          369         204           -         573 
                                                 ----------  ----------  ----------  ---------- 
 
Investment securities 
  Debt securities, alternative tier one 
   and other eligible bills                          73,699      55,734          38     129,471 
  Of which: 
                                                 ----------  ----------  ----------  ---------- 
     Government bonds and treasury bills             54,637      19,664          33      74,334 
     Issued by corporates other than financial 
      institutions1                                  11,667      14,505           5      26,177 
     Issued by financial institutions1                7,395      21,565           -      28,960 
                                                 ----------  ----------  ----------  ---------- 
 
  Equity shares                                          30           4         257         291 
-----------------------------------------------  ----------  ----------  ----------  ---------- 
Total financial instruments at 31 December 
 20192                                               82,399     185,845       1,548     269,792 
-----------------------------------------------  ----------  ----------  ----------  ---------- 
 
Liabilities 
Financial instruments held at fair 
 value through profit or loss 
                                                 ----------  ----------  ----------  ---------- 
  Deposits by banks                                       -       1,025          56       1,081 
  Customer accounts                                       -       6,907          40       6,947 
  Repurchase agreements and other similar 
   secured borrowing                                      -      46,283           -      46,283 
  Debt securities in issue                                -       8,100         410       8,510 
  Short positions                                     2,499       1,654           -       4,153 
                                                 ----------  ----------  ----------  ---------- 
 
Derivative financial instruments                        515      47,912          57      48,484 
  Of which: 
                                                 ----------  ----------  ----------  ---------- 
     Foreign exchange                                    97      26,824           5      26,926 
     Interest rate                                       31      18,891           9      18,931 
     Credit                                               -       1,892          23       1,915 
     Equity and stock index options                       -          76          20          96 
     Commodity                                          387         229           -         616 
                                                 ----------  ----------  ----------  ---------- 
 
Total financial instruments at 31 December 
 20192                                                3,014     111,881         563     115,458 
-----------------------------------------------  ----------  ----------  ----------  ---------- 
 

1 Includes covered bonds of $6,137 million (represented from $3,499 million), securities issued by Multilateral Development Banks/International Organisations of $11,894 million and State-owned agencies and development banks of $17,936 million

2 The above table does not include held for sale assets of $330 million and liabilities of $nil. These are reported in Note 19 together with their fair value hierarchy

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.

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                               52,925           -      52,925           -      52,925 
Loans and advances to banks           50,499           -      50,518           -      50,518 
                                  ----------  ----------  ----------  ----------  ---------- 
  of which - reverse repurchase 
   agreements and other similar 
   secured lending                     1,893           -       1,909           -       1,909 
                                  ----------  ----------  ----------  ----------  ---------- 
Loans and advances to customers      276,313           -      31,354     246,005     277,359 
                                  ----------  ----------  ----------  ----------  ---------- 
  of which - reverse repurchase 
   agreements and other similar 
   secured lending                     4,383           -       2,624       1,762       4,386 
                                  ----------  ----------  ----------  ----------  ---------- 
Investment securities2                16,139           -      17,082          38      17,120 
Other assets1                         42,183           -      42,183           -      42,183 
Assets held for sale                     157           -         133          24         157 
--------------------------------  ----------  ----------  ----------  ----------  ---------- 
At 30 June 2020                      438,216           -     194,195     246,067     440,262 
--------------------------------  ----------  ----------  ----------  ----------  ---------- 
Liabilities 
Deposits by banks                     28,986           -      28,860           -      28,860 
Customer accounts                    421,153           -     421,043           -     421,043 
Repurchase agreements and other 
 similar secured borrowing             2,811           -       2,811           -       2,811 
Debt securities in issue              51,086      22,945      27,790           -      50,735 
Subordinated liabilities and 
 other borrowed funds                 16,826      16,120         885           -      17,005 
Other liabilities1                    48,663           -      48,663           -      48,663 
--------------------------------  ----------  ----------  ----------  ----------  ---------- 
At 30 June 2020                      569,525      39,065     530,052           -     569,117 
--------------------------------  ----------  ----------  ----------  ----------  ---------- 
 
 
                                                                Fair value 
--------------------------------  ----------  ---------------------------------------------- 
                                    Carrying 
                                       value     Level 1     Level 2     Level 3       Total 
                                    $million    $million    $million    $million    $million 
--------------------------------  ----------  ----------  ----------  ----------  ---------- 
Assets 
Cash and balances at central 
 banks1                               52,728           -      52,728           -      52,728 
Loans and advances to banks           53,549           -      53,431           -      53,431 
                                  ----------  ----------  ----------  ----------  ---------- 
  of which - reverse repurchase 
   agreements and other similar 
   secured lending                     1,341           -       1,356           -       1,356 
                                  ----------  ----------  ----------  ----------  ---------- 
Loans and advances to customers      268,523           -      22,829     246,632     269,461 
                                  ----------  ----------  ----------  ----------  ---------- 
  of which - reverse repurchase 
   agreements and other similar 
   secured lending                     1,469           -       1,341         130       1,471 
                                  ----------  ----------  ----------  ----------  ---------- 
Investment securities2                13,969           -   14,238(3)          20      14,261 
Other assets1                         36,161           -      36,161           -      36,161 
Assets held for sale                      90           -          90           -          90 
--------------------------------  ----------  ----------  ----------  ----------  ---------- 
At 31 December 2019                  425,020           -     179,477     246,652     426,132 
--------------------------------  ----------  ----------  ----------  ----------  ---------- 
Liabilities 
Deposits by banks                     28,562           -      28,577           -      28,577 
Customer accounts                    405,357           -     405,361           -     405,361 
Repurchase agreements and other 
 similar secured borrowing             1,935           -       1,935           -       1,935 
Debt securities in issue              53,025      20,031      33,269           -      53,300 
Subordinated liabilities and 
 other borrowed funds                 16,207      15,986         803           -      16,789 
Other liabilities1                    41,149           -      41,149           -      41,149 
--------------------------------  ----------  ----------  ----------  ----------  ---------- 
At 31 December 2019                  546,235      36,017     511,094           -     547,111 
--------------------------------  ----------  ----------  ----------  ----------  ---------- 
 

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 $6,339 million as at 30 June 2020 (31 December 2019: $5,973 million)

3 Fair value of investment securities restated from $13,107 million to $14,238 million

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 as at 30 
                               June 2020 
----------------------  ----------------------  --------------------  --------------------  -------------  --------- 
                                                                      Significant 
                           Assets  Liabilities  Principal valuation   unobservable                          Weighted 
Instrument               $million     $million   technique            inputs                       Range1   average2 
----------------------  ---------  -----------  --------------------  --------------------  -------------  --------- 
Loans and advances                              Discounted cash 
 to banks                     200            -   flows                Price/yield              4.6%-13.9%      10.6% 
----------------------  ---------  -----------  --------------------  --------------------  -------------  --------- 
Loans and advances                              Discounted cash 
 to customers                 538            -   flows                Price/yield              3.6%-15.4%      10.3% 
---------------------- 
                                                Discounted cash 
                                                 flows                Recovery rates           41.5%-100%      88.6% 
----------------------  ---------  -----------  --------------------  --------------------  -------------  --------- 
Reverse repurchase 
 agreements and 
 other similar                                  Discounted cash 
 secured lending              754            -   flows                Repo rate                      2.9%       2.9% 
----------------------  ---------  -----------  --------------------  --------------------  -------------  --------- 
Debt securities, 
 alternative 
 tier one and 
 other eligible                                 Discounted cash 
 securities                   140            -   flows                Price/yield              4.0%-27.8%      22.8% 
----------------------  ---------  -----------  --------------------  --------------------  -------------  --------- 
Government bonds 
 and treasury                                   Discounted cash 
 bills                         33            -   flows                Price/yield               2.9%-5.5%       3.8% 
----------------------  ---------  -----------  --------------------  --------------------  -------------  --------- 
Asset-backed                                    Discounted cash 
 securities                   116            -   flows                Price/yield              1.0%-32.8%      12.3% 
Equity shares 
 (includes private                              Comparable 
 equity investments)3         627            -  pricing/yield         EV/EBITDA multiples      3.3x-12.6x       9.2x 
----------------------  ---------  ----------- 
                                                                      P/E multiples                 17.5x      17.5x 
----------------------  ---------  ----------- 
                                                                      P/B multiples             0.3x-0.8x       0.7x 
                                                                      P/S multiples                    NA         NA 
                                                                      Liquidity discount      10.0%-20.0%      18.0% 
                                                Discounted cash 
                                                 flows                Discount rates           6.0%-14.9%       7.9% 
                                                                      Equity value based 
                                                Option pricing         on EV/ Revenue 
                                                 model                 multiples               9.0x-13.9x       9.9x 
----------------------  ---------  -----------  --------------------  --------------------  -------------  --------- 
Derivative financial 
 instruments 
 of which: 
                                                                      Foreign Exchange 
                                                Option pricing         Option Implied 
  Foreign exchange             33           31   model                 Volatility             (0.5)%-1.9%       1.4% 
                                                Discounted cash       Foreign Exchange 
                                                 flows                 Curves                  0.8%-18.0%      12.1% 
                                                Discounted cash       Interest Rate 
  Interest rate                 4           30   flows                 Curves                  1.4%-13.6%       6.0% 
                                                Option pricing        Bond Option Implied 
                                                 model                 Volatility             20.0%-28.0%      23.8% 
                                                Discounted cash 
  Credit                        3           22   flows                Credit Spreads           1.0%-15.4%      11.3% 
  Equity and stock                              Internal pricing      Equity-Equity 
   index                        6           26   model                 Correlation             2.0%-90.0%      65.0% 
---------------------- 
                                                                      Equity-FX 
                                                                      Correlation           (85.0)%-70.0%      39.0% 
----------------------  ---------  -----------  --------------------  --------------------  -------------  --------- 
Deposits by                                     Discounted cash 
 banks                          -           69   flows                Credit Spreads                 1.0%       1.0% 
----------------------  ---------  -----------  --------------------  --------------------  -------------  --------- 
                                                Discounted cash 
Customer accounts               -           29   flows                Credit Spreads           1.0%-32.8%      29.4% 
----------------------  ---------  -----------  --------------------  --------------------  -------------  --------- 
Debt securities                                 Discounted cash 
 in issue                       -          456   flows                Credit Spreads           0.1%-27.8%      13.6% 
---------------------- 
                                                Internal pricing      Equity-Equity 
                                                 model                 Correlation             2.0%-90.0%      65.0% 
----------------------                          -------------------- 
                                                                      Equity-FX 
                                                                      Correlation           (85.0)%-70.0%      39.0% 
----------------------  ---------  -----------  --------------------  --------------------  -------------  --------- 
Total                       2,454          663 
----------------------  ---------  -----------  --------------------  --------------------  -------------  --------- 
 

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 2020. 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

 
                             Value as at 
                              31 December 
                                 2019 
                        ---------------------- 
                                                                      Significant 
                           Assets  Liabilities  Principal valuation   unobservable                          Weighted 
Instrument               $million     $million   technique            inputs                       Range1   average2 
Loans and advances                              Discounted cash 
 to banks                     365            -   flows                Price/yield              1.0%-15.6%      10.8% 
----------------------  ---------  -----------  --------------------  ---------------------  ------------  --------- 
Loans and advances                              Discounted cash 
 to customers                 443            -   flows                Price/yield             0.5% - 6.9%       4.2% 
----------------------                          -------------------- 
                                                                                                  18.9% - 
                                                                      Recovery rates                 100%      92.1% 
----------------------  ---------  -----------  --------------------  ---------------------  ------------  --------- 
Debt securities, 
 alternative 
 tier one and 
 other eligible                                 Discounted cash 
 securities                   184            -   flows                Price/yield            3.8% - 18.7%      11.6% 
----------------------  ---------  -----------  --------------------  ---------------------  ------------  --------- 
Government bonds 
 and treasury                                   Discounted cash 
 bills                         33            -   flows                Price/Yield             2.9% - 5.5%       3.7% 
----------------------  ---------  -----------  --------------------  ---------------------  ------------  --------- 
Asset backed                                    Discounted cash 
 securities                    21            -   flows                Price/Yield             1.4% - 3.2%       2.7% 
----------------------  ---------  -----------  --------------------  ---------------------  ------------  --------- 
Equity shares 
 (includes private                              Comparable 
 equity investments)3         485            -  pricing/yield         EV/EBITDA multiples     3.5x - 7.3x       4.6x 
---------------------- 
                                                                      P/E multiples                 17.4x      17.4x 
---------------------- 
                                                                      P/B multiples           0.6x - 1.0x       0.9x 
                                                                      P/S multiples                   N/A        N/A 
                                                                                                  10.0% - 
                                                                      Liquidity discount            20.0%      15.9% 
                                                Discounted cash 
                                                 flows                Discount rates         8.4% - 16.2%       9.5% 
----------------------  ---------  -----------  --------------------  ---------------------  ------------  --------- 
Derivative financial 
 instruments 
 of which: 
                                                                      Foreign Exchange 
                                                Option Pricing         Option Implied 
  Foreign exchange              8            5   Model                 Volatility            4.4% - 18.9%      16.7% 
                                                Discounted cash       Foreign Exchange 
                                                 flows                 Curves                 7.8% - 8.0%       7.9% 
                                                Discounted cash       Interest rate 
  Interest rate                 4            9   flows                 curves                5.3% - 19.6%       8.6% 
                                                Option Pricing        Bond Option Implied         17.0% - 
                                                 Model                 Volatility                   28.0%      24.0% 
                                                Discounted cash 
  Credit                        1           23   flows                Credit spreads          1.0% - 7.9%       1.1% 
  Equity and stock                              Internal pricing 
   index                        4           20   model                Equity Correlation     1.0% - 90.0%      58.0% 
----------------------                          -------------------- 
                                                                                                  (80.0)% 
                                                                      Equity-FX Correlation       - 70.0%    (29.0)% 
----------------------  ---------  -----------  --------------------  ---------------------  ------------  --------- 
Deposits by                                     Discounted cash 
 banks                          -           56   flows                Credit Spreads          1.0% - 1.8%       1.4% 
----------------------  ---------  -----------  --------------------  ---------------------  ------------  --------- 
                                                Discounted cash 
Customer accounts               -           40   flows                Credit Spreads          1.0% - 5.8%       2.7% 
----------------------  ---------  -----------  --------------------  ---------------------  ------------  --------- 
Debt securities                                 Discounted cash 
 in issue                                  410   flows                Credit Spreads          0.1% - 1.4%       0.9% 
---------------------- 
                                                Internal pricing 
                                                 model                Equity Correlation     1.0% - 90.0%      58.0% 
----------------------                          -------------------- 
                                                                                                  (80.0)% 
                                                                      Equity-FX Correlation       - 70.0%    (29.0)% 
----------------------  ---------  -----------  --------------------  ---------------------  ------------  --------- 
Total                       1,548          563 
----------------------  ---------  -----------  --------------------  ---------------------  ------------  --------- 
 

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 31 December 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 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 cash flows in a discounted cash flow 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 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 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 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 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 cash flows 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 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.

 
                                                               30.06.2020 
---------------  ------------------------------------------------------------------------------------------------------ 
                           Held at fair value through profit                                Investment 
                                         or loss                                            securities 
                 ------------------------------------------------------  -----------                          --------- 
                                                         Debt                                Debt 
                                                  securities,                         securities, 
                                         Reverse  alternative                         alternative 
                                      repurchase         tier                                tier 
                               Loans  agreements          one                                 one 
                    Loans        and   and other          and                                 and 
                      and   advances     similar        other             Derivative        other 
                 advances         to     secured     eligible    Equity    financial     eligible     Equity 
                 to banks  customers     lending        bills    shares  instruments        bills     shares      Total 
Assets           $million   $million    $million     $million  $million     $million     $million   $million   $million 
---------------  --------  ---------  ----------  -----------  --------  -----------  -----------  ---------  --------- 
As at 1 January 
 2020                 365        443           -          200       228           17           38        257      1,548 
Total 
 gains/(losses) 
 recognised in 
 income 
 statement             15       (15)           4         (20)      (24)           12            -          -       (28) 
                 --------  ---------  ----------  -----------  --------  -----------  -----------  ---------  --------- 
  Net trading 
   income              15       (15)           4         (20)      (24)           15            -          -       (25) 
  Other 
   operating 
   income               -          -           -            -         -          (3)            -          -        (3) 
                 --------  ---------  ----------  -----------  --------  -----------  -----------  ---------  --------- 
Total 
 (losses)/gains 
 recognised in 
 other 
 comprehensive 
 income 
 (OCI)                  -          -           -            -         -            -          (1)         27         26 
                 --------  ---------  ----------  -----------  --------  -----------  -----------  ---------  --------- 
  Fair value 
   through 
   OCI reserve          -          -           -            -         -            -            -         27         27 
  Exchange 
   difference           -          -           -            -         -            -          (1)          -        (1) 
                 --------  ---------  ----------  -----------  --------  -----------  -----------  ---------  --------- 
Purchases             272         46         750          114         -           84           37         82      1,385 
Sales               (164)       (30)           -         (76)       (4)         (65)            -        (1)      (340) 
Settlements         (288)       (71)           -         (45)         -          (5)            -          -      (409) 
Transfers out1          -       (73)           -         (16)         -          (5)          (5)          -       (99) 
Transfers in2           -        238           -           63        62            8            -          -        371 
---------------  --------  ---------  ----------  -----------  --------  -----------  -----------  ---------  --------- 
As at 30 June 
 2020                 200        538         754          220       262           46           69        365      2,454 
---------------  --------  ---------  ----------  -----------  --------  -----------  -----------  ---------  --------- 
Total 
 unrealised 
 gains 
 recognised in 
 the 
 income 
 statement, 
 within net 
 trading 
 income, 
 relating to 
 change in fair 
 value 
 of assets held 
 at 
 30 June 2020           -          -           1           10                      -            -          -         11 
---------------  --------  ---------  ----------  -----------  --------  -----------  -----------  ---------  --------- 
 

1 Transfers out includes loans and advances, debt securities, alternative tier one and other eligible bills 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 one and other eligible bills, equity shares and derivative financial instruments where the valuation parameters become unobservable during the period

The table below analyses movements in Level 3 financial assets carried at fair value.

 
                                                                30.06.19 
---------------  ------------------------------------------------------------------------------------------------------- 
                              Held at fair value through                                   Investment 
                                     profit or loss                                         securities 
                                                                        -----------  -----------------------  ---------- 
                                                      Debt                                  Debt 
                                               securities,                           securities, 
                                               alternative                           alternative 
                        Loans           Loans         tier                                  tier 
                 and advances    and advances          one      Equity                       one      Equity 
                                                       and                                   and 
                                                     other               Derivative        other 
                                                  eligible                financial     eligible 
                    to banks3    to customers        bills      shares  instruments        bills      shares       Total 
Assets               $million        $million     $million    $million     $million     $million    $million    $million 
---------------  ------------  --------------  -----------  ----------  -----------  -----------  ----------  ---------- 
As at 1 January 
 2019                     632             492          317         327           12          412         230       2,422 
Total 
 gains/(losses) 
 recognised in 
 income 
 statement                 42             (3)         (23)        (16)            1            3           -           4 
                 ------------  --------------  -----------  ----------  -----------  -----------  ----------  ---------- 
  Net trading 
   income                  42             (3)         (23)        (16)            1            -           -           1 
  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                 226              29           46          69           58          202          16         646 
Sales                       -             (8)        (155)        (12)         (20)            -           -       (195) 
Settlements             (319)           (121)          (3)           -          (2)         (58)           -       (503) 
Transfers out1              -               -         (86)        (74)          (3)         (73)           -       (236) 
Transfers in2               -              81           53          75            2            -           3         214 
---------------  ------------  --------------  -----------  ----------  -----------  -----------  ----------  ---------- 
As at 30 June 
 2019                     581             470          149         369           48          159         253       2,029 
---------------  ------------  --------------  -----------  ----------  -----------  -----------  ----------  ---------- 
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 
---------------  ------------  --------------  -----------  ----------  -----------  -----------  ----------  ---------- 
 
 
                                                               31.12.19 
---------------  ----------------------------------------------------------------------------------------------------- 
                             Held at fair value through                                   Investment 
                                    profit or loss                                         securities 
                 ---------------------------------------------------  ------------  -----------------------  --------- 
                                                     Debt                                   Debt 
                                              securities,                            securities, 
                                              alternative                            alternative 
                                                     tier                                   tier 
                                                      one                                    one 
                                                      and                                    and 
                        Loans         Loans         other               Derivative         other 
                 and advances  and advances      eligible     Equity     financial      eligible     Equity 
                     to banks  to customers         bills     shares   instruments         bills     shares      Total 
Assets               $million      $million      $million   $million      $million      $million   $million   $million 
---------------  ------------  ------------  ------------  ---------  ------------  ------------  ---------  --------- 
As at 1 July 
 2019                     581           470           149        369            48           159        253      2,029 
Total 
 (losses)/gains 
 recognised in 
 income 
 statement               (67)          (28)             9       (10)          (16)           (1)          -      (113) 
                 ------------  ------------  ------------  ---------  ------------  ------------  ---------  --------- 
  Net trading 
   income                (67)          (28)             9       (10)          (16)             -          -      (112) 
  Other 
   operating 
   income                   -             -             -          -             -           (1)          -        (1) 
                 ------------  ------------  ------------  ---------  ------------  ------------  ---------  --------- 
Total 
 (losses)/gains 
 recognised in 
 other 
 comprehensive 
 income                     -             -             -          -             -          (14)          1       (13) 
                 ------------  ------------  ------------  ---------  ------------  ------------  ---------  --------- 
  Fair value 
   through OCI 
   reserve                  -             -             -          -             -           (4)          -        (4) 
  Exchange 
   difference               -             -             -          -             -          (10)          1        (9) 
                 ------------  ------------  ------------  ---------  ------------  ------------  ---------  --------- 
Purchases                 600           104            60         70            51          (46)         10        849 
Sales                       -             -          (93)      (141)           (6)           (1)        (7)      (248) 
Settlements             (749)         (132)             -          -           (3)            24          -      (860) 
Transfers out1              -           (6)             -       (60)          (72)          (88)          -      (226) 
Transfers in2               -            35            75          -            15             5          -        130 
---------------  ------------  ------------  ------------  ---------  ------------  ------------  ---------  --------- 
As at 31 
 December 2019            365           443           200        228            17            38        257      1,548 
---------------  ------------  ------------  ------------  ---------  ------------  ------------  ---------  --------- 
Total 
 unrealised 
 losses 
 recognised in 
 the income 
 statement, 
 within net 
 trading 
 income, 
 relating 
 to change in 
 fair value 
 of assets held 
 at 
 31 December 
 2019                       -           (1)           (1)          -           (4)             -          -        (6) 
---------------  ------------  ------------  ------------  ---------  ------------  ------------  ---------  --------- 
 

1 Transfers out include loans and advances, equity shares, debt securities, alternative tier one and other eligible bills, and derivative financial instruments where the valuation parameters became observable during the year, and were transferred to Level 1 and Level 2

2 Transfers in primarily relate to loans and advances, debt securities, alternative tier one and other eligible bills, equity shares and derivative financial instruments where the valuation parameters become unobservable during the period

3 During 2019, $632 million reported in 2018 in loans and advances to banks was reclassified from Level 2 to Level 3. Hence, prior period balances have been restated to show the impact of the same

Level 3 movement tables - financial liabilities

 
                                                                     30.06.20 
----------------------------------------  -------------------------------------------------------------- 
                                                                                   Derivative 
                                           Deposits   Customer  Debt securities     financial 
                                           by banks   accounts         in issue   instruments      Total 
Liabilities                                $million   $million         $million      $million   $million 
----------------------------------------  ---------  ---------  ---------------  ------------  --------- 
As at 1 January 2020                             56         40              410            57        563 
Total (gains)/losses recognised 
 in income statement -net trading 
 income                                         (4)        (1)             (17)             2       (20) 
Issues                                           70         45              329            94        538 
Settlements                                    (53)       (64)            (247)          (50)      (414) 
Transfers out1                                    -          -             (20)           (5)       (25) 
Transfers in2                                     -          9                1            11         21 
----------------------------------------  ---------  ---------  ---------------  ------------  --------- 
As at 30 June 2020                               69         29              456           109        663 
----------------------------------------  ---------  ---------  ---------------  ------------  --------- 
Total unrealised losses recognised 
 in the income statement, within 
 net trading income, relating 
 to change in fair value of liabilities 
 held at 30 June 2020                             -          2                -             -          2 
----------------------------------------  ---------  ---------  ---------------  ------------  --------- 
 
 
                                                                     30.06.19 
--------------------------------------------  ------------------------------------------------------- 
                                                Deposits  Debt securities      Derivative 
                                                                                financial 
                                                by banks         in issue    instruments3       Total 
Liabilities                                     $million         $million        $million    $million 
--------------------------------------------  ----------  ---------------  --------------  ---------- 
As at 1 January 2019                                   4              439              65         508 
Total losses recognised in income statement 
 - net trading income                                  -               23              47          70 
Issues                                                32              240              56         328 
Settlements                                            -            (240)            (35)       (275) 
Transfers out1                                         -                -             (9)         (9) 
Transfers in2                                          -                -             156         156 
--------------------------------------------  ----------  ---------------  --------------  ---------- 
As at 30 June 2019                                    36              462             280         778 
--------------------------------------------  ----------  ---------------  --------------  ---------- 
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 
--------------------------------------------  ----------  ---------------  --------------  ---------- 
 
 
                                                                    31.12.19 
-------------------------------------  ------------------------------------------------------------------- 
                                                                                    Derivative 
                                         Deposits    Customer  Debt securities       financial 
                                         by banks    accounts         in issue    instruments3       Total 
Liabilities                              $million    $million         $million        $million    $million 
-------------------------------------  ----------  ----------  ---------------  --------------  ---------- 
As at 1 July 2019                              36           -              462             280         778 
Total (gains)/losses recognised 
 in income statement - 
 net trading income                           (1)         (2)              (1)               7           3 
Issues                                         21          41              352             380         794 
Settlements                                     -           -            (282)           (607)       (889) 
Transfers out1                                  -           -            (121)             (4)       (125) 
Transfers in2                                   -           1                -               1           2 
-------------------------------------  ----------  ----------  ---------------  --------------  ---------- 
As at 31 December 2019                         56          40              410              57         563 
-------------------------------------  ----------  ----------  ---------------  --------------  ---------- 
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 2019                       -         (2)                2               8           8 
-------------------------------------  ----------  ----------  ---------------  --------------  ---------- 
 

1 Transfers out during the period primarily relate to debt securities in issue and derivative financial instruments where the valuation parameters became observable during the period and were transferred to Level 2 financial liabilities

2 Transfers in during the period primarily relate to customer accounts, debt securities in issue and derivative financial instruments where the valuation parameters become unobservable during the period

3 Prior period movements have been restated on account of restatement done during 2019 due to change in observability parameters

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                      738         752           700               -            -              - 
Repos and reverse repos                 754         755           753               -            -              - 
Asset backed securities                  80          85            75              36           36             36 
Debt securities, alternative 
 tier one and other eligible 
 bills                                  140         148           132              33           33             33 
Equity shares                           262         288           236             365          401            329 
Derivative financial 
 instruments                           (63)        (50)          (76)               -            -              - 
Customer accounts                      (29)        (28)          (30)               -            -              - 
Deposits by banks                      (69)        (69)          (69)               -            -              - 
Debt securities in issue              (456)       (434)         (479)               -            -              - 
-----------------------------  ------------  ----------  ------------  --------------  -----------  ------------- 
At 30 June 2020                       1,357       1,447         1,242             434          470            398 
-----------------------------  ------------  ----------  ------------  --------------  -----------  ------------- 
 
Financial instruments 
 held at fair value 
Loans and advances                      808         820           787               -            -              - 
Repos and reverse repos                   -           -             -               -            -              - 
Asset backed securities                  21          21            21               -            -              - 
Debt securities, alternative 
 tier one and other eligible 
 bills                                  179         189           170              38           38             38 
Equity shares                           228         255           201             257          283            231 
Derivative financial 
 instruments                           (40)        (34)          (46)               -            -              - 
Customer accounts                      (40)        (40)          (40)               -            -              - 
Deposits by banks                      (56)        (56)          (56)               -            -              - 
Debt securities in issue              (410)       (379)         (441)               -            -              - 
-----------------------------  ------------  ----------  ------------  --------------  -----------  ------------- 
At 31 December 2019                     690         776           596             295          321            269 
-----------------------------  ------------  ----------  ------------  --------------  -----------  ------------- 
 

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.

 
                                                                30.06.20    31.12.19 
Financial instruments                    Fair value changes     $million    $million 
---------------------------------------  -------------------  ----------  ---------- 
Held at fair value through profit 
 or loss                                 Possible increase            90          86 
 Possible decrease                                                 (115)        (94) 
 -----------------------------------------------------------  ----------  ---------- 
Fair value through other comprehensive 
 income                                  Possible increase            36          26 
 Possible decrease                                                  (36)        (26) 
 -----------------------------------------------------------  ----------  ---------- 
 

14. 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.

 
                                           30.06.20                            31.12.19 
----------------------------  ----------------------------------  ---------------------------------- 
                                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                     2,766,121     20,235       19,175   2,290,781     16,281       16,396 
Currency swaps and options     1,108,001     14,566       15,661     806,226      9,725       10,530 
----------------------------  ----------  ---------  -----------  ----------  ---------  ----------- 
                               3,874,122     34,801       34,836   3,097,007     26,006       26,926 
----------------------------  ----------  ---------  -----------  ----------  ---------  ----------- 
Interest rate derivative 
 contracts: 
Swaps                          3,411,114     70,234       68,631   4,046,209     34,011       33,351 
Forward rate agreements 
 and options                     696,863        620          710     284,973      1,826        2,061 
Exchange traded futures 
 and options                     410,142        400          363     359,031        179          161 
----------------------------  ----------  ---------  -----------  ----------  ---------  ----------- 
                               4,518,119     71,254       69,704   4,690,213     36,016       35,573 
----------------------------  ----------  ---------  -----------  ----------  ---------  ----------- 
Credit derivative contracts      123,339      1,262        2,115      80,972      1,232        1,915 
----------------------------  ----------  ---------  -----------  ----------  ---------  ----------- 
Equity and stock index 
 options                           3,996        111          110       3,412         27           96 
----------------------------  ----------  ---------  -----------  ----------  ---------  ----------- 
Commodity derivative 
 contracts                        73,533      1,991        1,253      79,458        573          616 
----------------------------  ----------  ---------  -----------  ----------  ---------  ----------- 
Gross total derivatives        8,593,109    109,419      108,018   7,951,062     63,854       65,126 
----------------------------  ----------  ---------  -----------  ----------  ---------  ----------- 
Offset                                 -   (57,192)     (57,192)           -   (16,642)     (16,642) 
----------------------------  ----------  ---------  -----------  ----------  ---------  ----------- 
Net total derivatives          8,593,109     52,227       50,826   7,951,062     47,212       48,484 
----------------------------  ----------  ---------  -----------  ----------  ---------  ----------- 
 

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.

The Group applies balance sheet offsetting only in the instance where we are able to demonstrate legal enforceability of the right to offset (e.g. via legal opinion) and the ability and intention to settle on a net basis (e.g. via operational practice).

The Group has met the criteria to offset the derivative asset and liability balances and related variation margin for trades cleared on behalf of clients with LCH SwapClear. This applies to both trades between the Group and the clients and between the Group and LCH SwapClear. The impact of this as at 30 June 2020 is a decrease in the derivative assets and derivative liabilities of $20.8bn. Prior periods have not been restated as the effect would not be material. The impact at 31 December 2019 would have been a decrease in the derivative assets and derivative liabilities of $8.7bn.

The Group has also met the criteria to derecognise initial margin for trades cleared on behalf of clients with LCH SwapClear. The impact of this as at 30 June 2020 is a decrease in other assets and other liabilities of $2.1bn. Prior periods have not been restated as the effect would not be material. The impact at 31 December 2019 would have been a decrease in other assets and other liabilities of $3.2bn.

Derivatives held for hedging

Included in the table above are derivatives held for hedging purposes as follows:

 
                                          30.06.20                            31.12.19 
---------------------------  ----------------------------------  ---------------------------------- 
                               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              68,631      1,688        1,127      69,121        617          589 
Currency swaps                    6,768         29          764       8,405         47          774 
---------------------------  ----------  ---------  -----------  ----------  ---------  ----------- 
                                 75,399      1,717        1,891      77,526        664        1,363 
---------------------------  ----------  ---------  -----------  ----------  ---------  ----------- 
Derivatives designated 
 as cash flow hedges: 
Interest rate swaps              10,232         90          202       9,277         53           74 
Forward foreign exchange 
 contracts                          373          5            3         289          6           20 
Currency swaps                    7,743        103            5       5,254         34           51 
---------------------------  ----------  ---------  -----------  ----------  ---------  ----------- 
                                 18,348        198          210      14,820         93          145 
---------------------------  ----------  ---------  -----------  ----------  ---------  ----------- 
Derivatives designated 
 as net investment hedges: 
Forward foreign exchange 
 contracts                        4,972        126            2       5,103         31           70 
---------------------------  ----------  ---------  -----------  ----------  ---------  ----------- 
Total derivatives held 
 for hedging                     98,719      2,041        2,103      97,449        788        1,578 
---------------------------  ----------  ---------  -----------  ----------  ---------  ----------- 
 

Interest rate benchmark reform

The Group has established an IBOR Transition Programme that is overseen by the Group's Chief Operating Officer and updates a number of committees including the Board Risk Committee and Group Risk Committee regularly updated. The programme comprises a series of business and function workstreams, with oversight and coordination of the specific areas and risks provided by a central project team. The key objectives of these workstreams include identifying all contracts in scope of benchmark reform, upgrading internal systems to support business in the alternative RFR product suite, identifying and communicating to customers with whom repricing and/or re-papering IBOR-referenced contracts is required and executing the necessary change in contracts. Workstreams actively participate in industry-wide working groups to ensure they are kept informed of the latest developments and are consistent with the approaches of other market participants.

As at 30 June 2020, the following populations of derivative instruments designated in fair value or cash flow hedge accounting relationships were linked to IBOR reference rates:

 
                                Fair value hedges            Cash flow hedges 
--------------------------  --------------------------  --------------------------  ---------  --------- 
                                Notional      Notional      Notional      Notional 
                              designated    designated    designated    designated 
                                   up to        beyond         up to        beyond              Weighted 
                             31 December   31 December   31 December   31 December               average 
                                    2021          2021          2021          2021      Total   exposure 
                                $million      $million      $million      $million   $million      Years 
--------------------------  ------------  ------------  ------------  ------------  ---------  --------- 
Interest rate swaps 
USD LIBOR                         11,939        33,893           895         3,309     50,036        3.3 
GBP LIBOR                            550         3,324           328             -      4,202        7.1 
JPY LIBOR                          1,181           680             -             -      1,861        2.5 
SGD SOR                              341           126             -             -        467        1.7 
--------------------------  ------------  ------------  ------------  ------------  ---------  --------- 
                                  14,011        38,023         1,223         3,309     56,566        3.5 
--------------------------  ------------  ------------  ------------  ------------  ---------  --------- 
 
Cross currency swaps 
USD LIBOR vs Fixed rate 
 foreign currency                  4,996         1,772             -             -      6,768        1.1 
--------------------------  ------------  ------------  ------------  ------------  ---------  --------- 
Total notional of hedging 
 instruments in scope 
 of IFRS amendments               19,007        39,795         1,223         3,309     63,334        3.2 
--------------------------  ------------  ------------  ------------  ------------  ---------  --------- 
 

The Group's primary exposure is to USD LIBOR due to the extent of fixed rate debt security assets and issued notes denominated in USD that are designated in fair value hedge relationships. Where fixed rate instruments are in other currencies, cross-currency swaps are used to achieve an equivalent floating USD exposure.

15. Reverse repurchase and repurchase agreements including other similar secured lending and borrowing

Reverse repurchase agreements and other similar secured lending

 
                                      30.06.20    31.12.19 
                                      $million    $million 
----------------------------------  ----------  ---------- 
Banks                                   19,496      19,610 
Customers                               45,782      40,804 
----------------------------------  ----------  ---------- 
                                        65,278      60,414 
----------------------------------  ----------  ---------- 
Of which: 
Fair value through profit or loss       59,002      57,604 
                                    ----------  ---------- 
  Banks                                 17,603      18,269 
  Customers                             41,399      39,335 
                                    ----------  ---------- 
Held at amortised cost                   6,276       2,810 
                                    ----------  ---------- 
  Banks                                  1,893       1,341 
  Customers                              4,383       1,469 
                                    ----------  ---------- 
 
 

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:

 
                                                                  30.06.20    31.12.19 
                                                                  $million    $million 
--------------------------------------------------------------  ----------  ---------- 
Securities and collateral received (at fair value)                  88,358      86,308 
--------------------------------------------------------------  ----------  ---------- 
Securities and collateral which can be repledged or 
 sold (at fair value)                                               85,713      85,415 
--------------------------------------------------------------  ----------  ---------- 
Amounts repledged/transferred to others for financing 
 activities, to satisfy liabilities under sale and repurchase 
 agreements (at fair value)                                         43,193      44,530 
--------------------------------------------------------------  ----------  ---------- 
 

Repurchase agreements and other similar secured borrowing

 
                                      30.06.20    31.12.19 
                                      $million    $million 
----------------------------------  ----------  ---------- 
Banks                                    7,470       7,789 
Customers                               40,615      40,429 
----------------------------------  ----------  ---------- 
                                        48,085      48,218 
----------------------------------  ----------  ---------- 
Of which: 
Fair value through profit or loss       45,274      46,283 
                                    ----------  ---------- 
  Banks                                  6,748       7,401 
  Customers                             38,526      38,882 
                                    ----------  ---------- 
Held at amortised cost                   2,811       1,935 
                                    ----------  ---------- 
  Banks                                    722         388 
  Customers                              2,089       1,547 
                                    ----------  ---------- 
 
 

The tables below set out the financial assets provided as collateral for repurchase and other secured borrowing transactions:

 
                                                                     30.06.20 
--------------------------------------  ------------------------------------------------------------------- 
                                        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 one and other eligible 
   bills                                     1,411                 3,171        899            -      5,481 
Off-balance sheet 
  Repledged collateral received                  -                     -          -       43,193     43,193 
--------------------------------------  ----------  --------------------  ---------  -----------  --------- 
At 30 June 2020                              1,411                 3,171        899       43,193     48,674 
--------------------------------------  ----------  --------------------  ---------  -----------  --------- 
 
 
                                                                     31.12.19 
--------------------------------------  ------------------------------------------------------------------- 
                                        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 one and other eligible 
   bills                                     1,036                 2,137      1,023            -      4,196 
Off-balance sheet 
  Repledged collateral received                  -                     -          -       44,530     44,530 
--------------------------------------  ----------  --------------------  ---------  -----------  --------- 
At 31 December 2019                          1,036                 2,137      1,023       44,530     48,726 
--------------------------------------  ----------  --------------------  ---------  -----------  --------- 
 

16. Goodwill and intangible assets

 
                                            30.06.20                                       31.12.19 
------------------------  ---------------------------------------------  --------------------------------------------- 
                                         Acquired   Computer                            Acquired   Computer 
                           Goodwill   intangibles   software      Total   Goodwill   intangibles   software      Total 
                           $million      $million   $million   $million   $million      $million   $million   $million 
------------------------  ---------  ------------  ---------  ---------  ---------  ------------  ---------  --------- 
Cost 
At 1 January                  3,079           461      3,239      6,779      3,116           510      2,835      6,461 
Exchange translation 
 differences                   (32)          (15)       (96)      (143)       (10)           (5)         26         11 
Additions                         -             -        340        340          -             1        753        754 
Disposals                         -             -        (4)        (4)          -           (1)        (3)        (4) 
Impairment                    (258)             -          -      (258)       (27)             -          -       (27) 
Amounts written off               -             1       (82)       (81)          -          (44)      (372)      (416) 
------------------------  ---------  ------------  ---------  ---------  ---------  ------------  ---------  --------- 
At 30 June/31 December        2,789           447      3,397      6,633      3,079           461      3,239      6,779 
------------------------  ---------  ------------  ---------  ---------  ---------  ------------  ---------  --------- 
Provision for 
amortisation 
At 1 January                      -           431      1,058      1,489          -           458        947      1,405 
Exchange translation 
 differences                      -          (14)       (34)       (48)          -           (5)          6          1 
Amortisation                      -             2        241        243          -             9        436        445 
Impairment charge                 -             -          2          2          -             -         12         12 
Disposals                         -             -        (4)        (4)          -           (1)          -        (1) 
Amounts written off               -             1       (79)       (78)          -          (30)      (343)      (373) 
------------------------  ---------  ------------  ---------  ---------  ---------  ------------  ---------  --------- 
At 30 June/31 December            -           420      1,184      1,604          -           431      1,058      1,489 
------------------------  ---------  ------------  ---------  ---------  ---------  ------------  ---------  --------- 
Net book value                2,789            27      2,213      5,029      3,079            30      2,181      5,290 
------------------------  ---------  ------------  ---------  ---------  ---------  ------------  ---------  --------- 
 

At 30 June 2020, accumulated goodwill impairment losses incurred from 1 January 2005 amounted to $3,086 million (31 December 2019: $2,828 million), of which $258 million was recognised in 2020 (31 December 2019: $27 million).

Outcome of impairment assessment

At 30 June 2020, 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 at 30 June 2020 there are no further goodwill impairments to be recognised over and above the $258m impaired in Q1, 2020.

The goodwill allocated to each CGU and key assumptions used in determining the recoverable amounts are set out below and are solely estimates for the purposes of assessing impairment of acquired goodwill.

 
                                                 30.06.20                           31.12.19 
-----------------------------------  ---------------------------------  --------------------------------- 
                                                             Long-term                          Long-term 
                                                              forecast                           forecast 
                                                 Discount   GDP growth              Discount   GDP growth 
                                      Goodwill      rates        rates   Goodwill      rates        rates 
Cash generating unit                  $million   per cent     per cent   $million   per cent     per cent 
-----------------------------------  ---------  ---------  -----------  ---------  ---------  ----------- 
Country CGUs 
Greater China & North 
 Asia                                      907                                900 
                                     ---------                          --------- 
  Hong Kong                                359        9.7          2.9        358        9.2          2.4 
  Taiwan                                   548        8.6          2.2        542       10.6          2.0 
                                     ---------                          --------- 
Africa & Middle East                       500                                512 
                                     ---------                          --------- 
  Pakistan                                 176       15.0          5.3        188       21.0          4.0 
  UAE                                      204       10.5          3.2        204        7.1          2.5 
  Others (4)1                              120   9.7-16.2      2.8-5.7        120   8.3-16.6      2.5-4.9 
                                     ---------                          --------- 
ASEAN & South Asia                         430                                706 
                                     ---------                          --------- 
  India                                      -          -            -        259       16.4          7.3 
  Singapore                                334       10.7          3.0        342       10.4          1.9 
  Others (4)2                               96  13.3-14.0      5.5-7.1        105  11.7-15.4      3.3-7.3 
                                     ---------                          --------- 
Global CGUs                                952                                961 
                                     ---------                          --------- 
  Global Private Banking                    84        9.1          3.8         84        9.1          3.5 
  Global Corporate & Institutional 
   Banking3                                868        9.1          3.8        877        9.1          3.5 
                                     ---------                          --------- 
 
                                         2,789                              3,079 
-----------------------------------  ---------  ---------  -----------  ---------  ---------  ----------- 
 

1 Bahrain, Ghana, Jordan and Qatar

2 Bangladesh, Brunei, Indonesia and Vietnam

3 Global Corporate Finance and Global Transaction Banking CGUs are now combined into a single Global Corporate & Institutional Banking CGU

Two country CGUs; India and Brunei have had all the goodwill allocated to them written off, totalling $258 million. This was primarily due to lower economic growth forecasts, and higher discount rates than year-end. As a result the carrying amount of each CGU, which included goodwill, was greater than the recoverable amount.

In view of the increased economic uncertainty caused by the COVID-19 pandemic, the Group has performed sensitivity analysis on the key assumptions for each CGU's recoverable amount. The following CGUs are considered sensitive to the key variables and any individual movements on the estimates (cashflow, discount rate and GDP growth rate) up to the levels disclosed below would eliminate the current headroom.

 
                                                                         30.06.20 
---------------------------------------------------------------------------------------------------------------------------------------------------------- 
                                                                                             Sensitivities 
---------  --------  --------                 ------------------------------------------------------------------------------------------------------------ 
                                                                                                                                                   Extreme 
                                                                       Discount                                                         Downside  downside 
                            Base case                GDP                 rates             Cashflow            Cashflow       Cashflow  scenario  scenario 
                     -----------------------  ------------------  ------------------  ------------------  ------------------  --------  --------  -------- 
                                                                                                                                             GDP       GDP 
                                                                                                                                            - 1%      - 1% 
                                                                                                                                            DR +      DR + 
                                                                                                                                           1% CF     1% CF 
                                                  + 1%       -1%      + 1%       -1%     + 10%     - 10%      +20%     - 20%     - 30%     - 10%     - 20% 
                     --------  --------  ---  --------  --------  --------  --------  --------  --------  --------  --------  --------  --------  -------- 
                     Headroom  Discount       Headroom  Headroom  Headroom  Headroom  Headroom  Headroom  Headroom  Headroom  Headroom  Headroom  Headroom 
CGU        Goodwill  $million      rate  GDP  $million  $million  $million  $million  $million  $million  $million  $million  $million  $million  $million 
---------  --------  --------  --------  ---  --------  --------  --------  --------  --------  --------  --------  --------  --------  --------  -------- 
Pakistan        176       180     15.0%  5.3       223       146       136       236       232       129       284        77        25        64        20 
Taiwan          548       186      8.6%  2.2       492      (37)      (81)       552       458      (85)       729     (357)     (629)     (456)     (666) 
UAE             204        49     10.5%  3.2       174      (46)      (66)       201       170      (73)       292     (194)     (316)     (235)     (331) 
---------  --------  --------  --------  ---  --------  --------  --------  --------  --------  --------  --------  --------  --------  --------  -------- 
 

The table above represents reasonably possible scenarios that could occur if either; economic factors (which drive GDP rates and discount rates); country specific cash flows; or a combination of both are different from the assumptions used in the goodwill impairment assessment at 30 June 2020.

For there to be no headroom, the discount rate will need to increase by 0.5%, 0.7%, 5.9% for the UAE, Taiwan and Pakistan respectively. Similarly, the GDP rates will need to decrease by 0.4%, 0.8%, 9.3%, and cash flows would need to decrease by 4%, 6.9%, 34.9% for the UAE, Taiwan and Pakistan respectively.

17. Property, plant and equipment

 
                                                            30.06.20 
----------------------------  --------------------------------------------------------------------- 
                                                                      Leased      Leased 
                                                        Operating   premises   equipment 
                               Premises  Equipment   lease assets     assets      assets      Total 
                               $million   $million       $million   $million    $million   $million 
----------------------------  ---------  ---------  -------------  ---------  ----------  --------- 
Cost or valuation 
At 1 January                      2,058        800          4,461      1,493          23      8,835 
Exchange translation 
 differences                       (56)       (26)            (2)       (36)           2      (118) 
Additions                           141        441            949         86           2      1,095 
Disposals and fully 
 depreciated assets written 
 off                              (62)2      (25)2          (139)       (21)           -      (247) 
Transfers to assets 
 held for sale                      (3)          -              -          -           -        (3) 
----------------------------  ---------  ---------  -------------  ---------  ----------  --------- 
As at 30 June                     1,951        793          5,269      1,522          27      9,562 
----------------------------  ---------  ---------  -------------  ---------  ----------  --------- 
Depreciation 
Accumulated at 1 January            737        518          1,067        286           7      2,615 
Exchange translation 
 differences                       (21)       (18)              -        (8)           -       (47) 
Charge for the year                  36         56            107        152           4        355 
Impairment (release)/charge           -          -             51          -           -         51 
Attributable to assets 
 sold, transferred or 
 written off                      (34)2      (25)2           (85)       (14)           -      (158) 
Transfers to assets 
 held for sale                      (1)          -              -          -           -        (1) 
----------------------------  ---------  ---------  -------------  ---------  ----------  --------- 
Accumulated at 30 June              717        531          1,140        416          11      2,815 
----------------------------  ---------  ---------  -------------  ---------  ----------  --------- 
Net book amount at 30 
 June                             1,234        262          4,129      1,106          16      6,747 
----------------------------  ---------  ---------  -------------  ---------  ----------  --------- 
 

1 Refer to the cash flow statement under cash flows from investing activities section for the purchase of property, plant and equipment during the period $146 million

2 Disposals for property, plant and equipment during the period $56 million in the cash flow statement would include the gains and losses incurred as part of other operating income (Note 6) on disposal of assets during the period and the net book value disposed

 
                                                            30.06.19 
----------------------------  --------------------------------------------------------------------- 
                                                                      Leased      Leased 
                                                        Operating   premises   equipment 
                               Premises  Equipment   lease assets     assets      assets      Total 
                               $million   $million       $million   $million    $million   $million 
----------------------------  ---------  ---------  -------------  ---------  ----------  --------- 
Cost or valuation 
At 1 January                      2,070        766          6,323      1,408          13     10,580 
Exchange translation 
 differences                       (27)       (13)            (4)       (19)           -       (63) 
Additions                           291        521            269         44          10        404 
Disposals and fully 
 depreciated assets written 
 off                              (25)2      (55)2           (70)        (1)           -      (151) 
Transfers to assets 
 held for sale                        -          -           (83)          -           -       (83) 
----------------------------  ---------  ---------  -------------  ---------  ----------  --------- 
As at 30 June                     2,047        750          6,435      1,432          23     10,687 
----------------------------  ---------  ---------  -------------  ---------  ----------  --------- 
Depreciation 
Accumulated at 1 January            706        494          1,469          -           1      2,670 
Exchange translation 
 differences                        (7)       (10)            (2)          5           -       (14) 
Charge for the year                  38         49            129        141           3        360 
Impairment (release)/charge           -          -             36          -           -         36 
Attributable to assets 
 sold, transferred or 
 written off                      (21)2      (55)2           (23)        (1)           -      (100) 
Transfers to assets 
 held for sale                        -          -           (17)          -           -       (17) 
----------------------------  ---------  ---------  -------------  ---------  ----------  --------- 
Accumulated at 30 June              716        478          1,592        145           4      2,935 
----------------------------  ---------  ---------  -------------  ---------  ----------  --------- 
Net book amount at 30 
 June                             1,331        272          4,843      1,287          19      7,752 
----------------------------  ---------  ---------  -------------  ---------  ----------  --------- 
 

1 Refer to the cash flow statement under cash flows from investing activities section for the purchase of property, plant and equipment during the period $135 million

2 Disposals for property, plant and equipment during the period $21 million in the cash flow statement would include the gains and losses incurred as part of other operating income (Note 6) on disposal of assets during the period and the net book value disposed

 
                                                            31.12.19 
----------------------------  --------------------------------------------------------------------- 
                                                                      Leased      Leased 
                                                        Operating   premises   equipment 
                               Premises  Equipment   lease assets     assets      assets      Total 
                               $million   $million       $million   $million    $million   $million 
----------------------------  ---------  ---------  -------------  ---------  ----------  --------- 
Cost or valuation 
At 1 July                         2,047        748          6,435      1,432          23     10,685 
Exchange translation 
 differences                        (4)        (3)            (1)       (16)           -       (24) 
Additions                            67         72             30         84           -        253 
Disposals and fully 
 depreciated assets written 
 off                               (37)       (17)          (624)        (7)           -      (685) 
Transfers to assets 
 held for sale                     (15)          -        (1,379)          -           -    (1,394) 
----------------------------  ---------  ---------  -------------  ---------  ----------  --------- 
As at 31 December                 2,058        800          4,461      1,493          23      8,835 
----------------------------  ---------  ---------  -------------  ---------  ----------  --------- 
Depreciation 
Accumulated at 1 July               716        478          1,592        145           4      2,935 
Exchange translation 
 differences                          -          -            (3)          2           -        (1) 
Charge for the year                  39         59            132        142           3        375 
Impairment (release)/charge           1          -             85          -           -         86 
Attributable to assets 
 sold, transferred or 
 written off                       (14)       (17)          (132)        (3)           -      (166) 
Transfers to assets 
 held for sale                      (5)          -          (609)          -           -      (614) 
----------------------------  ---------  ---------  -------------  ---------  ----------  --------- 
Accumulated at 31 December          737        520          1,065        286           7      2,615 
----------------------------  ---------  ---------  -------------  ---------  ----------  --------- 
Net book amount at 31 
 December                         1,321        280          3,396      1,207          16      6,220 
----------------------------  ---------  ---------  -------------  ---------  ----------  --------- 
 

Operating lease assets

Assets leased to customers under operating leases consist of commercial aircraft which is included within property, plant and equipment. The leases are classified as operating leases as they do not transfer substantially all the risks and rewards incidental to the ownership of the assets, and rental income from operating lease assets is disclosed in Note 6.

During the period the Group purchased further aircraft to the value of $949 million. These aircraft have been leased to counterparties for a period of between 6 and 11 years.

Fixed asset impairments are write-downs of the Group's aircraft portfolio (six months to 30 June 2020: $51 million ; six months to 30 June 2019: $13 million ; six months to 31 December 2019: $14 million) and, up to 31 December 2019 when it was reclassified as held for sale, shipping portfolio (six months to 30 June 2019: $23 million; six months to 31 December 2019: $71 million). These impairments are predominantly due to reductions in current market values, as provided by third-party appraisers and brokers.

Payment holidays/moratoriums offered to aircraft lessees have not resulted in any material changes to our lessor revenue streams.

18. Other assets

 
                                                            30.06.20    31.12.19 
                                                            $million    $million 
--------------------------------------------------------  ----------  ---------- 
Financial assets held at amortised cost (Note 13): 
  Hong Kong SAR Government certificates of indebtedness 
   (Note 20)1                                                  7,073       6,911 
  Cash collateral                                              9,716       9,169 
  Acceptances and endorsements2                                4,621       5,518 
  Unsettled trades and other financial assets                 20,773      14,563 
--------------------------------------------------------  ----------  ---------- 
                                                              42,183      36,161 
Non-financial assets: 
  Commodities3                                                 4,367       5,465 
Other assets                                                     375         396 
--------------------------------------------------------  ----------  ---------- 
                                                              46,925      42,022 
--------------------------------------------------------  ----------  ---------- 
 

1 The Hong Kong SAR Government certificates of indebtedness are subordinated to the claims of other parties in respect of bank notes issued

2 Trade finance whereby the Group offers a guarantee of payment between trade counterparties for a fee

3 Commodities are carried at fair value and classified as Level 2

19. Assets held for sale and associated liabilities

Assets held for sale

 
                                                       30.06.20    31.12.19 
                                                       $million    $million 
---------------------------------------------------  ----------  ---------- 
Financial assets held at fair value through profit 
 or loss                                                    175         330 
                                                     ----------  ---------- 
  Equity shares                                             175         330 
                                                     ----------  ---------- 
 
Financial assets held at amortised cost                     157          90 
                                                     ----------  ---------- 
  Loans and advances to banks                               102           - 
  Loans and advances to customers                            55          32 
  Debt securities held at amortised cost                      -          58 
                                                     ----------  ---------- 
 
Interests in joint venture                                    -         800 
Property, plant and equipment                               582         833 
                                                     ----------  ---------- 
  Aircraft                                                    -          49 
  Vessels                                                   567         769 
  Others                                                     15          15 
---------------------------------------------------  ----------  ---------- 
                                                            914       2,053 
---------------------------------------------------  ----------  ---------- 
 

Interests in joint venture

On the 20 May 2020 the Group completed the sale of its 44.56% equity interest in PT Bank Permata Tbk to Bangkok Bank Public Company Limited for cash consideration of IDR 17 trillion ($1,072 million).

The profit on sale is as follows:

 
                                                                  30.06.20 
                                                                  $million 
--------------------------------------------------------------  ---------- 
Cash received                                                        1,072 
Less: Investment in joint venture                                    (800) 
Gain on carrying value                                                 272 
Less: Translation and other reserve recycling and transaction 
 costs1                                                              (266) 
--------------------------------------------------------------  ---------- 
Net gain on disposal                                                     6 
--------------------------------------------------------------  ---------- 
 

1 Includes $246 million of exchange differences on translation of foreign operations

Liabilities held for sale

 
                      30.06.20    31.12.19 
                      $million    $million 
------------------  ----------  ---------- 
Other liabilities            8           9 
------------------  ----------  ---------- 
                             8           9 
------------------  ----------  ---------- 
 

20. Other liabilities

 
                                                       30.06.20    31.12.19 
                                                       $million    $million 
---------------------------------------------------  ----------  ---------- 
Financial liabilities held at amortised cost (Note 
 13) 
  Notes in circulation1                                   7,073       6,911 
  Acceptances and endorsements2                           4,621       5,518 
  Cash collateral                                         9,565       7,824 
  Property leases                                         1,185       1,275 
  Equipment leases                                           16          20 
  Unsettled trades and other financial liabilities       26,203      19,601 
---------------------------------------------------  ----------  ---------- 
                                                         48,663      41,149 
Non-financial liabilities 
  Cash-settled share-based payments                          32          50 
  Other liabilities                                         548         384 
---------------------------------------------------  ----------  ---------- 
                                                         49,243      41,583 
---------------------------------------------------  ----------  ---------- 
 

1 Hong Kong currency notes in circulation of $7,073 million (31 December 2019: $6,911 million) that are secured by the Government of Hong Kong SAR certificates of indebtedness of the same amount included in other assets (Note 18)

2 Trade finance whereby the Group offers a guarantee of payment between trade counterparties for a fee

21. 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.

 
                                                                              restated 
                                                                  30.06.20    31.12.19 
                                                                  $million    $million 
--------------------------------------------------------------  ----------  ---------- 
Contingent liabilities 
Guarantees and irrevocable letters of credit                        36,748      37,007 
Other contingent liabilities                                         5,486       5,425 
--------------------------------------------------------------  ----------  ---------- 
                                                                    42,234      42,432 
--------------------------------------------------------------  ----------  ---------- 
Commitments 
Documentary credits and short-term trade-related transactions        3,793       4,282 
Undrawn formal standby facilities, credit lines and 
 other commitments to lend 
  One year and over                                                 58,580      64,450 
  Less than one year                                                23,102   19,520(2) 
  Unconditionally cancellable                                       58,438   57,224(2) 
--------------------------------------------------------------  ----------  ---------- 
                                                                   143,913     145,476 
--------------------------------------------------------------  ----------  ---------- 
Capital commitments 
Contracted capital expenditure approved by the directors 
 but not provided for in these accounts1                               322         419 
--------------------------------------------------------------  ----------  ---------- 
 

1 of which: the Group has commitments totalling $300 million to purchase aircraft for delivery in 2020 (31 December 2019: $400 million)

2 Undrawn formal standby facilities, credit lines and other commitments to lend: Less than one year - restated from $34,925 million to $19,520 million. Unconditionally cancellable - restated from $41,819 million to $57,224 million. Certain non-revolving facilities have now been classified as unconditionally cancellable

The Group's share of contingent liabilities and commitments relating to joint ventures is Nil (31 December 2019: $251 million). On 20 May 2020 the Group completed the sale of its 44.56 per cent equity interest in PT Bank Permata Tbk to Bangkok Bank Public Company Limited. Please refer to Note 19 for further details.

As set out in Note 22, 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.

22. Legal and regulatory matters

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 the ongoing 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.

Since November 2014, ten lawsuits have been filed in United States federal courts 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. 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. One lawsuit has been withdrawn by the plaintiffs and the courts have ruled in favour of the banks' motions to dismiss in five of the lawsuits. Following those rulings, in one lawsuit the plaintiffs have filed an appeal against the dismissal and appeals are also expected by the plaintiffs in three of the other dismissed lawsuits. The remaining lawsuits are still at an early procedural stage and have been stayed pending the outcomes of the appeals in the dismissed cases.

In January 2020, a shareholder derivative complaint was filed by the City of Philadelphia in the New York State Court against 45 current and former directors and senior officers of the Group. The complaint purports to be brought on behalf of all shareholders of Standard Chartered PLC (SC PLC). It alleges that the individuals breached their duties to the Group and caused a waste of corporate assets by permitting the conduct that gave rise to the costs and losses to the Group related to legacy conduct and control issues. SC PLC, Standard Chartered Holdings Limited and Standard Chartered Bank are each named as "nominal defendants" in the complaint. The case is at an early procedural stage. It is anticipated that a motion to dismiss the complaint will be filed later in 2020.

Based on the facts currently known, it is not possible for the Group to predict the outcome of these lawsuits.

23. Subordinated liabilities and other borrowed funds

 
                                                        30.06.20 
--------------------------------  ----------------------------------------------------- 
                                        USD        GBP        EUR     Others      Total 
                                   $million   $million   $million   $million   $million 
--------------------------------  ---------  ---------  ---------  ---------  --------- 
Fixed rate subordinated debt         10,676      1,429      4,038        507     16,650 
Floating rate subordinated debt         161         15          -          -        176 
--------------------------------  ---------  ---------  ---------  ---------  --------- 
Total                                10,837      1,444      4,038        507     16,826 
--------------------------------  ---------  ---------  ---------  ---------  --------- 
 
 
                                                        31.12.19 
--------------------------------  ----------------------------------------------------- 
                                        USD        GBP        EUR     Others      Total 
                                   $million   $million   $million   $million   $million 
--------------------------------  ---------  ---------  ---------  ---------  --------- 
Fixed rate subordinated debt         11,137      1,478      2,890        525     16,030 
Floating rate subordinated debt         161         16          -          -        177 
--------------------------------  ---------  ---------  ---------  ---------  --------- 
Total                                11,298      1,494      2,890        525     16,207 
--------------------------------  ---------  ---------  ---------  ---------  --------- 
 

Redemptions and repurchases during the period

On 24 June 2020, Standard Chartered Bank (Hong Kong) Limited exercised its right to redeem USD 750 million 5.875 per cent subordinated notes 2020.

Issuances during the period

On 9 June 2020, Standard Chartered PLC issued EUR 1 billion 2. 5 per cent subordinated debt 2030 (callable 2025).

24. Share capital, other equity instruments and reserves

Group and Company

 
                                                                            Total share 
                                          Ordinary    Ordinary  Preference      capital 
                                Number 
                                    of       share       share       share    and share 
                              ordinary                                                   Other equity 
                                shares    capital1     premium    premium2      premium   instruments 
                              millions    $million    $million    $million     $million      $million 
--------------------------  ----------  ----------  ----------  ----------  -----------  ------------ 
At 1 January 2019                3,308       1,654       3,963       1,494        7,111         4,961 
Shares issued                        4           2          23           -           25             - 
Cancellation of shares 
 including buy-back               (54)        (27)           -           -         (27)             - 
--------------------------  ----------  ----------  ----------  ----------  -----------  ------------ 
At 30 June 2019                  3,258       1,629       3,986       1,494        7,109         4,961 
Shares issued                        -           -           -           -            -           552 
Cancellation of shares 
 including buy-back               (62)        (31)           -           -         (31)             - 
--------------------------  ----------  ----------  ----------  ----------  -----------  ------------ 
At 31 December 2019              3,196       1,598       3,986       1,494        7,078         5,513 
Cancellation of shares 
 including share buy-back         (40)        (20)           -           -         (20)             - 
Additional Tier 1 equity 
 issuance                            -           -           -           -            -           992 
Additional Tier 1 equity 
 redemption                          -           -           -           -            -       (1,987) 
--------------------------  ----------  ----------  ----------  ----------  -----------  ------------ 
At 30 June 2020                  3,156       1,578       3,986       1,494        7,058         4,518 
--------------------------  ----------  ----------  ----------  ----------  -----------  ------------ 
 

1 Issued and fully paid ordinary shares of 50 cents each

2 Includes preference share capital of $75,000

Share buy-back

On 28 Feb 2020, the Group announced the buy-back programme for a share buy-back of its ordinary shares of $0.50 each. Nominal value of share purchases was $20 million, and the total consideration paid was $242 million. The total number of shares purchased was 40,029,585 representing 1.25 per cent of the ordinary shares in issue. The nominal value of the shares was transferred from the share capital to the capital redemption reserve account. On 1 April 2020, the Group announced that in response to a request from the Prudential Regulation Authority and as a consequence of the unprecedented challenges facing the world due to the COVID-19 pandemic, its board had decided after careful consideration to withdraw the recommendation to pay a final dividend for 2019 of 20 cents per ordinary share and to suspend the buy-back programme.

 
                             Average 
              Number of   price paid    Aggregate    Aggregate 
               ordinary    per share   price paid   price paid 
                 shares          GBP          GBP            $ 
-----------  ----------  -----------  -----------  ----------- 
March 2020   40,029,585      4.89428  195,916,167  241,705,472 
-----------  ----------  -----------  -----------  ----------- 
 

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 nil shares were issued under employee share plans.

Preference share capital

At 30 June 2020, 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 payable (on approval of the board) 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. This security was redeemed on its first optional redemption date of 2 April 2020. On 18 August 2016, Standard Chartered PLC issued $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 $1,000 million Fixed Rate Resetting Perpetual Subordinated Contingent Convertible Securities as AT1 securities, raising $992 million after issue costs. On 3 July 2019, Standard Chartered PLC issued SGD 750 million Fixed Rate Resetting Perpetual Subordinated Contingent Convertible Securities as AT1 securities, raising $ 552 million after issue costs. On 26 June 2020, Standard Chartered PLC issued $1,000 million Fixed Rate Resetting Perpetual Subordinated Contingent Convertible Securities as AT1 securities, raising $992 million after issue costs. All issuances are 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. This security was redeemed on its first optional redemption date of 2 April 2020.

-- 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 rate in respect of the securities issued on 3 July 2019 for the period from (and including) the issue date to (but excluding) 3 October 2024 is a fixed rate of 5.375 per cent per annum. The first reset date for the interest rate is 3 October 2024 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 26 June 2020 for the period from (and including) the issue date to (but excluding) 26 January 2026 is a fixed rate of 6 per cent per annum. The first reset date for the interest rate is 26 January 2026 and each date falling five years, or an integral multiple of five years, after the first reset date

-- The interest on the $2,000 million securities issued in 2016 and the $1,000 million securities issued in 2017 will be payable semi-annually in arrears on 2 April and 2 October in each year. The interest on the SGD 750 million security will be payable semi-annually in arrears on 3 April and 3 October in each year. The interest on the $1,000 million securities issued in 2020 will be payable semi-annually in arrears on 26 January and 26 July in each year. All the above payments will be 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 detailed in the table below, should the fully loaded Common Equity Tier 1 ratio of the Group fall below 7.0 per cent. Approximately 644 million ordinary shares would be required to satisfy the conversion of all the securities mentioned above

 
                                    Conversion price per 
Issuance date        Nominal value        ordinary share 
---------------  -----------------  -------------------- 
18 August 2016   USD 2,000 million             USD 7.732 
18 January 2017  USD 1,000 million             USD 7.732 
3 July 2019        SGD 750 million            SGD 10.909 
26 Jun 2020      USD 1,000 million             USD 5.331 
---------------  -----------------  -------------------- 
 

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

-- The amounts in the 'Capital and 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 Korea ($1.9 billion) and Taiwan ($1.2 billion) acquisitions, in 2008, 2010 and 2015 for the shares issued by way of a rights issue, primarily for capital maintenance requirements and for the shares issued in 2009 by way of an accelerated book build, the proceeds of which were used in the ordinary course of business of the Group. The funding raised by the 2008, 2010 and 2015 rights issues and 2009 share issue was fully retained within the Company. Of the 2015 funding, $1.5 billion was used to subscribe to additional equity in Standard Chartered Bank, a wholly owned subsidiary of the Company. Apart from the Korea, Taiwan and Standard Chartered Bank funding, the merger reserve is considered realised and distributable.

-- Own credit adjustment reserve represents the cumulative gains and losses on financial liabilities designated at fair value through profit or loss relating to own credit. 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 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 other comprehensive income (FVOCI) debt reserve represents the unrealised fair value gains and losses in respect of financial assets classified as FVOCI, 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. FVOCI equity reserve represents unrealised fair value gains and losses in respect of financial assets classified as FVOCI, net of taxation. Gains and losses are recorded in this reserve and never recycled to the income statement

-- Cash flow 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 is 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 2020, the distributable reserves of Standard Chartered PLC (the Company) were $13.6 billion (31 December 2019: $14.3 billion). These comprised retained earnings and $12.5 billion of the merger reserve account. Distribution of reserves is subject to maintaining minimum capital requirements.

Own shares

Computershare Trustees (Jersey) Limited is the trustee of the 2004 Employee Benefit Trust ('2004 Trust') and Ocorian Trustees (Jersey) Limited (formerly known as Bedell Trustees Limited) is the trustee of the 1995 Employees' Share Ownership Plan Trust ('1995 Trust'). The 2004 Trust is used in conjunction with the Group's employee share schemes and the 1995 Trust is used for the delivery of other employee share-based payments (such as upfront shares and fixed pay allowances). Group companies fund these trusts from time to time to enable the trustees to acquire shares to satisfy these arrangements.

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 Trust1                            Total 
------------  -------------------------------------  ----------------------------------  ---------------------------------- 
Number of 
shares           30.06.20     31.12.19     30.06.19    30.06.20    31.12.19    30.06.19    30.06.20    31.12.19    30.06.19 
------------  -----------  -----------  -----------  ----------  ----------  ----------  ----------  ----------  ---------- 
Shares 
 purchased 
 during 
 the period     2,999,210      646,283      646,283  14,359,481  24,065,354  15,703,928  17,358,691  24,711,637  16,350,211 
------------  -----------  -----------  -----------  ----------  ----------  ----------  ----------  ----------  ---------- 
Market price 
 of shares 
 purchased 
 ($million)            22            5            5          86         201         131         108         206         136 
------------  -----------  -----------  -----------  ----------  ----------  ----------  ----------  ----------  ---------- 
Shares 
 transferred 
 between 
 trusts       (2,999,210)  (3,001,103)  (3,001,103)   2,999,210   3,001,103   3,001,103           -           -           - 
------------  -----------  -----------  -----------  ----------  ----------  ----------  ----------  ----------  ---------- 
Shares held 
 at the 
 end of the 
 period                 -            -            -   8,345,814   5,113,455   2,370,743   8,345,814   5,113,455   2,370,743 
------------  -----------  -----------  -----------  ----------  ----------  ----------  ----------  ----------  ---------- 
Maximum 
 number of 
 shares held 
 during 
 the period                                                                              11,262,818  15,070,923  14,424,640 
------------  -----------  -----------  -----------  ----------  ----------  ----------  ----------  ----------  ---------- 
 

1 Note that 1,489,139 shares were purchased by the trustee of the 2004 Trust using $10 million participant savings as part of Sharesave exercises

25. Retirement benefit obligations

Retirement benefit obligations comprise:

 
                                           30.06.20    31.12.19    30.06.19 
                                           $million    $million    $million 
---------------------------------------  ----------  ----------  ---------- 
Total market value of assets                  2,563       2,610       2,464 
Present value of the plans liabilities      (3,087)     (3,068)     (2,917) 
---------------------------------------  ----------  ----------  ---------- 
Defined benefit plans obligation              (524)       (458)       (453) 
Defined contribution plans obligation          (19)        (11)        (20) 
---------------------------------------  ----------  ----------  ---------- 
Net obligation                                (543)       (469)       (473) 
---------------------------------------  ----------  ----------  ---------- 
 

Retirement benefit charge comprises:

 
                                                       6 months    6 months    6 months 
                                                          ended       ended       ended 
                                                       30.06.20    31.12.19    30.06.19 
                                                       $million    $million    $million 
---------------------------------------------------  ----------  ----------  ---------- 
Defined benefit plans                                        32          33          40 
Defined contribution plans                                  140         140         159 
---------------------------------------------------  ----------  ----------  ---------- 
Charge against profit (Note 7)                              172         173         199 
---------------------------------------------------  ----------  ----------  ---------- 
The pension cost for defined benefit plans 
 was: 
Current service cost                                         26          30          31 
Past service cost and curtailments                            -         (2)           3 
Interest income on pension plan assets                     (27)        (35)        (34) 
Interest on pension plan liabilities                         33          40          40 
---------------------------------------------------  ----------  ----------  ---------- 
Total charge to profit before deduction of 
 tax                                                         32          33          40 
---------------------------------------------------  ----------  ----------  ---------- 
(Returns)/losses on plan assets excluding interest 
 income                                                   (124)        (42)       (132) 
Losses/(gains) on liabilities                               189         117         181 
---------------------------------------------------  ----------  ----------  ---------- 
Total losses/(gains) recognised directly in 
 statement of comprehensive income before tax                65          75          49 
Deferred taxation                                           (9)           9         (4) 
---------------------------------------------------  ----------  ----------  ---------- 
Total losses/(gains) after tax                               56          84          45 
---------------------------------------------------  ----------  ----------  ---------- 
 

Defined benefit liability values have increased since 31 December 2019 due to falling bond yields, which lead to the liabilities being discounted at a lower rate. Asset values have fallen since 31 December, with falling equity values and depreciation of the GBP vs USD (reducing the value of assets in the largest plan, the UK SCPF) more than offsetting increases in the value of bonds held in the funded plans. With liabilities having increased and assets having decreased, there is an overall increase in the net balance sheet liability compared to 31 December 2019.

The defined benefit income statement charge for the six months to 30 June 2020 is lower than the corresponding income statement charge for the six months to 30 June 2019, driven by a reduction in the number of defined benefit plans that remain open to accrual.

26. Related party transactions

Directors and officers

As at 30 June 2020, Standard Chartered Bank had in place a charge over $81 million (31 December 2019: $86 million, 30 June 2019: $83 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 2019 that have had a material effect on the financial position or performance of the Group in the period ended 30 June 2020. All related party transactions that have taken place in the period were similar in nature to those disclosed in the Annual Report 2019.

Associate and Joint ventures

On 20 May 2020 the Group completed the sale of its 44.56% equity interest in PT Bank Permata Tbk to Bangkok Bank Public Company Limited. Please refer to Note 19 for further details.

The following transactions with related parties are on an arm's length basis:

 
                                                  30.06.20                    31.12.19 
---------------------------------------  --------------------------  -------------------------- 
                                         Associates  Joint ventures  Associates  Joint ventures 
                                           $million        $million    $million        $million 
---------------------------------------  ----------  --------------  ----------  -------------- 
Assets 
Loans and advances                                1               -           -               2 
Debt securities                                   -               -          21              58 
---------------------------------------  ----------  --------------  ----------  -------------- 
Total assets                                      1               -          21              60 
---------------------------------------  ----------  --------------  ----------  -------------- 
 
Liabilities 
Deposits                                      1,075               -         196              29 
Derivative liabilities                            5               -           -               - 
---------------------------------------  ----------  --------------  ----------  -------------- 
Total liabilities                             1,080               -         196              29 
---------------------------------------  ----------  --------------  ----------  -------------- 
Loan commitments and other guarantees1           56               -          50               3 
---------------------------------------  ----------  --------------  ----------  -------------- 
 

1 The maximum loan commitments and guarantees during the period were $56 million (31 December 2019: $53 million).

27. Post balance sheet events

China Bohai Bank Co. Ltd. (Bohai), an associate of the Group, completed its Initial Public Offering (IPO) on the Hong Kong Stock Exchange on 16 July 2020. The IPO has resulted in the Group's shareholding percentage decreasing from 19.99 per cent to between 16.26 per cent to 16.67 per cent, subject to the finalisation of the over-allotment option. This is a non-adjusting post balance sheet event, and an estimated loss on dilution ranging from approximately $40 million to $50 million will be recognised in the second half of 2020. The actual loss on dilution will depend on the amount of over-allotment option exercised and the finalization of Bohai's results up to the date of the IPO - both of which will only be concluded in the second half of 2020. The Group has recognised its share of profit or loss and other comprehensive income of Bohai three months in arrears given the timing of the availability of Bohai's publicly available financial information. The Group in previous periods recognised its share of profit or loss and other comprehensive income one month in arrears, so there are four months' of its share of profit or loss and other comprehensive income recognised in the first half of 2020.

The Group has terminated the Indian Depository Receipt (IDR) programme and IDRs were formally delisted from the BSE Limited (formerly the Bombay Stock Exchange) and National Stock Exchange of India Limited with effect from 22 July 2020.

28. 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 2019 the following changes to the composition of the Board have taken place. Louis Cheung retired from the Board as an Independent Non-Executive Director and member of the Remuneration Committee on 25 March 2020. Phil Rivett was appointed to the Board on 6 May 2020 as an Independent Non-Executive Director and as a member of the Audit Committee and the Board Risk Committee. Biographies for each of the directors and a list of the committees' membership can be found at sc.com.

In compliance with Rule 13.51B (1) of the Hong Kong Listing Rules the Company confirms that on 14 May 2020 David Conner, Independent Non-Executive Director stepped down from the Board of Gaslog Ltd. On 1 January 2020 Christine Hodgson, Independent Non-Executive Director was appointed to the Board of Severn Trent plc as an Independent Non-Executive Director and on 1 April 2020 she was appointed its Chair. Christine Hodgson stepped down from Capgemini UK plc on 31 March 2020. It was announced on 14 July 2020 that Carlson Tong has been designated by the Government of the Hong Kong Special Administrative Region, as one of two observers of the Cathay Pacific Airways Limited Board and will take up the appointment from mid-August 2020. Carlson Tong stepped down as a non-executive director from the Boards of the Airport Authority Hong Kong and the Aviation Security Company Limited with effect from 13 July 2020.

29. 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 30 July 2020. The statutory accounts for the year ended 31 December 2019 have been audited by the Company's predecessor auditors, KPMG LLP, 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 sections 498(2) and 498(3) of the Companies Act 2006.

Other supplementary information

Supplementary financial information

1. Average balance sheets and yields

The following tables set out the average balances and yields for the Group's assets and liabilities for the periods ended 30 June 2020, 31 December 2019 and 30 June 2019. For the purpose of these tables, average balances have been determined on the basis of daily balances, except for certain categories, for which balances have been determined less frequently. The Group does not believe that the information presented in these tables would be significantly different had such balances been determined on a daily basis.

Average assets

 
                                                           6 months ended 30.06.20 
---------------------------------------------  ------------------------------------------------ 
                                                     Average    Average 
                                                non-interest   interest 
                                                     earning    earning   Interest 
                                                     balance    balance     income  Gross yield 
                                                    $million   $million   $million            % 
---------------------------------------------  -------------  ---------  ---------  ----------- 
Cash and balances at central banks                    16,378     40,718         77         0.38 
Gross loans and advances to banks                     27,489     56,444        479         1.71 
Gross loans and advances to customers                 49,747    287,800      4,755         3.32 
Impairment provisions against loans 
 and advances to banks and customers                       -    (5,924)          -            - 
Investment securities                                 27,897    141,864      1,564         2.22 
Property, plant and equipment and intangible 
 assets                                               10,061          -          -            - 
Prepayments, accrued income and other 
 assets                                              108,905          -          -            - 
Investment associates and joint ventures               2,140          -          -            - 
---------------------------------------------  -------------  ---------  ---------  ----------- 
Total average assets                                 242,617    520,902      6,875         2.65 
---------------------------------------------  -------------  ---------  ---------  ----------- 
 
 
                                                           6 months ended 31.12.19 
---------------------------------------------  ------------------------------------------------ 
                                                     Average    Average 
                                                non-interest   interest 
                                                     earning    earning   Interest 
                                                     balance    balance     income  Gross yield 
                                                    $million   $million   $million            % 
---------------------------------------------  -------------  ---------  ---------  ----------- 
Cash and balances at central banks                    17,029     28,055        140         0.99 
Gross loans and advances to banks                     28,350     60,668        818         2.67 
Gross loans and advances to customers                 49,644    280,869      5,407         3.82 
Impairment provisions against loans 
 and advances to banks and customers                       -    (4,545)          -            - 
Investment securities                                 28,828    138,582      1,871         2.68 
Property, plant and equipment and intangible 
 assets                                               11,485          -          -            - 
Prepayments, accrued income and other 
 assets                                               90,793          -          -            - 
Investment associates and joint ventures               2,668          -          -            - 
---------------------------------------------  -------------  ---------  ---------  ----------- 
Total average assets                                 228,797    503,629      8,236         3.24 
---------------------------------------------  -------------  ---------  ---------  ----------- 
 
 
                                                           6 months ended 30.06.19 
---------------------------------------------  ------------------------------------------------ 
                                                     Average    Average 
                                                non-interest   interest 
                                                     earning    earning   Interest 
                                                     balance    balance     income  Gross yield 
                                                    $million   $million   $million            % 
---------------------------------------------  -------------  ---------  ---------  ----------- 
Cash and balances at central banks                    18,068     30,318        189         1.26 
Gross loans and advances to banks                     24,899     61,418      1,016         3.34 
Gross loans and advances to customers                 49,680    268,973      5,368         4.02 
Impairment provisions against loans 
 and advances to banks and customers                       -    (5,030)          -            - 
Investment securities                                 29,554    130,058      1,740         2.70 
Property, plant and equipment and intangible 
 assets                                               10,945          -          -            - 
Prepayments, accrued income and other 
 assets                                               79,040          -          -            - 
Investment associates and joint ventures               2,547          -          -            - 
---------------------------------------------  -------------  ---------  ---------  ----------- 
Total average assets                                 214,733    485,737      8,313         3.45 
---------------------------------------------  -------------  ---------  ---------  ----------- 
 

Average liabilities

 
                                                         6 months ended 30.06.20 
--------------------------------------------  ---------------------------------------------- 
                                                    Average    Average 
                                               non-interest   interest 
                                                    bearing    bearing   Interest 
                                                    balance    balance    expense  Rate paid 
                                                   $million   $million   $million          % 
--------------------------------------------  -------------  ---------  ---------  --------- 
Deposits by banks                                    17,764     26,055        235       1.81 
Customer accounts:                                        -          -          -          - 
  Current accounts and savings deposits              41,519    211,961        767       0.73 
  Time and other deposits                            58,439    163,409      1,509       1.86 
Debt securities in issue                              7,535     53,141        485       1.84 
Accruals, deferred income and other 
 liabilities                                        114,116      1,204         31       5.18 
Subordinated liabilities and other 
 borrowed funds                                           -     16,031        350       4.39 
Non-controlling interests                                 -          -          -          - 
Shareholders' funds                                  49,963          -          -          - 
--------------------------------------------  -------------  ---------  ---------  --------- 
                                                    289,336    471,801      3,377       1.44 
 
Adjustment for Financial Markets funding 
 costs                                                                      (121)          - 
--------------------------------------------  -------------  ---------  ---------  --------- 
Total average liabilities and shareholders' 
 funds                                              289,336    471,801      3,256       1.39 
--------------------------------------------  -------------  ---------  ---------  --------- 
 
 
                                                         6 months ended 31.12.19 
--------------------------------------------  ---------------------------------------------- 
                                                    Average    Average 
                                               non-interest   interest 
                                                    bearing    bearing   Interest 
                                                    balance    balance    expense  Rate paid 
                                                   $million   $million   $million          % 
--------------------------------------------  -------------  ---------  ---------  --------- 
Deposits by banks                                    18,674     26,397        338       2.54 
Customer accounts:                                        -          -          -          - 
  Current accounts and savings deposits              39,114    191,659      1,125       1.16 
  Time and other deposits                            58,450    169,763      1,960       2.29 
Debt securities in issue                              9,701     50,142        553       2.19 
Accruals, deferred income and other 
 liabilities                                         99,691      1,291         65       9.99 
Subordinated liabilities and other 
 borrowed funds                                           -     15,244        366       4.76 
Non-controlling interests                                53          -          -          - 
Shareholders' funds                                  50,372          -          -          - 
--------------------------------------------  -------------  ---------  ---------  --------- 
                                                    276,055    454,496      4,407       1.92 
 
Adjustment for Financial Markets funding 
 costs                                                                      (174) 
--------------------------------------------  -------------  ---------  ---------  --------- 
Total average liabilities and shareholders' 
 funds                                              276,055    454,496      4,233       1.85 
--------------------------------------------  -------------  ---------  ---------  --------- 
 
 
                                                         6 months ended 30.06.19 
--------------------------------------------  ---------------------------------------------- 
                                                    Average    Average 
                                               non-interest   interest 
                                                    bearing    bearing   Interest 
                                                    balance    balance    expense  Rate paid 
                                                   $million   $million   $million          % 
--------------------------------------------  -------------  ---------  ---------  --------- 
Deposits by banks                                    16,430     28,861        401       2.80 
Customer accounts:                                        -          -          -          - 
  Current accounts and savings deposits              38,489    174,849        989       1.14 
  Time and other deposits                            59,749    166,014      2,128       2.58 
Debt securities in issue                              8,963     48,547        567       2.36 
Accruals, deferred income and other 
 liabilities                                         91,160      1,382          -          - 
Subordinated liabilities and other 
 borrowed funds                                           -     14,877        390       5.29 
Non-controlling interests                                 9          -          -          - 
Shareholders' funds                                  50,054          -          -          - 
--------------------------------------------  -------------  ---------  ---------  --------- 
                                                    264,854    434,530      4,475       2.08 
 
Adjustment for Financial Markets funding 
 costs                                                                      (166) 
--------------------------------------------  -------------  ---------  ---------  --------- 
Total average liabilities and shareholders' 
 funds                                              264,854    434,530      4,309       2.00 
--------------------------------------------  -------------  ---------  ---------  --------- 
 

Convenience translation of selected financial statements into Indian Rupees

In compliance with Regulation 71(3) read with Schedule IV part B of the Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations, 2015, as amended, the Consolidated financial statements are presented in Indian rupees (INR) using a US dollar/Indian rupee exchange rate of 75.5270 as at 30 June 2020 as published by the Reserve Bank of India. Amounts have been translated using the said exchange rate including totals and sub-totals and any discrepancies in any table between totals and sums of the amounts listed are due to rounding.

The Indian Depository Receipts issued by the Company have been delisted from the Indian stock exchanges with effect from July 22, 2020. Accordingly, going forward, the Company shall not be required to comply with the aforesaid provisions of the Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations, 2015, as amended.

2. Condensed consolidated interim income statement (translated to INR)

For the six months ended 30 June 2020

 
                                                            6 months     6 months 
                                                               ended        ended 
                                                            30.06.20     30.06.19 
                                                          Rs.million   Rs.million 
-------------------------------------------------------  -----------  ----------- 
Interest income                                              519,248      627,856 
Interest expense                                           (255,055)    (337,983) 
-------------------------------------------------------  -----------  ----------- 
Net interest income                                          264,193      289,873 
                                                         -----------  ----------- 
Fees and commission income                                   141,235      160,117 
Fees and commission expense                                 (23,564)     (21,299) 
                                                         -----------  ----------- 
Net fee and commission income                                117,671      138,819 
Net trading income                                           162,685      133,985 
Other operating income                                        67,144       28,700 
-------------------------------------------------------  -----------  ----------- 
Operating income                                             611,693      591,376 
                                                         -----------  ----------- 
Staff costs                                                (251,505)    (270,160) 
Premises costs                                              (13,444)     (14,426) 
General administrative expenses                             (48,488)     (71,977) 
Depreciation and amortisation                               (45,165)     (43,579) 
                                                         -----------  ----------- 
Operating expenses                                         (358,602)    (400,142) 
-------------------------------------------------------  -----------  ----------- 
Operating profit before impairment losses and taxation       253,091      191,234 
Credit impairment                                          (119,031)     (19,184) 
Goodwill impairment                                         (19,486)            - 
Other impairment                                               2,643      (3,323) 
Profit from associates and joint ventures                      5,665       13,595 
-------------------------------------------------------  -----------  ----------- 
Profit before taxation                                       122,882      182,322 
Taxation                                                    (42,371)     (69,334) 
-------------------------------------------------------  -----------  ----------- 
Profit for the period                                         80,512      112,988 
-------------------------------------------------------  -----------  ----------- 
 
Profit attributable to: 
Non-controlling interests                                      1,359        1,435 
Parent company shareholders                                   79,152      111,553 
-------------------------------------------------------  -----------  ----------- 
Profit for the period                                         80,512      112,988 
-------------------------------------------------------  -----------  ----------- 
 
 
                                      Rupees  Rupees 
------------------------------------  ------  ------ 
Earnings per share: 
Basic earnings per ordinary share       19.5    28.7 
Diluted earnings per ordinary share     19.2    28.3 
------------------------------------  ------  ------ 
 

3. Condensed consolidated interim statement of comprehensive income (translated to INR)

For the six months ended 30 June 2020

 
                                                                    6 months     6 months 
                                                                       ended        ended 
                                                                    30.06.20     30.06.19 
                                                                  Rs.million   Rs.million 
---------------------------------------------------------------  -----------  ----------- 
Profit for the period                                                 80,512      112,988 
Other comprehensive (loss)/income 
  Items that will not be reclassified to income statement:           (1,813)     (29,002) 
                                                                 -----------  ----------- 
  Own credit losses on financial liabilities designated 
   at fair value through profit or loss                                1,662     (29,607) 
  Equity instruments at fair value through other comprehensive 
   income                                                              2,870          982 
  Actuarial losses on retirement benefit obligations                 (4,909)      (3,701) 
  Taxation relating to components of other comprehensive 
   income                                                            (1,435)        3,323 
                                                                 -----------  ----------- 
 
  Items that may be reclassified subsequently to income 
   statement:                                                       (23,716)        4,909 
  Exchange differences on translation of foreign operations: 
                                                                 -----------  ----------- 
     Net losses taken to equity                                     (63,518)     (12,009) 
     Net gains on net investment hedges                                9,441        5,514 
     Reclassified to income statement on sale of joint venture        18,580            - 
  Share of other comprehensive income from associates 
   and joint ventures                                                    302          227 
  Debt instruments at fair value through other comprehensive 
   income: 
     Net valuation gains taken to equity                              57,098       21,978 
     Reclassified to income statement                               (38,745)      (4,381) 
     Net impact of expected credit losses                              1,208          227 
  Cashflow hedges: 
     Net losses taken to equity                                      (7,477)      (5,967) 
     Reclassified to income statement                                    680          529 
  Taxation relating to components of other comprehensive 
   income                                                            (1,284)      (1,208) 
                                                                 -----------  ----------- 
Other comprehensive loss for the period, net of taxation            (25,528)     (24,093) 
---------------------------------------------------------------  -----------  ----------- 
Total comprehensive income for the period                             54,984       88,895 
---------------------------------------------------------------  -----------  ----------- 
 
Total comprehensive income attributable to: 
Non-controlling interests                                                755          831 
Parent company shareholders                                           54,228       88,065 
---------------------------------------------------------------  -----------  ----------- 
Total comprehensive income for the period                             54,984       88,895 
---------------------------------------------------------------  -----------  ----------- 
 

4. Condensed consolidated interim balance sheet (translated to INR)

As at 30 June 2020

 
                                                               30.06.20     31.12.19 
                                                             Rs.million   Rs.million 
----------------------------------------------------------  -----------  ----------- 
Assets 
Cash and balances at central banks                            3,997,266    3,982,388 
Financial assets held at fair value through profit 
 or loss                                                      7,428,760    7,010,265 
Derivative financial instruments                              3,944,549    3,565,781 
Loans and advances to banks1                                  3,814,038    4,044,395 
Loans and advances to customers2                             20,869,092   20,280,737 
Investment securities                                        11,006,852   10,855,571 
Other assets                                                  3,544,104    3,173,796 
Current tax assets                                               55,663       40,709 
Prepayments and accrued income                                  177,791      203,923 
Interests in associates and joint ventures                      151,054      144,106 
Goodwill and intangible assets                                  379,825      399,538 
Property, plant and equipment                                   509,581      469,778 
Deferred tax assets                                              62,083       83,457 
Assets classified as held for sale                               69,032      155,057 
----------------------------------------------------------  -----------  ----------- 
Total assets                                                 56,009,690   54,409,500 
----------------------------------------------------------  -----------  ----------- 
 
Liabilities 
Deposits by banks                                             2,189,226    2,157,202 
Customer accounts                                            31,808,423   30,615,398 
Repurchase agreements and other similar secured borrowing       212,306      146,145 
Financial liabilities held at fair value through profit 
 or loss                                                      4,862,655    5,058,345 
Derivative financial instruments                              3,838,735    3,661,851 
Debt securities in issue                                      3,858,372    4,004,819 
Other liabilities                                             3,719,176    3,140,639 
Current tax liabilities                                          45,845       53,095 
Accruals and deferred income                                    311,851      405,504 
Subordinated liabilities and other borrowed funds             1,270,817    1,224,066 
Deferred tax liabilities                                         49,470       46,147 
Provisions for liabilities and charges                           32,628       33,912 
Retirement benefit obligations                                   41,011       35,422 
Liabilities included in disposal groups held for sale               604          680 
----------------------------------------------------------  -----------  ----------- 
Total liabilities                                            52,241,120   50,583,226 
----------------------------------------------------------  -----------  ----------- 
 
Equity 
Share capital and share premium account                         533,070      534,580 
Other reserves                                                  863,349      882,533 
Retained earnings                                             2,006,677    1,969,140 
----------------------------------------------------------  -----------  ----------- 
Total parent company shareholders' equity                     3,403,096    3,386,253 
Other equity instruments                                        341,231      416,380 
----------------------------------------------------------  -----------  ----------- 
Total equity excluding non-controlling interests              3,744,327    3,802,633 
Non-controlling interests                                        24,244       23,640 
----------------------------------------------------------  -----------  ----------- 
Total equity                                                  3,768,571    3,826,273 
----------------------------------------------------------  -----------  ----------- 
Total equity and liabilities                                 56,009,690   54,409,500 
----------------------------------------------------------  -----------  ----------- 
 

1 Reverse repurchase agreements and other similar secured lending balances held at amortised cost of Rs.142,973 million (31 December 2019: Rs.101,282 million) has been included with loans and advances to banks

2 Reverse repurchase agreements and other similar secured lending balances held at amortised cost of Rs.331,035 million (31 December 2019: Rs.110,949 million) has been included with loans and advances to customers

5. Condensed consolidated interim statement of changes in equity

For the six months ended 30 June 2020

 
                Ordinary                                                Fair            Fair 
                   share  Preference                                   value           value 
                 capital       share                                 through         through 
                     and     capital    Capital                        other           other     Cash 
                   share         and        and          Own  compre-hensive  compre-hensive     flow                                  Parent 
                 premium       share     merger       credit          income          income    hedge                Retained         company         Other 
                 account     premium   reserves  adjust-ment         reserve         reserve  reserve  Translation   earnings  share-holders'        equity  Non-controlling      Total 
                Rs.milli     account  Rs.millio      reserve          - debt        - equity  Rs.mill      reserve  Rs.millio          equity  instru-ments        interests  Rs.millio 
                      on  Rs.million          n   Rs.million      Rs.million      Rs.million      ion   Rs.million          n      Rs.million    Rs.million       Rs.million          n 
--------------  --------  ----------  ---------  -----------  --------------  --------------  -------  -----------  ---------  --------------  ------------  ---------------  --------- 
As at 1 
 January                              1,293,702 
 2019            424,235     112,837          1       31,117        (12,160)           9,063    (755)    (423,858)  1,973,445       3,407,627       374,689           20,619  3,802,936 
Profit for 
 the period            -           -          -            -               -               -        -            -    111,553         111,553             -            1,435    112,988 
Other 
 comprehensive                                                                                                        (3,474) 
 (loss)/income         -           -          -     (25,981)          16,012             227  (4,381)      (5,891)          2        (23,489)             -            (604)   (24,093) 
Distributions          -           -          -            -               -               -        -            -          -               -             -          (1,964)    (1,964) 
Shares issued, 
 net of            1,888 
 expenses              3           -          -            -               -               -        -            -          -           1,888             -                -      1,888 
Treasury 
 shares net 
 movement              -           -          -            -               -               -        -            -    (9,970)         (9,970)             -                -    (9,970) 
Share option 
 expense, 
 net of 
 taxation              -           -          -            -               -               -        -            -      7,326           7,326             -                -      7,326 
Dividends 
 on ordinary 
 shares                -           -          -            -               -               -        -            -   (37,386)        (37,386)             -                -   (37,386) 
Dividends 
 on preference 
 shares and 
 AT1 
 securities            -           -          -            -               -               -        -            -   (16,691)        (16,691)             -                -   (16,691) 
Share buy-back 
 4               (2,039)           -      2,039            -               -               -        -            -   (36,706)        (36,706)             -                -   (36,706) 
Other                                                                                                                   (378)                                         11,556 
 movements             -           -          -            -               -               -        -            -          5           (378)             -                6     11,178 
--------------  --------  ----------  ---------  -----------  --------------  --------------  -------  -----------  ---------  --------------  ------------  ---------------  --------- 
As at 30 
 June 2019       424,084     112,837  1,295,741        5,136           3,852           9,290  (5,136)    (429,749)  1,987,720       3,403,775       374,689           31,042  3,809,506 
Profit for 
 the period            -           -          -            -               -               -        -            -     62,385          62,385             -            1,359     63,745 
Other 
 comprehensive                                                                                                        (6,495) 
 income/(loss)         -           -          -      (4,985)          11,027           2,039      680      (7,704)          2         (5,438)             -            (529)    (5,967) 
Distributions          -           -          -            -               -               -        -            -          -               -             -            (680)      (680) 
Other equity 
 instruments 
 issued, 
 net of 
 expenses              -           -          -            -               -               -        -            -          -               -        41,691                -     41,691 
Treasury 
 shares net 
 movement              -           -          -            -               -               -        -            -    (5,060)         (5,060)             -                -    (5,060) 
Share option 
 expense, 
 net of 
 taxation              -           -          -            -               -               -        -            -      3,172           3,172             -                -      3,172 
Dividends 
 on 
 ordinary 
 shares                -           -          -            -               -               -        -            -   (16,994)        (16,994)             -                -   (16,994) 
Dividends 
 on preference 
 shares and 
 AT1 
 securities            -           -          -            -               -               -        -            -   (17,145)        (17,145)             -                -   (17,145) 
Share buy-back 
 4               (2,341)           -      2,341            -               -               -        -            -   (39,274)        (39,274)             -                -   (39,274) 
Other                                                                                                                     831                                        (7,553) 
 movements             -           -          -            -               -               -        -            -          7             831             -                8    (6,722) 
--------------  --------  ----------  ---------  -----------  --------------  --------------  -------  -----------  ---------  --------------  ------------  ---------------  --------- 
As at 31 
 December 
 2019            421,743     112,837  1,298,083          151          14,879          11,329  (4,456)    (437,452)  1,969,140       3,386,253       416,380           23,640  3,826,273 
Profit for 
 the period            -           -          -            -               -               -        -            -     79,152          79,152             -            1,359     80,512 
Other 
 comprehensive                                                                                                        (4,230) 
 (loss)/income         -           -          -          982          15,785           1,662  (4,683)     (34,440)          2        (24,924)             -            (604)   (25,528) 
Distributions          -           -          -            -               -               -        -            -          -               -             -            (151)      (151) 
Other equity 
 instruments 
 issued, 
 net of 
 expenses              -           -          -            -               -               -        -            -          -               -        74,923                -     74,923 
Redemption 
 of other 
 equity 
 instruments           -           -          -            -               -               -        -            -      (982)           (982)     (150,072)                -  (151,054) 
Treasury 
 shares net 
 movement              -           -          -            -               -               -        -            -    (6,873)         (6,873)             -                -    (6,873) 
Share option 
 expense, 
 net of 
 taxation              -           -          -            -               -               -        -            -      5,589           5,589             -                -      5,589 
Dividends 
 on 
 preference 
 shares 
 and AT1 
 securities            -           -          -            -               -               -        -            -   (17,522)        (17,522)             -                -   (17,522) 
Share buy-back 
 9               (1,511)           -      1,511            -               -               -        -            -   (18,278)        (18,278)             -                -   (18,278) 
Other                                                                                                                     680 
 movements             -           -          -            -               -               -        -            -         10             680             -                -        680 
--------------  --------  ----------  ---------  -----------  --------------  --------------  -------  -----------  ---------  --------------  ------------  ---------------  --------- 
As at 30 
 June 2020       420,232     112,837  1,299,593        1,133          30,664          12,991  (9,139)    (471,893)  2,006,677       3,403,096       341,231           24,244  3,768,571 
--------------  --------  ----------  ---------  -----------  --------------  --------------  -------  -----------  ---------  --------------  ------------  ---------------  --------- 
 

1 Includes capital reserve of Rs.378 million, capital redemption reserve of Rs.982 million and merger reserve of Rs.1,292,342 million

2 Comprises actuarial (loss)/gain, net of taxation and share from associates and joint ventures (Rs.4,230) million ((Rs.6,495) million for the six months ended 31 December 2019 and (Rs.3,474) million for the six months ended 30 June 2019)

3 Comprises share capital of shares issued to fulfil discretionary awards Rs.76 million, share capital of shares issued to fulfil employee share save options Rs.76 million and share premium of shares issued to fulfil employee share save options exercised Rs.1,736 million (nil for six months ended 30 June 2020)

4 On 1 May 2019, the Group commenced a share buy-back of its ordinary shares of Rs.38 each up to a maximum consideration of Rs.75,527 million. 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 Rs.2,039 million and the aggregate consideration paid by the Group was Rs.36,706 million. During the second half of 2019 the total number of shares purchased was 61,218, 327 representing 1.85% of the ordinary shares in issue. The nominal value of ordinary shares purchased during the second half of 2019 was Rs.2,341 million and the aggregate consideration paid by the Group was Rs.39,274 million. The nominal value of the shares was transferred from the share capital to the capital redemption reserve account

5 Comprises withholding tax on capitalisation of revenue reserves Rs.302 million

6 Due to consolidation of a subsidiary with non-controlling interest Rs.6,118 million and non-controlling interest in SC Digital Solutions Rs.5,438 million

7 Disposal of Phoon Huat Pte Ltd Rs.755 million

8 Due to deconsolidation of a subsidiary with non-controlling interest Rs.6,269 million and disposal of non-controlling interest in Phoon Huat Pte Ltd, Sirat Holdings Limited and

Ori Private Limited Rs.1,284 million

9 On 28 February 2020, the Group announced the buy-back programme for a share buy-back of its ordinary shares of Rs.38 each. Nominal value of share purchases was

Rs.1,511 million, and the total consideration paid was Rs.18,278 million. The total number of shares purchased was 40,029,585 representing 1.25% of the ordinary shares in issue.

The nominal value of the shares was transferred from the share capital to the capital redemption reserve account. On the 1 April 2020, the Group announced that in response to a request from the Prudential Regulation Authority and as a consequence of the unprecedented challenges facing the world due to the COVID-19 pandemic, its board had decided

after careful consideration to withdraw the recommendation to pay a final dividend for 2019 of Rupees.15 per ordinary share and to suspend the buy-back programme

   10   Comprises revenue reserves of PT Bank Permata Tbk Rs.680 million 

6. Condensed consolidated interim cash flow statement (translated to INR)

For the six months ended 30 June 2020

 
                                                                   6 months        6 months 
                                                                      ended           ended 
                                                                   30.06.20        30.06.19 
                                                                 Rs.million      Rs.million 
-------------------------------------------------------------  ------------  -------------- 
Cash flows from operating activities: 
Profit before taxation                                              122,882         182,322 
Adjustments for non-cash items and other adjustments 
 included within income statement                                   186,778          82,475 
  Change in operating assets                                    (1,550,192)  (1,686,065)(1) 
  Change in operating liabilities                                 1,750,489       1,764,990 
  Contributions to defined benefit schemes                          (1,435)         (2,039) 
  UK and overseas taxes paid                                       (45,014)        (70,165) 
-------------------------------------------------------------  ------------  -------------- 
Net cash from operating activities                                  463,509      271,520(1) 
-------------------------------------------------------------  ------------  -------------- 
Cash flows from investing activities: 
  Purchase of property, plant and equipment                        (82,702)     (30,513)(1) 
  Disposal of property, plant and equipment                           8,232        5,136(1) 
  Acquisition of investment in subsidiaries, associates 
   and joint ventures, net of cash acquired                         (1,511)               - 
  Dividends received from subsidiaries, associates and 
   joint ventures                                                         -              76 
  Disposal of joint ventures, net of cash acquired                   80,587               - 
  Disposal of subsidiaries                                                -             227 
  Purchase of investment securities                            (12,434,237)    (10,233,002) 
  Disposal and maturity of investment securities                 12,341,036      10,003,098 
-------------------------------------------------------------  ------------  -------------- 
Net cash used in investing activities                              (88,593)    (254,979)(1) 
-------------------------------------------------------------  ------------  -------------- 
Cash flows from financing activities: 
  Issue of ordinary and preference share capital, net 
   of expenses                                                            -           1,888 
  Issue of AT1 securities, net of expenses                           74,923               - 
  Treasury shares net movement                                      (6,873)         (9,970) 
  Cancellation of shares including share buy-back                  (18,278)        (36,706) 
  Redemption of AT1 securities                                    (151,054)               - 
  Premises and equipment lease liability principal payment         (22,734)        (13,746) 
  Gross proceeds from issue of subordinated liabilities              84,968               - 
  Interest paid on subordinated liabilities                        (21,752)        (20,015) 
  Repayment of subordinated liabilities                            (56,796)         (1,737) 
  Proceeds from issue of senior debts                               504,445         271,066 
  Repayment of senior debts                                       (238,363)       (172,881) 
  Interest paid on senior debts                                    (20,543)        (20,468) 
  Investment from non-controlling interests                               -          11,556 
  Dividends paid to non-controlling interests and preference 
   shareholders                                                    (17,673)        (18,655) 
  Dividends paid to ordinary shareholders                                 -        (37,386) 
-------------------------------------------------------------  ------------  -------------- 
Net cash from/(used in) financing activities                        110,269        (47,053) 
-------------------------------------------------------------  ------------  -------------- 
Net increase/(decrease) in cash and cash equivalents                485,185        (30,513) 
  Cash and cash equivalents at beginning of the period            5,849,868       7,363,883 
  Effect of exchange rate movements on cash and cash 
   equivalents                                                     (33,610)        (10,574) 
-------------------------------------------------------------  ------------  -------------- 
Cash and cash equivalents at end of the period(2)                 6,301,444       7,322,796 
-------------------------------------------------------------  ------------  -------------- 
 

1 Aircraft and shipping purchases and disposals re-presented as cash flows from investing activities

2. Comprises cash and balances at central banks Rs.3,997,266 million (30 June 2019: Rs.4,442,649 million), treasury bills and other eligible bills Rs.565,169 million (30 June 2019: Rs.909,496 million), loans and advances to banks Rs.2,197,987 million (30 June 2019: Rs.2,360,672 million), trading securities Rs.194,482 million (30 June 2019: Rs.312,833 million) less restricted balances Rs.653,460 million (30 June 2019: Rs.702,854 million)

Summary of significant differences between Indian GAAP and IFRS

The condensed consolidated interim financial statements of the Group for the six months ended 30 June 2020 with comparatives as at 31 December 2019 and 30 June 2019 are prepared in accordance with International Financial Reporting Standards (IFRS) and IFRS Interpretations Committee interpretations as adopted by the European Union.

IFRS differs in certain significant respects from Indian Generally Accepted Accounting Principles (GAAP). Such differences involve methods for measuring the amounts shown in the financial statements of the Group, as well as additional disclosures required by Indian GAAP.

Set out below are descriptions of certain accounting differences between IFRS and Indian GAAP that could have a significant effect on profit or loss attributable to parent company shareholders for the period ended 30 June 2020 and 31 December 2019 and 30 June 2019 and total parent company shareholders' equity as at the same dates. This section does not provide a comprehensive analysis of such differences. In particular, this description considers only those Indian GAAP pronouncements for which adoption or application is required in financial statements for years ended on or prior to 30 June 2020. The Group has not quantified the effect of differences between IFRS and Indian GAAP, nor prepared consolidated financial statements under Indian GAAP, nor undertaken a reconciliation of IFRS and Indian GAAP financial statements. Had the Group undertaken any such quantification or preparation or reconciliation, other potentially significant accounting and disclosure differences may have come to its attention which are not identified below. Accordingly, the Group does not provide any assurance that the differences identified below represent all the principal differences between IFRS and Indian GAAP relating to the Group. Furthermore, no attempt has been made to identify future differences between IFRS and Indian GAAP. In addition, no attempt has been made to identify all differences between IFRS and Indian GAAP that may affect the financial statements as a result of transaction or events that may occur in the future.

In making an investment decision, potential investors should consult their own professional advisors for an understanding of the differences between IFRS and Indian GAAP and how those differences may have affected the financial results of the Group. The summary does not purport to be complete and is subject to and qualified in its entirety by reference to the pronouncements of the International Accounting Standards Board (IASB), together with the pronouncements of the Indian accounting profession.

Changes in accounting policy

IFRS (IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors)

Changes in accounting policy are applied retrospectively. Comparatives are restated and the effect of period(s) not presented is adjusted against opening retained earnings of the earliest year presented. Policy changes made on the adoption of a new standard are made in accordance with that standard's transitional provisions.

Indian GAAP (AS 5 Net Profit or Loss for the Period, Prior Period Items and Changes in Accounting Policies)

The cumulative amount of the change is included in the income statement for the period in which the change is made except as specified in certain standards (transitional provision) where the change during the transition period resulting from adoption of the standard has to be adjusted against opening retained earnings and the impact disclosed.

Where a change in accounting policy has a material effect in the current period, the amount by which any item in the financial statements is affected by such change should also be disclosed to the extent ascertainable. Where such an amount is not ascertainable, this fact should be indicated.

Functional and presentation currency

IFRS (IAS 21 The Effects of Changes in Foreign Exchange Rates)

An entity may present its financial statements in any currency (or currencies). If the presentation currency differs from the entity's functional currency, it translates its results and financial position into the presentation currency.

Monetary assets and liabilities are translated at the closing rate at the date of that statement of financial position. Income statement items are translated at the exchange rate at the date of transaction or at average rates. The functional currency is the currency of the primary economic environment in which an entity operates. The functional and presentation currency of the Group is US dollars.

Indian GAAP (AS 11 The Effects of Changes in Foreign Exchange Rates)

There is no concept of functional or presentation currency. Entities in India have to prepare their financial statements in Indian rupees.

A foreign currency transaction should be recorded, on initial recognition in the reporting currency, by applying to the foreign currency amount, the exchange rate between the reporting currency and the foreign currency at the date of the transaction.

At each balance sheet date:

-- Foreign currency monetary items should be reported using the closing rate

-- Non-monetary items which are carried in terms of historical cost denominated in a foreign currency should be reported using the exchange rate at the date of the transaction

-- Non-monetary items which are carried at fair value or other similar valuation denominated in a foreign currency should be reported using the exchange rates that existed when the values were determined

Consolidation

IFRS (IFRS 10 Consolidated Financial Statements)

Entities are consolidated when the Group controls an entity. The Group controls an entity when it is exposed to or has rights to direct relevant activities, or has the right to variable returns from its involvement with the entity and has the ability to affect those returns through its power over the investee. This also includes entities where control is not derived through voting rights such as structured entities.

Indian GAAP (AS 21 Consolidated Financial Statements)

Entities are consolidated when group of enterprises are under the control of parent. The control is defined as:

(a) The ownership, directly or indirectly through subsidiary(ies), of more than one-half of the voting power of an enterprise; or

(b) Control of the composition of the board of directors in the case of a company or of the composition of the corresponding governing body in case of any other enterprise so as to obtain economic benefits from its activities.

Subsidiary is excluded form consolidation when:

(a) Control is intended to be temporary because the subsidiary is acquired and held exclusively with a view to its subsequent disposal in the near future; or

(b) It operates under severe long-term restrictions which significantly impair its ability to transfer funds to the parent.

Business combinations

IFRS (IFRS 3 Business Combinations)

All business combinations are treated as acquisitions. Assets, liabilities and contingent liabilities acquired are measured at their fair values with the excess over this fair value when compared with the acquisition cost recognised as goodwill.

For acquisitions occurring on or after 1 January 2004, IFRS 3 requires that, when assessing the value of the assets of an acquired entity, certain identifiable intangible assets must be recognised and, if considered to have a finite life, amortised through the income statement over an appropriate period.

Adjustments to provisional fair values are permitted provided those adjustments are made within 12 months from the date of acquisition, with a corresponding adjustment to goodwill. After re-assessment of respective fair values of net assets acquired, any excess of acquirer's interest in the net fair values of acquirer's identifiable assets is recognised immediately in the income statement.

The Group's policy for non-controlling interests is generally not to recognise non-controlling interests at their fair value, but to recognise them based on their proportionate share of the fair value of the identifiable net assets acquired.

Indian GAAP (AS 14 Accounting for Amalgamations)

Treatment of a business combination depends on whether the acquired entity is held as a subsidiary, whether it is an amalgamation or whether it is an acquisition of a business. For an entity acquired and held as a subsidiary, the business combination is accounted for as an acquisition. The assets and liabilities acquired are incorporated at their existing carrying amounts.

For an amalgamations of an entity, either pooling of interests or acquisitions accounting is used, based on satisfaction of specified conditions. The assets and liabilities amalgamated are incorporated at their existing carrying amounts or, alternatively, if acquisition accounting is adopted, the consideration can be allocated to individual identifiable assets (which may include intangible assets) and liabilities on the basis of their fair values.

Adjustments to the value of acquired or amalgamated balances are not permitted after initial recognition. Any excess of acquirer's interest in the net fair values of acquirer's identifiable assets is recognised as capital reserve, which is neither amortised nor available for distribution to shareholders. However, in case of an amalgamation accounted under the purchase method, the fair value of intangible assets with no active market is reduced to the extent of capital reserve, if any, arising on the amalgamation. Minority interests arising on the acquisition of a subsidiary are recognised at their share of the historical book value.

Goodwill

IFRS (IFRS 3 Business Combinations and IAS 38 Intangible Assets)

IFRS 3 requires that goodwill arising on all acquisitions by the Group and associated undertakings is capitalised but not amortised and is subject to an annual review for impairment. Goodwill is tested annually for impairment. Any impairment losses recognised may not be reversed in subsequent accounting periods.

Indian GAAP (AS 14 Accounting for Amalgamations and AS 26 Intangible Assets)

Goodwill arising on amalgamations is capitalised and amortised over useful life not exceeding five years, unless a longer period can be justified. For goodwill arising on acquisition of a subsidiary or a business, there is no specific guidance. In practice, there is either no amortisation or amortisation not exceeding 10 years. Goodwill is reviewed for impairment whenever an indicator of impairment exists. Impairment losses recognised may be reversed under exceptional circumstances only in subsequent accounting periods through the income statement.

Acquired and internally generated intangible assets

IFRS (IAS 38 Intangible Assets)

Intangible assets are recognised if they are deemed separable and arise from contractual or other legal rights. Assets with a finite useful life are amortised on a systematic basis over their useful life. An asset with an indefinite useful life should be tested for impairment annually.

Indian GAAP (AS 26 Intangible Assets)

Intangible assets are capitalised if specific criteria are met and are amortised over their useful life, generally not exceeding 10 years. The recoverable amount of an intangible asset that is not available for use or is being amortised over a period exceeding 10 years should be reviewed at least at each financial year end even if there is no indication that the asset is impaired.

Property, plant and equipment

IFRS (IAS 16 Property, Plant and Equipment, IAS 23 Borrowing Costs)

The Group's policy is to hold all property, plant, aviation, shipping and equipment fixed assets at cost less depreciation and consequently tangible fixed assets are not subject to revaluation. Fixed assets are, however, subject to impairment testing.

Foreign exchange gains or losses relating to the procurement of property, plant and equipment can be capitalised as part of the asset. Depreciation is recorded over the asset's estimated useful life. Borrowing costs that are directly attributable to the acquisition or construction of an asset must be capitalised as part of that asset.

Indian GAAP (AS 10 Fixed Assets, AS 16 Borrowing Cost)

Fixed assets are recorded at historical costs or revalued amounts. Relevant borrowing costs are capitalised if certain criteria in AS 16 are met. Depreciation is recorded over the asset's useful life. Schedule II (Part C) of the Companies Act 2013 and Banking Regulations prescribe minimum rates of depreciation and these are typically used as the basis for determining useful life.

Recognition and measurement of financial instruments

IFRS (IFRS 9 Financial Instruments)

Classification and measurement

Accounting policy

The Group classifies its financial assets into the following measurement categories: amortised cost; fair value through other comprehensive income; and fair value through profit or loss. Financial liabilities are classified as either amortised cost, or held at fair value through profit or loss. Management determines the classification of its financial assets and liabilities at initial recognition of the instrument or, where applicable, at the time of reclassification.

Financial assets held at amortised cost and fair value through other comprehensive income

Debt instruments held at amortised cost or held at fair value through comprehensive income (FVOCI) have contractual terms that give rise to cash flows that are solely payments of principal and interest (SPPI characteristics). Principal is the fair value of the financial asset at initial recognition but this may change over the life of the instrument as amounts are repaid. Interest consists of consideration for the time value of money, for the credit risk associated with the principal amount outstanding during a particular period and for other basic lending risks and costs, as well as a profit margin.

Whether financial assets are held at amortised cost or at FVOCI depends on the objectives of the business models under which the assets are held. A business model refers to how the Group manages financial assets to generate cash flows.

The Group makes an assessment of the objective of a business model in which an asset is held at the individual product business line, and where applicable within business lines depending on the way the business is managed and information is provided to management.

Financial assets that have SPPI characteristics and which are held within a business model whose objective is to hold financial assets to collect contractual cash flows ('hold to collect') are recorded at amortised cost.

Conversely, financial assets that have SPPI characteristics but are held within a business model whose objective is achieved by both collecting contractual cash flows and selling financial assets ('hold to collect and sell') are classified as FVOCI.

Equity instruments designated as FVOCI

Non-trading equity instruments acquired for strategic purposes rather than capital gain may be irrevocably designated at initial recognition at FVOCI on an instrument-by-instrument basis. Gains and losses arising from changes in the fair value of these instruments, including foreign exchange gains and losses, are recognised directly in equity and are never reclassified to profit or loss, even on derecognition.

Financial assets and liabilities held at fair value through profit or loss

Financial assets that are not held at amortised cost or which are not held at fair value through other comprehensive income are held at fair value through profit or loss. Financial assets and liabilities held at fair value through profit or loss are either mandatorily classified fair value through profit or loss or irrevocably designated at fair value through profit or loss at initial recognition.

Mandatorily classified at fair value through profit or loss

Financial assets and liabilities that are mandatorily held at fair value through profit or loss include:

-- Financial assets and liabilities held for trading, which are those acquired principally for the purpose of selling in the short-term

-- Hybrid financial assets that contain one or more embedded derivatives

-- Financial assets that would otherwise be measured at amortised cost or FVOCI but which do not have SPPI characteristics

-- Equity instruments that have not been designated as held at FVOCI

-- Financial liabilities that constitute contingent consideration in a business combination

Designated at fair value through profit or loss

Financial assets and liabilities may be designated at fair value through profit or loss when the designation eliminates or significantly reduces a measurement or recognition inconsistency that would otherwise arise from measuring assets or liabilities on a different basis ('accounting mismatch').

Financial liabilities may also be designated at fair value through profit or loss where they are managed on a fair value basis or have a bifurcately embedded derivative where the Group is not able to separately value the embedded derivative component.

Financial liabilities held at amortised cost

Financial liabilities that are not financial guarantees or loan commitments and that are not classified as financial liabilities held at fair value through profit or loss are classified as financial liabilities held at amortised cost.

Financial guarantee contracts and loan commitments

Financial guarantee contracts and loan commitments issued at below market interest rates are initially recognised as liabilities at fair value and subsequently at the higher of the expected credit loss provision, and the amount initially recognised less the cumulative amount of income recognised in accordance with the principles of IFRS 15 Revenue from Contracts with Customers.

Fair value of financial assets and liabilities

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 for the asset or liability, or in the absence of a principal market, the most advantageous market to which the Group has access at that date. The fair value of a liability includes the risk that the Group will not be able to honour its obligations.

Initial recognition

Purchases and sales of financial assets and liabilities held at fair value through profit or loss, and debt securities classified as financial assets held at FVOCI are initially recognised on the trade-date (the date on which the Group commits to purchase or sell the asset). Loans and advances and other financial assets held at amortised cost are recognised on the settlement date (the date on which cash is advanced to the borrowers).

All financial instruments are initially recognised at fair value, which is normally the transaction price, plus directly attributable transaction costs for financial assets that are not subsequently measured at fair value through profit or loss.

Subsequent measurement

Financial assets and financial liabilities held at amortised cost

Financial assets and financial liabilities held at amortised cost are subsequently carried at amortised cost using the effective interest method. Foreign exchange gains and losses are recognised in the income statement.

Financial assets held at FVOCI

Debt instruments held at FVOCI are subsequently carried at fair value, with all unrealised gains and losses arising from changes in fair value (including any related foreign exchange gains or losses) recognised in other comprehensive income and accumulated in a separate component of equity. Foreign exchange gains and losses on the amortised cost are recognised in income. Changes in expected credit losses are recognised in the profit or loss and are accumulated in a separate component of equity.

Equity investments designated at FVOCI are subsequently carried at fair value with all unrealised gains and losses arising from changes in fair value (including any related foreign exchange gains or losses) recognised in other comprehensive income and accumulated in a separate component of equity.

Financial assets held at FVTPL

Financial assets and liabilities mandatorily held at fair value through profit or loss and financial assets designated at fair value through profit or loss are subsequently carried at fair value, with gains and losses arising from changes in fair value recorded in the net trading income line in the income statement unless the instrument is part of a cash flow hedging relationship.

Financial liabilities designated at fair value through profit or loss

Financial liabilities designated at fair value through profit or loss are held at fair value, with changes in fair value recognised in the net trading income line in the profit or loss, other than that attributable to changes in credit risk. Fair value changes attributable to credit risk are recognised in other comprehensive income and recorded in a separate category of reserves unless this is expected to create or enlarge an accounting mismatch, in which case the entire change in fair value of the financial liability designated fair value through profit or loss is recognised in profit or loss.

Indian GAAP (AS 13 Investments)

For investments and loans & advances, the Reserve Bank of India (RBI) outlines classification criteria and measurement requirements which differ from those set out in IFRS.

Investments classified as available-for-sale or held-for-trading are measured at lower of cost or market value, unrealised loss on such investments is accounted through the profit and loss account in accordance with RBI guidelines. Investments classified as held-to-maturity are measured at weighted average acquisition cost less the amortisation of premium amount, if any, over the remaining period of maturity.

Derivatives

IFRS (IFRS 9/IAS 39 Financial Instruments: Recognition and Measurement)

IFRS 9 requires that all derivatives be recognised on-balance sheet at fair value. Changes in the fair value of derivatives that are not hedges are reported in the income statement. Changes in the fair value of derivatives that are designated as hedges are either offset against the change in fair value of the hedged asset or liability through earnings, or recognised directly in equity until the hedged item is recognised in earnings, depending on the nature of the hedge. The ineffective portion of the hedge's change in fair value is immediately recognised in earnings. A derivative may only be classified as a hedge if an entity meets stringent qualifying criteria in respect of documentation and hedge effectiveness.

The Group continues to apply the hedge accounting requirements of IAS 39 rather than the requirements of IFRS 9.

Indian GAAP

Foreign exchange contracts held for trading or speculative purposes are carried at fair value, with gains and losses recognised in the income statement.

There are guidelines prescribed by RBI on measurement and accounting of interest rate swaps and forward rate agreements entered into for hedging purposes.

Impairment of financial assets

Under IFRS 9 the impairment of financial assets is as follows:

Measurement

Expected credit losses are computed as unbiased, probability-weighted amounts which are determined by evaluating a range of reasonably possible outcomes, the time value of money, and considering all reasonable and supportable information including that which is forward-looking.

For material portfolios, the estimate of expected cash shortfalls is determined by multiplying the probability of default (PD) with the loss given default (LGD) with the expected exposure at the time of default (EAD). For less material Retail Banking loan portfolios, the Group has adopted simplified approaches based on historical roll rates or loss rates.

For credit-impaired financial instruments, the estimate of cash shortfalls may require the use of expert credit judgement. As a practical expedient, the Group may also measure credit impairment on the basis of an instrument's fair value using an observable market price.

Cash shortfalls are discounted using the effective interest rate on the financial instrument as calculated at initial recognition, or if the instrument has a variable interest rate, the current effective interest rate determined under the contract.

 
Instruments                         Location of expected credit loss 
                                     provisions 
Financial assets held at amortised  Loss provisions: netted against 
 cost                                gross carrying value 
Financial assets held at FVOCI -    Other comprehensive income (FVOCI 
 Debt instruments                    expected credit loss reserve) 
Loan commitments                    Provisions for liabilities and charges 
Financial guarantees                Provisions for liabilities and charges 
 

Recognition

12 months expected credit losses (Stage 1)

Expected credit losses are recognised at the time of initial recognition of a financial instrument and represent the lifetime cash shortfalls arising from possible default events up to 12 months into the future from the balance sheet date. Expected credit losses continue to be determined on this basis until there is either a significant increase in the credit risk of an instrument or the instrument becomes credit-impaired. If an instrument is no longer considered to exhibit a significant increase in credit risk, expected credit losses will revert to being determined on a 12-month basis.

Significant increase in credit risk (Stage 2)

If a financial asset experiences a significant increase in credit risk (SICR) since initial recognition, an expected credit loss provision is recognised for default events that may occur over the lifetime of the asset.

Significant increase in credit risk is assessed by comparing the risk of default of an exposure at the reporting date to the risk of default at origination (after taking into account the passage of time). Significant does not mean statistically significant nor is it assessed in the context of changes in expected credit loss. Whether a change in the risk of default is significant or not is assessed using a number of quantitative and qualitative factors, the weight of which depends on the type of product and counterparty. Financial assets that are 30 or more days past due and not credit-impaired will always be considered to have experienced a significant increase in credit risk. For less material portfolios where a loss rate or roll rate approach is applied to compute expected credit loss, significant increase in credit risk is primarily based on 30 days past due.

Credit-impaired (or defaulted) exposures (Stage 3)

Financial assets that are credit-impaired (or in default) represent those that are at least 90 days past due in respect of principal and/or interest. Financial assets are also considered to be credit-impaired where the obligors are unlikely to pay on the occurrence of one or more observable events that have a detrimental impact on the estimated future cash flows of the financial asset. It may not be possible to identify a single discrete event but instead the combined effect of several events may cause financial assets to become credit-impaired.

Irrevocable lending commitments to a credit-impaired obligor that have not yet been drawn down are also included within the stage 3 credit impairment provision to the extent that the commitment cannot be withdrawn.

Loss provisions against credit-impaired financial assets are determined based on an assessment of the recoverable cash flows under a range of scenarios, including the realisation of any collateral held where appropriate. The loss provisions held represent the difference between the present value of the cash flows expected to be recovered, discounted at the instrument's original effective interest rate, and the gross carrying value of the instrument prior to any credit impairment.

Indian GAAP

Investments under HFT and AFS are written down when there is a decline in fair value and appreciation, if any, is ignored.

Impairments may be reversed through the income statement in subsequent periods if the investment rises in value or the reasons for the impairment no longer exist.

For loans and advances, the RBI regulations stipulate minimum provision based on days past due along with other factors. Additionally, RBI regulations require banks to hold provisions in respect of standard assets and for specific country risk exposures.

Derecognition of financial instruments - IFRS 9

Financial assets are derecognised when the rights to receive cash flows from the financial assets have expired or where the Group has transferred substantially all risks and rewards of ownership. If substantially all the risks and rewards have been neither retained nor transferred and the Group has retained control, the assets continue to be recognised to the extent of the Group's continuing involvement.

Where financial assets have been modified, the modified terms are assessed on a qualitative and quantitative basis to determine whether a fundamental change in the nature of the instrument has occurred, such as whether the derecognition of the pre-existing instrument and the recognition of a new instrument is appropriate.

On derecognition of a financial asset, the difference between the carrying amount of the asset (or the carrying amount allocated to the portion of the asset derecognised) and the sum of the consideration received (including any new asset obtained less any new liability assumed) and any cumulative gain or loss that had been recognised in other comprehensive income is recognised in profit or loss except for equity instruments elected FVOCI (see above) and cumulative fair value adjustments attributable to the credit risk of a liability that are held in other comprehensive income.

Financial liabilities are derecognised when they are extinguished. A financial liability is extinguished when the obligation is discharged, cancelled or expires and this is evaluated both qualitatively and quantitatively. However, where a financial liability has been modified, it is derecognised if the difference between the modified cash flows and the original cash flows is more than 10 per cent, or if less than 10 percent, the Group will perform a qualitative assessment to determine whether the terms of the two instruments are substantially different.

If the Group purchases its own debt, it is derecognised and the difference between the carrying amount of the liability and the consideration paid is included in 'Other income' except for the cumulative fair value adjustments attributable to the credit risk of a liability that are held in other comprehensive income which are never recycled to the profit or loss.

IFRS-classification debt/equity

The substance of a financial instrument, rather than its legal form, governs its classification. A financial instrument is classified as a liability where there is a contractual obligation to deliver either cash or another financial asset to the holder of that instrument, regardless of the manner in which the contractual obligation will be settled. Preference shares, which carry a mandatory coupon or are redeemable on a specific date or at the option of the shareholder are classified as financial liabilities and are presented in other borrowed funds. The dividends on these preference shares are recognised in the income statement as interest expense on an amortised cost basis using the effective interest method.

Indian GAAP

Classification is based on the legal form rather than substance.

Provisions for liabilities and charges

IFRS (IAS 37 Provisions, Contingent Liabilities and Contingent Assets)

The amount recognised as a provision is the best estimate at the balance sheet date of the expenditure required to settle the obligation, discounted using a pre-tax market discount rate if the effect is material.

Indian GAAP (AS 29 Provisions, Contingents Liabilities and Contingent Assets)

Provisions are recognised and measured on a similar basis to IFRS, except that there is no requirement for discounting the provision or liability.

Pension obligations

IFRS (IAS 19 Employee Benefits)

For defined contribution plans, contributions are charged to operating expenses. For funded defined benefit plans, the liability recognised in the balance sheet is the present value of the defined benefit obligation at the balance sheet date less the fair value of plan assets. For unfunded defined benefit plans the liability recognised at the balance sheet date is the present value of the defined benefit obligation. The defined benefit obligation is calculated annually by independent actuaries using the projected unit method. The present value of the defined benefit obligation is determined by discounting the estimated future cash outflows using an interest rate equal to the yield on high-quality corporate bonds. Actuarial gains and losses that arise are recognised in shareholders' equity and presented in the statement of other comprehensive income in the period they arise. The net interest expense on the net defined liability for the year is determined by applying the discount rate used to measure the defined benefit obligation at the beginning of the annual period to the then net defined benefit liability, taking into account any changes in the net defined benefit liability during the year as a result of contributions and benefit payment. Net interest expense and other expense related to defined benefit plans are recognised in the income statement.

Indian GAAP (AS 15 Employee Benefits)

The discount rate to be used for determining defined benefit obligations is established by reference to market yields at the balance sheet date on government bonds. The expected return on plan assets is based on market expectation for the returns over the entire life of the related obligation. Actuarial gains or losses are recognised immediately in the statement of income.

Share-based compensation

IFRS (IFRS 2 Share-based Payments)

IFRS 2 requires that all share-based payments are accounted for using a fair value method. The fair value of the employee services received in exchange for the grant of the options is recognised as an expense. For equity-settled awards, the total amount to be expensed over the vesting period must be determined by reference to the fair value of the options granted (determined using an option pricing model), excluding the impact of any non-market vesting conditions (for example, profitability and growth targets). Non-market vesting conditions must be included in assumptions about the number of options that are expected to become exercisable. At each balance sheet date, the Group revises its estimates of the number of options that are expected to become exercisable. It recognises the impact of the revision of original estimates, if any, in the income statement, and a corresponding adjustment to equity over the remaining vesting period. The proceeds received net of any directly attributable transaction costs are credited to share capital (nominal value) and share premium when the options are exercised.

Cash-settled awards are revalued to fair value at each balance sheet date and a liability recognised on the balance sheet for all unpaid amounts, with any changes in fair value charged or credited to staff costs in the income statement until the awards are exercised.

Indian GAAP

Entities may either follow the intrinsic value method or the fair value method for determining the costs of benefits arising from share-based compensation plans. Although the fair value approach is recommended, entities may use the intrinsic value method and provide fair value disclosures.

Entities are also permitted the option of recognising the related compensation cost over the service period for the entire award (that is, over the service period of the last separately vesting portion of the award), provided that the amount of compensation cost recognised at any date at least equals the fair value of the vested portion of the award at that date.

Deferred taxation

IFRS (IAS 12 Income Taxes)

Deferred tax is determined based on temporary differences, being the difference between the carrying amount and tax base of assets and liabilities, subject to certain exceptions.

Deferred tax assets are recognised if it is probable (more likely than not) that sufficient future taxable profits will be available to utilise to deferred tax assets.

Indian GAAP (AS 22 Accounting for Taxes on Income)

Deferred tax is determined based on timing differences, being the difference between accounting income and taxable income for a period that is capable of reversal in one or more subsequent periods.

Deferred tax assets other than in specified situations, are recognised where there is a reasonable certainty that sufficient future taxable income will be available against which such deferred tax assets can be realised.

Interest income and expense

IFRS (IFRS 9)

Interest income and expense is recognised in the income statement using the effective interest method. The effective interest rate is the rate that discounts estimated future cash payments or receipts through the expected life of the financial instrument. When calculating the effective interest rate, the Group estimates cash flows considering all contractual terms of the financial instrument but does not consider future credit losses. The calculation includes all fees and points paid or received between parties to the contract that are an integral part of the effective interest rate, transaction costs and all other premiums or discounts.

Indian GAAP (AS 9 Revenue Recognition)

As per AS 9, interest is recognised on a time proportion basis taking into account the amount outstanding and the rate applicable. There is no specific effective interest rate requirement for loans and investments. However, the interest is recognised on a receipt basis for NPAs as per RBI extant guidelines.

Dividends

IFRS (IAS 10 Events After the Reporting Date)

Dividends to holders of equity instruments, when proposed or declared after the balance sheet date, should not be recognised as a liability on the balance sheet date. A company, however, is required to disclose the amount of dividends that were proposed or declared after the balance sheet date but before the financial statements were authorised for issue.

Indian GAAP

Accounting and disclosure of dividends is similar to IFRS with effect from 1 April 2016.

Leases

IFRS (IFRS 16 Leases)

Lessees initially recognise the present value of lease payments over the expected lease term as a lease liability and corresponding right-of-use asset, discounting using the incremental borrowing rate applicable in the economic environment of the lease, unless the lease is short term or for an asset of low value. The lease liability is measured using the effective interest