Half-year Report

RNS Number : 2718W
Standard Chartered PLC
31 July 2018
 

 

Standard Chartered PLC - Performance highlights

For the six months ended 30 June 2018

Standard Chartered PLC (the Group) today releases its results for the six months ended 30 June 2018. All figures are presented on an underlying basis and comparisons are made to the equivalent period in 2017 unless otherwise stated. A reconciliation between statutory and underlying results is set out on page 87 of the 2018 half year report.

"The Group performed steadily in the first half with encouraging progress on several fronts. Income from key areas of focus continues to grow strongly, we are investing in exciting new initiatives, and our strengthened risk discipline is paying off. Our return on equity improved to 6.7 per cent as a result, reinforcing our confidence that we will exceed 8 per cent in the medium term and underpinning the Board's decision to resume the interim dividend"

Bill Winters, Group Chief Executive

Financial performance for the first half of the year

·    Significant improvement in profitability reflects further progress on the path to higher returns

o Underlying profit before tax of $2.4bn was up 23% with broad-based improvement by client segment and region

o Statutory profit before tax of $2.3bn is stated after restructuring and other items and was 34% higher

o RoE improved 150 basis points to 6.7% and RoTE improved 170 basis points to 7.5%

·    Operating income of $7.6bn was up 6% in line with medium-term guidance of 5-7% CAGR

o Areas of differentiated strength including Wealth Management and Transaction Banking grew 14%

o Income net of impairment was 11% higher driven by a continued focus on higher quality origination

o Net interest income increased 10% and the net interest margin improved 4 basis points to 1.59%

·    Operating expenses rose 7% to $5.1bn as the Group prioritised investment to improve the business

o The four-year $2.9bn gross cost efficiency target was achieved six months ahead of plan

o Cash investments of $660m were 10% higher with an increased proportion on strategic initiatives

o Other operating expenses were up 7% reflecting a more even phasing of investments than in 2017

o Regulatory costs were 9% lower half-on-half as several large programmes were implemented in 2017

o Operating expenses ex-UK bank levy in H2 2018 are expected to be similar to H1 2018

·    Asset quality improved due to a continued focus on better quality origination within a more granular risk appetite

o Credit impairment of $293m was 50% lower year-on-year and 53% lower half-on-half

o Significant improvements in CIB and RB more than offset higher impairment in CB

·    Basic earnings per share increased from 34.4 cents to 44.9 cents

·    Interim dividend resumed at 6 cents per share reflecting improved financial performance and strong capital

·    The UK bank levy is charged in December and is estimated to be around $310m

Balance sheet and capital

·      Capital and liquidity ratios remain strong

o CET1 ratio increased 60 basis points to 14.2%

o Liquidity coverage ratio 151% with a prudent surplus to regulatory requirements

·      Strong and broad-based growth in client assets and client liabilities

Summary and outlook

·      We are building for the long term to create a differentiated proposition for all our stakeholders

·      Income growth was in line with 5-7% medium-term guidance and higher where we have prioritised investments

·      We are investing more into exciting new growth and digital initiatives and this investment is more evenly phased

·          We continue to expect that expenses will grow below inflation over the medium term

·      Organic capital generation and improved credit quality is increasing our resilience to shocks

·      Geopolitical uncertainties persist but the macroeconomic environment is supported by solid growth fundamentals

·      We remain confident the strategy will deliver a return on equity greater than 8% in the medium term



 

Standard Chartered PLC - Summary of results

For the six months ended 30 June 2018

 

6 months ended
30.06.18
$million

6 months ended
31.12.17
$million

6 months ended
30.06.17
$million

Underlying performance

 

 

 

Operating income

7,649

7,067

7,222

Operating expenses

(5,117)

(5,351)

(4,769)

Credit impairment

(293)

(617)

(583)

Other impairment

(51)

(85)

(84)

Profit before taxation

2,356

1,091

1,919

Return on ordinary shareholders' equity (%)

6.7

1.9

5.2

Return on ordinary shareholders' tangible equity (%)

7.5

2.1

5.8

Cost to income ratio (%)

66.9

75.7

66.0

Statutory performance

 

 

 

Operating income

7,627

7,204

7,221

Operating expenses

(5,185)

(5,547)

(4,870)

Credit impairment

(214)

(707)

(655)

Goodwill impairment

-

(320)

-

Other impairment

(50)

(86)

(93)

Profit before taxation

2,346

661

1,754

Profit/(loss) attributable to parent company shareholders

1,560

23

1,196

Profit/(loss) attributable to ordinary shareholders1

1,343

(197)

971

Return on ordinary shareholders' equity (%)

6.1

(0.9)

4.5

Return on ordinary shareholders' tangible equity (%)

6.8

(1.0)

5.0

Net interest margin (%)

1.6

1.6

1.6

Cost to income ratio (%)

68.0

77.0

67.4

Balance sheet and capital

 

 

 

Total assets

694,874

663,501

657,638

Total equity

51,488

51,807

51,362

Loans and advances to customers

255,100

248,707

239,198

Customer accounts

382,107

370,509

357,810

Total capital

58,019

58,758

58,335

Advances-to-deposits ratio (%)2

68.2

69.4

67.5

Common Equity Tier 1 ratio (%)

14.2

13.6

13.8

Total capital (%)

21.3

21.0

21.3

UK leverage ratio (%)

5.8

6.0

6.0

 

Information per ordinary share

Cents

Cents

Cents

Earnings per share - underlying

44.9

12.8

34.4

                            - statutory

40.7

(6.0)

29.5

Ordinary dividend per share3

6.0

11.0

-

Net asset value per share

1,353.4

1,366.9

1,356.7

Tangible net asset value per share

1,202.8

1,214.7

1,203.5

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

2  The following balances are included when calculating this ratio: reverse repurchase agreements and other similar secured lending of $37,909 million, repurchase agreements and other similar secured borrowing of $46,675 million, loans and advances to customers held at fair value through profit or loss of $3,710 million and customer accounts held at fair value through or loss of $6,232 million

3  Represents the recommended interim dividend per share for 2018 and the final dividend per share for 2017



 

 

Standard Chartered PLC - Table of contents


Page



Performance highlights

1



Summary of results

2



Group Chairman's statement

4



Group Chief Executive's review

6



Group Chief Financial Officer's review

8



Client segment reviews

15



Regional reviews

25



Group Chief Risk Officer's review

31



Risk review

39



Capital review

85



Financial statements and notes

92



Supplementary financial information

158



Shareholder information

189

 



Standard Chartered PLC - Group Chairman's statement

 

Group Chairman's statement

Striving to be the best we can be for all our stakeholders

I am pleased to report further progress in the first half of the year on our strategic priorities, resulting in positive income growth year-on-year in each of our four client segments, a 23 per cent increase in underlying profit before tax and a stronger Common Equity Tier 1 ratio of 14.2 per cent. Given the improved performance, the Board has declared an interim dividend of 6 cents per share.

Opportunities remain substantial

Our improved performance was delivered against a backdrop of continued global economic growth, with strong trade flows and investments and US interest rates continuing to normalise.

However, the global expansion is becoming more uneven and while some geopolitical concerns have receded, others have increased, particularly surrounding the trading relationship between the US and China. Given our history and purpose - to drive commerce and prosperity through our unique diversity - we believe that trade protectionism would be bad for the global economy. It is, however, worth noting that although the income we make from China's many trade corridors is important for the Group, our priorities are those radiating from China in Asia, and along the Belt and Road Initiative routes connecting China with our markets in Africa and the Middle East. As a result, our direct exposure to the risks of US-China trade tensions is limited; we generate far more income financing commerce between China and other markets in our footprint - meaning we stand to benefit over time if that were to increase - than we do on trade between China and the US.

Overall, the opportunities for our unique franchise remain substantial.

Focusing on clear priorities

The Board and management team are focused on executing the Group's strategy, while preserving strong levels of capital and liquidity, further improving the quality of our balance sheet and reinforcing our risk management framework. Our good progress in this regard is described by Andy in the Group Chief Financial Officer's review. This will increase our resilience to potential threats and shocks.

Now we have built a stable base, we are moving on to the offensive, focusing on what we can control and embedding an enhanced performance culture that will ensure we fully capture the opportunities.

In this context, I see the Board's role as supporting an environment where our colleagues feel able to focus on our clients' needs, innovate and take sensible risks to grow and strengthen our business. As Bill explains in his Group Chief Executive's review, we are investing at a faster pace to improve the business, including in new digital banking capabilities across all our markets, from the smallest to the largest, and in initiatives that will make us more productive by enhancing internal efficiency and programme management capabilities to drive lasting change.

As I said in the 2017 Annual Report, the Board is overseeing far-reaching changes to transform the Group's response to financial crime, both internally as well as in partnership with other organisations around the world. You can read more about what we are doing on this critical journey in the reviews of the Group's Chief Executive and Chief Risk Officer.

Reinforcing excellent governance, and a culture of ethical banking

The Board discusses with depth and candour the strategic issues that face the Group and provides challenge to management. Once agreement has been reached, the Board supports the management team, and holds it accountable for execution.

As well as reviewing performance and our strategic priorities, in the first half of this year the Board has focused on key issues such as cyber security, strengthening all facets of diversity, our approach to environmental and social issues, and our external narrative and brand.

We recently refreshed our brand, retaining the original brand promise of Here for good, but developing it further by posing a new - and tougher - challenge: how can banks help tackle some of the problems that stand in the way of global prosperity and commerce? With the acknowledgment that things are not good enough yet, not with the industry, not with the world we live in, or with ourselves, we are determined to play our part in helping to make things better.



 

Standard Chartered PLC - Group Chairman's statement

 

We have also agreed our new sustainability philosophy. This reflects a shift of focus of our environmental and sustainability efforts away from just talking about what we won't do, to increasing our focus on the contribution we can make to promoting sustainable economic and social development to transform the markets in which we operate for the better.

We acknowledge that it can be challenging to balance environmental, social and economic needs. Our revised philosophy sets out how we integrate sustainability into our organisational decision-making and how we will work with our clients, suppliers, NGOs and governments in our markets to address some of those dilemmas.

We want to be a force for good by working with our clients to improve their sustainability performance. This will further strengthen and develop our long-term relationships with our clients, contributing to their competitive advantage and promoting sustainable economic growth in our communities.

Conclusion

As we said when we relaunched our brand: Good enough will never change the world. We will never settle for good enough. Instead, I and all of my colleagues across the world will strive to be the best we can be for all our stakeholders, including our investors, clients, colleagues and communities.

I am confident we have the strategy and ability to successfully complete our transformation and deliver sustainably higher returns over the medium and long term.

 

José Viñals

Group Chairman

31 July 2018

 



Standard Chartered PLC - Group Chief Executive's review

 

Group Chief Executive's review

Further progress on the path to higher returns

The Group performed steadily in the first half, with encouraging progress on several fronts. Income from key products continues to grow strongly, we are investing in exciting new digital and other transformative initiatives and our strengthened risk discipline is paying off.

Our return on equity improved year-on-year as a result, which reinforces our confidence that we will exceed 8 per cent in the medium term and validates our decision to resume an interim dividend. But I want to be clear that we believe 8 per cent is just a milestone on the route to the sustainably higher returns we can achieve if we continue to execute our strategy with consistency, determination and discipline.

Focusing on the client experience

We have a unique proposition which we know our clients value. We are focusing our energy and our investments on the areas where we can provide exceptional solutions to our clients' needs. But we know that technical solutions are only part of the story. That is why our strategy is, first and foremost, centred around delivering the highest-quality client experience. And I am pleased to report that our efforts are working.

On the corporate side we are reinforcing and improving our position as a leading bank in Asia, Africa and the Middle East. Independent research suggests large corporations in Asia are consolidating their international business. This is good for us as we have diversified product and regional capabilities and our clients tell us that we offer increasingly exceptional service. This is reflected, for example, in our growing Cash Management income and increasing trade volumes. Although our improving league table positions in Financial Markets are not yet evident in our financial results, clients are offering us an increasing share of their business, boding well for future financial improvement.

And on the personal side, our strategy to become a trusted adviser for the affluent and emerging affluent, especially in core commercial cities in our markets, has resulted in our Priority and Private Banking client segments growing nicely. The more affluent clients rated us the best international bank in seven of our eight largest markets last year, and our Net Promoter Score within that strategically important segment improved significantly year-on-year in six of them, including in India and Singapore where we are growing income and starting to regain share lost over the past decade.

Improving business performance

Income year-on-year grew in line with the 5-to-7 per cent medium-term target range that we laid out in February this year. And if you adjust that income for impairment charges - considered a good indicator of underlying quality - it increased by 11 per cent. Around half of our income now comes from differentiated and faster-growing products including Wealth Management and Transaction Banking. Our businesses in Greater China & North Asia continue to perform particularly strongly, alongside plenty of good performances and encouraging signs in our other regions.

We are committed to improving the returns of our mass market and lending businesses and on our lower-returning corporate clients, both through delivering a broader range of profitable products and services, as well as through more actively managing our funding costs and capital allocation. We will continue this progress, even if it means we conclude that we cannot sensibly retain some clients or the expenses we carry to cover them.

Investing intelligently

Accelerating our pace of digitisation is, and will remain, a key strategic priority.

We continue to improve the digital connections that link our clients to our world-class lending, wealth, risk management and transaction banking products. Where we do not have the capabilities ourselves, or where we are less differentiated, we connect to third parties who can best address our clients' needs - an open-architecture approach that has served us, our partners and our clients well over the years in our wealth management business.

That is why we are so energised by the FinTech revolution; these disruptors provide us with the capabilities of much larger firms, but in a cost-effective and timely way. We are currently working with over fifty FinTech companies - from small start-ups to the biggest platforms - to transform our ability to serve our clients digitally. Our recently announced partnership with Ant Financial, part of the Alibaba Group, is one example of this. Together, we have created a blockchain-based cross-border wallet remittance service between Hong Kong and the Philippines through which we leverage jointly-developed technologies to deliver competitive and secure financial services across our uniquely diverse network.

We are also developing our own innovative digital methods of acquiring and servicing clients. Recent successes with our new digital bank in Côte d'Ivoire and our real-time onboarding process in India are encouraging. We will scale and



 

Standard Chartered PLC - Group Chief Executive's review

 

extend these digital innovations across all of our markets - including in Hong Kong where we are in the process of applying for a virtual banking license - allowing us to cover ever greater client volumes more efficiently.

Fighting financial crime in the digital era

While technological advances make doing business simpler, faster and better, the diffusion of cyber capabilities in the criminal underworld also makes the fight against financial crime more difficult. No matter how challenging it may seem, however, we are determined to play a leading role in fighting financial crime and to mitigate its heart-breaking impact on the communities that we are dedicated to serve.

Since 2012, we have seen a nearly ten-fold increase in our annual financial crime compliance (FCC) spending, and a more-than seven-fold increase in FCC headcount. We are investing in new machine-learning technologies that will enable us to evaluate vast quantities of data quickly and to fine-tune the accuracy of our financial crime surveillance tools, freeing up more capacity to investigate suspicious behavioural and transactional patterns. We are forging public-private partnerships with regulators, financial intelligence units, enforcement agencies and other banks around the world to disrupt illicit financial flows. And we are also developing new cyber capabilities of our own: from virtual currency mapping to enhanced profiling.

As described in note 19 to the financial statements, we continue to cooperate with authorities in the US and the UK in their investigations of past conduct and are engaged in ongoing discussions to resolve them. While the Deferred Prosecution Agreements (DPAs) with certain US agencies have recently been extended pending resolution of the relevant reviews, the US Department of Justice also recognised that the Group has made significant progress in complying with the DPA and in enhancing our sanctions compliance programme. Concluding these historical matters remains a focus for us.

Continuing our cultural transformation

We are strengthening our performance culture to match our ambition to be leaders in the markets we serve and to be a driving force for commerce and prosperity in and across those communities.

The needs of our clients and the markets in which we operate are constantly changing. We need to get ahead of the change by continuously innovating and improving. We need to harness the collective intelligence of all our people - their diverse thinking, experiences and backgrounds.

I am constantly inspired by the enthusiasm of my colleagues across the Group, but also dismayed at the degree to which it can be ground down through unnecessarily complicated processes and bureaucracy. This slows us down on our path to sustainably higher returns and we are determined to root out and destroy inefficiencies.

Employees are responding well to this challenge. In the past two years our employee Net Promoter Score has increased from positive 2, to positive 6, to positive 10, meaning that an increasingly large proportion of employees would now recommend the Group as a place to work and the products and services we provide. While the work is far from complete, we are progressing with our cultural transformation to make Standard Chartered a great place to work at, as well as a great bank with which to do business.

Outlook and conclusion

The macroeconomic environment continues to be supported by solid growth fundamentals across our markets but, concurrently, challenged by increasing uncertainty resulting from escalating trade frictions and geopolitical risks. We therefore remain cautiously optimistic on global economic growth.

We have committed to delivering a differentiated proposition for all our stakeholders, and to generating the sustainably higher returns of which we know this unique franchise is capable. Our long-term focus in this regard in no way diminishes our sense of short-term urgency. We have been on a transformation tear these last few years and will not slow down a bit.

I look forward to reporting to you in February next year when I expect to deliver more evidence of progress against our extraordinary agenda.

 

Bill Winters

Group Chief Executive

31 July 2018



 

Standard Chartered PLC - Group Chief Financial Officer's review

 

Group Chief Financial Officer's review

Higher quality business delivering an encouraging performance

Performance summary


6 months ended 30.06.18
$million

6 months ended 31.12.17
$million

6 months ended 30.06.17
$million

H1 2018 vs
H2 2017
Better/(worse)
%

H1 2018 vs
H1 2017 Better/(worse)
%

Operating income

7,649

7,067

7,222

8

6

Other operating expenses

(4,479)

(4,429)

(4,170)

(1)

(7)

Regulatory costs

(638)

(702)

(599)

9

(7)

UK bank levy

-

(220)

-

n.m.

n.m.

Operating expenses

(5,117)

(5,351)

(4,769)

4

(7)

Operating profit before impairment and taxation

2,532

1,716

2,453

48

3

Credit impairment

(293)

(617)

(583)

53

50

Other impairment

(51)

(85)

(84)

40

39

Profit from associates and joint ventures

168

77

133

118

26

Underlying profit before taxation

2,356

1,091

1,919

116

23

Restructuring

(79)

(188)

(165)

58

52

Other items

69

(242)

-

n.m.

n.m.

Statutory profit before taxation

2,346

661

1,754

n.m.

34

Taxation

(753)

(599)

(548)

(26)

(37)

Profit for the period

1,593

62

1,206

n.m.

32

 

 

 

 

 

 

Net interest margin (%)

1.6

1.6

1.6

 

 

Underlying return on equity (%)

6.7

1.9

5.2

 

 

Underlying return on tangible equity (%)

7.5

2.1

5.8

 

 

Statutory return on equity (%)

6.1

(0.9)

4.5

 

 

Statutory return on tangible equity (%)

6.8

(1.0)

5.0

 

 

Underlying earnings per share (cents)

44.9

12.8

34.4

 

 

Earnings/(loss) per share (cents)

40.7

(6.0)

29.5

 

 

Dividend per share (cents)

6.0

11.0

-

 

 

Common Equity Tier 1 (%)

14.2

13.6

13.8

 

 

The Group's improved performance in the first half of 2018 represents further encouraging progress.

All figures in this review are presented on an underlying basis and comparisons are made to the equivalent period in 2017 unless otherwise stated. A full reconciliation between statutory and underlying results is set out in note 2 to the financial statements.

•     Underlying profit before tax of $2.4 billion was 23 per cent higher and statutory profit before tax was up 34 per cent

•     Operating income of $7.6 billion grew 6 per cent or 5 per cent on a constant currency basis with strong growth in Transaction Banking, Wealth Management and Deposits more than offsetting lower income from Corporate Finance and the non-repeat of Treasury gains in 2017

•     Operating expenses of $5.1 billion were up 7 per cent or 5 per cent on a constant currency basis as the Group accelerated investment to improve the business

•     Expenses in the second half of 2018 excluding the UK bank levy are expected to be similar to the first half of the year

•     Credit impairment of $293 million on an IFRS 9 basis was 50 per cent lower and reflects management actions to improve asset quality

•     Other impairment of $51 million related primarily to transport leasing assets

•     Profit from associates and joint ventures of $168 million was 26 per cent higher following a continued good performance by the Group's associate investment in China and a better performance by its joint venture in Indonesia

•     Net restructuring charges of $79 million related primarily to Principal Finance and the ongoing reduction of the liquidation portfolio

•     Other items included a $69 million gain following the redemption of some GBP-denominated securities



Standard Chartered PLC - Group Chief Financial Officer's review

 

•     The Common Equity Tier 1 (CET1) ratio of 14.2 per cent gained a further 60 basis points in the first half

•     The Group's return on equity improved 150 basis points to 6.7 per cent and its return on tangible equity improved 170 basis points to 7.5 per cent

•     The improved financial performance and the Group's strong capital position underpinned the Board's decision to declare an interim dividend of 6 cents per ordinary share

Income

Operating income was up 6 per cent or 5 per cent on a constant currency basis. Sustained momentum in Transaction Banking, Wealth Management and Deposits more than offset the impact of continued asset margin compression. The combination of favourable macroeconomic conditions and further progress improving the quality of the business reinforces the Group's guidance for a 5-to-7 per cent medium-term compound annual growth rate in income.

•     Corporate & Institutional Banking income was 7 per cent higher as the focus on high quality operating accounts and the benefit of rising global interest rates resulted in a 25 per cent increase in income from Cash Management that more than offset the impact of asset margin compression in Corporate Finance and Trade Finance. Income in Financial Markets was 4 per cent higher despite mixed but overall challenging market conditions and Foreign Exchange spread compression in part driven by clients' increasing preference for electronic channels

•     Retail Banking income was up 9 per cent driven by strong performances in Greater China & North Asia and ASEAN & South Asia, particularly in Hong Kong and Singapore. Together that offset lower income in Africa & Middle East where market conditions remained challenging. The business continues to benefit from the focus on affluent and emerging affluent clients with income from Wealth Management 15 per cent higher

•     Commercial Banking income was up 7 per cent with the businesses in Greater China & North Asia and ASEAN & South Asia growing 12 per cent and 9 per cent respectively. Together this offset 4 per cent lower income from Africa & Middle East

•     Private Banking income was 12 per cent higher with growth across all products. The business added $1.6 billion net new money over the past 12 months and assets under management were $5 billion higher

•     Income in Central & other items (segment) was 15 per cent lower impacted by the non-repeat of gains in Treasury primarily in India in the prior period

•     Income from Greater China & North Asia increased 11 per cent and 9 per cent on a constant currency basis with broad-based improvement across all markets particularly China and Hong Kong

•     Income from ASEAN & South Asia was 6 per cent higher and 3 per cent on a constant currency basis with growth in most markets and particularly Singapore where income was up 15 per cent. Excluding Treasury gains booked in the prior period income in India was broadly stable

•     Income from Africa & Middle East was 1 per cent lower and broadly stable on a constant currency basis as market conditions there remained challenging

•     Europe & Americas income grew 8 per cent with 10 per cent higher income in the UK more than offsetting 3 per cent lower income in the US. The region is an important hub for the Group and originates around one-third of Corporate & Institutional Banking total income

Expenses

Operating expenses of $5.1 billion were up 7 per cent or 5 per cent on a constant currency basis and broadly flat half-on-half. Increases year-on-year were driven by investments in people and technology, including the amortisation of cash investments made in prior periods. Expenses in the second half of 2018 excluding the UK bank levy are expected to be similar to the first half due to the more even phasing of investments compared to 2017.

The Group has achieved its four-year $2.9 billion gross cost efficiency target six months ahead of plan. The ongoing discipline of delivering gross cost efficiencies to fund investments is expected to result in cost growth below the rate of inflation over the medium term.



 

Standard Chartered PLC - Group Chief Financial Officer's review

 

Impairment

Credit impairment of $293 million was 50 per cent lower driven by a significant reduction in impairment in Corporate & Institutional Banking reflecting past actions to improve the risk profile of this business and the continued focus on high quality new origination. This was partially offset by an increase in Commercial Banking.

Other impairment of $51 million related primarily to transport leasing assets.

Profit from associates and joint ventures

Profit from associates and joint ventures of $168 million reflected the continuing good performance of the Group's associate investment in China and a better performance by its joint venture in Indonesia.

As a result, profit before tax of $2.4 billion was 23 per cent higher and statutory profit before tax of $2.3 billion which is stated after restructuring and other items was 34 per cent higher.

Profit before tax

Operating profit improved significantly in Corporate & Institutional Banking and Retail Banking driven by income growth and lower impairments, which offset lower profit in Commercial Banking. By region, operating profit improvement was broad-based, with Hong Kong and Singapore performing particularly strongly. The prior year performance in Central & other items (segment) was impacted by the non-repeat of gains in Treasury.


6 months ended 30.06.18 $million

6 months ended 30.06.17 $million

Better/ (worse)  %

 


6 months ended 30.06.18 $million

6 months ended 30.06.17 $million

Better/ (worse) %

Corporate & Institutional Banking

1,093

648

69

 

Greater China & North Asia

1,289

1,025

26

Retail Banking

617

501

23

 

ASEAN & South Asia

589

400

47

Commercial Banking

140

188

(26)

 

Africa & Middle East

387

369

5

Private Banking

(5)

(1)

n.m

 

Europe & Americas

86

66

30

Central & other items

511

583

(12)

 

Central & other items

5

59

(92)

Underlying profit before taxation

2,356

1,919

23

 

Underlying profit before taxation

2,356

1,919

23

 

Credit quality

Credit quality overall has continued to improve in the first six months of 2018 due to the disciplined focus on high quality origination within a more granular risk appetite.

IFRS 9 became effective from 1 January 2018 and requires the recognition of expected credit losses rather than incurred losses under IAS 39. Financial instruments that are not already credit-impaired are originated in stage 1 and a 12 month expected credit loss provision is recognised.

An instrument will remain in stage 1 until it is repaid unless it experiences significant credit deterioration in which case it will transfer to stage 2, or it becomes credit-impaired where it would transfer to stage 3. The Group has not restated prior periods and comparisons are made to balances as at 1 January 2018.

The Group has made significant progress exiting exposures in the liquidation portfolio with the remaining $1.6 billion gross loans and advances 72 per cent covered or 90 per cent covered after collateral.

Gross credit-impaired (stage 3) loans in the ongoing business of $6.2 billion were $372 million lower following a number of repayments, debt sales and write-offs and significantly lower new inflows. These exposures represent 2.3 per cent of gross loans and advances in the ongoing business and are 53 per cent covered or 76 per cent covered after collateral.



 

Standard Chartered PLC - Group Chief Financial Officer's review

 

The proportion of investment grade clients has increased to 61 per cent, exposures in the early alerts portfolio have reduced by $1.8 billion and credit grade 12 accounts were $456 million lower.


30.06.18 (IFRS 9)

 

01.01.18 (IFRS 9)

Ongoing business
$million

Ongoing
business
$million

Gross loans and advances to customers1

263,056

1,579

264,635

 

255,591

2,248

257,839

Of which stage 1 and 2

256,885

22

256,907

 

249,048

22

249,070

Of which stage 3

6,171

1,557

7,728

 

6,543

2,226

8,769

 

 

 

 

 

 

 

 

Expected credit loss provisions

(4,186)

(1,118)

(5,304)

 

(4,704)

(1,626)

(6,330)

Of which stage 1 and 2

(905)

-

(905)

 

(1,048)

-

(1,048)

Of which stage 3

(3,281)

(1,118)

(4,399)

 

(3,656)

(1,626)

(5,282)

 

 

 

 

 

 

 

 

Net loans and advances to customers

258,870

461

259,331

 

250,887

622

251,509

Of which stage 1 and 2

255,980

22

256,002

 

248,000

22

248,022

Of which stage 3

2,890

439

3,329

 

2,887

600

3,487

 

 

 

 

 

 

 

 

Stage 3 cover ratio before collateral (%)

53

72

57

 

56

73

60

Stage 3 cover ratio after collateral (%)

76

90

79

 

78

88

81

Credit grade 12 accounts ($million)

1,027

22

1,049

 

1,483

22

1,505

Early alerts ($million)

6,857

-

6,857

 

8,668

-

8,668

Investment grade corporate exposures (%)

61

-

61

 

57

-

57

1  Includes reverse repurchase agreements and other similar secured lending held at amortised cost of $4,231 million at 30.06.18 and $4,568 million at 01.01.18

 

Restructuring and other items

The Group incurred net restructuring charges of $79 million including a $153 million loss in respect of Principal Finance that offset recoveries in relation to the ongoing reduction of the liquidation portfolio.

In other items the redemption of some GBP-denominated subordinated and senior securities resulted in a net gain of $69 million.


6 months ended 30.06.18

 

6 months ended 31.12.17

 

6 months ended 30.06.17

Restructuring
$million

Other items
$million

Restructuring
$million

Other items
$million

Restructuring
$million

Other items
$million

Operating income

(91)

69

 

59

78

 

(1)

-

Operating expenses

(68)

-

 

(196)

-

 

(101)

-

Credit impairment

79

-

 

(90)

-

 

(72)

-

Other impairment

1

-

 

(1)

(320)

 

(9)

-

Profit/(loss) from associates and
joint ventures

-

-

 

40

-

 

18

-

Profit before taxation

(79)

69

 

(188)

(242)

 

(165)

-

 



 

Standard Chartered PLC - Group Chief Financial Officer's review

 

Balance sheet and liquidity

The Group's balance sheet is strong, highly liquid and diversified.

Loans and advances to customers were up 3 per cent to $255 billion with broad-based growth across a range of products.

Customer accounts were also higher by 3 per cent as the Group continued to focus on improving the quality and mix
of its liabilities.

The advances-to-deposits ratio reduced to 68.2 per cent from 69.4 per cent.

As a result of classification and measurement of financial assets under IFRS 9, $45 billion of reverse repurchase agreement assets and $38 billion of repurchase agreement liabilities were reclassified as financial assets held at fair value through profit or loss. Further details are provided in note 27 to the financial statements.


30.06.18
$million

31.12.17
$million

Increase/
(decrease)
$million

Increase/
(decrease)
%

Assets

 

 

 

 

Loans and advances to banks

55,603

57,494

(1,891)

(3)

Loans and advances to customers

255,100

248,707

6,393

3

Reverse repurchase agreements and other similar secured lending1,2

12,781

54,275

(41,494)

(76)

Other assets

371,390

303,025

68,365

23

Total assets

694,874

663,501

31,373

5

Liabilities

 

 

 

 

Deposits by banks

30,816

30,945

(129)

-

Customer accounts

382,107

370,509

11,598

3

Repurchase agreements and other similar secured borrowing3,4

5,863

39,783

(33,920)

(85)

Other liabilities

224,600

170,457

54,143

32

Total liabilities

643,386

611,694

31,692

5

Equity

51,488

51,807

(319)

(1)

Total equity and liabilities

694,874

663,501

31,373

5

 

 

 

 

 

Advances-to-deposits ratio (%)

68.2

69.4

 

 

1 Includes loans and advances to banks of $8,550 million at 30.06.18 and $20,694 million at 31.12.17 (see note 14)

2 Includes loans and advances to customers of $4,231 million at 30.06.18 and $33,581 million at 31.12.17 (see note 14)

3 Includes customer accounts of $2,987 million at 30.06.18 and $35,979 million at 31.12.17 (see note 14)

4 Includes deposits by banks of $2,876 million at 30.06.18 and $3,804 million at 31.12.17 (see note 14)



 

Standard Chartered PLC - Group Chief Financial Officer's review

 

Risk-weighted assets

Total risk-weighted assets (RWAs) were 3 per cent or $7.9 billion lower since 31 December 2017 with decreases in Corporate & Institutional Banking and Retail Banking more than offsetting increases in Commercial Banking, Private Banking and Central & other items.

Credit risk RWAs were $3.0 billion lower with increases related to underlying asset growth offset by model, methodology and policy changes and the positive impact of foreign exchange translation.

Market risk RWAs decreased by $2.4 billion. Around half of this reduction related to the full recognition of certain structured products in the Group's internal models approach. The remainder followed a reduction in trading book debt security holdings.

Operational risk RWAs were $2.4 billion lower due to a decrease in the average income over a rolling three-year time horizon, as lower 2017 income replaced higher 2014 income.


30.06.18
$million

31.12.17
$million

Increase/
(decrease)
$

Increase/
(decrease)
%

By client segment

 

 

 

 

Corporate & Institutional Banking

138,735

147,102

(8,367)

(6)

Retail Banking

42,719

44,106

(1,387)

(3)

Commercial Banking

33,261

33,068

193

1

Private Banking

6,268

5,943

325

5

Central & other items

50,884

49,529

1,355

3

Total risk-weighted assets

271,867

279,748

(7,881)

(3)

 

 

 

 

 

By risk type

 

 

 

 

Credit risk

223,198

226,230

(3,032)

(1)

Operational risk

28,050

30,478

(2,428)

(8)

Market risk

20,619

23,040

(2,421)

(11)

Capital base and ratios

The Group's capital and liquidity positions remain strong with all metrics above regulatory thresholds. The CET1 ratio of 14.2 per cent was 60 basis points higher driven by profits in the period and lower RWA, mainly due to foreign exchange translation, lower operational risk RWA and other model changes.

On 4 June 2018, the Group invited holders of a number of GBP-denominated subordinated and senior securities to tender their notes for repurchase by the Group. As a result of this liability management exercise and other movements, tier 2 capital reduced $1.1 billion.

Given the Group's improving financial performance and strong capital the Board has recommended resuming the interim dividend at 6 cents per ordinary share.

 

30.06.18
$million

31.12.17
$million

Common Equity Tier 1 capital

38,512

38,162

Additional Tier 1 capital (AT1) instruments

6,692

6,699

Tier 1 capital

45,204

44,861

Tier 2 capital

12,815

13,897

Total capital

58,019

58,758

Common Equity Tier 1 capital ratio end point (%)

14.2

13.6

Total capital ratio transitional (%)

21.3

21.0

UK leverage ratio (%)

5.8

6.0

 



 

Standard Chartered PLC - Group Chief Financial Officer's review

 

Outlook and summary

The Group remains vigilant in relation to the impact of current and potential further trade tariffs introduced by China, the US and the EU, and considering geopolitical uncertainties particularly in the Middle East. However these issues had no apparent impact on our financial performance in the first half.

The combination of favourable macroeconomic conditions and our efforts to improve the quality of the business has delivered another encouraging performance in the first half and supports our existing guidance for income growth in the medium term. This income growth will create capacity to continue investing at scale and pace to further improve and increase the resilience of the business.

 

Andy Halford

Group Chief Financial Officer

31 July 2018



 

Standard Chartered PLC - Client segment reviews

 

Underlying performance by client segment

The following tables provide a breakdown of the Group's underlying operating income by product and client segment.

Analysis of underlying operating income by product and segment

 

 

6 months ended 30.06.18

Corporate & Institutional Banking
$million

Retail
Banking
$million

Commercial Banking
$million

Private
Banking
$million

Central &
other items
$million

Total
$million

Transaction Banking

1,430

10

400

-

-

1,840

Trade

385

10

194

-

-

589

Cash Management and Custody

1,045

-

206

-

-

1,251

Financial Markets

1,248

-

153

-

-

1,401

Foreign Exchange

439

-

91

-

-

530

Rates

281

-

17

-

-

298

Commodities

92

-

12

-

-

104

Credit and Capital Markets

187

-

6

-

-

193

Capital Structuring Distribution Group

133

-

14

-

-

147

Other Financial Markets

116

-

13

-

-

129

Corporate Finance

616

-

49

-

-

665

Lending and Portfolio Management

174

-

104

-

-

278

Wealth Management

-

820

1

170

-

991

Retail Products

-

1,793

2

101

-

1,896

CCPL and other unsecured lending

-

696

-

-

-

696

Deposits

-

739

3

83

-

825

Mortgage and Auto

-

314

-

18

-

332

Other Retail Products

-

44

(1)

-

-

43

Treasury

-

-

-

-

628

628

Other1

(17)

(3)

(3)

-

(27)

(50)

Total underlying operating income

3,451

2,620

706

271

601

7,649

1  Other includes GSAM

 

6 months ended 31.12.17

Corporate & Institutional
Banking
$million

Retail
Banking
$million

Commercial Banking
$million

Private
Banking
$million

Central &
other items
$million

Total
$million

Transaction Banking

1,336

10

386

-

-

1,732

Trade

401

10

193

-

-

604

Cash Management and Custody

935

-

193

-

-

1,128

Financial Markets

1,067

-

132

-

-

1,199

Foreign Exchange

367

-

79

-

-

446

Rates

232

-

14

-

-

246

Commodities

67

-

10

-

-

77

Credit and Capital Markets

168

-

7

-

-

175

Capital Structuring Distribution Group

113

-

10

-

-

123

Other Financial Markets

120

-

12

-

-

132

Corporate Finance

746

-

45

-

-

791

Lending and Portfolio Management

134

-

105

-

-

239

Wealth Management

-

728

2

155

-

885

Retail Products

-

1,701

3

103

-

1,807

CCPL and other unsecured lending

-

682

1

-

-

683

Deposits

-

622

3

85

-

710

Mortgage and Auto

-

358

-

17

-

375

Other Retail Products

-

39

(1)

1

-

39

Treasury

-

-

-

-

455

455

Other

(5)

(1)

-

-

(35)

(41)

Total underlying operating income

3,278

2,438

673

258

420

7,067



 

Standard Chartered PLC - Client segment reviews

 

 

6 months ended 30.06.17

Corporate & Institutional
Banking
$million

Retail
Banking
$million

Commercial Banking
$million

Private
Banking
$million

Central &
other items
$million

Total
$million

Transaction Banking

1,228

8

361

-

-

1,597

Trade

392

8

193

-

-

593

Cash Management and Custody

836

-

168

-

-

1,004

Financial Markets

1,199

-

146

-

-

1,345

Foreign Exchange

412

-

85

-

-

497

Rates

271

-

18

-

-

289

Commodities

69

-

11

-

-

80

Credit and Capital Markets

197

-

4

-

-

201

Capital Structuring Distribution Group

141

-

15

-

-

156

Other Financial Markets

109

-

13

-

-

122

Corporate Finance

644

-

41

-

-

685

Lending and Portfolio Management

150

-

107

-

-

257

Wealth Management

-

710

2

144

-

856

Retail Products

-

1,675

3

98

-

1,776

CCPL and other unsecured lending

-

684

-

-

-

684

Deposits

-

623

3

83

-

709

Mortgage and Auto

-

334

-

15

-

349

Other Retail Products

-

34

-

-

-

34

Treasury

-

-

-

-

688

688

Other

(3)

3

-

-

18

18

Total underlying operating income

3,218

2,396

660

242

706

7,222

 



Standard Chartered PLC - Client segment reviews

Analysis of underlying performance by client segment


6 months ended 30.06.18

Corporate & Institutional Banking
$million

Retail
Banking
$million

Commercial Banking
$million

Private
Banking
$million

Central &
other items
$million

Total
$million

Operating income

3,451

2,620

706

271

601

7,649

Operating expenses

(2,218)

(1,884)

(460)

(275)

(280)

(5,117)

Operating profit/(loss) before
impairment losses and taxation

1,233

736

246

(4)

321

2,532

Credit impairment

(81)

(119)

(106)

(1)

14

(293)

Other impairment

(59)

-

-

-

8

(51)

Profit from associates and joint ventures

-

-

-

-

168

168

Underlying profit/(loss) before taxation

1,093

617

140

(5)

511

2,356

Restructuring

(76)

(4)

(1)

(6)

8

(79)

Gains arising on repurchase
of senior and subordinated liabilities

3

-

-

-

66

69

Statutory profit/(loss) before taxation

1,020

613

139

(11)

585

2,346

Total assets

310,487

103,581

32,347

13,615

234,895

694,874

Of which: loans and advances to customers

143,297

101,530

28,571

13,564

9,808

296,719

Total liabilities

384,593

135,384

35,024

19,938

68,447

643,386

Of which: customer accounts

246,667

132,254

32,696

19,830

3,567

435,014

Risk-weighted assets (unaudited)

138,735

42,719

33,261

6,268

50,884

271,867

Underlying return on risk-weighted assets (unaudited)

1.5%

2.9%

0.9%

(0.2)%

2.1%

1.7%

 



 

Standard Chartered PLC - Client segment reviews

 


6 months ended 31.12.17

Corporate & Institutional
Banking
$million

Retail
Banking
$million

Commercial Banking
$million

Private
Banking
$million

Central &
other items
$million

Total
$million

Operating income

3,278

2,438

673

258

420

7,067

Operating expenses

(2,286)

(1,862)

(454)

(257)

(492)

(5,351)

Operating profit/(loss) before
impairment losses and taxation

992

576

219

1

(72)

1,716

Credit impairment

(289)

(203)

(125)

(1)

1

(617)

Other impairment

(90)

(1)

-

-

6

(85)

Profit from associates and joint ventures

-

-

-

-

77

77

Underlying profit before taxation

613

372

94

-

12

1,091

Restructuring

(99)

(23)

(7)

(14)

(45)

(188)

Net gains on businesses disposed/
held for sale

-

-

-

-

78

78

Goodwill impairment

-

-

-

-

(320)

(320)

Statutory (loss)/profit before taxation

514

349

87

(14)

(275)

661

Total assets

293,334

105,178

31,650

13,469

219,870

663,501

Of which: loans and advances to customers

131,738

103,013

28,108

13,351

9,343

285,553

Total liabilities

353,582

132,819

36,385

22,203

66,705

611,694

Of which: customer accounts

222,714

129,536

33,880

22,222

3,372

411,724

Risk-weighted assets (unaudited)

147,102

44,106

33,068

5,943

49,529

279,748

Underlying return on risk-weighted assets (unaudited)

0.8%

1.7%

0.6%

0.0%

0.0%

0.8%

 

 


 

6 months ended 30.06.17

 

Corporate & Institutional
Banking
$million

Operating income

3,218

2,396

660

242

706

7,222

Operating expenses

(2,123)

(1,723)

(427)

(243)

(253)

(4,769)

Operating profit/(loss) before
impairment losses and taxation

1,095

673

233

(1)

453

2,453

Credit impairment

(369)

(172)

(42)

-

-

(583)

Other impairment

(78)

-

(3)

-

(3)

(84)

Profit from associates and joint ventures

-

-

-

-

133

133

Underlying profit/(loss) before taxation

648

501

188

(1)

583

1,919

Restructuring

(176)

4

(6)

(1)

14

(165)

Statutory (loss)/profit before taxation

472

505

182

(2)

597

1,754

Total assets

284,613

101,633

30,141

12,916

228,335

657,638

Of which: loans and advances to customers

125,542

98,491

26,798

12,800

5,267

268,898

Total liabilities

351,367

127,461

34,651

22,073

70,724

606,276

Of which: customer accounts

217,044

123,776

32,086

21,991

3,441

398,338

Risk-weighted assets (unaudited)

143,360

42,935

32,325

5,888

49,655

274,163

Underlying return on risk-weighted assets (unaudited)

0.9%

2.4%

1.2%

0.0%

2.3%

1.4%

 



Standard Chartered PLC - Client segment reviews

 

Analysis of underlying performance by Retail Banking and Commercial Banking segments

Retail Banking

 

6 months ended 30.06.18

Greater China & North Asia
$million

ASEAN &
South Asia
$million

Africa &
Middle East
$million

Europe & Americas
$million

Total
$million

Operating income

1,485

712

404

19

2,620

Operating expenses

(972)

(559)

(338)

(15)

(1,884)

Operating profit before impairment losses and taxation

513

153

66

4

736

Credit impairment

(31)

(65)

(23)

-

(119)

Underlying profit before taxation

482

88

43

4

617

Restructuring

(1)

(3)

-

-

(4)

Statutory profit/(loss) before taxation

481

85

43

4

613

Loans and advances to customers

66,897

28,128

5,973

532

101,530

Customer accounts

90,840

31,292

8,987

1,135

132,254

 

 

 

 

6 months ended 31.12.17

Greater China & North Asia
$million

ASEAN &
South Asia
$million

Africa &
Middle East
$million

Europe &
Americas
$million

Total
$million

Operating income

1,349

667

403

19

2,438

Operating expenses

(954)

(571)

(324)

(13)

(1,862)

Operating profit before impairment losses and taxation

395

96

79

6

576

Credit impairment

(95)

(69)

(39)

-

(203)

Other impairment

(1)

-

-

-

(1)

Underlying profit before taxation

299

27

40

6

372

Restructuring

(8)

(1)

(14)

-

(23)

Statutory profit/(loss) before taxation

291

26

26

6

349

Loans and advances to customers

68,121

28,170

6,233

489

103,013

Customer accounts

88,850

30,544

8,950

1,192

129,536

 

 

 

 

6 months ended 30.06.17

Greater China & North Asia
$million

ASEAN &
South Asia
$million

Africa &
Middle East
$million

Europe &
Americas
$million

Total
$million

Operating income

1,335

635

410

16

2,396

Operating expenses

(885)

(514)

(314)

(10)

(1,723)

Operating profit before impairment losses and taxation

450

121

96

6

673

Credit impairment

(55)

(77)

(40)

-

(172)

Underlying profit before taxation

395

44

56

6

501

Restructuring

(1)

3

2

-

4

Statutory profit/(loss) before taxation

394

47

58

6

505

Loans and advances to customers

65,249

26,823

6,028

391

98,491

Customer accounts

83,937

29,564

9,071

1,204

123,776

 



 

Standard Chartered PLC - Client segment reviews

 

Commercial Banking

 

6 months ended 30.06.18

Greater China & North Asia
$million

ASEAN &
South Asia
$million

Africa &
Middle East
$million

Total
$million

Operating income

295

263

148

706

Operating expenses

(198)

(160)

(102)

(460)

Operating profit before impairment losses and taxation

97

103

46

246

Credit impairment

(17)

(25)

(64)

(106)

Underlying profit before taxation

80

78

(18)

140

Restructuring

(1)

-

-

(1)

Statutory profit/(loss) before taxation

79

78

(18)

139

Loans and advances to customers

14,628

9,281

4,662

28,571

Customer accounts

20,496

9,282

2,918

32,696

 

 

 

 

6 months ended 31.12.17

Greater China & North Asia
$million

ASEAN &
South Asia
$million

Africa &
Middle East
$million

Total
$million

Operating income

263

262

148

673

Operating expenses

(193)

(160)

(101)

(454)

Operating profit before impairment losses and taxation

70

102

47

219

Credit impairment

32

(97)

(60)

(125)

Underlying profit before taxation

102

5

(13)

94

Restructuring

(1)

(3)

(3)

(7)

Statutory profit/(loss) before taxation

101

2

(16)

87

Loans and advances to customers

14,179

9,439

4,490

28,108

Customer accounts

19,879

10,959

3,042

33,880

 

 

 

 

6 months ended 30.06.17

Greater China & North Asia
$million

ASEAN &
South Asia
$million

Africa &
Middle East
$million

Total
$million

Operating income

264

242

154

660

Operating expenses

(193)

(144)

(90)

(427)

Operating profit before impairment losses and taxation

71

98

64

233

Credit impairment

(20)

(13)

(9)

(42)

Other impairment

(3)

-

-

(3)

Underlying profit before taxation

48

85

55

188

Restructuring

(3)

(2)

(1)

(6)

Statutory profit/(loss) before taxation

45

83

54

182

Loans and advances to customers

13,355

9,104

4,339

26,798

Customer accounts

19,645

9,116

3,325

32,086

 



 

Standard Chartered PLC - Client segment reviews

 

Corporate & Institutional Banking

Serving around 5,300 large corporations, governments, banks and investors

 

Strategic priorities

•     Deliver sustainable growth for clients by understanding their agendas, providing trusted advice, and strengthening leadership in flow business

•     Manage our balance sheet to grow income and returns by driving balance sheet velocity, improving funding quality and maintaining strengthened risk controls

•     Improve our efficiency, innovate and digitise to enhance the client experience

Progress

•     Completed on-boarding of over 100 'New 90' OECD clients, and delivered strong growth from the next generation of 'Next 100' clients

•     Improved balance sheet quality, with investment-grade clients now representing 65 per cent of customer loans and advances (2017: 57 per cent) and high quality operating account balances improving to 49 per cent of Transaction Banking customer balances (2017: 48 per cent)

•     Proportion of low returning client risk-weighted assets improved from 16.8 per cent in 2017 to 16.5 per cent

•     Strong collaboration with Retail Banking continues with Employee Banking accounts from our clients up by 75,000

Performance highlights

•     Underlying profit before taxation of $1,093 million was up 69 per cent primarily driven by higher income and lower impairment, partially offset by higher operating expenses

•     Underlying income of $3,451 million was up 7 per cent primarily driven by growth in Cash Management and Financial Markets income which partially offset margin compression in Corporate Finance and Trade Finance

•     Strong balance sheet momentum with loans and advances to customers and customer accounts growing by 14 per cent

•     RoE has improved from 4.1 to 6.9 per cent



 

Standard Chartered PLC - Client segment reviews

 

Retail Banking

Serving over nine million individuals and small businesses

 

Strategic priorities

•     Continue to focus on affluent and emerging affluent clients and their wealth needs in core cities and capture the significant rise of the middle class in our markets

•     Continue to build on our client ecosystem and alliances initiatives

•     Improve our clients' experience through an enhanced end-to-end digital offering, with intuitive platforms, best-in-class products and service responding to the change in digital habits of clients in our markets

Progress

•     Increased the share of income from Priority clients from 45 per cent in 2017 to 47 per cent as a result of strong Wealth Management and Deposit income growth and increasing client numbers

•     Launched the first digital-only bank in Côte d'Ivoire with a plan to roll out across other markets in the Africa & Middle East region

•     Launched real time on-boarding in India, enabling straight-through current and savings account opening and a significantly improved customer experience

•     There has been a further improvement in digital adoption, with 47 per cent of clients now actively using online or mobile banking compared to 45 per cent in 2017

Performance highlights

•     Underlying profit before taxation of $617 million was up 23 per cent with income growth and lower loan impairment offset by increased expenses

•     Underlying income of $2,620 million was up 9 per cent with growth of 11 per cent in Greater China & North Asia, and 12 per cent in ASEAN & South Asia, partially offsetting a 1 per cent decline in Africa & Middle East

•     Strong momentum from Wealth Management and Deposits drove the improved income performance, more than offsetting continued margin compression across asset products

•     RoE improved from 10.8 to 13.0 per cent from consistent income growth in focus areas such as Priority clients, Wealth Management and Deposits and continued low levels of loan impairment



 

Standard Chartered PLC - Client segment reviews

 

Commercial Banking

Supporting over 40,000 local corporations and medium-sized enterprises

 

Strategic priorities

•     Drive quality sustainable growth by deepening relationships with our existing clients and attracting new clients that are aligned with our strategy, with a focus on rapidly growing and internationalising companies in our footprint

•     Improve client experience, through investing in frontline training, tools and analytics

•     Continue to enhance credit risk management and monitoring and maintain a high bar on operational risk

Progress

•     On-boarded over 2,800 new clients, of which over 20 per cent came from our clients' international and domestic networks of buyers and suppliers

•     Continued strengthening the foundations in credit risk management and improving asset quality. However, gross loan impairment remains elevated, partially offset by recoveries

•     Straight2Bank utilisation increased by 10 per cent with 57 per cent of active Commercial Banking clients using the capability, up from 52 per cent in 20171

Performance highlights

•     Underlying profit before taxation of $140 million was down 26 per cent impacted by loan impairments mainly in Africa & Middle East, partially offset by higher income in Greater China & North Asia

•     Underlying income of $706 million was up 7 per cent with broad-based growth from Transaction Banking, Financial Markets and Corporate Finance. Income was up 12 per cent in Greater China & North Asia, and up 9 per cent in ASEAN & South Asia, partially offsetting 4 per cent decline in Africa & Middle East

•     Customer loans and advances grew by 7 per cent and customer accounts grew by 2 per cent

•     RoE from Commercial Banking declined from 5.4 to 3.9 per cent largely due to higher loan impairments



 

Standard Chartered PLC - Client segment reviews

 

Private Banking

Helping over 8,000 high-net-worth individuals manage, preserve and grow their wealth

 

Strategic priorities

•     Instil a culture of excellence by improving the expertise and enhancing the skills of senior relationship management teams

•     Improve our clients' experience by enhancing our advisory proposition and reducing the turnaround time of the investment process

•     Balance growth and controls by simplifying the business model through implementation of a rigorous controls enhancement plan

Progress

•     Continued to strengthen our relationship management team by adding 15 senior frontline hires

•     Leveraged our new open architecture platforms like Equity Structured Products and Fixed Income, and simplified processes to reduce client transaction time

•     Targeted marketing of our investment philosophy and advisory capabilities to continue shift towards clients with more than $5 million in assets under management

Performance highlights

•     Underlying loss before taxation of $5 million against a loss of $1 million in prior period, with income growth offset by higher expenses

•     Underlying income of $271 million was up 12 per cent, with Wealth Management and Retail Products up 18 per cent and 3 per cent respectively

•     Assets under management increased $5 billion or 8 per cent driven by positive market movements, and $1.6 billion of net new money

•     RoE decreased from (0.2) to (0.8) per cent



 

Standard Chartered PLC - Regional reviews 

 

Analysis of underlying performance by region


6 months ended 30.06.18

Greater China & North Asia
$million

Operating income

3,097

2,073

1,376

870

233

7,649

Operating expenses

(1,903)

(1,360)

(919)

(736)

(199)

(5,117)

Operating profit before impairment losses and taxation

1,194

713

457

134

34

2,532

Credit impairment

(17)

(138)

(70)

(68)

-

(293)

Other impairment

(44)

7

-

17

(31)

(51)

Profit from associates and joint ventures

156

7

-

3

2

168

Underlying profit before taxation

1,289

589

387

86

5

2,356

Restructuring

(26)

88

(41)

(5)

(95)

(79)

Gains arising on repurchase of senior and subordinated liabilities

-

-

-

3

66

69

Statutory profit/(loss) before taxation

1,263

677

346

84

(24)

2,346

Net interest margin

1.5%

2.0%

3.1%

0.4%

 

1.6%

Total assets

268,294

147,017

58,343

208,599

12,621

694,874

Of which: loans and advances to customers

132,679

82,078

30,967

50,995

-

296,719

Total liabilities

235,214

126,815

38,493

210,002

32,862

643,386

Of which: customer accounts

190,305

95,228

31,540

117,941

-

435,014

Risk-weighted assets (unaudited)

83,456

95,876

53,755

41,193

(2,413)

271,867


 

 

 

6 months ended 31.12.17

Greater China & North Asia
$million

ASEAN &
South Asia
$million

 Africa &
Middle East
$million

Europe &
Americas
$million

Central &
other items
$million

Total
$million

Operating income

2,825

1,869

1,377

792

204

7,067

Operating expenses

(1,922)

(1,404)

(932)

(727)

(366)

(5,351)

Operating profit/(loss) before
impairment losses and taxation

903

465

445

65

(162)

1,716

Credit impairment

(65)

(338)

(171)

(44)

1

(617)

Other impairment

(27)

(9)

(1)

(16)

(32)

(85)

Profit/(loss) from associates and joint ventures

106

(26)

-

-

(3)

77

Underlying profit/(loss) before taxation

917

92

273

5

(196)

1,091

Restructuring

45

(114)

(26)

(10)

(83)

(188)

Net gains on businesses disposed/
held for sale

-

19

-

-

59

78

Goodwill impairment

-

-

-

-

(320)

(320)

Statutory profit/(loss) before taxation

962

(3)

247

(5)

(540)

661

Net interest margins

1.4%

1.9%

3.3%

0.5%

 

1.6%

Total assets

257,692

148,467

59,166

185,345

12,831

663,501

Of which: loans and advances to customers

126,739

82,579

29,602

46,633

-

285,553

Total liabilities

228,093

128,165

39,413

177,525

38,498

611,694

Of which: customer accounts

186,517

95,310

31,797

98,100

-

411,724

Risk-weighted assets (unaudited)

84,593

96,733

56,437

44,735

(2,750)

279,748



 

Standard Chartered PLC - Regional reviews 

 

 


6 months ended 30.06.17

Greater China & North Asia
$million

ASEAN &
South Asia
$million

 Africa &
Middle East
$million

Europe &
Americas
$million

Central &
 other items
$million

Total
$million

Operating income

2,791

1,964

1,387

809

271

7,222

Operating expenses

(1,759)

(1,250)

(887)

(680)

(193)

(4,769)

Operating profit/(loss) before
impairment losses and taxation

1,032

714

500

129

78

2,453

Credit impairment

(76)

(315)

(129)

(63)

-

(583)

Other impairment

(54)

(3)

(2)

-

(25)

(84)

Profit from associates and joint ventures

123

4

-

-

6

133

Underlying profit before taxation

1,025

400

369

66

59

1,919

Restructuring

(10)

(47)

(7)

(15)

(86)

(165)

Statutory profit/(loss) before taxation

1,015

353

362

51

(27)

1,754

Net interest margins

1.3%

1.9%

3.4%

0.5%

 

1.6%

Total assets

249,672

149,173

56,296

191,220

11,277

657,638

Of which: loans and advances to customers

120,458

77,645

29,402

41,393

-

268,898

Total liabilities

214,036

129,710

37,820

181,851

42,859

606,276

Of which: customer accounts

173,866

93,189

30,944

100,339

-

398,338

Risk-weighted assets (unaudited)

80,320

96,703

56,604

40,365

171

274,163



Standard Chartered PLC - Regional reviews 

 

Greater China & North Asia

Serving clients in China, Hong Kong, Korea, Japan, Taiwan and Macau. The Group's largest region by income

 

Strategic priorities

•     Leverage our network strength to serve the inbound and outbound cross-border trade and investment needs of our clients

•     Capture opportunities arising from China's opening, including renminbi, Belt and Road Initiative, onshore capital markets and mainland wealth, as well as in digital capabilities

•     Strengthen market position in Hong Kong, and improve Retail Banking performance in China and Korea

Progress

•     We have been active in the opening of China's capital markets, helping overseas investors do business through channels such as Bond Connect, Stock Connect and the Qualified Domestic Institutional Investor initiative

•     Good progress in Retail Banking in Hong Kong. We added more than 18,000 new Priority clients during the year and increasing our active qualified Priority clients by 14 per cent. In June we announced our intent to apply for a virtual bank licence in Hong Kong

•     We have delivered a modest profit in Retail Banking Korea and refreshed the strategic agenda in Retail Banking China where performance remained broadly flat

Performance highlights

•     Underlying profit before taxation of $1,289 million was 26 per cent higher with income growth and lower loan impairment partially offset by increased expenses

•     Underlying income of $3,097 million was 11 per cent higher, with broad-based growth across all markets and client segments particularly in Hong Kong and China

•     Strong balance sheet momentum was sustained with loans and advances to customers up 10 per cent and customer accounts up 9 per cent



 

Standard Chartered PLC - Regional reviews 

 

ASEAN & South Asia

Our largest markets in ASEAN & South Asia by income are Singapore and India. We are active in all 10 ASEAN countries

 

Strategic priorities

•     Optimise geographic portfolio by selectively reshaping sub-scale unprofitable markets and prioritising larger or more profitable markets

•     Shift the income mix towards 'asset-light' businesses such as network and flow opportunities in Corporate & Institutional Banking and Commercial Banking; and towards Wealth Management and Priority clients in Retail Banking

•     Deploy differentiating digital capabilities in key markets to improve client experience and productivity

Progress

•     Broad-based income growth from portfolio reshaping in most markets, with double-digit growth in six markets

•     Good progress on improving business mix, with cash liabilities growing by 6 per cent and Wealth Management income and Global Subsidiaries income up 14 per cent each. In addition, we added around 5,000 new Priority clients during the year

•     Rolled out several market-leading digital capabilities including real-time onboarding in India and automated individual client due diligence in Singapore

Performance highlights

•     Underlying profit before taxation of $589 million grew 47 per cent driven by lower impairments and income growth which was offset by continued investment in our strategic and regulatory agenda

•     Underlying income of $2,073 million was up 6 per cent driven by higher income across all segments and in eight out of twelve markets

•     Client activity was positive with 6 per cent growth in loans and advances to customers and 2 per cent growth in customer accounts. Risk-weighted assets declined by 1 per cent from improved portfolio quality



 

Standard Chartered PLC - Regional reviews 

 

Africa & Middle East

Present in 25 markets, of which the most sizeable by income are the UAE, Nigeria, Kenya and Pakistan

 

Strategic priorities

•     De-risk and improve the quality of income and maintain a stable platform for sustainable growth

•     Build income momentum in Corporate & Institutional Banking by providing best-in-class structuring and financing solutions and driving origination through client initiatives

•     Continue investing in market-leading digitisation initiatives in Retail Banking to protect and grow market share in core markets; continue with retail transformation to recalibrate our network and streamline structures

Progress

•     Successfully launched digital-only bank in Côte d'lvoire. On track to deliver digital solutions across more countries in Africa during 2018

•     Improved risk profile through tighter underwriting standards, de-risking and higher coverage ratios leading to lower loan impairment levels

Performance highlights

•     Underlying profit before taxation of $387 million grew 5 per cent driven by a reduction in loan impairment

•     Given the economic challenges in the region, underlying income of $1,376 million was down 1 per cent. Middle East, North Africa and Pakistan delivered flat income while Africa was down 2 per cent

•     Good performance in Transaction Banking and Wealth Management was offset by margin compression in Corporate Finance and Retail Products

•     Loans and advances to customers were up 5 per cent and customer accounts grew 2 per cent



 

Standard Chartered PLC - Regional reviews

 

Europe & Americas

Centred in London and New York with a presence across both continents. The region is a major income origination engine for the Group's Corporate & Institutional Banking business and booking centre for Private Banking

 

Strategic priorities

•     Continue to attract new international corporate and financial institutional clients and deepen relationships with existing and new clients by banking them across more markets in our network

•     Enhance capital efficiency, maintain strong risk oversight and further improve the quality of our funding base

•     Grow our Private Banking franchise and assets under management in London and Jersey

Progress

•     Good progress in improving the share of business from targeted multinational corporate clients, with income up 114 per cent and 14 per cent from 'New 90' OECD and 'Next 100' client initiatives respectively. We continue to diversify and selectively expand our client base in the region

•     Focused on sustainably delivering higher returns through improved quality of income combined with risk-weighted assets optimisation. We continue to improve the quality of our funding base in London and New York and our network markets by increasing the proportion of operating account liabilities relative to our balance sheet size

•     Broad-based growth across the region with a number of markets growing income at a double-digit rate. We are setting up our new subsidiary in Frankfurt to seamlessly serve European client base

Performance highlights

•     Underlying profit before taxation of $86 million up 30 per cent from income growth and lower impairments, offset by an increase in expenses as we invest in people, platforms and processes

•     Underlying income of $870 million was up 8 per cent driven by strong income in Transaction Banking partially offset by continued subdued Financial Markets performance, particularly in Foreign Exchange. Income generated by our clients booked elsewhere in the network grew by 12 per cent

•     Private and Retail Banking income grew 15 per cent and 16 per cent respectively

•     Loans and advances to customers were up 23 per cent and customer accounts rose 18 per cent



 

Standard Chartered PLC - Group Chief Risk Officer's review

 

Group Chief Risk Officer's review

Continuing to build on positive momentum

We are committed to growing a strong and sustainable business, and in the first six months of 2018 we continued to build on the progress made last year. We have further strengthened the Group's ability to manage risk while continuing to provide an effective service to our clients. Credit impairment and asset quality have sustained improvements seen in 2017 and our portfolio remains well diversified across client segments, geographies, and industry sectors. We have implemented our revised Enterprise Risk Management Framework, elevating Compliance, Conduct, Financial Crime and Information and Cyber Security to principal risk types. We have also formalised a risk identification process and a risk inventory to assess principal risks, as well as identify new and emerging risks and uncertainties. These changes help to articulate the risk landscape, enabling us to embed a healthy risk culture across the Group.

Proactively managing emerging geopolitical and environmental risks is key to the execution of our strategy. The launch of our new Sustainability Philosophy in May 2018 provides a stronger framework through which we can better promote economic and social development in a manner consistent with our values. We are translating these words into action, for example by restricting our services to clients in the palm oil industry that do not subscribe to established environmental standards. By recognising that we have responsibilities beyond financial activities and by instilling the right behaviours into our daily activities, we not only mitigate risks in our business but also set an example for investors and clients alike.

More information about the Group's Sustainability philosophy can be found at sc.com/en/sustainability/philosophy

Our key risk priorities

Effective risk and compliance functions are an essential part of the Group's strategy to deliver strong and sustainable growth. Through a comprehensive risk appetite, we manage a wide range of existing risks and continue to scan the horizon to anticipate new threats. Below are our key priorities for 2018:

Strengthen the Group's risk culture - Embedding a healthy risk culture remains one of the Group's key priorities. It underpins an enterprise-level ability to identify and assess, openly discuss, and take prompt action regarding current and future risks. The revised Enterprise Risk Management Framework sets out the guiding principles for the behaviours expected from our people when managing risks and enables us to have integrated and holistic risk conversations covering all our principal risks. We are also implementing changes to assess strategic initiatives and growth opportunities from both the financial and non-financial risk perspective. In addition, our enhanced approach to effectiveness reviews facilitates challenge, learning from self-identified issues or weaknesses, and making improvements that are lasting and sustainable

Manage and improve information and cyber security - We are expanding our capability in this area and enhancing our operating models to manage this risk better. A new risk type framework was approved to prioritise mitigation and governance activities. We are making further improvements through enhanced awareness campaigns and are active participants in external partnerships including the UK Cyber Defence Alliance. These combined efforts will strengthen our defences and aid our efforts to keep pace with evolving cyber threats

Manage financial crime risks - We have continued to enhance our controls, systems and processes, and have made good progress building an effective and sustainable financial crime programme. We passed a number of important milestones in the last six months, such as the launch of a new Mantas transaction monitoring platform in the US and the roll-out of a proprietary client risk assessment covering Corporate & Institutional and Commercial Banking. We are involved in public-private information sharing partnerships in the UK, US, Singapore and Hong Kong, as well as pursuing innovation in financial crime compliance by partnering with RegTech firms in the areas of surveillance and investigations. We are continuing our 'De-risking through education' initiative for correspondent banking and non-governmental organisation clients helping them to enhance their own controls. This collaborative approach facilitates the continued safe provision of services that are vital to the world economy

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



 

Standard Chartered PLC - Group Chief Risk Officer's review

 

Strengthen our conduct environment - We are committed to being a force for good, and central to this ethos is our conduct. The Group's Code of Conduct sets the standards for individual behaviour and in 2018 we added Conduct to our principal risk types. Our framework defines and identifies good conduct and illustrates how the different elements of conduct - such as the fair treatment of clients, preventing financial crime and responding to environmental and social risks - all fit together, embedding an integrated approach to ownership and accountability for conduct risk management. While incidents cannot be entirely avoided, we have no appetite for breaches of laws or regulations and have made it a priority in 2018 to review, refine and further strengthen our conduct environment. We expect nothing less than the highest standard at all levels, and where concerns are raised we undertake thorough and fair investigations which allow us to make swift and clear decisions

More information on our Group Code of Conduct can be found at sc.com/codeofconduct

Enhance our compliance infrastructure - In 2018 we established a multi-year programme to review and enhance our existing structures and processes to ensure we deliver efficiently and effectively across our markets. Areas of focus include: using technology to support issue management and regulatory relationship management, and enable a more data-driven risk management approach extending across the second and third lines of defence; commencing the roll-out of an enhanced learning and development programme for our compliance officers to set standards and expectations, ensure we are getting the best from our people, and encourage independent thought and challenge; developing a new surveillance hub in Global Business Services Kuala Lumpur; and developing tools to help our people assess compliance risks arising from new technologies or solutions such as application programming interfaces or cloud computing

Improve our efficiency and effectiveness - The Group has continued to invest in improvements to infrastructure for exposure management, data quality and stress testing. Further enhancements are planned for operational risk management, reporting and data analytics infrastructure. We continue to streamline and simplify our processes to serve clients better and drive internal efficiencies

Our risk profile and performance

In 2018 we have continued to improve our portfolios through our focus on high quality origination within a more granular risk appetite. The Group's client exposures remain predominantly short tenor, and our portfolio remains well diversified across client segments, geographies and industry sectors. Our capital and liquidity positions remain strong. While no new areas of stress have emerged, we remain vigilant in light of continued geopolitical uncertainty.

IFRS 9 became effective from 1 January 2018 and the Group has not restated comparative information. Accordingly, amounts prior to 1 January 2018 have been prepared and disclosed on an IAS 39 basis. This primarily impacts credit impairment, which is determined using an expected credit loss approach under IFRS 9 compared with an incurred loss approach under IAS 39.

Credit impairment in the Group's ongoing book was $293 million in the first half of 2018. This was 50 per cent lower than the equivalent period last year (H2 2017: $617 million; H1 2017: $583 million), with reductions seen in Corporate & Institutional Banking and Retail Banking. Including the restructuring charge, gross credit impairment is 67 per cent lower than in the first half of 2017 at $214 million (H2 2017: $707 million, H1 2017: $655 million).

Credit impairment


6 months ended
30.06.18
$million
(IFRS 9)1

6 months ended 31.12.17
$million
(IAS 39)2

6 months ended 30.06.17
$million
(IAS 39)2

Corporate & Institutional Banking

673

288

369

Commercial Banking

106

126

42

Private Banking

1

1

-

Retail Banking

119

202

172

Total ongoing business

293

617

583

Restructuring charge (including liquidation portfolio)

(79)

90

72

1  Credit impairment under IFRS 9 covers a broader asset base than loan impairment under IAS 39, effective from 1 January 2018

2  2017 data is prepared and disclosed on an IAS 39 basis

3  Credit impairment recovery of $14 million in Central & Other items is included in Corporate & Institutional Banking

The credit quality of the corporate portfolio has continued to improve. The percentage of exposure to investment grade clients within the total corporate book increased to 61 per cent (31 December 2017: 57 per cent) as we continued to focus on higher quality origination. Exposures in our early alerts portfolio reduced to $6.9 billion (31 December 2017: $8.7 billion) mainly due to exposures being regularised, as well as active mitigating actions such as exposure reduction.



 

Standard Chartered PLC - Group Chief Risk Officer's review

 

Overall gross credit-impaired (stage 3) loans for the Group have decreased to $7.7 billion (1 January 2018: $8.8 billion) with large reductions observed in the liquidation portfolio as we continued to exit these exposures. Gross stage 3 loans in the ongoing business have decreased to $6.2 billion (1 January 2018: $6.5 billion); driven by repayments, debt sales and write-offs in Corporate & Institutional Banking. Corporate & Institutional Banking also saw lower inflows into stage 3, at around 46 per cent of the levels seen in previous periods (H1 2018: $535 million; H2 2017: $1,150 million; H1 2017: $1,153 million) as historically high inflows in India and in the Oil and Gas sector did not repeat. Commercial Banking saw higher inflows (H1 2018: $402 million; H2 2017: $268 million; H1 2017: $192 million) mainly driven by exposures in Greater China & North Asia and Africa & Middle East, with no specific industry concentration.

We continue to focus on early identification of emerging risks across all of our portfolios so that we can manage any areas of weakness on a proactive basis. We also perform regular reviews and stress tests of our portfolio to help mitigate any risks that might arise.

The cover ratio in the total book reduced to 57 per cent in the first half of 2018 (1 January 2018: 60 per cent), driven by write-offs and settlements in the liquidation portfolio, and including collateral decreased to 79 per cent (1 January 2018: 81 per cent).

The Group maintains a strong liquidity position, with the liquidity coverage ratio higher at 151 per cent from 146 per cent at the end of 2017, driven by an increase in our liquid asset position. Loans and deposits grew, with our advances-to-deposits ratio decreasing slightly to 68 per cent (H2 2017: 69 per cent). We remain a net provider of liquidity to the interbank markets and our customer deposit base is diversified by type and maturity. We have a substantial portfolio of marketable securities which can be realised in the event of a liquidity stress.

Average Group VaR in the first half of 2018 was 19 per cent lower at $20.4 million (H2 2017: $25.1 million), primarily driven by a reduction in the duration of the Treasury Markets portfolio. Trading activities remain primarily client-driven.

Further details of the risk performance for the first six months of 2018 are set out in the Risk profile section.

Key indicators


30.06.18
(IFRS 9)

01.01.18
(IFRS 9)

31.12.17
(IAS 39)

30.06.17
(IAS 39)

Group total business

 

 

 

 

Stage 3 loans, credit-impaired (2018)1/ non-performing loans (2017) ($ billion)

7.7

8.8

8.7

9.9

Group ongoing business

 

 

 

 

Stage 1 loans ($ billion)

235.1

228.5

 

 

Stage 2 loans ($ billion)

21.8

20.6

 

 

Stage 3 loans, credit-impaired (2018)1/ non-performing loans (2017) ($ billion)

6.2

6.5

6.5

6.3

Cover ratio

53%

56%

56%2

56%2

Cover ratio (including collateral)

76%

78%

79%

73%

Corporate & Institutional Banking and Commercial Banking3

 

 

 

 

Investment grade corporate exposures as a percentage of total
corporate exposures

61%

 

57%

54%

Loans and advances maturing in one year or less as a percentage of total loans and advances to customers

71%

 

70%

70%

Early alert portfolio ($ billion)

6.9

 

8.7

10.4

Credit grade 12 ($ billion)

1.0

 

1.5

1.3

Aggregate top 20 corporate exposures as a percentage of Tier 1 capital

53%

 

50%

56%

Collateralisation of sub-investment grade exposures maturing in more than
1 year

55%

 

55%

56%

Retail Banking3

 

 

 

 

Loan-to-value ratio of retail mortgages

45%

 

47%

48%

1 Stage 3 loans under IFRS 9 cover a broader asset base than the Group's definition of NPL

2 2017 cover ratios rebased to exclude portfolio impairment provisions to align to IFRS 9 (IAS39: 63 per cent on 31.12.17; 67 per cent on 30.06.17)

3 These metrics are not impacted by the switch to IFRS 9, hence data as at 1 January 2018 is not needed for comparative purposes



 

Standard Chartered PLC - Group Chief Risk Officer's review

 

Our risk management approach

We have continued to build out the Enterprise Risk Management function allowing the Group to identify and manage risks holistically, as well as strengthening the Group's capabilities to understand, articulate and control the nature and level of risks we take while still effectively serving our clients.

The revised Enterprise Risk Management Framework approved in December 2017 sets out a refreshed risk culture and a clear control framework, with sharper delineation of responsibilities between the three lines of defence, and it is being adopted by branches and subsidiaries. In addition, a Group-wide e-learning programme has been launched to support awareness and understanding of the key features of the Framework across all levels of the organisation.

Distinct risk type frameworks have been developed for our ten principal risk types, and these are being communicated and rolled out throughout the organisation. The roll out will include suitable training plans tailored to teams and individuals as required. As at July 2018 all risk type frameworks have been approved.

We are also working on developing the links between our strategy, risk appetite and stress testing in order to better integrate risk considerations into strategic decision-making.

Principal risks

Principal risks are those risks that are inherent in our strategy and our business model. These are formally defined in our Enterprise Risk Management Framework which provides a structure for monitoring and control of these risks through the Board-approved risk appetite. The Group will not compromise adherence to its risk appetite in order to pursue revenue growth or higher returns. The table below provides an overview of the Group's principal risks and how these are managed. Further details on these can be found in our 2017 Annual Report.

Principal risk types

How these are managed

Credit risk

The Group manages its credit exposures following the principle of diversification across products, geographies, client segments and industry sectors

Country risk

The Group manages its country cross-border exposures following the principle of diversification across geographies and controls business activities in line with the level of jurisdiction risk

Market risk1

The Group controls its trading portfolio and activities to ensure that market risk losses (financial or reputational) do not cause material damage to the Group's franchise

Capital and liquidity risk

The Group maintains a strong capital position, including the maintenance of management buffers sufficient to support its strategic aims, and holds an adequate buffer of high-quality liquid assets to survive extreme but plausible liquidity stress scenarios for at least 60 days without recourse to extraordinary central bank support

Operational risk

The Group controls operational risks to ensure that operational losses (financial or reputational), including any related to conduct of business matters, do not cause material damage to the Group's franchise

Reputational risk

The Group aims to protect the franchise from material damage to its reputation by ensuring that any business activity is satisfactorily assessed and managed by the appropriate level of management and governance oversight

Compliance risk

The Group has no appetite for breaches in laws and regulations; while recognising that regulatory non-compliance
cannot be entirely avoided, the Group strives to reduce this to an absolute minimum

Conduct risk

The Group strives to maintain the standards in our Code of Conduct and outcomes of our Conduct Framework, by continuously demonstrating that we "Do The Right Thing" in the way we do business

Information and
cyber security risk

The Group seeks to avoid risk and uncertainty for our critical information assets and systems and has a low appetite for material incidents affecting these or the wider operations and reputation of the bank

Financial crime risk

The Group has no appetite for breaches in laws and regulations related to financial crime, recognising that while incidents are unwanted, they cannot be entirely avoided

1 Effective from July 2018 Market risk is now a sub-type under 'Traded risk', which also encompasses Counterparty credit risk. A new risk type framework has been approved and further details will be provided in the 2018 Annual Report



Standard Chartered PLC - Group Chief Risk Officer's review

Our principal uncertainties

Principal uncertainties refer to unpredictable and uncontrollable outcomes from certain events and circumstances which may have the potential to impact our business materially.

As part of our continual risk identification process, we have updated our Group principal uncertainties from those disclosed in the 2017 Annual Report. The table below summarises our current list of principal uncertainties outlining risk trend changes in relation to 2017, the reasons for the changes and the mitigating actions we are taking.

Principal uncertainties

Risk trend since December 20171

Key risk trend drivers

How these are mitigated/next steps

Geopolitical events, in particular: increase in trade protectionism driven by nationalist agenda, Korean peninsula and Middle East geopolitical tensions, and post-Brexit implications

ñ

There are increased concerns on the Middle East geopolitical situation following the decision by the US President to exit the Iran Nuclear Deal and to move the US embassy from Tel Aviv to Jerusalem. In addition, there are increased concerns on global
trade implications following a first wave of measures taken by China, the US and the EU on trade tariffs

•       We monitor and assess geopolitical events and take action as appropriate to ensure we minimise the impact to the Group and our clients

•       We conduct stress tests and portfolio reviews at a Group, country and business level to assess the impact of extreme but plausible geopolitical events

Macroeconomic conditions, in particular: moderation of growth
in key footprint markets led by China and sharp interest rate rises and asset price corrections

ó

The risk remains at similar levels as at the
end of 2017

•       We monitor economic trends and conduct stress tests and portfolio reviews at a Group, country and business level to assess the impact of extreme but plausible events

•       We monitor on a centralised basis contractual and behavioural interest rate risk exposures, and manage these within a clearly defined risk management framework and risk appetite

Climate-related transition risks and physical risks2

ó

The risk remains at similar levels as at the end of 2017

•       We have developed an approach for assessing energy utilities clients' power generation assets against a range of physical and transition risks, under multiple climate scenarios and a range of time horizons which will be implemented by the end of 2018. We are considering how we extend this to other sectors in 2018

•       We have made a public commitment to fund and facilitate $4 billion towards clean technology between 2016 and 2020

Regulatory reviews
and investigations,
legal proceedings3

ó

The risk remains at similar levels as at the end of 2017

•       We have invested in enhancing systems and controls, and implementing remediation programmes (where relevant)

•       We are cooperating with all relevant ongoing reviews, requests for information and investigations

Regulatory changes

ó

The risk remains at similar levels as at the end of 2017

•       We monitor regulatory initiatives across our footprint to identify any potential impact and change to our business model

•       We establish specific regulatory programmes to ensure effective and efficient implementation of changes required by new, or changes in existing, regulations

New technologies
(i.e. blockchain and
artificial intelligence) and digitisation implications (including data risks)

ó

The risk remains at similar levels as at the end of 2017

•       We monitor developments in the technology space which affect the banking sector

•       We have set up SC Ventures to help promote innovation across the Group

•       We have existing governance and control frameworks in place for the deployment of new technology services and remain vigilant regarding legal and regulatory developments in respect of the usage of new technologies and related data risks. In addition, we are building a framework to ensure fairness, ethics, accountability and transparency in the Group's use of artificial intelligence

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

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

3 Further details on current material claims and proceedings are set out in note 19 of the Notes to the financial statements



 

Standard Chartered PLC - Group Chief Risk Officer's review

 

Conclusion

The Group has carried its momentum of positive change into the first half of 2018. Through disciplined application of our refreshed risk appetite, we can focus on building an efficient, resilient bank that not only supports our clients financially, but also practises behaviours that benefit society as a whole. The financial services industry continues to evolve, and we intend to remain at the forefront of progress within it.

 

Mark Smith

Group Chief Risk Officer

31 July 2018



Standard Chartered PLC - Risk and Capital review

 

Conclusion

Risk

Credit risk

Basis of preparation

Credit risk overview

IFRS 9 changes and methodology

Maximum exposure to credit risk

Analysis of financial instrument by stage

Credit quality analysis

•  Credit quality by client segment

•  Credit quality by geographic region

•  Credit quality by industry

Movement in expected credit impairments for loans and advances to customers and banks

Movement in gross exposures for loans and advances to customers and banks

Problem credit management and provisioning

•  Credit impairments

•  Forborne and other modified loans

•  Credit impaired (stage 3) loans by client segment

•  Credit impaired (stage 3) loans by geographic region

•  Movement of credit impaired (stage 3) provisions by client segment

Credit risk mitigation

•  Collateral

•  Collateral - Corporate and Institutional Banking and Commercial Banking

•  Collateral - Retail Banking and Private Banking

Industry and retail products analysis by geographic region

IFRS 9 methodology

Country risk

Market risk

Market risk changes

Liquidity and funding risk

Liquidity and funding risk metrics

Encumbrance

Liquidity analysis of the Group's balance sheet

Interest rate risk in the banking book

Operational risk

Operational risk profile

Other principal risks

Capital

Capital summary

•  Capital ratio

•  CRD IV capital base

•  Movement in total capital

Risk weighted assets

UK leverage ratio

 



Standard Chartered PLC - Risk and Capital review

 

The following parts of the Risk review and Capital review form part of the financial statements and are reviewed by external auditors:

•  From the start of the 'Credit risk review' section to the end of 'Other principal risks' in the same section excluding:

Risk section

Credit quality by geographic region

Credit quality by industry

Credit-impaired (stage 3) loans by geographic region

Industry and Retail Products analysis by geographic region

Country risk

Market risk changes - risks not in VaR

Market risk changes - backtesting

Liquidity coverage ratio (LCR)

Stressed coverage

Net stable funding ratio (NSFR)

Liquidity pool

Encumbrance

Interest rate risk in the banking book

Operational risk

Other principal risks

•  From the start of 'Capital Requirements Directive (CRD) IV Capital base' to the end of 'Movement in total capital', excluding capital ratios and risk-weighted assets (RWA)

Disclosures noted as 'unaudited' are not within the scope of KPMG LLP's review.



 

Standard Chartered PLC - Risk review

 

Credit risk

Basis of preparation

Unless otherwise stated the balance sheet and income statement information presented within this section is based on the Group's management view. This is principally the location from which a client relationship is managed, which may differ from where it is financially booked and may be shared between businesses and/or regions. This view reflects how the client segments and regions are managed internally.

Loans and advances to customers balances comprise the ongoing portfolio and liquidation portfolio in this section unless otherwise separately identified.

Loans and advances to customers and banks held at amortised cost in this Risk Review section include reverse repurchase agreement balance held at amortised cost, per Note 14 Reverse repurchase and repurchase agreements including other similar secured lending and borrowing.

Credit risk overview

Credit risk is the potential for loss due to the failure of a counterparty to meet its obligations to pay the Group. Credit exposures arise from both the banking and trading books.

IFRS 9 changes and methodology

IFRS 9 came into effect on 1 January 2018.

A summary of the primary changes for the Group are provided below.

New impairment model

IFRS 9 introduces a new impairment model that requires the recognition of expected credit losses (ECL) rather than incurred losses under IAS 39. This applies to all financial debt instruments held at amortised cost, fair value through other comprehensive income (FVOCI), undrawn loan commitments and financial guarantees.

Staging of financial instruments

Financial instruments that are not already credit-impaired are originated into stage 1 and a 12-month expected credit loss provision is recognised.

Instruments will remain in stage 1 until they are repaid, unless they experience significant credit deterioration (stage 2) or they become credit-impaired (stage 3).

Instruments will transfer to stage 2 and a lifetime expected credit loss provision recognised when there has been a significant change in the credit risk compared with what was expected at origination.

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

Instruments are classified as stage 3 when they become credit-impaired.



 

Standard Chartered PLC - Risk review

 

Stage 3

•     Credit-impaired

•     Non-performing

Stage 2

•     Lifetime expected
credit loss

•     Performing but significant increase in credit risk (SICR)

Stage 1

•     12-month expected
credit loss

•     Performing

The Group has not restated comparative information. Accordingly, amounts prior to 1 January 2018 are prepared and disclosed on an IAS 39 basis. This primarily impacts the credit risk disclosures, where loan loss provisioning is determined on an expected credit loss basis under IFRS 9 compared with an incurred credit loss basis under IAS 39.

Where relevant, the 1 January 2018 balance sheet has been used for comparative purposes. The Group's initial estimate of credit impairment provisions on adoption of IFRS 9 was $6,720 million. Following refinement of the Group's expected loss models, the estimate of the opening credit impairment provisions has been revised down by $222 million to $6,498 million, and the net expected credit loss of $(1,296) million adjusted against retained earnings has similarly decreased by $222 million to $(1,074) million.

A summary of the differences between IFRS 9 and IAS 39 is disclosed in the Notes to the financial statements.



 

Standard Chartered PLC - Risk review

IFRS 9 changes and methodology

The accounting policies under IFRS 9 are set out in Note 7 Credit impairment and Note 12 Financial instruments. The impact upon adoption of IFRS 9 as at 1 January 2018 is set out in Note 27 Transition to IFRS 9 Financial Instruments. The main methodology principles and approach adopted by the bank are set out in the following table with cross references to other sections.

Title

Description

Supporting information

Approach to determining expected
credit losses

For material loan portfolios, the Group has adopted a statistical modelling for determining expected credit losses that makes extensive use of credit modelling. Where available, the Group has leveraged existing advanced Internal Ratings Based (IRB) regulatory models that have been used to determine regulatory expected loss.

For portfolios that follow a standardised regulatory approach, the Group has developed new models where these portfolios are material.

Credit risk methodology

Key differences between regulatory IFRS expected credit loss models

Determining lifetime expected credit loss for revolving products

Incorporation of forward looking information

The determination of expected credit loss includes various assumptions and judgements in respect of forward looking macroeconomic information.

Incorporation of forward-looking information and impact of non-linearity

Forecast of key macroeconomic variables underlying the expected credit loss calculation

Significant increase in credit risk ('SICR')

Expected credit loss for financial assets will transfer from a 12 month basis to a lifetime basis when there is a significant increase in credit risk (SICR) relative to that which was expected at the time of origination, or when the asset becomes credit impaired. On transfer to a lifetime basis, the expected credit loss for those assets will reflect the impact of a default event expected to occur over the remaining lifetime of the instrument rather than just over the 12 months from the reporting date.

SICR is assessed by comparing the risk of default of an exposure at the reporting date with the risk of default at origination (after considering the passage of time). 'Significant' does not mean statistically significant nor is it reflective of the extent of the impact on the Group's financial statements. Whether a change in the risk of default is significant or not is assessed using quantitative and qualitative criteria, the weight of which will depend on the type of product and counterparty.

The Group uses a mix of quantitative and qualitative criteria to assess SICR.

Quantitative criteria

Significant increase in credit risk thresholds

Specific qualitative and quantitative criteria per segment:

Corporate & Institutional and Commercial Banking clients

Retail Banking clients

Private Banking clients

Debt securities

Assessment of credit-impaired financial assets

Credit-impaired financial assets comprise those assets that have experienced an observed credit event and are in default. Default represents those assets that are at least 90 days past due in respect of principal and interest payments and/or where the assets are otherwise considered unlikely to pay.

Unlikely to pay factors include objective conditions such as bankruptcy, debt restructuring, fraud or death. It also includes credit-related modifications of contractual cash flows due to significant financial difficulty (forbearance) where the bank has granted concessions that it would not ordinarily consider.

Retail Banking clients

Corporate & Institutional Banking clients

Commercial Banking and Private Banking clients

Modified financial assets

Where the contractual terms of a financial instrument have been modified, and this does not result in the instrument being derecognised, a modification gain or loss is recognised in the income statement representing the difference between the original cash flows and the modified cash flows, discounted at the effective interest rate. The modification gain/loss is directly applied to the gross carrying amount of the instrument.

If the modification is credit related, such as forbearance or where the Group has granted concessions that it would not ordinarily consider, then it will be considered credit-impaired. Modifications that are not credit related will be subject to an assessment of whether the asset's credit risk has increased significantly since origination by comparing the remaining lifetime probability of default (PD) based on the modified terms with the remaining lifetime PD based on the original contractual terms.

Forbearance and other modified loans

Transfers between stages

Assets will transfer from stage 3 to stage 2 when they are no longer considered to be credit-impaired. Assets will not be considered credit-impaired only if the customer makes payments such that they are paid to current in line with the original contractual terms. In addition:

•       Loans that were subject to forbearance measures must remain current for 12 months before they can be transferred to stage 2;

•       Retail loans that were not subject to forbearance measures must remain current for 180 days before they can be transferred to stage 2 or stage 1.

Assets may transfer to stage 1 if they are no longer considered to have experienced a significant increase in credit risk. This will be immediate when the original PD based transfer criteria are no longer met (and as long as none of the other transfer criteria apply). Where assets were transferred using other measures, the assets will only transfer back to stage 1 when the condition that caused the significant increase in credit risk no longer applies (and as long as none of the other transfer criteria apply).

Movement in loan exposures and expected credit losses

Governance and application of expert credit judgement in respect of expected
credit losses

The determination of expected credit losses requires a significant degree of management judgement which has impacted governance processes, with the output of the expected credit models assessed by the IFRS 9 Impairment Committee.

Group Credit Model Assessment Committee

IFRS 9 Impairment Committee

Standard Chartered PLC - Risk review

Maximum exposure to credit risk

The table below presents the Group's maximum exposure to credit risk for its on-balance sheet and off-balance sheet financial instruments as at 30 June 2018, before and after taking into account any collateral held or other credit risk mitigation.

For on-balance sheet instruments, the maximum exposure to credit risk is the carrying amount reported on the balance sheet. For off-balance sheet instruments, the maximum exposure to credit risk generally represents the contractual notional amounts.

The Group's maximum exposure to credit risk is spread across its markets and is affected by the general economic conditions in the geographies in which it operates. The Group sets limits on the exposure to any counterparty, and credit risk is spread over a variety of different personal, commercial and institutional customers.

The Group's gross maximum exposure to credit risk has increased by $34.8 billion when compared with 1 January 2018, mainly due to on-balance sheet exposure driven by growth in loans and advances, investment securities, expansion of the reverse repo business and other assets. Investment securities increased by $6.6 billion mainly due to higher yield and concentration on investing in high-quality liquid assets for regulatory metrics. Increase in other assets is driven by higher amount of short term unsettled trades at the end of H1 2018 relative to 2017 year end.

Maximum exposure to credit risk


30.06.18

 

01.01.18

Maximum exposure
$million

Credit risk management

Net exposure
$million

Maximum exposure
$million

Credit risk management

Net
exposure
$million

Collateral
$million

Master netting agreements
$million

Collateral
$million

Master
netting agreements
$million

On-balance sheet

 

 

 

 

 

 

 

 

 

Cash and balances at central banks

58,213

-

-

58,213

 

58,864

-

-

58,864

Loans and advances to customers held at:1

258,810

 

 

 

 

250,848

 

 

 

Fair value through profit or loss

3,710

 

 

 

 

3,907

 

 

 

Amortised cost

255,100

 

 

 

 

246,941

 

 

 

Loans and advances to banks held at:1

58,847

 

 

 

 

60,059

 

 

 

Fair value through profit or loss

3,244

 

 

 

 

2,865

 

 

 

Amortised cost

55,603

 

 

 

 

57,194

 

 

 

Total loans and advances to banks
and customers

317,657

106,084

-

211,573

 

310,907

113,062

-

197,845

Reverse repurchase agreements and other secured lending6

64,421

64,421

-

-

 

55,185

55,185

-

-

Fair value through profit or loss

51,640

 

 

 

 

45,518

 

 

 

Amortised cost

12,781

 

 

 

 

9,667

 

 

 

Investment securities2

142,369

-

-

142,369

 

135,814

-

-

135,814

As per balance sheet

123,081

-

-

123,081

 

115,813

-

-

115,813

Fair value through profit or loss

21,275

-

-

21,275

 

22,350

-

-

22,350

Less: equity securities

(1,987)

-

-

(1,987)

 

(2,349)

-

-

(2,349)

Derivative financial instruments3

51,780

10,631

34,153

6,996

 

47,031

9,825

29,135

8,071

Accrued income

2,082

-

-

2,082

 

1,947

-

-

1,947

Assets held for sale

2

-

-

2

 

2

-

-

2

Other assets4

34,441

-

-

34,441

 

29,922

-

-

29,922

Total balance sheet

670,965

181,136

34,153

455,676

 

639,672

178,072

29,135

432,465

Off-balance sheet

 

 

 

 

 

 

 

 

 

Contingent liabilities

42,538

-

-

42,538

 

43,521

-

-

43,521

Undrawn irrevocable standby facilities,
credit lines and other commitments to lend5

68,222

-

-

68,222

 

63,890

-

-

63,890

Documentary credits and short-term trade-related transactions

4,021

-

-

4,021

 

3,880

-

-

3,880

Total off-balance sheet

114,781

-

-

114,781

 

111,291

-

-

111,291

Total

785,746

181,136

34,153

570,457

 

750,963

178,072

29,135

543,756

1  An analysis of credit quality is set out in the credit quality analysis section. Further details of collateral held by client segment and stage are set out in the collateral analysis section

2  Equity shares are excluded as they are not subject to credit risk

3  The Group enters into master netting agreements, which in the event of default result in a single amount owed by or to the counterparty through netting the sum of the positive and negative mark-to-market values of applicable derivative transactions

4  Other assets include Hong Kong certificates of indebtedness, cash collateral, and acceptances, in addition to unsettled trades and other financial assets

5  Excludes unconditionally cancellable facilities

6  Collateral capped at maximum exposure (over-collateralised)

 



 

Standard Chartered PLC - Risk review

Maximum exposure to credit risk


31.12.17 (IAS 39)

Maximum
exposure
$million

Credit risk management

Net
exposure
$million

Collateral
$million

Master
netting
agreements
$million

On-balance sheet

 

 

 

 

Cash and balances at central banks

58,864

-

-

58,864

Loans and advances to customers held at:1

251,625

 

 

-

Fair value through profit or loss

2,918

 

 

 

Amortised cost

248,707

 

 

 

Loans and advances to banks held at:1

60,066

 

 

 

Fair value through profit or loss

2,572

 

 

 

Amortised cost

57,494

 

 

 

Total loans and advances to banks and customers

311,691

113,060

-

198,631

Reverse repurchase agreements and other secured lending6

55,187

55,187

-

-

Fair value through profit or loss

912

 

 

 

Amortised cost

54,275

 

 

 

Investment securities

135,842

-

-

135,842

As per balance sheet

117,025

-

-

117,025

Fair value through profit or loss

21,162

-

-

21,162

Less: equity securities2

(2,345)

-

-

(2,345)

Derivative financial instruments3

47,031

9,825

29,135

8,071

Accrued income

1,947

-

-

1,947

Assets held for sale

2

-

-

2

Other assets4

29,922

-

-

29,922

Total balance sheet

640,486

178,072

29,135

433,279

Off-balance sheet

 

 

 

 

Contingent liabilities

43,521

-

-

43,521

Undrawn irrevocable standby facilities, credit lines and other commitments
to lend5

63,890

-

-

63,890

Documentary credits and short-term trade-related transactions

3,880

-

-

3,880

Total off-balance sheet

111,291

-

-

111,291

Total

751,777

178,072

29,135

544,570

1  An analysis of credit quality is set out in the credit quality analysis section. Further details of collateral held by client segment and stage are set out in the collateral analysis section

2  Equity shares are excluded as they are not subject to credit risk

3  The Group enters into master netting agreements, which in the event of default result in a single amount owed by or to the counterparty through netting the sum of the positive and negative mark-to-market values of applicable derivative transactions

4  Other assets include Hong Kong certificates of indebtedness, cash collateral and acceptances, in addition to unsettled trades and other financial assets

5  Excludes unconditionally cancellable facilities

6  Collateral capped at maximum exposure (over-collateralised)



 

Standard Chartered PLC - Risk review

 

Analysis of financial instrument by stage

This table shows financial instruments and off-balance sheet commitments by stage with total loss provision against each financial instrument class.

Total credit impairment provisions decreased by $1.0 billion in the first half of 2018, reflecting lower stage 3 provisions largely due to write-offs within the Corporate & Institutional Banking portfolio.


30.06.18

Stage 1


Stage 2


Stage 3


Total

Gross balance1
$million

Total credit impairment
$million

Net carrying value
$million

Gross balance1
$million

Total credit impairment
$million

Net carrying value
$million

Gross balance1
$million

Total credit impairment
$million

Net carrying value
$million

Gross balance1
$million

Total credit impairment
$million

Net carrying value
$million

Loans and
advances to customers (excluding FVTPL)2

235,063

(435)

234,628


21,844

(470)

21,374


7,728

(4,399)

3,329


264,635

(5,304)

259,331

Loans and
advances to customers (FVTPL)3

 

 

 

 

 

 

 

 

 

 

 

 

 

 

37,388

Total loans
and advances to customers

235,063

(435)

234,628


21,844

(470)

21,374


7,728

(4,399)

3,329


264,635

(5,304)

296,719

Loans and
advances to banks (excluding FVTPL)2

62,448

(4)

62,444


1,712

(3)

1,709


-

-

-


64,160

(7)

64,153

Loans and
advances to
banks (FVTPL)3

 

 

 

 

 

 

 

 

 

 

 

 

 

 

21,206

Total loans
and advances to banks

62,448

(4)

62,444


1,712

(3)

1,709


-

-

-


64,160

(7)

85,359

Debt securities and other
eligible bills - amortised cost

6,451

(5)

6,446


431

(19)

412


216

(208)

8


7,098

(232)

6,866

Debt securities and other eligible bills - FVOCI4

109,550

(26)

 


6,411

(30)



4

-



115,965

(56)

 

Total debt securities
and other eligible bills

116,001

(31)

 


6,842

(49)



220

(208)



123,063

(288)

 

Undrawn commitments5

128,422

(45)

 


12,592

(68)



-

-



141,014

(113)

 

Financial guarantees5

28,814

(7)

 


3,363

(64)



571

(87)



32,748

(158)

 

Total undrawn commitment
and financial guarantees

157,236

(52)

 


15,955

(132)



571

(87)



173,762

(271)

 

Total

570,748

(522)

 

 

46,353

(654)

 

 

8,519

(4,694)

 

 

625,620

(5,870)

 

1  Gross carrying amount for off-balance sheet refers to notional values

2  Loans and advances include reverse repurchase agreements and other similar secured lending for $4,231 million under 'Customers' and for $8,550 million under 'Banks'

3  Loans and advances include reverse repurchase agreements and other similar secured lending for $33,678 million under 'Customers' and for $17,962 million under 'Banks'

4  These instruments are held at fair value on the balance sheet. The expected credit loss provision in respect of debt securities measured at FVOCI is held within reserves

5  These are off-balance sheet instruments. Only the expected credit loss is recorded on balance sheet as a financial liability and therefore there is no 'net carrying amount'. expected credit loss provision on off-balance sheet instruments are held as liability provisions to the extent that the drawn and undrawn components of loan exposures can be separately identified. Otherwise they will be reported against the drawn component



Standard Chartered PLC - Risk review

 

 


01.01.18

Stage 1


Stage 2


Stage 3


Total

Gross balance1
$million

Total credit impairment
$million

Net carrying value
$million

Gross balance1
$million

Total credit impairment
$million

Net carrying value
$million

Gross balance1
$million

Total credit impairment
$million

Net carrying value
$million

Gross balance1
$million

Total credit impairment
$million

Net carrying value
$million

Loans and
advances to customers (excluding FVTPL)2

228,485

(472)

228,013


20,585

(576)

20,009


8,769

(5,282)

3,487


257,839

(6,330)

251,509

Loans and
advances to customers (FVTPL)3















33,268

Total loans
and advances
to customers

228,485

(472)

228,013


20,585

(576)

20,009


8,769

(5,282)

3,487


257,839

(6,330)

284,777

Loans and
advances to banks (excluding FVTPL)2

59,926

(6)

59,920


2,370

(2)

2,368


9

(4)

5


62,305

(12)

62,293

Loans and
advances to
banks (FVTPL)3















19,022

Total loans
and advances
to banks

59,926

(6)

59,920


2,370

(2)

2,368


9

(4)

5


62,305

(12)

81,315

Debt securities and other eligible bills - amortised cost4

6,204

(3)

6,201


995

(16)

979


221

(213)

8


7,420

(232)

7,188

Debt securities and other eligible bills - FVOCI5

101,104

(23)



7,307

(42)



-

-



108,411

(65)


Total debt securities and other eligible bills

107,308

(26)



8,302

(58)



221

(213)



115,831

(297)


Undrawn commitments6

147,007

(66)



15,240

(90)



-

-



162,247

(156)


Financial guarantees6

24,391

(6)



4,795

(16)



199

(77)



29,385

(99)


Total undrawn commitment
and financial guarantees

171,398

(72)



20,035

(106)



199

(77)



191,632

(255)


Total

567,117

(576)

 

 

51,292

(742)

 

 

9,198

(5,576)

 

 

627,607

(6,894)

 

1  Gross carrying amount for off-balance sheet refers to notional values

2  Loans and advances include reverse repurchase agreements and other similar secured lending for $4,568 million under 'Customers' and for $5,099 million under 'Banks'

3  Loans and advances include reverse repurchase agreements and other similar secured lending for $29,361 million under 'Customers' and for $16,157 million under 'Banks'

4  Stage 3 Gross balance and Total credit impairment of debt securities and other eligible bills - amortised cost has increased by $208 million, with no impact on net carrying value.
The balances have been restated to present securities with zero carrying value previously classified as available for sale under IAS 39 on a gross basis as required under IFRS 9

5  These instruments are held at fair value on the balance sheet. The expected credit loss provision in respect of debt securities measured at FVOCI is held within reserves

6  These are off-balance sheet instruments. Only the expected credit loss is recorded on balance sheet as a financial liability and therefore there is no 'net carrying amount'. Expected credit loss provisions on off-balance sheet instruments are held as liability provisions to the extent that the drawn and undrawn components of loan exposures can be separately identified. Otherwise they will be reported against the drawn component



 

Standard Chartered PLC - Risk review

 

Credit quality analysis

Credit quality by client segment

For Corporate and Institutional Banking and Commercial Banking portfolios, exposures are analysed by credit grade (CG), which plays a central role in the quality assessment and monitoring of risk. All loans are assigned a CG, which is reviewed periodically and amended in light of changes in the borrower's circumstances or behaviour. CG 1 to 12 are assigned to stage 1 and stage 2 (performing) clients or accounts, while CG 13 and 14 are assigned to stage 3 (non-performing or defaulted) clients. The mapping of credit quality is as follows:

Mapping of credit quality

The Group uses the following internal risk mapping to determine the credit quality for loans.

Credit quality description

Corporate & Institutional Banking and Commercial Banking

 

Private Banking

 

Retail Banking

Default grade
mapping

S&P external ratings equivalent

Regulatory PD range

Internal ratings

Number of days past due

Strong

Grades 1-5

AAA/AA+ to
BB+/BBB-

0.000-0.425

 

Class I and Class IV

 

Current loans (no past dues nor impaired)

Satisfactory

Grades 6-8

BB+ to BB-/B+

0.426-2.350

 

Class II and Class III

 

Loans past due till
29 days

Grades 9-11

B+/B to B-/CCC

2.351-15.750

 

 

 

 

Higher Risk

Grade 12

B-/CCC

15.751-50.000

 

GSAM managed

 

Past due loans 30 days and over till 90 days

The table overleaf sets out the gross loans and advances held at amortised cost, expected credit loss provisions and expected credit loss coverage by business segment and stage.

Within Corporate & Institutional Banking, the proportion of stage 1 accounts rated as 'Strong' increased from 58 per cent to 65 per cent due to the focus on investment grade origination. Stage 2 accounts fell $1.0 billion to $12.6 billion. Within this, early alert balances fell $1.3 billion and higher-risk accounts declined by $312 million to $816 million due to lower levels of inflows into this category.

For Retail Banking, the majority of the portfolio remains in the 'Strong' credit quality Stage 1 category (95 per cent of total Retail Banking portfolio). Stage 2 balances remain at 2.5 per cent of total Retail Banking loans and advances, of which 60 per cent are 'Strong' credit quality. Stage 3 remains broadly stable compared to the beginning of the year.

Commercial Banking saw the proportion of stage 2 assets increasing from 14 per cent of total loans to 21 per cent. However, higher-risk stage 2 accounts fell by $102 million due to repayments and reduced inflows.

Expected credit loss coverage ratios have remained broadly in line with 1 January 2018, except for higher-risk stage 2 accounts, which have fallen from 12 per cent to 9.3 per cent. The Group overall stage 3 cover ratio declined to 57 per cent (1 January 2018: 60 per cent) reflecting a small number of write-offs from the Corporate & Institutional Banking ongoing business and liquidation portfolio.



 

Standard Chartered PLC - Risk review

 

By client segment

Amortised cost

30.06.18

Loans to banks
$million

Loans to customers

Corporate & Institutional Banking
$million

Retail Banking
$million

Commercial Banking
$million

Private Banking
$million

Central & other items
$million

Total
$million

Gross loans

 

 

 

 

 

 

 

Stage 1

62,448

92,313

98,504

21,455

13,035

9,756

235,063

- Strong

50,939

59,603

96,770

7,044

9,457

9,663

182,537

- Satisfactory

11,509

32,710

1,734

14,411

3,578

93

52,526

 

 

 

 

 

 

 

 

Stage 2

1,712

12,618

2,573

6,231

422

-

21,844

- Strong

269

1,973

1,540

166

308

-

3,987

- Satisfactory

1,431

9,829

524

5,844

10

-

16,207

- Higher-risk

12

816

509

221

104

-

1,650

Of which (stage 2):

 

 

 

 

 

 

 

- Less than 30 days past due

-

929

524

295

10

-

1,758

- More than 30 days past due

-

69

509

92

4

-

674

Stage 3, credit-impaired financial assets

-

4,686

800

2,030

212

-

7,728

Total1

64,160

109,617

101,877

29,716

13,669

9,756

264,635

Expected credit loss provisions

 

 

 

 

 

 

 

Stage 1

(4)

(58)

(332)

(38)

(7)

-

(435)

- Strong

(2)

(22)

(185)

(22)

(6)

-

(235)

- Satisfactory

(2)

(36)

(147)

(16)

(1)

-

(200)

 

 

 

 

 

 

 

 

Stage 2

(3)

(243)

(156)

(70)

(1)

-

(470)

- Strong

(3)

(12)

(27)

-

(1)

-

(40)

- Satisfactory

-

(144)

(80)

(53)

-

-

(277)

- Higher-risk

-

(87)

(49)

(17)

-

-

(153)

Of which (stage 2):

 

 

 

 

 

 

 

- Less than 30 days past due

(1)

(63)

(80)

(40)

-

-

(183)

- More than 30 days past due

(2)

(15)

(49)

-

-

-

(64)

Stage 3, credit-impaired financial assets

-

(2,536)

(372)

(1,395)

(96)

-

(4,399)

Total

(7)

(2,837)

(860)

(1,503)

(104)

-

(5,304)

Coverage

 

 

 

 

 

 

 

Stage 1

0.0%

0.1%

0.3%

0.2%

0.1%

-

0.2%

- Strong

-

0.0%

0.2%

0.3%

0.1%

-

0.1%

- Satisfactory

-

0.1%

8.5%

0.1%

0.0%

-

0.4%

 

 

 

 

 

 

 

 

Stage 2

0.2%

1.9%

6.1%

1.1%

0.2%

-

2.2%

- Strong

1.1%

0.6%

1.8%

-

0.3%

-

1.0%

- Satisfactory

-

1.5%

15.3%

0.9%

-

-

1.7%

- Higher-risk

-

10.7%

9.6%

7.7%

-

-

9.3%

Of which (stage 2):

 

 

 

 

 

 

 

- Less than 30 days past due

0.0%

6.8%

15.3%

13.6%

-

-

10.4%

- More than 30 days past due

0.0%

21.7%

9.6%

-

-

-

9.5%

Stage 3, credit-impaired financial assets

-%

54.1%

46.5%

68.7%

45.3%

-

56.9%

 

 

 

 

 

 

 

 

Fair value through profit or loss

 

 

 

 

 

 

 

Performing

21,206

36,452

513

346

-

-

37,311

- Strong

20,118

31,620

497

35

-

-

32,152

- Satisfactory

1,065

4,828

12

311

-

-

5,151

- Higher-risk

23

4

4

-

-

-

8

Impaired

-

65

-

12

-

-

77

Total2

21,206

36,517

513

358

-

-

37,388

Net loans and advances

85,359

143,297

101,530

28,571

13,565

9,756

296,719

1  Loans and advances include reverse repurchase agreements and other similar secured lending for $4,231 million under 'Customers' and for $8,550 million under 'Banks'

2  Loans and advances include reverse repurchase agreements and other similar secured lending for $33,678 million under 'Customers' and for $17,962 million under 'Banks'



Standard Chartered PLC - Risk review

 

 

Amortised cost

01.01.18

Loans to banks
$million

Loans to customers

Corporate & Institutional Banking
$million

Retail
Banking
$million

Commercial Banking
$million

Private Banking
$million

Central & other items
$million

Total
$million

Gross loans

 

 

 

 

 

 

 

Stage 1

59,926

83,575

99,971

23,130

12,481

9,328

228,485

 - Strong

50,820

48,638

98,721

5,573

8,527

9,240

170,699

 - Satisfactory

9,106

34,937

1,250

17,557

3,954

88

57,786

 

 

 

 

 

 

 

 

Stage 2

2,370

13,641

2,186

4,023

735

-

20,585

 - Strong

1,940

4,400

1,432

394

693

-

6,919

 - Satisfactory

376

8,113

349

3,306

-

-

11,768

 - Higher-risk

54

1,128

405

323

42

-

1,898

Of which (stage 2):

 

 

 

 

 

 

 

 - Less than 30 days past due

246

493

347

153

-

-

993

 - More than 30 days past due

25

232

407

123

5

-

767

Stage 3, credit-impaired financial assets

9

5,788

818

1,956

207

-

8,769

Total1

62,305

103,004

102,975

29,109

13,423

9,328

257,839

Expected credit loss provisions

 

 

 

 

 

 

 

Stage 1

(6)

(65)

(370)

(25)

(8)

(4)

(472)

 - Strong

(4)

(12)

(324)

(5)

(8)

(4)

(353)

 - Satisfactory

(2)

(53)

(46)

(20)

-

-

(119)

 

 

 

 

 

 

 

 

Stage 2

(2)

(326)

(170)

(79)

(1)

-

(576)

 - Strong

(2)

(14)

(84)

-

(1)

-

(99)

 - Satisfactory

-

(165)

(25)

(59)

-

-

(249)

 - Higher-risk

-

(147)

(61)

(20)

-

-

(228)

Of which (stage 2):

 

 

 

 

 

 

 

 - Less than 30 days past due

-

(65)

(24)

(28)

-

-

(117)

 - More than 30 days past due

-

(71)

(61)

(14)

-

-

(146)

Stage 3, credit-impaired financial assets

(4)

(3,433)

(389)

(1,369)

(91)

-

(5,282)

Total

(12)

(3,824)

(929)

(1,473)

(100)

(4)

(6,330)

Coverage

 

 

 

 

 

 

 

Stage 1

0.0%

0.1%

0.4%

0.1%

0.1%

0.0%

0.2%

 - Strong

0.0%

0.0%

0.3%

0.1%

0.1%

0.0%

0.2%

 - Satisfactory

0.0%

0.2%

3.7%

0.1%

-

-

0.2%

 

 

 

 

 

 

 

 

Stage 2

0.1%

2.4%

7.8%

2.0%

0.1%

0.0%

2.8%

 - Strong

0.1%

0.3%

5.9%

0.0%

0.1%

-

1.4%

 - Satisfactory

-

2.0%

7.2%

1.8%

-

-

2.1%

 - Higher-risk

-

13.0%

15.1%

6.2%

-

-

12.0%

Of which (stage 2):

 

 

 

 

 

 

 

 - Less than 30 days past due

-

13.2%

6.9%

18.3%

-

-

11.8%

 - More than 30 days past due

-

30.6%

15.0%

11.4%

-

-

19.0%

Stage 3, credit-impaired financial assets

44.4%

59.3%

47.6%

70.0%

44.0%

0.0%

60.2%

 

 

 

 

 

 

 

 

Fair value through profit or loss

 

 

 

 

 

 

 

Performing

19,022

32,209

539

457

-

-

33,205

 - Strong

16,199

22,647

539

100

-

-

23,286

 - Satisfactory

2,823

9,555

-

357

-

-

9,912

 - Higher-risk

-

7

-

-

-

-

7

Impaired

-

59

-

4

-

-

63

Total2

19,022

32,268

539

461

-

-

33,268

Net loans and advances

81,315

131,448

102,585

28,097

13,323

9,324

284,777

1  Loans and advances include reverse repurchase agreements and other similar secured lending for $4,568 million under 'Customers' and for $5,099 million under 'Banks'

2  Loans and advances include reverse repurchase agreements and other similar secured lending for $29,361 million under 'Customers' and for $16,157 million under 'Banks'



 

Standard Chartered PLC - Risk review

 

By client segment


31.12.17 (IAS 39)

Loans to banks1
$million

Loans to customers

Corporate & Institutional Banking
$million

Retail
Banking
$million

Commercial Banking
$million

Private Banking
$million

Central & other items
$million

Total1
$million

Performing loans

 

 

 

 

 

 

 

- Strong

68,958

75,672

100,687

6,072

9,220

9,253

200,904

- Satisfactory

12,309

52,610

1,586

21,216

3,951

90

79,453

- Higher-risk

54

1,128

405

323

42

-

1,898

 

81,321

129,410

102,678

27,611

13,213

9,343

282,255

Impaired forborne loans, net of provisions

-

-

269

-

-

-

269

Non-performing loans, net of provisions

5

2,484

274

596

140

-

3,494

Total loans

81,326

131,894

103,221

28,207

13,353

9,343

286,018

Portfolio impairment provision

(1)

(156)

(208)

(99)

(2)

-

(465)

Total net loans

81,325

131,738

103,013

28,108

13,351

9,343

285,553

The following table further analyses total loans included within the table above

Included in performing loans

 

 

 

 

 

 

 

Neither past due nor impaired

 

 

 

 

 

 

 

- Strong

68,740

75,482

100,687

6,058

9,220

9,251

200,698

- Satisfactory

12,255

51,846

-

20,831

3,866

90

76,633

- Higher-risk

54

899

-

239

42

-

1,180

 

81,049

128,227

100,687

27,128

13,128

9,341

278,511

Past due but not impaired

 

 

 

 

 

 

 

- Up to 30 days past due

247

951

1,586

360

69

-

2,966

- 31-60 days past due

25

32

278

49

16

-

375

- 61-90 days past due

-

200

127

74

-

2

403

 

272

1,183

1,991

483

85

2

3,744

Total performing loans

81,321

129,410

102,678

27,611

13,213

9,343

282,255

Of which, forborne loans amounting to

2

480

84

31

-

-

595

 

 

 

 

 

 

 

 

Included in non-performing loans

 

 

 

 

 

 

 

Past due but not impaired

 

 

 

 

 

 

 

- 91-120 days past due

-

-

67

-

-

-

67

- 121-150 days past due

-

-

56

-

-

-

56

 

-

-

123

-

-

-

123

Individually impaired loans, net of provisions

5

2,484

151

596

140

-

3,371

 

 

 

 

 

 

 

 

Total non-performing loans

5

2,484

274

596

140

-

3,494

Of the above, forborne loans

4

861

268

186

-

-

1,315

The following table sets out loans held at fair value through profit and loss which are included within the table above

Neither past due nor impaired

 

 

 

 

 

 

 

- Strong

2,081

1,451

-

30

-

-

1,481

- Satisfactory

1,056

1,572

-

186

-

-

1,758

- Higher-risk

-

7

-

-

-

-

7

 

3,137

3,030

-

216

-

-

3,246

 

 

 

 

 

 

 

 

Individually impaired loans

-

19

-

-

-

-

19

 

 

 

 

 

 

 

 

Total loans held at fair value through profit and loss

3,137

3,049

-

216

-

-

3,265

1  Loans and advances include reverse repurchase agreements and other similar secured lending for $55,187 million



 

Standard Chartered PLC - Risk review

 

Credit quality by geographic region (unaudited)

The following table sets out the credit quality for gross loans and advances to customers and banks, held at amortised cost, by geographic region and stage.

Loans and advances to customers


30.06.18

Greater China & North Asia
$million

ASEAN &
South Asia
$million

Africa &
 Middle East
$million

Europe &
Americas
$million

Total
$million

Loans classified as

 

 

 

 

 

Stage 1

119,419

70,672

24,231

20,741

235,063

Stage 2

6,761

7,752

5,145

2,186

21,844

Total stage 1 and stage 2 loans

126,180

78,424

29,376

22,927

256,907

Stage 3, credit-impaired financial assets2

821

3,322

2,715

870

7,728

Total loans1

127,001

81,746

32,091

23,797

264,635

 


01.01.18

Greater China & North Asia
$million

ASEAN &
South Asia
$million

Africa &
Middle East
$million

Europe &
Americas
$million

Total
$million

Loans classified as

 

 

 

 

 

Stage 1

 114,990

70,594

 23,120

19,781

228,485

Stage 2

5,796

7,578

 4,762

2,449

20,585

Total stage 1 and stage 2 loans

 120,786

 78,172

 27,882

 22,230

 249,070

Stage 3, credit-impaired financial assets2

 806

 4,248

 2,657

 1,058

 8,769

Total loans1

 121,592

 82,420

 30,539

 23,288

 257,839

1  Amounts gross of expected credit losses

2  Amounts do not include those purchased or originated credit-impaired financial assets


31.12.17 (IAS 39)

Greater China & North Asia
$million

ASEAN &
South Asia
$million

Africa &
Middle East
$million

Europe &
Americas
$million

Total
$million

Neither past due nor individually impaired

125,565

79,175

27,774

45,997

278,511

Past due but not individually impaired

809

1,711

1,153

194

3,867

Individually impaired

806

4,233

2,654

1,184

8,877

Individual impairment provision

(312)

(2,361)

(1,858)

(706)

(5,237)

Portfolio impairment provision

(129)

(179)

(121)

(36)

(465)

Total1

126,739

82,579

29,602

46,633

285,553

1  Excludes impairment charges relating to debt securities classified as loans and receivables, refer to Note 7 of the financial statements for details



 

Standard Chartered PLC - Risk review

 

Loans and advances to banks


30.06.18

Greater China & North Asia
$million

ASEAN &
South Asia
$million

Africa &
Middle East
$million

Europe & Americas
$million

Total
$million

Loans classified as

 

 

 

 

 

Stage 1

29,772

12,079

4,384

16,213

62,448

Stage 2

266

528

472

446

1,712

Total stage 1 and stage 2 loans

30,038

12,607

4,856

16,659

64,160

Stage 3, credit-impaired financial assets2

-

-

-

-

-

Total loans1

30,038

12,607

4,856

16,659

64,160

 


01.01.18

Greater China & North Asia
$million

ASEAN &
South Asia
$million

Africa &
Middle East
$million

Europe &
Americas
$million

Total
$million

Loans classified as

 

 

 

 

 

Stage 1

 28,792

 11,853

 4,425

 14,856

 59,926

Stage 2

 1,212

 557

 169

 432

 2,370

Total stage 1 and stage 2 loans

 30,004

 12,410

 4,594

 15,288

 62,296

Stage 3, credit-impaired financial assets2

-

-

-

 9

 9

Total loans1

 30,004

 12,410

 4,594

 15,297

 62,305

1  Amounts gross of expected credit losses

2  Amounts do not include those purchased or originated credit-impaired financial asset


31.12.17 (IAS 39)

Greater China & North Asia
$million

ASEAN &
South Asia
$million

Africa &
Middle East
$million

Europe &
Americas
$million

Total
$million

Neither past due nor individually impaired

33,096

16,482

7,328

24,143

81,049

Past due but not individually impaired

130

41

101

-

272

Individually impaired

-

-

-

9

9

Individual impairment provision

-

-

-

(4)

(4)

Portfolio impairment provision

-

-

(1)

-

(1)

Total1

33,226

16,523

7,428

24,148

81,325

1  Excludes impairment charges relating to debt securities classified as loans and receivables, refer to Note 7 of the financial statements for details



 

Standard Chartered PLC - Risk review

 

Credit quality by industry (unaudited)

This section provides an analysis of the Group's amortised cost portfolio by industry on a gross, total credit impairment and net basis.


30.06.18

Stage 1

 

Stage 2

 

Stage 3

 

Total

Gross carrying amount
$million

Total credit impairment
$million

Net carrying amount
$million

Gross carrying amount
$million

Total credit impairment
$million

Net carrying amount
$million

Gross carrying amount
$million

Total credit impairment
$million

Net carrying amount
$million

Gross carrying amount
$million

Total credit impairment
$million

Net carrying amount
$million

Industry:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Energy

15,699

(16)

15,683

 

2,783

(71)

2,712

 

962

(770)

192

 

19,444

(857)

18,587

Manufacturing

20,025

(11)

20,014

 

3,220

(73)

3,147

 

827

(676)

151

 

24,072

(760)

23,312

Financing, insurance and non-banking

21,783

(9)

21,774

 

1,242

(9)

1,233

 

348

(143)

205

 

23,373

(161)

23,212

Transport, telecom and utilities

13,567

(12)

13,555

 

2,735

(59)

2,676

 

757

(401)

356

 

17,059

(472)

16,587

Food and household products

6,930

(6)

6,924

 

2,258

(20)

2,238

 

781

(356)

425

 

9,969

(382)

9,587

Commercial
real estate

13,232

(16)

13,216

 

1,466

(24)

1,442

 

330

(50)

280

 

15,028

(90)

14,938

Mining and quarrying

4,994

(9)

4,985

 

1,239

(21)

1,218

 

684

(365)

319

 

6,917

(395)

6,522

Consumer durables

7,260

(5)

7,255

 

1,733

(11)

1,722

 

649

(359)

290

 

9,642

(375)

9,267

Construction

2,355

(3)

2,352

 

793

(14)

779

 

725

(450)

275

 

3,873

(467)

3,406

Trading companies & distributors

1,744

(2)

1,742

 

370

(2)

368

 

423

(217)

206

 

2,537

(221)

2,316

Government

11,622

(1)

11,621

 

81

-

81

 

-

-

-

 

11,703

(1)

11,702

Other

4,313

(6)

4,307

 

929

(9)

920

 

230

(144)

86

 

5,472

(159)

5,313

Retail Products:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Mortgages

75,406

(18)

75,388

 

1,254

(6)

1,248

 

359

(121)

238

 

77,019

(145)

76,874

CCPL and other unsecured lending

15,350

(288)

15,062

 

1,206

(144)

1,062

 

410

(225)

185

 

16,966

(657)

16,309

Auto

643

(2)

641

 

5

-

5

 

1

-

1

 

649

(2)

647

Secured wealth products

17,130

(21)

17,109

 

424

(3)

421

 

202

(114)

88

 

17,756

(138)

17,618

Other

3,010

(10)

3,000

 

106

(4)

102

 

40

(8)

32

 

3,156

(22)

3,134

Loans and advances to customers1

235,063

(435)

234,628

 

21,844

(470)

21,374

 

7,728

(4,399)

3,329

 

264,635

(5,304)

259,331

Loans and advances
to banks2

62,448

(4)

62,444

 

1,712

(3)

1,709

 

-

-

-

 

64,160

(7)

64,153

Total3

297,511

(439)

297,072

 

23,556

(473)

23,083

 

7,728

(4,399)

3,329

 

328,795

(5,311)

323,484

1  Includes reverse repurchase agreements and other similar secured lending held at amortised cost of $4,231 million

2  Includes reverse repurchase agreements and other similar secured lending held at amortised cost of $8,550 million

3  Excludes loans held at fair value through profit or loss



Standard Chartered PLC - Risk review

 


01.01.2018

Stage 1

 

Stage 2

 

Stage 3

 

Total

Gross carrying amount
$million

Total credit impairment
$million

Net carrying amount
$million

Gross carrying amount
$million

Total credit impairment
$million

Net carrying amount
$million

Gross carrying amount
$million

Total credit impairment
$million

Net carrying amount
$million

Gross carrying amount
$million

Total credit impairment
$million

Net carrying amount
$million

Industry:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Energy

14,679

(15)

14,664

 

3,052

(78)

2,974

 

1,442

(913)

529

 

19,173

(1,006)

18,167

Manufacturing

18,848

(9)

18,839

 

3,254

(77)

3,177

 

801

(614)

187

 

22,903

(700)

22,203

Financing, insurance and non-banking

18,275

(17)

18,258

 

1,341

(9)

1,332

 

403

(179)

224

 

20,019

(205)

19,814

Transport, telecom and utilities

12,482

(11)

12,471

 

3,031

(89)

2,942

 

753

(397)

356

 

16,266

(497)

15,769

Food and household products

7,707

(7)

7,700

 

1,933

(41)

1,892

 

757

(423)

334

 

10,397

(471)

9,926

Commercial
real estate

13,452

(16)

13,436

 

919

(41)

878

 

385

(44)

341

 

14,756

(101)

14,655

Mining and quarrying

5,046

(3)

5,043

 

1,038

(11)

1,027

 

952

(674)

278

 

7,036

(688)

6,348

Consumer durables

7,108

(4)

7,104

 

1,155

(18)

1,137

 

728

(553)

175

 

8,991

(575)

8,416

Construction

2,546

(3)

2,543

 

792

(31)

761

 

786

(493)

293

 

4,124

(527)

3,597

Trading companies & distributors

1,862

(1)

1,861

 

290

2

292

 

463

(336)

127

 

2,615

(335)

2,280

Government

9,521

(1)

9,520

 

78

(1)

77

 

6

(1)

5

 

9,605

(3)

9,602

Other

4,507

(7)

4,500

 

781

(11)

770

 

268

(175)

93

 

5,556

(193)

5,363

Retail Products:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Mortgages

77,858

(8)

77,850

 

758

-

758

 

280

(131)

149

 

78,896

(139)

78,757

CCPL and other unsecured lending

15,959

(337)

15,622

 

685

(163)

522

 

505

(234)

271

 

17,149

(734)

16,415

Auto

626

(3)

623

 

6

(1)

5

 

1

-

1

 

633

(4)

629

Secured wealth products

13,301

(14)

13,287

 

720

(1)

719

 

197

(93)

104

 

14,218

(108)

14,110

Other

4,708

(16)

4,692

 

752

(6)

746

 

42

(22)

20

 

5,502

(44)

5,458

Loans and advances to customers1

228,485

(472)

228,013

 

20,585

(576)

20,009

 

8,769

(5,282)

3,487

 

257,839

(6,330)

251,509

Loans and advances
to banks2

59,926

(6)

59,920

 

2,370

(2)

2,368

 

9

(4)

5

 

62,305

(12)

62,293

Total3

288,411

(478)

287,933

 

22,955

(578)

22,377

 

8,778

(5,286)

3,492

 

320,144

(6,342)

313,802

1  Includes reverse repurchase agreements and other similar secured lending held at amortised cost of $4,568 million

2  Includes reverse repurchase agreements and other similar secured lending held at amortised cost of $5,099 million

3  Excludes loans held at fair value through profit or loss



Standard Chartered PLC - Risk review

 


31.12.2017 (IAS 39)

Neither past due nor individually impaired
$million

Past due
but not individually impaired
$million

Individually impaired
$million

Individual impairment provision
$million

Total
$million

Movements in impairment

Individual impairment provision
held as at
1 Jan 2017
$million

Net impairment charge/(release)
$million

Amounts written
off/other movements
$million

Individual impairment provision
held as at
31 Dec 2017
$million

Industry:

 

 

 

 

 

 

 

 

 

Energy

18,090

116

1,217

(879)

18,544

814

208

(143)

879

Manufacturing

22,085

397

860

(611)

22,731

644

250

(283)

611

Financing, insurance and non-banking

44,439

314

444

(213)

44,984

409

79

(275)

213

Transport, telecom and utilities

15,640

123

777

(376)

16,164

218

230

(72)

376

Food and household products

9,543

179

756

(422)

10,056

561

75

(214)

422

Commercial real estate

14,574

199

400

(34)

15,139

33

9

(8)

34

Mining and quarrying

6,063

64

1,297

(783)

6,641

1,140

26

(383)

783

Consumer durables

8,792

132

725

(583)

9,066

523

124

(64)

583

Construction

3,346

60

781

(484)

3,703

553

59

(128)

484

Trading companies & distributors

2,155

43

458

(331)

2,325

310

46

(25)

331

Government

14,390

25

6

(1)

14,420

-

(1)

2

1

Other

5,579

16

252

(176)

5,671

195

37

(54)

178

Retail Products:

 

 

 

 

 

 

 

 

 

Mortgages

77,279

1,340

276

(117)

78,778

104

34

(21)

117

CCPL and other
unsecured lending

16,700

610

360

(135)

17,535

140

398

(405)

133

Auto

588

45

-

-

633

-

1

(1)

-

Secured wealth products

13,969

57

198

(70)

14,154

4

28

38

70

Other

5,279

147

70

(22)

5,474

19

19

(16)

22

 

 

 

 

 

 

 

 

 

 

Loans and advances
to customers1

278,511

3,867

8,877

(5,237)

286,018

 

 

 

 

Individual impairment provision

 

 

 

 

 

5,667

1,622

(2,052)

5,237

Portfolio impairment provision

 

 

 

 

(465)

687

(239)

17

465

Total

 

 

 

 

285,553

6,354

1,383

(2,035)

5,702


 

 

 

 

 

 

 

 

 

Loans and advances to banks2

81,049

272

9

(4)

81,326

-

-

-

-

Individual impairment provision

 

 

 

 

 

163

-

(159)

4

Portfolio impairment provision

 

 

 

 

(1)

1

-

-

1

Total

 

 

 

 

81,325

164

-

(159)

5

1  Includes loans held at fair value through profit or loss of $2,918 million and reverse repurchase agreements held at amortised cost of $33,581 million and fair value through profit or
loss of $347 million

2  Includes loans held at fair value through profit or loss of $2,572 million and reverse repurchase agreements held at amortised cost of $20,694 million and fair value through profit or
loss of $565 million



 

Standard Chartered PLC - Risk review

 

Movement in expected credit impairments for loans and advances to banks and customers

The table below sets out the movement in expected credit loss provisions by stage in respect of loan exposures relating to banks and customers. Loan exposures in this context means the balance sheet outstanding, together with undrawn committed facilities and undrawn cancellable facilities relating to overdrafts and credit cards.

The table is an aggregate of monthly movements. Transfers between stages are deemed to occur at the beginning of a month and therefore amounts transferred net to zero. The re-measurement of expected credit loss resulting from a change in stage is reported within the profit and loss line of the stage in which they are transferred to.

Amortised cost

Stage 1
$million

Stage 2
$million

Stage 3
$million

Total
$million

Credit impairment provisions as reported on balance sheet

478

578

5,286

6,342

Credit impairment provisions as reported on undrawn commitments

66

90

-

156

Total credit impairment provisions as at 1 January 1

544

668

5,286

6,498

Exchange rate differences and other movements

(48)

6

(154)

(196)

Transfer across stages

118

(267)

149

-

Net profit and loss (release)/charge2

(130)

134

154

158

Unwinding of discount

-

-

(29)

(29)

Recoveries of amounts previously written off

-

-

175

175

Write offs

-

-

(1,182)

(1,182)

Total credit impairment provisions as at 30 June2

Of which:

 

 

 

 

Credit impairment provisions as reported on balance sheet

439

473

4,399

5,311

Credit impairment provisions as reported on undrawn commitments

45

68

-

113

1  Includes reverse repurchase agreements and other similar lending

2  Total credit impairment charge of $214 million reported in the income statement includes $60 million charge in respect of financial guarantees and a $4 million release relating to debt securities which are not included here

Movement in gross exposures for loans and advances to banks and customers


Stage 1
$million

Stage 2
$million

Stage 3
$million

Total
$million

Loan exposures as reported on balance sheet (amortised cost)

288,411

22,955

8,778

320,144

Undrawn commitments

147,007

15,240

-

162,247

Total loan exposures as at 1 January 1

435,418

38,195

8,778

482,391

Loan exposures as reported on balance sheet (amortised cost)

297,511

23,556

7,728

328,795

Undrawn commitments

128,422

12,592

-

141,014

Total loan exposures as at 30 June1

425,933

36,148

7,728

469,809

1  Includes reverse repurchase agreements and other similar lending

Loan exposures are 3 per cent lower than 1 January 2018, primarily reflecting lower levels of undrawn commitments.

On-balance sheet loan exposures in stage 1 have increased by $9.1 billion reflecting growth in Financing, Insurance and non-banking clients within Corporate & Institutional Banking, together with higher levels of Secured wealth products in Retail Banking.

On-balance sheet loan exposures in stage 2 increased $0.6 billion to $23.6 billion.

Total loan exposures in stage 3 decreased 12 per cent ($1.1 billion) to $7.7 billion, primarily due to increased levels of write-offs and recoveries.



 

Standard Chartered PLC - Risk review

 

Problem credit management and provisioning

Credit impairment

The ongoing business credit impairment charge in Corporate & Institutional Banking of $67 million for the first half of 2018 is significantly lower than the previous half in 2017. This was due to lower stage 3 impairment which was driven by lower losses particularly in ASEAN & South Asia and recoveries from a small number of major exposures in India and the Middle East.

Commercial Banking ongoing business credit impairment was at $106 million, a decrease of 16 per cent from the second half of 2017 albeit higher than the first half of 2017. Geographically, Africa & Middle East contributed to 60 per cent of the first half credit impairment. The Group remains vigilant for emerging risks.

In the liquidation portfolio, there was a net release of $70 million due to resolution of some of the assets as the disposal work out process progresses.

Retail Banking credit impairment reduced 41 per cent to $119 million at June 2018 (H2 2017: $202 million, H1 2017: $172 million), mainly driven by continued improvement in portfolio shape and performance, particularly within the unsecured portfolios.

The following table provides details of the credit impairment charge for the period.


6 months ended 30.06.18
$million
(IFRS 9)

6 months ended 31.12.171
$million
(IAS 39)

6 months ended 30.06.171
$million
(IAS 39)

Ongoing business portfolio credit impairment

 

 

 

Corporate & Institutional Banking

672

288

369

Retail Banking

119

202

172

Commercial Banking

106

126

42

Private Banking

1

1

-

Credit impairment

293

617

583

 

 

 

 

Restructuring

 

 

 

Liquidation portfolio

(70)

59

61

Others

(9)

31

11

Credit impairment

(79)

90

72

Total credit impairment

214

707

655

1  Prepared and disclosed on an IAS 39 basis

2  Credit impairment recovery of $14 million in Central & Other items is included in Corporate & Institutional Banking



 

Standard Chartered PLC - Risk review

 

Forborne and other modified loans

A forborne loan arises when a concession has been made to the contractual terms of a loan in response to a customer's financial difficulties. The table below presents stage 2 and stage 3 loans with forbearance measures by segment.


30.06.18

Loans to banks
$million

Corporate & Institutional Banking
$million

Retail
Banking
$million

Commercial Banking
$million

Private Banking
$million

Central & other items
$million

Total
$million

All loans with forbearance measures

-

2,202

385

709

-

-

3,296

Credit impairment (stage 3)

-

(657)

(136)

(466)

-

-

(1,259)

Net balance

-

1,545

249

243

-

-

2,037

 


01.01.18

Loans to banks
$million

Corporate & Institutional Banking
$million

Retail
Banking
$million

Commercial Banking
$million

Private Banking
$million

Central & other items
$million

Total
$million

All loans with forbearance measures

6

2,143

797

612

-

-

3,558

Credit impairment (stage 3)

-

(802)

(176)

(394)

-

-

(1,372)

Net balance

6

1,341

621

218

-

-

2,186

 


31.12.17 (IAS 39)

Loans to banks
$million

Corporate & Institutional Banking
$million

Retail
Banking
$million

Commercial Banking
$million

Private Banking
$million

Central & other items
$million

Total
$million

All loans with forbearance measures

6

2,143

797

647

-

-

3,593

Accumulated impairment

-

(802)

(176)

(430)

-

-

(1,408)

Net balance

6

1,341

621

217

-

-

2,185

 

Credit impaired (stage 3) loans by client segment

Overall gross credit-impaired (stage 3) loans for the Group have decreased significantly to $7.7 billion (1 January 2018: $8.8 billion) with significant reductions in the liquidation portfolio as the Group continued to assertively manage down and exit the exposures.

Stage 3 loans in Corporate & Institutional Banking decreased by $1.1 billion or 19 per cent compared with 1 January 2018. The reductions were largely due to recoveries and write-offs, coupled with a lower level of inflows. The Corporate & Institutional Banking liquidation portfolio stage 3 loans reduced by $0.6 billion (30 per cent) due to progress made in resolving and exiting accounts.

Stage 3 loans in Commercial Banking increased marginally by $74 million (4 per cent) due to higher levels of inflows. New inflows were driven by a small number of exposures in Greater China & North Asia and Africa & Middle East with no specific industry concentration.

Stage 3 loans in Retail Banking remain broadly stable (30 June 2018: $800 million and 1 January 2018: $818 million).



 

Standard Chartered PLC - Risk review

 

Cover ratio

The cover ratio measures the proportion of stage 3 impairment provisions to gross stage 3 loans, and is a metric commonly used in considering impairment trends. This metric does not allow for variations in the composition of stage 3 loans and should be used in conjunction with other credit risk information provided, including the level of collateral cover.

By client segment, the cover ratio before collateral for Corporate & Institutional Banking reduced from 59 per cent to 54 per cent due to a small number of write-offs which had a high level of provisions. The cover ratio for Commercial Banking remained broadly stable at 69 per cent (1 January 2018: 70 per cent). The cover ratio for Retail Banking remained broadly stable at 47 per cent (1 January 2018: 48 per cent). and cover ratio including collateral improved to 79 per cent (1 January 2018: 74 per cent).

The Private Banking segment remains fully covered taking into account the collateral held.

The balance of stage 3 loans not covered by stage 3 impairment provisions represents the adjusted value of collateral held and the net outcome of any workout or recovery strategies.

Collateral provides risk mitigation to some degree in all client segments and supports the credit quality and cover ratio assessments post impairment provisions. Further information on collateral is provided in the credit risk mitigation section.

The table below presents the balance of the gross stage 3 loans to banks and customers, together with the provisions held, for all segments and the respective cover ratios. For the reconciliation between the non-performing loans under IAS 39 and under IFRS 9, refer to note 27.


30.06.18

Corporate & Institutional Banking
$million

Retail
Banking
$million

Commercial Banking
$million

Private
Banking
$million

Total
$million

Gross credit impaired1

4,686

800

2,030

212

7,728

Credit impaired provisions

(2,536)

(372)

(1,395)

(96)

(4,399)

Net credit impaired

2,150

428

635

116

3,329

Cover ratio

54%

47%

69%

45%

57%

Collateral ($million)

992

262

307

118

1,679

Cover ratio (after collateral)

75%

79%

84%

100%

79%

 


01.01.18

Corporate & Institutional
Banking
$million

Gross credit impaired1

5,797

818

1,956

207

8,778

Credit impaired provision

(3,437)

(389)

(1,369)

(91)

(5,286)

Net credit impaired

2,360

429

587

116

3,492

Cover ratio

59%

48%

70%

44%

60%

Collateral ($million)

1,111

218

277

203

1,809

Cover ratio (after collateral)

78%

74%

84%

100%

81%

1  Excludes FVTPL impaired loans


31.12.17 (IAS 39)

Corporate & Institutional
Banking
$million

Gross non-performing loans

5,957

489

2,026

207

8,679

Individual impairment provisions1

(3,468)

(215)

(1,430)

(67)

(5,180)

Net non-performing loans

2,489

274

596

140

3,499

Portfolio impairment provisions

(157)

(208)

(99)

(2)

(466)

Total

2,332

66

497

138

3,033

Cover ratio

61%

87%

75%

33%

65%

Cover ratio (excluding portfolio impairment provisions)

58%

44%

71%

32%

60%

Collateral ($ million)

1,111

218

277

203

1,809

Cover ratio (after collateral)

77%

89%

84%

100%

81%

1  The difference to total individual impairment provision reflects provisions against forborne loans that are not included within non-performing loans as they have been performing for
180 days



 

Standard Chartered PLC - Risk review

 

Credit-impaired (stage 3) loans by geographic region (unaudited)

Stage 3 loans decreased by $1.1 billion or 12 per cent compared with January 2018. The largest decrease was in the ASEAN & South Asia region ($926 million), primarily driven by reductions in the liquidation portfolio through disposal of loans and write-offs.

The following tables present a breakdown of total stage 3 loans to banks and customers by geographic regions:


30.06.18

Greater China & North Asia
$million

ASEAN &
South Asia
$million

Africa &
Middle East
$million

Europe & Americas
$million

Total
$million

Gross credit impaired

821

3,322

2,715

870

7,728

Credit impairment provisions

(327)

(2,028)

(1,724)

(320)

(4,399)

Net credit impaired

494

1,294

991

550

3,329

Cover ratio

40%

61%

63%

37%

57%

 


01.01.18

Greater China & North Asia
$million

ASEAN &
South Asia
$million

Africa &
Middle East
$million

Europe &
Americas
$million

Total
$million

Gross credit impaired

806

4,248

2,657

1,067

8,778

Credit impairment provisions

(308)

(2,500)

(1,846)

(632)

(5,286)

Net credit impaired

498

1,748

811

435

3,492

Cover ratio

38%

59%

69%

59%

60%

 


31.12.17 (IAS 39)

Greater China & North Asia
$million

Gross non-performing loans

895

3,948

2,692

1,144

8,679

Individual impairment provisions

(396)

(2,389)

(1,675)

(720)

(5,180)

Non-performing loans net of individual impairment provision

499

1,559

1,017

424

3,499

Portfolio impairment provisions

(129)

(180)

(121)

(36)

(466)

Net non-performing loans and advances

370

1,379

896

388

3,033

Cover ratio

59%

65%

67%

66%

65%

Cover ratio (excluding portfolio impairment provisions)

 

 

 

 

60%

 



 

Standard Chartered PLC - Risk review

 

Movement of credit impaired (stage 3) provisions by client segment

The credit impairment provisions as at 30 June 2018 were lower at $4,399 million as compared with $5,286 million as at 1 January 2018, largely due to material reductions in Corporate and Institutional Banking.

The Corporate and Institutional Banking credit impairment provisions as at 30 June 2018 decreased by 26 per cent ($901 million) compared with 1 January 2018 driven by write offs and lower new provisions taken in the first half 2018.

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


30.06.18

Corporate & Institutional Banking
$million

Gross credit impaired loans at 30 June

4,686

800

2,030

212

7,728

Credit impairment provisions at 1 January

3,437

389

1,369

91

5,286

Exchange translation difference

(126)

(11)

(13)

-

(150)

Amounts written off

(853)

(266)

(63)

-

(1,182)

Recoveries of amounts written off

49

115

11

-

175

Discount unwind

(7)

(3)

(19)

-

(29)

New provisions charge/(release)

357

187

194

6

744

Recoveries/derecognition (repayment)

(374)

(125)

(91)

-

(590)

Other movements

-

(3)

-

(1)

(4)

Net transfers into and out of stage 3

53

89

7

-

149

Credit impairment provisions at 30 June

2,536

372

1,395

96

4,399

Net credit impairment

2,150

428

635

116

3,329

 


31.12.17 (IAS 39)

Corporate & Institutional
Banking
$million

Retail
Banking
$million

Commercial Banking
$million

Private
Banking
$million

Total1
$million

Gross impaired loans at 31 December

5,957

695

2,027

207

8,886

Provisions held at 1 January

3,961

262

1,602

5

5,830

Exchange translation differences

55

15

31

1

102

Amounts written off

(1,139)

(577)

(444)

-

(2,160)

Releases of acquisition fair values

(1)

-

-

-

(1)

Transfer to assets held for sale

27

153

22

32

234

Discount unwind

(41)

(23)

(19)

-

(83)

Transfer to assets held for sale

-

(6)

-

-

(6)

New provisions

1,197

669

327

63

2,256

Recoveries/provisions no longer required

(314)

(218)

(86)

(34)

(652)

Net individual impairment charge against profit

883

451

241

29

1,604

Other movements2

(277)

-

(2)

-

(279)

Individual impairment provisions held at 31 December

3,468

275

1,431

67

5,241

Net individually impaired loans

2,489

420

596

140

3,645

1  Excludes credit impairment relating to loan commitments and financial guarantees

2  Other movements include provisions for liabilities and charges that have been drawn down and are now part of loan impairment



 

Standard Chartered PLC - Risk review

Credit risk mitigation

Potential credit losses from any given account, customer or portfolio are mitigated using a range of tools such as collateral, netting arrangements, credit insurance and credit derivatives, taking into account expected volatility and guarantees. The reliance that can be placed on these mitigants is carefully assessed in light of issues such as legal certainty and enforceability, market valuation correlation and counterparty risk of the guarantor.

Collateral

The requirement for collateral is not a substitute for the ability to pay, which is the primary consideration for any lending decisions. As a result of reinforcing our collateralisation requirements, the fair value of collateral held as a percentage of amount outstanding has decreased from 46 per cent to 45 per cent in the first half of 2018.

The unadjusted market value of collateral across all asset types, in respect of Corporate & Institutional Banking and Commercial Banking, without adjusting for over-collateralisation, was $263 billion (2017: $247 billion).

The collateral values in the table below are adjusted where appropriate in accordance with our risk mitigation policy and for the effect of over-collateralisation. 50 per cent of clients that have placed collateral with the Group are over-collateralised. The average amount of over-collateralisation is 38 per cent.

We have remained prudent in the way we assess the value of collateral, which is calibrated for a severe downturn and backtested against our prior experience. On average, across all types of non-cash collateral, the value ascribed is approximately half of its current market value. Collateral held against Corporate & Institutional Banking and Commercial Banking exposures amounted to $73 billion.

In the Retail Banking and Private Banking segments, a secured loan is one where the borrower pledges an asset as collateral of which the Group is able to take possession in the event that the borrower defaults. The collateral level for Retail Banking has increased by $1.7 billion in the first half of 2018.

For loans and advances to customers and banks (including those held at fair value through profit or loss), the table below sets out the fair value of collateral held by the Group, adjusted where appropriate in accordance with the risk mitigation policy and for the effect of over-collateralisation.

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


30.06.18

Amount outstanding

 

Collateral

 

Net exposure1,2

Total
$million

Stage 2 financial assets
$million

Credit impaired financial assets
(Stage 3)
$million

Total
$million

Stage 2 financial assets
$million

Credit impaired financial assets
(Stage 3)
$million

Total
$million

Stage 2 financial assets
$million

Credit impaired financial assets
(Stage 3)
$million

Corporate &
Institutional Banking

228,656

14,084

2,215

 

67,342

1,715

999

 

161,314

12,369

1,216

Retail Banking

101,530

2,417

428

 

78,194

1,279

262

 

23,336

1,138

166

Commercial Banking

28,571

6,161

647

 

6,055

2,795

307

 

22,516

3,366

340

Private Banking

13,565

421

116

 

9,158

196

118

 

4,407

225

(2)

Central and other items

9,756

-

-

 

9,756

-

-

 

-

-

-

Total

382,078

23,083

3,406

 

170,505

5,985

1,686

 

211,573

17,098

1,720

 


31.12.17 (IAS 39)

Maximum exposure

 

Collateral

 

Net expsoure1,2

Total
$million

Past due but not individually impaired
loans
$million

Individually impaired
loans
$million

Total
$million

Past due but not individually impaired
loans
$million

Individually impaired
loans
$million

Total
$million

Past due but not individually impaired
loans
$million

Individually impaired
loans
$million

Corporate &
Institutional Banking

193,442

1,455

5,957

 

70,499

160

1,111

 

122,943

1,295

4,846

Retail Banking

103,371

2,114

695

 

76,543

1,514

218

 

26,828

600

477

Commercial Banking

29,602

483

2,027

 

6,570

247

277

 

23,032

236

1,750

Private Banking

13,359

85

207

 

9,296

82

203

 

4,063

3

4

Central and other items

27,570

2

-

 

5,339

-

-

 

22,231

2

-

Total

367,344

4,139

8,886

 

168,247

2,003

1,809

 

199,097

2,136

7,077

1  Includes loans held at fair value through profit or loss

2  Includes loans and advances to banks



 

Standard Chartered PLC - Risk review

 

Collateral - Corporate & Institutional Banking and Commercial Banking

Collateral held against Corporate & Institutional Banking and Commercial Banking exposures amounted to $73 billion. The decrease of $4 billion was primarily in reverse repurchase (repo) collateral due to increased liquidity management activity by the Group. The proportion of investment grade securities in reverse repos collateral remains stable at 97 per cent. The average residual maturity of the reverse repo collateral is 8.1 years.

Collateral taken for longer-term and sub-investment grade corporate loans continues to be high at 55 per cent.

Our underwriting standards encourage taking specific charges on assets and we consistently seek high-quality, investment grade collateral. 28 per cent of collateral held comprises physical assets or is property-based, with the remainder largely in cash and investment securities.

Non-tangible collateral such as guarantees and standby letters of credit may also be held against corporate exposures, although the financial effect of this type of collateral is less significant in terms of recoveries. However, this type of collateral is considered when determining probability of default and other credit-related factors. Collateral is also held against off-balance sheet exposures, including undrawn commitments and trade-related instruments.

The following table provides an analysis of the types of collateral held against Corporate & Institutional Banking and Commercial Banking loan exposures.

Corporate & Institutional Banking


30.06.18
$million

31.12.17 (IAS 39)
$million

Maximum exposure

228,656

193,442

 

 

 

Property

8,260

7,014

Plant, machinery and other stock

3,152

3,612

Cash

5,531

5,742

Reverse repos

46,092

49,736

AAA

284

1,027

A- to AA+

39,700

40,421

BBB- to BBB+

4,693

6,448

Lower than BBB-

558

915

Unrated

857

925

Commodities

228

162

Ships and aircraft

4,079

4,233

Total value of collateral

67,342

70,499

Net exposure

161,314

122,943

Commercial Banking


30.06.18
$million

31.12.17 (IAS 39)
$million

Maximum exposure

28,571

29,602

 

 

 

Property

4,191

4,642

Plant, machinery and other stock

762

767

Cash

901

923

Reverse repos

-

-

AAA

-

-

A- to AA+

-

-

BBB- to BBB+

-

-

Lower than BBB-

-

-

Unrated

-

-

Commodities

6

4

Ships and aircraft

195

234

Total value of collateral

6,055

6,570

Net exposure

22,516

23,032

 



 

Standard Chartered PLC - Risk review

 

Collateral - Retail Banking and Private Banking

In Retail Banking and Private Banking, 85 per cent of the portfolio is fully secured. The proportion of unsecured loans remains broadly stable at 14 per cent and remaining 1 per cent is partially secured.

Loan-to-value (LTV) ratios measure the ratio of the current mortgage outstanding to the current fair value of the properties on which they are secured.

In mortgages the value of property held as security significantly exceeds the value of mortgage loans. The average LTV of the overall mortgage portfolio is less than 45 per cent. Hong Kong, which represents 37 per cent of the Retail Banking mortgage portfolio has an average LTV of 35.4 per cent. All of our other key markets continue to have low portfolio LTVs, (Korea, Singapore and Taiwan at 45.6 per cent, 57.1 per cent and 51.2 per cent respectively).

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

The following table presents an analysis of loans to individuals by product; split between fully secured, partially secured and unsecured.


30.06.18

 

31.12.17 (IAS 39)

Fully secured
$million

Partially secured
$million

Unsecured
$million

Total1
$million

Fully
secured
$million

Partially secured
$million

Unsecured
$million

Total1
$million

Maximum exposure

97,592

758

16,745

115,095

 

97,523

1,301

17,750

116,574

Loans to individuals

 

 

 

 

 

 

 

 

 

Mortgages

76,829

45

-

76,874

 

78,755

23

-

78,778

CCPL

243

98

16,474

16,815

 

240

86

17,209

17,535

Auto

647

-

-

647

 

630

-

3

633

Secured wealth products

17,164

215

246

17,625

 

13,903

156

95

14,154

Other

2,709

400

25

3,134

 

3,995

1,036

443

5,474

Total collateral

 

 

 

87,352

 

 

 

 

85,839

Net exposure

 

 

 

27,743

 

 

 

 

30,735

Percentage of total loans

85%

1%

14%

 

 

84%

1%

15%

 

1  Amounts net of individual impairment provisions

Mortgage loan-to-value ratios by geography

The following table provides an analysis of loan-to-value ratios by region for the mortgages portfolio:


30.06.18

Greater China & North Asia
%

ASEAN &
South Asia
%

Africa &
Middle East
%

Europe &
Americas
%

Total
%

Less than 50 per cent

68.5

38.8

21.2

23.1

58.4

50 per cent to 59 per cent

15.0

17.9

17.2

23.5

16.0

60 per cent to 69 per cent

11.4

19.3

22.7

29.8

14.2

70 per cent to 79 per cent

4.2

21.6

20.6

21.3

9.6

80 per cent to 89 per cent

0.7

2.0

11.0

2.3

1.4

90 per cent to 99 per cent

0.1

0.2

4.1

-

0.2

100 per cent and greater

0.1

0.2

3.2

-

0.2

Average portfolio loan-to-value

41.2

53.2

64.2

53.4

44.7

Loans to individuals - mortgages ($million)

52,754

20,005

2,237

1,878

76,874

 


31.12.17 (IAS 39)

Greater China & North Asia
%

ASEAN &
South Asia
%

Africa &
Middle East
%

Europe &
Americas
%

Total
%

Less than 50 per cent

62.9

36.1

21.6

28.4

54.7

50 per cent to 59 per cent

16.4

17.5

16.9

23.4

16.8

60 per cent to 69 per cent

15.3

18.7

22.6

31.4

16.6

70 per cent to 79 per cent

4.5

22.8

20.8

13.7

9.5

80 per cent to 89 per cent

0.7

4.3

11.2

2.0

1.9

90 per cent to 99 per cent

0.1

0.3

3.9

0.4

0.3

100 per cent and greater

0.1

0.3

3.0

0.8

0.2

Average portfolio loan-to-value

43.5

55.0

63.9

52.1

46.8

Loans to individuals - mortgages ($million)

54,609

20,105

2,279

1,785

78,778



 

Standard Chartered PLC - Risk review

 

Industry and Retail Products analysis by geographic region (unaudited)

This section provides an analysis of the Group's amortised cost loan portfolio, net of provisions, by industry and region.

In the Corporate & Institutional Banking and Commercial Banking segments our largest industry exposures are manufacturing and financing, insurance and non-banking, each constituting 16 per cent of Corporate & Institutional Banking and Commercial Banking loans and advances
to customers. Lending to financing, insurance and non-banking clients is mostly to investment grade institutions and is part of the liquidity management of the Group.

The manufacturing industry group is spread across a diverse range of industries, including automobiles and components, capital goods, pharmaceuticals, biotech and life sciences, technology hardware and equipment, chemicals, paper products and packaging, with lending spread over 4,553 clients.

Loans and advances to the energy sector have remained stable and constitute 13 per cent of total loans and advances to Corporate & Institutional Banking and Commercial Banking. The energy sector lending is spread across five subsectors and over 460 clients.

The Group provides loans to commercial real estate counterparties of $14.9 billion, which represents 6 per cent of total customer loans and advances. In total, $8.6 billion of this lending is to counterparties where the source of repayment is substantially derived from rental or sale of real estate and is secured by real estate collateral. The remaining commercial real estate loans comprise working capital loans to real estate corporates, loans with non-property collateral, unsecured loans and loans to real estate entities of diversified conglomerates. The average LTV ratio of the commercial real estate portfolio has increased to 44 per cent, compared with 41 per cent in 2017. The proportion of loans with an LTV greater than 80 per cent has remained at 1 per cent during the same period.

Credit cards and personal loans (CCPL) and other unsecured lending of total Retail Products loans and advances remains broadly stable at 14 per cent.

Industry and Retail Products analysis by geographic region


30.06.18

Greater China & North Asia
$million

ASEAN &
South Asia
$million

Africa &
Middle East
$million

Europe &
Americas
$million

Total
$million

Industry:

 

 

 

 

 

Energy

2,408

6,516

3,037

6,626

18,587

Manufacturing

11,434

5,767

3,945

2,166

23,312

Financing, insurance and non-banking

10,423

5,189

1,188

6,412

23,212

Transport, telecom and utilities

6,813

4,056

4,773

945

16,587

Food and household products

2,059

3,898

2,498

1,132

9,587

Commercial real estate

8,084

4,923

1,780

151

14,938

Mining and quarrying

2,316

2,241

1,195

770

6,522

Consumer durables

6,060

1,810

777

620

9,267

Construction

932

1,025

1,267

182

3,406

Trading companies and distributors

1,158

589

511

58

2,316

Government

1,419

7,910

2,077

296

11,702

Other

1,939

1,812

905

657

5,313

Retail Products:

 

 

 

 

 

Mortgages

52,754

20,005

2,237

1,878

76,874

CCPL and other unsecured lending

9,587

4,093

2,628

1

16,309

Auto

-

457

190

-

647

Secured wealth products

6,680

9,006

381

1,551

17,618

Other

2,351

109

674

-

3,134

Net loans and advances to customers

126,417

79,406

30,063

23,445

259,331

Net loans and advances to banks

30,036

12,605

4,855

16,657

64,153

 

 



Standard Chartered PLC - Risk review

 


01.01.18

Greater China & North Asia
$million

ASEAN &
South Asia
$million

Africa &
Middle East
$million

Europe &
Americas
$million

Total
$million

Industry:

 

 

 

 

 

Energy

2,841

5,874

3,188

6,264

18,167

Manufacturing

10,885

6,290

3,145

1,883

22,203

Financing, insurance and non-banking

7,096

4,996

1,242

6,480

19,814

Transport, telecom and utilities

6,396

3,870

4,508

995

15,769

Food and household products

2,173

4,100

2,485

1,168

9,926

Commercial real estate

8,047

5,084

1,472

52

14,655

Mining and quarrying

1,878

2,857

1,033

580

6,348

Consumer durables

4,214

2,536

975

691

8,416

Construction

987

1,097

1,275

238

3,597

Trading companies and distributors

1,153

573

426

128

2,280

Government

1,669

6,585

1,184

164

9,602

Other

1,831

1,884

1,069

579

5,363

Retail Products:

 

 

 

 

 

Mortgages

54,602

20,099

2,273

1,783

78,757

CCPL and other unsecured lending

9,585

3,935

2,893

2

16,415

Auto

-

399

230

-

629

Secured wealth products

5,268

6,973

212

1,657

14,110

Other

2,349

2,409

696

4

5,458

Net loans and advances to customers

120,974

79,561

28,306

22,668

251,509

Net loans and advances to banks

30,002

12,408

4,593

15,290

62,293

 


31.12.17 (IAS 39)

Greater China & North Asia
$million

ASEAN &
South Asia
$million

Africa &
Middle East
$million

Europe &
Americas
$million

Total
$million

Industry:

 

 

 

 

 

Energy

2,855

6,097

3,303

6,289

18,544

Manufacturing

10,919

6,685

3,221

1,906

22,731

Financing, insurance and non-banking

8,213

6,421

1,308

29,042

44,984

Transport, telecom and utilities

6,456

3,965

4,707

1,036

16,164

Food and household products

2,174

4,126

2,577

1,179

10,056

Commercial real estate

8,429

5,169

1,479

62

15,139

Mining and quarrying

2,079

2,903

1,089

570

6,641

Consumer durables

4,432

2,544

1,300

790

9,066

Construction

989

1,118

1,358

238

3,703

Trading companies and distributors

1,192

573

432

128

2,325

Government

4,864

6,728

1,430

1,398

14,420

Other

1,839

2,174

1,075

583

5,671

Retail Products:

 

 

 

 

 

Mortgages

54,609

20,105

2,279

1,785

78,778

CCPL and other unsecured lending

10,175

4,336

3,022

2

17,535

Auto

-

399

234

-

633

Secured wealth products

5,278

7,005

213

1,658

14,154

Other

2,365

2,410

696

3

5,474

 

126,868

82,758

29,723

46,669

286,018

Portfolio impairment provision

(129)

(179)

(121)

(36)

(465)

Net loans and advances to customers

126,739

82,579

29,602

46,633

285,553

Net loans and advances to banks

33,226

16,523

7,428

24,148

81,325

 



 

Standard Chartered PLC - Risk review

 

IFRS 9 methodology

Approach for determining expected credit losses

Credit loss terminology

Component

Definition

Probability of default (PD)

The probability at a point in time that a counterparty will default, calibrated over up to 12 months from the reporting date (stage 1) or over the lifetime of the product (stage 2) and incorporating the impact of forward-looking economic assumptions that have an effect on credit risk, such as interest rates, unemployment rates and GDP forecasts.

The PD is estimated at a point in time that means it will fluctuate in line with the economic cycle. The term structure of the PD is based on statistical models, calibrated using historical data and adjusted to incorporate forward-looking economic assumptions.

Loss given default (LGD)

The loss that is expected to arise on default, incorporating the impact of forward-looking economic assumptions where relevant, which represents the difference between the contractual cash flows due and those that the bank expects to receive.

The Group estimates LGD based on the history of recovery rates and considers the recovery of any collateral that is integral to the financial asset, taking into account forward-looking economic assumptions where relevant.

Exposure at default (EAD)

The expected balance sheet exposure at the time of default, taking into account the expected change in exposure over the lifetime of the exposure. This incorporates the impact of drawdowns of committed facilities, repayments
of principal and interest, amortisation and prepayments, together with the impact of forward-looking economic assumptions where relevant.

To determine the expected credit loss, these components are multiplied together (PD for the reference period (up to 12 months or lifetime) x LGD at the beginning of the period x EAD at the beginning of the period) and discounted to the balance sheet date using the effective interest rate as the discount rate.

Although the IFRS 9 models leverage the existing Basel advanced IRB risk components, several significant adjustments are required to ensure the resulting outcome is in line with the IFRS 9 requirements.

Key differences between regulatory and IFRS expected credit loss models

 

Basel advanced IRB Expected Loss (EL)

IFRS 9 Expected credit loss

Rating philosophy

Mix of point-in-time, through-the-cycle or hybrid

Point-in-time, forward looking

Parameters calibration

Often conservative, due to regulatory floors and downturn calibration

Unbiased estimate, based on conditions known at the balance sheet date

- PD


Inclusion of forward-looking information and removal of conservatism and bias

- LGD


Removal of regulatory floors, exclusion of non-direct costs

- EAD

Floored at outstanding amount

Recognises ability to have a reduction in exposure from the balance sheet date to the default date

Time frame

12-month period

Up to 12 months and lifetime

Discounting applied

Discounting at the weighted average cost of capital
to the time of default

Discounting at the effective interest rate (EIR) to the balance sheet reporting date

Global IFRS 9 expected credit loss models have been developed for the Corporate & Institutional Banking and Commercial Banking businesses. Given the global nature of these portfolios; these models are global in nature at the base level. However, for some of the most material countries, country-specific models have been developed for the Corporate & Institutional Banking and Commercial Banking clients.

The calibration of forward-looking information is assessed at a country or region level to take into account local macroeconomic conditions.

Retail banking expected credit loss models are country and product specific given the local nature of the Retail Banking business.

For less material Retail Banking loan portfolios, the Group has adopted simplified approaches based on historical roll rates or loss rates:

•     For medium-sized Retail Banking portfolios, a roll rate model is applied, which uses a matrix that gives average loan migration rate from delinquency states from period to period. A matrix multiplication is then performed to generate the final PDs by delinquency bucket over different time horizons

•     For smaller Retail Banking portfolios, loss rate models are applied. These use an adjusted gross charge-off rate, developed using monthly write-off and recoveries over the preceding 12 months and total outstanding balances



 

Standard Chartered PLC - Risk review

 

Application of lifetime

Expected credit loss is estimated based on the shorter of the expected life and the maximum contractual period for which the Group is exposed to credit risk. For Retail Banking credit cards and Corporate & Institutional Banking overdraft facilities, however the Group does not typically enforce the contractual period. As a result, for these instruments, the lifetime of the exposure is based on the period the Group is exposed to credit risk. This period has been determined by reference to the extent to which credit risk management actions curtail the period of exposure. For credit cards, this has resulted in an average life of between 3 and 10 years across our footprint markets. Overdraft facilities have a 22-month lifetime.

Key assumptions and judgements in determining expected credit loss

Incorporation of forward-looking information and the impact of non-linearity

The evolving economic environment is a key determinant of the ability of a bank's clients to meet their obligations as they fall due. It is a fundamental principle of IFRS 9 that the provisions banks hold against potential future credit risk losses should depend not just on the health of the economy today, but should also take account of changes to the economic environment in the future. For example, if a bank expected a sharp slowdown in the world economy was likely over the coming year, it should hold more provisions today to ensure that it was able to absorb credit losses that would be likely to occur in the near future.

To capture the effect of changes to the economic environment in the future, the computation of probability of default (PD), loss given default (LGD) and so expected credit loss incorporates forward-looking information; assumptions on the path of economic variables and asset prices that are likely to have an effect on the repayment ability of the Group's clients. For example, economic variables specific to individual countries include economic growth, interest rates, unemployment rates, property prices, and prices of assets that trade on global markets such as oil, industrial metals and other commodities. Less sophisticated approaches, such as loss rate models, do not directly incorporate forward-looking information.

The starting point for the projections of economic variables and asset prices is based on management's view, which underlies the plan to deliver the Group's strategy and ensure that has sufficient capital over the medium term.

Management's view covers a core set of economic variables and asset prices required to set the strategic plan. To reach the full set of economic variables and asset prices required to compute expected credit loss for all the Group's clients in all the Group's footprint markets, management's view is augmented with projections from the Group's in-house research team and outputs from a range of models that project specific economic variables and asset prices.

Forecast of key macroeconomic variables underlying the expected credit loss calculation

The base forecast - management's view of the most likely outcome - is that the synchronised expansion of the global economy will continue over the coming years alongside a normalisation of monetary policy in the developed world and the successful rebalancing of the Chinese economy, with US-China trade tensions putting China's export sectors under some pressure.

While the most likely outcome is the basis for the Group's strategic plan, one of the key requirements of IFRS 9 is that the assessment of provisions should be based on a range of potential outcomes for the future economic environment. For example, the global economy may grow more quickly or more slowly than the most likely outcome and this would be expected to have different implications for the provisions that the Group should hold today. As the Group's clients tend to be more affected when the economic environment weakens than when it strengthens, it is possible that the range of expected credit loss outcomes resulting from a range of scenarios around the most likely scenario may be skewed to the downside. So, if the Group computes expected credit loss uniquely on the basis of the most likely outcome, it might not end up with the appropriate level of provisions. This is the concept of non-linearity in expected credit loss under IFRS 9.

To address the potential non-linearity in expected credit loss, the Group simulates a set of scenarios around the base forecast and generates 50 scenarios upon which to compute expected credit loss. These scenarios are generated by a Monte Carlo simulation, which considers the degree of uncertainty (or volatility) around economic outcomes, how these outcomes have generally tended to move together (or correlation), and how the range of reasonably possible outcomes would be defined.

While the 50 scenarios do not each have a specific narrative, they reflect a range of plausible hypothetical alternative outcomes for the global economy. Some are better than the base forecast and represent an unwinding of the current shocks and uncertainty leading to higher global economic activity and higher asset prices. Some are worse than the base forecast and represent an intensification of current shocks or introduction of new shocks that raise uncertainty leading to lower global economic activity and lower asset prices.



 

Standard Chartered PLC - Risk review

 

The table on the next page sets out a representative summary of the economic variables and asset prices that the Group considers to be among the most important determinants of the Group's expected credit loss. The key data provided is the average expected outturn for each economic variable and asset price in the base forecast over the next five years (June 2018 - June 2023) in the most likely scenario and an indicator of the range of each economic variable and asset price over the same period across the multiple scenarios.

30.06.2018

China

 

Hong Kong

 

Korea

 

Singapore

 

India

Base forecast

Low2

High3

Base forecast

Low2

High3

Base forecast

Low2

High3

Base forecast

Low2

High3

Base forecast

Low2

High3

GDP growth (YoY%)

 6.1

4.2

 7.6

 

3.0

0.1

5.3

 

2.9

0.6

5.4

 

 2.3

(1.5)

6.4

 

7.7

5.5

10.1

Unemployment (%)

3.9

 3.8

4.1

 

3.5

2.4

4.6

 

 3.3

2.6

4.1

 

3.0

2.3

3.8

 

N/A1

N/A1

N/A1

3-month interest rates (%)

4.3

3.1

5.6

 

2.7

1.6

3.7

 

 2.3

1.2

3.4

 

1.9

1.1

3.4

 

 6.2

4.6

7.6

House prices (YoY%)

 5.4

3.0

8.2

 

1.7

(9.3)

11.4

 

 3.5

1.1

6.1

 

4.5

(1.8)

10.9

 

8.7

1.1

14.8

 

01.01.2018

China

 

Hong Kong

 

Korea

 

Singapore

 

India

Base forecast

Low2

High3

 

Base forecast

Low2

High3

 

Base forecast

Low2

High3

 

Base forecast

Low2

High3

 

Base forecast

Low2

High3

GDP growth (YoY%)

 6.1

 4.5

 7.6

 

 3.0

 0.3

 5.4

 

 2.9

 0.8

 5.6

 

 2.3

 (2.0)

 6.1

 

 7.5

 5.4

 9.7

Unemployment (%)

 4.0

 3.8

 4.2

 

 3.6

 2.4

 4.8

 

 3.3

 2.5

 4.6

 

 2.8

 2.2

 3.5

 

N/A1

N/A1

N/A1

3-month interest rates (%)

 4.2

 2.9

 5.6

 

 1.7

 1.0

 3.7

 

 2.3

 1.4

 4.3

 

 1.7

 1.2

 3.9

 

 6.2

 5.3

 9.0

House prices (YoY%)

 5.4

 3.5

 8.0

 

 2.0

 (7.5)

 12.3

 

 3.5

 1.4

 6.0

 

 3.8

 (1.8)

 9.2

 

 8.5

 1.3

 15.5

 


Crude Oil Brent, USD pb

Base forecast

Low2

High3

30.06.2018

 76.5

 38.1

 104.8

 


Crude Oil Brent, USD pb

Base forecast

Low2

High3

01.01.2018

61.0

35.0

92.0

1  Not available

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

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

The final expected credit loss reported by the Group is a simple average of the 50 scenarios. The impact of non-linearity on expected credit loss is set out in the table below:


Including
non-linearity
$m

Excluding
non-linearity
$m

Difference
%

Total expected credit loss1

1,227

1,198

2.4

1  Total modelled expected credit loss comprises stage 1 and stage 2 balances of $1,075 million and $152 million of modelled expected credit loss on stage 3 loans

The average expected credit loss under multiple scenarios is 2.4 per cent higher than the expected credit loss computed using only the most likely scenario. Portfolios that are more sensitive to non-linearity include those with a longer tenor, such as Project and Shipping Finance, and credit card portfolios.

Credit-impaired assets managed by Group Special Assets Management (GSAM) incorporate forward-looking economic assumptions in respect of the recovery outcomes identified and are assigned individual probability weightings. These assumptions are not based on a Monte Carlo simulation but are informed by the
base case.



 

Standard Chartered PLC - Risk review

 

Significant increase in credit risk

Quantitative criteria

Significant deterioration is assessed by comparing the risk of default at the reporting date to the risk of default at origination. Whether a change in the risk of default is significant or not is assessed using quantitative and qualitative criteria. These quantitative significant deterioration thresholds have been separately defined for each business and where meaningful are consistently applied across business lines.

Assets are considered to have experienced significant credit deterioration if they have breached both relative and absolute thresholds for the change in the average annualised lifetime probability of default over the residual term of the exposure.

The absolute measure of increase in credit risk is used to capture instances where the PDs on exposures are relatively low at initial recognition as these may increase by several multiples without representing a significant increase in credit risk. Where PDs are relatively high at initial recognition, a relative measure is more appropriate in assessing whether there is a significant increase in credit risk, as the PDs increase more quickly.

For Corporate & Institutional Banking and Commercial Banking clients, the relative threshold is a 100 per cent increase in PD and the absolute change in PD is between 50-100 basis points.

For Retail Banking clients, the relative threshold is a 100 per cent increase in PD and the absolute change in PD is between 100-350 basis points depending on the product. Certain counties have a higher absolute threshold reflecting the lower default rate within this portfolio compared with the Group's other personal loan portfolios.

Private Banking clients are assessed qualitatively, based on a delinquency measure relating collateral top-ups or sell-downs.

Debt securities with an internal credit rating mapped to an investment grade equivalent are allocated to stage 1 and all other debt securities to stage 2.

Qualitative factors that indicate that there has been a significant increase in credit risk include processes linked to current risk management, such as placing loans on non-purely precautionary Early Alert, or through delinquency measures.

The SICR thresholds have been calibrated based on the following principles:

•     Stability - The thresholds are set to achieve a stable stage 2 population at a portfolio level, trying to minimise the number of accounts moving back and forth between stage 1 and stage 2 in a short period of time

•     Accuracy - The thresholds are set such that there is a materially higher propensity for stage 2 exposures to eventually default than is the case for stage 1 exposures

•     Dependency from backstops - The thresholds are stringent enough such that a high proportion of accounts transfer to stage 2 due to movements in forward-looking PD rather than  relying on backward-looking backstops such as arrears

•     Relationship with business and product risk profiles - The thresholds reflect the relative risk differences between different products, and are aligned to business processes

Qualitative criteria

Qualitative factors that indicate there has been a significant increase in credit risk include processes linked to current risk management.

Backstop

Across all portfolios, accounts that are 30 or more days past due (DPD) on contractual payments of principal and/or interest that have not been captured by the criteria above are considered to have experienced a significant increase in credit risk.

Expert credit judgement may be applied in assessing significant increase in credit risk to the extent that certain risks may not have been captured by the models or through the above criteria. Such instances are expected to be rare, for example due to events arising close to the reporting date.



 

Standard Chartered PLC - Risk review

 

Corporate & Institutional Banking and Commercial Banking clients

Quantitative criteria

Exposures are assessed based on both the absolute and the relative movement in the PD from origination to the reporting date as described above.

To account for the fact that the mapping between internal credit grades (used in the origination process) and PDs is non-linear (e.g. a one-notch downgrade in the investment grade universe results in a much smaller PD increase than in the sub-investment grade universe), the absolute thresholds have been differentiated by credit quality at origination, as measured by internal credit grades being investment grade or sub-investment grade.

Qualitative criteria

All assets of clients that have been placed on Early Alert (for non-purely precautionary reasons) are deemed to have experienced a significant increase in credit risk.

An account is placed on non-purely precautionary Early Alert if it 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.

All assets of clients that have been assigned a CG12 rating, equivalent to 'Higher Risk', are deemed to have experienced a significant increase in credit risk. Accounts rated CG12 are managed by the GSAM unit. All Corporate & Institutional Banking and Commercial Banking clients are placed on CG12 when they are 30 DPD unless they are granted a waiver through a strict governance process.

Retail Banking clients

Quantitative criteria

Material portfolios (defined as a combination of country and product, for example Hong Kong mortgages, Taiwan credit cards) for which a statistical model has been built are assessed based on both the absolute and relative movement in the PD from origination to the reporting date as described above. For these portfolios, the original lifetime PD term structure is determined based on the original Application Score or Risk Segment of the client.

Qualitative criteria

Accounts that are 30 DPD that have not been captured by the quantitative criteria are considered to have experienced a significant increase in credit risk. For less material portfolios, which are modelled based on a roll-rate or loss-rate approach, significant increase in credit risk is primarily assessed through the 30 DPD trigger.

Private Banking clients

For Private Banking clients, significant increase in credit risk is assessed by referencing the nature and the level of collateral against which credit is extended (known as 'Classes of Risk').

Qualitative criteria

For all Private Banking Classes, in line with risk management practice, an increase in credit risk is deemed to have occurred where margining or loan-to-value covenants have been breached.

For Class I assets, if these margining requirements have not been met within 30 days of a trigger, significant credit deterioration is assumed to have occurred.

For Class I and Class III assets, a significant increase in credit risk is assumed to have occurred where the bank is unable to 'sell down' the applicable assets to meet revised collateral requirements within 5 days of a trigger.

Class II assets are typically unsecured or partially secured, or secured against illiquid collateral such as shares in private companies. Significant credit deterioration of these assets is deemed to have occurred when any Early Alert trigger has been breached.



 

Standard Chartered PLC - Risk review

 

Debt Securities

Quantitative criteria

The bank is utilising the low credit risk simplified approach. All debt securities with an internal credit rating mapped to an investment grade equivalent are allocated to stage 1 and all other debt securities are allocated to stage 2.

Qualitative criteria

Debt securities utilise the same qualitative criteria as the Corporate & Institutional Banking and Commercial Banking client segments, including being placed on Early Alert or being classified as credit grade 12.

Assessment of credit impaired financial assets

Retail Banking clients

The core components in determining credit-impaired expected credit loss provisions are the value of gross charge off and recoveries. Gross charge off and/or loss provisions are recognised when it is established that the account is unlikely to pay through the normal process. Recovery of unsecured debt post credit-impairment is recognised based on actual cash collected, either directly from clients or through the sale of defaulted loans to third-party institutions. Release of credit-impairment provisions for secured loans is recognised if the loan outstanding is paid in full (release of full provision), or the provision is higher than the loan outstanding (release of the excess provision. If the loan is paid to current and remains in current for more than 180 days (1 year for forborne loans) the account will be transferred to stage 2.

Corporate & Institutional Banking, Commercial Banking and Private Banking Clients

Credit-impaired accounts are managed by the Group's specialist recovery unit, Group Special Assets Management (GSAM) which is independent from its main businesses. Where any amount is considered irrecoverable, a stage 3 credit-impairment provision is raised. This stage 3 provision is the difference between the loan-carrying amount and the probability weighted present value of estimated future cash flows, reflecting a range of scenarios (typically the best, worst and most likely recovery outcomes). Where the cash flows include realisable collateral, the values used will incorporate the impact of forward looking economic information.

The individual circumstances of each client are considered when GSAM estimates future cash flows and timing of future recoveries which involve significant judgement. All available sources, such as cash flow arising from operations, selling assets or subsidiaries, realising collateral or payments under guarantees, are considered. In any decision relating to the raising of provisions, the Group attempts to balance economic conditions, local knowledge and experience, and the results of independent asset reviews.

Write-offs

Where it is considered that there is no realistic prospect of recovering a portion of an exposure against which an impairment provision has been raised, that amount will be written off.

Governance and application of expert credit judgement in respect of expected credit losses

The models used in determining expected credit losses are reviewed and approved by the Group Credit Model Assessment Committee (CMAC) which is appointed by the Stress Testing Committee. CMAC has the responsibility to assess and approve the use of models and to review and approve all IFRS 9 interpretations related to models. CMAC also provides oversight on operational matters related to model development, performance monitoring and model validation activities including standards, regulatory and Group Internal Audit matters.

Prior to submission to CMAC for approval, the models have been validated by Group Model Validation (GMV), a function which is independent of the business and the model developers. GMV's analysis comprises review of model documentation, model design and methodology; data validation; review of model development and calibration process; out-of-sample performance testing; and assessment of compliance review against IFRS 9 rules and internal standards.

Key inputs into the calculation and resulting expected credit loss provisions are subject to review and approval by the IFRS 9 Impairment Committee which is appointed by the Group Risk Committee. The IFRS 9 Impairment Committee consists of senior representatives from Risk, Finance, Treasury and Group Economic Research. It meets twice every quarter, once before the models are run to approve key inputs into the calculation, and once after the models are run to approve the expected credit loss provisions and any judgmental override that may be necessary.



 

Standard Chartered PLC - Risk review

 

The IFRS 9 Impairment Committee:

•     Oversees the appropriateness of all Business Model Assessment and Solely Payments of Principal and Interest (SPPI) tests

•     Reviews and approves expected credit loss for financial assets classified as stages 1, 2 and 3 for each financial reporting period

•     Reviews and approves stage allocation rules and thresholds

•     Approves material adjustment in relation to expected credit loss for FVOCI and amortised cost financial assets

•     Reviews, challenges and approves base macroeconomic forecasts (including the multiple scenario approach) that are utilised in the forward-looking expected credit loss computation

The IFRS 9 Impairment Committee is supported by an expert panel which reviews and challenges the full extended version of base case projections and multiple macroeconomic scenarios. The Expert Panel consists of members of Enterprise Risk Management (which includes the Scenario Design team), Finance, Group Economic Research and country representatives of major jurisdictions.

 

Country risk (unaudited)

Country risk is defined as the potential for default or losses due to political or economic events in a country. A key component of Country risk is country cross-border risk, which is the risk that the Group will be unable to obtain payment from counterparties on their contractual obligations as a result of actions taken by foreign governments, chiefly relating to convertibility and transferability of foreign currency.

The profile of the Group's country cross-border exposures as at 30 June 2018 remained consistent with its strategic focus on core franchise countries, and with the scale of the larger markets in which it operates.

Country cross-border exposure to China remains predominantly short-term (88 per cent of exposure had a tenor of less than one year). During the first half of 2018, the Group's cross-border exposure to China decreased, with approximately half of the reduction attributed to a reduction in trade finance activities.

Country cross-border risk exposure to Hong Kong increased during the first half of 2018. Factors contributing to the increase included a rise in medium-term corporate loans and growth in interbank placements.

Singapore's cross-border exposure reduced during the first half of 2018 due to a reduction in outstandings to financial institutions and maturing short-term trade finance facilities.

The decrease in cross-border exposure to South Korea reflects a reduction in marketable securities held during the first half of 2018. South Korea's export-driven economy has been affected by external conditions, such as increased trade tensions between the US and China and tightening US monetary policy.

The overall size of cross-border exposure to India reflects the size of the Group's franchise in the country, as well as the role the Group plays in providing support in overseas investment and trade flows that are supported by parent companies in India. The decrease in cross-border exposure to India in the first half of 2018 is driven by paydown across some of the Group's key clients, lower utilisation across trade limits, and successful closure of syndications which resulted in exposure being brought down to agreed hold levels.

The lower United Arab Emirates cross-border exposures in the first half of 2018 is a result of a reduction in trade and lending activity which has evolved in line with the economic slowdown and downturn in business sentiment.

The increase in Saudi Arabia's cross-border exposure in the first half of 2018 reflects rising sovereign and sovereign-related entity exposures.

Cross-border exposure to developed countries in which the Group does not have a major presence, predominantly relates to treasury and liquidity management activities, which can change significantly from period to period. Exposure to such markets also represents global corporate business for clients with interests in our footprint.



 

Standard Chartered PLC - Risk review

 

The table below, which is based on the Group's internal country cross-border risk reporting requirements, shows cross-border exposures that exceed 1 per cent of total Group assets.


30.06.18

 

31.12.17

Less than
one year
$million

More than
one year
$million

Total
$million

 

Less than
one year
$million

More than
one year
$million

Total
$million

China1

37,472

4,998

42,470

 

38,677

6,204

44,881

Hong Kong1

13,860

7,637

21,497

 

11,685

7,964

19,649

United States

9,807

9,153

18,960

 

10,068

9,524

19,592

Singapore

12,410

4,875

17,285

 

13,555

5,955

19,510

South Korea

12,847

4,347

17,194

 

14,513

4,331

18,844

India

10,512

5,568

16,080

 

11,687

5,819

17,506

United Arab Emirates

7,817

7,607

15,424

 

7,932

8,341

16,273

Germany

3,065

5,960

9,025

 

3,022

4,505

7,527

Saudi Arabia

2,689

4,956

7,645

 

1,820

2,967

4,787

Australia

2,988

4,299

7,287

 

1,916

4,045

5,961

1  Cross-border exposures for 31.12.17 (IAS 39) relating to China and Hong Kong have been restated to reflect methodology amendments:

China - Less than 1 year bucket restated from $40,351 million to $38,677 million. Consequently the Total is restated from $46,455 million to $44,881 million.

Hong Kong - More than 1 year bucket restated from $7,867 million to $7,964 million. Consequently the Total is restated from $19,552 million to $19,649 million.

 

Market risk

Highlights

Daily VaR - trading and non-trading

Market risk is the potential for loss of economic value due to adverse changes in financial market rates or prices. The Group's exposure to market risk arises predominantly from these sources:

•     Trading book: the Group provides clients access to financial markets, facilitation of which entails the Group taking moderate market risk positions. All trading teams support client activity; there are no proprietary trading teams. Hence, income earned from market risk-related activities is primarily driven by the volume of client activity rather than risk-taking

•     Non-trading book:

- The Treasury Markets desk is required to hold a liquid assets buffer, much of which is held in high-quality marketable debt securities

- The Group has capital invested and related income streams denominated in currencies other than US dollars. To the extent that these are not hedged, the Group is subject to structural foreign exchange risk which is reflected in reserves

- The primary categories of market risk for the Group are:

•     Interest rate risk: arising from changes in yield curves, credit spreads and implied volatilities on interest rate options

•     Foreign exchange rate risk: arising from changes in currency exchange rates and implied volatilities on foreign exchange options

•     Commodity risk: arising from changes in commodity prices and implied volatilities on commodity options covering energy, precious metals, base metals and agriculture

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

•     Credit spread risk: arising from changes in the credit spread of the Group's derivative counterparties through CVA accounting



 

Standard Chartered PLC - Risk review

 

Market risk changes

The average level of total trading and non-trading VaR in the first half of 2018 was 22 per cent lower than in the first half of 2017 and 19 per cent lower than in the second half of 2017. The actual level of total trading and non-trading VaR at the end of the first half of 2018 was lower than at the end of the first half of 2017 by 23 per cent and lower than at the end of the second half of 2017 by 12 per cent. The reduction in VaR over the periods is primarily driven by the non-trading business reducing the duration of its portfolio.

For the trading book, the average level of VaR in the first half of 2018 was lower than in the first half of 2017 by 22 per cent and lower than in the second half of 2017 by 11 per cent. Trading activities have remained relatively unchanged and client-driven. The marginal reduction is primarily due to a decrease in the Group's bond inventory.

Daily value at risk (VaR at 97.5%, one day)

Trading and non-trading

6 months ended 30.06.18

 

6 months ended 31.12.17

 

6 months ended 30.06.17

Average
$million

High1
$million

Low1
$million

Actual2
$million

Average
$million

High1
$million

Low1
$million

Actual2
$million

Average
$million

High1
$million

Low1
$million

Actual2
$million

Interest rate risk3

19.1

22.8

16.9

17.7

 

22.1

25.5

18.1

18.7

 

23.0

28.5

19.7

23.4

Foreign exchange risk

4.9

8.6

3.1

3.9

 

5.5

12.3

3.0

6.0

 

5.5

11.0

3.2

4.7

Commodity risk

1.2

1.8

0.9

1.8

 

1.2

2.0

0.6

1.0

 

1.2

1.7

0.9

1.0

Equity risk

6.2

6.8

4.1

4.7

 

7.7

8.1

6.4

6.7

 

7.7

8.4

7.2

7.6

Total4

20.4

24.4

17.5

19.6

 

25.1

29.3

20.3

22.3

 

26.3

32.4

23.5

25.6

 

Trading5

6 months ended 30.06.18

 

6 months ended 31.12.17

 

6 months ended 30.06.176

Average
$million

High1
$million

Low1
$million

Actual2
$million

Average
$million

High1
$million

Low1 $million

Actual2
$million

Average
$million

High1
$million

Low1
$million

Actual2
$million

Interest rate risk3

8.6

11.7

6.4

6.8

9.8

13.1

7.7

8.5

10.5

12.9

8.8

9.9

Foreign exchange risk

4.9

8.6

3.1

3.9

 

5.5

12.3

3.0

6.0

 

5.5

11.0

3.2

4.7

Commodity risk

1.2

1.8

0.9

1.8

 

1.2

2.0

0.6

1.1

 

1.2

1.7

0.9

1.0

Equity risk

0.1

0.1

-

0.1

 

0.2

0.4

0.1

0.1

 

0.1

0.2

0.1

0.2

Total4

10.4

13.8

7.5

8.1

 

11.7

15.5

9.4

12.1

 

13.3

17.2

11.0

12.1

 

Non-trading

6 months ended 30.06.18

 

6 months ended 31.12.17

 

6 months ended 30.06.17

Average
$million

High1
$million

Low1
$million

Actual2
$million

Average
$million

High1
$million

Low1
$million

Actual2
$million

Average
$million

High1
$million

Low1
$million

Actual2
$million

Interest rate risk3

15.8

17.7

14.1

15.1

 

19.3

23.1

14.4

14.4

 

19.7

22.8

17.7

21.9

Equity risk

6.2

6.8

4.1

4.6

 

7.6

8.0

6.2

6.6

 

7.6

8.1

7.2

7.5

Total4

16.6

18.8

15.3

16.0

 

20.9

23.8

16.3

16.3

 

22.4

27.6

19.6

21.6

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

2  Actual one day VaR at period end date

3  Interest rate risk VaR includes credit spread risk arising from securities accounted as fair value through profit or loss ('FVPL') or as fair value through other comprehensive income ('FVOCI')

4  The total VaR shown in the tables above is not a sum of the component risks due to offsets between them

5  Trading book for market risk is defined in accordance with the EU Capital Requirements Regulation (CRDIV/CRR) Part 3 Title I Chapter 3 which restricts the positions permitted in the trading book

6  The total trading VaR for 6 months ended 30.06.2017 has been restated from (Average: 12.6, High: 15.7, Low: 9.8, Actual: 11.7) to reflect the impact of XVA

Risks not in VaR (unaudited)

In the first half of 2018, the main market risk not reflected in VaR was the currency risk where the exchange rate is currently pegged or managed. The historical one-year VaR observation period does not reflect the future possibility of a change in the currency regime such as sudden de-pegging. The other material market risk not reflected in VaR was associated with basis risks where historical market price data for VaR is sometimes more limited, and therefore proxied, generating a potential basis risk. Additional capital is set aside to cover such 'risks not in VaR'. For further details on market risk capital see the market risk section of the Standard Chartered PLC Pillar 3 Disclosures for 30 June 2018.



 

Standard Chartered PLC - Risk review

 

Backtesting (unaudited)

Regulatory backtesting is applied at both Group and Solo levels. In the 12 months to 30 June 2018, there has been one negative exception at Group level.

This exception occurred on 18 December 2017 due to yield curve moves in Nigeria. The Central Bank of Nigeria restarted its liquidity management open market operations unexpectedly, filling Nigerian treasury bill auctions below the lowest bid yields. This move caused the market to sell off and Nigerian Naira yields to rise sharply. One exception in a year due to market events is within the 'green zone' applied internationally to internal models by bank supervisors (Basel Committee on Banking Supervision: 'Supervisory framework for the use of backtesting in conjunction with the internal models approach to market risk capital requirements', January 1996).

The graph below illustrates the performance of the VaR model used in capital calculations. It compares the 99 percentile loss confidence level given by the VaR model with the Hypothetical profit & loss (P&L) of each day given the actual market movement without taking into account any intra-day trading activity.

Average daily income earned from market risk related activities1

6 months ended
30.06.18
$million

6 months ended
31.12.17
$million

6 months ended
30.06.17
$million

Trading

 

 

 

Interest rate risk

4.3

3.0

4.0

Foreign exchange risk

3.8

3.7

3.7

Commodity risk

0.8

0.6

0.6

Equity risk

-

-

-

Total

8.9

7.3

8.3

 

 

 

 

Non-trading

 

 

 

Interest rate risk

2.9

1.7

3.1

Equity risk

(0.3)

0.6

-

Total

2.6

2.3

3.1

1  Reflects total product income which is the sum of client income and own account income. Includes elements of trading income, interest income and other income which are generated from market risk related activities. XVA income is included under interest rate risk

 

Liquidity and funding risk

Liquidity and funding risk is the potential that the Group does not have sufficient financial resources or stable sources of funding in the medium or long term, to meet its obligations as they fall due, or can access these financial resources only at excessive cost.

The Group's liquidity and funding risk framework requires each country to ensure that it operates within predefined liquidity limits and remain in compliance with Group liquidity policies and practices, as well as local regulatory requirements.

The Group achieves this through a combination of setting risk appetite and associated limits, policy formation, risk measurement and monitoring, prudential and internal stress testing, governance and review.

For further information on the Group's liquidity and funding risk framework, refer to the Risk Management Approach in the 2017 Annual Report.

Liquidity and funding risk metrics

The Group monitors key liquidity metrics regularly, both on a country basis and in aggregate across the Group.

The following liquidity and funding board risk appetite metrics define the maximum amount and type of risk that the Group is willing to assume in pursuit of its strategy: liquidity coverage ratio (LCR), liquidity stress survival horizons, external wholesale borrowing and advances-to-deposits ratio.



 

Standard Chartered PLC - Risk review

 

Liquidity coverage ratio (LCR) (unaudited)

The LCR is a regulatory requirement set to ensure that the Group has sufficient unencumbered high quality liquid assets to meet its liquidity needs in a 30-calendar-day liquidity stress scenario.

The Group monitors and reports its liquidity position under European Commission Delegated Regulation 2015/61 and has maintained its liquidity position above the prudential requirement.

At the reporting date, the Group LCR was 151 per cent (2017: 146 per cent) with a prudent surplus to both Board-approved risk appetite and regulatory requirements. The ratio increased 5 per cent in the first half of 2018 largely due to an increase in the overall size
of our liquidity buffer as we focused on growing the quality of our funding base.

Liquidity coverage ratio


30.06.18
$million

31.12.17
$million

Liquidity buffer

147,575

132,251

Total net cash outflows

97,886

90,691

Liquidity coverage ratio

151%

146%

Stressed coverage (unaudited)

The Group intends to maintain a prudent and sustainable funding and liquidity position, in all presence countries and currencies, such that it can withstand a severe but plausible liquidity stress.

The Group's internal liquidity stress testing framework covers the following stress scenarios:

Standard Chartered-specific - This scenario captures the liquidity impact from an idiosyncratic event affecting Standard Chartered only, i.e. the rest of the market is assumed to operate normally.

Market-wide - This scenario captures the liquidity impact from a market-wide crisis affecting all participants in a country, region or globally.

Combined - This scenario assumes both Standard Chartered-specific and market-wide events affecting the Group simultaneously and hence is the most severe scenario.

All scenarios include, but are not limited to, modelled outflows for retail and wholesale funding, off-balance sheet funding risk, cross currency funding risk, intraday risk, franchise risk and risks associated with a deterioration of a firm's credit rating.

Stress testing results show that a positive surplus was maintained under all scenarios at 30 June 2018 i.e. the respective countries included were able to survive for a period of time as defined under each scenario. The combined scenario at 30 June 2018 showed the Group maintaining liquidity resources to survive greater than 60 days, as per its risk appetite. The results take into account currency convertibility and portability constraints across all major presence countries.

External wholesale borrowing

The Board sets a risk limit to prevent excessive reliance on wholesale borrowing. Limits are applied to all branches and operating subsidiaries in the Group and as at the reporting date the Group remained within the Board-approved risk appetite.



 

Standard Chartered PLC - Risk review

 

Advances-to-deposits ratio

This is defined as the ratio of total loans and advances to customers relative to total customer accounts. An advances-to-deposits ratio of below 100 per cent demonstrates that customer deposits exceed customer loans as a result of the emphasis placed on generating a high level of funding from customers.

The advances-to-deposits ratio decreased to 68.2 per cent over the first half of 2018 (2017: 69.4 per cent).

Loans and advances to customers have increased 4 per cent since the end of 2017 to $297 billion. This growth was largely due to higher Corporate Finance balances in Hong Kong, an increase in Transaction Banking overdrafts and growth in the Group's repo business as it continued to benefit from its deep client franchise and balance sheet strength. This increase was partly offset by a reduction in retail lending primarily due to unfavourable foreign exchange movements in Singapore, Korea and India.

Customer accounts have also increased 6 per cent from the end of 2017 to $435 billion. The Group has focused on high quality liquidity with an emphasis on time deposits given their high liquidity and regulatory value. The Group's secured borrowing also grew significantly over the period. This increase was partially offset by a reduction in Transaction Banking current and savings account balances.

Advances-to-deposits ratio


30.06.18
$million

31.12.17
$million

Loans and advances to customers1,2

296,719

285,553

Customer accounts3

435,014

411,724

Advances-to-deposits ratio

68.2%

69.4%

1  See note 12 of the financial statements

2  Includes reverse repurchase agreements and other similar secured lending of $37,909 million

3  Includes repurchase agreements and other similar secured borrowing of $46,675 million

Net stable funding ratio (NSFR) (unaudited)

On 23 November 2016 the European Commission, as part of a package of risk-reducing measures, proposed a binding requirement for stable funding (Net Stable Funding Ratio (NSFR)) at European Union level. The proposal aims to implement the European Banking Authority's interpretation of the Basel standard on NSFR (BCBS295).

Pending implementation of the final rules, the Group continues to monitor NSFR in line with BCBS295. At the last reporting date, the Group NSFR remained above 100 per cent.

Liquidity pool (unaudited)

The liquidity value of the Group's LCR eligible liquidity pool at the reporting date was $148 billion. The figures in the below table account for haircuts, currency convertibility and portability constraints, and therefore are not directly comparable with the consolidated balance sheet. The pool is held to offset stress outflows as defined in European Commission Delegated Regulation 2015/61 covering both Pillar 1 and Pillar 2 risks along with internal Board approved risk appetite.

LCR eligible securities, as defined under LCR Delegated Act rules, fall into three categories: Level 1, Level 2A, and Level 2B liquid assets. Level 1 liquid assets, which are of the highest quality and deemed the most liquid, are subject to no or little discount (or haircuts) to their market value and may be largely used without limit in the liquidity buffer, with the exception of Level 1 covered bonds.

Level 2A and 2B securities are recognised as being relatively stable and reliable sources of liquidity, but not to the same extent as Level 1 assets. LCR rules therefore set a 40 per cent composition cap on the combined amount of Level 2A and Level 2B that firms may hold in their total eligible liquidity buffer. Level 2B liquid assets, which are considered less liquid and more volatile than Level 2A liquid assets, are subject to large and varying haircuts and may not exceed 15 per cent of the total eligible HQLA.



 

Standard Chartered PLC - Risk review

 

The pool increased $15 billion in the first half of 2018, reflecting overall balance sheet growth with surplus liquidity deployed primarily in Level 1 and Level 2A securities held in Europe & Americas and Greater China & North Asia. The majority of the Group's liquidity pool is held in Level 1 assets (92 per cent) in the form of unencumbered central bank reserves and high quality Level 1 securities. The remainder is made up of Level 2A (7 per cent) and Level 2B (1 per cent) securities.


30.06.18

Greater China & North Asia
$million

ASEAN &
South Asia
$million

Africa &
Middle East
$million

Europe & Americas
$million

Total
$million

Level 1 securities

 

 

 

 

 

Cash and balances at central banks

12,679

2,318

1,376

33,580

49,953

Central banks, governments and public sector entities

32,370

10,775

991

29,266

73,402

Multilateral development banks and international organisations

2,359

676

184

7,288

10,507

Other

-

-

-

1,745

1,745

Total Level 1 securities

47,408

13,769

2,551

71,879

135,607

Level 2A securities

2,592

1,051

105

6,043

9,791

Level 2B securities

-

383

-

1,794

2,177

Total LCR eligible assets

50,000

15,203

2,656

79,716

147,575

 


31.12.17

Greater China & North Asia
$million

Level 1 securities

 

 

 

 

 

Cash and balances at central banks

13,779

2,400

1,708

33,191

51,078

Central banks, governments and public sector entities

28,187

12,265

1,064

24,464

65,980

Multilateral development banks and international organisations

-

563

159

8,568

9,290

Other

-

-

-

130

130

Total Level 1 securities

41,966

15,228

2,931

66,353

126,478

Level 2A securities

2,234

825

113

1,147

4,319

Level 2B securities

-

246

3

1,206

1,455

Total LCR eligible assets

44,200

16,299

3,047

68,706

132,252

Encumbrance (unaudited)

Encumbered assets

Encumbered assets represent on-balance sheet assets pledged or subject to any form of arrangement to secure, collateralise or credit enhance a transaction from which it cannot be freely withdrawn. Cash collateral pledged against derivatives and Hong Kong government certificates of indebtedness, which secure the equivalent amount of Hong Kong currency notes in circulation, are included within Other assets.

Unencumbered - readily available for encumbrance

Unencumbered assets that are considered by the Group to be readily available in the normal course of business to secure funding, meet collateral needs, or be sold to reduce potential future funding requirements, are not subject to any restrictions on their use for these purposes.

Unencumbered - other assets capable of being encumbered

Unencumbered assets that, in their current form, are not considered by the Group to be readily realisable in the normal course of business to secure funding, meet collateral needs, or be sold to reduce potential future funding requirements, are not subject to any restrictions on their use for these purposes. Included within this category are loans and advances which would be suitable for use in secured funding structures such as securitisations.

Unencumbered - cannot be encumbered

Unencumbered assets that have not been pledged and the Group has assessed cannot be used to secure funding, meet collateral needs, or be sold to reduce potential future funding requirements.



 

Standard Chartered PLC - Risk review

 

Derivatives, reverse repurchase agreements and stock lending

These assets are shown separately as these on-balance sheet amounts cannot be pledged. However, these assets can give rise to off-balance sheet collateral which can be used to raise secured funding or meet additional funding requirements.

The following table provides a reconciliation of the Group's encumbered assets to total assets.


Assets
$million

30.06.18

Assets encumbered as a result of transactions with counterparties
other than central banks

 

Other assets (comprising assets encumbered at
the central bank and unencumbered assets)

As a result of securitisations
$million

Other
$million

Total
$million

Assets positioned at the central bank (ie pre-positioned plus encumbered)
$million

Assets not positioned at the central bank

Total
$million

Readily available for encumbrance
$million

Other assets that are capable
of being encumbered
$million

Derivatives and reverse repo/stock lending
$million

Cannot be encumbered
$million

Cash and balances
at central banks

58,213

-

-

-

 

9,495

48,718

-

-

-

58,213

Derivative financial instruments

51,780

-

-

-

 

-

-

-

51,780

-

51,780

Loans and advances to banks1

85,359

-

-

-

 

-

42,583

7,407

26,512

8,857

85,359

Loans and advances to customers1

296,719

9

-

9

 

-

-

238,597

37,909

20,204

296,710

Investment securities1

144,356

-

14,148

14,148

 

291

86,791

32,558

-

10,568

130,208

Other assets

39,068

-

15,706

15,706

 

-

-

13,019

-

10,343

23,362

Current tax assets

366

-

-

-

 

-

-

-

-

366

366

Prepayments and accrued income

2,418

-

-

-

 

-

-

1,252

-

1,166

2,418

Interests in associates and joint ventures

2,345

-

-

-

 

-

-

-

-

2,345

2,345

Goodwill and intangible assets

4,974

-

-

-

 

-

-

35

-

4,939

4,974

Property, plant
and equipment

7,326

-

-

-

 

-

-

882

-

6,444

7,326

Deferred tax assets

1,290

-

-

-

 

-

-

-

-

1,290

1,290

Assets classified
as held for sale

660

-

-

-

 

-

-

-

-

660

660

Total

694,874

9

29,854

29,863

 

9,786

178,092

293,750

116,201

67,182

665,011

1 Includes assets held at fair value through profit or loss and reverse repurchase agreements and other similar secured lending



Standard Chartered PLC - Risk review

 


Assets
$million

31.12.17(IAS 39)

Assets encumbered as a result of transactions with counterparties other
than central banks

 

Other assets (comprising assets encumbered at
the central bank and unencumbered assets)

As a result of securitisations
$million

Other
$million

Total
$million

Assets
positioned at
the central
bank (ie
pre-positioned plus encumbered)
$million

Assets not positioned at the central bank

Total
$million

Readily available for encumbrance
$million

Other assets that are capable
of being encumbered
$million

Derivatives and reverse repo/stock lending
$million

Cannot be encumbered
$million

Cash and balances
at central banks

58,864

-

-

-

 

9,761

49,103

-

-

-

58,864

Derivative financial instruments

47,031

-

-

-

 

-

-

-

47,031

-

47,031

Loans and advances to banks1

81,325

-

-

-

 

-

47,380

5,333

21,260

7,352

81,325

Loans and advances to customers1

285,553

11

-

11

 

-

-

232,328

33,928

19,286

285,542

Investment securities1

138,187

-

8,213

8,213

 

178

91,928

29,967

-

7,901

129,974

Other assets

33,490

-

14,930

14,930

 

-

-

11,604

-

6,956

18,560

Current tax assets

491

-

-

-

 

-

-

-

-

491

491

Prepayments and accrued income

2,307

-

-

-

 

-

-

1,503

-

804

2,307

Interests in associates and joint ventures

2,307

-

-

-

 

-

-

-

-

2,307

2,307

Goodwill and intangible assets

5,013

-

-

-

 

-

-

352

-

4,661

5,013

Property, plant
and equipment

7,211

-

-

-

 

-

-

1,148

-

6,063

7,211

Deferred tax assets

1,177

-

-

-

 

-

-

-

-

1,177

1,177

Assets classified
as held for sale

545

-

-

-

 

-

-

-

-

545

545

Total

663,501

11

23,143

23,154

 

9,939

188,411

282,235

102,219

57,543

640,347

1 Includes assets held at fair value through profit or loss and reverse repurchase agreements and other similar secured lending

The Group received $81,367 million (2017: $72,982 million) as collateral under reverse repurchase agreements that was eligible for repledging; of this the Group sold or repledged $42,028 million (2017: $34,018 million) under repurchase agreements.



 

Standard Chartered PLC - Risk review

 

Liquidity analysis of the Group's balance sheet

Contractual maturity of assets and liabilities

The following table presents assets and liabilities by maturity groupings based on the remaining period to the contractual maturity date as at the balance sheet date on a discounted basis. Contractual maturities do not necessarily reflect actual repayments or cashflow.

Within the tables below, cash and balances with central banks, interbank placements and investment securities that are available-for-sale are used by the Group principally for liquidity management purposes.

As at the reporting date, assets remain predominantly short-dated, with 61 per cent maturing in under one year. The Group's less-than-three-month cumulative net funding gap increased from the previous period, largely due to an increase in customer accounts as the Group focused on improving the quality of its deposit base. In practice, these deposits are recognised as stable and have behavioural profiles that extend beyond their contractual maturities.


30.06.18

One month
or less $million

Between one month and three months $million

Between three months and six months $million

Between
six months and nine months $million

Between nine months and one year $million

Between
one year and two years $million

Between
two years and five years $million

More than
five years
and undated $million

Total
$million

Assets

 

 

 

 

 

 

 

 

 

Cash and balances at
central banks

48,718

-

-

-

-

-

-

9,495

58,213

Derivative financial instruments

8,465

8,125

5,249

4,554

3,334

5,093

8,151

8,809

51,780

Loans and advances to banks1,2

39,890

22,424

10,618

4,590

4,260

1,766

1,457

354

85,359

Loans and advances
to customers1,2

79,015

39,057

15,878

8,659

10,678

19,551

37,237

86,644

296,719

Investment securities

12,011

19,976

16,101

12,663

12,848

24,297

30,132

16,328

144,356

Other assets

25,946

5,454

2,347

88

329

40

140

24,103

58,447

Total assets

214,045

95,036

50,193

30,554

31,449

50,747

77,117

145,733

694,874

 

 

 

 

 

 

 

 

 

 

Liabilities

 

 

 

 

 

 

 

 

 

Deposits by banks1,3

32,275

2,177

960

785

492

353

305

52

37,399

Customer accounts1,4

328,121

52,370

25,043

10,602

11,165

3,470

1,512

2,731

435,014

Derivative financial instruments

9,114

8,138

5,470

4,713

3,559

5,511

8,480

7,977

52,962

Senior debt

-

75

1,904

1,301

2,300

4,843

1,584

6,470

18,477

Other debt securities in issue1

5,975

9,772

9,322

1,447

991

1,551

687

4,273

34,018

Other liabilities

27,583

5,922

3,474

696

643

646

775

10,730

50,469

Subordinated liabilities and
other borrowed funds

24

17

-

-

-

755

3,283

10,968

15,047

Total liabilities

403,092

78,471

46,173

19,544

19,150

17,129

16,626

43,201

643,386

Net liquidity gap

(189,047)

16,565

4,020

11,010

12,299

33,618

60,491

102,532

51,488

1  Loans and advances, investment securities, deposits by banks, customer accounts and debt securities in issue include financial instruments held at fair value through profit or loss, see note 12

2  Loans and advances include reverse repurchase agreements and other similar secured lending borrowing of $64.4 billion

3  Deposits by banks include repurchase agreements and other similar secured borrowing of $6.2 billion

4  Customer accounts include repurchase agreements and other similar secured lending borrowing of $46.7 billion



Standard Chartered PLC - Risk review

 


31.12.17

One month
or less
$million

Between
one month and three months
$million

Between
three months and six months
$million

Between
six months and nine months
$million

Between
nine months and one year
$million

Between
one year and two years
$million

Between
two years
and five
years
$million

More than
five years
and undated
$million

Total
$million

Assets

 

 

 

 

 

 

 

 

 

Cash and balances at
central banks

49,103

-

-

-

-

-

-

9,761

58,864

Derivative financial instruments

6,284

7,706

5,930

3,537

2,601

5,427

7,111

8,435

47,031

Loans and advances to banks1,2

36,548

21,238

12,042

4,299

3,612

1,588

1,386

612

81,325

Loans and advances
to customers1,2

87,794

32,618

17,459

11,357

8,545

17,500

37,237

73,043

285,553

Investment securities

14,185

18,208

13,692

11,213

9,145

22,369

31,660

17,715

138,187

Other assets

19,349

4,466

2,521

105

247

138

127

25,588

52,541

Total assets

213,263

84,236

51,644

30,511

24,150

47,022

77,521

135,154

663,501

 

 

 

 

 

 

 

 

 

 

Liabilities

 

 

 

 

 

 

 

 

 

Deposits by banks1,3

29,365

2,484

1,437

530

730

154

135

651

35,486

Customer accounts1,4

327,434

37,178

19,716

10,775

9,321

3,115

1,746

2,439

411,724

Derivative financial instruments

8,018

8,035

6,068

3,544

2,685

5,057

7,794

6,900

48,101

Senior debt

67

273

1,801

53

1,937

5,053

4,747

5,585

19,516

Other debt securities in issue1

4,139

10,616

9,954

2,005

779

1,091

794

4,508

33,886

Other liabilities

20,428

5,988

3,672

671

303

696

897

13,150

45,805

Subordinated liabilities and
other borrowed funds

-

116

1,382

-

-

-

3,887

11,791

17,176

Total liabilities

389,451

64,690

44,030

17,578

15,755

15,166

20,000

45,024

611,694

Net liquidity gap

(176,188)

19,546

7,614

12,933

8,395

31,856

57,521

90,130

51,807

1  Loans and advances, investment securities, deposits by banks, customer accounts and debt securities in issue include financial instruments held at fair value through profit or loss, see note 12

2  Loans and advances include reverse repurchase agreements and other similar secured lending borrowing of $55.2 billion

3  Deposits by banks include repurchase agreements and other similar secured borrowing of $3.8 billion

4  Customer accounts include repurchase agreements and other similar secured lending borrowing of $36.0 billion

Behavioural maturity of financial assets and liabilities

The cash flows presented in the previous section reflect the cash flows that will be contractually payable over the residual maturity of the instruments. However, contractual maturities do not necessarily reflect the timing of actual repayments or cash flow. In practice, certain assets and liabilities behave differently from their contractual terms, especially for short-term customer accounts, credit card balances and overdrafts, which extend to a longer period than their contractual maturity. On the other hand, mortgage balances tend to have a shorter repayment
period than their contractual maturity date. Expected customer behaviour is assessed and managed on a country basis using qualitative and quantitative techniques, including analysis of observed customer behaviour over time.



Standard Chartered PLC - Risk review

 

Maturity of financial liabilities on an undiscounted basis

The following table analyses the contractual cash flows payable for the Group's financial liabilities by remaining contractual maturities on an undiscounted basis. The financial liability balances in the table below will not agree to the balances reported in the consolidated balance sheet as the table incorporates all contractual cash flows, on an undiscounted basis, relating to both principal and interest payments. Derivatives not treated as hedging derivatives are included in the "On demand" time bucket and not by contractual maturity.

Within the 'More than five years and undated' maturity band are undated financial liabilities, all of which relate to subordinated debt, on which interest payments are not included as this information would not be meaningful given the instruments are undated. Interest payments on these instruments are included within the relevant maturities up to five years.


30.06.18

One month
or less $million

Between
one month and three months $million

Between three months and six months $million

Between
 six months and nine months $million

Between
nine months and one year $million

Between
one year and two years $million

Between
two years
and five
years
$million

More than
five years
and undated $million

Total
$million

Deposits by banks

32,424

2,200

983

799

501

378

322

54

37,661

Customer accounts

328,393

52,643

26,110

10,765

11,344

3,546

1,644

3,273

437,718

Derivative financial instruments

52,320

61

90

3

1

1

95

391

52,962

Debt securities in issue

5,987

9,845

11,395

2,765

3,552

6,722

2,856

12,244

55,366

Subordinated liabilities and
other borrowed funds

91

133

341

81

504

1,761

11,832

32,632

47,375

Other liabilities

25,885

5,931

3,491

706

642

862

769

11,283

49,569

Total liabilities

445,100

70,813

42,410

15,119

16,544

13,270

17,518

59,877

680,651

 


31.12.17 (IAS 39)

One month
or less
$million

Between
one month and three months
$million

Between
three months and six months
$million

Between
six months and nine months
$million

Between
nine months and one year
$million

Between
one year and two years
$million

Between
two years
and five
years
$million

More than
five years
and undated
$million

Total
$million

Deposits by banks

29,427

2,497

1,460

545

743

160

150

697

35,679

Customer accounts

327,501

37,353

20,720

10,901

9,463

3,178

1,840

2,919

413,875

Derivative financial instruments1

47,267

-

3

-

153

166

246

266

48,101

Debt securities in issue

4,287

10,888

11,878

2,141

2,876

6,550

6,163

11,769

56,552

Subordinated liabilities and
other borrowed funds

126

207

1,490

210

166

657

3,726

19,356

25,938

Other liabilities

20,800

6,052

3,676

681

324

720

929

11,241

44,423

Total liabilities

429,408

56,997

39,227

14,478

13,725

11,431

13,054

46,248

624,568

1  Derivatives are on a discounted basis



 

Standard Chartered PLC - Risk review

 

Interest Rate Risk in the Banking Book (unaudited)

The following table provides the estimated impact on the Group's Earnings of a 50 basis point parallel shock (up and down) across all yield curves. The sensitivities shown represent the estimated change in base case projected net interest income (NII), plus the change in interest rate implied income and expense from FX swaps used to manage Banking Book currency positions, under the two interest rate shock scenarios.

The interest rate sensitivities are indicative and based on simplified scenarios, estimating the aggregate impact of an instantaneous 50 basis point parallel shock across all yield curves over a one-year horizon, including the time taken to implement changes to pricing before becoming effective. The assessment assumes that non-interest rate sensitive aspects of the size and mix of the balance sheet remain constant and that there are no specific management actions in response to the change in rates. No assumptions are made in relation to the impact on credit spreads in a changing rate environment.

Significant modelling and behavioural assumptions are made regarding scenario simplification, market competition, pass-through rates, asset and liability re-pricing tenors, and price flooring. In particular, the assumption that interest rates of all currencies and maturities shift by the same amount concurrently, and that no actions are taken to mitigate the impacts arising from this are considered unlikely. Reported sensitivities will vary over time due to a number of factors including changes in balance sheet composition, market conditions, customer behaviour and risk management strategy and should therefore not be considered an income or profit forecast.


30.06.18

USD bloc
$million

HKD, SGD &
KRW bloc
$million

Other
currency bloc
$million

Total
$million

+ 50 basis points

90

130

80

300

- 50 basis points

(80)

(100)

(80)

(260)

Estimated one-year impact to earnings from a parallel shift in yield curves at the beginning of the period of:


31.12.17

USD bloc
$million

HKD, SGD &
KRW bloc
$million

Other
currency bloc
$million

Total
$million

+ 50 basis points

70

120

140

330

- 50 basis points

(50)

(100)

(140)

(290)

As at 30 June 2018, the Group estimates the one-year impact of an instantaneous, parallel increase across all yield curves of 50 basis points to be an earnings benefit of $300 million. The corresponding impact from a parallel decrease of 50 basis points would result in an earnings reduction of $260 million.

The benefit from rising interest rates is primarily from reinvesting at higher yields and from assets re-pricing faster and to a greater extent than deposits. The current estimate for USD sensitivity has reduced on an underlying basis since December 2017 on rising deposit sensitivity to changes in interest rates.

The reported USD sensitivity has increased due to short term currency management, with an offsetting reduction in the sensitivity for other currencies.

The USD sensitivity is impacted by the dampening effect due to the asymmetry of funding Trading Book assets with Banking Book liabilities. The sensitivities include the cost of Banking Book liabilities used to fund the Trading Book, however the revenue associated with the Trading Book positions is recognised in net trading income. This asymmetry in both the up and down scenarios should be broadly offset within total operating income.

Operational risk (unaudited)

Operational risks arise from the broad scope of activities carried out across the Group. Risks associated with these activities are mapped into a Group Process Universe where a standardised operational risk management approach is applied to mitigate the risks. We benchmark practices against industry standards and regulatory requirements.

Operational risk profile

The operational risk profile is the Group's overall exposure to operational risk at a given point in time, covering all applicable operational risk sub-types. The operational risk profile comprises both operational risk events and losses that have already occurred and the current exposures to operational risks which, at an aggregate level, includes the consideration of top risks and emerging risks.

Other principal risks (unaudited)

Losses arising from our other principal risks (compliance, conduct, reputational, information and cyber security and financial crime) would be captured under operational losses.



Standard Chartered PLC - Capital review

 

Capital review

The Capital review provides an analysis of the Group's capital and leverage position and requirements.

Capital summary

The Group's capital and leverage position is managed within the Board-approved risk appetite. The Group is well capitalised with low leverage and high levels of loss-absorbing capacity.

Capital, leverage and RWA

30.06.18

 31.12.17

CET1 capital %

14.2

 13.6

Tier 1 capital %

16.6

 16.0

Total capital %

21.3

 21.0

UK leverage %

5.8

 6.0

RWA ($million)

271,867

 279,748

The Group's Common Equity Tier 1 (CET1) capital and Tier 1 leverage position were ahead of both the current requirements and the expected end-state requirements for 2019. For further detail see the half year 2018 Standard Chartered PLC Pillar 3 Disclosures section on Capital.

The Group's current Pillar 2A requirement is 3.1 per cent of RWA of which at least 1.7 per cent must be held in CET1. This requirement is expected to vary over time.

Based on the Group's current Pillar 2A requirement, the Group's minimum requirement for own funds and eligible liabilities (MREL) is expected to be 16.0 per cent of RWA in 2019 rising to 19.1 per cent of RWA in 2020 and 22.2 per cent of RWA from 1 January 2022. The Group's combined buffer (comprising the capital conservation, global systemically important institution (G-SII) and countercyclical buffers) sits above its MREL requirement, resulting in a total loss-absorbing capacity requirement of 26.0 per cent of RWA from 1 January 2022 based on the Group's CRD IV capital buffers that are currently known. The Group estimates that its MREL position was around 26.4 per cent of RWA and around 9.6 per cent of leverage exposure at 30 June 2018.

The Group continued its programme of MREL issuance from its holding company in the first half of 2018, issuing $1.9 billion of MREL eligible securities across Tier 2 and senior debt during the period including the Group's inaugural issuance of US dollar callable senior notes. As part of its proactive approach to capital management, the Group successfully conducted a liability management exercise in respect of a number of its GBP denominated subordinated and senior securities.

Regulatory update

The European Commission is proposing amendments to the Capital Requirements Regulation, CRD IV, the Bank Recovery and Resolution Directive and the Single Resolution Mechanism Regulation. Any proposed reforms remain subject to change and until the proposals are in final form it is uncertain how they will affect the Group.

In February 2018, the Group implemented changes to the loss given default (LGD) models for certain corporate and institutional exposures. These changes reflect the PRA's guidance on LGD estimates for low default portfolios and include the application of various LGD floors based on the Foundation IRB approach. These changes did not materially impact the Group's CET1 ratio.

The Group continues to engage on a proactive basis with the PRA in the review of its risk models, including further LGD changes to product specific models. These changes are not currently expected to materially impact the CET1 ratio, however the timing and exact impact will depend on the final outcome of the discussions and is subject to PRA approval.

The Group remains a G-SII, with a 1.0 per cent G-SII CET1 buffer which phases in at a rate of 0.25 per cent per year and will be fully implemented by 1 January 2019. The Standard Chartered PLC 2017 G-SII disclosure is published at: http://investors.sc.com/fullyearresults

In line with previous guidance, the decrease in the CET1 capital ratio on adoption of the IFRS 9 accounting standard was around 15 basis points after considering the offset against existing regulatory expected losses. Under transitional rules, the day one impact on the CET1 ratio was negligible.



 

Standard Chartered PLC - Capital review

 

Capital ratios (unaudited)

 

30.06.18

31.12.17

CET1

14.2%

13.6%

Tier 1 capital

16.6%

16.0%

Total capital

21.3%

21.0%

CRD IV Capital base

 

30.06.18
$million

31.12.17
$million

CET1 instruments and reserves

 

 

Capital instruments and the related share premium accounts

5,607

5,603

Of which: share premium accounts

3,957

3,957

Retained earnings

25,849

25,316

Accumulated other comprehensive income (and other reserves)

11,989

12,766

Non-controlling interests (amount allowed in consolidated CET1)

695

850

Independently reviewed interim and year-end profits

1,557

1,227

Foreseeable dividends net of scrip

(453)

(399)

CET1 capital before regulatory adjustments1

45,244

45,363

CET1 regulatory adjustments

 

 

Additional value adjustments (prudential valuation adjustments)

(496)

(574)

Intangible assets (net of related tax liability)

(4,991)

(5,112)

Deferred tax assets that rely on future profitability (excludes those arising from temporary differences)

(129)

(125)

Fair value reserves related to net losses on cash flow hedges

(1)

45

Deduction of amounts resulting from the calculation of excess expected loss

(683)

(1,142)

Net gains on liabilities at fair value resulting from changes in own credit risk

(188)

(53)

Defined-benefit pension fund assets

(39)

(40)

Fair value gains arising from the institution's own credit risk related to derivative liabilities

(83)

(59)

Exposure amounts which could qualify for risk weighting of 1,250%

(122)

(141)

Total regulatory adjustments to CET1

(6,732)

(7,201)

CET1 capital

38,512

38,162

Additional Tier 1 capital (AT1) instruments

6,712

6,719

AT1 regulatory adjustments

(20)

(20)

Tier 1 capital

45,204

44,861

 

 

 

Tier 2 capital instruments

12,845

13,927

Tier 2 regulatory adjustments

(30)

(30)

Tier 2 capital

12,815

13,897

Total capital

58,019

58,758

Total risk-weighted assets (unaudited)

271,867

279,748

1 CET1 capital before regulatory adjustments is prepared on the regulatory scope of consolidation



 

Standard Chartered PLC - Capital review

 

Movement in total capital


6 months ended
30.06.18
$million

6 months ended
31.12.17
$million

CET1 at 1 January/1 July

38,162

37,781

Ordinary shares issued in the period and share premium

4

2

Profit for the period

1,557

37

Foreseeable dividends net of scrip deducted from CET1

(453)

(399)

Difference between dividends paid and foreseeable dividends

(165)

292

Movement in goodwill and other intangible assets

121

(9)

Foreign currency translation differences

(781)

583

Non-controlling interests

(155)

17

Movement in eligible other comprehensive income

135

1

Deferred tax assets that rely on future profitability

(4)

99

Decrease in excess expected loss1

459

(98)

Additional value adjustments (prudential valuation adjustment)

78

(17)

Own credit gains

(24)

(60)

Exposure amounts which could qualify for risk weighting

19

11

Other1

(441)

(78)

CET1 at 30 June/31 December

38,512

38,162

 

 

 

AT1 at 1 January/1 July

6,699

6,688

Foreign currency translation difference

(7)

11

AT1 at 30 June/31 December

6,692

6,699

 

 

 

Tier 2 capital at 1 January/1 July

13,897

13,866

Regulatory amortisation

627

1,342

Issuances net of redemptions

(1,713)

(1,752)

Foreign currency translation difference

(122)

283

Tier 2 ineligible minority interest

115

155

Other

11

3

Tier 2 capital at 30 June/31 December

12,815

13,897

Total capital at 30 June/31 December

58,019

58,758

1  Includes day one transitional impact on the adoption of IFRS 9 accounting standards

The main movements in capital in the period were:

•     The CET1 ratio increased to 14.2 per cent due to a $0.4 billion increase in CET1 and a $7.9 billion decrease in RWA

•     CET1 capital increased by $0.4 billion, as profit after tax was offset in part by distributions and FX translation

•     AT1 remained at $6.7 billion during the period

•     Tier 2 capital reduced by $1.1 billion to $12.8 billion as redemptions and the impact of the liability management exercise more than offset the new issuance of $0.5 billion of Tier 2 in the period.



 

Standard Chartered PLC - Capital review

 

Risk-weighted assets by business (unaudited)


30.06.18

Credit risk
$million

Operational risk
$million

Market risk
$million

Total risk
$million

Corporate & Institutional Banking

105,190

13,029

20,516

138,735

Retail Banking

35,361

7,358

-

42,719

Commercial Banking

30,491

2,770

-

33,261

Private Banking

5,510

758

-

6,268

Central & other items

46,646

4,135

103

50,884

Total risk-weighted assets

223,198

28,050

20,619

271,867

 


31.12.17

Credit risk
$million

Operational risk
$million

Market risk
$million

Total risk
$million

Corporate & Institutional Banking

109,368

14,740

22,994

147,102

Retail Banking

36,345

7,761

-

44,106

Commercial Banking

29,712

3,356

-

33,068

Private Banking

5,134

809

-

5,943

Central & other items

45,671

3,812

46

49,529

Total risk-weighted assets

226,230

30,478

23,040

279,748

Risk-weighted assets by geographic region (unaudited)


30.06.18
$million

31.12.17
$million

Greater China & North Asia

83,422

84,593

ASEAN & South Asia

95,719

96,733

Africa & Middle East

53,755

56,437

Europe & Americas

41,193

44,735

Central & other items

(2,222)

(2,750)

Total risk-weighted assets

271,867

279,748

 



 

Standard Chartered PLC - Capital review

Movement in risk-weighted assets (unaudited)


Credit risk

Operational risk
$million

Market risk
$million

Total risk
$million

Corporate & Institutional Banking
$million

Retail
Banking
$million

Commercial Banking
$million

Private Banking
$million

Central & other items
$million

Total
$million

At 1 January 2017

106,834

33,210

27,553

5,129

41,149

213,875

33,693

21,877

269,445

Assets (decline)/growth

(78)

1,053

1,228

(123)

1,819

3,899

-

-

3,899

Net credit migration

1,630

(48)

(205)

-

157

1,534

-

-

1,534

Risk-weighted assets efficiencies

(1,661)

-

-

-

-

(1,661)

-

-

(1,661)

Model, methodology and
policy changes

-

-

-

-

-

-

-

80

80

Disposals

-

-

-

-

-

-

-

-

-

Foreign currency translation

1,268

959

393

73

381

3,074

-

-

3,074

Other non-credit risk movements

-

-

-

-

-

-

(3,215)

1,007

(2,208)

At 30 June 2017

107,993

35,174

28,969

5,079

43,506

220,721

30,478

22,964

274,163

Assets (decline)/growth

(6,285)

1,296

745

568

454

(3,222)

-

-

(3,222)

Net credit migration

2,405

122

(260)

-

(148)

2,119

-

-

2,119

Risk-weighted assets efficiencies

(634)

-

-

-

-

(634)

-

-

(634)

Model, methodology and
policy changes

4,990

(368)

-

(575)

2,372

6,419

-

(2,258)

4,161

Disposals

-

(710)

-

-

(443)

(1,153)

-

-

(1,153)

Foreign currency translation

899

831

258

62

(70)

1,980

-

-

1,980

Other non-credit risk movements

-

-

-

-

-

-

-

2,334

2,334

At 31 December 2017

109,368

36,345

29,712

5,134

45,671

226,230

30,478

23,040

279,748

Assets growth

1,473

557

1,019

426

2,573

6,048

-

-

6,048

Net credit migration

(2,317)

(191)

321

-

244

(1,943)

-

-

(1,943)

Risk-weighted assets efficiencies

(325)

-

-

-

-

(325)

-

-

(325)

Model, methodology and policy changes

(1,769)

(591)

6

-

76

(2,278)

-

(1,138)

(3,416)

Disposals

-

-

-

-

(626)

(626)

-

-

(626)

Foreign currency translation

(1,240)

(759)

(567)

(50)

(1,292)

(3,908)

-

-

(3,908)

Other non-credit risk movements

-

-

-

-

-

-

(2,428)

(1,283)

(3,711)

At 30 June 2018

105,190

35,361

30,491

5,510

46,646

223,198

28,050

20,619

271,867

Movements in risk-weighted assets

RWA decreased by $7.9 billion, or 2.8 per cent from 31 December 2017 to $271.9 billion. This was due to a decrease in credit risk RWA of $3.0 billion and $2.4 billion reduction in both market and operational risk RWA respectively.

Corporate & Institutional Banking

Credit risk RWA decreased by $4.2 billion to $105.2 billion mainly due to:

•     $2.3 billion decrease due to net credit migration in ASA and AME

•     $1.8 billion decrease in model, methodology and policy changes, due to PRA approved IRB model changes relating to LGD parameters

•     $1.2 billion decrease from foreign currency translation due to depreciation of currencies in India, Europe and South Africa

•     $0.3 billion decrease due to efficiencies in financial markets through novation, trade compressions and process enhancement in collateral recognition

•     $1.5 billion RWA increase from corporate finance and financial markets.

Retail Banking

Credit risk RWA decreased by $1.0 billion to $35.4 billion mainly due to:

•     $0.8 billion decrease from foreign currency translation due to depreciation of currencies in Korea, India and Singapore

•     $0.6 billion RWA save due to model changes in mortgages partially offset by credit cards in ASA

•     $0.2 billion decrease due to net credit migration in GCNA

•     $0.6 billion RWA increase from mortgages and personal loans in GCNA and ASA.



 

•    

Standard Chartered PLC - Capital review

 

Commercial Banking

Credit risk RWA increased by $0.8 billion to $30.5 billion mainly due to:

•     $1.0 billion RWA increase from lending and transaction banking

•     $0.3 billion increase due to net credit migration in GCNA

•     $0.6 billion decrease from foreign currency translation due to depreciation of currencies in India, Pakistan and Korea.

Private Banking

Credit risk RWA increased by $0.4 billion to $5.5 billion principally due to asset balance growth in wealth management products.

Central & other items

Credit risk RWA increased by $1.0 billion to $46.6 billion mainly due to:

•     $2.6 billion increase in credit risk RWA mainly due to treasury activities, and higher RWA balances for investments in joint ventures

•     $0.2 billion increase due to net credit migration

•     $0.1 billion increase in model, methodology and policy changes, due to PRA IRB model changes relating to LGD parameters

•     $1.3 billion decrease from foreign currency translation due to depreciation of currencies in Indonesia and Pakistan

•     $0.6 billion saving from the disposal of an investment in ASA.

Market risk

Total market risk RWA (MRWA) decreased by $2.4 billion, or 10.5 per cent from 31 December 2017 to $20.6 billion. This change was primarily due to:

•  $1.1 billion reduction in standard rules MRWA for foreign exchange and interest rate risk structured products, following their full recognition in internal models approach (IMA) MRWA from March 2018

•  Reduction in trading book debt security holdings $1.1 billion.

Operational risk

Operational risk RWA reduced by $2.4 billion to $28.0 billion, due to a decrease in the average income over a rolling three-year time horizon, as lower 2017 income replaced higher 2014 income. This represents a 7.9 per cent year-on-year reduction in operational risk RWA.



 

Standard Chartered PLC - Capital review

 

UK leverage ratio (unaudited)

The Group's UK leverage ratio, which excludes qualifying claims on central banks in accordance with a PRA waiver, was 5.8 per cent, which is above the current minimum requirement of 3.6 per cent.

The lower UK leverage ratio in the period was a result of an increased exposure measure partly offset by a small increase in Tier 1 capital (end point).

UK leverage ratio (unaudited)


30.06.18
$million

31.12.17
$million

Tier 1 capital (transitional)

45,204

44,861

Additional Tier 1 capital subject to phase out

(1,752)

(1,758)

Tier 1 capital (end point)

43,452

43,103

Derivative financial instruments

51,780

47,031

Derivative cash collateral

10,002

9,513

Securities financing transactions (SFTs)

64,421

55,187

Loans and advances and other assets

568,671

551,770

Total on-balance sheet assets

694,874

663,501

Regulatory consolidation adjustments1

(45,538)

(31,712)

 

 

 

Derivatives adjustments

 

 

Derivatives netting

(35,847)

(29,830)

Adjustments to cash collateral

(21,311)

(18,411)

Net written credit protection

1,358

1,360

Potential future exposure on derivatives

32,225

30,027

Total derivatives adjustments

(23,575)

(16,854)

Counterparty risk leverage exposure measure for SFTs

14,309

13,238

Off-balance sheet items

109,943

96,260

Regulatory deductions from Tier 1 capital

(6,461)

(7,089)

UK leverage exposure (end point)

743,552

717,344

UK leverage ratio (end point)

5.8%

6.0%

UK leverage exposure quarterly average

736,599

723,508

UK leverage ratio quarterly average

5.9%

6.0%

Countercyclical leverage ratio buffer

0.1%

0.1%

G-SII additional leverage ratio buffer

0.3%

0.2%

1 Includes adjustment for qualifying central bank claims



Standard Chartered PLC - Financial statements and notes

 

Statement of directors' responsibilities

 

We confirm that to the best of our knowledge:

•     The condensed consolidated interim financial statements have been prepared in accordance with IAS 34 Interim Financial Reporting as adopted by the EU

•     The interim management report includes a fair review of the information required by:

(a) DTR 4.2.7R of the Disclosure and Transparency Rules, being an indication of important events that have occurred during the six months ended 30 June 2018 and their impact on the condensed consolidated interim financial statements; and a description of the principal risks and uncertainties for the remaining six months of the year

(b) DTR 4.2.8R of the Disclosure and Transparency Rules, being related party transactions that have taken place during the six months ended 30 June 2018 that have materially affected the financial position or performance of the entity during that period; and any changes in the related party transactions described in the last annual report that could have materially affected the financial position or performance of the entity during that period

By order of the Board

 

Andy Halford

Group Chief Financial Officer

31 July 2018

 



Standard Chartered PLC - Financial statements and notes

 

Independent review report

to Standard Chartered PLC

Conclusion

We have been engaged by Standard Chartered PLC including its subsidiaries (the Group) to review the condensed consolidated set of financial statements in the half-yearly financial report for the six months ended 30 June 2018 which comprises the condensed consolidated interim balance sheet, the condensed consolidated interim income statement, the condensed consolidated interim statement of comprehensive income, the condensed consolidated interim statement of changes in equity, the condensed consolidated interim cash flow statement, and the related explanatory notes.

Based on our review, nothing has come to our attention that causes us to believe that the condensed consolidated set of financial statements in the half-yearly financial report for the six months ended 30 June 2018 is not prepared, in all material respects, in accordance with IAS 34 Interim Financial Reporting as adopted by the EU and the Disclosure Guidance and Transparency Rules ("the DTR") of the UK's Financial Conduct Authority ("the UK FCA").

Scope of review

We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410 Review of Interim Financial Information Performed by the Independent Auditor of the Entity issued by the Auditing Practices Board for use in the UK. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. We read the other information contained in the half-yearly financial report and consider whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements.

A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

Directors' responsibilities

The half-yearly financial report is the responsibility of, and has been approved by, the directors. The directors are responsible for preparing the half-yearly financial report in accordance with the DTR of the UK FCA.

As disclosed in note 1, the annual financial statements of the Group are prepared in accordance with International Financial Reporting Standards as adopted by the EU. The directors are responsible for preparing the condensed set of financial statements included in the half-yearly financial report in accordance with IAS 34 as adopted by the EU.

Our responsibility

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

The purpose of our review work and to whom we owe our responsibilities

This report is made solely to the Group in accordance with the terms of our engagement to assist the Group in meeting the requirements of the DTR of the UK FCA. Our review has been undertaken so that we might state to the Group those matters we are required to state to it in this report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Group for our review work, for this report, or for the conclusions we have reached.

 

Michelle Hinchliffe
for and on behalf of KPMG LLP

Chartered Accountants
15 Canada Square
London E14 5GL

31 July 2018



 

Standard Chartered PLC - Financial statements and notes

 

Condensed consolidated interim income statement

For the six months ended 30 June 2018


Notes

6 months ended 30.06.18
$million

6 months ended 31.12.17
$million

6 months ended 30.06.17
$million

Interest income

 

8,227

7,650

6,785

Interest expense

 

(3,866)

(3,435)

(2,819)

Net interest income

 

4,361

4,215

3,966

Fees and commission income

 

2,114

1,961

1,981

Fees and commission expense

 

(245)

(182)

(248)

Net fee and commission income

3

1,869

1,779

1,733

Net trading income

4

966

554

973

Other operating income

5

431

656

549

Operating income

 

7,627

7,204

7,221

Staff costs

 

(3,578)

(3,495)

(3,263)

Premises costs

 

(373)

(437)

(386)

General administrative expenses

 

(808)

(1,171)

(836)

Depreciation and amortisation

 

(426)

(444)

(385)

Operating expenses

6

(5,185)

(5,547)

(4,870)

Operating profit before impairment losses and taxation

 

2,442

1,657

2,351

Credit impairment

7

(214)

(707)

(655)

Other impairment

8

 

 

 

Goodwill

 

-

(320)

-

Other

 

(50)

(86)

(93)

Profit from associates and joint ventures

 

168

117

151

Profit before taxation

 

2,346

661

1,754

Taxation

9

(753)

(599)

(548)

Profit for the period

 

1,593

62

1,206

 

 

 

 

 

Profit attributable to:

 




Non-controlling interests

 

33

39

10

Parent company shareholders

 

1,560

23

1,196

Profit for the period

 

1,593

62

1,206

 

 

 

cents

cents

cents

Earnings per share:

 

 

 

 

Basic earnings/(loss) per ordinary share

11

40.7

(6.0)

29.5

Diluted earnings/(loss) per ordinary share

11

40.2

(6.0)

29.2

The notes form an integral part of these financial statements.



 

Standard Chartered PLC - Financial statements and notes

 

Condensed consolidated interim statement of comprehensive income

For the six months ended 30 June 2018


Notes

6 months ended
30.06.18
$million

6 months ended
31.12.17
$million

6 months ended
30.06.17
$million

Profit for the period

 

1,593

62

1,206

Other comprehensive income/(loss)

 

 

 

 

Items that will not be reclassified to Income statement:

 

253

103

(341)

Own credit gains/(losses) on financial liabilities designated at fair value through profit
or loss

 

136

61

(310)

Equity instruments at fair value through other comprehensive income

 

19

-

-

Actuarial gains/(losses) on retirement benefit obligations

22

105

61

(29)

Taxation relating to components of other comprehensive income

 

(7)

(19)

(2)

 

 

 

 

 

Items that may be reclassified subsequently to Income statement:

 

(826)

529

1,003

Exchange differences on translation of foreign operations:

 




Net (losses)/gains taken to equity

 

(1,008)

745

892

Net gains/(losses) on net investment hedges

 

216

(177)

(111)

Share of other comprehensive income/(loss) from associates and joint ventures

 

16

14

(15)

Debt instruments at fair value through other comprehensive income/available for
sale investments:

 

 

 

 

Net valuation (losses)/gains taken to equity

 

(119)

54

315

Reclassified to income statement

 

13

(131)

(102)

Net impact of expected credit losses

 

(8)

-

-

Cash flow hedges:

 

 

 

 

Net gains taken to equity

 

49

3

32

Reclassified to income statement

 

5

11

-

Taxation relating to components of other comprehensive income

 

10

10

(8)

Other comprehensive (loss)/income for the period, net of taxation

 

(573)

632

662

Total comprehensive income for the period

 

1,020

694

1,868

 

 

 

 

 

Total comprehensive income attributable to:

 

 

 

 

Non-controlling interests

 

25

37

13

Parent company shareholders

 

995

657

1,855

 

 

1,020

694

1,868

 



 

Standard Chartered PLC - Financial statements and notes

 

Condensed consolidated interim balance sheet

As at 30 June 2018


Notes

30.06.18
$million

31.12.171

$million

Assets

 



Cash and balances at central banks

12

58,213

58,864

Financial assets held at fair value through profit or loss

12

79,869

27,564

Derivative financial instruments

12,13

51,780

47,031

Loans and advances to banks

12

55,603

57,494

Loans and advances to customers

12

255,100

248,707

Reverse repurchase agreements and other similar secured lending

12,14

12,781

54,275

Investment securities

12

123,081

117,025

Other assets

16

39,068

33,490

Current tax assets

 

366

491

Prepayments and accrued income

 

2,418

2,307

Interests in associates and joint ventures

 

2,345

2,307

Goodwill and intangible assets

15

4,974

5,013

Property, plant and equipment

 

7,326

7,211

Deferred tax assets

 

1,290

1,177

Assets classified as held for sale

16

660

545

Total assets

 

694,874

663,501

 

 



Liabilities

 



Deposits by banks

12

30,816

30,945

Customer accounts

12

382,107

370,509

Repurchase agreements and other similar secured borrowing

12,14

5,863

39,783

Financial liabilities held at fair value through profit or loss

12

63,274

16,633

Derivative financial instruments

12,13

52,962

48,101

Debt securities in issue

12

46,196

46,379

Other liabilities

17

40,544

35,257

Current tax liabilities

 

622

376

Accruals and deferred income

 

4,752

5,493

Subordinated liabilities and other borrowed funds

12,20

15,047

17,176

Deferred tax liabilities

 

455

404

Provisions for liabilities and charges

 

400

183

Retirement benefit obligations

22

348

455

Total liabilities

 

643,386

611,694

 

 

 

 

Equity

 



Share capital and share premium account

21

7,101

7,097

Other reserves

 

11,989

12,767

Retained earnings

 

27,106

26,641

Total parent company shareholders' equity

 

46,196

46,505

Other equity instruments

21

4,961

4,961

Total equity excluding non-controlling interests

 

51,157

51,466

Non-controlling interests

 

331

341

Total equity

 

51,488

51,807

Total equity and liabilities

 

694,874

663,501

1  Prepared and disclosed on an IAS 39 basis. Refer to Note 1 Accounting policies

The notes form an integral part of these financial statements.



 

Standard Chartered PLC - Financial statements and notes

 

Condensed consolidated interim statement of changes in equity

For the six months ended 30 June 2018


Share capital and share premium account
$million

Capital and merger
reserves1
$million

Own credit adjustment reserve
$million

Available -for-sale reserve
$million

Fair value
through other comprehensive income reserve - debt
$million

Fair value
through other comprehensive income reserve - equity
$million

Cash flow hedge reserve
$million

Translation reserve
$million

Retained earnings
$million

Parent company shareholders' equity
$million

Other equity instruments
$million

Non-controlling interests
$million

Total
$million

As at 31 December 2017

7,097

17,129

54

83

-

-

(45)

(4,454)

26,641

46,505

4,961

341

51,807

IFRS 9
Reclassifications2

-

-

-

(83)

(131)

45

-

-

169

-

-

-

-

IFRS 9
Re-measurements2

-

-

-

-

-

4

-

-

31

35

-

-

35

Expected credit loss, net

-

-

-

-

65

-

-

-

(1,074)3

(1,009)

-

(8)

(1,017)

Tax impact

-

-

-

-

(11)

5

-

-

179

173

-

-

173

Impact of IFRS 9 on share of joint ventures and associates, net of tax

-

-

-

-

-

(1)

-

-

(51)

(52)

-

-

(52)

IFRS 9 transition adjustments

-

-

-

(83)

(77)

53

-

-

(746)

(853)

-

(8)

(861)

As at 1 January 2018

7,097

17,129

54

-

(77)

53

(45)

(4,454)

25,895

45,652

4,961

333

50,946

Profit for
the period

-

-

-

-

-

-

-

-

1,560

1,560

-

33

1,593

Other comprehensive income/(loss)

-

-

132

-

(103)

37

46

(783)

1064

(565)

-

(8)

(573)

Distributions

-

-

-

-

-

-

-

-

-

-

-

(27)

(27)

Shares issued,
net of expenses

4

-

-

-

-

-

-

-

-

4

-

-

4

Net own shares adjustment

-

-

-

-

-

-

-

-

7

7

-

-

7

Share option expense, net of taxation

-

-

-

-

-

-

-

-

97

97

-

-

97

Dividends net
of scrip5

-

-

-

-

-

-

-

-

(564)

(564)

-

-

(564)

Other movements

-

-

-

-

-

-

-

-

5

5

-

-

5

As at 30 June 2018

7,101

17,129

186

-

(180)

90

1

(5,237)

27,106

46,196

4,961

331

51,488

1  Includes capital reserve of $5 million, capital redemption reserve of $13 million and merger reserve of $17,111 million

2  As per Note 27 Transition to IFRS 9 Financial Instruments

3  The Group's initial estimate of credit impairment provisions on adoption of IFRS 9 was $6,720 million. Following refinement of the Group's expected loss models, the estimate of the opening credit impairment provisions has been revised down by $222 million to $6,498 million, and the net expected credit loss of $(1,296) million adjusted against retained earnings has similarly decreased by $222 million to $1,074 million

4  Comprises actuarial gain/(loss), net of taxation and share from associates and joint ventures $106 million ($96 million for the six months ended 31 December 2017 and $(46) million for the six months ended 30 June 2017)

5  Comprises dividends paid net of scrip $347 million (2017: $nil) and dividends on preference shares classified as equity and Additional Tier 1 securities $217 million ($220 million for the six months ended 31 December 2017 and $225 million for the six months ended 30 June 2017)



Standard Chartered PLC - Financial statements and notes

 


Share capital and share premium account
$million

Capital
and merger
reserves1
$million

Own credit adjustment reserve
$million

Available -for-sale reserve
$million

Fair value through other comprehensive income reserve - debt
$million

Fair value through other comprehensive income reserve - equity
$million

Cash flow hedge reserve
$million

Translation reserve
$million

Retained earnings
$million

Parent company shareholders' equity
$million

Other equity instruments
$million

Non-controlling interests
$million

Total
$million

At 1 January 2017

7,091

17,129

289

(4)

-

-

(85)

(5,805)

25,753

44,368

3,969

321

48,658

Profit for
the period

-

-

-

-

-

-

-

-

1,196

1,196

-

10

1,206

Other comprehensive (loss)/income

-

-

(296)

192

-

-

28

781

(46)2

659

-

3

662

Distributions

-

-

-

-

-

-

-

-

-

-

-

(52)

(52)

Shares issued,
net of expenses

4

-

-

-

-

-

-

-

-

4

-

-

4

Other equity instruments issued, net of expenses

-

-

-

-

-

-

-

-

-

-

992

-

992

Net own shares adjustment

-

-

-

-

-

-

-

-

8

8

-

-

8

Share option expense, net of taxation

-

-

-

-

-

-

-

-

68

68

-

-

68

Dividends3

-

-

-

-

-

-

-

-

(225)

(225)

-

-

(225)

Other movements4

-

-

-

-

-

-

-

-

17

17

-

24

41

At 30 June 2017

7,095

17,129

(7)

188

-

-

(57)

(5,024)

26,771

46,095

4,961

306

51,362

Profit for
the period

-

-

-

-

-

-

-

-

23

23

-

39

62

Other comprehensive income/(loss)

-

-

61

(105)

-

-

12

570

962

634

-

(2)

632

Distributions

-

-

-

-

-

-

-

-

-

-

-

1

1

Shares issued,
net of expenses

2

-

-

-

-

-

-

-

-

2

-

-

2

Net own shares adjustment

-

-

-

-

-

-

-

-

2

2

-

-

2

Share option expense, net of taxation

-

-

-

-

-

-

-

-

57

57

-

-

57

Dividends3

-

-

-

-

-

-

-

-

(220)

(220)

-

-

(220)

Other movements5

-

-

-

-

-

-

-

-

(88)

(88)

-

(3)

(91)

As at 31 December 2017

7,097

17,129

54

83

-

-

(45)

(4,454)

26,641

46,505

4,961

341

51,807

1  Includes capital reserve of $5 million, capital redemption reserve of $13 million and merger reserve of $17,111 million

2  Comprises actuarial gain/(loss), net of taxation and share from associates and joint ventures of $96 million for the six months ended 31 December 2017 and $(46) million for the six months ended 30 June 2017

3  Comprises dividends on preference shares classified as equity and Additional Tier 1 securities $220 million for the six months ended 31 December 2017 and $225 million for the six months ended 30 June 2017

4  Mainly due to additional share capital issued including the premium by Nepal to its non-controlling interests of $32 million and $9 million with respect to an acquisition

5  Mainly due to other equity adjustments of $90 million

Note 21 includes a description of each reserve.

The notes form an integral part of these financial statements.



Standard Chartered PLC - Financial statements and notes

 

Condensed consolidated interim cash flow statement

For the six months ended 30 June 2018


6 months ended 30.06.18
$million

6 months ended 31.12.17
$million

6 months ended 30.06.17
$million

Cash flows from operating activities:

 

 

 

Profit before taxation

2,346

661

1,754

Adjustments for non-cash items and other adjustments included within income statement

1,183

2,207

1,034

Change in operating assets

(28,843)

(6,674)

(6,951)

Change in operating liabilities

39,994

3,404

2,415

Contributions to defined benefit schemes

(38)

(93)

(50)

UK and overseas taxes paid

(330)

(456)

(459)

Net cash from/(used in) operating activities

14,312

(951)

(2,257)

Cash flows from investing activities:

 

 

 

Purchase of property, plant and equipment

(64)

(108)

(57)

Disposal of property, plant and equipment

3

2

27

Acquisition of investment in subsidiaries, associates and joint ventures, net of cash acquired

-

-

(44)

Dividends received from subsidiaries, associates and joint ventures

3

1

1

Disposal of subsidiaries

-

(24)

24

Purchase of investment securities

(143,903)

(131,854)

(133,332)

Disposal and maturity of investment securities

134,847

126,269

135,047

Net cash (used in)/from investing activities

(9,114)

(5,714)

1,666

Cash flows from financing activities:

 

 

 

Issue of ordinary and preference share capital, net of expenses

4

2

4

Exercise of share options

7

2

8

Issue of Additional Tier 1 capital, net of expenses

-

-

992

Gross proceeds from issue of subordinated liabilities

500

-

-

Interest paid on subordinated liabilities

(242)

(486)

(257)

Repayment of subordinated liabilities

(2,242)

(2,984)

-

Proceeds from issue of senior debts

1,921

2,031

261

Repayment of senior debts

(2,464)

(2,977)

(1,185)

Interest paid on senior debts

(222)

(548)

(348)

(Repayment to)/investment from non-controlling interests

-

(3)

24

Dividends paid to non-controlling interests and preference shareholders

(243)

(219)

(277)

Dividends paid to ordinary shareholders

(348)

-

-

Net cash used in financing activities

(3,329)

(5,182)

(778)

Net increase/(decrease) in cash and cash equivalents

1,869

(11,847)

(1,369)

Cash and cash equivalents at beginning of the period

87,231

98,596

96,977

Effect of exchange rate movements on cash and cash equivalents

(785)

482

2,988

Cash and cash equivalents at end of the period

88,315

87,231

98,596



Standard Chartered PLC - Financial statements and notes

 

Contents - notes to the financial statements

 

Section

Note

Page

Basis of preparation

1

Accounting policies

Performance and return

2

Segmental information

3

Net fees and commission

4

Net trading income

5

Other operating income

6

Operating expenses

7

Credit impairment

8

Other impairment

9

Taxation

10

Dividends

11

Earnings per ordinary share

Assets and liabilities held at fair value

12

Financial instruments

13

Derivative financial instruments

Financial instruments held at amortised cost

14

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

Other assets and investments

15

Goodwill and intangible assets

16

Other assets

Funding, accruals, provisions, contingent liabilities and legal proceedings

17

Other liabilities

18

Contingent liabilities and commitments

19

Legal and regulatory matters

Capital instruments, equity and reserves

20

Subordinated liabilities and other borrowed funds

21

Share capital, other equity and reserves

Employee benefits

22

Retirement benefit obligations

Other disclosure matters

23

Related party transactions

24

Post balance sheet events

25

Corporate governance

26

Statutory accounts

27

Transition to IFRS 9 Financial Instruments


28

Dealings in Standard Chartered PLC listed securities

 



 

Standard Chartered PLC - Financial statements and notes

Notes to the financial statements

1. Accounting policies

Statement of compliance

The Group's condensed consolidated interim financial statements consolidate those of Standard Chartered PLC (the Company) and its subsidiaries (together referred to as the Group) and equity account the Group's interest in associates and jointly controlled entities. These interim financial statements have been prepared in accordance with the Disclosure Guidance and Transparency Rules of the Financial Conduct Authority (FCA) and with IAS 34 Interim Financial Reporting as issued by the International Accounting Standards Board (IASB) and adopted by the European Union (EU). They should be read in conjunction with the annual consolidated financial statements of the Group for the year ended 31 December 2017, which were prepared in accordance with International Financial Reporting Standards (IFRS) and IFRS Interpretations Committee (IFRIC) interpretations as issued by the IASB and endorsed by the EU. At 30 June 2018, there was no difference between IFRS endorsed by the EU and the IFRS issued by the IASB in terms
of their application to the Group.

The following form part of these interim financial statements:

a) Risk review: from the start of Credit risk review to the end of the Other principal risks, excluding:

•     Credit quality by geographic region

•     Credit quality by industry

•     Credit impaired (stage 3) loans by geographic region

•     Industry and Retail products analysis by geographic region

•     Country risk

•     Market risk changes - risks not in VaR

•     Market risk changes - backtesting

•     Liquidity coverage ratio (LCR)

•     Stressed coverage

•     Net stable funding ratio (NSFR)

•     Liquidity pool

•     Encumbrance

•     Interest Rate Risk in the Banking Book

•     Operational risk

•     Other principal risks

b) Capital review: from the start of Capital Requirements Directive (CRD) IV capital base to the end of Movement in total capital, excluding capital ratios and risk-weighted assets (RWA)

Accounting policies

The accounting policies applied by the Group in the Interim Financial Information are the same as those applied by the Group in the 2017 annual consolidated financial statements, except that the classification, measurement and impairment of financial instruments are accounted for under IFRS 9 Financial Instruments, and the recognition of revenue from contracts with customers is accounted for under IFRS 15. Both standards are effective from 1 January 2018. The Interim Financial Information has been prepared in accordance with the "Recognition and measurement" requirements of IAS 34.

Significant accounting estimates and judgements

The preparation of interim financial statements requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets and liabilities, income and expense. Actual results may differ from these estimates. The significant judgements made by management in applying the Group's accounting policies and key sources of uncertainty were the same as those applied to the consolidated financial statements as at, and for, the year ended 31 December 2017, except for the treatment of financial instruments under IFRS 9 as explained above. Summaries of the Group's significant accounting policies are included throughout the 2017 Annual Report.



 

Standard Chartered PLC - Financial statements and notes

 

IFRS and Hong Kong accounting requirements

As required by the Hong Kong Listing Rules, an explanation of the differences in accounting practices between EU-endorsed IFRS and Hong Kong Financial Reporting Standards is required to be disclosed. There would be no significant differences had these accounts been prepared in accordance with Hong Kong Financial Reporting Standards.

Comparatives

Prior period comparatives are presented on an IAS 39 basis. Certain comparatives have been changed to align with current year disclosures. The main changes are in respect of IFRS 9 (see below) and the Risk review - Daily value at risk.

New accounting standards adopted by the Group

IFRS 9 Financial Instruments

On 1 January 2018, the Group adopted IFRS 9 Financial Instruments. IFRS 9 has been endorsed by the EU, and replaces IAS 39 Financial Instruments: Recognition and Measurement and introduces new requirements for: the classification and measurement of financial instruments; the recognition and measurement of credit impairment provisions; and provides for a simplified approach to hedge accounting.

The Group has further chosen:

•     To continue to apply IAS 39 hedging requirements rather than those of IFRS 9

•     Not to restate comparative periods on the basis that it is not possible to do so without the use of hindsight

The new IFRS 9 accounting policies are stated in the Risk review, Note 7 Credit impairment and Note 12 Financial instruments.

Information of the transition from IAS 39 to IFRS 9 is stated in Note 27.

The Group's initial estimate of credit impairment provisions on adoption of IFRS 9 was $6,720 million. Following refinement of the Group's expected loss models, the estimate of the opening credit impairment provisions has been revised down by $222 million to $6,498 million, and the net expected credit loss of $(1,296) million adjusted against retained earnings has similarly decreased by $222 million to $(1,074) million. The relevant IFRS 9 disclosures in the Risk Review and in Note 27 Transition to IFRS 9 Financial Instruments have been re-presented accordingly.

IFRS 15 Revenue from Contracts with Customers

IFRS 15 is effective from 1 January 2018 and has been endorsed by the EU, and replaces IAS 18 Revenue. IFRS 15 is conceptually similar to IAS 18, but includes more granular guidance on how to recognise and measure revenue, and also introduces additional disclosure requirements. The Group performed an assessment of the new standard and concluded that the current treatment of revenue from contracts with customers is consistent with the new principles and there is no transitional impact to retained earnings.

Going concern

These interim financial statements were approved by the Board of directors on 31 July 2018. The directors made an assessment of the Group's ability to continue as a going concern and confirm they are satisfied that the Group has adequate resources to continue in business for a period of at least 12 months from the date of approval of these interim financial statements. For this reason, the Group continues to adopt the going concern basis of accounting for preparing the financial statements.

New accounting standards in issue but not yet effective

IFRS 16 Leases

The effective date of IFRS 16 is 1 January 2019 and the standard was endorsed by the EU in November 2017. IFRS 16 introduces a single lessee accounting model and requires a lessee to recognise assets and liabilities for all leases with a term of more than 12 months, unless the underlying asset is of low value. A lessee is required to recognise a right-of-use asset representing its right to use the underlying leased asset and a lease liability representing its obligation to make lease payments. IFRS 16 substantially carries forward the lessor accounting requirements in IAS 17 Leases. Accordingly, a lessor continues to classify its leases as operating leases or finance leases, and to account for those two types of leases differently. The work to assess the impact of the standard is ongoing and it is not yet practicable to quantify the effect of IFRS 16 on these consolidated financial statements. The Group will have a balance sheet increase in lease liabilities and right-of-use assets on adoption of IFRS 16.



 

Standard Chartered PLC - Financial statements and notes

 

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, Asset and Liability Management, 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

•     Asset and Liability Management, 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

Basis of preparation

The analysis reflects how the client segments and geographic regions are managed internally. This is described as the Management View and is principally the location from which a client relationship is managed, which may differ from where it is financially booked and may be shared between businesses and/or regions. In certain instances this approach is not appropriate and a Financial View is disclosed, that is, the location in which the transaction or balance was booked. Typically, the Financial View is used in areas such as the Market and Liquidity Risk reviews where actual booking location is more important for an assessment. Segmental information is therefore on a Management View unless otherwise stated.

Restructuring items excluded from underlying results

Income, costs and impairment relating to identifiable business units, products or portfolios from the date that they have been approved for restructuring, disposal, wind down or redundancy as a consequence of the Strategy Review announced on 3 November 2015 are presented as restructuring and excluded from the underlying results of the Group. This includes realised and unrealised gains and losses from management's decisions to dispose of assets as well as residual income, direct costs and impairment of related legacy assets of those identifiable business units, products or portfolios.



 

Standard Chartered PLC - Financial statements and notes

 

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


6 months ended 30.06.18

Underlying
$million

Operating income

7,649

(91)

-

-

69

7,627

Operating expenses

(5,117)

(68)

-

-

-

(5,185)

Operating profit/(loss) before impairment
losses and taxation

2,532

(159)

-

-

69

2,442

Credit impairment

(293)

79

-

-

-

(214)

Other impairment

(51)

1

-

-

-

(50)

Profit from associates and joint ventures

168

-

-

-

-

168

Profit/(loss) before taxation

2,356

(79)

-

-

69

2,346

 


6 months ended 31.12.17

Underlying
$million

Restructuring
$million

Net gain on businesses disposed/
held for sale
$million

Goodwill impairment
$million

Gains arising on repurchase of senior and subordinated liabilities
$million

Statutory
$million

Operating income

7,067

59

78

-

-

7,204

Operating expenses

(5,351)

(196)

-

-

-

(5,547)

Operating profit/(loss) before impairment
losses and taxation

1,716

(137)

78

-

-

1,657

Credit impairment

(617)

(90)

-

-

-

(707)

Other impairment

(85)

(1)

-

(320)

-

(406)

Profit from associates and joint ventures

77

40

-

-

-

117

Profit/(loss) before taxation

1,091

(188)

78

(320)

-

661

 


6 months ended 30.06.17

Underlying
$million

Restructuring
$million

Net gain on businesses disposed/
held for sale
$million

Goodwill impairment
$million

Gains arising on repurchase of senior and subordinated liabilities
$million

Statutory
$million

Operating income

7,222

(1)

-

-

-

7,221

Operating expenses

(4,769)

(101)

-

-

-

(4,870)

Operating profit/(loss) before impairment losses and taxation

2,453

(102)

-

-

-

2,351

Credit impairment

(583)

(72)

-

-

-

(655)

Other impairment

(84)

(9)

-

-

-

(93)

Profit from associates and joint ventures

133

18

-

-

-

151

Profit/(loss) before taxation

1,919

(165)

-

-

-

1,754

 



 

Standard Chartered PLC - Financial statements and notes

Underlying performance by client segment


6 months ended 30.06.18

Corporate & Institutional Banking
$million

Operating income

3,451

2,620

706

271

601

7,649

Operating expenses

(2,218)

(1,884)

(460)

(275)

(280)

(5,117)

Operating profit/(loss) before
impairment losses and taxation

1,233

736

246

(4)

321

2,532

Credit impairment

(81)

(119)

(106)

(1)

14

(293)

Other impairment

(59)

-

-

-

8

(51)

Profit from associates and joint ventures

-

-

-

-

168

168

Underlying profit/(loss) before taxation

1,093

617

140

(5)

511

2,356

Restructuring

(76)

(4)

(1)

(6)

8

(79)

Gains arising on repurchase
of senior and subordinated liabilities

3

-

-

-

66

69

Statutory profit/(loss) before taxation

1,020

613

139

(11)

585

2,346

Total assets

310,487

103,581

32,347

13,616

234,843

694,874

Of which: loans and advances to customers

143,297

101,530

28,571

13,565

9,756

296,719

Total liabilities

384,593

135,384

35,024

19,938

68,447

643,386

Of which: customer accounts

246,667

132,254

32,696

19,830

3,567

435,014

 


6 months ended 31.12.17

Corporate & Institutional
Banking
$million

Operating income

3,278

2,438

673

258

420

7,067

Operating expenses

(2,286)

(1,862)

(454)

(257)

(492)

(5,351)

Operating profit/(loss) before
impairment losses and taxation

992

576

219

1

(72)

1,716

Credit impairment

(289)

(203)

(125)

(1)

1

(617)

Other impairment

(90)

(1)

-

-

6

(85)

Profit from associates and joint ventures

-

-

-

-

77

77

Underlying profit before taxation

613

372

94

-

12

1,091

Restructuring

(99)

(23)

(7)

(14)

(45)

(188)

Net gains on businesses
disposed/held for sale

-

-

-

-

78

78

Goodwill impairment

-

-

-

-

(320)

(320)

Statutory profit/(loss) before taxation

514

349

87

(14)

(275)

661

Total assets

293,334

105,178

31,650

13,469

219,870

663,501

Of which: loans and advances to customers

131,738

103,013

28,108

13,351

9,343

285,553

Total liabilities

353,582

132,819

36,385

22,203

66,705

611,694

Of which: customer accounts

222,714

129,536

33,880

22,222

3,372

411,724


6 months ended 30.06.17

Corporate & Institutional
Banking
$million

Operating income

3,218

2,396

660

242

706

7,222

Operating expenses

(2,123)

(1,723)

(427)

(243)

(253)

(4,769)

Operating profit/(loss) before
impairment losses and taxation

1,095

673

233

(1)

453

2,453

Credit impairment

(369)

(172)

(42)

-

-

(583)

Other impairment

(78)

-

(3)

-

(3)

(84)

Profit from associates and joint ventures

-

-

-

-

133

133

Underlying profit/(loss) before taxation

648

501

188

(1)

583

1,919

Restructuring

(176)

4

(6)

(1)

14

(165)

Statutory profit/(loss) before taxation

472

505

182

(2)

597

1,754

Total assets

284,613

101,633

30,141

12,916

228,335

657,638

Of which: loans and advances to customers

125,542

98,491

26,798

12,800

5,267

268,898

Total liabilities

351,367

127,461

34,651

22,073

70,724

606,276

Of which: customer accounts

217,044

123,776

32,086

21,991

3,441

398,338



 

Standard Chartered PLC - Financial statements and notes

 

Underlying performance by region


6 months ended 30.06.18

Greater China & North Asia
$million

ASEAN &
South Asia
$million

 Africa &
Middle East
$million

Europe &
Americas
$million

Central &
other items
$million

Total
$million

Operating income

3,097

2,073

1,376

870

233

7,649

Operating expenses

(1,903)

(1,360)

(919)

(736)

(199)

(5,117)

Operating profit before
impairment losses and taxation

1,194

713

457

134

34

2,532

Credit impairment

(17)

(138)

(70)

(68)

-

(293)

Other impairment

(44)

7

-

17

(31)

(51)

Profit from associates and joint ventures

156

7

-

3

2

168

Underlying profit before taxation

1,289

589

387

86

5

2,356

Restructuring

(26)

88

(41)

(5)

(95)

(79)

Gains arising on repurchase
of senior and subordinated liabilities

-

-

-

3

66

69

Statutory profit/(loss) before taxation

1,263

677

346

84

(24)

2,346

Net interest margin

1.5%

2.0%

3.1%

0.4%

 

1.6%

Total assets

268,294

147,017

58,343

208,599

12,621

694,874

Of which: loans and advances to customers

132,679

82,078

30,967

50,995

-

296,719

Total liabilities

235,214

126,815

38,493

210,002

32,862

643,386

Of which: customer accounts

190,305

95,228

31,540

117,941

-

435,014

 


6 months ended 31.12.17

Greater China & North Asia
$million

ASEAN &
South Asia
$million

 Africa &
Middle East
$million

Europe &
Americas
$million

Central &
other items
$million

Total
$million

Operating income

2,825

1,869

1,377

792

204

7,067

Operating expenses

(1,922)

(1,404)

(932)

(727)

(366)

(5,351)

Operating profit/(loss) before
impairment losses and taxation

903

465

445

65

(162)

1,716

Credit impairment

(65)

(338)

(171)

(44)

1

(617)

Other impairment

(27)

(9)

(1)

(16)

(32)

(85)

Profit/(loss) from associates and joint ventures

106

(26)

-

-

(3)

77

Underlying profit/(loss) before taxation

917

92

273

5

(196)

1,091

Restructuring

45

(114)

(26)

(10)

(83)

(188)

Net gains on businesses
disposed/held for sale

-

19

-

-

59

78

Goodwill impairment

-

-

-

-

(320)

(320)

Statutory profit/(loss) before taxation

962

(3)

247

(5)

(540)

661

Net interest margins

1.4%

1.9%

3.3%

0.5%

 

1.6%

Total assets

257,692

148,467

59,166

185,345

12,831

663,501

Of which: loans and advances to customers

126,739

82,579

29,602

46,633

-

285,553

Total liabilities

228,093

128,165

39,413

177,525

38,498

611,694

Of which: customer accounts

186,517

95,310

31,797

98,100

-

411,724

 



 

Standard Chartered PLC - Financial statements and notes

 


6 months ended 30.06.17

Greater China & North Asia
$million

ASEAN &
South Asia
$million

 Africa &
Middle East
$million

Europe &
Americas
$million

Central &
 other items
$million

Total
$million

Operating income

2,791

1,964

1,387

809

271

7,222

Operating expenses

(1,759)

(1,250)

(887)

(680)

(193)

(4,769)

Operating profit before
impairment losses and taxation

1,032

714

500

129

78

2,453

Credit impairment

(76)

(315)

(129)

(63)

-

(583)

Other impairment

(54)

(3)

(2)

-

(25)

(84)

Profit from associates and joint ventures

123

4

-

-

6

133

Underlying profit before taxation

1,025

400

369

66

59

1,919

Restructuring

(10)

(47)

(7)

(15)

(86)

(165)

Statutory profit/(loss) before taxation

1,015

353

362

51

(27)

1,754

Net interest margins

1.3%

1.9%

3.4%

0.5%

 

1.6%

Total assets

249,672

149,173

56,296

191,220

11,277

657,638

Of which: loans and advances to customers

120,458

77,645

29,402

41,393

-

268,898

Total liabilities

214,036

129,710

37,820

181,851

42,859

606,276

Of which: customer accounts

173,866

93,189

30,944

100,339

-

398,338

 

Additional segmental information (statutory)


6 months ended 30.06.18

Corporate & Institutional Banking
$million

Retail
Banking
$million

Commercial Banking
$million

Private

Banking
$million

Central &
other items
$million

Total
$million

Net interest income

1,691

1,577

427

147

519

4,361

Net fees and commission income

763

884

151

110

(39)

1,869

Other income

904

158

128

16

191

1,397

Operating income

3,358

2,619

706

273

671

7,627

 


6 months ended 31.12.17

Corporate & Institutional
 Banking
$million

Retail
Banking
$million

Commercial Banking
$million

Private
Banking
$million

Central &
other items
$million

Total
$million

Net interest income

1,657

1,511

416

154

477

4,215

Net fees and commission income

755

836

139

90

(41)

1,779

Other income

929

118

116

14

33

1,210

Operating income

3,341

2,465

671

258

469

7,204

 


6 months ended 30.06.17

Corporate & Institutional
 Banking
$million

Retail
Banking
$million

Commercial Banking
$million

Private
Banking
$million

Central &
other items
$million

Total
$million

Net interest income

1,568

1,495

386

132

385

3,966

Net fees and commission income

716

790

146

92

(11)

1,733

Other income

898

153

126

18

327

1,522

Operating income

3,182

2,438

658

242

701

7,221

 


6 months ended 30.06.18

Greater China & North Asia
$million

ASEAN &
South Asia
$million

Africa &
Middle East
$million

Europe &
Americas
$million

Central &
other items
$million

Total
$million

Net interest income

1,677

1,275

767

311

331

4,361

Other income

1,418

811

610

562

(135)

3,266

Operating income

3,095

2,086

1,377

873

196

7,627

 



 

Standard Chartered PLC - Financial statements and notes

 


6 months ended 31.12.17

Greater China & North Asia
$million

ASEAN &
South Asia
$million

Africa &
Middle East
$million

Europe &
Americas
$million

Central &
other items
$million

Total
$million

Net interest income

1,555

1,246

811

376

227

4,215

Other income

1,268

640

567

414

100

2,989

Operating income

2,823

1,886

1,378

790

327

7,204

 


6 months ended 30.06.17

Greater China & North Asia
$million

ASEAN &
South Asia
$million

Africa &
Middle East
$million

Europe &
Americas
$million

Central &
other items
$million

Total
$million

Net interest income

1,395

1,156

808

316

291

3,966

Other income

1,395

828

578

490

(36)

3,255

Operating income

2,790

1,984

1,386

806

255

7,221

 


6 months ended 30.06.18

Hong Kong
$million

Korea
$million

China
$million

Singapore
$million

India
$million

UAE
$million

UK
$million

US
$million

Net interest income

903

341

337

531

310

182

137

120

Other income

945

193

83

319

165

175

307

213

Operating income

1,848

534

420

850

475

357

444

333

 


6 months ended 31.12.17

Hong Kong
$million

Korea
$million

China
$million

Singapore
$million

India
$million

UAE
$million

UK
$million

US
$million

Net interest income

831

315

295

535

283

194

248

93

Other income

886

147

69

167

153

162

96

240

Operating income

1,717

462

364

702

436

356

344

333

 


6 months ended 30.06.17

Hong Kong
$million

Korea
$million

China
$million

Singapore
$million

India
$million

UAE
$million

UK
$million

US
$million

Net interest income

733

310

245

430

294

200

180

65

Other income

937

193

94

303

253

177

218

277

Operating income

1,670

503

339

733

547

377

398

342

 



 

Standard Chartered PLC - Financial statements and notes

 

3. Net fees and commission


6 months ended
30.06.18
$million

6 months ended
31.12.17
$million

6 months ended
30.06.17
$million

Fees and commissions income

2,114

1,961

1,981

Fees and commissions expense

(245)

(182)

(248)

Net fees and commission

1,869

1,779

1,733

Total fee income arising from financial instruments that are not fair valued through profit or loss is $699 million (31 December 2017: $538 million and 30 June 2017: $529 million) and arising from trust and other fiduciary activities of $78 million (31 December 2017: $63 million and 30 June 2017: $67 million).

Total fee expense arising from financial instruments that are not fair valued through profit or loss is $55 million (31 December 2017: $41 million and 30 June 2017: $33 million) and arising from trust and other fiduciary activities of $14 million (31 December 2017: $11 million and 30 June 2017: $11 million).


6 months ended 30.06.18

Corporate & Institutional Banking
$million

Retail
Banking
$million

Commercial Banking
$million

Private
Banking
$million

Central &
other items
$million

Total
$million

Transaction Banking

555

6

118

-

-

679

Trade

236

6

86

-

-

328

Cash Management and Custody

319

-

32

-

-

351

Financial Markets

101

-

13

-

-

114

Corporate Finance

78

-

11

-

-

89

Lending and Portfolio Management

23

-

8

-

-

31

Principal Finance

6

-

-

-

-

6

Wealth Management

-

652

1

109

-

762

Retail Products

-

229

-

1

-

230

Treasury

-

-

-

-

(12)

(12)

Others1

-

(3)

-

-

(27)

(30)

Net fees and commission

763

884

151

110

(39)

1,869

1  Others include GSAM



Standard Chartered PLC - Financial statements and notes


6 months ended 31.12.17

Corporate & Institutional
Banking
$million

Retail
Banking
$million

Commercial Banking
$million

Private
Banking
$million

Central &
other items
$million

Total
$million

Transaction Banking

534

6

110

-

-

650

Trade

233

6

79

-

-

318

Cash Management and Custody

301

-

31

-

-

332

Financial Markets

185

-

24

-

-

209

Corporate Finance

(43)

-

(4)

-

-

(47)

Lending and Portfolio Management

70

-

7

-

-

77

Principal Finance

9

-

-

-

-

9

Wealth Management

-

606

2

89

-

697

Retail Products

-

222

-

1

-

223

Treasury

-

-

-

-

(12)

(12)

Others

-

2

-

-

(29)

(27)

Net fees and commission

755

836

139

90

(41)

1,779

 


6 months ended 30.06.17

Corporate & Institutional
Banking
$million

Retail
Banking
$million

Commercial Banking
$million

Private
Banking
$million

Central &
other items
$million

Total
$million

Transaction Banking

510

6

111

-

-

627

Trade

217

6

81

-

-

304

Cash Management and Custody

293

-

30

-

-

323

Financial Markets

(18)

-

2

-

-

(16)

Corporate Finance

250

-

23

-

-

273

Lending and Portfolio Management

(34)

-

8

-

-

(26)

Principal Finance

8

-

-

-

-

8

Wealth Management

-

565

2

91

-

658

Retail Products

-

219

-

1

-

220

Treasury

-

-

-

-

(8)

(8)

Others

-

-

-

-

(3)

(3)

Net fees and commission

716

790

146

92

(11)

1,733

4. Net trading income


6 months ended
30.06.18
$million

6 months ended
31.12.17
$million

6 months ended
30.06.17
$million

Net trading income

966

554

973

Significant items within net trading income include:

 

 

 

Gains on instruments held for trading

944

636

1,080

Losses on financial assets mandatorily at fair value through profit or loss

(77)

-

-

(Losses)/gains on financial assets designated at fair value through profit or loss

(13)

126

41

Gains/(losses) on financial liabilities designated at fair value through profit or loss

165

(33)

(169)

5. Other operating income


6 months ended
30.06.18
$million

6 months ended
31.12.17
$million

6 months ended
30.06.17
$million

Other operating income includes:

 

 

 

Rental income from operating lease assets

288

384

286

Gains less losses on disposal of available-for-sale financial instruments

(13)

134

101

Net gain on sale of businesses

-

14

14

Net gain on derecognition of investment in associate

-

64

-

Dividend income

9

8

38

Gains arising on repurchase of senior and subordinated liabilities1

69

-

-

Other

78

52

110

 

431

656

549

1  On the 14 June 2018, Standard Chartered PLC repurchased in part, £245.7 million of its £750 million 4.375 per cent senior debt 2038 and £372.5 million of its £900 million 5.125 per cent subordinated debt 2034. On the same date, Standard Chartered Bank repurchased in part, £95.1 million of its £200 million 7.75 per cent subordinated notes
(callable 2022). This activity resulted in an overall gain of £69 million for the Group. Please refer to note 20



 

Standard Chartered PLC - Financial statements and notes

 

6. Operating expenses


6 months ended
30.06.18
$million

6 months ended
31.12.2017
$million

6 months ended
31.06.2017
$million

Staff costs:

 

 

 

Wages and salaries

2,745

2,570

2,477

Social security costs

96

76

83

Other pension costs (note 22)

187

201

156

Share-based payment costs

104

72

80

Other staff costs

446

576

467

 

3,578

3,495

3,263

 

Premises and equipment expenses:

 

 

 

Rental of premises

186

190

189

Other premises and equipment costs

177

239

188

Rental of computers and equipment

10

8

9

 

373

437

386

 

 

 

 

General administrative expenses:

 

 

 

UK bank levy

-

220

-

Other general administrative expenses

808

951

836

 

808

1,171

836

 


6 months ended
30.06.18
$million

6 months ended
31.12.2017
$million

6 months ended
30.06.2017
$million

Depreciation and amortisation:

 

 

 

Property, plant and equipment:

 

 

 

Premises

44

44

41

Equipment

47

45

40

Operating lease assets

148

170

158

 

239

259

239

Intangibles:

 

 

 

Software

182

180

140

Acquired on business combinations

5

5

6

 

426

444

385

The UK bank levy is applied on the chargeable equities and liabilities on the Group's consolidated balance sheet excluding Tier 1 capital, insured or guaranteed retail deposits, repo secured on certain sovereign debt and liabilities subject to netting. The rate of the levy for 2018 is the blended rate of 0.16 per cent (31 December 2017: 0.17 per cent) for chargeable short-term liabilities, with a lower rate of 0.08 per cent (31 December 2017: 0.085 per cent) applied to chargeable equity and long-term liabilities.



 

Standard Chartered PLC - Financial statements and notes

 

7. 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 and estimates in determining expected credit loss include:

•     The Group's criteria for assessing if there has been a significant increase in credit risk; and

•     Development of expected credit loss models, including the choice of inputs relating to macroeconomic variables.

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.

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 simplified 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. As a practical expedient, the Group may also measure credit impairment on the basis of an instrument's fair value using an observable market price.

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.



Standard Chartered PLC - Financial statements and notes

 

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 POCI instruments) 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 cost

Loss provisions: netted against gross carrying value1

Financial assets held at FVOCI - Debt instruments

Other comprehensive income (FVOCI expected 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 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 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 lossis 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.



 

Standard Chartered PLC - Financial statements and notes

 

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; and

•     Purchase or origination of a financial asset at a deep discount that reflects incurred credit losses.

Irrevocable lending commitments to a credit impaired obligor that have not yet been drawn down are also included within the stage 3 credit impairment provision to the extent that the commitment cannot be withdrawn.

Loss provisions against credit impaired financial assets are determined based on an assessment of the recoverable cash flows under a range of scenarios, including the realisation of any collateral held where appropriate. The loss provisions held represent the difference between the present value of the cash flows expected to be recovered, discounted at the instrument's original effective interest rate, and the gross carrying value of the instrument prior to any credit impairment. 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 non-performing loans, i.e. Stage 3 or credit impaired exposures.

For individually significant financial assets within Stage 3, Group Special Asset Management (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 geo-political 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 difference between the loan carrying amount and the discounted expected future cash flows will result in the stage 3 credit impairment amount. 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 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.



Standard Chartered PLC - Financial statements and notes

 

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, the resulting modification loss is recognised within credit impairment in the income statement within 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 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 loan impairment in the income statement. If, in a subsequent period, the amount of the credit impairment loss decreases and the decrease can be related objectively to an event occurring after the credit impairment was recognised (such as an improvement in the debtor's credit rating), the previously recognised credit impairment loss is reversed by adjusting the provision account. The amount of the reversal is recognised 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).



 

Standard Chartered PLC - Financial statements and notes

 

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 the disclosure (cured) 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

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.

The following table reconciles the charge for impairment provisions on loans and advances to the total impairment charge and other credit risk provision:


6 months ended
30.06.18
$million

6 months ended
31.12.17
$million

6 months ended
30.06.17
$million

Net credit impairment against profit on loans and advances to banks and customers

194

684

681

Net credit impairment against profit or loss during the period relating to debt securities

(4)

20

-

Net credit impairment relating to financial guarantees and loan commitments

24

3

(26)

Credit impairment1

214

707

655

1  No material POCI assets

8. Other impairment


6 months ended
30.06.18
$million

6 months ended
31.12.17
$million

6 months ended
30.06.17
$million

Impairment of goodwill (note 15)

-

320

-

Other impairment

 

 

 

Impairment of fixed assets

47

66

71

Impairment losses on fair value through other comprehensive income/available-for-sale
financial assets:

 

 

 

Equity shares

-

1

15

Impairment of other intangible assets

21

21

2

Other

(18)

(2)

5

 

50

86

93

 

50

406

93

 



Standard Chartered PLC - Financial statements and notes

 

9. Taxation

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


6 months ended
30.06.18
$million

6 months ended
31.12.17
$million

6 months ended
30.06.17
$million

The charge for taxation based upon the profit for the period comprises:

 

 

 

Current tax:

 

 

 

United Kingdom corporation tax at 19 per cent (31 December 2017 and 30 June 2017: 19.25 per cent):

 

 

 

Current tax charge on income for the period

3

-

-

Adjustments in respect of prior periods (including double tax relief)

46

-

1

Foreign tax:

 

 

 

Current tax charge on income for the period

718

370

607

Adjustments in respect of prior periods

(88)

(27)

14

 

679

343

622

Deferred tax:

 

 

 

Origination/reversal of temporary differences

(20)

229

(73)

Adjustments in respect of prior periods

94

27

(1)

 

74

256

(74)

Tax on profits on ordinary activities

753

599

548

Effective tax rate

32.1%

nm1

31.2%

 

 

 

 

Tax on profits on ordinary activities excluding the impact of US Tax Reform

753

379

548

Effective tax rate excluding the impact of US Tax Reform

32.1%

nm1

31.2%

1  Not meaningful

The US Tax Cuts and Jobs Act of 2017, effective from 1 January 2018, reduced the US corporate tax rate from 35 per cent to 21 per cent and introduced a Base Erosion and Anti Abuse Tax. The combined impact of these changes in tax rates reduced the US deferred tax asset, increasing the deferred taxation charge for the period ended 31 December 2017 by $220 million.

The tax charge for the period of $753 million (31 December 2017: $599 million and 30 June 2017: $548 million) on a profit before tax of $2,346 million (31 December 2017: $661 million and 30 June 2017: $1,754 million) reflects the impact of non-deductible expenses and the impact of countries with tax rates higher or lower than the UK, the most significant of which is India.

Foreign tax includes current tax on Hong Kong profits of $103 million (31 December 2017: $87 million and 30 June 2017: $80 million) on the profits assessable in Hong Kong.

Deferred tax includes origination or reversal of temporary differences in Hong Kong profits of $(3) million (31 December 2017: $6 million and 30 June 2017: $(1) million) provided at a rate of 16.5 per cent (31 December 2017: 16.5 per cent and 30 June 2017: 16.5 per cent) on the profits assessable to Hong Kong.



Standard Chartered PLC - Financial statements and notes

 

10. Dividends

The Board considers a number of factors which include the rate of recovery in the Group's financial performance, the macroeconomic environment, and opportunities to further invest in our business and grow profitably in our markets.

Ordinary equity shares

 

30.06.18

 

31.12.17

 

30.06.17

Cents per share

$million

Cents per share

$million

Cents per share

$million

2017/2016 final dividend declared
and paid during the year1

11.00

363

 

-

-

 

-

-

1  The amounts are gross of scrip adjustments

Preference shares and Additional Tier 1 securities

Dividends on these preference shares and securities classified as equity are recorded in the period in which they are declared.

 

 

30.06.18
$million

31.12.17
$million

30.06.17
$million

Non-cumulative redeemable preference shares:

7.014 per cent preference shares of $5 each

26

26

27

 

6.409 per cent preference shares of $5 each

12

15

24

 

 

38

41

51

Additional Tier 1 securities: $5 billion fixed rate resetting perpetual subordinated contingent convertible securities

179

179

174

 

 

217

220

225

Dividends on these preference shares are treated as interest expense and accrued accordingly.

 

 

 

Non-cumulative irredeemable preference shares:

7 3/8 per cent preference shares of £1 each

5

5

5

 

8 1/4 per cent preference shares of £1 each

5

6

5

 

 

10

11

10

Dividends

The 2017 final dividend of 11 cents per ordinary share $363 million was paid to eligible shareholders on 17 May 2018, and is recognised in these interim accounts.

Interim dividends on ordinary equity shares are recorded in the period in which they are declared and, in respect of the final dividend, have been approved by the shareholders.

Accordingly, the final ordinary equity share dividends as stated above relate to the prior year. No interim dividend was declared in 2017.

2018 recommended interim dividend

The 2018 interim dividend of 6 cents per share ($198 million) will be paid in pounds sterling, Hong Kong dollars or US dollars on 22 October 2018 to shareholders on the UK register of members at the close of business in the UK on 10 August 2018. The 2018 interim dividend will be paid in Indian rupees on 22 October 2018 to Indian Depository Receipt holders on the Indian register at the close of business in India on 10 August 2018.

It is intended that shareholders on the UK register and Hong Kong branch register will be able to elect to receive shares credited as fully paid instead of all or part of the interim cash dividend. Details of the dividend arrangements will be sent to shareholders on or around 31 August 2018. Indian Depository Receipt holders will receive their dividend in Indian rupees only.



Standard Chartered PLC - Financial statements and notes

11. Earnings per ordinary share

The table below provides the basis of underlying earnings.

 

6 months ended
30.06.18
$million

6 months ended
31.12.17
$million

6 months ended
30.06.17
$million

Profit for the period attributable to equity holders

1,593

62

1,206

Non-controlling interest

(33)

(39)

(10)

Dividend payable on preference shares and AT1 classified as equity

(217)

(220)

(225)

Profit/(loss) for the period attributable to ordinary shareholders

1,343

(197)

971

 

 

 

 

Items normalised:

 

 

 

Restructuring

79

188

165

Gains arising on repurchase of subordinated liabilities

(69)

-

-

Goodwill impairment (note 8)

-

320

-

Net loss on business disposed and available-for-sale financial instruments
(included within note 5)

-

(78)

-

Impact of US Tax Reform (note 9)

-

220

-

Tax on normalised items1

131

(31)

(5)

Underlying profit

1,484

422

1,131

 

 

 

 

Basic - Weighted average number of shares (millions)

3,303

3,296

3,290

Diluted - Weighted average number of shares (millions)

3,337

3,322

3,327

 

 

 

 

Basic earnings/(loss) per ordinary share (cents)

40.7

(6.0)

29.5

Diluted earnings/(loss) per ordinary share (cents)

40.2

(6.0)2

29.2

Underlying basic earnings per ordinary share (cents)

44.9

12.8

34.4

Underlying diluted earnings per ordinary share (cents)

44.5

12.7

34.0

1  No tax is included in respect of the impairment of goodwill as no tax relief is available

2  The impact of any diluted options has been excluded from this amount as required by IAS 33 Earnings per share

12. Financial instruments

Classification and measurement

Accounting policy

The Group classifies its financial assets into the following measurement categories: amortised cost; fair value through other comprehensive income; and fair value through profit or loss. Financial liabilities are classified as either amortised cost, or held at fair value through profit or loss. Management determines the classification of its financial assets and liabilities at initial recognition of the instrument or, where applicable, at the time of reclassification.

Financial assets held at amortised cost and fair value through other comprehensive income

Debt instruments held at amortised cost or held at fair value through other comprehensive income (FVOCI) have contractual terms that give rise to cash flows that are solely payments of principal and interest (SPPI characteristics). Principal is the fair value of the financial asset at initial recognition but this may change over the life of the instrument as amounts are repaid. Interest consists of consideration for the time value of money, for the credit risk associated with the principal amount outstanding during a particular period and for other basic lending risks and costs, as well as a profit margin.

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); and

•     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.

Standard Chartered PLC - Financial statements and notes

 

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; and

•     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 model

Business objective

Characteristics

Businesses

Products

Hold to collect

Intent is to originate financial assets and hold them to maturity, collecting the contractual cash flows over the term of the instrument

•       Providing financing and originating assets to earn interest income as primary income stream

•       Performing credit risk management activities

•       Costs include funding costs, transaction costs and impairment losses

•       Corporate Lending

•       Corporate Finance

•       Transaction Banking

•       Retail Lending

•       Treasury Markets (Loans and Borrowings)

•       Financial Markets (selected)

•       Loans and advances

•       Debt securities

Hold to collect and sell

Business objective met through both hold to collect and by selling financial assets

•       Portfolios held for liquidity needs; or where a certain interest yield profile is maintained; or that are normally rebalanced to achieve matching of duration of assets and liabilities

•       Income streams come from interest income, fair value changes and impairment losses

•       Treasury Markets

•       Derivatives

•       Debt securities

Fair value through profit or loss

All other business objectives, including trading and managing financial assets on a fair value basis

•       Assets held for trading

•       Assets that are originated, purchased, and sold for profit taking or underwriting activity

•       Performance of the portfolio is evaluated on a fair value basis

•       Income streams are from fair value changes or trading gains or losses

•       All other business lines

•       Derivatives

•       Trading portfolios

•       Financial Markets reverse repos

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 a hold to collect business model 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.



 

Standard Chartered PLC - Financial statements and notes

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 fair value through other comprehensive income are held at fair value through profit or loss. Financial assets and liabilities held at fair value through profit or loss are either mandatorily classified fair value through profit or loss or irrevocably designated at fair value through profit or loss at initial recognition.

Mandatorily classified at fair value through profit or loss

Financial assets and liabilities 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; and

•     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; and

•     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 bifurcately embedded derivative where the Group is not able to separately value the embedded derivative component.

Financial liabilities held at amortised cost

Financial liabilities that are not financial guarantees or loan commitments and that are not classified as financial liabilities held at fair value through profit or loss are classified as financial liabilities held at amortised cost.

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.



 

Standard Chartered PLC - Financial statements and notes

Financial guarantee contracts and loan commitments

The Group issues financial guarantee contracts and loan commitments in return for fees. Under a financial guarantee contract, the Group undertakes to meet a customer's obligations under the terms of a debt instrument if the customer fails to do so. Loan commitments are firm commitments to provide credit under pre-specified terms and conditions. Financial guarantee contracts and loan commitments issued at below market interest rates are initially recognised as liabilities at fair value, while financial guarantees and loan commitments issued at market rates are recorded off balance sheet. Subsequently, these instruments are measured at the higher of the expected credit loss provision, and the amount initially recognised less the cumulative amount of income recognised in accordance with the principles of IFRS 15 Revenue from Contracts with Customers.

Fair value of financial assets and liabilities

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date in the principal market for the asset or liability, or in the absence of a principal market, the most advantageous market to which the Group has access at 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 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



 

Standard Chartered PLC - Financial statements and notes

 

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 recorded in the net trading income line in the profit or loss unless the instrument is part of a cash flow hedging relationship. Contractual interest income on financial assets held at fair value through profit or loss is recognised as interest income in a separate line in the profit or loss.

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.

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.



 

Standard Chartered PLC - Financial statements and notes

 

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.



 

Standard Chartered PLC - Financial statements and notes

 

IFRS 9

Assets

Notes

Assets at fair value

Assets
held at amortised cost
$million

Total
$million

Trading
$million

Derivatives held for hedging
$million

Non-trading mandatorily at fair value through profit or loss
$million

Designated at fair value through profit or loss
$million

Fair value through other comprehensive income
$million

Total financial assets at
fair value
$million

Cash and balances at central banks

 

-

-

-

-

-

-

58,213

58,213

Financial assets held at fair value through profit or loss

 

 

 

 

 

 

 

 

 

Loans and advances to banks1

 

175

-

3,069

-

-

3,244

-

3,244

Loans and advances to customers1

 

1,572

-

2,138

-

-

3,710

-

3,710

Reverse repurchase agreements and other similar secured lending

14

-

-

51,640

-

-

51,640

-

51,640

Debt securities and other eligible bills

 

18,785

-

386

367

-

19,538

-

19,538

Equity shares

 

740

-

514

483

-

1,737

-

1,737

 

 

21,272

-

57,747

850

-

79,869

-

79,869

Derivative financial instruments

13

51,017

763

-

-

-

51,780

-

51,780

Loans and advances to banks1

 

-

-

-

-

-

-

55,603

55,603

Loans and advances to customers1

 

-

-

-

-

-

-

255,100

255,100

Reverse repurchase agreements and other similar secured lending

14

-

-

-

-

-

-

12,781

12,781

Investment securities

 

 

 

 

 

 

 

 

 

Debt securities and other eligible bills

 

-

-

-

-

115,965

115,965

6,866

122,831

Equity shares

 

-

-

-

-

250

250

-

250

 

 

-

-

-

-

116,215

116,215

6,866

123,081

Other assets

16

-

-

-

-

-

-

34,441

34,441

Assets held for sale

16

-

-

-

511

-

511

2

513

Total at 30 June 2018

 

72,289

763

57,747

1,361

116,215

248,375

423,006

671,381

1 Further analysed in Risk review and Capital review

IFRS 9

Assets

Notes

Assets at fair value

Assets
held at amortised cost
$million

Total

$million

Trading
$million

Derivatives held for hedging
$million

Non-trading mandatorily
at fair value through
profit or loss
$million

Designated at fair value through profit or loss
$million

Fair value
through other comprehensive income
$million

Total
financial assets at
fair value
$million

Cash and balances at central banks

 

-

-

-

-

-

-

58,864

58,864

Financial assets held at fair value through profit or loss

 

 

 

 

 

 

 

 

 

Loans and advances to banks1

 

320

-

2,545

-

-

2,865

-

2,865

Loans and advances to customers1

 

1,689

-

2,179

39

-

3,907

-

3,907

Reverse repurchase agreements and other similar secured lending

14

-

-

45,518

-

-

45,518

-

45,518

Debt securities and other eligible bills

 

19,318

-

504

393

-

20,215

-

20,215

Equity shares

 

718

-

684

733

-

2,135

-

2,135

 

 

22,045

-

51,430

1,165

-

74,640

-

74,640

Derivative financial instruments

13

46,333

698

-

-

-

47,031

-

47,031

Loans and advances to banks1

 

-

-

-

-

-

-

57,194

57,194

Loans and advances to customers1

 

-

-

-

-

-

-

246,941

246,941

Reverse repurchase agreements and other similar secured lending

14

-

-

-

-

-

-

9,667

9,667

Investment securities

 

 

 

 

 

 

 

 

 

Debt securities and other eligible bills

 

-

-

-

-

108,411

108,411

7,188

115,599

Equity shares

 

-

-

-

-

214

214

-

214

 

 

-

-

-

-

108,625

108,625

7,188

115,813

Other assets

16

-

-

-

-

-

-

29,922

29,922

Assets held for sale

16

-

-

-

466

-

466

62

528

Total at 1 January 2018

 

68,378

698

51,430

1,631

108,625

230,762

409,838

640,600

1    Further analysed in Risk review and Capital review

The table above is the representation as at 1 January 2018 of the balances after the implementation of IFRS 9.

Standard Chartered PLC - Financial statements and notes

 

IAS 39

Assets

Notes

Assets at fair value

 

Assets at amortised cost

Trading
$million

Derivatives held for hedging
$million

Designated at fair value through
profit or loss
$million

Available-
for-sale
$million

Total financial assets at
fair value
$million

Loans and receivables
$million

Held-to- maturity
$million

Total
$million

Cash and balances at central banks

 

-

-

-

-

-

 

58,864

-

58,864

Financial assets held at fair value through profit or loss

 

 

 

 

 

 

 

 

 

 

Loans and advances to banks1

 

320

-

2,252

-

2,572

 

-

-

2,572

Loans and advances to customers1

 

1,689

-

1,229

-

2,918

 

-

-

2,918

Reverse repurchase agreements and other similar secured lending

14

454

-

458

-

912

 

-

-

912

Debt securities and other eligible bills

 

19,318

-

393

-

19,711

 

-

-

19,711

Equity shares

 

718

-

733

-

1,451

 

-

-

1,451

 

 

22,499

-

5,065

-

27,564

 

-

-

27,564

Derivative financial instruments

13

46,333

698

-

-

47,031

 

-

-

47,031

Loans and advances to banks1

 

-

-

-

-

-

 

57,494

-

57,494

Loans and advances to customers1

 

-

-

-

-

-

 

248,707

-

248,707

Reverse repurchase agreements and other similar secured lending

14

-

-

-

-

-

 

54,275

-

54,275

Investment securities

 

 

 

 

 

 

 

 

 

 

Debt securities and other eligible bills

 

-

-

-

109,161

109,161

 

2,630

4,340

116,131

Equity shares

 

-

-

-

894

894

 

-

-

894

 

 

-

-

-

110,055

110,055

 

2,630

4,340

117,025

Other assets

16

-

-

-

-

-

 

29,922

-

29,922

Assets held for sale

16

-

-

466

-

466

 

62

-

528

Total at 31 December 2017

 

68,832

698

5,531

110,055

185,116

 

451,954

4,340

641,410

1 Further analysed in Risk review and Capital review

IFRS 9

Liabilities

Notes

Liabilities at fair value

Amortised cost
$million

Total
$million

Trading
$million

Derivatives held for hedging
$million

Designated at fair value through profit or loss
$million

Total financial liabilities at
fair value
$million

Financial liabilities held at fair value through profit or loss

 

 

 

 

 

 

 

Deposits by banks

 

-

-

387

387

-

387

Customer accounts

 

-

-

6,232

6,232

-

6,232

Repurchase agreements and other similar secured borrowing

14

-

-

47,008

47,008

-

47,008

Debt securities in issue

 

-

-

6,299

6,299

-

6,299

Short positions

 

3,348

-

-

3,348

-

3,348

 

 

3,348

-

59,926

63,274

-

63,274

Derivative financial instruments

13

51,618

1,344

-

52,962

-

52,962

Deposits by banks

 

-

-

-

-

30,816

30,816

Customer accounts

14

-

-

-

-

382,107

382,107

Repurchase agreements and other similar secured borrowing

 

-

-

-

-

5,863

5,863

Debt securities in issue

 

-

-

-

-

46,196

46,196

Other liabilities

17

-

-

-

-

40,071

40,071

Subordinated liabilities and other borrowed funds

20

-

-

-

-

15,047

15,047

Total at 30 June 2018

 

54,966

1,344

59,926

116,236

520,100

636,336

 



 

Standard Chartered PLC - Financial statements and notes

 

IFRS 9

Liabilities

Notes

Liabilities at fair value

Amortised cost
$million

Total
$million

Trading
$million

Derivatives held for hedging
$million

Designated at fair value through
profit or loss
$million

Total financial liabilities at
fair value
$million

Financial liabilities held at fair value through profit or loss

 

 

 

 

 

 

 

Deposits by banks

 

-

-

737

737

-

737

Customer accounts

 

-

-

5,236

5,236

-

5,236

Repurchase agreements and other similar secured borrowing

14

-

-

38,140

38,140

-

38,140

Debt securities in issue

 

-

-

7,023

7,023

-

7,023

Short positions

 

3,637

-

-

3,637

-

3,637

 

 

3,637

-

51,136

54,773

-

54,773

Derivative financial instruments

13

46,558

1,543

-

48,101

-

48,101

Deposits by banks

 

-

-

-

-

30,945

30,945

Customer accounts

 

-

-

-

-

370,509

370,509

Repurchase agreements and other similar secured borrowing

14

-

-

-

-

1,639

1,639

Debt securities in issue

 

-

-

-

-

46,379

46,379

Other liabilities

17

-

-

-

-

34,982

34,982

Subordinated liabilities and other borrowed funds

20

-

-

-

-

17,176

17,176

Total at 1 January 2018

 

50,195

1,543

51,136

102,874

501,630

604,504

The table above is the representation as at 1 January 2018 of the balances after the implementation of IFRS 9.

IAS 39

Liabilities

Notes

Liabilities at fair value

Amortised cost
$million

Total
$million

Trading
$million

Derivatives held for hedging
$million

 Designated at fair value through
profit or loss
$million

Total financial liabilities at
fair value
$million

Financial liabilities held at fair value through profit or loss

 

 

 

 

 

 

 

Deposits by banks

 

-

-

737

737

-

737

Customer accounts

 

-

-

5,236

5,236

-

5,236

Debt securities in issue

 

-

-

7,023

7,023

-

7,023

Short positions

 

3,637

-

-

3,637

-

3,637

 

 

3,637

-

12,996

16,633

-

16,633

Derivative financial instruments

13

46,558

1,543

-

48,101

-

48,101

Deposits by banks

 

-

-

-

-

30,945

30,945

Customer accounts

 

-

-

-

-

370,509

370,509

Repurchase agreements and other similar secured borrowing

14

-

-

-

-

39,783

39,783

Debt securities in issue

 

-

-

-

-

46,379

46,379

Other liabilities

17

-

-

-

-

34,982

34,982

Subordinated liabilities and other borrowed funds

20

-

-

-

-

17,176

17,176

Total at 31 December 2017

 

50,195

1,543

12,996

64,734

539,774

604,508

Loans and advances designated at fair value through profit or loss

The maximum exposure to credit risk for loans and advances to banks and customers and reverse repurchase and other similar secured lending designated at fair value through profit or loss was $nil million (1 January 2018: $39 million and 31 December 2017: $3,939 million). The net fair value gain on loans and advances to banks and customers and reverse repurchase and other similar secured lending designated at fair value through profit or loss was $nil million (1 January 2018: $nil and 31 December 2017: $23 million). Of this, $nil million (1 January 2018: $nil and 31 December 2017: $1 million) relates to changes in credit risk. The cumulative fair value loss attributable to changes in credit risk was $nil million (1 January 2018: $nil and 31 December 2017: $1 million). Further details of the Group's valuation technique is described in this note.



 

Standard Chartered PLC - Financial statements and notes

Financial liabilities designated at fair value through profit or loss

 

30.06.18
(IFRS 9)
$million

01.01.18
(IFRS 9)
$million

31.12.17
(IAS 39)
$million

Carrying balance aggregate fair value

59,926

51,136

12,996

Amount contractually obliged to repay at maturity

60,141

51,192

13,052

Difference between aggregate fair value and contractually obliged to repay at maturity

(215)

(56)

(56)

Cumulative change in fair value accredited to credit risk difference

219

82

82

The net fair value gain on financial liabilities designated at fair value through profit or loss was $165 million for the period (31 December 2017: net loss of $202 million). Further details of the Group's own credit adjustment (OCA) valuation technique is described later in this note.

Valuation of financial instruments

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date in the principal market or, in the absence of this, the most advantageous market to which the Group has access at that date. The fair value of a liability reflects the Group's non-performance risk. The fair value of financial instruments is generally measured on the basis of the individual financial instrument. However, when a group of financial assets and financial liabilities is managed on the basis of its net exposure to either market risks or credit risk, the fair value of the group of financial instruments is measured on a net basis.

The fair values of quoted financial assets and liabilities in active markets are based on current prices. A market is regarded as active if transactions for the asset or liability take place with sufficient frequency and volume to provide pricing information on an ongoing basis. Wherever possible, fair values have been calculated using unadjusted quoted market prices in active markets for identical instruments held by the Group. Where quoted market prices are not available, or are unreliable because of poor liquidity, fair values have been determined using valuation techniques which, to the extent possible, use market observable inputs, but in some cases use non-market observable inputs. Valuation techniques used include discounted cash flow analysis and pricing models and, where appropriate, comparison with instruments that have characteristics similar to those of the instruments held by the Group.

The Valuation Control function is responsible for independent price verification, oversight of fair value and prudent 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.

Formal committees for the business clusters, consisting of representatives from Group Market Risk, Product Control, Valuation Control and the business meet monthly to discuss and approve the valuations of the inventory. For Principal Finance, the Investment Committee meeting is held on a quarterly basis to review investments and valuations. The business cluster valuation committees fall under the Valuation Benchmarks Committee as part the of the valuation governance structure.

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 are determined using valuation techniques (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 considers 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



 

Standard Chartered PLC - Financial statements and notes

 

•     Where the 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 priced 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. Therefore, once external pricing has been verified, an assessment is made of whether each security is traded with significant liquidity based on its credit rating and sector. If a security is of high credit rating and is traded in a liquid sector, it will be classified as Level 2, otherwise it will be classified as Level 3

- 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 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 market observable credit spreads. If observable credit spreads are not available, proxy spreads based on comparable loans with similar credit grade, sector and region, are used. Where observable credit spreads and market standard proxy methods are available, these loans are classified as Level 2. Where there are no recent transactions or comparable loans, these loans are classified as Level 3

- Other debt securities: These debt securities include convertible bonds, corporate bonds, credit and structured notes. Where quoted prices are available through pricing vendors, brokers or observable trading activities from liquid markets, these are classified as Level 2 and valued using such quotes. Where there are significant valuation inputs which are unobservable in the market, due to illiquid trading or the complexity of the product, these are classified as Level 3. The valuations of these debt securities are implied using input parameters such as bond



 

-

Standard Chartered PLC - Financial statements and notes

 

- 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 the 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 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



Standard Chartered PLC - Financial statements and notes

 

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:

 

30.06.18
$million

31.12.17
$million

Bid-offer valuation adjustment

78

82

CVA

191

229

DVA

(93)

(66)

Model valuation adjustment

11

6

FVA

61

79

Others (including day one)

120

148

Total

368

478

 

•     Bid-offer valuation adjustment: Where market parameters are marked on a mid-market basis in the revaluation systems, a bid offer valuation adjustment is required to quantify the expected cost of neutralising the business' positions through dealing away in the market, thereby bringing long positions to bid and short positions to offer. The methodology to calculate the bid-offer adjustment for a derivative portfolio involves netting between long and short positions and the grouping of risk by strike and tenor based on the hedging strategy where long positions are marked to bid and short positions marked to offer in the systems

•     Credit valuation adjustment (CVA): The Group makes CVA adjustments 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 applying the probability of default (PD) on the potential estimated future positive exposure of the counterparty using market-implied PD. Where market-implied data is not readily available, we use market-based proxies to estimate the PD. Wrong-way risk arises when the underlying value of the derivative prior to any CVA is positively correlated to the probability of default by the counterparty and the Group has implemented a model to capture this impact for certain key wrong-way exposures. The Group continues to include 'wrong-way risk' in its unaudited Prudential Valuation Adjustments

•     Day one profit and 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 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

•     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 spreads associated with the Group's issuances and market standard recovery levels. The expected exposure is modelled based on a simulation methodology and is generated through the simulation of underlying risk factors over the life of the deals booked against the particular counterparty. This simulation methodology incorporates the collateral posted by the Group and the effects of master netting agreements. In December 2017, the Group refined its methodology used to calculate DVA to better align with current industry practice. This change in calculation methodology is treated as a change in estimate and resulted in an increase in the DVA balance of $66 million



 

Standard Chartered PLC - Financial statements and notes

 

•     Funding valuation adjustment (FVA): The Group makes FVA adjustments against derivative products. FVA reflects an estimate of the adjustment to its fair value that a market participant would make to incorporate funding costs that could arise in relation to the exposure. FVA is calculated by determining the net expected exposure at a counterparty level and then applying a funding rate to those exposures that reflect the market cost of funding. The FVA for collateralised derivatives is based on discounting the expected future cash flows at the relevant overnight indexed swap (OIS) rate after taking into consideration the terms of the underlying collateral agreement with the counterparty. The FVA for uncollateralised (including partially collateralised) derivatives incorporates the estimated present value of the market funding cost or benefit associated with funding these transactions

•     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

In addition, the Group calculates own credit adjustment (OCA) on its issued debt designated at fair value, including structured notes, in order to reflect changes in its own credit standing. The Group's OCA adjustments will increase if its credit standing worsens and conversely, decrease if its credit standing improves. For issued debt and structured notes designated at fair value, an OCA adjustment is determined by discounting the contractual cash flows using a yield curve adjusted for market observed secondary senior unsecured credit spreads. The OCA is $219 million (2017: $82 million).

Fair value hierarchy - financial instruments held at fair value

Assets and liabilities carried at fair value or for which fair values are disclosed have been classified into three levels according to the observability of the significant inputs used to determine the fair values. Changes in the observability of significant valuation inputs during the reporting period may result in a transfer of assets and liabilities within the fair value hierarchy. The Group recognises transfers between levels of the fair value hierarchy when there is a significant change in either its principal market or the level of observability of the inputs to the valuation techniques as at the end of the reporting period.

•     Level 1: Fair value measurements are those derived from unadjusted quoted prices in active markets for identical assets or liabilities

•     Level 2: Fair value measurements are those with quoted prices for similar instruments in active markets or quoted prices for identical or similar instruments in inactive markets and financial instruments valued using models where all significant inputs are observable

•     Level 3: Fair value measurements are those where at least one input which could have a significant effect on the instrument's valuation is not based on observable market data

The following tables show the classification of financial instruments held at fair value into the valuation hierarchy:



 

Standard Chartered PLC - Financial statements and notes

 

IFRS 9

Assets

Level 1
$million

Level 2
$million

Level 3
$million

Total
$million

Financial instruments held at fair value through profit or loss

 

 

 

 

Loans and advances to banks

-

3,244

-

3,244

Loans and advances to customers

-

2,880

830

3,710

Reverse repurchase agreements and other similar secured lending

-

51,585

55

51,640

Debt securities and other eligible bills

6,777

12,394

367

19,538

Of which:

 

 

 

 

Government bonds and treasury bills

6,083

5,974

-

12,057

Issued by corporates other than financial institutions

29

4,468

367

4,864

Issued by financial institutions

665

1,952

-

2,617

 

 

 

 

 

Equity shares

900

23

814

1,737

 

 

 

 

 

Derivative financial instruments

704

51,033

43

51,780

Of which:

 

 

 

 

Foreign exchange

87

38,873

29

38,989

Interest rate

3

11,343

8

11,354

Commodity

614

456

3

1,073

Credit

-

304

-

304

Equity and stock index

-

57

3

60

 

 

 

 

 

Investment securities

 

 

 

 

Debt securities and other eligible bills

66,943

48,461

561

115,965

Standard Chartered PLC - Financial statements and notes

 

Of which:

 

 

 

 

Government bonds and treasury bills

54,247

19,278

400

73,925

Issued by corporates other than financial institutions

3,032

10,585

161

13,778

Issued by financial institutions

9,664

18,598

-

28,262

 

 

 

 

 

Equity shares

36

4

210

250

Total financial instruments at 30 June 2018

75,360

169,624

2,880

247,864

 

 

 

 

 

Liabilities

 

 

 

 

Financial instruments held at fair value through profit or loss

 

 

 

 

Deposits by banks

-

383

4

387

Customer accounts

-

6,232

-

6,232

Repurchase agreements and other similar secured borrowing

-

47,008

-

47,008

Debt securities in issue

-

5,971

328

6,299

Short positions

1,821

1,527

-

3,348

 

 

 

 

 

Derivative financial instruments

986

51,946

30

52,962

Of which:

 

 

 

 

Foreign exchange

296

38,471

4

38,771

Interest rate

22

11,606

20

11,648

Commodity

668

772

-

1,440

Credit

-

1,064

-

1,064

Equity and stock index

-

33

6

39

 

 

 

 

 

Total financial instruments at 30 June 2018

2,807

113,067

362

116,236

There have been no significant changes to valuation or levelling approaches in 2018.

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



Standard Chartered PLC - Financial statements and notes

 

IFRS 9

Assets

Level 1
$million

Level 2
$million

Level 3
$million

Total
$million

Financial instruments held at fair value through profit or loss

 

 

 

 

Loans and advances to banks

-

2,794

71

2,865

Loans and advances to customers

-

3,190

717

3,907

Reverse repurchase agreements and other similar secured lending

-

45,518

-

45,518

Debt securities and other eligible bills

5,860

13,924

431

20,215

Of which:

 

 

 

 

Government bonds and treasury bills

4,988

5,529

-

10,517

Issued by corporates other than financial institutions

171

4,115

280

4,566

Issued by financial institutions

701

4,280

151

5,132

 

 

 

 

 

Equity shares

1,035

-

1,100

2,135

 

 

 

 

 

Derivative financial instruments

402

46,589

40

47,031

Of which:

 

 

 

 

Foreign exchange

97

35,641

17

35,755

Interest rate

2

10,065

7

10,074

Commodity

303

609

2

914

Credit

-

249

-

249

Equity and stock index

-

25

14

39

 

 

 

 

 

Investment securities

 

 

 

 

Debt securities and other eligible bills

61,083

47,010

318

108,411

Of which:

 

 

 

 

Government bonds and treasury bills

51,095

21,417

318

72,830

Issued by corporates other than financial institutions

5,647

7,061

-

12,708

Issued by financial institutions

4,341

18,532

-

22,873

 

 

 

 

 

Equity shares

59

5

150

214

Total financial instruments at 1 January 2018

68,439

159,030

2,827

230,296

 

 

 

 

 

Liabilities

 

 

 

 

Financial instruments held at fair value through profit or loss

 

 

 

 

Deposits by banks

-

668

69

737

Customer accounts

-

5,236

-

5,236

Repurchase agreements and other similar secured borrowing

-

38,140

-

38,140

Debt securities in issue

-

6,581

442

7,023

Short positions

1,495

2,142

-

3,637

 

 

 

 

 

Derivative financial instruments

470

47,606

25

48,101

Of which:

 

 

 

 

Foreign exchange

90

36,149

-

36,239

Interest rate

9

9,851

18

9,878

Commodity

371

590

-

961

Credit

-

871

2

873

Equity and stock index

-

145

5

150

 

 

 

 

 

Total financial instruments at 1 January 2018

1,965

100,373

536

102,874

The table above is the representation as at 1 January 2018 of the balances after the implementation of IFRS 9.



 

Standard Chartered PLC - Financial statements and notes

 

IAS 39

Assets

Level 1
$million

Level 2
$million

Level 3
$million

Total
$million

Financial instruments held at fair value through profit or loss

 

 

 

 

Loans and advances to banks

-

2,501

71

2,572

Loans and advances to customers

-

2,792

126

2,918

Reverse repurchase agreements and other similar secured lending

-

912

-

912

Debt securities and other eligible bills

5,860

13,800

51

19,711

Of which:

 

 

 

 

Government bonds and treasury bills

4,988

5,531

-

10,519

Issued by corporates other than financial institutions

171

4,017

48

4,236

Issued by financial institutions

701

4,252

3

4,956

 

 

 

 

 

Equity shares

725

-

726

1,451

 

 

 

 

 

Derivative financial instruments

402

46,589

40

47,031

Of which:

 

 

 

 

Foreign exchange

97

35,641

17

35,755

Interest rate

2

10,065

7

10,074

Commodity

303

609

2

914

Credit

-

249

-

249

Equity and stock index

-

25

14

39

 

 

 

 

 

Investment securities

 

 

 

 

Debt securities and other eligible bills

61,246

47,511

404

109,161

Of which:

 

 

 

 

Government bonds and treasury bills

51,257

21,364

318

72,939

Issued by corporates other than financial institutions

5,648

7,590

86

13,324

Issued by financial institutions

4,341

18,557

-

22,898

 

 

 

 

 

Equity shares

369

5

520

894

Total financial instruments at 31 December 2017

68,602

114,110

1,938

184,650

 

 

 

 

 

Liabilities

 

 

 

 

Financial instruments held at fair value through profit or loss

 

 

 

 

Deposits by banks

-

668

69

737

Customer accounts

-

5,236

-

5,236

Debt securities in issue

-

6,581

442

7,023

Short positions

1,495

2,142

-

3,637

 

 

 

 

 

Derivative financial instruments

470

47,606

25

48,101

Of which:

 

 

 

 

Foreign exchange

90

36,149

-

36,239

Interest rate

9

9,851

18

9,878

Commodity

371

590

-

961

Credit

-

871

2

873

Equity and stock index

-

145

5

150

 

 

 

 

 

Total financial instruments at 31 December 2017

1,965

62,233

536

64,734

There were no significant changes to valuation or levelling approaches in 2017.

There were no significant transfers of financial assets and liabilities measured at fair value between Level 1 and Level 2 during 2017.



 

Standard Chartered PLC - Financial statements and notes

 

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.

IFRS 9

 

Carrying value
$million

Fair value

Level 1
$million

Level 2
$million

Level 3
$million

Total
$million

Assets

 

 

 

 

 

Cash and balances at central banks1

58,213

-

58,213

-

58,213

Loans and advances to banks

55,603

-

55,202

301

55,503

Loans and advances to customers

255,100

-

12,884

242,876

255,760

Reverse repurchase agreements and other similar secured lending

12,781

-

9,652

3,147

12,799

Investment securities

6,866

-

6,796

8

6,804

Other assets1

34,441

-

34,443

-

34,443

Assets held for sale

2

-

2

-

2

At 30 June 2018

423,006

-

177,192

246,332

423,524

Liabilities

 

 

 

 

 

Deposits by banks

30,816

-

30,818

-

30,818

Customer accounts

382,107

-

382,143

-

382,143

Repurchase agreements and other similar secured borrowing

5,863

-

5,758

105

5,863

Debt securities in issue

46,196

15,623

30,574

-

46,197

Subordinated liabilities and other borrowed funds

15,047

14,924

-

-

14,924

Other liabilities1

40,071

-

40,071

-

40,071

At 30 June 2018

520,100

30,547

489,364

105

520,016

IFRS 9

 

Carrying value
$million

Fair value

Level 1
$million

Level 2
$million

Level 3
$million

Total
$million

Assets

 

 

 

 

 

Cash and balances at central banks1

58,864

-

58,864

-

58,864

Loans and advances to banks

57,194

-

57,166

4

57,170

Loans and advances to customers

246,941

-

15,285

232,394

247,679

Reverse repurchase agreements and other similar
secured lending

9,667

-

7,506

2,174

9,680

Investment securities

7,188

-

7,133

86

7,219

Other assets1

29,922

-

29,911

-

29,911

Assets held for sale

62

-

62

-

62

At 1 January 2018

409,838

-

175,927

234,658

410,585

Liabilities

 

 

 

 

 

Deposits by banks

30,945

-

30,939

-

30,939

Customer accounts

370,509

-

370,489

-

370,489

Repurchase agreements and other similar secured borrowing

1,639

-

1,639

-

1,639

Debt securities in issue

46,379

15,264

30,158

-

45,422

Subordinated liabilities and other borrowed funds

17,176

17,456

161

-

17,617

Other liabilities1

34,982

-

34,982

-

34,982

At 1 January 2018

501,630

32,720

468,368

-

501,088

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

The table above is the representation as at 1 January 2018 of the balances after the implementation of IFRS 9.



 

Standard Chartered PLC - Financial statements and notes

IAS 39

 

Carrying value
$million

Fair value

Level 1
$million

Level 2
$million

Level 3
$million

Total
$million

Assets

 

 

 

 

 

Cash and balances at central banks1

58,864

-

58,864

-

58,864

Loans and advances to banks

57,494

-

57,388

4

57,392

Loans and advances to customers

248,707

-

14,644

234,812

249,456

Reverse repurchase agreements and other similar secured lending

54,275

-

23,068

31,218

54,286

Investment securities

6,970

-

6,955

36

6,991

Other assets1

29,922

-

29,922

-

29,922

Assets held for sale

62

-

62

-

62

At 31 December 2017

456,294

-

190,903

266,070

456,973

Liabilities

 

 

 

 

 

Deposits by banks

30,945

-

30,939

-

30,939

Customer accounts

370,509

-

370,489

-

370,489

Repurchase agreements and other similar secured borrowing

39,783

-

39,783

-

39,783

Debt securities in issue

46,379

15,264

30,158

-

45,422

Subordinated liabilities and other borrowed funds

17,176

17,456

161

-

17,617

Other liabilities1

34,982

-

34,982

-

34,982

At 31 December 2017

539,774

32,720

506,512

-

539,232

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

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:

Instrument

Value at 30 June 2018

 

Principal valuation technique

Significant unobservable inputs

Range1

Weighted
average2

Assets
$million

Liabilities
$million

Reverse repurchase agreements and other similar secured lending

55

-

 

Discounted cash flows

Repo rate

0.0% to 11.0%

2.7%

Loans and advances to customers

830

-

 

Comparable pricing/yield

Price/yield

4.8%

4.8%

 

 

 

Discounted cash flows

Recovery rates

24.3% to 100.0%

93.9%

Debt securities

212

-

 

Comparable pricing/yield

Price/yield

N/A

N/A

Asset backed securities

316

-

 

Discounted cash flows

Price/yield

1.0% to 5.8%

4.0%

Deposits by banks

-

4

 

Discounted cash flows

Credit spreads

1.0%

1.0%

Debt securities in issue

-

328

 

Discounted cash flows

Credit spreads

0.3% to 4%

1.5%

Government bonds and treasury bills

400

-

 

Discounted cash flows

Price/yield

2.8% to 32.7%

10.6%

Derivative financial instruments
of which:

 

 

 

 

 

 

 

Foreign exchange

29

4

 

Option pricing model

Foreign exchange option implied volatility

5.0% to  7.5%

5.8%

 

 

 

 

Discounted cash flows

Foreign exchange curves

3.9% to  5.0%

4.2%

Interest rate

8

20

 

Discounted cash flows

Interest rate curves

3.5% to 19.2%

11.7%

Commodities

3

-

 

Internal pricing model

Commodities correlation

90.0% to 93.8%

93.1%

Equity

3

6

 

Internal pricing model

Equity correlation

7.0% to 88.0%

N/A

 

 

 


Equity-FX correlation

-85.0% to 85.0%

N/A

Equity shares (includes private equity investments)3

1,024

-

 

Comparable pricing/yield

EV/EBITDA multiples

5.5x to 17.2x

10.1x

 

 

 

 

P/E multiples

13.0x to 15.1x

14.2x

 

 

 

 

P/B multiples

1.3x

1.3x

 

 

 

 

P/S multiples

2.3x

2.3x

 

 

 

 

Liquidity discount

10.0% to 20.0%

17.3%

 

 

 

Discounted cash flows

Discount rates

8.6% to 14.0%

11.6%

Total

2,880

362

 

 

 

 

 

1  The ranges of values shown in the above table represent the highest and lowest levels used in the valuation of the Group's Level 3 financial instruments as at 30 June 2018. The ranges of values used are reflective of the underlying characteristics of these Level 3 financial instruments based on the market conditions at the balance sheet date. However, these ranges of values may not represent the uncertainty in fair value measurements of the Group's Level 3 financial instruments

2  Weighted average for non-derivative financial instruments has been calculated by weighting inputs by the relative fair value. Weighted average for derivatives has been provided by weighting inputs by the risk relevant to that variable. N/A has been entered for the cases where weighted average is not a meaningful indicator

3  The Group has an equity investment in the Series B preferred shares of Ripple Labs, Inc., which owns a digital currency (XRP) and is being carried at a fair value based on the shares' initial offering price. The shares will continue to be valued at the initial offering price until such time as a reliable means of valuing the cash flows and underlying assets is possible or additional sales are observable

Standard Chartered PLC - Financial statements and notes

 

The following section describes the significant unobservable inputs identified in the valuation technique table:

•     Commodities correlation: This refers to the correlation between two commodity underlyings over a specified time

•     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

•     EV/EBITDA ratio multiples: This is the ratio of Enterprise Value (EV) to Earnings Before Interest, Taxes, Depreciation and Amortisation (EBITDA). EV is the aggregate market capitalisation and debt minus the cash and cash equivalents. An increase in EV/EBITDA multiples in isolation, will result in a favourable movement in the fair value of the unlisted firm

•     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: A liquidity discount is 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-Book (P/B) multiple: This is the ratio of the market value of equity to the book value of equity. An increase in P/B multiple will result in a favourable movement in the fair value of the unlisted firm

•     Price-Earnings (P/E) multiples: This is the ratio of the market value of equity 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-Sales (P/S) multiple: This is the ratio of the market value of equity to sales. An increase in P/S multiple will result in a favourable movement in the fair value of the unlisted firm

•     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



 

Standard Chartered PLC - Financial statements and notes

 

Level 3 movement tables - financial assets

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

Assets

Held at fair value through profit or loss

Derivative financial instruments
$million

Investment securities

Loans and advances to banks
$million

Loans and advances to customers
$million

Reverse repurchase agreements and other similar secured lending

Debt securities and other eligible bills
$million

Equity shares
$million

Debt securities and other eligible bills
$million

Equity shares
$million

Total
$million

At 31 December 2017 - IAS 39

71

126

-

51

726

40

404

520

1,938

Transfer due to IFRS 91

-

591

-

380

374

-

(86)

(370)

889

At 1 January 2018 - IFRS 9

71

717

-

431

1,100

40

318

150

2,827

Total (losses)/gains recognised in
income statement

-

(50)

-

(5)

(35)

(1)

10

-

(81)

Net interest income

-

-

-

-

-

-

10

-

10

Net trading income

-

(50)

-

(5)

(35)

(1)

-

-

(91)

Other operating income

-

-

-

-

-

-

-

-

-

Impairment charge

-

-

-

-

-

-

-

-

-

Total (losses)/gains recognised in
other comprehensive income

-

-

-

-

-

-

(7)

29

22

Fair value through OCI reserve

-

-

-

-

-

-

-

30

30

Exchange difference

-

-

-

-

-

-

(7)

(1)

(8)

Purchases

-

188

55

76

119

29

341

23

831

Sales

-

(19)

-

(110)

(144)

(11)

-

-

(284)

Settlements

(71)

(54)

-

-

-

(11)

(101)

-

(237)

Transfers out2

-

-

-

(25)

(226)

(3)

-

-

(254)

Transfers in3

-

48

-

-

-

-

-

8

56

At 30 June 2018

-

830

55

367

814

43

561

210

2,880

Total unrealised gains recognised in the income statement, within net interest income, relating to change in fair value of assets held at 30 June 2018

-

-

-

-

-

-

-

30

30

Total unrealised (losses)/gains recognised in the income statement, within net trading income, relating to change in fair value of assets held at 30 June 2018

-

(38)

-

(2)

(28)

1

-

-

(67)

1  The increase in level three instruments is a result of loans and debt securities that failed SPPI, with unobservable valuation inputs. Further, level three equity shares which were classified as available-for-sale equity under IAS 39 are now classified as fair value through profit or loss under IFRS 9

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

3  Transfers in primarily relate to loans and advances and equity shares where the valuation parameters became unobservable during the period



 

Standard Chartered PLC - Financial statements and notes

 

Level 3 movement tables - financial assets

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

Assets

Held at fair value through profit or loss

Derivative financial instruments
$million

Investment securities

Loans and advances to banks
$million

Loans and advances to customers
$million

Debt securities
and other eligible bills
$million

Equity
shares
$million

Debt securities
and other eligible bills
$million

Equity
shares
$million

Total
$million

At 1 January 2017

-

179

4

995

360

199

549

2,286

Total (losses)/gains recognised in
income statement

(1)

(11)

(2)

121

(4)

(15)

(9)

79

Net interest income

-

-

-

-

-

(15)

-

(15)

Net trading income

(1)

(11)

(2)

121

(4)

-

(1)

102

Other operating income

-

-

-

-

-

-

9

9

Impairment charge

-

-

-

-

-

-

(17)

(17)

Total gains recognised in other
comprehensive income

-

-

-

-

-

7

54

61

Available-for-sale reserve

-

-

-

-

-

-

41

41

Exchange difference

-

-

-

-

-

7

13

20

Purchases

-

-

94

1113

6

399

22

632

Sales

-

-

(20)

(254)

(13)

(1)

(91)

(379)

Settlements

-

-

-

-

(250)

(169)

-

(419)

Transfers out1

-

(72)

(25)

(247)3

(61)

(16)

(5)

(426)

Transfers in2

72

30

-

-

2

-

-

104

At 31 December 2017

71

126

51

726

40

404

520

1,938

Total unrealised losses recognised in the income statement, within net interest income, relating to change in fair value of assets held at 31 December 2017

-

-

-

-

-

(15)

-

(15)

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 2017

(1)

(5)

(2)

65

(7)

-

(1)

49

Total unrealised losses recognised in the income statement, within impairment charges at 31 December 2017

-

-

-

-

-

-

(17)

(17)

1  Transfers out include debt securities, equity shares and derivative financial instruments where the valuation parameters became observable during the year, and were transferred
to Level 1 and Level 2. Transfers out further relate to equity shares and debt securities held at fair value through profit or loss which are now presented under held for sale

2  Transfers in during the year primarily relate to loans and advances and derivative financial instruments where the valuation parameters become unobservable during the year

3  When an entity is consolidated through a step up in ownership, the additional equity shares acquired are disclosed in the purchases line. Subsequently, these shares are eliminated on consolidation and disclosed in the transfer out line. Any underlying Level 3 financial instruments which are recognised as a result of the consolidation are disclosed in the
transfer in line



 

Standard Chartered PLC - Financial statements and notes

 

Level 3 movement tables - financial liabilities

 

30.06.18

Deposits
by banks
$million

Debt
securities
in issue
$million

Derivative
financial instruments
$million

Total
$million

At 1 January 2018

69

442

25

536

Total losses/(gains) recognised in income statement - net trading income

2

(16)

(9)

(23)

Issues

-

1

14

15

Settlements

(67)

(99)

(3)

(169)

Transfers in1

-

-

3

3

At 30 June 2018

4

328

30

362

Total unrealised gains recognised in the income statement, within net trading income, relating to change in fair value of liabilities held at 30 June 2018

-

(13)

(5)

(18)

1  Transfers in primarily relate to derivative financial instruments where the valuation parameters became unobservable during the period

 

31.12.17

Deposits
by banks
$million

Debt
securities
in issue
$million

Derivative
financial instruments
$million

Total
$million

At 1 January 2017

-

530

316

846

Total gains recognised in income statement - net trading income

-

(9)

(24)

(33)

Issues

79

274

1

354

Settlements

(10)

(353)

(266)

(629)

Transfers out1

-

-

(2)

(2)

At 31 December 2017

69

442

25

536

Total unrealised gains recognised in the income statement, within net trading income, relating to change in fair value of liabilities held at 31 December 2017

-

-

(17)

(17)

1  Transfers out during the year primarily relate to derivative financial instruments where the valuation parameters became observable during the year and were transferred to Level 2 financial liabilities

Sensitivities in respect of the fair values of Level 3 assets and liabilities

Sensitivity analysis is performed on products with significant unobservable inputs. The Group applies a 10 per cent increase or decrease on the values of these unobservable inputs, to generate a range of reasonably possible alternative valuations. The percentage shift is determined by statistical analyses performed on a set of reference prices based on the composition of our Level 3 assets. Favourable and unfavourable changes are determined on the basis of changes in the value of the instrument as a result of varying the levels of the unobservable parameters. This Level 3 sensitivity analysis assumes a one-way market move and does not consider offsets for hedges.

 

Held at fair value through profit or loss

 

Fair value through OCI/available-for-sale

Net exposure
$million

Favourable
changes
$million

Unfavourable
changes
$million

Net exposure
$million

Favourable
changes
$million

Unfavourable
changes
$million

Financial instruments held at fair value

 

 

 

 

 

 

 

Reverse repurchase agreements and other similar secured lending

55

55

55

 

-

-

-

Debt securities and other eligible bills

367

377

357

 

561

580

542

Equity shares

814

895

733

 

210

231

189

Loans and advances

830

854

804

 

-

-

-

Derivative financial instruments

13

19

6

 

-

-

-

Deposits by banks

(4)

(3)

(5)

 

-

-

-

Debt securities in issue

(328)

(309)

(347)

 

-

-

-

At 30 June 2018

1,747

1,888

1,603

 

771

811

731

 

 

 

 

 

 

 

 

Financial instruments held at fair value

 

 

 

 

 

 

 

Debt securities and other eligible bills

51

56

46

 

404

415

393

Equity shares

726

799

653

 

520

572

468

Loans and advances

197

201

194

 

-

-

-

Derivative financial instruments

15

17

12

 

-

-

-

Deposits by banks

(69)

(68)

(70)

 

-

-

-

Debt securities in issue

(442)

(434)

(450)

 

-

-

-

At 31 December 2017

478

571

385

 

924

987

861

 

Standard Chartered PLC - Financial statements and notes

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 OCI/available-for-sale by the amounts disclosed below.

Financial instruments

Fair value changes

30.06.2018
$million

31.12.2017
$million

Held at fair value through profit or loss

Possible increase

141

93

Possible decrease

(144)

(93)

Fair value through OCI/available-for-sale

Possible increase

40

63

Possible decrease

(40)

(63)

13. Derivative financial instruments

The tables below analyse the notional principal amounts and the positive and negative fair values of derivative financial instruments. Notional principal amounts are the amounts of principal underlying the contract at the reporting date.

Derivatives

30.06.18

 

31.12.17

Notional principal amounts
$million

Assets
$million

Liabilities $million

Notional principal amounts
$million

Assets
$million

Liabilities
$million

Foreign exchange derivative contracts:

 

 

 

 

 

 

 

Forward foreign exchange contracts

2,261,144

21,235

20,947

 

1,825,488

18,905

19,702

Currency swaps and options

891,237

17,754

17,824

 

724,0211

16,850

16,537

Exchange traded futures and options

100

-

-

 

100

-

-

 

3,152,481

38,989

38,771

 

2,549,609

35,755

36,239

Interest rate derivative contracts:

 

 

 

 

 

 

 

Swaps

3,508,901

9,914

10,139

 

2,831,025

8,603

8,414

Forward rate agreements and options

532,182

1,259

1,341

 

153,697

1,351

1,364

Exchange traded futures and options

956,396

181

168

 

637,883

120

100

 

4,997,479

11,354

11,648

 

3,622,605

10,074

9,878

Credit derivative contracts

37,891

304

1,064

 

34,772

249

873

Equity and stock index options

2,424

60

39

 

2,520

39

150

Commodity derivative contracts

119,425

1,073

1,440

 

74,133

914

961

Total derivatives

8,309,700

51,780

52,962

 

6,283,639

47,031

48,101

1  Currency swaps and options were previously reported on a gross basis. In line with industry practice, these are now reported on a single leg basis. Prior year comparatives have been re-presented accordingly

The Group limits exposure to credit losses in the event of default by entering into master netting agreements with certain market counterparties. As required by IAS 32, exposures are only presented net in these accounts where they are subject to legal right of offset and intended to be settled net in the ordinary course of business.

Derivatives held for hedging

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

 

30.06.18

 

31.12.17

Notional principal amounts
$million

Assets
$million

Liabilities
$million

Notional principal amounts
$million

Assets
$million

Liabilities
$million

Derivatives designated as fair value hedges:

 

 

 

 

 

 

 

Interest rate swaps

51,954

334

482

 

45,420

456

272

Currency swaps

9,521

79

721

 

14,3951

174

899

 

61,475

413

1,203

 

59,815

630

1,171

Derivatives designated as cash flow hedges:

 

 

 

 

 

 

 

Interest rate swaps

10,949

81

80

 

13,348

43

48

Forward foreign exchange contracts

205

-

18

 

356

2

29

Currency swaps

2,413

36

43

 

2,987

23

107

 

13,567

117

141

 

16,691

68

184

Derivatives designated as net investment hedges:

 

 

 

 

 

 

 

Forward foreign exchange contracts

5,514

233

-

 

3,470

-

188

Total derivatives held for hedging

80,556

763

1,344

 

79,976

698

1,543

1  Currency swaps were previously reported on a gross basis. In line with industry practice, these are now reported on a single leg basis. Prior year comparatives have been
re-presented accordingly

Standard Chartered PLC - Financial statements and notes

 

14. Reverse repurchase and repurchase agreements including other similar secured 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 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 it is designated at fair value through profit or loss.

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 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

 

30.06.18
$million

01.01.18
$million

31.12.17
$million

Banks

26,512

21,257

21,259

Customers

37,909

33,928

33,928

 

64,421

55,185

55,187

Of which:

 

 

 

Fair value through profit or loss

51,640

45,518

912

Banks

17,962

16,157

565

Customers

33,678

29,361

347

Held at amortised cost

12,781

9,667

54,275

Banks

8,550

5,099

20,694

Customers

4,231

4,568

33,581

 

 

 

 

Under reverse repurchase and securities borrowing arrangements, the Group obtains securities on terms which permit it to repledge or resell the securities to others. Amounts on such terms are:

 

30.06.18
$million

01.01.18
$million

31.12.17
$million

Securities and collateral received (at fair value)

85,855

75,088

75,088

Securities and collateral which can be repledged or sold (at fair value)

81,367

72,982

72,982

Amounts repledged/transferred to others for financing activities, to satisfy liabilities under
sale and repurchase agreements (at fair value)

42,028

34,018

34,018

 



 

Standard Chartered PLC - Financial statements and notes

 

Repurchase agreements and other similar secured borrowing

 

30.06.18
$million

01.01.18
$million

31.12.17
$million

Banks

6,196

3,804

3,804

Customers

46,675

35,975

35,979

 

52,871

39,779

39,783

 

 

 

 

Of which:

 

 

 

Fair value through profit or loss

47,008

38,140

-

Banks

3,320

3,352

-

Customers

43,688

34,788

-

Held at amortised cost

5,863

1,639

39,783

Banks

2,876

451

3,804

Customers

2,987

1,188

35,979

 

 

 

 

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

Collateral pledged against repurchase agreements

30.06.18

Fair value through
profit or loss
$million

Fair value
through other comprehensive income
$million

Amortised
cost
$million

Total
$million

On-balance sheet

 

 

 

 

Debt securities and other eligible bills

3,434

7,327

516

11,277

Off-balance sheet

 

 

 

 

Repledged collateral received

-

-

42,028

42,028

At 30 June 2018

3,434

7,327

42,544

53,305

 

Collateral pledged against repurchase agreements

01.01.18

Fair value
through
profit or loss
$million

Fair value
through other comprehensive income
$million

Amortised
cost
$million

Total
$million

On-balance sheet

 

 

 

 

Debt securities and other eligible bills

2,178

3,618

-

5,796

Off-balance sheet

 

 

 

 

Repledged collateral received

-

-

34,018

34,018

At 1 January 2018

2,178

3,618

34,018

39,814

 

Collateral pledged against repurchase agreements

31.12.17

Fair value
through
profit or loss
$million

Available for sale
$million

Loans and receivables
$million

Total
$million

On-balance sheet

 

 

 

 

Debt securities and other eligible bills

2,178

3,618

-

5,796

Off-balance sheet

 

 

 

 

Repledged collateral received

-

-

34,018

34,018

At 31 December 2017

2,178

3,618

34,018

39,814

 



 

Standard Chartered PLC - Financial statements and notes

 

15. Goodwill and intangible assets

 

30.06.18

 

31.12.17

Goodwill
$million

Acquired intangibles
$million

Computer software
$million

Total
$million

Goodwill
$million

Acquired intangibles
$million

Computer software
$million

Total
$million

Cost

3,187

559

2,616

6,362

 

3,252

578

2,529

6,359

Provision for amortisation

-

461

927

1,388

 

-

470

876

1,346

Net book value

3,187

98

1,689

4,974

 

3,252

108

1,653

5,013

 

 

30.06.17

Goodwill
$million

Acquired intangibles
$million

Computer
software
$million

Total
$million

Cost

3,552

576

2,128

6,256

Provision for amortisation

-

455

767

1,222

Net book value

3,552

121

1,361

5,034

At 30 June 2018, accumulated goodwill impairment losses incurred from 1 January 2005 amounted to $2,801 million (31 December 2017: $2,801 million), of which nil was recognised in 2018 (31 December 2017: $320 million).

Outcome of impairment assessment

At 30 June 2018, the Group performed a review of the goodwill that has been assigned to the Group's cash generating units for indicators of impairment, considering whether there were any reduced expectations for future cash flows and/or fluctuations in the discount rate or the assumptions. The results of this review indicated that there is no goodwill impairment to be recognised.

It continues to be possible that certain scenarios could be constructed where a combination of a material change in the discount rate coupled with a reduction in current business plan forecasts or the GDP growth rate would potentially result in the carrying amount of goodwill exceeding the recoverable amount in the future. Refer to note 18, Goodwill and intangible assets, in the 2017 Annual Report.

16. Other assets

 

30.06.18
$million

31.12.17
$million

Financial assets held at amortised cost (note 12):

 

 

Hong Kong SAR Government certificates of indebtedness (note 17)1

5,704

5,417

Cash collateral

10,002

9,513

Acceptances and endorsements

5,138

5,096

Unsettled trades and other financial assets

13,597

9,896

 

34,441

29,922

Non-financial assets:

 

 

Commodities2

4,312

3,263

Other assets

315

305

 

39,068

33,490

1  The Hong Kong SAR Government certificates of indebtedness are subordinated to the claims of other parties in respect of bank notes issued

2  Commodities are carried at fair value and classified as Level 2

Assets held for sale

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-sale in their present condition

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.



 

Standard Chartered PLC - Financial statements and notes

The assets below have been presented as held for sale following the approval of Group management and the transactions are expected to complete in 2018.

Assets held for sale

30.06.18
$million

31.12.17
$million

Non-current assets

 

 

Loans and advances to customers

2

2

Financial assets held at fair value through profit or loss

511

466

Debt securities held at amortised cost

-

60

Property, plant and equipment

145

13

Others

2

4

 

660

545

Assets held for sale include:

•     Principal Finance assets of $511 million, classified as financial assets held at fair value through profit or loss comprising debt securities ($84 million) and equity shares ($427 million), expected to be disposed of by the end of 2018

•                 Two aircraft classified as held for sale by Pembroke Air Leasing Finance for $136 million included within property, plant and equipment

The assets reported above are classified under Level 3.

17. Other liabilities

 

30.06.18
$million

31.12.17
$million

Financial liabilities held at amortised cost (note 12)

 

 

Notes in circulation1

5,704

5,417

Acceptances and endorsements

5,138

5,096

Cash collateral

10,631

9,825

Unsettled trades and other financial liabilities

18,598

14,644

 

40,071

34,982

Non-financial liabilities

 

 

Cash-settled share-based payments

35

39

Other liabilities

438

236

 

40,544

35,257

1  Hong Kong currency notes in circulation of $5,704 million (2017: $5,417 million) that are secured by the government of Hong Kong SAR certificates of indebtedness of the same amount included in other assets (note 16)

18. Contingent liabilities and commitments

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.

 

30.06.18
$million

31.12.17
$million

Contingent liabilities

 

 

Guarantees and irrevocable letters of credit

37,422

37,311

Other contingent liabilities

5,116

6,210

 

42,538

43,521

Commitments

 

 

Documentary credits and short-term trade-related transactions

4,021

3,880

Undrawn formal standby facilities, credit lines and other commitments to lend

 

 

One year and over

47,604

43,730

Less than one year

20,618

20,160

Unconditionally cancellable

115,168

113,584

 

187,411

181,354

Capital commitments

 

 

Contracted capital expenditure approved by the directors but not provided for in these accounts

252

468

The Group's share of contingent liabilities and commitments relating to joint ventures is $0.2 billion (31 December 2017: $0.2 billion).

The Group has commitments totalling $243 million to purchase aircraft for delivery in 2018 (31 December 2017: $458 million).

Standard Chartered PLC - Financial statements and notes

 

As set out in note 19, 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.

19. Legal and regulatory matters

Claims and other proceedings

The Group receives legal claims against it in a number of jurisdictions and is subject to regulatory investigations and proceedings arising in the normal course of business.

Apart from the matters described below, the Group currently considers none of these claims, investigations or proceedings to be material.

2012 Settlements with certain US authorities

In 2012, the Group reached settlements with certain US authorities regarding US sanctions compliance in the period 2001 to 2007, involving a Consent Order by the New York Department of Financial Services (NYDFS), a Cease and Desist Order by the Board of Governors of the Federal Reserve System (Fed), Deferred Prosecution Agreements (DPAs) with each of the Department of Justice (DOJ) and the New York County District Attorney's Office (DANY) and a Settlement Agreement with the Office of Foreign Assets Control (together, the 'Settlements' and together the foregoing authorities, the 'US authorities'). In addition to the civil penalties totalling $667 million, the terms of these Settlements include a number of conditions and ongoing obligations with regard to improving sanctions, Anti-Money Laundering (AML) and Bank Secrecy Act (BSA) controls such as remediation programmes, reporting requirements, compliance reviews and programmes, banking transparency requirements, training measures, audit programmes, disclosure obligations and, in connection with the NYDFS Consent Order, the appointment of an independent monitor (Monitor). These obligations are managed under a programme of work referred to as the US Supervisory Remediation Program (SRP). The SRP comprises work streams designed to ensure compliance with the remediation requirements contained in all of the Settlements and the Group is engaged with all relevant authorities to implement these programmes and meet the Group's obligations under the Settlements.

On 9 December 2014, the Group announced that the DOJ, DANY and the Group had agreed to a three-year extension of the DPAs until 10 December 2017, resulting in the subsequent retention of the Monitor to evaluate and make recommendations regarding the Group's sanctions compliance programme. On 9 November 2017, the Group announced extension of the DPAs until 28 July 2018 and on 27 July 2018, the Group announced the further extension of the DPAs until 31 December 2018.

The November 2017 and July 2018 DPA extension agreements noted that the Group had taken a number of steps and made significant progress to comply with the requirements of the DPA and enhance its sanctions compliance programme, but that the programme had not at the time reached the standard required by the DPA. The Group is committed to ongoing cooperation with the authorities and to continuing to implement a comprehensive programme of improvements to its financial crime controls.

2014 Settlement with NYDFS

On 19 August 2014, the Group announced that it had reached a final settlement with the NYDFS regarding deficiencies in the AML transaction surveillance system in its New York branch (the 'Branch'). The system, which is separate from the sanctions screening process, is one part of the Group's overall financial crime controls and is designed to alert the Branch to unusual transaction patterns that require further investigation on a post-transaction basis.

The settlement provisions are summarised as follows:

(i)  A civil monetary penalty of $300 million

(ii) Enhancements to the transaction surveillance system at the Branch

(iii) A two-year extension to the term of the Monitor (which, on 21 April 2017, was further extended to operate until 31 December 2018)

(iv) A set of temporary remediation measures, which will remain in place until the transaction surveillance system's detection scenarios are operating to a standard approved by the Monitor. These temporary remediation measures include a restriction on opening, without prior approval of the NYDFS, a US dollar demand deposit account for any client that does not already have such an account with the Branch, a restriction on US dollar-clearing services for certain clients in Hong Kong and enhanced monitoring of certain high-risk clients in the UAE.

The remit of the SRP covers the management of these obligations.



 

Standard Chartered PLC - Financial statements and notes

 

Other ongoing investigations and reviews

The Group continues to cooperate with an investigation by the US authorities relating to historical violations of US sanctions laws and regulations. In contrast to the 2012 settlements, which focused on the period before the Group's 2007 decision to stop doing new business with known Iranian parties, the ongoing investigation is focused on examining the extent to which conduct and control failures permitted clients with Iranian interests to conduct transactions through Standard Chartered Bank after 2007 and the extent to which any such failures were shared with relevant US authorities in 2012.

The Group is engaged in ongoing discussions with the relevant US authorities regarding the resolution of this investigation, and such resolution may involve a range of civil and criminal penalties for sanctions compliance violations including substantial monetary penalties combined with other compliance measures such as remediation requirements and/or business restrictions.

It is not practicable to estimate the financial impact of these matters as there are many factors that may affect the range of possible outcomes; however, the resulting financial impact could be substantial.

Standard Chartered Bank is also engaged with the Financial Conduct Authority (FCA) to resolve the FCA investigation concerning Standard Chartered Bank's financial crime controls. The investigation has been focused on the effectiveness and governance of those controls from 2009 through 2014 within the correspondent banking business carried out by Standard Chartered Bank's London branch, particularly in relation to the business carried on with respondent banks from outside the European Economic Area, and the effectiveness and governance of those controls in one of Standard Chartered Bank's overseas branches and the oversight exercised at Group level over those controls. Standard Chartered Bank has accepted that there were weaknesses in certain aspects of its relevant financial crime controls during the relevant period of the investigation and is engaging with the FCA on terms of the resolution of the investigation. Resolution of the investigation could involve a substantial monetary penalty and other civil measures available to the FCA.

As part of their remit to oversee market conduct, regulators and other agencies in certain markets are conducting investigations or requesting reviews into a number of areas of regulatory compliance and market conduct, including sales and trading, involving a range of financial products, and submissions made to set various market interest rates and other financial benchmarks, such as foreign exchange. At relevant times, certain of the Group's branches and/or subsidiaries were (and are) participants in some of those markets, in some cases submitting data to bodies that set such rates and other financial benchmarks. The Group continues to respond to inquiries and investigations by relevant authorities and is facing regulatory investigations and proceedings in various jurisdictions related to foreign exchange trading. There may be penalties or other financial consequences to the Group as a result.

The Securities and Futures Commission (SFC) in Hong Kong has been investigating Standard Chartered Securities (Hong Kong) Limited's (SCSHK) role as a joint sponsor of an initial public offering of China Forestry Holdings Limited, which was listed on the Hong Kong Stock Exchange in 2009. The SFC is pursuing disciplinary action against SCSHK, and there may be financial consequences for SCSHK in connection with this action.

20. Subordinated liabilities and other borrowed funds

 

30.06.18

USD
$million

GBP
$million

EUR
$million

Others
$million

Total
$million

Fixed rate subordinated debt

9,828

1,472

3,033

525

14,858

Floating rate subordinated debt

161

16

-

12

189

Total

9,989

1,488

3,033

537

15,047

 

 

31.12.17

USD
$million

GBP
$million

EUR
$million

Others
$million

Total
$million

Fixed rate subordinated debt

9,497

3,297

3,136

1,057

16,987

Floating rate subordinated debt

161

16

 -

12

189

Total

9,658

3,313

3,136

1,069

17,176

 



 

Standard Chartered PLC - Financial statements and notes

 

Redemptions and repurchases during the period

On 19 March 2018, Standard Chartered Bank Korea Limited redeemed KRW90 billion 6.05 per cent subordinated debt 2018 on its maturity.

On 3 April 2018, Standard Chartered Bank redeemed £700m 7.75 per cent subordinated notes 2018 on its maturity.

On 10 April 2018, Standard Chartered Bank exercised its right to redeem SGD450 million 5.25 per cent subordinated notes 2023 (callable 2018).

On 18 April 2018, Standard Chartered Bank exercised its right to redeem JPY10 billion 3.35 per cent subordinated notes 2023 (callable 2018).

On 14 June 2018, Standard Chartered Bank repurchased in part, £95.1 million of its £200 million 7.75 per cent subordinated notes (callable 2022).

On 14 June 2018, Standard Chartered PLC repurchased in part, £372.5 million of its £900 million 5.125 per cent subordinated debt 2034.

Issuances during the period

On 15 March 2018, Standard Chartered PLC issued $500 million 4.866 per cent subordinated debt 2033 (callable 2028).

21. Share capital, other equity and reserves

Group and Company

 

Number of
ordinary shares
millions

Ordinary
share capital1

$million

Share
premium2

$million

Total
share capital & share premium
$million

Other equity instruments
$million

At 1 January 2017

3,284

1,642

5,449

7,091

3,969

Shares issued

7

4

-

4

992

At 30 June 2017

3,291

1,646

5,449

7,095

4,961

Shares issued

5

2

-

2

-

At 31 December 2017

3,296

1,648

5,449

7,097

4,961

Capitalised on scrip dividend

2

1

-

1

-

Shares issued

6

3

-

3

-

At 30 June 2018

3,304

1,652

5,449

7,101

4,961

1  Issued and fully paid ordinary shares of 50 cents each

2  Includes $1,494 million of share premium relating to preference capital

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.

On 17 May 2018, the Company issued 1,354,700 new ordinary shares instead of the 2017 final dividend.

During the period, 6,203,572 shares were issued under employee share plans at prices between nil and 620 pence.

Preference share capital

At 30 June 2018, the Company has 15,000 $5 non-cumulative redeemable preference shares in issue, with a premium of $99,995 making a paid up amount per preference share of $100,000. The preference shares are redeemable at the option of the Company and are classified in equity.

The available profits of the Company are distributed to the holders of the issued preference shares in priority to payments made to holders of the ordinary shares and in priority to, or pari passu with, any payments to the holders of any other class of shares in issue. On a winding up, the assets of the Company are applied to the holders of the preference shares in priority to any payment to the ordinary shareholders and in priority to, or pari passu with, the holders of any other shares in issue, for an amount equal to any dividends accrued and/or payable and the nominal value of the shares together with any premium as determined by the Board. The redeemable preference shares are redeemable at the paid up amount (which includes premium) at the option of the Company in accordance with the terms of the shares. The holders of the preference shares are not entitled to attend or vote at any general meeting except where any relevant dividend due is not paid in full or where a resolution is proposed varying the rights of the preference shares.



 

Standard Chartered PLC - Financial statements and notes

 

Other equity instruments

On 2 April 2015, Standard Chartered PLC issued $2,000 million Fixed Rate Resetting Perpetual Subordinated Contingent Convertible Securities as Additional Tier 1 (AT1) securities, raising $1,987 million after issue costs. On 18 August 2016, Standard Chartered PLC issued a further $2,000 million Fixed Rate Resetting Perpetual Subordinated Contingent Convertible Securities as AT1 securities, raising $1,982 million after issue costs. On 18 January 2017, Standard Chartered PLC issued a further $1,000 million Fixed Rate Resetting Perpetual Subordinated Contingent Convertible Securities as AT1 securities, raising $992 million after issue costs. All the issuances were made for general business purposes and to increase the regulatory capital base of the Group.

The principal terms of the AT1 securities are described below:

•     The securities are perpetual and redeemable, at the option of Standard Chartered PLC in whole but not in part, on the first interest reset date and each date falling five years after the first reset date

•     The securities are also redeemable for certain regulatory or tax reasons on any date at 100 per cent of their principal amount together with any accrued but unpaid interest upto (but excluding) the date fixed for redemption. Any redemption is subject to Standard Chartered PLC giving notice to the relevant regulator and the regulator granting permission to redeem

•     The interest rate in respect of the securities issued on 2 April 2015 for the period from (and including) the issue date to (but excluding) 2 April 2020 is a fixed rate of 6.50 per cent per annum. The first reset date for the interest rate is 2 April 2020 and each date falling five, or an integral multiple of five years after the first reset date

•     The interest rate in respect of the securities issued on 18 August 2016 for the period from (and including) the issue date to (but excluding) 2 April 2022 is a fixed rate of 7.50 per cent per annum. The first reset date for the interest rate is 2 April 2022 and each date falling five years, or an integral multiple of five years, after the first reset date

•     The interest rate in respect of the securities issued on 18 January 2017 for the period from (and including) the issue date to (but excluding) 2 April 2023 is a fixed rate of 7.75 per cent per annum. The first reset date for the interest rate is 2 April 2023 and each date falling five years, or an integral multiple of five years, after the first reset date

•     The interest on each of the securities will be payable semi-annually in arrears on 2 April and 2 October in each year, accounted for as a dividend

•     Interest on the securities is due and payable only at the sole and absolute discretion of Standard Chartered PLC, subject to certain additional restrictions set out in the terms and conditions. Accordingly, Standard Chartered PLC may at any time elect to cancel any interest payment (or part thereof) which would otherwise be payable on any interest payment date

•     The securities convert into ordinary shares of Standard Chartered PLC, at a pre-determined price, should the fully loaded Common Equity Tier 1 ratio of the Group fall below 7.0 per cent. Approximately 572 million ordinary shares would be required to satisfy the conversion of all the securities mentioned above

The securities rank behind the claims against Standard Chartered PLC of (a) unsubordinated creditors; (b) which are expressed to be subordinated to the claims of unsubordinated creditors of Standard Chartered PLC but not further or otherwise; or (c) which are, or are expressed to be, junior to the claims of other creditors of Standard Chartered PLC, whether subordinated or unsubordinated, other than claims which rank, or are expressed to rank, pari passu with, or junior to, the claims of holders of the AT1 securities in a winding-up occurring prior to the conversion trigger.

Reserves

The constituents of the reserves are summarised as follows:

•     The capital reserve represents the exchange difference on redenomination of share capital and share premium from sterling to US dollars in 2001. The capital redemption reserve represents the nominal value of preference shares redeemed

•     Merger reserve represents the premium arising on shares issued using a cash box financing structure, which required the Company to create a merger reserve under section 612 of the Companies Act 2006. Shares were issued using this structure in 2005 and 2006 to assist in the funding of certain acquisitions, in 2008, 2010 and 2015, for the shares issued by way of a rights issue, and for the shares issued in 2009 in the placing. The funding raised by the 2008 and 2010 rights issues and 2009 share issue was fully retained within the Company



Standard Chartered PLC - Financial statements and notes

 

•     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. Following the Group's decision to early apply this IFRS 9 requirement the cumulative OCA component of financial liabilities designated at fair value through profit or loss has been transferred from opening retained earnings to the OCA reserve. Gains and losses on financial liabilities designated at fair value through profit or loss relating to own credit in the year have been taken through other comprehensive income into this reserve. On derecognition of applicable instruments the balance of any OCA will not be recycled to the income statement, but will be transferred within equity to retained earnings

•     Fair value through OCI debt reserve represents the unrealised fair value gains and losses in respect of financial assets classified as fair value through OCI, net of expected credit losses and taxation. Gains and losses are deferred in this reserve and are reclassified to the income statement when the underlying asset is sold, matures or becomes impaired. Fair value through OCI equity reserve represents unrealised fair value gains and losses in respect of financial assets classified as fair value through OCI, net of taxation. Gains and losses are recorded in this reserve and never recycled to the income statement

•     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 and own shares held (treasury shares).

A substantial part of the Group's reserves are held in overseas subsidiary undertakings and branches, principally to support local operations or to comply with local regulations. The maintenance of local regulatory capital ratios could potentially restrict the amount of reserves which can be remitted. In addition, if these overseas reserves were to be remitted, further unprovided taxation liabilities might arise.

As at 30 June 2018, the distributable reserves of Standard Chartered PLC (the Company) were $15.1 billion (31 December 2017: $15.1 billion). These comprised retained earnings and $12.5 billion of the merger reserve account. Distribution of reserves is subject to maintaining minimum capital requirements.

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.

Number of shares

1995 Trust

 

2004 Trust

 

Total

30.06.18

31.12.17

30.06.17

30.06.18

31.12.17

30.06.17

30.06.18

31.12.17

30.06.17

Shares purchased during the period

-

-

-


-

-

-


-

-

-

Market price of shares purchased ($million)

-

-

-


-

-

-


-

-

-

Shares held at the end of the period

1,336,879

3,769,011

3,769,011


16,755

18,004

34,262


1,353,634

3,787,015

3,803,273

Maximum number of shares held during the period

 

 

 

 

 

 

 

 

3,787,015

3,803,273

6,182,467

 



 

Standard Chartered PLC - Financial statements and notes

 

22. Retirement benefit obligations

Retirement benefit obligations comprise:

 

30.06.18
$million

31.12.17
$million

30.06.17
$million

Total market value of assets

2,506

2,592

2,391

Present value of the plans' liabilities

(2,838)

(3,035)

(2,919)

Defined benefit plans obligation

(332)

(443)

(528)

Defined contribution plans obligation

(16)

(12)

(26)

Net obligation

(348)

(455)

(554)

Retirement benefit charge comprises:

 

6 months ended
30.06.18
$million

6 months ended
31.12.17
$million

6 months ended
30.06.17
$million

Defined benefit plans

41

63

35

Defined contribution plans

146

138

121

Charge against profit (note 6)

187

201

156

 

 

 

 

The pension cost for defined benefit plans was:

 

 

 

Current service cost

35

37

36

Past service cost and curtailments

-

6

(9)

Gain on settlements

-

7

-

Interest income on pension plan assets

(35)

(34)

(32)

Interest on pension plan liabilities

41

47

40

Total charge to profit before deduction of tax

41

63

35

Losses/(returns) on plan assets excluding interest income

31

(80)

(33)

(Gains)/losses on liabilities

(136)

19

62

Total (gains)/ losses recognised directly in statement of comprehensive income before tax

(105)

(61)

29

Deferred taxation

6

19

16

Total losses after tax

(99)

(42)

45

23. Related party transactions

Directors, connected persons or officers

As at 30 June 2018, Standard Chartered Bank had in place a charge over $73 million (31 December 2017: $75 million, 30 June 2017: $72 million) of cash assets in favour of the independent trustee of its employer-financed retirement benefit scheme.

There were no changes in the related party transactions descibed in the Annual Report 2017 that have had a material effect on the financial position or performance of the Group in the period ended 30 June 2018. All related party transactions that have taken place in the period ended 30 June 2018 were similar in nature to those disclosed in the Annual Report 2017.

Associate and joint ventures

 

30.06.18

 

31.12.17

China Bohai
Bank
$million

Clifford
Capital
$million

PT Bank
Permata
$million

China Bohai
Bank
$million

Clifford
Capital
$million

PT Bank
Permata
$million

Assets

 

 

 

 

 

 

 

Loans and advances

-

-

61

 

-

50

95

Debt securities

-

27

-

 

-

27

-

Derivative assets

2

-

-

 

1

-

-

Total assets

2

27

61

 

1

77

95

 

 

 

 

 

 

 

 

Liabilities

 

 

 

 

 

 

 

Deposits

576

-

73

 

219

-

29

Debt securities issued

15

-

-

 

15

-

-

Total liabilities

591

-

73

 

234

-

29

Loan commitments and other guarantees

-

50

-

 

-

-

-

Total net income

3

-

2

 

5

-

6

 

Standard Chartered PLC - Financial statements and notes

 

24. Post balance sheet events

An interim dividend for half year 2018 of 6 cents per ordinary share was declared by the directors on 31 July 2018.

25. Corporate governance

The directors confirm that, throughout the period, the Company has complied with the code provisions set out in the Corporate Governance Code contained in Appendix 14 of the Hong Kong Listing Rules. The directors also confirm that the announcement of these results has been reviewed by the Company's Audit Committee. The Company confirms that it has adopted a code of conduct regarding securities transactions by directors on terms no less exacting than the required standard set out in Appendix 10 of the Hong Kong Listing Rules and that having made specific enquiry of all directors, the directors of the Company have complied with the required standards of the adopted code of conduct throughout the period.

As previously announced, since 31 December 2017, there has been one change to a position on the Board. Christine Hodgson, Chairman of the Remuneration Committee and member of the Audit, Governance and Nomination, Brand, Values and Conduct and Board Financial Crime Risk Committees, took over from Naguib Kheraj as Senior Independent Director on 1 February 2018. Naguib Kheraj remains as Deputy Chairman, Chairman of the Audit Committee and member of the Board Risk, Board Financial Crime Risk, Remuneration and Governance and Nomination Committees. Biographies for each of the directors and a list of the committees' membership can be found at sc.com.

In compliance with Rule 13.51B(1) of the Hong Kong Listing Rules, the Company confirms that Dr Ngozi Okonjo-Iweala, Independent Non-Executive Director, was appointed to the Board of Twitter, Inc. as an independent director with effect from 19 July 2018.

26. Statutory accounts

The information in this half year report is unaudited and does not constitute statutory accounts within the meaning of section 434 of the Companies Act 2006. This document was approved by the Board on 31 July 2018. The statutory accounts for the year ended 31 December 2017 have been audited by the Company's auditors and delivered to the Registrar of Companies in England and Wales. The report of the auditors was (i) unqualified, (ii) did not include a reference to any matters to which the auditors drew attention by way of emphasis without qualifying their report, and (iii) did not contain a statement under section 498 of the Companies Act 2006.



Standard Chartered PLC - Financial statements and notes

 

27. Transition to IFRS 9 Financial Instruments

Balance sheet

 

IAS 39 31 December 2017 $million

Classification & measurement
$million

Expected
credit losses
$million

Other impacts
$million

IFRS 9
1 January 2018 $million

Cash and balances at central banks

58,864

-

-

-

58,864

Financial assets held at fair value through profit or loss

27,564

47,076

-

-

74,640

Derivative financial instruments

47,031

-

-

-

47,031

Loans and advances to banks

57,494

(293)

(7)

-

57,194

Loans and advances to customers1

248,707

(951)

(815)

-

246,941

Reverse repurchase agreements and other similar secured lending

54,275

(44,608)

-

-

9,667

Investment securities

117,025

(1,193)

(19)

-

115,813

Other assets

33,490

-

-

-

33,490

Current tax assets

491

-

-

1

492

Prepayments and accrued income

2,307

-

-

-

2,307

Interests in associates and joint ventures

2,307

-

-

(52)

2,255

Goodwill and intangible assets

5,013

-

-

-

5,013

Property, plant and equipment

7,211

-

-

-

7,211

Deferred tax assets

1,177

-

-

125

1,302

Assets classified as held for sale

545

-

-

-

545

Total assets

663,501

31

(841)

74

662,765

Deposits by banks

30,945

-

-

-

30,945

Customer accounts

370,509

-

-

-

370,509

Repurchase agreements and other similar secured borrowing

39,783

(38,144)

-

-

1,639

Financial liabilities held through profit or loss

16,633

38,140

-

-

54,773

Derivative financial instruments

48,101

-

-

-

48,101

Debt securities in issue

46,379

-

-

-

46,379

Other liabilities

35,257

-

-

-

35,257

Current tax liabilities

376

-

-

(10)

366

Accruals and deferred income

5,493

-

-

-

5,493

Subordinated liabilities and other borrowed funds

17,176

-

-

-

17,176

Deferred tax liabilities

404

-

-

(37)

367

Provisions for liabilities and charge1

183

-

176

-

359

Retirement benefit obligations

455

-

-

-

455

Total liabilities

611,694

(4)

176

(47)

611,819

Share capital and share premium account

7,097

-

-

-

7,097

Other reserves

12,767

(165)

65

(7)

12,660

Retained earnings1

26,641

200

(1,074)

128

25,895

Total parent company shareholders' equity

46,505

35

(1,009)

121

45,652

Other equity instruments

4,961

-

-

-

4,961

Total equity excluding non-controlling interests

51,466

35

(1,009)

121

50,613

Non-controlling interests

341

-

(8)

-

333

Total equity

51,807

35

(1,017)

121

50,946

Total equity and liabilities

663,501

31

(841)

74

662,765

1  The Group's initial estimate of credit impairment provisions on adoption of IFRS 9 was $6,720 million. Following refinement of the Group's expected loss models, the estimate of the opening credit impairment provisions has been revised down by $222 million to $6,498 million, and the net expected credit loss of $(1,296) million adjusted against retained earnings has similarly decreased by $222 million to $(1,074) million



 

Standard Chartered PLC - Financial statements and notes

 

Statement of changes in equity

 

Share capital and share premium account
$million

Capital and merger reserves
$million

Own credit adjustment reserve
$million

Available-for-sale reserve
$million

Fair value through OCI reserve
$million

Cash flow hedge reserve
$million

Translation reserve
$million

Retained earnings
$million

Parent company shareholders' equity
$million

Other equity instruments
$million

Non-controlling interests
$million

Total
$million

As at 31 December 2017

7,097

17,129

54

83

-

(45)

(4,454)

26,641

46,505

4,961

341

51,807

Net impact of:

-

-

-

(83)

(82)

-

-

200

35

-

-

35

IFRS 9 reclassifications1

-

-

-

(83)

(86)

-

-

169

-

-

-

-

IFRS 9 re-measurements2

-

-

-

-

4

-

-

31

35

-

-

35

Expected credit loss, net3

-

-

-

-

65

-

-

(1,074)

(1,009)

-

(8)

(1,017)

Tax impact4

-

-

-

-

(6)

-

-

179

173

-

-

173

Impact of IFRS 9 on share of joint ventures and associates, net of tax

-

-

-

-

(1)

-

-

(51)

(52)

-

-

(52)

Estimated IFRS 9 transition adjustments

-

-

-

(83)

(24)

-

-

(746)

(853)

-

(8)

(861)

As at 1 January 2018

7,097

17,129

54

-

(24)

(45)

(4,454)

25,895

45,652

4,961

333

50,946

1  Available-for-sale category has been removed under IFRS 9. Unrealised gains and losses have been transferred to fair value through other comprehensive income (FVOCI) reserves,
or retained earnings where the instruments are held as FVTPL. The FVOCI reserve includes a $187 million loss in respect of equity securities designated as FVOCI, partly offset by $18 million gain on debt securities designated as FVOCI

2  The remeasurement impact of financial assets that are now measured at fair value under IFRS 9

3  Impact from adopting expected credit losses. Gross impact is estimated at $1,082 million (comprising $1,074 million in retained earnings and $8 million in non-controlling interests).
As FVOCI debt instruments are held at fair value on the balance sheet, the expected credit loss charged to retained earnings is recognised as a credit to the FVOCI reserve. The net FVOCI reserve relating to FVOCI debt instruments will be recycled to the income statement on disposal of the instruments

4  Tax of $173 million has been credited to reserves as a result of transition to IFRS 9. Of this, deferred tax of $142 million has been credited to retained earnings, and is provided on additional deductible temporary differences that have arisen from loss provisions due to initial adoption of the expected credit loss approach

Impact of moving from an incurred loss approach to an expected credit loss approach

 

1 January 2018

Loss allowances per IAS 39

 

Expected credit loss per IFRS 9

Increase/(decrease)
$million

Portfolio impairment provisions
$million

Individual impairment provisions
$million

Total
$million

Stage 1
$million

Stage 2
$million

Stage 3
$million

Total
$million

Corporate & Institutional Banking

156

3,466

3,622

 

105

394

3,433

3,932

310

Retail Banking

208

275

483

 

382

178

389

949

466

Commercial Banking

99

1,431

1,530

 

39

93

1,369

1,501

(29)

Private Banking

2

67

69

 

8

1

91

100

31

Central & other items

-

-

-

 

4

 -

 -

4

4

Total loans and advances to customers1

465

5,239

5,704

 

538

666

5,282

6,486

782

Loans and advances to banks

1

4

5

 

6

2

4

12

7

Financial guarantees

-

77

77

 

6

16

77

99

22

Debt securities and other eligible bills - amortised cost

-

114

114

 

3

16

213

232

118

Debt securities and other eligible bills - FVOCI

-

-

-

 

23

42

 -

65

65

Total

466

5,434

5,900

 

576

742

5,576

6,894

994

1  Includes both drawn and undrawn commitments



 

Standard Chartered PLC - Financial statements and notes

 

Movement in loss provisions

 

Debt securities
$ million

FVOCI debt securities
$ million

Loans to banks
$ million

Loans to customers
$ million

Provisions for liabilities
and charges

Total
$ million

Undrawn commitments
$ million

Guarantees
$ million

Total IAS 39 loss provisions

114

-

5

 5,7021

 21

77

5,900

Loss provisions reclassified to FVTPL

(109)

-

-

(122)

-

-

(231)

Modification losses netted against gross exposure

-

-

-

(65)

-

-

(65)

Adjusted IAS 39 loss provisions

5

-

5

5,515

2

77

5,604

Additional expected credit loss provisions

19

65

7

815

154

22

1,082

Total IFRS 9 impairment provisions

24

65

12

 6,3302

1562

99

6,686

Estimated net expected credit loss movement

(90)

65

7

628

154

22

786

1  Total IAS 39 loss allowances ($5,704 million) applied to loans and advances to customers as previously reported

2  Total IFRS 9 expected credit losses ($6,486 million) applied to loans and advances to customers

Impact on Non-performing loans to customers and banks1

 

Corporate & Institutional Banking
$million

Retail
Banking
$million

Commercial Banking
$million

Private
Banking
$million

Total
$million

Gross

 

 

 

 

 

At 31 December 2017

5,957

489

2,026

207

8,679

Modified loans

(39)

-

(26)

-

(65)

Performing forborne (impaired)

-

329

-

-

329

Reclassified

(62)

-

(40)

-

(102)

At 1 January 2018 (stage 3)

5,856

818

1,960

207

8,841

 

 

 

 

 

 

Credit impairment provisions

 

 

 

 

 

At 31 December 2017 (IAS 39 IIP)

3,468

 2152

1,431

67

5,181

Modified loans

(39)

-

(26)

-

(65)

Performing forborne (impaired)

-

60

-

-

60

Reclassified to FVTPL

(81)

-

(40)

-

(121)

Additional expected credit loss

1

114

6

-

121

GSAM multiple scenario provisions

88

-

(2)

24

110

At 1 January 2018 (stage 3)

3,437

 3892

1,369

91

5,286

 

 

 

 

 

 

IAS 39 PIP at 31 December 2017

157

208

99

2

466

Collateral at 31 December 2017

1,111

218

277

203

1,809

 

 

 

 

 

 

Non-performing cover ratios:

 

 

 

 

 

At 31 December 2017 (IAS 39)

61%

87%

75%

33%

65%

At 31 December 2017 (IAS 39, excluding PIP)

58%

44%

71%

32%

60%

At 1 January 2018 (IFRS 9)

59%

48%

70%

44%

60%

At 31 December 2017 (IAS 39, including collateral)

77%

89%

84%

100%

81%

At 1 January 2018 (IFRS 9, including collateral)

78%

74%

84%

100%

80%

 

 

 

 

 

 

Of the above, included in the liquidation portfolio:

 

 

 

 

 

Gross

1,945

-

125

156

2,226

Credit impairment provisions (IAS 39)

1,388

-

123

62

1,573

Additional provisions (IFRS 9)

29

-

-

24

53

At 1 January 2018 (Stage 3)

1,417

-

123

86

1,626

Non-performing cover ratios:

 

 

 

 

 

At 31 December 2017 (IAS 39)

71%

-

98%

40%

71%

At 1 January 2018 (IFRS 9)

73%

-

98%

55%

73%

At 31 December 2017 (IAS 39, including collateral)

84%

-

98%

100%

86%

At 1 January 2018 (IFRS 9, including collateral)

85%

-

98%

100%

88%

1  Includes FVTPL impaired loans

2  Under IAS 39, Retail Banking non-performing loans excluded those impaired loans classified as performing



 

Standard Chartered PLC - Financial statements and notes

 

28. Dealings in Standard Chartered PLC listed securities

This is also disclosed as part of Note 21 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.

Number of shares

1995 Trust

 

2004 Trust

 

Total

30.06.18

31.12.17

30.06.17

30.06.18

31.12.17

30.06.17

30.06.18

31.12.17

30.06.17

Shares purchased during
the year

-

-

-

 

-

-

-

 

-

-

-

Market price of shares purchased ($million)

-

-

-

 

-

-

-

 

-

-

-

Shares held at the end of
the year

1,336,879

3,769,011

3,769,011

 

16,755

18,004

34,262

 

1,353,634

3,787,015

3,803,273

Maximum number of shares held during the year

 

 

 

 

 

 

 

 

3,787,015

3,803,273

6,182,467

 



 

Standard Chartered PLC - Supplementary information

 

Supplementary financial information

Analysis of underlying performance by key country

The following tables provide information for key countries in which the Group operates. The numbers are prepared on a management view. Refer to note 2 for details.

 

6 months ended 30.06.18

Hong Kong $million

Korea $million

China $million

Singapore $million

India $million

UAE
$million

UK
$million

US
$million

Operating income

1,849

534

422

845

482

357

441

333

Operating expenses

(961)

(404)

(333)

(512)

(344)

(233)

(330)

(321)

Operating profit before impairment losses and taxation

888

130

89

333

138

124

111

12

Credit impairment

(15)

(3)

(9)

(56)

(29)

(56)

(45)

(29)

Other impairment

(45)

5

-

(10)

(2)

-

24

-

Profit from associates and joint ventures

-

-

156

-

-

-

-

-

Underlying profit/(loss) before taxation

828

132

236

267

107

68

90

(17)

Total assets employed

153,021

52,536

31,639

83,211

27,370

18,477

140,227

52,578

Of which: loans and advances
to customers

73,390

33,289

13,959

46,022

15,958

11,100

37,828

11,173

Total liabilities employed

135,252

46,942

28,693

82,305

18,049

14,373

154,925

45,610

Of which: customer accounts

112,948

38,029

21,492

59,619

14,397

11,890

94,960

18,190

 

 

6 months ended 31.12.17

Hong Kong
$million

Korea
$million

China
$million

Singapore
$million

India
$million

UAE
$million

UK
$million

US
$million

Operating income

1,714

464

366

686

447

356

347

333

Operating expenses

(966)

(411)

(341)

(535)

(353)

(268)

(327)

(316)

Operating profit before impairment
losses and taxation

748

53

25

151

94

88

20

17

Credit impairment

3

(58)

(9)

(117)

(108)

(61)

(49)

4

Other impairment

(27)

-

-

-

-

-

(14)

(2)

Profit from associates and joint ventures

-

-

106

-

-

-

-

-

Underlying profit/(loss) before taxation

724

(5)

122

34

(14)

27

(43)

19

Total assets employed

140,431

51,822

33,243

86,431

26,315

20,268

119,272

45,338

Of which: loans and advances
to customers

67,292

34,891

12,899

45,495

16,515

11,328

34,694

10,092

Total liabilities employed

128,577

45,966

28,151

84,288

17,614

15,142

128,270

39,646

Of which: customer accounts

108,352

36,213

21,854

59,905

14,141

11,692

80,972

11,831

 

 

6 months ended 30.06.17

Hong Kong
$million

Korea
$million

China
$million

Singapore
$million

India
$million

UAE
$million

UK
$million

US
$million

Operating income

1,670

503

341

733

561

377

400

342

Operating expenses

(906)

(366)

(311)

(481)

(305)

(256)

(285)

(325)

Operating profit before impairment
losses and taxation

764

137

30

252

256

121

115

17

Credit impairment

(51)

5

(8)

(101)

(143)

(33)

(1)

(61)

Other impairment

(51)

(3)

-

-

(3)

-

-

-

Profit from associates and joint ventures

-

-

123

-

-

-

-

-

Underlying profit/(loss) before taxation

662

139

145

151

110

88

114

(44)

Total assets employed

140,865

45,754

28,977

85,902

27,835

19,906

113,672

42,455

Of which: loans and advances
to customers

65,950

31,186

11,964

43,071

15,740

11,076

29,527

9,829

Total liabilities employed

126,456

39,654

25,034

84,745

18,625

14,572

110,911

62,008

Of which: customer accounts

104,577

31,142

20,011

59,807

14,064

11,207

56,809

38,109

 



 

Standard Chartered PLC - Supplementary information

 

Convenience translation of selected financial statements into Indian Rupees

In compliance with regulation 70 read with schedule IV part B of the Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) regulations, 2015, as amended, the Consolidated financial statements are presented in Indian rupees (INR) using a US dollar/Indian rupee exchange rate of 68.5753 as at 30 June 2018 as published by the Reserve Bank of India. Amounts have been translated using the said exchange rate including totals and sub-totals and any discrepancies in any table between totals and sums of the amounts listed are due to rounding.

Condensed consolidated interim income statement (translated to INR)

For the six months ended 30 June 2018

 

6 months ended 30.06.18
Rs. million

6 months ended 31.12.17
Rs. million

6 months ended 30.06.17
Rs. million

Interest income

564,169

524,601

465,283

Interest expense

(265,112)

(235,556)

(193,314)

Net interest income

299,057

289,045

271,971

Fees and commission income

144,968

134,476

135,848

Fees and commission expense

(16,801)

(12,481)

(17,007)

Net fee and commission income

128,167

121,995

118,841

Net trading income

66,244

37,991

66,724

Other operating income

29,556

44,985

37,648

Non-interest income

 

 

 

Operating income

523,024

494,016

495,182

Staff costs

(245,362)

(239,671)

(223,761)

Premises costs

(25,579)

(29,967)

(26,470)

General administrative expenses

(55,409)

(80,302)

(57,329)

Depreciation and amortisation

(29,213)

(30,447)

(26,401)

Operating expenses

(355,563)

(380,387)

(333,961)

Operating profit before impairment losses and taxation

167,461

113,629

161,221

Credit impairment

(14,675)

(48,483)

(44,917)

Other impairment

 

 

 

Goodwill

-

(21,944)

-

Other

(3,429)

(5,897)

(6,378)

Profit from associates and joint ventures

11,521

8,023

10,355

Profit before taxation

160,878

45,328

120,281

Taxation

(51,638)

(41,077)

(37,579)

Profit for the period

109,240

4,251

82,702

 

 

 

 

Profit attributable to:

 

 

 

Non-controlling interests

2,263

2,674

686

Parent company shareholders

106,977

1,577

82,016

Profit for the period

109,240

4,251

82,702

 

 

Rupees

Rupees

Rupees

Earnings per share:

 

 

 

Basic earnings/(loss) per ordinary share

27.9

(4.1)

20.2

Diluted earnings/(loss) per ordinary share

27.6

(4.1)

20.0

 



 

Standard Chartered PLC - Supplementary information

 

Condensed consolidated interim statement of comprehensive income (translated to INR)

For the six months ended 30 June 2018

 

6 months ended 30.06.18

 Rs. million

6 months ended 31.12.17
Rs. million

6 months ended 30.06.17
Rs. million

Profit for the period

109,240

4,251

82,702

Other comprehensive income/(loss)

 

 

 

Items that will not be reclassified to income statement:

17,349

7,063

(23,384)

Own credit gains/(losses) on financial liabilities designated at fair value through profit or loss

9,326

4,183

(21,258)

Equity instruments at fair value through other comprehensive income

1,303

-

-

Actuarial gains/(losses) on retirement benefit obligations

7,200

4,183

(1,989)

Taxation relating to components of other comprehensive income

(480)

(1,303)

(137)

 

 

 

 

Items that may be reclassified subsequently to income statement:

(56,644)

36,276

68,781

Exchange differences on translation of foreign operations:

 

 

 

Net (losses)/gains taken to equity

(69,124)

51,089

61,169

Net gains/(losses) on net investment hedges

14,812

(12,138)

(7,612)

Share of other comprehensive income/(loss) from associates and joint ventures

1,097

960

(1,029)

Debt instruments at fair value through other comprehensive income/

 

 

 

Available for sale investments:

 

 

 

Net valuation (losses)/gains taken to equity

(8,161)

3,703

21,601

Reclassified to income statement

892

(8,983)

(6,995)

Net impact of expected credit losses

(549)

-

-

Cash flow hedges:

 

 

 

Net gains taken to equity

3,360

206

2,194

Reclassified to income statement

343

754

-

Taxation relating to components of other comprehensive income

686

686

(549)

Other comprehensive (loss)/income for the period, net of taxation

(39,295)

43,340

45,397

Total comprehensive income for the period

69,945

47,590

128,099

 

 

 

 

Total comprehensive income attributable to:

 

 

 

Non-controlling interests

1,714

2,537

892

Parent company shareholders

68,231

45,053

127,207

 

69,945

47,590

128,099

 



 

Standard Chartered PLC - Supplementary information

 

Condensed consolidated interim balance sheet (translated to INR)

As at 30 June 2018

 

30.06.18
 Rs. million

31.12.17
Rs. million

Assets

 

 

Cash and balances at central banks

3,991,974

4,036,616

Financial assets held at fair value through profit or loss

5,477,041

1,890,210

Derivative financial instruments

3,550,829

3,225,165

Loans and advances to banks

3,812,992

3,942,668

Loans and advances to customers

17,493,559

17,055,157

Reverse repurchase agreements and other similar secured lending

876,461

3,721,924

Investment securities

8,440,316

8,025,024

Other assets

2,679,100

2,296,587

Current tax assets

25,099

33,670

Prepayments and accrued income

165,815

158,203

Interests in associates and joint ventures

160,809

158,203

Goodwill and intangible assets

341,094

343,768

Property, plant and equipment

502,383

494,496

Deferred tax assets

88,462

80,713

Assets classified as held for sale

45,260

37,374

Total assets

47,651,193

45,499,780

 

 

 

Liabilities

 

 

Deposits by banks

2,113,216

2,122,063

Customer accounts

26,203,102

25,407,766

Repurchase agreements and other similar secured borrowing

402,057

2,728,131

Financial liabilities held at fair value through profit or loss

4,339,034

1,140,613

Derivative financial instruments

3,631,885

3,298,541

Debt securities in issue

3,167,905

3,180,454

Other liabilities

2,780,317

2,417,759

Current tax liabilities

42,654

25,784

Accruals and deferred income

325,870

376,684

Subordinated liabilities and other borrowed funds

1,031,853

1,177,849

Deferred tax liabilities

31,202

27,704

Provisions for liabilities and charges

27,430

12,549

Retirement benefit obligations

23,864

31,202

Total liabilities

44,120,388

41,947,100

 

 

 

Equity

 

 

Share capital and share premium account

486,953

486,679

Other reserves

822,149

875,501

Retained earnings

1,858,802

1,826,915

Total parent company shareholders' equity

3,167,905

3,189,094

Other equity instruments

340,202

340,202

Total equity excluding non-controlling interests

3,508,107

3,529,296

Non-controlling interests

22,698

23,384

Total equity

3,530,805

3,552,681

Total equity and liabilities

47,651,193

45,499,780

 



 

Standard Chartered PLC - Supplementary information

 

Condensed consolidated interim statement of changes in equity (translated to INR)

For the year ended 30 June 2018

 

Share capital and share premium account Rs. million

Capital
and
merger
reserves1
Rs. million

Own credit adjustment reserve Rs. million

Available -for-sale reserve Rs. million

Fair value through other comprehensive income reserve - debt
Rs. million

Fair value through other comprehensive income reserve - equity
Rs. million

Cash flow hedge reserve
Rs. million

Translation reserve
Rs. million

Retained earnings
Rs. million

Parent company share-holders'
equity
Rs. million

Other equity instruments

Rs. million

Non-
controlling interests Rs. million

Total
Rs. million

As at 31 December 2017

486,679

1,174,626

3,703

5,692

-

-

(3,086)

(305,434)

1,826,915

3,189,094

340,202

23,384

3,552,681

IFRS 9 Reclassifications2

-

-

-

(5,692)

(8,983)

3,086

-

-

11,589

-

-

-

-

IFRS 9 Re-measurements2

-

-

-

-

-

274

-

-

2,126

2,400

-

-

2,400

Expected credit loss, net

-

-

-

-

4,457

-

-

-

(73,650)3

(69,192)

-

(549)

(69,741)

Tax impact

-

-

-

-

(754)

343

-

-

12,275

11,864

-

-

11,864

Impact of IFRS 9
on share of joint ventures and associates, net of tax

-

-

-

-

-

(69)

-

-

(3,497)

(3,566)

-

-

(3,566)

IFRS9 Transition adjustments

-

-

-

(5,692)

(5,280)

3,634

-

-

(51,157)

(58,495)

-

(549)

(59,043)

As at 1 January 2018

486,679

1,174,626

3,703

-

(5,280)

3,634

(3,086)

(305,434)

1,775,757

3,130,600

340,202

22,836

3,493,637

Profit for the period

-

-

-

-

-

-

-

-

106,977

106,977

-

2,263

109,240

Other comprehensive income/(loss)

-

-

9,052

-

(7,063)

2,537

3,154

(53,694)

7,2694

(38,745)

-

(549)

(39,294)

Distributions

-

-

-

-

-

-

-

-

-

-

-

(1,852)

(1,852)

Shares issued, net of expenses

274

-

-

-

-

-

-

-

-

274

-

-

274

Net own shares adjustment

-

-

-

-

-

-

-

-

480

480

-

-

480

Share option expense, net of taxation

-

-

-

-

-

-

-

-

6,652

6,652

-

-

6,652

Dividends net of scrip5

-

-

-

-

-

-

-

-

(38,676)

(38,676)

-

-

(38,676)

Other movements

-

-

-

-

-

-

-

-

343

343

-

-

343

As at 30 June 2018

486,953

1,174,626

12,755

-

(12,344)

6,172

69

(359,129)

1,858,802

3,167,905

340,202

22,698

3,530,805

1  Includes capital reserve of Rs. 343 million, capital redemption reserve of Rs. 891 million and merger reserve of Rs. 1,173,392 million

2  As per Note 27 Transition to IFRS 9 Financial Instruments

3  The Group's initial estimate of credit impairment on adoption of IFRS 9 was Rs. 460,826 million.  Following refinement of the Group's expected loss models, the estimate of the opening credit impairment has been revised down by Rs. 15,224 million to Rs. 445,602 million, and the net expected credit loss of Rs. (88,874) million adjusted against retained earnings has similarly decreased by Rs. 15,224 million

4  Comprises actuarial gain/(loss), net of taxation and share from associates and joint ventures Rs. 7,269 million (Rs. 6,583 million for the six months ended 31 December 2017 and
Rs. (3,154) million for the six months ended 30 June 2017)

5  Comprises dividends paid net of scrip Rs. 23,796 million (2017: Rs. nil) and dividends on preferences shares classified as equity and Additional Tier 1 securities Rs. 14,881 million
(Rs. 15,087 million for the six months ended 31 December 2017 and Rs. 15,429 million for the six months ended 30 June 2017)



 

Standard Chartered PLC - Supplementary information

 

 

 

Share capital and share premium account Rs. million

Capital and merger reserves1
Rs. million

Own credit adjustment reserve  Rs. million

Available -for-sale reserve  Rs. million

Fair value through other comprehensive income reserve - debt
Rs. million

Fair value through other comprehensive income reserve - equity
Rs. million

Cash flow hedge
reserve Rs. million

Translation reserve
Rs. million

Retained earnings
Rs. million

Parent company share-holders'
equity
Rs. million

Other
equity
instruments
Rs. million

Non-
controlling interests Rs. million

Total
Rs. million

At 1 January 2017

486,267

1,174,626

19,818

(274)

-

-

(5,829)

(398,080)

1,766,020

3,042,549

272,175

22,013

3,336,737

Profit for the period

-

-

-

-

-

-

-

-

82,016

82,016

-

686

82,702

Other comprehensive (loss)/income

-

-

(20,298)

13,166

-

-

1,920

53,557

(3,154)2

45,191

-

206

45,397

Distributions

-

-

-

-

-

-

-

-

-

-

-

(3,566)

(3,566)

Shares issued, net of expenses

274

-

-

-

-

-

-

-

-

274

-

-

274

Other equity instruments issued, net of expenses

-

-

-

-

-

-

-

-

-

-

68,027

-

68,027

Net own shares adjustment

-

-

-

-

-

-

-

-

549

549

-

-

549

Share option expense, net of taxation

-

-

-

-

-

-

-

-

4,663

4,663

-

-

4,663

Dividends3

-

-

-

-

-

-

-

-

(15,429)

(15,429)

-

-

(15,429)

Other movements4

-

-

-

-

-

-

-

-

1,166

1,166

-

1,646

2,812

At 30 June 2017

486,542

1,174,626

(480)

12,892

-

-

(3,909)

(344,522)

1,835,829

3,160,978

340,202

20,984

3,522,165

Profit for the period

-

-

-

-

-

-

-

-

1,577

1,577

-

2,674

4,252

Other comprehensive income/(loss)

-

-

4,183

(7,200)

-

-

823

39,088

6,5832

43,477

-

(137)

43,340

Distributions

-

-

-

-

-

-

-

-

-

-

-

69

69

Shares issued, net of expenses

137

-

-

-

-

-

-

-

-

137

-

-

137

Net own shares adjustment

-

-

-

-

-

-

-

-

137

137

-

-

137

Share option expense, net of taxation

-

-

-

-

-

-

-

-

3,909

3,909

-

-

3,909

Dividends3

-

-

-

-

-

-

-

-

(15,087)

(15,087)

-

-

(15,087)

Other movements5

-

-

-

-

-

-

-

-

(6,035)

(6,035)

-

(206)

(6,240)

As at 31 December 2017

486,679

1,174,626

3,703

5,692

-

-

(3,086)

(305,434)

1,826,915

3,189,094

340,202

23,384

3,552,681

1  Includes capital reserve of Rs. 343 million, capital redemption reserve of Rs. 891 million and merger reserve of Rs. 1,173,392 million

2  Comprises actuarial gain/(loss), net of taxation and share from associates and joint ventures of Rs. 6,583 million for the six months ended 31 December 2017 and Rs. (3,154) million for the six months ended 30 June 2017

3  Comprises dividends on preference shares classified as equity and Additional Tier 1 securities Rs. 15,087 million for the six months ended 31 December 2017 and Rs. 15,429 million for the six months ended 30 June 2017

4  Mainly due to additional share capital issued including the premium by Nepal to its non-controlling interests of Rs. 2,194 million and Rs. 617 million with respect to an acquisition

5  Mainly due to other equity adjustments of Rs. 6,172 million



 

Standard Chartered PLC - Supplementary information

 

Condensed consolidated interim cash flow statement (translated to INR)

For the six months ended 30 June 2018

 

6 months ended 30.06.18
Rs. million

6 months ended 31.12.17
Rs. million

6 months ended 30.06.17
Rs. million

Cash flows from operating activities:

 

 

 

Profit before taxation

160,878

45,328

120,281

Adjustments for non-cash items and other adjustments included within income statement

81,125

151,346

70,907

Change in operating assets

(1,977,917)

(457,672)

(476,667)

Change in operating liabilities

2,742,601

233,430

165,609

Contributions to defined benefit schemes

(2,606)

(6,378)

(3,429)

UK and overseas taxes paid

(22,630)

(31,270)

(31,476)

Net cash from /(used in) operating activities

981,451

(65,215)

(154,774)

Cash flows from investing activities:

 

 

 

Purchase of property, plant and equipment

(4,389)

(7,406)

(3,909)

Disposal of property, plant and equipment

206

137

1,852

Acquisition of investment in subsidiaries, associates and joint ventures, net of cash acquired

-

-

(3,017)

Dividends received from subsidiaries, associates and joint ventures

206

69

69

Disposal of subsidiaries

-

(1,646)

1,646

Purchase of investment securities

(9,868,191)

(9,041,928)

(9,143,282)

Disposal and maturity of investment securities

9,247,173

8,658,935

9,260,889

Net cash (used in)/from investing activities

(624,995)

(391,839)

114,246

Cash flows from financing activities:

 

 

 

Issue of ordinary and preference share capital, net of expenses

274

137

274

Exercise of share options

480

137

549

Issue of Additional Tier 1 capital, net of expenses

-

-

68,027

Gross proceeds from issue of subordinated liabilities

34,288

-

-

Interest paid on subordinated liabilities

(16,595)

(33,328)

(17,624)

Repayment of subordinated liabilities

(153,746)

(204,629)

-

Proceeds from issue of senior debts

131,733

139,276

17,898

Repayment of senior debts

(168,970)

(204,149)

(81,262)

Interest paid on senior debts

(15,224)

(37,579)

(23,864)

(Repayment to)/investment from non-controlling interests

-

(206)

1,646

Dividends paid to non-controlling interests and preference shareholders

(16,664)

(15,018)

(18,995)

Dividends paid to ordinary shareholders

(23,864)

-

-

Net cash used in financing activities

(228,288)

(355,357)

(53,352)

Net increase/(decrease) in cash and cash equivalents

128,167

(812,412)

(93,880)

Cash and cash equivalents at beginning of the period

5,981,892

6,761,250

6,650,227

Effect of exchange rate movements on cash and cash equivalents

(53,832)

33,053

204,903

Cash and cash equivalents at end of the period

6,056,227

5,981,892

6,761,250

Summary of significant differences between Indian GAAP and IFRS

The condensed consolidated interim financial statements of the Group for the six month ended 30 June 2018 with comparatives as at 31 December 2017 and 30 June 2017 are prepared in accordance with International Financial Reporting Standards (IFRS) and IFRS Interpretations Committee interpretations as adopted by the European Union.

IFRS differs in certain significant respects from Indian Generally Accepted Accounting Principles (GAAP). Such differences involve methods for measuring the amounts shown in the financial statements of the Group, as well as additional disclosures required by Indian GAAP.



 

Standard Chartered PLC - Supplementary information

Set out below are descriptions of certain accounting differences between IFRS and Indian GAAP that could have a significant effect on profit or loss attributable to parent company shareholders for the period ended 30 June 2018 and 31 December 2017 and 30 June 2017 and total parent company shareholders' equity as at the same dates. This section does not provide a comprehensive analysis of such differences. In particular, this description considers only those Indian GAAP pronouncements for which adoption or application is required in financial statements for years ended on or prior to 30 June 2018. The Group has not quantified the effect of differences between IFRS and Indian GAAP, nor prepared consolidated financial statements under Indian GAAP, nor undertaken a reconciliation of IFRS and Indian GAAP financial statements. Had the Group undertaken any such quantification or preparation or reconciliation, other potentially significant accounting and disclosure differences may have come to its attention which are not identified below. Accordingly, the Group does not provide any assurance that the differences identified below represent all the principal differences between IFRS and Indian GAAP relating to the Group. Furthermore, no attempt has been made to identify future differences between IFRS and Indian GAAP. In addition no attempt has been made to identify all differences between IFRS and Indian GAAP that may affect the financial statements as a result of transaction or events that may occur in the future.

In making an investment decision, potential investors should consult their own professional advisors for an understanding of the differences between IFRS and Indian GAAP and how those differences may have affected the financial results of the Group. The summary does not purport to be complete and is subject to and qualified in its entirety by reference to the pronouncements of the International Accounting Standards Board (IASB), together with the pronouncements of the Indian accounting profession.

Changes in accounting policy

IFRS (IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors)

Changes in accounting policy are applied retrospectively. Comparatives are restated and the effect of period(s) not presented is adjusted against opening retained earnings of the earliest year presented. Policy changes made on the adoption of a new standard are made in accordance with that standard's transitional provisions.

Indian GAAP (AS 5 Net Profit or Loss for the Period, Prior Period Items and Changes in Accounting Policies) 

The cumulative amount of the change is included in the income statement for the period in which the change is made except as specified in certain standards (transitional provision) where the change during the transition period resulting from adoption of the standard has to be adjusted against opening retained earnings and the impact disclosed.

Where a change in accounting policy has a material effect in the current period, the amount by which any item in the financial statements is affected by such change should also be disclosed to the extent ascertainable. Where such an amount is not ascertainable, this fact should be indicated.

Functional and presentation currency

IFRS (IAS 21 The Effects of Changes in Foreign Exchange Rates)

An entity may present its financial statements in any currency (or currencies). If the presentation currency differs from the entity's functional currency, it translates its results and financial position into the presentation currency.

Monetary assets and liabilities are translated at the closing rate at the date of that statement of financial position. Income statement items are translated at the exchange rate at the date of transaction or at average rates. The functional currency is the currency of the primary economic environment in which an entity operates. The functional
and presentation currency of the Group is US dollars.

Indian GAAP (AS 11 The Effects of Changes in Foreign Exchange Rates)

There is no concept of functional or presentation currency. Entities in India have to prepare their financial statements in Indian rupees.

A foreign currency transaction should be recorded, on initial recognition in the reporting currency, by applying to the foreign currency amount, the exchange rate between the reporting currency and the foreign currency at the date of the transaction.

At each balance sheet date:

•     Foreign currency monetary items should be reported using the closing rate

•     Non-monetary items which are carried in terms of historical cost denominated in a foreign currency should be reported using the exchange rate at the date of the transaction

Non-monetary items which are carried at fair value or other similar valuation denominated in a foreign currency should be reported using the exchange rates that existed when the values were determined



 

Standard Chartered PLC - Supplementary information

Consolidation

IFRS (IFRS 10 Consolidated Financial Statements)

Entities are consolidated when the Group controls an entity. The Group controls an entity when it is exposed to, or has rights to direct relevant activities, or has right to variable returns from its involvement with the entity and has the ability to affect those returns through its power over the investee. This also includes entities where control is not derived through voting rights such as structured entities.

Indian GAAP (AS 21 Consolidated Financial Statements)

Guidance is based on the power through the ability to govern the financial and operating policies of an entity so as to obtain benefits while not taking into consideration potential voting rights.

No specific guidance is given by Indian GAAP on consolidation of structured entities.

Business combinations

IFRS (IFRS 3 Business Combinations)

All business combinations are treated as acquisitions. Assets, liabilities and contingent liabilities acquired are measured at their fair values with the excess over this fair value when compared with the acquisition cost recognised as goodwill.

For acquisitions occurring on or after 1 January 2004, IFRS 3 requires that, when assessing the value of the assets of an acquired entity, certain identifiable intangible assets must be recognised and; if considered to have a finite life, amortised through the income statement over an appropriate period.

Adjustments to provisional fair values are permitted provided those adjustments are made within 12 months from the date of acquisition, with a corresponding adjustment to goodwill. After re-assessment of respective fair values of net assets acquired, any excess of acquirer's interest in the net fair values of acquirer's identifiable assets is recognised immediately in the income statement.

The Group's policy for non-controlling interests is generally not to recognise non-controlling interests at their fair value, but to recognise them based on their proportionate share of the fair value of the identifiable net assets acquired.

Indian GAAP (AS 14 Accounting for Amalgamations)

Treatment of a business combination depends on whether the acquired entity is held as a subsidiary, whether it is an amalgamation or whether it is an acquisition of a business. For an entity acquired and held as a subsidiary, the business combination is accounted for as an acquisition. The assets and liabilities acquired are incorporated at their existing carrying amounts.

For an amalgamation of an entity, either pooling of interests or acquisition accounting may be used. The assets and liabilities amalgamated are incorporated at their existing carrying amounts or, alternatively, if acquisition accounting is adopted, the consideration can be allocated to individual identifiable assets (which may include intangible assets) and liabilities on the basis of their fair values.

Adjustments to the value of acquired or amalgamated balances are not permitted after initial recognition. Any excess of acquirer's interest in the net fair values of acquirer's identifiable assets is recognised as capital reserve, which is neither amortised nor available for distribution to shareholders. However, in case of an amalgamation accounted under the purchase method, the fair value of intangible assets with no active market is reduced to the extent of capital reserve, if any, arising on the amalgamation. Minority interests arising on the acquisition of a subsidiary are recognised at their share of the historical book value.

Goodwill

IFRS (IFRS 3 Business Combinations and IAS 38 Intangible Assets)

IFRS 3 requires that goodwill arising on all acquisitions by the Group and associated undertakings is capitalised but not amortised and is subject to an annual review for impairment. Goodwill is tested annually for impairment. Any impairment losses recognised may not be reversed in subsequent accounting periods.

Indian GAAP (AS 14 Accounting for Amalgamations and AS 26 Intangible Assets)

Goodwill arising on amalgamations is capitalised and amortised over useful life not exceeding five years, unless a longer period can be justified. For goodwill arising on acquisition of a subsidiary or a business, there is no specific guidance. In practice, there is either no amortisation or amortisation not exceeding 10 years. Goodwill is reviewed for impairment whenever an indicator of impairment exists. Impairment losses recognised may be reversed under exceptional circumstances only in subsequent accounting periods through the income statement.



 

Standard Chartered PLC - Supplementary information

Acquired and internally generated intangible assets

IFRS (IAS 38 Intangible Assets)

Intangible assets are recognised if they are deemed separable and arise from contractual or other legal rights. Assets with a finite useful life are amortised on a systematic basis over their useful life. An asset with an indefinite useful life should be tested for impairment annually.

Indian GAAP (AS 26 Intangible Assets)

Intangible assets are capitalised if specific criteria are met and are amortised over their useful life, generally not exceeding 10 years. The recoverable amount of an intangible asset that is not available for use or is being amortised over a period exceeding 10 years should be reviewed at least at each financial year end even if there is no indication that the asset is impaired.

Property, plant and equipment

IFRS (IAS 16 Property, Plant and Equipment, IAS 23 Borrowing Costs)

The Group's policy is to hold all property, plant, aviation, shipping and equipment fixed assets at cost less depreciation and consequently tangible fixed assets are not subject to revaluation. Fixed assets are, however, subject to impairment testing.

Foreign exchange gains or losses relating to the procurement of property, plant and equipment can be capitalised as part of the asset. Depreciation is recorded over the asset's estimated useful life. Borrowing costs that are directly attributable to the acquisition or construction of an asset must be capitalised as part of that asset.

Indian GAAP (AS 10 Fixed Assets, AS 16 Borrowing Cost and AS 6 Depreciation Accounting)

Fixed assets are recorded at historical costs or revalued amounts. Relevant borrowing costs are capitalised if certain criteria in AS 16 are met. Depreciation is recorded over the asset's useful life. Schedule II (Part C) of the Companies Act 2013 and Banking Regulations prescribe minimum rates of depreciation and these are typically used as the basis for determining useful life.

Recognition and measurement of financial instruments

IFRS 9 Financial Instruments

Classification and measurement

Accounting policy

The Group classifies its financial assets into the following measurement categories: amortised cost; fair value through other comprehensive income; and fair value through profit or loss. Financial liabilities are classified as either amortised cost, or held at fair value through profit or loss. Management determines the classification of its financial assets and liabilities at initial recognition of the instrument or, where applicable, at the time of reclassification.

Financial assets held at amortised cost and fair value through other comprehensive income

Debt instruments held at amortised cost or held at fair value through comprehensive income (FVOCI) have contractual terms that give rise to cash flows that are solely payments of principal and interest (SPPI characteristics). Principal is the fair value of the financial asset at initial recognition but this may change over the life of the instrument as amounts are repaid. Interest consists of consideration for the time value of money, for the credit risk associated with the principal amount outstanding during a particular period and for other basic lending risks and costs, as well as a profit margin.

Whether financial assets are held at amortised cost or at FVOCI depends on the objectives of the business models under which the assets are held. A business model refers to how the Group manages financial assets to generate cash flows.

The Group makes an assessment of the objective of a business model in which an asset is held at the individual product business line, and where applicable within business lines depending on the way the business is managed and information is provided to management.

Financial assets that have SPPI characteristics and which are held within a business model whose objective is to hold financial assets to collect contractual cash flows ('hold to collect') are recorded at amortised cost.

Conversely, financial assets that have SPPI characteristics but are held within a business model whose objective is achieved by both collecting contractual cash flows and selling financial assets ('hold to collect and sell') are classified as FVOCI.



 

Standard Chartered PLC - Supplementary information

 

Equity instruments designated as FVOCI

Non-trading equity instruments acquired for strategic purposes rather than capital gain may be irrevocably designated at initial recognition at FVOCI on an instrument-by-instrument basis. Gains and losses arising from changes in the fair value of these instruments, including foreign exchange gains and losses, are recognised directly in equity and are never reclassified to profit or loss, even on derecognition.

Financial assets and liabilities held at fair value through profit or loss

Financial assets that are not held at amortised cost or which are not held at fair value through other comprehensive income are held at fair value through profit or loss. Financial assets and liabilities held at fair value through profit or loss are either mandatorily classified fair value through profit or loss or irrevocably designated at fair value through profit or loss at initial recognition.

Mandatorily classified at fair value through profit or loss

Financial assets and liabilities that are mandatorily held at fair value through profit or loss include:

•     Financial assets and liabilities held for trading, which are those acquired principally for the purpose of selling in the short term

•     Hybrid financial assets that contain one or more embedded derivatives

•     Financial assets that would otherwise be measured at amortised cost or FVOCI but which do not have SPPI characteristics

•     Equity instruments that have not been designated as held at FVOCI

•     Financial liabilities that constitute contingent consideration in a business combination

Designated at fair value through profit or loss

Financial assets and liabilities may be designated at fair value through profit or loss when the designation eliminates or significantly reduces a measurement or recognition inconsistency that would otherwise arise from measuring assets or liabilities on a different basis ('accounting mismatch').

Financial liabilities may also be designated at fair value through profit or loss where they are managed on a fair value basis or have a bifurcately embedded derivative where the Group is not able to separately value the embedded derivative component.

Financial liabilities held at amortised cost

Financial liabilities that are not financial guarantees or loan commitments and that are not classified as financial liabilities held at fair value through profit or loss are classified as financial liabilities held at amortised cost.

Financial guarantee contracts and loan commitments

Financial guarantee contracts and loan commitments issued at below market interest rates are initially recognised as liabilities at fair value and subsequently at the higher of the expected credit loss provision,

and the amount initially recognised less the cumulative amount of income recognised in accordance with the principles of IFRS 15 Revenue from Contracts with Customers.

Fair value of financial assets and liabilities

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date in the principal market for the asset or liability, or in the absence of a principal market, the most advantageous market to which the Group has access at that date. The fair value of a liability includes the risk that the bank will not be able to honour its obligations.

Initial recognition

Purchases and sales of financial assets and liabilities held at fair value through profit or loss, and debt securities classified as financial assets held at FVOCI are initially recognised on the trade-date (the date on which the Group commits to purchase or sell the asset). Loans and advances and other financial assets held at amortised cost are recognised on settlement date (the date on which cash is advanced to the borrowers).

All financial instruments are initially recognised at fair value, which is normally the transaction price, plus directly attributable transaction costs for financial assets that are not subsequently measured at fair value through profit or loss.



 

Standard Chartered PLC - Supplementary information

 

Subsequent measurement

Financial assets and financial liabilities held at amortised cost

Financial assets and financial liabilities held at amortised cost are subsequently carried at amortised cost using the effective interest method. Foreign exchange gains and losses are recognised in the income statement.

Financial assets held at FVOCI

Debt instruments held at FVOCI are subsequently carried at fair value, with all unrealised gains and losses arising from changes in fair value (including any related foreign exchange gains or losses) recognised in other comprehensive income and accumulated in a separate component of equity. Foreign exchange gains and losses on the amortised cost are recognised in income. Changes in expected credit losses are recognised in the profit or loss and are accumulated in a separate component of equity.

Equity investments designated at FVOCI are subsequently carried at fair value with all unrealised gains and losses arising from changes in fair value (including any related foreign exchange gains or losses) recognised in other comprehensive income and accumulated in a separate component of equity.

Financial assets and liabilities mandatorily held at fair value through profit or loss and financial assets designated at fair value through profit or loss are subsequently carried at fair value, with gains and losses arising from changes in fair value recorded in the net trading income line in the income statement unless the instrument is part of a cash flow hedging relationship. Contractual interest income on financial assets held at fair value through profit or loss is recognised as interest income in a separate line in the income statement.

Financial liabilities designated at fair value through profit or loss

Financial liabilities designated at fair value through profit or loss are held at fair value, with changes in fair value recognised in the net trading income line in the profit or loss, other than that attributable to changes in credit risk. Fair value changes attributable to credit risk are recognised in other comprehensive income and recorded in a separate category of reserves unless this is expected to create or enlarge an accounting mismatch, in which case the entire change in fair value of the financial liability designated fair value through profit or loss is recognised in profit or loss.

Indian GAAP (AS 13 Investments)

AS 13 requires investments to be categorised as follows:

•     Current investments, which are those readily realisable and intended to be held for less than one year, are carried at the lower of cost and fair value, with changes in fair value taken directly to profit or loss

•     Long-term investments, which are those investments not classified as current, are carried at cost unless there is a permanent diminution in value, in which case a provision for diminution is required to be made by the entity

For investments, the Reserve Bank of India (RBI) outlines similar classifications to IFRS, but the classification criteria and measurement requirements differ from those set out in IFRS. Financial liabilities are usually carried at cost. There is no ability to designate instruments at fair value.

Derivatives

IFRS (IFRS 9/IAS 39 Financial Instruments: Recognition and Measurement)

IFRS 9 requires that all derivatives be recognised on balance sheet at fair value. Changes in the fair value of derivatives that are not hedges are reported in the income statement. Changes in the fair value of derivatives that are designated as hedges are either offset against the change in fair value of the hedged asset or liability through earnings, or recognised directly in equity until the hedged item is recognised in earnings, depending on the nature of the hedge. The ineffective portion of the hedge's change in fair value is immediately recognised in earnings. A derivative may only be classified as a hedge if an entity meets stringent qualifying criteria in respect of documentation and hedge effectiveness.

The Group continues to apply the hedge accounting requirements of IAS 39 rather than the requirements of IFRS 9.

Indian GAAP

Foreign exchange contracts held for trading or speculative purposes are carried at fair value, with gains and losses recognised in the income statement. In the absence of specific guidance, equity options are carried at the lower of cost or market value.

For banks, there are guidelines prescribed by RBI on measurement and accounting of interest rate swaps and forward rate agreements entered into for hedging purposes.



 

Standard Chartered PLC - Supplementary information

Impairment of financial assets

Under IFRS 9 the impairment of financial assets is as follows:

Measurement

Expected credit losses are computed as unbiased, probability-weighted amounts which are determined by evaluating a range of reasonably possible outcomes, the time value of money, and considering all reasonable and supportable information including that which is forward looking.

For material portfolios, the estimate of expected cash shortfalls is determined by multiplying the probability of default (PD) with the loss given default (LGD) with the expected exposure at the time of default (EAD). For less material Retail loan portfolios, the Group has adopted simplified approaches based on historical roll rates or loss rates.

For credit-impaired financial instruments, the estimate of cash shortfalls may require the use of expert credit judgement. As a practical expedient, the Group may also measure credit impairment on the basis of an instrument's fair value using an observable market price.

Cash shortfalls are discounted using the effective interest rate on the financial instrument as calculated at initial recognition, or if the instrument has a variable interest rate, the current effective interest rate determined under the contract.

Instruments

Location of expected credit loss provisions

Financial assets held at amortised cost

Loss provisions: netted against gross carrying value

Financial assets held at FVOCI - Debt instruments

Other comprehensive income (FVOCI expected credit loss reserve)

Loan commitments

Provisions for liabilities and charges

Financial guarantees

Provisions for liabilities and charges

Recognition

12 months expected credit losses (Stage 1)

Expected credit losses are recognised at the time of initial recognition of a financial instrument and represent the lifetime cash shortfalls arising from possible default events up to 12 months into the future from the balance sheet date. Expected credit losses continue to be determined on this basis until there is either a significant increase in the credit risk of an instrument or the instrument becomes credit-impaired. If an instrument is no longer considered to exhibit a significant increase in credit risk, expected credit losses will revert to being determined on a 12-month basis.

Significant increase in credit risk (Stage 2)

If a financial asset experiences a significant increase in credit risk (SICR) since initial recognition, an expected credit loss provision is recognised for default events that may occur over the lifetime of the asset.

Significant increase in credit risk is assessed by comparing the risk of default of an exposure at the reporting date to the risk of default at origination (after taking into account the passage of time). Significant does not mean statistically significant nor is it assessed in the context of changes in expected credit loss. Whether a change in the risk of default is significant or not is assessed using a number of quantitative and qualitative factors, the weight of which depends on the type of product and counterparty. Financial assets that are 30 or more days past due and not credit-impaired will always be considered to have experienced a significant increase in credit risk. For less material portfolios where a loss rate or roll rate approach is applied to compute expected credit loss significant increase in credit risk is primarily based on 30 days past due.

Credit impaired (or defaulted) exposures (Stage 3)

Financial assets that are credit impaired (or in default) represent those that are at least 90 days past due in respect of principal and/or interest. Financial assets are also considered to be credit impaired where the obligors are unlikely to pay on the occurrence of one or more observable events that have a detrimental impact on the estimated future cash flows of the financial asset. It may not be possible to identify a single discrete event but instead the combined effect of several events may cause financial assets to become credit impaired.

Irrevocable lending commitments to a credit impaired obligor that have not yet been drawn down are also included within the stage 3 credit impairment provision to the extent that the commitment cannot be withdrawn.

Loss provisions against credit impaired financial assets are determined based on an assessment of the recoverable cash flows under a range of scenarios, including the realisation of any collateral held where appropriate. The loss provisions held represent the difference between the present value of the cash flows expected to be recovered, discounted at the instrument's original effective interest rate, and the gross carrying value of the instrument prior to any credit impairment.



 

Standard Chartered PLC - Supplementary information

 

Indian GAAP (AS 13 Investments)

Long-term investments are written down when there is a decline in fair value which is deemed to be other than temporary.

Impairments may be reversed through the income statement in subsequent periods if the investment rises in value or the reasons for the impairment no longer exist.

In accordance with RBI regulations, in respect of available-for-sale investments, impairments are required to be reversed through Investment Reserve Account (equity reserve) if the investment rises in value or the reasons for impairment no longer exist.

For loans and advances, the RBI regulations stipulate minimum provision based on days past due. Additionally, RBI regulations require banks to hold provisions in respect of standard assets and for specific country risk exposures.

Derecognition of financial instruments - IFRS 9

Financial assets are derecognised when the rights to receive cash flows from the financial assets have expired or where the Group has transferred substantially all risks and rewards of ownership. If substantially all the risks and rewards have been neither retained nor transferred and the Group has retained control, the assets continue to be recognised to the extent of the Group's continuing involvement.

Where financial assets have been modified, the modified terms are assessed on a qualitative and quantitative basis to determine whether a fundamental change in the nature of the instrument has occurred, such as whether the derecognition of the pre-existing instrument and the recognition of a new instrument is appropriate.

On derecognition of a financial asset, the difference between the carrying amount of the asset (or the carrying amount allocated to the portion of the asset derecognised) and the sum of the consideration received (including any new asset obtained less any new liability assumed) and any cumulative gain or loss that had been recognised in other comprehensive income is recognised in profit or loss except for equity instruments elected FVOCI (see above) and cumulative fair value adjustments attributable to the credit risk of a liability that are held in other comprehensive income.

Financial liabilities are derecognised when they are extinguished. A financial liability is extinguished when the obligation is discharged, cancelled or expires and this is evaluated both qualitatively and quantitatively. However, where a financial liability has been modified, it is derecognised if the difference between the modified cash flows and the original cash flows is more than 10 per cent.

If the Group purchases its own debt, it is derecognised and the difference between the carrying amount of the liability and the consideration paid is included in Other income except for the cumulative fair value adjustments attributable to the credit risk of a liability that are held in other comprehensive income which are never recycled to the profit or loss.

IFRS classification debt/equity

The substance of a financial instrument, rather than its legal form, governs its classification. A financial instrument is classified as a liability where there is a contractual obligation to deliver either cash or another financial asset to the holder of that instrument, regardless of the manner in which the contractual obligation will be settled. Preference shares, which carry a mandatory coupon or are redeemable on a specific date or at the option of the shareholder are classified as financial liabilities and are presented in other borrowed funds. The dividends on these preference shares are recognised in the income statement as interest expense on an amortised cost basis using the effective interest method.

Indian GAAP

Classification is based on the legal form rather than substance.

Provisions for liabilities and charges

IFRS (IAS 37 Provisions, Contingent Liabilities and Contingent Assets)

The amount recognised as a provision is the best estimate at the balance sheet date of the expenditure required to settle the obligation, discounted using a pre-tax market discount rate if the effect is material.

Indian GAAP (AS 29 Provisions, Contingents Liabilities and Contingent Assets)

Provisions are recognised and measured on a similar basis to IFRS, except that there is no requirement for discounting the provision or liability.



 

Standard Chartered PLC - Supplementary information

 

Pension obligations

IFRS (IAS 19 Employee Benefits)

For defined contribution plans, contributions are charged to operating expenses. For funded defined benefit plans, the liability recognised in the balance sheet is the present value of the defined benefit obligation at the balance sheet date less the fair value of plan assets. For unfunded defined benefit plans the liability recognised at the balance sheet date is the present value of the defined benefit obligation. The defined benefit obligation is calculated annually by independent actuaries using the projected unit method. The present value of the defined benefit obligation is determined by discounting the estimated future cash outflows using an interest rate equal to the yield on high-quality corporate bonds. Actuarial gains and losses that arise are recognised in shareholders' equity and presented in the statement of other comprehensive income in the period they arise. The net interest expense on the net defined liability for the year is determined by applying the discount rate used to measure the defined benefit obligation at the beginning of the annual period to the then net defined benefit liability, taking into account any changes in the net defined benefit liability during the year as a result of contributions and benefit payment. Net interest expense and other expense related to defined benefit plans are recognised in the income statement.

Indian GAAP (AS 15 Employee Benefits)

The discount rate to be used for determining defined benefit obligations is established by reference to market yields at the balance sheet date on government bonds. The expected return on plan assets is based on market expectation for the returns over the entire life of the related obligation. Actuarial gains or losses are recognised immediately in the statement of income.

Share-based compensation

IFRS (IFRS 2 Share-based payments)

IFRS 2 requires that all share-based payments are accounted for using a fair value method. The fair value of the employee services received in exchange for the grant of the options is recognised as an expense. For equity-settled awards, the total amount to be expensed over the vesting period must be determined by reference to the fair value of the options granted (determined using an option pricing model), excluding the impact of any non-market vesting conditions (for example, profitability and growth targets). Non-market vesting conditions must be included in assumptions about the number of options that are expected to become exercisable. At each balance sheet date, the Group revises its estimates of the number of options that are expected to become exercisable. It recognises the impact of the revision of original estimates, if any, in the income statement, and a corresponding adjustment to equity over the remaining vesting period. The proceeds received net of any directly attributable transaction costs are credited to share capital (nominal value) and share premium when the options are exercised.

Cash-settled awards must be revalued at each balance sheet date on an intrinsic value basis (being the difference between the market price of the share at the measurement date and the exercise price) with any changes in fair value charged or credited to staff costs in the income statement.

Indian GAAP

Entities may either follow the intrinsic value method or the fair value method for determining the costs of benefits arising from share-based compensation plans. Although the fair value approach is recommended, entities may use the intrinsic value method and provide fair value disclosures.

Deferred tax is not recognised as it is not considered to represent a timing difference.

Entities are also permitted the option of recognising the related compensation cost over the service period for the entire award (that is, over the service period of the last separately vesting portion of the award), provided that the amount of compensation cost recognised at any date at least equals the fair value of the vested portion of the award at that date.



 

Standard Chartered PLC - Supplementary information

 

Deferred taxation

IFRS (IAS 12 Income Taxes)

Deferred tax is determined based on temporary differences, being the difference between the carrying amount and tax base of assets and liabilities, subject to certain exceptions.

Deferred tax assets are recognised if it is probable (more likely than not) that sufficient future taxable profits will be available to utilise to deferred tax assets.

Indian GAAP (AS 22 Accounting for Taxes on Income)

Deferred tax is determined based on timing differences, being the difference between accounting income and taxable income for a period that is capable of reversal in one or more subsequent periods.

Deferred tax assets are recognised where it is probable that future taxable profit will be available against which the temporary differences can be utilised.

Interest income and expense

IFRS (IFRS 9)

Interest income and expense is recognised in the income statement using the effective interest method. The effective interest rate is the rate that discounts estimated future cash payments or receipts through the expected life of the financial instrument. When calculating the effective interest rate, the Group estimates cash flows considering all contractual terms of the financial instrument but does not consider future credit losses. The calculation includes all fees and points paid or received between parties to the contract that are an integral part of the effective interest rate, transaction costs and all other premiums or discounts.

Indian GAAP (IAS 9 Revenue Recognition)

As per IAS 9, Interest is recognised on a time proportion basis taking into account the amount outstanding and the rate applicable. In the absence of a specific effective interest rate requirement, premiums and discounts are usually amortised on a straight-line basis over the term of the instrument.

Dividends

IFRS (IAS 10 Events After The Reporting Date)

Dividends to holders of equity instruments, when proposed or declared after the balance sheet date, should not be recognised as a liability on the balance sheet date. A company, however, is required to disclose the amount of dividends that were proposed or declared after the balance sheet date but before the financial statements were authorised for issue.

Indian GAAP

Accounting and disclosure of dividends is similar to IFRS with effect from 1 April 2016.



Standard Chartered PLC - Supplementary information

Other supplementary information

A. Our Fair Pay Charter

The Group's Fair Pay Charter sets out the principles we use to determine and deliver pay for all employees globally. Our Fair Pay Charter is set out in the Group's 2017 Annual Report and Accounts.

B. Group Share Plans

2011 Standard Chartered Share Plan (the '2011 Plan')

The 2011 Plan was approved by shareholders in May 2011 and is the Group's main share plan. Since approval, it has been used to deliver various types of share awards:

•     Long Term Incentive Plan ('LTIP') awards: granted with vesting subject to performance measures. Performance measures attached to awards granted previously include: total shareholder return ('TSR'); return on equity ('RoE') with a common equity tier 1 ('CET1') underpin; strategic measures; earnings per share ('EPS') growth; and return on risk-weighted assets ('RoRWA'). Each measure is assessed independently over a three-year period. Awards granted from 2016 have an individual conduct gateway requirement that results in the award lapsing if not met

•     Deferred awards are used to deliver the deferred portion of variable remuneration, in line with both market practice and regulatory requirements. These awards vest in instalments on anniversaries of the award date specified at the time of grant. Deferred awards are not subject to any plan limit. This enables the Group to meet regulatory requirements relating to deferral levels, and is in line with market practice

•     Restricted share awards, made outside of the annual performance process as replacement buy-out awards to new joiners who forfeit awards on leaving their previous employers, vest in instalments on the anniversaries of the award date specified at the time of grant. This enables the Group to meet regulatory requirements relating to buy-outs, and is in line with market practice. In line with similar plans operated by our competitors, restricted share awards are not subject to an annual limit and do not have any performance measures

•     Underpin shares are subject to a combination of two performance measures: EPS growth and RoRWA. The weighting between the two elements is split equally, one-half of the award depending on each measure, assessed independently. These awards vest after three or five years. Underpin shares formed part of the variable remuneration awarded to executive directors and senior management in respect of 2014 performance

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 three years.

2001 Performance Share Plan ('2001 PSP') - now closed to new grants

The Group's previous plan for delivering performance shares was the 2001 PSP and there remain outstanding vested awards. Under the 2001 PSP half the award was dependent upon TSR performance and the balance was subject to a target of defined EPS growth. Both measures used the same three-year period and were assessed independently.

2006 Restricted Share Scheme ('2006 RSS') / 2007 Supplementary Restricted Share Scheme ('2007 SRSS')

The Group's previous plans for delivering restricted shares were the 2006 RSS and 2007 SRSS both now replaced by the 2011 Plan. There are no outstanding vested awards under these plans. Awards were generally in the form of nil cost options and did not have any performance measures. Generally deferred restricted share awards vested equally over three years and for non-deferred awards half vested two years after the date of grant and the balance after three years. No further awards will be granted under the 2006 RSS and 2007 SRSS.

All Employee Sharesave Plans

2013 Sharesave Plan

The 2013 Sharesave Plan was approved by shareholders in May 2013. Under the 2013 Sharesave Plan, employees may open a savings contract. Within a maturity period of six months after the third anniversary, employees may purchase ordinary shares in the Company at a discount of up to 20 per cent on the share price at the date of invitation (this is known as the 'option exercise price'). There are no performance measures attached to options granted under the 2013 Sharesave Plan and no grant price is payable to receive an option. In some countries in which the Group operates, it is not possible to deliver shares through the 2013 Sharesave Plan, typically due to securities law and regulatory restrictions. In these countries, the Group offers an equivalent cash-based plan to its employees. The remaining life of the 2013 Sharesave Plan is four years.



 

Standard Chartered PLC - Supplementary information

 

2004 International Sharesave and the 2004 UK Sharesave plans

The Group's previous all employee Sharesave plans were the 2004 International Sharesave and the 2004 UK Sharesave plans, both replaced by the 2013 Sharesave Plan. There are no outstanding vested awards under these plans. These plans are closed and no further awards will be granted under them.

Valuation of share awards

Details of the valuation models used in determining the fair values of share awards granted under the Group's share plans are detailed in the Group's 2017 Annual Report and Accounts.

Reconciliation of share award movements for the period to 30 June 2018

 

2011 Plan1

PSP1

RSS1

SRSS1

Sharesave

Weighted average Sharesave exercise price
(£)

LTIP

Deferred/
restricted
shares

Outstanding at 1 January 2018

25,477,368

23,311,221

17,222

185,943

1,249

12,818,234

6.06

Granted2

2,315,629

12,895,556

-

-

-

-

-

Lapsed

(411,393)

(840,557)

(553)

(50,484)

-

(1,929,188)

8.29

Exercised

(14,502)

(5,988,767)

(4,525)

(135,459)

(1,249)

(60,319)

5.52

Outstanding at 30 June 2018

27,367,102

29,377,453

12,144

-

-

10,828,727

5.66

Exercisable as at 30 June 2018

49,891

4,319,615

12,144

-

-

29,996

5.66

Range of exercise prices (£)

-

-

-

-

-

5.30-9.38

 

Intrinsic value of vested but not exercised options ($million)

0.1

3.2

0.0

0.0

0.0

0.0

 

Weighted average contractual remaining life (years)

7.94

8.56

0.80

0.0

0.0

1.75

 

Weighted average share price for options exercised during the period (£)

7.65

7.68

7.79

7.84

7.85

7.59

 

1  Employees do not contribute towards the cost of these awards    

2 12,508,120 (DRSA/RSA) granted on 9 March 2018, 39,945 (notional dividend) granted on 11 March 2018, 63,350 (notional dividend) granted on 13 March 2018, 37,774 (notional dividend) granted on 19 March 2018, 2,076,370 (LTIP) granted on 9 March 2018, 216,127 (notional dividend) granted on 11 March 2018, 22,317 (notional dividend) granted on
13 March 2018, 815 (notional dividend) granted on 19 March 2018 and 246,367 (DRSA/RSA) granted on 18 June 2018

C. Group Chairman and independent non-executive directors' interests in ordinary shares as at 30 June 20181,2

 

Shares
beneficially
held as at
1 January 2018

Shares
beneficially
held as at
30 June 2018

Chairman

 

 

J Viñals

8,500

8,500

Current independent non-executive directors

 

 

N Kheraj

2,571

2,571

O P Bhatt

2,000

2,000

Dr L Cheung

2,571

2,571

Mr D P Conner

10,000

10,000

Dr B E Grote

44,541

44,541

Dr Han Seung-soo, KBE

3,474

3,509

C M Hodgson

2,571

2,571

G Huey Evans, OBE

2,571

2,597

Dr N Okonjo-Iweala

2,000

2,020

J M Whitbread

2,571

2,571

1  Independent non-executive directors are required to hold shares with a nominal value of $1,000. All the directors have met this requirement

2  The beneficial interests of directors and their related parties in the ordinary shares of the Company are set out above. The directors do not have any non-beneficial interests in the Company's shares. None of the directors used ordinary shares as collateral for any loans. No director had either i) an interest in the Company's preference shares or loan stocks of
any subsidiary or associated undertaking of the Group or ii) any corporate interests in the Company's ordinary shares. All figures are as at 30 June 2018



 

Standard Chartered PLC - Supplementary information

 

D. Executive directors' interests in ordinary shares as at 30 June 2018

Scheme interests awarded, exercised and lapsed during the period

The following table shows the changes in share interests. Employees, including executive directors, are not permitted to engage in any personal hedging strategies with regards to their Standard Chartered PLC shares, including hedging against the share price of Standard Chartered PLC shares.

 

Changes in interests during the period 1 January to 30 June 2018

As at 1 January

Awarded1

Dividends awarded7

Exercised2

Lapsed

As at 30 June

Performance period end

Vesting date

W T Winters3

 

 

 

 

 

 

 

 

Restricted shares (buy-out)

314,822

-

-

-

-

314,822

-

22 Sep 2018

314,916

-

-

-

-

314,916

-

22 Sep 2019

LTIP 2016-18

496,390

-

-

-

-

496,390

11 Mar 2019

4 May 2019

124,097

-

-

-

-

124,097

11 Mar 2019

4 May 2020

124,097

-

-

-

-

124,097

11 Mar 2019

4 May 2021

124,097

-

-

-

-

124,097

11 Mar 2019

4 May 2022

124,100

-

-

-

-

124,100

11 Mar 2019

4 May 2023

LTIP 2017-19

118,550

-

-

-

-

118,550

13 Mar 2020

13 Mar 2020

118,550

-

-

-

-

118,550

13 Mar 2020

13 Mar 2021

118,550

-

-

-

-

118,550

13 Mar 2020

13 Mar 2022

118,550

-

-

-

-

118,550

13 Mar 2020

13 Mar 2023

118,551

-

-

-

-

118,551

13 Mar 2020

13 Mar 2024

LTIP 2018-20

-

108,378

-

-

-

108,378

9 Mar 2021

9 Mar 2021

-

108,378

-

-

-

108,378

9 Mar 2021

9 Mar 2022

-

108,378

-

-

-

108,378

9 Mar 2021

9 Mar 2023

-

108,378

-

-

-

108,378

9 Mar 2021

9 Mar 2024

-

108,379

-

-

-

108,379

9 Mar 2021

9 Mar 2025

A N Halford

 

 

 

 

 

 

 

 

LTIP 2015-174

28,529

-

-

-

28,529

-

31 Dec 2017

19 Mar 2020

LTIP 2016-185

296,417

-

-

-

-

296,417

11 Mar 2019

4 May 2019

74,104

-

-

-

-

74,104

11 Mar 2019

4 May 2020

74,104

-

-

-

-

74,104

11 Mar 2019

4 May 2021

74,104

-

-

-

-

74,104

11 Mar 2019

4 May 2022

74,105

-

-

-

-

74,105

11 Mar 2019

4 May 2023

LTIP 2017-195

73,390

-

-

-

-

73,390

13 Mar 2020

13 Mar 2020

73,390

-

-

-

-

73,390

13 Mar 2020

13 Mar 2021

73,390

-

-

-

-

73,390

13 Mar 2020

13 Mar 2022

73,390

-

-

-

-

73,390

13 Mar 2020

13 Mar 2023

73,394

-

-

-

-

73,394

13 Mar 2020

13 Mar 2024

LTIP 2018-20

-

67,108

-

-

-

67,108

9 Mar 2021

9 Mar 2021

-

67,108

-

-

-

67,108

9 Mar 2021

9 Mar 2022

-

67,108

-

-

-

67,108

9 Mar 2021

9 Mar 2023

-

67,108

-

-

-

67,108

9 Mar 2021

9 Mar 2024

-

67,108

-

-

-

67,108

9 Mar 2021

9 Mar 2025

Deferred shares 20144

12,936

-

259

13,195

-

-

-

19 Mar 2018

Underpin shares 2015-174

14,264

-

-

-

14,264

-

31 Dec 2017

19 Mar 2018

14,264

-

-

-

14,264

-

31 Dec 2017

19 Mar 2020

Sharesave6

1,612

-

-

-

-

1,612

-

1 Dec 2018

1  For the LTIP 2018-20 awards granted to Bill Winters and Andy Halford on 9 March 2018, the values granted were: Bill Winters: £3.3 million; Andy Halford: £2.1 million. The number of shares awarded in respect of the LTIP took into account the lack of dividend equivalents (calculated by reference to market consensus dividend yield) such that the overall value of the award was maintained. Performance measures apply to LTIP 2018-20. The share price at grant was the closing price on the day before the grant date

2  On 19 March 2018, Andy Halford exercised deferred share awards over a total of 13,195 shares. The closing share price on the day before exercise was £7.674

3  The unvested share awards held by Bill Winters are conditional rights under the 2011 Plan. Bill does not have to pay towards these awards

4  The LTIP 2014-16, LTIP 2015-17, deferred shares 2014 and underpin shares 2015-17 held by Andy Halford are nil cost options under the 2011 Plan

5  The LTIP 2016-18, LTIP 2017-19 and LTIP 2018-20 held by Andy Halford are conditional rights under the 2011 Plan. Andy does not have to pay towards these awards

6  The Sharesave option held by Andy Halford is under the 2013 Sharesave Plan at an exercise price of GBP 5.5776 per share

7  Dividend equivalent shares may be awarded on vesting for awards granted prior to 1 January 2018

8  Further details relating to the above awards and individual shareholding requirements can be found in the 2017 Annual Report and Accounts



 

Standard Chartered PLC - Supplementary information

 

Shareholdings and share interests

The following table summarises the executive directors' shareholdings and share interests1.

 

Shareholdings

 

Share awards

Shares held beneficially2,3

Vested but unexercised
share awards

Unvested share awards not subject to performance measures

Unvested share awards subject
to performance measures

W T Winters

836,388

-

 

629,738

2,127,423

A N Halford

475,610

-

 

1,612

1,295,328

1  All figures are as at 30 June 2018 unless stated otherwise. No director had either (i) an interest in Standard Chartered PLC's preference shares or loan stocks of any subsidiary or associated undertaking of the Group or (ii) any corporate interests in Standard Chartered PLC's ordinary shares

2  The beneficial interests of directors and connected persons in the ordinary shares of the Company are set out above. The executive directors do not have any non-beneficial interests in the Company's shares. None of the executive directors used ordinary shares as collateral for any loans

3  The shares held beneficially include shares awarded to deliver the executive directors' fixed pay allowance

E. Share price information

The middle market price of an ordinary share at the close of business on 30 June 2018 was 692.60 pence. The share price range during the first half of 2018 was 690.90 pence to 849.20 pence (based on the closing middle market prices).

F. Substantial shareholders

The Company and its shareholders have been granted partial exemption from the disclosure requirements under Part XV of the Securities and Futures Ordinance (SFO).

As a result of this exemption, shareholders no longer have an obligation under Part XV of the SFO (other than Divisions 5, 11 and 12 thereof) to notify the Company of substantial shareholding interests, and the Company is no longer required to maintain a register of interests of substantial shareholders under section 336 of the SFO. The Company is, however, required to file with The Stock Exchange of Hong Kong Limited any disclosure of interests made in the UK.

G. Code for Financial Reporting Disclosure

The UK Finance Code for Financial Reporting Disclosure sets out five disclosure principles together with supporting guidance. The principles are that UK banks will: provide high quality, meaningful and decision useful disclosures; review and enhance their financial instrument disclosures for key areas of interest; assess the applicability and relevance of good practice recommendations to their disclosures, acknowledging the importance of such guidance; seek to enhance the comparability of financial statement disclosures across the UK banking sector; and clearly differentiate in their annual reports between information that is audited and information that is unaudited. The Group's interim financial statements for the six months ended 30 June 2018 have been prepared in accordance with the Code's principles.



Standard Chartered PLC - Supplementary information

 

Glossary

AT1 or Additional Tier 1 capital

Additional Tier 1 capital consists of instruments other than Common Equity Tier 1 that meet the Capital Requirements Regulation (CRR) criteria for inclusion in Tier 1 capital.

Additional value adjustment

See Prudent valuation adjustment.

Advanced Internal Rating Based (AIRB) approach

The AIRB approach under the Basel framework is used to calculate credit risk capital based on the Group's own estimates of prudential parameters.

Advances-to-deposits/customer advances-to-deposits (ADR) ratio

The ratio of total loans and advances to customers relative to total customer accounts. A low advances-to-deposits ratio demonstrates that customer accounts exceed customer loans resulting from emphasis placed on generating a high level of stable funding from customers.

Alternative performance measures

A financial measure of historical or future financial performance, financial position, or cash flows, other than a financial measure defined or specified in the applicable financial reporting framework.

ASEAN

Association of South East Asian Nations (ASEAN) which includes the Group's operations in Brunei, Indonesia, Malaysia, Philippines, Singapore, Thailand and Vietnam.

AUM or Assets under management

Total market value of assets such as deposits, securities and funds held by the Group on behalf of the clients.

Basel II

The capital adequacy framework issued by the Basel Committee on Banking Supervision (BCBS) in June 2006 in the form of the International Convergence of Capital Measurement and Capital Standards.

Basel III

The global regulatory standards on bank capital adequacy and liquidity, originally issued in December 2010 and updated in June 2011. In December 2017, the BCBS published a document setting out the finalisation of the Basel III framework. The latest requirements issued in December 2017 will be implemented from 2022.

BCBS or Basel Committee on Banking Supervision

A forum on banking supervisory matters which develops global supervisory standards for the banking industry. Its members are officials from 45 central banks or prudential supervisors from 28 countries and territories.

Basic underling earnings per share (EPS)

Represents the underlying earnings divided by the basic weighted average number of shares.

Basis point (bps)

One hundredth of a per cent (0.01 per cent); 100 basis points is 1 per cent.

CRD IV or Capital Requirements Directive IV

A capital adequacy legislative package adopted by EU member states. CRD IV comprises the recast Capital Requirements Directive and the Capital Requirements Regulation (CRR). The package implements the Basel III framework together with transitional arrangements for some of its requirements. CRD IV came into force on 1 January 2014.

Capital resources

Sum of Tier 1 and Tier 2 capital after regulatory adjustments.



 

Standard Chartered PLC - Supplementary information

 

CGU or Cash-generating unit

The smallest identifiable group of assets that generates cash inflows that are largely independent of the cash inflows from other assets or groups of assets.

Cash shortfall

The difference between the cash flows that are due in accordance with the contractual terms of the instrument and the cash flows that the Group expects to receive over the contractual life of the instrument.

Clawback

An amount an individual is required to pay back to the Group, which has to be returned to the Group under certain circumstances.

CRE or Commercial real estate

Includes office buildings, industrial property, medical centres, hotels, malls, retail stores, shopping centres, farm land, multi-family housing buildings, warehouses, garages and industrial properties. Commercial real estate loans are those backed by a package of commercial real estate assets.

CET1 or Common Equity Tier 1 capital

Common Equity Tier 1 capital consists of the common shares issued by the Group and related share premium, retained earnings, accumulated other comprehensive income and other disclosed reserves, eligible non-controlling interests and regulatory adjustments required in the calculation of Common Equity Tier 1.

CET1 ratio

A measure of the Group's CET1 capital as a percentage of risk-weighted assets.

Constant currency

Constant currency change is derived by applying a simple translation of the previous period functional currency number in each entity using the current average and period end US dollar exchange rates to the income statement and balance sheet respectively.

Contractual maturity

Contractual maturity refers to the final payment date of a loan or other financial instrument, at which point all the remaining outstanding principal and interest is due to be paid.

CIR or Cost to income ratio

Represents the proportion of total operating expenses to total operating income. Underlying CIR represents the proportion of total underlying expenses to total underling operating income.

Countercyclical capital buffer

The countercyclical capital buffer (CCyB) is part of a set of macroprudential instruments, designed to help counter procyclicality in the financial system. CCyB as defined in the Basel III standard provides for an additional capital requirement of up to 2.5 per cent of risk-weighted assets in a given jurisdiction. The Bank of England's Financial Policy Committee has the power to set the CCyB rate for the United Kingdom. Each bank must calculate its 'institution-specific' CCyB rate, defined as the weighted average of the CCyB rates in effect across the jurisdictions in which it has credit exposures. The institution-specific CCyB rate is then applied to a bank's total risk weighted assets.

Counterparty credit risk

The risk that a counterparty defaults before satisfying its obligations under a derivative, a securities financing transaction (SFT) or a similar contract.

Cover ratio

The ratio of impairment provisions for each stage to the gross loan exposure for each stage. For stage 3, the cover ratio is also presented as the ratio of impairment provisions plus the realisable value of collateral to the gross loan exposure.

Cover ratio (after collateral)

Represents the extent to which non-performing loans are covered by both impairment provisions, and collateral held against the exposure.



 

Standard Chartered PLC - Supplementary information

 

CCF or Credit conversion factor

An estimate of the amount the Group expects a customer to have drawn further on a facility limit at the point of default. This is either prescribed by CRR or modelled by the bank.

CDS or Credit default swaps

A credit derivative is an arrangement whereby the credit risk of an asset (the reference asset) is transferred from the buyer to the seller of protection. A credit default swap is a contract where the protection seller receives premium or interest-related payments in return for contracting to make payments to the protection buyer upon a defined credit vent. Credit events normally include bankruptcy, payment default on a reference asset or assets, or downgrades
by a rating agency.

Credit institutions

An institution whose business is to receive deposits or other repayable funds from the public and to grant credits for its own account.

Credit risk mitigation

Credit risk mitigation is a process to mitigate potential credit losses from any given account, customer or portfolio by using a range of tools such as collateral, netting agreements, credit insurance, credit derivatives and guarantees.

CVA or Credit valuation adjustments

An adjustment to the fair value of derivative contracts that reflects the possibility that the counterparty may default such that the Group would not receive the full market value of the contracts.

Customer accounts

Money deposited by all individuals and companies which are not credit institutions including securities sold under repurchase agreement (see repo/reverse repo). Such funds are recorded as liabilities in the Group's balance sheet under customer accounts.

Days past due

One or more days that interest and/or principal payments are overdue based on the contractual terms.

DVA or Debit valuation adjustment

An adjustment to the fair value of derivative contracts that reflect the possibility that the Group may default and not pay the full market value of contracts.

Debt securities

Debt securities are assets on the Group's balance sheet and represent certificates of indebtedness of credit institutions, public bodies or other undertakings excluding those issued by central banks.

Debt securities in issue

Debt securities in issue are transferrable certificates of indebtedness of the Group to the bearer of the certificate. These are liabilities of the Group and include certificates of deposits.

DTA or Deferred tax asset

Income taxes recoverable in future periods in respect of deductible temporary differences between the accounting and tax base of an asset or liability that will result in tax deductible amounts in future periods, the carry-forward of tax losses or the carry-forward of unused tax credits.

DTL or Deferred tax liability

Income taxes payable in future periods in respect of taxable temporary differences between the accounting and tax base of an asset or liability that will result in taxable amounts in future periods.

Default

Financial assets in default represent those that are at least 90 days past due in respect of principal or interest and/or where the assets are otherwise considered to be unlikely to pay, including those that are credit impaired.



 

Standard Chartered PLC - Supplementary information

 

Defined benefit obligation

The present value of expected future payments required to settle the obligations of a defined benefit scheme resulting from employee service.

Defined benefit scheme

Pension or other post-retirement benefit scheme other than a defined contribution scheme.

Defined contribution scheme

A pension or other post-retirement benefit scheme where the employer's obligation is limited to its contributions to the fund.

Delinquency

A debt or other financial obligation is considered to be in a state of delinquency when payments are overdue. Loans and advances are considered to be delinquent when consecutive payments are missed. Also known as arrears.

Deposits by banks

Deposits by banks comprise amounts owed to other domestic or foreign credit institutions by the Group including securities sold under repo.

Diluted underling earnings per share (EPS)

Represents the underlying earnings divided by the diluted weighted average number of shares.

Dividend per share

Represents the entitlement of each shareholder in the share of the profits of the company. Calculated in the lowest unit of currency in which the shares are quoted.

Early alert, purely and non-purely precautionary

A borrower's account which exhibits risks or potential weaknesses of a material nature requiring closer monitoring, supervision, or attention by management. Weaknesses in such a borrower's account, if left uncorrected, could result in deterioration of repayment prospects and the likelihood of being downgraded to credit grade 12 or worse. When an account is on early alert, it is classified as either purely precautionary or non-purely precautionary. A purely precautionary account is one that exhibits early alert characteristics but these do not present any imminent credit concern. If the symptoms present an imminent credit concern, an account will be considered for classification as non-purely precautionary.

Effective tax rate

The tax on profit/(losses) on ordinary activities as a percentage of profit/(loss) on ordinary activities before taxation.

Encumbered assets

On-balance sheet assets pledged or used as collateral in respect of certain of the Group's liabilities.

EU or European Union

The European Union (EU) is a political and economic union of 28 member states that are located primarily in Europe.

Eurozone

Represents the 19 EU countries that have adopted the euro as their common currency.

ECL or Expected credit loss

Represents the present value of expected cash shortfalls over the residual term of a financial asset, undrawn commitment or financial guarantee.

Expected loss

The Group measure of anticipated loss for exposures captured under an internal ratings-based credit risk approach for capital adequacy calculations. It is measured as the Group-modelled view of anticipated loss based on probability of default, loss given default and exposure at default, with a one-year time horizon.

Exposures

Credit exposures represent the amount lent to a customer, together with any undrawn commitments.



 

Standard Chartered PLC - Supplementary information

 

EAD or Exposure at default

The estimation of the extent to which the Group may be exposed to a customer or counterparty in the event of, and at the time of, that counterparty's default. At default, the customer may not have drawn the loan fully or may already have repaid some of the principal, so that exposure is typically less than the approved loan limit.

ECAI or External Credit Assessment Institution

External credit ratings are used to assign risk-weights under the standardised approach for sovereigns, corporates and institutions. The external ratings are from credit rating agencies that are registered or certified in accordance with the credit rating agencies regulation or from a central bank issuing credit ratings which is exempt from the application of this regulation.

FCA or Financial Conduct Authority

The Financial Conduct Authority regulates the conduct of financial firms and, for certain firms, prudential standards in the UK. It has a strategic objective to ensure that the relevant markets function well.

Forbearance

Forbearance takes place when a concession is made to the contractual terms of a loan in response to an obligor's financial difficulties. The Group classifies such modified loans as either 'Forborne - not impaired loans' or 'Loans subject to forbearance - impaired'. Once a loan is categorised as either of these, it will remain in one of these two categories until the loan matures or satisfies the 'curing' conditions described in Note 7 to the financial statements.

Forborne - not impaired loans

Loans where the contractual terms have been modified due to financial difficulties of the borrower, but the loan is not considered to be impaired. See 'Forbearance'.

Free deliveries

A transaction where a bank takes receipt of a debt or equity security, a commodity or foreign exchange without making immediate payment, or where a bank delivers a debt or equity security, a commodity or foreign exchange without receiving immediate payment.

Free funds

Free funds include equity capital, retained reserves, current year unremitted profits and capital injections net of proposed dividends. It does not include debt capital instruments, unrealised profits or losses or any non-cash items.

Funded/unfunded exposures

Exposures where the notional amount of the transaction is funded or unfunded. Represents exposures where a commitment to provide future funding is made but funds have been released/not released.

FVA or Funding valuation adjustments

FVA reflects an adjustment to fair value in respect of derivative contracts that reflect the funding costs that the market participant would incorporate when determining an exit price.

G-SIBs or Global Systemically Important Banks

Global banking financial institutions whose size, complexity and systemic interconnectedness mean that their distress or failure would cause significant disruption to the wider financial system and economic activity. The list of G-SIBs is assessed under a framework established by the FSB and the BCBS. In the EU, the G-SIB framework is implemented via CRD IV and G-SIBs are referred to as Global Systemically Important Institutions (G-SIIs).

G-SIB buffer

A CET1 capital buffer which results from designation as a G-SIB. The G-SIB buffer is between 1% and 3.5%, depending on the allocation to one of five buckets based on the annual scoring. The G-SIB buffer is being phased in by 1 January 2019. In the EU, the G-SIB buffer is implemented via CRD IV as Global Systemically Important Institutions (G-SII) buffer requirement.

Interest rate risk

The risk of an adverse impact on the Group's income statement due to changes in interest rates.

IRB approach or internal ratings-based approach

Risk-weighting methodology in accordance with the Basel Capital Accord where capital requirements are based on a firm's own estimates of prudential parameters.



 

Standard Chartered PLC - Supplementary information

IMA approach or internal model approach

The approach used to calculate market risk capital and RWA with an internal market risk model approved by the PRA under the terms of CRD IV/CRR.

IAS or International Accounting Standard

A standard that forms part of the International Financial Reporting Standards framework.

IASB or International Accounting Standards Board

An independent standard-setting body responsible for the development and publication of IFRS, and approving interpretations of IFRS standards that are recommended by the IFRS Interpretations Committee (IFRIC).

IFRS or International Financial Reporting Standards

A set of international accounting standards developed and issued by the International Accounting Standards Board, consisting of principles-based guidance contained within IFRSs and IASs. All companies that have issued publicly traded securities in the EU are required to prepare annual and interim reports under IFRS and IAS standards that have been endorsed by the EU.

IFRIC

The IFRS Interpretations Committee supports the IASB in providing authoritative guidance on the accounting treatment of issues not specifically dealt with by existing IFRSs and IASs.

Investment grade

A debt security, treasury bill or similar instrument with a credit rating measured by external agencies of AAA to BBB.

Leverage ratio

A ratio introduced under CRD IV that compares Tier 1 capital to total exposures, including certain exposures held off-balance sheet as adjusted by stipulated credit conversion factors. Intended to be a simple, non-risk based backstop measure.

Liquid asset ratio

Ratio of total liquid assets to total assets. Liquid assets comprise cash (less restricted balances), net interbank, treasury bills and debt securities less illiquid securities.

Liquidation portfolio

A portfolio of assets which is beyond our current risk appetite metrics and is held for liquidation.

LCR or Liquidity coverage ratio

The ratio of the stock of high-quality liquid assets to expected net cash outflows over the following 30 days. High-quality liquid assets should be unencumbered, liquid in markets during a time of stress and, ideally, be central bank eligible.

Loan exposure

Loans and advances to customers reported on the balance sheet held at amortised cost or FVOCI, non-cancellable credit commitments and cancellable credit commitments for credit cards and overdraft facilities.

Loans and advances

This represents lending made under bilateral agreements with customers entered into in the normal course of business and is based on the legal form of the instrument.

Loans to banks

Amounts loaned to credit institutions including securities bought under Reverse repo.

LTV or loan-to-value ratio

A calculation which expresses the amount of a first mortgage lien as a percentage of the total appraised value of real property. The loan-to-value ratio is used in determining the appropriate level of risk for the loan and therefore the correct price of the loan to the borrower.

Loans past due

Loans on which payments have been due for up to a maximum of 90 days including those on which partial payments are being made.



 

Standard Chartered PLC - Supplementary information

Loans subject to forbearance - impaired

Loans where the terms have been renegotiated on terms not consistent with current market levels due to financial difficulties of the borrower. Loans in this category are necessarily impaired. See 'Forbearance'.

Loss rate

Uses an adjusted gross charge-off rate, developed using monthly write-off and recoveries over the preceding 12 months and total outstanding balances.

LGD or Loss given default

The percentage of an exposure that a lender expects to lose in the event of obligor default.

Malus

An arrangement that permits the Group to prevent vesting of all or part of the amount of an unvested variable remuneration award, due to a specific crystallised risk, behaviour, conduct or adverse performance outcome.

Master netting agreement

An agreement between two counterparties that have multiple derivative contracts with each other that provides for the net settlement of all contracts through a single payment, in a single currency, in the event of default on, or termination of, any one contract.

Mezzanine capital

Financing that combines debt and equity characteristics. For example, a loan that also confers some profit participation to the lender.

MREL or minimum requirement for own funds and eligible liabilities

A requirement under the Bank Recovery and Resolution Directive for EU resolution authorities to set a minimum requirement for own funds and eligible liabilities for banks, implementing the FSB's Total Loss Absorbing Capacity (TLAC) standard. MREL is intended to ensure that there is sufficient equity and specific types of liabilities to facilitate an orderly resolution that minimises any impact on financial stability and ensures the continuity of critical functions and avoids exposing taxpayers to loss.

Net asset value (NAV) per share

Ratio of net assets (total assets less total liabilities) to the number of ordinary shares outstanding at the end of a reporting period.

Net exposure

The aggregate of loans and advances to customers/loans and advances to banks after impairment provisions, restricted balances with central banks, derivatives (net of master netting agreements), investment debt and equity securities, and letters of credit and guarantees.

NII or Net interest income

The difference between interest received on assets and interest paid on liabilities.

NIM or Net interest margin

Net interest income divided by average interest earning assets.

NSFR or Net stable funding ratio

The ratio of available stable funding to required stable funding over a one-year time horizon, assuming a stressed scenario. It is a longer-term liquidity measure designed to restrain the amount of wholesale borrowing and encourage stable funding over a one-year time horizon.

Net tangible asset value per share

Ratio of net tangible assets (total tangible assets less total liabilities) to the number of ordinary shares outstanding at the end of a reporting period.

NPLs or non-performing loans

An NPL is any loan that is more than 90 days past due or is otherwise individually impaired. This excludes Retail loans renegotiated at or after 90 days past due, but on which there has been no default in interest or principal payments for more than 180 days since renegotiation, and against which no loss of principal is expected.



 

Standard Chartered PLC - Supplementary information

Non-linearity

Non-linearity of expected credit loss occurs when the average of expected credit loss for a portfolio is higher than the base case (median) due to the fact that bad economic environment could have a larger impact on expected credit loss calculation than good economic environment.

Normalised items

See 'Underlying earnings'.

Operating expenses

Staff and premises costs, general and administrative expenses, depreciation and amortisation. Underlying operating expenses exclude expenses as described in 'Underlying earnings'. A reconciliation between underlying and statutory earnings is contained in Note 2 to the financial statements.

Operating income or operating profit

Net interest, net fee and net trading income, as well as other operating income.

Underlying operating income represents the income line items above, on an underlying basis. See 'Underling earnings'.

OTC or Over-the-counter derivatives

A bilateral transaction (e.g. derivatives) that is not exchange traded and that is valued using valuation models.

OCA or Own credit adjustment

An adjustment to the Group's issued debt designated at fair value through profit or loss that reflects the possibility that the Group may default and not pay the full market value of the contracts.

Physical risks

The risk of increased extreme weather events including flood, drought and sea level rise.

Pillar 1

The first pillar of the three pillars of the Basel framework which provides the approach to calculation of the minimum capital requirements for credit, market and operational risk. Minimum capital requirements are 8 per cent of the Group's risk-weighted assets.

Pillar 2

The second pillar of the three pillars of the Basel framework which requires banks to undertake a comprehensive assessment of their risks and to determine the appropriate amounts of capital to be held against these risks where other suitable mitigants are not available.

Pillar 3

The third pillar of the three pillars of the Basel framework which aims to provide a consistent and comprehensive disclosure framework that enhances comparability between banks and further promotes improvements in risk practices.

Private equity investments

Equity securities in operating companies generally not quoted on a public exchange. Investment in private equity often involves the investment of capital in private companies. Capital for private equity investment is raised by retail or institutional investors and used to fund investment strategies such as leveraged buyouts, venture capital, growth capital, distressed investments and mezzanine capital.

PD or Probability of default

PD is an internal estimate for each borrower grade of the likelihood that an obligor will default on an obligation over a given time horizon.

Probability weighted

Obtained by considering the values the metric can assume, weighted by the probability of each value occurring.

Profit (loss) attributable to ordinary shareholders

Profit (loss) for the year after non-controlling interests and dividends declared in respect of preference shares classified as equity.



Standard Chartered PLC - Supplementary information

 

PVA or Prudent valuation adjustment

An adjustment to CET1 capital to reflect the difference between fair value and prudent value positions, where the application of prudence results in a lower absolute carrying value than recognised in the financial statements.

PRA or Prudential Regulation Authority

The Prudential Regulation Authority is the statutory body responsible for the prudential supervision of banks, building societies, credit unions, insurers and a small number of significant investment firms in the UK. The PRA is a part of the Bank of England.

Repo/reverse repo

A repurchase agreement or repo is a short-term funding agreement, which allows a borrower to sell a financial asset, such as asset-backed securities or government bonds as collateral for cash. As part of the agreement the borrower agrees to repurchase the security at some later date, usually less than 30 days, repaying the proceeds of the loan. For the party on the other end of the transaction (buying the security and agreeing to sell in the future) it is a reverse repurchase agreement or reverse repo.

Residential mortgage

A loan to purchase a residential property which is then used as collateral to guarantee repayment of the loan. The borrower gives the lender a lien against the property, and the lender can foreclose on the property if the borrower does not repay the loan per the agreed terms. Also known as a home loan.

RoE or Return on equity

Represents the ratio of the current year's profit available for distribution to ordinary shareholders to the weighted average ordinary shareholders equity for the reporting period. Underlying return on equity represents the ratio above using underlying earnings. See 'Underling earnings'.

RoRWA or Return on risk-weighted assets

Profit before tax for year as a percentage of RWA. Profit may be statutory or underlying and is specified where used. See 'RWA' and 'Underlying earnings'.

RoTE or Return on tangible equity

Represents the ratio of the current period's profit available for distribution to ordinary shareholders, to the weighted average ordinary shareholders equity less the average goodwill and intangibles for the reporting period. Underlying return on tangible equity represents the ratio above using underlying earnings. See 'Underling earnings'.

RWA or Risk-weighted assets

A measure of a bank's assets adjusted for their associated risks, expressed as a percentage of an exposure value in accordance
with the applicable standardised or IRB approach provisions.

Risks-not-in-VaR (RNIV)

A framework for identifying and quantifying marginal types of market risk that are not captured in the Value at Risk (VaR) measure for any reason, such as being a far-tail risk or the necessary historical market data not being available.

Roll rate

Uses a matrix that gives average loan migration rate from delinquency states from period to period. A matrix multiplication is then performed to generate the final PDs by delinquency bucket over different time horizons.

Secured (fully and partially)

A secured loan is a loan in which the borrower pledges an asset as collateral for a loan which, in the event that the borrower defaults, the Group is able to take possession of. All secured loans are considered fully secured if the fair value of the collateral is equal to or greater than the loan at the time of origination. All other secured loans are considered to be partly secured.



Standard Chartered PLC - Supplementary information

 

Securitisation

Securitisation is a process by which credit exposures are aggregated into a pool, which is used to back new securities. Under traditional securitisation transactions, assets are sold to a special purpose entity (SPE) who then issues new securities to investors at different levels of seniority (credit tranching). This allows the credit quality of the assets to be separated from the credit rating of the originating institution and transfers risk to external investors in a way that meets their risk appetite. Under synthetic securitisation transactions, the transfer of risk is achieved by the use of credit derivatives or guarantees, and the exposures being securitised remain exposures of the originating institution.

Senior debt

Debt that takes priority over other unsecured or otherwise more 'junior' debt owed by the issuer. Senior debt has greater seniority in the issuer's capital structure after subordinated debt. In the event the issuer goes bankrupt, senior debt theoretically must be repaid before other creditors receive any payment.

SICR or Significant increase in credit risk

Assessed by comparing the risk of default of an exposure at the reporting date to the risk of default at origination (after considering the passage of time).

Sovereign exposures

Exposures to central governments and central government departments, central banks and entities owned or guaranteed by the aforementioned. Sovereign exposures, as defined by the European Banking Authority, include only exposures to central governments.

Stage 1

Assets have not experienced a significant increase in credit risk since origination and impairment recognised on the basis of 12 months expected credit losses.

Stage 2

Assets have experienced a significant increase in credit risk since origination and impairment is recognised on the basis of lifetime expected credit losses.

Stage 3

Assets that are in default and considered credit-impaired (non-performing loans).

Standardised approach

In relation to credit risk, a method for calculating credit risk capital requirements using External Credit Assessment Institutions (ECAI) ratings and supervisory risk weights. In relation to operational risk, a method of calculating the operational capital requirement by the application of a supervisory defined percentage charge to the gross income of eight specified business lines.

Structured note

An investment tool which pays a return linked to the value or level of a specified asset or index and sometimes offers capital protection if the value declines. Structured notes can be linked to equities, interest rates, funds, commodities and foreign currency.

Subordinated liabilities

Liabilities which, in the event of insolvency or liquidation of the issuer, are subordinated to the claims of depositors and other creditors of the issuer.

Tier 1 capital

The sum of Common Equity Tier 1 capital and Additional Tier 1 capital.

Tier 1 capital ratio

Tier 1 capital as a percentage of risk-weighted assets.

Tier 2 capital

Tier 2 capital comprises qualifying subordinated liabilities and related share premium accounts.



Standard Chartered PLC - Supplementary information

 

TLAC or Total loss absorbing capacity

An international standard for TLAC issued by the FSB, which requires G-SIBs to have sufficient loss-absorbing and recapitalisation capacity available in resolution, to minimise impacts on financial stability, maintain the continuity of critical functions and avoid exposing public funds to loss.

TSR or Total shareholder return

The total return of the Group's equity (share price growth and dividends) to investors.

Transition risks

The risk of changes to market dynamics or sectoral economics due to governments' response to climate change.

UK bank levy

A levy that applies to certain UK banks and the UK operations of foreign banks The levy is payable each year based on a percentage of the chargeable equities and liabilities on the Group's consolidated balance sheet date. Key exclusions from chargeable equities and liabilities include Tier 1 capital, insured or guaranteed retail deposits, repos secured on certain sovereign debt and liabilities subject to netting.

Unbiased

Not overly optimistic or pessimistic, represents information that is not slanted, weighted, emphasised, deemphasised or otherwise manipulated to increase the probability that the financial information will be received favourably or unfavourably by users.

Underlying earnings

The Group's statutory performance adjusted for restructuring and other items representing profits or losses of a capital nature; amounts consequent to investment transactions driven by strategic intent; and other infrequent and/or exceptional transactions that are significant or material in the context of the Group's normal business earnings for the period, and items which management and investors would ordinarily identify separately when assessing performance period-by-period. A reconciliation between underlying and statutory performance is contained in Note 2 to the financial statements.

Unlikely to pay

Indications of unlikeliness to pay shall include placing the credit obligation on non-accrued status; the recognition of a specific credit adjustment resulting from a significant perceived decline in credit quality subsequent to the Group taking on the exposure;; selling the credit obligation at a material credit related economic loss; the Group consenting to a distressed restructuring of the credit obligation where this is likely to result in a diminished financial obligation caused by the material forgiveness, or postponement, of principal, interest or, where relevant fees; filing for the obligor's bankruptcy or a similar order in respect of an obligor's credit obligation to the Group; the obligor has sought or has been placed in bankruptcy or similar protection where this would avoid or delay repayment of a credit obligation to the Group.

VaR or Value at Risk

A quantitative measure of market risk estimating the potential loss that will not be exceeded in a set time period at a set statistical confidence level.

ViU or Value-in-Use

The present value of the future expected cash flows expected to be derived from an asset or CGU.

Write-downs

After an advance has been identified as impaired and is subject to an impairment provision, the stage may be reached whereby it is concluded that there is no realistic prospect of further recovery. Write downs will occur when and to the extent that, the whole or part of a debt is considered irrecoverable.

XVA

The term used to incorporate credit, debit and funding valuation adjustments to the fair value of derivative financial instruments. See 'CVA', 'DVA' and 'FVA'.



Standard Chartered PLC - Shareholder information

 

Shareholder information

Dividend and interest payment dates

2018 interim dividend

 

Ex-dividend date1

9 August 2018

Record date for dividend

10 August 2018

Dividend payment date

22 October 2018

 

 

2018 final dividend

(provisional only)

Results and dividend announcement date

 26 February 2019

 

 

Preference shares

Next half-yearly dividend

7 3/8 per cent Non-cumulative irredeemable preference shares of £1 each

1 October 2018

8 ¼ per cent Non-cumulative irredeemable preference shares of £1 each

1 October 2018

6.409 per cent Non-cumulative preference shares of $5 each

30 July 2018

7.014 per cent Non-cumulative preference shares of $5 each

30 July 2018

1 Ex-dividend date is Wednesday 8 August 2018 for the Hong Kong branch register

Previous dividend payments (unadjusted for the impact of the 2015/2010/2008 Rights Issues)

Dividend and financial year

Payment date

Dividend per ordinary share1

Cost of one new ordinary share under share dividend scheme

Interim 2006

11 October 2006

20.83c/11.14409p/HK$1.622699

£13.2360/$25.03589

Final 2006

11 May 2007

50.21c/25.17397p/HK$3.926106

£14.2140/$27.42591

Interim 2007

10 October 2007

23.12c/11.39043p/HK$1.794713

£15.2560/$30.17637

Final 2007

16 May 2008

56.23c/28.33485p/HK$4.380092

£16.2420/$32.78447

Interim 2008

9 October 2008

25.67c/13.96133p/HK$1.995046

£14.00/$26.0148

Final 2008

15 May 2009

42.32c/28.4693p/HK$3.279597

£8.342/$11.7405

Interim 2009

8 October 2009

21.23c/13.25177p/HK$1.645304

£13.876/$22.799

Final 2009

13 May 2010

44.80c/29.54233p/HK$3.478306

£17.351/$26.252

Interim 2010

5 October 2010

23.35c/14.71618p/HK$1.811274/INR0.9841241

£17.394/$27.190

Final 2010

11 May 2011

46.65c/28.272513p/HK$3.623404/INR1.99751701

£15.994/$25.649

Interim 2011

7 October 2011

24.75c/15.81958125p/HK$1.928909813/INR1.137971251

£14.127/$23.140

Final 2011

15 May 2012

51.25c/31.63032125p/HK$3.9776083375/INR2.66670151

£15.723/$24.634

Interim 2012

11 October 2012

27.23c/16.799630190p/HK$2.111362463/INR1.3498039501

£13.417/$21.041

Final 2012

14 May 2013

56.77c/36.5649893p/HK$4.4048756997/INR2.9762835751

£17.40/$26.28792

Interim 2013

17 October 2013

28.80c/17.8880256p/HK$2.233204992/INR1.68131

£15.362/$24.07379

Final 2013

14 May 2014

57.20c/33.9211444p/HK$4.43464736/INR3.3546261

£11.949$19.815

Interim 2014

20 October 2014

28.80c/17.891107200p/HK$2.2340016000/INR1.6718425601

£12.151/$20.207

Final 2014

14 May 2015

57.20c/37.16485p/HK$4.43329/INR3.5140591

£9.797/$14.374

Interim 2015

19 October 2015

14.40c/9.3979152p/HK$1.115985456/INR0.861393721

£8.5226/$13.34383

Final 2015

No dividend declared

N/A

N/A

Interim 2016

No dividend declared

N/A

N/A

Final 2016

No dividend declared

N/A

N/A

Interim 2017

No dividend declared

N/A

N/A

Final 2017

17 May 2018

11.00c/7.88046p/HK$0.86293/INR0.653643340

£7.7600/$10.83451

1  The INR dividend is per Indian Depository Receipt

ShareCare

ShareCare is available to shareholders on the Company's UK register who have a UK address and bank account, and allows you to hold your Standard Chartered shares in a nominee account. Your shares will be held in electronic form so you will no longer have to worry about keeping your share certificates safe. If you join ShareCare you will still be invited to attend the Company's AGM and you will still receive your dividend at the same time as everyone else. ShareCare is free to join and there are no annual fees to pay. If you would like to receive more information please contact the shareholder helpline on 0370 702 0138.



Standard Chartered PLC - Shareholder information

 

Donating shares to ShareGift

Shareholders who have a small number of shares often find it uneconomical to sell them. An alternative is to consider donating them to the charity ShareGift (registered charity 1052686), which collects donations of unwanted shares until there are enough to sell and uses the proceeds to support UK charities. Further information can be obtained from the Company's Registrars or from ShareGift on 020 7930 3737 or from sharegift.org. There is no implication for capital gains Tax (no gain no loss) when you donate shares to charity and UK tax-payers may be able to claim income tax relief on the value of their donation.

Bankers' Automated Clearing System (BACS)

Dividends can be paid straight into your bank or building society account. Please register online at investorcentre.co.uk or contact our registrar for a mandate form.

Registrars and shareholder enquiries

The Company's ordinary shares are listed on the Official List and traded on the London Stock Exchange. The Company's ordinary shares are also listed on The Stock Exchange of Hong Kong Limited, and through Indian Depository Receipts on the BSE Limited (Bombay Stock Exchange) and National Stock Exchange of India Limited.

If you have any enquiries relating to your shareholding and you hold your shares on the United Kingdom register, please contact our registrar Computershare Investor Services PLC at The Pavilions, Bridgwater Road, Bristol, BS99 6ZZ, or contact the shareholder helpline on 0370 702 0138.

If you hold your shares on the Hong Kong branch register and you have enquiries, please contact Computershare Hong Kong Investor Services Limited, 17M Floor, Hopewell Centre, 183 Queen's Road East, Wan Chai, Hong Kong. You can check your shareholding at: computershare.com/hk/investors.

If you hold Indian Depository Receipts and you have enquiries, please contact Karvy Selenium, Tower- B, Plot No. 31 & 32., Financial District, Nanakramguda, Serilingampally Mandal, Hyderabad, 500032, India.

Chinese translation

If you would like a Chinese version of this Half Year Report, please contact: Computershare Hong Kong Investor Services Limited at 17M.Floor, Hopewell Centre, 183 Queen's Road East, Wan Chai, Hong.Kong. 本半年報告之中文譯本可向香港中央證券登記有限公司索取,地址:香港灣仔皇后 大道東183號合和中心17M樓。Shareholders on the Hong Kong branch register who have asked to receive corporate communications in either Chinese or English can change this election by contacting Computershare. If there is a dispute between any translation and the English version of this Half Year Report, the English text shall prevail.

Taxation

Information on taxation applying to dividends paid to you if you are a shareholder in the United Kingdom, Hong Kong and the United States will be sent to you with your dividend documents.



 

Standard Chartered PLC - Shareholder information

 

Forward-looking statements

This document may contain 'forward-looking statements' that are based on current expectations or beliefs, as well as assumptions about future events. These forward-looking statements can be identified by the fact that they do not relate only to historical or current facts. Forward-looking statements often use words such as 'may', 'could', 'will', expect', 'intend', 'estimate', 'anticipate', 'believe', 'plan', 'seek', 'continue' or other words of similar meaning. By their very nature, such statements are subject to known and unknown risks and uncertainties and can be affected by other factors that could cause actual results, and the Group's plans and objectives, to differ materially from those expressed or implied in the forward-looking statements. Recipients should not place reliance on, and are cautioned about relying on, any forward-looking statements. There are several factors which could cause actual results to differ materially from those expressed or implied in forward-looking statements. The factors that could cause actual results to differ materially from those described in the forward-looking statements include (but are not limited to) changes in global, political, economic, business, competitive, market and regulatory forces or conditions, future exchange and interest rates, changes in tax rates, future business combinations or dispositions and other factors specific to the Group. Any forward-looking statement contained in this document is based on past or current trends and/or activities of the Group and should not be taken as a representation that such trends or activities will continue in the future.

No statement in this document is intended to be a profit forecast or to imply that the earnings of the Group for the current year or future years will necessarily match or exceed the historical or published earnings of the Group. Each forward-looking statement speaks only as of the date of the particular statement. Except as required by any applicable laws or regulations, the Group expressly disclaims any obligation to revise or update any forward looking statement contained within this document, regardless of whether those statements are affected as a result of new information, future events or otherwise. Nothing in this document shall constitute, in any jurisdiction, an offer or solicitation to sell or purchase any securities or other financial instruments, nor shall it constitute a recommendation or advice in respect of any securities or other financial instruments or any other matter.

 


This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact rns@lseg.com or visit www.rns.com.
 
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