Final Results

Standard Chartered PLC 18 February 2004 TO CITY EDITORS 18 February 2004 FOR IMMEDIATE RELEASE STANDARD CHARTERED PLC RESULTS FOR 2003 HIGHLIGHTS STANDARD CHARTERED PLC RESULTS FOR THE YEAR ENDED 31 DECEMBER 2003 Results â€¢ Profit before tax rose 22 per cent to $1,542 million compared with $1,262 million in 2002. â€¢ Net revenue up 5 per cent to $4,753 million from $4,539 million in 2002. â€¢ Costs up 4 per cent to $2,664 million (2002: $2,557 million). â€¢ Debt charge down 25 per cent to $536 million (2002: $712 million). â€¢ Normalised earnings per share at 89.6 cents (2002: 74.9 cents), up 20 per cent. â€¢ Normalised return on equity at 15.3 per cent (2002: 13.4 per cent). â€¢ Annual dividend per share increased by 10.6 per cent to 52.0 cents. Significant achievements â€¢ Consumer Banking revenue outside Hong Kong up 10 per cent. â€¢ Turnaround in Hong Kong - operating profit up 17 per cent. â€¢ Wholesale Banking operating profit up 18 per cent. â€¢ Expanded into new markets - South Africa, South Korea. Commenting on these results, the Chairman of Standard Chartered PLC, Bryan Sanderson, said: 'I am very pleased to report that our Group has delivered another strong performance. Not only did our business succeed in making up for the uncertain economic start to 2003, we went on to achieve strong growth over the previous year, underlining the progress we are making towards our goal of leading the way in Asia, Africa and the Middle East.' STANDARD CHARTERED PLC - TABLE OF CONTENTS Page Summary of Results 3 Chairman's Statement 4 Group Chief Executive's Review 6 Financial Review Group Summary 11 Consumer Banking 11 Wholesale Banking 14 Risk 17 Capital 30 Financial Statements Consolidated Profit and Loss Account 33 Summarised Consolidated Balance Sheet 34 Other Statements 35 Consolidated Cash Flow Statement 36 Notes on the Financial Statements 37 Unless another currency is specified, the word 'dollar' or symbol '$' in this document means United States dollar. STANDARD CHARTERED PLC - SUMMARY OF RESULTS FOR THE YEAR ENDED 31 DECEMBER 2003 2003 2002* $m $m RESULTS Net revenue 4,753 4,539 Provisions for bad and doubtful debts and contingent liabilities (536) (712) Profit before taxation 1,542 1,262 Profit attributable to shareholders 1,018 844 BALANCE SHEET Total assets 120,282 112,953 Shareholders' funds: Equity 7,066 6,638 Non-equity 649 632 Capital resources 14,296 12,974 INFORMATION PER ORDINARY SHARE Cents Cents Earnings per share - normalised basis 89.6 74.9 basic 81.5 57.6 Dividends per share 52.0 47.0 Net asset value per share 603.9 569.8 RATIOS % % Post-tax return on equity - normalised basis 15.3 13.4 Cost income ratio - normalised basis 53.9 53.6 Capital ratios: Tier 1 capital 8.8 8.3 Total capital 14.6 14.2 * Comparatives restated (see note 3 on page 38). Results on a normalised basis reflect the Group's results excluding amortisation of goodwill, profits/losses of a capital nature and profits/losses on repurchase of share capital. STANDARD CHARTERED PLC - CHAIRMAN'S STATEMENT I am very pleased to report that our Group has delivered Of course, there are always shocks. But in recent years, another strong performance. the world economy, and our markets, have shown remarkable resilience to these shocks and policy makers have demonstrated their ability to respond quickly. Not only did our businesses succeed in making up for the uncertain economic start to 2003, we went on to achieve strong growth over the previous year, underlining the Positioned for Growth progress we are making towards our goal of leading the way in Asia, Africa and the Middle East. Our plans are led by organic growth. We are operating in dynamic markets with attractive growth rates. There is 2003 Results plenty of potential for us to grow in these markets. Performance is my top priority. This year's results are However, we recognise that there are a number of places evidence of the strength and focus of our management team where we have opportunities to build a bigger presence; and the performance culture that is developing throughout examples are China, South Africa and South Korea. We will the Group. continue to consider acquisitions but we are very disciplined in our approach. It is notable that Standard Chartered delivered a 37 per cent increase in total shareholder return last year, the During the year, we created a range of opportunities in highest of the major UK banks. new markets and we will move these forward in 2004. We are recommending a final dividend of 36.49 cents per Last summer we returned to South Africa with the award of share, compared with 32.90 cents in 2002. This gives a a banking licence and the acquisition of the digital total dividend of 52.0 cents, an increase of 10.6 per financial services company 20twenty. We took a 9.8% stake cent over 2002. in Koram, South Korea's sixth largest bank for $154 million. We were the first international bank to be awarded a licence in Afghanistan. In Iraq, we play a A Changing World leading role in the consortium running the Trade Bank of Iraq. We have recently opened a representative office in Turkey. The economic climate has improved significantly. We have entered 2004 with a strengthening world economy and increasing business confidence. In Hong Kong, we are in the process of incorporating our local business. This is a further sign of our commitment to Hong Kong and will help us take advantage of closer There are signs of vibrant economic growth in our major economic integration with China. markets in the year ahead. In January 2004 we sold our 0.4 per cent shareholding in The Asian economies are out-performing and China is Bank of China's subsidiary BOC Hong Kong, making a gain particularly strong. China is having a major impact of $35 million. We will use these funds to further across Asia, boosting intra-regional trade. Hong Kong, in organic growth in China. These gains are not included in particular, has benefited from measures China introduced our results for 2003. to promote closer economic integration. World trade has continued to outstrip world growth, benefiting our core regions. The economic cycle is proving beneficial for Africa and the Middle East. The combination of a weak dollar and global recovery is keeping oil and commodity prices high. STANDARD CHARTERED PLC - CHAIRMAN'S STATEMENT (continued) Corporate Governance sustaining the growth of our business and for long-term profitability. We have a responsibility for the type of business we do, and to the communities we serve. I would like to thank Ronnie Chan, Barry Clare and Cob Stenham who retired from the Board during 2003. They made a valuable contribution to our Board. I also want to During 2003, the Group's 150th anniversary, we made thank Sir Patrick Gillam, my predecessor, who played a substantial efforts to reinvest in the communities where key role in making Standard Chartered the bank it is we do business. In a year in which we grew our operating today. profit by 22 per cent, our employees also raised $1.4 million, enough to restore the sight of 56,000 people through our 'Seeing is Believing' campaign. In addition David Moir and Sir Ralph Robins will be retiring from the all our staff were educated on HIV/AIDS, as part of our Board after the Annual General Meeting on May 11, 2004. 'Living with HIV' programme which was awarded the Global Business Coalition Award for Business Excellence. We also saw the appointment of two new non-executive directors: Paul Skinner and Ruth Markland. They both have Our Corporate Social Responsibility initiatives made a a wealth of talent to offer. Ruth has great expertise in major contribution to the engagement of employees in our Asia, where she was Managing Partner Asia for Freshfields business strategy and have enhanced our reputation with Bruckhaus Deringer and a deep understanding of the our customers. regulatory environment there. Paul is the Chairman of Rio Tinto, one of the most successful global mining companies. In his former position at Royal Dutch Shell he The Way Ahead was CEO of the Group's global Oil Products business. Standard Chartered continues to achieve strong profit These changes to the Board bring us closer in line with growth in most of its markets. With the growth of our corporate governance guidelines under the new Combined businesses in India and the Middle East we have a more Code, which came into effect in January 2004. Further balanced platform. changes can be anticipated as we continue to shape our Board in line with best practice. Our brand has a long and positive association with our markets in Asia, Africa and the Middle East. It is my view that good performance and good governance reinforce each other. We attach great importance to the high standards of governance we have achieved in all our Our business is in good shape and the economic outlook markets and will ensure that these are sustained. across our markets is far more positive than 12 months ago. Corporate Social Responsibility Standard Chartered has many options for future growth, which, with disciplined management, we look forward to Another aspect of good governance is good corporate exploring. Our primary goal is to improve shareholder citizenship. This is essential for return. In 2003 we achieved record results. We are determined to deliver again in 2004. Bryan Sanderson CBE Chairman 18 February 2004 STANDARD CHARTERED PLC - GROUP CHIEF EXECUTIVE'S REVIEW The Bank has achieved strong results in 2003. We are disciplined Group. Our brand is stronger and we have a establishing a track record of consistent delivery. clear strategic direction. Our aspiration is to be the world's best international In 2003 we improved performance despite a challenging bank, leading the way in Asia, Africa and the Middle environment, with the SARS virus in East Asia, the war in East. Iraq and the low interest rate environment globally. This has demonstrated the strength of our management, the I see the past two years as the first phase of our motivation of our people and the resilience of our journey towards this aspiration; performance improvement, business. and bringing returns to a higher level. We are now entering the next phase which will be about growth, investment and continued delivery. Two years ago, our management team made a commitment to improve the Bank's financial performance. Our 2003 Priorities Last year we outlined to you the following agenda for Since then, operating profit has increased from $1.1 2003: billion to over $1.5 billion. Return on Equity has improved from 12.0 per cent to 15.3 per cent. Earnings â€¢ Drive returns in Wholesale Banking Per Share (EPS) has grown from 66.3c to 89.6c up 35 per cent. â€¢ Grow Consumer Banking revenue â€¢ Accelerate growth in India The key for us going forward is to deliver against a balanced scorecard of sustainable revenue growth, tightly â€¢ Leverage opportunities in China controlled costs, increasing EPS and improved Total Shareholder Return. At the same time we have to invest in â€¢ Drive technology improvements our brand and ensure our staff are engaged. We have made good progress. This will involve making some trade-offs on key metrics. Wholesale Banking In 2003 we took advantage of good profits in the first half to invest in our Consumer Banking business and lay Drive returns further foundations for growth in 2004. We deliberately traded short-term improvement in our cost income ratio to We committed to improving returns in Wholesale Banking by accelerate growth. However, we remain focused on costs changing the shape of the business, reducing the risk and we expect an improvement in our cost income ratio profile and achieving positive 'jaws' - the gap between this year. revenue growth and cost growth. We have done so. We have rationalised our customer base. We traded revenue We have also traded revenue to reduce the risk of parts for risk reduction, which is reflected in our improved of our business, and we are seeing the benefits of this bad debt line. We have also invested in new product in the reduction in our bad debts. capabilities, particularly in our Global Markets business. The result has been a low level of bad debts, diversified revenue streams and improved returns. In short, we have grown our business. We have delivered better returns and we have invested for growth. In 2003, profits increased by 18 per cent, driven by revenue growth of seven per cent. There was tight control on costs and an outstanding net bad debt performance. We have also improved our processes and controls. We have become a more tightly STANDARD CHARTERED PLC - GROUP CHIEF EXECUTIVE'S REVIEW (continued) Customer revenue growth of 11 per cent more than offset a Revenue grew strongly outside of Hong Kong, but fell in decline in revenue from asset and liability management. Hong Kong as a direct result of the actions we took to Our investment in building a broad range of more contain the personal bankruptcy problem that has affected value-added, less capital-intensive products, such as Hong Kong's banking industry. In 2004 we expect to see a derivatives, fixed income and structured products, is return to revenue growth there as the consumer-led bearing fruit with our customers. recovery there takes hold. Our strength in foreign exchange was recognised by awards Costs rose as we deliberately accelerated investment in from FX Week as Best Bank in Emerging Asian Currencies new markets, new products and new service platforms in and Best Bank in Emerging African/Middle East Currencies. the second half. This included entering Consumer Banking in South Africa and South Korea; launching Manhattan Card in Singapore and MortgageOne in new markets; expanding We have made excellent progress in trade finance, distribution and upgrading phone and internet banking increasing revenue by ten per cent in 2003. The launch of across a number of countries. B2BeX, our internet platform for trade sourcing, payments and financing, has been a success. There are now over 450 companies using this. In 2003 we saw double-digit revenue growth in most markets and, in some, growth of more than 20 per cent. Credit card revenue grew strongly and we are making good Despite a low interest rate environment, we are progress in the personal loans market. Our mortgage generating more customer revenue from our capital. Given business performed very well, particularly MortgageOne, the momentum of customer business we will continue to do an innovative off-set mortgage product, which continued so. to capture market share. Our performance on bad debts in Wholesale Banking has In Indonesia and India, in particular, we continued the been outstanding, underpinned by very strong recoveries. expansion of our branch networks. In Thailand and Taiwan Sustaining this excellent performance will be a challenge we have seen a significant increase in revenue, with as the level of non-performing loans continues to reduce. personal loans and wealth management products proving However, tight risk management remains the cornerstone of particularly successful. our Wholesale Banking strategy. Malaysia achieved good growth in profitability, helped by We have controlled costs firmly, scaling back in mortgage sales and a decrease in bad debts. unprofitable segments and geographies such as Latin America. We will continue to pace investment with capital capacity and revenue growth. In the United Arab Emirates (UAE) we launched new credit card products, expanded our investment services unit and made improvements to our branches. We also began the Consumer Banking launch of our internet banking service across the region. Grow revenue Our progress in Consumer Banking was recognised in the Lafferty Retail Banking Awards - the industry benchmark - In Consumer Banking we have built market share in a where we were named Best Retail Bank in Asia Pacific. number of markets and produced strong revenue growth. Overall we increased our Consumer Banking profits by 19 per cent in 2003. STANDARD CHARTERED PLC - GROUP CHIEF EXECUTIVE'S REVIEW (continued) We enter 2004 with real impetus and Consumer Banking will a remarkable turnaround in sentiment and performance in continue to be our engine for future growth. the second half. India We are confident we can show significant improvement in Hong Kong as a consumer led revival takes hold. Consumer Accelerate growth Banking saw renewed revenue growth in the second half. We increased our penetration in the mortgage market, and bankruptcy bad debts fell. In the fourth quarter, losses In India we had a good year on the back of robust revenue related to the personal bankruptcy issue fell to $29 growth. million, the lowest since 2001 and down from $40 million in quarter three. The challenge for us now is to rebuild a quality asset base in unsecured lending. Our customer base and brand recognition is growing rapidly along with our product range and we have a better balanced business. We have announced that we are seeking to incorporate our Hong Kong business locally, which will underpin our strategy for growth in Greater China. We have diversified our product base to include mortgages and we have seen strong growth in mortgages and investment services. Traditionally our India Consumer We continue to take advantage of growth in the Pearl Banking business was liabilities led which resulted in River Delta. The Closer Economic Partnership Agreement short term margin pressure. However, expanding our between Hong Kong and China is fundamental to the mortgage book means that assets are now growing strongly development of this region. which should generate good revenue growth in 2004. China remains very much on our agenda. We are seeing good We continue to build our branch and distribution network organic growth and increased profitability from our and opened branches in nine new cities in 2003. business in this market. Our Wholesale Banking business in India has followed our We also continue to explore opportunities for acquisition client focussed growth strategy. We bank half of India's and minority stake investments. top 300 corporations and our Global Markets capability is gaining external recognition. Technology We have achieved a lot but India is a market where we Drive improvements have big ambitions. We are aiming for long-term sustainable growth and to achieve that we will continue to diversify our product base, improve our risk The Group has made significant progress in 2003 towards management and strengthen our distribution capabilities. improving operational efficiency. We have now built the capability and capacity needed to underpin our growth strategy going forward and I am proud of what we have Hong Kong and China achieved in this area. Leverage opportunities This has not been done through any grand cutting edge solution; but through focused and disciplined project The Group's long-term confidence in Hong Kong is being prioritisation and investment, and through the courage rewarded and we saw excellent growth in operating profit. and tenacity it took to build our hubs and move to Although we witnessed a turbulent six months due to SARS standardised and centralised processes. and the impact of the personal bankruptcies issue during the first half of the year, there was STANDARD CHARTERED PLC - GROUP CHIEF EXECUTIVE'S REVIEW (continued) We have continued the expansion of the shared service albeit still relatively small today, increased 50 per centres at Chennai in India and Kuala Lumpur in Malaysia. cent in 2003 and we plan to double the number of branches We now have 3,300 employees at the two sites, accounting to six this year. for 11 per cent of our workforce. Nearly half of our world-wide technology staff are now in Chennai. Our performance was recognised by The Banker magazine, which named us Best Bank in Africa for 2003. Our strategy for Technology and Operations going forward has three elements: Risk â€¢ rigorous vendor management; In risk management, we have significantly enhanced our capability over the past two years. â€¢ taking the hubs into the next phase of evolution. The first phase was around hubbing processes. Going forward we will re-engineer these processes to ensure We have strengthened our analytical capability and best in class turnaround times and service, but also tightened our controls. to deliver further cost benefits; Although 2003 presented us with a challenging risk â€¢ and thirdly, continued but focused investment in environment, bad debts fell by 25 per cent to $536 our infrastructure. You can expect to see further million. We have benefited from a relatively benign infrastructure investment in 2004 but let me assure credit environment in Asia, but this substantial you it will be targeted, focused and tightly reduction proves that our efforts to improve our risk controlled. profile, including our willingness to sacrifice revenue, have paid off. Other Performance Highlights With the ever present threat of terrorism, corporate collapses and rapid changes in currency markets, we Africa remain vigilant and keep a tight control of risk. I would like to single out Africa's performance. We Brand and Service increased operating profits in Africa by 50 per cent in 2003. Two core elements of our strategy are our brand promise and our commitment to excellent customer service. Wholesale Banking is central to our growth and is producing high returns. Consumer Banking is comparatively small, but we are in the process of transforming it from Brand recognition has improved significantly since our a traditional savings bank to a modern consumer bank by brand re-launch 18 months ago. migrating product capability from Asia and MESA. We became the sponsor of the Hong Kong marathon in 1997. Core countries like Kenya and Ghana produced strong This event has become an enormous success and we have growth and there are great opportunities for us to grow started three new marathons in the key cities of our footprint in the two biggest economies in the region, Singapore, Mumbai and Nairobi. These are high profile South Africa and Nigeria, where we are under-represented. events and a great way to be part of the community. In South Africa, we re-entered the market in August 2003 Our aspiration to lead the way sets out our direction for with a branch opening and the acquisition of the digital future growth. Our new customer financial services company 20twenty. In Nigeria, our revenue, STANDARD CHARTERED PLC - GROUP CHIEF EXECUTIVE'S REVIEW (continued) service strategy provides an opportunity to drive this continues to highlight strong year on year increases in forward. our employee engagement. Our 2004 Priorities We are in an industry that's not renowned for its service and recognise we have a long way to go. We have started â€¢ Accelerate Consumer Banking revenue growth by learning from some of the great service companies - â€¢ Drive returns in Wholesale Banking retailers, airlines and hotels - to improve our own â€¢ Step up growth in India service model. â€¢ Build China options â€¢ Deliver technology benefits â€¢ Begin out-serve journey This will not involve major investment. It is about processes, behaviour and culture. We believe that our Outlook ability to out-serve our customers' expectations is fundamental to unlocking shareholder value. The past twelve months have seen considerable change in the outlook for business. A year ago there was a lot of uncertainty about the direction of the global economy, We are adding the launch of this out-serve initiative as with the war in Iraq, followed by the SARS outbreak in a new item for our 2004 priorities. East Asia. Now the mood is more upbeat, particularly in our markets. Our people However, we are well aware that the world is still prone to the threat of terrorism as well as corporate and economic shocks. In addition, there are concerns over the We employ over 30,000 people in 56 countries and impact of the weakness of the US dollar. territories. More than half our employees are educated to degree level, while 26 per cent possess a post-graduate Nonetheless, we believe that we have a management team qualification. that can deliver consistent performance despite short-term economic conditions, as we proved last year. New talent is vital for future performance. Using a We have again delivered strong financial performance and global on-line system, in 2003 we recruited 125 graduates our businesses have good momentum. We are confident that to our management trainee programme, split equally we will be able to take advantage of the significant between genders and representing 21 nationalities. growth opportunities in our markets in the year ahead. Our focus is on helping our people play to their strengths by identifying and developing their talents. Our talent management process covers 93 per cent of our employees. Since 2000 we have been systematically improving employee engagement. Central to this is our employee engagement survey. In 2003, 95 per cent of employees participated. It Mervyn Davies CBE Group Chief Executive 18 February 2004 STANDARD CHARTERED PLC - FINANCIAL REVIEW GROUP SUMMARY performed well and customer driven option and derivative revenue grew by 80 per cent. The Group had a strong year in 2003 with profit before taxation 22 per cent higher than in 2002, at $1,542 Other operating income increased by 60 per cent from $65 million. This growth was broadly based, both million to $104 million, largely from profit on sale of geographically and across a wide range of products, investment securities in the first half as part of a reflecting an increasingly balanced portfolio, diversity programme to reduce the risk in the book. of earnings and effective risk management. Normalised earnings per share has grown by 20 per cent to 89.6 cents. Total operating expenses have grown by four per cent to $2,664 million. Maintaining tight control over costs while continuing to invest in the business remains a Net revenue has grown five per cent from $4,539 million priority. In 2003, investment was focused on new market in 2002 to $4,753 million in 2003, driven by strong entry, product innovation, expanding distribution and growth in non funded income in both Consumer Banking and improved service platforms and infrastructure. This Wholesale Banking. investment positions the Group to take advantage of future growth opportunities, although in the short term has led to a small increase in the normalised cost income Net interest income fell by three per cent to $2,968 ratio from 53.6 per cent in 2002 to 53.9 per cent in million, principally as a result of bankruptcy 2003. containment actions in Hong Kong, margin pressure on mortgages in Singapore and lower yields on asset and liability management. The net interest margin fell from Effective risk management led to a reduction in the debt 3.1 per cent in 2002 to 2.8 per cent in 2003 and interest charge of $176 million, or 25 per cent, from $712 million spread fell from 2.7 per cent to 2.5 per cent. The to $536 million. Provision for bankruptcies in Hong Kong generally low interest rate environment and, in Hong fell from $287 million in 2002 to $173 million this year. Kong, a change in product mix was behind this reduction. The corporate portfolio performed exceptionally well and recoveries were strong. Net fees and commissions increased by 17 per cent from $991 million to $1,156 million. Fee based Wealth CONSUMER BANKING Management products and lower mortgage subsidies, particularly in Hong Kong and Singapore, contributed significantly to this growth. Fee income in Africa grew Consumer Banking operating profit increased 19 per cent by 33 per cent, an excellent performance driven by higher from $623 million in 2002 to $740 million in 2003. transaction volumes and facility fees. Revenue grew by three per cent. Ten per cent revenue growth outside of Hong Kong was offset by a six per cent decline in revenue in Hong Kong. Costs were held flat in Revenue from dealing profits and exchange increased 25 the first half, but were deliberately accelerated in the per cent from $420 million to $525 million. Over 70 per second half to support growth initiatives. The bad debt cent of this revenue is customer driven. Retail foreign charge fell by 21 per cent, largely from an improvement exchange in the Hong Kong bankruptcy situation. STANDARD CHARTERED PLC - FINANCIAL REVIEW (continued) The following tables provide an analysis of operating profit by geographic segment for Consumer Banking: 2003 Asia Pacific Other Hong Asia Kong Singapore Malaysia Pacific India $m $m $m $m $m Net revenue 955 329 162 333 224 Costs (416) (111) (79) (189) (129) Charge for debts (282) (40) (19) (58) (59) Operating profit 257 178 64 86 36 2003 Other Americas Middle UK & East & Group Consumer Other Head Banking UAE S Asia Africa Office Total $m $m $m $m $m Net revenue 102 138 170 79 2,492 Costs (46) (83) (159) (62) (1,274) Charge for debts (11) (5) (4) - (478) Operating profit 45 50 7 17 740 2002 Asia Pacific Other Hong Asia Kong Singapore Malaysia Pacific India $m $m $m $m $m Net revenue 1,013 313 156 285 204 Costs (422) (106) (79) (177) (114) Charge for debts (434) (35) (22) (58) (38) Operating profit 157 172 55 50 52 2002 Other Americas Middle UK & East & Group Consumer Other Head Banking UAE S Asia Africa Office Total $m $m $m $m $m Net revenue 92 121 137 95 2,416 Costs (36) (68) (124) (64) (1,190) Charge for debts (12) (4) (3) 3 (603) Operating profit 44 49 10 34 623 STANDARD CHARTERED PLC - FINANCIAL REVIEW (continued) In Hong Kong, revenue dropped from $1,013 million to $955 excess of 20 per cent driven by good asset growth with no million. This was a direct result of bankruptcy increase in the debt charge. containment actions. Whilst these actions have adversely affected revenue, they have been effective in returning the unsecured lending business to profit in 2003. Revenue In India, revenue increased by ten per cent from $204 attrition has been partially offset by growth in million to $224 million. Mortgage volumes and revenue mortgages and wealth management. Costs have been reduced doubled but there has been a significant decline in by one per cent. The debt charge at $282 million is down margins. Costs have increased by $15 million to $129 by 35 per cent, reflecting the success of the action million as the distribution network has been expanded taken to contain bankruptcy losses, resulting in a 64 per with branches in nine new cities. The bad debt charge cent increase in operating profit to $257 million in 2003 increased by $21 million to $59 million. This was largely from $157 million in 2002. driven by increased provisions on a specific vintage of the card portfolio. In Singapore, revenue rose by five per cent to $329 million despite acute margin pressure. Wealth management In the UAE, revenue grew by 11 per cent to $102 million grew strongly and mortgage revenue increased, largely as and in the rest of MESA it grew by 14 per cent to $138 a result of increased lending to smaller corporates in million. Unsecured loans and wealth management continued Business Financial Services and as a consequence of the to be key business drivers across the region. Internet low interest rate environment. banking was launched in the first half and there has been good growth in cards, especially in UAE, Pakistan, Bangladesh and Jordan. In Malaysia, operating profit grew by 16 per cent to $64 million. Revenue increased by four per cent. There was strong growth in mortgages partially offset by lower Revenue in Africa increased by 24 per cent to $170 margins. Costs were held flat and the debt charge million through asset growth of more than 30 per cent. declined by 14 per cent as a result of improved risk This was achieved, despite significant margin compression management and collections in the credit card business. in Kenya and currency devaluation in Zimbabwe. Costs rose by 28 per cent as alternative distribution channels were established and through expansion into South Africa. The Other Asia Pacific region had excellent results, with a 72 per cent increase in operating profit from $50 million to $86 million. Total revenue grew by 17 per cent The Americas, UK and Group Head Office has seen a to $333 million, with cost growth held at seven per cent. reduction in operating profit from $34 million to $17 In Taiwan wealth management revenue grew by more than 80 million. This is due to the restructuring of the Offshore per cent. Indonesia, Philippines and Thailand all showed Banking Business based in Jersey. Revenue has decreased revenue growth in by $16 million as the business was reconfigured and refocused. Five international booking centres are now in operation and the business is well positioned for future growth. STANDARD CHARTERED PLC - FINANCIAL REVIEW (continued) An analysis of Consumer Banking revenue by product is set out below: Revenue by product Revenue by product 2003 2002 $m $m Cards and Personal Loans 1,045 1,082 Wealth Management / Deposits 806 815 Mortgages and Auto Finance 604 492 Other 37 27 2,492 2,416 Cards and personal loans have grown steadily and the second half of 2003 and distribution channels have performed well outside Hong Kong. Assets grew by 12 per been expanded in a number of countries and regions, cent in 2003, mainly in Thailand, Malaysia and the including Hong Kong, Singapore, India and Africa. Service Philippines. Regulatory intervention and interest caps and product platforms continue to be improved. The cost limited margin growth in some markets. The bankruptcy income ratio for 2003 was 51 per cent compared with 49 situation and SARS affected performance in Hong Kong. per cent for 2002. However, although revenue was down by 20 per cent, the business returned to profitability and growth in the second half of 2003. The net charge for bad debts in Consumer Banking has fallen by 21 per cent to $478 million in 2003, mainly due to the $115 million fall in Hong Kong bankruptcy charges. Wealth management revenue has fallen marginally from $815 million to $806 million. Strong sales of investment service products have been offset by margin pressure on WHOLESALE BANKING liability products. Wholesale Banking has performed well in 2003. The Mortgages and auto finance revenue has grown by 23 per repositioning of the business in 2002 towards higher cent from $492 million to $604 million. This was driven returns has delivered improved profitability. Revenue has by new product successes, increased fee income and lower increased by seven per cent to $2,261 million in 2003 cost of funds. with growth across a range of products and countries. Costs have been tightly controlled with an increase of four per cent from $1,211 million to $1,256 million Costs in Consumer Banking have increased from $1,190 resulting in a positive cost-income 'jaws' of three per million to $1,274 million as a result of accelerated cent for the year. Risk management has been effective and investment in the second half of 2003 to drive future the debt charge reduced from $109 million in 2002 to $58 growth. The Manhattan card was successfully launched in million in 2003 with strong recoveries. Singapore in STANDARD CHARTERED PLC - FINANCIAL REVIEW (continued) The following tables provide an analysis of operating profit by geographic segment for Wholesale Banking: 2003 Asia Pacific Other Hong Asia Kong Singapore Malaysia Pacific India $m $m $m $m $m Net revenue 403 159 74 349 244 Costs (210) (101) (57) (241) (89) Charge for debts (23) 7 21 (41) (1) Amounts written off fixed asset investments - - - - (4) Operating profit 170 65 38 67 150 2003 Other Americas Middle UK & East & Group Wholesale Other Head Banking UAE S Asia Africa Office Total $m $m $m $m $m Net revenue 132 177 273 450 2,261 Costs (45) (61) (124) (328) (1,256) Charge for debts 9 9 (5) (34) (58) Amounts written off fixed asset investments - - - (7) (11) Operating profit 96 125 144 81 936 2002 Asia Pacific Other Hong Asia Kong Singapore Malaysia Pacific India $m $m $m $m $m Net revenue 403 172 78 287 190 Costs (200) (103) (64) (229) (76) Charge for debts 6 (6) 9 (3) - Amounts written off fixed asset investments - - - - - Operating profit 209 63 23 55 114 2002 Other Americas Middle UK & East & Group Wholesale Other Head Banking UAE S Asia Africa Office Total $m $m $m $m $m Net revenue 135 153 195 510 2,123 Costs (41) (51) (104) (343) (1,211) Charge for debts 4 (1) - (118) (109) Amounts written off fixed asset investments - - - (8) (8) Operating profit 98 101 91 41 795 STANDARD CHARTERED PLC - FINANCIAL REVIEW (continued) In Hong Kong, revenue was flat. A decline in asset and cent with a normalised cost income ratio of 45 per cent liability management was offset by more than ten per cent in 2003 compared to 44 per cent in 2002. With tight risk growth in customer driven revenue. Market share increased management operating profits grew from $114 million in in trade, cash management, custody and fixed deposits. 2002 to $150 million in 2003, an increase of 32 per cent. Costs were five per cent higher mainly relating to increased amortisation of product and infrastructure investment. The debt charge increased by $29 million. Revenue in the UAE fell marginally to $132 million. Good This was due to the first half of 2002 benefiting from growth in customer revenue was more than offset by a high recoveries. decline in revenue from asset and liability management and lower margins in cash management. Elsewhere in MESA revenue grew by 16 per cent in 2003 to $177 million. This Revenue in Singapore fell by $13 million to $159 million was spread across all markets with good performance in as a result of lower asset and liability management Bahrain, Pakistan and Bangladesh. Costs in the region revenue and lower margins on cash management. However, grew by 20 per cent to $61 million to support a wider operating profit increased three per cent through cost product offering and development of new markets in Iraq control and debt recoveries. and Afghanistan. The operating profit for the Other MESA region has increased by 24 per cent from $101 million to $125 million. In Malaysia, revenue was down by five per cent, mainly in Global Markets. This has been offset by lower costs and, with improved debt recoveries, operating profit has Africa performed extremely well in 2003 with revenue increased from $23 million to $38 million. growth of 40 per cent, $78 million, to $273 million. There was growth across the region driven by cash management, lending and an excellent foreign exchange and In the Other Asia Pacific region, revenue grew by 22 per asset and liability management performance. Costs grew by cent or $62 million in 2003 to $349 million. Thailand, 19 per cent to $124 million, partly through inflationary Taiwan, Korea and Indonesia all showed strong revenue pressure but also reflecting increased investment in growth, reflecting the benefit of the restructuring that Nigeria and new product offerings. Operating profit grew took place in 2002, together with an improved performance from $91 million to $144 million, an increase of 58 per in Global Markets. Although costs increased by five per cent. cent and the debt charge reflected higher new provisions and lower recoveries, operating profit increased by 22 per cent. In the Americas, UK and Group Head Office operating profit nearly doubled. This reflects the restructuring of Latin America that took place in 2002. Although revenue India revenue increased by 28 per cent to $244 million. fell by $60 million, this was more than offset by a $15 More than half this growth was customer driven growth in million reduction in costs and an $84 million reduction trade and lending, custody and Global Markets. Revenue in the debt charge. also benefited from reducing the risk in the investment portfolio. Costs increased by 17 per STANDARD CHARTERED PLC - FINANCIAL REVIEW (continued) An analysis of Wholesale Banking revenue by product is set out below: Revenue by product Revenue by product 2003 2002 $m $m Trade and Lending 819 775 Global Markets 1,059 973 Cash Management 318 315 Custody 65 60 2,261 2,123 Trade and lending revenue grew six per cent to $819 The Wholesale Banking debt charge has fallen $51 million million in 2003. Trade finance grew well, underpinned by or 47 per cent to $58 million. This reflects the the integrated trade platform B2BeX. Loan demand in Asia continued effectiveness of risk management strategies has remained low in 2003, but revenue and asset growth undertaken since 2001 to reduce the risk in the Wholesale has come from India, MESA and Africa. Banking portfolio, together with strong recoveries. Revenue in Global Markets increased by $86 million, or RISK nine per cent, to $1,059 million. This performance reflects customer led growth in derivatives, fixed income Risk is inherent in the Group's business and the and structured products. Revenue from asset and liability effective management of that risk is seen as a core management fell due to low interest rates and the flat competence within Standard Chartered. Through its risk dollar yield curve. This, however, was partially offset management structure the Group seeks to manage by gains on investment securities. efficiently the eight core risks: credit, market, country and liquidity risk arise directly through the Group's commercial activities whilst business, regulatory, Cash management revenue has held steady despite operational and reputational risk are a normal significant reduction in cash margins due to a 24 per consequence of any business undertaking. The key element cent growth in liability balances. Revenue growth was of risk management philosophy is for the risk functions reported in MESA, Africa, UK and Americas and was driven, to operate as an independent control working in in particular, by multi-national corporations. partnership with the business units to provide a competitive advantage to the Group. Custody revenue increased by $5 million to $65 million with an improved performance in the second half of 2003 Credit Risk as Asian stock markets strengthened and business volumes increased. Credit risk is the risk that a counterparty will not settle its obligations in accordance with agreed terms. Costs in Wholesale Banking have risen by four per cent to $1,256 million in 2003 due mainly to increased investment Credit exposures include individual borrowers, connected in new product capabilities in trade, cash, fixed income groups of counterparties and portfolios, on the banking and corporate finance. and trading books. STANDARD CHARTERED PLC - FINANCIAL REVIEW (continued) Loan Portfolio The following table sets out by maturity the amount of customer loans net of provisions: 2003 One One to Over year five five or less years years Total $m $m $m $m Consumer Banking Mortgages 2,072 4,333 14,320 20,725 Other 4,963 3,551 1,903 10,417 Total 7,035 7,884 16,223 31,142 Wholesale Banking 22,561 4,545 1,921 29,027 General provisions (425) Net loans and advances to customers 29,596 12,429 18,144 59,744 2002 One One to Over year five five or less years years Total $m $m $m $m Consumer Banking Mortgages 1,977 4,399 14,012 20,388 Other 4,798 3,197 1,218 9,213 Total 6,775 7,596 15,230 29,601 Wholesale Banking 22,035 4,077 1,764 27,876 General provisions (468) Net loans and advances to customers 28,810 11,673 16,994 57,009 The Group's loans and advances to customers are The longer term portfolio, with a maturity of over five predominantly short term with approximately half the years, mainly relates to Consumer Banking personal portfolio having a maturity of one year or less. residential mortgages and term lending products. STANDARD CHARTERED PLC - FINANCIAL REVIEW (continued) The following tables set out an analysis of the Group's net loans and advances as at 31 December 2003 and 31 December 2002 by the principal category of borrowers, business or industry and/or geographical distribution: 2003 Asia Pacific Other Hong Asia Kong Singapore Malaysia Pacific India $m $m $m $m $m Loans to individuals Mortgages 12,536 4,029 2,246 831 640 Other 2,234 2,018 660 1,990 1,125 Consumer Banking 14,770 6,047 2,906 2,821 1,765 Agriculture, forestry and fishing 6 3 77 49 12 Construction 104 15 38 43 34 Commerce 1,350 1,001 190 717 30 Electricity, gas and water 327 36 32 240 56 Financing, insurance and business services 1,575 887 432 657 194 Loans to governments - 61 748 8 - Mining and quarrying - 15 86 35 - Manufacturing 1,326 780 214 2,016 943 Commercial real estate 873 716 7 250 - Transport, storage and communication 491 150 222 118 71 Other 23 70 57 170 1 Wholesale Banking 6,075 3,734 2,103 4,303 1,341 General provision Total loans and advances to customers 20,845 9,781 5,009 7,124 3,106 Total loans and advances to banks 2,113 1,045 204 2,784 239 2003 Other Americas Middle UK & East & Group Other Head UAE S Asia Africa Office Total $m $m $m $m $m Loans to individuals Mortgages - 67 30 346 20,725 Other 677 1,127 430 156 10,417 Consumer Banking 677 1,194 460 502 31,142 Agriculture, forestry and fishing - 24 144 387 702 Construction 83 91 19 13 440 Commerce 619 394 398 725 5,424 Electricity, gas and water 3 69 127 84 974 Financing, insurance and business services 434 320 116 1,184 5,799 Loans to governments - 13 - 281 1,111 Mining and quarrying 59 59 16 470 740 Manufacturing 179 916 283 1,738 8,395 Commercial real estate - 1 18 3 1,868 Transport, storage and communication 30 237 114 1,513 2,946 Other 26 166 44 71 628 Wholesale Banking 1,433 2,290 1,279 6,469 29,027 General provision (425) (425) Total loans and advances to customers 2,110 3,484 1,739 6,546 59,744 Total loans and advances to banks 605 889 308 5,167 13,354 Under 'Loans to individuals - Other', $1,371 million (31 The Wholesale Banking portfolio is well diversified December 2002: $1,487 million) relates to the cards across both geography and industry. The Group does not portfolio in Hong Kong. The total cards portfolio is have any significant concentrations in special interest $3,329 million (31 December 2002: $3,359 million). industries such as Aviation, Telecoms and Tourism. Approximately 52 per cent (31 December 2002: 52 per Exposure to each of these industries is less than five cent) of total Loans and Advances to Customers relates per cent of Wholesale Banking Loans and Advances to to the Consumer Banking portfolio, predominantly Customers. personal residential mortgages. STANDARD CHARTERED PLC - FINANCIAL REVIEW (continued) 2002 Asia Pacific Other Hong Asia Kong Singapore Malaysia Pacific India $m $m $m $m $m Loans to individuals Mortgages 13,045 3,813 2,031 779 283 Other 2,573 1,524 575 1,684 882 Consumer Banking 15,618 5,337 2,606 2,463 1,165 Agriculture, forestry and fishing 5 7 59 35 15 Construction 58 38 37 18 4 Commerce 1,251 777 147 572 19 Electricity, gas and water 269 40 12 178 23 Financing, insurance and business services 1,645 586 404 489 209 Loans to governments - 41 552 66 - Mining and quarrying - 19 51 26 23 Manufacturing 1,019 399 201 2,020 887 Commercial real estate 1,012 665 18 112 - Transport, storage and communication 405 112 77 217 113 Other 31 39 37 194 - Wholesale Banking 5,695 2,723 1,595 3,927 1,293 General provision Total loans and advances to customers 21,313 8,060 4,201 6,390 2,458 Total loans and advances to banks 2,507 2,027 394 2,703 212 2002 Other Americas Middle UK & East & Group Other Head UAE S Asia Africa Office Total $m $m $m $m $m Loans to individuals Mortgages - 20 35 382 20,388 Other 559 978 231 207 9,213 Consumer Banking 559 998 266 589 29,601 Agriculture, forestry and fishing - 14 62 365 562 Construction 69 88 25 7 344 Commerce 500 284 283 1,151 4,984 Electricity, gas and water 4 46 35 109 716 Financing, insurance and business services 256 382 47 1,921 5,939 Loans to governments - 13 - 273 945 Mining and quarrying 5 129 20 536 809 Manufacturing 308 934 299 2,256 8,323 Commercial real estate - - 6 6 1,819 Transport, storage and communication 29 149 107 1,577 2,786 Other 7 109 18 214 649 Wholesale Banking 1,178 2,148 902 8,415 27,876 General provision (468) (468) Total loans and advances to customers 1,737 3,146 1,168 8,536 57,009 Total loans and advances to banks 1,062 730 218 6,148 16,001 STANDARD CHARTERED PLC - FINANCIAL REVIEW (continued) Problem Credits Consumer Banking The Group employs a variety of tools to monitor the Provisions are derived on a formulaic basis depending on portfolio and to ensure the timely recognition of problem the product: credits. Mortgages: a provision is raised where accounts are 150 In Wholesale Banking, accounts are placed on Early Alert days past due based on the difference between the when they display signs of weakness. Such accounts are outstanding value of the loan and the forced sale value subject to a dedicated process involving senior risk of the underlying asset. officers and representatives from a specialist recovery unit, which is independent of the business units. Account plans are re-evaluated and remedial actions are agreed Credit cards: a charge-off is made for all balances which and monitored until complete. Remedial actions include, are 150 days past due or earlier as circumstances but are not limited to, exposure reduction, security dictate. In Hong Kong charge-off is currently at 120 enhancement, exit of the account or immediate movement of days. the account into the control of the specialist recovery unit. Other unsecured Consumer Banking products are charged off at 150 days past due. In Consumer Banking, an account is considered to be in default when payment is not received on the due date. Accounts that are overdue by more than 30 days (60 days For other secured Consumer Banking products a provision for mortgages) are considered delinquent. These are is raised at 90 days past due for the difference between closely monitored and subject to a special collections the outstanding value and the forced sale value of the process. underlying asset. The underlying asset is then re-valued periodically until disposal. In general, loans are treated as non-performing when interest or principal is 90 days or more past due. It is current practice to provision and write-off exposure in respect of Hong Kong bankruptcies at the time the customer petitions for bankruptcy. The Small and Medium Enterprises (SME) portfolio is provisioned on a case by case basis. STANDARD CHARTERED PLC - FINANCIAL REVIEW (continued) The following tables set out the non-performing portfolio in Consumer Banking: 2003 Asia Pacific Other Hong Asia Kong Singapore Malaysia Pacific India $m $m $m $m $m Loans and advances Gross non- performing 138 115 192 63 43 Specific provisions for bad and doubtful debts (48) (17) (26) (15) (11) Interest in suspense (1) (3) (23) (9) (9) Net non-performing loans and advances 89 95 143 39 23 Cover ratio 2003 Other Americas Middle UK & East & Group Other Head UAE S Asia Africa Office Total $m $m $m $m $m Loans and advances Gross non- performing 16 23 18 10 618 Specific provisions for bad and doubtful debts (11) (8) (7) (5) (148) Interest in suspense (5) (8) (7) (2) (67) Net non-performing loans and advances - 7 4 3 403 Cover ratio 35% 2002 Asia Pacific Other Hong Asia Kong Singapore Malaysia Pacific India $m $m $m $m $m Loans and advances Gross non- performing 118 111 176 68 41 Specific provisions for bad and doubtful debts (45) (18) (24) (16) (8) Interest in suspense (1) (3) (22) (10) (7) Net non-performing loans and advances 72 90 130 42 26 Cover ratio 2002 Other Americas Middle UK & East & Group Other Head UAE S Asia Africa Office Total $m $m $m $m $m Loans and advances Gross non- performing 7 20 15 18 574 Specific provisions for bad and doubtful debts (3) (4) (8) (1) (127) Interest in suspense (2) (5) (7) (1) (58) Net non-performing loans and advances 2 11 - 16 389 Cover ratio 32% The relatively low Consumer Banking cover ratio reflects at the time of charge-off. For secured products, the fact that Standard Chartered classifies all exposure provisions reflect the difference between the underlying which is more than 90 days past due as non-performing, assets and the outstanding loan (see details relating to whilst provisions on unsecured lending are only raised the raising of provisions above). STANDARD CHARTERED PLC - FINANCIAL REVIEW (continued) Wholesale Banking customer's account but is not included in income. Loans are designated as non-performing as soon as payment Where the principal, or a portion thereof, is considered of interest or principal is 90 days or more overdue or uncollectable and of such little realisable value that it where sufficient weakness is recognised that full payment can no longer be included at its full nominal amount on of either interest or principal becomes questionable. the balance sheet, a specific provision is raised. In any Where customer accounts are recognised as non-performing decision relating to the raising of provisions, the Group or display weakness that may result in non-performing attempts to balance economic conditions, local knowledge status being assigned, they are passed to the management and experience and the results of independent asset of a specialist unit which is independent of the main reviews. businesses of the Group. Where it is considered that there is no realistic For loans and advances designated non-performing, prospect of recovering the principal of an account interest continues to accrue on the against which a specific provision has been raised, then that amount will be written off. STANDARD CHARTERED PLC - FINANCIAL REVIEW (continued) The following table sets out the non-performing portfolio in Wholesale Banking: 2003 Asia Pacific Other Hong Asia Kong Singapore Malaysia Pacific India $m $m $m $m $m Loans and advances Gross non- performing 357 236 194 1,077 86 Specific provisions for bad and doubtful debts (220) (106) (118) (375) (44) Interest in suspense (91) (64) (55) (68) (30) Net non-performing loans and advances 46 66 21 634 12 2003 Other Americas Middle UK & East & Group Other Head UAE S Asia Africa Office Total $m $m $m $m $m Loans and advances Gross non- performing 52 180 116 887 3,185 Specific provisions for bad and doubtful debts (40) (99) (51) (460) (1,513) Interest in suspense (12) (66) (43) (126) (555) Net non-performing loans and advances - 15 22 301 1,117 2002* Asia Pacific Other Hong Asia Kong Singapore Malaysia Pacific India $m $m $m $m $m Loans and advances Gross non- performing 400 273 353 1,166 84 Specific provisions for bad and doubtful debts (210) (141) (211) (342) (52) Interest in suspense (111) (73) (84) (102) (31) Net non-performing loans and advances 79 59 58 722 1 2002* Other Americas Middle UK & East & Group Other Head UAE S Asia Africa Office Total $m $m $m $m $m Loans and advances Gross non- performing 142 242 103 920 3,683 Specific provisions for bad and doubtful debts (105) (140) (45) (451) (1,697) Interest in suspense (29) (68) (44) (121) (663) Net non-performing loans and advances 8 34 14 348 1,323 * Prior period has been restated. Corporate loans and advances to customers against which provisions have been outstanding for two years or more are no longer written down. STANDARD CHARTERED PLC - FINANCIAL REVIEW (continued) Wholesale Banking Cover Ratio The following table shows the Wholesale Banking cover ratio. The non-performing loans recorded below under Standard Chartered Nakornthon Bank (SCNB) are excluded from the cover ratio calculation as they are the subject of a Loan Management Agreement (LMA) with a Thai Government Agency. 2003 Total SCNB excl Total (LMA) LMA $m $m $m Loans and advances - Gross non-performing 3,185 772 2,413 Specific provisions for bad and doubtful debts (1,513) (112) (1,401) Interest in suspense (555) - (555) Net non-performing loans and advances 1,117 660 457 Cover ratio 81% 2002* Total SCNB excl Total (LMA) LMA $m $m $m Loans and advances - Gross non-performing 3,683 781 2,902 Specific provisions for bad and doubtful debts (1,697) (91) (1,606) Interest in suspense (663) - (663) Net non-performing loans and advances 1,323 690 633 Cover ratio 78% * Prior period has been restated. Corporate loans and advances to customers against which provisions have been outstanding for two years or more are no longer written down. The Wholesale Banking non-performing portfolio is well covered. The balance uncovered by specific provision represents the value of collateral held and/or the Group's estimate of the net value of any work-out strategy. STANDARD CHARTERED PLC - FINANCIAL REVIEW (continued) Group The following table sets out the movements in the Group's total specific provisions against loans and advances. 2003 Asia Pacific Other Hong Asia Kong Singapore Malaysia Pacific India $m $m $m $m $m Provisions held at 1 January 2003 255 159 235 358 60 Exchange translation differences 2 2 - 13 3 Amounts written off (353) (85) (99) (120) (87) Recoveries of amounts previously written off 23 14 10 13 18 Other 36 - - 27 1 New provisions 364 72 34 142 142 Recoveries/provisions no longer required (59) (39) (36) (43) (82) Net charge against/(credit to) profit 305 33 (2) 99 60 Provisions held at 31 December 2003 268 123 144 390 55 2003 Other Americas Middle UK & East & Group Other Head UAE S Asia Africa Office Total $m $m $m $m $m Provisions held at 1 January 2003 108 144 53 452 1,824 Exchange translation differences - 2 1 10 33 Amounts written off (64) (32) (6) (64) (910) Recoveries of amounts previously written off 1 1 1 3 84 Other 4 (4) - 20 84 New provisions 14 22 24 90 904 Recoveries/provisions no longer required (12) (26) (15) (46) (358) Net charge against/(credit to) profit 2 (4) 9 44 546 Provisions held at 31 December 2003 51 107 58 465 1,661 2002* Asia Pacific Other Hong Asia Kong Singapore Malaysia Pacific India $m $m $m $m $m Provisions held at 1 January 2002 335 151 240 428 85 Exchange translation differences 2 6 - 6 - Amounts written off (524) (44) (28) (144) (75) Recoveries of amounts previously written off 14 5 10 13 13 Other - - - (6) - New provisions 502 59 45 115 104 Recoveries/provisions no longer required (74) (18) (32) (54) (67) Net charge against/(credit to) profit 428 41 13 61 37 Provisions held at 31 December 2002 255 159 235 358 60 2002* Other Americas Middle UK & East & Group Other Head UAE S Asia Africa Office Total $m $m $m $m $m Provisions held at 1 January 2002 145 188 63 424 2,059 Exchange translation differences - (1) (4) 6 15 Amounts written off (45) (46) (9) (91) (1,006) Recoveries of amounts previously written off - 1 - 9 65 Other - 3 - (11) (14) New provisions 17 23 9 138 1,012 Recoveries/provisions no longer required (9) (24) (6) (23) (307) Net charge against/(credit to) profit 8 (1) 3 115 705 Provisions held at 31 December 2002 108 144 53 452 1,824 * Prior period has been restated. Corporate loans and advances to customers against which provisions have been outstanding for two years or more are no longer written down. STANDARD CHARTERED PLC - FINANCIAL REVIEW (continued) General Provision Country Risk The general provision is held to cover the inherent risk Country Risk is the risk that a counterparty is unable to of losses, which, although not identified, are known by meet its contractual obligations as a result of adverse experience to be present in a loan portfolio and to other economic conditions or actions taken by governments in material uncertainties where specific provisioning is not the relevant country. appropriate. It is not held to cover losses arising from future events. The following table based on the Bank of England Cross Border Reporting (C1) guidelines, shows the Group's cross The Group sets the general provision with reference to border assets including acceptances, where they exceed past experience by using both Flow Rate and Expected Loss one per cent of the Group's total assets. methodology, as well as taking judgemental factors into account. These factors include, but are not confined to, the economic environment in our core markets, the shape Cross border assets exclude facilities provided within of the portfolio with reference to a range of indicators, the Group. They comprise loans and advances, interest and management actions taken to pro-actively manage the bearing deposits with other banks, trade and other bills, portfolio. acceptances, amounts receivable under finance leases, certificates of deposit and other negotiable paper and investment securities where the counterparty is resident In the first half of 2003 the Group released $10 million in a country other than that where the cross border asset from its general provision. During the second half of is recorded. Cross border assets also include exposures 2003 a charge of $33 million was made to the general to local residents denominated in currencies other than provision relating to litigation in India dating back to the local currency. 1992. 2003 Public sector Banks Other Total $m $m $m $m USA 1,436 902 2,149 4,487 Hong Kong 14 112 2,301 2,427 Netherlands** - 1,729 275 2,004 Korea 3 1,393 475 1,871 France 4 1,529 253 1,786 India** 60 641 1,052 1,753 Singapore - 160 1,509 1,669 Germany - 1,292 315 1,607 Italy* - - - - Australia* - - - - 2002 Public sector Banks Other Total $m $m $m $m USA 1,084 1,729 2,462 5,275 Hong Kong 16 181 1,842 2,039 Netherlands** - - - - Korea 12 1,334 407 1,753 France 4 1,202 323 1,529 India** - - - - Singapore 1 190 1,361 1,552 Germany - 2,363 234 2,597 Italy* 488 613 374 1,475 Australia* 359 988 59 1,406 * Less than one per cent of total assets at 31 December 2003. ** Less than one per cent of total assets at 31 December 2002. STANDARD CHARTERED PLC - FINANCIAL REVIEW (continued) Market Risk In 2002 the Group used a combination of variance-covariance methodology and historical simulation to measure VaR on all market risk related activities. The Group recognises market risk as the exposure created From January 2003, the Group phased out by potential changes in market prices and rates. Market variance-covariance methodology in preference of risk arises on financial instruments, which are either historical simulation and VaR at 31 December 2003 is valued at current market prices (mark-to-market) or at measured using historical simulation on all market risk cost plus any accrued interest (non-trading basis). The related activities. Group is exposed to market risk arising principally from customer driven transactions. The total VaR for trading and non-trading books combined at 31 December 2003 was $12.2 million. Interest rate Market Risk is supervised by the Group Risk Committee, related VaR was $12.2 million and foreign exchange which agrees policies and levels of risk appetite in related VaR was $1.3 million. The corresponding figures terms of Value at Risk (VaR). A Group Market Risk at 31 December 2002 were $11.3 million and $1.1 million Committee sits as a specialist body to provide business respectively. The total VaR of $12.2 million recognises level management, guidance and policy setting. Policies offsets between interest rate and foreign exchange risks. cover the trading book of the Group and also market risks within the non-trading books. Limits by location and portfolio are proposed by the business within the terms The average total VaR for trading and non-trading books of agreed policy. Group Market Risk agrees the limits and during the year was $13.6 million (2002: $15.2 million) monitors exposures against these limits. with a maximum exposure of $16.0 million. The average VaR was lower in 2003 than the prior year due to the historical simulation diversification effects between Group Market Risk augments the VaR measurement by interest rate and foreign exchange risks. regularly stress testing aggregate market risk exposures to highlight potential risk that may arise from extreme market events that are rare but plausible. In addition, The total VaR for market risks in the Group's trading VaR models are back tested against actual results to book was $3.2 million at 31 December 2003, compared to ensure pre-determined levels of accuracy are maintained. $2.7 million a year earlier. Interest rate related VaR was $2.9 million and foreign exchange-related VaR was 1.3 million. The corresponding figures at 31 December 2002 Additional limits are placed on specific instrument and were $1.6 million and $1.1 million respectively. The currency concentrations where appropriate. Factor total VaR of $3.2 million recognises offsets between sensitivity measures are used in addition to VaR as interest rate and foreign exchange risks. additional risk management tools. Option risks are controlled through revaluation limits on currency and volatility shifts, limits on volatility risk by currency VaR for interest rate risk in the non-trading books of pair and other underlying variables that determine the the Group totalled $9.5 million at 31 December 2003, options' value. compared to $10.6 million a year earlier. Value at Risk The Group has no significant trading exposure to equity or commodity price risk. The Group measures the potential impact of changes in market prices and rates using Value at Risk (VaR) models. STANDARD CHARTERED PLC - FINANCIAL REVIEW (continued) The average daily revenue earned from market risk related exchange and interest rate markets. Derivatives are an activities was $3.5 million, compared with $3.4 million important risk management tool for banks and their during 2002. customers because they can be used to manage the risk of price, interest rate and exchange rate movements. The Group's derivative transactions are principally in plain vanilla instruments, where the mark-to-market values are readily determinable by reference to independent prices and valuation quotes or by using standard industry pricing models. The Group enters into derivative contracts in the normal course of business to meet customer requirements and to manage its own exposure to fluctuations in interest and exchange rates. Only offices with sufficient product expertise and appropriate control systems are authorised to undertake transactions in derivative products. The credit risk arising from a derivative contract is calculated by taking the cost of replacing the contract, Foreign Exchange Exposure where its mark-to-market value is positive together with an estimate for the potential change in the future value of the contract, reflecting the volatilities that affect The Group's foreign exchange exposures comprise trading, it. The credit risk on contracts with a negative non-trading and structural foreign currency translation mark-to-market value is restricted to the potential exposures. future change in their market value. The credit risk on derivatives is therefore usually small relative to their notional principal values. Foreign exchange trading exposures are principally derived from customer driven transactions. The average daily revenue from foreign exchange trading businesses The Group applies a potential future exposure methodology during 2003 was $1.3 million. to manage counterparty credit exposure associated with derivative transactions. Interest Rate Exposure Liquidity Risk The Group's interest rate exposures comprise trading exposures and structural interest rate exposures. The Group defines liquidity risk as the risk that funds Interest rate risk arises on both trading positions and will not be available to meet liabilities as they fall non-trading books. due. At the local level, in line with policy, the day to day monitoring of future cash flows takes place and suitable levels of easily Structural interest rate risk arises from the differing re-pricing characteristics of commercial banking assets and liabilities, including non-interest bearing liabilities such as shareholders' funds and some current accounts. The average daily revenue from interest rate trading businesses during 2003 was $2.2 million. Derivatives Derivatives are contracts whose characteristics and value derive from underlying financial instruments, interest and exchange rates or indices. They include futures, forwards, swaps and options transactions in the foreign STANDARD CHARTERED PLC - FINANCIAL REVIEW (continued) marketable assets are maintained by the businesses. reported to Business Risk Committees. Other risks recognised by the Group include Business, Regulatory and Reputational risks. A substantial portion of the Group's assets are funded by customer deposits made up of current and savings accounts and other short-term deposits. These customer deposits, Hedging Policies which are widely diversified by type and maturity, represent a stable source of funds. Lending is normally funded by liabilities in the same currency and if other Standard Chartered does not generally hedge the value of currencies are used the foreign exchange risk is usually its foreign currency denominated investments in hedged. subsidiaries and branches. Hedges may be taken where there is a risk of a significant exchange rate movement but, in general, the management believes that the Group's Operational and Other Risks reserves are sufficient to absorb any foreseeable adverse currency depreciation. Operational Risk is the risk of direct or indirect loss due to an event or action causing failure of technology, Standard Chartered also seeks to match closely its processes, infrastructure, personnel, and other risks foreign currency-denominated assets with corresponding having an operational impact. Standard Chartered seeks to liabilities in the same currencies. The effect of minimise actual or potential losses from Operational Risk exchange rate movements on the capital risk asset ratio failures through a framework of policies and procedures is mitigated by the fact that both the value of these to identify, assess, control, manage and report risks. investments and the risk weighted value of assets and contingent liabilities follow substantially the same exchange rate movements. An independent Group Operational Risk function is responsible for establishing and maintaining the overall Operational Risk framework. They are supported by CAPITAL Wholesale Banking and Consumer Banking Operational Risk units. The Group Operational Risk function provides The Group Asset and Liability Committee targets Tier 1 reports to the Group Risk Committee. and Total capital ratios of 7 - 9 per cent and 12 - 14 per cent respectively. The Group believes that being well capitalised is important. Compliance with Operational Risk policy is the responsibility of all managers. Every country operates a Country Operational Risk Group (CORG). The CORG has The Group identified improving the efficiency of capital in-country governance responsibility for ensuring that an management as a strategic priority in 2002. A capital appropriate and robust risk management framework is in plan to achieve this has been developed. This includes place to monitor and manage operational risk, including several key elements; in particular, to reduce the amount social, ethical and environmental risk. Significant of Tier 2 capital and to improve the overall capital mix issues and exceptions must be reported to the CORG. Where within the broad target ratios. Consistent with this appropriate, issues must also be strategy the Company has made repurchases from various classes of preference shares during 2003 amounting to a capital reduction of $20 million (2002: $741 million). STANDARD CHARTERED PLC - FINANCIAL REVIEW (continued) CAPITAL (continued) 2003 2002* $m $m Tier 1 capital: Shareholders' funds 7,715 7,270 Minority interests - equity 83 75 Innovative Tier 1 securities 1,155 997 Less: restriction on innovative Tier 1 securities (127) (70) Unconsolidated associated companies 13 31 Less: premises revaluation reserves - (3) goodwill capitalised (1,986) (2,118) Total Tier 1 capital 6,853 6,182 Tier 2 capital: Premises revaluation reserves - 3 Qualifying general provision 387 468 Undated subordinated loan capital 1,568 1,542 Dated subordinated loan capital 3,244 2,916 Restricted innovative Tier 1 securities 127 70 Total Tier 2 capital 5,326 4,999 Investments in other banks (742) (558) Other deductions (4) (4) Total capital 11,433 10,619 Risk weighted assets 58,371 55,931 Risk weighted contingents 19,791 18,623 Total risk weighted assets and contingents 78,162 74,554 Capital ratios: Tier 1 capital 8.8% 8.3% Total capital 14.6% 14.2% 2003 2002* $m $m Shareholders' funds: Equity 7,066 6,638 Non-equity 649 632 7,715 7,270 Post-tax return on equity (normalised) 15.3% 13.4% * Comparatives restated (see note 3 on page 38). STANDARD CHARTERED PLC - FINANCIAL REVIEW (continued) International Financial Reporting Standards All companies listed in the European Union will be change in the accounting framework underlying the Group's required to report their consolidated financial Annual Report, particularly in respect of IAS 39 ' statements under International Financial Reporting Financial Instruments: recognition and measurement'. The Standards (IFRS) from 1 January 2005. The first public International Accounting Standards Board (IASB) has reporting date will be as at and for the six months ended substantially completed its review of International 30 June 2005, with 2004 comparatives. Accounting Standards that will be effective for 2005 reporting period. Significantly, IAS 39 has not as yet been adopted by the European Commission. An IFRS Transition Programme involving all businesses and locations Group-wide has been underway since 2002, and is supervised by a Project Steering Committee chaired by a In view of the ongoing changes, the Group continues to Group Executive Director. evaluate and prepare for the implementation of IFRS. The transition to IFRS represents a significant STANDARD CHARTERED PLC - FINANCIAL STATEMENTS CONSOLIDATED PROFIT AND LOSS ACCOUNT For the year ended 31 December 2003 2003 2002 Notes $m $m Interest receivable 4,790 5,288 Interest payable (1,822) (2,225) Net interest income 2,968 3,063 Fees and commissions receivable, net 1,156 991 Dealing profits and exchange 525 420 Other operating income 104 65 1,785 1,476 Net revenue 4,753 4,539 Administrative expenses: Staff (1,353) (1,270) Premises (290) (269) Other (640) (673) Depreciation and amortisation, of which: (381) (345) Amortisation of goodwill (134) (156) Other (247) (189) Total operating expenses (2,664) (2,557) Operating profit before provisions 2,089 1,982 Provisions for bad and doubtful debts (536) (705) Provisions for contingent liabilities and commitments - (7) Amounts written off fixed asset investments (11) (8) Operating profit before taxation 1,542 1,262 Taxation 2 (495) (387) Operating profit after taxation 1,047 875 Minority interests (equity) (29) (31) Profit for the period attributable to shareholders 1,018 844 Dividends on non-equity preference shares (55) (108) Dividends on ordinary equity shares (611) (545) Retained profit 352 191 Normalised earnings per ordinary share 89.6c 74.9c Basic earnings per ordinary share 81.5c 57.6c Dividend per ordinary share 52.0c 47.0c STANDARD CHARTERED PLC - FINANCIAL STATEMENTS SUMMARISED CONSOLIDATED BALANCE SHEET As at 31 December 2003 2003 2002* $m $m Assets Cash, balances at central banks and cheques in course of collection 1,982 1,237 Treasury bills and other eligible bills 5,689 5,050 Loans and advances to banks 13,354 16,001 Loans and advances to customers 59,744 57,009 Debt securities and other fixed income securities 23,141 20,187 Equity shares and other variable yield securities 359 193 Intangible fixed assets 1,986 2,118 Tangible fixed assets 884 928 Prepayments, accrued income and other assets 13,143 10,230 Total assets 120,282 112,953 Liabilities Deposits by banks 10,924 10,850 Customer accounts 73,767 71,626 Debt securities in issue 6,062 4,877 Accruals, deferred income and other liabilities 15,233 12,626 Subordinated liabilities: Undated loan capital 1,568 1,542 Dated loan capital 4,399 3,913 Minority interests: Equity 83 75 Non-equity 531 174 Shareholders' funds 7,715 7,270 Total liabilities and shareholders' funds 120,282 112,953 *Comparative restated (see note 3 on page 38). STANDARD CHARTERED PLC - FINANCIAL STATEMENTS CONSOLIDATED STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES For the year ended 31 December 2003 2003 2002 $m $m Profit attributable to shareholders 1,018 844 Exchange translation differences 67 - Premises revaluation - (48) Total recognised gains and losses for the period 1,085 796 NOTE OF CONSOLIDATED HISTORICAL COST PROFITS AND LOSSES For the year ended 31 December 2003 There is no material difference between the results as reported and the results that would have been reported on a historical cost basis. Accordingly, no note of the historical cost profits and losses has been included. Accounting Convention The accounts of the Group have been prepared under the historical cost convention, modified by the revaluation of certain fixed assets and dealing positions. The accounting policies, as listed in the Annual Report 2002, continue to be consistently applied, except with respect to the treatment of corporate loans and advances against which provisions have been outstanding for more than two years. For 2003, these balances are no longer written down. The prior period has been restated. STANDARD CHARTERED PLC - FINANCIAL STATEMENTS Consolidated cash flow statement For the year ended 31 December 2003 2003 2002 $m $m Net cash inflow from operating activities (see note 1) 3,748 4,778 Returns on investment and servicing of finance Interest paid on subordinated loan capital (298) (330) Premium and costs on repayment of subordinated liabilities - (10) Dividends paid to minority shareholders of subsidiary undertakings (22) (18) Dividends paid on preference shares (55) (123) Net cash outflow from returns on investment and servicing of finance (375) (481) Taxation UK taxes paid (161) (25) Overseas taxes paid (353) (303) Total taxes paid (514) (328) Capital expenditure and financial investment Purchases of tangible fixed assets (156) (209) Acquisitions of treasury bills held for investment purposes (12,604) (10,453) Acquisitions of debt securities held for investment purposes (49,247) (38,314) Acquisitions of equity shares held for investment purposes (194) (175) Disposals of tangible fixed assets 14 32 Disposals and maturities of treasury bills held for investment purposes 12,632 10,667 Disposals and maturities of debt securities held for investment purposes 49,498 35,530 Disposals of equity shares held for investment purposes 13 18 Net cash outflow from capital expenditure and financial investment (44) (2,904) Net cash inflow before equity dividends paid and financing 2,815 1,065 Net cash outflow from disposal of interests in subsidiary and associated undertakings and (95) - the business of a branch* Equity dividends paid to members of the Company (531) (462) Financing Gross proceeds from issue of ordinary share capital 3 399 Ordinary share issue expenses - (31) Repurchase of preference share capital (20) (732) Preference share capital - repurchase expenses - (9) Issue of subordinated loan capital - 11 Repayment of subordinated liabilities - (355) Net cash outflow from financing (17) (717) Increase/(decrease) in cash in the period 2,172 (114) * A net figure of $17 million was paid to counterparties for the net sale/purchase of the business of a branch. $112 million worth of cash and cash equivalents were included in balances transferred on sale of the business of a branch, which is included in the $95 million net outflow. STANDARD CHARTERED PLC - NOTES (continued) 1. Consolidated Cash Flow Statement Reconciliation between operating profit before taxation and net cash inflow from operating activities: 2003 2002 $m $m Operating profit 1,542 1,262 Items not involving cash flow: Amortisation of goodwill 134 156 Depreciation and amortisation of premises and equipment 247 189 (Gain)/Loss on disposal of tangible fixed assets (14) 3 Gain on disposal of investment securities (62) (18) Amortisation of investments (107) (48) Charge for bad and doubtful debts and contingent liabilities 536 712 Amounts written off fixed asset investments 11 8 Debts written off, net of recoveries (807) (966) Increase/(decrease) in accruals and deferred income 203 (256) Decrease/(increase) in prepayments and accrued income 88 (16) Adjustments for items shown separately: Interest paid on subordinated loan capital 298 330 Premium and costs on repayment of subordinated liabilities - 10 Net cash inflow from trading activities 2,069 1,366 Net increase in cheques in the course of collection (27) (19) Net increase in treasury bills and other eligible bills (76) (93) Net decrease in loans and advances to banks and customers 2,398 485 Net increase in deposits from banks, customer accounts and debt securities in issue 2,128 2,891 Net increase in dealing securities (1,550) (302) Net (increase)/decrease in mark-to-market adjustment (403) 414 Net (decrease)/increase in other accounts* (791) 36 Net cash inflow from operating activities 3,748 4,778 Analysis of changes in cash Balance at beginning of period 3,496 3,549 Exchange translation differences (7) 61 Net cash inflow/(outflow) 2,172 (114) Balance at end of period 5,661 3,496 * This includes the effect of foreign exchange translation in the local books of subsidiaries and branches. STANDARD CHARTERED PLC - NOTES (continued) 2. Taxation 2003 2002 $m $m Analysis of taxation charge in the period The charge for taxation based upon the profits for the period comprises: United Kingdom corporation tax at 30% (2002: 30%): Current tax on income for the period 351 266 Adjustments in respect of prior periods (34) 17 Double taxation relief (286) (180) Foreign tax: Current tax on income for the period 491 382 Adjustments in respect of prior periods (26) (56) Total current tax 496 429 Deferred tax: Origination/reversal of timing differences (1) (42) Tax on profits on ordinary activities 495 387 Effective tax rate 32.1% 30.7% Overseas taxation includes taxation on Hong Kong profits of $109 million (2002: $31 million) provided at a rate of 17.5 per cent (2002: 16 per cent) on the profits assessable in Hong Kong. The Group's net deferred tax asset is $271 million at 31 December 2003, and is included in other assets (2002: $236 million). 3. Restatement of Comparative Figures The Urgent Issues Task Force issued abstract 38 (UITF 38) $57 million and shareholders' funds has been reduced by - Accounting for ESOP Trusts in December 2003. This $57 million to reflect this change in disclosure. abstract required that shares held in an ESOP Trust should be presented as a deduction in arriving at The Group's Â£200 million Step-up notes ($311 million) shareholders' funds rather than as assets. The amount have been reclassified from undated to dated subordinated reported in equity shares and other variable yield loan capital to incorporate callable options in place. securities in 2002 has been reduced by 4. Forward Looking Statements This document contains forward-looking statements, Standard Chartered. They are subject to a number of risks including such statements within the meaning of section and uncertainties that might cause actual results and 27A of the US Securities Act of 1993 and section 21E of outcomes to differ materially from expectations outlined the Securities Exchange Act of 1934. These statements in these forward-looking statements. These factors are concern, or may affect, future matters. These may include not limited to regulatory developments but include stock the Group's future strategies, business plans, and markets, IT developments, competitive and general results and are based on the current expectations of the operating conditions. directors of Financial Calendar Ex-dividend date 25 February 2004 Record date 27 February 2004 Posting to shareholders of 2003 Report and Accounts 15 March 2004 Annual General Meeting 11 May 2004 Payment date - final dividend on ordinary shares 14 May 2004 Copies of this statement are available from: Investor Relations, Standard Chartered PLC, 1 Aldermanbury Square, London, EC2V 7SB or from our website on http://investors.standardchartered.com For further information please contact: Tracy Clarke, Group Head of Corporate Affairs (020) 7280 7708 Paul Marriage, Head of Media Relations (020) 7280 7163 Benjamin Hung, Head of Investor Relations (020) 7280 7245 The following information is available on our website â€¢ A live webcast of the final results analyst presentation (available from 9:45am GMT) â€¢ A pre-recorded webcast and Q/A session of analyst presentation in London (available 1:00pm GMT) â€¢ Interviews with Mervyn Davies, Group Chief Executive and Peter Sands, Group Finance Director (available from 8.00am GMT). â€¢ Slides for the Group's presentations (available after 11.00am GMT) Images of Standard Chartered are available for the media at www.newscast.co.uk Information regarding the Group's commitment to corporate and social responsibility is available at www.standardchartered.com/ourbeliefs The 2003 Report and Accounts will be made available on the website of the Stock Exchange of Hong Kong and on our website www.standardchartered.com as soon as is practicable. This information is provided by RNS The company news service from the London Stock Exchange

Companies

Standard Chartered (STAN)

Friday, 17th May 2024

COMPANIES COVERED:

BT.A LAND FA.

BT Group continues to bask in yesterday’s well received earnings news and FireAngel jumps on clarity over getting a possible takeover across the line but Land Securities investors fail to find inspiration despite macroeconomic woes easing.

Full Archive

UK 100

Latest directors dealings

25 minutes ago Primary Health Properties
28 minutes ago DP Poland
29 minutes ago Mears Group
2 hours ago Altitude Group
2 hours ago Victoria

All directors dealings today