TIDMSTAN
RNS Number : 2808Q
Standard Chartered PLC
25 February 2021
Standard Chartered PLC - Additional Financial information - Part
2
Highlights
Standard Chartered PLC (the Group) today releases its results
for the year ended 31 December 2020. The following pages provide
additional information related to the announcement.
Table of contents
Financial statements
Independent Auditor's report 2
Consolidated income statement 14
Consolidated statement of comprehensive income 15
Consolidated balance sheet 16
Consolidated statement of changes in equity 17
Cash flow statement 18
Notes to the financial statements 19
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Shareholder information 140
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Independent Auditor's Report to the members of Standard
Chartered PLC
Opinion
In our opinion:
-- the financial statements of Standard Chartered PLC (the
'Parent Company') and its subsidiaries (the 'Group') give a true
and fair view of the state of the Group's and of the Parent
Company's affairs as at 31 December 2020 and of the Group's profit
for the year then ended
-- the Group financial statements have been properly prepared in
accordance with International Accounting Standards in conformity
with the requirements of the Companies Act 2006 and International
Financial Reporting Standards (IFRSs) adopted pursuant to
Regulation (EC) No. 1606/2002 as it applies in the European Union
(EU);
-- the Parent Company financial statements have been properly
prepared in accordance with International Accounting Standards in
conformity with the requirements of the Companies Act 2006 as
applied in accordance with section 408 of the Companies Act 2006;
and
-- the financial statements have been prepared in accordance
with the requirements of the Companies Act 2006.
We have audited the financial statements of Group and Parent
Company for the year ended 31 December 2020 which comprise:
Group Parent company
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Consolidated balance sheet as at Balance sheet as at 31 December
31 December 2020; 2020
--------------------------------------- ---------------------------------------
Consolidated income statement for Statement of changes in equity for
the year then ended; the year then ended
--------------------------------------- ---------------------------------------
Consolidated statement of comprehensive Parent Company cash flow statement
income for the year then ended; for the year then ended; and
--------------------------------------- ---------------------------------------
Consolidated statement of changes Related notes 1 and 40 to the financial
in equity for the year then ended; statements including
a summary of significant accounting
policies
--------------------------------------- ---------------------------------------
Group cash flow statement for the
year then ended;
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Related notes 1-40 to the financial
statements, including a summary
of significant accounting policies;
--------------------------------------- ---------------------------------------
Risk and capital disclosures marked
as 'audited'; and
--------------------------------------- ---------------------------------------
Information marked as 'audited'
within the Directors' Remuneration
Report.
--------------------------------------- ---------------------------------------
The financial reporting framework that has been applied in their
preparation is applicable law and International Accounting
Standards in conformity with the requirements of the Companies Act
2006 and , as regards the Group financial statements, IFRSs adopted
pursuant to Regulation (EC) No. 1606/2002 as it applies in the
European Union and as regards the Parent Company financial
statements, as applied in accordance with section 408 of the
Companies Act 2006..
Basis for opinion
We conducted our audit in accordance with International
Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our
responsibilities under those standards are further described in the
Auditor's responsibilities for the audit of the financial
statements section of our report. We are independent of the Group
in accordance with the ethical requirements that are relevant to
our audit of the financial statements in the UK, including the
Financial Reporting Council's (FRC's) Ethical Standard as applied
to listed public interest entities, and we have fulfilled our other
ethical responsibilities in accordance with these requirements.
We believe that the audit evidence we have obtained is
sufficient and appropriate to provide a basis for our opinion.
Conclusions relating to going concern
In auditing the financial statements, we have concluded that the
directors' use of the going concern basis of accounting in the
preparation of the financial statements is appropriate. Our
evaluation of the directors' assessment of the Group and Parent
Company's ability to continue to adopt the going concern basis of
accounting included:
-- Understanding management's going concern assessment process,
including the impact of the COVID-19 pandemic (COVID-19), and
evaluating the appropriateness of the going concern disclosure
included in note 1 to the financial statements;
-- Review of the Corporate Plan, including assessing the
reasonableness of assumptions and historical forecasting
accuracy;
-- Assessing the results of management's stress testing,
including consideration of principal and emerging risks on funding,
liquidity and regulatory capital;
-- Reviewing correspondence with prudential regulators and
authorities for matters that may impact the going concern
assessment; and
-- Evaluating the appropriateness of the going concern
disclosure included in note 1 to the financial statements.
Based on the work we have performed, we have not identified any
material uncertainties relating to events or conditions that,
individually or collectively, may cast significant doubt on the
Group and Parent Company's ability to continue as a going concern
for a period of at least twelve months from when the financial
statements are authorised for issue.
In relation to the Group and Parent Company's reporting on how
they have applied the UK Corporate Governance Code, we have nothing
material to add or draw attention to in relation to the directors'
statement in the financial statements about whether the directors
considered it appropriate to adopt the going concern basis of
accounting.
Our responsibilities and the responsibilities of the directors
with respect to going concern are described in the relevant
sections of this report. However, because not all future events or
conditions can be predicted, this statement is not a guarantee as
to the Group's ability to continue as a going concern.
Overview of our audit approach
Audit scope
* We performed an audit of the complete financial
information of 28 components across 17 countries and
audit procedures on specific balances for a further 5
components across 3 countries.
* The components where we performed full or specific
audit procedures accounted for 85% of adjusted
absolute profit before tax (PBT), 89% of absolute
operating income and 97% of Total assets.
----------------- ------------------------------------------------------------
Key audit matters 1. Credit impairment
2. User Access Management
3. Valuation of financial instruments held at
fair value with higher risk characteristics
4. Impairment of non-financial assets (Aircraft,
Goodwill and Investment in subsidiary
undertakings)
5. Accounting and impairment of investment in
associate
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Materiality
* Overall Group materiality of $144m which represents
5% of adjusted profit before tax.
----------------- ------------------------------------------------------------
Initial audit considerations
In preparation for our first-year audit of the Group and Parent
Company, we performed a number of transitional procedures. This
involved considering previous commercial relationships and personal
financial arrangements and confirming that all staff who work on
the audit are independent of the Group. Following our selection, we
held discussions with the predecessor auditor and reviewed their
2019 financial statement audit work papers. We gained an
understanding of the Group's processes, including the risk
assessment and key judgements made by the predecessor auditors. At
the outset of our audit we gained an understanding of the business
issues and met with executive and key management of the Group and
Parent Company. We used this understanding in the formulation of
our audit strategy for the 2020 Group audit. Our procedures are in
line with the requirements of ISA 510 - initial audit engagements
to gain comfort over the opening balances as at 1 January 2020.
An overview of the scope of the Parent Company and Group
audits
Tailoring the scope
Our assessment of audit risk, our evaluation of materiality and
our allocation of performance materiality determine our audit scope
for each entity within the Group. Taken together, this enables us
to form an opinion on the consolidated financial statements. We
took into account the size, risk profile, the organisation of the
Group and effectiveness of group-wide controls, changes in the
business environment and other factors such as material issues or
misstatements noted in prior periods by the predecessor auditor
when assessing the level of work to be performed at each
entity.
In assessing the risk of material misstatement to the Group
financial statements, and to ensure we had adequate quantitative
coverage of significant accounts in the financial statements, of
the 365 reporting components of the Group, we selected 33
components across 20 countries covering entities within Bangladesh,
Germany, Hong Kong, India, Indonesia, Ireland, Japan, Kenya, South
Korea, Mainland China, Malaysia, Nigeria, Pakistan, Singapore, Sri
Lanka, Taiwan, Thailand, United Arab Emirates, United Kingdom, and
the United States of America which represent the principal business
units within the Group. The definition of a component is aligned
with the structure of the Group's consolidation system, typically
these are either a branch, group of branches or a subsidiary.
We took a centralised approach to auditing certain processes and
controls, as well as the substantive testing of specific balances.
This included audit work over Global Business Services, Commercial
Banking, Corporate and Institutional Banking, Credit Impairment and
Technology.
Of the 33 components selected representing 20 countries, we
performed an audit of the complete financial information of 28
components representing 17 countries ('full scope components')
which were selected based on their size or risk characteristics.
For the remaining 5 components representing 3 countries ("specific
scope components"), we performed audit procedures on specific
accounts within that component that we considered had the potential
for the greatest impact on the significant accounts in the
financial statements either because of the size of these accounts
or their risk profile.
The reporting components where we performed audit procedures
accounted for 86% (2019: KPMG 89%) of the Group's adjusted profit
before tax (PBT), 89% of the Group's absolute operating income and
97% (2019: KPMG 96%) of the Group's Total assets. For the current
year, the full scope components contributed 82% (2019: KPMG 88%) of
the Group's adjusted PBT, 82% of the Group's absolute operating
income and 90% (2019: KPMG 87%) of the Group's total assets. The
specific scope components contributed 4% of the Group's adjusted
PBT, 7% of the Group's absolute operating income and 7% (2019: KPMG
9%) of the Group's Total assets. The audit scope of these
components may not have included testing of all significant
accounts of the component but will have contributed to the coverage
of significant accounts tested for the Group.
Of the remaining 332 components that together represent 14% of
the Group's adjusted PBT, none are individually greater than 1.7%
of the Group's adjusted PBT. For these components, we performed
other procedures which included, but were not limited to,
performing analytical reviews at a Group financial statement line
item level, testing entity level controls, performing audit
procedures on the centralised shared service centres, testing of
consolidation journals and intercompany eliminations, inquiring
with local component teams and assessing the outcome of prior year
local statutory audits.
Involvement with component teams
In establishing our overall approach to the Group audit, we
determined the type of work that needed to be undertaken at each of
the components by the Group audit engagement team, or by component
auditors from other EY global network firms and another firm
operating under our instruction. Of the 28 full scope components,
audit procedures were performed on 2 of these directly by the
primary audit team, EY London (including audit of the parent
Company). In addition, the Group has centralised processes and
controls over key areas in its shared service centres. Members of
the Group audit engagement team provide direct oversight, review
and coordination of our shared service centres audit teams.
Our programme of planned visits to components and shared service
centres in several locations were impacted by the current travel
restrictions and other imposed government measures as a result of
COVID-19. As part of our alternative procedures during the current
year's audit cycle, we undertook virtual site visits. These virtual
site visits involved discussing the audit approach with the
component and shared service centres team and any issues arising
from their work, meeting with local management, attending interim
and closing meetings and performing remote reviews of key audit
workpapers.
As a result of COVID-19, we extended our involvement and
oversight of the component teams. This includes the Group audit
engagement partners and senior members of the primary audit team
increasing their involvement and oversight, increased regular
interactions through calls and video conferences during various
stages of the audit process, increasing our written communications
to and reporting from the component teams and inviting component
teams to our virtual planning event and subsequent dedicated
virtual events.
For all significant and fraud risk areas, substantial elements
of the audit work were led centrally, either within the Group audit
engagement team, or within other teams performing centralised
procedures.
These, together with the additional procedures performed at
Group level, gave us sufficient and appropriate evidence for our
opinion on the Group and Parent Company financial statements.
Key audit matters
Key audit matters (KAMs) are those matters that, in our
professional judgement, were of most significance in our audit of
the financial statements of the current period and include the most
significant assessed risks of material misstatement (whether or not
due to fraud) that we identified. These matters included those
which had the greatest effect on the overall audit strategy; the
allocation of resources in the audit; and directing the efforts of
the Group audit engagement team. These matters were addressed in
the context of our audit of the financial statements, and in our
opinion thereon, and we do not provide a separate opinion on these
matters.
Key
observations
communicated
to the Audit
Risk Our response to the risk Committee
----------------------------------------------------------- ---------------------------------------------------------- ------------
1. Credit Impairment We evaluated the design Our testing
Refer to the Audit Committee and operating effectiveness of models,
Report; Accounting policies; of controls relevant to model
Note 8 of the Consolidated the Group's processes over assumptions
Financial Statements; and material ECL balances, including and the
relevant credit risk disclosures the judgements and estimates Group's
At 31 December 2020 the noted, involving EY specialists Monte
Group reported total credit to assist us in performing Carlo
impairment of $7,145 million our procedures to the extent Simulation
(2019: $6,391 million). it was appropriate. These identified
Management's judgements included: some
and estimates which are * controls over the allocation of assets into stages instances
especially subjective to such as management's monitoring of stage of over and
audit due to significant effectiveness; under
uncertainty associated with estimation.
the assumptions used in We
the estimation in respect * the governance and review of post model adjustments; aggregated
of the timing and measurement these
of expected credit losses differences
(ECL) include: * risk event overlays; and were
* Allocation of assets to stage 1, 2, or 3 on a timely satisfied
basis using criteria in accordance with IFRS 9 that the
considering the impact of COVID-19 and related * completeness and accuracy of data; overall
government support measures, such as payment estimate
deferrals, on customer behaviours; recorded
* multiple economic scenarios; was
reasonable.
* Accounting interpretations, modelling assumptions and The COVID-19
data used to build and run the models that calculate * credit monitoring; and adjustment
the ECL considering the impact of COVID-19 on model on the ECL
performance and any additional data to be considered as at
in the ECL calculation; * individual provisions, year end was
reasonable.
Overall
* There are significant judgements involved with the We obtained papers and minutes modelled
determination of parameters used in Monte Carlo of the executive forums ECL levels,
Simulation and the evaluation of the appropriateness that evaluate credit models staging
of using Monte Carlo Simulation in the context of and ECL provisions for evidence and
COVID-19 with regards to whether the simulation can of executive review and individually
sufficiently capture the non-linearity of expected challenge. assessed
credit losses and appropriately generate a wide range We performed an overall provisions
of possible outcomes. assessment of the ECL provision were
levels by stage to determine reasonable.
if they were reasonable We concluded
by considering the overall that
credit quality of the Group's the Group's
portfolios, risk profile, ECL
impact of COVID-19 including provisions
geographic considerations was
and high risk industries. reasonable
We also assessed the effect and
of government support measures recognised
in key locations (e.g., in
payment deferrals), which accordance
may delay and mask stage with IFRS 9.
migrations. Our assessment
also included the evaluation
of the macroeconomic environment
by considering trends in
the economies and industries
to which the Group is exposed.
We evaluated the criteria
used to allocate financial
assets to stage 1, 2 or
3 in accordance with IFRS
9. We reperformed the staging
distribution for a sample
of assets and assessed the
reasonableness of staging
downgrades applied by management.
----------------------------------------------------------- ---------------------------------------------------------- ------------
Key observations
communicated
Risk Our response to the risk to the Audit Committee
---------------------------------------------------------- --------------------------------- -----------------------
1. Credit Impairment continued We reperformed the staging
* Appropriateness, completeness and valuation of post distribution for a sample
model adjustments and COVID-19 specific risk event of assets and assessed the
overlays given the increased uncertainty and less reasonableness of staging
reliance on modelled outputs increasing the risk of downgrades applied by management.
management override; and We performed a risk assessment
on models involved in the
ECL calculation to select
* Measurement of individual provisions including the a sample of models to test.
assessment of probability weighted scenarios and the Our modelling specialists
impact COVID-19 had on exit strategies, collateral evaluated a sample of ECL
valuations and time to collect. models by assessing the
reasonableness of underpinning
assumptions, inputs and
formulae used. This included
a combination of assessing
the appropriateness of model
design and formulae used,
alternative modelling techniques
and recalculating the Probability
of Default, Loss Given Default
and Exposure at Default.
We also assessed the material
post-model adjustments which
were applied as a response
to model ineffectiveness
and risk event overlays
as a result of COVID-19.
With our modelling specialists,
we also considered the
completeness
and appropriateness of these
adjustments by considering
the judgements, methodology
and governance applied.
In response to new models
implemented this year which
addressed known weaknesses,
we performed more extensive
substantive procedures in
testing the modelled ECL.
To test credit monitoring,
we challenged the risk ratings
for a sample of performing
loans and focused our testing
on high risk industries
impacted by COVID-19.
To evaluate data quality,
we agreed a sample of ECL
calculation data points
to source systems, including
balance sheet data used
to run the models. We also
tested a sample of the ECL
data points from the calculation
engine through to the general
ledger and disclosures.
We included COVID-19 specific
data points in this testing.
We involved economic specialists
to assist us in evaluating
the reasonableness of the
base forecast and the range
of economic scenarios produced
by the Monte Carlo Simulation.
Procedures performed included
benchmarking a sample of
core macro-economic variables
to a variety of external
sources.
For material models, in
collaboration with our economists
and modelling specialists,
we also challenged the
completeness
and appropriateness of the
macroeconomic variables
used as inputs to these
models.
When recalculating a sample
of individually assessed
provisions, our procedures
included challenging management's
forward-looking economic
assumptions of the recovery
outcomes identified and
assigning individual probability
weightings.
We also engaged our valuation
specialists to test the
value of the collateral
used in management's
calculations.
Our sample was based on
quantitative thresholds
and qualitative factors
including vulnerable sectors.
We considered the impact
COVID-19 had on collateral
valuations and time to collect.
We also considered whether
planned exit strategies
remained viable under COVID-19.
We tested the data flows
used to populate
the disclosures and assessed
the adequacy of disclosures
for compliance with the
accounting standards and
regulatory considerations
including expectations of
COVID-19 specific disclosures.
---------------------------------------------------------- --------------------------------- -----------------------
Key observations
communicated
Risk Our response to the risk to the Audit Committee
----------------------------------------------------------- ----------------------------------------------------------- ----------------------------------------------------------
2. User Access Management We reviewed the results We communicated weaknesses
Refer to the Audit Committee of management's remediation in internal control
Report IT General Controls programmes and risk assessments to the Audit Committee,
(ITGCs) support continuous for applications within in respect of the
operation of the automated the scope of our audit and effectiveness of
controls within the business assessed the impact on the IT user-access management..
processes related to financial financial statements for We explained the
reporting. Effective IT the year ended 31 December additional procedures
GCs are needed to ensure 2020. performed, including
that IT applications process We tested IT compensating IT substantive testing,
business data as expected controls, and where these testing of IT and
and that changes are made compensating controls were business compensating
in an appropriate manner. not effective, we performed controls, and where
During 2018 and 2019, the additional IT substantive required, additional
Group Internal Audit and procedures to confirm whether substantive testing
the predecessor auditor the risks associated with over impacted account
identified a number of significant the reported deficiencies balances.
privileged ID management materialised during the As a result of the
control deficiencies. These year. procedures performed,
control deficiencies are Where required, we tested we have reduced the
still in the process of business compensating controls risk that our audit
being fully remediated. and performed additional has not identified
In addition, we identified business substantive procedures. a material error
new control findings in in the Group and
the current year audit, Parent Company financial
as well as observations statements, related
relating to the effectiveness to user access management,
of management's remediation to an appropriate
activities. level.
The possibility of users
gaining access privileges
beyond those necessary to
perform their assigned duties
may result in breaches in
segregation of duties, including
inappropriate manual intervention,
and unauthorised changes
to systems or programmes..
----------------------------------------------------------- ----------------------------------------------------------- ----------------------------------------------------------
3. Valuation of financial We evaluated the design We concluded that
instruments held at fair and operating effectiveness the assumptions used
value with higher risk characteristics of controls relating to by management to
Refer to the Audit Committee the valuation of financial estimate the fair
Report; Accounting policies; instruments, including independent value of financial
and Note 13 of the Consolidated price verification, model instruments with
Financial Statements review and approval, collateral higher risk characteristics
At 31 December 2020, the management, and income statement and the recognition
Group reported financial analysis and reporting. of related income
assets measured at fair We engaged valuation specialists was reasonable. We
value of $310,089 million, to assist the audit team highlighted the following
and financial liabilities in performing the following matters to the Audit
at fair value of $139,906 procedures: Committee:
million, of which financial * Tested complex model-dependent valuations by * Complex-model-dependent valuations were appropriate
assets of $2,948 million independently revaluing Level 3 and certain complex based on the output of our independent revaluations;
and financial liabilities Level 2 derivatives that had been valued using less
of $446 million are classified liquid pricing inputs, in order to assess the
as Level 3 in the fair value appropriateness of models and the adequacy of * Fair values of derivative transactions, unlisted
hierarchy. assumptions and inputs used by the Group; equity investments, loans, debt and other financial
The fair value of financial instruments valued using pricing information with
instruments with higher limited observability were not materially misstated
risk characteristics is * Tested valuations of other financial instruments with at 31 December 2020, based on the output of our
determined through the application higher estimation uncertainty, such as unlisted independent calculations; and
of valuation techniques, equity investments, loans at fair value, debt and
which involve the use of other financial instruments. We compared management's
management judgement in valuation to our own independently developed range, * Valuation adjustments in respect of credit, funding
the selection of valuation where appropriate; and other risks applied to derivative portfolios and
models, assumptions and debt securities issued were appropriate, based on ou
pricing inputs, and present r
the risk of inappropriate * Assessed the appropriateness of pricing inputs as analysis of market data and benchmarking of pricing
revenue recognition through part of the Independent Price Verification process; information.
incorrect pricing. and
A higher level of estimation
uncertainty is involved
for financial instruments * Compared the methodology used for fair value
valued using complex models, adjustments to current market practice. We revalued a
pricing inputs that have sample of valuation adjustments, compared funding
limited observability, and spreads to third party data and challenged the basis
fair value adjustments, for determining illiquid credit spreads.
including the Debit Valuation
Adjustment , Funding Valuation
Adjustment and Credit Valuation Where differences between
Adjustment in relation to our independent valuation
derivative transactions and management's valuation
with counterparties where were outside our thresholds,
credit spreads are less we performed additional
readily able to be determined. testing over each variance
Management's estimates that to assess the impact on
required significant auditor the valuation of financial
judgement included: instruments with higher
* Level 3 derivative financial instruments and certain risk characteristics, including
Level 2 derivative financial instruments valued using related income from trading
complex models; and activities.
* Unlisted equity investments, loans at fair value,
debt and other financial instruments classified in
Level 3 with unobservable pricing inputs.
Significant judgement is
required due to the absence
of verifiable third-party
information to determine
the key inputs and assumptions
in the valuation models.
----------------------------------------------------------- ----------------------------------------------------------- ----------------------------------------------------------
Key observations
communicated
Risk Our response to the risk to the Audit Committee
---------------------------- --------------------------- -----------------------------------------------------------
4. Impairment of We obtained an Impairment of aircraft
non-financial understanding We concluded that
assets of management's processes management's methodology,
Refer to the Audit Committee for impairment assessment judgements and assumptions
Report and evaluated the design related to the impairment
a) Impairment of aircraft of controls. assessment for aircraft
: Accounting policies; and Impairment of aircraft were reasonable and
Note 18 of the financial We assessed the in accordance with
statements appropriateness IFRS. We highlighted
b) Impairment of investment of the Group's VIU the following matters
in subsidiary undertakings methodology to the Audit Committee:
: Accounting policies; and for testing the impairment * Current market values and residual values were
Note 17 of the financial of aircraft. appropriate based on benchmarking to independently
statements We tested the mathematical sourced market data; and
c) Impairment of Goodwill accuracy of the VIU model
: Accounting policies; and and engaged valuation
Note 17 of the financial specialists * The discount rate was within our independent
statements to support the audit team expectation of a reasonable range, with due regard to
COVID-19 and government in calculating an the risks facing the aviation industry and the
measures taken in response independent characteristics of the Group's portfolio of aircraft.
to the pandemic have had, range for assumptions
and are expected to continue underlying
to have, a significant the VIU calculations, such Impairment of Goodwill
economic as discount rates and We concluded that
impact globally. As a residual the goodwill balance
result, values. Where appraisal as at 31 December
the Group recorded values were used to support 2020 was not materially
impairment the carrying value or as misstated. We concluded
charges in respect of an input into the VIU, we that the disclosures
various benchmarked those values in the annual report
non-financial assets during to external market data. appropriately reflect
2020, the most significant We evaluated management's the sensitivity of
of which are set out below. sensitivity analysis to the carrying value
The Group owns a portfolio assumptions in VIU of goodwill to reasonably
of aircraft, which are calculations possible changes
leased and performed stress in key assumptions,
to airlines. The aircraft testing and that these downside
are measured at cost less for reasonably possible sensitivities could
accumulated depreciation changes to the discount require an adjustment
and impairment. As at 31 rate and market values. to the carrying amount
December 2020, the Group Impairment of goodwill and of goodwill in future.
has reported a $132 million investment in subsidiary Impairment of investment
impairment charge in respect undertakings in subsidiary undertakings
of aircraft. Each aircraft We assessed the We concluded that
was tested for impairment. appropriateness the investment in
Impairment of aircraft is of the Group's VIU subsidiaries balance
determined by comparing methodology is not materially
the carrying value to the for testing the impairment misstated as at 31
higher of the current market of goodwill and investments December 2020.
value, provided by third in subsidiaries.
party appraisers, and the We tested the mathematical
value in use (VIU). The accuracy of the VIU model
judgmental inputs into the and engaged valuation
VIU calculation are the specialists
discount rate and residual to support the audit team
values. In addition, as in calculating an
at 31 December 2020, the independent
Group impaired goodwill range for assumptions
by $489 million (2019: $27 underlying
million) and, in the Parent the VIU calculations, such
Company accounts, impaired as the discount rate and
investments in subsidiary long-term growth rates for
undertakings by $349m (2019: each cash generating unit.
$259m). Impairment of We reconciled the future
goodwill profitability forecasts
and investments in to the Group's approved
subsidiary Corporate Plan. We
undertakings is determined performed
by comparing the carrying audit procedures to assess
value to VIU. The VIU is the reasonableness of the
based on future forecasts, review of the
profitability Group Strategy and
forecasts, which are Corporate
inherently Plan and benchmarking the
uncertain, require Corporate Plan using
significant institutional
judgement and are subject forecasts, assessing the
to the risk of management reasonableness of
bias. assumptions
Aside from profit forecasts, and testing historical
other significant judgements forecasting
included in the VIU are accuracy. In addition, we
discount rates and performed a stand back test
macroeconomic to assess whether the
assumptions such as forecasts
long-term and assumptions utilised
growth rates. by the Group were
Consequently, there is a consistent
risk that if the judgements across the key estimates.
and assumptions underpinning We evaluated management's
the impairment assessments sensitivity analysis and
are inappropriate, then performed independent
the aircraft, goodwill and stress
investments in subsidiaries tests to identify the cash
balances may be misstated. generating units that were
most sensitive to potential
change in assumptions,
including
the long-term growth rate,
discount rates and
profitability
forecasts. We assessed the
appropriateness of
disclosures
in relation to the impact
of reasonably possible
changes
in key assumptions on the
carrying values of
non-financial
assets.
---------------------------- --------------------------- -----------------------------------------------------------
Key observations
communicated
Risk Our response to the risk to the Audit Committee
----------------------------------- ------------------------------------ ----------------------------
5. Accounting and Impairment We evaluated the facts and We concluded that
of investment in associate circumstances that the Group the Group continues
Refer to the Audit Committee presented to demonstrate to maintain significant
Report; Accounting policies; its ability to maintain influence over Bohai
and Note 32 of the financial significant influence over as at 31 December
statements the management, and financial 2020.
At 31 December 2020, the and operating policies of We concluded that
Group reported an investment Bohai, through Board representation the investment in
in associate, China Bohai and the provision of technical associate balance
Bank (Bohai), o f $2,025 skills to Bohai. In addition, as at 31 December
million (2019: $1,803 million). we assessed the appropriateness 2020 was not materially
On 16 July 2020, Bohai was in the change in basis of misstated. We concluded
listed on the Hong Kong inclusion of Bohai's results that the disclosures
Stock Exchange, and as a from a one-month lag to in the annual report
result, the Group's investment a three-month lag. We assessed appropriately reflect
in Bohai was diluted to the appropriateness of the the sensitivity of
16.26% as at 31 December Group's VIU methodology the carrying value
2020 (2019: 19.99%). We for testing the impairment to reasonably possible
f ocused on judgements, of the investment in Bohai. changes in key assumptions.
including the appropriateness We tested the mathematical
of equity accounting, impairment accuracy of the VIU model
considerations and non-coterminous and engaged valuation specialists
reporting. to support the audit team
Equity accounting in calculating an independent
There is a presumption that range for assumptions underlying
an investor holding less the VIU calculations, such
than a 20% stake in an investee as the discount rate and
cannot exert significant long-term growth rate. We
influence, and continue reconciled the future profitability
to account F or the investment forecasts to the available
as an associate, unless analyst reports.
such influence can be clearly We assessed the appropriateness
demonstrated. Prior to listing, of disclosures in the annual
the Group equity accounted report in relation to the
its interest in Bohai on impact of reasonably possible
a one-month lag basis. Following changes in key assumptions
the listing, Bohai is now on the carrying values of
subject to regulations in the investment in Bohai.
respect of price sensitive
information and, as such,
the Group now includes Bohai's
results on a three-month
lag basis. In 2020, the
Group accounted f or 10
months of profits from Bohai
(2019: 12 months).
Impairment testing
At 31 December 2020, there
was a 7% deficit between
the Group's share of Bohai's
market capitalisation, as
compared with the carrying
value of the investment,
which represents an impairment
trigger.
Impairment of the investment
in Bohai is determined by
comparing the carrying value
to VIU. The VIU is based
on F uture profitability
F orecasts, which are inherently
uncertain, require significant
judgement and are subject
to the risk of management
bias.
Aside from profit forecasts,
other significant judgements
included in the VIU are
discount rates and macroeconomic
assumptions such as long-term
growth rates.
Consequently, there is a
risk that if the judgements
and assumptions underpinning
the impairment assessments
are inappropriate, then
the investment in associate
may be overstated.
----------------------------------- ------------------------------------ ----------------------------
Other than the additional KAMs 4a and 5 noted in the table
above, the current year KAMs are consistent with prior year KAMs
reported by the predecessor auditor.
Our application of materiality
We apply the concept of materiality in planning and performing
the audit, in evaluating the effect of identified misstatements on
the audit and in forming our audit opinion.
Materiality
The magnitude of an omission or misstatement that, individually
or in the aggregate, could reasonably be expected to influence the
economic decisions of the users of the financial statements.
Materiality provides a basis for determining the nature and extent
of our audit procedures.
We determined materiality for the Group to be $144 million
(2019: KPMG $140 million), which is 5% of adjusted PBT. We believe
that adjusted PBT provides us with the most appropriate measure for
the users of the financial statements, given the Group is profit
making; it is consistent with the wider industry and is the
standard for listed and regulated entities and we believe it
reflects the most useful measure for users of the financial
statements. We also believe that the adjustments are appropriate as
they relate to material non-recurring items.
Performance materiality
The application of materiality at the individual account or
balance level. It is set at an amount to reduce to an appropriately
low level the probability that the aggregate of uncorrected and
undetected misstatements exceeds materiality.
On the basis of our risk assessments, together with our
assessment of the Group's overall control environment, our
judgement was that performance materiality was 50% of our planning
materiality, namely $72m (2019: KPMG $91m). We have set performance
materiality at this percentage since this is an initial audit.
Audit work at component locations for the purpose of obtaining
audit coverage over significant financial statement accounts is
undertaken based on a percentage of total performance materiality.
The performance materiality set for each component is based on the
relative size and risk of the component to the Group as a whole and
our assessment of the risk of misstatement at that component. In
the current year, the range of performance materiality allocated to
components was $7m to $22m (2019: KPMG $1m to $60m).
Reporting threshold
An amount below which identified misstatements are considered as
being clearly trivial.
We agreed with the Audit Committee that we would report to them
all uncorrected audit differences in excess of $7m (2019: KPMG
$5m), which is set at 5% of planning materiality, as well as
differences below that threshold that, in our view, warranted
reporting on qualitative grounds.
We evaluate any uncorrected misstatements against both the
quantitative measures of materiality discussed above and in light
of other relevant qualitative considerations in forming our
opinion.
Other information
The other information comprises the information included in the
annual report including the Strategic report, the Directors'
report, the Directors' remuneration report, the Risk review and
Capital review, and the Supplementary information, other than the
Financial statements, the specific disclosures or tables marked as
'audited' and our auditor's report thereon. The directors are
responsible for the other information contained within the annual
report.
Our opinion on the Financial statements does not cover the other
information and, except to the extent otherwise explicitly stated
in this report, we do not express any form of assurance conclusion
thereon.
Our responsibility is to read the other information and, in
doing so, consider whether the other information is materially
inconsistent with the Financial statements or our knowledge
obtained in the course of the audit, or otherwise appears to be
materially misstated. If we identify such material inconsistencies
or apparent material misstatements, we are required to determine
whether there is a material misstatement in the Financial
statements themselves. If, based on the work we have performed, we
conclude that there is a material misstatement of the other
information, we are required to report that fact.
We have nothing to report in this regard.
Opinions on other matters prescribed by the Companies Act
2006
In our opinion, the part of the directors' remuneration report
to be audited has been properly prepared in accordance with the
Companies Act 2006.
In our opinion, based on the work undertaken in the course of
the audit:
-- the information given in the strategic report and the
directors' report for the financial year for which the financial
statements are prepared is consistent with the financial
statements; and
-- the strategic report and the directors' report have been
prepared in accordance with applicable legal requirements.
Matters on which we are required to report by exception
In the light of the knowledge and understanding of the Group and
the Parent Company and its environment obtained in the course of
the audit, we have not identified material misstatements in the
strategic report or the directors' report.
We have nothing to report in respect of the following matters in
relation to which the Companies Act 2006 requires us to report to
you if, in our opinion:
-- adequate accounting records have not been kept by the Parent
Company, or returns adequate for our audit have not been received
from branches not visited by us; or
-- the Parent Company financial statements and the part of the
Directors' Remuneration Report to be audited are not in agreement
with the accounting records and returns; or
-- certain disclosures of directors' remuneration specified by
law are not made; or
-- we have not received all the information and explanations we
require for our audit
Corporate Governance Statement
The Listing Rules require us to review the directors' statement
in relation to going concern, longer-term viability and that part
of the Corporate Governance Statement relating to the Group and
Company's compliance with the provisions of the UK Corporate
Governance Code specified for our review.
-- Based on the work undertaken as part of our audit, we have
concluded that each of the following elements of the Corporate
Governance Statement is materially consistent with the financial
statements or our knowledge obtained during the audit:
-- Directors' statement with regards to the appropriateness of
adopting the going concern basis of accounting and any material
uncertainties identified set out is set out in the Annual
Report;
-- Directors' explanation as to its assessment of the Company's
prospects, the period this assessment covers and why the period is
appropriate is set out in the Annual Report;
-- Directors' statement on fair, balanced and understandable set
out is set out in the Annual Report;
-- Board's confirmation that it has carried out a robust
assessment of the emerging and principal risks is set out in the
Annual Report;
-- The section of the annual report that describes the review of
effectiveness of risk management and internal control systems is
set out in the Annual Report; and;
-- The section describing the work of the audit committee set
out in the Annual Report
Responsibilities of directors
As explained more fully in the Statement of Directors'
responsibilities, the directors are responsible for the preparation
of the financial statements and for being satisfied that they give
a true and fair view, and for such internal control as the
directors determine is necessary to enable the preparation of
financial statements that are free from material misstatement,
whether due to fraud or error.
In preparing the financial statements, the directors are
responsible for assessing the Group and Parent Company's ability to
continue as a going concern, disclosing, as applicable, matters
related to going concern and using the going concern basis of
accounting unless the directors either intend to liquidate the
Group or the Parent Company or to cease operations, or have no
realistic alternative but to do so..
Auditor's responsibilities for the audit of the financial
statements
Our objectives are to obtain reasonable assurance about whether
the financial statements as a whole are free from material
misstatement, whether due to fraud or error, and to issue an
auditor's report that includes our opinion. Reasonable assurance is
a high level of assurance, but is not a guarantee that an audit
conducted in accordance with ISAs (UK) will always detect a
material misstatement when it exists. Misstatements can arise from
fraud or error and are considered material if, individually or in
the aggregate, they could reasonably be expected to influence the
economic decisions of users taken on the basis of these financial
statements.
Explanation as to what extent the audit was considered capable
of detecting irregularities, including fraud
Irregularities, including fraud, are instances of non-compliance
with laws and regulations. We design procedures in line with our
responsibilities, outlined below, to detect irregularities,
including fraud. The risk of not detecting a material misstatement
due to fraud is higher than the risk of not detecting one resulting
from error, as fraud may involve deliberate concealment by, for
example, forgery or intentional misrepresentations, or through
collusion. The extent to which our procedures are capable of
detecting irregularities, including fraud is detailed below.
However, the primary responsibility for the prevention and
detection of fraud rests with both those charged with governance of
the Company and management.
-- We obtained an understanding of the legal and regulatory
frameworks that are applicable to the Group and determined that the
most significant are those that relate to the reporting framework
(IFRS, Companies Act 2006 and the UK Corporate Governance Code),
regulations and supervisory requirements of the Prudential
Regulation Authority (PRA), FRC, Financial Conduct Authority (FCA)
and other overseas regulatory requirements, including but not
limited to regulations in its major markets such as Hong Kong,
India, South Korea, Singapore, United States of America, and the
relevant tax compliance regulations in the jurisdictions in which
the Group operates. In addition, we concluded that there are
certain significant laws and regulations that may have an effect on
the determination of the amounts and disclosures in the Financial
statements and those laws and regulations relating to regulatory
capital and liquidity, conduct, Financial crime including
anti-money laundering, sanctions, market abuse and environmental
regulations recognising the Financial and regulated nature of the
Group's activities.
-- We understood how the Group is complying with those
frameworks by performing a combination of inquiries of senior
management and those charged with governance as required by
auditing standards, review of board and committee meeting minutes,
gaining an understanding of the Group's approach to governance and
inspection of regulatory correspondences in the year. We also
engaged EY financial crime specialists to perform procedures on
areas relating to anti-money laundering and sanctions. Through
these procedures, we became aware of actual or suspected
non-compliance. The identi ed actual or suspected non-compliance
was not suf ciently signi cant to our audit that would have
resulted in being identi ed as a key audit matter.
-- We assessed the susceptibility of the Group's financial
statements to material misstatement, including how fraud might
occur by considering the controls that the Group has established to
address risks identified by the entity, or that otherwise seek to
prevent, deter or detect fraud. Our procedures to address the risks
identified also included incorporation of unpredictability into the
nature, timing and/or extent of our testing, challenging
assumptions and judgements made by management in their significant
accounting estimates and journal entry testing.
-- Based on this understanding we designed our audit procedures
to identify non-compliance with such laws and regulations. Our
procedures involved inquiries of Group legal counsel, money
laundering reporting officer, internal audit, certain senior
management executives and focused testing. We also performed
inspection of key regulatory correspondence from the relevant
regulatory authorities.
-- For instances of actual or suspected non-compliance with laws
and regulations, which have a material impact on the financial
statements, these were communicated to the Group audit engagement
team and component teams who performed audit procedures such as
inquiries with management and external legal counsel, sending
confirmations to external lawyers and meeting with external
regulators. Where appropriate, we involved specialists from our
firm to support the audit team.
-- The Group operates in the banking industry which is a highly
regulated environment. As such the Senior Statutory Auditor
considered the experience and expertise of the Group audit
engagement team, the component teams and the shared service centre
teams to ensure that the team had the appropriate competence and
capabilities, which included the use of specialists where
appropriate.
A further description of our responsibilities for the audit of
the financial statements is located on the FRC's website at
https://www.frc.org.uk/auditorsresponsibilities. This description
forms part of our auditor's report.
Other matters we are required to address
-- Following the recommendation from the Audit Committee, we
were appointed as auditors of the Company and signed an engagement
letter on 31 March 2020, and were appointed by the Company at the
AGM on 6 May 2020, to audit the financial statements for the year
ended 31 December 2020 and subsequent financial periods. The period
of total uninterrupted engagement is 1 year, covering the year
ended 31 December 2020.
-- The non-audit services prohibited by the FRC's Ethical
Standard were not provided to the Group or the Parent Company and
we remain independent of the Group and the Parent Company in
conducting the audit.
-- The audit opinion is consistent with the additional report to
the Audit Committee.
Use of our report
This report is made solely to the Company's members, as a body,
in accordance with Chapter 3 of Part 16 of the Companies Act 2006.
Our audit work has been undertaken so that we might state to the
Company's members those matters we are required to state to them in
an auditor's report and for no other purpose. To the fullest extent
permitted by law, we do not accept or assume responsibility to
anyone other than the Company and the Company's members as a body,
for our audit work, for this report, or for the opinions we have
formed.
David Canning-Jones (Senior statutory auditor)
for and on behalf of Ernst & Young LLP, Statutory
Auditor
London
25 February 2021
Consolidated income statement
For the year ended 31 December 2020
2020 2019
Notes $million $million
---------------------------------------------- ----- ---------- ----------
Interest income 12,292 16,549
Interest expense (5,440) (8,882)
---------------------------------------------- ----- ---------- ----------
Net interest income 3 6,852 7,667
Fees and commission income 3,865 4,111
Fees and commission expense (705) (589)
Net fee and commission income 4 3,160 3,522
Net trading income 5 3,672 3,350
Other operating income 6 1,070 878
---------------------------------------------- ----- ---------- ----------
Operating income 14,754 15,417
---------- ----------
Staff costs (6,886) (7,122)
Premises costs (412) (420)
General administrative expenses (1,831) (2,211)
Depreciation and amortisation (1,251) (1,180)
---------- ----------
Operating expenses 7 (10,380) (10,933)
---------------------------------------------- ----- ---------- ----------
Operating profit before impairment losses and
taxation 4,374 4,484
Credit impairment 8 (2,325) (908)
Goodwill, property, plant and equipment and
other impairment 9 (587) (163)
Profit from associates and joint ventures 32 151 300
---------------------------------------------- ----- ---------- ----------
Profit before taxation 1,613 3,713
Taxation 10 (862) (1,373)
---------------------------------------------- ----- ---------- ----------
Profit for the year 751 2,340
---------------------------------------------- ----- ---------- ----------
Profit attributable to:
Non-controlling interests 29 27 37
Parent company shareholders 724 2,303
---------------------------------------------- ----- ---------- ----------
Profit for the year 751 2,340
---------------------------------------------- ----- ---------- ----------
cents cents
------------------------------------ ----- -----
Earnings per share:
Basic earnings per ordinary share 12 10.4 57.0
Diluted earnings per ordinary share 12 10.3 56.4
------------------------------------ ----- -----
The notes form an integral part of these financial
statements.
Consolidated statement of comprehensive income
For the year ended 31 December 2020
2020 2019
Notes $million $million
--------------------------------------------------------- ----- ---------- ----------
Profit for the year 751 2,340
Other comprehensive income/(loss)
Items that will not be reclassified to income
statement: (9) (531)
---------- ----------
Own credit losses on financial liabilities
designated at fair value through profit or
loss (55) (462)
Equity instruments at fair value through other
comprehensive income 62 13
Actuarial gains/(losses) on retirement benefit
obligations 30 1 (124)
Taxation relating to components of other comprehensive
income 10 (17) 42
---------- ----------
Items that may be reclassified subsequently
to income statement: 922 131
Exchange differences on translation of foreign
operations:
---------- ----------
Net gains/(losses) taken to equity 657 (386)
Net (losses)/gains on net investment hedges (287) 191
Reclassified to income statement on sale of
joint venture 246 -
Share of other comprehensive (loss)/income
from associates and joint ventures (37) 25
Debt instruments at fair value through other
comprehensive income:
Net valuation gains taken to equity 815 555
Reclassified to income statement (431) (170)
Net impact of expected credit losses 21 7
Cash flow hedges:
Net losses taken to equity (25) (64)
Reclassified to income statement 14 17 21
Taxation relating to components of other comprehensive
income 10 (54) (48)
---------- ----------
Other comprehensive income/(loss) for the year,
net of taxation 913 (400)
--------------------------------------------------------- ----- ---------- ----------
Total comprehensive income for the year 1,664 1,940
--------------------------------------------------------- ----- ---------- ----------
Total comprehensive income attributable to:
Non-controlling interests 29 15 20
Parent company shareholders 1,649 1,920
--------------------------------------------------------- ----- ---------- ----------
Total comprehensive income for the year 1,664 1,940
--------------------------------------------------------- ----- ---------- ----------
Consolidated balance sheet
As at 31 December 2020
2020 2019
Notes $million $million
------------------------------------------------- ------ ---------- ----------
Assets
Cash and balances at central banks 13, 35 66,712 52,728
Financial assets held at fair value through
profit or loss 13 106,787 92,818
Derivative financial instruments 13, 14 69,467 47,212
Loans and advances to banks 13, 15 44,347 53,549
Loans and advances to customers 13, 15 281,699 268,523
Investment securities 13 153,315 143,731
Other assets 20 48,688 42,022
Current tax assets 10 808 539
Prepayments and accrued income 2,122 2,700
Interests in associates and joint ventures 32 2,162 1,908
Goodwill and intangible assets 17 5,063 5,290
Property, plant and equipment 18 6,515 6,220
Deferred tax assets 10 919 1,105
Assets classified as held for sale 21 446 2,053
------------------------------------------------- ------ ---------- ----------
Total assets 789,050 720,398
------------------------------------------------- ------ ---------- ----------
Liabilities
Deposits by banks 13 30,255 28,562
Customer accounts 13 439,339 405,357
Repurchase agreements and other similar secured
borrowing 13 1,903 1,935
Financial liabilities held at fair value through
profit or loss 13 68,373 66,974
Derivative financial instruments 13, 14 71,533 48,484
Debt securities in issue 13, 22 55,550 53,025
Other liabilities 23 47,904 41,583
Current tax liabilities 10 660 703
Accruals and deferred income 4,546 5,369
Subordinated liabilities and other borrowed
funds 13, 27 16,654 16,207
Deferred tax liabilities 10 695 611
Provisions for liabilities and charges 24 466 449
Retirement benefit obligations 30 443 469
Liabilities included in disposal groups held
for sale 21 - 9
------------------------------------------------- ------ ---------- ----------
Total liabilities 738,321 669,737
------------------------------------------------- ------ ---------- ----------
Equity
Share capital and share premium account 28 7,058 7,078
Other reserves 12,688 11,685
Retained earnings 26,140 26,072
------------------------------------------------- ------ ---------- ----------
Total parent company shareholders' equity 45,886 44,835
Other equity instruments 28 4,518 5,513
------------------------------------------------- ------ ---------- ----------
Total equity excluding non-controlling interests 50,404 50,348
Non-controlling interests 29 325 313
------------------------------------------------- ------ ---------- ----------
Total equity 50,729 50,661
------------------------------------------------- ------ ---------- ----------
Total equity and liabilities 789,050 720,398
------------------------------------------------- ------ ---------- ----------
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 25 February 2021 and signed
on its behalf by:
José Viñals Bill Winters Andy Halford
Chairman Group Chief Executive Group Chief Financial Officer
Consolidated statement of changes in equity
For the year ended 31 December 2020
Fair Fair
Ordinary Prefer-ence 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 Trans-lation Retained share-holders' equity Non-controlling
account account reserves reserve - debt - equity reserve reserve earnings equity instru-ments 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 - - - - - - - - 2,303 2,303 - 37 2,340
Other
comprehensive
(loss)/income - - - (410) 358 30 (49) (180) (132)2 (383) - (17) (400)
Distributions - - - - - - - - - - - (35) (35)
Shares issued,
net
of expenses3 25 - - - - - - - - 25 - - 25
Other equity
instruments
issued, net
of expenses - - - - - - - - - - 552 - 552
Treasury
shares
purchased - - - - - - - - (206) (206) - - (206)
Treasury
shares issued - - - - - - - - 7 7 - - 7
Share option
expense - - - - - - - - 139 139 - - 139
Dividends on
ordinary
shares - - - - - - - - (720) (720) - - (720)
Dividends on
preference
shares and
AT1
securities - - - - - - - - (448) (448) - - (448)
Share
buy-back4 (58) - 58 - - - - - (1,006) (1,006) - - (1,006)
Other
movements - - - - - - - - 65 6 - 556 61
-------------- -------- ----------- -------- ----------- -------------- -------------- -------- ------------ -------- -------------- ------------ --------------- --------
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 - - - - - - - - 724 724 - 27 751
Other
comprehensive
(loss)/income - - - (54) 332 (2) 7 631 112 925 - (12) 913
Distributions - - - - - - - - - - - (20) (20)
Other equity
instruments
issued, net
of expenses - - - - - - - - - - 992 - 992
Redemption of
other
equity
instruments - - - - - - - - (13) (13) (1,987) - (2,000)
Treasury
shares
purchased - - - - - - - - (98) (98) - - (98)
Treasury
shares issued - - - - - - - - 8 8 - - 8
Share option
expense - - - - - - - - 133 133 - - 133
Dividends on
preference
shares and
AT1
securities - - - - - - - - (395) (395) - - (395)
Share
buy-back7 (20) - 20 - - - - - (242) (242) - - (242)
Other
movements - - - - - - - 69 (60)8 9 - 179 26
-------------- -------- ----------- -------- ----------- -------------- -------------- -------- ------------ -------- -------------- ------------ --------------- --------
As at 31
December
2020 5,564 1,494 17,207 (52) 529 148 (52) (5,092) 26,140 45,886 4,518 325 50,729
-------------- -------- ----------- -------- ----------- -------------- -------------- -------- ------------ -------- -------------- ------------ --------------- --------
1 Includes capital reserve of $5 million, capital redemption
reserve of $13 million and merger reserve of $17,111 million
2 Comprises actuarial gain, net of taxation $11 million and nil
share from associates and joint ventures ($130 million actuarial
loss and $2 million share of loss from associates and joint
ventures for the year ending 31 December 2019)
3 Comprises share capital of shares issued to fulfil
discretionary awards $1 million, share capital of shares issued to
fulfil employee share save options $1 million (nil for the year
ended 31 December 2020) and share premium of shares issued to
fulfil employee Sharesave options exercised $23 million (nil for
the year ended 31 December 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
$1,000 million. Nominal value of share purchases is $58 million for
the year ended 31 December 2019 and the total consideration paid
was $1,006 million which includes share buyback expenses
of $6 million. The total number of shares purchased was
116,103,483 representing 3.51 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
5 Comprises $10 million disposal of non-controlling interest of
Phoon Huat Pte Ltd offset by $4 million withholding tax on
capitalisation of revenue reserves for Standard Chartered Bank
Ghana Limited
6 Comprises $72 million of non-controlling interest in Mox Bank
Limited offset by $17 million disposal of non-controlling interest
in Phoon Huat Pte Ltd, Sirat Holdings Limited and Ori Private
Limited
7 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 31 March 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
8 Includes $69 million related to prior period adjustments to
reclass FX movements from translation reserve to retained earnings
($45 million related to FX movements of the hedging instruments for
net investment hedges and $24 million related to FX movements for
monetary items, which were considered structural positions), and $9
million increase related to revenue reserves of PT Bank Permata
Tbk
9 $17 million movement related to non-controlling interest from
Mox Bank Limited
Note 28 includes a description of each reserve.
The notes form an integral part of these financial
statements.
Cash flow statement
For the year ended 31 December 2020
Group Company
---------------------------------------- ----- ---------------------- ----------------------
2020 2019 2020 2019
Notes $million $million $million $million
---------------------------------------- ----- ---------- ---------- ---------- ----------
Cash flows from operating activities:
Profit before taxation 1,613 3,713 666 22,306
Adjustments for non-cash items
and other adjustments included
within income statement 34 4,342 2,417 19 (16,760)
Change in operating assets 34 (38,064) (35,433)1 (8,451) (5,473)
Change in operating liabilities 34 54,437 29,935 6,415 (4,182)
Contributions to defined benefit
schemes 30 (123) (137) - -
UK and overseas taxes paid 10 (971) (1,421) 3 -
---------------------------------------- ----- ---------- ---------- ---------- ----------
Net cash from/(used in) operating
activities 21,234 (926)1 (1,348) (4,109)
---------------------------------------- ----- ---------- ---------- ---------- ----------
Cash flows from investing activities:
Purchase of property, plant
and equipment 18 (1,270) (518)1 - -
Disposal of property, plant
and equipment 178 5661 - -
Acquisition of investment in
subsidiaries, associates, and
joint ventures, net of cash
acquired 32 (52) - - -
Dividends received from subsidiaries,
associates and joint ventures 32 - 3 1,110 4,494
Disposal of joint ventures,
net of cash acquired 1,066 - - -
Purchase of investment securities (285,026) (259,473) - (7,583)
Disposal and maturity of investment
securities 280,626 241,600 2,590 1,065
---------------------------------------- ----- ---------- ---------- ---------- ----------
Net cash (used in)/from investing
activities (4,478) (17,822) 3,700 (2,024)
---------------------------------------- ----- ---------- ---------- ---------- ----------
Cash flows from financing activities:
Issue of ordinary and preference
share capital,
net of expenses 28 - 25 - 25
Exercise of share options 8 7 8 7
Purchase of own shares (98) (206) (98) (206)
Cancellation of shares including
share buy-back (242) (1,006) (242) (1,006)
Premises and equipment lease
liability principal payment (319) (332) - -
Issue of AT1 capital, net of
expenses 28 992 552 990 552
Redemption of Tier 1 capital 28 (2,000) - (2,000) -
Gross proceeds from issue of
subordinated liabilities 34 2,473 1,000 2,473 1,000
Interest paid on subordinated
liabilities 34 (601) (603) (537) (547)
Repayment of subordinated liabilities 34 (2,446) (23) (1,402) -
Proceeds from issue of senior
debts 34 9,953 9,169 2,193 6,012
Repayment of senior debts 34 (4,305) (7,692) (2,106) (3,780)
Interest paid on senior debts 34 (627) (797) (575) (740)
Investment from non-controlling
interests - 56 - -
Dividends paid to non-controlling
interests, preference shareholders
and AT1 securities (415) (483) (395) (448)
Dividends paid to ordinary
shareholders - (720) - (720)
---------------------------------------- ----- ---------- ---------- ---------- ----------
Net cash from/(used in) financing
activities 2,373 (1,053) (1,691) 149
---------------------------------------- ----- ---------- ---------- ---------- ----------
Net increase/(decrease) in
cash and cash equivalents 19,129 (19,801) 661 (5,984)
Cash and cash equivalents at
beginning of the year 77,454 97,500 11,622 17,606
Effect of exchange rate movements
on cash and cash equivalents 1,291 (245) - -
---------------------------------------- ----- ---------- ---------- ---------- ----------
Cash and cash equivalents at
end of the year 35 97,874 77,454 12,283 11,622
---------------------------------------- ----- ---------- ---------- ---------- ----------
1 Aircraft and shipping purchases and disposals re-presented as
cash flows from investing activities
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 Goodwill, property, plant and equipment
and other impairment
10 Taxation
11 Dividends
12 Earnings per ordinary share
------------------------------ ---- -----------------------------------------------
Assets and liabilities 13 Financial instruments
held at fair value
------------------------------
14 Derivative financial instruments
------------------------------ ---- -----------------------------------------------
Financial instruments held 15 Loans and advances to banks and customers
at amortised cost
------------------------------
16 Reverse repurchase and repurchase agreements
including other similar lending and borrowing
------------------------------ ---- -----------------------------------------------
Other assets and investments 17 Goodwill and intangible assets
------------------------------
18 Property, plant and equipment
------------------------------
19 Leased assets
20 Other assets
21 Assets held for sale and associated liabilities
------------------------------ ---- -----------------------------------------------
Funding, accruals, provisions, 22 Debt securities in issue
contingent liabilities
and legal proceedings
------------------------------
23 Other liabilities
------------------------------
24 Provisions for liabilities and charges
25 Contingent liabilities and commitments
26 Legal and regulatory matters
------------------------------ ---- -----------------------------------------------
Capital instruments, equity 27 Subordinated liabilities and other borrowed
and reserves funds
------------------------------
28 Share capital, other equity instruments
and reserves
------------------------------
29 Non-controlling interests
------------------------------ ---- -----------------------------------------------
Employee benefits 30 Retirement benefit obligations
------------------------------
31 Share-based payments
------------------------------ ---- -----------------------------------------------
Scope of consolidation 32 Investments in subsidiary undertakings,
joint ventures and associates
------------------------------
33 Structured entities
------------------------------ ---- -----------------------------------------------
Cash flow statement 34 Cash flow statement
------------------------------
35 Cash and cash equivalents
------------------------------ ---- -----------------------------------------------
Other disclosure matters 36 Related party transactions
------------------------------
37 Post balance sheet events
------------------------------
38 Auditor's remuneration
39 Standard Chartered PLC (Company)
40 Related undertakings of the Group
------------------------------ ---- -----------------------------------------------
Notes to the financial statements
1. Accounting policies
Statement of compliance
The Group financial statements consolidate Standard Chartered
PLC (the Company) and its subsidiaries (together referred to as the
Group) and equity account the Group's interests in associates and
jointly controlled entities. The parent company financial
statements present information about the Company as a separate
entity.
The Group financial statements have been prepared and approved
by the directors in accordance with international accounting
standards in conformity with the requirements of the Companies Act
2006 and with International Financial Reporting Standards (IFRS)
adopted pursuant to Regulation (EC) No 1606/2002 as it applies in
the European Union (EU IFRS). As the Group has early adopted
'Amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16 Interest
Rate Benchmark Reform - Phase 2', which have been endorsed by the
EU and UK in January 2021 (see 'New accounting standards adopted by
the Group' below), the Group has applied international accounting
standards which have been adopted for use within the UK.
The Company financial statements have been prepared and approved
by the directors in accordance with international accounting
standards in conformity with the requirements of the Companies Act
2006. The Company has taken advantage of the exemption in section
408 of the Companies Act 2006 not to present its individual
statement of comprehensive income and related notes that form a
part of these financial statements..
The following parts of the Risk review and Capital review form
part of these financial statements:
a) Risk review: Disclosures marked as 'audited' from the start
of the Credit Risk section to the end of Other principal risks in
the same section.
b) Capital review: Tables marked as 'audited' from the start of
'CRD Capital base' to the end of 'Movement in total capital',
excluding 'Total risk-weighted assets'.
Basis of preparation
The consolidated and Company financial statements have been
prepared on a going concern basis and under the historical cost
convention, as modified by the revaluation of cash-settled
share-based payments, fair value through other comprehensive
income, and financial assets and liabilities (including
derivatives) at fair value through profit or loss.
The consolidated financial statements are presented in United
States dollars ($), being the presentation currency of the Group
and functional currency of the Company, and all values are rounded
to the nearest million dollars, except when otherwise
indicated.
Significant accounting estimates and judgements
In determining the carrying amounts of certain assets and
liabilities, the Group makes assumptions of the effects of
uncertain future events on those assets and liabilities at the
balance sheet date. The Group's estimates and assumptions are based
on historical experience and expectation of future events and are
reviewed periodically. Further information about key assumptions
concerning the future, and other key sources of estimation
uncertainty and judgement, are set out in the relevant disclosure
notes for the following areas:
-- Credit impairment, including evaluation of management
overlays and post-model adjustments, and determination of
probability weightings for Stage 3 individually assessed provisions
(Note 8)
-- Taxation (Note 10)
-- Financial instruments measured at fair value (Note 13)
-- Goodwill impairment (Note 17)
-- Recoverable amounts for aircraft operating lease assets (Note
18)
-- Provisions for liabilities and charges (Note 24)
-- Investments in subsidiary undertakings, joint ventures and
associates (Note 32)
IFRS and Hong Kong accounting requirements
As required by the Hong Kong Listing Rules, an explanation of
the differences in accounting practices between EU 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.
Comparatives
Certain comparatives have been restated in line with current
year disclosures. Details of these changes are set out in the
relevant sections and notes below:
-- Note 2 Segmental information
-- Note 13 Financial instruments
-- Note 19 Leased assets
-- Note 25 Contingent liabilities and commitments
New accounting standards adopted by the Group
Interest Rate Benchmark Reform - Phase 2 amendments to IFRS 9,
IAS 39, IFRS 7, IFRS 4 and IFRS 16
In August 2020 the IASB published the second phase of its
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. These amendments were
endorsed by the EU on 14 January 2021 and by the UK Secretary of
State for Business, Energy and Industrial Strategy on 5 January
2021. Phase 2 focuses on issues expected to affect financial
reporting when an existing IBOR is replaced with an alternative
risk-free rate (RFR). The Group has elected to early adopt the
Phase 2 amendments for the year ended 31 December 2020.
The first phase of amendments were early-adopted for the year
ended 31 December 2019 (refer to pages 263 to 264 in the 2019
Annual Report), and continue to be in force until there is no
longer uncertainty over the cash flows of both the hedged item and
hedging instrument.
The Phase 2 amendments contain a practical expedient, which
requires changes to the basis for determining contractual cash
flows as a direct result of interest rate benchmark reform to be
treated as a change in floating interest rate, provided that the
transition from the IBOR benchmark to the alternative RFR takes
place on an economically equivalent basis. This may include 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 fallback 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, including
an assessment of whether derecognition of the original instrument
is required.
The amendments also provide reliefs which allow the Group to
change hedge designations and corresponding documentation without
the hedge relationship being discontinued. These include the
ability to:
-- Redefine the description of the hedged item and/or hedging
instrument
-- Redefine the hedged risk to reference an alternative RFR
-- Change the method for assessing hedge effectiveness due to
modifications required by IBOR reform
-- Elect, on a hedge-by-hedge basis, to reset the cumulative
fair value changes in the assessment of retrospective hedge
effectiveness to zero
A hedge designation may be modified more than once, each time a
relationship is affected as a direct result of IBOR reform (for
example, if the hedged item and hedging instrument are repapered
into the alternative RFR at different times).
Where an alternative RFR designated as a non-contractually
specified risk portion is not separately identifiable (i.e. fair
value hedge of a fixed-rate debt instrument), the Group may assume
that the alternative RFR is deemed to have met that requirement
provided it reasonably expected the alternative RFR will be
separately identifiable within 24 months.
The 24-month period begins individually for each benchmark, but
if it is subsequently assessed that the alternative RFR is no
longer expected to be separately identifiable within 24 months of
the first hedge designation of a benchmark, then all hedges for
that benchmark are discontinued prospectively.
Disclosures required under these amendments may be found in the
Emerging Risks section and in Notes 13 and 14.
Amendments to IFRS 16: COVID-19-related Rent Concessions
In May 2020 the IASB issued amendments to IFRS 16 Leases, which
were endorsed by the EU on 12 October 2020. The amendments are
effective for annual reporting periods beginning on or after 1 June
2020, but the Group has elected to early adopt the amendments for
the year ended 31 December 2020.
The amendments 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 may therefore
account for such rent concessions by reducing the lease liability
by the value of the concession, with a corresponding gain recorded
in Other income. A rent concession is only deemed 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 up to and including 30 June 2021 (this includes the
case where the change results in reduced lease payments before this
date and increased lease payments after this date); and
-- There is no substantive change to other terms and conditions
of the lease
The amendments have not had a material effect on the Group's
financial statements, and do not result in any adjustment to
opening retained earnings as of 1 January 2020.
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 effect on these
financial statements as no transactions in scope of IFRS 3 have
occurred during the period and no adjustment is required to opening
retained earnings.
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
derecognition, 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 financial
statements and are not expected to affect the preparation of future
financial statements.
New accounting standards in issue but not yet effective
IFRS 17 Insurance Contracts
IFRS 17 Insurance Contracts was issued in May 2017 to replace
IFRS 4 Insurance Contracts and to establish a comprehensive
standard for inceptors of insurance policies. The effective date
has been deferred to 1 January 2023. The Group is assessing the
likely implementation impact on adopting the standards on its
financial statements.
Amendments to IFRS 9 Financial Instruments: Fees in the'10 per
cent' test for derecognition of financial liabilities
In May 2020 the IASB published its 2018-2020 annual improvements
process which provides non-urgent but necessary amendments to IFRS.
This publication included changes to IFRS 9 that will be effective
prospectively from 1 January 2022, with early adoption permitted.
Under these amendments, when assessing changes in terms of a
financial liability, the only fees considered in the assessment of
whether the terms of a new or modified financial liability are
substantially different (i.e. a change in present value of more
than 10 per cent) from the terms of the original financial
liability are fees paid or received between the borrower or lender.
This includes fees paid or received by either the borrower or
lender on the other's behalf. The effect of these amendments is not
expected to be material to the Group's financial statements.
Going concern
These financial statements were approved by the Board of
directors on 25 February 2021. 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, including:
-- A review of the Group Strategy and Corporate Plan, both of
which cover a year from the date of signing the annual report
-- An assessment of the actual performance to date, loan book
quality, credit impairment, legal, regulatory and compliance
matters, and the updated annual budget
-- Consideration of stress testing performed, including a
bespoke COVID-19 stress test with scenario analysis focused on
mild, moderate, severe and extreme variants across the Group's
footprint markets to ensure that the Group has sufficient capital
to withstand this shock. Under a range of scenarios, the results of
these stress tests demonstrate that the Group has sufficient
capital and liquidity to continue as a going concern and meet
minimum regulatory capital and liquidity requirements
-- Analysis of the capital, funding and liquidity position of
the Group, including the capital and leverage ratios, and ICAAP
which summarises the Group's capital and risk assessment processes,
assesses its capital requirements and the adequacy of resources to
meet them. Further, funding and liquidity was considered in the
context of the risk appetite metrics, including the ADR and LCR
ratios
-- The Group's Internal Liquidity Adequacy Assessment Process
(ILAAP), which considers the Group's liquidity position, its
framework and whether sufficient liquidity resources are being
maintained to meet liabilities as they fall due, was also
reviewed
-- The level of debt in issue, including redemptions and
issuances during the year, debt falling due for repayment in the
next 12 months and further planned debt issuances, including the
appetite in the market for the Group's debt.
-- A detailed review of all principal and emerging risks
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 financial statements. For this reason, the Group
continues to adopt the going concern basis of accounting for
preparing the financial statements.
2. Segmental information
The Group's segmental reporting is in accordance with IFRS 8
Operating Segments and is reported consistently with the internal
performance framework and as presented to the Group's Management
Team. The four client segments are: Corporate & Institutional
Banking, Retail Banking, Commercial Banking, and Private Banking.
The four geographic regions are: Greater China & North Asia,
ASEAN & South Asia, Africa & Middle East, and Europe &
Americas. Activities not directly related to a client segment
and/or geographic region are included in Central & other items.
These mainly include Corporate Centre costs, treasury activities,
certain strategic investments and the UK bank levy.
The following should also be noted:
-- Transactions and funding between the segments are carried out
on an arm's-length basis
-- Corporate Centre costs represent stewardship and central
management services roles and activities that are not directly
attributable to business or country operations
-- Treasury markets, joint ventures and associate investments
are managed in the regions and are included within the applicable
region. However, they are not managed directly by a client segment
and are therefore included in the Central & other items
segment
-- In addition to treasury activities, Corporate Centre costs
and other Group-related functions, Central & other items for
regions includes globally run businesses or activities that are
managed by the client segments but not directly by geographic
management. These include Principal Finance and Portfolio
Management
-- The Group allocated central costs (excluding Corporate Centre
costs) relating to client segments and geographic regions using
appropriate business drivers (such as in proportion to the direct
cost base of each segment before allocation of indirect costs) and
these are reported within operating expenses
-- The segmental and regional results reported for 2020 do not
reflect changes made to the Group organisation in January 2021 as
discussed in the Strategic Report. The Group's segmental and
regional results will start to reflect those organisational changes
in 2021.
Basis of preparation
The analysis reflects how the client segments and geographic
regions are managed internally. This is described as the Management
View (on an underlying basis) 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 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 underlying performance period-by
period.
Restructuring charges of $382 million for 2020 is broadly split
evenly between actions to exit the Group's discontinued businesses,
primarily ship leasing and principal finance, and actions to
transform the organisation to improve productivity, primarily
redundancy related charges. Charges related to restructuring
increased 50% due to the significant decline in income from
discontinued businesses, including negative movements in the
valuation of principal finance investments.
The goodwill impairment of $489 million reflects writing off all
goodwill relating to the Group's businesses in India, UAE,
Indonesia and Brunei. This was primarily due to lower
forward-looking cash flows, lower economic growth forecasts and
higher discount rates reflecting lower interest rate
environments.
Other restructuring items also include a $43 million dilution
loss following the initial public offering of the Group's associate
in China Bohai Bank. Charges related to other items reduced 86%
primarily due to the regulatory provisions booked in the prior
year.
Reconciliations between underlying and statutory results are set
out in the tables below:
Profit before taxation (PBT)
2020
---------------------- ----------------------------------------------------------------------------------------------
Share
of
profits
Net loss 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 14,765 - 27 (38) - - 14,754
Operating expenses (10,142) 14 (252) - - - (10,380)
---------------------- ---------- --------------- ------------- -------------- ----------- ---------- ---------
Operating
profit/(loss) before
impairment losses and
taxation 4,623 14 (225) (38) - - 4,374
Credit impairment (2,294) - (31) - - - (2,325)
Other impairment 15 - (113) - (489) - (587)
Profit from associates
and
joint ventures 164 - (13) - - - 151
---------------------- ---------- --------------- ------------- -------------- ----------- ---------- ---------
Profit/(loss) before
taxation 2,508 14 (382) (38) (489) - 1,613
---------------------- ---------- --------------- ------------- -------------- ----------- ---------- ---------
2019
---------------------- ----------------------------------------------------------------------------------------------
Share
of
profits
Net loss 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 15,271 - 146 - - - 15,417
Operating expenses (10,409) (226) (298) - - - (10,933)
---------------------- ---------- --------------- ------------- -------------- ----------- ---------- ---------
Operating
profit/(loss) before
impairment losses and
taxation 4,862 (226) (152) - - - 4,484
Credit impairment (906) - (2) - - - (908)
Other impairment (38) - (98) - (27) - (163)
Profit from associates
and
joint ventures 254 - (2) - - 48 300
---------------------- ---------- --------------- ------------- -------------- ----------- ---------- ---------
Profit/(loss) before
taxation 4,172 (226) (254) - (27) 48 3,713
---------------------- ---------- --------------- ------------- -------------- ----------- ---------- ---------
Underlying performance by client segment
2020
------------------------------- ------------------------------------------------------------------------
Central
Corporate &
& Institutional Retail Commercial Private other
Banking Banking Banking Banking items Total
$million $million $million $million $million $million
------------------------------- ---------------- --------- ---------- --------- --------- ---------
Operating income 7,214 5,013 1,409 540 589 14,765
---------------- --------- ---------- --------- --------- ---------
External 7,083 4,322 1,320 374 1,666 14,765
Inter-segment 131 691 89 166 (1,077) -
---------------- --------- ---------- --------- --------- ---------
Operating expenses (4,178) (3,701) (878) (476) (909) (10,142)
------------------------------- ---------------- --------- ---------- --------- --------- ---------
Operating profit/(loss)
before impairment losses
and taxation 3,036 1,312 531 64 (320) 4,623
Credit impairment (1,237) (715) (316) (2) (24) (2,294)
Other impairment 42 (10) (1) - (16) 15
Profit from associates
and joint ventures - - - - 164 164
------------------------------- ---------------- --------- ---------- --------- --------- ---------
Underlying profit/(loss)
before taxation 1,841 587 214 62 (196) 2,508
Restructuring (164) (50) (57) (11) (100) (382)
Goodwill impairment
& other items - - - - (513) (513)
------------------------------- ---------------- --------- ---------- --------- --------- ---------
Statutory profit/(loss)
before taxation 1,677 537 157 51 (809) 1,613
------------------------------- ---------------- --------- ---------- --------- --------- ---------
Total assets 355,401 118,067 32,902 13,716 268,964 789,050
Of which: loans and
advances
to customers2 160,629 115,611 27,342 13,619 19,075 336,276
---------------- --------- ---------- --------- --------- ---------
loans and advances to
customers 109,043 115,476 24,498 13,619 19,063 281,699
loans held at fair value
through
profit or loss 51,586 135 2,844 - 12 54,577
---------------- --------- ---------- --------- --------- ---------
Total liabilities 429,239 158,827 51,803 18,882 79,570 738,321
Of which: customer accounts2 262,201 154,831 48,578 18,675 7,869 492,154
------------------------------- ---------------- --------- ---------- --------- --------- ---------
2019 (Restated)(1)
------------------------------- ------------------------------------------------------------------------
Central
Corporate &
& Institutional Retail Commercial Private other
Banking Banking Banking Banking items Total
$million $million $million $million $million $million
------------------------------- ---------------- --------- ---------- --------- --------- ---------
Operating income 7,074 5,186 1,574 577 860 15,271
---------------- --------- ---------- --------- --------- ---------
External 7,264 4,236 1,618 329 1,824 15,271
Inter-segment (190) 950 (44) 248 (964) -
---------------- --------- ---------- --------- --------- ---------
Operating expenses (4,310) (3,759) (953) (514) (873) (10,409)
------------------------------- ---------------- --------- ---------- --------- --------- ---------
Operating profit/(loss)
before impairment losses
and taxation 2,764 1,427 621 63 (13) 4,862
Credit impairment (475) (336) (122) 31 (4) (906)
Other impairment (32) 2 - - (8) (38)
Profit from associates
and joint ventures - - - - 254 254
------------------------------- ---------------- --------- ---------- --------- --------- ---------
Underlying profit before
taxation 2,257 1,093 499 94 229 4,172
Restructuring (110) (63) (11) (11) (59) (254)
Goodwill impairment
& other items - - - - (205) (205)
------------------------------- ---------------- --------- ---------- --------- --------- ---------
Statutory profit/(loss)
before taxation 2,147 1,030 488 83 (35) 3,713
------------------------------- ---------------- --------- ---------- --------- --------- ---------
Total assets 326,565 109,368 33,978 14,922 235,565 720,398
Of which: loans and
advances
to customers2 153,884 107,140 28,831 14,821 10,078 314,754
---------------- --------- ---------- --------- --------- ---------
loans and advances to
customers 108,746 106,902 27,978 14,821 10,076 268,523
loans held at fair value
through
profit or loss 45,138 238 853 - 2 46,231
---------------- --------- ---------- --------- --------- ---------
Total liabilities 387,561 148,413 41,628 18,480 73,655 669,737
Of which: customer accounts2 243,269 144,760 38,847 18,424 7,433 452,733
------------------------------- ---------------- --------- ---------- --------- --------- ---------
1 Following a reorganisation of certain clients, there has been
a reclassification of balances across client segments
2 Loans and advances to customers includes FVTPL and customer
accounts includes FVTPL and repurchase agreements
Operating income by client segment
2020
--------------------- ------------------------------------------------------------------------
Central
Corporate &
& Institutional Retail Commercial Private other
Banking Banking Banking Banking items Total
$million $million $million $million $million $million
--------------------- ---------------- --------- ---------- --------- --------- ---------
Underlying operating
income 7,214 5,013 1,409 540 589 14,765
Restructuring 11 - 29 - (13) 27
Other items - - - - (38) (38)
--------------------- ---------------- --------- ---------- --------- --------- ---------
Statutory operating
income 7,225 5,013 1,438 540 538 14,754
--------------------- ---------------- --------- ---------- --------- --------- ---------
2019 (Restated)(1)
--------------------- ------------------------------------------------------------------------
Central
Corporate &
& Institutional Retail Commercial Private other
Banking Banking Banking Banking items Total
$million $million $million $million $million $million
--------------------- ---------------- --------- ---------- --------- --------- ---------
Underlying operating
income 7,074 5,186 1,574 577 860 15,271
Restructuring 146 - 4 - (4) 146
Other items - - - - - -
--------------------- ---------------- --------- ---------- --------- --------- ---------
Statutory operating
income 7,220 5,186 1,578 577 856 15,417
--------------------- ---------------- --------- ---------- --------- --------- ---------
1 Following a reorganisation of certain clients, there has been
a reclassification of balances across client segments
Underlying performance by region
2020
------------------------------- -------------------------------------------------------------------
Africa Central
Greater ASEAN & & Europe &
China & South Middle & other
North Asia Asia East Americas items Total
$million $million $million $million $million $million
------------------------------- ----------- --------- ---------- --------- --------- ---------
Operating income 6,016 4,366 2,364 1,922 97 14,765
Operating expenses (3,739) (2,618) (1,683) (1,383) (719) (10,142)
------------------------------- ----------- --------- ---------- --------- --------- ---------
Operating profit/(loss)
before impairment losses
and taxation 2,277 1,748 681 539 (622) 4,623
Credit impairment (352) (1,132) (654) (161) 5 (2,294)
Other impairment (53) 163 (14) 8 (89) 15
Profit from associates
and joint ventures 163 - - - 1 164
------------------------------- ----------- --------- ---------- --------- --------- ---------
Underlying profit/(loss)
before taxation 2,035 779 13 386 (705) 2,508
Restructuring (92) (42) (88) (45) (115) (382)
Goodwill impairment
& other items (43) - - - (470) (513)
------------------------------- ----------- --------- ---------- --------- --------- ---------
Statutory profit/(loss)
before taxation 1,900 737 (75) 341 (1,290) 1,613
------------------------------- ----------- --------- ---------- --------- --------- ---------
Total assets 311,484 155,728 58,069 253,438 10,331 789,050
Of which: loans and
advances
to customers1 151,879 87,213 29,413 67,771 - 336,276
----------- --------- ---------- --------- --------- ---------
loans and advances to
customers 143,260 82,897 28,214 27,328 - 281,699
loans held at fair value
through
profit or loss 8,619 4,316 1,199 40,443 - 54,577
----------- --------- ---------- --------- --------- ---------
Total liabilities 286,855 134,856 39,980 211,840 64,790 738,321
Of which: customer accounts1 231,456 103,167 32,106 125,425 - 492,154
------------------------------- ----------- --------- ---------- --------- --------- ---------
2019
------------------------------- -------------------------------------------------------------------
Africa Central
Greater ASEAN & & Europe &
China & South Middle & other
North Asia Asia East Americas items Total
$million $million $million $million $million $million
------------------------------- ----------- --------- ---------- --------- --------- ---------
Operating income 6,155 4,213 2,562 1,725 616 15,271
Operating expenses (3,771) (2,681) (1,747) (1,470) (740) (10,409)
------------------------------- ----------- --------- ---------- --------- --------- ---------
Operating profit/(loss)
before impairment losses
and taxation 2,384 1,532 815 255 (124) 4,862
Credit impairment (194) (506) (132) (98) 24 (906)
Other impairment (5) (1) 1 - (33) (38)
Profit from associates
and joint ventures 247 - - - 7 254
------------------------------- ----------- --------- ---------- --------- --------- ---------
Underlying profit/(loss)
before taxation 2,432 1,025 684 157 (126) 4,172
Restructuring (138) (34) (18) (34) (30) (254)
Goodwill impairment
& other items - 48 - - (253) (205)
------------------------------- ----------- --------- ---------- --------- --------- ---------
Statutory profit/(loss)
before taxation 2,294 1,039 666 123 (409) 3,713
------------------------------- ----------- --------- ---------- --------- --------- ---------
Total assets 277,704 149,785 59,828 220,579 12,502 720,398
Of which: loans and
advances
to customers1 139,977 80,885 31,487 62,405 - 314,754
----------- --------- ---------- --------- --------- ---------
loans and advances to
customers 134,066 78,229 29,940 26,288 - 268,523
loans held at fair value
through
profit or loss 5,911 2,656 1,547 36,117 - 46,231
----------- --------- ---------- --------- --------- ---------
Total liabilities 249,004 126,213 36,144 218,794 39,582 669,737
Of which: customer accounts1 204,286 97,459 29,280 121,708 - 452,733
------------------------------- ----------- --------- ---------- --------- --------- ---------
1 Loans and advances to customers includes FVTPL and customer
accounts includes FVTPL and repurchase agreements
Operating income by region
2020
--------------------- -------------------------------------------------------------------
Africa Central
Greater ASEAN & & Europe &
China & South Middle & other
North Asia Asia East Americas items Total
$million $million $million $million $million $million
--------------------- ----------- --------- ---------- --------- --------- ---------
Underlying operating
income 6,016 4,366 2,364 1,922 97 14,765
Restructuring 82 (4) (2) - (49) 27
Other items (43) - - - 5 (38)
--------------------- ----------- --------- ---------- --------- --------- ---------
Statutory operating
income 6,055 4,362 2,362 1,922 53 14,754
--------------------- ----------- --------- ---------- --------- --------- ---------
2019
--------------------- -------------------------------------------------------------------
Africa Central
Greater ASEAN & & Europe &
China & South Middle & other
North Asia Asia East Americas items Total
$million $million $million $million $million $million
--------------------- ----------- --------- ---------- --------- --------- ---------
Underlying operating
income 6,155 4,213 2,562 1,725 616 15,271
Restructuring 87 (2) - - 61 146
Other items - - - - - -
--------------------- ----------- --------- ---------- --------- --------- ---------
Statutory operating
income 6,242 4,211 2,562 1,725 677 15,417
--------------------- ----------- --------- ---------- --------- --------- ---------
Additional segmental information (statutory)
2020
------------------------ ------------------------------------------------------------------------
Central
Corporate &
& Institutional Retail Commercial Private other
Banking Banking Banking Banking items Total
$million $million $million $million $million $million
------------------------ ---------------- --------- ---------- --------- --------- ---------
Net interest income 2,625 3,102 880 262 (17) 6,852
Net fees and commission
income 1,219 1,457 280 237 (33) 3,160
Net trading and other
income 3,381 454 278 41 588 4,742
------------------------ ---------------- --------- ---------- --------- --------- ---------
Operating income 7,225 5,013 1,438 540 538 14,754
------------------------ ---------------- --------- ---------- --------- --------- ---------
2019 (Restated)(1)
------------------------ ------------------------------------------------------------------------
Central
Corporate &
& Institutional Retail Commercial Private other
Banking Banking Banking Banking items Total
$million $million $million $million $million $million
------------------------ ---------------- --------- ---------- --------- --------- ---------
Net interest income 2,615 3,295 990 315 452 7,667
Net fees and commission
income 1,559 1,505 285 223 (50) 3,522
Net trading and other
income 3,046 386 303 39 454 4,228
------------------------ ---------------- --------- ---------- --------- --------- ---------
Operating income 7,220 5,186 1,578 577 856 15,417
------------------------ ---------------- --------- ---------- --------- --------- ---------
1 Following a reorganisation of certain clients, there has been
a reclassification of balances across client segments
2020
------------------------ ------------------------------------------------------------------
Africa Central
Greater ASEAN & & Europe &
China & South Middle & other
North Asia Asia East Americas items Total
$million $million $million $million $million $million
------------------------ ----------- --------- --------- --------- --------- ---------
Net interest income 2,942 2,051 1,223 316 320 6,852
Net fees and commission
income 1,329 1,015 531 519 (234) 3,160
Net trading and other
income 1,784 1,296 608 1,087 (33) 4,742
------------------------ ----------- --------- --------- --------- --------- ---------
Operating income 6,055 4,362 2,362 1,922 53 14,754
------------------------ ----------- --------- --------- --------- --------- ---------
2019
------------------------ ------------------------------------------------------------------
Africa Central
Greater ASEAN & & Europe &
China & South Middle & other
North Asia Asia East Americas items Total
$million $million $million $million $million $million
------------------------ ----------- --------- --------- --------- --------- ---------
Net interest income 3,276 2,068 1,456 149 718 7,667
Net fees and commission
income 1,393 1,123 617 503 (114) 3,522
Net trading and other
income 1,573 1,020 489 1,073 73 4,228
------------------------ ----------- --------- --------- --------- --------- ---------
Operating income 6,242 4,211 2,562 1,725 677 15,417
------------------------ ----------- --------- --------- --------- --------- ---------
2020
------------------- -------------------------------------------------------------------------------------------------
Hong
Kong Korea China Singapore India Indonesia UAE UK US
$million $million $million $million $million $million $million $million $million
------------------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
Net interest income 1,557 650 545 676 664 86 281 62 170
Net fees and
commission
income 760 175 163 515 202 66 113 61 371
Net trading and
other income 1,235 236 175 367 379 156 173 824 242
------------------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
Operating income 3,552 1,061 883 1,558 1,245 308 567 947 783
------------------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
2019
------------------- -------------------------------------------------------------------------------------------------
Hong
Kong Korea China Singapore India Indonesia UAE UK US
$million $million $million $million $million $million $million $million $million
------------------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
Net interest income 1,893 659 562 731 564 112 365 (211) 256
Net fees and
commission
income 866 160 144 552 244 69 143 70 352
Net trading and
other income 1,082 152 166 354 232 91 110 904 151
------------------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
Operating income 3,841 971 872 1,637 1,040 272 618 763 759
------------------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
3. Net interest income
Accounting policy
Interest income for financial assets held at either fair value
through other comprehensive income or amortised cost, and interest
expense on all financial liabilities held at amortised cost is
recognised in profit or loss using the effective interest
method.
The effective interest method is a method of calculating the
amortised cost of a financial asset or a financial liability and of
allocating the interest income or interest expense over the
relevant period. The effective interest rate is the rate that
discounts estimated future cash payments or receipts through the
expected life of the financial instrument or, when appropriate, a
shorter period, to the net carrying amount of the financial asset
or financial liability. When calculating the effective interest
rate, the Group estimates cash flows considering all contractual
terms of the financial instrument (for example, prepayment options)
but does not consider future credit losses. The calculation
includes all fees 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. Where the
estimates of cash flows have been revised, the carrying amount of
the financial asset or liability is adjusted to reflect the actual
and revised cash flows, discounted at the instrument's original
effective interest rate. The adjustment is recognised as interest
income or expense in the period in which the revision is made.
Interest income for financial assets that are either held at
fair value through other comprehensive income or amortised cost
that have become credit-impaired subsequent to initial recognition
(stage 3) and have had amounts written off, is recognised using the
credit-adjusted effective interest rate. This rate is calculated in
the same manner as the effective interest rate except that expected
credit losses are included in the expected cash flows. Interest
income is therefore recognised on the amortised cost of the
financial asset including expected credit losses. Should the Credit
Risk on a stage 3 financial asset improve such that the financial
asset is no longer considered credit-impaired, interest income
recognition reverts to a computation based on the rehabilitated
gross carrying value of the financial asset.
2020 2019
$million $million
----------------------------------------------------- ---------- ----------
Balances at central banks 113 329
Loans and advances to banks 801 1,834
Loans and advances to customers 8,473 10,693
Listed debt securities 1,783 2,113
Unlisted debt securities 542 796
Other eligible bills 495 702
Accrued on impaired assets (discount unwind) 85 82
----------------------------------------------------- ---------- ----------
Interest income 12,292 16,549
----------------------------------------------------- ---------- ----------
Of which: financial instruments held at fair value
through other comprehensive income 2,134 3,246
Deposits by banks 237 739
Customer accounts 3,671 6,202
Debt securities in issue 836 1,120
Subordinated liabilities and other borrowed funds 637 756
Interest expense on IFRS 16 lease liabilities 59 65
----------------------------------------------------- ---------- ----------
Interest expense 5,440 8,882
----------------------------------------------------- ---------- ----------
Net interest income 6,852 7,667
----------------------------------------------------- ---------- ----------
4. Net fees and commission
Accounting policy
Fees and commissions charged for services provided by the Group
are recognised as or when the service is completed or significant
act performed.
Loan syndication fees are recognised as revenue when the
syndication has been completed and the Group retained no part of
the loan package for itself, or retained a part at the same
effective interest rate as for the other participants.
The Group can act as trustee or in other fiduciary capacities
that result in the holding or placing of assets on behalf of
individuals, trusts, retirement benefit plans and other
institutions. The assets and income arising thereon are excluded
from these financial statements, as they are not assets and income
of the Group.
The Group applies the following practical expedients:
-- Information on amounts of transaction price allocated to
unsatisfied (or partially unsatisfied) performance obligations at
the end of the reporting period is not disclosed as almost all
fee-earning contracts have an expected duration of less than one
year
-- Promised consideration is not adjusted for the effects of a
significant financing component as the period between the Group
providing a service and the customer paying for it is expected to
be less than one year
-- Incremental costs of obtaining a fee-earning contract are
recognised upfront in 'Fees and commission expense' rather than
amortised, if the expected term of the contract is less than one
year
The determination of the services performed for the customer,
the transaction price, and when the services are completed depends
on the nature of the product with the customer. The main
considerations on income recognition by product are as follows:
Transaction Banking
The Group recognises fee income associated with transactional
trade and cash management at the point in time the service is
provided. The Group recognises income associated with trade
contingent risk exposures (such as letters of credit and
guarantees) over the period in which the service is provided.
Payment of fees is usually received at the same time the service
is provided. In some cases, letters of credit and guarantees issued
by the Group have annual upfront premiums, which are amortised on a
straight-line basis to fee income over the year.
Financial Markets and Corporate Finance
The Group recognises fee income at the point in time the service
is provided. Fee income is recognised for a significant non-lending
service when the transaction has been completed and the terms of
the contract with the customer entitle the Group to the fee. Fees
are usually received shortly after the service is provided.
Syndication fees are recognised when the syndication is
complete. Fees are generally received before completion of the
syndication, or within 12 months of the transaction date.
Securities services include custody services, fund accounting
and administration, and broker clearing. Fees are recognised over
the period the custody or fund management services are provided, or
as and when broker services are requested.
Wealth Management
Upfront consideration on bancassurance agreements is amortised
straight-line over the contractual term. Commissions for
bancassurance activities are recorded as they are earned through
sales of third-party insurance products to customers. These
commissions are received within a short time frame of the
commission being earned. Target-linked fees are accrued based on a
percentage of the target achieved, provided it is assessed as
highly probable that the target will be met. Cash payment is
received at a contractually specified date after achievement of a
target has been confirmed.
Upfront and trailing commissions for managed investment
placements are recorded as they are confirmed. Income from these
activities is relatively even throughout the period, and cash is
usually received within a short time frame after the commission is
earned.
Retail Products
The Group recognises most income at the point in time the Group
is entitled to the fee, since most services are provided at the
time of the customer's request.
Credit card annual fees are recognised at the time the fee is
received since, in most of our retail markets, there are
contractual circumstances under which fees are waived, so income
recognition is constrained until the uncertainties associated with
the annual fee are resolved. The Group defers the fair value of
reward points on its credit card reward programmes, and recognises
income and costs associated with fulfilling the reward at the time
of redemption.
2020 2019
$million $million
--------------------------------------------------------- ---------- ----------
Fees and commissions income 3,865 4,111
Of which:
---------- ----------
Financial instruments that are not fair valued through
profit or loss 1,122 1,495
Trust and other fiduciary activities 254 166
---------- ----------
Fees and commissions expense (705) (589)
Of which:
---------- ----------
Financial instruments that are not fair valued through
profit or loss (219) (138)
Trust and other fiduciary activities (11) (27)
---------- ----------
Net fees and commission 3,160 3,522
--------------------------------------------------------- ---------- ----------
2020
------------------------ ------------------------------------------------------------------------
Central
Corporate &
& Institutional Retail Commercial Private other
Banking Banking Banking Banking items Total
$million $million $million $million $million $million
------------------------ ---------------- --------- ---------- --------- --------- ---------
Transaction Banking 789 10 205 1 - 1,005
---------------- --------- ---------- --------- --------- ---------
Trade 399 10 143 1 - 553
Cash Management 390 - 62 - - 452
---------------- --------- ---------- --------- --------- ---------
Financial Markets 224 - 47 - - 271
Corporate Finance 140 - 21 - - 161
Lending and Portfolio
Management 65 - 6 - - 71
Principal Finance 1 - - - - 1
Wealth Management - 1,119 1 231 - 1,351
Retail Products - 328 - 5 - 333
Treasury - - - - (25) (25)
Others - - - - (8) (8)
------------------------ ---------------- --------- ---------- --------- --------- ---------
Net fees and commission 1,219 1,457 280 237 (33) 3,160
------------------------ ---------------- --------- ---------- --------- --------- ---------
2019
------------------------ ------------------------------------------------------------------------
Central
Corporate &
& Institutional Retail Commercial Private other
Banking Banking Banking Banking items Total
$million $million $million $million $million $million
------------------------ ---------------- --------- ---------- --------- --------- ---------
Transaction Banking 865 11 212 - - 1,088
---------------- --------- ---------- --------- --------- ---------
Trade 434 11 154 - - 599
Cash Management 431 - 58 - - 489
---------------- --------- ---------- --------- --------- ---------
Financial Markets 453 - 30 - - 483
Corporate Finance 168 - 27 2 - 197
Lending and Portfolio
Management 85 - 14 - - 99
Principal Finance (12) - - - - (12)
Wealth Management - 1,132 2 216 - 1,350
Retail Products - 362 - 5 - 367
Treasury - - - - (22) (22)
Others - - - - (28) (28)
------------------------ ---------------- --------- ---------- --------- --------- ---------
Net fees and commission 1,559 1,505 285 223 (50) 3,522
------------------------ ---------------- --------- ---------- --------- --------- ---------
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 $718 million (31 December 2019: $802
million). The income will be earned evenly over the next 8.5 years
(31 December 2019: 9.5 years). For the twelve months ended 31
December 2020, $84 million of fee income was released from deferred
income (31 December 2019: $84 million).
5. Net trading income
Accounting policy
Gains and losses arising from changes in the fair value of
financial instruments held at fair value through profit or loss are
recorded in net trading income in the period in which they arise.
This includes contractual interest receivable or payable.
Income is recognised from the sale and purchase of trading
positions, margins on market making and customer business and fair
value changes.
When the initial fair value of a financial instrument held at
fair value through profit or loss relies on unobservable inputs,
the difference between the initial valuation and the transaction
price is amortised to net trading income as the inputs become
observable or over the life of the instrument, whichever is
shorter. Any unamortised 'day one' gain is released to net trading
income if the transaction is terminated.
2020 2019
$million $million
------------------------------------------------------ ---------- ----------
Net trading income 3,672 3,350
Significant items within net trading income include:
Gains on instruments held for trading1 3,254 3,296
Gains on financial assets mandatorily at fair value
through profit or loss 607 1,557
(Losses)/gains on financial assets designated at fair
value through profit or loss (4) 31
Losses on financial liabilities designated at fair
value through profit or loss (247) (1,602)
------------------------------------------------------ ---------- ----------
1 Includes $395 million loss (31 December 2019: $671 million
gain) from the translation of foreign currency monetary assets and
liabilities
6. Other operating income
Accounting policy
Operating lease income is recognised on a straight-line basis
over the period of the lease unless another systematic basis is
more appropriate.
Dividends on equity instruments are recognised when the Group's
right to receive payment is established.
On disposal of fair value through other comprehensive income
debt instruments, the cumulative gain or loss recognised in other
comprehensive income is recycled to the profit or loss in other
operating income/expense.
When the Group loses control of the subsidiary or disposal
group, the difference between the consideration received and the
carrying amount of the subsidiary or disposal group is recognised
as a gain or loss on sale of the business.
2020 2019
$million $million
----------------------------------------------------- ---------- ----------
Other operating income includes:
Rental income from operating lease assets 495 540
Gains less losses on disposal of fair value through
other comprehensive income debt instruments 431 170
Gains less losses on amortised cost financial assets 40 (12)
Net loss on sale of businesses1 (38) -
Dividend income 27 17
Gain on sale of aircrafts 11 71
Other 104 92
----------------------------------------------------- ---------- ----------
Other operating income 1,070 878
----------------------------------------------------- ---------- ----------
1 Includes Bohai's dilution loss, see Note 32
7. Operating expenses
Accounting policy
Short-term employee benefits: salaries and social security
expenses are recognised over the period in which the employees
provide the service. Variable compensation is included within
share-based payments costs and wages and salaries.
Pension costs: contributions to defined contribution pension
schemes are recognised in profit or loss when payable. For defined
benefit plans, net interest expense, service costs and expenses are
recognised in the income statement. Further details are provided in
Note 30.
Share-based compensation: the Group operates equity-settled and
cash-settled share-based payment compensation plans. The fair value
of the employee services (measured by the fair value of the option
granted) received in exchange for the grant of the options is
recognised as an expense. Further details are provided in Note
31.
2020 2019
$million $million
-------------------------------------- ---------- ----------
Staff costs:
Wages and salaries 5,362 5,508
Social security costs 168 180
Other pension costs (Note 30) 358 372
Share-based payment costs (Note 31) 132 166
Other staff costs 866 896
-------------------------------------- ---------- ----------
6,886 7,122
-------------------------------------- ---------- ----------
Other staff costs include redundancy expenses of $179 million
(31 December 2019: $173 million). Further costs in this category
include training, travel costs and other staff-related costs.
The following table summarises the number of employees within
the Group:
2020 20191
--------------------- --------------------------- ---------------------------
Support Support
Business services Total Business services Total
--------------------- -------- --------- ------ -------- --------- ------
At 31 December 34,905 48,752 83,657 37,117 47,281 84,398
Average for the year 36,435 48,305 84,740 37,400 46,538 83,938
--------------------- -------- --------- ------ -------- --------- ------
1 Prior year headcount has been re-presented due to a change in
Management View of segments
The Company employed nil staff at 31 December 2020 (31 December
2019: nil) and it incurred costs of $87 million (31 December 2019:
$32 million).
Details of directors' pay, benefits, pensions and benefits and
interests in shares are disclosed in the annual report.
Transactions with directors, officers and other related parties
are disclosed in Note 36.
2020 2019
$million $million
---------------------------------------- ---------- ----------
Premises and equipment expenses 412 420
General administrative expenses:
UK bank levy 331 347
Provision for regulatory matters (14) 226
Other general administrative expenses 1,514 1,638
---------------------------------------- ---------- ----------
1,831 2,211
---------------------------------------- ---------- ----------
Depreciation and amortisation:
Property, plant and equipment:
---------- ----------
Premises 373 360
Equipment 129 112
Operating lease assets 229 263
---------- ----------
731 735
Intangibles:
Software 515 436
Acquired on business combinations 5 9
1,251 1,180
---------------------------------------- ---------- ----------
Total operating expenses 10,380 10,933
---------------------------------------- ---------- ----------
The UK bank levy is applied on the chargeable equity and
liabilities on the Group's consolidated balance sheet. Key
exclusions from chargeable equity and liabilities include Tier 1
capital, insured or guaranteed retail deposits, repos secured on
certain sovereign debt and liabilities subject to netting. The rate
of the levy for 2020 is 0.14 per cent for chargeable short-term
liabilities, with a lower rate of 0.07 per cent generally applied
to chargeable equity and long-term liabilities (i.e. liabilities
with a remaining maturity greater than one year). From 1 January
2021 the rates are 0.10 per cent for short-term liabilities and
0.05 per cent for long-term liabilities. In addition, the scope of
the UK bank levy is restricted to the balance sheet of UK
operations only from this date.
8. Credit impairment
Accounting policy
Significant accounting estimates and judgements
The Group's expected credit loss (ECL) calculations are outputs
of complex models with a number of underlying assumptions. The
significant judgements in determining expected credit loss
include:
-- The Group's criteria for assessing if there has been a
significant increase in Credit Risk;
-- Development of expected credit loss models, including the
choice of inputs relating to macroeconomic variables;
-- Evaluation of management overlays and post-model
adjustments;
-- Determination of probability weightings for Stage 3
individually assessed provisions
The calculation of credit impairment provisions also involves
expert credit judgement to be applied by the Credit Risk Management
Team based upon counterparty information they receive from various
sources including relationship managers and on external market
information. Details on the approach for determining expected
credit loss can be found in the Credit Risk section, under IFRS 9
Methodology.
Estimates of forecasts of key macroeconomic variables underlying
the expected credit loss calculation can be found within the Risk
review, Key assumptions and judgements in determining expected
credit loss.
Expected credit losses
Expected credit losses are determined for all financial debt
instruments that are classified at amortised cost or fair value
through other comprehensive income, undrawn commitments and
financial guarantees.
An expected credit loss represents the present value of expected
cash shortfalls over the residual term of a financial asset,
undrawn commitment or financial guarantee.
A cash shortfall is the difference between the cash flows that
are due in accordance with the contractual terms of the instrument
and the cash flows that the Group expects to receive over the
contractual life of the instrument.
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). There may be multiple default events
over the lifetime of an instrument. Further details on the
components of PD, LGD and EAD are disclosed in the Credit Risk
section. For less material Retail Banking loan portfolios, the
Group has adopted less sophisticated approaches based on historical
roll rates or loss rates.
Forward-looking economic assumptions are incorporated into the
PD, LGD and EAD where relevant and where they influence Credit
Risk, such as GDP growth rates, interest rates, house price indices
and commodity prices among others. These assumptions are
incorporated using the Group's most likely forecast for a range of
macroeconomic assumptions. These forecasts are determined using all
reasonable and supportable information, which includes both
internally developed forecasts and those available externally, and
are consistent with those used for budgeting, forecasting and
capital planning.
To account for the potential non-linearity in credit losses,
multiple forward-looking scenarios are incorporated into the range
of reasonably possible outcomes for all material portfolios. For
example, where there is a greater risk of downside credit losses
than upside gains, multiple forward-looking economic scenarios are
incorporated into the range of reasonably possible outcomes, both
in respect of determining the PD (and where relevant, the LGD and
EAD) and in determining the overall expected credit loss amounts.
These scenarios are determined using a Monte Carlo approach centred
around the Group's most likely forecast of macroeconomic
assumptions.
The period over which cash shortfalls are determined is
generally limited to the maximum contractual period for which the
Group is exposed to Credit Risk. However, for certain revolving
credit facilities, which include credit cards or overdrafts, the
Group's exposure to Credit Risk is not limited to the contractual
period. For these instruments, the Group estimates an appropriate
life based on the period that the Group is exposed to Credit Risk,
which includes the effect of Credit Risk management actions such as
the withdrawal of undrawn facilities.
For credit-impaired financial instruments, the estimate of cash
shortfalls may require the use of expert credit judgement.
The estimate of expected cash shortfalls on a collateralised
financial instrument reflects the amount and timing of cash flows
that are expected from foreclosure on the collateral less the costs
of obtaining and selling the collateral, regardless of whether
foreclosure is deemed probable.
Cash flows from unfunded credit enhancements held are included
within the measurement of expected credit losses if they are part
of, or integral to, the contractual terms of the instrument (this
includes financial guarantees, unfunded risk participations and
other non-derivative credit insurance). Although non-integral
credit enhancements do not impact the measurement of expected
credit losses, a reimbursement asset is recognised to the extent of
the expected credit losses recorded.
Cash shortfalls are discounted using the effective interest rate
(or credit-adjusted effective interest rate for purchased or
originated credit-impaired instruments (POCI)) 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 gross
cost carrying value1
Financial assets held FVOCI Other comprehensive income (FVOCI expected
- Debt instruments credit loss reserve)2
Loan commitments Provisions for liabilities and charges3
Financial guarantees Provisions for liabilities and charges3
---------------------------------- -------------------------------------------
1 Purchased or originated credit-impaired assets do not attract
an expected credit loss provision on initial recognition. An
expected credit loss provision will be recognised only if there is
an increase in expected credit losses from that considered at
initial recognition
2 Debt and treasury securities classified as fair value through
other comprehensive income (FVOCI) are held at fair value on the
face of the balance sheet.
The expected credit loss attributed to these instruments is held
as a separate reserve within other comprehensive income (OCI) and
is recycled to the profit and loss account along with any fair
value measurement gains or losses held within FVOCI when the
applicable instruments are derecognised
3 Expected credit loss on loan commitments and financial
guarantees is recognised as a liability provision. Where a
financial instrument includes both a loan (i.e. financial asset
component) and an undrawn commitment (i.e. loan commitment
component), and it is not possible to separately identify the
expected credit loss on these components, expected credit loss
amounts on the loan commitment are recognised together with
expected credit loss amounts on the financial asset. To the extent
the combined expected credit loss exceeds the gross carrying amount
of the financial asset, the expected credit loss is recognised as a
liability provision
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.
Quantitative factors include an assessment of whether there has
been significant increase in the forward-looking probability of
default (PD) since origination. A forward-looking PD is one that is
adjusted for future economic conditions to the extent these are
correlated to changes in Credit Risk. We compare the residual
lifetime PD at the balance sheet date to the residual lifetime PD
that was expected at the time of origination for the same point in
the term structure and determine whether both the absolute and
relative change between the two exceeds predetermined thresholds.
To the extent that the differences between the measures of default
outlined exceed the defined thresholds, the instrument is
considered to have experienced a significant increase in Credit
Risk.
Qualitative factors assessed include those linked to current
Credit Risk management processes, such as lending placed on
non-purely precautionary early alert (and subject to closer
monitoring).
A non-purely precautionary early alert account is one which
exhibits risk or potential weaknesses of a material nature
requiring closer monitoring, supervision, or attention by
management. Weaknesses in such a borrower's account, if left
uncorrected, could result in deterioration of repayment prospects
and the likelihood of being downgraded. Indicators could include a
rapid erosion of position within the industry, concerns over
management's ability to manage operations, weak/deteriorating
operating results, liquidity strain and overdue balances among
other factors.
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.
Evidence that a financial asset is credit-impaired includes
observable data about the following events:
-- Significant financial difficulty of the issuer or
borrower;
-- Breach of contract such as default or a past due event;
-- For economic or contractual reasons relating to the
borrower's financial difficulty, the lenders of the borrower have
granted the borrower concession/s that lenders would not otherwise
consider. This would include forbearance actions;
-- Pending or actual bankruptcy or other financial
reorganisation to avoid or delay discharge of the borrower's
obligation/s;
-- The disappearance of an active market for the applicable
financial asset due to financial difficulties of the borrower;
-- Purchase or origination of a financial asset at a deep
discount that reflects incurred credit losses
Lending commitments to a credit-impaired obligor that have not
yet been drawn down are included 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 expected cash shortfalls, discounted at the instrument's
original effective interest rate, and the gross carrying value
(including contractual interest due but not paid) of the instrument
prior to any credit impairment. The Group's definition of default
is aligned with the regulatory definition of default as set out in
European Capital Requirements Regulation (CRR178) and related
guidelines.
Expert credit judgement
For Corporate & Institutional, Commercial and Private
Banking, borrowers are graded by Credit Risk management on a credit
grading (CG) scale from CG1 to CG14. Once a borrower starts to
exhibit credit deterioration, it will move along the credit grading
scale in the performing book and when it is classified as CG12 the
credit assessment and oversight of the loan will normally be
performed by Group Special Assets Management (GSAM).
Borrowers graded CG12 exhibit well-defined weaknesses in areas
such as management and/or performance but there is no current
expectation of a loss of principal or interest. Where the
impairment assessment indicates that there will be a loss of
principal on a loan, the borrower is graded a CG14 while borrowers
of other credit-impaired loans are graded CG13. Instruments graded
CG13 or CG14 are regarded as stage 3.
For individually significant financial assets within stage 3,
GSAM will consider all judgements that have an impact on the
expected future cash flows of the asset. These include: the
business prospects, industry and geopolitical climate of the
customer, quality of realisable value of collateral, the Group's
legal position relative to other claimants and any
renegotiation/forbearance/modification options. The future cash
flow calculation involves significant judgements and estimates. As
new information becomes available and further negotiations/
forbearance measures are taken, the estimates of the future cash
flows will be revised, and will have an impact on the future cash
flow analysis.
For financial assets which are not individually significant,
such as the Retail Banking portfolio or small business loans, which
comprise a large number of homogenous loans that share similar
characteristics, statistical estimates and techniques are used, as
well as credit scoring analysis.
Retail Banking clients are considered credit-impaired where they
are more than 90 days past due. Retail Banking products are also
considered credit-impaired if the borrower files for bankruptcy or
other forbearance programme, the borrower is deceased or the
business is closed in the case of a small business, or if the
borrower surrenders the collateral, or there is an identified fraud
on the account. Additionally, if the account is unsecured and the
borrower has other credit accounts with the Group that are
considered credit-impaired, the account may be also be
credit-impaired.
Techniques used to compute impairment amounts use models which
analyse historical repayment and default rates over a time horizon.
Where various models are used, judgement is required to analyse the
available information provided and select the appropriate model or
combination of models to use.
Expert credit judgement is also applied to determine whether any
post-model adjustments are required for Credit Risk elements which
are not captured by the models.
Modified financial instruments
Where the original contractual terms of a financial asset have
been modified for credit reasons and the instrument has not been
derecognised (an instrument is derecognised when a modification
results in a change in cash flows that the Group would consider
substantial), the resulting modification loss is recognised within
credit impairment in the income statement with a corresponding
decrease in the gross carrying value of the asset. If the
modification involved a concession that the bank would not
otherwise consider, the instrument is considered to be
credit-impaired and is considered forborne.
Expected credit loss for modified financial assets that have not
been derecognised and are not considered to be credit-impaired will
be recognised on a 12-month basis, or a lifetime basis, if there is
a significant increase in Credit Risk. These assets are assessed
(by comparison to the origination date) to determine whether there
has been a significant increase in Credit Risk subsequent to the
modification. Although loans may be modified for non-credit
reasons, a significant increase in Credit Risk may occur. In
addition to the recognition of modification gains and losses, the
revised carrying value of modified financial assets will impact the
calculation of expected credit losses, with any increase or
decrease in expected credit loss recognised within impairment.
Forborne loans
Forborne loans are those loans that have been modified in
response to a customer's financial difficulties. Forbearance
strategies assist clients who are temporarily in financial distress
and are unable to meet their original contractual repayment terms.
Forbearance can be initiated by the client, the Group or a
third-party including government-sponsored programmes or a
conglomerate of credit institutions. Forbearance may include debt
restructuring such as new repayment schedules, payment deferrals,
tenor extensions, interest-only payments, lower interest rates,
forgiveness of principal, interest or fees, or relaxation of loan
covenants.
Forborne loans that have been modified (and not derecognised) on
terms that are not consistent with those readily available in the
market and/or where we have granted a concession compared to the
original terms of the loans are considered credit-impaired if there
is a detrimental impact on cash flows. The modification loss (see
Classification and measurement - Modifications) is recognised in
the profit or loss within credit impairment and the gross carrying
value of the loan reduced by the same amount. The modified loan is
disclosed as 'Loans subject to forbearance - credit-impaired'.
Loans that have been subject to a forbearance modification, but
which are not considered credit-impaired (not classified as CG13 or
CG14), are disclosed as 'Forborne - not credit-impaired'. This may
include amendments to covenants within the contractual terms.
Write-offs of credit-impaired instruments and reversal of
impairment
To the extent a financial debt instrument is considered
irrecoverable, the applicable portion of the gross carrying value
is written off against the related loan provision. Such loans are
written off after all the necessary procedures have been completed,
it is decided that there is no realistic probability of recovery
and the amount of the loss has been determined. Subsequent
recoveries of amounts previously written off decrease the amount of
the provision for credit impairment in the income statement.
Loss provisions on purchased or originated credit-impaired
instruments (POCI)
The Group measures expected credit loss on a lifetime basis for
POCI instruments throughout the life of the instrument. However,
expected credit loss is not recognised in a separate loss provision
on initial recognition for POCI instruments as the lifetime
expected credit loss is inherent within the gross carrying amount
of the instruments. The Group recognises the change in lifetime
expected credit losses arising subsequent to initial recognition in
the income statement and the cumulative change as a loss provision.
Where lifetime expected credit losses on POCI instruments are less
than those at initial recognition, then the favourable differences
are recognised as impairment gains in the income statement (and as
impairment loss where the expected credit losses are greater).
Improvement in Credit Risk/curing
A period may elapse from the point at which instruments enter
lifetime expected credit losses (stage 2 or stage 3) and are
reclassified back to 12-month expected credit losses (stage 1). For
financial assets that are credit-impaired (stage 3), a transfer to
stage 2 or stage 1 is only permitted where the instrument is no
longer considered to be credit-impaired. An instrument will no
longer be considered credit-impaired when there is no shortfall of
cash flows compared to the original contractual terms.
For financial assets within stage 2, these can only be
transferred to stage 1 when they are no longer considered to have
experienced a significant increase in Credit Risk.
Where significant increase in Credit Risk was determined using
quantitative measures, the instruments will automatically transfer
back to stage 1 when the original PD-based transfer criteria are no
longer met. Where instruments were transferred to stage 2 due to an
assessment of qualitative factors, the issues that led to the
reclassification must be cured before the instruments can be
reclassified to stage 1. This includes instances where management
actions led to instruments being classified as stage 2, requiring
that action to be resolved before loans are reclassified to stage
1.
A forborne loan can only be removed from being disclosed as
forborne if the loan is performing (stage 1 or 2) and a further
two-year probation period is met.
In order for a forborne loan to become performing, the following
criteria have to be satisfied:
-- At least a year has passed with no default based upon the
forborne contract terms
-- The customer is likely to repay its obligations in full
without realising security
-- The customer has no accumulated impairment against amount
outstanding (except for expected credit loss)
Subsequent to the criteria above, a further two-year probation
period has to be fulfilled, whereby regular payments are made by
the customer and none of the exposures to the customer are more
than 30 days past due.
2020 2019
$million $million
------------------------------------------------------- ---------- ----------
Net credit impairment on loans and advances to banks
and customers 2,191 856
Net credit impairment on debt securities 33 9
Net credit impairment relating to financial guarantees
and loan commitments 103 35
Net credit impairment relating to other financial
assets (2) 8
------------------------------------------------------- ---------- ----------
Credit impairment1 2,325 908
------------------------------------------------------- ---------- ----------
1 No material purchased or originated credit-impaired (POCI)
assets
9. Goodwill, property, plant and equipment and other
impairment
Accounting policy
Refer to the below referenced notes for the relevant accounting
policy
2020 2019
$million $million
--------------------------------------------------- ---------- ----------
Impairment of goodwill (Note 17) 489 27
--------------------------------------------------- ---------- ----------
Impairment of property, plant and equipment (Note
18) 132 122
Impairment of other intangible assets (Note 17) 17 12
Other1 (51) 2
--------------------------------------------------- ---------- ----------
Property, plant and equipment and other impairment 98 136
--------------------------------------------------- ---------- ----------
Goodwill, property, plant and equipment and other
impairment 587 163
--------------------------------------------------- ---------- ----------
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
Accounting policy
Income tax payable on profits is based on the applicable tax law
in each jurisdiction and is recognised as an expense in the period
in which profits arise.
Deferred tax is provided on temporary differences arising
between the tax bases of assets and liabilities and their carrying
amounts in the consolidated financial statements. Deferred tax is
determined using tax rates (and laws) that have been enacted or
substantively enacted as at the balance sheet date, and that are
expected to apply when the related deferred tax asset is realised
or the deferred income tax liability is settled.
Deferred tax assets are recognised where it is probable that
future taxable profit will be available against which the temporary
differences can be utilised. Where permitted, deferred tax assets
and liabilities are offset on an entity basis and not by component
of deferred taxation.
Current and deferred tax relating to items which are charged or
credited directly to equity, is credited or charged directly to
equity and is subsequently recognised in the income statement
together with the current or deferred gain or loss.
Significant accounting estimates and judgements
-- Determining the Group's tax charge for the year involves
estimation and judgement, which includes an interpretation of local
tax laws and an assessment of whether the tax authorities will
accept the position taken. These judgements take account of
external advice where appropriate, and the Group's view on settling
with the relevant tax authorities
-- The Group provides for current tax liabilities at the best
estimate of the amount that is expected to be paid to the tax
authorities where an outflow is probable. In making its estimates
the Group assumes that the tax authorities will examine all the
amounts reported to them and have full knowledge of all relevant
information
The recoverability of the Group's deferred tax assets is based
on management's judgement of the availability of future taxable
profits against which the deferred tax assets will be utilised.
The following table provides analysis of taxation charge in the
year:
2020 2019
$million $million
---------------------------------------------------------- ---------- ----------
The charge for taxation based upon the profit for
the year comprises:
Current tax:
United Kingdom corporation tax at 19 per cent (2019:19
per cent):
---------- ----------
Current tax charge on income for the year - -
Adjustments in respect of prior years (including double
tax relief) (41) (6)
Foreign tax:
Current tax charge on income for the year 1,061 1,427
Adjustments in respect of prior years (352) 1
---------- ----------
668 1,422
Deferred tax:
---------- ----------
Origination/reversal of temporary differences (193) 22
Adjustments in respect of prior years 387 (71)
---------- ----------
194 (49)
---------------------------------------------------------- ---------- ----------
Tax on profits on ordinary activities 862 1,373
---------------------------------------------------------- ---------- ----------
Effective tax rate 53.4% 37.0%
---------------------------------------------------------- ---------- ----------
The tax charge for the year of $862 million (31 December 2019:
$1,373 million) on a profit before tax of $1,613 million (31
December 2019: $3,713 million) reflects the impact of
non-deductible expenses, non-deductible goodwill impairment and the
impact of countries with tax rates higher or lower than the UK, the
most significant of which is India. The 2019 charge reflected the
impact of capital gains tax on internal restructuring to establish
the Hong Kong hub and other non-deductible expenses, non-creditable
withholding taxes and the impact of countries with tax rates higher
or lower than the UK, the most significant of which is India.
The adjustments in respect of prior years include $288 million
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 $167 million (31 December
2019: $206 million) on the profits assessable in Hong Kong.
Deferred tax includes origination or reversal of temporary
differences of $(30) million (31 December 2019: $(1) million)
provided at a rate of 16.5 per cent (31 December 2019: 16.5 per
cent) on the profits assessable in Hong Kong.
Tax rate: The tax charge for the year is higher than the charge
at the rate of corporation tax in the UK, 19 per cent. The
differences are explained below:
2020 2019
$million $million
---------------------------------------------------- ---------- ----------
Profit on ordinary activities before tax 1,613 3,713
---------------------------------------------------- ---------- ----------
Tax at 19 per cent (2019: 19 per cent) 306 705
Lower tax rates on overseas earnings (36) (89)
Higher tax rates on overseas earnings 305 316
Non-creditable withholding taxes 127 144
Tax-free income (133) (138)
Share of associates and joint ventures (26) (51)
Non-deductible expenses 266 288
Provision for regulatory matters - 27
Bank levy 63 66
Non-taxable losses on investments 13 9
Payments on financial instruments in reserves (59) (67)
Capital gains tax on internal restructuring - 179
Goodwill impairment 93 5
Deferred tax not recognised 49 41
Deferred tax assets written-off 15 30
Deferred tax rate changes (51) (6)
Adjustments to tax charge in respect of prior years (6) (76)
Other items (64) (10)
---------------------------------------------------- ---------- ----------
Tax on profit on ordinary activities 862 1,373
---------------------------------------------------- ---------- ----------
Factors affecting the tax charge in future years: The Group's
tax charge, and effective tax rate in future years could be
affected by several factors including acquisitions, disposals and
restructuring of our businesses, the mix of profits across
jurisdictions with different statutory tax rates, changes in tax
legislation and tax rates and resolution of uncertain tax
positions.
The evaluation of uncertain tax positions involves an
interpretation of local tax laws which could be subject to
challenge by a tax authority, and an assessment of whether the tax
authorities will accept the position taken. The Group does not
currently consider that assumptions or judgements made in assessing
tax liabilities have a significant risk of resulting in a material
adjustment within the next financial year.
2020 2019
---------------------------- ------------------------------- -------------------------------
Current Deferred Current Deferred
Tax recognised in other tax tax Total tax tax Total
comprehensive income $million $million $million $million $million $million
---------------------------- --------- --------- --------- --------- --------- ---------
Items that will not
be reclassified to
income statement - (17) (17) 15 27 42
--------- --------- --------- --------- --------- ---------
Own credit adjustment - 1 1 17 35 52
Equity instruments
at fair value through
other comprehensive
income - (27) (27) 5 (10) (5)
Retirement benefit
obligations - 9 9 (7) 2 (5)
--------- --------- --------- --------- --------- ---------
Items that may be reclassed
subsequently to income
statement (1) (53) (54) 2 (50) (48)
--------- --------- --------- --------- --------- ---------
Debt instruments at
fair value through
other comprehensive
income (1) (68) (69) 2 (44) (42)
Cash flow hedges - 15 15 - (6) (6)
--------- --------- --------- --------- --------- ---------
Total tax credit/(charge)
recognised in equity (1) (70) (71) 17 (23) (6)
---------------------------- --------- --------- --------- --------- --------- ---------
Current tax: The following are the movements in current tax
during the year:
2020 2019
Current tax comprises: $million $million
------------------------------------------ ---------- ----------
Current tax assets 539 492
Current tax liabilities (703) (676)
------------------------------------------ ---------- ----------
Net current tax opening balance (164) (184)
Movements in income statement (668) (1,422)
Movements in other comprehensive income (1) 17
Taxes paid 971 1,421
Other movements 10 4
------------------------------------------ ---------- ----------
Net current tax balance as at 31 December 148 (164)
------------------------------------------ ---------- ----------
Current tax assets 808 539
Current tax liabilities (660) (703)
------------------------------------------ ---------- ----------
Total 148 (164)
------------------------------------------ ---------- ----------
Deferred tax: The following are the major deferred tax
liabilities and assets recognised by the Group and movements
thereon during the year:
Exchange
At 1 January & other (Charge)/credit (Charge)/credit
At 31 December
2020 adjustments to profit to equity 2020
$million $million $million $million $million
--------------------------------------- ------------ ------------- --------------- --------------- --------------
Deferred tax comprises:
Accelerated tax depreciation (526) - 33 - (493)
Impairment provisions on loans
and advances 957 (14) (524) - 419
Tax losses carried forward 263 (5) 24 - 282
Fair value through other comprehensive
income (49) - (2) (95) (146)
Cash flow hedges (13) - - 15 2
Own credit adjustment 2 - - 1 3
Retirement benefit obligations 31 (1) (3) 9 36
Share-based payments 16 (3) 10 - 23
Other temporary differences (187) 14 268 3 98
--------------------------------------- ------------ ------------- --------------- --------------- --------------
Net deferred tax assets 494 (9) (194) (67) 224
--------------------------------------- ------------ ------------- --------------- --------------- --------------
Exchange
At 1 January & other (Charge)/credit (Charge)/credit At 31 December
2019 adjustments to profit to equity 2019
$million $million $million $million $million
--------------------------------------- ------------ ------------- --------------- --------------- --------------
Deferred tax comprises:
Accelerated tax depreciation (494) (5) (27) - (526)
Impairment provisions on loans
and advances 961 (13) 9 - 957
Tax losses carried forward 266 - (3) - 263
Fair value through other comprehensive
income 3 1 1 (54) (49)
Cash flow hedges (7) - - (6) (13)
Own credit adjustment (33) - - 35 2
Retirement benefit obligations 40 (3) (8) 2 31
Share-based payments 15 - 1 - 16
Other temporary differences (267) 4 76 - (187)
--------------------------------------- ------------ ------------- --------------- --------------- --------------
Net deferred tax assets 484 (16) 49 (23) 494
--------------------------------------- ------------ ------------- --------------- --------------- --------------
Deferred tax comprises assets and liabilities as follows:
2020 2019
----------------------------- ------------------------------- -------------------------------
Total Asset Liability Total Asset Liability
$million $million $million $million $million $million
----------------------------- --------- --------- --------- --------- --------- ---------
Deferred tax comprises:
Accelerated tax depreciation (493) (30) (463) (526) (9) (517)
Impairment provisions
on loans
and advances 419 403 16 957 956 1
Tax losses carried
forward 282 171 111 263 137 126
Fair value through
other
comprehensive income (146) (61) (85) (49) (40) (9)
Cash flow hedges 2 6 (4) (13) 6 (19)
Own credit adjustment 3 2 1 2 4 (2)
Retirement benefit
obligations 36 25 11 31 20 11
Share-based payments 23 8 15 16 14 2
Other temporary differences 98 395 (297) (187) 17 (204)
----------------------------- --------- --------- --------- --------- --------- ---------
224 919 (695) 494 1,105 (611)
----------------------------- --------- --------- --------- --------- --------- ---------
At 31 December 2020, the Group has net deferred tax assets of
$224 million (31 December 2019: $494 million). The recoverability
of the Group's deferred tax assets is based on management's
judgement of the availability of future taxable profits against
which the deferred tax assets will be utilised.
Of the Group's total deferred tax assets, $282 million relates
to tax losses carried forward. These tax losses have arisen in
individual legal entities and will be offset as future taxable
profits arise in those entities.
-- $129 million of the deferred tax assets relating to losses
has arisen in Ireland, where there is no expiry date for unused tax
losses. These losses relate to aircraft leasing and are expected to
be fully utilised over the useful economical life of the assets
being up to 18 years
-- $92 million of the deferred tax assets relating to losses has
arisen in the US. Management forecasts show that the losses are
expected to be fully utilised over a period of five years.
The remaining deferred tax assets of $61 million relating to
losses have arisen in other jurisdictions and are expected to be
recovered in less than 10 years.
2020 2019
$million $million
-------------------------------------------------------- ---------- ----------
No account has been taken of the following potential
deferred tax assets/(liabilities):
Withholding tax on unremitted earnings from overseas
subsidiaries (315) (230)
Tax losses 1,597 1,297
Held-over gains on incorporation of overseas branches (336) (410)
Other temporary differences 160 83
-------------------------------------------------------- ---------- ----------
11. Dividends
Accounting policy
Dividends on ordinary shares and preference shares classified as
equity are recognised in equity in the year in which they are
declared. Dividends on ordinary equity shares are recorded in the
year in which they are declared and, in respect of the final
dividend, have been approved by the shareholders.
On 31 March 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
2020 2019
------------------------------------ ------------------- -------------------
Cents per Cents per
share $million share $million
------------------------------------ --------- -------- --------- --------
2019/2018 final dividend declared
and paid during the year - - 15 495
2020/2019 interim dividend declared
and paid during the year - - 7 225
------------------------------------ --------- -------- --------- --------
Dividends on ordinary equity shares are recorded in the period
in which they are declared and, in respect of the final dividend,
have been approved by the shareholders. Accordingly, the final
ordinary equity share dividends set out above relate to the
respective prior years.
2020 recommended final ordinary equity share dividend
The 2020 ordinary equity share dividend recommended by the Board
is 9 cents per share. The financial statements for the year ended
31 December 2020 do not reflect this dividend as this will be
accounted for in shareholders' equity as an appropriation of
retained profits in the year ending 31 December 2021.
The dividend will be paid in either pounds sterling, Hong Kong
dollars or US dollars on 20 May 2021 to shareholders on the UK
register of members at the close of business in the UK on 5 March
2021.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
2020 2019
$million $million
------------------------------ ----------------------------- ---------- ----------
Non-cumulative redeemable 7.014 per cent preference
preference shares: shares of $5 each 53 53
6.409 per cent preference
shares of $5 each 20 30
------------------------------------------------------------ ---------- ----------
73 83
Additional Tier 1 securities: Fixed rate resetting
perpetual subordinated contingent convertible securities 322 365
------------------------------------------------------------- ---------- ----------
395 448
------------------------------------------------------------ ---------- ----------
12. Earnings per ordinary share
Accounting policy
Basic earnings per ordinary share is calculated by dividing the
profit attributable to ordinary shareholders by the weighted
average number of ordinary shares outstanding, excluding own shares
held. Diluted earnings per ordinary share is calculated by dividing
the basic earnings, which require no adjustment for the effects of
dilutive potential ordinary shares, by the weighted average number
of ordinary shares that would have been outstanding assuming the
conversion of all dilutive potential ordinary shares, excluding own
shares held.
The Group also measures earnings per share on an underlying
basis. This differs from earnings defined in IAS 33 Earnings per
share. Underlying earnings is profit/(loss) attributable to
ordinary shareholders adjusted for 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.
The table below provides the basis of underlying earnings.
2020 2019
$million $million
------------------------------------------------------------ ---------- ----------
Profit for the period attributable to equity holders 751 2,340
Non-controlling interest (27) (37)
Dividend payable on preference shares and AT1 classified
as equity (395) (448)
------------------------------------------------------------ ---------- ----------
Profit for the period attributable to ordinary shareholders 329 1,855
------------------------------------------------------------ ---------- ----------
Items normalised:
Provision for regulatory matters (14) 226
Restructuring 382 254
Profit from joint venture - (48)
Goodwill impairment (Note 9) 489 27
Net loss on sale of businesses (Note 6) 38 -
Tax on normalised items1 (83) 152
------------------------------------------------------------ ---------- ----------
Underlying profit 1,141 2,466
------------------------------------------------------------ ---------- ----------
Basic - Weighted average number of shares (millions) 3,160 3,256
Diluted - Weighted average number of shares (millions) 3,199 3,290
Basic earnings per ordinary share (cents) 10.4 57.0
------------------------------------------------------------ ---------- ----------
Diluted earnings per ordinary share (cents) 10.3 56.4
------------------------------------------------------------ ---------- ----------
Underlying basic earnings per ordinary share (cents) 36.1 75.7
------------------------------------------------------------ ---------- ----------
Underlying diluted earnings per ordinary share (cents) 35.7 75.0
------------------------------------------------------------ ---------- ----------
1 No tax is included in respect of the impairment of goodwill as
no tax relief is available
13. 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 (FVOCI); 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 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.
In assessing whether the contractual cash flows have SPPI
characteristics, the Group considers the contractual terms of the
instrument. This includes assessing whether the financial asset
contains a contractual term that could change the timing or amount
of contractual cash flows such that it would not meet this
condition. In making the assessment, the Group considers:
-- Contingent events that would change the amount and timing of
cash flows
-- Leverage features
-- Prepayment and extension terms
-- Terms that limit the Group's claim to cash flows from
specified assets (e.g. non-recourse asset arrangements)
-- Features that modify consideration of the time value of money
- e.g. periodical reset of interest rates
Whether financial assets are held at amortised cost or at FVOCI
depend 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. Factors considered include:
-- How the performance of the product business line is evaluated
and reported to the Group's management
-- How managers of the business model are compensated, including
whether management is compensated based on the fair value of assets
or the contractual cash flows collected
-- The risks that affect the performance of the business model
and how those risks are managed
-- The frequency, volume and timing of sales in prior periods,
the reasons for such sales and expectations about future sales
activity
The Group's business model assessment is as follows:
Business Business Characteristics Businesses Products
model objective
-------- ----------- ----------------------------------------------------------- --------------------------------------------- -------------------------------------
Hold to Intent is
collect to * Providing financing and originating assets to earn * Corporate Lending * Loans and advances
originate interest income as primary income stream
financial
assets and * Corporate Finance * Debt securities
hold * Performing credit risk management activities
them to
maturity, * Transaction Banking
collecting * Costs include funding costs, transaction costs and
the impairment losses
contractual * Retail Lending
cash flows
over
the term of * Treasury Markets (Loans and Borrowings)
the
instrument
-------- ----------- ----------------------------------------------------------- --------------------------------------------- -------------------------------------
Hold to Business
collect objective * Portfolios held for liquidity needs; or where a * Treasury Markets * Derivatives
and sell met through certain interest yield profile is maintained; or that
both hold are normally rebalanced to achieve matching of
to duration of assets and liabilities * Debt securities
collect and
by selling
financial * Income streams come from interest income, fair value
assets changes, and impairment losses
-------- ----------- ----------------------------------------------------------- --------------------------------------------- -------------------------------------
Fair All other
value business * Assets held for trading * Financial Markets * Derivatives
through objectives,
profit including
or loss trading * Assets that are originated, purchased, and sold for * Syndication * Trading portfolios
and profit taking or underwriting activity
managing
financial * All other business lines * Financial Markets reverse repos
assets * Performance of the portfolio is evaluated on a fair
on a fair value basis
value
basis
* Income streams are from fair value changes or trading
gains or losses
-------- ----------- ----------------------------------------------------------- --------------------------------------------- -------------------------------------
Financial assets which have SPPI characteristics and that 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 which 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 held at FVOCI.
Both hold to collect business and a hold to collect and sell
business model involve holding financial assets to collect the
contractual cash flows. However, the business models are distinct
by reference to the frequency and significance that asset sales
play in meeting the objective under which a particular group of
financial assets is managed. Hold to collect business models are
characterised by asset sales that are incidental to meeting the
objectives under which a group of assets is managed. Sales of
assets under a hold to collect business model can be made to manage
increases in the credit risk of financial assets but sales for
other reasons should be infrequent or insignificant.
Cash flows from the sale of financial assets under a hold to
collect and sell business model by contrast are integral to
achieving the objectives under which a particular group of
financial assets are managed. This may be the case where frequent
sales of financial assets are required to manage the Group's daily
liquidity requirements or to meet regulatory requirements to
demonstrate liquidity of financial instruments. Sales of assets
under hold to collect and sell business models are therefore both
more frequent and more significant in value than those under the
hold to collect model.
Equity instruments designated as held at FVOCI
Non-trading equity instruments acquired for strategic purposes
rather than capital gain may be irrevocably designated at initial
recognition as held at FVOCI on an instrument-by-instrument basis.
Dividends received are recognised in profit or loss. 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 which are not held at amortised cost or that
are not held at FVOCI 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 which are mandatorily held at
fair value through profit or loss are split between two
subcategories as follows:
Trading, including:
-- Financial assets and liabilities held for trading, which are
those acquired principally for the purpose of selling in the
short-term
-- Derivatives
Non-trading mandatorily at fair value through profit or loss,
including:
-- Instruments in a business which has a fair value business
model (see the Group's business model assessment) which are not
trading or derivatives;
-- 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').
Interest rate swaps have been acquired by the Group with the
intention of significantly reducing interest rate risk on certain
debt securities with fixed rates of interest. To significantly
reduce the accounting mismatch between assets and liabilities and
measurement bases, these debt securities have been designated at
fair value through profit or loss.
Similarly, to reduce accounting mismatches, the Group has
designated certain financial liabilities at fair value through
profit or loss where the liabilities either:
-- Have fixed rates of interest and interest rate swaps or other
interest rate derivatives have been entered with the intention of
significantly reducing interest rate risk; or
-- Are exposed to foreign currency risk and derivatives have
been acquired with the intention of significantly reducing exposure
to market changes; or
-- Have been acquired to fund trading asset portfolios or
assets
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 embedded derivative where the Group is not able to
bifurcate and 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.
Preference shares which carry a mandatory coupon that represents
a market rate of interest at the issue date, or which 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.
Financial guarantee contracts and loan commitments
The Group issues financial guarantee contracts and loan
commitments in return for fees. Financial guarantee contracts and
any loan commitments issued at below-market interest rates are
initially recognised at their fair value as a financial liability,
and subsequently measured at the higher of the initial value less
the cumulative amount of income recognised in accordance with the
principles of IFRS 15 Revenue from Contracts with Customers and
their expected credit loss provision. Loan commitments may be
designated at fair value through profit or loss where that is the
business model under which such contracts are held.
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 the date. The fair value of a liability includes the risk that
the bank will not be able to honour its obligations.
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 risk 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. If the market for a financial instrument, and for
unlisted securities, is not active, the Group establishes fair
value by using valuation techniques.
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 fair value through other comprehensive
income 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 which are not
subsequently measured at fair value through profit or loss.
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 solely on observable market data. In those
cases where the initially recognised fair value is based on a
valuation model that uses unobservable inputs, the difference
between the transaction price and the valuation model is not
recognised immediately in the income statement but is amortised or
released to the income statement as the inputs become observable,
or the transaction matures or is terminated.
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 (see Interest income and expense). Foreign exchange
gains and losses are recognised in the income statement.
Where a financial instrument carried at amortised cost is the
hedged item in a qualifying fair value hedge relationship, its
carrying value is adjusted by the fair value gain or loss
attributable to the hedged risk.
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 equity. On derecognition, the cumulative fair value
gains or losses, net of the cumulative expected credit loss
reserve, are transferred to the profit or loss.
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. On derecognition, the cumulative
reserve is transferred to retained earnings and is not recycled to
profit or loss.
Financial assets and liabilities held at fair value through
profit or loss
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,
including contractual interest income or expense, recorded in the
net trading income line in the profit or loss 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 at fair value through profit or loss is recognised in
profit or loss.
Derecognition of financial instruments
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 per cent, 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.
Modified financial instruments
Financial assets and financial liabilities whose original
contractual terms have been modified, including those loans subject
to forbearance strategies, are considered to be modified
instruments. Modifications may include changes to the tenor, cash
flows and or interest rates among other factors.
Where derecognition of financial assets is appropriate (see
Derecognition), the newly recognised residual loans are assessed to
determine whether the assets should be classified as purchased or
originated credit-impaired assets (POCI).
Where derecognition is not appropriate, the gross carrying
amount of the applicable instruments is recalculated as the present
value of the renegotiated or modified contractual cash flows
discounted at the original effective interest rate (or credit
adjusted effective interest rate for POCI financial assets). The
difference between the recalculated values and the pre-modified
gross carrying values of the instruments are recorded as a
modification gain or loss in the profit or loss.
Gains and losses arising from modifications for credit reasons
are recorded as part of 'Credit impairment' (see Credit Impairment
Policy). Modification gains and losses arising for non-credit
reasons are recognised either as part of "Credit impairment" or
within income depending on whether there has been a change in the
credit risk on the financial asset subsequent to the modification.
Modification gains and losses arising on financial liabilities are
recognised within income. The movements in the applicable expected
credit loss loan positions are disclosed in further detail in Risk
Review.
Under the Phase 2 Interest Rate Benchmark Reform amendments to
IFRS 9, changes to the basis for determining contractual cash flows
as a direct result of interest rate benchmark reform are treated as
changes to a floating interest rate to that instrument, provided
that the transition from the IBOR benchmark rate to the alternative
RFR takes place on an economically equivalent basis. Where the
instrument is measured at amortised cost or FVOCI, this results in
a change in the instrument's effective interest rate, with no
change in the amortised cost value of the instrument. If the change
to the instrument does not meet these criteria, the Group applies
judgement to assess whether the changes are substantial and if they
are, the financial instrument is derecognised and a new financial
instrument is recognised. If the changes are not substantial, the
Group adjusts the gross carrying amount of the financial instrument
by the present value of the changes not covered by the practical
expedient, discounted using the revised effective interest
rate.
Reclassifications
Financial liabilities are not reclassified subsequent to initial
recognition. Reclassifications of financial assets are made when,
and only when, the business model for those assets changes. Such
changes are expected to be infrequent and arise as a result of
significant external or internal changes such as the termination of
a line of business or the purchase of a subsidiary whose business
model is to realise the value of pre-existing held for trading
financial assets through a hold to collect model.
Financial assets are reclassified at their fair value on the
date of reclassification and previously recognised gains and losses
are not restated. Moreover, reclassifications of financial assets
between financial assets held at amortised cost and financial
assets held at fair value through other comprehensive income do not
affect effective interest rate or expected credit loss
computations.
Reclassified from amortised cost
Where financial assets held at amortised cost are reclassified
to financial assets held at fair value through profit or loss, the
difference between the fair value of the assets at the date of
reclassification and the previously recognised amortised cost is
recognised in profit or loss.
For financial assets held at amortised cost that are
reclassified to fair value through other comprehensive income, the
difference between the fair value of the assets at the date of
reclassification and the previously recognised gross carrying value
is recognised in other comprehensive income. Additionally, the
related cumulative expected credit loss amounts relating to the
reclassified financial assets are reclassified from loan loss
provisions to a separate reserve in other comprehensive income at
the date of reclassification.
Reclassified from fair value through other comprehensive
income
Where financial assets held at fair value through other
comprehensive income are reclassified to financial assets held at
fair value through profit or loss, the cumulative gain or loss
previously recognised in other comprehensive income is transferred
to the profit or loss.
For financial assets held at fair value through other
comprehensive income that are reclassified to financial assets held
at amortised cost, the cumulative gain or loss previously
recognised in other comprehensive income is adjusted against the
fair value of the financial asset such that the financial asset is
recorded at a value as if it had always been held at amortised
cost. In addition, the related cumulative expected credit losses
held within other comprehensive income are reversed against the
gross carrying value of the reclassified assets at the date of
reclassification.
Reclassified from fair value through profit or loss
Where financial assets held at fair value through profit or loss
are reclassified to financial assets held at fair value through
other comprehensive income or financial assets held at amortised
cost, the fair value at the date of reclassification is used to
determine the effective interest rate on the financial asset going
forward. In addition, the date of reclassification is used as the
date of initial recognition for the calculation of expected credit
losses. Where financial assets held at fair value through profit or
loss are reclassified to financial assets held at amortised cost,
the fair value at the date of reclassification becomes the gross
carrying value of the financial asset.
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 - - - - - - 66,712 66,712
Financial
assets
held at fair
value
through profit
or loss
-------- ----------- ----------- ---------- ------------- --------- --------- ---------
Loans and
advances
to banks(1) 1,552 - 2,325 - - 3,877 - 3,877
Loans and
advances
to
customers(1) 4,169 - 5,129 79 - 9,377 - 9,377
Reverse
repurchase
agreements
and
other
similar
secured
lending 16 - - 63,405 - - 63,405 - 63,405
Debt
securities,
alternative
tier
one and
other
eligible
bills 24,919 - 425 256 - 25,600 - 25,600
Equity shares 4,223 - 305 - - 4,528 - 4,528
-------- ----------- ----------- ---------- ------------- --------- --------- ---------
34,863 - 71,589 335 - 106,787 - 106,787
Derivative
financial
instruments 14 67,826 1,641 - - - 69,467 - 69,467
Loans and
advances
to banks(1) 15 - - - - - - 44,347 44,347
-------- ----------- ----------- ---------- ------------- --------- --------- ---------
of which -
reverse
repurchase
agreements
and other
similar
secured
lending 16 - - - - - - 1,247 1,247
-------- ----------- ----------- ---------- ------------- --------- --------- ---------
Loans and
advances
to
customers(1) 15 - - - - - - 281,699 281,699
-------- ----------- ----------- ---------- ------------- --------- --------- ---------
of which -
reverse
repurchase
agreements
and other
similar
secured
lending 16 - - - - - - 2,919 2,919
-------- ----------- ----------- ---------- ------------- --------- --------- ---------
Investment
securities
-------- ----------- ----------- ---------- ------------- --------- --------- ---------
Debt
securities,
alternative
tier
one and
other
eligible
bills - - - - 133,381 133,381 19,480 152,861
Equity shares - - - - 454 454 - 454
-------- ----------- ----------- ---------- ------------- --------- --------- ---------
- - - - 133,835 133,835 19,480 153,315
Other assets 20 - - - - - - 40,978 40,978
Assets held for
sale 21 - - - 5 - 5 83 88
--------------- ----- -------- ----------- ----------- ---------- ------------- --------- --------- ---------
Total at 31
December
2020 102,689 1,641 71,589 340 133,835 310,094 453,299 763,393
--------------- ----- -------- ----------- ----------- ---------- ------------- --------- --------- ---------
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
customers(1) 2,886 - 4,010 - - 6,896 - 6,896
Reverse
repurchase
agreements
and
other
similar
secured
lending 16 - - 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 banks(1) 15 - - - - - - 53,549 53,549
-------- ----------- ----------- ---------- ------------- --------- --------- ---------
of which -
reverse
repurchase
agreements
and other
similar
secured
lending 16 - - - - - - 1,341 1,341
-------- ----------- ----------- ---------- ------------- --------- --------- ---------
Loans and
advances
to
customers(1) 15 - - - - - - 268,523 268,523
-------- ----------- ----------- ---------- ------------- --------- --------- ---------
of which -
reverse
repurchase
agreements
and other
similar
secured
lending 16 - - - - - - 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 20 - - - - - - 36,161 36,161
Assets held for
sale 21 - - 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 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 - - 1,249 1,249 - 1,249
Customer accounts - - 8,897 8,897 - 8,897
Repurchase agreements and
other similar
secured borrowing 16 - - 48,662 48,662 - 48,662
Debt securities in issue 22 - - 5,811 5,811 - 5,811
Short positions 3,754 - - 3,754 - 3,754
--------- ------------ ---------- ------------ --------- ---------
3,754 - 64,619 68,373 - 68,373
Derivative financial instruments 14 69,790 1,743 - 71,533 - 71,533
Deposits by banks - - - - 30,255 30,255
Customer accounts - - - - 439,339 439,339
Repurchase agreements and
other similar
secured borrowing 16 - - - - 1,903 1,903
Debt securities in issue 22 - - - - 55,550 55,550
Other liabilities 23 - - - - 47,228 47,228
Subordinated liabilities and
other borrowed funds 27 - - - - 16,654 16,654
--------------------------------- ----- --------- ------------ ---------- ------------ --------- ---------
Total at 31 December 2020 73,544 1,743 64,619 139,906 590,929 730,835
--------------------------------- ----- --------- ------------ ---------- ------------ --------- ---------
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 16 - - 46,283 46,283 - 46,283
Debt securities in issue 22 - - 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 16 - - - - 1,935 1,935
Debt securities in issue 22 - - - - 53,025 53,025
Other liabilities 23 - - - - 41,149 41,149
Subordinated liabilities and
other borrowed funds 27 - - - - 16,207 16,207
--------------------------------- ----- --------- ------------ ---------- ------------ --------- ---------
Total at 31 December 2019 51,059 1,578 62,821 115,458 546,235 661,693
--------------------------------- ----- --------- ------------ ---------- ------------ --------- ---------
Interest rate benchmark reform
The Group has elected to early-adopt the 'Interest Rate
Benchmark Reform - Phase 2' amendments to IFRS for the year ending
31 December 2020, which apply to a financial instrument when its
benchmark interest rate, such as USD LIBOR, is either replaced with
an alternative risk-free rate (RFR) or the benchmark itself is
reformed so that it depends on actual market transactions instead
of panel bank submissions. Please refer to the accounting policy
for modified financial instruments which explains how the Group
accounts for changes to a financial instrument as a result of
interest rate benchmark reform.
The Group also applies the 'Interest Rate Benchmark Reform -
Phase 1' amendments, and the Phase 2 reliefs contain additional
reliefs for hedge accounting. These are discussed in Note 14.
As at 31 December 2020 the Group had the following notional
principal exposures to interest rate benchmarks that are expected
to be subject to interest rate benchmark reform. The Group has
excluded financial instruments maturing before 31 December 2021 as
it is assumed that these will not require reform, due to the
expectation that the IBOR benchmarks the Group is exposed to will
be published until at least this date.
Total
IBOR exposures USD LIBOR EUR LIBOR GBP LIBOR JPY LIBOR CHF LIBOR EONIA SGD SOR THB FIX IBOR
by benchmark $million $million $million $million $million $million $million $million $million
------------------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
Assets
Loans and advances
to banks 1,072 - 55 - - - - - 1,127
Loans and advances
to customers 34,143 727 2,861 134 44 - 2,011 33 39,953
Debt securities,
AT1 and other
eligible bills 3,984 170 1,409 - - - 365 - 5,928
------------------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
39,199 897 4,325 134 44 - 2,376 33 47,008
------------------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
Liabilities
Deposits by banks 399 - - - - - - - 399
Customer accounts 4,239 - 19 189 - - 2 42 4,491
Repurchase
agreements
and other secured
borrowing 1,195 - - - - - - - 1,195
Debt securities
in issue 2,159 - - - - - - - 2,159
Subordinated
liabilities
and other borrowed
funds 160 - 15 - - - - - 175
------------------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
8,152 - 34 189 - - 2 42 8,419
------------------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
Derivatives -
Foreign exchange
contracts
Currency swaps
and options 202,086 - 34,205 14,969 6,634 55 5,125 1,998 265,072
Derivatives -
Interest rate
contracts
Swaps 839,653 73 104,763 25,328 13,402 4,850 72,849 27,013 1,087,931
Forward rate
agreements
and options 21,634 - 523 2,527 - - 76 55 24,815
Exchange traded
futures
and options 63,239 - 1,445 - - - - - 64,684
Equity and stock
index options 75 - 2 - - - - - 77
Credit derivative
contracts 4,466 - - - - - - 134 4,600
------------------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
Total IBOR
derivative
exposure 1,131,153 73 140,938 48,824 20,036 4,905 78,050 29,200 1,447,179
------------------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
Total IBOR exposure 1,178,504 970 145,297 43,147 20,080 4,905 80,428 29,275 1,502,606
------------------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
Additionally, the Group had off-balance sheet exposures in
respect of partially undrawn credit lines that reference an IBOR
benchmark. The table below only includes the undrawn portion of
existing facilities that are known to reference at least one IBOR
benchmark; it does not include facilities that have yet to be drawn
down and not known whether the customer may choose to borrow funds
linked to an IBOR benchmark.
Off-balance sheet IBOR exposures $million
-------------------------------------------- --------
USD LIBOR 7,176
EUR LIBOR 88
GBP LIBOR 763
CHF LIBOR 56
SGD SOR 206
THB FIX 1
Multi-currency facilities referencing LIBOR 1,352
-------------------------------------------- --------
Total off-balance sheet IBOR exposures 9,642
-------------------------------------------- --------
'Multi-currency facilities referencing LIBOR' are facilities
where the customer has a choice of two or more floating rates to
draw down on and at least one of the floating rates available is a
LIBOR benchmark.
Offsetting of financial instruments
Financial assets and liabilities are offset and the net amount
reported in the balance sheet when there is a legally enforceable
right to offset the recognised amounts and there is an intention to
settle on a net basis, or to realise the asset and settle the
liability simultaneously.
In practice, for credit mitigation, the Group is able to offset
assets and liabilities which do not meet the IAS 32 netting
criteria set out below. Such arrangements include master netting
arrangements for derivatives and global master repurchase
agreements for repurchase and reverse repurchase transactions.
These agreements generally allow that all outstanding transactions
with a particular counterparty can be offset but only in the event
of default or other predetermined events.
In addition, the Group also receives and pledges readily
realisable collateral for derivative transactions to cover net
exposure in the event of a default. Under repurchase and reverse
repurchase agreements the Group pledges (legally sells) and obtains
(legally purchases) respectively, highly liquid assets which can be
sold in the event of a default.
The following tables set out the impact of netting on the
balance sheet. This comprises derivative transactions settled
through an enforceable netting agreement where we have the intent
and ability to settle net and which are offset on the balance
sheet.
2020
------------------------------ -------------------------------------------------------------------------------
Related amount
not offset
in the balance
sheet
-------------- --------- ------------- ------------------------- ----------
Net amounts
Impact of financial
of instruments
Gross amounts offset presented
of recognised in the in the
financial balance balance Financial Financial
instruments sheet sheet instruments collateral Net amount
$million $million $million $million $million $million
------------------------------ -------------- --------- ------------- ------------ ----------- ----------
Assets
Derivative financial
instruments 111,979 (42,512) 69,467 (47,097) (10,136) 12,234
Reverse repurchase agreements
and other similar secured
lending 75,490 (7,919) 67,571 - (67,571) -
------------------------------ -------------- --------- ------------- ------------ ----------- ----------
At 31 December 2020 187,469 (50,431) 137,038 (47,097) (77,707) 12,234
------------------------------ -------------- --------- ------------- ------------ ----------- ----------
Liabilities
Derivative financial
instruments 114,045 (42,512) 71,533 (47,097) (11,757) 12,679
Repurchase agreements
and other
similar secured borrowing 58,484 (7,919) 50,565 - (50,565) -
------------------------------ -------------- --------- ------------- ------------ ----------- ----------
At 31 December 2020 172,529 (50,431) 122,098 (47,097) (62,322) 12,679
------------------------------ -------------- --------- ------------- ------------ ----------- ----------
2019
------------------------------ -------------------------------------------------------------------------------
Related amount
not offset
in the balance
sheet
-------------- --------- ------------- ------------------------- ----------
Net amounts
Impact of financial
of instruments
Gross amounts offset presented
of recognised in the in the
financial balance balance Financial Financial
instruments sheet sheet instruments collateral Net amount
$million $million $million $million $million $million
------------------------------ -------------- --------- ------------- ------------ ----------- ----------
Assets
Derivative financial
instruments 63,854 (16,642) 47,212 (28,659) (7,824) 10,729
Reverse repurchase agreements
and other similar secured
lending 63,535 (3,121) 60,414 - (60,414) -
------------------------------ -------------- --------- ------------- ------------ ----------- ----------
At 31 December 2019 127,389 (19,763) 107,626 (28,659) (68,238) 10,729
------------------------------ -------------- --------- ------------- ------------ ----------- ----------
Liabilities
Derivative financial
instruments 65,126 (16,642) 48,484 (28,659) (9,169) 10,656
Repurchase agreements
and other
similar secured borrowing 51,339 (3,121) 48,218 - (48,218) -
------------------------------ -------------- --------- ------------- ------------ ----------- ----------
At 31 December 2019 116,465 (19,763) 96,702 (28,659) (57,387) 10,656
------------------------------ -------------- --------- ------------- ------------ ----------- ----------
Related amounts not offset in the balance sheet comprises:
-- Financial instruments not offset in the balance sheet but
covered by an enforceable netting arrangement. This comprises
master netting arrangements held against derivative financial
instruments and excludes the effect of over-collateralisation
-- Financial instruments where a legal opinion evidencing
enforceability of the right of offset may not have been sought, or
may have been unable to obtain
-- Financial collateral comprises cash collateral pledged and
received for derivative financial instruments and collateral bought
and sold for reverse repurchase and repurchase agreements
respectively and excludes the effect of over-collateralisation
Financial liabilities designated at fair value through profit or
loss
2020 2019
$million $million
---------------------------------------------------------- ---------- ----------
Carrying balance aggregate fair value 64,619 62,821
Amount contractually obliged to repay at maturity 64,405 62,505
Difference between aggregate fair value and contractually
obliged to repay at maturity 214 316
Cumulative change in fair value accredited to credit
risk difference (43) 17
---------------------------------------------------------- ---------- ----------
During 2020, the Group enhanced its valuation methodology for
financial liabilities designated at fair value through profit or
loss. The financial impact of the revision in methodology is a loss
of $56 million in net trading income and a loss in other
comprehensive income of $78 million. These impacts are treated as a
change in accounting estimate.
The net fair value loss on financial liabilities designated at
fair value through profit or loss was $247 million for the year (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
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
01.01.2020 the year 31.12.20 01.01.2019 the year 31.12.19
$million $million $million $million $million $million
----------------------------- ---------- ---------- ---------- ---------- ---------- ----------
Bid-offer valuation
adjustment 79 24 103 67 12 79
Credit valuation adjustment 136 53 189 196 (60) 136
Debit valuation adjustment (43) (12) (55) (143) 100 (43)
Model valuation adjustment 7 (2) 5 6 1 7
Funding valuation adjustment 26 (21) 5 60 (34) 26
Other fair value adjustments 45 (13) 32 59 (14) 45
----------------------------- ---------- ---------- ---------- ---------- ---------- ----------
Total 250 29 279 245 5 250
----------------------------- ---------- ---------- ---------- ---------- ---------- ----------
Income deferrals
Day 1 and other deferrals 103 35 138 100 3 103
----------------------------- ---------- ---------- ---------- ---------- ---------- ----------
Total 103 35 138 100 3 103
----------------------------- ---------- ---------- ---------- ---------- ---------- ----------
Note: Bracket represents an asset and credit to the income
statement
-- Bid-offer valuation adjustment: Generally, market parameters
are marked on a mid-market basis in the revaluation systems, and 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 accounts for CVA
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
key wrong-way exposures. The Group also captures the uncertainties
associated with wrong-way risk in the Group's Prudential Valuation
Adjustments framework
-- 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 expected life of the deal. 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 or benefits 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 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
differs to the transaction price at the time of initial
recognition. However, gains 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. Own
issued note liabilities are discounted utilising spreads as at the
measurement date. These spreads consist of a market level of
funding component and an idiosyncratic own credit component. Under
IFRS 9 the change in the own credit component (OCA) is reported
under other comprehensive income. The Group's OCA reserve will
increase if its credit standing worsens and conversely, decrease if
its credit standing improves. The Group's OCA reserve will reverse
over time as its liabilities mature. The OCA at 31 December 2020 is
a loss of $43 million (31 December 2019: $17million gain).
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 inputs which
could have a significant effect on the instrument's valuation are
not based on observable market data
The following tables show the classification of financial
instruments held at fair value into the valuation hierarchy:
Level 1 Level 2 Level 3 Total
Assets $million $million $million $million
----------------------------------------------- ---------- ---------- ---------- ----------
Financial instruments held at fair
value through profit or loss
Loans and advances to banks - 3,677 200 3,877
Loans and advances to customers - 8,659 718 9,377
Reverse repurchase agreements and other
similar secured lending - 62,341 1,064 63,405
Debt securities and other eligible
bills 9,453 15,889 258 25,600
Of which:
---------- ---------- ---------- ----------
Government bonds and treasury bills 8,904 7,929 - 16,833
Issued by corporates other than financial
institutions1 49 3,880 256 4,185
Issued by financial institutions1 500 4,080 2 4,582
---------- ---------- ---------- ----------
Equity shares 3,657 592 279 4,528
Derivative financial instruments 473 68,986 8 69,467
Of which:
---------- ---------- ---------- ----------
Foreign exchange 111 54,533 3 54,647
Interest rate 36 11,788 2 11,826
Credit - 1,700 2 1,702
Equity and stock index options - 109 1 110
Commodity 326 856 - 1,182
---------- ---------- ---------- ----------
Investment securities
Debt securities and other eligible
bills 68,280 65,061 40 133,381
Of which:
---------- ---------- ---------- ----------
Government bonds and treasury bills 52,771 27,171 40 79,982
Issued by corporates other than financial
institutions1 6,229 9,498 - 15,727
Issued by financial institutions(1) 9,280 28,392 - 37,672
---------- ---------- ---------- ----------
Equity shares 68 5 381 454
----------------------------------------------- ---------- ---------- ---------- ----------
Total financial instruments at 31 December
2020(2) 81,931 225,210 2,948 310,089
----------------------------------------------- ---------- ---------- ---------- ----------
Liabilities
Financial instruments held at fair
value through profit or loss
Deposits by banks - 1,103 146 1,249
Customer accounts - 8,876 21 8,897
Repurchase agreements and other similar
secured borrowing - 48,662 - 48,662
Debt securities in issue - 5,651 160 5,811
Short positions 2,573 1,181 - 3,754
Derivative financial instruments 413 71,001 119 71,533
Of which:
---------- ---------- ---------- ----------
Foreign exchange 115 56,968 2 57,085
Interest rate 11 10,387 26 10,424
Credit - 2,904 86 2,990
Equity and stock index options - 255 5 260
Commodity 287 487 - 774
---------- ---------- ---------- ----------
Total financial instruments at 31 December
20202 2,986 136,474 446 139,906
----------------------------------------------- ---------- ---------- ---------- ----------
1 Includes covered bonds of $7,216 million, securities issued by
Multilateral Development Banks/International Organisations of
$10,870 million and State-owned agencies and development banks of
$15,606 million
2 The above table does not include held for sale assets of $5
million and liabilities of $nil. These are reported in Note 21
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 year.
Level 1 Level 2 Level 3 Total
Assets $million $million $million $million
----------------------------------------------- ---------- ---------- ---------- ----------
Financial instruments held at fair
value through profit or loss
Loans and advances to banks - 3,163 365 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 and other eligible
bills 5,963 16,158 200 22,321
Of which:
---------- ---------- ---------- ----------
Government bonds and treasury bills 5,656 7,898 - 13,554
Issued by corporates other than financial
institutions1 7 5,090 200 5,297
Issued by financial institutions1 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 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
2019(2) 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 21
together with their fair value hierarchy
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
banks(1) 66,712 - 66,712 - 66,712
Loans and advances to banks 44,347 - 44,275 4 44,279
---------- ---------- ---------- ---------- ----------
of which - reverse repurchase
agreements and other similar
secured lending 1,247 - 1,265 - 1,265
---------- ---------- ---------- ---------- ----------
Loans and advances to customers 281,699 - 29,145 251,991 281,136
---------- ---------- ---------- ---------- ----------
of which - reverse repurchase
agreements and other similar
secured lending 2,919 - 2,922 - 2,922
---------- ---------- ---------- ---------- ----------
Investment securities2 19,480 - 20,349 7 20,356
Other assets(1) 40,978 - 40,978 - 40,978
Assets held for sale 83 - 25 58 83
-------------------------------- ---------- ---------- ---------- ---------- ----------
At 31 December 2020 453,299 - 201,484 252,060 453,544
-------------------------------- ---------- ---------- ---------- ---------- ----------
Liabilities
Deposits by banks 30,255 - 30,288 - 30,288
Customer accounts 439,339 - 439,407 - 439,407
Repurchase agreements and other
similar secured borrowing 1,903 - 1,903 - 1,903
Debt securities in issue 55,550 25,638 30,441 - 56,079
Subordinated liabilities and
other borrowed funds 16,654 16,993 607 - 17,600
Other liabilities(1) 47,228 - 47,228 - 47,228
-------------------------------- ---------- ---------- ---------- ---------- ----------
At 31 December 2020 590,929 42,631 549,874 - 592,505
-------------------------------- ---------- ---------- ---------- ---------- ----------
Fair value
-------------------------------- ---------- ----------------------------------------------
Carrying
value Level 1 Level 2 Level 3 Total
$million $million $million $million $million
-------------------------------- ---------- ---------- ---------- ---------- ----------
Assets
Cash and balances at central
banks(1) 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 assets(1) 36,161 - 36,161 - 36,161
Assets held for sale 90 - 70 20 90
-------------------------------- ---------- ---------- ---------- ---------- ----------
At 31 December 2019 425,020 - 179,457 246,672 426,132
-------------------------------- ---------- ---------- ---------- ---------- ----------
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 liabilities(1) 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 $ 7,371
million at 31 December 2020 and $5,973 million at 31 December
2019
3 Fair value of investment securities restated from $13,107
million to $14,238 million as a result of an observable price in
the market now being used
Loans and advances to customers by client segment1
2020
-------------------------- -----------------------------------------------------------------------
Carrying value Fair value
---------------------------------- ----------------------------------
Stage 1 Stage 1
and and
stage stage
Stage 3 2 Total Stage 3 2 Total
$million $million $million $million $million $million
-------------------------- ---------- ---------- ---------- ---------- ---------- ----------
Corporate & Institutional
Banking 2,441 106,513 108,954 2,487 106,316 108,803
Retail Banking 604 114,941 115,545 610 114,737 115,347
Commercial Banking 601 23,902 24,503 622 23,645 24,267
Private Banking 227 13,321 13,548 228 13,342 13,570
Central & other items - 19,149 19,149 - 19,149 19,149
-------------------------- ---------- ---------- ---------- ---------- ---------- ----------
At 31 December 2020 3,873 277,826 281,699 3,947 277,189 281,136
-------------------------- ---------- ---------- ---------- ---------- ---------- ----------
2019 (Restated)
-------------------------- -----------------------------------------------------------------------
Carrying value Fair value
---------------------------------- ----------------------------------
Stage 1 Stage 1
and and
stage stage
Stage 3 22 Total Stage 3 2 Total
$million $million $million $million $million $million
-------------------------- ---------- ---------- ---------- ---------- ---------- ----------
Corporate & Institutional
Banking 1,193 107,459 108,652 1,244 109,996 111,240
Retail Banking 472 106,466 106,938 482 106,939 107,421
Commercial Banking 510 27,584 28,094 541 25,463 26,004
Private Banking 219 14,522 14,741 219 14,471 14,690
Central & other items - 10,098 10,098 - 10,106 10,106
-------------------------- ---------- ---------- ---------- ---------- ---------- ----------
At 31 December 2019 2,394 266,129 268,523 2,486 266,975 269,461
-------------------------- ---------- ---------- ---------- ---------- ---------- ----------
1 Loans and advances includes reverse repurchase agreements and
other similar secured lending: carrying value $2,919 million and
fair value $2,922 million (31 December 2019: $1,469 million and
$1,471 million respectively)
2 Corporate & Institutional Banking, Commercial Banking and
Retail Banking carrying value numbers have been restated to reflect
client transfers between the segments. The changes are in stage 1
and stage 2 only
Fair value of financial instruments
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
31 December
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 12.7%-12.9% 12.8%
---------------------- --------- ----------- -------------------- --------------------- ------------ ---------
Loans and advances Discounted cash 0.9% -
to customers 718 - flows Price/yield 11.5% 4.6%
---------------------- --------- ----------- --------------------
34.2% -
Recovery rates 100% 83.4%
---------------------- --------- ----------- -------------------- --------------------- ------------ ---------
Reverse repurchase
agreements and
other similar secured Discounted cash
lending 1,064 - flows Repo curve 1.0%-3.2% 2.8%
---------------------- --------- ----------- -------------------- --------------------- ------------ ---------
Debt securities,
alternative tier
one and other
eligible Discounted cash
securities 171 - flows Price/yield 4.7%-11.5% 10.5%
---------------------- --------- ----------- -------------------- --------------------- ------------ ---------
Government bonds Discounted cash 2.8% -
and treasury bills 40 - flows Price/yield 5.5% 3.6%
---------------------- --------- ----------- -------------------- --------------------- ------------ ---------
Asset-backed Discounted cash
securities 87 - flows Price/yield 8.3%-12.0% 11.7%
---------------------- --------- ----------- --------------------
Recovery rates 55.0% 55.0%
---------------------- --------- ----------- -------------------- --------------------- ------------ ---------
Equity shares
(includes
private equity Comparable 3.3x -
investments) 660 - pricing/yield EV/EBITDA multiples 14.2x 8.7x
---------------------- --------- -----------
P/E multiples N/A N/A
---------------------- --------- -----------
0.5x -
P/B multiples 2.0x 0.7x
P/S multiples N/A N/A
Liquidity discount 20.0% 20.0%
Discounted cash 6.0% -
flows Discount rates 15.0% 9.1%
Equity value
based on
Option pricing EV/Revenue 13.5x -
model multiples 130.9x 114.9x
---------------------- --------- ----------- -------------------- --------------------- ------------ ---------
Derivative financial
instruments of
which:
Foreign exchange
Option pricing option implied
Foreign exchange 3 2 model volatility N/A N/A
Discounted cash Foreign exchange
flows curves 2.7%-5.6% 4.1%
Discounted cash Interest rate
Interest rate 2 26 flows curves (5.2)%-18.6% 10.0%
Option pricing Bond option
model implied volatility 20.0%-30.0% 24.2%
Discounted cash
Credit 2 86 flows Credit spreads 2.0% 2.0%
Price/yield 0.9%-12.0% 11.2%
Equity and stock Internal pricing 20.0% -
index 1 5 model Equity correlation 90.0% 49.0%
---------------------- --------- -----------
(70.0)%
Equity-FX correlation - 80.0% (59.0)%
---------------------- --------- ----------- -------------------- --------------------- ------------ ---------
Discounted cash 1.0% -
Deposits by banks - 146 flows Credit spreads 1.4% 1.1%
---------------------- --------- ----------- --------------------
Bond option N/A N/A
implied volatility
---------------------- --------- ----------- -------------------- --------------------- ------------ ---------
Discounted cash
Customer accounts - 21 flows Credit spreads 1.0% 1.0%
---------------------- --------- ----------- --------------------
Interest rate (0.4)%
curves - 7.7% 3.9%
---------------------- --------- ----------- --------------------
Recovery rates 55.0% 55.0%
---------------------- --------- ----------- -------------------- --------------------- ------------ ---------
Debt securities Discounted cash 0.1% -
in issue - 160 flows Credit spreads 11.5% 2.3%
---------------------- --------- -----------
Internal pricing 20.0% -
model Equity correlation 90.0% 49.0%
---------------------- --------- ----------- --------------------
(70.0)%
Equity-FX correlation - 80.0% (59.0)%
---------------------- --------- ----------- -------------------- --------------------- ------------ ---------
Total 2,948 446
---------------------- --------- ----------- -------------------- --------------------- ------------ ---------
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 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
Level 3 Summary and significant unobservable inputs
continued
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 0.5% -
to customers 443 - flows Price/yield 6.9% 4.2%
----------------------- --------- -----------
18.9% -
Recovery rates 100% 92.1%
----------------------- --------- ----------- --------------------- --------------------- ---------- ---------
Debt securities,
alternative tier
one and other eligible Discounted cash 3.8% -
securities 184 - flows Price/yield 18.7% 11.6%
----------------------- --------- ----------- --------------------- --------------------- ---------- ---------
Government bonds Discounted cash 2.9% -
and treasury bills 33 - flows Price/yield 5.5% 3.7%
----------------------- --------- ----------- --------------------- --------------------- ---------- ---------
Discounted cash 1.4% -
Asset-backed securities 21 - flows Price/yield 3.2% 2.7%
----------------------- --------- ----------- --------------------- --------------------- ---------- ---------
Equity shares (includes
private equity Comparable 3.5x -
investments)3 485 - pricing/yield EV/EBITDA multiples 7.3x 4.6x
----------------------- --------- -----------
P/E multiples 17.4x 17.4x
----------------------- --------- -----------
0.6x -
P/B multiples 1.0x 0.9x
P/S multiples N/A N/A
10.0% -
Liquidity discount 20.0% 15.9%
Discounted cash 8.4% -
flows Discount rates 16.2% 9.5%
----------------------- --------- ----------- --------------------- --------------------- ---------- ---------
Derivative financial
instruments of
which:
Foreign exchange
Option pricing option implied 4.4% -
Foreign exchange 8 5 model volatility 18.9% 16.7%
Discounted cash Foreign exchange 7.8% -
flows curves 8.0% 7.9%
Discounted cash Interest rate 5.3% -
Interest rate 4 9 flows curves 19.6% 8.6%
Option pricing Bond option 17.0% -
model implied volatility 28.0% 24.0%
Discounted cash 1.0% -
Credit 1 23 flows Credit spreads 7.9% 1.1%
Equity and stock Internal pricing 1.0% -
index 4 20 model Equity correlation 90.0% 58.0%
----------------------- --------- -----------
(80.0)%
Equity-FX correlation - 70.0% (29.0)%
----------------------- --------- ----------- --------------------- --------------------- ---------- ---------
Discounted cash 1.0% -
Deposits by banks - 56 flows Credit spreads 1.8% 1.4%
----------------------- --------- ----------- --------------------- --------------------- ---------- ---------
Discounted cash 1.0% -
Customer accounts - 40 flows Credit spreads 5.8% 2.7%
----------------------- --------- ----------- --------------------- --------------------- ---------- ---------
Debt securities Discounted cash 0.1% -
in issue - 410 flows Credit spreads 1.4% 0.9%
----------------------- --------- -----------
Internal pricing 1.0% -
model Equity correlation 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
Level 3 Summary and significant unobservable inputs
continued
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
-- 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
-- Credit spread represents the additional yield that a market
participant would demand for taking exposure to the Credit Risk of
an instrument
-- Discount rate refers to the rate of return used to convert
expected cash flows into present value
-- Equity-FX correlation is the correlation between equity
instrument and foreign exchange instrument
-- 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
-- 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
-- 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
-- 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
-- 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
-- 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
Level 3 movement tables - financial assets
The table below analyses movements in Level 3 financial assets
carried at fair value.
Held at fair value through profit 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
--------------- -------- --------- ---------- ----------- -------- ----------- ----------- --------- --------
At 1 January
2020 365 443 - 200 228 17 38 257 1,548
Total
gains/(losses)
recognised in
income
statement 16 (15) 1 (20) (54) (6) - - (78)
-------- --------- ---------- ----------- -------- ----------- ----------- --------- --------
Net trading
income 16 (15) 1 (18) (54) (6) - - (76)
Other
operating
income - - - (2) - - - - (2)
-------- --------- ---------- ----------- -------- ----------- ----------- --------- --------
Total gains
recognised
in other
comprehensive
income (OCI) - - - - - - 6 22 28
-------- --------- ---------- ----------- -------- ----------- ----------- --------- --------
Fair value
through
OCI reserve - - - - - - 7 19 26
Exchange
difference - - - - - - (1) 3 2
-------- --------- ---------- ----------- -------- ----------- ----------- --------- --------
Purchases 321 540 1,165 203 7 115 36 109 2,496
Sales (164) (28) (102) (237) (37) (70) - (4) (642)
Settlements (416) (567) - (68) - (7) - - (1,058)
Transfers out1 - (174) - (37) (1) (41) (40) (3) (296)
Transfers in2 78 519 - 217 136 - - - 950
--------------- -------- --------- ---------- ----------- -------- ----------- ----------- --------- --------
At 31 December
2020 200 718 1,064 258 279 8 40 381 2,948
--------------- -------- --------- ---------- ----------- -------- ----------- ----------- --------- --------
Total
unrealised
(losses)/gains
recognised in
the income
statement,
within net
trading
income,
relating
to change in
fair
value of
assets
held at
31 December
2020 - (6) - 4 (3) - - - (5)
--------------- -------- --------- ---------- ----------- -------- ----------- ----------- --------- --------
1 Transfers out includes loans and advances, derivative
financial instruments, debt securities, alternative tier one and
other eligible bills and equity shares where the valuation
parameters became observable during the year and were transferred
to Level 1 and Level 2. Transfers in of $62 million further relates
to Equity Shares moved from Held for Sale
2 Transfers in primarily relate to loans and advances, debt
securities, alternative tier one and other eligible bills, and
equity shares where the valuation parameters become unobservable
during the year
The table below analyses movements in Level 3 financial assets
carried at fair value.
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
--------------- -------- --------- ---------- ----------- -------- ----------- ----------- --------- --------
At 1 January
2019 632 492 - 317 327 12 412 230 2,422
Total
(losses)/gains
recognised in
income
statement (25) (31) - (14) (26) (15) 2 - (109)
-------- --------- ---------- ----------- -------- ----------- ----------- --------- --------
Net trading
income (25) (31) - (14) (26) (15) - - (111)
Other
operating
income - - - - - - 2 - 2
-------- --------- ---------- ----------- -------- ----------- ----------- --------- --------
Total
(losses)/gains
recognised in
other
comprehensive
income (OCI) - - - - - - (341) 5 (336)
-------- --------- ---------- ----------- -------- ----------- ----------- --------- --------
Fair value
through
OCI reserve - - - - - - (4) 12 8
Exchange
difference - - - - - - (337) (7) (344)
-------- --------- ---------- ----------- -------- ----------- ----------- --------- --------
Purchases 826 133 - 106 139 109 156 26 1,495
Sales - (8) - (248) (153) (26) (1) (7) (443)
Settlements (1,068) (253) - (3) - (5) (34) - (1,363)
Transfers out1 - (6) - (86) (134) (75) (161) - (462)
Transfers in2 - 116 - 128 75 17 5 3 344
--------------- -------- --------- ---------- ----------- -------- ----------- ----------- --------- --------
At 31 December
2019 365 443 - 200 228 17 38 257 1,548
--------------- -------- --------- ---------- ----------- -------- ----------- ----------- --------- --------
Total
unrealised
gains
recognised
in the income
statement,
within
net trading
income,
relating to
change
in fair value
of assets held
at
31 December
2019 - - - (1) - (1) - - (2)
--------------- -------- --------- ---------- ----------- -------- ----------- ----------- --------- --------
1 Transfers out includes debt securities, alternative tier one
and other eligible bills, equity shares, derivative financial
instruments and loans and advances where the valuation parameters
became observable during the year and were transferred to Level 1
and Level 2. Transfers out further relates to $74 million equity
shares held for sale
2 Transfers in primarily relate to debt securities, alternative
tier one and other eligible bills, loans and advances, equity
shares and derivative financial instruments where the valuation
parameters become unobservable during the year
Level 3 movement tables - financial liabilities
2020
---------------------------------------- --------------------------------------------------------------
Derivative
Deposits Customer Debt securities financial
by banks accounts in issue instruments Total
$million $million $million $million $million
---------------------------------------- --------- --------- --------------- ------------ ---------
At 1 January 2020 56 40 410 57 563
Total losses/(gains) recognised
in income statement - net trading
income 7 (1) (10) 12 8
Issues 136 90 557 201 984
Settlements (53) (116) (575) (118) (862)
Transfers out1 - - (223) (53) (276)
Transfers in2 - 8 1 20 29
---------------------------------------- --------- --------- --------------- ------------ ---------
At 31 December 2020 146 21 160 119 446
---------------------------------------- --------- --------- --------------- ------------ ---------
Total unrealised losses recognised
in the income statement, within
net trading income, relating
to change in fair value of liabilities
held at 31 December 2020 - 1 - 1 2
---------------------------------------- --------- --------- --------------- ------------ ---------
2019
---------------------------------------- --------------------------------------------------------------------
Debt securities
Derivative
Deposits Customer financial
by banks accounts in issue instruments(3) Total
$million $million $million $million $million
---------------------------------------- ---------- ---------- --------------- --------------- ----------
At 1 January 2019 4 - 439 65 508
Total(gains)/losses recognised
in income statement -
net trading income (1) (2) 22 54 73
Issues 53 41 592 436 1,122
Settlements - - (522) (642) (1,164)
Transfers out1 - - (121) (13) (134)
Transfers in2 - 1 - 157 158
---------------------------------------- ---------- ---------- --------------- --------------- ----------
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) 16 2 16
---------------------------------------- ---------- ---------- --------------- --------------- ----------
1 Transfers out during the year primarily relate to debt
securities in issue and derivative financial instruments where the
valuation parameters became observable during the year and were
transferred to Level 2 financial liabilities
2 Transfers in during the year primarily relate to derivative
financial instruments, customer accounts and debt securities in
issue where the valuation parameters become unobservable during the
year
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 analysis performed on a set of
reference prices based on the composition of the Group's Level 3
inventory as the measurement date. Favourable and unfavourable
changes (which show the balance adjusted for input change) are
determined on the basis of changes in the value of the instrument
as a result of varying the levels of the unobservable parameters.
The 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
profit or loss comprehensive 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 918 947 867 - - -
Reverse repurchase
agreements and other
similar secured lending 1,064 1,089 1,040 - - -
Asset-backed securities 87 94 80 - - -
Debt securities, alternative
tier one and other
eligible bills 171 183 159 40 40 39
Equity shares 279 307 251 381 418 345
Derivative financial
instruments (111) (98) (126) - - -
Customer accounts (21) (18) (24) - - -
Deposits by banks (146) (146) (146) - - -
Debt securities in
issue (160) (154) (167) - - -
----------------------------- ------------ ---------- ------------ ------------ ---------- ------------
At 31 December 2020 2,081 2,204 1,934 421 458 384
----------------------------- ------------ ---------- ------------ ------------ ---------- ------------
Financial instruments
held at fair value
Loans and advances 808 820 787 - - -
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.
2020 2019
Financial instruments Fair value changes $million $million
--------------------------------------- ------------------- ---------- ----------
Held at fair value through
profit or loss Possible increase 123 86
---------------------------------------
Possible decrease (147) (94)
----------------------------------------------------------- ---------- ----------
Fair value through other comprehensive
income Possible increase 37 26
---------------------------------------
Possible decrease (37) (26)
----------------------------------------------------------- ---------- ----------
14. Derivative financial instruments
Accounting policy
Derivatives are financial instruments that derive their value in
response to changes in interest rates, financial instrument prices,
commodity prices, foreign exchange rates, credit risk and indices.
Derivatives are categorised as trading unless they are designated
as hedging instruments.
Derivatives are initially recognised and subsequently measured
at fair value, with revaluation gains recognised in profit or loss
(except where cash flow or net investment hedging has been
achieved, in which case the effective portion of changes in fair
value is recognised within other comprehensive income).
Fair values may be obtained from quoted market prices in active
markets, recent market transactions, and valuation techniques,
including discounted cash flow models and option pricing models, as
appropriate. Where the initially recognised fair value of a
derivative contract is based on a valuation model that uses inputs
which are not observable in the market, it follows the same initial
recognition accounting policy as for other financial assets and
liabilities. All derivatives are carried as assets when fair value
is positive and as liabilities when fair value is negative.
Hedge accounting
Under certain conditions, the Group may designate a recognised
asset or liability, a firm commitment, highly probable forecast
transaction or net investment of a foreign operation into a formal
hedge accounting relationship with a derivative that has been
entered to manage interest rate and/or foreign exchange risks
present in the hedged item. The Group continues to apply the 'Phase
1' hedge accounting requirements of IAS 39 Financial Instruments:
Recognition and Measurement and has early adopted the 'Phase 2'
amendments to IFRS in respect of interest rate benchmark reform.
There are three categories of hedge relationships:
-- Fair value hedge: to manage the fair value of interest rate
and/or foreign currency risks of recognised assets or liabilities
or firm commitments
-- Cash flow hedge: to manage interest rate or foreign exchange
risk of highly probable future cash flows attributable to a
recognised asset or liability, or a forecasted transaction
-- Net investment hedge: to manage the structural foreign
exchange risk of an investment in a foreign operation
The Group formally documents at the inception of the transaction
the relationship between hedging instruments and hedged items, as
well as its risk management objective and strategy for undertaking
hedge transactions. This is described in more detail in the
categories of hedges below.
The Group assesses, both at hedge inception and on a quarterly
basis, whether the derivatives designated in hedge relationships
are highly effective in offsetting changes in fair values or cash
flows of hedged items. Hedges are considered to be highly effective
if all the following criteria are met:
-- At inception of the hedge and throughout its life, the hedge
is prospectively expected to be highly effective in achieving
offsetting changes in fair value or cash flows attributable to the
hedged risk
-- Actual results of the hedge are within a range of 80-125%.
This is tested using regression analysis
-- The regression co-efficient (R squared), which measures the
correlation between the variables in the regression, is at least
80%
-- In the case of the hedge of a forecast transaction, the
transaction must have a high probability of occurring and must
present an exposure to variations in cash flows that are expected
to affect reported profit or loss. The Group assumes that any
interest rate benchmarks on which hedged item cash flows are based
are not altered by IBOR reform
The Group discontinues hedge accounting in any of the following
circumstances:
-- The hedging instrument is not, or has ceased to be, highly
effective as a hedge
-- The hedging instrument has expired, is sold, terminated or
exercised
-- The hedged item matures, is sold or repaid
-- The forecast transaction is no longer deemed highly
probable
-- The Group elects to discontinue hedge accounting
voluntarily
For interest rate benchmarks deemed in scope of IBOR reform, if
the actual result of a hedge is outside the 80-125% range, but the
hedge passes the prospective assessment, then the Group will not
de-designate the hedge relationship.
Under the Phase 2 Interest Rate Benchmark Reform amendments to
IFRS 9 and IAS 39, the Group may change hedge designations and
corresponding documentation without the hedge being discontinued
where there is a change in interest rate benchmark of the hedged
item, hedging instrument or designated hedged risk. Permitted
changes include the right to:
-- Redefine the description of the hedged item and/or hedging
instrument
-- Redefine the hedged risk to reference an alternative
risk-free rate
-- Change the method for assessing hedge effectiveness due to
modifications required by IBOR reform
-- Elect, on a hedge-by-hedge basis, to reset the cumulative
fair value changes in the assessment of retrospective hedge
effectiveness to zero
A hedge designation may be modified more than once, each time a
relationship is affected as a direct result of IBOR reform.
Fair value hedge
Changes in the fair value of derivatives that are designated and
qualify as fair value hedging instruments are recorded in net
trading income, together with any changes in the fair value of the
hedged asset or liability that are attributable to the hedged risk.
If the hedge no longer meets the criteria for hedge accounting, the
adjustment to the carrying amount of a hedged item for which the
effective interest method is used is amortised to the income
statement over the remaining term to maturity of the hedged item.
If the hedged item is sold or repaid, the unamortised fair value
adjustment is recognised immediately in the income statement. For
financial assets classified as fair value through other
comprehensive income, the hedge accounting adjustment attributable
to the hedged risk is included in net trading income to match the
hedging derivative.
Cash flow hedge
The effective portion of changes in the fair value of
derivatives that are designated and qualify as cash flow hedging
instruments are initially recognised in other comprehensive income,
accumulating in the cash flow hedge reserve within equity. These
amounts are subsequently recycled to the income statement in the
periods when the hedged item affects profit or loss. Both the
derivative fair value movement and any recycled amount are recorded
in the 'Cashflow hedges' line item in other comprehensive
income.
The Group assesses hedge effectiveness using the hypothetical
derivative method, which creates a derivative instrument to serve
as a proxy for the hedged transaction. The terms of the
hypothetical derivative match the critical terms of the hedged item
and it has a fair value of zero at inception. The hypothetical
derivative and the actual derivative are regressed to establish the
statistical significance of the hedge relationship. Any ineffective
portion of the gain or loss on the hedging instrument is recognised
in the net trading income immediately.
If a cash flow hedge is discontinued, the amount accumulated in
the cash flow hedge reserve is released to the income statement as
and when the hedged item affects the income statement.
For interest rate benchmarks deemed in scope of IBOR reform, the
Group will retain the cumulative gain or loss in the cash flow
hedge reserve for designated cash flow hedges even though there is
uncertainty arising from these reforms with respect to the timing
and amount of the cash flows of the hedged items. Should the Group
consider the hedged future cash flows are no longer expected to
occur due to reasons other than IBOR reform, the cumulative gain or
loss will be immediately reclassified to profit or loss.
Net investment hedge
Hedges of net investments are accounted for in a similar manner
to cash flow hedges, with gains and losses arising on the effective
portion of the hedges recorded in the line 'Exchange differences on
translation of foreign operations' in other comprehensive income,
accumulating in the translation reserve within equity. These
amounts remain in equity until the net investment is disposed of.
The ineffective portion of the hedges is recognised in the net
trading income immediately.
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.
Derivatives
2020 2019
---------------------------- ---------------------------------- ----------------------------------
Notional Notional
principal principal
amounts Assets Liabilities amounts Assets Liabilities
$million $million $million $million $million $million
---------------------------- ---------- --------- ----------- ---------- --------- -----------
Foreign exchange derivative
contracts:
Forward foreign exchange
contracts 3,018,866 37,505 39,181 2,290,781 16,281 16,396
Currency swaps and
options 1,423,520 17,142 17,904 806,226 9,725 10,530
Exchange traded futures
and options - - - - - -
---------------------------- ---------- --------- ----------- ---------- --------- -----------
4,442,386 54,647 57,085 3,097,007 26,006 26,926
---------------------------- ---------- --------- ----------- ---------- --------- -----------
Interest rate derivative
contracts:
Swaps 3,165,532 52,755 50,982 4,046,209 34,011 33,351
Forward rate agreements
and options 606,357 1,350 1,770 284,973 1,826 2,061
Exchange traded futures
and options 261,372 233 184 359,031 179 161
---------------------------- ---------- --------- ----------- ---------- --------- -----------
4,033,261 54,338 52,936 4,690,213 36,016 35,573
---------------------------- ---------- --------- ----------- ---------- --------- -----------
Credit derivative contracts 140,437 1,702 2,990 80,972 1,232 1,915
---------------------------- ---------- --------- ----------- ---------- --------- -----------
Equity and stock index
options 6,018 110 260 3,412 27 96
---------------------------- ---------- --------- ----------- ---------- --------- -----------
Commodity derivative
contracts 67,664 1,182 774 79,458 573 616
---------------------------- ---------- --------- ----------- ---------- --------- -----------
Gross total derivatives 8,689,766 111,979 114,045 7,951,062 63,854 65,126
---------------------------- ---------- --------- ----------- ---------- --------- -----------
Offset - (42,512) (42,512) - (16,642) (16,642)
---------------------------- ---------- --------- ----------- ---------- --------- -----------
Total derivatives 8,689,766 69,467 71,533 7,951,062 47,212 48,484
---------------------------- ---------- --------- ----------- ---------- --------- -----------
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 31 December 2020 is a
decrease in the derivative assets and derivative liabilities of
$15.4 billion. 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 $8.7 billion.
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 31 December 2020 is a decrease in other
assets and other liabilities of $1.4 billion. 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 $3.2 billion.
The Group may enter into economic hedges that do not qualify for
IAS 39 hedge accounting treatment, including derivative such as
interest rate swaps, interest rate futures and cross currency swaps
to manage interest rate and currency risks of the Group. These
derivatives are measured at fair value, with fair value changes
recognised in net trading income: refer to Market risk.
The Derivatives and Hedging sections of the Risk review and
Capital review explain the Group's risk management of derivative
contracts and application of hedging.
Derivatives held for hedging
The Group enters into derivative contracts for the purpose of
hedging interest rate, currency and structural foreign exchange
risks inherent in assets, liabilities and forecast transactions.
The table below summarises the notional principal amounts and
carrying values of derivatives designated in hedge accounting
relationships at the reporting date.
2020 2019
--------------------------- ---------------------------------- ----------------------------------
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 70,846 1,500 712 69,121 617 589
Currency swaps 4,136 25 179 8,405 47 774
--------------------------- ---------- --------- ----------- ---------- --------- -----------
74,982 1,525 891 77,526 664 1,363
--------------------------- ---------- --------- ----------- ---------- --------- -----------
Derivatives designated
as cash flow hedges:
Interest rate swaps 9,347 83 129 9,277 53 74
Forward foreign exchange
contracts 164 21 - 289 6 20
Currency swaps 9,935 12 340 5,254 34 51
--------------------------- ---------- --------- ----------- ---------- --------- -----------
19,446 116 469 14,820 93 145
--------------------------- ---------- --------- ----------- ---------- --------- -----------
Derivatives designated
as net investment hedges:
Forward foreign exchange
contracts 5,376 - 383 5,103 31 70
--------------------------- ---------- --------- ----------- ---------- --------- -----------
Total derivatives held
for hedging 99,804 1,641 1,743 97,449 788 1,578
--------------------------- ---------- --------- ----------- ---------- --------- -----------
Fair value hedges
The Group issues various long-term fixed rate debt issuances
that are measured at amortised cost, including some denominated in
foreign currency, such as unsecured senior and subordinated debt
(see Notes 22 and 27). The Group also holds various fixed rate debt
securities such as government and corporate bonds, including some
denominated in foreign currency (see Note 13). These assets and
liabilities held are exposed to changes in fair value due to
movements in market interest and foreign currency rates.
The Group uses interest rate swaps to exchange fixed rates for
floating rates on funding to match floating rates received on
assets, or exchange fixed rates on assets to match floating rates
paid on funding. The Group further uses cross currency swaps to
match the currency of the issued debt or held asset with that of
the entity's functional currency.
Hedge ineffectiveness from fair value hedges is driven by cross
currency basis risk. The amortisation of fair value hedge
adjustments for hedged items no longer designated is recognised in
net trading income. In future periods hedge relationships linked to
an interest rate benchmark deemed in scope of benchmark reform may
experience ineffectiveness due to market participants' expectations
for when the change from the existing IBOR benchmark to an
alternative risk-free rate will occur, since the transition may
occur at different times for the hedged item and hedging
instrument.
At 31 December 2020 the Group held the following interest rate
and cross currency swaps as hedging instruments in fair value
hedges of interest and currency risk.
Hedging instruments and ineffectiveness
2020
-------------------------------------- ------------------------------------------------------------------------
Carrying amount
--------- -------------------- ---------------------- ---------------
Change
in fair Ineffectiveness
value recognised
used to in
calculate profit
Notional Asset Liability hedge ineffectiveness or loss
Interest rate1 $million $million $million $million $million
-------------------------------------- --------- --------- --------- ---------------------- ---------------
Interest rate swaps - issued
notes 29,598 1,475 14 858 17
Interest rate swaps - loans
and advances 2,535 2 38 (27) -
Interest rate swaps - debt securities
and other eligible bills 38,713 23 660 (934) 3
Interest and currency risk1
Cross currency swaps - subordinated
notes issued 3,329 17 146 267 5
Cross currency swaps - debt
securities and other eligible
bills 807 8 33 (70) (2)
-------------------------------------- --------- --------- --------- ---------------------- ---------------
Total at 31 December 2020 74,982 1,525 891 94 23
-------------------------------------- --------- --------- --------- ---------------------- ---------------
1 Interest rate swaps are designated in hedges of the fair value
of interest rate risk attributable to the hedged item. Cross
currency swaps are used to hedge both interest rate and currency
risks. All of the hedging instruments are derivatives, with changes
in fair value including hedge ineffectiveness recorded within net
trading income
2019
-------------------------------------- ------------------------------------------------------------------------
Carrying amount
--------- -------------------- ---------------------- ---------------
Change
in fair Ineffectiveness
value recognised
used to in
calculate profit
Notional Asset Liability hedge ineffectiveness or loss
Interest rate1 $million $million $million $million $million
-------------------------------------- --------- --------- --------- ---------------------- ---------------
Interest rate swaps - issued
notes 22,029 559 44 511 -
Interest rate swaps - loans
and advances 1,410 1 24 (22) (1)
Interest rate swaps - debt securities
and other eligible bills 45,682 57 521 (589) 12
Interest and currency risk1
Cross currency swaps - subordinated
notes issued 5,451 17 751 32 6
Cross currency swaps - debt
securities and other eligible
bills 2,954 30 23 (18) 1
-------------------------------------- --------- --------- --------- ---------------------- ---------------
Total at 31 December 2019 77,526 664 1,363 (86) 18
-------------------------------------- --------- --------- --------- ---------------------- ---------------
1 Interest rate swaps are designated in hedges of the fair value
of interest rate risk attributable to the hedged item. Cross
currency swaps are used to hedge both interest rate and currency
risks. All of the hedging instruments are derivatives, with changes
in fair value including hedge ineffectiveness recorded within net
trading income
Hedged items in fair value hedges
2020
---------------------- --------------------------------------------------------------------------------------------
Accumulated amount
of fair value hedge
adjustments included
in the
Carrying amount carrying amount
-------------------- ----------------------- ---------------------- ---------------------
Cumulative
balance
of
Change fair value
in the adjustments
value from
used for de-designated
calculating hedge
Asset Liability Asset Liability hedge ineffectiveness relationships(1)
$million $million $million $million $million $million
---------------------- --------- --------- ----------- ---------- ---------------------- ---------------------
Issued notes - 33,737 - 1,096 (1,103) 856
Debt securities and
other eligible bills 40,663 - 577 - 1,005 (92)
Loans and advances
to customers 2,561 - 32 - 27 -
---------------------- --------- --------- ----------- ---------- ---------------------- ---------------------
Total at 31 December
2020 43,224 33,737 609 1,096 (71) 764
---------------------- --------- --------- ----------- ---------- ---------------------- ---------------------
2019
---------------------- -------------------------------------------------------------------------------------------
Accumulated amount
of fair value
hedge adjustments
included in the
Carrying amount carrying amount
-------------------- -------------------- ---------------------- -----------------------
Cumulative
Change balance
in fair of
value fair value
used for adjustments
calculating from de-designated
Asset Liability Asset Liability hedge ineffectiveness hedge relationships(1)
$million $million $million $million $million $million
---------------------- --------- --------- --------- --------- ---------------------- -----------------------
Issued notes - 27,921 - 271 (537) 611
Debt securities and
other eligible bills 49,190 - 373 - 620 (120)
Loans and advances
to customers 1,431 - 22 - 21 -
---------------------- --------- --------- --------- --------- ---------------------- -----------------------
Total at 31 December
2019 50,621 27,921 395 271 104 491
---------------------- --------- --------- --------- --------- ---------------------- -----------------------
1 This represents a credit/(debit) to the balance sheet
value
Income statement impact of fair value hedges
2020 2019
Income/(expense) Income/(expense)
$million $million
-------------------------------------------------- ------------------ ------------------
Change in fair value of hedging instruments 94 (86)
Change in fair value of hedged risks attributable
to hedged items (71) 104
Net ineffectiveness gain to net trading income 23 18
Amortisation loss to net interest income (31) (5)
-------------------------------------------------- ------------------ ------------------
Cash flow hedges
The Group has exposure to market movements in future interest
cash flows on portfolios of customer accounts, debt securities and
loans and advances to customers. The amounts and timing of future
cash flows, representing both principal and interest flows, are
projected on the basis of contractual terms and other relevant
factors, including estimates of prepayments and defaults.
The hedging strategy of the Group involves using interest rate
swaps to manage the variability in future cash flows on assets and
liabilities that have floating rates of interest by exchanging the
floating rates for fixed rates. It also uses foreign exchange
contracts and currency swaps to manage the variability in future
exchange rates on its assets and liabilities and costs in foreign
currencies. This is done on both a micro basis whereby a single
interest rate or cross currency swap is designated in a separate
relationship with a single hedged item (such as a floating rate
loan to a customer), and on a portfolio basis whereby each hedging
instrument is designated against a group of hedged items that share
the same risk (such as a group of customer accounts).
The hedged risk is determined as the variability of future cash
flows arising from changes in the designated benchmark interest
rate, e.g. one-month or three-month LIBOR.
Hedging instruments and ineffectiveness
2020
---------------------- ----------------------------------------------------------------------------------------------
Carrying amount
--------- -------------------- ---------------- ----------- --------------- -------------
Change
in fair Ineffectiveness
value gain/(loss) Amount
used to recognised reclassified
calculate Gain/(loss) in net from
hedge recognised trading reserves
Notional Asset Liability ineffectiveness in OCI income to income
$million $million $million $million $million $million $million
---------------------- --------- --------- --------- ---------------- ----------- --------------- -------------
Interest rate risk
Interest rate swaps 9,347 83 129 (45) (45) - -
Currency risk
Forward foreign
exchange
contract 164 21 - 14 14 - -
Cross currency swaps 9,935 12 340 (261) (261) - -
---------------------- --------- --------- --------- ---------------- ----------- --------------- -------------
Total as at 31
December
2020 19,446 116 469 (292) (292) - -
---------------------- --------- --------- --------- ---------------- ----------- --------------- -------------
2019
---------------------- ----------------------------------------------------------------------------------------------
Carrying amount
--------- -------------------- ---------------- ----------- --------------- -------------
Change
in fair Ineffectiveness
value gain/(loss) Amount
used to recognised reclassified
calculate Gain/(loss) in net from
hedge recognised trading reserves
Notional Asset Liability ineffectiveness in OCI income to income
$million $million $million $million $million $million $million
---------------------- --------- --------- --------- ---------------- ----------- --------------- -------------
Interest rate risk
Interest rate swaps 9,277 53 74 (87) (87) - -
Currency risk
Forward foreign
exchange
contract 289 6 20 6 6 - -
Cross currency swaps 5,254 34 51 (5) (5) - (2)
---------------------- --------- --------- --------- ---------------- ----------- --------------- -------------
Total as at 31
December
2019 14,820 93 145 (86) (86) - (2)
---------------------- --------- --------- --------- ---------------- ----------- --------------- -------------
Hedged items in cash flow hedges
2020
----------------------------------------- -------------------------------------------------------
Cumulative
Change balance
in fair in the
value cash flow
used for Cash flow hedge reserve
calculating hedge from de-designated
hedge ineffectiveness reserve hedge relationships
$million $million $million
----------------------------------------- ---------------------- --------- --------------------
Customer accounts 105 (110) (8)
Debt securities and other eligible bills 92 16 -
Loans and advances to customers (45) 34 1
Forecast cashflow currency hedge (14) 21 -
Intragroup lending currency hedge 169 5 -
Intragroup borrowing currency hedge (15) 2 -
----------------------------------------- ---------------------- --------- --------------------
Total at 31 December 2020 292 (32) (7)
----------------------------------------- ---------------------- --------- --------------------
2019
----------------------------------------- -------------------------------------------------------
Cumulative
Change balance
in fair in the
value cash flow
used for Cash flow hedge reserve
calculating hedge from de-designated
hedge ineffectiveness reserve hedge relationships
$million $million $million
----------------------------------------- ---------------------- --------- --------------------
Customer accounts 86 (58) (4)
Debt securities and other eligible bills (3) 1 -
Loans and advances to customers (28) (10) (4)
Forecast cashflow currency hedge 40 - -
Intragroup lending currency hedge (9) (6) -
----------------------------------------- ---------------------- --------- --------------------
Total at 31 December 2019 86 (73) (8)
----------------------------------------- ---------------------- --------- --------------------
Impact of cash flow hedges on profit and loss and other
comprehensive income
2020 2019
Income/(expense) Income/(expense)
$million $million
----------------------------------------------------------- ------------------ ------------------
Cash flow hedge reserve balance as at 1 January (59) (10)
Loss recognised in other comprehensive income on effective
portion of changes in fair value of
hedging instruments (25) (64)
Gain transferred to net trading income on hedging
instruments no longer in a hedging relationship - 10
Gain reclassified to income statement when hedged
item affected net profit 17 11
Taxation charge relating to cash flow hedges 15 (6)
----------------------------------------------------------- ------------------ ------------------
Cash flow hedge reserve balance as at 31 December (52) (59)
----------------------------------------------------------- ------------------ ------------------
Net investment hedges
Foreign currency exposures arise from investments in
subsidiaries that have a different functional currency from that of
the presentation currency of the Group. This risk arises from the
fluctuation in spot exchange rates between the functional currency
of the subsidiaries and the Group's presentation currency, which
causes the value of the investment to vary.
The Group's policy is to hedge these exposures only when not
doing so would be expected to have a significant impact on the
regulatory ratios of the Group and its banking subsidiaries. The
Group uses foreign exchange forwards to manage the effect of
exchange rates on its net investments in foreign subsidiaries.
Hedging instruments and ineffectiveness
2020
---------------------- ----------------------------------------------------------------------------------------------
Carrying amount
--------- -------------------- ---------------- ----------- --------------- -------------
Changes
Change in the
in fair value
value of the Amount
used to hedging Ineffectiveness reclassified
calculate instrument recognised from
hedge recognised in profit reserves
Notional Asset Liability ineffectiveness in OCI or loss to income
$million $million $million $million $million $million $million
---------------------- --------- --------- --------- ---------------- ----------- --------------- -------------
Derivative forward
currency
contracts(1) 5,376 - 383 (286) (286) - -
---------------------- --------- --------- --------- ---------------- ----------- --------------- -------------
2019
---------------------- ----------------------------------------------------------------------------------------------
Carrying amount
--------- -------------------- ---------------- ----------- --------------- -------------
Changes
Change in the
in fair value
value of the Amount
used to hedging Ineffectiveness reclassified
calculate instrument recognised from
hedge recognised in profit reserves
Notional Asset Liability ineffectiveness in OCI or loss to income
$million $million $million $million $million $million $million
---------------------- --------- --------- --------- ---------------- ----------- --------------- -------------
Derivative forward
currency
contracts(1) 5,103 31 70 98 98 - -
---------------------- --------- --------- --------- ---------------- ----------- --------------- -------------
1 These derivative forward currency contracts have a maturity of
less than one year. The hedges are rolled on a periodic basis
Hedged items in net investment hedges
2020
---------------- ------------------------------------------------------
Balances
remaining
in the
translation
reserve
Change from hedging
in the relationships
value for which
used for hedge accounting
calculating Translation is no longer
hedge ineffectiveness reserve applied
$million $million $million
---------------- ---------------------- ----------- -----------------
Net investments 286 (383) -
---------------- ---------------------- ----------- -----------------
2019
---------------- ------------------------------------------------------
Balances
remaining
in the
translation
reserve
Change from hedging
in the relationships
value for which
used for hedge accounting
calculating Translation is no longer
hedge ineffectiveness reserve applied
$million $million $million
---------------- ---------------------- ----------- -----------------
Net investments (98) 98 -
---------------- ---------------------- ----------- -----------------
Impact of net investment hedges on other comprehensive
income
2020 2019
Income/(expense) Income/(expense)
$million $million
-------------------------------------------------------- ------------------ ------------------
Gains/(losses) recognised in other comprehensive income (287) 191
-------------------------------------------------------- ------------------ ------------------
Maturity of hedging instruments
2020
------------------------------ --------- ------------------------------------------------
More than
one month
and less
Less than than One to More than
Fair value hedges one month one year five years five years
------------------------------ --------- ---------- ---------- ----------- -----------
Interest rate swap
Notional $million 2,334 13,908 40,768 13,836
Average fixed interest rate USD 1.44% 1.28% 1.47% 1.64%
EUR - 1.86% 1.49% 1.72%
Cross currency swap
Notional $million 837 1,384 1,915 -
Average fixed interest rate
(to USD) EUR 0.25% 1.63% 3.43% -
JPY (0.12)% - (0.23)% -
Average exchange rate EUR/USD 0.82 0.74 0.79 -
------------------------------
JPY/USD 109.93 - 107.91 -
---------------------------------------- ---------- ---------- ----------- -----------
Cash flow hedges
Interest rate swap
Notional $million - 3,428 4,686 1,233
Average fixed interest rate HKD - 1.46% 0.62% -
USD - 0.96% 1.80% 1.32%
Cross currency swap
Notional $million - 7,822 2,084 29
Average fixed interest rate HKD - 1.15% - -
KRO - 0.79% - -
TWD(1) - (0.63)% - -
JPY - (0.21)% (0.16)% -
Average exchange rate HKD/USD - 7.75 - -
KRO/USD - 1,174.75 - -
TWD(1)/USD - 29.88 - -
JPY/USD - 107.54 107.12 -
Forward foreign exchange contracts
Notional $million 27 137 - -
Average exchange rate GBP/USD 0.84 0.84 - -
----------------------------------- ----------- ---- -------- ------- -----
Net investment hedges
Foreign exchange derivatives
Notional $million 5,376 ---
Average exchange rate CNY(1)/USD 7.07 ---
-----------------------------
KRW(1)/USD 1,197.02 ---
TWD(1)/USD 28.89 ---
----------------------------------------- --------
1 Offshore currency
Maturity of hedging instruments
2019
------------------------------ --------- ------------------------------------------------
More than
one month
and less
Less than than One to More than
Fair value hedges one month one year five years five years
------------------------------ --------- ---------- ---------- ----------- -----------
Interest rate swap
Notional $million 433 12,032 46,229 10,427
Average fixed interest rate USD 2.78% 2.50% 2.47% 4.05%
Cross currency swap
Notional $million 92 4,267 3,379 667
Average fixed interest rate
(to USD) EUR - 4.00% 2.61% -
GBP - 5.38% 4.71% 4.38%
JPY (0.16)% (0.17)% - -
Average exchange rate EUR/USD - 0.74 0.77 -
------------------------------
GBP/USD - 0.55 0.63 0.62
JPY/USD 107.90 109.90 - -
---------------------------------------- ---------- ---------- ----------- -----------
Cash flow hedges
Interest rate swap
Notional $million 193 4,440 3,891 753
HKD 1.91% 1.95% 1.80% -
Average fixed interest rate USD - 2.72% 1.65% 2.46%
Cross currency swap
Notional $million 403 4,121 730 -
Average fixed interest rate CNY1 3.22% 3.49% 3.94% -
HKD - 2.52% - -
INR1 - 4.32% 3.85% -
KRW1 - 1.25% - -
Average exchange rate CNY1/USD 6.86 6.93 7.08 -
HKD/USD - 7.84 - -
INR1/USD - 69.43 68.85 -
KRW1/USD - 1,201.23 - -
Forward foreign exchange contracts
Notional $million 196 93 - -
Average exchange rate INR1/USD 81.20 - - -
-----------------------------------
INR/USD 81.01 - - -
GBP/USD 0.80 0.79 - -
--------------------------------------------- ----- -------- ----- -----
Net investment hedges
Foreign exchange derivatives
Notional $million 5,103 ---
Average exchange rate CNY/USD 6.90 ---
-----------------------------
KRW/USD 1,188.90 ---
TWD/USD 30.56 ---
--------------------------------------- --------
1 Offshore currency
Interest rate benchmark reform
The Group applies the Phase 1 'Interest Rate Benchmark Reform
Amendments to IFRS 9, IAS 39 and IFRS 7' which allow the Group to
assume that the interest rate benchmark on which cash flows for the
hedged item and/or hedging instrument are based is are altered as a
result of IBOR reform for the following activities:
-- Prospective hedge assessment
-- Determining whether a cash flow or forecast transaction for a
cash flow hedge is highly probable. However, the Group otherwise
assesses whether the cash flows are considered highly probable
-- Determining when cumulative balances in the cash flow hedge
reserve from de-designated hedges should be recycled to the income
statement
The Group will not de-designate a hedge relationship of a
benchmark in scope of IBOR reform if the retrospective hedge result
is outside the required 80-125% range but, the hedge passes the
prospective assessment. Any hedge ineffectiveness continues to be
recorded in net trading income.
For hedges of non-contractually specified benchmark portions of
an interest rate (such as fair value hedges of interest rate risk
on fixed rate debt instruments) the Group only assesses whether the
designated benchmark is separately identifiable at hedge inception.
The choice of designated benchmark is not revisited for existing
hedge relationships.
In applying these amendments, the Group has made the following
key assumptions for the period end, to be reviewed on an ongoing
basis:
-- The interest rate benchmarks applicable to the Group that are
in scope of the IFRS amendments are all LIBORs, EONIA, Singapore
Swap Offer Rate (SGD SOR) and Thai Baht Interest Rate Fixing (THB
FIX)
-- EURIBOR is not in scope of the IFRS amendments because its
revised methodology incorporates market transaction data, hence the
benchmark is expected to continue to exist in future reporting
periods
-- The Group believes it is too early to reliably estimate when
interest rate benchmark uncertainty will be resolved for all
benchmarks assumed to be in scope of the amendments. It therefore
assumes that the uncertainty arising from interest rate benchmark
reform will be present until 31 December 2021, at which time the
amendments to IFRS no longer apply
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 31 December 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 9,454 36,024 345 2,733 48,556 3.2
GBP LIBOR 268 1,720 89 - 2,077 10.9
JPY LIBOR 552 1,785 - - 2,337 3.0
SGD SOR 360 123 - - 483 1.2
----------------------------- ------------ ------------ ------------ ------------ --------- ---------
10,634 39,652 434 2,733 53,453 3.5
----------------------------- ------------ ------------ ------------ ------------ --------- ---------
Cross currency swaps
USD LIBOR vs Fixed rate
foreign currency 2,221 1,915 - - 4,136 1.3
----------------------------- ------------ ------------ ------------ ------------ --------- ---------
Total notional of hedging
instruments
in scope of IFRS amendments
as at
31 December 2020 12,855 41,567 434 2,733 57,589 3.4
----------------------------- ------------ ------------ ------------ ------------ --------- ---------
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 26,159 25,622 950 2,559 55,290 2.7
GBP LIBOR 613 4,049 - - 4,662 5.5
JPY LIBOR 1,429 569 - - 1,998 2.4
SGD SOR 563 132 - - 695 1.7
-------------------------- ------------ ------------ ------------ ------------ --------- ---------
28,764 30,372 950 2,559 62,645 2.9
-------------------------- ------------ ------------ ------------ ------------ --------- ---------
Cross currency swaps
USD LIBOR vs Fixed
rate foreign currency 6,216 2,189 - - 8,405 2.7
-------------------------- ------------ ------------ ------------ ------------ --------- ---------
Total notional of hedging
instruments in scope
of IFRS amendments
as at
31 December 2019 34,980 32,561 950 2,559 71,050 2.9
-------------------------- ------------ ------------ ------------ ------------ --------- ---------
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. Loans and advances to banks and customers
Accounting policy
Refer to Note 13 Financial instruments for the relevant
accounting policy
2020 2019
$million $million
------------------------------------------------ ---------- ----------
Loans and advances to banks 44,364 53,558
Expected credit loss (17) (9)
------------------------------------------------ ---------- ----------
44,347 53,549
------------------------------------------------ ---------- ----------
Loans and advances to customers 288,312 274,306
Expected credit loss (6,613) (5,783)
------------------------------------------------ ---------- ----------
281,699 268,523
------------------------------------------------ ---------- ----------
Total loans and advances to banks and customers 326,046 322,072
------------------------------------------------ ---------- ----------
The Group has outstanding residential mortgage loans to Korea
residents of $22.1 billion (31 December 2019: $17.8 billion) and
Hong Kong residents of $32 billion (31 December 2019: $29.9
billion).
Analysis of loans and advances to customers by geographic region
and client segment together with their related impairment
provisions are set out within the Risk review and Capital
review.
16. Reverse repurchase and repurchase agreements including other
similar lending and borrowing
Accounting policy
The Group purchases securities (a reverse repurchase agreement -
'reverse repo') typically with financial institutions subject to a
commitment to resell or return the securities at a predetermined
price. These securities are not included in the balance sheet as
the Group does not acquire the risks and rewards of ownership,
however they are recorded off-balance sheet as collateral received.
Consideration paid (or cash collateral provided) is accounted for
as a loan asset at amortised cost, unless it is managed on a fair
value basis or designated at fair value through profit or loss. In
the majority of cases through the contractual terms of a reverse
repo arrangement, the Group as the transferee of the security
collateral has the right to sell or repledge the asset
concerned.
The Group also sells securities (a repurchase agreement -
'repo') subject to a commitment to repurchase or redeem the
securities at a predetermined price. The securities are retained on
the balance sheet as the Group retains substantially all the risks
and rewards of ownership and these securities are disclosed as
pledged collateral. Consideration received (or cash collateral
received) is accounted for as a financial liability at amortised
cost, unless it is either mandatorily classified as fair value
through profit or loss or irrevocably designated at fair value
through profit or loss at initial recognition.
Financial assets are pledged as collateral as part of sales and
repurchases, securities borrowing and securitisation transactions
under terms that are usual and customary for such activities. The
Group is obliged to return equivalent securities.
Repo and reverse repo transactions typically entitle the Group
and its counterparties to have recourse to assets similar to those
provided as collateral in the event of a default. Securities sold
subject to repos, either by way of a Global Master Repurchase
Agreement (GMRA), or through a securities sale and Total Return
Swap (TRS) continue to be recognised on the balance sheet as the
Group retains substantially the associated risks and rewards of the
securities (the TRS is not recognised). The counterparty liability
is included in deposits by banks or customer accounts, as
appropriate. Assets sold under repurchase agreements are considered
encumbered as the Group cannot pledge these to obtain funding.
Reverse repurchase agreements and other similar secured
lending
2020 2019
$million $million
---------------------------------- ---------- ----------
Banks 19,452 19,610
Customers 48,119 40,804
---------------------------------- ---------- ----------
67,571 60,414
---------------------------------- ---------- ----------
Of which:
Fair value through profit or loss 63,405 57,604
---------- ----------
Banks 18,205 18,269
Customers 45,200 39,335
---------- ----------
Held at amortised cost 4,166 2,810
---------- ----------
Banks 1,247 1,341
Customers 2,919 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:
2020 2019
$million $million
------------------------------------------------------ ---------- ----------
Securities and collateral received (at fair value) 99,676 86,308
Securities and collateral which can be repledged or
sold (at fair value) 99,238 85,415
Amounts repledged/transferred to others for financing
activities, to satisfy liabilities under sale and
repurchase agreements (at fair value) 46,209 44,530
------------------------------------------------------ ---------- ----------
Repurchase agreements and other similar secured borrowing
2020 2019
$million $million
---------------------------------- ---------- ----------
Banks 6,647 7,789
Customers 43,918 40,429
---------------------------------- ---------- ----------
50,565 48,218
---------------------------------- ---------- ----------
Of which:
Fair value through profit or loss 48,662 46,283
---------- ----------
Banks 6,107 7,401
Customers 42,555 38,882
---------- ----------
Held at amortised cost 1,903 1,935
---------- ----------
Banks 540 388
Customers 1,363 1,547
---------- ----------
The tables below set out the financial assets provided as
collateral for repurchase and other secured borrowing
transactions:
2020
-------------------------------------- -------------------------------------------------------------------
Fair value Fair value
through through
profit other comprehensive Amortised Off-balance
Collateral pledged against repurchase or loss income cost sheet Total
agreements $million $million $million $million $million
-------------------------------------- ---------- -------------------- --------- ----------- ---------
On-balance sheet
Debt securities and other eligible
bills 2,664 2,108 355 - 5,127
Off-balance sheet
Repledged collateral received - - - 46,209 46,209
-------------------------------------- ---------- -------------------- --------- ----------- ---------
At 31 December 2020 2,664 2,108 355 46,209 51,336
-------------------------------------- ---------- -------------------- --------- ----------- ---------
2019
-------------------------------------- -------------------------------------------------------------------
Fair value Fair value
through through
profit other comprehensive Amortised Off-balance
Collateral pledged against repurchase or loss income cost sheet Total
agreements $million $million $million $million $million
-------------------------------------- ---------- -------------------- --------- ----------- ---------
On-balance sheet
Debt securities 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
-------------------------------------- ---------- -------------------- --------- ----------- ---------
17. Goodwill and intangible assets
Accounting policy
Goodwill
Goodwill represents the excess of the cost of an acquisition
over the fair value of the Group's share of the identifiable net
assets and contingent liabilities of the acquired subsidiary,
associate or joint venture at the date of acquisition. Goodwill on
acquisitions of subsidiaries is included in intangible assets.
Goodwill on acquisitions of associates is included in Investments
in associates. Goodwill included in Intangible assets is assessed
at each balance sheet date for impairment and carried at cost less
any accumulated impairment losses. Gains and losses on the disposal
of an entity include the carrying amount of goodwill relating to
the entity sold. Detailed calculations are performed based on
discounting expected cash flows of the relevant cash-generating
units (CGUs) and discounting these at an appropriate discount rate,
the determination of which requires the exercise of judgement.
Goodwill is allocated to CGUs for the purpose of impairment
testing. CGUs represent the lowest level within the Group which
generate separate cash inflows and at which the goodwill is
monitored for internal management purposes. These are equal to or
smaller than the Group's reportable segments (as set out in Note 2)
as the Group views its reportable segments on a global basis. The
major CGUs to which goodwill has been allocated are set out in the
CGU table.
Significant accounting estimates and judgements
The carrying amount of goodwill is based on the application of
judgements including the basis of goodwill impairment calculation
assumptions. Judgement is also applied in determination of
cash-generating units.
Estimates include forecasts used for determining cash flows for
CGUs, the appropriate long term growth rates to use and discount
rates which factor in country risk-free rates and applicable risk
premiums. These estimates are periodically assessed for
appropriateness. The Group undertakes an annual assessment to
evaluate whether the carrying value of goodwill is impaired. The
estimation of future cash flows and the level to which they are
discounted is inherently uncertain and requires significant
judgement and is subject to potential change over time.
Acquired intangibles
At the date of acquisition of a subsidiary or associate,
intangible assets which are deemed separable and that arise from
contractual or other legal rights are capitalised and included
within the net identifiable assets acquired. These intangible
assets are initially measured at fair value, which reflects market
expectations of the probability that the future economic benefits
embodied in the asset will flow to the entity and are amortised on
the basis of their expected useful lives (4 to 16 years). At each
balance sheet date, these assets are assessed for indicators of
impairment. In the event that an asset's carrying amount is
determined to be greater than its recoverable amount, the asset is
written down immediately.
Computer software
Acquired computer software licences are capitalised on the basis
of the costs incurred to acquire and bring to use the specific
software.
Internally generated software represents substantially all of
the total software capitalised. Direct costs of the development of
separately identifiable internally generated software are
capitalised where it is probable that future economic benefits
attributable to the asset will flow from its use (internally
generated software). These costs include salaries and wages,
materials, service providers and contractors, and directly
attributable overheads. Costs incurred in the ongoing maintenance
of software are expensed immediately when incurred. Internally
generated software is amortised over a three to five-year time
period. On an annual basis software assets' residual values and
useful lives are reviewed, including assessing for indicators of
impairment. Indicators of impairment include loss of business
relevance, obsolescence of asset, exit of the business to which the
software relates, technological changes, change in use of the
asset, reduction in useful life, plans to reduce usage or
scope.
For capitalised software, judgement is required to determine
which costs relate to research (and therefore expensed) and which
costs relate to development (capitalised). Further judgement is
required to determine the technical feasibility of completing the
software such that it will be available for use. Estimates are used
to determine how the software will generate probable future
economic benefits, these estimates include: cost savings, income
increases, balance sheet improvements, improved functionality or
improved asset safeguarding.
2020 2019
---------------------- --------------------------------------------- ---------------------------------------------
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 27 16 60 103 (10) (5) 26 11
Additions - - 790 790 - 1 753 754
Disposals - - (4) (4) - (1) (3) (4)
Impairment (489) - - (489) (27) - - (27)
Amounts written off - (4) (403) (407) - (44) (372) (416)
Classified as held
for sale - - - - - - - -
---------------------- --------- ------------ --------- --------- --------- ------------ --------- ---------
At 31 December 2,617 473 3,682 6,772 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 - 15 21 36 - (5) 6 1
Amortisation - 5 515 520 - 9 436 445
Impairment charge - - 17 17 - - 12 12
Disposals - - (4) (4) - (1) - (1)
Amounts written off - - (349) (349) - (30) (343) (373)
---------------------- --------- ------------ --------- --------- --------- ------------ --------- ---------
At 31 December - 451 1,258 1,709 - 431 1,058 1,489
---------------------- --------- ------------ --------- --------- --------- ------------ --------- ---------
Net book value 2,617 22 2,424 5,063 3,079 30 2,181 5,290
---------------------- --------- ------------ --------- --------- --------- ------------ --------- ---------
At 31 December 2020, accumulated goodwill impairment losses
incurred from 1 January 2005 amounted to $3,317 million (31
December 2019: $2,828 million), of which $489 million was
recognised in 2020 (31 December 2019: $27 million).
Goodwill
Testing of goodwill for impairment
An annual assessment is made as to whether the current carrying
value of goodwill is impaired. For the purposes of impairment
testing, goodwill is allocated at the date of acquisition to a CGU.
Goodwill is considered to be impaired if the carrying amount of the
relevant CGU exceeds its recoverable amount. Indicators of
impairment include changes in the economic performance and outlook
of the region including geopolitical changes, changes in market
value of regional investments, large credit defaults and strategic
decisions to exit certain regions. The recoverable amounts for all
the CGUs were measured based on value-in-use (ViU). The calculation
of ViU for each CGU is calculated using five-year cash flow
projections and an estimated terminal value based on a perpetuity
value after year five. The cash flow projections are based on
forecasts approved by management up to 2025. The perpetuity
terminal value amount is calculated using year five cash flows
using long-term GDP growth rates. All cash flows are discounted
using discount rates which reflect market rates appropriate to the
CGU.
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.
2020 2019
------------------------- --------------------------------- ---------------------------------
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 934 900
--------- ---------
Hong Kong 359 9.7 2.7 358 9.2 2.4
Taiwan 575 8.6 2.1 542 10.6 2.0
--------- ---------
Africa & Middle East 303 512
--------- ---------
Pakistan 183 15.0 5.0 188 21.0 4.0
UAE - - - 204 7.1 2.5
Others (4)(1) 120 8.1-14.3 2.8-5.8 120 8.3-16.6 2.5-4.9
--------- ---------
ASEAN & South Asia 414 706
--------- ---------
India - - - 259 16.4 7.3
Singapore 345 10.3 3.0 342 10.4 1.9
Others (2) 69 12.8-13.4 6.9-7.2 105 11.7-15.4 3.3-7.3
--------- ---------
Global CGUs 966 961
--------- ---------
Global Private Banking 84 10.0 3.6 84 9.1 3.5
Global Corporate &
Institutional Banking 882 10.0 3.0 877 9.1 3.5
--------- ---------
2,617 3,079
------------------------- --------- --------- ----------- --------- --------- -----------
1 Bahrain, Ghana, Jordan and Qatar
2 Bangladesh and Vietnam, Indonesia and Brunei goodwill was
written off in 2020
Four country CGUs; India, UAE, Indonesia and Brunei have had all
the goodwill allocated to them written off, totalling $489 million.
This was primarily due to lower economic growth forecasts, higher
discount rates and forward-looking cash flows reflecting lower
interest rate environments. 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.
2020
-------------- ---------------------------------------------------------------------------------------------------------------------------------------------------------
Sensitivities
-------- --------- --------------------------------------------------------------------------------------------------------------------
Extreme
Discount Downside downside
GDP rates Cashflow Cashflow Cashflow scenario scenario
-------------------- -------------------- -------------------- -------------------- -------- -------- --------
GDP GDP
- 1% - 1%
DR + DR +
1% CF 1% CF
Base case + 1% -1% + 1% -1% + 10% - 10% +20% - 20% - 30% - 10% - 20%
------------------------- --------- --------- --------- --------- --------- --------- --------- --------- -------- -------- --------
Head- Head- Head-
Head-room Discount Head-room Head-room Head-room Head-room Head-room Head-room Head-room Head-room room room room
CGU Goodwill $million rate GDP $million $million $million $million $million $million $million $million $million $million $million
-------------- -------- --------- -------- ---- --------- --------- --------- --------- --------- --------- --------- --------- -------- -------- --------
Taiwan 575 359 8.6% 2.1% 652 144 84 734 620 97 882 (165) (426) (276) (479)
-------------- -------- --------- -------- ---- --------- --------- --------- --------- --------- --------- --------- --------- -------- -------- --------
Global
Corporate
&
Institutional
Banking 882 3,845 10.0% 3.0% 7,233 1,304 546 8,245 7,369 322 10,893 (3,202) (6,726) (4,150) (6,938)
-------------- -------- --------- -------- ---- --------- --------- --------- --------- --------- --------- --------- --------- -------- -------- --------
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 31 December 2020.
For there to be no headroom, the discount rate will need to
increase by 1.37 per cent and 1.19 per cent, for Taiwan and Global
Corporate & Institutional Banking (CIB) respectively.
Similarly, the GDP rates will need to decrease by 1.87 per cent,
1.63 per cent and cash flows would need to decrease by 13.71 per
cent, 10.91 per cent for Taiwan and Global CIB respectively .
Acquired intangibles
These primarily comprise those items recognised as part of the
acquisitions of Union Bank (now amalgamated into Standard Chartered
Bank (Pakistan) Limited), Hsinchu (now amalgamated into Standard
Chartered Bank (Taiwan) Limited), Pembroke, American Express Bank
and ABSA's custody business in Africa. Maintenance intangible
assets represent the value in the difference between the
contractual right under acquired leases to receive aircraft in a
specified maintenance condition at the end of the lease and the
actual physical condition of the aircraft at the date of
acquisition.
The acquired intangibles are amortised over periods from four
years to a maximum of 16 years. The constituents are as
follows:
2020 2019
$million $million
------------------------------- ---------- ----------
Acquired intangibles comprise:
Aircraft maintenance 6 10
Core deposits - 1
Customer relationships 7 12
Licences 9 7
------------------------------- ---------- ----------
Net book value 22 30
------------------------------- ---------- ----------
18. Property, plant and equipment
Accounting policy
All property, plant and equipment is stated at cost less
accumulated depreciation and impairment losses. Cost includes
expenditure that is directly attributable to the acquisition of the
assets. Subsequent costs are included in the asset's carrying
amount or are recognised as a separate asset, as appropriate, only
when it is probable that future economic benefits associated with
the item will flow to the Group and the cost of the item can be
measured reliably.
At each balance sheet date the assets' residual values and
useful lives are reviewed, and adjusted if appropriate, including
assessing for indicators of impairment. In the event that an
asset's carrying amount is determined to be greater than its
recoverable amount, the asset is written down to the recoverable
amount. Gains and losses on disposals are included in the income
statement.
Repairs and maintenance are charged to the income statement
during the financial period in which they are incurred.
Land and buildings comprise mainly branches and offices.
Freehold land is not depreciated although it is subject to
impairment testing.
Depreciation on other assets is calculated using the
straight-line method to allocate their cost to their residual
values over their estimated useful lives, as follows:
-- Buildings -- up to 50 years
-- Leasehold improvements life of lease -- up to 50 years
-- Equipment and motor vehicles -- three to 15 years
-- Aircraft -- up to 18 years
-- Ships -- up to 15 years
Where the Group is a lessee of a right-of-use asset, the leased
assets are capitalised and included in Property, plant and
equipment with a corresponding liability to the lessor recognised
in Other liabilities, in accordance with the Group's leased assets
accounting policy in Note 19.
All other repairs and maintenance are charged to the income
statement during the financial period in which they are
incurred.
Significant accounting estimates and judgements
The carrying amount of the Group's aircraft leasing portfolio is
based on the application of judgement and estimates to determine
the most appropriate recoverable amount for each aircraft when
assessing for impairment. Estimates involve the appropriate cash
flows, discount rates and residual values used in determining a
value-in-use for aircraft, and judgement is required in determining
the appropriate observable third-party valuations to use for
assessing current market value.
2020
---------------------------- -----------------------------------------------------------------
Operating Leased Leased
lease premises equipment
Premises Equipment 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 40 6 (2) 11 4 59
Additions1 36 121 952 155 6 1,270
Disposals and fully
depreciated assets written
off2 (83) (53) (178) (82) (2) (398)
Transfers to assets
held for sale (3) - - - - (3)
---------------------------- --------- --------- --------- --------- ---------- ---------
As at 31 December 2,048 874 5,233 1,577 31 9,763
---------------------------- --------- --------- --------- --------- ---------- ---------
Depreciation
Accumulated at 1 January 737 518 1,067 286 7 2,615
Exchange translation
differences 13 6 - - - 19
Charge for the year 73 122 229 300 7 731
Impairment charge3 - - 132 - - 132
Attributable to assets
sold, transferred or
written off2 (52) (52) (92) (50) (2) (248)
Transfers to assets
held for sale (1) - - - - (1)
---------------------------- --------- --------- --------- --------- ---------- ---------
Accumulated at 31 December 770 594 1,336 536 12 3,248
---------------------------- --------- --------- --------- --------- ---------- ---------
Net book amount at 31
December 1,278 280 3,897 1,041 19 6,515
---------------------------- --------- --------- --------- --------- ---------- ---------
1 Refer to the cash flow statement under cash flows from
investing activities section for the purchase of property, plant
and equipment during the year of $1,270 million
2 Disposals for property, plant and equipment during the year of
$178 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 year and the net book value
disposed
3 Aircraft have been impaired due to a decrease in the market
values, particularly wide-body variants
2019
---------------------------- ----------------------------------------------------------------------
Leased Leased
Operating premises equipment
lease
Premises Equipment assets assets3 assets3 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 (31) (17) (5) (35) - (88)
Additions 961 1231 2991 128 10 656
Disposals and fully
depreciated assets written
off (62)2 (72)2 (694)2 (8) - (836)
Transfers to assets
held for sale (15) - (1,462) - - (1,477)
---------------------------- ---------- ---------- ---------- ---------- ---------- ----------
As at 31 December 2,058 800 4,461 1,493 23 8,835
---------------------------- ---------- ---------- ---------- ---------- ---------- ----------
Depreciation
Accumulated at 1 January 706 494 1,469 - 1 2,670
Exchange translation
differences (7) (10) (5) 7 - (15)
Charge for the year 77 106 263 283 6 735
Impairment charge 1 - 121 - - 122
Attributable to assets
sold, transferred or
written off (35)2 (72)2 (155)2 (4) - (266)
Transfers to assets
held for sale (5) - (626) - - (631)
---------------------------- ---------- ---------- ---------- ---------- ---------- ----------
Accumulated at 31 December 737 518 1,067 286 7 2,615
---------------------------- ---------- ---------- ---------- ---------- ---------- ----------
Net book amount at 31
December 1,321 282 3,394 1,207 16 6,220
---------------------------- ---------- ---------- ---------- ---------- ---------- ----------
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 $518 million
2 Disposals for property, plant and equipment during the period
$566 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
3 Leased premises assets and leased equipment assets were newly
recognised on 1 January 2019 due to the adoption of IFRS 16 Leases.
The Group applied the modified retrospective transition approach,
such that the right-of-use asset recognised equalled the lease
liability, adjusted for prepayments and accruals recognised under
IAS 17 as of 31 December 2018
Operating lease assets
The operating lease assets subsection of property, plant and
equipment is the Group's aircraft leasing business, consisting of
114 commercial aircraft, of which 107 are narrow-body and 7
wide-body, leased to clients under operating leases. 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. At 31 December 2020, these assets had a net
book value of $3,897 million (31 December 2019: $3,394
million).
Under these leases the lessee is responsible for the maintenance
and servicing of the aircraft during the lease term while the Group
receives rental income and assumes the risks of the residual value
of the aircraft at the end of the lease. Initial lease terms range
in length up to 12 years, while the average remaining lease term at
31 December 2020 is approximately six years. By varying the lease
terms the effects of changes in cyclical market conditions at the
time aircraft become eligible for re-lease are mitigated. The Group
will look at entering into a lease extension with existing lessees
well in advance of lease expiry in order to minimise the risk of
aircraft downtime and aircraft transition costs. Aircraft may also
be sold from time to time to manage the composition and average age
of the fleet.
A series of stress sensitivities conducted on the narrow-body
portfolio highlight the two biggest risks remain either an increase
in the discount rate in conjunction with further market value
decreases, as the majority of the leased portfolio is now valued on
a VIU basis, or a substantial number of airline clients defaulting.
A sensitivity test was performed on the narrow-body portfolio
assuming a discount rate increase of 50 basis points and a future
market value decrease of 10 per cent, which resulted in a possible
increase in impairment of $46 million.
A further sensitivity test considered that the lessees with
lower credit ratings defaulted on their current leases. This
scenario would result in a possible increase in impairment of
$38million.
During 2020 the Group offered payment concessions to customers
as a result of the COVID-19 pandemic, allowing them to defer lease
payments for between three and nine months. As of 31 December 2020
the outstanding amount of deferred lease payments was $19 million.
For customers who have not defaulted on their obligations,
deferrals do not affect income recognition provided the total lease
rentals and lease expiry date are unchanged. For customers who have
defaulted, any income not covered by collateral is provided
against. The provision is reversed on receipt of the deferred
payment.
The table below gives a maturity analysis of undiscounted lease
payments receivable in future periods:
2020 2019
Minimum Minimum
lease receivables lease receivables
under operating under operating
leases leases
falling falling
due: due:
$million $million
-------------------- ------------------ ------------------
Within one year 478 473
One to two years 436 451
Two to three years 374 403
Three to four years 328 337
Four to five years 251 82
After five years 697 789
-------------------- ------------------ ------------------
2,564 2,535
-------------------- ------------------ ------------------
19. Leased assets
Accounting policy
The Group assesses whether a contract is a lease in scope of
this policy by determining whether the contract gives it the right
to use a specified underlying physical asset for a lease term
greater than 12 months, unless the underlying asset is of low
value.
Where the Group is a lessee and the lease is deemed in scope, it
recognises a liability equal to the present value of lease payments
over the lease term, discounted using the incremental borrowing
rate applicable in the economic environment of the lease. The
liability is recognised in 'Other liabilities'. A corresponding
right-of-use asset equal to the liability, adjusted for any lease
payments made at or before the commencement date, is recognised in
'Property, plant and equipment'. The lease term includes any
extension options contained in the contract that the Group is
reasonably certain it will exercise.
The Group subsequently depreciates the right-of-use asset using
the straight-line method over the lease term and measures the lease
liability using the effective interest method. Depreciation on the
asset is recognised in 'Depreciation and amortisation', and
interest on the lease liability is recognised in 'Interest
expense'.
The judgements in determining lease balances are the
determination of whether the Group is reasonably certain that it
will exercise extension options present in lease contracts. On
initial recognition, the Group considers a range of characteristics
such as premises function, regional trends and the term remaining
on the lease to determine whether it is reasonably certain that a
contractual right to extend a lease will be exercised. Where a
change in assumption is confirmed by the local property management
team, a remeasurement is performed in the Group-managed vendor
system.
The estimates were the determination of incremental borrowing
rates in the respective economic environments. The Group uses
third-party broker quotes to estimate its USD cost of senior
unsecured borrowing, then uses cross-currency swap pricing
information to determine the equivalent cost of borrowing in other
currencies. If it is not possible to estimate an incremental
borrowing rate through this process, other proxies such as local
government bond yields are used.
The Group primarily enters lease contracts that grant it the
right to use premises such as office buildings and retail
branches.
Existing lease liabilities may change in future periods due to
changes in assumptions or decisions to exercise lease renewal or
termination options, changes in payments due to renegotiations of
market rental rates as permitted by those contracts and changes to
payments due to rent being contractually linked to an inflation
index. In general the remeasurement of a lease liability under
these circumstances leads to an equal change to the right-of-use
asset balance, with no immediate effect on the income
statement.
The total cash outflow during the year for premises and
equipment leases was $352 million (2019: $397 million).
The total expense during the year in respect of leases with a
term less than or equal to 12 months was less than $1 million
(2019: $20 million).
The right-of-use asset balances and depreciation charges are
disclosed in Note 18. The lease liability balances are disclosed in
Note 23 and the interest expense on lease liabilities is disclosed
in Note 3.
Maturity analysis
The maturity profile for lease liabilities associated with
leased premises and equipment assets is as follows:
2020
-------------------------------------- --------------------------------------------------------
Between Between
one year two years
One year and two and five More than
or less years years five years Total
$million $million $million $million $million
-------------------------------------- --------- --------- ---------- ----------- ---------
Other liabilities - lease liabilities 368 280 559 188 1,395
-------------------------------------- --------- --------- ---------- ----------- ---------
restated 2019(1)
--------------------------------------
Between Between
one year two years
One year and two and five More than
or less years years five years Total
$million $million $million $million $million
-------------------------------------- --------- --------- ---------- ----------- ---------
Other liabilities - lease liabilities 364 335 626 325 1,650
-------------------------------------- --------- --------- ---------- ----------- ---------
1 Prior year values have been restated to reflect undiscounted
contractual cash flows that are allocated to the periods in which
the Group is required to pay them
20. Other assets
Accounting policy
Refer to Note 13 Financial instruments for the relevant
accounting policy.
Commodities represent physical holdings where the Group has
title and exposure to the Market Risk associated with the
holding.
Commodities are fair valued with the fair value derived from
observable spot or short-term futures prices from relevant
exchanges.
Other assets include:
2020 2019
$million $million
-------------------------------------------------------- ---------- ----------
Financial assets held at amortised cost (Note 13):
Hong Kong SAR Government certificates of indebtedness
(Note 23)(1) 7,295 6,911
Cash collateral 11,757 9,169
Acceptances and endorsements2 5,868 5,518
Unsettled trades and other financial assets 16,058 14,563
-------------------------------------------------------- ---------- ----------
40,978 36,161
Non-financial assets:
Commodities3 7,239 5,465
Other assets 471 396
-------------------------------------------------------- ---------- ----------
48,688 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
21. Assets held for sale and associated liabilities
Accounting policy
Financial instruments can be reclassified as held for sale if
they are non-current assets or if they are part of a disposal
group; however, in these circumstances financial instruments
continue to be measured per the requirements of IFRS 9 Financial
Instruments. Refer to Note 13 Financial instruments for the
relevant accounting policy.
Non-current assets are classified as held for sale and measured
at the lower of their carrying amount and fair value less cost to
sell when:
a) Their carrying amounts will be recovered principally through
sale;
b) They are available for immediate sale in their present
condition; and
c) Their sale is highly probable.
Immediately before the initial classification as held for sale,
the carrying amounts of the assets are measured in accordance with
the applicable accounting policies related to the asset or
liability before reclassification as held for sale.
The assets below have been presented as held for sale following
the approval of Group management and the transactions are expected
to complete in 2020.
Following a decision by the Board of directors to exit the ship
leasing business within CIB, the shipping portfolio has been moved
to 'Held for sale'.
The financial assets reported below are classified under Level 1
$nil (31 December 2019: $70 million), Level 2 $25 million (31
December 2019: nil ) and Level 3 $63 million (31 December 2019:
$260 million).
Assets held for sale
2020 2019
$million $million
--------------------------------------------------- ---------- ----------
Financial assets held at fair value through profit
or loss 5 330
---------- ----------
Loans and advances to customers 5 -
Equity shares - 330
---------- ----------
Financial assets held at amortised cost 83 90
---------- ----------
Loans and advances to customers 83 32
Debt securities held at amortised cost - 58
---------- ----------
Interests in joint venture - 800
Property, plant and equipment 358 833
---------- ----------
Aircraft - 49
Vessels 354 769
Others 4 15
--------------------------------------------------- ---------- ----------
446 2,053
--------------------------------------------------- ---------- ----------
Interests in joint venture
On the 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 for cash consideration of IDR 17 trillion ($1,072
million).
The profit on sale is as follows:
2020
$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 exchange differences on translation of
foreign operations
Liabilities held for sale
2020 2019
$million $million
------------------ ---------- ----------
Other liabilities - 9
------------------ ---------- ----------
- 9
------------------ ---------- ----------
22. Debt securities in issue
Accounting policy
Refer to Note 13 Financial instruments for the relevant
accounting policy.
2020 2019
------------------------ ------------------------------------ ------------------------------------
Certificates Certificates
of deposit Other debt of deposit Other debt
of $100,000 securities of $100,000 securities
or more in issue Total or more in issue Total
$million $million $million $million $million $million
------------------------ ------------ ----------- --------- ------------ ----------- ---------
Debt securities in
issue 21,020 34,530 55,550 22,242 30,783 53,025
Debt securities in
issue included within:
Financial liabilities
held at fair value
through profit or loss
(Note 13) - 5,811 5,811 - 8,510 8,510
------------------------ ------------ ----------- --------- ------------ ----------- ---------
Total debt securities
in issue 21,020 40,341 61,361 22,242 39,293 61,535
------------------------ ------------ ----------- --------- ------------ ----------- ---------
In 2020, the Company issued a total of $6.8 billion senior notes
for general business purposes of the Group as shown below:
Securities $million
--------------------------------------------------------------- --------
$2,000 million fixed rate senior notes due 2026 (callable
2025) 2,000
$2,000 million fixed rate senior notes due 2031 (callable
2030) 2,000
$1,000 million fixed rate senior notes due 2023 (callable
2022) 1,000
EUR 750 million fixed rate senior notes due 2028 (callable
2027) 917
$500 million floating rate senior notes due 2023 (callable
2022) 500
HKD 1,081 million fixed rate senior notes due 2023 (callable
2022) 139
$100 million zero coupon callable bond due 2050 (callable
2025) 100
$80 million zero coupon callable bond due 2050 (callable 2023) 80
JPY 5,500 million fixed rate senior notes due 2023 (callable
2022) 53
$50 million zero coupon callable bond due 2050 (callable 2023) 50
--------------------------------------------------------------- --------
Total senior notes issued 6,839
--------------------------------------------------------------- --------
In 2019, the Company issued a total of $6.1 billion senior notes
for general business purposes of the Group as shown below:
Securities $million
------------------------------------------------------------------- --------
$1,500 million callable floating rate senior notes due 2022
(callable 2021) 1,500
$1,250 million callable fixed rate senior notes due 2022 (callable
2021) 1,250
$1,000 million callable fixed rate senior notes due 2025 (callable
2024) 1,000
$1,000 million callable fixed rate senior notes due 2030 (callable
2029) 1,000
EUR 500 million callable fixed rate senior notes due 2027
(callable 2026) 567
AUD 600 million callable fixed rate senior notes due 2025
(callable 2024) 417
AUD 400 million callable fixed rate senior notes due 2025
(callable 2024) 278
$100 million zero coupon callable bond due 2049 (callable
2024) 100
------------------------------------------------------------------- --------
Total senior notes issued 6,112
------------------------------------------------------------------- --------
Where a debt instrument is callable, the issuer has the right to
call.
23. Other liabilities
Accounting policy
Refer to Note 13 Financial instruments for the relevant
accounting policy for financial liabilities, Note 19 Leased assets
for the accounting policy for leases, and Note 31 Share-based
payments for the accounting policy for cash-settled share-based
payments.
2020 2019
$million $million
--------------------------------------------------- ---------- ----------
Financial liabilities held at amortised cost (Note
13)
Notes in circulation1 7,295 6,911
Acceptances and endorsements2 5,868 5,518
Cash collateral 10,136 7,824
Property leases3 1,127 1,275
Equipment leases3 20 20
Unsettled trades and other financial liabilities 22,782 19,601
--------------------------------------------------- ---------- ----------
47,228 41,149
Non-financial liabilities
Cash-settled share-based payments 41 50
Other liabilities 635 384
--------------------------------------------------- ---------- ----------
47,904 41,583
--------------------------------------------------- ---------- ----------
1 Hong Kong currency notes in circulation of $7,295 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 20)
2 Trade finance whereby the Group offers a guarantee of payment
between trade counterparties for a fee
3 Other financial liabilities include the present value of lease
liabilities, as required by IFRS 16 from 1 January 2019; refer to
Note 19
24. Provisions for liabilities and charges
Accounting policy
The Group recognises a provision for a present legal or
constructive obligation resulting from a past event when it is more
likely than not that it will be required to transfer economic
benefits to settle the obligation and the amount of the obligation
can be estimated reliably. Where a liability arises based on
participation in a market at a specified date, the obligation is
recognised in the financial statements on that date and is not
accrued over the period.
Significant accounting estimates and judgements
The recognition and measurement of provisions for liabilities
and charges requires significant judgement and the use of estimates
about uncertain future conditions or events.
Estimates include the best estimate of the probability of
outflow of economic resources, cost of settling a provision and
timing of settlement. Judgements are required for inherently
uncertain areas such as legal decisions (including external advice
obtained), and outcome of regulator reviews.
2020 2019
---------------------- ------------------------------------ ------------------------------------
Provision Provision
for credit Other for credit Other
commitments provisions Total commitments provisions Total
$million $million $million $million $million $million
---------------------- ------------ ----------- --------- ------------ ----------- ---------
At 1 January 317 132 449 281 1,049 1,330
Exchange translation
differences (50) (3) (53) 5 4 9
Transfer - 9 9 - - -
Charge against profit 103 22 125 35 239 274
Provisions utilised (3) (61) (64) (4) (1,160) (1,164)
---------------------- ------------ ----------- --------- ------------ ----------- ---------
At 31 December 367 99 466 317 132 449
---------------------- ------------ ----------- --------- ------------ ----------- ---------
Provision for credit commitment comprises those undrawn
contractually committed facilities where there is doubt as to the
borrowers' ability to meet their repayment obligations.
Other provisions consist mainly of provisions for regulatory
settlements and legal claims, the nature of which are described in
Note 26.
25. Contingent liabilities and commitments
Accounting policy
Financial guarantee contracts and loan commitments
The Group issues financial guarantee contracts and loan
commitments in return for fees. Financial guarantee contracts and
any loan commitments issued at below-market interest rates are
initially recognised at their fair value as a financial liability,
and subsequently measured at the higher of the initial value less
the cumulative amount of income recognised in accordance with the
principles of IFRS 15 Revenue from Contracts with Customers and
their expected credit loss provision. Loan commitments may be
designated at fair value through profit or loss where that is the
business model under which such contracts are held. Notional values
of financial guarantee contracts and loan commitments are disclosed
in the table below.
Financial guarantees, trade credits and irrevocable letters of
credit are the notional values of contracts issued by the Group's
Transaction Banking business for which an obligation to make a
payment has not arisen at the reporting date. Transaction Banking
will issue contracts to clients and counterparties of clients,
whereby in the event the holder of the contract is not paid, the
Group will reimburse the holder of the contract for the actual
financial loss suffered. These contracts have various legal forms
such as letters of credit, guarantee contracts and performance
bonds. The contracts are issued to facilitate trade through export
and import business, provide guarantees to financial institutions
where the Group has a local presence, as well as guaranteeing
project financing involving large construction projects undertaken
by sovereigns and corporates. The contracts may contain performance
clauses which require the counterparty performing services or
providing goods to meet certain conditions before a right to
payment is achieved, however the Group does not guarantee this
performance. The Group will only guarantee the credit of the
counterparty paying for the services or goods.
Commitments are where the Group has confirmed its intention to
provide funds to a customer or on behalf of a customer under
prespecified terms and conditions in the form of loans, overdrafts,
future guarantees whether cancellable or not and the Group has not
made payments at the balance sheet date; those instruments are
included in these financial statements as commitments. Commitments
and contingent liabilities are generally considered on demand as
the Group may have to honour them, or the client may draw down at
any time.
Capital commitments are contractual commitments the Group has
entered into to purchase non-financial assets.
The table below shows the contract or underlying principal
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
2020 2019
$million $million
--------------------------------------------------------- ---------- ----------
Financial guarantees and trade credits
Financial guarantees, trade credits and irrevocable
letters of credit 53,832 46,714(1)
53,832 46,714
Commitments
Undrawn formal standby facilities, credit lines and
other commitments to lend
One year and over 68,848 64,450
Less than one year 24,500 19,520(2)
Unconditionally cancellable 60,055 57,224(2)
--------------------------------------------------------- ---------- ----------
153,403 141,194
--------------------------------------------------------- ---------- ----------
Capital commitments
Contracted capital expenditure approved by the directors
but not provided for in these accounts3 135 419
--------------------------------------------------------- ---------- ----------
1 Financial guarantees, trade credits and irrevocable letters of
credit: separate disclosure as individual line items in 2019 as
follows: Guarantees and irrevocable letters of credit $37,007
million, Other contingent liabilities $5,425 million, Documentary
credits and short-term trade related transactions $4,282
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
3 Of which the Group has commitments totalling $110 million to
purchase aircraft for delivery in 2021 (31 December 2019: $400
million). No pre-delivery payments have been made in respect of
these commitments (2019: $ nil)
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 21 for further
details. As set out in Note 26, 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.
26. Legal and regulatory matters
Accounting policy
Where appropriate, the Group recognises a provision for
liabilities when it is probable that an outflow of economic
resources embodying economic benefits will be required and for
which a reliable estimate can be made of the obligation. The
uncertainties inherent in legal and regulatory matters affect the
amount and timing of any potential outflows with respect to which
provisions have been established. These uncertainties also mean
that it is not possible to give an aggregate estimate of contingent
liabilities arising from such 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.
The Group is a defendant in a number of lawsuits that have been
filed since 2014 in the United States District Courts for the
Southern and Eastern Districts of New York, against a number of
banks 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
appealed against the dismissal and a ruling on their appeal is
awaited. 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 in
the New York State Court against 45 current and former directors
and senior officers of the Group. It is alleged 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. Standard Chartered 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. On 23
December 2020, the Group filed a motion to dismiss the
complaint.
In October 2020, a claim was filed in the English High Court by
249 shareholders against Standard Chartered PLC alleging untrue
and/or misleading statements were made, and/or there were omissions
in information published by Standard Chartered PLC in its rights
issue prospectuses of 2008, 2010 and 2015 and/or public statements
regarding the Group's historic sanctions, anti-money laundering and
financial crime compliance issues. The case is at an early
stage.
Based on the facts currently known, it is not possible for the
Group to predict the outcome of these lawsuits.
27. Subordinated liabilities and other borrowed funds
Accounting policy
Subordinated liabilities and other borrowed funds are classified
as financial instruments. Refer to Note 13 Financial instruments
for the accounting policy.
All subordinated liabilities are unsecured, unguaranteed and
subordinated to the claims of other creditors including without
limitation, customer deposits and deposits by banks. The Group has
the right to settle these debt instruments in certain circumstances
as set out in the contractual agreements. Where a debt instrument
is callable, the issuer has the right to call.
2020 2019
$million $million
-------------------------------------------------------------- ---------- ----------
Subordinated loan capital - issued by subsidiary undertakings
GBP675 million 5.375 per cent undated step-up subordinated
notes (callable 2020)(1) - 298
GBP200 million 7.75 per cent subordinated notes (callable
2022)(1) 52 53
$750 million 5.875 per cent subordinated notes due
2020(2) - 754
$700 million 8.0 per cent subordinated notes due 2031(1) 454 429
-------------------------------------------------------------- ---------- ----------
506 1,534
-------------------------------------------------------------- ---------- ----------
Subordinated loan capital - issued by the Company3
Primary capital floating rate notes:
$400 million floating rate undated subordinated notes 16 16
$300 million floating rate undated subordinated notes
(Series 2) 69 69
$400 million floating rate undated subordinated notes
(Series 3) 50 50
$200 million floating rate undated subordinated notes
(Series 4) 26 26
GBP150 million floating rate undated subordinated
notes 16 16
GBP900 million 5.125 per cent subordinated notes due
2034 930 855
$2 billion 5.7 per cent subordinated notes due 2044 2,370 2,379
$2 billion 3.95 per cent subordinated notes due 2023 2,066 2,009
$1 billion 5.7 per cent subordinated notes due 2022 1,001 1,002
$1 billion 5.2 per cent subordinated notes due 2024 1,141 1,069
$750 million 5.3 per cent subordinated notes due 2043 785 786
EUR1.25 billion 4 per cent subordinated notes due
2025 (callable 2020) - 1,421
EUR750 million 3.625 per cent subordinated notes due
2022 955 884
EUR500 million 3.125 per cent subordinated notes due
2024 646 585
SGD 700 million 4.4 per cent subordinated notes due
2026 (callable 2021) 530 525
$1.25 billion 4.3 per cent subordinated notes due
2027 1,310 1,214
$1 billion 3.516 per cent subordinated notes due 2030
(callable 2025) 997 996
$500 million 4.886 per cent subordinated notes due
2033 (callable 2028) 499 499
GBP 96.035m 7.375% Non-Cumulative Irredeemable Preference
Shares (reclassed as Debt) 134 134
GBP 99.250m 8.25% Non-Cumulative Irredeemable Preference
Shares (reclassed as Debt) 138 138
EUR 1 billion 2.5 per cent subordinated debt 2030 1,217 -
$1.25 billion 3.265 per cent subordinated notes due
2036 1,252 -
-------------------------------------------------------------- ---------- ----------
16,148 14,673
-------------------------------------------------------------- ---------- ----------
Total for Group 16,654 16,207
-------------------------------------------------------------- ---------- ----------
1 Issued by Standard Chartered Bank
2 Issued by Standard Chartered Bank (Hong Kong) Limited
3 In the balance sheet of the Company the amount recognised is
$16,069 million (2019: $14,588 million), with the difference being
the effect of hedge accounting achieved on a Group basis
2020
-------------------------------- -----------------------------------------------------
USD GBP EUR Others Total
$million $million $million $million $million
-------------------------------- --------- --------- --------- --------- ---------
Fixed rate subordinated debt 11,875 1,254 2,818 530 16,477
Floating rate subordinated debt 161 16 - - 177
-------------------------------- --------- --------- --------- --------- ---------
Total 12,036 1,270 2,818 530 16,654
-------------------------------- --------- --------- --------- --------- ---------
2019
-------------------------------- -----------------------------------------------------
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 year
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.
On 14 July 2020, Standard Chartered Bank exercised its right to
redeem the remaining GBP 275 million of GBP 675 million 5.375 per
cent undated step-up subordinated notes (callable 2020).
On 21 October 2020, Standard Chartered PLC exercised its right
to redeem GBP 1250 million 4 per cent subordinated debt 2025
(callable 2020).
Issuance during the year
On 9 June 2020, Standard Chartered PLC issued EUR 1,000 million
2.5 per cent subordinated debt 2030 (callable 2025).
On 19 November 2020, Standard Chartered PLC issued USD 1250
million 3.265 per cent subordinated notes due 2036.
28. Share capital, other equity instruments and reserves
Accounting policy
Financial instruments issued are classified as equity when there
is no contractual obligation to transfer cash, other financial
assets or issue available number of own equity instruments.
Incremental costs directly attributable to the issue of new shares
or options are shown in equity as a deduction, net of tax, from the
proceeds.
Securities which carry a discretionary coupon and have no fixed
maturity or redemption date are classified as other equity
instruments. Interest payments on these securities are recognised,
net of tax, as distributions from equity in the period in which
they are paid.
Where the Company or other members of the consolidated Group
purchase the Company's equity share capital, the consideration paid
is deducted from the total shareholders' equity of the Group and/or
of the Company as treasury shares until they are cancelled. Where
such shares are subsequently sold or reissued, any consideration
received is included in shareholders' equity of the Group and/or
the Company.
Number
of Ordinary Ordinary Preference Total share
capital
ordinary share share share and Other equity
share
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
share buy-back (116) (58) - - (58) -
Additional Tier 1 equity
securities - - - - - 552
----------------------------- ---------- ---------- ---------- ---------- ----------- -------------
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 redemption - - - - - (1,987)
----------------------------- ---------- ---------- ---------- ---------- ----------- -------------
At 31 December 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 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 31 March 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.
Number Average Aggregate Aggregate
of price paid price price
ordinary per share paid paid
Share buy-back of 2020 shares GBP GBP $
----------------------- ---------- ----------- ----------- -----------
Mar - 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 31 December 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 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 26
June 2020 for the period from (and including) the issue date to
(but excluding) 26 July 2025 is a fixed rate of 6 per cent per
annum. The first reset date for the interest rate is 26 July 2025
and each date falling five years, or an integral multiple of five
years, after the first reset date.
-- Interest on the securities are accounted for as a dividend
and it 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 645 million ordinary
shares would be required to satisfy the conversion of all the
securities mentioned above
Conversion
price
Interest payment First reset per ordinary
Issuance date Nominal value Fixed coupon dates dates* share
--------------- --------------- ------------ ---------------- -------------- -------------
USD 2,000 2 April, 2
18 August 2016 million 7.5% October 2 April 2022 USD 7.732
USD 1,000 2 April, 2
18 January 2017 million 7.75% October 2 April 2023 USD 7.732
3 April, 3
3 July 2019 SGD 750 million 5.375% October 3 October 2024 SGD 10.909
USD 1,000 26 January, 26 January
26 Jun 2020 million 6% 26 July 2026 USD 5.331
--------------- --------------- ------------ ---------------- -------------- -------------
* Subsequent reset dates are each date falling five years, or an
integral multiple of five years, after the first reset date.
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' represent 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 31 December 2020, the distributable reserves of Standard
Chartered PLC (the Company) were $14.3 billion (31 December 2019:
$14.3 billion). These comprised retained earnings and $12.6 billion
of the merger reserve account. Distribution of reserves is subject
to maintaining minimum capital requirements.
Own shares
Computershare Trustees (Jersey) Limited is the trustee of the
2004 Employee Benefit Trust ('2004 Trust') and Ocorian Trustees
(Jersey) Limited (formerly known as Bedell Trustees Limited) is the
trustee of the 1995 Employees' Share Ownership Plan Trust ('1995
Trust'). The 2004 Trust is used in conjunction with the Group's
employee share schemes and the 1995 Trust is used for the delivery
of other employee share-based payments (such as upfront shares and
fixed pay allowances). Group companies fund these trusts from time
to time to enable the trustees to acquire shares to satisfy these
arrangements.
Except as disclosed, neither the Company nor any of its
subsidiaries has bought, sold or redeemed any securities of the
Company listed on The Stock Exchange of Hong Kong Limited during
the period. Details of the shares purchased and held by the trusts
are set out below.
1995 Trust 2004 Trust1 Total
------------------------ ------------------------ ---------------------- ----------------------
2020 2019 2020 2019 2020 2019
------------------------ ----------- ----------- ---------- ---------- ---------- ----------
Shares purchased during
the period 2,999,210 646,283 14,359,481 24,065,354 17,358,691 24,711,637
------------------------ ----------- ----------- ---------- ---------- ---------- ----------
Market price of shares
purchased ($million) 22 5 86 201 108 206
------------------------ ----------- ----------- ---------- ---------- ---------- ----------
Shares transferred
between trusts (2,999,210) (3,001,103) 2,999,210 3,001,103 - -
------------------------ ----------- ----------- ---------- ---------- ---------- ----------
Shares held at the
end of the period - - 6,119,666 5,113,455 6,119,666 5,113,455
------------------------ ----------- ----------- ---------- ---------- ---------- ----------
Maximum number of
shares held during
the period 11,262,818 15,070,923
------------------------ ----------- ----------- ---------- ---------- ---------- ----------
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
Changes in share capital and other equity instruments of
Standard Chartered PLC subsidiaries
The table below details the transactions in equity instruments
(including convertible and hybrid instruments) of the Group's
subsidiaries, including issuances, conversions, redemptions,
purchase or cancellation. This is required under the Hong Kong
Listing requirements, appendix 16 paragraph 10.
Proportion
of shares
Country of Description Issued/(redeemed) Issued/(redeemed) held
Name and registered address incorporation of shares capital Shares (%)
----------------------------- --------------- -------------------- ----------------- ----------------- ----------
The following companies
have the address of 1
Basinghall Avenue, London,
EC2V 5DD, United Kingdom
$1.00 Ordinary
Standard Chartered Bank United Kingdom shares $300,000,000 300,000,000 100
Standard Chartered Holdings $2.00 Ordinary
Limited United Kingdom shares $370,000,000 185,000,000 100
Standard Chartered I $1.00 Ordinary
H Limited United Kingdom shares $70,000,000 70,000,000 100
Standard Chartered UK GBP10.00 Ordinary
Holdings Limited United Kingdom shares GBP56,164,330 5,616,433 100
----------------------------- --------------- -------------------- ----------------- ----------------- ----------
The following companies
have the address of TMF
Group, 8th Floor, 20
Farringdon Street, London,
EC4A 4AB, United Kingdom.
$1.00 Ordinary
Zodia Custody Limited United Kingdom shares $3,000,000 3,000,000 100
$1.00 Ordinary
Zodia Holdings Limited United Kingdom shares $4,999,999 4,999,999 100
----------------------------- --------------- -------------------- ----------------- ----------------- ----------
The following company
has the address
of Avenida Brigadeiro
Faria Lima, no 3.477,
6O andar, conjunto 62
- Torre Norte, Condominio
Patio Victor Malzoni,
CEP 04538-133, São
Paulo, Brazil
Standard Chartered
Participacoes BRL1.00 Ordinary
Ltda Brazil shares BRL(241,371,991) (241,371,991) 100
----------------------------- --------------- -------------------- ----------------- ----------------- ----------
The following company
has the address
of Walkers Corporate
Limited, Cayman Corporate
Centre, 27 Hospital Road
George Town, Grand Cayman
KY1-9008, Cayman Islands
$0.01 Preference
Sirat Holdings Limited Cayman Islands shares $(3) (300) 100
----------------------------- --------------- -------------------- ----------------- ----------------- ----------
The following company
have the address of Units
61-65 (Office use only),
Self-numbered Room 01-04,
Room 901, No 6, Zhujiang
East Road, Tianhe District,
Guangzhou City, Guangdong
Province, China
Standard Chartered
(Guangzhou) $ Ordinary
Business Management Co.Ltd. China shares $13,000,000 13,000,000 100
Standard Chartered Global
Business Services
(Guangzhou) $ Ordinary
Co.Ltd. China shares $3,000,000 3,000,000 100
----------------------------- --------------- -------------------- ----------------- ----------------- ----------
The following company
has the address of Standard
Chartered Bank Ghana
Limited, 87, Independence
Avenue, Post Office Box
678, Accra, Ghana
Standard Chartered Wealth GHS Ordinary
Management Limited Company Ghana shares GHS100,000 100,000 100
----------------------------- --------------- -------------------- ----------------- ----------------- ----------
The following company
has the address of 25/F,
Standard Chartered Bank
Building, 4-4A Des Voeux
Road, Central, Hong Kong
$ Ordinary
Marina Leasing Limited Hong Kong shares $36,000,000 36,000,000 100
----------------------------- --------------- -------------------- ----------------- ----------------- ----------
The following company
has the address of 3/F
Standard Chartered Bank
Building, 4-4A Des Voeux
Road Central, Hong Kong
Standard Chartered Private $ Ordinary
Equity Limited Hong Kong shares $(573,000,000) (573,000,000) 100
----------------------------- --------------- -------------------- ----------------- ----------------- ----------
The following company
has the address of 21/F,
Standard Chartered Tower,
388 Kwun Tong Road, Kwun
Tong, Kowloon, Hong Kong
Standard Chartered Asia $ Ordinary
Limited Hong Kong shares $(612,000,000) (612,000,000) 100
----------------------------- --------------- -------------------- ----------------- ----------------- ----------
The following company
has the address of 32/F,
Standard Chartered Bank
Building, 4-4A Des Voeux
Road, Central, Hong Kong
HKD Ordinary
Mox Bank Limited Hong Kong shares HKD46,920,000 46,920,000 65.1
----------------------------- --------------- -------------------- ----------------- ----------------- ----------
The following company
has the address
of Second Floor, Indiqube
Edge, Khata
No. 571/630/6/4, Sy.No.6/4,
Ambalipura Village, Varthur
Hobli, Marathahalli
Sub-Division,
Ward No. 150, Bengaluru,
560102, India.
-------------------- ----------------- ----------------- ----------
Standard Chartered Research
and Technology India INR10.00 A
Private Limited India Equity shares INR41,555,370 4,155,537 100
INR10.00 Preference
shares INR189,923,900 18,992,390 100
------------------------------------------------------------------ ----------------- ----------------- ----------
The following company
has the address of Trust
Company Complex, Ajeltake
Road, Ajeltake Island,
Majuro, MH96960, Marshall
Islands
Marina Lilac Shipping Marshall $1.00 Ordinary
Limited Islands shares $49,990 49,990 100
----------------------------- --------------- -------------------- ----------------- ----------------- ----------
The following company
has the address
of c/o Ocorian Corporate
Services (Mauritius)
Ltd, 6th Floor, Tower
A, 1 Cybercity, Ebene,
72201, Mauritius
$ Redeemable
Standard Chartered Private preference
Equity (Mauritius) Limited Mauritius shares $(21,584,069) (21,584,069) 100
----------------------------- --------------- -------------------- ----------------- ----------------- ----------
The following company
has the address of Rondo
Daszyńskiego 2B,
00-843 , Warsaw, Poland
Standard Chartered Global
Business Services
spólka
z ograniczona PLN50.00 Ordinary
odpowiedzialnoscia Poland shares PLN4,923,100 98,462 100
----------------------------- --------------- -------------------- ----------------- ----------------- ----------
The following company
has the address of 9
& 11, Lightfoot Boston
Street, Freetown, Sierra
Leone
Standard Chartered Bank SLL1.00 Ordinary
Sierra Leone Limited Sierra Leone shares SLL34,564,477,113 34,564,477,113 80.7
----------------------------- --------------- -------------------- ----------------- ----------------- ----------
The following company
has the address of 8
Marina Boulevard, Level
26, Marina Bay Financial
Centre, Tower 1, 018981,
Singapore
Marina Poise Shipping $ Ordinary
Pte. Ltd. Singapore shares $13,142 13,142 100
----------------------------- --------------- -------------------- ----------------- ----------------- ----------
The following company
has the address of 8
Marina Boulevard, #27-01
Marina Bay Financial
Centre Tower 1, 018981,
Singapore
SC Bank Solutions (Singapore) SGD Ordinary
Limited Singapore shares SGD50,000,000 50,000,000 100
----------------------------- --------------- -------------------- ----------------- ----------------- ----------
The following companies
have the address of 80
Robinson Road, #02-00,
068898, Singapore
$ Ordinary
Autumn Life Pte. Ltd. Singapore shares $4,500,000 4,500,000 100
$ Ordinary
Cardspal Pte. Ltd. Singapore shares $3,240,000 3,240,000 100
$ Ordinary
Nexco Pte. Ltd. Singapore shares $1 1 100
----------------------------- --------------- -------------------- ----------------- ----------------- ----------
The following company
has the address
of Walkers Corporate
Limited, Cayman Corporate
Centre, 27 Hospital Road
George Town, Grand Cayman
KY1-9008, Cayman Islands
Standard Chartered Principal $0.0001 Ordinary
Finance (Cayman) Limited Cayman Islands shares $140 1,400,000 100
----------------------------- --------------- -------------------- ----------------- ----------------- ----------
The following company
has the address of 20
Adelaide Street, Suite
1105 , Toronto ON M5C
2T6 Canada
Standard Chartered (Canada) CAD1.00 Ordinary
Limited Canada shares CAD10 10 100
----------------------------- --------------- -------------------- ----------------- ----------------- ----------
Please see Note 22 Debt securities in issue for issuances and
redemptions of senior notes.
Please see Note 27 Subordinated liabilities and other borrowed
funds for issuance and redemptions of subordinated liabilities and
AT1 securities.
Please see Note 40 Related undertakings of the Group for
subsidiaries liquidated, dissolved or sold during the year.
29. Non-controlling interests
Accounting policy
Non-controlling interests are measured at the non-controlling
interest's proportionate share of the acquiree's identifiable net
assets.
$million
----------------------------------------------------------- --------
At 1 January 2019 273
Income in equity attributable to non-controlling interests (17)
Other profits attributable to non-controlling interests 37
Comprehensive income for the year 20
Distributions (35)
Other increases1 55
----------------------------------------------------------- --------
At 31 December 2019 313
Income in equity attributable to non-controlling interests (12)
Other profits attributable to non-controlling interests 27
Comprehensive income for the year 15
Distributions (20)
Other increases2 17
----------------------------------------------------------- --------
At 31 December 2020 325
----------------------------------------------------------- --------
1 Comprises $72 million of non-controlling interest in Mox Bank
Limited offset by $17 million disposal of non-controlling interest
of Phoon Huat Ltd, Sirat Holdings Limited and Ori Private
Limited
2 $17 million movement related to non-controlling interest from
Mox Bank Limited
30. Retirement benefit obligations
Accounting policy
The Group operates pension and other post-retirement benefit
plans around the world, which can be categorised into defined
contribution plans and defined benefit plans. For defined
contribution plans, the Group pays contributions to publicly or
privately administered pension plans on a statutory or contractual
basis, and such amounts are charged to operating expenses. The
Group has no further payment obligations once the contributions
have been paid.
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.
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 Group determines
the net interest expense on the net defined benefit liability for
the year by applying the discount rate used to measure the defined
benefit obligation at the beginning of the annual period to the 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 payments. Net interest expense, the cost
of the accrual of new benefits, benefit enhancements (or
reductions) and administration expenses met directly from plan
assets are recognised in the income statement in the period in
which they were incurred.
Significant accounting estimates and judgements
There are many factors that affect the measurement of the
retirement benefit obligations. This measurement requires the use
of estimates, such as discount rates, inflation, pension increases,
salary increases, and life expectancies which are inherently
uncertain. Discount rates are determined by reference to market
yields at the end of the reporting period on high-quality corporate
bonds (or, in countries where there is no deep market in such
bonds, government bonds) of a currency and term consistent with the
currency and term of the post-employment benefit obligations. This
is the approach adopted across our geographies. Where there are
inflation-linked bonds available (e.g. United Kingdom and the
eurozone), the Group derives inflation based on the market on those
bonds, with the market yield adjusted in respect of the United
Kingdom to take account of the fact that liabilities are linked to
Consumer Price Index inflation, whereas the reference bonds are
linked to Retail Price Index inflation. Where no inflation-linked
bonds exist, we determine inflation assumptions based on a
combination of long-term forecasts and short-term inflation data.
Salary growth assumptions reflect the Group's long-term
expectations, taking into account future business plans and
macroeconomic data (primarily expected future long-term inflation).
Demographic assumptions, including mortality and turnover rates,
are typically set based on the assumptions used in the most recent
actuarial funding valuation, and will generally use industry
standard tables, adjusted where appropriate to reflect recent
historic experience and/or future expectations. The sensitivity of
the liabilities to changes in these assumptions is shown in the
Note below.
Retirement benefit obligations comprise:
2020 2019
$million $million
-------------------------------------- ---------- ----------
Defined benefit plans obligation 434 458
Defined contribution plans obligation 9 11
-------------------------------------- ---------- ----------
Net obligation 443 469
-------------------------------------- ---------- ----------
Retirement benefit charge comprises:
2020 2019
$million $million
------------------------------- ---------- ----------
Defined benefit plans 81 73
Defined contribution plans 277 299
------------------------------- ---------- ----------
Charge against profit (Note 7) 358 372
------------------------------- ---------- ----------
The Group operates over 60 defined benefit plans across its
geographies, many of which are closed to new entrants who now join
defined contribution arrangements. The aim of all these plans is,
as part of the Group's commitment to financial wellbeing for
employees, to give employees the opportunity to save appropriately
for retirement in a way that is consistent with local regulations,
taxation requirements and market conditions. The defined benefit
plans expose the Group to currency risk, interest rate risk,
investment risk and actuarial risks such as Longevity Risk.
The material holdings of government and corporate bonds
partially hedge movements in the liabilities resulting from
interest rate and inflation changes. Setting aside movements from
other drivers such as currency fluctuation, the reductions in
discount rates in most geographies over 2020 have led to higher
liabilities. These have been largely offset by increases in the
value of bonds held and good stock market performance. These
movements are shown as actuarial losses versus gains respectively
in the tables below. Contributions into a number of plans in excess
of the amounts required to fund benefits accruing have also helped
to reduce the net deficit over the year.
The disclosures required under IAS 19 have been calculated by
independent qualified actuaries based on the most recent full
actuarial valuations updated, where necessary, to 31 December
2020.
UK Fund
The Standard Chartered Pension Fund (the 'UK Fund') is the
Group's largest pension plan, representing 63 per cent (31 December
2019: 60 per cent) of total pension liabilities. The UK Fund is set
up under a trust that is legally separate from the Bank (its formal
sponsor) and, as required by UK legislation, at least one-third of
the trustee directors are nominated by members; the remainder are
appointed by the Bank. The trustee directors have a fiduciary duty
to members and are responsible for governing the UK Fund in
accordance with its Trust Deed and Rules.
The UK Fund was closed to new entrants from 1 July 1998 and
closed to the accrual of new benefits from 1 April 2018: all
employees are now offered membership of a defined contribution
plan.
The financial position of the UK Fund is regularly assessed by
an independent qualified actuary. The funding valuation as at 31
December 2017 was completed in December 2018 by the then Scheme
Actuary, A Zegleman of Willis Towers Watson, using assumptions
different from those in Note 30, and agreed with the UK Fund
trustee. It showed that the UK Fund was 89% funded at that date
revealing a past service deficit of $210 million (GBP159 million).
To repair the deficit, four annual cash payments of $42.2 million
(GBP32.9 million) were agreed, with three of these having been paid
in December 2018, December 2019 and December 2020. The agreement
allows that if the funding position improves to being at or near a
surplus in future years the payments due in December 2021 will be
reduced or eliminated. In addition, an escrow account of $150
million (GBP110 million) exists to provide security for future
contributions. The 31 December 2020 funding valuation is currently
underway and may conclude by altering, or adding to, the cash
payment due in 2021. Its analysis of mortality experience has
driven the small adjustment to life expectancy assumptions shown
below.
The Group is not required to recognise any additional liability
under IFRIC 14 or the 2015 exposure draft of proposed amendments to
it, as the Bank has control of any pension surplus under the Trust
Deed and Rules.
Overseas plans
The principal overseas defined benefit arrangements operated by
the Group are in Germany, Hong Kong, India, Jersey, Korea, Taiwan,
United Arab Emirates (UAE) and the United States of America (US).
Plans in Germany, Hong Kong, India, Korea, Taiwan and UAE remain
open for accrual of future benefits.
Key assumptions
The principal financial assumptions used at 31 December 2020
were:
Funded plans
------------------ ---------------------------------
UK Fund Overseas Plans1
---------- --------------------
2020 2019 2020 2019
% % % %
------------------ ---- ---- --------- ---------
Discount rate 1.4 2.0 0.3 - 2.8 0.7 - 3.4
Price Inflation 2.2 2.1 1.0 - 3.0 1.0 - 3.0
Salary increases n/a n/a 2.9 - 4.0 3.0 - 4.0
Pension increases 2.1 2.1 1.3 - 2.7 1.4 - 3.0
------------------ ---- ---- --------- ---------
1 The range of assumptions shown is for the main defined benefit
overseas plans in Germany, Hong Kong, Jersey, Korea, Taiwan, UAE
and the US. These comprise around 85 per cent of the total
liabilities of overseas defined benefit plans
Unfunded plans
----------------------------- ---------------------------------------------
US post-retirement
medical Other1
---------------------- --------------------
2020 2019 2020 2019
% % % %
----------------------------- ---------- ---------- --------- ---------
Discount rate 2.8 3.4 1.4 - 6.3 1.5 - 7.0
Price inflation 2.5 2.5 2.0 - 4.0 2.0 - 4.0
Salary increases N/A N/A 3.5 - 7.0 3.5 - 7.0
Pension increases N/A N/A 0.0 - 2.1 0.0 - 2.1
Post-retirement medical rate 7% in 2020 8% in 2019 N/A
reducing reducing
by 0.5% by 1%
per annum per annum
to 5% to 5%
in 2024 in 2022
----------------------------- ---------- ---------- --------- ---------
1 The range of assumptions shown is for the main unfunded plans
in Bahrain, India, Korea, Thailand, UAE and the UK. They comprise
around 95 per cent of the total liabilities of other unfunded
plans
The principal non-financial assumptions are those made for UK
life expectancy. The assumptions for life expectancy for the UK
Fund are that a male member currently aged 60 will live for 27
years (31 December 2019: 28 years) and a female member for 30 years
(31 December 2019: 29 years) and a male member currently aged 40
will live for 29 years (31 December 2019: 31 years) and a female
member for 31 years (31 December 2019: 30 years) after their 60th
birthdays.
Both financial and non-financial assumptions can be expected to
change in the future, which would affect the value placed on the
liabilities. For example, changes at the reporting date to one of
the relevant actuarial assumptions, holding other assumptions
constant, would have affected the defined benefit obligation by the
amounts shown below:
-- If the discount rate increased by 25 basis points the
liability would reduce by approximately $75 million for the UK Fund
(31 December 2019: $65 million) and $40 million for the other plans
(31 December 2019: $35 million)
-- If the rate of inflation increased by 25 basis points the
liability, allowing for the consequent impact on pension and salary
increases would increase by approximately $50 million for the UK
Fund (31 December 2019: $45 million) and $25 million for the other
plans (31 December 2019: $25 million)
-- If the rate salaries increase compared to inflation increased
by 25 basis points the liability would increase by nil for the UK
Fund (31 December 2019: nil) and approximately $15 million for the
other plans (31 December 2019: $15 million)
-- If longevity expectations increased by one year the liability
would increase by approximately $70 million for the UK Fund (31
December 2019: $60 million) and $20 million for the other plans (31
December 2019: $15 million)
Although this analysis does not take account of the full
distribution of cash flows expected, it does provide an
approximation of the sensitivity to the main assumptions. While
changes in other assumptions would also have an impact, the effect
would not be as significant.
Profile of plan obligations
Funded plans Unfunded plans
--------------------------------------------
Post-retirement
UK Fund Overseas medical Other
-------------------------------------------- ------- -------- --------------- -----
Duration of the defined benefit obligation
(in years) 15 11 10 11
(Duration of the defined benefit obligation
- 2019) 16 11 10 12
-------------------------------------------- ------- -------- --------------- -----
Benefits expected to be paid from
plans
Benefits expected to be paid during
2021 86 60 1 17
Benefits expected to be paid during
2022 88 79 1 15
Benefits expected to be paid during
2023 90 77 1 15
Benefits expected to be paid during
2024 92 80 1 15
Benefits expected to be paid during
2025 94 78 1 16
Benefits expected to be paid during
2026 to 2030 499 516 5 79
-------------------------------------------- ------- -------- --------------- -----
Fund values:
The fair value of assets and present value of liabilities of the
plans attributable to defined benefit members were:
2020 2019
------------ ------------------------------------------------ ------------------------------------------------
Funded plans Unfunded plans Funded plans Unfunded plans
-------------------- -------------------------- -------------------- --------------------------
Overseas Post-retirement Overseas Post-retirement
At 31 UK Fund plans medical Other UK Fund plans medical Other
December $million $million $million $million $million $million $million $million
------------ --------- --------- --------------- --------- --------- --------- --------------- ---------
Equities 118 374 N/A N/A 102 349 N/A N/A
Government
bonds 844 189 N/A N/A 956 196 N/A N/A
Corporate
bonds 508 129 N/A N/A 189 121 N/A N/A
Absolute
Return Fund 94 - N/A N/A 158 - N/A N/A
Hedge funds1 89 - N/A N/A 100 - N/A N/A
Insurance
linked
funds1 36 - N/A N/A 37 - N/A N/A
Property 74 9 N/A N/A 75 32 N/A N/A
Derivatives 20 4 N/A N/A 13 3 N/A N/A
Cash and
equivalents 141 297 N/A N/A 77 163 N/A N/A
Others1 10 21 N/A N/A 8 31 N/A N/A
------------ --------- --------- --------------- --------- --------- --------- --------------- ---------
Total fair
value of
assets2 1,934 1,023 N/A N/A 1,715 895 N/A N/A
Present
value of
liabilities (1,982) (1,147) (16) (246) (1,832) (1,010) (16) (210)
------------ --------- --------- --------------- --------- --------- --------- --------------- ---------
Net pension
plan
obligation (48) (124) (16) (246) (117) (115) (16) (210)
------------ --------- --------- --------------- --------- --------- --------- --------------- ---------
1 Unquoted assets
2 Self-investment is monitored closely and is less than $1
million of Standard Chartered equities and bonds for 2020 (31
December 2019: <$1 million). Self-investment is only allowed
where it is not practical to exclude it - for example through
investment in index-tracking funds where the Group is a constituent
of the relevant index
The pension cost for defined benefit plans was:
Funded plans Unfunded plans
------------------------------------- -------------------- --------------------------- ---------
Overseas Post- retirement
UK Fund plans medical Other Total
2020 $million $million $million $million $million
------------------------------------- --------- --------- ---------------- --------- ---------
Current service cost1 - 50 - 7 57
Past service cost and curtailments2 - - - 14 14
Settlement cost - - - - -
Interest income on pension
plan assets (32) (28) - - (60)
Interest on pension plan liabilities 35 29 1 5 70
------------------------------------- --------- --------- ---------------- --------- ---------
Total charge to profit before
deduction of tax 3 51 1 26 81
------------------------------------- --------- --------- ---------------- --------- ---------
Net gain on plan assets3 (160) (81) - - (241)
Losses on liabilities 131 88 (1) 22 240
------------------------------------- --------- --------- ---------------- --------- ---------
Total (gains)/losses recognised
directly in statement
of comprehensive income before
tax (29) 7 (1) 22 (1)
Deferred taxation - (9) - - (9)
------------------------------------- --------- --------- ---------------- --------- ---------
Total (gains) /losses after
tax (29) (2) (1) 22 (10)
------------------------------------- --------- --------- ---------------- --------- ---------
1 Includes administrative expenses paid out of plan assets of $2
million (31 December 2019: $2 million)
2 Past service costs arose primarily due to recognition of a
legacy UK long-term sick plan which has been clarified as
technically representing a defined benefit
3 The actual return on the UK Fund assets was a gain of $192
million and on overseas plan assets was a gain of $109 million
The pension cost for defined benefit plans was:
Funded plans Unfunded plans
------------------------------------- -------------------- --------------------------- ---------
Overseas Post- retirement
UK Fund plans medical Other Total
2019 $million $million $million $million $million
------------------------------------- --------- --------- ---------------- --------- ---------
Current service cost1 - 49 - 12 61
Past service cost and curtailments2 - 2 - (1) 1
Settlement cost - - - - -
Interest income on pension
plan assets (43) (26) - - (69)
Interest on pension plan liabilities 44 29 1 6 80
------------------------------------- --------- --------- ---------------- --------- ---------
Total charge to profit before
deduction of tax 1 54 1 17 73
------------------------------------- --------- --------- ---------------- --------- ---------
Net gain on plan assets3 (86) (88) - - (174)
Losses on liabilities 196 77 (2) 27 298
------------------------------------- --------- --------- ---------------- --------- ---------
Total losses/(gains) recognised
directly in statement
of comprehensive income before
tax 110 (11) (2) 27 124
Deferred taxation 5 - - - 5
------------------------------------- --------- --------- ---------------- --------- ---------
Total losses/(gains) after
tax 115 (11) (2) 27 129
------------------------------------- --------- --------- ---------------- --------- ---------
1 Includes administrative expenses paid out of plan assets of $1
million (31 December 2018: $2 million)
2 Past service costs arose primarily due to plan changes in
Thailand and US, and were largely offset by past service credits
due to plan changes in UAE
3 The actual return on the UK Fund assets was a gain of $129
million and on overseas plan assets was a gain of $114 million
Movement in the defined benefit pension plans and
post-retirement medical deficit during the year comprise:
Funded plans Unfunded plans
----------------------------------- -------------------- --------------------------- ---------
Overseas Post- retirement
UK Fund plans medical Other Total
$million $million $million $million $million
----------------------------------- --------- --------- ---------------- --------- ---------
Deficit at 1 January 2020 (117) (115) (16) (210) (458)
Contributions 44 63 - 16 123
Current service cost1 - (50) - (7) (57)
Past service cost and curtailments - - - (14) (14)
Settlement costs and transfers
impact2 - (5) - - (5)
Net interest on the net defined
benefit asset/liability (3) (1) (1) (5) (10)
Actuarial gains/(losses) 29 (7) 1 (22) 1
Exchange rate adjustment (1) (9) - (4) (14)
----------------------------------- --------- --------- ---------------- --------- ---------
Deficit at 31 December 2020(3) (48) (124) (16) (246) (434)
----------------------------------- --------- --------- ---------------- --------- ---------
1 Includes administrative expenses paid out of plan assets of $2
million (31 December 2019: $1 million)
2 Impact of transfers relates to a gratuity plan in India which
was included within IAS 19 disclosures for the first time this
year. Previously, a separate provision for these liabilities was
included on the balance sheet
3 The deficit total of $434 million is made up of plans in
deficit of $476 million (31 December 2019: $486 million) net of
plans in surplus with assets totalling $42 million (31 December
2019: $28 million)
Movement in the defined benefit pension plans and
post-retirement medical deficit during the year comprise:
Funded plans Unfunded plans
----------------------------------- -------------------- --------------------------- ---------
Overseas Post- retirement
UK Fund plans medical Other Total
$million $million $million $million $million
----------------------------------- --------- --------- ---------------- --------- ---------
Deficit at 1 January 2019 (50) (129) (17) (190) (386)
Contributions 44 73 - 20 137
Current service cost1 - (49) - (12) (61)
Past service cost and curtailments - (2) - 1 (1)
Settlement costs and transfers
impact - - - - -
Net interest on the net defined
benefit asset/liability (1) (3) (1) (6) (11)
Actuarial (losses)/gains (110) 11 2 (27) (124)
Exchange rate adjustment - (16) - 4 (12)
----------------------------------- --------- --------- ---------------- --------- ---------
Deficit at 31 December 2019(2) (117) (115) (16) (210) (458)
----------------------------------- --------- --------- ---------------- --------- ---------
1 Includes administrative expenses paid out of plan assets of $1
million (31 December 2018: $2 million)
2 The deficit total of $458 million is made up of plans in
deficit of $486 million (31 December 2018: $421 million) net of
plans in surplus with assets totalling $28 million (31 December
2018: $35 million)
The Group's expected contribution to its defined benefit pension
plans in 2021 is $120 million.
2020 2019
-------------------------- --------------------------------- ---------------------------------
Assets Obligations Total Assets Obligations Total
$million $million $million $million $million $million
-------------------------- --------- ----------- --------- --------- ----------- ---------
At 1 January 2020 2,610 (3,068) (458) 2,410 (2,796) (386)
Contributions1 123 - 123 137 - 137
Current service cost2 - (57) (57) - (61) (61)
Past service cost and
curtailments - (14) (14) - (1) (1)
Settlement costs &
impact of transfers3 19 (24) (5) (7) 7 -
Interest cost on pension
plan liabilities - (70) (70) - (80) (80)
Interest income on
pension plan assets 60 - 60 69 - 69
Benefits paid out2 (161) 161 - (165) 165 -
Actuarial gains/(losses)4 241 (240) 1 174 (298) (124)
Exchange rate adjustment 65 (79) (14) (8) (4) (12)
-------------------------- --------- ----------- --------- --------- ----------- ---------
At 31 December 2020 2,957 (3,391) (434) 2,610 (3,068) (458)
-------------------------- --------- ----------- --------- --------- ----------- ---------
1 Includes employee contribution of nil (31 December 2019:
nil)
2 Includes administrative expenses paid out of plan assets of $1
million (31 December 2019: $ 1 million)
3 Impact of transfers relates to a gratuity plan in India which
was included within IAS 19 Disclosures for the first time this
year. Previously, a separate provision for these liabilities was
included elsewhere on the balance sheet
4 Actuarial loss on obligation comprises $256 million loss (31
December 2019: $267 million loss) from financial assumption
changes, $21 million gain (31 December 2019: $4 million loss) from
demographic assumption changes and $5 million loss (31 December
2019: $18 million loss) from experience
31. Share-based payments
Accounting policy
The Group operates equity-settled and cash-settled share-based
compensation plans. The fair value of the employee services
(measured by the fair value of the awards granted) received in
exchange for the grant of the shares and awards is recognised as an
expense. For deferred share awards granted as part of an annual
performance award, the expense is recognised over the period from
the start of the performance period to the vesting date. For
example, the expense for three-year awards granted in 2021 in
respect of 2020 performance, which vest in 2022-24, is recognised
as an expense over the period from 1 January 2020 to the vesting
dates in 2022-24. For all other awards, the expense is recognised
over the period from the date of grant to the vesting date.
For equity-settled awards, the total amount to be expensed over
the vesting period is determined by reference to the fair value of
the shares and awards at the date of grant, which excludes the
impact of any non-market vesting conditions (for example,
profitability and growth targets). The fair value of equity
instruments granted is based on market prices, if available, at the
date of grant. In the absence of market prices, the fair value of
the instruments is estimated using an appropriate valuation
technique, such as a binomial option pricing model. Non-market
vesting conditions are included in assumptions for the number of
shares and awards that are expected to vest.
At each balance sheet date, the Group revises its estimates of
the number of shares and awards that are expected to vest. 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. Forfeitures prior to
vesting attributable to factors other than the failure to satisfy
service conditions and non-market vesting conditions are treated as
a cancellation and the remaining unamortised charge is debited to
the income statement at the time of cancellation. The proceeds
received net of any directly attributable transaction costs are
credited to share capital (nominal value) and share premium when
awards in the form of options are exercised.
Cash-settled awards are revalued 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. Where
forfeitures occur prior to vesting that are attributable to factors
other than a failure to satisfy service conditions or market-based
performance conditions, the cumulative charge incurred up to the
date of forfeiture is credited to the income statement. Any
revaluation related to cash-settled awards is recorded as an amount
due from subsidiary undertakings.
The Group operates a number of share-based arrangements for its
executive directors and employees. Details of the share-based
payment charge are set out below.
2020(1) 2019(1)
--------------------------- ------------------------------- -------------------------------
Cash Equity Total Cash Equity Total
$million $million $million $million $million $million
--------------------------- --------- --------- --------- --------- --------- ---------
Deferred share awards (1) 59 58 13 88 101
Other share awards (1) 75 74 12 53 65
--------------------------- --------- --------- --------- --------- --------- ---------
Total share-based payments (2) 134 132 25 141 166
--------------------------- --------- --------- --------- --------- --------- ---------
1 No forfeiture assumed
2011 Standard Chartered Share Plan (the '2011 Plan')
The 2011 Plan was approved by shareholders in May 2011 and is
the Group's main share plan. Since approval, it has been used to
deliver various types of share awards:
-- Long term incentive plan (LTIP) awards: granted with vesting
subject to performance measures. Performance measures attached to
awards granted previously include: total shareholder return (TSR);
return on equity (RoE) and return on tangible equity (RoTE) (in the
case of both RoE and RoTE, with a Common Equity Tier 1 (CET1)
underpin); strategic measures; earnings per share (EPS) growth; and
return on risk-weighted assets (RoRWA). Each measure is assessed
independently over a three-year period. Awards granted from 2016
have an individual conduct gateway requirement that results in the
award lapsing if not met
-- Deferred awards are used to deliver the deferred portion of
variable remuneration, in line with both market practice and
regulatory requirements. These awards vest in instalments on
anniversaries of the award date specified at the time of grant.
Deferred awards are not subject to any plan limit. This enables the
Group to meet regulatory requirements relating to deferral levels,
and is in line with market practice
-- Restricted share awards, made outside of the annual
performance process as replacement buy-out awards to new joiners
who forfeit awards on leaving their previous employers, vest in
instalments on the anniversaries of the award date specified at the
time of grant. This enables the Group to meet regulatory
requirements relating to buy-outs, and is in line with market
practice. In line with similar plans operated by our competitors,
restricted share awards are not subject to an annual limit and do
not have any performance measures
Under the 2011 Plan, no grant price is payable to receive an
award. The remaining life of the 2011 Plan during which new awards
can be made is one year.
Valuation - LTIP awards
The vesting of awards granted in both 2020 and 2019 is subject
to relative TSR performance measures and achievement of a strategic
scorecard. The vesting of awards granted in 2019 and 2020 are
subject to the satisfaction of RoTE (subject to a capital CET1
underpin). The fair value of the TSR component is calculated using
the probability of meeting the measures over a three-year
performance period, using a Monte Carlo simulation model. The
number of shares expected to vest is evaluated at each reporting
date, based on the expected performance against the RoTE and
strategic measures in the scorecard, to determine the accounting
charge.
No dividend equivalents accrue for the LTIP awards made in 2019
or 2020 and the fair value takes this into account, calculated by
reference to market consensus dividend yield.
2020 2019
-------------------------------- ---------- ----------
Grant date 09 March 11 March
Share price at grant date (GBP) 5.20 6.11
Vesting period (years) 3-7 3-7
Expected divided yield (%) 4.2 4.2
Fair value (RoTE) (GBP) 1.40, 1.34 2.02, 2.02
Fair value (TSR) (GBP) 0.75, 0.72 0.97, 0.91
Fair value (Strategic) (GBP) 1.40, 1.34 2.02, 2.02
-------------------------------- ---------- ----------
Valuation - deferred shares and restricted shares
The fair value for deferred awards which are not granted to
material risk-takers is based on 100 per cent of the face value of
the shares at the date of grant as the share price will reflect
expectations of all future dividends. For awards granted to
material risk-takers in 2020, the fair value of awards takes into
account the lack of dividend equivalents, calculated by reference
to market consensus dividend yield.
Deferred share awards
2020
--------------------- --------------------------
Grant date 22 June 30 March 9 March
--------------------- ------- -------- -------
Share price at grant
date (GBP) 4.27 4.67 5.20
--------------------- ------- -------- -------
Expected Expected Expected
dividend dividend dividend
yield Fair value yield Fair value yield Fair value
Vesting period (years) (%) (GBP) (%) (GBP) (%) (GBP)
----------------------- ---------- ----------- --------- ---------- ---------- --------------
1-3 years NA 4.27 NA,4.2 4.67,4.13 NA,4.2,4.2 5.20,4.79,4.59
1-5 years - - 4.2 4.04 4.2,4.2 4.59,4.50
3-7 years - - - - 4.2,4.2 4.23,4.06
----------------------- ---------- ------------ --------- ---------- ---------- --------------
2019
-------------------------------- -----------------
Grant date 24 June 11 March
-------------------------------- ------- --------
Share price at grant date (GBP) 7.03 6.11
-------------------------------- ------- --------
Expected Expected
dividend Fair value dividend Fair value
Vesting period (years) yield (%) (GBP) yield (%) (GBP)
---------------------- ----------- -------------- ----------- --------------
1-3 years N/A,4.2,4.2 7.03,6.47,6.21 N/A,4.2,4.2 6.11,5.62,5.40
1-5 years - - 4.2,4.2 5.29,5.40
3-7 years - - 4.2,4.2 4.77,4.97
---------------------- ----------- -------------- ----------- --------------
Other restricted share awards
2020
--------------------- -------------------------------------------
Grant date 26 November 30 September 22 June 9 March
--------------------- ----------- ------------ ------- -------
Share price at grant
date (GBP) 4.71 3.52 4.27 5.20
--------------------- ----------- ------------ ------- -------
Expected Expected Expected Expected
dividend Fair dividend Fair dividend Fair dividend Fair
yield value yield value yield value yield value
Vesting period (years) (%) (GBP) (%) (GBP) (%) (GBP) (%) (GBP)
----------------------- --------- --------- --------- ------ --------- ------ --------- ------
1 year 4.2 4.34,4.52 4.2 3.38 4.2 4.10 4.2 4.99
2 years 4.2 4.16,4.34 4.2 3.24 4.2 3.93 4.2 4.79
2-3 years - - - - - - - -
3 years 4.2 4.16 4.2 3.11 4.2 3.77 4.2 4.59
4 years 4.2 4.00 4.2 2.98 4.2 3.62 4.2 4.41
5 years - - - - 4.2 3.48 4.2 4.23
----------------------- --------- --------- --------- ------ --------- ------ --------- ------
2019
--------------------- -----------------------------------------
Grant date 28 November 1 October 24 June 11 March
--------------------- ----------- --------- ------- --------
Share price at grant
date (GBP) 7.04 6.84 7.03 6.11
--------------------- ----------- --------- ------- --------
Expected Expected Expected Expected
dividend Fair dividend Fair dividend Fair dividend Fair
yield value yield value yield value yield value
Vesting period (years) (%) (GBP) (%) (GBP) (%) (GBP) (%) (GBP)
----------------------- --------- ------ --------- ------ --------- ------ --------- ------
5.86,
5.62,
1 year 4.2 6.75 4.2 6.57 4.2 6.74 4.2 5.74
5.62,
2 years 4.2 6.48 4.2 6.30 4.2 6.47 4.2 5.40
2-3 years - - - - - - - -
3 years 4.2 6.22 4.2 6.05 4.2 6.21 4.2 5.40
4 years - - 4.2 5.80 4.2 5.96 4.2 5.18
5 years - - 4.2 5.57 4.2 5.72 - -
----------------------- --------- ------ --------- ------ --------- ------ --------- ------
All Employee Sharesave Plans
2013 Sharesave Plan
Under the 2013 Sharesave Plan, employees may open a savings
contract. Within a maturity period of six months after the third
anniversary, employees may save up to GBP250 per month over three
years to purchase ordinary shares in the Company at a discount of
up to 20 per cent on the share price at the date of invitation
(this is known as the 'option exercise price'). There are no
performance measures attached to options granted under the 2013
Sharesave Plan and no grant price is payable to receive an option.
In some countries in which the Group operates, it is not possible
to operate Sharesave plans, typically due to securities law and
regulatory restrictions. In these countries, where possible, the
Group offers an equivalent cash-based plan to its employees.
The 2013 Sharesave Plan was approved by shareholders in May 2013
and all future Sharesave invitations are made under this plan. The
remaining life of the 2013 Sharesave Plan is two years.
Valuation - Sharesave:
Options under the Sharesave plans are valued using a binomial
option-pricing model. The same fair value is applied to all
employees including executive directors. The fair value per option
granted and the assumptions used in the calculation are as
follows:
All Employee Sharesave Plan (Sharesave)
2020 2019
-------------------------------- ------------ ---------
Grant date 30 September 1 October
Share price at grant date (GBP) 3.52 6.84
Exercise price (GBP) 3.14 4.98
Vesting period (years) 3 3
Expected volatility (%) 31.8 25.3
Expected option life (years) 3.33 3.33
Risk-free rate (%) (0.07) 0.26
Expected dividend yield (%) 4.2 4.2
Fair value (GBP) 0.69 1.62
-------------------------------- ------------ ---------
The expected volatility is based on historical volatility over
the last three years, or three years prior to grant. The expected
life is the average expected period to exercise. The risk-free rate
of return is the yield on zero-coupon UK government bonds of a term
consistent with the assumed option life. The expected dividend
yield is calculated by reference to market consensus dividend
yield.
Limits
An award shall not be granted under the 2011 Plan in any
calendar year if, at the time of its proposed grant, it would cause
the number of Standard Chartered PLC ordinary shares allocated in
the period of 10 calendar years ending with that calendar year
under the 2011 Plan and under any other discretionary share plan
operated by Standard Chartered PLC to exceed such number as
represents 5 per cent of the ordinary share capital of Standard
Chartered PLC in issue at that time.
An award shall not be granted under the 2011 Plan or 2013
Sharesave Plan in any calendar year if, at the time of its proposed
grant, it would cause the number of Standard Chartered PLC ordinary
shares allocated in the period of 10 calendar years ending with
that calendar year under the 2011 Plan or 2013 Sharesave Plan and
under any other employee share plan operated by Standard Chartered
PLC to exceed such number as represents 10 per cent of the ordinary
share capital of Standard Chartered PLC in issue at that time.
An award shall not be granted under the 2011 Plan or 2013
Sharesave Plan in any calendar year if, at the time of its proposed
grant, it would cause the number of Standard Chartered PLC ordinary
shares which may be issued or transferred pursuant to awards then
outstanding under the 2011 Plan or 2013 Sharesave Plan as relevant
to exceed such number as represents 10 per cent of the ordinary
share capital of Standard Chartered PLC in issue at that time.
The number of Standard Chartered PLC ordinary shares which may
be issued pursuant to awards granted under the 2011 Plan in any
12-month period must not exceed such number as represents 1 per
cent of the ordinary share capital of Standard Chartered PLC in
issue at that time. The number of Standard Chartered PLC ordinary
shares which may be issued pursuant to awards granted under the
2013 Sharesave Plan in any 12-month period must not exceed such
number as represents 1 per cent of the ordinary share capital of
Standard Chartered PLC in issue at that time.
Reconciliation of share award movements for the year to 31
December 2020
2011 Plan1
------------------------------------- ------------------------ ---- ----------- ----------
Weighted
average
Sharesave
Deferred/ exercise
Restricted price
LTIP shares PSP1 Sharesave (GBP)
------------------------------------- ---------- ------------ ---- ----------- ----------
Outstanding at 1 January 2020 20,912,679 28,235,461 - 12,602,842 5.28
Granted2,3 3,086,220 23,452,802 - 7,373,729 -
Lapsed (824,269) (657,697) - (3,228,307) 5.37
Exercised (256,388) (11,487,018) - (156,560) 5.30
------------------------------------- ---------- ------------ ---- ----------- ----------
Outstanding at 31 December 22,918,242 39,543,548 - 16,591,704 4.31
------------------------------------- ---------- ------------ ---- ----------- ----------
Total number of securities available
for issue under the plan 22,918,242 39,543,548 - 16,591,704 4.31
Percentage of the issued shares
this represents as at 31 December 0.7% 1.3% - 0.5%
------------------------------------- ---------- ------------ ---- ----------- ----------
Exercisable as at 31 December 27,810 2,395,136 - 1,549,597 6.16
------------------------------------- ---------- ------------ ---- ----------- ----------
3.14 -
Range of exercise prices (GBP)3 - - - 6.20 -
------------------------------------- ---------- ------------ ---- ----------- ----------
Intrinsic value of vested but
not exercised options ($ million) 0.18 15.23 - 0.02
------------------------------------- ---------- ------------ ---- ----------- ----------
Weighted average contractual
remaining life (years) 6.28 8.36 - 2.47
------------------------------------- ---------- ------------ ---- ----------- ----------
Weighted average share price
for awards exercised during
the period (GBP) 4.28 4.55 - 6.76
------------------------------------- ---------- ------------ ---- ----------- ----------
1 Employees do not contribute towards the cost of these
awards
2 22,007,464 (DRSA/RSA) granted on 9 March 2020, 189,991
(DRSA/RSA) granted as notional dividend on 6 March 2020, 3,025,163
(LTIP) granted on 9 March 2020, 56,805 (LTIP) granted as notional
dividend on 6 March 2020, 86,319 (DRSA/RSA) granted on 30 March
2020, 214,754 (DRSA/RSA) granted on 22 June 2020, 4,252 (LTIP)
granted as notional dividend on 25 August 2020, 503,520 (DRSA/RSA)
granted on 30 September 2020, 7, 373,729 (Sharesave) granted on 30
September 2020, 450,754 (DRSA/RSA) granted on 26 November 2020
3 For Sharesave granted in 2020 the exercise price is GBP3.14
per share, which was a 20% discount to the closing share price on
28 August 2020. The closing share price on 28 August 2020 was
GBP3.924
Reconciliation of share award movements for the year to 31
December 2019
2011 Plan1
------------------------------------- ------------------------- ------- ----------- ----------
Weighted
average
Sharesave
Deferred/ exercise
Restricted price
LTIP shares PSP1 Sharesave (GBP)
------------------------------------- ----------- ------------ ------- ----------- ----------
Outstanding at 1 January 2019 27,003,333 26,612,980 4,270 13,724,361 5.48
Granted2,3 2,777,179 15,140,609 - 5,025,310 -
Lapsed (2,824,549) (1,441,046) - (1,821,467) 5.50
Exercised (6,043,284) (12,077,082) (4,270) (4,325,362) 5.49
------------------------------------- ----------- ------------ ------- ----------- ----------
Outstanding at 31 December 20,912,679 28,235,461 - 12,602,842 5.28
------------------------------------- ----------- ------------ ------- ----------- ----------
Total number of securities available
for issue under the plan 20,912,679 28,235,461 - 12,602,842
Percentage of the issued shares
this represents as at 31 December 0.7% 0.9% - 0.4%
------------------------------------- ----------- ------------ ------- ----------- ----------
Exercisable as at 31 December 53,986 2,539,752 - 1,231,333 5.30
------------------------------------- ----------- ------------ ------- ----------- ----------
4.98 -
Range of exercise prices (GBP)3 - - - 6.20
------------------------------------- ----------- ------------ ------- ----------- ----------
Intrinsic value of vested but
not exercised options ($ million) 0.51 24.13 - 3.06
------------------------------------- ----------- ------------ ------- ----------- ----------
Weighted average contractual
remaining life (years) 6.85 8.25 - 2.44
------------------------------------- ----------- ------------ ------- ----------- ----------
Weighted average share price
for awards exercised during
the period (GBP) 6.37 6.33 6.95 6.72
------------------------------------- ----------- ------------ ------- ----------- ----------
1. Employees do not contribute towards the cost of these
awards
2. 14,346,920 (DRSA/RSA) granted on 11 March 2019, 186,955
(DRSA/RSA) granted as notional dividend on 8 March 2019, 2,530,325
(LTIP) granted on 11 March 2019, 232,895 (LTIP) granted as notional
dividend on 8 March 2019, 278,813 (DRSA/RSA) granted on 24 June
2019, 74,125 (DRSA/RSA) granted as notional dividend on
9 August 2019, 13,959 (LTIP) granted as notional dividend on 9
August 2019, 151,751 (RSA) granted on 1 October 2019, 5,025,310
(Sharesave) granted on 1 October 2019 and 102,045 (RSA) granted on
28 November 2019
3. For Sharesave granted in 2019 the exercise price is GBP4.98
per share, which was a 20% discount to the closing share price on
30 August 2019. The closing share price on 30 August 2019 was
GBP6.22
32. Investments in subsidiary undertakings, joint ventures and
associates
Accounting policy
Subsidiaries
Subsidiaries are all entities, including structured entities,
which the Group controls. The Group controls an entity when it is
exposed to, and has rights to, variable returns from its
involvement with the entity and has the ability to affect those
returns through its power over the investee. The assessment of
power is based on the Group's practical ability to direct the
relevant activities of the entity unilaterally for the Group's own
benefit and is subject to reassessment if and when one or more of
the elements of control change. Subsidiaries are fully consolidated
from the date on which the Group effectively obtains control. They
are deconsolidated from the date that control ceases, and where any
interest in the subsidiary remains, this is remeasured to its fair
value and the change in carrying amount is recognised in the income
statement.
Associates and joint arrangements
Joint arrangements are where two or more parties either have
rights to the assets, and obligations of the joint arrangement
(joint operations), or have rights to the net assets of the joint
arrangement (joint venture). The Group evaluates the contractual
terms of joint arrangements to determine whether a joint
arrangement is a joint operation or a joint venture. The Group did
not have any contractual interest in joint operations.
An associate is an entity over which the Group has significant
influence.
Investments in associates and joint ventures are accounted for
by the equity method of accounting and are initially recognised at
cost. The Group's investment in associates and joint ventures
includes goodwill identified on acquisition (net of any accumulated
impairment loss).
The Group's share of its associates' and joint ventures'
post-acquisition profits or losses is recognised in the income
statement, and its share of post-acquisition movements in other
comprehensive income is recognised in reserves. The cumulative
post-acquisition movements are adjusted against the carrying amount
of the investment. When the Group's share of losses in an associate
or a joint venture equals or exceeds its interest in the associate,
including any other unsecured receivables, the Group does not
recognise further losses, unless it has incurred obligations or
made payments on behalf of the associate or joint venture.
Unrealised gains and losses on transactions between the Group
and its associates and joint ventures are eliminated to the extent
of the Group's interest in the associates and joint ventures. At
each balance sheet date, the Group assesses whether there is any
objective evidence of impairment in the investment in associates
and joint ventures. Such evidence includes a significant or
prolonged decline in the fair value of the Group's investment in an
associate or joint venture below its cost, among other factors.
Significant accounting estimates and judgements
The Group applies judgement in determining if it has control,
joint control or significant influence over subsidiaries, joint
ventures and associates respectively. These judgements are based
upon identifying the relevant activities of counterparties, being
those activities that significantly affect the entities' returns,
and further making a decision of if the Group has control over
those entities, joint control, or has significant influence (being
the power to participate in the financial and operating policy
decisions but not control them).
These judgements are at times determined by equity holdings, and
the voting rights associated with those holdings. However, further
considerations including but not limited to board seats, advisory
committee members and specialist knowledge of some decision-makers
are also taken into account. Further judgement is required when
determining if the Group has de-facto control over an entity even
though it may hold less than 50 per cent of the voting shares of
that entity. Judgement is required to determine the relative size
of the Group's shareholding when compared to the size and
dispersion of other shareholders.
Impairment testing of investments in associates and joint
ventures is performed if there is a possible indicator of
impairment. Judgement is used to determine if there is objective
evidence of impairment. Objective evidence may be observable data
such as losses incurred on the investment when applying the equity
method, the granting of concessions as a result of financial
difficulty, or breaches of contracts/regulatory fines of the
associate or joint venture. Further judgement is required when
considering broader indicators of impairment such as losses of
active markets or ratings downgrades across key markets in which
the associate or joint venture operate.
Impairment testing is based on estimates including forecasting
the expected cash flows from the investments, growth rates,
terminal values and the discount rate used in calculation of the
present values of those cash flows. The estimation of future cash
flows and the level to which they are discounted is inherently
uncertain and requires significant judgement.
Business combinations
The acquisition method of accounting is used to account for the
acquisition of subsidiaries by the Group. The cost of an
acquisition is measured as the fair value of the assets given,
equity instruments issued and liabilities incurred or assumed at
the date of exchange, together with the fair value of any
contingent consideration payable. The excess of the cost of
acquisition over the fair value of the Group's share of the
identifiable net assets and contingent liabilities acquired is
recorded as goodwill (see Note 17 for details on goodwill
recognised by the Group). If the cost of acquisition is less than
the fair value of the net assets and contingent liabilities of the
subsidiary acquired, the difference is recognised directly in the
income statement.
Where the fair values of the identifiable net assets and
contingent liabilities acquired have been determined provisionally,
or where contingent or deferred consideration is payable,
adjustments arising from their subsequent finalisation are not
reflected in the income statement if: (i) they arise within 12
months of the acquisition date (or relate to acquisitions completed
before 1 January 2014); and (ii) the adjustments arise from better
information about conditions existing at the acquisition date
(measurement period adjustments). Such adjustments are applied as
at the date of acquisition and, if applicable, prior year amounts
are restated. All changes that are not measurement period
adjustments are reported in income other than changes in contingent
consideration not classified as financial instruments, which are
accounted for in accordance with the appropriate accounting policy,
and changes in contingent consideration classified as equity, which
is not remeasured.
Changes in ownership interest in a subsidiary, which do not
result in a loss of control, are treated as transactions between
equity holders and are reported in equity. Where a business
combination is achieved in stages, the previously held equity
interest is remeasured at the acquisition date fair value with the
resulting gain or loss recognised in the income statement.
In the Company's financial statements, investment in
subsidiaries, associates and joint ventures are held at cost less
impairment and dividends from pre-acquisition profits received
prior to 1 January 2009, if any. Inter-company transactions,
balances and unrealised gains and losses on transactions between
Group companies are eliminated in the Group accounts.
2020 2019
Investments in subsidiary undertakings $million $million
--------------------------------------- ---------- ----------
As at 1 January 58,037 34,853
Additions1 1,370 23,184
Disposal2 (2,000) -
--------------------------------------- ---------- ----------
As at 31 December 57,407 58,037
--------------------------------------- ---------- ----------
1 Includes internal Additional Tier 1 issuances of $1 billion by
Standard Chartered Bank (Hong Kong) Limited. (31 December 2019:
Includes internal Additional Tier 1 issuances of $900 million by
Standard Chartered Bank (Hong Kong) Limited and $500 million and
SGD750 million by Standard Chartered Bank (Singapore) Limited)
2 Redemption of Additional Tier 1 capital of $2 billion by
Standard Chartered Bank
At 31 December 2020, the principal subsidiary undertakings, all
indirectly held except for Standard Chartered Bank (Hong Kong)
Limited, and principally engaged in the business of banking and
provision of other financial services, were as follows:
Group interest
in ordinary
share
Country and place of incorporation capital
or registration Main areas of operation %
------------------------------------ ------------------------------------ --------------
United Kingdom, Middle East,
South Asia, Asia Pacific, Americas
Standard Chartered Bank, England and, through Group companies,
and Wales Africa 100
Standard Chartered Bank (China)
Limited, China1 China 100
Standard Chartered Bank (Hong
Kong) Limited, Hong Kong Hong Kong 100
Standard Chartered Bank Korea
Limited, Korea Korea 100
Standard Chartered Bank Malaysia
Berhad, Malaysia Malaysia 100
Standard Chartered Bank Nigeria
Limited, Nigeria Nigeria 100
Standard Chartered Bank (Singapore)
Limited, Singapore Singapore 100
Standard Chartered Bank (Taiwan)
Limited, Taiwan Taiwan 100
Standard Chartered Bank (Pakistan)
Limited, Pakistan Pakistan 98.99
Standard Chartered Bank (Thai)
Public Company Limited, Thailand Thailand 99.87
Standard Chartered Bank Kenya
Limited, Kenya Kenya 74.32
------------------------------------ ------------------------------------ --------------
1 Under PRC law, registered as 'Standard Chartered Bank (China)
Limited, China'
A complete list of subsidiary undertaking is included in Note
40.
The Group does not have any material non-controlling interests
in any of its subsidiaries except the 25.68 per cent
non-controlling interest in Standard Chartered Bank Kenya Limited.
This contributes $13 million (31 December 2019: $20 million) of the
profit attributable to non-controlling interests and $111 million
(31 December 2019: $111 million) of the equity attributable to
non-controlling interests.
While the Group's subsidiaries are subject to local statutory
capital and liquidity requirements in relation to foreign exchange
remittance, these restrictions arise in the normal course of
business and do not significantly restrict the Group's ability to
access or use assets and settle liabilities of the Group.
The Group does not have significant restrictions on its ability
to access or use its assets and settle its liabilities other than
those resulting from the regulatory framework within which the
banking subsidiaries operate. These frameworks require banking
operations to keep certain levels of regulatory capital, liquid
assets, exposure limits and comply with other required ratios.
These restrictions are summarised below:
Regulatory and liquidity requirements
The Group's subsidiaries are required to maintain minimum
capital, leverage ratios, liquidity and exposure ratios which
therefore restrict the ability of these subsidiaries to distribute
cash or other assets to the parent company.
The subsidiaries are also required to maintain balances with
central banks and other regulatory authorities in the countries in
which they operate. At 31 December 2020, the total cash and
balances with central banks was $67 billion (31 December 2019: $53
billion) of which $7 billion (31 December 2019: $10 billion) is
restricted.
Statutory requirements
The Group's subsidiaries are subject to statutory requirements
not to make distributions of capital and unrealised profits to the
parent company, generally to maintain solvency. These requirements
restrict the ability of subsidiaries to remit dividends to the
Group. Certain subsidiaries are also subject to local exchange
control regulations which provide for restrictions on exporting
capital from the country other than through normal dividends.
Contractual requirements
The encumbered assets in the balance sheet of the Group's
subsidiaries are not available for transfer around the Group.
Encumbered assets are disclosed in Risk review and Capital
review.
Share of profit from investment in associates and joint ventures
comprises:
2020 2019
$million $million
------------------------------------------------ ---------- ----------
(Loss)/profit from investment in joint ventures (3) 48
Profit from investment in associates 154 252
------------------------------------------------ ---------- ----------
Total 151 300
------------------------------------------------ ---------- ----------
2020 2019
Interests in associates and joint ventures $million $million
------------------------------------------- ---------- ----------
As at 1 January 1,908 2,307
Exchange translation difference 123 15
Additions 52 64
Share of profits 151 300
Dividend received - (3)
Disposals (35) -
Share of FVOCI and Other reserves (37) 25
Transfer to held for sale assets1 - (800)
------------------------------------------- ---------- ----------
As at 31 December 2,162 1,908
------------------------------------------- ---------- ----------
1 Refer to Note 21 Assets held for sale and associated
liabilities where our joint venture PT Bank Permata Tbk (Permata)
is disclosed
A complete list of the Group's interest in associates is
included in Note 40. The Group's principal associate is:
Group interest
in ordinary
share
Nature Main areas capital
Associate of activities of operation %
----------------- --------------- -------------- --------------
China Bohai Bank Banking China 16.26
----------------- --------------- -------------- --------------
The Group's investment in China Bohai Bank is less than 20 per
cent but it is considered to be an associate because of the
significant influence the Group is able to exercise over the
management and financial and operating policies. This influence is
through board representation and the provision of technical
expertise to Bohai. The Group applies the equity method of
accounting for investments in associates.
The Group's ownership percentage decreased to 16.26 per cent
from 19.99 per cent as a result of the IPO which was completed on
the 16 July 2020 in which the Group did not participate. A $35
million loss was recognised on the dilution of the Group's
ownership percentage as the IPO price was based on the net asset
value of Bohai at 31 December 2019.
The Group has recognised 19.99 per cent of Bohai's earnings
through the date of the IPO after which it has recognised 16.26 per
cent of Bohai's earnings. Bohai has a statutory year end of 31
December, but Bohai publishes their results after the Group. For
the year ended 31 December 2019, the Group was on a one-month lag
in recognising its share of Bohai's earnings. For the year ended
31December 2020, the Group recognised Bohai's results through 30
September 2020 (10 months of earnings, including December 2019).
The Group will continue on a three-month lag in recognising its
share of Bohai's earnings going forward.
Impairment testing
At 31 December 2020, the listed equity value of Bohai is below
the carrying amount of the investment in associate. As a result,
the Group has performed an impairment test on the carrying amount,
which confirmed that there was no impairment at 31 December 2020 as
the recoverable amount as determined by a value-in-use ('VIU')
calculation was higher than the carrying value.
Carrying
ViU amount Fair value
$million $million $million
------ --------- --------- ----------
Bohai 2,943 2,025 1,888
------ --------- --------- ----------
Basis of recoverable amount
The impairment test was performed by comparing the recoverable
amount of Bohai, determined by a VIU calculation, with its carrying
amount. The VIU calculation uses three primary inputs, being;
-- Discounted short to medium term cash flow projections based
on management's best estimates of future earnings available to
ordinary shareholders;
-- A discount rate representing the risk-free rate and company
risk premiums, and;
-- A long term sustainable growth rate which is used to
extrapolate in perpetuity those expected short to medium term
earnings to derive a terminal value.
From the estimated cash flows a capital maintenance haircut is
taken in order for Bohai to meet its target regulatory capital
requirements over the forecast period. This haircut takes into
account movements in risk-weighted assets and the total capital
required, including retained earnings to meet the target capital
ratios.
The key assumptions used in the VIU calculation:
%
----------------------------------- -----
Discount rate 10.00
Long term growth rate 5.00
Capital requirement adequacy ratio 7.50
----------------------------------- -----
Base case Sensitivities 2020
-------- ------------------------------------- -------------------------------------------------------------------
GDP Discount rates Cash flows
------------ -------- -------- --- ------------------- -------------------- --------------------
+1% -1% +1% -1% +10% -10%
-------- --------- --------- --------- --------- ---------
Carrying
amount Headroom Discount Headroom Headroom Headroom Headroom Headroom Headroom
$million VIU $million $million Rate GDP $million $million $million $million $million $million
-------- ------------ -------- -------- --- -------- --------- --------- --------- --------- ---------
2,025 2,943 918 10% 5% 1,460 557 480 1,573 1,353 483
-------- ------------ -------- -------- --- -------- --------- --------- --------- --------- ---------
The following table sets out the summarised financial statements
of China Bohai Bank prior to the Group's share of the associates
being applied:
30 Sep 30 Nov
2020 2019
$million $million
--------------------------- ---------- ----------
Total assets 202,537 156,429
Total liabilities 187,024 147,407
Other equity instruments 3,053 2,865
Operating income 3,474 3,769
Net profit 950 1,163
Other comprehensive income (121) (63)
--------------------------- ---------- ----------
33. Structured entities
Accounting policy
A structured entity is an entity that has been designed so that
voting or similar rights are not the dominant factor in deciding
who controls the entity. Contractual arrangements determine the
rights and therefore relevant activities of the structured entity.
Structured entities are generally created to achieve a narrow and
well-defined objective with restrictions around their activities.
Structured entities are consolidated when the substance of the
relationship between the Group and the structured entity indicates
the Group has power over the contractual relevant activities of the
structured entity, is exposed to variable returns, and can use that
power to affect the variable return exposure.
In determining whether to consolidate a structured entity to
which assets have been transferred, the Group takes into account
its ability to direct the relevant activities of the structured
entity. These relevant activities are generally evidenced through a
unilateral right to liquidate the structured entity, investment in
a substantial proportion of the securities issued by the structured
entity or where the Group holds specific subordinate securities
that embody certain controlling rights. The Group may further
consider relevant activities embedded within contractual
arrangements such as call options which give the practical ability
to direct the entity, special relationships between the structured
entity and investors, and if a single investor has a large exposure
to variable returns of the structured entity.
Judgement is required in determining control over structured
entities. The purpose and design of the entity is considered, along
with a determination of what the relevant activities are of the
entity and who directs these. Further judgements are made around
which investor is exposed to, and absorbs the variable returns of
the structured entity. The Group will have to weigh up all of these
facts to consider whether the Group, or another involved party is
acting as a principal in its own right or as an agent on behalf of
others. Judgement is further required in the ongoing assessment of
control over structured entities, specifically if market conditions
have an effect on the variable return exposure of different
investors.
The Group has involvement with both consolidated and
unconsolidated structured entities, which may be established by the
Group as a sponsor or by a third-party.
Interests in consolidated structured entities: A structured
entity is consolidated into the Group's financial statements where
the Group controls the structured entity, as per the determination
in the accounting policy above.
The following table presents the Group's interests in
consolidated structured entities.
2020 2019
$million $million
--------------------------------------- ---------- ----------
Aircraft and ship leasing 4,388 4,312
Principal and other structured finance 365 816
--------------------------------------- ---------- ----------
Total 4,753 5,128
--------------------------------------- ---------- ----------
Interests in unconsolidated structured entities:
Unconsolidated structured entities are all structured entities
that are not controlled by the Group. The Group enters into
transactions with unconsolidated structured entities in the normal
course of business to facilitate customer transactions and for
specific investment opportunities. An interest in a structured
entity is contractual or non-contractual involvement which creates
variability of the returns of the Group arising from the
performance of the structured entity.
The table below presents the carrying amount of the assets
recognised in the financial statements relating to variable
interests held in unconsolidated structured entities, the maximum
exposure to loss relating to those interests and the total assets
of the structured entities. Maximum exposure to loss is primarily
limited to the carrying amount of the Group's on-balance sheet
exposure to the structured entity. For derivatives, the maximum
exposure to loss represents the on-balance sheet valuation and not
the notional amount. For commitments and guarantees, the maximum
exposure to loss is the notional amount of potential future
losses.
2020 2019
-------------------- --------------------------------------------------------- ---------------------------------------------------------
Principal Principal
Asset-backed Structured Finance Other Asset-backed Structured Finance Other
securities finance funds activities Total securities finance funds activities Total
$million $million $million $million $million $million $million $million $million $million
-------------------- ------------ ---------- --------- ---------- -------- ------------ ---------- --------- ---------- --------
Group's interest -
assets
Financial assets
held
at fair value
through
profit or loss 1,002 - 197 271 1,470 1,055 - 105 181 1,341
Loans and
advances/Investment
securities at
amortised
cost 8,270 3,081 267 - 11,618 4,939 2,020 343 251 7,553
Investment
securities
(fair value through
other comprehensive
income) 2,912 - - - 2,912 3,158 - - - 3,158
Other assets - - 34 - 34 - - 289 - 289
-------------------- ------------ ---------- --------- ---------- -------- ------------ ---------- --------- ---------- --------
Total assets 12,184 3,081 498 271 16,034 9,152 2,020 737 432 12,341
-------------------- ------------ ---------- --------- ---------- -------- ------------ ---------- --------- ---------- --------
Off-balance sheet 69 914 67 - 1,050 65 572 109 - 746
-------------------- ------------ ---------- --------- ---------- -------- ------------ ---------- --------- ---------- --------
Group's maximum
exposure
to loss 12,253 3,995 565 271 17,084 9,217 2,592 846 432 13,087
-------------------- ------------ ---------- --------- ---------- -------- ------------ ---------- --------- ---------- --------
Total assets of
structured
entities 198,622 10,410 2,424 276 211,732 153,948 6,594 3,028 7,976 171,546
-------------------- ------------ ---------- --------- ---------- -------- ------------ ---------- --------- ---------- --------
The main types of activities for which the Group utilises
unconsolidated structured entities cover synthetic credit default
swaps for managed investment funds (including specialised Principal
Finance funds), portfolio management purposes, structured finance
and asset-backed securities. These are detailed as follows:
-- Asset-backed securities (ABS): The Group also has investments
in asset-backed securities issued by third-party sponsored and
managed structured entities. For the purpose of market making and
at the discretion of ABS trading desk, the Group may hold an
immaterial amount of debt securities from structured entities
originated by credit portfolio management. This is disclosed in the
ABS column above
Portfolio management (Group sponsored entities): For the
purposes of portfolio management, the Group purchased credit
protection via synthetic credit default swaps from note-issuing
structured entities. This credit protection creates credit risk
which the structured entity and subsequently the end investor
absorbs. The referenced assets remain on the Group's balance sheet
as they are not assigned to these structured entities. The Group
continues to own or hold all of the risks and returns relating to
these assets. The credit protection obtained from the
regulatory-compliant securitisation only serves to protect the
Group against losses upon the occurrence of eligible credit events
and the underlying assets are not derecognised from the Group's
balance sheet. The Group does not hold any equity interests in the
structured entities, but may hold an insignificant amount of the
issued notes for market making purposes. This is disclosed in the
ABS section above. The proceeds of the notes' issuance are
typically held as cash collateral in the issuer's account operated
by a trustee or invested in AAA-rated government-backed securities
to collateralise the structured entities swap obligations to the
Group, and to repay the principal to investors at maturity. The
structured entities reimburse the Group on actual losses incurred,
through the use of the cash collateral or realisation of the
collateral security. Correspondingly, the structured entities write
down the notes issued by an equal amount of the losses incurred, in
reverse order of seniority. All funding is committed for the life
of these vehicles and the Group has no indirect exposure in respect
of the vehicles' liquidity position. The Group has reputational
risk in respect of certain portfolio management vehicles and
investment funds either because the Group is the arranger and lead
manager or because the structured entities have Standard Chartered
branding.
-- Structured finance: Structured finance comprises interests in
transactions that the Group or, more usually, a customer has
structured, using one or more structured entities, which provide
beneficial arrangements for customers. The Group's exposure
primarily represents the provision of funding to these structures
as a financial intermediary, for which it receives a lender's
return. The transactions largely relate to real estate financing
and the provision of aircraft leasing and ship finance.
-- Principal Finance Fund: The Group's exposure to Principal
Finance Funds represents committed or invested capital in
unleveraged investment funds, primarily investing in pan-Asian
infrastructure, real estate and private equity.
-- Other activities: Other activities include structured
entities created to support margin financing transactions, the
refinancing of existing credit and debt facilities, as well as
setting up of bankruptcy remote structured entities.
34. Cash flow statement
Adjustment for non-cash items and other adjustments included
within income statement
Group Company
--------------------------------------------- ---------------------- ----------------------
2020 2019 2020 2019
$million $million $million $million
--------------------------------------------- ---------- ---------- ---------- ----------
Amortisation of discounts and premiums
of investment securities (588) (818) - -
Interest expense on subordinated liabilities 637 756 606 688
Interest expense on senior debt securities
in issue 639 677 559 606
Other non-cash items 686 792 (36) (75)
Pension costs for defined benefit
schemes 81 73 - -
Share-based payment costs 132 166 - -
Impairment losses on loans and advances
and other credit risk provisions 2,325 908 - -
Dividend income from subsidiaries - - (1,110) (17,979)
Other impairment 587 163 - -
Net gain on derecognition of investment
in associate (6) - - -
Profit from associates and joint ventures (151) (300) - -
--------------------------------------------- ---------- ---------- ---------- ----------
Total 4,342 2,417 19 (16,760)
--------------------------------------------- ---------- ---------- ---------- ----------
Change in operating assets
Group Company
--------------------------------------------- ---------------------- ----------------------
2020 2019 2020 2019
$million $million $million $million
--------------------------------------------- ---------- ---------- ---------- ----------
Increase in derivative financial instruments (21,640) (1,603) (742) (220)
Increase in debt securities, treasury
bills and equity shares held at
fair value through profit or loss (5,385) (5,579) (8,281) (4,502)
Increase in loans and advances to
banks and customers (5,361) (19,108) - -
Net decrease/(increase) in prepayments
and accrued income 588 (199) - -
Net (increase)/decrease in other assets (6,266) (8,944)(1) 572 (751)
--------------------------------------------- ---------- ---------- ---------- ----------
Total (38,064) (35,433) (8,451) (5,473)
--------------------------------------------- ---------- ---------- ---------- ----------
1 Aircraft and shipping purchases and disposals re-presented as
cash flows from investing activities. This was previously presented
under operating activities
Change in operating liabilities
Group Company
--------------------------------------------- ---------------------- ----------------------
2020 2019 2020 2019
$million $million $million $million
--------------------------------------------- ---------- ---------- ---------- ----------
Increase/(decrease) in derivative
financial instruments 22,399 1,290 (378) (390)
Net increase in deposits from banks,
customer accounts, debt securities
in issue, Hong Kong notes in circulation
and short positions 28,087 27,850 6,630 1,131
(Decrease)/increase in accruals and
deferred income (845) (15) 67 (18)
Net increase/(decrease) in other liabilities 4,796 810 96 (4,905)
--------------------------------------------- ---------- ---------- ---------- ----------
Total 54,437 29,935 6,415 (4,182)
--------------------------------------------- ---------- ---------- ---------- ----------
Changes in liabilities arising from financing activities
Group Company
------------------------------------------ ---------------------- ----------------------
2020 2019 2020 2019
$million $million $million $million
------------------------------------------ ---------- ---------- ---------- ----------
Subordinated debt (including accrued
interest):
Opening balance 16,445 15,227 14,737 13,648
Proceeds from the issue 2,473 1,000 2,473 1,000
Interest paid (601) (603) (537) (547)
Repayment (2,446) (23) (1,402) -
Foreign exchange movements 170 (2) 166 (14)
Fair value changes 255 227 243 147
Other 596 619 552 503
------------------------------------------ ---------- ---------- ---------- ----------
Closing balance 16,892 16,445 16,232 14,737
------------------------------------------ ---------- ---------- ---------- ----------
Senior debt (including accrued interest):
Opening balance 23,889 21,998 19,849 17,361
Proceeds from the issue 9,953 9,169 2,193 6,012
Interest paid (627) (797) (575) (740)
Repayment (4,305) (7,692) (2,106) (3,780)
Foreign exchange movements 622 (1) 468 (1)
Fair value changes 574 360 426 283
Other (117) 852 634 714
------------------------------------------ ---------- ---------- ---------- ----------
Closing balance 29,989 23,889 20,889 19,849
------------------------------------------ ---------- ---------- ---------- ----------
35. Cash and cash equivalents
Accounting policy
For the purposes of the cash flow statement, cash and cash
equivalents comprise cash, on demand and overnight balances with
central banks (unless restricted) and balances with less than three
months' maturity from the date of acquisition, including treasury
bills and other eligible bills, loans and advances to banks, and
short-term government securities.
The following balances with less than three months' maturity
from the date of acquisition have been identified by the Group as
being cash and cash equivalents.
Group Company
-------------------------------------- ---------------------- ----------------------
2020 2019 2020 2019
$million $million $million $million
-------------------------------------- ---------- ---------- ---------- ----------
Cash and balances at central banks 66,712 52,728 - -
Less: restricted balances (7,341) (9,843) - -
Treasury bills and other eligible
bills 10,500 10,078 - -
Loans and advances to banks 25,762 21,556 - -
Trading securities 2,241 2,935 - -
Amounts owed by and due to Subsidiary
undertakings - - 12,283 11,622
-------------------------------------- ---------- ---------- ---------- ----------
Total 97,874 77,454 12,283 11,622
-------------------------------------- ---------- ---------- ---------- ----------
36. Related party transactions
Directors and officers
Details of directors' remuneration and interests in shares are
disclosed in the Directors' remuneration report.
IAS 24 Related party disclosures requires the following
additional information for key management compensation. Key
management comprises non-executive directors, executive directors
of Standard Chartered PLC, the Court directors of Standard
Chartered Bank and the persons discharging managerial
responsibilities (PDMR) of Standard Chartered PLC.
2020 2019
$million $million
------------------------------------------ ---------- ----------
Salaries, allowances and benefits in kind 35 37
Share-based payments 26 28
Bonuses paid or receivable 1 4
------------------------------------------ ---------- ----------
Total 62 69
------------------------------------------ ---------- ----------
Transactions with directors and others
At 31 December 2020, the total amounts to be disclosed under the
Companies Act 2006 (the Act) and the Listing Rules of the Hong Kong
Stock Exchange Limited (Hong Kong Listing Rules) about loans to
directors were as follows:
2020 2019
----------- ---------------- ----------------
Number $million Number $million
----------- ------ -------- ------ --------
Directors1 3 - 3 -
----------- ------ -------- ------ --------
1 Outstanding loan balances were below $50,000
The loan transactions provided to the directors of Standard
Chartered PLC were a connected transaction under Chapter 14A of the
Hong Kong Listing Rules. It was fully exempt as financial
assistance under Rule 14A.87(1), as it was provided in our ordinary
and usual course of business and on normal commercial terms.
As at 31 December 2020, Standard Chartered Bank had created a
charge over $89 million (31 December 2019: $86 million) of cash
assets in favour of the non-consolidated independent trustee of its
employer financed retirement benefit scheme.
Company
The Company has received $904 million (31 December 2019: $1006
million) of net interest income from its subsidiaries. The Company
issues debt externally and lends proceeds to Group companies.
The Company has an agreement with Standard Chartered Bank that
in the event of Standard Chartered Bank defaulting on its debt
coupon interest payments, where the terms of such debt requires it,
the Company shall issue shares as settlement for non-payment of the
coupon interest.
2020 2019
---------------------- --------------------------------------- ---------------------------------------
Standard Standard Standard Standard
Chartered Chartered
Chartered Bank (Hong Chartered Bank (Hong
Bank Kong) Limited Others1 Bank Kong) Limited Others1
$million $million $million $million $million $million
---------------------- ----------- --------------- --------- ----------- --------------- ---------
Assets
Due from subsidiaries 11,706 45 356 11,068 32 346
Derivative financial
instruments 846 126 - 212 17 -
Debt securities 18,092 4,686 1,151 13,665 3,953 548
---------------------- ----------- --------------- --------- ----------- --------------- ---------
Total assets 30,644 4,857 1,507 24,945 4,002 894
---------------------- ----------- --------------- --------- ----------- --------------- ---------
Liabilities
Due to subsidiaries 212 - - 26 - -
Derivative financial
instruments 347 - 13 738 - -
---------------------- ----------- --------------- --------- ----------- --------------- ---------
Total liabilities 559 - 13 764 - -
---------------------- ----------- --------------- --------- ----------- --------------- ---------
1 Others include Standard Chartered Bank (Singapore) Limited,
Standard Chartered Holdings Limited and Standard Chartered I H
Limited
Associate and joint ventures
The following transactions with related parties are on an arm's
length basis:
2020 2019
$million $million
----------------------------------------- ---------- ----------
Assets
Loans and advances 5 2
Debt securities - 79
----------------------------------------- ---------- ----------
Total assets 5 81
----------------------------------------- ---------- ----------
Liabilities
Deposits 1,061 225
Derivative liabilities 5 -
----------------------------------------- ---------- ----------
Total liabilities 1,066 225
----------------------------------------- ---------- ----------
Loan commitments and other guarantees(1) 55 53
----------------------------------------- ---------- ----------
1 The maximum loan commitments and other guarantees during the
year was $55 million
On 26 March 2020, the Group entered into an investment agreement
and shareholders' agreement with Clifford Capital Holdings Pte. Ltd
(a related party of the Group), the special purpose vehicles wholly
owned by Temasek (namely, Kovan Investments Pte. Ltd. and Aranda
Investments Pte. Ltd.), DBS Bank Ltd., Sumitomo Mitsui Banking
Corporation, Prudential Assurance Company Singapore (Pte) Limited,
and John Hancock Life Insurance Company (U.S.A.), with Asian
Development Bank subsequently joining as a party. This transaction
is considered to be a related party transaction under IAS 24. This
transaction also constitutes a connected transaction under Chapter
14A of the Hong Kong Listing Rules and has complied with the
requirements of that Chapter. Further details of the transaction
are set out in the Annual Report.
Other than as disclosed in the Annual Report, there were no
other transactions, arrangements or agreements outstanding for any
director, connected person or officer of the Company which have to
be disclosed under the Act, the rules of the UK Listing Authority
or the Hong Kong Listing Rules.
37. Post balance sheet events
On 14 January 2021, Standard Chartered PLC issued $1,250 million
fixed rate Additional Tier 1 (AT1) securities. On 14 January 2021,
Standard Chartered PLC also issued $1,500 million 0.991 per cent
senior debt due 2025 and $1,500 million 1.456 per cent senior debt
due 2027.
Following the publication of recent PRA guidance, the Board has
recommended a final ordinary dividend for 2020 of 9 cents a share
or $284 million. The Board has also decided to carry out a share
buy-back for up to a maximum consideration of $254 million to
further reduce the number of ordinary shares in issue by cancelling
the repurchased shares.
Nine vessels within the ship leasing business, disclosed as held
for sale at year end, were sold in January 2021.
38. Auditor's remuneration
Auditor's remuneration is included within other general
administration expenses. The amounts paid by the Group to their
principal auditor, Ernst & Young LLP and its associates
(together Ernst & Young LLP), are set out below. All services
are approved by the Group Audit Committee and are subject to
controls to ensure the external auditor's independence is
unaffected by the provision of other services.
2020 2019
$million $million
---------------------------------------------------- ---------- ----------
Audit fees for the Group statutory audit 11.0 10.0
Fees payable to EY/KPMG for other services provided
to the Group:
Audit of Standard Chartered PLC subsidiaries 9.9 8.4
---------------------------------------------------- ---------- ----------
Total audit fees 20.9 18.4
Audit-related assurance services 5.1 7.6
Other assurance services 2.1 0.1
Other non-audit services 0.1 -
Corporate finance transaction services 0.4 0.6
---------------------------------------------------- ---------- ----------
Total fees payable 28.6 26.7
---------------------------------------------------- ---------- ----------
The following is a description of the type of services included
within the categories listed above:
-- Audit fees for the Group statutory audit are in respect of
fees payable to Ernst & Young LLP for the statutory audit of
the consolidated financial statements of the Group and the separate
financial statements of Standard Chartered PLC
-- Audit-related fees consist of fees such as those for services
required by law or regulation to be provided by the auditor,
reviews of interim financial information, reporting on regulatory
returns, reporting to a regulator on client assets and extended
work performed over financial information and controls authorised
by those charged with governance
-- Other assurance services include agreed-upon-procedures in
relation to statutory and regulatory filings
-- Corporate finance transaction services are fees payable to
Ernst & Young LLP for issuing comfort letters
Expenses for costs incurred and disbursements made in respect of
their role as auditor, were reimbursed to EY. Such expenses since
their appointment on 31 March 2020, did not exceed 1% of total fees
charged above.
39. Standard Chartered PLC (Company)
Group reorganisation
The Board of the Group approved in 2018 an in principle group
reorganisation which would result in Standard Chartered Bank (SCB)
transferring its ordinary shares in Standard Chartered Bank (Hong
Kong) Limited (SCB HK), Standard Chartered Bank (China) Limited
(SCB China), Standard Chartered NEA Limited (SC NEA) and Standard
Chartered Bank (Taiwan) Limited (SCB TW) to other entities within
the Standard Chartered PLC Group.
On 4 March 2019, SCB transferred via a dividend in specie its
ordinary shares in SCB HK to Standard Chartered Holdings Limited
(SCH). SCH in turn transferred via a dividend in specie 100% of the
ordinary shares of SCB HK to Standard Chartered PLC (SC PLC), the
Group's ultimate parent.
On 1 June 2019, the Company transferred its shareholding in SCB
China to SCB HK in exchange for ordinary shares in SCB HK. On 3
June 2019, the Company transferred via dividend in specie such SCB
HK shares to SCH and in turn, SCH transferred via dividend in
specie such SCB HK shares to SC PLC.
On 1 October 2019, the Company transferred its ordinary shares
in SC NEA, the holding company of Standard Chartered Bank Korea
Limited, to SCB HK, and on the same day, its ordinary shares in SCB
TW to SC NEA.
All of the transfers were done on a fair value basis in the
Standard Chartered PLC (Company) accounts. The result of these
transfers was an increase in Investment in Subsidiaries and
corresponding dividend income of $20,989 million. This resulted in
an increase to retained earnings but no change to distributable
reserves.
Classification and measurement of financial instruments
2020 2019
---------------- ------------------------------------------------ ------------------------------------------------
Non-trading Non-trading
mandatorily mandatorily
at fair at fair
value value
Derivatives through Derivatives through
held Amortised profit held Amortised profit
for hedging cost or loss Total for hedging cost or loss Total
Financial assets $million $million $million $million $million $million $million $million
---------------- ------------ --------- ------------ --------- ------------ --------- ------------ ---------
Derivatives 971 - - 971 229 - - 229
Investment
securities - 11,146 12,783 23,929 - 13,665 4,5021 18,167
Amounts owed by
subsidiary
undertakings - 12,283 - 12,283 - 11,622 - 11,622
---------------- ------------ --------- ------------ --------- ------------ --------- ------------ ---------
Total 971 23,429 12,783 37,183 229 25,287 4,502 30,018
---------------- ------------ --------- ------------ --------- ------------ --------- ------------ ---------
1 Standard Chartered Bank, Standard Chartered Bank (Hong Kong)
Limited and Standard Chartered Bank (Singapore) Limited issued Loss
Absorbing Capacity (LAC) eligible debt securities
Instruments classified as amortised cost are recorded in Stage
1.
Derivatives held for hedging are held at fair value and are
classified as Level 2 while the counterparty is Standard Chartered
Bank and Standard Chartered Bank (Hong Kong) Limited.
Debt securities comprise corporate securities issued by Standard
Chartered Bank and have a fair value equal to carrying value of
$11,146 million (31 December 2019: $13,665 million).
In 2020 and 2019, amounts owed by Subsidiary undertakings have a
fair value equal to carrying value.
2020 2019
-------------------- ---------------------------------------------- ----------------------------------------------
Designated Designated
at fair at fair
value value
Derivatives through Derivatives through
held Amortised profit held Amortised profit
Financial for hedging cost or loss Total for hedging cost or loss Total
liabilities $million $million $million $million $million $million $million $million
-------------------- ------------ --------- ---------- --------- ------------ --------- ---------- ---------
Derivatives 360 - - 360 738 - - 738
Debt securities in
issue - 20,701 5,266 25,967 - 19,713 112 19,825
Subordinated
liabilities
and other borrowed
funds - 14,783 1,286 16,069 - 14,588 - 14,588
Amounts owed to
subsidiary
undertakings - 212 - 212 - 26 - 26
-------------------- ------------ --------- ---------- --------- ------------ --------- ---------- ---------
Total 360 35,696 6,552 42,608 738 34,327 112 35,177
-------------------- ------------ --------- ---------- --------- ------------ --------- ---------- ---------
Derivatives held for hedging are held at fair value and are
classified as Level 2 while the counterparty is Standard
Chartered Bank.
The fair value of debt securities in issue is $21,231 million
(31 December 2019: $20,030 million) and have fair value equal to
carrying value.
The fair value of subordinated liabilities and other borrowed
funds is $15,792 million (31 December 2019: $15,238 million).
Derivative financial instruments
2020 2019
---------------------------- ---------------------------------- ----------------------------------
Notional Notional
principal principal
amounts Assets Liabilities amounts Assets Liabilities
Derivatives $million $million $million $million $million $million
---------------------------- ---------- --------- ----------- ---------- --------- -----------
Foreign exchange derivative
contracts:
Forward foreign exchange 3,300 126 125 - 17 -
Currency swaps 3,895 17 186 5,114 - 642
Other foreign exchange
(OTC) - - - 1,564 34 -
Interest rate derivative
contracts:
Swaps 14,677 777 - 13,201 178 96
Forward rate agreements
and options 394 51 49 - - -
---------------------------- ---------- --------- ----------- ---------- --------- -----------
Total 22,266 971 360 19,879 229 738
---------------------------- ---------- --------- ----------- ---------- --------- -----------
Credit risk
Maximum exposure to credit risk
2020 2019
$million $million
---------------------------------------- ---------- ----------
Derivative financial instruments 971 229
Debt securities 23,929 18,167
Amounts owed by subsidiary undertakings 12,283 11,622
---------------------------------------- ---------- ----------
Total 37,183 30,018
---------------------------------------- ---------- ----------
In 2020 and 2019, amounts owed by Subsidiary undertakings were
neither past due nor impaired; the Company had no individually
impaired loans.
In 2020 and 2019, the Company had no impaired debt securities.
The debt securities held by the Company are issued by Standard
Chartered Bank (Hong Kong) Limited and by Standard Chartered Bank
(Singapore) Limited, subsidiary undertaking with credit ratings of
A+/A/A1.
There is no material expected credit loss on these instruments
as they are Stage 1 assets, short term in nature and of a high
quality.
Liquidity risk
The following table analyses the residual contractual maturity
of the assets and liabilities of the Company on a
discounted basis:
2020
------------------- -------------------------------------------------------------------------------------------------
Between Between More
one Between six Between Between Between than
month three months nine one two five
and months and months year years years
One month three and six nine and one and two and five and
or less months months months year years years undated Total
$million $million $million $million $million $million $million $million $million
------------------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
Assets
Derivative
financial
instruments 136 - - - 21 3 326 485 971
Investment
securities - - - - - 4,247 4,770 14,912 23,929
Amount owed by
subsidiary
undertakings 574 600 1,355 975 - 2,370 3,300 3,109 12,283
Investments in
Subsidiary
undertakings - - - - - - - 57,407 57,407
Other assets - - - - - - - 9 9
------------------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
Total assets 710 600 1,355 975 21 6,620 8,396 75,922 94,599
------------------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
Liabilities
Derivative
financial
instruments 138 - 114 - - 10 50 48 360
Senior debt 1,000 - 1,230 436 - 2,760 9,950 10,591 25,967
Amount owed to
subsidiary
undertakings - - - - - - - 212 212
Other liabilities 179 126 92 12 10 - - 46 465
Subordinated
liabilities
and other borrowed
funds - - - - - 1,956 3,710 10,403 16,069
------------------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
Total liabilities 1,317 126 1,436 448 10 4,726 13,710 21,300 43,073
------------------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
Net liquidity
gap (607) 474 (81) 527 11 1,894 (5,314) 54,622 51,526
------------------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
2019
------------------ --------------------------------------------------------------------------------------------------
Between Between More
Between Between six Between Between two than
one three months nine one years five
month months and months year and years
One month and three and six nine and one and two five and
or less months months months year years years undated Total
$million $million $million $million $million $million $million $million $million
------------------ --------- ---------- --------- --------- --------- --------- --------- --------- ---------
Assets
Derivative
financial
instruments 34 - 1 - - 8 52 134 229
Investment
securities - - - - - - 7,024 11,143 18,167
Amount owed by
subsidiary
undertakings - 5 2,104 - - 1,025 5,249 3,239 11,622
Investments in
Subsidiary
undertakings - - - - - - - 58,037 58,037
Other assets - - - - - - - 15 15
------------------ --------- ---------- --------- --------- --------- --------- --------- --------- ---------
Total assets 34 5 2,105 - - 1,033 12,325 72,568 88,070
------------------ --------- ---------- --------- --------- --------- --------- --------- --------- ---------
Liabilities
Derivative
financial
instruments - - 3 - 286 229 127 93 738
Senior debt - - 2,104 - - 2,547 7,734 7,328 19,713
Other debt
securities
in issue - - - - - - - - -
Amount owed to
subsidiary
undertakings - - - - - - - 26 26
Other liabilities 298 86 68 7 20 - - 36 515
Subordinated
liabilities
and other
borrowed
funds - - - - - - 5,478 9,110 14,588
------------------ --------- ---------- --------- --------- --------- --------- --------- --------- ---------
Total liabilities 298 86 2,175 7 306 2,776 13,339 16,593 35,580
------------------ --------- ---------- --------- --------- --------- --------- --------- --------- ---------
Net liquidity
gap (264) (81) (70) (7) (306) (1,743) (1,014) 55,975 52,490
------------------ --------- ---------- --------- --------- --------- --------- --------- --------- ---------
Financial liabilities on an undiscounted basis
2020
------------------- -------------------------------------------------------------------------------------------------
Between Between Between More
one Between six Between Between two than
month three months nine one years five
and months and months year and years
One month three and six nine and one and two five and
or less months months months year years years undated Total
$million $million $million $million $million $million $million $million $million
------------------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
Derivative
financial
instruments 138 - 114 - - 10 50 48 360
Debt securities
in issue 1,000 11 1,517 446 317 3,350 11,225 11,783 29,649
Subordinated
liabilities
and other borrowed
funds - - 239 - 359 2,567 5,069 14,700 22,934
Other liabilities - - - - - - - 36 36
------------------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
Total liabilities 1,138 11 1,870 446 676 5,927 16,344 26,567 52,979
------------------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
2019
----------------- ---------------------------------------------------------------------------------------------------
Between Between More
Between Between six Between Between two than
one three months nine one years five
month months and months year and years
One month and three and six nine and one and five and
or less months months months year two years years undated Total
$million $million $million $million $million $million $million $million $million
----------------- --------- ---------- --------- --------- --------- ---------- --------- --------- ---------
Derivative
financial
instruments - - 3 - 286 229 127 93 738
Debt securities
in issue - 18 2,331 18 250 3,030 8,879 8,145 22,671
Subordinated
liabilities
and other
borrowed
funds - - 221 26 361 618 7,002 14,166 22,394
Other liabilities 172 86 68 7 20 - - 13 366
----------------- --------- ---------- --------- --------- --------- ---------- --------- --------- ---------
Total liabilities 172 104 2,623 51 917 3,877 16,008 22,417 46,169
----------------- --------- ---------- --------- --------- --------- ---------- --------- --------- ---------
40. Related undertakings of the Group
As at 31 December 2020, the Group's interests in related
undertakings are disclosed below. Unless otherwise stated, the
share capital disclosed comprises ordinary or common shares which
are held by subsidiaries of the Group. Standard Chartered Bank
(Hong Kong) Limited, Standard Chartered Funding (Jersey) Limited,
Stanchart Nominees Limited, Standard Chartered Holdings Limited and
Standard Chartered Nominees Limited are directly held subsidiaries,
all other related undertakings are held indirectly. Unless
otherwise stated, the principal country of operation of each
subsidiary is the same as its country of incorporation. Note 32
details undertakings that have a significant contribution to the
Group's net profit or net assets.
Subsidiary undertakings
Proportion
of shares
Country of held
Name and registered address incorporation Description of shares (%)
--------------------------------------- --------------- ------------------------- ----------
The following companies have the
address of 1 Basinghall Avenue,
London, EC2V 5DD, United Kingdom
FinVentures UK Limited United Kingdom $1.00 Ordinary shares 100
GBP1.00 Ordinary
Pembroke Aircraft Leasing (UK) Limited United Kingdom shares 100
GBP1.00 Ordinary
SC (Secretaries) Limited United Kingdom shares 100
GBP1.00 Ordinary
SC Transport Leasing 1 Limited United Kingdom shares 100
GBP1.00 Ordinary
SC Transport Leasing 2 Limited United Kingdom shares 100
SC Ventures Innovation Investment Limited Partnership
L.P. United Kingdom interest 100
GBP0.10 Ordinary
SCMB Overseas Limited United Kingdom shares 100
GBP1.00 Ordinary
Stanchart Nominees Limited United Kingdom shares 100
GBP1.00 Ordinary
Standard Chartered Africa Limited United Kingdom shares 100
------------------------- ----------
$0.01 Non-Cumulative
Irredeemable Preference
Standard Chartered Bank United Kingdom shares 100
$5.00 Non-Cumulative
Redeemable Preference
shares 100
$1.00 Ordinary shares 100
--------------------------------------------------------------------------------- ----------
Standard Chartered Foundation1 United Kingdom Guarantor 100
Standard Chartered Health Trustee GBP1.00 Ordinary
(UK) Limited United Kingdom shares 100
Standard Chartered Holdings Limited United Kingdom $2.00 Ordinary shares 100
Standard Chartered I H Limited United Kingdom $1.00 Ordinary shares 100
Standard Chartered Leasing (UK)
2 Limited United Kingdom $1.00 Ordinary shares 100
Standard Chartered Leasing (UK)
3 Limited United Kingdom $1.00 Ordinary shares 100
Standard Chartered Leasing (UK)
Limited United Kingdom $1.00 Ordinary shares 100
Standard Chartered NEA Limited United Kingdom $1.00 Ordinary shares 100
GBP1.00 Ordinary
Standard Chartered Nominees Limited United Kingdom shares 100
Standard Chartered Nominees (Private
Clients UK) Limited United Kingdom $1.00 Ordinary shares 100
Standard Chartered Overseas Holdings GBP1.00 Ordinary
Limited United Kingdom shares 100
Standard Chartered Securities (Africa)
Holdings Limited United Kingdom $1.00 Ordinary shares 100
Standard Chartered Trustees (UK) GBP1.00 Ordinary
Limited United Kingdom shares 100
GBP10.00 Ordinary
Standard Chartered UK Holdings Limited United Kingdom shares 100
The SC Transport Leasing Partnership Limited Partnership
1 United Kingdom interest 100
The SC Transport Leasing Partnership Limited Partnership
2 United Kingdom interest 100
The SC Transport Leasing Partnership Limited Partnership
3 United Kingdom interest 100
The SC Transport Leasing Partnership Limited Partnership
4 United Kingdom interest 100
Limited Partnership
The BW Leasing Partnership 1 LP1 United Kingdom interest 100
Limited Partnership
The BW Leasing Partnership 2 LP1 United Kingdom interest 100
Limited Partnership
The BW Leasing Partnership 3 LP1 United Kingdom interest 100
Limited Partnership
The BW Leasing Partnership 4 LP1 United Kingdom interest 100
Limited Partnership
The BW Leasing Partnership 5 LP1 United Kingdom interest 100
--------------------------------------- --------------- ------------------------- ----------
The following companies have the
address of 2 More London Riverside,
London SE1 2JT, United Kingdom
Limited Partnership
Bricks (C&K) LP1 United Kingdom interest 100
Limited Partnership
Bricks (C) LP1 United Kingdom interest 100
Limited Partnership
Bricks (T) LP1 United Kingdom interest 100
--------------------------------------- --------------- ------------------------- ----------
The following company has the address
of 8th Floor, 20 Farringdon Street,
London, EC4A 4AB, United Kingdom
GBP1.00 Ordinary
SC Ventures G.P. Limited United Kingdom shares 100
--------------------------------------- --------------- ------------------------- ----------
The following companies have the
address of TMF Group, 8th Floor,
20 Farringdon Street, London, EC4A
4AB, United Kingdom.
Zodia Custody Limited United Kingdom $1.00 Ordinary shares 100
Zodia Holdings Limited United Kingdom $1.00 Ordinary shares 100
------------------------------------------- ------------------ ---------------------- ----
The following company has the address
of Rua Gamal Abdel Nasser, Edificio
Tres Torres, Eixo Viario, Distrito
Urbano da Ingombota, Municipio de
Luanda, Provincia de Luanda, Angola
AOK8,742.05 Ordinary
Standard Chartered Bank Angola S.A. Angola shares 60
------------------------------------------- ------------------ ---------------------- ----
The following company has the address
of Level 5, 345 George St, Sydney
NSW 2000, Australia
Standard Chartered Grindlays Pty
Limited Australia AUD Ordinary shares 100
------------------------------------------- ------------------ ---------------------- ----
The following companies have the
address of 5th Floor Standard House
Bldg, The Mall, Queens Road, PO
Box 496, Gaborone, Botswana
Standard Chartered Bank Insurance
Agency (Proprietary) Limited Botswana BWP Ordinary shares 100
Standard Chartered Investment Services
(Proprietary) Limited Botswana BWP Ordinary shares 100
Standard Chartered Bank Botswana
Limited Botswana BWP Ordinary shares 75.8
Standard Chartered Botswana Education
Trust2 Botswana Interest in trust 100
Standard Chartered Botswana Nominees
(Proprietary) Limited Botswana BWP Ordinary shares 100
------------------------------------------- ------------------ ---------------------- ----
The following company has the address
of Avenida Brigadeiro Faria Lima,
no 3.477, 6 andar, conjunto 62 -
Torre Norte, Condominio Patio Victor
Malzoni, CEP 04538-133, São
Paulo, Brazil
Standard Chartered Participacoes BRL1.00 Ordinary
Ltda Brazil shares 100
------------------------------------------- ------------------ ---------------------- ----
The following company has the address
of Avenida Brigadeiro Faria Lima,
3600 - 7deg andar, conj 72 04538-132,
São Paulo, Brazil.
Standard Chartered Representação BRL1.00 Ordinary
Ltda Brazil shares 100
------------------------------------------- ------------------ ---------------------- ----
The following company has the address
of G01-02, Wisma Haji Mohd Taha
Building, Jalan Gadong, BE4119,
Brunei Darussalam
Standard Chartered Securities (B) BND1.00 Ordinary
Sdn Bhd Brunei Darussalam shares 100
------------------------------------------- ------------------ ---------------------- ----
The following company has the address
of 1155, Boulevard de la Liberté,
Douala, B.P. 1784, Cameroon
Standard Chartered Bank Cameroon XAF10,000.00 Ordinary
S.A Cameroon shares 100
------------------------------------------- ------------------ ---------------------- ----
The following company has the address
of Maples Corporate Services Limited,
PO Box 309, Ugland House, Grand
Cayman KY1-1104, Cayman Islands
Limited Partnership
Cerulean Investments LP Cayman Islands interest 100
------------------------------------------- ------------------ ---------------------- ----
The following company has the address
of Maples Finance Limited, PO Box
1093 GT, Queensgate House, Georgetown,
Grand Cayman, Cayman Islands
$1,000.00 A Ordinary
SCB Investment Holding Company Limited Cayman Islands shares 100
------------------------------------------- ------------------ ---------------------- ----
The following company has the address
of Walkers Corporate Limited, Cayman
Corporate Centre, 27 Hospital Road
George Town, Grand Cayman KY1-9008,
Cayman Islands
Sirat Holdings Limited Cayman Islands $0.01 Ordinary shares 100
------------------------------------------- ------------------ ---------------------- ----
The following company has the address
of No. 1034, Managed by Tianjin
Dongjiang Secretarial Services Co.
Ltd, Room 202, Office Area of Inspection
Warehouse, No.6262 Ao Zhou Road,
Dongjiang Free Trade Port Zone,
Tianjin Pilot Free Trade Zone, China
Pembroke Aircraft Leasing (Tianjin)
Limited3 China $1.00 Ordinary shares 100
------------------------------------------- ------------------ ---------------------- ----
The following company has the address
of No. 1035, Managed by Tianjin
Dongjiang Secretarial Services Co.
Ltd, Room 202, Office Area of Inspection
Warehouse, No.6262 Ao Zhou Road,
Dongjiang Free Trade Port Zone,
Tianjin Pilot Free Trade Zone, China
Pembroke Aircraft Leasing Tianjin CNY1.00 Ordinary
1 Limited3 China shares 100
------------------------------------------- ------------------ ---------------------- ----
The following company has the address
of No. 1036, Managed by Tianjin
Dongjiang Secretarial Services,
Co. Ltd, Room 202, Office Area of
Inspection Warehouse, No.6262 Ao
Zhou Road, Dongjiang Free Trade
Port Zon, Tianjin Pilot Free Trade
Zone, China
Pembroke Aircraft Leasing Tianjin CNY1.00 Ordinary
2 Limited3 China shares 100
----------------------------------------------- -------------- ----------------------- -----
The following company has the address
of Standard Chartered Tower, 201
Century Avenue, Pudong, Shanghai
200120, China
Standard Chartered Bank (China)
Limited3 China CNY Ordinary shares 100
The following company has the address
of 26F, Fortune Financial Centre,
#5, Dong San Huan Zhong Lu, Chaoyang
District, Beijing, P. R. China.
Standard Chartered Corporate Advisory
Co. Ltd3 China $1.00 Ordinary shares 100
----------------------------------------------- -------------- ----------------------- -----
The following company has the address
of No. 35, Xinhuanbei Road, TEDA,
Tianjin, 300457, China
Standard Chartered Global Business
Services Co. Limited3 China $ Ordinary shares 100
----------------------------------------------- -------------- ----------------------- -----
The following companies have the
address of Units 61-65 (Office use
only), Self-numbered Room 01-04,
Room 901, No 6, Zhujiang East Road,
Tianhe District, Guangzhou City,
Guangdong Province, China
Standard Chartered (Guangzhou) Business
Management Co. Ltd.3 China $ Ordinary shares 100
Standard Chartered Global Business
Services (Guangzhou) Co. Ltd.3 China $ Ordinary shares 100
----------------------------------------------- -------------- ----------------------- -----
The following company has the address
of Standard Chartered Bank Cote
d'Ivoire, 23 Boulevard de la République,
Abidjan 17, 17 B.P. 1141, Cote d'Ivoire
Standard Chartered Bank Cote d' XOF100,000.00 Ordinary
Ivoire SA Cote d'Ivoire shares 100
----------------------------------------------- -------------- ----------------------- -----
The following company has the address
of Standard Chartered Bank France,
32 Rue de Monceau, 75008, Paris,
France
EUR1.00 Ordinary
Pembroke Lease France SAS France shares 100
----------------------------------------------- -------------- ----------------------- -----
The following company has the address
of 8 Ecowas Avenue, Banjul, Gambia
GMD1.00 Ordinary
Standard Chartered Bank Gambia Limited Gambia shares 74.85
----------------------------------------------- -------------- ----------------------- -----
The following company has the address
of Taunusanlage 16, 60325, Frankfurt
am Main, Germany
Standard Chartered Bank AG Germany EUR Ordinary shares 100
----------------------------------------------- -------------- ----------------------- -----
The following companies have the
address of Standard Chartered Bank
Building, 87 Independence Avenue,
P.O. Box 768, Accra, Ghana
----------------------- -----
Standard Chartered Bank Ghana PLC Ghana GHS Ordinary shares 69.4
GHS0.52 Preference
shares 87.0
-------------------------------------------------------------------------------------- -----
Standard Chartered Ghana Nominees
Limited Ghana GHS Ordinary shares 100
----------------------------------------------- -------------- ----------------------- -----
The following company has the address
of Standard Chartered Bank Ghana
Limited, 87, Independence Avenue,
Post Office Box 678, Accra, Ghana
Standard Chartered Wealth Management
Limited Company Ghana GHS Ordinary shares 100
----------------------------------------------- -------------- ----------------------- -----
The following company has the address
of 15/F, Standard Chartered Tower,
388 Kwun Tong Road, Kwun Tong, Kowloon,
Hong Kong
Horsford Nominees Limited Hong Kong HKD Ordinary shares 100
----------------------------------------------- -------------- ----------------------- -----
The following companies have the
address of 14th Floor, One Taikoo
Place, 979 King's Road, Quarry Bay,
Hong Kong.
Kozagi Limited Hong Kong HKD Ordinary shares 100
Standard Chartered PF Real Estate
(Hong Kong) Limited Hong Kong $ Ordinary shares 100
----------------------------------------------- -------------- ----------------------- -----
The following companies have the
address of 25/F, Standard Chartered
Bank Building, 4-4A Des Voeux Road,
Central, Hong Kong
Marina Acacia Shipping Limited Hong Kong $ Ordinary shares 100
Marina Amaryllis Shipping Limited Hong Kong $ Ordinary shares 100
Marina Amethyst Shipping Limited Hong Kong $ Ordinary shares 100
Marina Ametrine Shipping Limited Hong Kong $ Ordinary shares 100
Marina Angelite Shipping Limited Hong Kong $ Ordinary shares 100
Marina Apollo Shipping Limited Hong Kong $ Ordinary shares 100
Marina Beryl Shipping Limited Hong Kong $ Ordinary shares 100
Marina Carnelian Shipping Limited Hong Kong $ Ordinary shares 100
Marina Emerald Shipping Limited Hong Kong $ Ordinary shares 100
Marina Flax Shipping Limited Hong Kong $ Ordinary shares 100
Marina Gloxinia Shipping Limited Hong Kong $ Ordinary shares 100
Marina Hazel Shipping Limited Hong Kong $ Ordinary shares 100
---------------------- ----
Marina Honor Shipping Limited Hong Kong HKD Ordinary shares 100
$ Ordinary shares 100
--------------------------------------------------------------------------- ----
Marina Ilex Shipping Limited Hong Kong $ Ordinary shares 100
Marina Iridot Shipping Limited Hong Kong $ Ordinary shares 100
Marina Kunzite Shipping Limited Hong Kong $ Ordinary shares 100
Marina Leasing Limited Hong Kong $ Ordinary shares 100
Marina Mimosa Shipping Limited Hong Kong $ Ordinary shares 100
Marina Moonstone Shipping Limited Hong Kong $ Ordinary shares 100
Marina Peridot Shipping Limited Hong Kong $ Ordinary shares 100
Marina Sapphire Shipping Limited Hong Kong $ Ordinary shares 100
---------------------- ----
Marina Splendor Shipping Limited Hong Kong HKD Ordinary shares 100
$ Ordinary shares 100
--------------------------------------------------------------------------- ----
Marina Tourmaline Shipping Limited Hong Kong $ Ordinary shares 100
Standard Chartered Leasing Group
Limited Hong Kong $ Ordinary shares 100
Standard Chartered Trade Support
(HK) Limited Hong Kong HKD Ordinary shares 100
----------------------------------------- ---------- ---------------------- ----
The following companies have the
address of 3/F Standard Chartered
Bank Building, 4-4A Des Voeux Road
Central,
Hong Kong
Standard Chartered Private Equity
Limited Hong Kong HKD Ordinary shares 100
Standard Chartered Private Equity
Managers (Hong Kong) Limited Hong Kong HKD Ordinary shares 100
----------------------------------------- ---------- ---------------------- ----
The following company has the address
of 13/F, Standard Chartered Bank
Building, 4-4A Des Voeux Road, Central,
Hong Kong
Standard Chartered Trust (Hong Kong)
Limited Hong Kong HKD Ordinary shares 100
----------------------------------------- ---------- ---------------------- ----
The following company has the address
of 15/F, Two International Finance
Centre, No. 8 Finance Street, Central,
Hong Kong
Standard Chartered Securities (Hong
Kong) Limited Hong Kong HKD Ordinary shares 100
----------------------------------------- ---------- ---------------------- ----
The following company has the address
of 21/F, Standard Chartered Tower,
388 Kwun Tong Road, Kwun Tong, Kowloon,
Hong Kong
---------------------- ----
Standard Chartered Asia Limited Hong Kong HKD Deferred shares 100
----------------------------------------- ----------
HKD Ordinary shares 100
$ Ordinary shares 100
--------------------------------------------------------------------------- ----
The following companies have the
address of 32/F, Standard Chartered
Bank Building, 4-4A Des Voeux Road,
Central, Hong Kong
---------------------- ----
Standard Chartered Bank (Hong Kong)
Limited Hong Kong HKD A Ordinary shares 100
HKD B Ordinary shares 100
$ D Ordinary shares 100
$ C Ordinary shares 100
--------------------------------------------------------------------------- ----
Mox Bank Limited Hong Kong HKD Ordinary shares 65.1
----------------------------------------- ---------- ---------------------- ----
The following company has the address
of 1st Floor, Europe Building, No.1,
Haddows Road, Nungambakkam, Chennai,
600 006, India
Standard Chartered Global Business
Services Private Limited India INR10.00 Equity shares 100
------------------------------------------ -------- ----------------------- -----
The following company has the address
of 90 M.G.Road, II Floor, Fort,
Mumbai, Maharashtra, 400 001, India
Standard Chartered Finance Private INR10.00 Ordinary
Limited India shares 98.68
------------------------------------------ -------- ----------------------- -----
The following company has the address
of Crescenzo, 6th Floor, Plot No
38-39, G Block, Bandra Kurla Complex,
Bandra East, Mumbai, Maharashtra,
400051, India
Standard Chartered Investments and INR10.00 Ordinary
Loans (India) Limited India shares 100
------------------------------------------ -------- ----------------------- -----
The following company has the address
of Crescenzo, 3A Floor, Plot No
38-39, G Block, Bandra Kurla Complex,
Bandra East, Mumbai, Maharashtra,
400051, India
Standard Chartered Private Equity INR1,000.00 Ordinary
Advisory (India) Private Limited India shares 100
------------------------------------------ -------- ----------------------- -----
The following company has the address
of Second Floor, Indiqube Edge,
Khata No. 571/630/6/4, Sy.No.6/4,
Ambalipura Village, Varthur Hobli,
Marathahalli Sub-Division, Ward
No. 150, Bengaluru, 560102, India.
----------------------- -----
Standard Chartered Research and INR10.00 A Equity
Technology India Private Limited India shares 100
------------------------------------------ --------
INR10.00 Preference
shares 100
--------------------------------------------------------------------------- -----
The following company has the address
of 2nd Floor, 23-25 M.G. Road, Fort,
Mumbai, 400 001, India
Standard Chartered Securities (India) INR10.00 Ordinary
Limited India shares 100
------------------------------------------ -------- ----------------------- -----
The following company has the address
of Ground Floor, Crescenzo Building,
G Block, C 38/39 , Bandra Kurla
Complex, Bandra (East), Mumbai,
Maharashtra, 400051, India
St Helen's Nominees India Private
Limited India INR10.00 Equity shares 100
------------------------------------------ -------- ----------------------- -----
The following company has the address
of Vaishnavi Serenity, First Floor,
No. 112, Koramangala Industrial
Area, 5th Block, Koramangala, Bangalore,
Karnataka, 560095, India
Standard Chartered (India) Modeling
and Analytics Centre Private Limited India INR10.00 Equity shares 100
------------------------------------------ -------- ----------------------- -----
The following companies have the
address of 32 Molesworth Street,
Dublin 2, D02 Y512, Ireland
EUR1.00 Ordinary
Inishbrophy Leasing Limited Ireland shares 100
Inishcannon Leasing Limited Ireland $1.00 Ordinary shares 100
Inishcrean Leasing Limited Ireland $1.00 Ordinary shares 100
EUR1.00 Ordinary
Inishdawson Leasing Limited Ireland shares 100
Inisherkin Leasing Limited Ireland $1.00 Ordinary shares 100
EUR1.00 Ordinary
Inishlynch Leasing Limited Ireland shares 100
Inishoo Leasing Limited Ireland $1.00 Ordinary shares 100
Nightjar Limited Ireland $1.00 Ordinary shares 100
EUR1.00 Ordinary
Pembroke Aircraft Leasing 1 Limited Ireland shares 100
EUR1.00 Ordinary
Pembroke Aircraft Leasing 2 Limited Ireland shares 100
Pembroke Aircraft Leasing 3 Limited Ireland $1.00 Ordinary shares 100
Pembroke Aircraft Leasing 4 Limited Ireland $1.00 Ordinary shares 100
Pembroke Aircraft Leasing 5 Limited Ireland $1.00 Ordinary shares 100
Pembroke Aircraft Leasing 6 Limited Ireland $1.00 Ordinary shares 100
Pembroke Aircraft Leasing 7 Limited Ireland $1.00 Ordinary shares 100
Pembroke Aircraft Leasing 8 Limited Ireland $1.00 Ordinary shares 100
Pembroke Aircraft Leasing 9 Limited Ireland $1.00 Ordinary shares 100
Pembroke Aircraft Leasing 10 Limited Ireland $1.00 Ordinary shares 100
Pembroke Aircraft Leasing 11 Limited Ireland $1.00 Ordinary shares 100
Pembroke Aircraft Leasing 12 Limited Ireland $1.00 Ordinary shares 100
Pembroke Aircraft Leasing 13 Limited Ireland $1.00 Ordinary shares 100
Pembroke Aircraft Leasing 14 Limited Ireland $1.00 Ordinary shares 100
Pembroke Aircraft Leasing 15 Limited Ireland $1.00 Ordinary shares 100
Pembroke Aircraft Leasing 16 Limited Ireland $1.00 Ordinary shares 100
Pembroke Aircraft Leasing Holdings
Limited Ireland $1.00 Ordinary shares 100
----------------------- -----
EUR1.25 Ordinary
Pembroke Capital Limited Ireland shares 100
$1.00 Ordinary shares 100
--------------------------------------------------------------------------- -----
Skua Limited Ireland $1.00 Ordinary shares 100
------------------------------------------ -------- ----------------------- -----
The following company has the address
of First Names House, Victoria Road,
Douglas, IM2 4DF, Isle of Man
Pembroke Group Limited5 Isle of Man $0.01 Ordinary shares 100
----------------------------------------- ---------------- ---------------------------- -----
The following companies have the
address of 1st Floor, Goldie House,
1-4 Goldie Terrace, Upper Church
Street, Douglas, IM1 1EB, Isle of
Man
---------------------------- -----
Standard Chartered Assurance Limited Isle of Man $1.00 Ordinary shares 100
$1.00 Redeemable
Preference shares 100
--------------------------------------------------------------------------------------- -----
Standard Chartered Insurance Limited6 Isle of Man $1.00 Ordinary shares 100
----------------------------------------- ---------------- ---------------------------- -----
The following company has the address
of 21/F, Sanno Park Tower, 2-11-1
Nagatacho, Chiyoda-ku, Tokyo, 100-6155,
Japan
Standard Chartered Securities (Japan) JPY50,000 Ordinary
Limited Japan shares 100
----------------------------------------- ---------------- ---------------------------- -----
The following company has the address
of 15 Castle Street, St Helier,
JE4 8PT, Jersey
SCB Nominees (CI) Limited Jersey $1.00 Ordinary shares 100
----------------------------------------- ---------------- ---------------------------- -----
The following company has the address
of IFC 5, St Helier, JE1 1ST, Jersey
Standard Chartered Funding (Jersey) GBP1.00 Ordinary
Limited6 Jersey shares 100
----------------------------------------- ---------------- ---------------------------- -----
The following companies have the
address of StandardChartered@Chiromo,
Number 48, Westlands Road,
P. O. Box 30003 - 00100, Nairobi,
Kenya
Standard Chartered Investment Services KES20.00 Ordinary
Limited Kenya shares 100
---------------------------- -----
KES5.00 Ordinary
Standard Chartered Bank Kenya Limited Kenya shares 74.32
KES5.00 Preference
shares 100
--------------------------------------------------------------------------------------- -----
Standard Chartered Securities (Kenya) KES10.00 Ordinary
Limited Kenya shares 100
Standard Chartered Financial Services KES20.00 Ordinary
Limited Kenya shares 100
Standard Chartered Insurance Agency KES100.00 Ordinary
Limited Kenya shares 100
Standard Chartered Kenya Nominees KES20.00 Ordinary
Limited Kenya shares 100
----------------------------------------- ---------------- ---------------------------- -----
The following company has the address
of M6-2701, West 27Fl, Suha-dong,
26, Eulji-ro 5-gil, Jung-gu, Seoul,
Korea, Republic of
Korea, Republic KRW5,000.00 Ordinary
Resolution Alliance Korea Ltd4 of shares 100
----------------------------------------- ---------------- ---------------------------- -----
The following companies have the
address of 2/F, 47 Jongno, Jongno-gu,
Seoul, 110-702, Korea, Republic
of
Korea, Republic KRW5,000.00 Ordinary
Standard Chartered Bank Korea Limited of shares 100
Standard Chartered Securities Korea Korea, Republic KRW5,000.00 Ordinary
Limited of shares 100
----------------------------------------- ---------------- ---------------------------- -----
The following company has the address
of Atrium Building, Maarad Street,
3rd Floor, P.O.Box: 11-4081 Riad
El Solh, Beirut, Beirut Central
District, Lebanon
Standard Chartered Metropolitan $10.00 Ordinary A
Holdings SAL Lebanon shares 100
----------------------------------------- ---------------- ---------------------------- -----
The following companies have the
address of Level 26, Equatorial
Plaza, Jalan Sultan Ismail, 50250
Kuala Lumpur, Malaysia
Cartaban (Malaya) Nominees Sdn Berhad Malaysia RM Ordinary shares 100
Cartaban Nominees (Asing) Sdn Bhd Malaysia RM Ordinary shares 100
Cartaban Nominees (Tempatan) Sdn
Bhd Malaysia RM Ordinary shares 100
Golden Maestro Sdn Bhd Malaysia RM Ordinary shares 100
Popular Ambience Sdn Bhd Malaysia RM Ordinary shares 100
Price Solutions Sdn Bhd Malaysia RM Ordinary shares 100
SCBMB Trustee Berhad Malaysia RM Ordinary shares 100
---------------------------- -----
Standard Chartered Bank Malaysia RM Irredeemable Convertible
Berhad Malaysia Preference shares 100
RM Ordinary shares 100
--------------------------------------------------------------------------------------- -----
Standard Chartered Saadiq Berhad Malaysia RM Ordinary shares 100
----------------------------------------- ---------------- ---------------------------- -----
The following companies have the
address of TMF Trust Labuan Limited,
Brumby Centre, Lot 42, Jalan Muhibbah,
87000 Labuan F.T., Malaysia
Marina Morganite Shipping Limited7 Malaysia $ Ordinary shares 100
Marina Moss Shipping Limited7 Malaysia $ Ordinary shares 100
Marina Tanzanite Shipping Limited7 Malaysia $ Ordinary shares 100
Pembroke Leasing (Labuan) 3 Berhad Malaysia $ Ordinary shares 100
----------------------------------------- ---------------- ---------------------------- -----
The following company has the address
of Suite 18-1, Level 18, Vertical
Corporate Tower B, Avenue 10, The
Vertical, Bangsar South City , No.
8, Jalan Kerinchi , 59200 Kuala
Lumpur, Wilayah Persekutuan, Malaysia
--------------------------- ------
Resolution Alliance Sdn Bhd1 Malaysia RM Ordinary shares 91
------------------------------------------ -----------------
RM Irredeemable Preference
shares 100
---------------------------------------------------------------------------------------- ------
The following company has the address
of Level 1, Wisma Standard Chartered,
Jalan Teknologi 8, Taman Teknologi
Malaysia, 57000 Bukit Jalil, Kuala
Lumpur, Wilayah Persekutuan, Malaysia
Standard Chartered Global Business
Services Sdn Bhd Malaysia RM Ordinary shares 100
------------------------------------------ ----------------- --------------------------- ------
The following companies have the
address of Trust Company Complex,
Ajeltake Road, Ajeltake Island,
Majuro, MH96960, Marshall Islands
Marina Alysse Shipping Limited7 Marshall Islands $1.00 Ordinary shares 100
Marina Amandier Shipping Limited7 Marshall Islands $1.00 Ordinary shares 100
Marina Ambroisee Shipping Limited7 Marshall Islands $1.00 Ordinary shares 100
Marina Angelica Shipping Limited7 Marshall Islands $1.00 Ordinary shares 100
Marina Aventurine Shipping Limited7 Marshall Islands $1.00 Ordinary shares 100
Marina Buxus Shipping Limited7 Marshall Islands $1.00 Ordinary shares 100
Marina Citrine Shipping Limited7 Marshall Islands $1.00 Ordinary shares 100
Marina Dahlia Shipping Limited7 Marshall Islands $1.00 Ordinary shares 100
Marina Dittany Shipping Limited7 Marshall Islands $1.00 Ordinary shares 100
Marina Dorado Shipping Limited7 Marshall Islands $1.00 Ordinary shares 100
Marina Lilac Shipping Limited7 Marshall Islands $1.00 Ordinary shares 100
Marina Lolite Shipping Limited7 Marshall Islands $1.00 Ordinary shares 100
Marina Obsidian Shipping Limited7 Marshall Islands $1.00 Ordinary shares 100
Marina Pissenlet Shipping Limited7 Marshall Islands $1.00 Ordinary shares 100
Marina Protea Shipping Limited7 Marshall Islands $1.00 Ordinary shares 100
Marina Quartz Shipping Limited7 Marshall Islands $1.00 Ordinary shares 100
Marina Remora Shipping Limited7 Marshall Islands $1.00 Ordinary shares 100
Marina Turquoise Shipping Limited7 Marshall Islands $1.00 Ordinary shares 100
Marina Zircon Shipping Limited7 Marshall Islands $1.00 Ordinary shares 100
------------------------------------------ ----------------- --------------------------- ------
The following company has the address
of SGG Corporate Services (Mauritius)
Ltd, 33, Edith Cavell St, Port Louis,
11324, Mauritius
--------------------------- ------
Actis Treit Holdings (Mauritius) Class A $1.00 Ordinary
Limited1 Mauritius shares 62.001
------------------------------------------ -----------------
Class B $1.00 Ordinary
shares 62.001
---------------------------------------------------------------------------------------- ------
The following company has the address
of 6/F, Standard Chartered Tower,
19, Bank Street, Cybercity, Ebene,
72201, Mauritius
Standard Chartered Bank (Mauritius)
Limited Mauritius $ Ordinary shares 100
------------------------------------------ ----------------- --------------------------- ------
The following companies have the
address of c/o Ocorian Corporate
Services (Mauritius) Ltd, 6th Floor,
Tower A, 1 Cybercity, Ebene, 72201,
Mauritius
Standard Chartered Financial Holdings Mauritius $1.00 Ordinary shares 100
Standard Chartered Private Equity
(Mauritius) Limited Mauritius $1.00 Ordinary shares 100
Standard Chartered Private Equity
(Mauritius) II Limited Mauritius $1.00 Ordinary shares 100
Standard Chartered Private Equity
(Mauritius) lll Limited Mauritius $1.00 Ordinary shares 100
------------------------------------------ ----------------- --------------------------- ------
The following company has the address
of C/O International Proximity,
5th Floor, Ebene Esplanade, 24 Bank
Street, Cybercity, Ebene, Plaines,
Wilhems, 72201, Mauritius
Subcontinental Equities Limited Mauritius $1.00 Ordinary shares 100
------------------------------------------ ----------------- --------------------------- ------
The following company has the address
of Standard Chartered Bank Nepal
Limited, Madan Bhandari Marg, Ward
No.34, Kathmandu Metropolitan City,
Kathmandu District, Bagmati Zone,
Kathmandu, Nepal
NPR100.00 Ordinary
Standard Chartered Bank Nepal Limited Nepal shares 70.21
------------------------------------------ ----------------- --------------------------- ------
The following company has the address
of Hoogoorddreef 15, 1101 BA, Amsterdam,
Netherlands
EUR450.00 Ordinary
Pembroke Holland B.V. Netherlands shares 100
------------------------------------------ ----------------- --------------------------- ------
The following companies have the
address of 1 Basinghall Avenue,
London, EC2V 5DD, United Kingdom
Standard Chartered Holdings (Africa) EUR4.50 Ordinary
B.V6. Netherlands shares 100
Standard Chartered Holdings (Asia EUR4.50 Ordinary
Pacific) B.V.6 Netherlands shares 100
Standard Chartered Holdings (International) EUR4.50 Ordinary
B.V.6 Netherlands shares 100
EUR4.50 Ordinary
Standard Chartered MB Holdings B.V.6 Netherlands shares 100
-------------------------------------------- ------------- --------------------------- -----
The following companies have the
address of 142, Ahmadu Bello Way,
Victoria Island, Lagos, 101241,
Nigeria
NGN1.00 Ordinary
Cherroots Nigeria Limited Nigeria Shares 100
--------------------------- -----
NGN1.00 Irredeemable
Standard Chartered Bank Nigeria Non Cumulative Preference
Limited Nigeria shares 100
NGN1.00 Ordinary
shares 100
NGN1.00 Redeemable
Preference shares 100
-------------------------------------------------------------------------------------- -----
Standard Chartered Capital & Advisory NGN1.00 Ordinary
Nigeria Limited Nigeria shares 100
Standard Chartered Nominees (Nigeria) NGN1.00 Ordinary
Limited Nigeria shares 100
-------------------------------------------- ------------- --------------------------- -----
The following company has the address
of 3/F Main SCB Building, I.I Chundrigar
Road, Karachi, Sindh, 74000, Pakistan
Price Solution Pakistan (Private) PKR10.00 Ordinary
Limited Pakistan shares 100
-------------------------------------------- ------------- --------------------------- -----
The following company has the address
of P.O. Box No. 5556I.I. Chundrigar
Road, Karachi, 74000, Pakistan
Standard Chartered Bank (Pakistan) PKR10.00 Ordinary
Limited Pakistan shares 98.99
-------------------------------------------- ------------- --------------------------- -----
The following company has the address
of Rondo Daszyńskiego 2B, 00-843
, Warsaw, Poland
Standard Chartered Global Business
Services spólka z ograniczona PLN50.00 Ordinary
odpowiedzialnoscia Poland shares 100
-------------------------------------------- ------------- --------------------------- -----
The following company has the address
of Vistra Corporate Services Centre,
Ground Floor, NPF Building, Beach
Road, Apia, Samoa
Standard Chartered Nominees (Western
Samoa) Limited Samoa $1.00 Ordinary shares 100
-------------------------------------------- ------------- --------------------------- -----
The following company has the address
of Al Faisaliah Office Tower Floor
No 7 (T07D) , King Fahad Highway,
Olaya District, Riyadh P.O. box
295522, Riyadh, 11351, Saudi Arabia
Standard Chartered Capital (Saudi SAR10.00 Ordinary
Arabia) Saudi Arabia shares 100
-------------------------------------------- ------------- --------------------------- -----
The following company has the address
of 9 & 11, Lightfoot Boston Street,
Freetown, Sierra Leone
Standard Chartered Bank Sierra Leone SLL1.00 Ordinary
Limited Sierra Leone shares 80.7
-------------------------------------------- ------------- --------------------------- -----
The following company has the address
of Marina Bay Financial Centre (Tower
1), 8 Marina Boulevard, Level 23,
018981, Singapore
Standard Chartered Private Equity
(Singapore) Pte. Ltd Singapore $ Ordinary shares 100
-------------------------------------------- ------------- --------------------------- -----
The following companies have the
address of 8 Marina Boulevard, Level
26, Marina Bay Financial Centre,
Tower 1, 018981, Singapore
Marina Aquata Shipping Pte. Ltd Singapore $ Ordinary shares 100
--------------------------- -----
Marina Aruana Shipping Pte. Ltd Singapore SGD Ordinary shares 100
$ Ordinary shares 100
-------------------------------------------------------------------------------------- -----
Marina Aster Shipping Pte. Ltd Singapore SGD Ordinary shares 100
--------------------------- -----
Marina Cobia Shipping Pte. Ltd Singapore SGD Ordinary shares 100
$ Ordinary shares 100
-------------------------------------------------------------------------------------- -----
Marina Daffodil Shipping Pte. Ltd Singapore SGD Ordinary shares 100
Marina Fatmarini Shipping Pte. Ltd Singapore $ Ordinary shares 100
Marina Frabandari Shipping Pte.
Ltd Singapore $ Ordinary shares 100
Marina Freesia Shipping Pte. Ltd Singapore SGD Ordinary shares 100
Marina Gerbera Shipping Pte. Ltd Singapore $ Ordinary shares 100
Marina Mars Shipping Pte. Ltd Singapore SGD Ordinary shares 100
Marina Mercury Shipping Pte. Ltd Singapore SGD Ordinary shares 100
--------------------------- -----
Marina Opah Shipping Pte. Ltd Singapore SGD Ordinary shares 100
$ Ordinary shares 100
-------------------------------------------------------------------------------------- -----
Marina Partawati Shipping Pte. Ltd Singapore $ Ordinary shares 100
Marina Poise Shipping Pte. Ltd Singapore $ Ordinary shares 100
-------------------------------------------- ------------- --------------------------- -----
The following companies have the
address of 9 Raffles Place, #27-00
Republic Plaza, 048619, Singapore.
Actis RE Investment 1 Private Limited1 Singapore SGD Ordinary shares 100
Actis RE Investment 2 Private Limited1 Singapore SGD Ordinary shares 100
Actis RE Investment 3 Private Limited1 Singapore SGD Ordinary shares 100
Actis RE Investment 4 Private Limited1 Singapore SGD Ordinary shares 100
Actis Treit Holdings No.1 (Singapore)
Private Limited1 Singapore SGD Ordinary shares 100
Actis Treit Holdings No.2 (Singapore)
Private Limited1 Singapore SGD Ordinary shares 100
------------------------------------------ ----------------- ----------------------- -----
The following company has the address
of 7 Changi Business Park Crescent,
#03-00 Standard Chartered @ Changi,
486028, Singapore
Raffles Nominees (Pte.) Limited Singapore SGD Ordinary shares 100
------------------------------------------ ----------------- ----------------------- -----
The following companies have the
address of 8 Marina Boulevard, #27-01
Marina Bay Financial Centre Tower
1, 018981, Singapore
SCTS Capital Pte. Ltd Singapore SGD Ordinary shares 100
SCTS Management Pte. Ltd Singapore SGD Ordinary shares 100
----------------------- -----
Standard Chartered Bank (Singapore)
Limited Singapore SGD Ordinary shares 100
SGD Non-cumulative
Preference shares 100
SGD Non-cumulative
Class C Preference
shares 100
$ Ordinary shares 100
$ Preference shares 100
------------------------------------------------------------------------------------ -----
Standard Chartered Trust (Singapore)
Limited Singapore SGD Ordinary shares 100
----------------------- -----
Standard Chartered Holdings (Singapore)
Private Limited Singapore SGD Ordinary shares 100
$ Ordinary shares 100
------------------------------------------------------------------------------------ -----
SC Bank Solutions (Singapore) Limited Singapore SGD Ordinary shares 100
Standard Chartered Real Estate Investment
Holdings (Singapore) Private Limited Singapore $ Ordinary shares 100
------------------------------------------ ----------------- ----------------------- -----
The following company has the address
of 120 Robinson Road, #08-01, 068913,
Singapore
Standard Chartered Nominees (Singapore)
Pte Ltd Singapore SGD Ordinary shares 100
------------------------------------------ ----------------- ----------------------- -----
The following companies have the
address of 80 Robinson Road, #02-00,
068898, Singapore
Autumn Life Pte. Ltd Singapore $ Ordinary shares 100
Cardspal Pte. Ltd Singapore $ Ordinary shares 100
Nexco Pte. Ltd Singapore $ Ordinary shares 100
------------------------------------------ ----------------- ----------------------- -----
The following companies have the
address of 2nd Floor, 115 West Street,
Sandton, Johannesburg, 2196, South
Africa
ZAR1.00 Ordinary
CMB Nominees (RF) PTY Limited South Africa shares 100
Standard Chartered Nominees South
Africa Proprietary Limited (RF) South Africa ZAR Ordinary shares 100
------------------------------------------ ----------------- ----------------------- -----
The following company has the address
of 1, 2, 4, 7, 9, 10F, No. 168/170
&, 8F, 12F, No.168, Tun Hwa N. Rd.,
Songshan Dist., Taipei, 105, Taiwan
Standard Chartered Bank (Taiwan) TWD10.00 Ordinary
Limited Taiwan shares 100
------------------------------------------ ----------------- ----------------------- -----
The following companies have the
address of 1 Floor, International
House, Shaaban Robert Street / Garden
Avenue, PO Box 9011, Dar Es Salaam,
Tanzania, United Republic of
----------------------- -----
Tanzania,
Standard Chartered Bank Tanzania United Republic TZS1,000.00 Ordinary
Limited of shares 100
TZS1,000.00 Preference
shares 100
------------------------------------------------------------------------------------ -----
Tanzania,
Standard Chartered Tanzania Nominees United Republic TZS1,000.00 Ordinary
Limited of shares 100
------------------------------------------ ----------------- ----------------------- -----
The following company has the address
of 100 North Sathorn Road, Silom,
Bangrak Bangkok , 10500, Thailand
Standard Chartered Bank (Thai) Public THB10.00 Ordinary
Company Limited Thailand shares 99.99
------------------------------------------ ----------------- ----------------------- -----
The following company has the address
of Buyukdere Cad. Yapi Kredi Plaza
C Blok, Kat 15, Levent, Istanbul,
34330, Turkey
Standard Chartered Yatirim Bankasi TRL0.10 Ordinary
Turk Anonim Sirketi Turkey shares 100
------------------------------------------ ----------------- ----------------------- -----
The following company has the address
of Standard Chartered Bank Bldg,
5 Speke Road, PO Box 7111, Kampala,
Uganda
UGS1,000.00 Ordinary
Standard Chartered Bank Uganda Limited Uganda shares 100
------------------------------------------ ----------------- ----------------------- -----
The following company has the address
of 505 Howard St. #201, San Francisco,
CA 94105, United States
SC Studios, LLC United States Membership Interest 100
------------------------------------------ ---------------- ----------------------- ---
The following company has the address
of Standard Chartered Bank, 37F,
1095 Avenue of the Americas, New
York 10036, United States
Standard Chartered Bank International $1,000.00 Ordinary
(Americas) Limited United States shares 100
------------------------------------------ ---------------- ----------------------- ---
The following companies have the
address of Corporation Trust Centre,
1209 Orange Street, Wilmington DE
19801, United States
Standard Chartered Holdings Inc. United States $100.00 Common shares 100
Standard Chartered Capital Management
(Jersey), LLC United States $ Ordinary shares 100
Standard Chartered Securities (North
America) LLC United States Membership interest 100
StanChart Securities International
LLC United States Membership interest 100
Standard Chartered International
(USA) LLC United States Membership interest 100
------------------------------------------ ---------------- ----------------------- ---
The following company has the address
of 50 Fremont Street, San Francisco
CA 94105, United States
Standard Chartered Overseas Investment
Inc. United States $10.00 Ordinary shares 100
------------------------------------------ ---------------- ----------------------- ---
The following company has the address
of C/O Corporation Service Company,
251 Little Falls Drive, Wilmington
DE 19808, United States
Standard Chartered Trade Services
Corporation United States $0.01 Common shares 100
------------------------------------------ ---------------- ----------------------- ---
The following company has the address
of Room 1810-1815, Level 18, Building
72, Keangnam Hanoi Landmark Tower,
Pham Hung Road, Cau Giay New Urban
Area, Me Tri Ward, Nam Tu Liem District,
Hanoi 10000, Vietnam
Standard Chartered Bank (Vietnam) VND Charter Capital
Limited Vietnam shares 100
------------------------------------------ ---------------- ----------------------- ---
The following companies have the
address of Vistra Corporate Services
Centre, Wickhams Cay II, Road Town,
Tortola, VG1110, Virgin Islands,
British
Virgin Islands,
Sky Favour Investments Limited British $1.00 Ordinary shares 100
Virgin Islands,
Sky Harmony Holdings Limited British $1.00 Ordinary shares 100
------------------------------------------ ---------------- ----------------------- ---
The following companies have the
address of Stand 13, Standard Chartered
House, Cairo Road, P.O. Box 32238,
Lusaka, Zambia , 10101, Zambia
ZMW0.25 Ordinary
Standard Chartered Bank Zambia Plc Zambia shares 90
Standard Chartered Zambia Securities ZMW1.00 Ordinary
Services Nominees Limited Zambia shares 100
------------------------------------------ ---------------- ----------------------- ---
The following companies have the
address of Africa Unity Square Building,
68 Nelson Mandela Avenue, Harare,
Zimbabwe
Africa Enterprise Network Trust2 Zimbabwe Interest in trust 100
Standard Chartered Bank Zimbabwe
Limited Zimbabwe $1.00 Ordinary shares 100
Standard Chartered Nominees Zimbabwe
(Private) Limited Zimbabwe $2.00 Ordinary shares 100
------------------------------------------ ---------------- ----------------------- ---
1 The Group has determined that these undertakings are excluded
from being consolidated into the Groups accounts, and do not meet
the definition of a subsidiary under IFRS. See Notes 31 and 32 for
the consolidation policy and disclosure of the undertaking
2 No share capital by virtue of being a trust
3 Limited liability company
4 The Group has determined the principal country of operation to
be Singapore
5 The Group has determined the principal country of operation to
be Ireland
6 The Group has determined the principal country of operation to
be the United Kingdom
7 The Group has determined the principal country of operation to
be Hong Kong
Joint ventures
Proportion
of shares
Country of held
Name and registered address incorporation Description of shares (%)
-------------------------------------- --------------- ---------------------- ----------
The following company has the address
of 38 Beach Road,
#29-11 South Beach Tower, 189767,
Singapore
---------------------- ----------
Assembly Payments Pte. Ltd. Singapore $ Ordinary shares 50
-------------------------------------- ---------------
$ Preference shares 50
----------------------------------------------------------------------------- ----------
The following company has the address
of 100/36 Sathorn Nakorn Tower,
Fl 21 North Sathorn Road, Silom
Sub-District, Bangrak District,
Bangkok, 10500, Thailand
THB10.00 Ordinary
Resolution Alliance Limited Thailand shares 49
-------------------------------------- --------------- ---------------------- ----------
Associates
Proportion
of shares
Country of held
Name and registered address incorporation Description of shares (%)
------------------------------------------- ---------------- ---------------------- ----------
The following company has the address
of 3 More London Riverside, London,
England, SE1 2AQ, United Kingdom
Trade Information Network Limited United Kingdom $1.00 Ordinary shares 16.667
------------------------------------------- ---------------- ---------------------- ----------
The following company has the address
of Bohai Bank Building, No.218 Hai
He Dong Lu, Hedong District, Tianjin,
China, 300012, China
China Bohai Bank Co. Ltd China CNY Ordinary shares 16.263
------------------------------------------- ---------------- ---------------------- ----------
The following company has the address
of 17/F, 100, Gongpyeong-dong, Jongno-gu,
Seoul, Korea, Republic of
Korea, Republic KRW1.00 Partnership
Ascenta IV of interest 39.063
------------------------------------------- ---------------- ---------------------- ----------
The following company has the address
of C/o CIM Corporate Services Ltd,
Les Cascades, Edith Cavell Street,
Port Louis, Mauritius
FAI Limited Mauritius $1.00 Ordinary shares 25
------------------------------------------- ---------------- ---------------------- ----------
The following company has the address
of Victoria House, State House Avenue,
Victoria, MAHE, Seychelles
Seychelles International Mercantile SCR1,000.00 Ordinary
Banking Corporation Limited Seychelles shares 22
------------------------------------------- ---------------- ---------------------- ----------
The following company has the address
of 1 Raffles Quay, #23-01, One Raffles
Quay, 048583, Singapore
Clifford Capital Holdings Pte. Ltd. Singapore $1.00 Ordinary shares 9.9
------------------------------------------- ---------------- ---------------------- ----------
The following company has the address
of Avenue de Tivoli 2, 1007, Lausanne,
Switzerland
CHF 0.01 Preference
Metaco SA Switzerland A shares 29.505
------------------------------------------- ---------------- ---------------------- ----------
Significant investment holdings and other related
undertakings
Proportion
of shares
Country of held
Name and registered address incorporation Description of shares (%)
-------------------------------------------- --------------- ---------------------- ----------
The following company has the address
of Intertrust Corporate Services
(Cayman) Limited, 190 Elgin Avenue,
George Town, Grand Cayman, KY1-9005,
Cayman Islands
---------------------- ----------
$0.01 A Ordinary
ATSC Cayman Holdco Limited Cayman Islands shares 5.3
-------------------------------------------- ---------------
$0.01 B Ordinary
shares 100
----------------------------------------------------------------------------------- ----------
The following company has the address
of 3, Floor 1, No.1, Shiner Wuxingcaiyuan,
West Er Huan Rd, Xi Shan District,
Kunming, Yunnan Province, PR, China
Yunnan Golden Shiner Property Development CNY1.00 Ordinary
Co. Ltd China shares 42.5
-------------------------------------------- --------------- ---------------------- ----------
The following companies have the
address of Unit 605-08, 6/F Wing
On Centre, 111 Connaught Rd, Central
Sheung Wan, Hong Kong
---------------------- ----------
$ Class A Ordinary
Actis Carrock Holdings (HK) Limited Hong Kong shares 39.69
$ Class B Ordinary
shares 39.69
----------------------------------------------------------------------------------- ----------
$ Class A Ordinary
Actis Jack Holdings (HK) Limited Hong Kong shares 39.69
$ Class B Ordinary
shares 39.69
----------------------------------------------------------------------------------- ----------
$ Class A Ordinary
Actis Rivendell Holdings (HK) Limited Hong Kong shares 39.69
$ Class B Ordinary
shares 39.69
----------------------------------------------------------------------------------- ----------
Actis Temple Stay Holdings (HK) $ Class A Ordinary
Limited Hong Kong shares 39.69
$ Class B Ordinary
shares 39.69
----------------------------------------------------------------------------------- ----------
$ Class A Ordinary
Actis Young City Holdings (HK) Limited Hong Kong shares 39.69
-------------------------------------------- ---------------
$ Class B Ordinary
shares 39.69
----------------------------------------------------------------------------------- ----------
The following company has the address
of 1221 A, Devika Tower, 12th Floor,
6 Nehru Place, New Delhi 110019,
India
INR10.00 Ordinary
Mikado Realtors Private Limited India shares 26
-------------------------------------------- --------------- ---------------------- ----------
The following company has the address
of Elphinstone Building, 2nd Floor,
10 Veer Nariman Road, Fort, Mumbai
-400001, Maharashtra, India
INR10.00 Ordinary
TRIL IT4 Private Limited India shares 26
-------------------------------------------- --------------- ---------------------- ----------
The following company has the address
of 4/F, 274, Chitalia House, Dr.
Cawasji Hormusji Road, Dhobi Talao,
Mumbai City, Maharashtra, India
400 002, India
Industrial Minerals and Chemical INR100.00 Ordinary
Co. Pvt. Ltd India shares 26
-------------------------------------------- --------------- ---------------------- ----------
The following company has the address
of 17/F (Gongpyung-dong), 100, Jongno-gu,
Seoul, Korea, Republic of
Korea, Republic KRW Class B Equity
Ascenta III of shares 31
------------------------------------------- ---------------- --------------------------- ------
The following company has the address
of 1 Venture Avenue, #07-07 Big
Box, 608521, Singapore
SGD Redeemable Convertible
Omni Centre Pte. Ltd. Singapore Preference shares 100
------------------------------------------- ---------------- --------------------------- ------
The following company has the address
of 3 Jalan Pisang, c/o Watiga Trust
Ltd, 199070 Singapore
SCIAIGF Liquidating Trust Singapore Interest in trust 43.96
------------------------------------------- ---------------- --------------------------- ------
The following company has the address
of 251 Little Falls Drive, Wilmington,
New Castle DE 19808, United States
--------------------------- ------
$0.0001 Series C2
Paxata, Inc. United States Preferred Stock 40.741
------------------------------------------- ----------------
$0.0001 Series C3
Preferred Stock 10.112
---------------------------------------------------------------------------------------- ------
In liquidation
Subsidiary undertakings
Proportion
of shares
Country of held
Name and registered address incorporation Description of shares (%)
------------------------------------------ ------------------ ------------------------ ----------
The following company has the address
of Deloitte LLP,
1 New Street Square, London, EC3A
3HQ, United Kingdom
SC Leaseco Limited United Kingdom $1.00 Ordinary shares 100
------------------------------------------ ------------------ ------------------------ ----------
The following companies have the
address of Hill House, 1 Little
New Street, London, EC4A 3TR, United
Kingdom
Standard Chartered APR Limited United Kingdom $1.00 Ordinary shares 100
GBP1.00 Ordinary
Compass Estates Limited United Kingdom shares 100
Standard Chartered Masterbrand Licensing
Limited United Kingdom $1.00 Ordinary shares 100
------------------------------------------ ------------------ ------------------------ ----------
The following company has the address
of 2 More London Riverside, London
SE1 2JT, United Kingdom
Limited Partnership
Bricks (M) LP United Kingdom interest 100
------------------------------------------ ------------------ ------------------------ ----------
The following company has the address
of 51-55 Jalan Sultan, Complex Jalan
sultan, Bandar Seri Begawan, BS8811,
Brunei Darussalam
Standard Chartered Finance (Brunei) BND1.00 Ordinary
Bhd Brunei Darussalam shares 100
------------------------------------------ ------------------ ------------------------ ----------
The following company has the address
of Mourant Ozannes Corporate Services
(Cayman) Limited, Harbour Centre,
42 North Church Street, PO Box 1348,
Grand Cayman KY1-1108, Cayman Islands
$1.00 Management
Sunflower Cayman SPC Cayman Islands shares 100
------------------------------------------ ------------------ ------------------------ ----------
The following company has the address
of Walkers Corporate Limited, Cayman
Corporate Centre, 27 Hospital Road
George Town, Grand Cayman KY1-9008,
Cayman Islands
Standard Chartered Principal Finance $0.0001 Ordinary
(Cayman) Limited Cayman Islands shares 100
------------------------------------------ ------------------ ------------------------ ----------
The following company has the address
of No. 188 Yeshen Rd, 11F, A-1161
RM, Pudong New District, Shanghai
31201308, China
Standard Chartered Trading (Shanghai) $15,000,000.00 Ordinary
Limited China shares 100
------------------------------------------ ------------------ ------------------------ ----------
The following companies have the
address of Bordeaux Court, Les Echelons,
South Esplanade, St. Peter Port,
Guernsey
GBP1.00 Ordinary
Birdsong Limited Guernsey shares 100
GBP1.00 Ordinary
Nominees One Limited Guernsey shares 100
GBP1.00 Ordinary
Nominees Two Limited Guernsey shares 100
GBP1.00 Ordinary
Songbird Limited Guernsey shares 100
Standard Chartered Secretaries (Guernsey) GBP1.00 Ordinary
Limited Guernsey shares 100
Standard Chartered Trust (Guernsey) GBP1.00 Ordinary
Limited Guernsey shares 100
------------------------------------------ ------------------ ------------------------ ----------
The following company has the address
of 13/F, Standard Chartered Tower,
388 Kwun Tong Road, Kwun Tong, Kowloon,
Hong Kong
S C Learning Limited Hong Kong HKD Ordinary shares 100
------------------------------------------ ------------------ ------------------------ ----------
The following company has the address
of 8/Floor, Gloucester Tower , The
Landmark, 15 Queen's Road Central,
Hong Kong
Leopard Hong Kong Limited Hong Kong $ Ordinary shares 100
------------------------------------------ ------------------ ------------------------ ----------
The following company has the address
of 32/F, Standard Chartered Bank
Building, 4-4A Des Voeux Road, Central,
Hong Kong
Standard Chartered Sherwood (HK)
Limited Hong Kong HKD Ordinary shares 100
------------------------------------------ ------------------ ------------------------ ----------
The following company has the address
of 14th Floor, One Taikoo Place,
979 King's Road, Quarry Bay, Hong
Kong.
----------------------- -----
Ori Private Limited Hong Kong $ Ordinary shares 100
------------------------------------------ -----------
$ A Ordinary shares 90.7
------------------------------------------------------------------------------ -----
The following company has the address
of Menara Standard Chartered, 3rd
Floor, Jl. Prof.Dr. Satrio no. 164,
Setiabudi, Jarkarta Selatan, Indonesia
PT Solusi Cakra Indonesia (dalam IDR23,809,600.00
likuidasi) Indonesia Ordinary shares 99
------------------------------------------ ----------- ----------------------- -----
The following company has the address
of No. 157 - 157 A, Jakarta Barat,
11130, Indonesia
PT. Price Solutions Indonesia (dalam $100.00 Ordinary
likuidasi) Indonesia shares 100
------------------------------------------ ----------- ----------------------- -----
The following company has the address
of Standard Chartered@Chiromo, Number
48, Westlands Road, P. O. Box 30003
- 00100, Nairobi, Kenya
Standard Chartered Management Services KES20.00 Ordinary
Limited Kenya shares 100
------------------------------------------ ----------- ----------------------- -----
The following company has the address
of 30 Rue Schrobilgen, 2526, Luxembourg
Standard Chartered Financial Services EUR25.00 Ordinary
(Luxembourg) S.A. Luxembourg shares 100
------------------------------------------ ----------- ----------------------- -----
The following companies have the
address of Brumby Centre, Lot 42,
Jalan Muhibbah, 87000 Labuan F.T.,
Malaysia
Pembroke Leasing (Labuan) 2 Berhad Malaysia $ Ordinary shares 100
Pembroke Leasing (Labuan) Pte Limited Malaysia $ Ordinary shares 100
------------------------------------------ ----------- ----------------------- -----
The following company has the address
of IQ EQ Corporate Services (Mauritius)
Ltd , Les Cascades Building, 33,
Edith Cavell Street Port Louis,
11324, Mauritius
----------------------- -----
Actis Asia Real Estate (Mauritius) Class A $1.00 Ordinary
Limited Mauritius shares 100
------------------------------------------ -----------
Class B $1.00 Ordinary
shares 100
------------------------------------------------------------------------------ -----
The following company has the address
of Jiron Huascar 2055, Jesus Maria,
Lima 15072, Peru
$75.133 Ordinary
Banco Standard Chartered en Liquidacion Peru shares 100
------------------------------------------ ----------- ----------------------- -----
The following company has the address
of 8 Marina Boulevard, Level 27,
Marina Bay Financial Centre, Tower
1, 018981, Singapore
SGD1.00 Ordinary
Standard Chartered (2000) Limited Singapore shares 100
------------------------------------------ ----------- ----------------------- -----
The following company has the address
of Abogado Pte Ltd, No. 8 Marina
Boulevard, #05-02 MBFC Tower 1,
018981, Singapore
Standard Chartered IL&FS Management
(Singapore) Pte. Limited Singapore $ Ordinary shares 50
------------------------------------------ ----------- ----------------------- -----
The following company has the address
of 6/F, Hewlett Packard Building,
337 Fu Hsing North Road, Taipei,
Taiwan
TWD1,000.00 Ordinary
Kwang Hua Mocatta Company Ltd. (Taiwan) Taiwan shares 97.92
------------------------------------------ ----------- ----------------------- -----
The following company has the address
of Luis Alberto de Herrera 1248,
Torre II, Piso 11, Esc. 1111, Uruguay
Standard Chartered Uruguay Representacion UYU1.00 Ordinary
S.A. Uruguay shares 100
------------------------------------------ ----------- ----------------------- -----
Significant investment holdings and other related
undertakings
Proportion
of shares
Country of held
Name and registered address incorporation Description of shares (%)
-------------------------------------- --------------- ----------------------- ----------
The following company has the address
of Lot 6.05, Level 6, KPMG Tower,
8 First Avenue, Bandar Utama, 47800
Petaling Jaya, Selangor, Malaysia
House Network SDN BHD Malaysia RM1.00 Ordinary shares 25
-------------------------------------- --------------- ----------------------- ----------
Liquidated/dissolved/sold
Subsidiary undertakings
Proportion
of shares
Country of held
Name and registered address incorporation Description of shares (%)
--------------------------------------- ----------------- ---------------------------- ----------
GBP1.00 Ordinary
B.W.A Dependents Limited United Kingdom shares 100
Limited Partnership
Bricks (P) LP United Kingdom interest 100
---------------------------- ----------
Standard Chartered Capital Markets GBP1.00 Ordinary
Limited United Kingdom shares 100
$1.00 Ordinary shares 100
-------------------------------------------------------------------------------------- ----------
GBP5.00 Ordinary
Chartered Financial Holdings Limited United Kingdom shares 100
GBP1.00 Preference
shares 100
-------------------------------------------------------------------------------------- ----------
Standard Chartered Debt Trading GBP1.00 Ordinary
Limited United Kingdom shares 100
CAD1.00 Ordinary
Standard Chartered (Canada) Limited Canada shares 100
Standard Chartered Saadiq Mudarib
Company Limited Cayman Islands $1.00 Ordinary shares 100
COP1.00 Ordinary
Sociedad Fiduciaria Extebandes S.A. Colombia shares 100
American Express International Finance $1,000.00 Ordinary
Corp.N.V. Curaçao shares 100
$1,000.00 Ordinary
Ricanex Participations N.V. Curaçao shares 100
HKD1.00 Ordinary
Majestic Legend Limited Hong Kong shares 100
Standard Chartered Global Trading
Investments Limited Hong Kong HKD Ordinary shares 100
EUR1.25 Ordinary
Pembroke Capital Shannon Limited Ireland shares 100
Korea, Republic KRW1,000,000.00 Partnership
Ascenta II of interest 100
Amphissa Corporation Sdn Bhd Malaysia RM1.00 Ordinary shares 100
Marina Celsie Shipping Limited Marshall Islands $1.00 Ordinary shares 100
Standard Chartered PF Managers Pte.
Limited Singapore $ Ordinary shares 100
---------------------------- ----------
Standard Chartered Bank (Switzerland) CHF1,000.00 Ordinary
S.A. Switzerland shares 100
--------------------------------------- -----------------
CHF100.00 Participation
Capital shares 100
-------------------------------------------------------------------------------------- ----------
Joint ventures
Proportion
of shares
Country of held
Name and registered address incorporation Description of shares (%)
---------------------------- --------------- ---------------------- ----------
PT Bank Permata Tbk Indonesia IDR125.00 B shares 44.6
---------------------------- --------------- ---------------------- ----------
Significant investment holdings and other related
undertakings
Proportion
of shares
Country of held
Name and registered address incorporation Description of shares (%)
--------------------------------------------- --------------- ------------------------- ----------
Standard Chartered IL&FS Asia Infrastructure
(Cayman) Limited Cayman Islands $0.01 Ordinary shares 50
Standard Chartered IL&FS Asia Infrastructure
Growth Fund Company Limited Cayman Islands $1.00 Ordinary shares 50
Standard Chartered IL&FS Asia Infrastructure
Growth Fund, L.P. Cayman Islands Partnership interest 38.6
IDR50.00 Series B
PT Trikomsel Oke Tbk Indonesia shares 29.195
------------------------- ----------
$1.00 Class A Redeemable
Standard Jazeera Limited Jersey Preference shares 20
$1.00 Class C Redeemable
Preference shares 100
$1.00 Ordinary shares 20
--------------------------------------------------------------------------------------- ----------
$1,000.00 Ordinary
Standard Topaz Limited Jersey shares 20.1
--------------------------------------------- ---------------
$1.00 Class C Redeemable
Preference shares 100
--------------------------------------------------------------------------------------- ----------
41. Dealings in Standard Chartered PLC listed securities
This is also disclosed as part of Note 28 Share capital, other
equity and reserves
Except as disclosed, neither the Company nor any of its
subsidiaries has bought, sold or redeemed any securities of the
company listed on The Stock Exchange of Hong Kong Limited during
the period. Details of the shares purchased and held by the trusts
are set out below.
1995 Trust 2004 Trust Total
--------------------------- ------------------------ ---------------------- ----------------------
Number of shares 2020 2019 2020 2019 2020 2019
--------------------------- ----------- ----------- ---------- ---------- ---------- ----------
Shares purchased during
the year 2,999,210 646,283 14,359,481 24,065,354 17,358,691 24,711,637
Market price of shares
purchased ($million) 22 5 86 201 108 206
Shares transferred between
trusts (2,999,210) (3,001,103) 2,999,210 3,001,103 - -
Shares held at the end
of the period - - 6,119,666 5,113,455 6,119,666 5,113,455
Maximum number of shares
held during the year 11,262,818 15,070,923
--------------------------- ----------- ----------- ---------- ---------- ---------- ----------
42. Corporate governance
The directors confirm that Standard Chartered PLC (the Company)
has complied with all of the provisions set out in the UK Corporate
Governance Code 2014 during the year ended 31 December 2020. The
directors also confirm that, throughout the year, the Company has
complied with the code provisions set out in the Hong Kong
Corporate Governance Code contained in Appendix 14 of the Hong Kong
Listing Rules. The Group confirms that it has adopted a code of
conduct regarding directors' securities transactions on terms no
less exacting than required by Appendix 10 of the Hong Kong Listing
Rules and that the directors of the Company have complied with the
required standards of the adopted code of conduct. The directors
also confirm that the announcement of these results has been
reviewed by the Company's Audit Committee.
Shareholder information
Forward-looking statements
This document may contain 'forward-looking statements' that are
based on current expectations or beliefs, as well as assumptions
about future events. These forward-looking statements can be identi
ed by the fact that they do not relate only to historical or
current facts. Forward-looking statements often use words such as
'may', 'could', 'will', 'expect', 'intend', 'estimate',
'anticipate', 'believe', 'plan', 'seek', 'continue' or other words
of similar meaning. By their very nature, such statements are
subject to known and unknown risks and uncertainties and can be
affected by other factors that could cause actual results, and the
Group's plans and objectives, to differ materially from those
expressed or implied in the forward-looking statements.
Recipients should not place reliance on, and are cautioned about
relying on, any forward-looking statements. There are several
factors which could cause actual results to differ materially from
those expressed or implied in forward-looking statements. The
factors that could cause actual results to differ materially from
those described in the forward-looking statements include (but are
not limited to) changes in global, political, economic, business,
competitive, market and regulatory forces or conditions, future
exchange and interest rates, changes in tax rates, future business
combinations or dispositions and other factors speci c 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 pro t forecast
or to imply that the earnings of the Group for the current year or
future years will necessarily match or exceed the historical or
published earnings of the Group. Each forward-looking statement
speaks only as of the date of the particular statement. Except as
required by any applicable laws or regulations, the Group expressly
disclaims any obligation to revise or update any forward-looking
statement contained within this document, regardless of whether
those statements are affected as a result of new information,
future events or otherwise.
Nothing in this document shall constitute, in any jurisdiction,
an offer or solicitation to sell or purchase any securities or
other nancial instruments, nor shall it constitute a recommendation
or advice in respect of any securities or other nancial instruments
or any other matter.
Further information can be obtained from the Company's
registrars or from ShareGift on 020 7930 3737 or from
sharegift.org
Details of voting at the Company's AGM and of proxy votes cast
can be found on the Company's website at sc.com/agm
Please register online at investorcentre.co.uk or contact our
registrar for a mandate form.
This information will be available on the Group's website at
sc.com
You can check your shareholding at
computershare.com/hk/investors
If you would like to receive more information, please visit our
website at sc.com/shareholders or contact the shareholder helpline
on 0370 702 0138.
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
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Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
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contained in this communication, and to share such analysis on an
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use the personal data you provide us, please see our Privacy
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END
FR TAMJTMTATMMB
(END) Dow Jones Newswires
February 25, 2021 02:00 ET (07:00 GMT)
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